Untitled Texas Attorney General Opinion

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 13, 2018

The Honorable Doyle "Dee" Hobbs Opinion No. KP-0210
Williamson County Attorney
405 M.L.K. Street #7 Re: Whether the contractual assessments
Georgetown, Texas 78626 imposed by local governments under the
Property Assessed Clean Energy Act in chapter
399 of the Local Government Code are "special
assessments by the local government and
treated in a similar manner as the real estate
taxes on the property" (RQ-0211-KP)

Dear Mr. Hobbs:

You ask whether the contractual assessments imposed by local governments under the
Property Assessed Clean Energy Act ("Act") in chapter 399 of the Local Government Code are
"special assessments by the local government and treated in a similar manner as the real estate
taxes on the property." 1

The Act governs the creation of local water and energy improvement programs in
designated regions. See generally TEX. Loe. Gov'T CODE §§ 399.001-.019. It authorizes cities
and counties to establish a program to finance permanent improvements on privately owned
commercial or industrial real property with five or more dwelling units to decrease water or energy
consumption or demand. 2 See id §§ 399.002(3) (defining "qualified improvement"), 399.002(5)
(defining "real property"), 399 .006 (providing for the establishment of a program). Financing for
a qualified project can be provided by a third party or the local government and is repaid through
an assessment the local government imposes through a written contract with the owner of the
property. See id. §§ 399.004(a), .005, .006(b); see also id. § 399:010(2) (requiring the written
consent of the mortgage lien holder). You tell us that a Texas nonprofit organization-Keeping
PACE in Texas-provides "a model toolkit ... to facilitate an orderly, consistent, state-wide
approach" to a program's design and implementation. See Request Letter at 2. You also tell us
Williamson County has established a program based on this model. See id. at 3.

1
Letter from Honorable Doyle "Dee" Hobbs, Williamson Cty. Att'y, to Honorable Ken Paxton, Tex. Att'y
Gen. at 1 (Feb. 12, 2018), https://texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter"); see
also U.S. Dep't ofHous. & Urban Dev. Notice H 2017-01 (Jan. 11, 2017) (attached to request letter and on file with
the Op. Comm.) ("Exhibit A").
2
Examples of clean energy improvements are energy efficient boilers, upgraded insulation, new windows,
and solar installations. Exhibit A at 2.
The Honorable Doyle "Dee" Hobbs - Page 2 (KP-0210)

You include with your letter a 2017 Notice issued by the United States Department of
Housing and Urban Development ("Department"). See id. at 1; see also Exhibit A. You tell us the
Department consents to the participation in a project by the multifamily residential properties it
assists and "on which it holds or guaranteed the mortgage." See Request Letter at 1. You explain
that one of the requirements for the Department's consent, as set out in the Notice, is an opinion
of the State's attorney general determining that the assessment is a special assessment and is treated
in a similar manner as real estate taxes. See id. at 3; see also Exhibit A at 3. In connection with
Williamson County's program, you seek that opinion. 3

We first consider whether the assessment imposed by the local government is a special
assessment. The Texas Supreme Court tells us what constitutes a special assessment in Texas. See
City of Wichita Falls v. Williams, 26 S.W.2d 910, 912 (Tex. 1930). In distinguishing a special
assessment from general taxes, which are imposed on all taxable property of a taxing unit for the
general support of the taxing unit, the court said special assessments

are charges imposed for purposes which do not necessarily require
that they be imposed annually, or with reference to the time; nor are
they usually based upon a percentage of the value of the taxable
property of a [taxing unit], but upon the real or supposed benefit
resulting from the improvement of the property on which the
specific charge is laid.

Id.; see also Tex. Att'y Gen. Op. No. DM-~74 (1996) at 4 (recognizing that "[a] special assessment
. . . is imposed [on] property that will benefit from a proposed improvement, levied [on] an
individual property owner in proportion to the benefit . . . expected to derive from the
improvement, and designed to cover the costs of the improvement"). Under the Act, the city or ·
county imposes the assessment on a particular property through a contract with the property owner.
See TEX. Loe. Gov'T CODE§ 399.005. It does not impose the assessment on all property within
the designated region as a general revenue source. See generally id. § 399.006(b) (authorizing
assessment contract with owner ofreal property). Rather, the assessment is intended to cover the
cost of the improvement and is tied to the useful life of the improvement. See generally id.
§§ 399.004(a), .009(a)(8). Moreover, the benefit accrues to only the property subject to the
assessment and not to the general public of the municipality or county offering the funding
mechanism under the Act. With these characteristics, the assessment imposed by a local
government as authorized by the Act falls squarely within the description of a special assessment.

Though a special assessment· is not an ad valorem tax, we next consider whether the
assessment is nonetheless treated in a similar manner as the real property taxes. See Request Letter
at 1. The Department's Notice states that "[b]ecause the payment is tied to the property tax bill, a
secure payment stream, [program] financing is seen as less risky ... than typical loans for energy
efficient upgrades." Exhibit A at 2. This concern is addressed in Local Government Code section
399.014. See TEX. Loe. Gov'T CODE§ 399.014. Subsection 399.014(a) states that an assessment
imposed under the authority of chapter 399 "has the same priority status as a lien for any other

3
We address your specific question and do not opine on whether the Williamson County program, the model
toolkit, or the Act satisfies all of the Department's requirements.
The Honorable Doyle "Dee" Hobbs - Page 3 (KP-0210)

ad valorem tax." Id § 399.014(a); see State v. Wynne, 133 S.W.2d 951,957 (Tex. 1939) ("An
ad valorem tax is levied against property on its value."); see generally TEX. TAX CODE§§ 32.0l(a)
(providing for attachment of tax lien to property), 32.05 (providing for priority of tax liens).
Similarly, subsection 399.014(c) expressly provides that "[t]he assessment lien . . . may be
enforced ... in the same manner that a property tax lien ... may be enforced ... to the extent the
enforcement is consistent with Section 50, Article XVI, Texas Constitution."4 TEX. Loe. Gov'T
CODE § 399.014(c). Subsection 399.014(d) states that "[d]elinquent installments of the
assessments incur interest and penalties in the same manner as delinquent property taxes." Id.
§ 399.014(d); see generally TEX. TAX CODE§§ 33.01-.11 (governing delinquent taxes). Lastly,
subsection 399.014(e) provides that "[a] local government may recover costs and expenses ... in
a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect
a delinquent property tax." TEX. Loe. Gov'T CODE§ 399.014(e); see generally TEX. TAX CODE
§§ 33.41-.58 (governing a taxing unit's suit for recovery of delinquent taxes, including costs and
expenses). The plain language of these provisions shows the Legislature intended to treat the
assessment, at least with respect to lien priority status, enforcement, and delinquencies including
the recovery of costs and expenses, in a manner similar to real property taxes. See Combs v. Roark
Amusement & Vending, L.P, 422 S.W.3d 632,635 (Tex. 2013) (recognizing that the text is the best
indication of the Legislature's intent).

Accordingly, a court would likely find that a contractual assessment imposed under a
program authorized by chapter 399 of the Local Government Code is a special assessment by the
local government and, with respect to lien priority status, enforcement, and delinquencies
including the recovery of costs and expenses, is treated in a manner similar to real property taxes
on the property.

4Section 50, article XVI, of the Texas Constitution protects a homestead from forced sale for purposes of

paying debts or judgments, except for certain enumerated debts. See TEX. CONST. art. XVI, § 50. As a special
assessment is not a tax, it would not be excepted from homestead protection as an ad valorem tax under article XVI,
subsection 50(a)(2). See City of Wichita Falls, 26 S.W.2d at 915.
The Honorable Doyle "Dee" Hobbs - Page 4 (KP-0210)

SUMMARY

A court would likely find that a contractual assessment
imposed under a program authorized by chapter 399 of the Local
Government Code is a special assessment by the local government
and, with respect to lien priority status, enforcement, and
delinquencies including the recovery of costs and expenses, is
treated in a manner similar to the real property taxes on the property.

Very truly yours,

KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee