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October 24, 1988
Mr. Glen Iiartman Opinion NO. JM-969
Executive Director
Texas Public Finance Re: Whether all bonds to be
Authority used to fund a project must
P. 0. Box 12906 be issued before formaliza-
Austin, Texas 70711 tion of construction con-
tracts (RQ-1454)
Dear Mr. Hartman:
The Texas Public Finance Authority is empowered to
issue and sell bonds in its name to finance the acquisition,
construction, repair, renovation, or other improvement of
buildings and other facilities for the use of state agencies
in Travis County. V.T.C.S. art. 601d, g 9. Before the
board may issue and sell bonds, the legislature must have
authorized the specific project which the bonds are to
finance. a S 10; See also V.T.C.S. art. 717k-7 (approval
of issuance by bond review board). The authority's power to
finance a project does not affect the statutory authority of
the State Purchasing and General Services Commission, or any
other state agency or institution, to build the buildings.
V.T.C.S. art. 601d, 5 l&(a).
Under the authority of article 601d-1, V.T.C.S., the
Public Finance Authority may issue general obligation bonds
and revenue bonds and distribute bond proceeds to certain
agencies for corrections institutions and mental health and
mental retardation institutions. V.T.C.S. art. 60ld-1, 55 4,
5: w Tex. Con&. art. III, S 49-h (authorizing general
obligation bonds). Specific projects must have been
authorized by the legislature, and the bonds may not be
issued or the bond proceeds used to finance a project unless
the issuance or project has been approved by the bond review
board. V.T.C.S. art. 6016-1, 5.6 2(d), 10.
You inform us that agencies undertaking a construction
project have on occasion asked the board of directors of the
authority to have all proceeds from the bond issue necessary
to fund a given project in the treasury and available for
p. a929
Mr. Glen Hartman - Page 2 (JM-969)
expenditure before they enter into any contract related to
the construction. Recently, representatives from the Texas
Department of Corrections stated that all the funds re-
guested for prison construction had to be available for
disbursement prior to their entering into any contracts for
projects to be built with bond proceeds. On the basis of
this information, you ask the following question:
[W]hat constitutional or legislative autho-
rity, if any, requires that all bonds to be
used to fund a given project to completion
must be issued before construction-related
contracts may be formalized.
On examination of the relevant statutes and constitu-
tional provisions, we find no definitive answer to your
question. However, we can point out certain provisions of
law, the effect of which must be considered by the board in
determining the timing of bond approvals.
The legislation governing the Public Finance Authority
is inconclusive as to such a requirement. On the issuance
of revenue bonds, the board is required to notify the appro-
priate agency that the funds are available and to deposit _-
the bond proceeds in the state treasury. V.T.C.S. art.
601d, 5 23; V.T.C.S. art. 601d-1, f 5. "Once the funds are
deposited and the comptroller of public accounts has certi-
fied that the funds are available . . . the aDDroDriatg
.II V.T.C.S. art. 601d-1,
5 5 (emphasis added): see also V.T.C.S. art. 601d, 5 23.
The underlined language indicates the intent of the legis-
lature that construction not begin until the funds are
available. There is not, however, a similar provision
pertaining to the issuance of general obligation bonds.
Also relevant to your question are some of the general
rules of contract law which apply to the state and private
parties alike and constitutional provisions applicable to
the state of Texas. A contract is not binding unless it is
supported by consideration. Stone v. Morrison 6 Powers 290
S.W. 538 (Tex. Comm'n App. 1927, holding approved). A State
agency moreover cannot make a binding contract for construc-
tion of facilities unless the contract provides for payment;
otherwise, it would be invalid for attempting to create a
debt in violation of article III, section 44, of the Texas
Constitution. Port Worth Cavalrv Club v. SheDDard, 83 S.W.2d
660 (Tex. 1935). The legislature may not appropriate funds
from the treasury in payment of a claim under an invalid
p. 4930
Mr. Glen Hartman - Page 3 (JM-969)
contract. &S &2&,@ v. Fw 44 S.W. 480 (Tex. 1898);
State- I 236 S.W.2d 8;6 (Tex. Civ. App. - Austin
1951, writ ref'd); Tex. Const. art. III, g 44; art. VIII,
8 6.
Parties may enter into a valid and binding contract by
exchanging promises. Teaoue v. Edwar-: 315 S.W.Zd ;;;
(Tex. 1958); Texas-
S.W. 1101 (Tex. 1923). A conditional promise can pr&ide
valid consideration for a contract. Beaumont Traction Co v.
& Ft. S. Railwav Co., 123 S.W. 124 (Tex. 19;)9);
Rose v. San Antonio & M. G. R. Co. 31 Tex. 49 (1868). For
example, a state agency may enter' into a binding contract
for a longer time than the two-year term for which appro-
priations are valid under article VIII, section 6, of the
constitution if the contract states that payment there-
under is subject to the availability of appropriated funds.
Attorney General Opinions M-656 (1970); M-253 (1968); C-206
(1964). If, however, the legislature decides not to appro-
priate funds in payment of the contract, the comptroller may
not issue a warrant in payment to the party contracting with
the state. Attorney General Opinion C-206 (1964).
Thus, although a state agency might be able to enter
into a legally binding construction contract which makes
payment contingent on the Public Finance Authority taking
actions in the future to provide funding for the contract,
this contract term would raise significant practical
problems for the agency which needs a new facility and the
construction companies interested in building it. Moreover,
if under a particular contract, performance of the npromise'*
is entirely optional with the person who made the promise,
it is not consideration for the contract. Restatement
(Second) of Contracts 5 77 (1981). How these legal consi-
derations would apply to particular contract situations
cannot be determined in the opinion process.
SUMMARY
Construction financed by revenue bonds
issued by the Texas Public Finance Authority
may not begin until the bond proceeds are
deposited in the state treasury and the
comptroller has certified that the funds are
available. No statute or constitutional
provision requires the Texas Public Finance
Authority to issue all general obligation
bonds needed to fund a given project to
p. 4931
.
Mr. Glen Hartman - Page 4 (JM-969)
completion before construction-related con-
racts may be formalized. The state may not
make a binding contract without provision for
payment, although payment provisions may be
contingent on the availability of funds.
JIM MATTOX
Attorney General of Texas
MARYKELLER
First Assistant Attorney General
Lou MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STRARLRY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 4932
Untitled Texas Attorney General Opinion
Combined Opinion