Untitled Texas Attorney General Opinion

QBfficeof toe !ZMornep Qkneral &ate of Eexae DAN MORALES July 8.1992 ATTORNEY GENERAL Ms. Cathy Bormer Opinion No. DM-137 Executive Director Texas Department of Commerce Fe: Whether a municipality which has P. 0. Box 12728 levied a sales tax under subsection 4A(d), Austin Texas 7871l-2728 article 5190.6, V.T.C.S., may reduce or eliminate the tax after issuance of the bonds for which the tax was levied (RQ-383) Dear Ms. Banner: You have requested our opinion regarding the constitutionality of two recent amendments to section 4A of article 5190.6, V.T.C.S., the Development Corporation Act of 1979.’ Section 4A authorizes a city covered by its provisions to call an election to levy a sales and use tax, at a rate of one-eighth, one-fourth, three-eighths, or one-half percent, for the benefit of an industrial development corporation created by the city. Proceeds from such tax “may be used to pay the principal oc interest on, and other costs relating to the corporation’s bonds.” V.T.C.S. art. 5190.6, 3 4A(f). Pursuant to the recent amendments, a city may call a subsequent election to reduce or increase the rate of the sales and use tax “in one or more increments” up to a maximum of one-half percent and down to a minimum of one-eighth percent*; or to “limit the length of time that a sales and use tax may be ‘The amendments in question, denominated as subsections (a) and (0) of se&on 4A, were enacted as part of House Bii 916, Acts 1991,72d Leg., ch. 184, at 802-8, effective May 24,199l. *Subsection (0) provides: Inadtyinwhichasalwandusetaxfortht~fitofaeorporati~haJ been imposed under this section, in the same manner and by the same procedure the city by majority vote of the qualified voters of the city voting at an ektion edlad and held for the purpose may reduce or increase the tax. The rate may be reduced in one or more iaaements of one-eighth of one percent to a mtium of one-eighth of one percent or haeased in one or more increments of one-eighth of one percent to a maximum of one-half of one percent. On petition of 10 percent or more of the registered voters of the city requesting an elwtion on the increase or decrease of the tax under this section, the governing body of the city shall order aa election on the issue. The. ballot sMI be printed in the same manner 85 the ballot under Subsection (m) of this SCCtiOO. p. 709 his. Cathy Bomrer - Page 2 (DM-137) imposed.Q You ask whether the reduction provisions of subsections (n) and (0) may be applied to bonds which were previously issued by the corporation. ‘. We will 6rst address this question wrth respect to bonds issued prior to the effective date of the statute, May 24.1991. As to such bonds, it is clear that article & section 10 of the United States Constitution, and article I, section 16 of the Texas Constitt~tio~~ which prohibit the enactment of any law @airing the obligation of contracts, act to preclude any reduction in the tax rate or any limitation of the time duringwhichthetaxmaybeimposed. InCityofAmnrarPauv.Kee&ifg,247S.W. 818 (Tea. 1923), the Texas Supreme Court said that, where a legislative act authoriz- ing a bond issue creates, or authorizes the creation of, a particular fund for payment of bonds, those statutory provisions become a part of the contract between the debtor and the bondholders, so that they cannot be repealed or limited by subse- quent legislation without the substitution of a funding mechanism of equal efficacy. Any subsequent limiting legislation “would impair the obligation of the contract, and therefore, come under constitutional condemnation.” Ciry of- Pusr, 247 S.W. at 821. In the situation you presenf purchasers of bonds prior to May 24.1991, acted in good faith reliance on the statutory representations that their bonds were secured by a particular sales tax rate. The statute made no provision for reducing or other- wise limiting that tax. As a result, subsequent legislation which purports to permit the reduction or other limitation of that tax is ineffective to do so, because such alteration would impair the obligation of the contract between the city and such bondholders. Your question must also be addressed with regard to those bonds issued subsequent to the effective date of the statute. It is well established that the laws in p. 710 Ms. Cathy Bomrer - Page 3 (DM-137) effect at the time of a bond issue become a part of the eontraet between the bondholders and the issuing authority. e Lijh Cc v. &ackmridg Indep. school Lat., 97 s.wJd 933, 937 (Tex. 1936); set? air0 Dallas cawlfy L.tvee Impnwement Dirt. No. 6 v. Rugel, 36 S.WJd 188, 189-90 (Tea. Comm’n App. 1931, holding approved). Thus, as to any bonds issued after May 24,1991, potential ptmhasers must be deemed to have been aware of the provisions of subsections (n) and (0). ic, that the tax rate then in effect was subject to reduction or other restrictions by a subsequent election. This does not end our inquiry, however. In Attorney General opinion DIN-31 (1991). we reu@aed that, despite the general principle that the law existing when a eontraet is made becomes a part of the eontraet, ~squenf lpcrion might constitute an impairment. In that opinion, we amsidered a situation in which a municipality, after a referendum vote, granted a $50,ooOhomestead exemption to resident taxpayers who were either disabled or at least 65 years of age. Prior to the referendum, the city had pledged its ad valorem tax revenues for the repayment of bonds. A statute required the assessor-eolleetor to disregard the increased uremp- tion if (1) prior to the granting of exemption, the city had pledged its taxes in support of bonds, and (2) granting the exemption would impair those bonds. The opinion ameluded that the homestead exemption could not “validly be granted if doing so would impair the city’s ability to fulfill its pre-eaisting eontraetual obligations to bondholders-” Although the actual exemption had not been granted at the time the bonds were issued, legislation existed which authorized the city to confer the exemption. llnts, the en&al date in Attorney General Gpinion DM-31 was not the statute a&otiz& the ordinance granting the exemption, but the adoption of the ordinance gnmfing the increased exemption, and any bonds issued prior to that date had the protection of the amtraet &use. Analogously, the crucial date in the situation you pose is the date of the rollbaelt election. Prior to that time, only the pok?&uI for a tax reduction or limitation existed. Purchasers of the bonds of a politiatl subdivision should not be required to speculate as to future tax rates. In the event that subsections (n) and (0) were made applicable to all bonds issued after May 2rl, 1991, bond purchasers would necessarily be obliged to engage in such speculations As a eonsequenee, the bonds could not in all likelihood be sold. To read subsections (n) and (0) as applicable to all bonds issued after the effective date of the statute would render ineffectual the entire scheme of section 4k Since the legislature, had it wished to abrogate the statutory mechanism of section 44 could have done so directly by repealing it, we are not willing to attribute to the p. 713 Ms. Cathy Banner - Page 4 (DM-137) legislature an intent to scuttle that me&a&m by circuitous means. We hold, therefore, that a reduction in the sales tax rate, or a limitation on the amount of time the tax may be collected, may not be applied to any bonds issued prior to the date of a rollback election. SUMMARY Where, pursuant to subsections (n) and (0) of section 44 article 5190.6, V.T.C.S., an election is held to reduce the sales andusetaxratecollectedbyamunicipalityonbehalfofaa industrial development corporation, or to limit the length of time during which the tax may be collected, such reduction or limitation may not be applied to any bonds issued prior to the date of the election. DAN MORALES Attorney General of Texas WILL PRYOR First Assistant Attorney General MARYKELLER Deputy Assistant Attorney General IzmJEAHIcKs Special Assistant Attorney General MADELEINE B. JOHNSON Chair, Opinion Committee Prepared by Rick Gilpin Assistant Attorney General p. 712