Dr. George W, Cox Opinions No. O-6943
State Health Officer
Texas State Board of Health Rer Revenue Bonds,
Austin, Texas issuance of
Dear Sir:
We are in, receipt of ,your opinionrequest. of November
16, 1945, and quote from your ‘letter as follows:
“The Community of Portland is very anxious
to place into operation a sewer system and in this
connection a discussion of amendments Jly the Forty-
Ninth Legislature to. Articles 1086 and 1087 brought
up the following questi.ons:
1. Portland wants to incorporate about the
middle of January; suppose they do”incorporate, but
do not desire to levy tax in the new city; can they,
under the statute mentioned~ above, proceed to issue t
revenue bonds for ~a complete new sewer system? If
can they Include ~purchase ,of the water system in
g%se revenue bonds?
2. Will a revenue’bond issue have to be voted
on by the ,citizens? :
30 If the new city has to levy the maximum
tax rate, isnot this rate independent of the valua-
tion placed on the property? In otherwords, could
the valuation be held very low, and the tax rate at
the maximumfigure and. in this. way comply with the
statute?
4. Does, the statute mentioned above ,cover sewer
extensions only, or will it oover an entirely new
sewer system?
Your opinion on ‘the. ,above questions will be
greatly appreciatedin ,,
We understand from the four questions asked by you
that you are primarily interested in whether or not a city or
Dr. George W. Cox, page 2
town can issue water works and sewer system revenue bonds. We
will attempt to answer your questions in a general discussion
of the authority of towns or cities to issue such bonds.
The power to issue bonds for public improvements, or
for money borrowed for the purpose of acquiring such improve-
ments, is a power which is regarded as being beyond the scope
of power of the governing body of a city or county, unless it
shall be soeciallv granted. This extraordinary power, when
granted, can be exercised only in the mode and for the purposes
specified in the grant,. Foster v. City of Waco, 225 S.W. 1104;
Keel v. Pulte, 10 S.W. 692.
After a careful reading of Articles 1086 and 1087
Revised Civil Statutes of Texas, we find no grant of author 1ty
in these statutes to issue revenue bonds for the purpose of
constructing a sewer system or waterworks system. Therefore,
a city or town has no authority to issue revenue bonds under
these particular statutes.
Before any oity or town may issue revenue bonds
said municipality must be legally inoorporated under the i aws
of Texas and adopt Title 28 of the Revised Civil Statutes of
Texas. When this procedure has been properly adopted, then the
city or town has authority to issue revenue bonds, as provided
in Articles 1111-1118, Revised Civil Statutes of Texas.
Under the provisions of said Articles all cities or
towns have the power to build and purchase, to mortgage and
encumber their light systems, water systems, sewer systems, or
sanitary disposal equipment and appliances or gas systems,
parks and swimmlng pools, either or all, the the franchise and
income thereof, and everything pertaining thereto acquired or
to be acquired, and to evidence the obligation by the issuance
of bonds, notes or warrants.
We call your attention to the fact that the law pro-
vides, and the courts have so held, that no revenue bonds,
notes or warrants shall be issued against any system which al-
ready has any such indebtedness outstanding until such outstand-
ing indebtedness is fully paid off.
These systems cannot be encumbered for more than
$5,000.00, except for purchase money or to refund any outstand-
ing indebtedness, unless the governing body is authorized to
do so by majority vote of the qualified property taxpaying VO'G-
ers, voting at an election’ordered and held as in the case of
the issuance of other municipal bonds.
Dr. George W. Cox, page 3
Although no election is required to issue revenue
bonds to purchase an existing,utility system, or to construct
a new one, it is necessary to publish notice of intention to
i--s;; such bonds before the governing body has authority to
Article 2368a Revised Civil Statutes of Texas. This
notic; must be published once each week for two consecutive
weeks, the first publication to be not less than fourteen days
prior to the date on which suoh bonds are to be authorized.
If by the timefixed for authorizing such bonds, ten
per cent of the qualified property taxpaying voters who own
taxable property in such city, and who have duly rendered same
for taxation, present a petition to the governing body asking
that an election be held on the question it is mandatory on
the governing body to order such an eleo c ion.
While the law does not require :anelechion to be held
on the question of issuing revenue bonds to purchase and con-
struct a utility system, the governing,body may orders such an
election if it so desires. It has become a :rather common prac-
tice for most municipalities to submit the question to a vote
in order to ascertain the will of the people. Under this plan
of financing, the net revenues of such systems are pledged
solely to the payment of the principal and interest of the
bonds, notes or warrants, and the holders of such securities do
not have the right to demand payment of principal or interest
out of funds raised by taxation. The physical properties of
such system may also be mortgaged to secure such indebtedness
and the holders of the indebtedness under such mortgage may be
granted a franchise to operate the system for a period of not
more than twenty years in the event of foreclosure, Revenue
bonds and notes are not considered a debt of the city or town
and do not operate against its power to issue bonds for other
purposes.
Revenue bonds may or may not be submitted to the Attor-
ney General for his approval and to the State Comptroller for
registration.
The sewer system and the waterworks bonds may be voted
at the same eleotion provided the propositions are separately
and distinctly submitted to the qualified voters. If both pro-
positions carry then the bonds may be combined in the bond ordi-
nance and issue B for the purpose of oonstructing a sewer system
and purchasing a water system.
As we see it, your question No. 3 has no relation to
the issuance of revenue bonds. However, we call your attention
Dr. George W. Cox, page 4
to the fact that cities and towns have their own tax assessor
and collector and board of equalization and therefore may
fix the valuations of the property for c he purpose of taxation
at any figure not in excess of its true worth.
Trusting that this answers your questions, we are
Yours very truly
,ATTORNEY
GENERAL
OF TEXAS
By /s/ Claud 0. Boothman
Claud 0. Boothtnan, Assistant
APPROVED NOV 27, 1945
/s/ Carlos C. Ashley
FIRST ASSISTANTATTORNEYGENERAL
APPROVED:OPINIONCOMMITTEE
BY: BWB, CHAIRMAN
COB:vwb:wb