March 30, 1989

Mr. Perry L.Adkisson Chancellor Texas A hMUniversity System 219 Systems Administration Bldg. College Station, Texas 77843 Opinion No. JM-1035

Re: Assessment of Capital Recovery Fees by the city ofHouston against Texas A &MUniversity forwaste water services (RQ-1533)

DearMr. Adkisson:

you inform us that the city of Houston is seeking to collect acapital recovery fee forthe use of the city's waste water system, and ask the following question:

Can the City ofHouston legally assess the capital recovery fees set outherein against
a state agency forutilizing itswaste water system?

Texas A 6r

M University isbuilding an Institute of Biosciences and Technology inthe Texas Medical Center in Houston. In conjunction with the actual cost of connecting with Andyusing the city's waste water attempting to assess system, the city is
acapital recovery fee in accordance with acity ordinance. The ordinance provides that amounts collected as capital recovery charges shall beused solely to pay or reimburse all orpart of "the capital cost of constructing specific facilities comprising or to comprise a portion of the system anddesigned to increase the wastewater capacity of the system," excluding repairs and replacements of existing facilities, and extensions or enlargements to certain sewer mains or laterals. Houston, Tex., Code ofOrdinances S47-323 (1968).

You do not express any objection to paying other charges ofproviding sewer service, such as connection fees
ormonthly service charges. A city maymake a reasonable charge to a public entity for the provision of sewer Service. BeXar Countv v. Citv of SanAnt nio 352 S.W.2d 905 (Tex.Civ.App. - SanAntonio 1961,wryt dism#d). See oenerally Attorney General Opinions R-1289, Ii-1265 (1978)

p. 5352Mr. Perry L.Adkisson -Page 2 (JR-1035)

(charges includible inrates charged the state for electric utility service and telephone service).

you argue that the special assessment "capital recovery fee" isactually a and therefore cannot be imposed on a public entity inthe absence ofexpress legislative authority. Maverick Countv Water Contra Imnrovement Dist.. N 1 **Y. Stat** e, 456 S.W.ld 204, 207 (Tex.Civ.App. - San An&o 1970,writ ref*d); Attorney General Opinions JW-523 (1986); WW-551 (1982). A brief submitted in connection with your request agrees that capital recovery fees are special assessments and argues that article XI, section 9, of the Texas Constitution exempts public property fromthem.

The Texas Supreme Court has defined special assessments as follows:

Special assessments . . . are those special and local impositions upon theproperty in the immediate vicinity ofmunicipal ments which are necessary to pay improvefor the improvements, and are laidwith reference to the special benefit which the property is supposed tohave derived therefrom.
Citv ofWichita Falls v.Williij@S 1930). See a ,26cS.t:2d 910, 911 (Tex.

lso Conlen Grain andWer an ile Ic T Grain Sorahum Producers Board 1975) (distinguishing 519 S.W.2d 62:;6;3 (;::: assessm&t on grain processors from special assessments on land).

Other briefs argue that these fees are not special assessments, but usage fees charged as acost of providing the service, so that imposition of special the arguments relevant to the assessments do not apply to capital recovery fees. See aeneru Bexar Countv v. Citv of San Antonio, a (sewercharges were not assessments, even though rates include costs of making replacements and extending and improving system).
are assessed against users of The capital recovery fees
a sewage disposal and treatment system topay for improvements necessary to provide
sewer disposal services. The traditional special assessment, acharge against landowners for the costs of a street bordering on their property, building is not connected with the delivery ofmunicipal services. Thus, the capital recovery fee may not fit easily into the category of special assessment. See aenerally San Marco6 Water Dist.

. . v. SanM~L~CO -fled School Di t, Rptr. (Cal.App. lz85) (sewer feeused tgd;f:iG c% of capi::: improvements was not a special assessment but ausage fee),

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g erru&$ 720 P.2d 935 (Cal.1986) (such sewer feewas a szecial a&essment).

However, there are Texas cases dealing with special assessments for irrigation improvements which are necessary to the provision of irrigation services to the landowner. See. e.a.,Maverick Countv Water Control Imnrovement Dist.a v. St&g ,m; State v. Bexar- dina-Atascosa Counties Water Imvro ement Dist.Wo. 1 310 S.W.Zd 641 (Tex. Civ.App. - SanAntoEio 1958,writ ref:d). See alsoAttorney General Opinions JW-523 (1986) (capitalrecovery fee for water services treated as a special assessment); WW-551 (1982) (drainage feetreated asa special assessment). We will not attempt to determine whether the capital recovery fee ismore properly characterized as a *user fee" than a "special assessmentOVbut will assume for purposes of this opinion that the capital recovery feesare special assessments. Since we conclude #at the city of Houston may collect the capital recovery fee inthis case, the answer to your question does not depend on thenameweuse to identify the fee.

The authorities have generally stated that special assessments are levied asan exercise of the power of taxation. Citv 

### of Wichita Falls v.Will- *, at 911;
see alw 14 McQuillin, Municipal CorporaCions 838.01 (3d. ed. 1987) (specialassessments are sometimes held.to be an exercise of the police power). However, they are not taxes as thatword isgenerally understood. Citv ofWichita Falls
v.Williams, sunra. Taxes are charges imposed by the legislative power of the state to raise revenue forthe general purposes ofgovernment and arenot related to any special benefit to the taxpayer from the expenditure of the funds. !&&en Grain andMercantile. Inc.v. Texas Grain Sorahum reducers Board, !sulazarat 623; see also Wichita County 2 v - I 323 S.W.2d 298 (Tex. Civ.App. -

### FortWorth 1959,writ ref'd n.r.e.).

Since special assessments are levied asan exercise of the taxing power, questions arise as to the application 

### ofconstitutional and statutory provisions on taxation. Some states have concluded that constitutional provisions exempting publicly owned andused property from taxes donot apply to special assessments, but such assessments may be imposed onpublic property only under express legislative authorization. The California Supreme Court has stated as follows:

p. 5354Wr. Perry L.Adkisson -Page 4 (JM-1035)

While publicly owned andused property is not exempt from special assessments under the constitution or statutory lawof this state, there is an implied exemption of such property fromburdens of that nature. . . . The principle which makes property of the state . . .nontaxable . . . also precludes the imposition of a special assessment for a street or other local improvement upon such property, unless there is a positive legislative authority therefor. . . .
The rationale behind a public entity's exemption from property taxes and special assessments isto prevent one tax-supported entity from siphoning taxmoney from another such entity: the end result of such aprocess could be unnecessary administrative costs and
no actual gain intax revenues. . . . On the other hand, when one tax-supported entity provides goods or services to another, neither the California Constitution nor decisional lawexempts thepublic entity from paying forthese goods or services.
# 720 P.2d 935 (Cal: t 1986) (citations omitted): Citv ii Inalewood v. Los Anaeles County, 280 P: 360, 363 (Cal. 1929).

The Texas courts also recognize the principle that ordinarily the legislature does not intend to tax property of the state. The Texas Supreme Court has said that this would involve the state in "the senseless process of taxing itself," the net result ofwhich would be to take money out of onepocket toput it into another, less assessment and collection costs. &ower Colorado Ri er Aut&ritv Chemical Bank 8Tru t Co 190 S.W.Zd 4av 51 (Tex. Theprinciple applizs to &itical 1945;. subdivi;ions supported by taxation, aswell as to the state. Citv fWa.rlinv. State 205 S.W.2d 809 (Tex. Civ.App. -Waco lZ47, nowrit). 1; the absence of aconstitutional prohibition, however, the legislature may subject the state andpolitical subdivisions to taxation. sler:Attorney General Opinion WW-1502 (1962) (statepurchases 

### ofmotor fuel subject to excise tax): a 8&~ Attorney General Opinions JW-987 (limited sales anduse tax lawapplies to state, its agencies, andpolitical .subdivisions): JW-972 (1988) (state employees traveling at state expense on state business are not exempt from hotel occupancy tax).

p. 5355.
Mr. Perry L.Adkisson -Page 5 (JM-1035)

The Texas Supreme Court has held that special assessments are not ntaxesnwithin article VIII of the Texas Constitution, within sections 4and 5of article XI, and within section 50of article XVI, pertaining to the protection of homesteads from forced sale fordebt. Citv of

Falls v. WilliamsrE!uRcar and authorities cited therein: )&rris Countv v. Bovd, 7 S.W. 713 (Tex. 1888) and authorities cited therein.

The supreme court has also stated, however, that article XI, section 9,of the Texas Constitution prohibited a city from imposing a special assessment on acounty for improving the street bordering the courthouse site. Harris Countv V. BQYa suR.a. This provision states as follows:

The property of counties, cities and towns, owned and held only for public purposes, such aspublic buildings and the sites therefor . . .public grounds and all other property devoted exclusively to theuse andbenefit of the public shall be exempt from forced sale and fromtaxation
. . . .
Tex. Const. art. XI, 59. Article XI, section 9 also applies to state-owned property. Lower Colorado River 8Trust Co<,m.
The supreme court's conclusion in mris Counv f &y& sunrg, that the city could not impose apaving azseszment on the county, was based partly on the absence of statutory authority for this charge. The legislature did not intend the city's charter provision assessments to interfere authorizing With governmental functions committed to the county commissioners, or .to impose additional financial burdens upon~ the county against the orders of the commissioners. 7 S.W. at 715. The court went on to find the county exempt fromthe assessment under article XI, section 9, of the constitution, stating as follows:
[Tlhere isno apparent reason why the exemptions inthe constitution should notbe taken inthe ordinary andmore comprehensive sense, soas to include all taxation, special as well asgeneral.

& The court also noted that this question had been decided differently by other courts, and "there is great conflict in the decisions.W & Subsequent Texas cases

p. 5356Mr. Perry L.Adkisson -Page 6 (JM-1035)

have cast doubt on the constitutionally-based holding of BS?El.

Inrify ofWichita Fallsv.Wiw the supreme court construed article XVI, section 50, of de Texas Constitution, which exempts homesteads from forced sale for debts, except for taxes and certain other debts, and determined that special assessments were not "taxes" within that provision. The court distinguished the w case as follows:

It istrue that the Commission of Appeals

inthe case ofCountv ofI&&.s v. Bovd 70 Tex. 237, 7 S.W. 713, stated there wa; no apparent reason why the exceptions from 'taxation, in the Constitution should not be taken to include special assessments. However, the constitutional provision before the court in that casewas section 9 of article 8 [sic], which contains other words coupled with the word *taxation,, which warranted the interpretation given. Besides, the decision inthe Bovd Casewas obvioa correct on other arounds some ofwhich were stated inthe opinion, a;d some ofwhich are found inthe general rules of law applicable to the taxation ofpublic property. WcQuillin
onMunicipal Corporations (2d Ed.) vol. 5, 9 2212. (Emphasis added.)

& at 914; ~&8 14McQuillin, Municipal Corporations 5 38.73 (3ded. 1987).

The court inWichita Countv Water Imnro e ent No. 2 Citv ofWichita FaJ,&,m, held tha: i cityDist.

liablevto awater improvement district for was "benefit assessmentsw levied against city-owned landwithin the district's boundaries. Thewater district,6 taxes were levied by the benefit assessment plan rather than upon an ad valorem basis. See aen- Water Code 851.512. The court reviewed case lawand treatises stating that tax exemptions apply only to ordinary taxes for the general purposes of government and not to special assessments for local improvements. S e. e.a (Tex.194:) State v. Citv ofEl P~SQ, 143 S.W.2d 366

(citi;s are exempt from only three classes of taxes: advalorem, occupation, and income taxes); fitv of Ci co . Var er 16 S.W.2d 265 (Tex.Comm,n App. 1929, j&u,: adopEed; (special assessment is not taxwithin constitution, thus defense of limitation was available). It concluded that article XI, section 9, of the Texas

p. 5357Mr. Perry L.Adkisson -page 7 

### (JM-1035)

Constitution did not exempt the city from payment of the assessments.
Attorney General Opinion No. WW-786 (1960)' issued shortly after Wichita
v. Citv ofWichita p8,J.l~ was decided, relied on that case to hold that ahospital district was liable to a city for paving assessments. After pointing out that the application forwrit of error was refused with the notation %o reversible error," the opinion stated as follows:

Though this docket notation may have cast certain doubt (theextent ofwhich has never been satisfactorily defined) upon the reasoning of the Fort Worth Court, the Supreme Court's refusal to entertain the writ of
error laid to rest any question as to the continued vitality of the early case of y:;,;rtv v. Bovd, 7 S.W. 713 (Tex. Sup.

. 1which reached adirectly contrary result.

Attorney General Opinion WW-786 (1960).

However, m was relied upon inCitv ofGarland Garland Indeo. School Dist. 468 S.W.Zd 110 (Tex. Ci:: APP. -Dallas 1971,writ ref,; n.r.e.), inwhich the court held that a city could not special compel a school district to pay

assessments for paving streets ,next to school property. The court firstdetermined that section 20.48 of the Education Code did notpermit the expenditure of school funds for street improvement unless the trustees of the district first determined that the expenditure was ,,necessaryinthe conduct of the public schools.~, XL at 112. This was the 'primary ground" of the court's decision

. . of & that tE rland and it was supported by theholding *

city,charter provision authorizing the asses:: ment was not intended to impose additional financial burdens
on the county.

The !&X&B.& court also concluded that article XI, section 9,exempted apolitical subdivision fromassessments for street improvements and thatBarris Cuntvv. Bovd stood
asauthoritative on this issue. && atO114. this alternative ground for itsdecision, In reaching

**‘ ::D%%%**  **:::it** sought todistinguish Wichita Co- Water No. 2v. Citv ofWicbjta Fu by stating that zheecity had used the district's irrigatio;. services on the land, and thus impliedly consented topay reasonable charges for those services. This distinction, however, appears to confuse

p. 5358Mr. Perry L.Adkisson -Page 8 (JM-1035)

benefit assessments with charges for providing water to irrigate the land. The city ofWichita Falls was subject to an assessment foreach acre of irrigable land andhad used irrigation services on warnallareas" of itstract. Wichita Countv ater Imvrovement Dist. No. 2 v. Citv of Wichita lzauil LRa. Water improvement districts impose benefit assessments to finance the construction of improvements necessary to irrigate the land. &,f&Water Code 55 51.125, 51.502, 51.512, 51.516, 51.518. Inaddition, the landowner must pay a separate water charge 

### orassessment for receiving water to irrigate his land. Water Code Sf51.301-51.321, 51.508, 51.509. The supreme court designated the Citv of Garland case "writ refused, no reversible error."

Themost recent Texas decision on the payment of special assessments by governmental bodies is Kgverick Countv Water Control & Imorovement Dist. No. 1v. State EW2?2. The court noted that the Texas Supreme Court had held in Bsyg that article XI, section 9, of the Texas Constitution applied to special assessments, but that subsequent decisions had reached acontrary result. 456 S.W.2d at 206-07, n. 5. TheWav;~i~o~;~w~;termined that land owned by theVeterans* exempted by statute from advalorem taxation and was not subject to special assessments because no statute imposed them on the state. & at 206. .The court stated as follows:

Although the power ofagovernmental agency to levy special assessments for local improvements is generally recognized to be an exercise of the taxing power, there are numerous decisions holding that a special assessment is not a 'tax, inthe sense in which thatword isordinarily used. We do not think it necessary to consider the question whether such an assessment isataxwithin the meaning of constitutional provisions exempting property from taxation in a case where, as here, apolitical subdivision created by the sovereign isattempting to impose a monetary exaction upon its creator.

Even if itbe assumed that a county or municipality is subject to special assessments levied by another political subdivision of the State, itdoes not necessarily follow that a subordinate political subdivision can impose
an involuntary monetary obligation on the sovereign. It isgenerally held that, in the absence of clear legislative authorization, a

p. 5359Mr. Perry L.Adkisson -Page 9 

### (JM-1035)

political subdivision of the State has no power to levy a special assessment against State property. We adopt thisview at least ina casewhere, ashere, the sovereign is neither making nor contemplating anyuse of the allegedly benefitted land andhas neither received nor requested the services rendered by the assessing agency. (Footnotes omitted.)

& at 206-07.

TheMaverick case did not need todetermine whether a special assessment isataxwithin article XI, section 9,of the constitution. See alsoAttorney General Opinions JM-523 (1986);WW-551 (1982) (did not reach question because no statutory authority for assessment). Nonetheless, its references to this issue suggest thatwe cannot confidently rely on theholding inm that article XI, section 9, of the Texas Constitution, exempts publicly-owned property used forpublic purposes from special assessments. The mverick decision actually rests on the absence of legislative authorization for imposing the special assessment on the state. The decisions in both && and inCitv of Garland
are also supported by this non-constitutional ground -- the absence of express statutory authority for imposing the special assessments on apolitical subdivision -- aswell as their interpretation ofarticle XI, section 9.

The atv ofGarlti.case, which saidw~~u~;~ri~;:;;;- 1_ tutional holding in-1s Countv v. Bovd
was designated "writ refused, no reversible errorH by th6 supreme court. The m crick questioned the holding in&y& andwas ~esignat~?writ refused.,,AlthlttE the supreme court has not explicitly reconsidered &y& yours question requires us to form anopinion onhow the supreme courtmight rule on it inthe future. In themore than one hundred years since Harris Countv v. Bovdwas issued, Texas courts, except for the Citv of Gaw court, have disregarded its constitutional holding or emphasized the alternative basis for the decision. These courts have had thebenefit of legal scholarship and judicial decisions on special assessments which did not exist when m was decided. We believe the supreme court, if it were to consider this question again, would rule that the article XI, section 9 tax exemption does not encompass special assessments. Accordingly, article XI, section 9, of the Texas Constitution does notbar imposing capital recovery fees on the city ofHouston from

itswaste water system. a state agency for using

p. 5360Mr. Perry L.Adkisson -Page 10 (JM-1035)

We also conclude that the legislature has authorized the city to impose such **fees** on state agencies that use its waste water system. Statutory authority for charging the fees is found inchapter 26 of theWater Code, which was enacted aspart of the Texas Water Quality Act of 1967 and codified inthe Texas Water Code. m Acts 1967, 60th Leg., ch. 313, at 745 (adoptingTexas Water Quality Act 

### of 1967); Acts 1971, 62d Leg., ch. 933, at 2850 (amending Texas Water Quality Act to include predecessor of section 26.176(b)); Acts 1971, 62d Leg., ch. 612, at 1978, 1985 (repealing chapter 933 of Acts 1971 and incorporating predecessor of section 26.176(b) intoTexas Water Code).

Local governments are granted **certain** authority under chapter 26 toprovide for water quality within their area. Water Code fS 26.171-26.177. Section 26.176 authorizes every local government which owns or operates a sewage disposal system to adopt rules to control the discharge of waste into the system. Inthe event of any conflict between itsprovisions and any other laws, theprovisions of section 26.176 shall control. Water Code 5 26.176(e). Section 26.176(b) provides as follows:

(b) The local government in its rulethE; establish the charges and assessments may bemade to and collected fromU nersons who discharge waste to the disposal system or who have conduits or other facilities for discharging waste connected to the disposal system, referred to inthis subsection as *users.* The charges and assessments shall be equitable asbetween allusers and shall correspond as near as can be practically determined to the cost of making the waste disposal services available to allusers and of treating thewaste of each user or class ofusers. The charges and assessments may include user charges, connection fees, or any othermethods of obtaining revenue from the disposal system available to the local government. Inestablishing the charges and assessments, the local government shall take into account:
(1) thevolume, type character, and guality of the waste of each user or class of users;
(2) the techniques of treatment required;

p. **5361**Mr. Perry L.Adkisson -Page 11 (JM-1035)

(3) W debt-r.&irement exnenses of the disposal svstem reouired to raes w assegsments:
(4) ,the costs of operating and maintaining the system to comply with this chapter and thepermits, rules, and orders of the commission: and

(5) ~othertaattributable

Water Code 526.176(b).

This statute expressly authorizes the local government to take into account capital cost of the disposal system in establishing charges and assessments, such as the recovery costs inquestion. capital Moreover, these charges and assessments are tobe collected from ,,a11persons,,using the disposal system. In the context of section 26.176(b), "all personaH includes state agencies.

The language of section 26.176(b) was adopted in 1971, as an amendment to the Texas Water Quality Act of 1967. Acts 1971, 62d Leg., ch. 933, at 2850. Act defined TheWater Quality

,,personw to mean "individual, organization, corporation,

government or governmental subdivision or agency, business trust . . . orany other legal entity,, unless the context required adifferent result. Acts 1969, 61st Leg., ch. 760, at 2229 (amendingWater Quality Act of 1967). The legislature intended npersonn in section 26.176(b) and its predecessors to include governmental agencies inorder to enable local governments toqualify for federal grant funds under the federal Water Pollution Control Act. The provisions of the Water Quality Act demonstrate the legislature,6 intent to enable state and local governments to receive grants under federal water pollution control legislation. &9 Water Code S26.035 (WaterCommission may receive federal assistance, grants, or loans forwater quality control activities including waste disposal facilities); S26.175 (local government contract with commission for transfer of money for waZ quality control functions and forconstruction, maintenance, purchase,

and operation of sewage disposal systems). See alsoAttorney General Opinions M-1069 (1972);'M-894, M-822 (1971);M-32 (1967) (discussing state authority under Texas Water Quality Act to contract for federal grants for

p. 5362Mr. Perry L.Adkisson -Page 12 (JM-1035)

local governments under federal Water Pollution Control Act).

The Environmental Protection Agency has authority to make grants to states andmunicipalities tobuild publicly owned treatment works. **33**U.S.C. 5 1281(g)(l). However, an applicant may not receive a grant unless hehas adopted or will adopt a **system** of charges designed to assure that each recipient ofwaste treatment tionate share services will pay its propor-

"of the costs of operation and maintenance (including replacement) of any waste treatment services provided by the applicant
. . . .w33U.S.C. Federal regulations 5 1284(b)(l). adopted under this provision further describe the user charges which must be collected from recipients of waste treatment services and demonstrate that governmental agencies must pay such charges. **& 40**  C.F.R. 5 35.905 (definitions of "industrial user' and "user charge"); **f 35.929-1(b)**  **(4)** (iii).

Section 26.176(b) of theWater Code authorizes a local government to establish the 'user charges,w which it must adopt toqualify fora federal grant for sewage treatment works. The purpose underlying this section shows that it must be read to apply togovernmental as entities. well as private

When the Texas Water Quality Act was codified in the Water Code, the definition of wpersonwwas deleted from its list of definitions. However, the language of section 26.176(b) was incorporated into the Water Code by an enactment which included a provision making subject to allprovisions it expressly of the Code Construction Act. Acts 1971, 62d Leg., ch. 612, S2,at 1985. See also Water Code S 1.002 (application of Code Construction Act to code). The Code Construction Act defines "person" as follows, unless the context requires adifferent definition:

\Person* includes corporation, organization,

nt or aovernmW subdi ision or aQencY.. .and any other legal en:ity.

Gov't Code 5 311.005(2).

As shown by ourdiscussion of thehistory of section 26.176(b) of the Water Code, vision, inthe context of that pro-

,,persoM must **be** defined to agencies. Accordingly, include governmental section 26.176(b) of~the Water Code expressly authori~xesa local government to require users of its sewage disposal system, including a state agency, to pay charges based inpart on the capital costs of the system.

p. 5363m. Perry L.AdkiSSon - **Page** 13 (JM-1035)

The city ofHouston may collect acapital recovery fee from
a state agency for theuse of itswaste water system.

**SUMMARY**

A special assessment isnot ataxwithin article XI, section 9,of the Texas Constitution, which **exempts** property owned and held - forpublic purposes from taxation. Thus, this provision of the constitution does not prohibit the imposition ofa special assessment on a state agency.

In the absence of express statutory authority, a city may not impose a special assessment on .a state agency. Section 26.176(b) of theWater Code provides express authority forthe city ofHouston to users of its sewage disposal system, chargeincluding a state agency, a "capital recovery fee,, for certain capital costs of the sewage disposal and treatment system.

WARYKELLER JIM MATTOX Attorney General ofTexas

First Assistant Attorney General

IOUMCCRBARY Executive Assistant Attorney General

JUUGE ZOLLIE STEAXLF.Y Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Susan L.Garrison Assistant Attorney General

p. 5364