OF6,CE OF THE ATTORNEY GENERAL. STATE OF TEXAS 

JOHN CORNYN 

November 3,1999 

The Honorable James W. Carr 

Lavaca County Attorney 

P.O. Box 576 

Hallettsville, Texas 77964-0576 

Opinion No. JC-0139 

Re: Whether a county may borrow money from 

the State Infrastructure Bank for road and bridge 

construction and repay the loan with the proceeds 

of ad valorem property taxes levied for that 

purpose over a term of years without issuing 

bonds or other obligations evidencing the loan 

(RQ-0057-JC) 

Dear Mr. Carr: 

You ask whether Lavaca County may borrow money from the State Infrastructure Bank (“the 

Bank”) for road and bridge construction and repay the loan with the proceeds of advalorem property 

taxes levied for that purpose over a term of years without issuing bonds or other obligations 

evidencing the loan. County authority to enter into debt must be express or necessarily implied by 

statute. Because no statute expressly or impliedly authorizes a county to borrow money from the 

State Infrastructure Bank in the manner proposed here, the county may not borrow funds f?om the 

Bank and repay the loan with the proceeds of ad valorem property taxes levied for that purpose over 

a term of years without issuing bonds or other obligations evidencing the loan. 

The State Infrastructure Bank is governed by chapter 222, subchapter D ofthe Transportation 

Code, which the legislature enacted in 1997.’ The legislature created the Bank within the 

Department of Transportation to take advantage of a new federal program to fund highway 

construction,2 and subchapter D mirrors the federal law providing for state in!?astructure banks, see 

National Highway System Designation Act of 1995, Pub. L. No. 104-59, 4 350, 109 Stat. 568,618; 

see also Transportation Infrastructure Finance and Innovation Act of 1998, Pub. L. No. 105-178, 

5 15 11,112 Stat. 25 1. Pursuant to subchapter D, the purpose of the Bank is to “encourage public 

and private investment in transportation facilities” and to “develop financing techniques designed 

to [] expand the availability of funding for transportation projects and to reduce direct state costs; 

36. 

‘ActofJune 1, 1997,75thLeg.,RX,ch. 1711,s 1.21, sets. 222.071-,078, 1997T.x. Gen. Laws4427,4433- 

*See SEN. COMM. ON INTERNATIONALRELATIONS, TRADE ANDTECHNOLCGY, BILL ANALYSIS, Tex. S.B. 370, 

75th Leg., RX (1997); SEN. CBMM. ON INTERNATIONAL RELATIONS, TRADE AND TECHNOLOGY, BILLANALYSIS, Tex. 

Comm. Substitute S.B. 370,75thLeg., R.S. (1997). 
The Honorable James W. Carr - Page 2 (X-0139) 

[] maximize private and local participation in financing projects; and [] improve the efficiency ofthe 

state transportation system.” TEX. TRANSP. CODE ANN. 5 222.073 (Vernon 1999). To further these 

purposes, the Transportation Commission may use money in the Bank “to provide financial 

assistance to a public or private entity for a qualified project.” Id. $222.074(a). It may do so by 

extending credit by direct loan, providing credit enhancements, serving as a capital reserve for bond 

or debt instrument financing, subsidizing interest rates, insuring the issuance of a letter of credit or 

credit instrument, financing a purchase or lease agreement in connection with a transit project, 

providing security for bonds or other debt instruments, or providing methods of leveraging money 

that have been approved by the United States Secretary of Transportation and relate to the project 

for which the assistance is provided. See id. 5 222.074(a)(1)-(8). The Transportation Commission 

has adopted rules specifying the procedures and conditions for applying for and obtaining assistance 

from the Bank. See 43 TEX. ADMIN. CODE ch. 6 (1999). 

Lavaca County would like to borrow money from the State In&structure Bank and forego 

the expense of issuing bonds or certificates ofobligation under chapter 27 1 ofthe Local Government 

Code or anticipation notes under chapter 1431 of the Government Code, formerly article 717~ of 

the Revised Civil Statutes,3 to evidence its agreement to repay the money it has borrowed. See Letter 

from Honorable James W. Carr, Lavaca County Attorney, to Elizabeth Robinson, Office of the 

Texas Attorney General (Apr. 5,1999) (on file with Opinion Committee). Rather, the county would 

merely commit future tax revenue to repay the loan. See id. Presumably, the county would evidence 

the borrowing by entering into an agreement with the Bank. The county would levy a sufficient tax 

to pay the principal and interest on the debt as required by section 7 of article XI, which mandates 

cities and counties, at the time a debt is created, “to levy[] and collect[] a tax sufficient to pay the 

interest thereon and [to] provide . . . a sinking fund,” TEX. CONST. art. XI, 5 7. See Brief from 

Honorable James W. Carr, Lavaca County Attorney, to Elizabeth Robinson, Office of the Texas 

Attorney General (Apr. 14, 1999) (on tile with Opinion Committee). The total tax levy would not 

exceed the constitutional limitation on the county tax rate set forth in section 9 of article VIII. See 

id. 

Commissioners courts do not have a general power to incur debt, which, in this context, is 

generally defined as “any pecuniary obligation imposed by contract, except such as will, at the date 

of the contract, within the lawful and reasonable contemplation of the parties, be satisfied out of 

current revenues for the year, or out of some fund then within the immediate control of the city [or 

county].” City ofBonhnm Y. SouthwestSanitution,Inc., 871 S.W.2d765,768 (Tex. App.-Texarkana 

1994, writ denied) (defining “debt” for purposes of article XI, section 7 of the Texas Constitution, 

which provides that a city or county is prohibited from creating a debt unless at the same time it 

‘The 76th Texas Legislature repealed former articles 701-705, 717q, 717~. and 726 of the Revised Civil 

Statutes and codified them without substantive change in Title 9 of tbe Government Code, the Public Securities Title. 

SeeActof May 10,1999,76tbLeg.,R.S.,ch.227,§ 1,~s. 1251.001-.005,1371.001-.106,1431.001-.013,1471.001- 

.087,1999 Tex. Sess. Law Serv. 721,775,786,8 17,834; id. $28, 1999 Tex. Sess. Law Serv. at 1056 (repealing articles 

701-705,717q, 717w, and 726). For ease of citation, this opinion will refer to the provisions ofTitle 9 as they will be 

codified in the Government Code. 
The Honorable James W. Carr - Page 3 (JC-0139) 

provides for payment of the debt). As one commentator has stated, “Counties have no statutory 

authority to merely borrow money from a bank.” 35 DAVIDB. BROOKS, TEXAS PRACTICE: COUNTU 

AND SPECIAL DISTRICT LAW 5 17.27 (1989); see also Tex. Att’y Gen. Op. No. JIvI-274 (1984) at 1 

(“Counties lack authority to borrow money except through the issuance of bonds, certificates of 

obligation, or other forms of indebtedness which are specifically authorized by law.“). Courts have 

long held that the authority of a commissioners court to make contracts on behalf of the county is 

limited to that conferred either expressly or by necessary implication by the constitution and laws 

ofthe state. See, e.g., Childress County v. State, 92 S.W.2d 1011, 1016 (Tex. 1936); Jackv. State, 

694 S.W.2d 391,397 (Tex. App.-San Antonio 1985, writ refdn.r.e.). In the areaofpublic finance, 

courts have been particularly reluctant to imply the authority of a local government, such as a 

county, to enter into debt. See, e.g., San Antonio Union Junior College Dist. v. Daniel, 206 S.W.2d 

995,999 (Tex. 1947) (and cases cited therein) (power to issue negotiable paper for improvements 

beyond powers of city or county unless specially granted; when granted, may only be exercised in 

mode and for purposes specified); Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San 

Antonio 1977, no writ) (statutes regarding authority to create debt must be strictly and narrowly 

construed) (citing Robertson v. Breedlove, 61 Tex. 316 (1884), and Daniel, 206 S.W.2d 995); see 

also Tex. Atty. Gen. Op. No. JC-0036 (1999) at 10 (“Provisions authorizing a local government to 

create debt must be strictly and narrowly construed.“) (citations omitted). 

A number ofprovisions expressly authorize counties to levy taxes to pay for road and bridge 

construction,see TEX. CONST. art. III, 5 52(b), (c)(authorizing unlimited taxes to secure roadbonds); 

id. art. VIII, 5 9 (authorizing county to levy taxes including taxes for road and bridge construction 

and maintenance); see also TEX. TRANSP. CODE ANN. @ 256.001 (Vernon 1999) (authorizing use 

of county road and bridge fund); 256.05 1 (authorizing levy of bond taxes), and to finance road and 

bridge construction by issuing bonds and other debt instruments secured by a pledge of those taxes, 

see, e.g., ‘Rx. GOV’T CODE ANN. $5 1251.001-,005, 1431.001-,013, 1471.001-.087;4 TEX. Lot. 

GOV’T CODE ANN. ch. 271 (Vernon 1999). No provision authorizes a county to simply borrow 

money from a bank to pay for road and bridge construction and to pledge fumre ad valorem property 

taxes to repay the loan. 

Generally, statutes that authorize a county to borrow funds for road and bridge construction 

require the issuance and sale of bonds or other obligations in compliance with statutory procedures, 

including approval by the Attorney General. See, e.g., TEX. GOV’T CODE ANN. 4 143 1.004(a)(l)(A) 

(authorizing anticipation notes to pay for a contractual obligation incurred or to be incurred for the 

construction of a public work); id. ch. 1471 (providing for county and road district road bonds);j 

TEX. Lot. GOV’T CODE ANN. ch. 271 (Vernon 1999) (authorizing certificates of obligation to pay 

for contractual obligation to be incurred for the construction of any public work). These obligations 

are sold to purchasers in exchange for money, which is used for county projects. The obligations 

evidence a loan made by the purchaser to the county and the county’s agreement to repay the money 
The Honorable James W. Carr - Page 4 (X-0139) 

it has borrowed. See BLACK’S LAW DICTIONARY 178 (6th ed. 1990) (a “bond” is “evidence of a debt 

on which the issuing . governmental body promises to pay the bondholders a specified amount 

of interest for a specified length of time, and to repay the loan on the expiration date”); 22 ISAAC 

SINGER, TEXAS PRACTICE: MUNICIPAL LAW AND PRACTICE 5 303 (1976) (a ‘bond is evidence of 

creation of a debt”). In addition, inLasater v. Lopez, 217 SW. 373 (Tex. 1919), the Texas Supreme 

Court recognized the authority of counties to pay road construction contractors for work performed 

with interest-bearing warrants payable in future years as a necessary authority that preexisted 

counties’ power to issue bonds for road and bridge construction. 

The county’s query suggests that the county is authorized to borrow the funds and to pledge 

taxes to repay the debt without issuing bonds or other obligations provided that the county complies 

with the strictures of section 7 of article XI. However, this provision imposes conditions on the 

creation of debt; it does not authorize creation of debt. See Tex. Att’y Gen. Op. No. DM-467 (1998) 

at 7 n. 18 (“Article XI, section 7 [of the Texas Constitution] limits the authority of a county to incur 

debt; it does not affirmatively authorize counties to levy taxes for any purpose. . . Therefore, before 

providing for a levy and sinking fund in order to comply with article XI, section 7, a county should 

first verify that it is authorized to levy the tax.“) (citing Mitchell County v. City Nat ‘I Bunk, 43 S.W. 

880, XX3 (Tex. 1898) (Texas Constitution article XI, section 7 “contains no grant of authority to levy 

a tax”)). Compliance with section 7 of article XI by providing to repay borrowed funds is not a 

sufficient basis for a county to borrow the funds. If that were the case, there would be no need for 

the many statutes authorizing the issuance ofbonds and other obligations. For the same reason, the 

mere fact that the loan may be repaid without exceeding the article VIII, section 9 ceiling for the 

county tax rate is not a sufftcient basis for a county to borrow the funds. 

A brief submitted by the Department ofTransportation suggests that the authority of a county 

to borrow money from the State Infrastructure Bank and pledge tax revenues to repay the loan 

without issuing bonds or other obligations may be inferred from the provisions in the Transportation 

Code creating the Bank, particularly section 222.074 of subchapter D, which authorizes the Bank 

to “extend credit by direct loan,” TEX. TRANSP. CODE ANN 5 222.074 (Vernon 1999). See Letter 

Brief from Richard D. Monroe, General Counsel, Department of Transportation, to Elizabeth 

Robinson, Office of the Texas Attorney General, at 2 (July 29, 1999) (on file with Opinion 

Committee) [hereinafter “DOT Brief’]. For the reasons explained below, we disagree. 

No provision in subchapter D expressly authorizes a county to borrow funds from the State 

Int?astructure Bank. Nor do we believe that county authority to borrow funds from the Bank must 

be necessarily implied by subchapter D. The Bank is authorized to assist both public and private 

entities in a variety ofways: It may assist directly by making a loan or, more indirectly, by generally 

enhancing, insuring, or subsidizing payments securing debt issued by these entities to finance a 

project. See TEX. TRANSP. CODE ANN. 5 222.074 (a)(l)-(X) (Vernon 1999); see also National 

Highway System Designation Act of 1995, Pub. L. No. 104-59,§ 350(c), (o(3), 109 Stat. 568,618; 

Transportation Infrastructure Finance and Innovation Act of 1998, Pub. L. No. 105178, 

$ 151 l(a)(l), (d), 112 Stat. 251 (defining “other assistance” to include providing credit 

enhancements, serving as capital reserve for bonds or debt instruments, subsidizing interest rates, 
The Honorable James W. Carr - Page 5 (X-0139) 

ensuring issuance of letter ofcredit and credit instruments, financing purchase and lease agreements, 

providing debt security, and providing other debt financing and leveraging approved by the 

United States SecretaryofTransportation; and providing that a state infrastructure bank “maymake 

loans or provide other assistance to a public or private entity in an amount equal to all or part of the 

cost of carrying out a project eligible for assistance”). 

Counties need not borrow funds from the State Infrastructure Bank in the manner proposed 

by the county in order to participate in the Bank’s assistance programs. Counties may be able to 

participate in the types of assistance the Bank is authorized to provide, within the statutory 

framework for county financing, in several ways. With respect to the direct loan assistance, for 

example, a county may issue bonds or other obligations that it is expressly authorized to issue for 

road and bridge construction and sell them to the Bank in exchange for the “loan” of the funds or 

purchase price. Neither subchapter D nor the Transportation Commission rules limit how a “direct 

loan” is to be evidenced or made and, in fact, subchapter D appears to contemplate that the Bank will 

acquire “obligations” that evidence loans it has made. See TEX. TRANSP. CODE ANN. 5 222.075(d) 

(Vernon 1999) (revenue bonds issued to obtain funds for Bank payable in part from principal and 

interest payments paid on “acquired obligations”), (f) (Transportation Commission may require 

participants to make charges, levy taxes, or otherwise provide for sufficient money to pay “acquired 

obligations”). 

In addition, counties may be able to participate in the more indirect assistance the Bank is 

authorized to provide. For example, the Bank may provide credit enhancement to a county 

authorized to execute credit agreements for obligations issued to finance transit projects. See id. 

4 222.074(a)(2); TEX. GOV’T CODE ANN. 5 1371.001(l), (4), ,056 (authorizing certain issuers, 

including home-rule cities and counties with certain population, to enter into credit agreements in 

connection with issuance of bonds or other obligations).6 Furthermore, subchapter D appears to 

authorize the Bank to “subsidize” interest payments on county obligations or to serve as a reserve 

fund on such obligations, presumably enhancing the obligations’ security and marketability. 

Neither the county nor the Department ofTransportation asserts that the county cannot obtain 

a loan from the Bank using traditional statutory financing methods. Rather, the county indicates that 

it would like to obtain a loan from the Bank without following statutorily required procedures. But 

these procedures are not optional; issuing bonds or other obligations is the exercise of the issuer’s 

borrowing authority in accordance with legislatively mandated procedures. 

Given that the Bank may assist a variety of entities in a variety of ways, that it is not limited 

to loaning funds only in the manner proposed by the county (i.e., without the county issuing bonds 

and or other obligations), and that counties are authorized to participate in some forms of assistance 

that the Bank has been established to provide, the authority of a county to borrow bank funds is not 

essential to the Bank achieving its statutory purpose. Therefore, the authority of a county to borrow 

money from the Bank may not be necessarily implied by subchapter D. 
The Honorable James W. Carr - Page 6 (JC-0139) 

The brief from the Department of Transportation also observes that state law authorizes 

counties to construct and maintain roads and bridges and to levy taxes for those purposes. See DOT 

Brief at 2 (citing TEX. TRANSP. CODE ANN. $5 25 1.081 (Vernon 1999) (authorizing commissioners 

court to erect and maintain any necessary bridge in the county); 256.001 (county road and bridge 

fund)); see also TEX. TRANSP. CODE ANN. $ 251.003 (Vernon 1999) (authorizing commissioners 

court to construct and maintain public roads). The brief states that the “power to create debt [to build 

and improve county roads and bridges] is implicit in the grant of authority to levy taxes to build and 

improve county roads and bridges,” citing Lasater v. Lopez and Attorney General Opinion JM-642. 

DOT Brief at 2. But neither opinion stands for the proposition that county authority to borrow 

money must be implied by these statutes. 

In Lusater v. Lopez, the court did not conclude that the authority to borrow money may be 

implied. Rather the court held that the county could pay for road construction by issuing interestbearing county warrants. As subsequent courts have noted, there is a difference between obtaining 

property or labor on credit, which Lusater sanctioned, and borrowing money, which Lasater did not 

address. “Borrowed money can be diverted from its legitimate purpose and the voters deprived of 

any benefit therefrom, but there is no such danger when authorized services or improvements are 

obtained by the public on credit.” San Antonio RiverAuth. v. Shepperd, 299 S.W.2d 920,925 (Tex. 

1957) (CitingBridgersv. CifyofLampasas,249 S.W. 10X3,1085 (Tex. Civ. App.-Austin 1923,writ 

ref d)); see also Adams v. McGill, 146 S.W.2d 332,335 (Tex. Civ. App.-El Paso 1940, writ refd); 

Tex. Att’y Gen. Op. No. JM-697 (1987) at 5-6 (noting that Shepperd relied on the distinction 

between obtaining authorized services or improvements on credit and borrowing money; equating 

purchase ofjail by lease-purchase contract with the former rather than the latter). Thus, Lasater 

implies from statutes authorizing counties to expend money to make improvements the authority to 

obtain property and labor on credit; it does not imply authority to borrow money. 

Nor does Attorney General Opinion JM-642 provide support for the proposition that a county 

has implied authority to borrow money for bridge and road construction. That opinion concluded 

that ajoint city-county hospital board is authorized to borrow funds to purchase equipment and make 

renovations based on the entity’s express authority to establish and equip a hospital. Its conclusion 

is expressly limited to a joint city-county hospital created under former article 44941 of the Revised 

Civil Statutes. See Tex. Any Gen. Op. No. JM-642 (1987) at X-9. And, in an opinion on a county’s 

implied authority to use its credit to purchase or construct a jail issued just a few months after 

Attorney General Opinion JM-642, this office concluded that the prior opinion was inapplicable 

because it “relied on the power of the home rule city in question to borrow funds.” Tex. Att’y Gen. 

Op. No. JM-697 (1987) at 2. Thus, to the extent Attorney General Opinion JM-642 suggests that 

a county may have implied authority to borrow money, it has not been followed. We are not aware 

of any other attorney general opinion concluding that a county has implied authority to borrow 

funds. 

In sum, county authority to enter into debt must be express or necessarily implied by statute. 

Subchapter D of chapter 222 of the Transportation Code neither expressly nor by implication 

authorizes a county to borrow funds for road and bridge construction from the State Infrastructure 
The Honorable James W. Carr - Page 7 (X-0139) 

Bank and to repay the Bank with the proceeds of ad valorem property taxes levied for that purpose 

over a term ofyears without issuing bonds or other obligations evidencing the loan. Neither Lasater 

v. Lopez nor Attorney General Opinion JIM-642 supports the conclusion that a county has implied 

authority to borrow funds for road and bridge construction. Because no statute expressly or 

impliedly authorizes a county to borrow money from the State Infrastructure Bank in the manner 

proposed here, we conclude that Lavaca County may not borrow funds from the Bank and repay the 

loan with the proceeds of ad valorem property taxes levied for that purpose over a term of years 

without issuing bonds or other obligations evidencing the loan. Of course, counties may borrow 

money from the Bank using traditional statutory financing methods for road and bridge construction. 
The Honorable James W. Carr - Page 8 (JC-0139) 

SUMMARY 

A county may not borrow money from the State Infrastructure 

Bank for road and bridge construction and repay the loan with the 

proceeds of ad valorem property taxes levied for that purpose over a 

term of years without issuing bonds or other obligations evidencing 

the loan. 

JOHN CORNYN 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

CLARK RENT ERVIN 

Deputy Attorney General - General Counsel 

ELIZABETH ROBINSON 

Chair, Opinion Committee 

Mary R. Crouter 

Assistant Attorney General - Opinion Committee