OF6,CE OFTHEATTORNEYGENERAL.STATEOFTEXAS 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 askwhether Lavaca County may borrow money from the State Infrastructure Bank (“the Bank”) for road and bridge construction and repay the loan with the proceeds ofadvalorem 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 acounty 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 aterm of years without issuing bonds or other obligations evidencing the loan.

The State Infrastructure Bank isgoverned by chapter 222, subchapter Dofthe 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, 4350, 109 Stat. 568,618;
see also Transportation Infrastructure Finance and Innovation Act of 1998, Pub. L. No. 105-178, 5 1511,112 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-

*SeeSEN.COMM.ONINTERNATIONALRELATIONS, TRADEANDTECHNOLCGY, BILL ANALYSIS,

Tex. S.B. 370, 75thLeg., RX (1997); SEN. CBMM. ON INTERNATIONAL RELATIONS,TRADE ANDTECHNOLOGY, BILLANALYSIS,

Tex. Comm. SubstituteS.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. CODEANN.5222.073 (Vernon 1999). To further these purposes, the Transportation Commission may use money in the Bank “to provide financial assistance to apublic or private entity for aqualified project.” 

### Id. $222.074(a). It may do so by extending credit by direct loan, providing credit enhancements, serving as acapital reserve forbond
or debt instrument financing, subsidizing interest rates, insuring the issuance of aletter 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, orproviding 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. 5222.074(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 ofissuing bonds or certificates ofobligation under chapter 271ofthe 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 torepay the money ithas 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 asufficient 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 aswill, atthe 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 ofthe city [or county].” 

### CityofBonhnm 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 76thTexas Legislature repealed former articles 701-705, 717q, 717~. and 726 of theRevised Civil Statutesandcodified themwithoutsubstantivechangeinTitle9oftbeGovernment Code, thePublic SecuritiesTitle. 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.LawServ. 721,775,786,8 17,834; id. $28, 1999 Tex. Sess.LawServ.at 1056(repealingarticles 701-705,717q, 717w, and726). For easeofcitation,thisopinion will refertotheprovisions ofTitle 9astheywill be codified inthe 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 abank.” 35DAVIDB. BROOKS,TEXASPRACTICE:COUNTU ANDSPECIALDISTRICTLAW5 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 acommissioners 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.,SanAntonio UnionJunior CollegeDist. 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 alocal government to create debt must be strictly and narrowly construed.“) (citations omitted).

Anumber ofprovisions expressly authorize counties to levy taxes to pay for road and bridge construction,see TEX.CONST.art. III, 552(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.CODEANN. @ 256.001 (Vernon 1999) (authorizing use ofcounty road and bridge fund); 256.05 1(authorizing levy ofbond taxes), and to finance road and bridge construction by issuing bonds and other debt instruments secured by apledge ofthose taxes, see, e.g., ‘Rx. GOV’TCODEANN. $5 1251.001-,005, 1431.001-,013, 1471.001-.087;4 TEX.Lot. GOV’TCODEANN. ch. 271 (Vernon 1999). No provision authorizes a county to simply borrow money from abank to pay for road and bridge construction and topledge fumre advalorem property taxes to repay the loan. Generally, statutes that authorize acounty toborrow funds for road and bridge construction require the issuance and sale ofbonds or other obligations in compliance with statutory procedures, including approval by the Attorney General. See, e.g., TEX.GOV’TCODEANN.4 1431.004(a)(l)(A) (authorizing anticipation notes to pay for acontractual obligation incurred or to be incurred for the construction of apublic work); 

### id. ch. 1471 (providing for county and road district road bonds);j TEX.Lot. GOV’TCODEANN.ch. 271 (Vernon 1999) (authorizing certificates of obligation to pay for contractual obligation tobe incurred forthe construction of any public work). These obligations
are sold to purchasers in exchange for money, which is used for county projects. The obligations evidence aloan made by the purchaser to the county and the county’s agreement to repay the moneyThe Honorable James W. Carr - Page 4 (X-0139)

ithas borrowed. See BLACK’SLAWDICTIONARY178(6th ed. 1990) (a“bond” is“evidence ofadebt
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,TEXASPRACTICE: MUNICIPALLAWANDPRACTICE5 303 (1976) (a ‘bond is evidence of creation of adebt”). In addition, inLasater v.

### Lopez, 217 SW. 373 (Tex. 1919), the Texas Supreme Court recognized the authority ofcounties 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 toborrow the funds and to pledge taxes to repay the debt without issuing bonds orother obligations provided that the county complies with the strictures of section 7 of article XI. However, this provision imposes conditions on the creation ofdebt; itdoes not authorize creation ofdebt. See Tex. Att’y Gen. Op. No. DM-467 (1998) at 7n. 18(“Article XI, section 7 [ofthe Texas Constitution] limits the authority of acounty to incur debt; itdoes not affirmatively authorize counties to levy taxes for any purpose.
. . Therefore, before providing for alevy and sinking fund in order to comply with article XI, section 7, acounty should first verify that it is authorized to levy the tax.“) (citing 

### Mitchell Countyv. CityNat ‘I Bunk, 43S.W. 880, XX3

(Tex. 1898) (Texas Constitution article XI, section 7 “contains no grant ofauthority to levy
a tax”)). Compliance with section 7 of article XI by providing to repay borrowed funds is not a sufficient basis for acounty to borrow the funds. Ifthat 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 acounty to borrow the funds.

Abrief submitted by the Department ofTransportation suggests that the authority ofacounty to borrow money from the State Infrastructure Bank and pledge tax revenues to repay the loan without issuing bonds orother obligations may be inferred from the provisions inthe Transportation Code creating the Bank, particularly section 222.074 of subchapter D, which authorizes the Bank to “extend credit by direct loan,” TEX.TRANSP.CODEANN5 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 acounty 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 avariety ofways: Itmay assist directly by making aloan or, more indirectly, by generally enhancing, insuring, or subsidizing payments securing debt issued by these entities to finance a project. See TEX. TRANSP.CODEANN. 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, $ 151l(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 ofletter 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 apublic orprivate entity in an amount equal to all or part ofthe cost of carrying out aproject 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, acounty 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 Dnor the Transportation Commission rules limit how a“direct loan” istobe evidenced ormade and, in fact, subchapter D appears to contemplate that the Bank will acquire “obligations” that evidence loans ithas made. See TEX.TRANSP. CODE ANN. 5222.075(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 tomake 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 CODEANN. 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 areserve fund on such obligations, presumably enhancing the obligations’ security and marketability.

Neither the county nor the Department ofTransportation asserts that the county cannot obtain
aloan from the Bank using traditional statutory financing methods. Rather, the county indicates that itwould like to obtain aloan 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 avariety of entities in avariety ofways, that it isnot 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 acounty to borrow bank funds isnot essential to the Bank achieving its statutory purpose. Therefore, the authority of acounty toborrow 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 at2 (citing TEX. TRANSP. CODE ANN.$5 251.081 (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 [tobuild and improve county roads and bridges] isimplicit in the grant of authority to levy taxes tobuild 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 adifference 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.” 

### SanAntonio 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)); 

### seealsoAdams 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 forthe proposition that acounty has implied authority to borrow money for bridge and road construction. That opinion concluded that ajoint city-county hospital board isauthorized toborrow funds topurchase equipment and make renovations based on the entity’s express authority to establish and equip ahospital. Its conclusion isexpressly limited to ajoint city-county hospital created under former article 44941 ofthe Revised Civil Statutes. See Tex. Any Gen. Op. No. JM-642 (1987) atX-9. And, in an opinion on acounty’s implied authority to use its credit to purchase or construct ajail 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 ofthe 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
acounty may have implied authority to borrow money, ithas not been followed. We are not aware of any other attorney general opinion concluding that a county has implied authority to borrow funds.


### Insum, 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 acounty to borrow funds for road and bridge construction from the State InfrastructureThe 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 aterm ofyears without issuing bonds or other obligations evidencing the loan. Neither 

### Lasater
v.

### Lopez nor Attorney General Opinion JIM-642 supports the conclusion that acounty 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 forroad and bridge construction.The Honorable James W. Carr - Page 8 (JC-0139)

SUMMARY

Acounty 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