JIM MAllOX 

Attorney General 

Supreme Court BuildIn 

P. 0. Box 12545 

Austin. TX. 78711. 2549 

51214752501 

Telex 91OlS74-1357 

TeIecoDier 51214750288 

714 Jackson. Suite 700 

Dsllar. TX. 752024506 

2141742-0944 

4824 Alberta Ave., Suit4 1.50 

El Paso, TX. 799052793 

91515~3dS4 

Jo1 Texas, Suite 700 

Houston. TX. 77002-3111 

713l2255888 

806 Broadway. Suite 312 

Lubbock, TX. 79401-3479 

8061747.5239 

4309 N. Tenth. Suite B 

McAllen. TX. 78x)l.lSSS 

5121682.4547 

2&l Main Plaza. Salt0 400 

San Antonio. TX. 782052797 

51212254191 

An Equal OPPOftUnitYl 

Aftirmstive Action Employer 

The Attome,)/ General of Texas 

Dlzcember 27. 1984 

Ronorable Jay T. Kfmbrough 

Bee County Attorney 

Room #204, Courthov se 

Beeville, Texas 78102 

Opinion No. JM-274 

Re: Whether the Bee County 

Community Action Agency may 

receive Interest free loans 

from a bank which is a depository for Bee County 

Dear Mr. Kimbrough: 

You ask whether the Bee County Comnity Action Agency 

[hereinafter Agency] may receive an interest-free loan from a bank 

which is a depository for Bee County. Apparently. the bank in 

question gives the Agency interest-free loans based on the county’s 

credit with the b,%nk. You refer to the Agency as a not-for-profit 

agency but indicate that it is organized by the Bee County 

Commissioners Court and funded through various government programs. 

Regardless of whether the county is even authorized to organize this 

Agency. we conclude that such an Agency cannot receive interest-free 

loans in the instances described herein. 

The basis for this conclusion differs according to whether the 

Agency is an indepmsndent entity or whether it is an “extension” of the 

county. Because 1,t is unclear which type of entity is presently in 

question, each deserves analysis. 

If the Agent:? in question is an “extension” of the county, it 

cannot receive inl:erest-free loans because the county itself cannot 

receive such loant;. An agency or arm of a local governmental entity 

has no greater pov’er than the local governmental entity which creates 

the agency. Attorney General Opinion JM-220 (1984). Counties possess 

only the powers expressly or by necessary implication authorized by 

the Texas Constitut:ion or statutes. _Canales v. Laughlin, 214 S.W.?d 

451 (Tex. 1948). Counties lack authority eo borrow money except 

through the issuance of bonds, certificates of. obligation, or other 

forms of indebtedness which are specifically authorized by law. See 

Tex. Const. art. XI, 57; Brown v. Jefferson County, 406 S.W.Zd 185 

(Tex. 1966) ; see also Tex. Const. art. III. 552-b; art. VIII, 59 -mm 

(because counties ere limited in property taxes they may levy, their 

power to incur debt is limited); see generally V.T.C.S. arts. 701 g 

-, 2368a.l; cf. V.T.C.S. arts. 1644~. 1644c-1. 

-- Accordingly, the 
honorable Jay T. Kimbrough - Page 2 (JPI-274) 

Agency cannot receive interest-free loans from Bee County’s depository 

bank. 

If, on the other t la.nd , the Agency is an independent 

not-for-profit legal entity with which the county merely contracts, 

a, for the delivery of certain authorized social services on an 

independent contract basis, then the Texas Constitution may prohibit 

the loans in question. If the Agency is a private, not-for-profit 

entity, and thus not connected to the county, it would be free to seek 

loans from any bank, subject to legal limitations applicable to 

not-for-profit corporations and associations which are not in issue 

here. Apparently, the bank in, question gives the Agency interest-free 

loans based on the county’s c,redit with the bank. If the county acts, 

in this manner, as a guaran:or or surety for these loans, the Texas 

Constitution prevents counties from lending their credit to any 

individual, association, or cclrporation. Art. III, §52(a). 

Article III. section 52(e) provides that 

Pxcept as otherwis~z provided by this section, the 

Legislature shall have no power to authorize any 

county, city, town or other political corporation 

or subdivision of t!ae State to lend its credit or 

to grant public money or thing of value in aid of, 

or to any individr~~l. association or corporation 

whatsoever, or to become a stockholder in such 

corporation, assoc:i.ation or company. (Emphasis 

added). 

See also Tex. Const. art. XI, 513.7. 

The Texas Constituticn prohibits the use by a political 

subdivision of its public funds or credit for private purposes. State 

v. City of Austin, 331 S.‘rJ.2d 737 (Tex. 1960). I 

delineates exactly what con:;t:itutes a public purpose. Nevertheless, 

!Io fixed rule 

the prohibition of article III. section 52, extends to private, 

not-for-profit organizationa. See Attorney General Opinions MW-329 

- 

(1981); V-173 (1947). 

Consequently, although the county may occasionally contract with 

a private entity to deliver certain services which the county is 

specifically authorized to provide, a county may not make an 

unconditional grant of its #::redit to a private entity. See Attorney 

General Opinion H-1189 (1978). An incidental benefit tz private 

person or entity is not prohibited. Attorney General Opinions JM-220 

(1084); MW-423 (1982); see Barrington v. Cokinos, 338 S.W.2d 133 (Tex. 

- -- 

1960). Virtual donations z.re prohibited. Attorney General Opinion 

JM-65 (1983). Any lending of credit must be intended to accomplish an 

authorized county purpose ::r:d must be accompanied by conditions to 

P. 1220 
Honorable Jay T. Kimbrough - Page 3 (JM--274) 

ensure the uae of county credit for a public purpose. See Attorney 

General Opinions m-220 (19184); JM-103 (1983); MW-423 (1982); MU-60 

(1979). 

If the Bee County Cormsunity Action Agency in an 

"extension" of Bee County, it cannot receive 

intereat-free loa!>:, from a bank which is a 

depository for Bee County. If, on the other hand, 

the Agency is an independent, private. legal 

entity, any lending of county credit as a 

guarantor or surety on loans to the Agency on an 

independent Contl'sct basis must be for an 

authorized county purpose and must have conditions 

attached to ensure the accomplishment of that 

county purpose. 

Attorney General of Texas 

TOM GREEN 

First Assistant Attorney Ger:e,ral 

DAVID R. RICHARDS 

Executive Assistant Attorney, General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

APPROVBD: 

OPINION COMMITTEE 

Rick Gilpin. Chairman 

Colin Carl 

Susan Garrison 

Tony Guillory 

Jim Moellinger 

Jennifer Riggs