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AnEqualOPPOftUnitYl AftirmstiveActionEmployer 

# TheAttome,)/GeneralofTexas

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;. Anagency 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, thehonorable Jay T. Kimbrough - Page 2 (JPI-274)

Agency cannot receive interest-free loans from Bee County’s depository bank.If, on the other tla.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 mayprohibit 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!aeState 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 mayoccasionally 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). Anylending of credit must be intended to accomplish an authorized county purpose ::r:d must be accompanied by conditions to

P. 1220Honorable 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 TOMGREEN First Assistant Attorney Ger:e,ral DAVIDR. RICHARDS Executive Assistant Attorney, General RICKGILPIN Chairman, Opinion Committee Prepared by Jennifer Riggs Assistant Attorney General APPROVBD: OPINIONCOMMITTEE Rick Gilpin. Chairman Colin Carl Susan Garrison Tony Guillory JimMoellinger Jennifer Riggs