The HonorableRobert E. Schneider Opinion No. H-869

ExecutiveDirector Texas Water Rights Commission P. 0. Box 13207 Austin, Texas 78711 Re: Whether section 25.031(c),Water Code, authorizing special districts to purchase a portion of the capacity of a regionalwaste disposal system, can be applied constitutionally to bonds authorizedprior to the passage of the statute.
Dear Mr. Schneider:
YOU have requested**our** opinion regarding the authority of a specialdistrict to use bond proceeds to purchase a portion of the capacity in a regionalwaste disposal system.

your first question is:
whether Section 25.031(c) (WaterCode] is a constitutionallyvalid authorization for InvernessForestWater Control and Improvement District to use the (previouslyvoted] bond proceeds

. . . to purchase capacity in the Gulf CoastWaste DisposalAuthority's regional sewage treatmentplant.

. . . Section 25.031(c)provides in pertinentpart:

Notwithstandingany provision of this chapter or any other law to the contrary, a districtmay use the proceeds of bonds issued for the purpose of constructinga

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waste disposal system or systems, and payable wholly or in part from ad valorem taxes, for the purchase of capacity in, or a right to have the wastes of the district treated in, a waste collection, treatment,or disposal system and facilitiesowned or to be owned exclusively or in part by anotherpublic agency, and a districtmay issue bonds payable wholly or in part from ad valor-emtaxes specifically for suchpurpose if a majority of the resident electors of the district have authorized the governing body of the district to issue bonds for that purpose or for the purpose of constructing a waste disposal system or systems.'The bonds shall be issued in accordancewith the provisions of, and shall be subject to the same terms and conditions of, the laws authorizing the district to issue bonds for the purpose of constructingwaste collection, treatment,and disposal systems, except as otherwise provided in this subsection.

In brief, this question turns on whether section 25.031(c) of the Texas Water Code, as to bonds authorizedprior to its enactment, alters the result of Attorney General Opinion H567 (1975)rwhich indicated that proceeds from the sale of bonds in 1965 by InvernessForest ImprovementDistrict could not be used to contract for sewage disposal serviceswhere the district would neither own nor operate the facilities. While section 25.031(c) is designed to permit the "purchase of capacity" type transactionwhich Attorney General Opinion H-567 (1975)held'to be unauthorized, the enactment of that section does not change the basic results of Opinion H-567 concerning the Inverness Forest "specialdistrict." First, there is the obvious problem of applying section 25.031(c)retroactively. Tex. Const. art. 1, 5 16. Second, as initiallydetermined in Attorney General Opinion H-567 (1975),bond proceedsmay only be used for the purposes for which theywere voted. It is clear that a resolution calling a bond electionbecomes a part of the contract and agreement between the voters and the District, should the voters authorize the issuanceof the bonds. Crowell v 2

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Cammack, 40 S.W.2d 259 (Tex.Civ. App. -- Amarillo 1931, no writ). To hold that the Legislature could change the agreement between the voters and the district could constitute an impairmentof the obligation of contracts. Tex. Const. art. 1, 5 16. Third, the Legislature cannot, by legislative enactment,alter the results or effect of an election held pursuant to a constitutionalmandate:

[TlheLegislature shall not authorize the issuanceof any bonds or provide for any indebtednessagainst any reclamationdistrict unless such proposition shall first be submitted to the qualified property tax-paying voters of such district and the proposition adopted. Tex. Const. art. 16, 9 59(c). Ci&@ Aransas Pass v. Keeling, 247 S.W. 818 (Tex.Sup.

In shortxnrproceeds must be used for purposes for which theywere voted. Lewis v. 89 S.W.Zd 975 (Tex.Sup. City of Fort Worth, 1936);aZingtonY.Cokinos, 338 S 133 (Tex.Sup. 1960);City of Beaumont v. Pzddie, 65 S.W.Zd 434 (Tex.Civ. App. -- AustTii1933, no Einerefore, the answer to your first question is that the enactment of section 25.031(c)of the Texas Water Code does not alter the conclusions reached in Attorney General Opinion H-567 (1975) regarding the use of previouslyvoted bond proceeds. .W.2d

If the result of H-567 is not affected and the special district must use the bond proceeds to purchase a proprietary interest in the regional sewage plant rather than entering into a service contract for plant capacity,you ask thatwe

determine the nature and scope of the proprietary interestwhich must be purchased

. . . . It is pertinent to note that the bond propositions submitted to the electorate of the Inverness Forest ImprovementDistrict on August 14, 1965, authorized bonds

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The Honorable Robert E. Schneider - page 4 (H-869)

for the purpose of Pmk=zwg- structinqa water an system and a sewage disposal plant for the district.

. . . (Emphasisadded). Furthermore, similarpropositionswere passed in October 16, 1967 and February 14, 1970 elections,which provided bonds

for the purpose of purchasing and/or [February14, 1970proposition used "and" instead of "and/or"]constructing extensions and additions to the district's existingwater and sanitary sewer system and drainage system.

. . . Although Opinion H-567 did not involve themethod to be used or what would constitute "purchasingand constructing," it would certainly be within the "sound judgment and discretion" of the specialdistrict to purchase and construct as they determine within the electoral guidelines. Barrington v. Cokinos, , at 142. Therefore, itwould not be iiiirmle the specialdistrict to make a determination that purchasing and constructing,or causing to be constructed, an undivided, legal interest in a regionalwaste plant would satisfy the electoralmandate. The specialdistrict would own a portion of the physicalplant rather than the mere contractual right to a guaranteed use or portion of the capacity of the regional system. Thus, the specialdistrict would have used the bond proceeds to purchase and construct a facility which the electoratehad authorized.
Since the issuanceof bonds creates a contractbetween the issuer and the bondholders,C$Cy of Aransas Pass v. - - nthz the definltlonof Keeling, supra, it shouldbe not; Wsystem" in each Bond Order is as follows:

The term system as used in this order shall include and mean water works and sanitary sewer system owned and operated by the District, and all extensionsand improvements thereof and improvements theretowhensoevermade.

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The Honorable Robert E. Schneider - page 5 (H'-869)

Neither the bond electionpropositions,nor the Bond **Order** specifies how the facilities are to be purchased and constructed. It is, therefore,obvious that the portion of the regional system purchasedby the special districtwould become part of the "system." Provisions of Chapter 25 of the Texas Water Code also support the proposed transaction since "[a]districtmay contract

. . . to purchase

. . facilities or systems." Water Code 9 25.022. disposal See Water Code §s 25.024; 25.025; 25.027; 27.028, Therefore, in answer to your second question,we believe that it would be reasonable, and in pursuance of the electoralmandate as well as the Texas Water Code, to approve issuance and use of bonds to purchase an undivided, legal interest in a regional system, if the special district decides to do so in the exercise of its discretion.

In your third and final question, you ask: [Ilfthe district shouldpurchase a proprietary interest in the,regional system, to what extentmust the district participate actively and directly, if at all, in the operation and maintenance **of** the system? Neither Attorney General Opinion H-567 (1975),nor the bond electionpropositions or Bond Orders specifically address this question. However, provisions of Chapter 25 of the Texas Water Code specificallypermit such operation contracts between a specialdistrict and a "district." Water Code SS 25.027; 25.028. Furthermore, one political subdivision of the State, such as InvernessForest, can transfer money to anotherpolitical subdivisionof the State where the latter assumes the unqualifiedburden and duty of using it for a governmental functionof the former;however, there must be a guid pro w contract. Bexar County Hospital District v. Crosby, 327 S.W.2d 445 (Tex.Sup. 1959): San Antonio Rser Authorit

.--f-Y vShepherd, 299 S.W.Zd 920 (Tex. -57);clty e Aransas Pass v. Keeiinq, **SUp;.thWZn** SOI the operation contract shouldprove e only operation of the facilities in questionwith sufficient assurance that the special district does not delegate away

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its governmentalpowers. s.W.2a 103 (Tex.Sup. 1975 of an undivided, legal interest in the regionalplant, to be operated by a "district,"would not be an unlawful delegation of governmentalpowers, since the specialdistrictwould be using the services of the operating agencywithout delegating rate making or other powers, Therefore, in answer to the third question, the special districtmay enter into an operation contractwith a Texas Water Code "district."
SUMMARY
The enactment of section 25.031(c)of the Texas Water Code does not affect the validity of Attorney General Opinion H-567 (1975)as it applies to the Inverness Forest ImprovementDistrict. The special district, limitedby the bond election proposition submitted,may not acquire a contractual right to purchase a percentage of capacity in a regional system. However, the specialdistrict, in its discretion,may use bond proceeds to purchase an undivided, legal interest in a regional system. The specialdistrict may contractwith a "district"for the operation of its portion of the regional systemunder Chapter 25 of the Water Code. Very truly yours,

Opinion Committee Texas

jwb

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