,- 

THE ATTORNEY GENERAL 

0F TEXAS 

October 25, 1988 

Honorable Mike Millsap Opinion No. SM-970 

House Administration 

Texas House of Representatives Re: Constitutionality of a 

P. 0. BOX 2910 plan to finance renovation 

Austin, Texas 78769 of the Capitol (RQ-1468) 

Dear Representative Millsap: 

you ask about the authority of the Texas Public Finance 

Authority to issue bonds under article 601d-2, V.T.C.S. 

Specifically, you ask whether the authority may, without 

executing a lease with the State Preservation Board, issue 

bonds for the renovation of the State Capitol and provide 

that the payment of principal and interest on the bonds will 

be paid from appropriations made directly to the Texas 

Public Finance Authority. 

The Texas Public Finance Authority (the authority) was 

created by the 68th Legislature and was originally called 

the Texas Public Building Authority. Acts 1984, 68th Leg., 

2d C.S., ch. 5, at 15 (repealing original version of Public 

Building Authority Act, Acts 1983, 68th Leg., ch. 700, at 

4360). A 1987 enactment changed the name of the authority 

from the Texas Public Building Authority to the Texas Public 

Finance Authority. Acts 1987, 70th Leg., 2nd C.S., ch. 75, 

p. 234. The general provisions governing the authority are 

set out in article 601d, V.T.C.S. 

Under article 601d the authority may issue and sell 

bonds for the financing, acquisition, construction, repair, 

and renovation of buildings used by state agencies. 

V.T.C.S. art. 601d, § 9. Section 13 states that the bonds 

are payable mNsolely from revenue as provided by this Act"; 

and section 12(a) states that the authority may provide for 

the payment of the principal and interest on the bonds by 

(1) pledging all or part of the designated rents, issues and 

profits from leasing a building to the state or (2) from any 

other source lawfully available to the authority. Section 

13 provides that bonds issued under article 601d are not a 

debt of the state or any state agency and that the bonds 

must contain on their face a statement to that effect. Id. 

p. 4933 
I 

Honorable Mike Millsap - Page 2 (JM-970) 

5 13. The legislature must specifically authorize any 

project for which bonds are sold under article 601d, and the 

bonds must be approved by the attorney general. z!L §§ 10, 

16. 

Soon after the enactment of article 601d, the authority 

proposed a bond issuance to finance the construction of a 

state office building for the Texas Youth Commission and the 

Texas Rehabilitation Commission. The attorney general, 

arguing that the bond issuance would violate several constitutional provisions, refused to approve the proposed bond 

issuance. Therefore, the authority applied to the Texas 

Supreme Court for a writ of mandamus directing the attorney 

general to approve the bond issuance. Texas Public Buildinq 

Authoritv v. Mattox, 686 S.W.2d 924 (Tex. 1985). The 

attorney general argued that the bond issuance would be in 

violation of article 'III, section 49, which prohibits the 

creation of debt why or on behalf of the state." The court 

rejected that argument by pointing out that article 601d 

expressly provides that the bonds are not debts of the state 

and not a pledge of the state's full faith and credit. The 

court also rejected the attorney general's argument that the 

proposed bond issuance would violate article III, section 

44, which prohibits the appropriation of money to any individual on a claim that is not provided for by pre-existing 

law.1 We will return to the court's discussion of article 

III, section 44, after we examine the provisions of the 

statute you ask about, article 601d-2, V.T.C.S. 

After the Supreme Court upheld the provisions of 

article 601d, the legislature enacted article 601d-2 to 

provide a means to finance renovation of the State Capitol. 

Acts 1987, 70th Leg., ch. 626, p. 2407. Article 601d-2 

authorizes the board of directors of the authority to issue 

and sell bonds for that purpose. V.T.C.S. art. 601d-2, .$ 2. 

Proceeds from such bonds are to be deposited in the state 

treasury to the account of the State Preservation Board. 

48, 5 3(a). Article 601d-2 appropriates those funds to the 

State Preservation Board for projects for the repair and 

renovation of the State Capitol. Id. 5 3(b). Section 4 of 

article 601d-2 provides: 

1. The attorney general also argued that the proposed 

bond issuance would be in violation of Article I, section 

17; Article III, section 49a; and Article VIII, section 6, 

of the Texas Constitution. The court rejected all of those 

arguments. 

p. 4934 
Honorable Mike Millsap - Page 3 (JM-970) 

(a) The board [of the Public Finance 

Authority] may provide for the repayment of 

the principal and interest on the bonds 

issued under this Act from any source of 

funds lawfully available to the board. 

(b) From funds appropriated for the 

purpose, the State Preservation Board shall 

pay to the board under a lease agreement an 

amount determined by the board to be 

sufficient to: 

(1) pay the principal and interest on the 

bonds: 

(2) maintain any reserve fund necessary to 

service the debt: and 

(3) reimburse the authority for other 

costs and expenses incurred by the authority 

relating to a project under this Act or to 

outstanding bonds. 

(c) Bonds payable from money appropriated 

by the legislature shall not mature or be 

subject to redemption before September 1, 

1989, and the date of the first interest 

payment to be made from appropriated money 

shall not be scheduled to occur before 

-September 1, 1989. 

Section 6 provides that the State Preservation Board may 

enter into lease agreements under article 601d-2 and may 

spend appropriated funds or other funds for the purpose of 

making lease payments. Section 5 provides that bonds issued 

under article 601d-2 are subject to a number of provisions 

of the Public Finance Authority Act, including section 13, 

which provides that bonds issued under article 601d are not 

a debt of the state or any state agency and that the bonds 

must contain on their face a statement to that effect. Your 

question is whether the authority may, without executing a 

lease with the State Preservation Board, issue bonds for the 

renovation of the State Capitol and "repay the principal of 

and interest on the bonds from direct legislative appropriations for that purpose." 

Although the authority's power to issue bonds for the 

repair and renovation of the State Capitol is not explicitly 

made dependent on the existence of a lease with the State 

Preservation Board, article 601d-2 clearly contemplates that 

P. 4935 
Honorable Mike Millsap - Page 4 (JM-970) 

bonds issued pursuant to that article will be paid from 

revenues from a lease with the State Preservation Board. 

Also, the incorporation of section 13 of the Texas Public 

Finance Authority Act, which provides that the bonds are to 

be revenue bonds,2 indicates that the legislature intended 

2. Article 601d gives the authority power to lease a 

building financed with bonds issued under that article to 

any person or entity if the state fails or refuses to pay 

rental on the building. V.T.C.S. art. 601d, 5 12(d). Thus, 

there would be a potential source of revenue from which to 

pay principal and interest on the bonds even if the 

legislature failed to appropriate money for the lease of a 

building financed under article 601d. However, even if 

there were a lease between the authority and the State 

Preservation Board, bonds issued under article 601d-2 would 

look less like revenue bonds than bonds issued under article 

601d since the legislature did not even attempt to give the 

authority power to lease the State Capitol to a person or 

entity other than the state. 

On the subject of a lease of the State Capitol &o the 

State Preservation Board from the authority, it is 

interesting to note section 11(a) of article 601d, which 

provides: 

Property financed by the authority under 

this Act does not become part of other property 

to which it may be attached or affixed or into 

which it may be incorporated, regardless of 

whether the other property is real or personal. 

The rights of the State Preservation Board in 

property financed by the authority under this 

Act are those of a lessee, and a person claiming 

under or through the State Preservation Board 

does not acquire any greater rights with respect 

to that property. 

That section tracks section 7 of article 601d-2, V.T.C.S. 

Both provisions overrule the common law rule that fixtures 

become part of the real property to which they are attached. 

The provisions are important to the schemes provided for in 

articles 601d and 601d-2 in instances in which the bond 

money is used for repair or renovation of existing state 

buildings because they allow the state to assume the role of 

lessee of improvements to state buildings. It is hard to 

(Footnote Continued) 

p. 4936 
Honorable Mike Millsap - Page 5 (JM-970) 

that the bonds would be payable from revenue from the lease 

of the State Capitol to the State Preservation Board. 

However, we need not determine whether the legislature 

intended article 601d-2 to give the authority power to issue 

bonds without executing a lease with the State Preservation 

Board because we conclude that the proposal you ask about 

would not be permissible under article III, ,section 44, of 

the Texas Constitution. 

Article III, section 44, of the Texas Constitution 

provides: 

The Legislature shall provide by law for 

the compensation of all officers, servants, 

agents and public contractors, not provided 

for in this Constitution, but shall not grant 

extra compensation to any officer, agent, 

servant, or public contractors, after such 

public service shall have been performed or 

contract entered into, for the performance of 

the same: nor grant, by appropriation or 

otherwise, any amount of money out of the 

Treasury of the State, to any individual, on 

a claim, real or pretended, when the same 

shall not have been provided for by 

pre-existing law; nor employ any one in the 

name of the State, unless authorized by 

pre-existing law. 

This means that no money may be appropriated unless, at the 

time the appropriation is made, there is already in force 

some valid law constituting the claim to be paid a legal and 

valid obligation of the state. Austin National Bank v. 

Shevnard 71 S.W.2d 242 (Tex. 1934); State v. Per1 tein 

S.W.2d 1;3 (Tex. Civ. App. - Austin 1934, writ disi#d).' 

79 

In Texas Public Huildina Authoritv v. Mattox, 686 

S.W.2d 924, the court responded to the attorney general's 

argument that appropriations for the purpose of making lease 

payments to the authority would violate article III, section 

44, as follows: 

(Footnote Continued) 

imagine what the substance of the state's leasehold would 

be, however, if bonds issued under article 601d or 601d-2 

were used, for example, for sand-blasting. 

p. 4937 
Honorable Mike Millsap - Page 6 (JM-970) 

The Attorney General argues that any 

appropriation by the Legislature to make 

rental payments to the Authority pursuant to 

the lease agreement must necessarily violate 

the article III, section 44 prohibition 

against the making of grants of money out of 

the State Treasury to an individual on a 

claim when the same shall not have been provided for by pre-existing law. The execution 

of the Lease Agreement between the Authority 

and the Commission under the precise terms 

contained therein is expressly authorized by 

Section 12 of the Act. The manner of 

repayment of the bonds and the manner in 

which the rents and fees to be paid by the 

Commission are to be calculated are likewise 

express;l.euthorized by the Act. We believe 

that expressly authorized by a 

pre-existing statute, an appropriation of 

funds in furtherance of an authorized project 

does not violate article III, section 44. 

The purpose of the article III, section 44 

proscription is the prevention of 'raids' 

upon the State Treasury by private individuals or entities. We consider inapposite 

authorities such as A stun Ntional Bank v. 

Shevnard 123 Tex. 272: 71 S.W.2d 242 (1934) 

because 'here, the Legislature itself ha; 

created the Authority and authorized the 

execution of contracts between it and state 

agencies, which contracts do not otherwise 

violate the state constitution. Appropriations made in furtherance of those contracts 

are fully 'provided for by pre-existing law.' 

Thus, appropriations made in the future by 

the Legislature in fulfillment of the Commission's obligations under the Lease Agreement 

with the Authority are not proscribed by 

article III, section 44. 

686 S.W.2d at 929. In short, the Supreme Court found that 

appropriations to the authority for the purpose of making 

lease payments were proper because the state agencies 

involved had pre-existing authority to enter into leases for 

building space. The proposal you ask about, however, would 

involve leg~islative appropriations made directly to the 

authority for the purpose of paying principal and interest 

on the bonds. Article 601d-2 expressly provides that the 

bonds are not legal obligations of the state and that they 4. 

p. 4938 
, 

Honorable Mike Millsap - Page 7 (JM-970) 

are revenue bonds. Thus, not only would an appropriation 

for the purpose of paying principal and interest on bonds 

issued under article 601d-2 be unauthorized by pre-existing 

law, it would be an appropriation to pay for something that 

the legislature had expressly proclaimed itself unobligated 

to pay. &= Attorney General Letter Advisory No. 107 

(1975). 

It has been suggested that the proposal you ask about 

would not violate article III, section 44, because an 

appropriation to the authority would not be an appropriation 

"on a claim."3 m Jones, me Future of Moral Obliaation 

Bonds as a Method of Government Finance in Texas, 54 Tex. L. 

Rev. 314, 328-30 (1976). The suggestion is that 

appropriation to the authority would avert default on tz: 

bonds and would necessarily avert the assertion of any 

wclaims," i.e., lawsuits. L We disagree with that 

suggestion. If bondholders did sue the state for payment, 

an appropriation to pay those claims would clearly violate 

article III, section 44. Certainly it follows that the 

legislature cannot circumvent article III, section 44, by 

appropriating money for payments it is not obligated to make 

in order to prevent the assertion of Vlaims" not provided 

for by pre-existing law. Therefore, we conclude that the 

proposal you ask about would be impermissible under article 

III, section 44, of the Texas Constitution. 

A proposal whereby the Texas Public 

Finance Authority would issue llrevenuell bonds 

and provide that principal and interest on 

3. It has also been suggested that an appropriation to 

the authority would not be an appropriation to an 

individual. We think, however, that an appropriation to the 

authority for the purpose of paying bondholders is, in 

effect, an appropriation to individuals. See aenerallv 

Austin National Hank v. Shenvard, 71 S.W.2d 242 (Tex. 1934). 

P. 4939 
Honorable Mike Millsap - Page 8 (JM-970) 

the bonds would be paid from direct legislative appropriations would be impermissible 

under article III, section 44, of the Texas 

Constitution.~ 

Very truly yo , J-h . 

JIM MATTOX 

Attorney General of Texas 

MARYXELLXR 

First Assistant Attorney General 

LOU MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAXLXY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Sarah Woelk 

Assistant Attorney General 

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p. 4940