Mr. James PI.Harwell

Executive Director OpinionNo. M-1023

Texas Industrial Commission Re: 814 Sam Houston Building Authority of a home-rule city to form a non-profit Austin, Texas 78711 corporation for the purpose of acqulrlng and improving land for IndustrialdevelopDear Mr. Harwell: ment, and related question.

Your recent letter to this office requesting our opinion concerning the referencedmatter states as follows:

"The City of Waco has proposed to form a non-profit no-share corporation to be known as the Waco Industrial Parks Corporation for the purpose of acquiring and Improving land for Industrialdevelopment. The Waco Industrial Parks Corporationwill also Issue bonds for the purpose of financing the acquisition and Improvementof industrial land. These bonds will be secured solelyby the land purchased by the Corporation. Before forming the nonprofit corporation, the City ofWaco has requested a ruling from the Commissionerof InternalRevenue regarding whether or not the proposedbonds to be issuedby Waco Industrial Parks Corporationwill be tax-exempt. The City of Waco has sent its representatives to Washington and met with the I.R.S. regarding this application.
'Therehas been only one question raised with regard to the application and that is whether or not the Cjtv of Waco has the authority to form a non-profit corporation such as Waco Industrial Parks Corporation for the purpose of acquiring and improving land for industrialdevelopment together with the

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Issuing of bonds securedby land to accomplish this purpose. We request a ruling from the Attorney Ceneral as to the following questions:
"1

. Does a home-rule city such as the city ofWaco have the authority to form such a nonprofit corporation for the purpose of acquiring and Improving land for industrialdevelopment.

“2. Can the Industrial Parks Corporation finance the acquisition and improvementof land for industrial sitesby issuing tax-exemptbonds which are .,olely

securedby the land which the corporation owns. The credit of the City of Waco will not be pledged In any way to secure these bonds.

.,"The City of Waco does not contemplate proceedingsunder the provisionsof Senate Bill 803, Acts of the 62nd Legislature. We request your opinions on the above two questions, therefore,without reference to this Act."

As you have stated that the City of Waco does not contemplate proceedingspursuant to SenateBill 803, Acts 62nd Legislature,Regular Session (1971), chapter 840, page 25% (Article 5190.1,Vernon's Civil Statutes--theBmployment, Industrialand Health Resources DevelopmentAct of 1971), this Opinionwill be renderedwithout reference to that Act.

Two constitutionalprovisions are at issue in the situation presented in your letter. One is Section 52, Subdivision (a) of Article III of the Constitutionof Texas which provides:

"Exceptas otherwiseprovidedby this section, the Legislature shallhave no power to authorize any county, city, town or other political corporation or subdivisionof the State to lend its credit or to grant publicmoney or thing of value in aid of, or to any individual,association or corporationwhatsoever, or to become a stockffolder in such corporation,associationor company.
The other provision at issue is Section 3 of ArticleXI of the Constitution of Texas, which provides:

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"No county, city or other municipal corporation shall hereafterbecome a subscriber to the capital of any private corporation or association,or make any appropriationor donation to the same, or in anywise loan its credit; but this shall not be construed to In any way affect any obligationheretoforeundertaken pursuant to law."
The Charter of the City of Waco grants the City broad powers to adopt and Implementmeasures deemed beneficial to the city. It may provide, as a home rule city, anything not inconsistentwith the Constitutionand statutes. 39 Tex.Jur.2d 642- 644, Municipal Corporations,Sec. 312. Section 2 of Article I of itscharter provides, in part, as follows:

"TheCity shallhave all the power granted to citiesby the Constitutionand Laws of the State of Texas togetherwith all of the Implied powers necessary to carry into execution such grantedpowers
. . . The powers hereby conferred upon the City shall include,but are not restricted to, the powers conferred expressly and permissively by Chapter 147, Page 307,.of the Acts of the 33rd Legislature,Regular Session, enacted In 1913pursuant to the Home Rule Amendment of the Constitution of Texas, known as the Enabling Act and includingArticles 1175, 1.176,1177, 1178, 1179, 1180 of the Revised Civil Statutes of Texas, 1925, as now or hereafter amended, all of which are hereby adopted. In addition to the powers enumeratedherein, and subject only to the limitations imposedby the State Constitution, the State laws, and this Charter, the City shall have, without the necessity of express enumeration in this Charter, each and every power which, by virtue of Article XI, Section V, of the Constitution of Texas the people of the City are empoweredby election to grant to or conferupon the City by expressly and specificallygranting and enumerating the same herein.

. . .'
This office has been furnished with copies of: (a) proposed authorizingresolution of the City Council of WaCO authorizing the incorporation of the Waco Industrial Parks

-4987-Mr. James H. Harwell, page 4 (M-1023)

Corporation, (b) proposed articles of incorporation of the Corporation, (c) proposedby-laws of the Corporation, (d)pro forma copies of the bonds to be issued, and (e) summary of the trust indenture.

On examining the foregoing copies,we have noted that no directors of the Corporationmay be appointedwithout the advice and consent of the City Council of Waco , and that neither the articles of incorporationnor the by-laws of the Corporationmay be amended or restated, as the casemay be, without the advice and consent of the City Council ofWaco.

Article 1396-3.01,Vernon's Civil Statutes, requires a non-profit corporation, such as the proposedWaco Industrial Parka Corporation, to bE incorporatedby three naturalpersons. We note that Article IX of the proposed articles of incorporationprovides that any three of the initial twelve directors of the Corporation are to serve as incorporators. Also, ArticleVI of the Articles requires that the "corporationshall never have any members."

We are of the opinion that the foregoing instruments clearly show that the City Council of Waco will have, through its powers of advice and consent, perpetual,meaningful, and absolute control over the directors,and affairs of, the proposed Corporation, yet the City participation through the incorporatorsand directors will not violateArticle III, Section 52(a) or ArticleXI, Section 3 of the Texas Constitution.

Though the Issues raised in your request for this opinion are of fir.st

impression In this State, there are several earlier Texas cases that are relevantby analogy.

In the case of Barrington v. Cokinos, 161 Tex. 136, 338 S.W.2d 133 (1960),the Supreme Court of Texas had occasion to construe Section 3 of ArticleXI, supra, and held that a city could legally contract to help pay for the substitutionof railroad right of way through town to eliminate some grade crossings,to be financed by a bond Issue authorizing same. In discussing the constitutional provision, the Court said:

,I

. . . "Underthe Constitutionof 1896 and a statute enactedby the Legislature in 1871, the counties and municipalities of Texas were

-4988-Mr. James H. Harwell, page 5 (M-.1023)

authorized to aid such constructionby taking stock In and making loans or donations to rail.- road companies. The primary pupse of Article XI. Section 3. is to devrive these nolltical subdivisions-ofthat power. It does not prohibit all business dealings w%%h private corpora -and on8 ut municipal funds or creditmav not be used simnlv to obtain for the communityand Its citizens the generalbenefits resulting from the operation of such an enterprise. On the other hand an expenditure for the direct accomplishment of a legitimate public and municipal purpose Is not rendered unlawful by the fact that a privat$ly owned businessmay be benefited thereby. 161 Tex. at 145, 338 S.W.2d at 140. .(JQnphasls added.)

In Bland v. City of Taylor, 37 S.W.2d 291 (Tex.Clv.App.), affirmed 123Tex. 39 67 S W 2d 1033 (1931),the courtheld that the City of Taylor hid the'aithority to establish a board of city development (in effect, a chamber of commerce), out of.ptblic tax funds, and that It was Immaterialwhether suchboard supplanteda private association theretoforemaintained by private subscription. The court said:

,I

. . .The effect of the Home-Rule Amendment (art. 11, sec. 5) to the Constitution is to grant to home-rule cities full powers to do by city chartersand ordinances, so long as same are not in violationof the Constitution or general laws of the state,all things which the Legislature could theretoforehave granted to them. That is', when the validity of a charter provision or ordinance of a home-rule city is called in question, the inquiry Is not whether there is express or implied legislativeauthorization for same,but whether suchpower of the city to so act is inhibited by the Constitution.

. . "Theprovisions of the Constitutionwhich appellantsassert are violated are: Article 3, Section 52; article 8, section 3; and article 11, section 3.

. . .

-4989 -Hon. James H. Harwell, page 6 (M-1023)

VTheseprovisions clearly contemplateand prohibit, we think,benefits at public expense attempted in behalf of individuals, corporations or associations,as such.actinn lndeoendentlr and conducting some enterprise 6f their own, such as are usually conducted for profit and cornme= 'intheir nature. In the instant case, no aid was attempted to the chamber of commerce,acting as.an independent association. The city undertook to, and did, create saidboard of city developmentwith defined duties, not to aid any association,but as a part of itsmunicipal function. Obviously,we think, there was no violation of article 3, section 52, nor of article 11, section 3, of the Constitution.
"If in fact said cityhad authorityunder the Constitutionand laws of the state to do the thlnns authorized by Its charter, it is wholly immateriai whether suchboard of city development supplanted a private association theretoforemaintainedby i

. . 37 S W 2d

. . at 292-

In the case of City of Sweetwaterv. Qeron, 380 S.W.2d 550 (Tex.Sup. 1964), the Supreme Court of Texas, by way of dictum, said: "Although the broad powers granted to home rule cities by the Constitution,Article XI, Section 5, Vernon's Ann.%., may be limited by acts of the Legislature, it seems that should the Legislaturedecide to exercise that authority its intention to do so should appearwith unmistakable clarity." 380 S.W.2d at 552.

In City of Corpus Christ1 v. ContinentalBus Systems, Inc., 445 S.w.2d 12 (T I 19b9 , no writ) th t held that the City of Corpu~&~~8P~ad power, as a Lomeez%?city, to conduct a bus service outside its city limits and suburbs. The court held that:

"HomeRule Cities have full power of selfgovernment, that Is, full authority to do anything the Legislature could theretoforehave authorized them to do, the result being that Home Rule Cities look to the acts of the Legislature not for grants

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of power to such cities but only for limitatlons of their powers. Forwood v. City of Taylor, 147Tex. 161, 214 S.W.2d 282 (1948); State of Texas ex rel Rose v. City of LaPorte, 386 S.W.2d 782, Tex.Sup. (lg65),Art. 11, Sec. 5, Texas Constitution.
"TheMotor Bus Act,Art. glla, V.T.C.S., referred to and relied upon by appellees as prohibiting the operationof the City which were enjolned,definesin Sec. l(a) the term 'corporation' as meaning a 'corporation,.company, association, or joint stock association.' This definition does not include a municipal corporation. The decisions on this point are clear, authoritative and recent. In The State of Texas v. Central Power and Light Company, 139 Tex. 51, 161 S.W.2d 766 (1942), It was stated, 'Whilethere are exceptions,depending on the peculiarwording of the statuteunder consideration,as a general rule the word 'corporation'is construed to apply only to private corporations, and does not includemunicipal corporations,unless the statute expressly so provides.' This case on this point has been followedwithout question and was last cited and followed by our Supreme Court in City of Houston v. Renault, Inc., 431 s.w.2d 322 (lg68)." 445 S.W.2d at 16. (Emphaslsadded).

You have stated that the City ofWaco wili not be liable for the indebtednessrepresentedby the bonds to be Issued. It thus appears that the City's only involvementwith the plan will be relative to the charteringand the appointing of directors of the non-profit corporationthat operates the Industrialpark and holds title to its property.

We are of the opinion that, under the above facts, there Is no lending of the city's credit, no granting of public~money or thing of value9 that is prohibited by the Constitution.

With reference to the question of whether the City will become a stockholderor subscriber to the capital ofa private

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corporation,and hence engage in an unconstitutionalactivity,we are of the opinion that the constitutionalprohibitionsdo not apply to the situationoutlined in your.letter, inasmuchas the City will merely charter a no-stocknon-profit corporationand there shallbe no members of the corporation.

A leading treatise in the field of municipal law has stated:

"State constitutionsusually deny, in express terms, power to the legislature to authorize any municipal corporation to lend its credit, or to grant publicmoney or thing of value In aid of, or to any Individual,association or company." 15 McQulllin on Municipal Corporations 67, sec. 39.26 (1970).
The same treatise goes on, however, to state that "The constitutionalprohib$tion is aimed at private, and not publicly owned, corporations. Id. at p. 68. (Emphasisadded) Th W rndustrial Parks Corporation, caused to be charteredb; theeCitzT and having its Board of Directors appointedwith the advice and consent of theWaco City Council, can logicallybe classifiedas a publicly-ownedand controlled,non-profit corporation.

of a same In continuing Its discussion of the legality vel non munlclpallty's lending its aid to a private enterpzene treatise goes on to state: "Although 'charitablepurposes' are excepted in some states from application of the constitutional prohibition, It seems to be a matter of dispute as to whether aid or gifts to non-profit enterprises are within a constitutionalprohibition." m. at p. 80, sec. 39.30. (Emphasisadded.)

Because your request raises an issue of first impression

_ in this State,we must look to the courts of our sister states In order to ascertainhow the situationpresented in your letter has been judiciallyresolved.

We believe the plan set forth In your letter can be lenallv sanctionedby applying the precedentof Cosentlno v. --Y---I City of Omaha, 183 N.W'.2d475 (Neb.Sup.1971), to which we adhere. In ?fii? me, the Supreme Court of Nebraskaupheld the validity of an

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agreement for the treatment of packing house waste between the City of Omaha and a non-profit corporation in a facility that was financedby bonds Issuedby the non-profit corporation. The case also expresslyheld that a city's directing credit to a public purpose,with an Incidentalbenefit to a private corporation,did not violate the Nebraska constitutionalprohIbitionagainst a munlclpallty~s lending Its credit to a private corporation. 183 N.W.2d at 479. But cf., Ontario v. COL&I~~~~ ;.2d b93 (Cal.SUp.1970) Superior Court of San Bernardino See, generally, 152 A L R Constitutionalor statuioryprovisionsprohibitin; ' municipalitiesor other subdivisions of the state from subscribing to, or acquiring stock of, private corporation."

This officehas heretofore held that a city and a county had the joint authority to act as a communityaction agency or to designate another group to serve as suchunder the~EconomlcOpportunity Act of 1964 in order to carry out variousanti-poverty programswhich were within the powers of the city and county. Attorney General'sOpinion No. M-689 (1970).

In view of the foregoing authorities,you are advised that a home.-rule

city has the authority to cause to be formed a non-profitcorporation for the public and governmentalpurpose of acquiringand,improving land for industrialdevelopmentunder the federal government'sModel City's Program,whereby the City of Waco will receive the benefit of planned industrialdevelopment and other attendant benefite of commercialand industrial expansion of the economy, including employment opportunitiesfor its citizens. The Legislaturehas recognized this governmental purpose and created the Texas Industrial Commission to promote and encourage industrialdevelopment within the state and aid the various communities in this state in this purpose, including the authority to plan, organize, and operate such a program. Article 6144e, Section 4, and Article 5190 l/2,Vernon's Civil Statutes. You are further advised that the proposedWaco Industrial Parks Corporationmay finance the acquislilonand lmprovement of land for Industrial sites by Issuing tax exemptbonds, which are privately financed and solely securedby ,theland owned by the Corporation,provided the credit of the City of Waco will not be pledged In any way to secure suchbonds.

%e'express no opinion on whether the bonds in questionare in fact tax exempt.

-4993-Mr. James H. Harwell, page 10 (M-1023)

SUMMARY

Pursuant to Section 52(a) of Article III and Section 3 of ArtLcleXI, of the Constitution of Texas: (1) A home-rule city has authority to cause to be formed a non-profit,no-stock, no-member corporation for the purpose of acquiring and lmproving land for industrialdevelopment; and
(2) The proposedWaco Industrial Parks Corporationmay finance the acquisition and lmprovement of land for Industrial sites by Issuing tax-exemptbonds which are solely securedby the land owned by the Corporation,provided the credit of the City of Waco Is in no way pledged to aecure suchbonds. n

Preparedby Austin C. Bray, Jr. Aasletant Attorney General

APPROVED: OPINION COMMITTEE

Kerns Taylor, Chairman W. E. Allen, Co-Chairman Hal Sharpley Mel Corley James Broadhurst Houghton Brownlee Roger Tyler
SAM MCDANIEL Staff Legal Assistant

ALFREDWALKER Executive ABSiStant
NOLA WHITE First Assistant -4994-