Mr. James PI. Harwell 

Executive Director 

Opinion No. 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 Industrial developDear Mr. Harwell: ment, and related question. 

Your recent letter to this office requesting our opinion 

concerning the referenced matter 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 

Industrial development. The Waco Industrial 

Parks Corporation will also Issue bonds for 

the purpose of financing the acquisition and 

Improvement of industrial land. These bonds 

will be secured solely by the land purchased 

by the Corporation. Before forming the nonprofit corporation, the City of Waco has requested a ruling from the Commissioner of 

Internal Revenue regarding whether or not the 

proposed bonds to be issued by Waco Industrial 

Parks Corporation will be tax-exempt. The 

City of Waco has sent its representatives to 

Washington and met with the I.R.S. regarding 

this application. 

'There has 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 

industrial development together with the 

-4985- 
Mr. James H. Harwell, page 2 (M-1023) 

Issuing of bonds secured by 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 

of Waco have the authority to form such a nonprofit corporation for the purpose of acquiring 

and Improving land for industrial development. 

“2. Can the Industrial Parks Corporation 

finance the acquisition and improvement of land 

for industrial sites by issuing tax-exempt bonds 

which are .,olely secured by 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 

proceedings under 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 proceedings pursuant to Senate Bill 803, Acts 62nd Legislature, Regular Session (1971), chapter 840, page 25% (Article 

5190.1, Vernon's Civil Statutes--the Bmployment, Industrial and 

Health Resources Development Act of 1971), this Opinion will be 

rendered without reference to that Act. 

Two constitutional provisions are at issue in the situation 

presented in your letter. One is Section 52, Subdivision (a) of 

Article III of the Constitution of Texas which provides: 

"Except as otherwise provided by this section, 

the Legislature shall have no power to authorize 

any county, city, town or other political corporation or subdivision of the State to lend its 

credit or to grant public money or thing of value 

in aid of, or to any individual, association or 

corporation whatsoever, or to become a stockffolder 

in such corporation, association or company. 

The other provision at issue is Section 3 of Article XI 

of the Constitution of Texas, which provides: 

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Mr. James H. Harwell, page 3 (M-1023) 

"No county, city or other municipal corporation shall hereafter become a subscriber 

to the capital of any private corporation or 

association, or make any appropriation or donation to the same, or in anywise loan its credit; 

but this shall not be construed to In any way 

affect any obligation heretofore undertaken 

pursuant to law." 

The Charter of the City of Waco grants the City broad 

powers to adopt and Implement measures deemed beneficial to the 

city. It may provide, as a home rule city, anything not inconsistent with the Constitution and statutes. 39 Tex.Jur.2d 642- 

644, Municipal Corporations, Sec. 312. Section 2 of Article I 

of itscharter provides, in part, as follows: 

"The City shall have all the power granted 

to cities by the Constitution and Laws of the 

State of Texas together with all of the Implied 

powers necessary to carry into execution such 

granted powers . . . 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 1913 pursuant to the Home Rule Amendment of the Constitution of Texas, known as the Enabling Act and including Articles 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 

enumerated herein, and subject only to the 

limitations imposed by 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 empowered by election to grant 

to or confer upon the City by expressly and 

specifically granting and enumerating the same 

herein. . . .' 

This office has been furnished with copies of: (a) 

proposed authorizing resolution 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) proposed by-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 Corporation may be appointed without the advice 

and consent of the City Council of Waco , and that neither the 

articles of incorporation nor the by-laws of the Corporation may 

be amended or restated, as the case may be, without the advice 

and consent of the City Council of Waco. 

Article 1396-3.01, Vernon's Civil Statutes, requires a 

non-profit corporation, such as the proposed Waco Industrial Parka 

Corporation, to bE incorporated by three natural persons. We note 

that Article IX of the proposed articles of incorporation provides 

that any three of the initial twelve directors of the Corporation 

are to serve as incorporators. Also, Article VI of the Articles 

requires that the "corporation shall 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 incorporators and directors 

will not violate Article III, Section 52(a) or Article XI, 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 relevant by 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 Article XI, supra, and held that a city could 

legally contract to help pay for the substitution of 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 

. . . 

"Under the Constitution of 1896 and a 

statute enacted by the Legislature in 1871, 

the counties and municipalities of Texas were 

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

authorized to aid such construction by 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-of that power. It does not prohibit all business dealings w%%h private corpora -and on8 ut municipal funds 

or credit mav not be used simnlv to obtain for 

the community and Its citizens the general benefits 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 

business may 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 123 Tex. 39 67 S W 2d 1033 (1931), the court held 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 Immaterial whether such board supplanted a 

private association theretofore maintained 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 

charters and ordinances, so long as same are not 

in violation of the Constitution or general laws 

of the state, all things which the Legislature 

could theretofore have 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 legislative authorization for same, but 

whether such power of the city to so act is inhibited by the Constitution. . . 

"The provisions of the Constitution which 

appellants assert 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) 

VThese provisions clearly contemplate and 

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= 

'in their 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 said board of city development with 

defined duties, not to aid any association, but as 

a part of its municipal 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 city had authority under the 

Constitution and laws of the state to do the thlnns 

authorized by Its charter, it is wholly immateriai 

whether such board of city development supplanted 

a private association theretofore maintained by 

i . . 37 S . W . 2d at 292- 

In the case of City of Sweetwater v. 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 Legislature decide to exercise that authority 

its intention to do so should appear with unmistakable clarity." 380 S.W.2d at 552. 

In City of Corpus Christ1 v. Continental Bus 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: 

"Home Rule Cities have full power of selfgovernment, that Is, full authority to do anything 

the Legislature could theretofore have authorized 

them to do, the result being that Home Rule Cities 

look to the acts of the Legislature not for grants 

-4990- 
Mr. James H. Harwell, page 7 (M-1023) 

of power to such cities but only for limitatlons of their powers. Forwood v. City of 

Taylor, 147 Tex. 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. 

"The Motor Bus Act, Art. glla, V.T.C.S., referred to and relied upon by appellees as prohibiting the operation of the City which were enjolned,defines in 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, 'While there are exceptions, depending on the peculiar wording of 

the statute under consideration, as a general 

rule the word 'corporation' is construed to 

apply only to private corporations, and does 

not include municipal corporations, unless 

the statute expressly so provides.' This 

case on this point has been followed without 

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. 

(Emphasls added). 

You have stated that the City of Waco wili not be liable 

for the indebtedness represented by the bonds to be Issued. It 

thus appears that the City's only involvement with the plan will 

be relative to the chartering and the appointing of directors of 

the non-profit corporation that operates the Industrial park 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 stockholder or subscriber to the capital of a private 

-4991- 
Mr. James H. Harwell, page 8 (M-1023) 

corporation, and hence engage in an unconstitutional activity, we 

are of the opinion that the constitutional prohibitions do not 

apply to the situation outlined in your. letter, inasmuch as the 

City will merely charter a no-stock non-profit corporation and 

there shall be no members of the corporation. 

A leading treatise in the field of municipal law has 

stated: 

"State constitutions usually deny, in express terms, power to the legislature to authorize any municipal corporation to lend its 

credit, or to grant public money 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 

constitutional prohib$tion is aimed at private, and not publicly 

owned, corporations. Id. at p. 68. (Emphasis added) Th W 

rndustrial Parks Corporation, caused to be chartered b; theeCitzT 

and having its Board of Directors appointed with the advice and 

consent of the Waco City Council , can logically be classified as a 

publicly-owned and 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 'charitable purposes' 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 constitutional prohibition." 

m. at p. 80, sec. 39.30. (Emphasis added.) 

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 ascertain how the situation presented in your letter has 

been judicially resolved. 

We believe the plan set forth In your letter can be 

--Y---I lenallv sanctioned by applying the precedentof Cosentlno v. City 

of Omaha, 183 N.W '.2d 475 (Neb.Sup. 1971), to which we adhere. In 

?fii? me, the Supreme Court of Nebraska upheld the validity of an 

-4992- 
Mr. James K. Iiarwell, page 9 (M-1023) 

agreement for the treatment of packing house waste between the 

City of Omaha and a non-profit corporation in a facility that was 

financed by bonds Issued by the non-profit corporation. The case 

also expressly held that a city's directing credit to a public 

purpose, with an Incidental benefit to a private corporation, did 

not violate the Nebraska constitutional prohIbition against 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 

Constitutional or statuiory provisions prohibitin; ' 

municipalities or other subdivisions of the state from subscribing 

to, or acquiring stock of, private corporation." 

This office has heretofore held that a city and a county 

had the joint authority to act as a community action agency or to 

designate another group to serve as such under the ~Economlc Opportunity Act of 1964 in order to carry out various anti-poverty 

programs which were within the powers of the city and county. 

Attorney General's Opinion 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-profit corporation for the public and governmental purpose 

of acquiring and, improving land for industrial development under 

the federal government's Model City's Program, whereby the City 

of Waco will receive the benefit of planned industrial development and other attendant benefite of commercial and industrial 

expansion of the economy, including employment opportunities for 

its citizens. The Legislature has recognized this governmental 

purpose and created the Texas Industrial Commission to promote 

and encourage industrial development 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 proposed Waco Industrial Parks Corporation may finance the acquislilon and lmprovement of land for Industrial sites by Issuing tax exemptbonds, which are privately financed and solely secured by ,the land 

owned by the Corporation, provided the credit of the City of Waco 

will not be pledged In any way to secure such bonds. 

%e'express no opinion on whether the bonds in question are 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 ArtLcle XI, 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 industrial development; and 

(2) The proposed Waco Industrial Parks 

Corporation may finance the acquisition and lmprovement of land for Industrial sites by Issuing 

tax-exempt bonds which are solely secured by the 

land owned by the Corporation, provided the 

credit of the City of Waco Is in no way pledged 

to aecure such bonds. 

n 

Prepared by 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 

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