ATTORNEY GENERAL OF TEXAS 

The Honorable Norma Chavez 

Chair, Committee on Border and 

International Affairs 

Texas House of Representatives 

P.O. Box 2910 

Austin, Texas 78768-2910 

GREG ABBOTT 

December 15,2003 

Opinion No. GA-01 30 

Re: Authority of a home-rule city to permit a city 

council member to participate in the municipal 

group health insurance program (RQ-007 1 -GA) 

Dear Representative Chavez: 

You ask three questions about a home-rule city’s authority to allow city council members to 

participate in the city employee health insurance program (the “program”). The City of Pleasanton 

(the “City”), a home-rule city,’ provides health insurance to its employees but not to city council 

members or other city officers. See Pleasanton, Tex., Ordinance 1094 ch. 10, 9 1 O-01 (1994) 

(adopting “City of Pleasanton Employee Handbook”) (full time employees and certain part-time 

employees are provided with medical health insurance). In connection with the employee health 

insurance program, you ask 

(1) If a home-rule charter is silent, may the city council authorize its 

members to participate in the city employee health insurance 

program, paying the council member’s premiums with city funds? 

(2) If such participation is permissible, what mechanism should be 

used to authorize such participation; and 

(3) Would city-paid premiums constitute compensation to the city 

council members, subject to reporting and withholding under the 

Internal Revenue Code?2 

‘Letter fromRepresentative Norma Chavez, Chair, Committee on Border and International Affairs, Texas House 

of Representatives, to Honorable Greg Abbott, Texas Attorney General (June 24, 2003) (on file with Opinion 

Committee) [hereinafter Request Letter]; see also Letter from Roberto Maldonado, City Attorney for Pleasanton, to 

Representative Gabi Canales, Texas House of Representatives (Mar. 13,2003) (on file with Opinion Committee). 

2See Request Letter, supra note 1 (questions one and three are paraphrased). 
The Honorable Norma Chavez - Page 2 (GA-0130) 

The City established a health insurance program for its employees a number of years ago. 

Although the City has not identified the authority or process by which it established the program,3 

home-rule cities as a general matter may provide such employee benefits. A home-rule city derives 

its power directly from article XI, section 5 of the Texas Constitution. TEX. CONST. art. XI, 0 5; see 

In re Sanchez, 81 S.W.3d 794, 796 (Tex. 2002). It need not look to the legislature for grants of 

power but only for limitations on its powers, and may exercise all state powers not inconsistent with 

the constitution, general laws, or the city’s charter. See In re Sanchez, 81 S.W.3d at 796; Proctor 

v. Andrews, 972 S.W.2d 729,733 (Tex. 1998); see also TEX. LOC. GOV’T CODE ANN. $5 51.071- 

.072 (Vernon 1999) (home-rule municipality has full power of local self-government). If the 

legislature decides to preempt a subject matter within a home-rule city’s broad powers, it must do 

so with “unmistakable clarity.” In re Sanchez, 81 S.W.3d at 796. 

There is, moreover, statutory authority for the kind of health insurance program that the 

City wishes to extend to its council members. Local Government Code chapter 172 states that a 

political subdivision “may provide health and accident coverage for political subdivision officials, 

employees, and retirees,” either directly or by participating in a risk pool. TEX. LOC. GOV’T CODE 

ANN. 8 172.004(a) (Vernon Supp. 2004). 

Home-rule cities generally control the compensation of their officers and employees. See 

Byrd v. City of Dallas, 6 S.W.2d 738, 740 (Tex. 1928) (city may engage employees upon any 

terms of payment acceptable to both parties); Tex. Att’y Gen. Op. No. JM-1194 (1990) at 1. 

“Compensation” includes benefits, such as insurance, provided to officers and employees. See 

Friedman v. Am. Sur. Co. of New York, 151 S.W.2d 570, 577 (Tex. 1941) (right to receive 

unemployment benefits is not a gratuity prohibited by Texas Constitution article III, section 5 1, but 

part of employees’ “compensation” or “wages”); Byrd, 6 S.W.2d at 740 (pension is part of 

employees’ compensation and not a gratuity prohibited by article III, sections 5 l-53, Texas 

Constitution); Tex. Att’y Gen. LO-97-l 00, at 2 (hospitalization insurance provided to officer is an 

emolument within Texas Constitution article XVI, section 40); Tex. Att’y Gen. Op. Nos. MW-156 

(1980) at 4 ( errors and omissions insurance coverage for county clerk is compensation); WW-73 1 

(1959) at 3-4 (statute authorizing county to provide hospital insurance for officers and employees 

authorizes compensation, not an unconstitutional gratuity); see also TEX. HEALTH & SAFETY CODE 

ANN. 8 263.043 (Vernon 2001) (commissioners court may provide hospitalization insurance as 

compensation for services of hospital board of managers). Pursuant to its charter authority to 

compensate employees and appointed officers, the City may provide health insurance for those 

persons. 

The Pleasanton City Charter provides that “the Mayor shall receive a compensation of $30.00 

per regular council meeting attended, and each Council Member shall receive a compensation of 

$20.00 per regular council meeting attended.” PLEASANTON, TEX., HOME RULE CHARTER, art. IV, 

9 7 (1982). The charter also permits reimbursement of official city business expenses to the mayor 

‘The City could not locate any ordinances or resolutions that originated the program. See Letter from Roberto 

Maldonado, City Attorney for Pleasanton, to Susan Garrison, Assistant Attorney General, Opinion Committee, Office 

of the Attorney General (Sept. 18, 2003) (on file with Opinion Committee). 
The Honorable Norma Chavez - Page 3 (GA-0130) 

and city council where provided in the annual city budget. See id. The answer to your first question 

depends on how the charter provision setting city council members’ compensation is construed. If 

the city charter is construed to limit council members’ compensation to the stated amounts, the city 

may not provide additional compensation in the form of health insurance coverage to them. See 

Lower Colorado River Auth. v. City of San Marcos, 523 S.W.2d 641, 643-44 (Tex. 1975) (an 

ordinance or resolution adopted by a home-rule city must be consistent with the city charter). On 

the other hand, if the charter provision is not construed as a limit on city council members’ 

compensation, the city may provide them, additional compensation in the form of health insurance. 

This office does not ordinarily construe city charters or ordinances, in deference to municipal 

officials’ authority to construe their municipality’s ordinances and charters. See Tex. Att’y Gen. 

Ops. Nos. GA-0068 (2003) at 2 n.2; JC-0143 (1999) at 3; JM-846 (1988) at 1. Thus, we do not 

determine whether or not the city charter sets the maximum compensation city council members may 

receive. In construing this charter provision, City officials should rely on the rules for construing 

statutes. See Mills v. Brown, 3 16 S.W.2d 720, 723 (Tex. 1958). If the charter sets the maximum 

compensation for city council members, the City may not provide additional compensation to city 

council members absent an amendment to the charter.4 See generaZZy TEX. LOC. GOV’T CODE ANN. 

$ 9.004 (Vernon 1999) (election to amend charter). If the charter does not set their maximum 

compensation, the City may provide the additional compensation without a charter amendment. 

Your two additional questions are premised on the assumption that Pleasanton city council 

members may participate in the employees’ health insurance program. Although we cannot 

determine whether the city charter permits council members to participate in the program, we will 

address these questions. 

Assuming that the city charter allows council members to participate in the city employee 

health program, you wish to know how the city council may authorize such participation. The 

answer to this question depends in part on the terms of the health insurance program. If the program 

itself permits elected city officers such as city council members to participate in it, the city council 

may determine whether to extend coverage to its members, absent any different procedure set out 

in the program. See City of Coppell v. Gen. Homes Corp., 763 S.W.2d 448,456 (Tex. App.-Dallas 

1988, writ denied); Cook v. City of Addison, 656 S.W.2d 650, 657 (Tex. App.-Dallas 1983, writ 

ref d n.r.e.) (a city acts by and through its governing body); see also Stirman v. City of Tyler, 443 

S.W.2d 354,358 (Tex. Civ. App.-Tyler 1969, writ ref d n.r.e.) (city council may bind the city only 

by acting as a body in a duly assembled meeting). 

If the city employee health program does not authorize coverage for city council members, 

the council must amend it to authorize such coverage. A health insurance program adopted by city 

ordinance may be amended only by adoption of another ordinance. See City ofHutchins v. Praszpa, 

450 S.W.2d 829, 832 (Tex. 1970) (city ordinance may be repealed only by ordinance, and not by 

resolution). 

4The city council might also consider whether its members would wish to apply their per-meeting compensation 

to participation in the insurance program. 
The Honorable Norma Chavez - Page 4 (GA-0130) 

You finally ask whether insurance premiums paid by the City on behalf of city officers would 

be compensation subject to reporting and withholding under the Internal Revenue Code. This 

question is one of federal tax law appropriately addressed to the Internal Revenue Service rather than 

this office. See Tex. Att’y Gen. Op. No. JC-0482 (2002) at 7. While we will point out certain 

relevant provisions, we advise the City to direct its question to a tax professional or the Internal 

Revenue Service? 

An employee’s gross income as a general rule does not include employer contributions to an 

accident or health plan. See I.R.C. 9 106(a) (2003); 26 C.F.R. 5 1.106-l (2003). Whether the City’s 

health insurance program falls within the general rule will depend upon its specific characteristics. 

See, e.g., I.R.C. 8 106 (2003); 26 C.F.R. $0 1.104, 1.105-l-l. 105-5 (2003). If the city health 

insurance program is within the general rule stated by the Internal Revenue Code, the premiums paid 

to provide coverage to city officers will not be compensation subject to reporting and withholding. 

See 26 C.F.R. 4 3 1.3401(c)-1 (2003) ( an “employee” for purposes of withholding tax includes 

officers and employees of a state or any political subdivision of a state). 

‘The Tax-Exempt and Government Entities Division of the IRS provides assistance to governmental entities. 

See Internal Revenue Service, IRS History and Structure, avaiZabZe at http://www.irs.gov/govt/fslg/index.html (last 

visited Oct. 2 1, 2003). 
The Honorable Norma Chavez - Page 5 (GA-0130) 

SUMMARY 

A city’s payment of health insurance premiums for its 

officers or employees is a form of compensation. The City of 

Pleasanton may allow city council members to participate in its health 

insurance progratn only if this action is consistent with Pleasanton’s 

home-rule city charter provisions setting the city council members’ 

compensation. The appropriate procedure for including council 

members in the program depends, in part, on the terrns of the 

program. Subject to certain exceptions in the Internal Revenue 

Code, an employee’s gross income does not include employer 

contributions to an accident or health plan. Questions of federal tax 

law should be directed to the Internal Revenue Service. 

BARRY R. MCBEE 

First Assistant Attorney General 

DON R. WILLETT 

Deputy Attorney General for Legal Counsel 

NANCY S. FULLER 

Chair, Opinion Committee 

Susan L. Garrison 

Assistant Attorney General, Opinion Committee