‘ 

,- 

October 24, 1988 

Mr. Glen Iiartman 

Executive Director 

Texas Public Finance 

Authority 

P. 0. Box 12906 

Austin, Texas 70711 

Opinion NO. JM-969 

Re: Whether all bonds to be 

used to fund a project must 

be issued before formalization of construction contracts (RQ-1454) 

Dear Mr. Hartman: 

The Texas Public Finance Authority is empowered to 

issue and sell bonds in its name to finance the acquisition, 

construction, repair, renovation, or other improvement of 

buildings and other facilities for the use of state agencies 

in Travis County. V.T.C.S. art. 601d, g 9. Before the 

board may issue and sell bonds, the legislature must have 

authorized the specific project which the bonds are to 

finance. a S 10; See also V.T.C.S. art. 717k-7 (approval 

of issuance by bond review board). The authority's power to 

finance a project does not affect the statutory authority of 

the State Purchasing and General Services Commission, or any 

other state agency or institution, to build the buildings. 

V.T.C.S. art. 601d, 5 l&(a). 

Under the authority of article 601d-1, V.T.C.S., the 

Public Finance Authority may issue general obligation bonds 

and revenue bonds and distribute bond proceeds to certain 

agencies for corrections institutions and mental health and 

mental retardation institutions. V.T.C.S. art. 60ld-1, 55 4, 

5: w Tex. Con&. art. III, S 49-h (authorizing general 

obligation bonds). Specific projects must have been 

authorized by the legislature, and the bonds may not be 

issued or the bond proceeds used to finance a project unless 

the issuance or project has been approved by the bond review 

board. V.T.C.S. art. 6016-1, 5.6 2(d), 10. 

You inform us that agencies undertaking a construction 

project have on occasion asked the board of directors of the 

authority to have all proceeds from the bond issue necessary 

to fund a given project in the treasury and available for 

p. a929 
Mr. Glen Hartman - Page 2 (JM-969) 

expenditure before they enter into any contract related to 

the construction. Recently, representatives from the Texas 

Department of Corrections stated that all the funds reguested for prison construction had to be available for 

disbursement prior to their entering into any contracts for 

projects to be built with bond proceeds. On the basis of 

this information, you ask the following question: 

[W]hat constitutional or legislative authority, if any, requires that all bonds to be 

used to fund a given project to completion 

must be issued before construction-related 

contracts may be formalized. 

On examination of the relevant statutes and constitutional provisions, we find no definitive answer to your 

question. However, we can point out certain provisions of 

law, the effect of which must be considered by the board in 

determining the timing of bond approvals. 

The legislation governing the Public Finance Authority 

is inconclusive as to such a requirement. On the issuance 

of revenue bonds, the board is required to notify the appropriate agency that the funds are available and to deposit 

the bond proceeds in the state treasury. V.T.C.S. art. 

601d, 5 23; V.T.C.S. art. 601d-1, f 5. "Once the funds are 

deposited and the comptroller of public accounts has certified that the funds are available . . . the aDDroDriatg 

.II V.T.C.S. art. 601d-1, 

5 5 (emphasis added): see also V.T.C.S. art. 601d, 5 23. 

The underlined language indicates the intent of the legislature that construction not begin until the funds are 

available. There is not, however, a similar provision 

pertaining to the issuance of general obligation bonds. 

Also relevant to your question are some of the general 

rules of contract law which apply to the state and private 

parties alike and constitutional provisions applicable to 

the state of Texas. A contract is not binding unless it is 

supported by consideration. Stone v. Morrison 6 Powers 290 

S.W. 538 (Tex. Comm'n App. 1927, holding approved). A State 

agency moreover cannot make a binding contract for construction of facilities unless the contract provides for payment; 

otherwise, it would be invalid for attempting to create a 

debt in violation of article III, section 44, of the Texas 

Constitution. Port Worth Cavalrv Club v. SheDDard, 83 S.W.2d 

660 (Tex. 1935). The legislature may not appropriate funds 

from the treasury in payment of a claim under an invalid 

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p. 4930 
Mr. Glen Hartman - Page 3 (JM-969) 

contract. &S &2&,@ v. Fw 44 S.W. 480 (Tex. 1898); 

State- I 236 S.W.2d 8;6 (Tex. Civ. App. - Austin 

1951, writ ref'd); Tex. Const. art. III, g 44; art. VIII, 

8 6. 

Parties may enter into a valid and binding contract by 

exchanging promises. Teaoue v. Edwar-: 315 S.W.Zd ;;; 

(Tex. 1958); TexasS.W. 1101 (Tex. 1923). A conditional promise can pr&ide 

valid consideration for a contract. Beaumont Traction Co v. 

& Ft. S. Railwav Co., 123 S.W. 124 (Tex. 19;)9); 

Rose v. San Antonio & M. G. R. Co. 31 Tex. 49 (1868). For 

example, a state agency may enter' into a binding contract 

for a longer time than the two-year term for which appropriations are valid under article VIII, section 6, of the 

constitution if the contract states that payment thereunder is subject to the availability of appropriated funds. 

Attorney General Opinions M-656 (1970); M-253 (1968); C-206 

(1964). If, however, the legislature decides not to appropriate funds in payment of the contract, the comptroller may 

not issue a warrant in payment to the party contracting with 

the state. Attorney General Opinion C-206 (1964). 

Thus, although a state agency might be able to enter 

into a legally binding construction contract which makes 

payment contingent on the Public Finance Authority taking 

actions in the future to provide funding for the contract, 

this contract term would raise significant practical 

problems for the agency which needs a new facility and the 

construction companies interested in building it. Moreover, 

if under a particular contract, performance of the npromise'* 

is entirely optional with the person who made the promise, 

it is not consideration for the contract. Restatement 

(Second) of Contracts 5 77 (1981). How these legal considerations would apply to particular contract situations 

cannot be determined in the opinion process. 

SUMMARY 

Construction financed by revenue bonds 

issued by the Texas Public Finance Authority 

may not begin until the bond proceeds are 

deposited in the state treasury and the 

comptroller has certified that the funds are 

available. No statute or constitutional 

provision requires the Texas Public Finance 

Authority to issue all general obligation 

bonds needed to fund a given project to 

p. 4931 
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Mr. Glen Hartman - Page 4 (JM-969) 

completion before construction-related conracts may be formalized. The state may not 

make a binding contract without provision for 

payment, although payment provisions may be 

contingent on the availability of funds. 

JIM MATTOX 

Attorney General of Texas 

MARYKELLER 

First Assistant Attorney General 

Lou MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STRARLRY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison 

Assistant Attorney General 

p. 4932