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

DearMr. Hartman:

The Texas Public Finance Authority is empowered to issue and sell bonds in itsname to finance the acquisition, construction, repair, renovation, or other improvement of buildings and other facilities for theuse of state agencies inTravis 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 alsoV.T.C.S. art. 717k-7 (approval of issuance bybond review board). The authority's power to finance aproject does not affect the statutory authority of the State Purchasing andGeneral Services Commission, or any other state agency or institution, tobuild 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 anddistribute bond proceeds to certain agencies for corrections institutions andmental health and mental retardation institutions. V.T.C.S. art. 60ld-1, 554, 5:w Tex. Con&. art. III, S49-h (authorizing general obligation bonds). Specific projects must have been authorized by the legislature, and the bonds may not be issued or thebond proceeds used to finance aproject unless the issuance orproject hasbeen approved by the bond review board. V.T.C.S. art. 6016-1, 5.62(d), 10.

You informus that agencies undertaking a construction project have on occasion asked theboard ofdirectors of the authority tohave allproceeds from the bond issue necessary to fund agiven project inthe treasury and available for

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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 tobe available for disbursement prior to their entering into any contracts for projects tobe built with bond proceeds. On the basis of this information, you ask the following question:

[W]hatconstitutional or legislative authority, ifany, requires that allbonds to **be** used to fund agiven 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 ofwhich must be considered by the board in determining the timing ofbond approvals.

The legislation governing the Public Finance Authority is inconclusive as to such a requirement. On the issuance of revenue bonds, theboard isrequired 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, 523;V.T.C.S. art. 601d-1, f5. "Once the funds are deposited and the comptroller ofpublic accounts has certified that the funds are available
. . . the aDDroDriatg .IIV.T.C.S. art. 601d-1, 55 (emphasis added): see alsoV.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 ofgeneral obligation bonds.

Also relevant toyour question are some of the general rules of contract lawwhich apply to the state and private parties alike and constitutional provisions applicable to the state of Texas. A contract isnot binding unless it is supported by consideration. Stone v.Morrison 6Powers 290 S.W. 538 (Tex.Comm'n App. 1927, holding approved). **A** State agency moreover cannot make abinding contract for construction of facilities unless the contract provides forpayment; otherwise, itwould be invalid for attempting to create a debt inviolation 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 inpayment ofa claim under an invalid _-

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contract. &S &2&,@ v. Fw 44 S.W. 480 (Tex. 1898); State- I236 S.W.2d 8;6 (Tex.Civ.App. - Austin 1951,writ ref'd); Tex. Const. art. III, g44; art. VIII, 8 6.
Parties may enter into avalid andbinding 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 foracontract. Beaumont Traction Co v.

&Ft. S. Railwav Co., 123 S.W. 124 (Tex. 19;)9); Rose v. SanAntonio &M.G. R. Co. 31Tex. 49 (1868). For example, a state agency may enter' into abinding contract for a longer time than the two-year term forwhich appropriations arevalid 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 inpayment of the contract, the comptroller may not issue awarrant inpayment to theparty 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 inthe future to provide funding **for** the contract, this contract term would raise significant practical problems forthe agency which needs anew facility and the construction companies interested inbuilding it. Moreover, ifunder aparticular contract, performance of the npromise'* isentirely optional with the person whomade the promise, it is not consideration for the contract. Restatement (Second) of Contracts 577 (1981). How these legal considerations would apply toparticular contract situations cannot be determined inthe opinion process.

**SUMMARY**
Construction financed by revenue bonds issued by the Texas Public Finance Authority may not begin until thebond 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

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

completion before construction-related conracts may be formalized. The statemay not make abinding 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

LouMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STRARLRY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Susan L.Garrison Assistant **Attorney** General

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