JIM MAnOX 

Attorney General 

BUpIW7 

P. 

Atntln. TX. 70lll- 2548 

512/4752501 

Telex 9lwEl711567 

Tdwo~lor 5W475.0288 

714 Jackson. Suit. 700 

oallaa, TX. 752024506 

214il42a44 

4824 AlberM Avr. Buna 1w 

El Paso. TX. 7WO527W 

01- 

200 MaIn PIUL suna 400 

Ban Antonlo. TX. 7Bm527w 

512G254181 

An Equal oppwtunlty/ 

Aftlmutlva Actton Empkwr 

The Attorney General of Texas 

June 22, 1984 

Honorable Carl A. Parker 

c!-irun 

Senate Eduutha Codttee 

'Texae State 8enate 

P, 0. Box 12068. Capitol Station 

~Austln, Texu 78711 

, 

Opioio~ NO. JM-178 

Ile: Whether au officer of 

banklug inetitution who eervee 

am a member of the board of 

higher education authority 

eubject to article 988b. 

V.T.C.S. 

Dear Senator Parker: 

You have .a&d the following two quutimcr relating to the bill 

frequently-referred to ae the Local Offlciale Conflict of Intereet 

Bill: 

,(l) Ia ac offlclal of a .backlcg inetitutlon 

l e~iog.ae a member of the board.:of dlrectora of a 

hlgber ,,..educatioa authority a 'local public 

.offlckl! under the.prwimlone of article 988b. 

j 7.T.C.S.T.~ .' ., 3r. 

(2) If eo, and if the financial lnetltutlon 

,i yit~+tlch+qch~,boatd member 1~ meociated. or aa 

.>:'rqp .I ~~fl&i+~e~,~~laatltatlon~ acb am :1 I back, aolding 

-~'t ,- ~-. ( 2 c: .> $?qfmY~ $ ,av- t+.-makee::m :etudent:,.- ~loace 

! :, >Ti I,)' 7 ,,;sutnnteca.~b~'il~hipher ~edacu:oa~cothorlty; .doee 

euch board member then vioIate the prwieione of 

..,II 

•~~~1~,,,~988b .br~, particlpatlag In a vote or 

..$e@eIpIL of.tha board .of dlrectoro If hla back or 

.,,filuncia~ lnetitutloca ~::~affillated therevith 

recelvea..ln~ereet..:Ancome '011l n.~:eligible etudect 

$oan o~/procecde peld in the ,weat of default oc 

euch loan frao,,tho <guaraatee .fuad of the higher 

education l utborlty? 

He con&de that r-member of the board of directore of a higher 

l ducatloc .aiihorlty ie l local.public official uithia the maniag 

the Local Officiala Zocflict of Intereat Bill and. therefore. 

subject to the applicable provieione of the act. It ie our opinion 

thet a board member ufth a l ubetantial interest in a lending 

lcetltutloc vlolatee the urovleiono~ of thet act bv knovlcgb 
If 

Honorable Carl A. Parker - Page 2 (JIG178) 

participating in a vote ore decision of the board of directors if the 

member caa reasonably foreecc that such action vi11 result In receipt 

of Interest incolleeto the lending Institution from eligible student 

loans. 

Section l(1). article 988b. V.T.C.S. defines a "local public 

official" as* .

a member of the governing body or another.offlcar. 

whether elected o t l ppolated, paid ot unpaid. of 

any district (lncludlnS e school district), 

-U-Y. city. precinct, central l ppralaal 

diatrlct. transit authority or district. or other 

local gave-ntal entity UhO' exercl8ee 

reaponsibilitiee beyond those that are advlaory ln 

nature. 

A higher education authority Is craated under chapter 53 of the 

Texas Education Code by the governing body of a city or cities. Sec. 

53.11. .An -authority Isa "body politic .and corporate" which may sue 

and be cued and may Uke. rrcnd. aad repeal its bylaws. Sec. 53.13. 

It is a governmental body mhlch is subject to the Cpen Meetings Act, 

article 6252-17. V.T.C.S.. and to the Open Records Act, article 

625247a. V.T.C.S. 'See Attorney General Opinion IfW-177 (1980). It %e 

a local .gove-ntal: entity vhlch is governed by ltn board of 

~dltectora. Sec. 53.14. A member of -such 'a board clearly exercises 

reeponalbUltlea beyond thorn8 that are advisory in nature and is 

subject to tha provialoas in article 988b vrhlch prohibit certain 

conduct. 

-~: .A.~ .local~publlc-@rofflcial c&to a Claaa A tiedemeanor under 

.section:S(a)@) of l rt4cle 9SSb, ciecpt'ln those lnmtances prwidad.ln 

'rection b~~-(~ich:-pn*~ldes'~~tar~~al~ for ~ibmtcntioa frop voting on 

utt~~wh&ivthe~&ffclaf la &atercsted) 3f he knwingly 

._ c, ,. .~,.. 

partldpatea' ina'vote or 'dedision on a Utter 

invoWing ~.a bualnees entltp in ~whlch the local 

. publio iofficial.haa ‘a aubstaatlal interest If it 

is reaaonably~'foreseaable 'that 'an ~actlon on the 

rtter ~vould confer an 'ecoiioric .beneflt to the 

business entity iaoolved . . . . 

The elements of the offenae involve aeveral factual 

determinations. one of.uhich is vhethcr a local public official has a 

l ubstaatlal interest In the business entity. Under eection 2 of the 

act. a pereon has a oubstantlal Interest In a business if: 

(1) the lntercrt Is ownership of 10 percent or 

lora of the votluS stock or shares of the business 

p. 780 
Honorable Carl A. Varker - Page 3 (J&178) 

entity or ownership of $2.500 ot ore of the fair 

rrket value of the business entity; or 

(2) :fuade received by the pereou from the 

..bueineee eutlty: e.xceed,10~percent of,the person's 

gross lncoms for the previous yeet . . . . 

AIao. ao Interest of a peraon releted la the first or second degree by 

either affix&y or coneanguinlty to the local public official is a 

"eubetmtlal~lntereet."~ Sec. 2(c). 

..::'+ ,. 

.~~,~~.loca.public offlclal must knowingly participate in a vote or 

d&i&m 'ou 'a' ratter .prohlbited by article 988b to violate the 

provlaiona of.tbat act. Section 3(a)(l) appears to refer to aa actlou 

ou a,.~eatter if .it ie .~reaeouably foreseeable that the action will 

coafer s l conoeic benefit to the business entity in queetloa, 

regardleer of the source or the emouat of ecouomic beaeflt. 

The student higher l ducatiou loaae in question usually are made 

by private leading inetitutione at interest ratee 'lover than the 

geuerally avaiIable rates. We understand that until the loan is in 

pay-back etatus, the holder of the loan recelvee from the federal 

gwe-t aa lntereet subsidy payment for the facial emouot of the 

interest plus a variable leaders l peclal l llmemce that brings the 

interest lucoms up to the regular market level of Interest. When the 

loan is la pay-back etatue. the student borrower pays the Interest 

eubeidy payments ou reeainlug unpaid balances. and the federal 

gwenmeet cootlnuee payment of the lenders epecial allovauce. In 

case of default, the higher education authority ~guaraateeing tha loan 

pays the l tudent'e unpaid principal and intereat. We believe that the 

interest income to a lending Institution that it receives l o the 

holder of a guaranteed atudeat loau constitutes au l couoeic benefit 

within the meealng of article 988b. 

Therefore, l eeuelug t&t a mmber of the board of directore of a 

higher l ducatlou l uthotity has a "eubetantlal interest" in a leading 

lnetltutloe. ve believe the hoard member vioIatee the provieioue of 

article 988b ff the member kwvlmgly pattlcipatea In a vote or 

decision of the board vhea the member can reasonably foresee that euch 

action vlll result la the leodiog inetltutiou receiving lnteteet 

iacorc oe eligible l tudent loaae or receiving any other eccmmic 

benefit from the higher education authority's student loan program. 

SUHMARY 

A camber of the board of directors of a higher 

education authority is a public official vithin 

the eaaning of article 988b. V.T.C.S. Such a 

hoard member with a aubetantiel iatereet in a 

p. 789 
Honorable Carl A. Parker - Pa&e 4 (JH-178) 

lending inetitution vlolatee that act by knwingly 

participatiag la a vote or declelon of the board 

of directors if the Prober can reasonably foresee 

that such action wL:ll reeult in Interest Income to 

the lending inetltstion from guaranteed student 

loeae. 

Verytrulyyou J fk k 

JIM WATTOX 

Attorney General of Texee 

TOM GREEN 

First Assistant Attorney General 

DAVID R. RICRARDS 

Executive Assistant Attorney General 

Prepared by Nancy Sutton 

Aeeisteut Attorney General 

APPRGVRD: 

Rick Gilpln. Chaimea 

David Brooke 

Colln Carl 

Swan Garrieoo 

JlmHoelIlnger 

Nancy Sutton 

p. 790