@ffice of tiy JZWmwp @eneral 

DAN MORALES 

ATTORNEY GENERAL 

Sbtate of llCexa$ 

March IO, 1995 

Honorable David H. Cain 

Texas State Senate 

P.O. Box 12068 

Austin, Texas 78711 

Gpiion No. DM-33 1 

Re: Whether a city’s expenditures of 

community development block grant funds 

are subject to state competitive bidding 

hvs (RQ-644) 

Dear senator Cain: 

In your capacity as chahman of the House &m&tee on Transportation you 

asked whether the state’s competitive bidding laws apply to community development 

block grant (“CDBG”) 8mds “received and distributed” by a city to (a) “nonprofit 

contractors” and @) “for-profit entities.” You say that federal law, at least, “does not. 

require that CDBG funded projects be competitively bid if cities award a grant to a 

nonprofit corporation.” Also, you note that, while the municipal competitive bidding 

provisions in section 252.021 of the Local Government Code apply to “[a] 

contract.. . [that requires M expenditure]. . . from one or more municipl fun&” 

section 373.005(c) of the Local Government Code makes a distinction, in the context of 

municipal community development projects, between “fbderal money” and “municipal 

funds.” In our opinion, a city’s expenditures of CDBG Smds are subject to competitive 

bidding under state law when spent on %mtmcts” exceeding the threshold amounts set 

out in those laws and not falling within any of the exceptions to the bidding requirements 

set out there or elsewhere in state law. 

Chapter 373 of the Local Government Code generally authorizes a municipality to 

finance community development projects using federal funds received by the municipality 

as well as other 8mds of the municipality. Section 373.005(c), referenced in your request, 

reads in pertinent part: 

A municipality may implement programs to provide Snancing for 

the acquisition, wnstruction, improvement or rehabiitation of 

privately owned buildings and other improvements or to assist 

private, for-profit entities ifthe assistance is necessary or appropriate 

to carry out an economic development project, through the use of 

loans and grants from federal money remitted to the WCipslity. . . . A municipality may not provide municipal property or 

municipal junrl for private purposes. The programs and financing 

must be in keeping with an approved wmmunity development plan 

that the municipality has determined to be a public purpose. A 
Honorable David H. Cain - Page 2 PM-33 1) 

program established for financing the acquisition, wnstruction, 

improvement, or rehabilitation of buildings and improvements, or for 

financing economic development projects, through the use offerlea 

funds may prescribe procedures under which the owners of the 

buildings, improvements, or economic development projects agree to 

partially or fully reimburse the municipality. emphasis added.] 

The federal law providing for the granting of CDBG fbnds is found in 42 U.S.C. 

chapter 69. See also 24 C.F.R. pt. 570. We sre aware of nothing in current federal law. 

however, that specit?caUy addresses the applicabiMy of state wmpetitive bidding 

requirements to the use of CDBG funds by recipient municipalities. 

Several prior opinions of this office concluded that federal ?evenue sharing” funds 

received by local govemments under chapter 67 of title 3 1 of the United States Code, the 

Revenue Sharing Act, now repealed. were subject to state laws generally applicable to 

those entities’ public 8mds.r See Attorney General Gpiions IM-716 (1987); MW-329 

(1981); H-1189 (1978); H-1010; (1977), and H-127 (1973). In support of their 

wnclusions, those opinions, irrrer alia, cited federal provisions specifically nuking 

recipient entities’ expenditures of any federal revemre sharing fbnds received subject to the 

same laws and procedures applicable to other timds of those entities. See 31 U.S.C 

5 6794(a) (repealed 1986). in wntrast, the federal law pertaining to CDBGs provides 

merely that grantees must “comply with the other provisions of [42 U.S.C. ch. 691 cmd 

wirh other apphd$e lows..” 42 U.S.C. 0 5304(b)(6) (emphasis added). 

In our opinion, however, federal timds discretionarily obtained and expended by 

Texas municipalities take on the character of municipal funds and are generally subject to 

the state laws per&ing to such funds absent specific exceptions made under state law. 

We believe this to be the case even in the absence of specific federal provisions 

acknowledging the applicabiity of state law, such as those in the now-repealed Revenue 

Sharing Act, and indeed even ifthe pertinent federal law specifically imposed requirements 

wntrary to state law.2 

Further, as to the applicable state law here, while we think it IUlMCCSSaryittthiS 

context to determine precisely what, if any, distinction the legislature intended to make in 

section 373.005(c) of the Local Government Code vis~%vis the uses to which &deral 

‘The Revenue !&ring Act wns tcpealai in 1986. Pub. Law No. 99372, TiL XIV, 0 14001(a)(l), 

Apr. 7,1986,100 Stat. 327. 

p. 1752 
Honorable David H. Cain - Page 3 (DM-331) . 

timds and finds from other sources could be put by a city on wmmunity development 

projects, we do not believe that the use of the distinct terms “federal money” and 

“municipsJ funds” in section 373.005(c) was itself intended to exempt expenditures of 

federal 8mds in the hands of a municipality tkm the operation of state law generally 

applicable to municipal funds. 

CDBG receipts would presumably be subject to the municipal budget processsection 102.003 of the Local Govemment Code rewires funds received and available 

“from all sources” to be included in the budget, Likewise, we wuld not imagine that 

CDBG receipts would not have to be deposited in the municipal depository under chapter 

105 of the Local Government Code, even though those provisions wnsistently speak only 

to the deposit of “municipal funds.” See id. 58 105.014 - .015, .031. Had the legislature 

intended to exempt the expenditure of CDBG grant money 8om the state wmpetitive 

bidding laws, we think it would have specitMly done so. See. e.g., Local Gov’t Code 

8Q212.071 (excepting certain municipal public improvement wntracts from bidding 

requirements), 374.904 (exempting certain municipal sales wmlected With urban renewal 

projects from state law bidding requirements), 392.0565 (added in response to Attorney 

General Opinion JTvl-573 (1986) specilicaUy exempting municipal housing authorities from 

state law to extent newssary to participate in Consolidated Supply Program of 

Department of Housing and Urban Development); Attorney General Gpiion JM-573 

(1986) (municipal housing authority may not participate in Consolidated Supply Program 

of Department of Housing and Urban Development Without also complying with state 

competitive bidding laws). 

Moreover, we think it clear that the fact, in itself, that an expenditure of CDBG 

funds is made to a nonprofit as opposed to a for-profit entity does not take the 

expenditure out of the competitive bidding requirements. The municipal wmpetitive 

bidding requirements in chapter 252 make no general distinction betvveen nonprofit and 

for-profit wntractees. Section 252.022(7)(P) does make a specific bidding requirement 

exception for ‘management services provided by. . . nonprofit wrporations” to certain 

museums, parks, zoos, or “other facilit[ies].” This specitic exception suggests that 

wntracts over the threshold amounts With nonprofit entities are generally subject to the 

bidding requirements, absent specific exceptions. See also Attorney General Gpiion 

I’M-385 (finding that a wunty contract with a nonprofit entity Was exempted from the 

competitive bidding requirements only because a state statute specificahy applicable to 

wntracts of the non-profit entities at issue there expressly excepted them from the 

requirements). 

Gf wurse, whether a particular expenditure of CDBG fimds wnstitutes one under 

a “wntract”s in a suEcient amount as to bring it Within the wmpethive bidding provisions 

p. 1753 
Honorable David H. Cain - Page 4 (DM-331) 

Of course, whether a particular expenditure of CDBG funds constitutes one under 

a ‘contract”3 in a suf&cient amount as to bring it within the competitive bidding 

provisions of chapter 252, or whether a particular contract would fall within the 

exceptions to the bidding requirements in that chapter or elsewhere in state law would 

depend on the facts of the particular case. See, e.g., Local Gov’t Code 5 252.022(a)(4) 

(“personal or professional services*’ exception to bidding requirements), (a)(1 1) 

,(exception for certain public improvement wntracts under chapter 212). 

SUMMARl 

Expenditures by a city of Federal Community Development 

Block Grant Funds on “‘wntracts” exceeding the threshold amounts 

set out in the state’s municipal wmpetitive bidding laws and not 

falling within any of the exceptions to the bidding requirements set 

out there or elsewhere in state law are subject to competitive 

bidding. 

DAN MORALES 

Attorney Genera) of Texas 

JORGE VEGA 

First Assistant Attorney General 

SAFL4I-l J. SHIRLEY 

Chair, Opinion Committee 

Pmpared by William Walker 

Assistant Attorney Genera) 

3We note that your tquti spealu in part of cities’ expeaditurr of CDBG funds in the form of 

“grants.” llte provisions of chapter 373 s@ficdlly authorize cider to make “gran0” to cutain entities, 

includiq c&ain kiads of nonprofit or&zations. We do not speculate here as to whether particubu grants 

must inevitably be “contracts” within the ambit of tbe bidding provisions af chapter 252. See, rg., 

Aaomey General Opinion C-246 (1964) (county may anange without a witten umbact for the cdrc of 

indigents). Bat see Atlomy Gwcral Opinion JM-274 (1985)(statc wwdtotion rcqairas public entity’s 

gram or knding of credit to be accompanied by sufficient control to ensure that a public purpwc of tbc 

emityi%SCWCd). 

p. 1754