c 

, . 

July 26, 1974 

The Honorable James H. Harwell 

Executive Director 

Opinion No. H- 357 

Taxaa Industrial Commission 

Box 12728, Capitol Station 

Austin. Texas 78711 

Re: May a city purchase 

property for industrial 

development by giving a 

note to be repaid out of 

the revenues generated 

by the property. 

Dear Mr. Harwell: 

You ask whether a city may purchase property to be used by 

private industry by giving a note to be repaid out of the revenues 

generated by the property and without any further liability on the city’o 

part. Appartntly the United Staten harr discontinued its use of one or 

more tract8 of land and har indicated a willingners to sell the properties 

to a Texan city. You ask whether the city might effect the purchase 

by giving: 

. . . a promirrory note in an amount equal to the 

total conrideration for the sale, payable to the 

appropriate agency (or the United Staten) bearing 

a negotiated rate of interest payable on negotiated 

terms, but expressly providing no liability on the 

part of the City be transacted including: 

a. Term6 that call for repayment out of rents and 

sale of such land and improvements. 

b. Appropriate release clausee, and.other mortgages, deeds of trust. and customary security devices. 

p. 1679 
The Honorable James H. Harwell page 2 (H-3571 

A home rule city’s power to purchase.land emanatea from Article 

XI, 0 5 of the Texas Constitution which provide8 cities of more thani 

5.000 inhabitants with authority to adopt or amend their charters in 

any manner not inconsistant with the Constitution and subject to s&h 

limitations arr may be prescribed by the legirlature. Thus if a city’s 

charter provider for general power to purchase land this power can 

be exercieed subject only to whatever constraints are imposed by the 

Constitution and any relevant legislative enactments. Davis v. City of’ 

Taylor, 67 S. W. 2d 1033 (Tex. 1934); and Miller v. Uvalde Co., 20 

S. W. 2d 403 (Tex. Civ. App., San Antontio, 1929, writ dirm.). 

The Legislature has specifically approved of city purchases of 

land for certain public purposes. Art. 1175, V. T. C. S. Under this 

provision land may be purchased for water work8 (gll), “electric 

lighting plant, telephone, street railways, scwcrage planta. fertilizing 

planta. abattoir, municipal railway terminals, docks, wharfs, ferries, 

ferry landings, loading and unloading devices and shipping facilities, 

or any other public service or public utility” ($131. Unquestionably, 

then, the purchase of land for these and similar “public purpoae,a” in 

within a city’s power under the Conetitution. 

But the city with which you are concerned propoeee to purchase 

land which will ultimately be used by private industry. Article 3. § 52 

and Article 11, 5 3 of the Texan Constitution provide in pertinent part: 

Art. 3, 5 52 (a) Except ae othcrwiee provided by 

this section, the Legislature shall have no power 

to authorize any county. city, town or other political 

corporation or subdivision of the State to lend its 

credit or to grant public money or thing of value 

in aid of, or to any individual, association or 

corporation whatsoever, or to become a atockholder in such corporation, association or company . . . . 

Article 11, Sec. 3. No county, city or other 

municipal corporation shall hcrcafter become 

p. lb80 
. 

The Honorable James H. Harwell, page 3 (11-357) 

a subscriber to the capital of any private corporation or association. or make any appropriation or 

donation to the s&me, or in anywise loan its credit; 

but this shall notbe construed to in any way affect 

any obligation heretofore undertaken pursuant to law. 

These provisions of the Texas Constitution expressly proscribe the 

lending of a city’s credit to a private corporation. A statute authoriiing 

the purchase of land for industrial development, Art. 5190.1, V. ‘I. C. S., 

has previously been cited to this Office in support of a transaction similar 

to the one before us now. But this Office refused to approve bonds issued 

pursuant to that statute on the ground that the statute violated both of 

the above quoted constitutional provisions insofar as it authorized a city 

to purchase land for industrial development. On December 19. 1973, the 

Supreme Court overruled the City’s motion for leave to file a petition for 

mandamus requested by the City of McAllen to compel approval of the 

bonds. City of McAllen v. Hill, NO. B-4315, (17 Tex. Sup. Ct. J. p. 128). 

In that case it was the position of this Office that revenue bonds 

issued to purchase industrial property were without constitutional sanctton, 

even though the City expressly was not and could not be liable on the bonds. 

We referred the Supreme Court of Texas to Village of Moyie Springs, 

Idaho v. Aurora Manfacturing Company, 353 P. 2d 767 (Idaho 1960). Con-. 

struing an I&ho statute similar to Article 5190.1. V. T. C. S., the Idaho 

Supreme Court said: 

Article 8. §4, of our Constitution, supra, 

goes further and is more restrictive in its 

scope than either ‘art. 8, 93, or art. 12. 54. 

It declares that no municipality ‘shall lend, 

or pledge the credit or faith thereof directly 

or indirectly, in any manner, to, or in aid 

of any individual, association or corporation, 

for any amount or for any purpose whatever.’ 

p. 1681 
. . 

The Honorable James H. Harwell page 4 (H-357) 

It cannot be questioned that the purpose of the 

act now before the court and the ordinance enacted by 

the plaintiff village pursuant thereto is to lend the 

credit and faith of the municipality in aid of the 

defendant corporation. In fact, that is the purpose 

expressed by the legislature in its declaration of 

intent, to-wit: ‘inducing manufacturing, industrial 

and commercial enterprises to locate or expand in 

this State. ’ 

We are aware of decisions in other states 

upholding similar legislation. We have conridered 

the following: Village,of Deming v. Hosdreg Co., 

62 N.M. 18, 303 P. 2d 920; McConnell v. City of 

Lebanon, Tenn., 314 S. W. 2d 12;Bennett v. City 

of Mayfield, KY., 323 S. W. 2d 573: Holly v. City 

of Elisabethton, 193 Tenn. 46, 241 S. W. 2d 1001; 

Albritton v. Winona. 181 Miss. 75, 178 So. 799, 

115 A. L. R. 1436; In re Opinion of the Justices, 256 

Ala. 162. 53 So. 2d 840. 

Some of these decisions are distinguishable 

from the present case by reason of differences in 

the constitutional provisions involved. But we 

respectfully disagree with the reasoning by which 

the conclusion is reached in others, that projects 

such as we have here do not constitute a lending 

of the.credit of the municipality. Such decisions 

read like apologies to constitutional limitations, 

dictat~ed by expediency. 

It is obvious that one of the prime purposes of 

having the necessary bonds issued by and in the name 

of a municipality is to make them more readily salable 

on the market. Thus. the credit of the municipality 

is extended in aid of the project, regardless of the 

limitations placed upon the remedy of the purchaser . . . . 

(353 P. 2d at 772) 

p. lb82 
The Honorable James H. Harwell page 5 (Ii-357) 

It is our opinion that the same arguments which condemned the 

‘revenue bonds proposed by the City of McAllen equally condemn the promisaory note proposed by the city in question here insofar as such a note 

would be used to purchase land for private industrial use. Even though 

the city would not be liable on the note given to purchase the land, the 

land when so purchased would be the city’s as would be the revenues generated by it. The note would be the city’s as would be the credit on which 

it was issued. In short, we do not see how the property can be acquired 

in the manner and for the use proposed without violating the Texas Constitution. 

We do not attempt to imply that all dealings with private corporations of the general type you envision are invalid per se by force of Article 

3 § 52 and Article 11 5 3. The credit clauses do not prohibit dealings 

with private corporations and associations so long as a legitimate public 

purpose is served, but it is not considered a public purpose within this 

legal context, when’municipal’ciedit is used to’obtain for the community and 

its citizens the general benefits resulting from the operation of a private 

industry. Barrington v. Cokinos, 338 S. W. 2d 133 (Tex. 1960); and 

Bland V. City of Taylor, 37 S. W. 2d 291 (Tex. Civ. App., Austin, 1931), 

affirmed sub. nom., Davis v. City of Taylor, 67 S. M? 2d 1033 (Tex. 1934). 

SUMMARY 

It is not constitutionally permissible for a city to 

purchase land for future industrial development by 

means ofa promissory note to be paid out of revenues 

generated by the land without recourse to the city when 

the benefit to the public from such a purchase is such 

benefit as may be derived from the attraction of new industry. 

Very truly yours, ’ 

p. lb83 
The Honorable James H. Harwell page b (H-357) 

LARRY v Yk 

u‘ 

DAVID M. KENDALL, Chairman 

Opinion Committee 

1g 

p. lb84