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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 tobe used by private industry by **giving** anote to be repaid out ofthe 

### revenues generated by the property and without any further liability on the city’o part. Appartntly the United Staten harrdiscontinued its use of one or more tract8 of land and har indicated awillingners to sell the properties toa 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 ofinterest 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.1679The Honorable James H. Harwell page 2 (H-3571

A home rule city’s power to purchase.land emanatea from Article XI, 05ofthe 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 arrmay be prescribed bythe legirlature. Thus if a city’s charter provider for general power to purchase land this power can be exercieed subject only towhatever constraints are imposed by the Constitution and any relevant legislative enactments. Davis v. City of ’ 67S.W. 2d 1033 (Tex. 1934); and Miller v. Uvalde Co., 20 Taylor, S.W. 2d403 (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, 53ofthe Texan Constitution provide in pertinent part:

Art. 3, 552 (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 ofthe State to lend its credit or to grant public money or thing **of**value in aid of, or toany 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 ofthe Texas Constitution expressly proscribe the lending ofa city’s credit to aprivate corporation. A statute authoriiing the purchase ofland for industrial development, Art. 5190.1, V. ‘I. C.S., has previously been cited tothis Office in support ofatransaction similar to the one before us now. But this Office refused toapprove 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 ofMcAllen to compel approval ofthe bonds. City of McAllen v. Hill, NO. B-4315, (17Tex. Sup. Ct.J. p.128). In that case it was the position ofthis Office that revenue bonds issued topurchase 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 ofMoyie Springs, Idaho v. Aurora Manfacturing Company, 353 P. 2d 767 (Idaho 1960). Con-. struing anI&ho statute similar toArticle 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 nomunicipality ‘shall lend, or pledge the credit or faith thereof directly or indirectly, in any manner, to, or in aid ofany 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 ofthe act now before the court and the ordinance enacted **by** the plaintiff village pursuant thereto is to lend the credit and faith ofthe municipality in aid ofthe 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., 314S.W. 2d 12;Bennett v. City ofMayfield, KY., 323 S.W. 2d 573: Holly v. City of Elisabethton, 193Tenn. 

### 46, 241S.W. 2d 1001; Albritton v. Winona. 181Miss. 75, 178So. 799, 115A. L. R. 1436; In re Opinion ofthe Justices, 

### 256 Ala. **162.** 53So. 2d 840. Some ofthese 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 alending ofthe.credit ofthe municipality. Such decisions read like apologies to constitutional limitations, dictat~ed by expediency. It is obvious that one ofthe prime purposes of having the necessary bonds issued byand in the name ofa municipality is to **make** them more readily salable on the **market.** Thus. the credit ofthe municipality is extended in aid ofthe project, regardless of the limitations placed upon the remedy ofthe purchaser

. . . . (353 P. 2dat 772)

p.lb82The 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 anote 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 onwhich 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 ofthe general type you envision 

### are invalid per se by force ofArticle 3§52and Article 1153. The credit clauses do not prohibit dealings with private corporations and associations so long as alegitimate 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 ofaprivate industry. Barrington v. Cokinos, 338S.W. 2d 133 (Tex. 1960); and Bland V. City of Taylor, 37S.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

### TheHonorable James H. Harwell pageb (H-357)

LARRY v Yk 

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DAVIDM. KENDALL, Chairman OpinionCommittee 

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