May 3, 1939

Messrs..Shlvers&-:Ke,lth Attorneys for Je.fferson CountyWater Control & ImprovementDistrict No.1 'AdamsBuilding Port Arthur, Texas

A.ttention: .Mr.Allan-Shive'rs.
.Opiriioi~

NO: .o-46% Re: Authorlty.of a Water.Control and Improvement'~,District ~opledge net Revenues and.glve a'legal'flrst mortgage upon such.system as additional-security to. seCure'.the

payment of 'taxi

bonds issued.thereon

Oentlemen:.

.Iniour:-letteti'of March~8, .addressed'to'the Attorney General, you reque+..an opinioncovering t-he,foliowlngquestions:,

1. Can t~~"Distrlct,‘wl,thout additilonal.

authorization from.

the qualified:,votera ,,'le,gaIly

pledge the'net revenues of thewater.system,for,,the,pa~entof,bonds so.,aufhorized? 1 2..~Can the,.Doard of Direhtorslegally create a bandlng,flrst.mortgage-.l~,~~-gpon:tt?e'water system'to secure the payment of the tax bonds authorlzed,for the constructionof the water and sewer system?

Inaccordance,,y$.th,,the ,provls$onsoft

Article 4399, requiring this,.office.-,~~..~,advise.,,~lative the proper issuance of bonds,..the,following,~~gpinion,has been prepared:

#Asstatedl,,gnyour .let'ter,

the facts.are as foliows - .~i. .., .OnS.epte.rn~ez:~i~;;.~~~~8,,,:the': qua,lified

taxpayingvoters of the Jeffe~~~~~~~ate~,iC~~~~ql~~~~~d.~.~mprd~eme,nt~.Distr~lct .No.1 votedbonds ~aggrega.tlng..,$255,OO'd"'alid -authoriied'.the

levying of a tax to pay the pr'lnclpal.andinterest thereon as it‘4.

Messrs. Shivers &'Keith - page 2

matured; that you are now negotiating a loan from the Reconstruction Finance Corporation for the purchase of the bonds to supplement a W.P.A. grant, and that the bonds to be authorized and' pledged against this loan from the R.F.C. are in the sum of $195,000. The legal counsel for the R.F.C. has suggested that additional security might be offered by the pledging of net revenues of the project and also that a firstmortgage upon the system might also be given.

Article 7880-147u,Sec.3, Revised Civil Statutes of Texas, provides that the Board of Directors of any water control and improvementdistrictmay assess and collect charges for maintenance and operation of the facilities .ofany such district and such proceedswhen collected should be paid into the maintenance fund required in Section 103 of Chapter 25, Qeneral Laws~of the Thirty-nlnth~Leglslature,Regular Session of 1925. It further provides that ~a11or a part of said malntenance fund may be Irrevocablypledged as additional security for the nayment of the nrlncinal or Interest on all bonds of any such district so issued and sold to the.Qovernment ,ofthe ~UnltedStates or to any lending agencymentioned in Section 1 of the Act, or on all bonds of such district nledged as collateral to secure'navment of any loanmade by said Government
or agency thereof 'toany such dlstrlct,as such bonds become due and payable,.andmoneys of said maintenance fund so pledged shall aCcordlnglybe used formaintenance and operationwhen and onlywhen the principal of and Interest on the bonds due
on all preceding semi-annual Interestpaymeht dates shall have been paid In full and,when thecollection of taxes for the Interest and,sinklng fund account,reasonably and prudently~ to be anticipated by the boerd of directors of any such dlstrlct,will be sufficient to pay principal of and interest on the bonds becoming due on the~semi-~annual interestpayment date next succeeding. Provided, nevertheless, thatwhen moneys of themalntenanhe fund are so used to prevent or to cure defaults In the payment of the principal of or interest on the bonds, the amount so used shall be repaid into said maintenance fund from the first availableproceeds of the taxes levied pursuant to Section 2 of this Act.

Subsequent to the enactment of this statute,it was determined that such districtswere without s~peclflc statutory authority to pledge net revenues as security for bonds pursuant to the provisions of that article, and at the Third Called Session of the same Legislature Article 7880~9Oawas enacted to enable such districts to legally pledge the net -Yevenues 'asadditional security for general obligation bonds Issued and sold. It also defines net revenues and enumerates themanner in which such pledges could be accomplished, and. ’

Messrs. Shivers & Keith,page 3

provided thatwhichevermethod was adopted should be first submitted to the qualifiedvoters of such.dlstrict for approval thereof. The ca acted September 26, 193 ttion of this bill, which was en-

, by the Forty-thirdLegislature, Third Called Session, recorded In General and Special Laws of that session, at page 56, Chapter 32, Section 1, states -

"AnAct amendingChapter 25 of the Acts of the 39th Legislature,Regular Session, adding thereto a section to be 'SectiongOa,' and, in substance to provide: That certainwater control and improvementdistricts (In addition to, or in lieu of, securing their bonds by the levy and collection of taxes, as now provided),may enter into contractspledging their net revenues for security of theirbonds; Andy, providing that, in
case the district's obligations are secured both by taxation and the pledge of revenues, to compensate the net revenuesavailable to protect the maturities of the dlstrlct*s obligations. Defining 'netrevenues'; and, requiring an election for authorlza~tlon~for exercising~thePowers hereby aranted; also. flxinn the DrODOISitioiI to be voted on at~any such election. ,Stat%g the facts cnnstitutingan imperativepublic necessity (to enable such districts promptly to procure loans from the Fe,deral AdmInIstratIon of Public.Works, or other advantageoussources, thereby aiding to relieve unemployment) and de,' claring an emergency."

The foregoingAct is not applicable to your district under the facts stated, inasmuch as you are negotiating a loan with the Federal Qovernment, or a lending agency thereofwhich brings your casewithin the purview of theActs of the Fortyfourth Legislature, 1936, Third Called~Session,page 2092, Chapter 501,.Section 1, wherein Section 1 of the Acts of 1934, Forty-thirdLegislature,Second Called~Session,page 10, Chapter 4, was amended. The amendment expressly authorized the Board of Directors ofN water control and Improvement district in this State to borrow money and to receive grants and other aid from the Government of the United States. the Federal Emergency Administration of PublicWorks, the Recon-

._ struction Finance Corporation. the Federal Reserve Banks;and any other agencies of 'the dovernment .ofthe United States, and which loans or grantsmay be made on~such terms and in~& amounts as may be agreedupon between the Board of Directors of such d@trlcts and the United States Government, or any lending agency thereof.Messrs. Shivers & Keith, page 4

In our opinion this law authorizes the pledging of the "net revenues" by the Board of Directors of the Jefferson Water Control and ImprovementDistrict as additional~security for the previously voted tax supported bonds without the necessity of another election. Any plan of financing other than that specified in the Act above quotedwould require the submission of such further pledging of security to the qualified voters of such district, as provided in Article 7880~goa of the Revised Civil Statutes of 1925.

It is also our opinion that a firstmortgage cannot be given on the improvementswithin such districts. The statutes specifically authorize the pledging of certain revenues and ad valorem taxes to the payment of bonds issued by such districts,but have failed to provide for the'mortgagingof the physical improvements therein. sunderthewell established' rule of law thatwherein a law falls to name matters germane to the subject, it is presumed that the intentionwas to exclude such unnamed matters. whence,we conclude that the Legislature did not intend that such districts should have the right to give a first mortgage on its improvements.

Assuring you of this department's continued cooperation,we are
Very trulyyours

ATTORNEYGENERAL OFTEXAS

BY Clarence E. Crowe

Assistant CEC:s:bt
Approved:

ccnr. Edward Edelman, Counsel Reconstruction Finance Corporation Washington, D.C.

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