1_ OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS 

JOHN CORNYN 

September 12,2002 

The Honorable Warren Chisum 

Chairman 

Committee on Environmental Regulation 

Texas House of Representatives 

P.O. Box 2910 

Austin, Texas 78768-2910 

Opinion No. JC-0553 

Re: Whether a creating unit must review a 

development corporation’s dissolution plan when 

the corporation is dissolving under article 5 190.6, 

section 4A(k) of the Revised Civil Statutes, and 

related question (RQ-0527-JC) 

Dear Representative Chisum: 

You ask about the City of Pampa’s (the “City”) role in dissolving the Pampa Economic 

Development Corporation (the “PEDC”), which voters have decided by election to dissolve under 

article 5 190.6, section 4A(k) of the Revised Civil Statutes.* See TEX. REV. CIV. STAT. ANN. art. 

5190.6, 9 4A(k) (V emon Supp. 2002). In particular, you question whether the PEDC’s dissolution 

plan, “including, but not limited to, the terms of the sale of assets,” is subject to the City’s approval. 

Request Letter, supra note 1, Attachment at 1. Because a municipality that has created an economic 

development corporation has general authority to supervise and control the corporation, we conclude 

that the PEDC’s dissolution plan must be reviewed by the City. See TEX. REV. CIV. STAT. ANN. art. 

5 190.6, $5 21,23(a)( 12) (Vernon Supp. 2002). Significantly, however, a creating municipality, or 

creating “unit,” may not prevent an economic development corporation that is dissolving pursuant 

to section 4A(k) from accomplishing its statutory duty to “dispose of its assets and apply the 

proceeds to satisfy [its] obligations.” Id. 8 4A(k); see id. 8 2( 13) (defining “unit” to include city that 

“may create and utilize a corporation”). 

You also ask whether the PEDC may establish “a reserve account . . . to meet future financial 

commitments after” it has paid its outstanding obligations. Request Letter, supra note 1, Attachment 

at 3. We assume, by the term “reserve account,” you refer to an account like an escrow account. See 

BLACK’S LAW DICTIONARY 565 (7th ed. 1999) (listing “reserve account” as synonym for “escrow”). 

We conclude that neither article 5 190.6 nor the Non-Profit Corporation Act, chapter 9 of the Revised 

Civil Statutes, precludes the PEDC from establishing an escrow account as a way of satisfying its 

‘See Letter from Honorable Warren Chisum, Chair, Committee on Environmental Regulation, Texas House of 

Representatives, to Honorable John Comyn, Texas Attorney General (Mar. 25,2002) (on file with Opinion Committee) 

[hereinafter Request Letter]; see also Letter from Don R. Lane, Attorney at Law, Pampa, Texas, to Honorable Warren 

Chisum, Texas House of Representatives at 2-3 (Mar. 22, 2002) (attachment to Request Letter) (on file with Opinion 

Committee) [hereinafter Attachment]. 
The Honorable Warren Chisum - Page 2 (JC-0553) 

obligations. See TEX. REV. CIV. STAT. ANN. ch. 9 (Vernon 1997), art. 5 190.6 (Vernon 1987 & Supp. 

2002). 

According to facts you provide, City voters elected to dissolve the PEDC on November 6, 

2001. See Request Letter, supra note 1, Attachment at 1. The PEDC, now in the process of 

dissolving, has “several notes payable relating to projects” it had funded prior to the election; various 

assets, including notes receivable, a commercial building subject to a lease with an option to 

purchase, a section of land that the PEDC purchased for a minimal sum from Celanese Ltd.: a 213- 

acre tract of land, and some personal property. See id. One PEDC project may have possible future 

financial obligations that “may accrue because of increased employment criteria after all of the 

[PEDC’s] indebtedness . . . is satisfied.” Id. 

Based on these facts, you ask two questions: 

LDoestheCity.. . , as the creating unit, have approval authority over the 

plan of dissolution of the PEDC including, but not limited to, the terms of the sale 

of assets? 

2. May a reserve account be established to meet future financial commitments 

after the outstanding obligations have been paid? 

Id. at 1’3. Because the PEDC is a development corporation established under article 5 190.6, section 

4A of the Revised Civil Statutes, we begin by setting out article 5 190.6’s relevant provisions. See 

TEX. REV. CIV. STAT. ANN. art. 5 190.6,§ 4A (Vernon Supp. 2002); accord Tex. Att’y Gen. LO-97- 

061, at 1. 

Article 5 190.6, the “Development Corporation Act of 1979” (the “Act”), see TEX. REV. CIV. 

STAT. ANN. art. 5 190.6, 5 1 (Vernon 1987)’ permits a municipality, county, or district (a “unit”) to 

create an industrial development corporation generally to promote and develop business and 

commercial enterprises in the area on the unit’s behalf. Id. $0 3, 4(a) (Vernon Supp. 2002). 

Provisions generally applicable to an industrial development corporation link the corporation closely 

to its creating unit. In particular, section 21 requires a creating unit to supervise the corporation: 

“The unit will approve all programs and expenditures of the corporation and annually review any 

financial statements of the corporation, and at all times the unit will have access to the books and 

records of the corporation.” Id. 5 2 1. And, while an industrial development corporation has “all of 

the rights, powers, privileges, authority, and functions given” to a nonprofit corporation incorporated 

under the Texas Non-Profit Corporation Act, article 1396 of the Revised Civil Statutes, to the extent 

that the Non-Profit Corporation Act does not conflict with the Act, its powers are “subject at all 

times to the [creating unit’s] control.” Id. 8 23(a)(12). Indeed, the creating unit generally may 

2Materials you sent with your request state that the PEDC paid $10 for the real property, but a copy of the 

contract between Celanese Ltd. and the PEDC indicates that the price was $1. Compare Request Letter, supra note 1, 

Attachment at 1 with Sales Contract between Celanese Ltd. and PEDC 7 3 (Nov. 18, 1999) (on file with Opinion 

Committee). 
The Honorable Warren Chisum - Page 3 (JC-0553) 

resolve to “terminate and dissolve the corporation” at “any time . . . in its sole discretion.” Id. fj 34 

(Vernon 1987). 

Section 4A, which was inserted into the Act in 1989, applies particularly to industrial 

development corporations created by a municipality “located in a county with a population of 

500,000 or fewer; or [, in certain circumstances] . . . with a population of fewer than 50,000.” Id. 

§ Wa)W(2) (V emon Supp. 2002); see Act of May 27, 1989,71st Leg., R.S., ch. 877, 8 2’1989 

Tex. Gen. Laws 3 87 1’3871-73. “The corporation has the powers and is subject to the limitations 

of a corporation created under other provisions of this Act. To the extent of a conflict between this 

section and another provision of this Act, this section prevails.” TEX. REV. CIV. STAT. ANN. art. 

5 190.6, 5 4A(h)(l) (V emon Supp. 2002). If a majority of the creating municipality’s electorate 

authorizes the city to levy a sales-and-use tax to benefit the corporation, the municipality collects the 

tax and delivers “the proceeds to the corporation to use in carrying out its functions.” Id. 8 4A(d), 

(I). The corporation may be dissolved by a vote of the electorate: 

On petition of [ten] percent or more of the registered voters of the city 

requesting an election on the dissolution of the corporation, the governing body shall 

order an election on the issue at the next available uniform election date . . . . If a 

majority of voters voting on the issue approve the dissolution, the corporation shall 

continue operations only as necessary to pay the principal of and interest on its bonds 

and to meet obligations incurred before the date of the election and, to the extent 

practicable, shall dispose of its assets and apply the proceeds to satisfy those 

obligations. When the last of the obligations is satisfied, any remaining assets of the 

corporation shall be transferred to the city, and the corporation is dissolved. A tax 

imposed under this section may not be collected after the last day of the first calendar 

quarter beginning after notification to the comptroller by the corporation that the last 

of its obligations is satisfied. 

Id. 8 4A(k); see also id. $9 34’35 (Vernon 1987) (authorizing creating municipality to dissolve the 

corporation “[a]t any time . . . in its sole discretion” and authorizing the corporation to dissolve itself 

when it has fulfilled its purpose); cf: id. 8 4B(o) (V emon Supp. 2002) (providing for dissolution of 

certain industrial development corporations in cities located in county with population of 750,000 

or more, or with a population of 400,000 or more). 

You ask whether a corporation’s plan of dissolution, including the terms of sales of assets, 

must be reviewed and approved by the creating unit. See Request Letter, supra note 1, Attachment 

at 1. This issue requires us to consider whether a development corporation’s specific duty under 

section 4A(k) to “dispose of its assets and apply the proceeds to satisfy [its] obligations” conflicts 

with the creating unit’s duty to control the development corporation under article 5 190.6’s general 

provisions. See TEX. REV. CIV. STAT. ANN. art. 5 190.6,§ 4A(b)( 1) (Vernon Supp. 2002) (providing 

that, to extent section 4A conflicts with another provision of article 5 190.6, section 4A prevails). 
The Honorable Warren Chisum - Page 4 (JC-0553) 

We conclude that the two duties do not conflict. Rather, the duties may be harmonized so 

that the creating unit retains control over the dissolution, although it may not thereby interfere with 

the industrial development corporation’s duty to dispose of its assets and satisfy its obligations. 

A creating unit retains control and responsibility over the corporation. Cf: Gaut v. Amarillo 

Econ. Dev. Corp., 921 S.W.2d 884,887 (Tex. App.-Austin 1996, no writ) (per curiam) (stating that 

industrial development corporation’s “broad powers” are subject to creating unit’s control). 

Specifically, a development corporation is “subject at all times” to the creating unit’s control. TEX. 

REv.CIV.STAT.ANN.~~~. 5190.6,§23(a)(12)(V emon Supp. 2002); see also id. 8 34 (Vernon 1987) 

(authorizing creating unit to dissolve corporation); HOUSE COMM. ON WAYS & MEANS, BILL 

ANALYSIS, Tex. S.B. 971, 71st Leg., R.S. (1989) (stating that industrial development corporation 

would be within city council’s “total control”). 

Nevertheless, a creating unit may not use its duty to review and approve to interfere with the 

development corporation’s duty to dispose of its assets and to satisfy its obligations. Section 4A(k) 

of the Act requires a corporation that is dissolving under that section “to the extent practicable, to 

dispose of its assets and apply the proceeds to satisfy [its] obligations.” TEX. REV. CIV. STAT. ANN. 

art. 5 190.6, 8 4A(k) (Vernon Supp. 2002). Thus, the development corporation must dispose of its 

assets, at least to the extent necessary to satisfy its obligations. Moreover, the development 

corporation should dispose of its real property in exchange for a fair market value. C$ Tex. Att’y 

Gen. Op. No. JC-0109 (1999) at 2 (stating that 4B development corporation may not sell property 

acquired with sales-and-use tax proceeds for less than the property’s fair market value). 

In this way, both a creating unit’s statutory duty and a development corporation’s statutory 

duty are harmonized. Thus, for example, a creating unit may approve one means of disposing of a 

particular asset but not another, where both will allow the development corporation to satisfy its 

obligations, or the creating unit may disapprove of the development corporation’s plans for disposing 

of a particular asset where the corporation can satisfy its obligations without disposing of the asset. 

You ask next whether a “reserve” or escrow account may be established to meet the PEDC’s 

“future financial commitments.” Request Letter, supra note 1, Attachment at 3. You provide facts 

indicating that after the PEDC settles all of its other obligations and when it is otherwise ready to 

dissolve, it may have “one project” with “future financial commitments” that the PEDC may be 

unable to complete. Id. According to the City, the “future financial commitments are determinable 

since they are based on a fixed dollar amount on fixed numbers of increased employment.” Id. 

Furthermore, you tell us, if the City were to continue to collect sales-and-use tax revenue under 

article 5 190.6, section 4A(d) on behalf of the PEDC to pay future obligations, the amount of tax 

revenue “would far exceed the amount necessary to fund this future amount.” Id. 

Section 4A(k) permits a dissolving development corporation to “continue operations only 

as necessary to pay the principal of and interest on its bonds and to meet obligations incurred before 

the” dissolution election, and, “to the extent practicable,” to “dispose of its assets and apply the 

proceeds to satisfy” its obligations. TEX. REV. CIV. STAT. ANN. art. 5 190.6’9 4A(k) (Vernon Supp. 

2002). When the corporation has “satisfied” the last of its obligations, it must transfer “any 
The Honorable Warren Chisum - Page 5 (JC-0553) 

remaining assets” to the city, “and the corporation is dissolved.” Id. A sales-and-use tax imposed 

to benefit the corporation under section 4A(d) “may not be collected after the last day of the first 

calendar quarter beginning after” the corporation notifies the comptroller that it has satisfied “the 

last of its obligations.” Id. 

The Texas Non-Profit Corporation Act, chapter 9 of the Revised Civil Statutes, to which an 

industrial development corporation is also subject to a certain extent, similarly requires a dissolving 

nonprofit corporation to pay, satisfy, and discharge all liabilities and obligations. See TEX. REV. CIV. 

STAT. ANN. art. 1396-6.02 (Vernon 1997); see also id. art. 5190.6, 8 23 (Vernon Supp. 2002) 

(endowing corporation with all rights, powers, privileges, authority, and functions given to nonprofit 

corporation created under Texas Non-Profit Corporation Act except to the extent the Non-Profit 

Corporation Act is inconsistent with Act). Likewise, once a dissolving nonprofit corporation 

has paid, discharged, or made “adequate provision” for its liabilities and obligations, it must file 

articles of dissolution with the Texas Secretary of State. Id. art. 1396-6.05(A) (Vernon 

supp. 2002)’ * accord OFFICEOFTHE SECRETARY OF STATE, CORPORATIONS SECTION, FORMNO. 603: 

ARTICLES OF DISSOLUTION NON-PROFIT CORPORATION (revised 9/99), available at 

http://www.sos.state.tx.us/corn/forms/603 .pdf. 

We conclude that neither the Act nor the Non-Profit Corporation Act preclude the PEDC 

from establishing an escrow account to meet calculable future financial obligations. Establishing 

such an account is one means by which a dissolving corporation may “satisfy” its obligations under 

section 4A(k). Once these obligations are satisfied, the corporation must notify the comptroller 

accordingly and must cease the collection of taxes “after the last day of the first [subsequent] 

calendar quarter.” TEX. REV. CIV. STAT. ANN. art. 5190.6, 9 4A(k) (Vernon Supp. 2002). 

Establishing an escrow account also is one “practicable” method by which the corporation may 

“dispose of its assets” and discharge its obligations. This conclusion appears to comport with the 

PEDC’s Articles of Incorporation, which require the corporation, in the event of dissolution, to 

transfer ownership of its assets to the City after satisfying or “providing for the satisfaction of debts 

and claims.” ARTICLES OF INCORPORATION OF PAMPA ECONOMIC DEVELOPMENT CORPORATION, 

INC. art. XII (Apr. 20’1992). We assume that establishing an escrow account is consistent with the 

corporation’s contractual obligations, as well. 
The Honorable Warren Chisum - Page 6 

(JC-0553) 

SUMMARY 

An industrial development corporation that is dissolving 

under article 5 190.6, section 4A(k) of the Revised Civil Statutes must 

submit its dissolution plan to the corporation’s creating unit for its 

review and approval. See TEX. REV. CIV. STAT. ANN. art. 5190.6, 4 

4A(k) (Vernon Supp. 2002). But the creating unit may not use its 

approval power to prevent the development corporation from 

performing its statutory duty to, “to the extent practicable, . . . 

dispose of its assets and apply the proceeds to satisfy” the 

corporation’s obligations. Id. Neither article 5 190.6 nor the 

Non-Profit Corporation Act preclude an industrial development 

corporation from establishing an escrow account to meet calculable 

future financial commitments. 

Yo sv truly 4-+fv 

JOkN COkrrYN 

Attorney General of Texas 

HOWARD G. BALDWIN, JR. 

First Assistant Attorney General 

NANCY FULLER 

Deputy Attorney General - General Counsel 

SUSAN DENMON GUSKY 

Chair, Opinion Committee 

Kymberly K. Oltrogge 

Assistant Attorney General, Opinion Committee