A4 MAlTOX 

Attorney General 

Supreme Coufl Suildin9 

f- 0. son 1254s 

, :s:in, TX. 78711. 2549 

:.2!475-2501 

Telex 91wS74-1367 

- Im3Jplor 51214750288 

714 Jackson. Suite 700 

Plllas. TX. 75202-4506 

U742.8944 

‘-24 Albefla Ave.. Suile 160 

Paso, 7X. 799052793 

blY5333S4 

iaxar. Suite 700 

houiton, TX. 77002.3111 

713i22MSSS 

SW3 Broadway. Suite 312 

Lubbock. TX. 79401.3479 

617476238 

4309 N. Tenlh. SWe S 

:Allen. TX. 7S5Ol~lSSS 

21682.4Y7 

D Main Plaza. Suite 400 

m Antonio. TX. 182052797 

cl12/225-4191 

The Attorney General of Texas 

December 31. 1984 

Ms. Rita Honitz 

Executive Director 

State Pension Revlw Iboard 

P. 0. Box 13498 

Austin, Texas 78711 

Opinion No. m-291 

Re: Whether a member of the 

board of trustees of a local 

pension plan violates article 

988b, V.T.C.S.. In certain 

circumstances 

Dear Ms. liorwite: 

You seek au interpretation of article 988b, V.T.C.S.. informally 

known as the local o!:flcials conflict of Interest act. You ask tvo 

questions with regard to the effect of the act upon the board of 

trustees of the Dallarr Police and Fire Pension Fund: 

1. Does B board member’s $2500 investment in 

the stock of a business entity constitute a 1 

‘substantia:l interest’ under .sectloa 2(a) of 

article 9881)‘! 

2. Does a board member’s $2500 participation 

in a deferred compensation program constitute a 

‘substantla:t interest’ under section 2(a) of 

article 9881,:! 

Article 988b III a comprehensive local conflict of interest 

statute vhich applie:l to a broad range of local public officials. 

Before the enactment of article 988b, no single conflict of interest 

statute applied generally to all local public officials. See. e.g.. 

Woolridge v. Folsom, 564 S.W.2d 471 (Tex. Clv. App. - Dallas 1978. no 

writ). Article 988b wplaced article 988. V.T.C.S., repealed in 1983. 

Acts 1983. 68th Leg., ch. 640, 57, at 4082. Article 988 was also a 

conflict of interest statute, but it applied only to general law 

cities. Id. Article 088b is not limited to general lav cities. 

Article 988b a?l>lies a fairly narrow conflict of interest 

prohibition to a broad group of local public officials. Section l(1) 

of article 988b defi,nes “local public official” to include the 

following: 

p. 1293 
Ms. Rlta Horvftz - Psge 2 (JM-291) 

a member of the goveruing body or another officer, 

whether elected or rqlpointed, paid or unpaid, of 

any district (incl.ctdlng a school district), 

county, city * precinct, central appraisal 

district, transit aut’hority or district. or other 

local governmental entity who exercises responsibilities beyond ,%ose that are advisory in 

nature. (Emphasis aacied). 

A preliminary question must be resolved of whether article 988b 

applies at all to the Dallas Police and Fire Pension Fund Board of 

TNSteeS. No reported cases deal directly wfth the applicability of 

article 988b to a similar bo;lrd of trustees. Nevertheless, several 

courts have dealt vith similar boards in other contexts; these cases 

must be addressed In an analysis of article 988b. 

The court in Bolen v. Board of Firemen, Policemen and Fire Alarm 

Operators Trustees of San AKtonio, Texas, 308 S.W.Zd 904-06 (Tex. 

Civ. App. - San Antonio 195r, writ ref’d), held that a similarly 

constituted board with powers parallel to those of the board in issue 

was simply not a political carporation or a political subdivlslon of 

the state. The court dealt with the pension board In the context of 

srticle III, section 52 of the Texas Constitution. a provision which 

is not In issue here. On the other hand, prior to the Bolen case, the 

Commission of Appeals held that; although contributi%?made by a 

municipality to a pension fund pursuant to article 6243a. the statute 

authorizing the fund in question here, do not violate article III. 

section 52. such funds are ne\,ertheless part of a "pblic fund subject 

to the control of the 1egis:tature.v (Emphasis ad&r McGuire v. 

City of Dallas, 170 S.W.Zd 72i., 727-28 (Tex. 1943). 

The court in Creps v. BocEd of Firemen's Relief 6 Retirement Fund 

Trustees of Amarillo, 456 S.V.2d 434. 439 (Tex. Civ. App. - Amarillo 

1970, writ ref’d n.r.e.1. heli that a statutory trust is not governed 

by the Texas Trust Act, the laws noverninn- the administration of 

private trusts. The court in !a dealt with a fund created pursuant 

to article 6243e. 

Similarly, this office clecided that the board of trustees of a 

Firamens’ Pension and Retirement Fund formed pursuant to article 

6243e, V.T.C.S.. is a "govew,mental body" for purposes of the Open 

Meetings Act, article 6252-17. V.T.C.S. Attorney General Opinion 

MU-506 (1982). The relationship between municipalities and their 

various pension fund boards cf trustees as set forth in article 6243e 

and the article which authoriz,zd the creation of the Dallas Police and 

Fire Pension Fund are analogol.;. See V.T.C.S. art.6243a. 

- 

Consequently. the pension fund board of trustees about which you 

inquire may be a local goveruaental entity for some purposes and not 

p. 1294 
Ms. Rita Horwitz - Page 3 (JN-291) 

for others. see also l4uzqui:c V. City of San Antonio, 586 F.2d 529 

(5th Cir. 1978) (a similar fund may be “like a municipality” for 

purposes of Civil Rights Act. 42 U.S.C. 11983 (1982)). Moreover, 

unlike the phrase “or other ,political corporation or subdivision,” 

which was construed in the :)olen case not to include a particular 

pension fund board of trwsteei), ‘-ehe test in article 988b was intended 

to address a different problem and is phrased broadly to lncludg any 

entity that “exercises respon#;ibilities beyond those that are advisory 

in nature.” V.T.C.S. art. 98fRl. 11(l). 

The board of trustees ia the instant case Is composed of city 

officials serving ex officio and of members of the fire and police 

departments elected by the c~,ntributors to the fund. V.T.C.S. art. 

6243a. il. The city treasurer serves as ex officio treasurer for the 

fund. Id. 55. Article 624:Ia grants the board broad authority to 

administer the fund. Id. )Il. lC, 15. Moreover, the board holds the 

power to reduce the percentages (stipulated in article 6243a) which 

deal with disabilities or w11:b awards granted to beneficiaries. Id. 

51. Thus, the board clearly “exercises responsibilities beyond those 

that are advisory in nature.” Accordingly, article 988b applies to 

the Dallas Police and Fire Pension Fund Board of Trustees. 

A local public official commits a Class A misdemeanor under 

section 3(a)(l) of article 9811b, except in those instances provided in 

section 5, tf he “knowingly” 

participates in II vote or decision on a matter 

involving a business entity in which the local 

public official bar, a substantial Interest if it 

is reasonably forelseeable that an action on the 

matter would confer an economic benefit to the 

business entity inv,,:Lved. . . . (Emphasis added). 

The elements of the offense involve several factual determinations. See Attorney General Oplnlon JM-178 (1984). Your question, 

- 

however, pertains only to sec:t.ion 2 of the act, which indicates what 

constitutes a “substantial interest.” In particular, you inquire 

about the meaning of section Z(a)(l); this subsection indicates that a 

person has a substantial inter,est in a business if 

the interest is ovJnership of 10 percent or more 

of the voting stock or shares of the business 

entity or ownership of $2,500 or more of the fair 

market value of the ~bunlness entity. . . . 

Two different interpretations of this language have been suggested. 

It has been suggested ,that the legislature meant to draw a 

distinction in section 2(a)(L) between stock-issuing corporations and 

p. 1295 
I&. Rita Rorwitz - Page 4 (JM-:!!bl) 

business entities which do no1 issue stock, and to apply the $2500 

limitation only to the latter. In our opinion, however, the language 

of the statute cannot be so construed. It is applicable to the 

“ownership of $2500 or more of the fair market value” of a “business 

l ntfty.î 

You express concern that, if the legislature did intend a $2500 

Investment in stock to be a oabstantial interest undes. the statute, 

the board vould be paralyzed; it is quite likely that individual board 

members might own at least $2500 worth of stock in a large corporation 

in which the board might vaut to invest pension funds. Section 

3(a)(l)., article 988b. requires officials to abstain from voting on 

investment decisions involving corporations in which they own a 

substantial interest. If a $2500 stock investment were interpreted to 

he a substantial interest. abs,tentions could be frequent. Contrast 

art. 988b. 12(a)(l)~ with art. 6252-9b. 12(12)(B). 

Nevertheless, the langual:c! enacted by the legislature applies 

both the 10 percent limit and the $2500 limit to “the business 

rntity . ” “Business entity” Is d.efined by the statute to include 

a sole proprietorship, partnership, firm, 

corporation, holding cmpany, joint-stock company, 

receivership, trust,, or an9 other entity 

recognized in lav. 

Ait: 988b, 11(2). In construing a statute, it is no; ordinarily 

permissible to imply an exceqtion vhere none ma9 be found in the 

statute’s literal language. Amrd v. Reard. 305 S.W.Zd 231 (Tex. Civ. 

APP . - Galveston 1957, writ-;ef ‘d) . We conclude therefore that a 

board member’s ownership of $2!iOO of the stock of any business entity, 

including one that issues sto&. constitutes a “substantial Interest” 

under section 2(a)(l). 

You also ask whether funds invested by the board in a deferred 

compensation program are subject to article 988b. The potential 

problem Is that a city offici,n:L who serves as a pension fund trustee 

may have an interest in a def’erred compensation system in which the 

pension fund might vish to Invest. We must first determine vhether 

the board of trustees may knvest pension funds in a government 

employees’ deferred compensat:ton program at all. The trustees of a 

statutory trust have only thwe powers and duties set forth in the 

statute which authorized the creation of the oarticular uension fund. 

Creps v. Board .of Firemen’s_Relief h Retirement Fund Trustees of 

Amarillo, supra at 439. 

Section 15(b) of article ,5243a is a guide for those investments 

the board is authorized to make: 

p. 1296 
Ms. Rita Horvitz - Page 5 (Jh-291) 

In making investments and supervising 

investments, members of the Board of Trustees 

shall exercise the judgment and care under the 

circumstances then prevailing, which men of 

ordinary prudence, discretion and Intelligence 

exercise In the mana:gement of their own affairs. 

not in regard to ;tpeculation but in regard to 

probable income thewfrom as well as the probable 

safety of their capital. 

Thus, unlike provisions which govern other, similar types of pension 

fund trustees, the board is nat expressly limited to specific types of 

investments. Compare art. 6%3a, 115(b) with art. 6243e. 123; see 

Attorney General Opinions MU-506 (1982);n-607 (1970). Thus, the 

board could conceivably consi~ier investing in some type of “deferred 

compensation” program if the investment met the test of article 6243a. 

section 15(b). 

You do not, however, indicate just what sort of deferred 

compensation program is in iwue. As used by the legislature’ the 

term “deferred compensation” refers to deferred compensation plans for 

public employees as authorized by article 6252-3b, V.T.C.S. Article 

6252-3b does not create a program involving the sale of bonds or other 

investments; thus it is not a program in which the board could invest 

pension funds. Compare V.:l.,C.S.. Title 1LOB. Public Retirement 

Systems, 165.105 (1983 pamphlet) (authorizes the Municipal Retirement. 

System to issue bonds). Cowequently , if the board cannot invest 

funds in this program, no toard member could hsve a conflict of 

interest by participating in s board vote or decision on a matter 

involving investment in this deferred compensation program. 

If, on the other hand, you refer to “deferred compensation” in a 

generic sense. i.e. with regal:cl to retirement plans generally, and in 

a context otherthan article 6252-3b, a conflict of interest under 

article 988b depends upon the nature of the interest held by the board 

-- 

member. See, e.g., Creps v. _I)oard of Firemen’s Relief 6 Retirement 

Fund Trustees of Amarillo, afa at 437; cf. art. 6252-3b (contractual 

deferred compensation program may differfrom retirement program). 

Accordingly’ this office cann3.c answer, in the abstract, vhether all 

or any employees’ “deferred compensation” programs could cause a 

conflict of interest under article 988b vithout examining the 

particular program. Board members will have to acquaint themselves 

vith the portfolio of any such program in which they have an interest 

and refrain from participating in a board decision when any security 

that is a part of that portfo1.i.o is the subject of a decision. if the 

trustee’s pro rata holding of that security through the program is a 

substantial interest as defined by article 988b. 

,>. 1297 
Ms. Rita Ronitz - Page 6 (JM-:291) 

Section ?(a)(l) of article 988b. V.T.C.S., 

prohibits a board member of the Dallas Police and 

Fire Pension Fund :Srom voting to invest pension 

funds in any business entity in which he holds a 

$2500 ownership interest, whether or not that 

Interest is in a tlusiness entity which issues 

stock. 

Because a deferred compensation program under 

article 6252-3b is not the sort of program in 

which a pension fund board of trustees could vote 

to Invest. article 988b is inapplicable. 

JIM UATTOX 

Attorney General of Texas 

TOU GREEN 

First Assistant Attorney General . 

DAVID R. RICEARDS 

Executive Assistant Attorney General 

RICR GILPIN 

Chairman, Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

APPROVRD: 

OPINION COMMITTEE 

Rick Gilpln, Chairman 

Susan Garrison 

Tony Guillory 

Jim Moellinger 

Jennifer Riggs 

p. 1298