DAN MORALES

ATTORNEY GENERAL 

## QBffice

of tfje~2Utornep &ate of IBexae December 7,1992 

## @eneral

Honorable Gonzalo Barrientos

Committee onNominations Texas State Senate P.O.Box1206S Austin,Texas 78711 Gpinion No. DM-185

Re: Whether a municipality may establisb a program for econoniic develop ment pursuant to section 380.001 of the Local Government Code, and related questions (RO-464)

Dear Senator Barrientos:

You have asked several questions about the constitutionality and proper construction of section 380.001of tbe Local Government Code. Specikally, you askthe following:

1. I.5 the establishment of a proSram for economic development by a mmdcipality pursuant to Section 380.001 of the Imal Govermnent Code constitutional?
2. Do each ofthe incentives outlined [inyour letter], when used singdarly or in combination, constitute a “program..
.to promote state or local economic development” as that phrase is used in Section380.001ofthe Local Government Code?
3. Can a municipality issue bonds to fund incentives which
are included in a. program for economic development established under Section 380.001 of the Local Government code?
4. Are there any constitutional or statutory prohiiitions or preemptions that would preclude inclusion of any of the incentives outlined [in your letter] in a program for economic development established under Section 380.001 of the Local Government Code?

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The legislature enacted section 380.001ofthe Local Govermnent Code after 1987, when voters approved adding article III, section 52-a to the Texas Constitutions Section52-aprovides asfollows:

Notwithstanding any other provision ofthis constitution, the legislature may provide for the creation of programs and the making of loans and grants ofpublic money, other than money otherwise dedicated by this constitution to use for a different purpose, for the publk purposes of development and diversification of the economy of the state, the elimination of unemployment orunderemployment inthe state, the stimulation of agrkultural innovation. the fostering of the growth of enterprises based on agriculture, or the development or expansion of transportation or commerce in the state. Any bonds or other obligations of a county, municipality, or other political subdivision ofthe state that are issued for the purpose of making loans or grants in connection with a program authorized by the legislature under this section and that are payable from ad valorem tares must be approved by a.vote of the majority ofthe registered voters ofthe cotmty, municipality,
or political subdivision voting on the issue. An enabling law enacted by the legislature in anticipation ofthe adoption oftbis amendment isnotvoidbecause ofits anticipatory character.
One might argue that section 52-a authorizes the legislature to create statewide economic development programs, but it does not authorize the legislature to delegate such responsibilities to counties, municipalities, or other political subdivisions. Admittedly, the first sentence isambiguous on this point. Reading the section as a whole, however, section 52-a clearly envisions that a county, municipality, or other political subdivision may issue bonds to pay for its economic development program. Legislative history and this office’sprior interpretation of section 52-asupports this construction ofthe section.

In hearings on the resolution proposing to place this constitutional amendment before the voters, a witness speaking before the House Committee on Science and Technology explained the proposed amendment as one that does not authorize, without further constitutional amendment, the state to issue general obligation bonds for the purpose ofencouraging economic development inthe state. Hearings on H.J.R. 5 Before the House Committee on Science and Technology,

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70th Leg. (Mar. 3, 1987) (statement of Jerry Turner) (copy on file with House Committee Coordinator). Rather, according to the witness, this amendment would authorize tbe legislature, if it chose to do so, to enact legislation that would empower local governments to issue bonds, provided that the people voting in the affected taxingjurisdiction approved the issuance of suchbonds at an election. Id. Signiticantly, according to another witness, this amendment to the constitution author&s a local government to provide any kind of assistance for the purposes listed in the amendment, but only ifthe legislature has enacted enabling legislation permitting the kind ofprogram the local government seeks to establish, and, ifthe local government seeks to use any tax funds, a majority of the voters voting at a referendum on the issue have approved. Id. (testimony by Robert Randolph, member ofSpeaker’sEconomic Development Committee) (copy on tile with House Committee Coordinator).
This office examined article IQ section 52-a in Attorney General opinion JM-1227 (1990)in reference to aproject the City ofMarlin proposed, inwhich the City ofMarlin contractually would agree with the Texas Department ofCommerce to take responsibility for the creation ofjobs by aprivate entity. Attorney General opinion JM-1227 at 1. If the private entity failed or failed to provide the jobs it represented it would provide in its application for a loan from the Department of Commerce, the City ofMarlin wouldreimburse the Department ofCommerce apro mta portion ofthe department’s loan to the private entity. Id. This office stated that the legislature and the voters intended section 52-a to create exceptions to preexistingconstitutional prohibitions on the lending ofpublic credit.1 Seeid at 3 (and
sources cited therein); seealsoTexas Const. art. III, $951.52. We advised, however, that article III, section 52-a does not by itself expand a municipality’s authority to lend credit, but it authorizes the legislature to enact laws that do so. Attorney General Gpinion JM-1227at 3. Thus, the legislature must enact enabling legislation

lInAttorney General Gpiioo JhGl255 (lWl), this &cc stated that articleIII,section 52-aof the Texas Constitution expands tbe constitutional detkition of public purpose to include economic dewlopmeat and diwhfication, elimination ofunemployment end underemployment, stimulation and poutb of agricelhue, and the expansion of state transportation and commerce. &omey General Gpbdm J?vf-Us5

at 8. H-r, neither the hguage ofsection 52-a nor ofanyrelcnnt commentary suggests that thevoters and Iegishhue, byenacting section 52-a,%tended to change the require&nts that public resources and powers be used for ‘the direct accompli&meat ofapublic purpose’ end that traasactiors using such resources end powers a~ntain sufficient controls ‘to insure that the public purpose becarried

out.‘”Id et&9 (andsowccs citedt&rein).

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to authorize the proposed transaction between the department ofcommerce and the City ofMarlin. Id.
Section 380.001ofthe LocalGovernment Code provides asfollows: (a) The governingbody ofa municipality may establish and provide for the administration ofone or more programs, includingprograms for making loans and grants ofpublic money and providing personnel and services ofthe municipality, to promote state or local economic development and to stimulate business and commercial activityinthe municipality. (b) The governingbodymay: (1) administer a program by the use of municipal personnel; (2) contract with the federal government, the state, a political subdivision ofthe state, a nonprofit organization, or any other entity forthe administration ofaprogram; and (3) accept conmbutio~ gifts. or other resources to develop and administer aprogram. The author of House Bill 3192, which proposed section 380.001 of the Local Government Code, stated before the House Committee on Urban Aftairs that this emxctmentwould be the enabling legislation for article III, section 52~a.2Hearings

%prem~h hkCdough, the author of House Bill 3192, testified before the House Chmdtt~oaUrban~that~on380.001oftheLoealG ovemment Chle, ifenacted, would authorize a municipality to do the same thing that the legislature +d just authorized countim to do, i.e., to participate in economic development matters. Hearings on H.B. 3192 Before the House. committee on Urban Affaiq 71st Leg. (May l&1989) (testimony of Representative McCollough, author) (copy on6lewith House C?mmittee Coordinator). Representatin McCollough did not cite a particular act or code section; however, we believe he was referring to section 381.004of the Local Govcrnmwt Code, whichthelegislature added tothe Local Gmrnment code byActs 1989,7lst Leg., ch. 1060,$3, at 4307. Se&m 381JW(b) authorizes the fzommikoners court ofa uxmty to stimulate business and commercial activityinthe countyby developing and administering aprogram forstate or local euxmmic developmer& for small or disadvaatagcd business development; to stimulate, wco-, and develop business location and commercial activity in the coutlty, or to improve the extentto wbicbwomen and minority busioe.ws are awarded county contrac& Subsection (c)(3), (4) explicitlyauthoriws awlmty wmmissiowrs court to use county employees or funds for the program,

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on H.B. 3192 Before the House Committee on Urban Affaim, 71st Leg. (May 15, 1989) (testimony ofRepresentative McCoIIough,author) (copy on file with House fhumittee Coordinator). By enacting section 380.001, the legislature evidently intended to authorize municipalities to perform any ofthe functions that article III, section 52-apermitted the legislature to delegate. In our opinion, section 380.001of the Locai Government Code properly implements article III, section 52-a; thus, in
answer to your Srst question. we believe that section 380.001 of the Locai Government Code iscotWitutionaLs

Your second question asks us to delineate the kind of incentives that a municipality properly may include in a “program..
.to promote state or local economic development.” The legishtture did not expressly instruct what such a program would be. In testimony before the Senate Committee on Intergovemmental Relations, the author of Senate BiIi 1820,a companion bill to House Bili 3192,stated that the billwouldauthorize citiesto establish loan programs and touse municipal personnel for the purpose of attracting new businesses to the area and assisting existing businesses to expand. Hearings on S.B. 1820Before the Senate Committee on Intergovermnentai ReIations, 71stLeg. (May 18,1989) (testimony of Senator Carriker, author) (copy on file with Senate Staff Setices); see &o id. (testimony of Bob Hart, City Manager for City of Georgetown) (indicating Georgetown’s interest in establishing direct lending program). It is outside the scope of the opinion process, however, to determine specificaily which incentives, when offered singuhuiy or in combination, constitute a “program..
.to promote state.or Iocaieconomic development.”

You next askwhether a municipality may issuebonds to fund incentives that it desires to include in a “program
...to promote state or local economic development” that the municipality has established under section 380.001 of the

(fochotc continued) and to accept contriiutions, gifts, or 0th rcsourccs to &v&p and administer the program. We found no cases orattomcy gcmral opinionsiaterprethg s&ion 381.004.

Jwe bclicvc, however, that amunicipality that imtitutcs a program to promote state or local eumomic dtmdopmeot pursuant to s&ion 3&X001ofthe Local Gommm cot Code must comply with other wm6tutid requirements. Seesupm note 1. Specihdy, the municipality must determine that itis~publicfundsandrcsourctsforthcdircdaccomplishmentofapublicpurposcandthat tramxtiom using the.public hods and resources contain sufticimt controls to ensurc that the public purpose iscarriedout.

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Local Govermnent Code. Significantly, section 380.001does not explicitly provide that a municipality may finance such a program through bond revenues. However, the municipality about whichyou specificallyinquire isahome-rule municipality. A home-rule municipality has “[t]bepower to issue bonds upon the credit of the city for

...public purposes in the amount and to the extent provided by such charter, and consistent with the Constitution of this State; provided, that said bonds shall have first been authorized by a majority vote by the duly qualified property taxpaying voters voting at an election held for that purpose.” V.T.C.S. art. 1175. Therefore, if the proposed bond issuance is in accordance with the ‘home-rule mmdcipality’s charter, and if a majority of the duly qualhied property tar-paying voters voting at an election held to consider the bond issue have approved the issuance, the municipality may issue bonds to fund an economic development program established under section 380.001.Butseesupm note 3. Finally, you ask whether any constitutional or statutory prohibitions or preemptions would preclude inclusion ofany particular incentive in a program for economic development that a municipality establishes pursuant to section 380.001of the Local Government Code. ‘Ihe legislature intended article III, section 52-a of the Texas Constitution and section 380.001 of the Local Government Code to authoriae municipalities to implement a range of programs designed to promote economic development. Again, it is outside the scope of the opinion process to determine whether any set ofincentives, offered singularly or in combination, can constitute an economic development program under section 380.001. However, we are unaware ot and you have not specifically mentioned, any provisions that would forbid a municipality from establishing a program to promote state or local economic development and to stimulate business and commercial activity in the municipality.
SUMMARY

Section 380.001of the Local Government Code, which the legislature enacted pursuant to article III, section 52-a of the Texas Constitution, is constitutional. The legislature intended section 380.001 to authorize municipalities to offer a range of incentives desigued to promote state or local economic development. It is outside the scope ofthe opinion process to determine, however, whether a particular incentive or combination ofincentives constitutes a “program..
.to promote

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state or local economic development” for purposes of section 380.001ofthe Local Government Code.
A home-rule municipaLity may issue bonds to fund an economic development program that the municipality has established in accordance witb section 380.001,but only if two conditions are met. First, the bonds the munici@lity desires to issue must be in an amount and to the extent provided by the municipality’s charter. Second, a majority ofthe duly qualified property tax-payingvoters voting at an election held to consider the bond issuemust have approved the issuance.

DAN MORALES Attorney General ofTexas

WILLPRYOR First Assistant Attorney General

MARYKELLER Deputy Assistant Attorney General

RENEAHxcKs SpecialAssistant Attorney General

MADELEINE B.JOHNSON Chair, Opinion Committee Prepared byKymberly K.Oltrogge Assistant Attorney General

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