DAN MORALES 

ATTORNEY GENERAL 

QBffice of tfje ~2Utornep 

&ate of IBexae 

December 7,1992 

@eneral 

Honorable Gonzalo Barrientos 

Committee on Nominations 

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 380.001 of tbe Local Government Code. Specikally, you 

ask the 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 of the incentives outlined [in your letter], when 

used singdarly or in combination, constitute a “program.. . to 

promote state or local economic development” as that phrase is 

used in Section 380.001 of the 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? 

p. 969 
Honorable Gonzalo Barrientos - Page 2 KM-185) 

The legislature enacted section 380.001 of the Local Govermnent Code after 

1987, when voters approved adding article III, section 52-a to the Texas 

Constitutions Section 52-a provides as follows: 

Notwithstanding any other provision of this constitution, the 

legislature may provide for the creation of programs and the 

making of loans and grants of public 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 or underemployment in the 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 of the 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 of the registered voters of the cotmty, municipality, 

or political subdivision voting on the issue. An enabling law 

enacted by the legislature in anticipation of the adoption of tbis 

amendment is not void because of its 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 is ambiguous 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’s prior interpretation of 

section 52-a supports this construction of the 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 of encouraging economic development in the state. 

Hearings on H.J.R. 5 Before the House Committee on Science and Technology, 

p. 970 
Honorable Gonxalo Barrientos - Page 3 (m-185) 

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 taxing jurisdiction approved the issuance of such bonds 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 if the legislature has enacted enabling legislation 

permitting the kind of program the local government seeks to establish, and, if the 

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 of Speaker’s Economic 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 a project the City of Marlin proposed, in which the 

City of Marlin contractually would agree with the Texas Department of Commerce 

to take responsibility for the creation of jobs by a private 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 of Marlin would reimburse the Department of Commerce apro 

mta portion of the 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 preexisting constitutional prohibitions on the lending of public credit.1 See id at 3 (and 

sources cited therein); see also Texas Const. art. III, $9 51.52. 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-1227 at 3. Thus, the legislature must enact enabling legislation 

lIn Attorney General Gpiioo JhGl255 (lWl), this &cc stated that article III, section 52-a of 

the Texas Constitution expands tbe constitutional detkition of public purpose to include economic 

dewlopmeat and diwhfication, elimination of unemployment 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 of section 52-a nor of any relcnnt commentary 

suggests that the voters and Iegishhue, by enacting section 52-a, %tended to change the require&nts 

that public resources and powers be used for ‘the direct accompli&meat of a public purpose’ end that 

traasactiors using such resources end powers a~ntain sufficient controls ‘to insure that the public 

purpose be carried out.‘” Id et &9 (and sowccs cited t&rein). 

p. 971 
Honorable Gonzalo Barrientos - Page 4 0X-185) 

to authorize the proposed transaction between the department of commerce and the 

City of Marlin. Id. 

Section 380.001 of the Local Government Code provides as follows: 

(a) The governing body of a municipality may establish and 

provide for the administration of one or more programs, including programs for making loans and grants of public money and 

providing personnel and services of the municipality, to promote 

state or local economic development and to stimulate business 

and commercial activity in the municipality. 

(b) The governing body may: 

(1) administer a program by the use of municipal 

personnel; 

(2) contract with the federal government, the state, a 

political subdivision of the state, a nonprofit organization, or any 

other entity for the administration of a program; and 

(3) accept conmbutio~ gifts. or other resources to 

develop and administer a program. 

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 

emxctment would be the enabling legislation for article III, section 52~a.2 Hearings 

%prem~h hkCdough, the author of House Bill 3192, testified before the House 

Chmdtt~oaUrban~that~on380.001oftheLoealG ovemment Chle, if enacted, 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 on 6le with House C?mmittee Coordinator). Representatin McCollough did not cite a 

particular act or code section; however, we believe he was referring to section 381.004 of the Local 

Govcrnmwt Code, which the legislature added to the Local Gmrnment code by Acts 1989,7lst Leg., 

ch. 1060,$3, at 4307. Se&m 381JW(b) authorizes the fzommikoners court of a uxmty to stimulate 

business and commercial activity in the county by developing and administering a program for state 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 

extent to wbicb women and minority busioe.ws are awarded county contrac& Subsection (c)(3), (4) 

explicitly authoriws a wlmty wmmissiowrs court to use county employees or funds for the program, 

p. 972 
Honorable Gonzalo Barrientos - Page 5 UN-185) 

on H.B. 3192 Before the House Committee on Urban Affaim, 71st Leg. (May 15, 

1989) (testimony of Representative McCoIIough, author) (copy on file with House 

fhumittee Coordinator). By enacting section 380.001, the legislature evidently 

intended to authorize municipalities to perform any of the functions that article III, 

section 52-a permitted the legislature to delegate. In our opinion, section 380.001 of 

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 is cotWitutionaLs 

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 bill would authorize cities to establish loan programs and to use 

municipal personnel for the purpose of attracting new businesses to the area and 

assisting existing businesses to expand. Hearings on S.B. 1820 Before the Senate 

Committee on Intergovermnentai ReIations, 71st Leg. (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 Iocai economic development.” 

You next ask whether a municipality may issue bonds 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 or attomcy gcmral opinions iaterprethg s&ion 381.004. 

Jwe bclicvc, however, that a municipality that imtitutcs a program to promote state or local 

eumomic dtmdopmeot pursuant to s&ion 3&X001 of the Local Gommm cot Code must comply with 

other wm6tutid requirements. See supm 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 is carried out. 

p. 973 
Honorable Gonzalo Barrientos - Page 6 (aSl85) 

Local Govermnent Code. Significantly, section 380.001 does not explicitly provide 

that a municipality may finance such a program through bond revenues. However, 

the municipality about which you specifically inquire is a home-rule municipality. A 

home-rule municipality has “[t]be power 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. But see supm note 3. 

Finally, you ask whether any constitutional or statutory prohibitions or 

preemptions would preclude inclusion of any particular incentive in a program for 

economic development that a municipality establishes pursuant to section 380.001 of 

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 of incentives, 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 380.001 of 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 of the opinion process to 

determine, however, whether a particular incentive or 

combination of incentives constitutes a “program.. . to promote 

p. 974 
Honorable Gonzalo Barrientos - Page 7 (1x-185) 

state or local economic development” for purposes of section 

380.001 of the 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 of the duly qualified 

property tax-paying voters voting at an election held to consider 

the bond issue must have approved the issuance. 

DAN MORALES 

Attorney General of Texas 

WILL PRYOR 

First Assistant Attorney General 

MARYKELLER 

Deputy Assistant Attorney General 

RENEAHxcKs 

Special Assistant Attorney General 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General 

p. 975