_ December 29, 1988 

Honorable Bruce Gibson 

Chairman 

Committee on Financial Institutions 

Texas House of Representatives 

P. 0. Box 2910 

Austin, Texas ,78769 

Opinion No. JM-1000 

Re: Whether a school 

district may rent a 

school building owned 

by a nonprofit foundation under certain 

circumstances and 

related questions 

(RQ-1476) 

Dear Representative Gibson: 

you request an opinion about certain powers of an 

independent school district. YOU report that rapid 

fluctuations in the population of the district make it 

difficult to plan for adequate classroom facilities. YOU 

describe the following proposal which the district is 

considering to deal with this problem. 

To save money and provide higher quality 

facilities, the district is interested in 

using removable classroom facilities acquired 

through a non-profit corporation that will be 

created by citizens of the school district to 

provide adjunct services to the school district as a tax-qualified public foundation. 

The district will not be officially involved 

in the creation, organization, or operation 

of the foundation. 

YOU note that two alternative plans are under consideration 

using such a foundation to provide for the contemplated 

classroom facilities. 

The foundation will issue bonds or notes 

to acquire a site and construct or install 

removable modular classroom buildings. The 

bonds or notes will be secured by a deed of 

trust lien on the premises and will be payable solely from rentals paid by the district 

or a successor tenant or from proceeds of a 

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Honorable Bruce Gibson - Page 2 (JM-1000) 

sale of the property. The district will rent 

the facilities for a one-year term with the 

option to extend the tenancy annually for 25 

year.s; the district's obligation will be 

subject to the budgeting of the necessary 

amounts. The district will pay rent monthly 

or semiannually in fixed amounts that equal 

the amount due in a fiscal year on the foundation's bonds plus any insurance and similar 

costs. On the date the district ceases to 

pay rent or the expiration of 25 years, 

whichever comes first, possession of the 

property will return to the foundation. The 

district believes interest on these bonds is 

subject to federal income taxes. 

The second plan is the same as the first 

except that, before the bonds are issued, the 

foundation and district will agree that on 

full payment of the bonds the rental 

agreement will terminate and the foundation 

will convey title to the property to the 

district, which will have agreed in advance 

to accept the donation of the property. The 

board of the school district will adopt a 

resolution approving the foundation's purposes and activities and consenting to the 

issuance of the foundation% bonds for the 

described purposes. Under this plan, the 

district believes the bonds can be issued on 

a tax-exempt basis under federal law. 

We provide you with our opinion on each of the 

questions you ask in relation to the plans under 

consideration by the district. We have grouped questions 

one and two together, along with our answers. Question 

three is addressed separately. 

(1) May the district, under the law of 

this state (including Section 20.48(c), 

Education Code), rent a school building owned 

by a nonprofit foundation created by 

interested citizens under these circumstances, assuming: (i) the district is not 

obligated to pay rent or occupy the premises 

beyond the current fiscal year and does not 

create a debt: (ii) funds are budgeted for 

the year in which the rent is due: and (iii) 

the nonprofit foundation retains title to the 

facilities? 

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Honorable Bruce Gibson - Page 3 (JM-1000) 

(2) May the district, under the law of 

this state (including Section 23.26, Education Code), accept a donation of the property 

from the foundation after the bonds are paid 

in full? 

The trustees of an independent school district have 

exclusive power "to manage and govern the public free 

schools of the district." Educ. Code 5 23.26; Trustees of 

the Index. School Dist. of Cleburne v. Johnson County 

Democratic Executive Comm., 52 S.W.2d 71 (Tex. 1932); 

Attorney General Opinion JM-531 (1986); see also Attorney 

General Opinion M-1047 (1972). The discretion of the 

trustees is limited only to the extent that they may not 

enter into agreements outside of the governmental purposes 

of the district. In other words, every transaction which 

they approve must relate to the operation of the public 

schools entrusted to their care. See River Rd. Neighborhood 

Ass'n. v. South Texas Svorts, 720 S.W.2d 551 (Tex. App. - 

San Antonio 1986, writ dism'd; Rovse Indev. School Dist. v. 

Reinhardt, 159 S.W. 1010 (Tex. Civ. App. - Dallas 1913, writ 

ref'd); Attorney General Opinion M-1047 (1972). 

Additionally, the specifically enumerated powers of the 

trustees include the power to spend local tax funds for 

"renting school houses," Educ. Code § 20.48(c), and to 

accept donations. Educ. Code 5 23.26(a). Thus, the 

trustees of the school district may arrange to rent portable 

classroom buildings and to accept a donation of the buildings from a private foundation, subject to the limitations 

discussed below. 

As a matter of law, an independent school district may 

not expend money except according to a budget item adopted 

in due course as prescribed by law. Educ. Code 5 23.47(a); 

see also 0 4.03(c). Of course, the question of whether the 

trustees have properly exercised these powers in relation to 

a particular transaction concerning the lease of classroom 

space ("school houses") also is in part a question of fact. 

See River Road; Rovse Citv, suvra. Thus, whether or not a 

lease transaction results in fair value for the school 

district is a question of fact which this office cannot 

resolve. See, e.g., Attorney General Opinion JM-486 (1986). 

You also ask: 

Under Section 272.001(b)(5), Local Government Code, may the district, without competitive bidding, sell a site for the school 

facilities to the foundation for development 

in accordance with the rental agreement if 

the foundation's bond issue includes, and the 

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Honorable Bruce Gibson - Page 4 (JM-1000) 

foundation pays to the district, an amount 

equal to the fair market value of the 

property that will be paid to the district? 

An independent school district may sell its land only 

if the proceeds of the transfer are used for "the purchase 

of more convenient and more desirable school property" or 

for "the construction or repairing of school buildings" or 

for deposit "to the credit of the local maintenance fund of 

the district." Educ. Code 5 23.30 (emphasis added). 

Additionally, the property must no longer be needed for 

school purposes. Attorney General Opinion O-1570 (1939). 

Because, under the facts you have provided, the land in 

question will be conveyed to a private party which will 

erect structures on it which will be leased back to the 

school district and used as classrooms, the district can 

hardly claim that the land is "no longer needed for school 

purposes." In fact, under such a plan, the land is 

precisely needed for school purposes. The district thus 

lacks the authority to convey the land to a private 

foundation for such purposes. We, therefore, need not reach 

questions concerning the application of section 272.001 of 

the Local Government Code. 

Additionally, several aspects of the proposed 

transactions contained in the second proposal raise 

questions about the authority of the school district to 

proceed with its participation in such a plan. YOU relate 

that, under that arrangement, the district, before bonds are 

issued by a private foundation, must agree that: 

(1) on full payment of the bonds the 

rental agreement will terminate and the 

foundation will convey title to the property 

to the district, which will have agreed in 

advance to accept the donation of the 

property: 

(2) The board of the school district will 

adopt a resolution approving the-foundation's 

purposes and activities and consenting to the 

issuance of the foundation's bonds for the 

described purposes. 

You cite no authority for the district to enter into 

these arrangements, and we can find none. cf. Educ. Code 

5 20.48; see also Attorney General Opinion MW-522 (1982). 

The transaction which you have described to us requires 

the trustees to take action that is beyond the powers bf an 

independent school district. The trustees of an independent 

school district have the powers expressly conferred on them 

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Honorable Bruce Gibson - Page 5 (JM-1000) 

by law or necessarily implied from express powers. Harlinaen 

Indev. School Dist. v. C. H. Paae & Bros., 48 S.W.2d 983 

(Tex. Comm'n App. 1932, judgment adopted). More 

specifically, the board of trustees of the district has no 

power to approve the organization, purposes, and activities 

of a private foundation and "[to Sfco sent 

the foundation's bonds for the described vurvoses. 'I 

(Emphasis added.) Thus, we need not consider whether the 

district's "consent" to the issuance of bonds by a private 

entity may violate article III, section 52(a) of the Texas 

Constitution, which forbids independent school districts 

from lending public credit to private individuals, associations, or corporations. We also note that the arrangements 

in the proposed second alternative may violate the doctrine 

which prevents a political subdivision from entering into 

arrangements that would potentially control or embarrass it 

in the exercise of its governmental powers. See Clear Lake 

Citv Water Auth. v. Clear Lake Utilities Co., 549 S.W.2d 385 

(Tex. 1977). 

SUMMARY 

The board of trustees of an independent 

school district may rent classroom space for 

fair value in a transaction with a private 

foundation. Educ. Code 5 20.48. The board 

may accept the donation of portable classroom 

buildings from such a foundation. Educ. Code 

§ 23.26. An independent school district may 

sell its land only if the proceeds of the 

transfer are used for "the purchase of more 

convenient and more desirable school 

property" or for "the construction or repairing of school buildings" or for deposit "to 

the credit of the local maintenance fund of 

the district." Educ. Code § 23.30. The 

trustees of an independent school district 

have no power to l'consent" to the issuance of 

bonds by a private foundation. 

Very-truly yo~fs~ 

MATTOX 

Attorney General of Texas 

WARY KELLER 

First Assistant Attorney General 

LOU MCCREARY 

Executive Assistant Attorney General 

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Honorable Bruce Gibson - Page 6 (~~-1000) 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by D. R. Bustion, II 

Assistant Attorney General 

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