_ December 29, 1988

Honorable Bruce Gibson Chairman Committee on Financial Institutions Texas House ofRepresentatives P. 0. Box 2910 Austin, Texas ,78769 Opinion No. JM-1000

Re: Whether a school district may rent a school building owned by anonprofit 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 ofthe district make it difficult toplan foradequate classroom facilities. YOU describe the following proposal which the district is considering todealwith thisproblem.

To save money and provide higher quality facilities, the district is interested in using removable classroom facilities acquired through anon-profit corporation thatwill be created by citizens of the school district to provide adjunct services to the school district asa tax-qualified public foundation. The district will notbe officially involved inthe creation, organization, or operation of the foundation.

YOUnote that two alternative plans areunder consideration using such a foundation to provide for the contemplated classroom facilities.

The foundation will issuebonds or notes to acquire a site and construct or install removable modular classroom buildings. The bonds ornotes will be secured by adeed of trust lien on the premises andwill be payable solely from rentals paid by the district
or a successor tenant or fromproceeds of a

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sale of theproperty. The district will rent the facilities fora one-year termwith 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 ina fiscalyear 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 thebonds 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 theproperty. 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 thebonds canbe issued on atax-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 isaddressed separately.

(1)May thedistrict, 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 topay rent or occupy the premises beyond the current fiscal year and does not create adebt: (ii)funds arebudgeted for theyear inwhich the rent isdue: and (iii) the nonprofit foundation retains title to the facilities?

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(2)May thedistrict, under the law of this state (including Section 23.26, Education Code), accept adonation of theproperty from the foundation after the bonds are paid in full?

The trustees ofan independent school district have exclusive power "to manage and govern the public free schools of the district." Educ. Code 523.26; 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 thegovernmental purposes of the district. In otherwords, 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. - SanAntonio 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 thepower to spend local tax funds for "renting school houses," Educ. Code §20.48(c), and to accept donations. Educ. Code 523.26(a). Thus, the trustees of the school district may arrange to rentportable classroom buildings and to accept adonation of the buildings from aprivate foundation, subject to the limitations discussed below.

As amatter of law, an independent school district may not expend money except according to abudget item adopted indue course asprescribed by law. Educ. Code 5 23.47(a);
see also 04.03(c). Of course, the question ofwhether the trustees have properly exercised these powers inrelation to
aparticular transaction concerning the lease of classroom space ("schoolhouses") also is inpart aquestion of fact. See River Road; Rovse Citv, suvra. Thus, whether or not a lease transaction results in fairvalue for the school district is aquestion 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 thedistrict, without competitive bidding, sell a site for the school facilities to the foundation for development inaccordance with the rental agreement if the foundation's bond issue includes, and the

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foundation pays to the district, an amount equal to the fair market value of the property thatwill bepaid to the district?

An independent school district may sell its land only iftheproceeds of the transfer areused for "the purchase ofmore convenient andmore desirable school property" or for "the construction or repairing of school buildings" or fordeposit "tothe credit ofthe localmaintenance 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 andused 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 suchpurposes. 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 itsparticipation in such aplan. YOU relate that, under that arrangement, thedistrict, before bonds are issued by aprivate 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 forthe district to enter into these arrangements, and we can find none. cf. Educ. Code 520.48; see alsoAttorney General Opinion MW-522 (1982).

The transaction which youhave described tous requires the trustees to take action that isbeyond thepowers bf an independent school district. The trustees of an independent school district have the powers expressly conferred on them

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by law ornecessarily 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, theboard of trustees of the district has no power to approve the organization, purposes, and activities ofaprivate foundation and "[toco sent Sf the foundation's bonds for the described vurvoses.'I (Emphasis added.) Thus, weneed not consider whether the district's "consent" to the issuance ofbonds by a private entity may violate article III, section 52(a) of the Texas Constitution, which forbids independent school districts from lending public credit toprivate individuals, associations, or corporations. We also note that the arrangements intheproposed second alternative may violate the doctrine which prevents a political subdivision from entering into arrangements thatwould potentially control or embarrass it inthe exercise of itsgovernmental powers. See Clear Lake CitvWater Auth. v. Clear LakeUtilities Co., 549 S.W.2d 385 (Tex. 1977).

SUMMARY

Theboard of trustees ofan independent school district may rent classroom space for fairvalue in atransaction with a private foundation. Educ. Code 520.48. The board may accept thedonation ofportable classroom buildings from such a foundation. Educ. Code §23.26. An independent school district may sell its land only ifthe proceeds of the transfer areused for "thepurchase of more convenient and more desirable school property" or for "the construction or repairing of school buildings" or fordeposit "to the credit of the localmaintenance fund of the district." Educ. Code §23.30. The trustees of an independent school district have nopower to l'consent"to the issuance of bonds by aprivate foundation.
Very-truly yo~fs~

MATTOX Attorney General ofTexas

WARY KELLER FirstAssistant Attorney General

LOUMCCREARY Executive Assistant Attorney General

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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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