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JIMMAnOX AttorneyGeneral

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# TheAttorney General ofTexas
January 10. 1985

Mr. Charles E. Nemir Executive Director Opinion No.JM-296
Texas Department of WaterResources P. 0. Box 13087, Capitol Station Austin, Texas 78711 Re: Whether adeveloper of property within a water control andimprovement district mayserve as director of that district
DearMr.Nemir:
You have ask,cd our opinion as to whether two developers of property within t’he territorial boundaries of Brushy Creek Water Control and Improvement District No. 1 [hereinafter “District”] are disqualified by tt,e Texas Water Code from serving on the board of directors of the D!.r;trict. Your letter states:

Either: section 50.026 or section 51.0721 of the Texas Wllt:er Code, or possibly both of these sections,, is applicable to Brushy Creek Water Control ,uldImprovementDistrict Flo. 1, depending on whether It is a special law district or a general Lawdistrict. Both sections provide that a develcper of property in a district is disqualified from serving as a member of the governing board thereof if the District is proposln~~ to provide or actually providing water andsewer services or either of these services to househoLi users as the principal functions of the District,
TheDistrict has never provided sever services to household users as aprincipal function of the District. Bowever, the District has recently filed an application with the Texas Department of Water Resources tohave the District designated as the entity to provide the vastewater collection, treatment, and/or disposal, system or systems to serve all or part of adefined area, as authorized by chapter 26, subchapter C. of the Texas Water Code. IE the District is so designated and constructs aregional sewagedisposal facility. it

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proposes to provide capacity in that facility to various political eubdivisfons, including munlcipalities andmunicipal utility districts. but does not propose at this ,time to provide sewer services directly to household users. The customer political subdivisfcons would, however, provide
sewer services to household users within the territorial confines of the District.
Welimit our conclusion ‘to the specific facts presented. There are noreported cases construing section 50.026 or section 51.0721 of the Texas Water Code. Therefore, the rules of statutory construction must be applied in order KOinterpret the statutes. Calvert v. British-American Oil Producing: Co., 397 S.W.2d 839, 842 (Tex. 1966). The fundamental rule in the caction of statutes is to ascertain andgive effect to the inten: of the legislature. Jessen Associates. Inc. v. Bullock, 531 S.W.Z!CI593, 599 (Tex. 1975). Courts will construe the language of a statute liberally in order to give effect to the legislative intent. ;ity of SanMarco6v. LowerColorado River Authority. 508 S.W.2d 403 (l’ex. Civ. App. - Austin 1974). aff ’d 523 S.W.2d 641 (Tex. 1975).
TheCodeConstruction Act:, article 5429b-2. V.T.C.S., sets out in section 3.01 several presuniptions of legislative intent applicable here: “(3) s just and reasonable result is intended: (4) a result feasible of execution is intended; and (5) public interest is favored over any private interest,” The Code Construction Act further provides in section 3.03, subsections (1) and (5). that in construing astatute acourt mayconsider, amongother matters, the object sought to be attained by the statute and the consequences of a particular cor.str”ction. These principles of construction require that the legislative purposes be determined from the statute as awhole rather than from a literal application of particular statutory language. Brownv. Patterson, 609 S.W,.:!d287 (Tex. Civ. App. - Dallas 1980. no writ).
In 1973, the legislature amendedtheTexas Water Codeto addfour statutes (sections 50.024 [mrrent section 50.026). 51.0721, 53.0631. 54.1021) which provide for disqualification, in particular situations, of the board membersof certain types of water districts: special law districts, general law districts, fresh water supply districts, and municipal utility districts. Acts 1973, 63rd Leg., ch. 635, at 1748, amendedby Acts 1975, 64th Leg.. ch. 248, at 600. With the exception of section 53.0631, pertaining to fresh water supply districts, these disqualification statutes are virtually identical. Therefore. whether section 50.026 or section ljI.0721 is applicable to the District is iavaaterial to our result.

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Sections 50.026 and 1,1.0721, the statutes applicable to the District, provide, in pertinent part:

(a) Aperson is disqualified from serving as a member of a governing board of a district proposing to provi’ie or actually providing wster and sewer servicez; or either of these services to household users arrthe principal functions of the district and croated by special act of the legislature if:

. . . . (3) he IIIa developer of property in the district;

. . . . WaterCode $50.026.

(a) Aperson j.s disqualified fromserving as a memberof the board of a district proposing to provide or actually providing water and sawer services or either of these services to household users as the principal functions of the district, if:

. . . .

(3) he i:r a developer of property in the district;

. . . . WaterCode 151.0721.
The disqualification atatutes were part of a fourteen-bill package of remedial legisla,::Lon involving water.df.stricts submitted as emergency legislation bythscuGovernor Dolph Briscoe with these words:

The wst n‘uearous category of special districts. apart from school districts, ere water districts. They have been referred to as ‘the least known, least understood, and least cared about class of gcvernments in the United States.’ They desperately need increased supervision and regulation over th#sir formation andthe conduct of their financial alfairs. Theabuses towhich they have been subject are designed to be corrected by

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these bills. Enactment of these bills will help maintain the confidence of our citizens in their local government.
S.J. of Tex.. 63rd L.eg., Reg. Sess. 421 (1973); R.J. of Tex., 63rd Leg.. Reg. Sess. 1285 (1973),, Disqualification statutes are significantly different from statutes designed to preven’t or punish specific acts of misconduct. The 1973 statutes are intt,nded to preclude conflicts of interest between developers andthe board of directors of adistrict providing water or sewer services to residents by disqualifying the developers from serving onthe board of directors. Thedisqualification statutes also serve to maintain the rublic’s trust andconfidence In the board of directors andin their decisions.
The statutory provisiclcs relating to defined regional sewage systems are contained in chz:pter 26, subchapter C. of the Texas Water Code. Water Code J§26.081-26.087. The purpose of such regional systems is

to serve the waste disposal systems needs of the

citizens of the state andto prevent pollution and maintain and enhance the quality of water in the state.
Water Code 126.081 (a). After the Ti?xas Water Development Board has defined the regional area, it then designates “the person to provide the waste collection, treatment, or disposal system or systems to serve all or part of the are!a.defined.” WaterCode 126.083(c).
The District, a designated regional entity. will construct and operate or oversee aregionul. waste treatment facility. This facility ~111 treat sewage from houtieholds within the defined area, Including households within the terr,LI:orial boundaries of the District, after the sewage is collected bymunicipalities and other water districts. Your letter states that Bln.shy Creek Water Control and Improvement District No. 1does notpropose at this time to provide sewer service directly to household user:). The implication of ymr statements is that the sewer service to b ’e provided by the District would be made available to political subdivisions within the regional area and only indirectly to household users. Weconclude that the prohibition from serving on the governing beard of a district providing water or sewer service found in sections 50.026 and50.0721 of theWater Codeapplies whether the service to household users is supplied directly by the district or indirectly through intermediary governmental entities.
The question of wheth~zrsections 50.026 and51.0721 can validly be extended to bar membership on a district’s board of directors to

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persons who supply water and sewer servicer only indirectly to household users is anovel oue. Asweindicated earlier, there ate no reported cases construing these statutes, and our research has found no other case which directly addresses this issue. Wehave turned, therefore, to case lav const:nting statutes andother provisions of law prohibiting, as aconflict o:! interest , certain conduct by officers or employees of municipalities, andused as s basis to invalidate contracts entered into by the city whena conflict of interest wasfound t.0exist. Thus, in Delta Electrg: Construction Companyv. City of San Antonio, 437S.W.2d 602 (Tex. Civ. App. - SanAntonio 1969. writ ref ’d n.r.c.1, the president and amajor shareholder of a contracting firm
wasa&aber of the city’s EL~act&al ExaminingandSupervising Board. The city, through its VatIs Works Board of Trustees, executed a contract with the firm. In affirming the trial court’s judgment that the contract was null andvoid. the court of civil appeals found it immaterial that the firm president/electric board memberdid not in anymanner influence the award of the contract to his firm. Id. at 604. 609. Instead. the court. interpreted the scope of the prohibited conflict of interest very broadly:

‘It is the general rule that municipal contracts in which officers or employees of the city have a personal pecuniary interest are void.

. . . [Citations omittei;]. It has long been the public policy of this s’tste to prohibit officers of a city from having ;rpersonal pecuniary interest in contracts with the city and this policy is specifically exprtssed inboth the penal andcivil statutes. See article 373, Penal Code, and article 9887.C.S. 1925. The foregoing rule rests on sound prblic policy. Its object is to insure to the city strict fidelity upon the part of those whoreprs?aent it andmanageits affairs. The rule prohibiting public officers from being interested in public contracts should be scrupulously enforced. ’ -- (Emphasis added).
Id. at 609 (quoting from=2 of EdinburgV. Ellis, 59S.P.Zd 99 (Tex. ?&im’n App. 1933, opinion approved)).

‘[IIt is generalL:y held that vhenever s public officer enters irto a contract, the execution of which may make :It possible for his personal interests to becc%e antagonistic to his faithful discharge of apublic duty such contract will be held void as aaeznst nub& ~olicv. It is the existence of suck. interest which is deci,sive and

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not the actual efl’cct or influence, if any[.I of the interest: if there is a potential conflict, the contract is invalid.’ (Citation omitted). (Emphasis supplied). g& Accord, International Bank of Commerce of Laredo **V.** United National Bank of Laredo. 653 S.W.Zd 539, 547-48 (Tex. App. - San Antonio 1983. writ ref ’d n.r.e.1.
This ruling by the Delta Electric court indicates that it is the public policy of thins stat; to construe the prohibition against a conflict of interest broadly enough both to include the indirect use of official influence to fwther one’s private pecuniary interest and to incl.ude the mere possib:.l.ity that such influence might be used. This conclusion follow fro!a the fact that the Del.ta Electric court found that the firm president/electric board memberwas involved in a conflict of interest, even though he did not serve on the city board through which the contraft wasawarded andeven though heexercised no influence on its award. ::his situation is analogous to the facts which we confront in this opinion, because developers of property serving on water district boards, though not providing services directly to household users, would be identified closely with the political entities formally providing these services and would thus have the possibility of influencing the provision of these services to their personal pecuniary benefit. In these circumstances, therefore,
we find that it is proper w apply this broad public policy against conflicts of interest and to include developers serving on such district boards within the smbit of sections 50.026 and51.0721.
If the District is designated as aregional entity, conflicts of interest, which the 1egislal:ure sought to proscribe by section 50.026 and section 51.0721. could t,hus exist for developers of property in theDistrict whoserve onthe board of directors of the District. The board of directors can potentially affect land values substantially within the District bymak1r.gdecisions whichmight influence the rate and direction of grovth within the District and which might be improperly influenced if the~rewere a conflict of interest betveen a person’s duty as aboard mealberandhis or her pecuniary interest as a developer. For instance, the board will determine the number and location of all treatment and disposal facilities, which ~111 affect land values and could deternine the order in which portions of the defined area would be se:3red. The board can oppose or support applications by others fo:: waste treatment facilities within the defined area. Theboard can also request the Texas Water Cotmaission to issue an order under sec:t,ion 26.084 of the Water Codewhich would prohibit or limit other treatment facilities within the defined area. Section 50.026 and sa:tion 51.0721 also require, however. that the providing of water or sever services to household users be the

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"principal functions" of the district. We find the facts in the request insufficient to dei:ermine whether the sever services. which theDistrict will provide a;1aregional entity, will be the principal function of theDistrict.
The District was created as a couservation and reclamation district which was subsequently "validated" by the l.egislature and given the status and authority of a water control and improvement district. Acts 1957, 55th Leg., ch. 341. at 807. Your request does not set out the nature and sN:opeof what other functions, if any, the District will have beyond its functions as aregional entity that are pertinent to determining vhother aconflict of interest exists. While the District's functions as aregional entity concerned with water and
sever services will undoubm!dly involve a substantial comitment of time and financial resources, it cannot be determined from the facts given whether these part:lcular functions will be the principal functions of theDistrict.
In conclusion, the DiHrict, if designated as an entity for the operation or oversight of a regional waste treatment system. would be providing or proposing to pcowide sever services to household users within the meaningof sectilms 50.026 and51.0721. Thetwodevelopers of property within the District would thereby be disqualified from serving on the District's hoard of directors if those sever services were the principal function of the District. Underthe facts set out in the opinion request, ve are unable to determine whether such services wouldbe the principal function of the District.
SUMMARY Anydeveloper o,fproperty within the boundaries of the Brushy Crt:ekWater Control andImprovement District No. 1is disqualified from serving on the District's board of directors if and when the District is desigmted as the entity to operate or oversee a regional waste treatment system if the District's functions as aregional entity are its principal functions.

Very truly your 

# J k

k JIM MATTOX Attorney General of Texas
TOM GREER First Assistant Attorney General

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DAVIDR. RICHARDS Executive Assistant Attorney 'General
RlCKGILPIN Chairman, Opinion Committee Prepared byPaul Elliott Assistant Attorney General
APPROVED: OPINIONCOMMITTEE
Paul Elliott SusanGarrison TonyGuillory JimMatthews NancySutton

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**1.** TheDelta Electric court relied on two statutes in reaching its judgment. **one** of which, article 988. V.T.C.S.. prohibited a city officer **from** being "directl!f or indirectly interested" in the business affairs of the city. Thus :it is arguable that because that statute contained the words "direc:tly or indirectly," and neither section 50.026 nor section 51.0721 does, the Delta Electric decision is inappropriate here. Delta Electric, supta. at 608-09 a nn. 3, 4, 5. Wedecline to accept this pwition, however. ontwogrounds: (1) Article 968 was repealed by the legislature and replaced with article 988b. V.T.C.S. Acts 1983, 68th Leg., ch. 640, at 4079. The new conflict-of-interest statute for local officials, article 988b. is far more compreh~msive than its predecessor but does not contain the words "directly or indirectly." Wedoubt that by the omission of these words the legislature meant to restrict the broad scope of conflict-of-interest prohibitions applied under article 988. Thus, the Delta Electric amtement of policy should retain viability and should be applicable to other statutes, such as sections 50.026 and51.0721, which donot cmtsin these words. (2) TheDelta E1ectri.c court also relied on article 373 of the Texas Penal Codewhich has &ce been repealed. Acts 1973, 63rd Leg., **ch. 399,**  **at** 991. That statute did not contain **the** words "directly or indirectly" and thus was a basis on which the court could have bottomed its opinion without relying on express ststutory language meeping indirect conduct vithin **the** scope of the prohibition. **(A** city charter provision cited by **the** court also contained the term "directly or indirectly," but the court appeared not to base its decision exclusively **on**this provision.) Id. at 609. -

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