OFFlCE OF THE ATTORNEY GENERAL. STATE OF TEXAS JOHN CORNYN

December 8, 1999

The Honorable Chris Harris Chair, Committee on Administration Texas State Senate P.O. Box 12068 Austin. Texas 7871 l-2068 Opinion No. JC-0155 Re: Whether individual whose property is subject of tax abatement agreement may serve as member of city council that granted the abatement, and related questions (RQ-0102-K)
Dear Senator Harris: The Property Redevelopment and Tax Abatement Act, chapter 312ofthe Tax Code, allows the governing body of a municipality to enter into a tax abatement agreement with the owner of taxable real property located in areinvestment zone, under certain circumstances, for the purpose of economic development of the property. See TEX. TAX CODEANN. 5 312.204 (Vernon 1992 & Supp. 1999). Property that is owned or leased by amember ofthe municipality’s governing body, however, is not eligible for atax abatement agreement. See id. § 312.204(d) (Vernon 1992). You ask about the application ofthis provision to anindividual “who has anownership in acompany that has received a municipal tax abatement.” Letter from Honorable Chris Harris, Chair, Committee onAdministration, Texas State Senate, toHonorable John Comyn, Texas Attorney General (received Aug. 20, 1999) (on tile with Opinion Committee) [hereinafter “Request Letter”]. Chapter 312ofthe Tax Code removes property owned by amember ofagovernmental body from eligibility for atax abatement from that body: “Property that isin areinvestment zone and that is owned or leased by a member of the governing body of the municipality or by a member of a zoning orplanning board orcommission ofthemunicipality isexcluded from property tax abatement or tax increment financing.” TEX. TAX CODEANN. 5 312.204(d) (Vernon 1992). As apreliminary matter, we assume that the individual’s ownership interest is sufficient to make the individual an “owner” ofthe property forpurposes ofthe Tax Abatement Act. This oftice concluded in Attorney General Letter Opinion 98-001 that the terms “owned” and “owner” in chapter 312 “refer to a property interest that includes at least some degree of control over the property and do not embrace amere beneficial or equitable interest in property completely lacking such control.” Tex. Att’y Gen. LO-98-001, at 3. Thus, the opinion concludes that a person who owns legal title to property or who is the sole shareholder of acorporation who has the authority to dispose of corporate assets may be the owner of property for purposes of chapter 312, while the owner ofavery small percentage of shares ofapublicly held corporation is not. See id. In this case,The Honorable Chris Harris - Page 2

we assume that the individual’s level of “ownership in acompany,” as you describe it, makes the individual the owner of the property for purposes of chapter 312. See Request Letter. You first ask whether itis acceptable for the owner ofproperty that received amunicipal tax abatement to be elected to and serve on the city council where the city council “reaffirms the abatement each year for the life ofthe original abatement.” Id. The Tax Abatement Act does not speak to the eligibility of aproperty owner to serve as amember ofthe governing body that grants atax abatement. Rather, it removes property from tax-abatement eligibility ifthe property owner is amember ofthe governing body. Thus, although the property owner is not barred by chapter 312 from being elected to the city council, the owner’s position on the council makes his property ineligible for atax abatement agreement. You also ask whether property in areinvestment zone continues to qualify for a municipal tax abatement once its owner is elected to the city council. We conclude that it does not. Section 312.204(d) states that property owned by amember of the governing body of the municipality “is excluded from property tax abatement.” TEX.TAXCODEANN. $3 12.204(d) (Vernon 1992). Read plainly, the statute provides that property owned by a member of the city council may not receive amunicipal tax abatement. The statute makes no exception for tax abatement agreements already in effect when the property owner becomes amember ofthe governing body. Courts and this office normally construe conflict-of-interest provisions strictly, so as to avoid a conflict. See City 

### of Edinburg Y.Ellis, 59 S.W.2d 99,99-100 (Tex. Comm’n App. 1933, holding approved); Tex. Att’y Gen. Op. Nos. E-0018 (1999) at 3; DM-310 (1994) at 3. The Texas Supreme Court has said, in a case involving a city council member’s pecuniary interest in a contract with the city, that laws prohibiting public officers from being interested in public contracts should be “scrupulously enforced.” Ellis, 59 S.W.2d at 100. Accordingly, we conclude that property may not continue to receive amunicipal tax abatement once its owner is elected to the city council. Finally, you ask about the status ofany votes made by the property owner since his election to the city council. Votes on the tax abatement agreement are anullity, since the agreement became ineffective once the property owner became a member of the city council. Votes on matters unrelated to the tax abatement agreement ortothe tax-abated property are not affected by the council member’s status asthe owner ofthe property. However, votes the council member might have made on matters related tohis property, ifany such votes were made aside from votes onthe tax abatement agreement, are governed by the conflict-of-interest provision in chapter 171 of the Local Government Code. Chapter 171 of the Local Government Code prohibits a local public official from participating in avote on amatter involving abusiness entity or real property in which the official has a substantial interest ifit is reasonably foreseeable that an action on the matter would confer a special economic benefit on the business entity orreal property that isdistinguishable from the effectThe Honorable Chris Harris - Page 3

on the public. See TEX. Lot. GOV’T CODEANN. 5 171.004 (Vernon 1999). Chapter 171 defines what itmeans to have a “substantial interest” in abusiness or property:

(a) For purposes of [chapter 1711,aperson has asubstantial interest in abusiness entity if: (1) the person owns 10 percent or more of the voting stock or shares of the business entity or owns either 10 percent or more or $15,000 or more ofthe fair market value of the business entity; or (2) funds received by the person from the business entity exceed 10percent of the person’s gross income for the previous year. (b) A person has a substantial interest in real property ifthe interest is an equitable or legal ownership with afair market value of$2,500 or more. Id. 5 171.002(a)(b). A public official who knowingly violates this prohibition commits a Class A misdemeanor. See id. 3 171.003(b). Ifthe city council member about whom you askhas asubstantial interest inthe real property that is the subject of the tax abatement agreement, or in the business entity that owns the property, and itisreasonably foreseeable that an action on the matter would confer aspecial economic benefit on the business entity orproperty that is distinguishable from the effect on the public, then section 171.004 ofthe Local Government Code requires the city council member to tile an affidavit stating the nature and extent of his interest and to abstain from participation in the matter. Votes made inviolation ofsection 171.004 ofthe Local Government Code arevoidable only ifthe measures on which the council member voted would not have passed without his vote:

The finding by a court of a violation under this chapter does not render an action of the governing body voidable unless the measure that was the subject ofan action involving aconflict ofinterest would not have passed the governing body without the vote of the person who violated the chapter. Id. 5 171.006. Thus, any actions taken by the city council that included the vote of the property owner in violation of section 171.004 are not void; they are voidable, but only under certain circumstances. Violations of section 171.004 are addressed by punishing the offender, not by voiding the council’s action.The Honorable Chris Harris - Page 4

The city should also look to its own charter and ordinances to determine whether they place additional restrictions on a council member’s participation in matters affecting property owned by the member. Section 171.004 of the Local Government Code is cumulative of municipal charter provisions and municipal ordinances defining and prohibiting conflicts ofinterest. Id. 5 171.007(b). SUMMARY The Property Redevelopment and Tax Abatement Act, chapter 312ofthe Tax Code, does not bar aproperty owner from serving on the city council that granted amunicipal tax abatement tothe property owner. However, the owner’s position on the council makes his property ineligible to continue to receive a tax abatement. Section 171.004 of the Local Government Code bars him from participating in a vote on a matter involving the property if he has a substantial interest in the property or in the business that owns the property, and if it is reasonably foreseeable that an action on the matter would confer a special economic benefit on the property that is distinguishable from the effect on the public. Votes made inviolation of section 171.004 ofthe Local Government Code are voidable only ifthe measures on which the property owner voted would not have passed without his vote.

Attorney General of Texas

ANDY TAYLOR First Assistant Attorney General CLARK RENT ERVIN Deputy Attorney General - General Counsel ELIZABETH ROBINSON Chair, Opinion Committee Barbara Griffin Assistant Attorney General - Opinion Committee