QBffice of tfy Igttornep flheral 

%state of aexae 

August 6,199l 

Honorable Edmund Kuempel 

Committee on House Administration 

Texas House of Representatives 

P.O. Box 2910 

Austin, Texas 78768-2910 

Opinion No. DM- 31 

Re: Whether a city may grant a homestead exemption that would compromiw its outstanding bond obligations 

(RQ-75) 

Dear Mr. Kuempel: 

We have been informed that in September 1990 the city of Camp Wood 

pledged all of its ad valorem tax revenues to the repayment of certain bonds. In 

January of 1991, the citizens of Camp Wood approved through a referendum 

election a proposition that the city grant a $50,000 homestead exemption from ad 

valorem taxes to resident taxpayers 65 years old or older or disabled. Our 

understanding is that an exemption of only $3,000 had been in place from the time 

the revenues were pledged until the adoption of the present exemption. There is 

grave concern that the application of the new exemption will impair the city’s debt 

obligations. You have requested an opinion from this office as to whether a city 

may grant a homestead exemption that would impair the city’s ability to pay debt 

service on its outstanding bonds. We have determined that such an exemption may 

not be applied under these circumstances. 

Section 11.13(d) of the Tax Code provides the following: 

In addition to [other exemptions] an individual 

who is disabled or. 65 or older is entitled to an 

exemption from taxation by a taxing unit of a portion 

(the amount of which is fixed as provided by Subsection 

(e) of this section) of the appraised value of his 

residence homestead if the exemption is adopted either: 

(1) by the governing body of the taxing unit; or 
Honorable Edmund Kuempel - Page 2 (DM-31) 

(2) by a favorable vote of a majority of the 

qualified voters of the taxing unit at an election called 

by the governing body of the taxing unit. . . . 

Subsection (e) provides that the amount of the exemption be $3,000 unless a larger 

amount is specified in the subsection (d) process of adopting the exemption. It is 

our understanding that the exemption at issue here was adopted in accordance with 

these statutory provisions. Section 11.13(i) addresses the propriety of granting an 

exemption that would cause an impairment of outstanding contract obligations: 

The assessor and collector -for a taxing unit may 

disregard the exemptions authorized by Subsection (b), 

(c), (d), or (n) of this section and assess and collect a tax 

pledged for payment of debt without deducting the 

amount of the exemption iE 

(1) prior to adoption of the exemption, the unit 

pledged the taxes for payment of a debt; and 

(2) granting the exemption would impair the 

obligation of the contract creating the debt.1 

In the case of Camp Wood, the city pledged its ad valorem tax revenues to the 

repayment bonds in September 1990. As noted above, the exemption election took 

place the following January. Therefore, the facts of this case are within subsection 

(i)(l) of section 11.13.2 

‘section ll.U(d) of the Tax Code permits the adoption of the exemption at issue by a 

referendum election carried alit in accordance with that section’s requirements. There seems to be no 

question about the validity of the referendum vote in this case. 

*Set? also Tea. Const. art. 8,s l-b(b) (“Where any ad valorem tax has theretofore been pledged 

for the payment of any debt, the taxing officers of the political subdivision shall have authority to 

eontiaue to levy and CO&XI the tax against the homestead property at the same rate as the tax so 

pledged until the debt is discharged, if the cessation of the levy would impair the obligation of the 

contract by which the debt was created.“). Section ll.U(i) is a statutory restatement of the 

constilutional provision. 21 Howell, Property Taxes 0 208 (Texas Practice 1988,3d ed.). Accordingly, 

any inconsistency bchvecn the language of the constitutional and stahltory provisions should be 

resolved in favor of the former. Id We therefore construe the term “tax assessor and collector” in thr 

statute broadly to encompass the “taxing oficcrs” specified in the constitution. In some instances, as 

p. 143 
Honorable Edmund Kuempel - Page 3 (DM-31) 

Both the U.S. Constitution and the Texas Constitution prohibit legislation 

impairing the obligation of contracts. U.S. Const. art. I, 8 10 cl. 1; Tex. Const. art. I, 

5 16. This fact is critical to our determination of whether the city may grant the 

exemption at issue. It is well established that the constitutional prohibition applies 

to contracts made by states or municipalities, and that it applies to municipal bylaws and ordinances. Determon v. City of Irving, 609 S.W.2d 565, 569 (Tex. Civ. 

App.-Dallas 1980, no writ), citing Von Hoffman v. City of Quincy, 71 U.S. 535 

(1866), u&Atlantic Coast Line RR v. City of Goldrboro, 232 U.S. 548, 555 (1914). 

The court in Detennan found that an amendment to a city charter limiting the 

amount of yearly increases in ad valorem taxes was void as an impairment of the 

obligation of the contract between the city and holders of outstanding bonds to 

which the ad valorem taxes had been pledged. The court stressed that “the 

protection of the contract clause was activated by unquantified financial loss or the 

potential for financial loss resulting from a legislative act.” 609 S.W.2d at 570, citing 

United States Trust Co. v. New Jersey, 431 U.S. 1 (1977), and City of Aransm Pm v. 

Keeling, 247 S.W. 818, 821 (1923) (emphasis added); see also Attorney General 

Opinion JM-453 (1986). Thus, if application of the homestead exemption in this 

case would impair the obligation of the pre-existing contract with the city’s 

bondholders, the exemption would be unconstitutional. 

Section 11.13(i) of the Tax Code is designed to deal with the circumstances 

that Camp Wood may be facing. Section 11.13(i) states that the assessor-collector 

of the taxing unit may disregard an exemption adopted pursuant to section 

11.13(d)(2). Where granting an exemption would result in impairment of 

contractual obligations, the only constitutionally permissible course available to the 

tax assessor-collector is to deny the exemption.3 

The homestead exemption at issue cannot validly be granted if doing so 

would impair the city’s ability to fulfill its pre-existing contractual obligations to 

bondholders. As this office cannot make factual determinations, we stress that this 

opinion does not constitute a finding that granting the exemption at issue would 

whenthctax assessor-collector is an employee of one of these entities, the taxiog officer may be a 

mayor, city manager, or lhe city coumil. 

3 The word ‘may” in a statute is sometimes construed as mandatory when used to describe the 

duty of a public offkial to carry out functions that benefit private iudividuals. 1A Sutherland 

STATUTORY CONSTRUCTION 5 25.04 (4th ed. 1985); see also Supervisors v. Llnircd States, 4 Wall. 435, 

438 (U.S. lJ366). 

p. 144 
Honorable Edmund Kuempel - Page 4 (DM-31) 

impair the contract obligations here; rather, it instructs that a taxing unit’s ability to 

grant a duly adopted exemption is subject to constitutional limits. 

SUMMARY 

Under the Texas and the U.S. Constitutions, a city may not 

apply a homestead exemption approved by referendum in 

accordance with Texas Tax Code section 11.13(d) and (e) if 

doing so will impair the obligation of a contract creating a debt 

incurred by the taxing unit prior to adoption of the exemption. 

Texas Tax Code section 11.13(i) authorizes the taxing officers of 

the unit to disregard the duly adopted exemption when such 

circumstances exist. 

DAN MORALES 

Attorney General of Texas 

WILL PRYOR 

First Assistant Attorney General 

MARY KELLER 

Executive Assistant Attorney General 

JUDGE ZOLLKE STEAKLEY (Ret.) 

Special Assistant Attorney General 

RENEAHICKS 

Special Assistant Attorney General 

MADELEJNE B. JOHNSON 

Chair, Opinion Committee 

Prepared by Faith Steinberg 

Assistant Attorney General 

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