## THE A-RNEY GNNERAL OP TEXAS

The Honorable Hugh C. Yantis, Jr. Executive Director Texas Water C2uality Board P. 0. Box 13246 Austin, Texas 78711 Opinion No. H- 740 Re: Constitutionality of procedures bywhich waste disposal systems ’are financed. Dear Mr. Yantis:

You have requested our opinion regarding the financing ofwaste disposal systems byvarious special districts.

Your first question is whether the Regional Waste Disposal Act, section 25.001, et a, Texas Water Code, grants toall districts created pursuant to article 16, section 59or article 3, section 52ofthe Texas Constitution, the authority to issue bonde to finance the acquisition, construction, improvement, enlargement, extension or repair ofdisposal systems, without regard tothe district’s previous water pollution control efforts. A portion ofthe Regional Waste Disposal Act, section 25.051 provides: In order to acquire, construct, improve, enlarge, extend, or repair disposal systems, the district may issue bonds secured bya pledge ofall or part ofthe revenue from any contract entered into under this chapter and other income of the district. Neither ofthe referenced constitutional provisions nor section 25.051 imposes any requirement that the bond issuance be related to the primary activities of the district or that the district itself be or have been engaged in the actual operations ofwaste collection, treatment and disposal. We therefore answer your first question in the affirmative.

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The Honorable Hugh C. Yantis, Jr., - page two (H-740)

You also ask whether a district’s role in providing waste collection, transportation, treatment and disposal systems may be limited toits financing ofsuch facilities, and, if not, whether a pr’ocedure must be followed whereby title to the facilities is transferred from the district to the contracting company which would be the ultimate owner or operator ofthe facilities. By the terms of the Water Code, a district is empowered to “acquire, construct, improve, enlarge, extend, repair, operate and maintain one or more disposal systems, ” section 25.021; to “purchase or sell” such facilities, section 25.022; and to
“lease to or from any person, ” section 25.023. A district is not granted the authority simply to “finance” awaste disposal system. Consequently, the district must at some point have title to the system, so that it may sell or lease the system to the company.

Your next question is whether a district’s ownership ofa system is to be considered by the Texas Water Quality Board in certifying the facilities as being for water pollution control purposes, or by some other agency. The Board is required to make the essential determination that a system’s “plans and specifications.
. . conform to the waste discharge requirements andwater quality ’ standards established by the board. ” Water Code 5 21.086(c). The Attorney General, however, is responsible for determining that “the bonds are authorized and that the contract is made in accordance with the constitution and laws ofthis state. . . .‘I Water Code 0 25.0561~). In order to be able to certify that the bonds are authorized and that the contract is made pursuant to law, theAttorney General must of course ascertain that the district does in fact have title to the system. Finally, you ask whether the Texas Constitution would prohibit a contracting company from realizing aprofit from the sale ofa by-product which is removed from the waste stream. Article 3, section 51 ofthe Constitution proscribes any “grant ofpublic moneys ‘Ito a private individual or corporation. Article 3, section 52prohibits a governmental entity from “lend[ing] its credit” for any private purpose. If a waste disposal system has been financed through a public bond issue, and the contracting company realizes a profit from the sale of a by-product removed from the waste stream, and hence the profit is solely derived from the company’s ownership ofthe system, it could be stated as a general

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The Honorable Hugh C. Yantis, Jr., page three (H-740)
proposition thatthe contracting governmental entity has acted in contravention of either or both ofthese constitutional provisions. In Barrington V. Cokinos, 338S.W. 2d 133(Tex. Sup. 1960). however, the Supreme Court held that a grant of public money or a loan of credit is notunlawful if it is for a valid public purpose and is not fraudulent, arbitrary or capricious, even though “a privately owned business may be benefited thereby. ” 338S.W. 2d at 140. The construction and operation of pollution control facilities unquestionably serves a valid public purpose, Tex. Const. art. 16, §59(a); Parker V. San Jacinto County Water Control and Improvement District No. 1, 273 S.W. td 586 (Tex.Sup. 1954). In State v. City ofAustin, 331 S.W. 2d 737 (Tex. Sup. 1960). the Supreme Court, inupholding the reimbursement to certain utility companies ofthe cost of relocation of facilities necessitated by highway construction, “noted that nonet gain accrues to the utility.
. . . ” 331 S.W.2d at 472. See also Harris County V. Dowlearn, 489 S.W. 2d 140(Tex. Civ. App. --Houston 114thDist. ] 1972,

writ ref

’d n.r. e.). This office will need to study each bond presentation andmake a determination based on the facts of each case as to whether or notthe issue falls within or without the reasoning of these applicable authorities. SUMMARY

All districts created pursuant to article 16, section 59or article 3. section 52 of the Texas Constitution have the authority to issue bonds for the acquisition, construction and repair ofwaste disposal systems without regard to the district’s previous water pollution control efforts. A district may not simply “finance” awaste disposal

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The Honorable Hugh C. Yantir, Jr., - page four (H-740)
system, butit may purchase, sell or lease such a facility to or from 

### aprivate entity. The Attorney General is responsible for determining that a district’s bonds are authorized and that its contracts are made in accordance with law. Very truly yours,

Attorney General of Texas

- APPROVED:

DAVID Mz KENDALL, First Assistant

C. ROBERT HEATH, Ch’iirman Opinion Committee jad:

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