ATTORNEY GENERAL OF TEXAS 

GREG ABBOTT 

October 27.2004 

The Honorable Allan B. Ritter 

Chair, House Pensions and Investments 

Gpinion No. GA-0264 

Committee 

Texas House of Representatives 

Post Office Box 2910 

Austin, Texas 78768-2910 

Re: Whether the Port Arthur Economic Development 

Corporation may grant funds and refund sales taxes to 

a private corporation (RQ-021%GA) 

Dear Representative Ritter: 

You ask whether the Port Arthur Economic Development Corporation (the “EDC”) may 

grant funds and refund sales taxes to a private corporation.’ 

I. Background 

A. Factual Context: The Agreement 

The City of Port Arthur (the “City”) established the EDC in 1996 under section 4A 

ofthe Development Corporation Act of 1979, TEX. REV. Clv. STAT. ANN. art. 5190.6 (Vernon 1987 

& Supp. 2004-05) (“article 5 190.6” or the “Act”), “to act on behalf of the City in the promotion and 

development of new and expanded enterprises, including certain projects, as defined in the Act.“* 

Your query arises from a very specific fact situation involving an agreement the City signed in 

December 2002, which is described in official Port Arthur City Council (the “City Council”) 

resolutions provided by the City. 

On December 17,2002, the City and Target Corporation (the “Corporation”) entered into a 

“Grant and Sales Tax Refund Agreement for Retail Facility Redevelopment and Expansion Between 

the City of Port Arthur and Target Corporation” (the “Agreement”). See City Letter, supra note 1 

‘See Letter from Honorable Allan B. Ritter, Chair, House Pensions and Investments Committee, Texas House 

of Representatives, to Honorable Greg Abbott, Texas Attorney General (May 3, 2004) (on file with the Opinion 

Committee; also available af http://www.oag.state.br.us) [hereinafier Request Letter], attaching Letter from Mark T. 

Sokolow, City Attorney, City of Port Arthur, to Honorable Allan B. Ritter, Chair, House Pensions and Investments 

Committee, Texas House of Representatives (Apr. 1, 2004) [hereinafter City Letter] and Letter from James E. 

Wimberley, McPherson Monk Hughes Bradley Wimberley & Steele L.L.P., Counsel for the EDC (Mar. 31, 2004) 

[hereinafter EDC Letter]. 

2Letter from Mark T. Sokolow, City Attorney, City of Port Arthur, to Beverly McGaffey, Opinion Committee, 

Offlice of the Attorney General (July 14,2004) (attaching Ordinance No. 96-08) (on tile with the Opinion Committee) 

[hereinafter City Letter of July 14,2004]. 
The Honorable Allan B. Ritter - Page 2 (GA-0264) 

(Resolution No. 03-371, Ex. A). In pertinent part, the City agreed to pay the Corporation a$300,000 

“grant” within thirty days of the Corporation opening a retail store in the City. See id. (Resolution 

No. 03-371, Ex. A, 7 2.01). The City also agreed to refund to the Corporation a portion of sales tax 

proceeds from retail sales at the store over a certain term. See id. The Agreement states that “[olnly 

the City Portion ofthe Total Tax shall be subject to this Agreement.” Id. The Agreement is between 

and is signed on behalf of the City and the Corporation; the EDC is not a party to the Agreement. 

See id. (Resolution No. 03-371, Ex. A, at 1,6). In a December 12,2002 resolution authorizing the 

City’s city manager to approve the Agreement, however, the City Council noted that “the Section 

4A Economic Development Corporation can fund projects that will promote economic development, 

increase employment and commercial business development and expansion.” Id. (Resolution No. 

02-367, at l-2). 

In December 2002, before entering into the Agreement, the City Council also created a 

neighborhood empowerment zone encompassing the proposed retail store pursuant to chapter 378 

of the Local Government Code. See id. (Resolution No. 02-366). Section 378.004 of the Local 

Government Code authorizes a municipality that establishes a neighborhood empowerment zone to 

“enter into agreements, for a period of not more than 10 years, for the purpose of benetitting the 

zone, for refunds of municipal sales tax on sales made in the zone.” TEX. LOC. GOV’T CODE ANN. 

(i 378.004 (Vernon Supp. 2004-05). 

Approximately a year later, on December 16,2003, at a joint meeting, the City Council and 

the EDC’s board ofdirectors jointly adopted a resolution “pertaining to the [EDC’s participation in] 

the Target Project.” City Letter, supra note 1 (Resolution No. 03-371). The resolution states that 

when the City signed the Agreement, “it was contemplated . that the City of Port Arthur was 

acting on its own behalf and on behalf of its affiliated” EDC; that the EDC “would pay the sum of 

$300,000 within thirty (30) days of the opening of the store”; and that the City and the EDC “would 

each rebate 50% ofthe sales tax collected.” Id. (Resolution No. 03-371, at 1). In the resolution, the 

City Council resolved that the EDC would pay the Corporation $300,000 “in compliance with the 

agreement.” Id. (Resolution No. 03-371, at 2, 5 2). The City Council also resolved that the EDC 

would pay the Corporation half the sales tax rebate provided in the Agreement. See id. (Resolution 

No. 03-371, at 2, 5 3). However, later in December 2003, the EDC board of directors rescinded the 

resolution and withdrew from participating in the Target project “unless and until the EDC Board 

received a written opinion from the Attorney General confirming the EDC’s ability to participate.” 

EDC Letter, supra note 1, at 3. 

On March 30, 2004, the City Council authorized the City director of finance to pay the 

Corporation $300,000 from a City account “as an interim loan to the project until an Attorney 

General Opinion is received.” City Letter, supra note 1 (Resolution No. 04-I 17, 5 2). Pursuant to 

the resolution, the EDC will repay the City “if an Attorney General Opinion finds this expenditure 

is an eligible EDC project.” Id. (ResolutionNo. 04-l 17,s 3). The resolution indicates that the City 

will seek an opinion on the EDC’s authority to make the $300,000 payment. See id. (Resolution No. 

04-l 17, 5 4). 

We have not been provided with official EDC documents regarding its board of directors’ 

official actions with respect to the Agreement or an EDC project related to the Agreement (aside 
The Honorable Allan B. Ritter - Page 3 (GA-0264) 

from the December2003 joint resolution, which theEDC board ofdirectors laterrescinded). A brief 

submitted on the City’s behalf states that “public action in open sessions of city council meetings 

evidencing the city’s intent to hmd the joint incentive~package with the EDC took place as early as 

the spring of 2002” and that “correspondence, contact and meetings between the city manager and 

officials of the EDC occurred in December, 2002.“3 The brief further asserts that 

the project was being undertaken by both the city and the EDC as 

early as December, 2002, when information was provided to the 

director of the EDC. Subsequent letters between the counsel for EDC 

and the city manager and city attorney; and later, a meeting between 

the city manager and officials of the EDC in executive session, 

further document the undertaking. 

Parker Brief, supra note 3, at 4. However, the brief also states that the EDC board of directors took 

no vote on the project “other than the ratification vote in December, 2003.” Id. 

B. Legal Context: 2003 Amendments to the Act 

Between December 2002, when the City entered into the Agreement, and December 

2003, when the City Council and the EDC jointly stated that the EDC would pay the grant and a 

portion of the sales tax rebate, the legislature significantly amended article 5 190.6 in House Bill 

2912. See Tex. H.B. 2912, 78th Leg., R.S. (2003). Three amendments to article 5190.6 are 

particularly important here. 

First, as the bill analyses note, Houses Bill 2912 amends the Act “to refocus the use of the 

economic development sales tax on the creation or retention ofprimaryjobs.‘” Under the Act prior 

to its amendment in 2003, particularly section 2( 1 l)(A), which defines the term “project,” a section 

4A development corporation was authorized to finance costs associated with land, buildings, 

equipment, facilities, targeted infrastructure, and improvements “to promote new and expanded 

business development.“’ As amended by House Bill 2912, however, section 2(1 l)(A) of the Act 

now limits the purpose ofa “project” to “the creation orretention ofprimaryjobs.” TEX. REV. Qv. 

STAT.ANN.~~~. 5190.6,§ 2(11)(A),asamendedbyActofMay30,2003,78thLeg.,R&ch. 1132, 

‘Brief t?om Carl Parker, The Parker Law Firm, to Nancy Fuller, Chair, Opinion Committee, Office of the 

Attorney General at 3-4 (June 23,2004) (on tile with the Opinion Committee) [hereinafter Parker Brief]. 

‘HOUSECOMM.~NEC~N~MICDEVE~PMENT,BILLANALYSI~,T~~.H.B.~~~~,~~~~L~~.,R.S.(~~~~);SENATE 

COMM.ONSTATEAFFAIRS,BILLANALYSIS,T~X. H.B. 2912,78thLeg.,R.S. (2003)(Engrossedversion); SENATECOMM. 

ON STATE AFFAIRS, BILL ANALYSIS, Tex. H.B. 2912,7Sth Leg., R.S. (2003) (Committee Report Substitute). 

%%-e infin at 7-8 11.17 (quoting the article 5190.6, section 2(1 l)(A) definition of “project” prior to the 2003 

amendment); see also Tex. Att’y Gen. Op. No. JC-0362 (2001) (d’ lscussing a section 4A development corporation’s 

authority to undertake projects under former law). 
The Honorable Allan B. Ritter - Page 4 (GA-0264) 

5 1,2003 Tex. Gen. Laws 3218,3218-19.6 Asdeiinedbyaprovisionadded byHouseBill2912, the 

term “primary job” does not include jobs in retail sales. See Act ofMay 30,2003,78th Leg., R.S., 

ch. 1132,s 2,2003 Tex. Gen. Laws 3218,3219 (adding section2(17) defining‘primaryjob”). This 

limitation is particularly significant to section 4A development corporations, because section 4A 

does not further define the term “project.” By contrast, section 4B defines the term “project” by 

reference to section 2 but also contains an additional definition of the term. Compare TEX. REV. 

Crv. STAT. ANN. art. 5190.6, 5 4A (Vernon Supp. 2004-05) with id. 5 4B(a)(2)(A)-(E). 

Second, House Bill 2912 amended section 2(11)(A) to include within the definition of 

“project” the word “expenditures.” Section 2( 1 l)(A) now provides for expenditures “that are for the 

creation or retention of primary jobs”’ and expenditures for certain limited infrastructure.’ House 

Bill 2912 also added section 40 to the Act, which provides that a development corporation may not 

“provide a direct incentive to or make an expenditure on behalf of a business enterprise under a 

project”unless the corporation enters into a performance agreement with the business enterprise that 

includes certain mandated terms. See Act of May 30,2003,7Sth Leg., R.S., ch. 1132, 5 12,2003 

Tex. Gen. Laws 3218,3222-23 (adding section 40). 

Third, section 3 of article 5 190.6 had directed that “[tlhis Act shall be liberally construed in 

conformity with the intention of the legislature herein expressed.“’ In House Bill 2912, the 

‘Section 2( 1 l)(A) now defines “project” in pertinent part as follows: 

the land, buildings, equipment, facilities, expenditures, targeted infrastructure, and 

improvements (one or more) that arefor the creation or retention ofprimaryjobs 

and that are found by the board of directors to be required or suitable for the 

development, retention, or expansion of manufacturing and industrial facilities, 

research and development facilities, transportation facilities (including but not 

limited to airports, ports, mass commuting facilities, and parking facilities), sewage 

OI solid waste disposal facilities, recycling facilities, air or water pollution control 

facilities, facilities for the famishing of water to the general public, distribution 

centers, small warehouse facilities capable of serving as decentralized storage and 

distribution centers, primary job training facilities for use by institutions of higher 

education, and regional or national corporate headquarters facilities. 

“Project” also includes job training required or suitable for the promotion 

of development and expansion of business enterprises and other enterprises 

described by this Act, as provided by Section 38 of this Act. 

TEX.REV. CN. STAT. ANN. art. 5190.6, 5 2(11)(A), as amended by Act of May 30,2003,7Sth Leg., R.S., ch. 1132,s 

1,2003 Tex. Gen. Laws 3218,3218-19 (emphasis added). 

‘House Bill 2912 added the following to section 2(1 l)(A): “‘Project’ also includes expenditores found by the 

board ofdirectors to be required or suitable for iofrastmctore necessary to promote or develop new or expanded business 

enterprises limited to streets and roads, rail spurs, water and electric utilities, gas utilities, drainage and related 

improvements, and telecommunications and Internet improvements.” Id. 

‘Act ofMay 23, 1979, 66th Leg., RX, ch. 700, 5 3, 1979 Tex. Gen. Laws 1675, 1677. 
The Honorable Allan B. Ritter - Page 5 (GA-0264) 

legislature amended this provision to strike the word “liberally.” Id. 5 3, 2003 Tex. Gen. Laws at 

3220 (amending section 3(b)). 

House Bill 2912 contains a grandfather provision continuing former law in effect for certain 

projects. Its amendments “apply only to a project that is undertaken or approved, by an election or 

otherwise, on or after the effective date of this Act.” Id. § 14, 2003 Tex. Gen. Laws at 3223. A 

project that is undertaken or approved before House Bill 2912’s effective date “is governed by the 

law in effect on the date the project is undertaken or approved, and the former law is continued in 

effect for that purpose.” Id. House Bill 2912 took effect on June 20,2003. See id. at 3223. 

C. Issues 

The City and the EDC wish to know whether the EDC may now pay $300,000 and 

refund sales taxes to the Corporation pursuant to the Agreement.” Both the City and the EDC 

appear to agree that paying these funds to the Corporation is not an appropriate section 4A 

development corporation project under the Act as amended by House Bill 2912 because locating the 

Corporation’s retail store in the City will not create or retain primary jobs as required by section 

2(1 l)(A). Assuming this is the case, the EDC’s authority depends upon (i) whether former law 

authorized the EDC to make the payment and refund sales taxes and (ii) if so, whether paying these 

funds to the Corporation would constitute a “project ” “undertaken or approved” before June 20,2003 

for which former law is continued in effect. Before considering these issues, however, we first 

review a section 4A development corporation’s authority to act and the extent to which a city that 

has created a section 4A development corporation may contract and expend funds on the 

corporation’s behalf. These concerns underlie the facts outlined in the resolutions and the City’s 

brief and are essential to the primary issues. 

II. Whether a Citv That has Created a Development Corporation Mav Act on the 

Corporation’s Behalf 

Section 4A of the Act authorizes a qualifying city to create a development corporation 

governed by that section, see TEX. REV. Crv. STAT. ANN. art. 5190.6, $ 4A(h)(l) (Vernon Supp. 

2004-05), and, if the voters approve it, authorizes the city to levy a sales and use tax for the benefit 

of that corporation, see id. 5 4A(d). The Act generally requires each corporation to “have a board 

of directors.” Id. § 1 l(a). More specifically, section 4A provides that a development corporation 

is governed by a board of five directors “who are appointed by the governing body of the city and 

who serve at the pleasure of the governing body.” Id. 5 4A(c). In addition to this authority to 

appoint and remove directors, the Act also vests in the creating city power over the corporation’s 

governance and operation, such as the authority to approve changes to the corporation’s articles of 

incorporation and by-laws and to approve the corporation’s programs and expenditures.” Indeed, 

?See City Letter, supra note 1, at 1; EDC Letter, supra note 1, at 2 

“See TEX. REV. Crv. STAT. ANN. art. 5 190.6, $5 17(a) (Vernon Supp. 2004-05) (“The articles of incorporation 

may at any time and from time to time be amended, provided that the board of directors tiles with the governing body 

of the unit under whose auspices the corporation was created a written application requesting that the unit approve such 

(continued...) 
The Honorable Allan B. Ritter - Page 6 (GA-0264) 

in outlining development corporations’ general powers, section 23(a)(13) provides that a 

development corporation may “exercise all powers necessary or appropriate to effect any or all of 

the purposes for which the corporation is organized which powers shall be subject at all times to 

the control ofthe governing body of the unit under whose auspices the corporation was created.” 

Id. 5 23(a)(13) (emphasis added). 

Significantly, however, the powers of a development corporation are vested in the 

corporation’s board of directors. See id. 5 1 l(a) (“The corporation shall have a board of directors 

in which all powers of the corporation shall be vested.“). The board of directors is required to act 

as a body, see id. 5 14(b) (“The act of the majority of the directors present at a meeting at which a 

quorum is present shall be the act of the board of directors, unless the act of a greater number is 

required by the articles of incorporation or the bylaws.“) (emphasis added), and is subject to the 

Gpen Meetings Act, see id. 5 1 l(b) (“The board of directors is subject to the open meetings act.“).‘* 

As a result, the board of directors of a development corporation may not act except by a final official 

action taken in an open meeting. Seti id. $5 11(a)-@), 14(b); Tex. Att’y Gen. Op. No. JC-0109 

(1999) (concluding that although no statute specifically requires a development corporation to 

provide notice of a land sale, a corporation’s board of directors may not take final action on a 

land sale except by a final official action in an open meeting after providing notice under the Gpen 

Meetings Act). Although the Gpen Meetings Act permits a governmental body to deliberate 

in executive session regarding economic development negotiations, see TEX. GOV’T CODE ANN. 

5 551.087 (Vernon Supp. 2004-05) “[a] final action, decision, or vote on a matter deliberated in a 

closed meeting. may only be made in an open meeting that is held in compliance with” the Open 

Meetings Act’s notice requirements, id. § 551.102 (Vernon 1994). 

Your query specifically involves adevelopment corporation’s authority to enter into contracts 

and to expend sales and use tax proceeds. A development corporation has all the powers of a 

nonprofit corporation and is authorized to contract on its own behalf. See TEX. REV. CIV. STAT. 

ANN. art. 5190.6, 5 23(a) (Vernon Supp. 2004-05) (“The corporation shall have and exercise all of 

the rights, powers, privileges, authority, and functions given by the general laws of this state to 

“(-continued) 

amendment to the articles of incorporation, specifying in such application the amendment OI amendments proposed to 

be made. If the governing body by appropriate resolution finds and determines that it is advisable that the proposed 

amendment be made, authorizes the same to be made, and approves the form of the proposed amendment, the board of 

directors shall proceed to amend the articles as hereinafter provided.“), 17(b) (“The articles of incorporation may also 

be amended at any time by the governing body of the unit under whose auspices the corporation was created at its sole 

discretion by adopting an amendment to the articles of incorporation of the corporation by resolution of such governing 

body and delivering the articles of amendment to the secretary of state as hereinafter provided.“), 21 (“The unit will 

approve all programs and expenditures of the corporation and annually review any fmancial statements of the 

corporation, and at all times the unit will have access to the books and records of the corporation.“), 23(a)(ll) 

(authorizing a development corporation “to make and alter bylaws not inconsistent with its articles of incorporation or 

with the laws of this state with the approval of the unit under whose auspices the corporation was created by resolution 

of the governing body for the administration and regulation of the affairs of the corporation”). 

%See generally Tex. Att’y Gen. Op. No. JM-120 (1983) at 3-4 (concluding that section 1 l(b) of the Act 

effectively repealed section 14(c), which provides that “[a]ny action required by this Act to be taken at a meeting of the 

directors of a corporation OI any action which may be taken at a meeting of the directors may be taken without a meeting 

if a consent in writing, setting forth the action to be taken, shall be signed by all of the directors. Such consent shall have 

the same force and effect as a unanimous vote.“). 
The Honorable Allan B. Ritter - Page 7 (GA-0264) 

nonprofit corporations incorporated under the Texas Non-Profit Corporation Act. but to the extent 

that the provisions of the general laws are in conflict or inconsistent with this Act, this Act 

prevails.“); Gaut v. Amarillo Econ. Dev. Corp., 921 S.W.2d 884, 887 (Tex. App.-Austin 1996, no 

writ) (“As anon-profit corporation, [a section 4A development corporation] has the power to make 

contracts and incur liabilities.“). Morever, to enter into a contract, a development corporation must 

do so pursuant to an official act of its board of directors, in which its authority is vested and which 

maytake final actiononlyin anopenmeeting. SWTEX.REV. CIV. STAT.ANN. art. 5190.6, $5 1 l(a)- 

(b), 14(b) (Vernon Supp. 2004-05). No provision in the Act authorizes a city’s governing body to 

enter into a contract on behalf of a section 4A development corporation it has created. 

In addition, this office has concluded that section 4A vests the authority to expend sales and 

use tax proceeds in the development corporation, not the city. See Tex. Att’y Gen. Op. No. JC-0488 

(2002) at 3. The Act contemplates that a section 4A development corporation will use its sales and 

use taxes for projects that its board of directors initiates and that the city’s governing body has the 

authority to review. See TEX. REV. CIV. STAT. ANN. art. 5190.6, $5 4A(f), 21 (Vernon Supp. 2004- 

05). Specifically, after the tax has been approved by the voters and the Comptroller remits tax 

proceeds to the city, the city “shall deliver the proceeds to the corporation to use in carrying out its 

functions.” Id. 5 4A(f) (emphasis added). The Act provides that the governing body of a city that 

has created a development corporation “will approve all programs and expenditures of the 

corporation,” id. 5 21, thus authorizing the goveming body to disapprove programs and expenditures, 

but the Act does not authorize the city’s governing body to spend the development corporation’s 

sales and use taxes. Section 4A sales and use tax proceeds may not be expended unless authorized 

by the development corporation’s board of directors’ final official action in an open meeting. See 

id. $5 1 l(a)-(b), 14(b). 

III. Whether Former Law Authorized the Grant and Sales Tax Refund 

A. Authority under Article 5190.6 and Gaul 

You ask about the EDC’s authority prior to the 2003 amendments to pay the 

Corporation the $300,000 grant and the sales tax refund described in the Agreement. See supra note 

1. Generally, a section 4A development corporation may use sales and use taxes (i) to finance costs 

of projects;13 (ii) for job training;14 and (iii), to a limited extent, for promotional purposes.” The 

authority of a particular development corporation may be limited by the resolution creating the 

corporation or ballot language restricting the use of the section 4A tax. See, e.g., TEX. REV. CIV. 

STAT. ANN. art. 5 190.6,§§ 4(a) (Vernon Supp. 2004-05) (the resolution creating a corporation must 

specify its purpose), 4A(n) (the election on imposing a tax may limit the time the tax is imposed), 

4A(r) (the election on imposing a tax may limit the use of tax proceeds to specific projects). It may 

also be limited by financing documents relating to the corporation’s bonds. See, e.g., id. §§ 4A(f) 

“SeeT~x. REV. CR’. STAT. ANN. art. 5190.6, $5 4A(Q 21,23(a)(6) (V emon Supp. 2004.05); see also id. $§ 

2(4), (11) (defting “cost” and “project”), 4A(i) (limiting a section 4A development corporation’s authority to undertake 

certain projects and specifically authorizing others). 

‘%ee id. $5 2(11)(A), 4A(f), 38 

“See id. 5 4A(b). 
The Honorable Allan B. Ritter - Page 8 (GA-0264) 

(tax proceeds may be pledged to bond debt service), 25(e) (a pledge or agreement to secure bonds 

is in effect until the bonds are fully paid). The ballot language authorizing the EDC tax did not limit 

its use to a specific project,16 and we assume there are no bond-related limitations on the EDC’s 

authority. 

The City resolutions suggest that the grant and sales tax refund constituted a “project” under 

former law; neither the City nor the EDC suggest that they might be authorized as spending for job 

training or promotional purposes. Unlike section 4B of the Act, section 4A does not contain a 

separate definition of the term “project.” Thus, prior to June 20,2003, the Act authorized a section 

4A development corporation to finance the costs of projects as that term was generally defined in 

section 2(1 l)(A). Section 2(1 l)(A) defined “project” to include, in pertinent part, land, buildings, 

equipment, facilities, targeted infrastructure, and improvements, that “promote new and expanded 

business development.” Id. 5 2(1 1)(A).17 Section 2(4) broadly defined the term “cost” to include 

various expenses associated with a project. ‘* In addition, prior to 2003, section 4A(i) limited a 

“See City Letter of July 14,2004, supra note 2 (Ordinance No. 95-68). 

“Prior to House Bill 2912, section 2(1 l)(A) defined the term “project” in pertinent part as follows: 

(A) “Project” shall mean the land, buildings, equipment, facilities, 

targeted iofrastmctore, and improvements (one or more) to promote new and 

expanded business development orfound by the board of directors to be required 

or suitable for the promotion of development and expansion of manufacturing and 

industrial facilities, job creation and retention, job training, educational facilities, 

research and development facilities, transportation facilities (including but not 

limited to airports, ports, mass commuting facilities, and parking facilities), sewage 

or solid waste disposal facilities, recycling facilities, air OI water pollution control 

facilities, facilities for the furnishing of water to the general public, distribution 

centers, small warehouse facilities capable of serving as decentraliied storage and 

distributioncenters, and facilities foruse by institutions ofhighereducation, and for 

the promotion of development or redevelopment and expansion, including costs of 

administration and operation, of a military base closed or realigned pursuant to 

recommendation of the Defense Closure and Realignment Commission 

TEX.REV.CIV. STAT.ANN. art. 5190.6, $2(11)(A), as enacted by Act ofMay23,1979,66thLeg., RX, ch. 700, $2(12), 

1979Tex. Gen. Laws 1675,1616, as renumberedby Act ofMay20,1999,76thLeg., R.S., ch. 973,s 1,1999Tex. Gen. 

Laws3722,3722-23,nslastnmendedbyActofMay22,2001,77tbLeg.,R.S.,ch. 850, § 1,2001 Tex. Gen. Laws 1698, 

1698 (emphasis added). 

“Section 2(4), which the legislature did not amend in 2003, provides as follows: 

“Cost” as applied to a project shall mean and embrace the cost of 

acquisition, cleanup, conshuction, reconstruction, improvement, and expansion, 

including the cost of the acquisition of all land, rights-of-way, property rights, 

easements, and interests, the cost of all machinery and equipment, fmancing 

charges, inventory, raw materials and other supplies, research and development 

costs, interest prior to and during construction and for one year after completion of 

construction whether OI not capitalized, necessary reserve fimds, cost of estimates 

and of engineering and legal services, plans, specifications, surveys, estimates of 

cost and of revenue, other expenses necessary or incident to determining the 

(continued...) 
The Honorable Allan B. Ritter - Page 9 (GA-0264) 

section 4A development corporation’s authority to undertake certain projects to provide 

transportation facilities, solid waste disposal facilities, or air or water pollution control facilities, but 

specifically authorized a project to provide a general aviation business service airport or port-related 

facilities, neither of which is relevant here.19 Significantly, section 2(1 l)(A) limited a section 4A 

development corporation to expending sales and use taxes for costs associated with land, buildings, 

equipment, facilities, targeted infrastructure, or improvements that would promote new and 

expanded business development and did not authorize a section 4A development corporation to use 

such taxes to grant funds or to refLnd sales taxes to a corporation for opening a retail store. 

As we have noted, House Bill 2912 added the word “expenditure” to the definition of the 

term “project” in section 2(1 l)(A). Arguably, the term “expenditure” could embrace “grants” or 

“sales tax refunds,” which would permit a section 4A development corporation to use sales and use 

tax proceeds for expenses beyond costs associated with land, facilities, and other tangible items, 

provided that the expenditure complies with section 40 of the Act. See id. $40 (House Bill 2912 

requirement that a development corporation may not “provide a direct incentive to or make an 

expenditure on behalf of a business enterprise under a project” unless the corporation enters into a 

performance agreement with the business enterprise). However, the term “expenditure” was not 

included in section 2( 1 l)(A) before the 2003 amendment. 

The City suggests that the EDC’s participation in the Agreement is supported by Gaut. See 

Parker Brief, supra note 3, at 2. In Gaut, the City of Amarillo had established the Amarillo 

Economic Development Corporation (“AEDC”) and levied a sales and use tax under section 4A of 

the Act. See Gaut, 921 S.W.2d at 885-86. The court considered a challenge to a contract between 

the AEDC and American Airlines pursuant to which the AEDC made payments to the airline 

company to provide jet service to the City of Amarillo. See id. Gaut, the plaintiff, contended that 

the AEDC’s payments to the airline company were illegal because the contract was not a project 

under the Act. See id. at 887. The court agreed that the “contract is not the type of project that 

feasibility and practicability of acquiring, cleaning, constructing, reconsmcting, 

improving, and expanding any such project, administrative expense and such other 

expense as may be necessary or incident to the acquisition, cleanup, constmciion, 

reconstruction, improvement, and expansion thereof, the placing of the same in 

operation, and the fmancing or refmancing of any such project, including the 

refunding of any outstanding obligations, mortgages, or advances issued, made OI 

given by any person for any of the aforementioned costs. 

Tut. REV. CIV. STAT. ANN. art. 5190.6,s 2(4) (Vernon Supp. 2004.05). 

‘%%TEx. REV.CIV.STAT.ANN. art. 5190.6, $4A(i), as enacted byActofMay27, 1989,71stLeg., R.S., ch. 

877, $2,19X9 Tex. Gen. Laws 3871,3872, os renumbered by Act ofMay 10,1991,72d Leg., R.S., ch. 184, $1,1991 

Tex. Gen. Laws 802,803, (IS lnst amended by Act of March 11, 1993,73d Leg., R.S., ch. 12,§ 3, 1993 Tex. Gen. Laws 

49,50-51, and Act of May 22, 1993,73d Leg., R.S., ch. 1022,§ 2, 1993 Tex. Gen. Laws 4424,4424-25 (“Except as 

provided by this subsection, the corporation may not undertake a project the primary purpose of which is to provide 

transportation facilities, solid waste disposal facilities, or air or water pollution control facilities. However, the 

corporation may provide those facilities to benefit property acquired for a project having another primary purpose. The 

corporation may undertake a project the primary purpose of which is to provide: (1) a general aviation business service 

airport that is an integral part of an industrial park, OI (2) port-related facilities to support waterborne commerce.“). 
The Honorable Allan B. Ritter - Page 10 (GA-0264) 

involves the construction, acquisition, sale, lease, or purchase of a building.” Id. However, 

“liberally construing the Development Corporation Act in conjunction with the Non-Profit 

Corporation Act,” the court disagreed “that the AEDC is limited to considering only projects as 

defined by the Development Corporation Act.” Id. The court noted that the AEDC had the power 

to contract and incur liabilities. Id. Given that authority and the “summary judgment evidence 

reflecting the probable enhancement to the Amarillo economy as well as the economic benefits to 

the residents ofthe Texas panhandle” resulting from the jet service contract, the court concluded that 

the contract was within the stated purpose of the Act. See id. at 887-88. 

Arguably, relying on Gaut, the Act could have been construed prior to House Bill 2912 to 

authorize a section 4A development corporation to use sales and use tax proceeds to promote 

economic development by means other than projects defined in the Act, including entering into a 

contract to grant funds and refund sales taxes to a private corporation to promote economic 

development. In 1999, however, this office questioned the Gout court’s construction ofthe Act and 

suggested that.1997 amendments to the Act superseded the court’s construction. See Tex. Att’y Gen. 

Op. No. JC-0118 (1999) at 6. 

Moreover, attorney general opinions construing the Act prior to the 2003 amendments 

stressed that the determination whether a particular project or expenditure would promote business 

development was a question of fact within the discretion ofthe board of directors of the development 

corporation in the first instance, subject to judicial review for abuse of discretion. See Tex. Att’y 

Gen. Op. No. JC-0362 (2001) at 5 (“the determination of whether a particular project will promote 

the economic development purposes ofthe Act is, in general, a question of fact within the discretion 

of the board of directors of the development corporation in the first instance”).20 Thus, even if one 

could argue that Gaut authorized the EDC to enter into the Agreement, it does not appear that the 

EDC made the necessary determination to support the Agreement. See Parker Brief, supra note 3, 

at 3-4 (stating that the EDC took no vote with respect to the Agreement). Although the governing 

body of a city that has created a development corporation may disapprove a project or expenditure 

that the development corporation has proposed or approved, the City was not authorized to make the 

initial determination that a project or expenditure would promote economic development. See part 

II, supra; see also Tex. Att’y Gen. Op. No. GA-0086 (2003) at 3 (concluding that whether a 

proposed statue “would serve a promotional purpose is a question of fact for the [development 

corporation’s] board of directors to resolve in the first instance, subject to judicial review, and, 

. [the] City Council’s supervisory authority”). 

B. Constitutional Limitations 

In addition, the EDC’s authority to pay money to a private corporation is and was 

limited by the Texas Constitution. Section 4A taxes are public funds subject to article III, section 

?%xz also Tex. Att’y Gen. LO-95.072, at 3 (the determination whether a section 4B development corporation 

may construct sanitary sewer lines in an existing residential subdivision must be made by the board of directors in the 

first instance subject to review for abuse of discretion), LO-92-086, at 2 (concluding that it was within the discretion of 

a section 4A development corporation in the first instance to characterize the use of sales tax proceeds to finance bonds 

for the Texas State Technical College System Extension Center as the promotion of commercial or economic 

development given the statute governing such centers). 
The Honorable Allan B. Bitter - Page 11 (GA-0264) 

52(a). See TEX. CONST. art. III, 5 52(a) (“the Legislature shall have no power to authorize any 

county, city, town or other political corporation or subdivision of the State to lend its credit or to 

grant public money or thing of value in aid of, or to any individual, association or corporation”); Tex. 

Att’y Gen. Op. No. JC-0118 (1999) at 9:’ As a result, section 4A development corporations are 

prohibited from making gifts or donations of section 4A sales and use tax proceeds. See Tex. Att’y 

Gen. Op. No. JC-0118 (1999) at 8 (a development corporation may not make a gift or donation of 

section 4B tax proceeds); see nlso Tex. Att’y Gen. LO-97-061, at 4-5 (the Act does not permit a 

section 4A development corporation to make gifts of public funds), LO-94-037, at 3 (the Act does 

not authorize section 4A development corporations to make gifts). 

Like any other entity subject to this constitutional limitation, a section 4A development 

corporation “will avoid violating article III, section 52” if its governing body“(i) determines in good 

faith that the expenditure serves a public purpose and (ii) places sufficient controls on the 

transaction, contractual or otherwise, to ensure that the public purpose is carried out.” Tex. Att’y 

Gen. Op. Nos. GA-0188 (2004) at 4, GA-0078 (2003) at 4 (citing Young v. Ciry of Houston, 756 

S.W.2d 813,814 (Tex. App.-Houston [lst Dist.] 1988, writ denied); City of Coleman v. Rhone, 222 

S.W.2d 646,649 (Tex. Civ. App.-Eastland 1949, writ ref d)). These requirements apply equally to 

section 4A tax expenditures for project costs, see Tex. Att’y Gen. Op. No. JC-0118 (1999) at 9 (sales 

and use tax expenditures for project costs “must be pursuant to a contractual or other arrangement 

sufficient to ensure that the funds are used for the purposes authorized”), and for non-project 

expenditures arguably authorized by Gaut, which itself involved a contract between the AEDC and 

the airline pursuant to which the development corporation received valuable consideration, see id.; 

see also Tex. Att’y Gen. LO-94-037, at 3 (no provision in section 4A or the Act specifically 

authorizes development corporation to make grants; “the act requires that any ‘grant’ by [the section 

4A development corporation] . be made under [a] contractual or other arrangement sufftcient to 

ensure that the funds granted are actually used in furtherance of the purposes of the act”). 

Again, although the creating city’s governing board has the power to disapprove a proposed 

development corporation contract, the city may not enter into a contract on the development 

corporation’s behalf. The corporation’s board must make the requisite determinations and approve 

and bind the corporation to a contract in final official actions taken in open meetings. See part II, 

supra. The facts presented by the City do not indicate that the EDC’s board of directors made such 

determinations or imposed the requisite contractual controls. See part LA, sup-a. 

“In 1979 this office concluded that the Act did not implicate article III, section 52 because no public moneys 

were involved in & expenditures authorized under the Act at that time. See Tex. Att’y Gen. Op. No. MW-85 (1979) 

at 3. Later, the legislature amended the Act to add sections 4A and 4B authorizing the collection and expenditure of sales 

anduse taxes. S~~TEX.REV.CIV.STAT.ANN. art. 5190.6, $9 4A(a)-(b), (d),4B(a), (d), (g) (Vernon 1987 & Supp. 2004. 

05). Thereafter, Attorney General Opinion JC-0118 concluded that “[elxpenditure of sales and use tax proceeds is 

unquestionably the expenditure of public moneys witbin the meaning of article III, section 52(a). The constitutional 

requirement that any expenditure be made pursuant to a contnctual or similar arrangement is not nullified by section 22 

of the Act providing that a development caporation ‘is not intended to be and shall not be a political subdivision 01 a 

political corporation within the meaning ofthe constitution and the laws ofthe state, including without limitation Article 

III, Section 52 ,“’ Tex. Att’y Gen. Op. No. JC-0118 (1999) at 9. As Attorney General Opinion JC-0118 noted, 

“While the legislature may exempt a development corporation from the application of other legislative enactments, it 

has no authority to exempt a development corporation from the application of a constitutional provision.” Id. 
The Honorable AlIan B. Ritter - Page 12 (GA-0264) 

In sum, prior to House Bill 2912, the Act as construed by the court in Gaut arguably might 

have authorized the EDC to pay $300,000 and a sales tax refund to the Corporation if the EDC’s 

board of directors had determined in good faith that the expenditures would promote business 

development. In addition, article III, section 52(a) of the Texas Constitution required the EDC’s 

board of directors (i) to determine that such expenditures of section 4A sales and use tax proceeds 

were for a public purpose ofthe EDC, and (ii) to impose contractual controls to ensure that the funds 

would be used for the purposes authorized, neither of which it appears to have done. 

IV. Whether the Pavments Constitute a Proiect Undertaken or ADDroved Before June 20, 

2003 

Under House Bill 2912’s grandfather provision, section 14, former law is continued in effect 

only for projects undertaken or approved before June 20,2003: 

The changes in law made by this Act apply only to aproject 

that is undertaken or approved, by an election or otherwise, on or 

after the effective date of this Act. A project that is undertaken or 

approved before the effective date of this Act is governed by the law 

in effect on the date the project is undertaken or approved, and the 

former law is continued in effect for that purpose. 

Act of May 30,2003, 78th Leg., RX, ch. 1132, 5 14,2003 Tex. Gen. Laws 3218,3223 (effective 

June 20,2003) (emphasis added). 

Because the Act expressly defines the term “project,” the term in section 14 must be 

construed according to those definitions as they existed under prior law. See TEX. GOV’T CODE 

ANN. 4 3 12.002(b) (Vernon 1998) (terms ofart in civil statutes are to be construed according to their 

particular meaning). For a section 4A development corporation, the term “project” prior to June 20, 

2003 was defined by section 2(11)(A) and, in some cases, further governed by section 4A(i). 

Accordingly, in the case of a section 4A development corporation, section 14 continues former law 

only for projects within the scope of section 2(1 l)(A) and 4A(i). 

Furthermore, a project must have been “undertaken or approved” before House Bill 2912’s 

effective date. Neither the Act, House Bill 2912, nor case law defines these terms in connection 

with a project and, as a result, we construe them according to their common meanings. See id. 

5 3 12.002(a) (words in civil statutes that are not terms of art shall be given their ordinary meaning). 

The verb “undertake” means to “take in hand, enter upon, or set about” or, more specifically, “to put 

oneself under obligation to perform,” WEBSTER’S NINTHNEW COLLEGIATE DICTIONARY 1287 (9th 

ed. 1990); see also BLACK’S LAW DICTIONARY 1527 (7th ed. 1999) (defining “undertake” as “to take 

on an obligation or task” or “to give a formal promise; guarantee”), and therefore we construe the 

term “undertaken” to include projects that a development corporation had already begun or to which 

it had already contractually obligated itself. The verb “approve” means “to give formal or official 

sanction to,” WEBSTER’S at 98; see also BLACK’S at 98 (defining “approve” to mean “to give formal 

sanction to; to confirm authoritatively”), and we construe the term “approved” to include a project 

that a development corporation approved by official board action. In addition, the Act authorizes 
The Honorable Allan B. Ritter - Page 13 (GA-0264) 

a city that establishes a section 4A development corporation to “allow the voters to vote on a ballot 

proposition that limits the use of the sales and use tax to a specific project.” TEX. REV. CIV. STAT. 

ANN. art. 5 190.6,§ 4A(r) (Vernon Supp. 2004-05); see also id. 5 4A(s) (s)(l) (authorizing a city that 

has created a section 4A development corporation to submit to the voters a ballot proposition that 

authorizes the corporation to use the sales and use tax, including any amount previously authorized 

and collected, for a specific project or for a specific category of projects, including a sports venue 

and related infrastructure, that does not qualify under section 4A but qualifies under section 4B). 

In referencing projects approved by election in the first sentence of section 14, the legislature 

recognized that the electorate may approve specific projects. Accordingly, we construe section 14’s 

second sentence to continue former law for a specific project approved by the voters at an election 

prior to House Bill 2912’s effective date. Taken together, the term “undertaken” refers to projects 

that are already underway whereas the term “approved” refers to projects that have been officially 

approved but not yet begun. 

Thus, in the case of a section 4A development corporation, section 14 continues former law 

only for projects as defined under section 2( 1 l)(A) (and, in some cases, further governed by section 

4A(i)) prior to June 20,2003. Moreover, for former law to continue, the project must be one that, 

before June 20, 2003, (i) the development corporation had already begun or had contractually 

committed itself to, (ii) the development corporation’s board of directors had officially approved 

but not yet begun, or (iii) the voters had approved pursuant to section 4A(r)-(s) of the Act. The 

development corporation’s board of directors should be able to demonstrate that a project was 

“undertaken or approved before the effective date of this Act” either by reference to some final 

official action taken by the board in an open meeting prior to June 20,2003, or by reference to the 

terms of an election held under section 4A(r)-(s) prior to that date. 

Based on the City’s statement that the EDC board of directors did not vote on the EDC’s 

participation in the Agreement at an open meeting prior to June 20, 2003, it appears that the EDC 

had neither undertaken nor approved the Agreement or a project associated with the Agreement prior 

to that date. See Parker Brief, supra note 3, at 3-4. Thus, even if the EDC’s participation in the 

Agreement constituted a “project” under former law, section 14 would not grandfather it. 

Finally, we also must consider the extent to which House BiIl 2912 affects a section 4A 

development corporation’s authority to make non-project expenditures that were not included within 

the meaning of the term “project” under former law but which might have been supported by Gaut. 

By narrowing projects’ authorized purpose to primary job creation, requiring and strictly governing 

contracts for expenditures and direct incentives, and striking the direction that the Act shall be 

liberally construed, House Bill 2912 effectively superseded Gaut. House Bill 2912’s implications 

for Guut-based contracts entered into prior to its effective date may raise impairment of contract 

issues. See TEX. CONST. art. I, 5 16 (prohibiting laws impairing the obligation of contracts). In the 

matter under consideration, however, such issues would arise only if the EDC’s board of directors 

entered into a contract prior to June 20, 2003 agreeing to pay the grant and to refund sales taxes. 

Based on the brief and official documents submitted by the City, which refer to the Agreement but 

not to any contract or agreement entered into by the EDC’s board in an offtcial final action at an 

open meeting prior to June 20,2003, that does not appear to be the case. See part I.A, supra; Parker 

Brief, supva note 3, at 3-4. 
The Honorable Allan B. Ritter - Page 14 (GA-0264) 

SUMMARY 

House Bill 2912 significantly amended the Development 

Corporation Act of 1979, TEX. REV. CIV. STAT. ANN. art. 5190.6, but 

contained a grandfather provision continuing former law for a project 

undertaken or approved before the bill’s June 20,2003 effective date. 

The Port Arthur Economic Development Corporation is now 

authorized to grant funds and refund sales taxes to a private 

corporation to promote economic development if former law 

authorized it to do so and if paying these funds constitutes a “project” 

“undertaken or approved” before June 20,2003. The development 

corporation’s board of directors must demonstrate that a project was 

“undertaken or approved” either by reference to some final official 

action taken by the board in an open meeting prior to June 20,2003, 

orbyreference to the terms ofan election held under section 4A(r)-(s) 

of the Act prior to that date. The grant and sales tax refund were not 

a “project” under former law. Moreover, because development 

corporation’s board of directors did not vote to make the grant or 

sales tax refund at an open meeting prior to June 20, 2003, they 

would not fall within the House Bill 2912 grandfather provision. 

BARRY R. MCBEE 

First Assistant Attorney General 

DON R. WJLLETT 

Deputy Attorney General for Legal Counsel 

NANCY S. FULLER 

Chair, Opinion Committee 

Mary R. Crouter 

Assistant Attorney General, Opinion Committee