Court Opinion

ID: 4130044
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:59:33.104042+00
Date Added: 2024-06-11T14:33:33.304990
License: Public Domain

QBfficeof toe !ZMornep Qkneral
                                    &ate of Eexae
DAN MORALES                                    July 8.1992
 ATTORNEY
      GENERAL
    Ms. Cathy Bormer                               Opinion No. DM-137
    Executive Director
    Texas Department of Commerce                   Fe: Whether a municipality which has
    P. 0. Box 12728                                levied a sales tax under subsection 4A(d),
    Austin Texas 7871l-2728                        article 5190.6, V.T.C.S., may reduce or
                                                   eliminate the tax after issuance of the bonds
                                                   for which the tax was levied (RQ-383)

    Dear Ms. Banner:

            You have requested our opinion regarding the constitutionality of two recent
    amendments to section 4A of article 5190.6, V.T.C.S., the Development Corporation
    Act of 1979.’ Section 4A authorizes a city covered by its provisions to call an
    election to levy a sales and use tax, at a rate of one-eighth, one-fourth, three-eighths,
    or one-half percent, for the benefit of an industrial development corporation
    created by the city. Proceeds from such tax “may be used to pay the principal oc
    interest on, and other costs relating to the corporation’s bonds.” V.T.C.S. art.
    5190.6, 3 4A(f). Pursuant to the recent amendments, a city may call a subsequent
    election to reduce or increase the rate of the sales and use tax “in one or more
    increments” up to a maximum of one-half percent and down to a minimum of
    one-eighth percent*; or to “limit the length of time that a sales and use tax may be

            ‘The amendments in question, denominated as subsections (a) and (0) of se&on 4A, were
    enacted as part of House Bii 916, Acts 1991,72d Leg., ch. 184, at 802-8, effective May 24,199l.

           *Subsection (0) provides:

                   Inadtyinwhichasalwandusetaxfortht~fitofaeorporati~haJ
              been imposed under this section, in the same manner and by the same
              procedure the city by majority vote of the qualified voters of the city voting at
              an ektion edlad and held for the purpose may reduce or increase the tax. The
              rate may be reduced in one or more iaaements of one-eighth of one percent to
              a mtium      of one-eighth of one percent or haeased in one or more
              increments of one-eighth of one percent to a maximum of one-half of one
              percent. On petition of 10 percent or more of the registered voters of the city
              requesting an elwtion on the increase or decrease of the tax under this section,
              the governing body of the city shall order aa election on the issue. The. ballot
              sMI be printed in the same manner 85 the ballot under Subsection (m) of this
              SCCtiOO.

                                                   p.   709
his. Cathy Bomrer - Page 2                (DM-137)

imposed.Q You ask whether the reduction provisions of subsections (n) and (0) may
be applied to bonds which were previously issued by the corporation.

                                             ‘.
        We will 6rst address this question wrth respect to bonds issued prior to the
effective date of the statute, May 24.1991. As to such bonds, it is clear that article &
section 10 of the United States Constitution, and article I, section 16 of the Texas
Constitt~tio~~ which prohibit the enactment of any law @airing the obligation of
contracts, act to preclude any reduction in the tax rate or any limitation of the time
duringwhichthetaxmaybeimposed.            InCityofAmnrarPauv.Kee&ifg,247S.W.
818 (Tea. 1923), the Texas Supreme Court said that, where a legislative act authoriz-
ing a bond issue creates, or authorizes the creation of, a particular fund for payment
of bonds, those statutory provisions become a part of the contract between the
debtor and the bondholders, so that they cannot be repealed or limited by subse-
quent legislation without the substitution of a funding mechanism of equal efficacy.
Any subsequent limiting legislation “would impair the obligation of the contract, and
therefore, come under constitutional condemnation.” Ciry of-             Pusr, 247 S.W.
at 821.

        In the situation you presenf purchasers of bonds prior to May 24.1991, acted
in good faith reliance on the statutory representations that their bonds were secured
by a particular sales tax rate. The statute made no provision for reducing or other-
wise limiting that tax. As a result, subsequent legislation which purports to permit
the reduction or other limitation of that tax is ineffective to do so, because such
alteration would impair the obligation of the contract between the city and such
bondholders.

      Your question must also be addressed with regard to those bonds issued
subsequent to the effective date of the statute. It is well established that the laws in

                                         p.   710
Ms. Cathy Bomrer - Page 3               (DM-137)

effect at the time of a bond issue become a part of the eontraet between the
bondholders and the issuing authority. e         Lijh Cc v. &ackmridg Indep.
school Lat., 97 s.wJd 933, 937 (Tex. 1936); set? air0 Dallas cawlfy L.tvee
Impnwement Dirt. No. 6 v. Rugel, 36 S.WJd 188, 189-90 (Tea. Comm’n App. 1931,
holding approved). Thus, as to any bonds issued after May 24,1991, potential
ptmhasers must be deemed to have been aware of the provisions of subsections (n)
and (0). ic, that the tax rate then in effect was subject to reduction or other
restrictions by a subsequent election.

        This does not end our inquiry, however. In Attorney General opinion
DIN-31 (1991). we reu@aed that, despite the general principle that the law
existing when a eontraet is made becomes a part of the eontraet, ~squenf       lpcrion
might constitute an impairment. In that opinion, we amsidered a situation in which
a municipality, after a referendum vote, granted a $50,ooOhomestead exemption to
resident taxpayers who were either disabled or at least 65 years of age. Prior to the
referendum, the city had pledged its ad valorem tax revenues for the repayment of
bonds. A statute required the assessor-eolleetor to disregard the increased uremp-
tion if (1) prior to the granting of exemption, the city had pledged its taxes in
support of bonds, and (2) granting the exemption would impair those bonds. The
opinion ameluded that the homestead exemption could not “validly be granted if
doing so would impair the city’s ability to fulfill its pre-eaisting eontraetual
obligations to bondholders-” Although the actual exemption had not been granted
at the time the bonds were issued, legislation existed which authorized the city to
confer the exemption.

        llnts, the en&al date in Attorney General Gpinion DM-31 was not the
statute a&otiz& the ordinance granting the exemption, but the adoption of the
ordinance gnmfing the increased exemption, and any bonds issued prior to that date
had the protection of the amtraet &use. Analogously, the crucial date in the
situation you pose is the date of the rollbaelt election. Prior to that time, only the
pok?&uI for a tax reduction or limitation existed. Purchasers of the bonds of a
politiatl subdivision should not be required to speculate as to future tax rates.

       In the event that subsections (n) and (0) were made applicable to all bonds
issued after May 2rl, 1991, bond purchasers would necessarily be obliged to engage
in such speculations As a eonsequenee, the bonds could not in all likelihood be sold.
To read subsections (n) and (0) as applicable to all bonds issued after the effective
date of the statute would render ineffectual the entire scheme of section 4k Since
the legislature, had it wished to abrogate the statutory mechanism of section 44
could have done so directly by repealing it, we are not willing to attribute to the

                                        p. 713
Ms. Cathy Banner - Page 4              (DM-137)

legislature an intent to scuttle that me&a&m by circuitous means. We hold,
therefore, that a reduction in the sales tax rate, or a limitation on the amount of
time the tax may be collected, may not be applied to any bonds issued prior to the
date of a rollback election.

                                   SUMMARY

              Where, pursuant to subsections (n) and (0) of section 44
         article 5190.6, V.T.C.S., an election is held to reduce the sales
         andusetaxratecollectedbyamunicipalityonbehalfofaa
         industrial development corporation, or to limit the length of
         time during which the tax may be collected, such reduction or
         limitation may not be applied to any bonds issued prior to the
         date of the election.

                                                   DAN      MORALES
                                                   Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARYKELLER
Deputy Assistant Attorney General

IzmJEAHIcKs
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Rick Gilpin
Assistant Attorney General

                                        p.   712