Court Opinion

ID: 4129009
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:45:58.835846+00
Date Added: 2024-06-11T14:31:37.946868
License: Public Domain

ATTORNEY GENERALOFTEXAS
                                           GREG        ABBOTT

                                                 July 9,2003

The Honorable Eugene D. Taylor                          Opinion No. GA-0086
Williamson County Attorney
Williamson County Courthouse Annex                      Re: Whether the Hutto Economic Development
Second Floor                                            Corporation  may pay for construction    of a
405 Martin Luther King, Box 3                           hippopotamus  statue as a promotional purpose
Georgetown, Texas 78626                                 (RQ-0038-GA)

Dear Mr. Taylor:

         You ask about the Hutto Economic Development Corporation’s                     authority   to pay for
construction of a hippopotamus statue as a promotional purpose.’

I.      Background

         You inform us that the Hutto Economic Development              Corporation (“HEDC”) is a
development corporation created under section 4A of the Development Corporation Act (the “Act”),*
which authorizes cities of a certain size to create a development corporation and to levy a sales and
use tax for the benefit of the corporation if the voters approve the tax. See TEX. REV. CIV. STAT.
ANN. art. 5 190.6,§ 4A(a), (d) (V emon Supp. 2003). As a general matter, a section 4A development
corporation must use these tax revenues “for the promotion and development of new and expanded
business enterprises.” Id. Authorized uses include economic development projects (such as land,
equipment, facilities and infrastructure), project costs, and job training. See id. $5 2(4), (1 l)(A)
(defining “cost” and “project”), 4A(f) (job training), 4A(i) (limits on section 4A projects), 38 (job
training requirements).   In addition, a section 4A development corporation may spend a limited
amount of its revenues for “promotional purposes.” Id. 8 4A(b)( 1).

        The City of Hutto created the HEDC under section 4A. Now, the two entities dispute
whether the HEDC may spend its revenues to help finance a proposed hippopotamus statue. You
explain that the City and the Hutto Independent School District have adopted the hippo as the local

         ‘Letter from Honorable Eugene D. Taylor, Williamson County Attorney, to Honorable Greg Abbott,    Texas
Attorney General (Mar. 26, 2003) (on file with Opinion Committee) [hereinafter Request Letter].

         *Letter Brief attached to Request Letter from Honorable Eugene D. Taylor, Williamson County Attorney, to
Honorable John Comyn, Texas Attorney General, at 1 (Nov. 13,2002) (on file with Opinion Committee) [hereinafter
Taylor Brief].
The Honorable Eugene D. Taylor - Page 2                     (GA-0086)

mascot. See Taylor Brief, supra note 2, at 1. The HEDC board of directors “voted twice to
participate in a project to construct a large fiberglass Hippo statue that will be placed in the City in
a highly visible location.” Id. at 2. After members of the Hutto City Council objected, the board
rescinded its action. See id.

II.     HEDC’s Authoritv to Pav for Statue’s Construction

        In light of this situation, you ask first, “Does the HEDC Board have authority to participate
in and pay a portion of the Hippo statue construction cost under Section 4A(h)(l) of the Act allowing
10 percent of the Corporate income to be used for that promotional purpose?” Id. at 3.3

         Section 4A(b)( 1) provides that a development corporation “created under this section may
spend no more than 10 percent of the corporate revenues for promotional purposes.” TEX. REV. CIV.
STAT. ANN. art. 5 190.6, 5 4A(b)( 1) (Vernon Supp. 2003). In essence, you ask whether “a large
fiberglass Hippo statue” would serve a promotional purpose of the HEDC within the meaning of
section 4A(b)( 1). See Taylor Brief, supru note 2, at 2-3. The Act does not define “promotional
purposes, ” but “promotion” commonly means “helping forward” or, more specifically, furthering
the sale of something by “advertisement or. . . publicity,” and the word “promotional” “relat[es] to
advertising.” XII OXFORDENGLISHDICTIONARY618- 19 (2d ed. 1989) (definitions of “promotion”
and “promotional”); see also TEX. GOV’T CODE ANN. $5 3 12.001 (Vernon 1998) (“This subchapter
[entitled “Construction Rules for Civil Statutes”] applies to the construction of all civil statutes.“),
3 12.002(a) (“words shall be given their ordinary meaning”). In addition, the Act generally requires
a section 4A development corporation to use sales tax revenues “for the promotion and development
of new and expanded business enterprises.” TEX. REV. CIV. STAT. ANN. art. 5 190.6, 8 4A(m)
(Vernon Supp. 2003) (emphasis added). Thus, a promotional expenditure under section 4A(h)(l)
must advertise or publicize the city for the purpose of developing new and expanded business
enterprises.

         As this office has noted in the past, the determination whether a particular expenditure serves
a promotional purpose is a question of fact that this office cannot resolve. See Tex. Att’y Gen. LO-
94-037, at 3 (“whether any particular expenditure purportedly for ‘promotional purposes’ is indeed
for ‘promotional purposes’ and is otherwise consistent with the provisions of the act and applicable
state law would depend on the precise factual nature of the particular expenditure”).4 For example,

           31n addressing your questions, we assume that there are no limitations on the expenditure of the section 4A tax
proceeds particular to the HEDC. 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, $5 4(a) (Vernon Supp. 2003) (resolution creating corporation must specify its purpose); 4A(n) (election on
imposition of tax may limit time tax is imposed); 4A(r) (election on imposition of tax may limit 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. $9
4A(f) (tax proceeds may be pledged to bond debt service); 25(e) (pledge or agreement to secure bonds in effect until
bonds are fully paid).

          “The same is true with respect to economic development projects. 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 of the Act is,
                                                                                                         (continued...)
The Honorable Eugene D. Taylor - Page 3                      (GA-0086)

you inform us that the Mayor takes the position that the proposed statue would “promote and
advertise the City to potential businesses and industries and create an interest in the City for
businesses and industries to locate there” and that “the advertisement value of the Hippo will be
immense.” Taylor Brief, supra note 2, at 2. Whether the proposed statue would serve a promotional
purpose is a question of fact for the HEDC board of directors to resolve in the first instance, subject
to judicial review, and, as we discuss below, the Hutto City Council’s supervisory authority.

III.     Citv Council’s Authoritv with Respect to HEDC Promotional                    Expenditures

        You next ask, “Does the HEDC require specific Hutto City Council approval of the Hippo
project as a promotional activity under Section 23(a)( 12)5 of the Act, or is the HEDC authorized to
undertake promotional activities without City Council approval?” Id. at 3 (footnote added).

        Section 4A(h)(l), which authorizes a section 4A development corporation to “spend no more
than 10 percent of the corporate revenues for promotional purposes,” also provides in pertinent part
that

                  [a] city may create a corporation under this Act governed by this
                  section.    The corporation has the powers and is subject to the
                  limitations of a corporation created under other provisions of this
                  Act. To the extent of a conflict between this section and another
                  provision of this Act, this section prevails.      The articles of
                  incorporation of a corporation under this section must state that the
                  corporation is governed by this section.

TEX. REV. CIV. STAT. ANN. art. 5 190.6, 8 4A(b)( 1) (Vernon Supp. 2003) (emphasis                        added).

        As a general matter, under section 4A, the governing body of the city that created the
development corporation appoints the directors to its board, and they “serve at the pleasure of the
governing body.” Id. 8 4A(c). In addition, other more general provisions of the Act expressly

           4(. . .continued)
in general, a question of fact within the discretion of the board of directors of the development corporation in the first
instance”); Tex. Att’y Gen. LO-95072, at 3 (determination whether section 4B development corporation may construct
sanitary sewer lines in existing residential subdivision must be made by board of directors in first instance subject to
review for abuse of discretion), LO-92-086, at 2 (concluding that it was within discretion of section 4A development
corporation in first instance to characterize use of sales tax proceeds to finance bonds for Texas State Technical College
System Extension Center as promotion of commercial or economic development given statute governing such centers).
But see Tex. Att’y Gen. LO-97-061, at 5 (concluding that based on information provided, board of directors had no basis
for determining that expenditure of sales tax proceeds to support Clarendon College would promote economic
development).

          51nthe process of amending article 5 190.6,s 23(a), the Seventy-eighth Legislature renumbered section 23(a)( 12)
as section 23(a)(13). See Act of May 27,2003,78th       Leg., R.S., H.B. 3075, 0 2 (effective June 20,2003).
The Honorable Eugene D. Taylor - Page 4                     (GA-0086)

contemplate that the “unit”6 that created the development corporation will continue to exercise
control over it. See generally Gaut v. Amarillo Econ. Dev. Corp., 921 S.W.2d 884, 887 (Tex.
App.-Austin 1996, no writ) (per curiam) (stating that development corporation’s “broad powers”
are subject to creating unit’s control); HOUSECOMM.ONWAYS &MEANS, BILL ANALYSIS, Tex. S.B.
971,7 1st Leg., R.S. (1989) at 2 (stating that section 4A development corporation would be within
city council’s “total control”); see also Tex. Atty’ Gen. Op. No. JC-0553 (2002) at 4 (“A creating
unit retains control and responsibility over the corporation.“).

         In particular, section 23 of the Act, which enumerates development corporations’ general
powers, provides that although a development corporation may “make and alter bylaws,” its bylaws
may not be “inconsistent with its articles of incorporation or with the laws of this state” and must
have “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.“7 In addition,
section 23 grants a development corporation “all powers necessary or appropriate to effect any or
all of the purposes for which the corporation is organized,” but that grant of authority is expressly
made subject “at all times to the control of the governing body of the unit under whose auspices the
corporation was created.“’ Finally, section 2 1 of the Act provides that the creating unit “will approve
all programs and expenditures of the corporation and annually review any financial statements of
the corporation, and at all times the unit will have access to the books and records of the
corporation.” TEX. REV. CIV. STAT. ANN. art. 5190.6 5 21 (Vernon Supp. 2003) (emphasis added).

         In answer to your question, section 4A(h)(l) authorizes the HEDC board of directors to
“spend no more than 10 percent of the corporate revenues for promotional purposes.” Id. 5 4A(b)( 1).
But section 4A(h)(l) also expressly provides that a section 4A corporation “is subject to the
limitations of a corporation created under other provisions of this Act,” such as the general
limitations in sections 2 1 and 23. See id. Sections 2 1 and 23 expressly authorize the Hutto City
Council, the creating unit, to disapprove an HEDC expenditure for the “Hippo project.” See id.
8 2 1 (creating unit “will approve all programs and expenditures of the corporation”); Act of May 27,
2003, 78th Leg., R.S., H.B. 3075, 5 2, sec. 23(a)(13) (effective June 20, 2003) (corporation’s
authority subject “at all times to the control of the governing body of the unit under whose auspices
the corporation was created”). We disagree with the contention that “the specific provision granting
authority to spend 10 percent of revenues on promotional activities is not limited by the non-specific
powers in Section 23(a)( 12)9 requiring City Council approval.” Taylor Brief, supra note 2, at 3-4
(footnote added). Although section 4A prevails over another conflicting provision of the Act, see

         “SeeTEX.REV.CIV. STAT.ANN. art. 5 190.6, 8 2(13) (Vernon Supp. 2003) (defining           “unit” to mean “a city,
county or district which may create and utilize a corporation”).

         7Act of May 27, 2003,78th     Leg., R.S., H.B. 3075, 8 2 (effective June 20, 2003) (amending     TEX. REV. CIV.
STAT. ANN. art. 5190.6, 5 23(a) and renumbering     subsection (10) as subsection (11)).

         *Id. (amending   TEX. REV. CIV. STAT.ANN. art. 5 190.6, 8 23(a) and renumbering   subsection   (12) as subsection
(13)).

         ‘See supra note 5.
The Honorable Eugene D. Taylor       - Page 5        (GA-0086)

TEX.REV.CIV.STAT.ANN. art.5190.6,$4A(b)(l),       section 4A(b)( 1) does not provide that a city’s
governing body is prohibited from reviewing expenditures for promotional purposes nor does any
other provision in section 4A.

        Moreover, because the HEDC’s bylaws may not conflict with state law,” it is immaterial that
the HEDC’s bylaws do not “restrict the Board from promotional activities without City Council
approval.” Taylor Brief, supra note 2, at 3. The Act plainly authorizes the Hutto City Council to
review and disapprove such an expenditure even if the HEDC bylaws do not require Council
approval.

Iv.     Ten Percent Car,

         Finally, you ask, “Does the 10 percent limitation on promotional activities apply to annual
revenues or 10 percent of all revenues collected by the HEDC?” Id. You assert that section 4A(b)( 1)
“does not limit the 10 percent cap to anything other than revenues. The limitation is cumulative of
all revenues paid to the Corporation and does not impose the 10 percent limit to revenues paid only
during a specific time period.” Id. at 4. In other words, you believe that a development corporation
that has not expended revenues for promotional purposes in past years may spend more than ten
percent of its current annual revenues for promotional purposes.

        In construing a civil statute, we try to determine and give effect to the legislature’s intent, see
TEX.GOV'T CODE ANN. 8 3 12.005 (Vernon 1998) (“In interpreting a statute, a court shall diligently
attempt to ascertain legislative intent and shall consider at all times the old law, the evil, and the
remedy.“), which we must derive, if possible, from the “‘plain and common meaning of the statute’s
words,“’ State ex rel. State Dept. of Highways and Pub. Transp. v. Gonzalez, 82 S.W.3d 322,327
(Tex. 2002) (citing Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex.
1999)). “Moreover, the legislative intent should be determined from the entire act, and not simply
from isolated portions.” Id. (citing Jones v. Fowler, 969 S.W.2d 429,432 (Tex. 1998)). Because
section 4A(b)( 1) is silent with respect to the time frame for the promotional-expenditure        cap, see
TEX.REV. CIV. STAT.ANN. art. 5 190.6,s 4A(b)( 1) (Vernon Supp. 2003) (a development corporation
“created under this section may spend no more than 10 percent of the corporate revenues for
promotional purposes”), we consider your question in light of the Act as a whole.

         It is plain from the Act as a whole that the legislature intends development corporations to
account for their expenditures on a yearly basis. Section 4C of the Act requires 4A and 4B
development corporations to submit annual reports to the comptroller detailing their total revenues
and expenditures for the preceding fiscal year. See id. 8 4C(a)-(b). A report must include, among
other things, a statement of the corporation’s total expenditures for marketing and promotion. See
id. 8 4C(b)(4)(C). In addition, section 21 of the Act requires a creating unit to annually review the
corporation’s financial statements. See id. 6 21 (the creating unit “will . . . annually review any
financial statements of the corporation”). As a general matter, nonprofit corporations must account
for their financial activity on a yearly basis. See id. art. 1396-2.23A(B) (Vernon 2003) (Texas Non-

        “‘See supra   note7.
The Honorable Eugene D. Taylor - Page 6            (GA-0086)

Profit Corporation Act) (“[T]he board of directors shall annually prepare or approve a report of the
financial activity of the corporation for the preceding year. The report must conform to accounting
standards as promulgated by the American Institute of Certified Public Accountants and must
include a statement of support, revenue, and expenses and changes in fund balances, a statement of
functional expenses, and balance sheets for all funds.“).

         We also consider your question in light of the ten percent cap’s legislative purpose, see TEX.
GOV’T CODE ANN. 8 3 12.005 (Vernon 1998), which is to limit a development                 corporation’s
expenditures for promotional purposes, thereby ensuring that the corporation spends the majority of
its revenues on economic development projects and other authorized purposes. Voters may approve
the imposition of a section 4A sales and use tax for an unlimited time period. See TEX. REV. CIV.
STAT. ANN. art. 5190.6, 8 4A(m), (n) (V emon Supp. 2003). If section 4A(h)(l) were construed to
permit a development corporation to base the amount of a promotional expenditure on its revenues
since creation rather than its revenues for a limited period, a development corporation that had spent
very little for promotional purposes in the past could spend the majority of its current revenues for
a promotional purpose. Such an expenditure would be contrary to the cap’s purpose.

         In light of the Act as a whole and the cap’s purpose, we construe the section 4A(h)(l)
provision limiting a development corporation to “spend[ing] no more than 10 percent of the
corporate revenues for promotional purposes” as a limit on the use of annual revenues. As a result,
we conclude that a section 4A development corporation may not spend more than ten percent of its
current annual revenues for promotional purposes in any given year. A corporation that chooses to
spend revenues for promotional purposes may spend up to ten percent of its annual revenues for that
purpose or may set all or some of those funds aside in a promotional purposes account.                A
corporation that set aside revenues in such an account could spend on promotional purposes those
past-year revenues along with ten percent of its current annual revenues without violating the cap.
If a corporation has not set aside such moneys in past years, however, it is limited to spending no
more than ten percent of its current annual revenues on promotional purposes.             Nor may a
corporation spend more than ten percent of its current annual revenues in a given year in anticipation
that it would spend less than ten percent of its annual revenues on promotional purposes in future
years.

        Thus, the HEDC may not spend more than ten percent of its current annual revenues for
promotional purposes in any given year. In addition, unexpended revenues specifically set aside for
promotional purposes in past years may be expended for that purpose.
The Honorable   Eugene D. Taylor - Page 7           (GA-0086)

                                         SUMMARY

                          Whether a hippopotamus         statue would serve a Hutto
                Economic Development Corporation (“HEDC”) promotional purpose
                is a question of fact for the HEDC board of directors to resolve in the
                first instance, subject to judicial review and the supervisory authority
                of the Hutto City Council. The City Council may disapprove an
                HEDC expenditure for the statue. The HEDC may not spend more
                than ten percent of its current annual revenues for promotional
                purposes in any given year. In addition, unexpended revenues
                specifically set aside for promotional purposes in past years may be
                expended for such purposes.

                                                Very truly yours,

BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General, Opinion Committee