Court Opinion

ID: 4128417
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:38:34.892825+00
Date Added: 2024-06-11T14:33:19.901212
License: Public Domain

ATTORNEY GENERAL OF TEXAS
                                           GREG       ABBOTT

                                                May 15,2008

Ms. Ann S. Fuelberg, Executive Director                 Opinion No. GA-0629
Employees Retirement System of Texas
Post Office Box 13207                                   Re: Whether an open-enrollment charter school is
Austin, Texas 78711-3207                                a governmental entity, and whether the state may
                                                        enter into an agreement with the Social Security
                                                        Administration on the school's behalf
                                                        (RQ-0652-GA)

Dear Ms. Fuelberg:

       You ask several questions concerning open-enrollment charter schools in general and the
John H. Wood, Jr. Charter School ("JHWCS") in particular. 1 Specifically, you ask:

                 (1) Is an open enrollment charter school created under Subchapter
                 D of Chapter 12 of the Texas Education Code, like the John H.
                 Wood[], Jr. Charter School, considered to be an eligible entity under
                 Chapter 606 ofthe Texas Government Code for the state to enter into
                 agreements with the Social Security Administration to obtain social
                 security coverage for the entity's employees?

                 (2) Is an open enrollment charter school created under Subchapter
                 D of Chapter 12 of the Texas Education Code, like the John H.
                 Wood[], Jr. Charter School, considered under Texas law to be a
                 governmental entity (i.e., political subdivisions or other
                 instrumentality of the state of Texas or of another political
                 subdivision)?

                 (3) For each ofthe above questions that are answered affirmatively,
                 what is the effective date of John H. Wood[] Jr. Charter School's
                 attaining that status?

Request Letter, supra note 1, at 6. To aid in our consideration of your request, you provide us with
detailed legal and factual information concerning Social Security coverage of state and local

          lSee Letter from Ann S. Fuelberg, Executive Director, Employees Retirement System of Texas, to Honorable
Greg Abbott, Attorney General of Texas, at 1,6 (Nov. 29,2007) (on file with the Opinion Committee, also available
at http://www.texasattorneygeneral.gov) [hereinafter Request Letter].
Ms. Ann S. Fuelberg - Page 2                          (GA-0629)

government employees, open-enrollment charter schools, the government pension offset, and the
situation at the JHWCS. See Request Letter, supra note 1, at 1-6 (and attached exhibits 1-14). For
context, we set forth some of that same information here.

I.      Background

        A.     Social Security Coverage and State and Local Government Employees

         State and local government employees were originally excluded from the Social Security
system of taxation and insurance benefits out of concern that state and local governments could not
be constitutionally taxed for the employer's share ofSocial Security taxes. 2 See Pub. Employees Ret.
Bd. vs. Shalala, 153 F.3d 1160, 1161 (10th Cir. 1998) (describing origin ofauthorization ofstate and
local government employee's inclusion in Social Security system); accord Williams v. Bastrop, 475
So. 2d 118, 120-21 (La. Ct. App. 2 Cir. 1985, writ denied); 42 U.S.C.A. § 410(a)(7) (West Supp.
2007) (exempting "[s]ervice performed in the employ ofa State, or any political subdivision thereof,
or any instrumentality of anyone or more of the foregoing" from definition of employment under
Old-Age, Survivors, Disability Insurance·("OASDI") benefits, or Social Security, program). The
1950 amendments to the Social Security Act ("SSA") amended section 218 and authorized states to
enter into voluntary agreements ("Section 218 Agreements") with the Social Security Administration
to provide Social Security insurance benefit coverage to state and local government employees. See
Social Security Act Amendments of 1950, Pub. L. No. 81-734, § 218 , 64 Stat. 477. Section 218 is
codified in section 418 of Title 42, United States Code. See 42 U.S.C.A. § 418(a)(I) (West Supp.
2007) (providing for voluntary agreements for Social Security coverage of state and local
government employees); see also 20 C.F.R. § 404.1201(a) (2007).

        A Section 218 Agreement covers positions, not individuals, by way ofcoverage groups. See
42 U.S.C.A. § 418(b)(5) (West Supp. 2007) (defining coverage groups), (c)(I) (providing that
Section 218 Agreement is applicable to coverage groups designated by the state). "The State
decides, within the limits of Federal and State law, which groups of employees to cover under its
agreement." ONLINE SOCIAL SECURITY HANDBOOK, § 1003.1; see 42 U.S.C.A. § 418(c)(I) (West
Supp. 2007) (authorizing state to designate coverage groups to be included in agreement). Section
218 authorizes absolute coverage groups and retirement system coverage groups. See 42 U.S.C.A.
§ 418(c)(I)-(2) (West Supp. 2007) (absolute coverage group), (d)(3) (retirement system coverage
group). A "retirement system coverage group" consists of employees whose positions are covered
under a public retirement system, and such groups may be part ofa Section 218 Agreement only after
a referendum is held. Id. § 418(d)(3). Where a majority of the eligible members vote in favor of

          2"Social Security" consists ofthree major benefit programs. See Ellender v. Schweiker, 575 F. Supp. 590, 592
(D.C.N.Y. 1983) (describing Social Security program). Those programs provide benefits for: retirement, survivors, and
disability. See id. The Medicare Program is a federally funded system of health insurance for the aged and disabled.
See 42 U.S.C.A. §§ 1395-1395hhh (West 2003 & Supp. 2007). Social Security benefits and Medicare are both funded
through taxes collected by the federal government under the Federal Insurance Contributions Act ("FICA"). See 26
U.S.C.A. §§ 3101(a) (West Supp. 2007) (relating to OASDI tax rate for employees), 3101(b) (relating to Hospital
Insurance "HI" tax rate for employers), 3121 (b)(7) (relating to employment taxes of employees of states and political
subdivisions).
Ms. Ann S. Fuelberg - Page 3                            (GA-0629)

coverage, all current and future employees in positions under that retirement system are covered.
See ide And under 42 V.S.C.A. § 418(d)(6)(C), Texas is specified as a state authorized to divide its
retirement system into parts reflecting employees who desire coverage under a Section 218
Agreement and employees who do not desire coverage. See ide § 418(d)(6)(C).

         Once the state's agreement is in place, the state then enters into voluntary agreements with
its political subdivisions to extend Social Security coverage to employees of the political
subdivision. See Request Letter, supra note 1 (attached exhibit 3: NATIONAL CONFERENCE OF
STATE SOCIAL SECURITY ADMINISTRATORS HANDBOOK FOR THE STATE SOCIAL SECURITY
ADMINISTRATOR(Dec. 2000)at4; TEX. GOV'TCODEANN. § 606.022(a) (Vemon2004) (authorizing
state retirement system to enter into agreements with political subdivisions to obtain Social Security
coverage for the employees of the political subdivisions). Texas entered into its Section 218
Agreement in 1951, and it has been modified subsequently many times. See U. S. ex reI. Fried v.
Hudson Indep. Sch. Dist., 2007 WL 3217528, at *1 n.2 (E.D. Tex. Oct. 26,2007).

         B.     Government Pension Offset

        The Government Pension Offset ("GPO") affects individuals who worked as federal, state,
or local government employees in ajob covered by its own pension plan but not covered by Social
Security. The GPO reduces that individual's Social Security spouse or surviving spousebenefit3
by an amount equal to two-thirds of the individual's own public pension. 4 See 42 V.S.C.A.
§ 402(k)(5)(A) (West Supp. 2007); 20 C.F.R.§ 404.408a(a), (c)-(d) (2007). Before changes in 2004
to the GPO, an individual was exempted from the GPO if the individual's last day of government
employment was in a job covered by both Social Security and the government pension. 5 See 42
V.S.C. § 402(b)(4)(A), (c)(2)(A), (e)(7)(A), (f)(2)(A) (2000).

         3Social Security spouse and surviving spouse benefits are normally available to any person whose retired or
deceased spouse worked at ajob covered by Social Security. See 42 V.S.C.A. §§ 402(b) (West Supp. 2007) (wife's
insurance benefits), 402(c) (husband's insurance benefits), 402(e)(widow's insurance benefits), 402(f)(widower's
insurance benefits). Vnder the dual-entitlement rule, an individual with his or her own earnings record under Social
Security and entitled to benefits as a worker would not be able to qualify for full benefits as both a worker and a spouse.
See 42 V.S.C.A. §§ 402(b)(2) (reducing wife's insurance benefit by fifty percent), 402(c)(2) (reducing husband's
insurance benefits by fifty percent).

         4To illustrate, assume the following: Jane, a widowed, retired educator, receives a public pension of $600 a
month. Her job in the public school system was not covered by Social Security. Her deceased husband, however, earned
Social Security benefits from his job in the private sector. An amount equal to two-thirds of Jane's public pension, or
$400, will be cut from her Social Security survivor's benefits. IfJane is eligible for $500 in survivor benefits from Social
Security, the GPO would reduce her survivor's benefits to $100. The GPO does not reduce Jane's own public pension
of$600.

          5The Social Security Protection Act of 2004, enacted on March 2, 2004, modified the GPO exemption. See
Social Security Protection Act of2004, § 418, 42 V.S.C.A. 402(k) (West Supp. 2007). It essentially changed the "last
day" requirement to a sixty-month requirement. See ide Vnder its effective date and transitional rule provisions, any state
or local government worker whose last day of employment was before July 1, 2004, and whose last day of employment
was.covered by both Social Security and the state or local government pension, would avoid the operation of the GPO
to the future claim for Social Security spouse's and surviving spouses's benefits. See ide
Ms. Ann S. Fuelberg - Page 4                           (GA-0629)

        You inform us this exemption from the GPO is known as "the last day covered employment
exemption." Request Letter, supra note 1, at 4. You explain that "[g]overnmental employees could
work a long career in positions exempt from Social Security coverage and then transfer to or obtain
ajob at a governmental employer covered by Social Security, even if only for a day or so." Id. This
last day of covered employment would exempt the individual from operation of the GPO. 6 Id.

         C.     John H. Wood, Jr. Charter School

        In your request, you tell us that the JHWCS employed many teachers and other school district
employees for this last day ofcovered employment prior to 2004. Id at 5. You tell us that it appears
these individuals were paid wages on their last day for a short period of final employment, wages
from which FICA and Medicare taxes were withheld and remitted to the Social Security
Administration. Id. You state that the JHWCS "is not currently covered by the State of Texas
Section 218 Agreement with the [Social Security Administration]." Id. As that fact impacts the
individuals who worked at the JHWCS for the short period of relevant time prior to retirement, it
would mean that they are not exempted from the GPO.

         You further tell us that if the JHWCS is a governmental entity, "it may be possible to hold
a referendum7 and submit a modification of [the agreement] so that [the school] would be so covered
... [and it] FICA and Medicare taxes have been paid on behalf of the employees for [the relevant]
time period, it may be possible to retroactively cover many" of the individuals who worked their
"last day" at the school. 8 Id You point out that "[i]fthe [school] is not a governmental entity, FICA
and Medicare taxes would have been due in the same manner that is required from any other non-
governmental employer. But only if the ... taxes are paid by a governmental entity pursuant to a
Section 218 Agreement[,] is it useful for the' last day covered employment exemption.'" Id. Only
in the latter instance are the affected individuals exempted from the GPO. You describe the critical
issue as "not a question of whether FICA and Medicare taxes have or should have been paid; rather
it matters whether the ... taxes were paid as a private entity or as a governmental entity." Id. Hence
your questions about·the status of the school.

        We note that though you are particularly concerned about the JHWCS, your question
potentially affects other open-enrollment charter schools. Thus, our opinion will primarily focus on
the status of open-enrollment charter schools generally rather than on the specific status of the
JHWCS.

          6In a 2007 report, the Office of the Inspector General,· Social Security Administration, examined this last day
practice in several school districts in Texas. Based on its fmdings and a sampling of its data across the relevant
population, the Inspector General estimated the exemption to cost the Social Security Trust Funds approximately $2.2
billion. See OFFICE OF THE INSPECTOR GENERAL, SOCIAL SECURITY ADMINISTRATION, GOVERNMENT PENSION OFFSET
EXEMPTION FOR TEXAS SCHOOL DISTRICTS' EMPLOYEES, AUDIT REpORT (January 2007 A-09-06-26086) at pp. 2-3, 11,
app. C-I-C-3.

         7See supra at p. 2-3.

         8you do not ask, and we do not opine, about the legality or effectiveness of a referendum or modification
pertaining to retroactive coverage.
 Ms. Ann S. Fuelberg - Page 5                            (GA-0629)

 II.      Legal Analysis

          A.     Political Subdivision

            We first examine certain terms used in your questions. In your first question, you ask
  whether a charter school created under the Texas Education Code is "considered to be an eligible
  entity9 under Chapter 606 ofthe Texas Government Code for the state to enter into agreements with
  the Social Security Administration to obtain sO'cial security coverage for the entity's employees[.]"
, Id. at 6 (emphasis and footnote added). Your second question inquires whether "an open enrollment
  charter school created under Subchapter D of Chapter 12 of the Texas Education Code, ... [is]
  considered under Texas law to be a governmental entity . .. [.]"10 Id. (emphasis added). We do not
  understand you to use "eligible entity" or "governmental entity" as terms of art. The substance of
  your first two questions is whether an open-enrollment charter school is an entity for which the state
  could seek to modify its Section 218 Agreement to extend Social Security coverage. 11

         Texas' Section 218 Agreement is authorized and governed by chapter 606, Government
 Code, and section 218 of the Social Security Act of 1950. See TEX. GOV'T CODE ANN.
 §§ 606.001-.101 (Vernon 2004); 42 V.S.C.A. § 418 (West SUppa 2007); 20 C.F.R. § 404. 1200(a)
 (2007). Chapter 606, Government Code, does not use the term "eligible entity" or "governmental
 entity" but instead authorizes agreements with the states on behalf of "political subdivisions." See
 TEX. GOV'T CODE ANN. §§ 606.022(a) (Vernon 2004) (authorizing agreements with the "governing
 body of a political subdivision"); 606.001 (3) (defining "political subdivision").

         Similarly, section 218 of the SSA uses the term "political subdivision" to describe
 those entities that are eligible for coverage under a state's Section 218 Agreement. 42 V.S.C.A.
 § 418(a)(1) (West SUppa 2007) (authorizing agreement with state to cover "employees of such State
 or any political subdivision thereof'), (b)(2) (defining "political subdivision"); see also 20 C.F.R.
 §§ 404.1200(a) (2007) (authorizing agreement with state to provide Social Security coverage to
 "groups of employees of the State and its political subdivisions"), 404. 1202(b) (defining "political
 subdivision"). Therefore whether an open-enrollment charter school may be characterized as an
 "eligible entity" or "governmental entity" does not resolve the issue. Rather, the dispositive question

           9"Eligible entity" is a defmed term in subchapter D, chapter 12, Education Code, pertaining to open-enrollment
 charter schools. See 'TEX. EDUC. CODE ANN. § 12.101(a) (Vernon 2006). It defmes the type of entities that may be
 granted an open-enrollment school charter. See ide Because the JHWCS and any other chartered open-enrollment charter
 school is operating as a charter school, the State Board of Education presumably has previously determined the charter
 holder to be an "eligible entity" under subchapter D, chapter 12, Education Code.

         lOSee supra note 9. The definition of "eligible entity" as an entity that may be granted a charter to operate an
 open-enrollment charter includes "a governmental entity." TEX. EDUC. CODE ANN. § 12. 10 1(a)(4) (Vernon 2006).

           11See Request Letter, supra note 1, at 5 ("[I]t may be possible to hold a referendum and submit a modification
 of the state of Texas Section 218 Agreement to the SSA so that the JWH Charter School would be so covered."); id
 (distinguishing between taxes paid by the school as a private or government entity for purposes ofinclusion in the state's
 Section 218 Agreement).
Ms. Ann S. Fuelberg - Page 6                            (GA-0629)

is whether an open-enrollment charter school such as the JHWCS is a "political subdivision" under
chapter 6,06 and section 218. 12 Thus, we address this inquiry and your first two questions together.

         Chapter 606 defines "political subdivision" to include

                  an instrumentality ofthe state, ofanother political subdivision,13 or of
                  the state and another political subdivision;

                         (i) that is a juristic entity that is legally separate and distinct
                  from the state or political subdivision; and

                          (ii) whose employees are not employees of the state or
                  political subdivision.

TEX. GOy'T CODE ANN. § 606.001(3)(C) (Vernon 2004) (footnote added). See also 42 V.S.C.A.
§ 418(b)(2) (West Supp. 2007) (defining "political subdivision" to include "an instrumentality of
... a State"). Chapter 606's definition of "political subdivision" is unique 14 in Texas statutes and
it serves the limited purpose of delineating entities eligible for inclusion in Texas' Section 218
Agreement. Though unique in Texas statutes, it comports with the federal definition of "political
subdivision." See 42 V.S.C.A. § 418(b)(2) (West Supp. 2007) (defining "political subdivision" to
mean "an instrumentality of (A) a State, (B) one or more political subdivisions of a State, or (C) a
State and one or more of its political subdivisions").

          121t appears the Social Security Administration agrees that the critical question involves the status ofthe school
as a political subdivision. See Request Letter, supra note 1 (attached Exhibit 9: Nov. 28, 2006 Letter from the Social
Security Administration Dallas Regional Office to Kenneth E. Messick, Superintendent, Educational Resource Ctr, Inc.
d/b/a John H. Wood, Jr. Charter School stating that "[f]irst, the State must determine, under Texas law, that JWCS is a
political subdivision or instrumentality of Texas"); Id (attached Exhibit 13: Sept. 14,2007 Letter from Social Security
Administration to David W. Lacy, Assistant General Counsel, Employees Retirement System of Texas indicating that
the "State must determine that JWCS is a political subdivision of the State of Texas as defmed in section 218(b) of the
Social Security Act").

          13The term "political subdivision" is used in all relevant components of the defmition of the term "political
subdivision." See TEX. GOV'T CODE ANN.· § 606.001 (3 )(C) (Vernon 2004). The initial reference in subsection (3)(C)
is plainly to "another political subdivision." Id (emphasis added). Because this initial reference leads into the two
subparts, the continued use of the term "political subdivision" must refer to a "political subdivision" that is other than
the entity actually being examined under the defmition.

        14See TEX. AGRIc. CODE ANN. § 150.011 (1) (Yernon 2004) (defming "political subdivision"); accordTEX. CIV.
PRAC. & REM. CODE ANN. § 15.0151(b) (Vernon 2002); TEX.ELEC. CODE ANN. § 1.005(13) (Yernon2003); TEX. GOV'T
CODE ANN. § 403.1041(5) (Vernon 2005); TEX. HEALTH & SAFETY CODE ANN. § 435.021(a)(I) (Vernon 2001); TEX.
INS. CODE ANN. § 1215.001(a)(8) (Vernon 2007); TEX. LAB. CODE ANN. § 22.001(6) (Vernon 2006); TEX. Loc. GOV'T
CODE ANN. § 172.003(3) (Vernon 2008); TEX. OCC. CODE ANN. § 2001.002(21) (Vernon 2004); TEX. PARKS & WILD.
CODE ANN. § 24.051(10) (Vernon Supp. 2007); TEX. TRANSP. CODE ANN. 706.001(7) (Vernon Supp. 2007); TEX.
WATEKCODEANN. § 15.001(5) (Vernon Supp. 2007).
Ms. Ann S. Fuelberg - Page 7                           (GA-0629)

         The question whether an entity is a "political subdivision" for purposes of inclusion in a
state's Section 218 Agreement is one of state law. See Peterson v. Mathews, 414 F. Supp. 1306,
1313 (D.C. Md. 1976) ("The question of whether Peterson is an officer of the State of Maryland or
of a political subdivision of the State of Maryland leads to an examination of Maryland law."); see
also Attorney Registration &DisciplinaryComm 'nv. Harris, 595 F. Supp. 107, 112 (D.C. Ill. 1984);
State of Nebraska v. Finch, 339 F. Supp. 528, 530 (D.Neb. 1972). Relevant here is an open-
enrollment charter school's status as an "instrumentality of the state. .. that is ajuristic entity that
is legally separate and distinct from the state . .. and ... whose employees are not employees ofthe
state . ..." TEX. GOV'T CODE ANN. § 606.001(3)(C) (Vernon 2004) (emphasis added); see also
supra note 13 . We consider each aspect in tum.

                  1.     Instrumentality of a State

        Chapter 606 does not define "instrumentality of a state" and we find nothing elsewhere in
Texas law that adequately informs about what constitutes an "instrumentality of a State" in the
Social Security context. Outside ofthat context, a Texas court ofappeals has stated that the ordinary
meaning of a "state instrumentality is a branch of the state or a means through which a function of
the state is accomplished."15 De Santiago v. W Tex. Cmty. Supervision & Corrs. Dept., 203 S.W.3d
387,394 (Tex. App.-EI Paso 2006, no pet.) (citing BLACK'S LAW DICTIONARY 802 (7thed. 1999))
(examining term "state instrumentality" under the Texas Commission on Human Rights Act
"TCRRA").

         While it cannot plainly be said that an open-enrollment charter school is a "branch of the
state," we believe it is a "means through which a function of the state is accomplished." De Santiago,
203 S.W.3d at 394. The provision of public education is a function of the state. See TEX. CaNST.
art. VII, § 1; see also Neeley v. W Orange-Cove Consolo Indep. Sch. Dist., 176 S.W.3d 746, 753
(Tex. 2005) (noting constitutional duty ofLegislature to provide for public education); Braun v. Trs.
ofVictoria Indep. Sch. Dist., 114 S.W.2d 947, 949-51 (Tex. Civ. App.-San Antonio 1938, writ refd)
(holding that article VII, section 1, Texas Constitution, establishes the matter ofpublic education as
a governmental function). By statute, "[a]n open-enrollment charter school is part of the public
education system" ofTexas. See TEx. EDUC. CODE ANN. § 12.105 (Vernon 2006). An open-enrollment
charter school is required to "provide instruction to students at one or more elementary or secondary
grade levels as provided by the charter." Id. § 12.102(1). Its primary responsibility is to implement
"the public school program authorized by the open-enrollment charter and [to ensure] the
performance of the students enrolled in its charter schools in accordance with the Texas Education

         150ther courts have determined, under the TCRRA, that an entity "created pursuant to Texas statutory authority,
and whose purpose includes the performance of public and governmental functions is an instrumentality of the state."
Dallas/Fort Worth Int'l Airport Bd. v. Funderburk, 188 S.W.3d 233,237 (Tex. App.-Fort Worth 2006, pet. granted)
(holding D/FW International Airport Board to be a state instrumentalitysubject to claims made under TCRRA) opinion
after remand 2006 W.L. 3248031 (refusing to vacate); see also Tarrant County Hosp. Dist. v. Henry, 52 S.W.3d 434,
445-48 (Tex. App.-Fort Worth 2001, no pet.) (holding hospital district to be a state instrumentality under TCRRA),
Vela v. Waco Indep. Sch. Dist., 69 S.W.3d 695, 700 (Tex. App.-Waco 2002, pet. withdrawn) (holding school
district-in claim made prior to amendment defining state agency-to be state instrumentality subject to claims made
under TCRRA).
Ms. Ann S. Fuelberg - Page 8                            (GA-0629)

Code." 19 TEX. ADMIN. CODE § 100.1101(a) (2008). By providing public education as directed
under chapter 12, Education Code, an open-enrollment charter school is a "means through which a
function ofthe state is accomplished" and, therefore, an "instrumentality ofthe state" within chapter
606. 16 De Santiago, 203 S.W.3d at 394; TEX. GOV'T CODE ANN. § 606.001(3)(C) (Vernon 2004).

                  2.     A juristic entity that is legally separate and distinct from the state

        Neither chapter 606 nor any other Texas statute or judicial opinion defines "juristic entity."
See generally TEX. GOV'T CODE ANN. §§ 606.001-.101 (Vernon 2004). The common meaning of
"juristic" is "of or relating to law." BLACK'S LAW DICTIONARY 860 (7th ed. 1999); TEX. GOV'T
CODEANN. § 311.011(a) (Vernon 2005) ("Words and phrases shall be read in context and construed
according to the rules ofgrammar and common usage."). The dictionary entry for "juristic" equates
the term to "artificial person." BLACK'S LAW DICTIONARY 860 (7th ed. 1999); cf Horne Motors v.
Latimer, 148 S.W.2d 1000,1003 (Tex. Civ. App.-Dallas 1941, writdism'djudgm'tcor.) (defining
"juristic person" as "having a legal entity, separate and apart from its officers and members"). An
"artificial person" is an "entity, such as a corporation, created by law and given certain legal rights
and duties of a human being." BLACK'S LAW DICTIONARY 1162 (7th ed. 1999); cf Horne Motors,
148 S.W.2d at 1003 (defining corporation as "juristic person").

           16We note that the Internal Revenue Service ("IRS") has developed a six-factor test to determine whether an
entity is an "instrumentality ofa state" under FICA, which is the authorization for the employment taxes that support and
fund the OASDI benefits. See Revenue Ruling 57-128, 1957-1 C.B. 311; see also supra note 2. While a court might
fmd the IRS's six-factor FICA test illuminating, the question whether an entity is a "political subdivision" under section
218 and chapter 606 is one of state law. See Peterson, 414 F. Supp. at 1313 ("The question of whether Peterson is an
officer of the State of Maryland ... leads to an examination of Maryland law."); see also Harris, 595 F. Supp. at 112;
Finch, 339 F. Supp. at 530. Accordingly, it is the state's judicial defmition on which we will base our opinion.

         Moreover, the broad defmition from the De Santiago opinion appears to encompass the substance of the
following IRS factors, which are:

                  (1) whether it is used for a governmental purpose and performs a governmental
                  function;

                  (2) whether performance of its function is on behalf of one or more states or
                  political subdivisions;

                  (3) whether there are any private interests involved, or whether the states or
                  political subdivisions involved have the powers or interests of an owner;

                  (4) whether control and supervision of the organization is vested in public
                  authority or authorities;

                   (5) if express or implied statutory or other authority is necessary for the creation
                   and/or use of such an instrumentality, and whether such authority exists;

                   (6)   the degree of financial autonomy and the source of its operating expenses.

Rev. Rul. 57-128, 1957-1 C.B. 311.
Ms. Ann S. Fuelberg - Page 9                   (GA-0629)

        A charter holder for an open-enrollment charter school is either a private or public institution
ofhigher education, a 503(c)(3) tax exempt organization, or a governmental entity. See TEX. EDUC.
CODE ANN. § 12.101(a) (Vernon 2006). All three of these types of "eligible entities" are entities
created under and recognized by Texas law. See id § 61.003 (Vernon Supp. 2007) (defining public
and private institutions of higher education); TEX. Bus. ORG. CODE ANN. § 2.008 (Vernon 2007)
(authorizing nonprofit corporations); TEX. GOV'TCODEANN.§ 572.056(c) (Vernon 2004) (defining
"governmental entity" to mean "the state, a political subdivision ofthe state, or a governmental entity
created under the Texas Constitution or a statute of this state"). And an open-enrollment charter
school has all the legal rights and duties provided it under chapter 12. See TEX. EDUC. CODE ANN.
§§ 12.101(b) (Vernon 2006) (authorizing the granting of a charter), 12.102(1) (imposing duty of
educational instruction on open-enrollment charter schools), 12.1 04(a) (providing open-enrollment
charter school with powers granted to schools). We therefore believe an open-enrollment charter
school chartered under chapter 12, Education Code, is a juristic entity under the plain meaning of
that phrase as used in chapter 606, Government Code.

         In addition, an open-enrollment charter school is separate and distinct from the state. An
open-enrollment charter school can operate only after receiving a charter from the Texas State Board
of Education. See ide § 12.101(a). And the charter is a contract between the state and the school.
See ide § 12.112. In order to be able to enter into a contract with the state, the school, through its
charter holder, must be a separate and distinct entity. See S. Kan. Ry. Co. ofTex. v. Logue, 139 S.W.
11, 14 (Tex. Civ. App.-San Antonio 1911), aff'd, 167 S.W. 805 (Tex. 1914) ("It is axiomatic that
it takes at least two parties to enter into a contract ....").

                3.    Whose employees are not employees of the state

        Chapter 12, Education Code, recognizes that employees ofan open-enrollment charter school
are employees of the charter school and not the state. Employees of an open-enrollment charter
school are authorized in section 12.1057 to be covered under the Teacher Retirement System of
Texas. See TEX.EDUC. CODE ANN. § 12.1057(a) (Vernon 2006). The employer contribution for the
employees of the open-enrollment charter school is made by the school. See id § 12.1 057(b).
Section 12.129 implicitly recognizes that a "person employed as a teacher by an open-enrollment
charter school" is an employee ofthe charter school. Id § 12.129. Additionally, an open-enrollment
charter school must provide parents or guardians written notice ofthe qualifications of"each teacher
employed by the school." Id. § 12.130. As employees of the open-enrollment charter school, the
employees are not employees of the state.

        Under the three aspects of section 606.001(3)(C), Government Code, an open-enrollment
charter school is a "political subdivision" under state law for purposes of a Section 218 Agreement.

        B.    Effective Date

       Having determined that an open-enrollment charter school is a political subdivision under
chapter 606 and section 218, we turn to your final question. You inquire about the "effective date
of John H. Wood[], Jr. Charter School's attainingthat status[.]" Request Letter, supra note 1, at 6.
Ms. Ann S. Fuelberg - Page 10                 (GA-0629)

The eligible entity that makes application for an open-enrollment charter school charter may not
operate the school until it receives a charter from the State Board of Education. See TEX. EDUC.
CODE ANN. § 12.101 (Vernon 2006). A charter when granted "shall be in the form of a contract."
Id. § 12.112. The charter contract is for a specified term, and the contract may be renewed, but the
granting of a charter "does not create an entitlement to a renewal of a charter on the same terms as
it was originally issued." Id § 12.113(b). And the commissioner is authorized to revoke or deny
renewal of the charter under certain circumstances. See ide § 12.115. If a charter is revoked or not
renewed, the open-enrollment c4arter school "may not ... continue to operate." Id § 12.1161(a)(I).

        Based on these provisions, we conclude that an open-enrollment charter school is a "political
subdivision" under chapter 606 and section 218 as of the effective date of the contract granting the
charter. In the event the charter is renewed at the end of the contract term~ we believe the school's
status continues. Any interruption in the school's operation, however, based on a revocation or
denial of renewal of the charter, also interrupts the school's status as a "political subdivision."
Ms. Ann S. Fuelberg - Page 11                (GA-0629)

                                      SUMMARY

                      Chapter 606 of the Texas Government Code and section
              218 ofthe Social Security Act authorize an agreement between a state
              and the Social Security Administration whereby Social Security
              coverage may be extended to employees of the state and its political
              subdivisions. Chapter 606 and section 218 define a political
              subdivision as an instrumentality of the state that is a juristic entity
              legally separate and distinct from the state and whose employees are
              not employees of the state. As determined by state law, an open-
              enrollment charter school is a political subdivision under chapter 606
              and section 218. Accordingly, an open-enrollment charter school is
              an entity for which the state may enter into an agreement with the
              Social Security Administration.

                                              Very truly yours,

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee