Court Opinion

ID: 4129542
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:53:21.878078+00
Date Added: 2024-06-11T14:37:36.289127
License: Public Domain

OF6,CEOF THE ATTORNEY GENERAL. STATE OF TEXAS
      JOHN    CORNYN

                                                November 3,1999

The Honorable James W. Carr                             Opinion No. JC-0139
Lavaca County Attorney
P.O. Box 576                                            Re: Whether a county may borrow money from
Hallettsville, Texas 77964-0576                         the State Infrastructure Bank for road and bridge
                                                        construction and repay the loan with the proceeds
                                                        of ad valorem property taxes levied for that
                                                        purpose over a term of years without issuing
                                                        bonds or other obligations evidencing the loan
                                                        (RQ-0057-JC)

Dear Mr. Carr:

         You ask whether Lavaca County may borrow money from the State Infrastructure Bank (“the
Bank”) for road and bridge construction and repay the loan with the proceeds of advalorem property
taxes levied for that purpose over a term of years without issuing bonds or other obligations
evidencing the loan. County authority to enter into debt must be express or necessarily implied by
statute. Because no statute expressly or impliedly authorizes a county to borrow money from the
State Infrastructure Bank in the manner proposed here, the county may not borrow funds f?om the
Bank and repay the loan with the proceeds of ad valorem property taxes levied for that purpose over
a term of years without issuing bonds or other obligations evidencing the loan.

        The State Infrastructure Bank is governed by chapter 222, subchapter D ofthe Transportation
Code, which the legislature enacted in 1997.’ The legislature created the Bank within the
Department of Transportation to take advantage of a new federal program to fund highway
construction,2 and subchapter D mirrors the federal law providing for state in!?astructure banks, see
National Highway System Designation Act of 1995, Pub. L. No. 104-59, 4 350, 109 Stat. 568,618;
see also Transportation Infrastructure Finance and Innovation Act of 1998, Pub. L. No. 105-178,
5 15 11,112 Stat. 25 1. Pursuant to subchapter D, the purpose of the Bank is to “encourage public
and private investment in transportation facilities” and to “develop financing techniques designed
to [] expand the availability of funding for transportation projects and to reduce direct state costs;

           ‘ActofJune 1, 1997,75thLeg.,RX,ch.     1711,s 1.21, sets. 222.071-,078, 1997T.x. Gen. Laws4427,4433-
36.

           *See SEN. COMM. ONINTERNATIONALRELATIONS,
                                                 TRADE ANDTECHNOLCGY,
                                                                    BILLANALYSIS,Tex. S.B. 370,
 75th Leg., RX (1997); SEN.CBMM. ON INTERNATIONAL RELATIONS, TRADEAND TECHNOLOGY,BILLANALYSIS,Tex.
 Comm. SubstituteS.B. 370,75thLeg., R.S. (1997).
The Honorable James W. Carr - Page 2                    (X-0139)

[] maximize private and local participation in financing projects; and [] improve the efficiency ofthe
state transportation system.” TEX. TRANSP. CODE ANN. 5 222.073 (Vernon 1999). To further these
purposes, the Transportation Commission may use money in the Bank “to provide financial
assistance to a public or private entity for a qualified project.” Id. $222.074(a). It may do so by
extending credit by direct loan, providing credit enhancements, serving as a capital reserve for bond
or debt instrument financing, subsidizing interest rates, insuring the issuance of a letter of credit or
credit instrument, financing a purchase or lease agreement in connection with a transit project,
providing security for bonds or other debt instruments, or providing methods of leveraging money
that have been approved by the United States Secretary of Transportation and relate to the project
for which the assistance is provided. See id. 5 222.074(a)(1)-(8). The Transportation Commission
has adopted rules specifying the procedures and conditions for applying for and obtaining assistance
from the Bank. See 43 TEX. ADMIN. CODE ch. 6 (1999).

         Lavaca County would like to borrow money from the State In&structure Bank and forego
the expense of issuing bonds or certificates ofobligation under chapter 27 1 ofthe Local Government
Code or anticipation notes under chapter 1431 of the Government Code, formerly article 717~ of
the Revised Civil Statutes,3 to evidence its agreement to repay the money it has borrowed. See Letter
from Honorable James W. Carr, Lavaca County Attorney, to Elizabeth Robinson, Office of the
Texas Attorney General (Apr. 5,1999) (on file with Opinion Committee). Rather, the county would
merely commit future tax revenue to repay the loan. See id. Presumably, the county would evidence
the borrowing by entering into an agreement with the Bank. The county would levy a sufficient tax
to pay the principal and interest on the debt as required by section 7 of article XI, which mandates
cities and counties, at the time a debt is created, “to levy[] and collect[] a tax sufficient to pay the
interest thereon and [to] provide . . . a sinking fund,” TEX. CONST. art. XI, 5 7. See Brief from
Honorable James W. Carr, Lavaca County Attorney, to Elizabeth Robinson, Office of the Texas
Attorney General (Apr. 14, 1999) (on tile with Opinion Committee). The total tax levy would not
exceed the constitutional limitation on the county tax rate set forth in section 9 of article VIII. See
id.

         Commissioners courts do not have a general power to incur debt, which, in this context, is
generally defined as “any pecuniary obligation imposed by contract, except such as will, at the date
of the contract, within the lawful and reasonable contemplation of the parties, be satisfied out of
current revenues for the year, or out of some fund then within the immediate control of the city [or
county].” City ofBonhnm Y.SouthwestSanitution,Inc., 871 S.W.2d765,768 (Tex. App.-Texarkana
1994, writ denied) (defining “debt” for purposes of article XI, section 7 of the Texas Constitution,
which provides that a city or county is prohibited from creating a debt unless at the same time it

         ‘The 76th Texas Legislature repealed former articles 701-705, 717q, 717~. and 726 of the Revised Civil
Statutesand codified them without substantive change in Title 9 of tbe Government Code, the Public Securities Title.
SeeActof May 10,1999,76tbLeg.,R.S.,ch.227,§       1,~s. 1251.001-.005,1371.001-.106,1431.001-.013,1471.001-
.087,1999 Tex. Sess. Law Serv. 721,775,786,8 17,834; id. $28, 1999 Tex. Sess. Law Serv. at 1056 (repealing articles
701-705,717q, 717w, and 726). For ease of citation, this opinion will refer to the provisions ofTitle 9 as they will be
codified in the Government Code.
The Honorable James W. Carr - Page 3            (JC-0139)

provides for payment of the debt). As one commentator has stated, “Counties have no statutory
authority to merely borrow money from a bank.” 35 DAVIDB. BROOKS, TEXASPRACTICE: COUNTU
ANDSPECIALDISTRICTLAW 5 17.27 (1989); see also Tex. Att’y Gen. Op. No. JIvI-274 (1984) at 1
(“Counties lack authority to borrow money except through the issuance of bonds, certificates of
obligation, or other forms of indebtedness which are specifically authorized by law.“). Courts have
long held that the authority of a commissioners court to make contracts on behalf of the county is
limited to that conferred either expressly or by necessary implication by the constitution and laws
ofthe state. See, e.g., Childress County v. State, 92 S.W.2d 1011, 1016 (Tex. 1936); Jackv. State,
694 S.W.2d 391,397 (Tex. App.-San Antonio 1985, writ refdn.r.e.).       In the areaofpublic finance,
courts have been particularly reluctant to imply the authority of a local government, such as a
county, to enter into debt. See, e.g., San Antonio Union Junior College Dist. v. Daniel, 206 S.W.2d
995,999 (Tex. 1947) (and cases cited therein) (power to issue negotiable paper for improvements
beyond powers of city or county unless specially granted; when granted, may only be exercised in
mode and for purposes specified); Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San
Antonio 1977, no writ) (statutes regarding authority to create debt must be strictly and narrowly
construed) (citing Robertson v. Breedlove, 61 Tex. 316 (1884), and Daniel, 206 S.W.2d 995); see
also Tex. Atty. Gen. Op. No. JC-0036 (1999) at 10 (“Provisions authorizing a local government to
create debt must be strictly and narrowly construed.“) (citations omitted).

         A number ofprovisions expressly authorize counties to levy taxes to pay for road and bridge
construction,see TEX. CONST. art. III, 5 52(b), (c)(authorizing unlimited taxes to secure roadbonds);
id. art. VIII, 5 9 (authorizing county to levy taxes including taxes for road and bridge construction
and maintenance); see also TEX. TRANSP. CODE ANN. @ 256.001 (Vernon 1999) (authorizing use
of county road and bridge fund); 256.05 1 (authorizing levy of bond taxes), and to finance road and
bridge construction by issuing bonds and other debt instruments secured by a pledge of those taxes,
see, e.g., ‘Rx. GOV’T CODE ANN. $5 1251.001-,005, 1431.001-,013, 1471.001-.087;4 TEX. Lot.
GOV’T CODE ANN. ch. 271 (Vernon 1999). No provision authorizes a county to simply borrow
money from a bank to pay for road and bridge construction and to pledge fumre ad valorem property
taxes to repay the loan.

         Generally, statutes that authorize a county to borrow funds for road and bridge construction
require the issuance and sale of bonds or other obligations in compliance with statutory procedures,
including approval by the Attorney General. See, e.g., TEX. GOV’T CODE ANN. 4 143 1.004(a)(l)(A)
(authorizing anticipation notes to pay for a contractual obligation incurred or to be incurred for the
construction of a public work); id. ch. 1471 (providing for county and road district road bonds);j
TEX. Lot. GOV’T CODE ANN. ch. 271 (Vernon 1999) (authorizing certificates of obligation to pay
for contractual obligation to be incurred for the construction of any public work). These obligations
are sold to purchasers in exchange for money, which is used for county projects. The obligations
evidence a loan made by the purchaser to the county and the county’s agreement to repay the money
The Honorable James W. Carr - Page 4              (X-0139)

it has borrowed. See BLACK’SLAW DICTIONARY178 (6th ed. 1990) (a “bond” is “evidence of a debt
on which the issuing       . governmental body promises to pay the bondholders a specified amount
of interest for a specified length of time, and to repay the loan on the expiration date”); 22 ISAAC
SINGER, TEXAS PRACTICE: MUNICIPALLAW ANDPRACTICE 5 303 (1976) (a ‘bond is evidence of
creation of a debt”). In addition, inLasater v. Lopez, 217 SW. 373 (Tex. 1919), the Texas Supreme
Court recognized the authority of counties to pay road construction contractors for work performed
with interest-bearing warrants payable in future years as a necessary authority that preexisted
counties’ power to issue bonds for road and bridge construction.

         The county’s query suggests that the county is authorized to borrow the funds and to pledge
taxes to repay the debt without issuing bonds or other obligations provided that the county complies
with the strictures of section 7 of article XI. However, this provision imposes conditions on the
creation of debt; it does not authorize creation of debt. See Tex. Att’y Gen. Op. No. DM-467 (1998)
at 7 n. 18 (“Article XI, section 7 [of the Texas Constitution] limits the authority of a county to incur
debt; it does not affirmatively authorize counties to levy taxes for any purpose. . . Therefore, before
providing for a levy and sinking fund in order to comply with article XI, section 7, a county should
first verify that it is authorized to levy the tax.“) (citing Mitchell County v. City Nat ‘IBunk, 43 S.W.
880, XX3(Tex. 1898) (Texas Constitution article XI, section 7 “contains no grant of authority to levy
a tax”)). Compliance with section 7 of article XI by providing to repay borrowed funds is not a
sufficient basis for a county to borrow the funds. If that were the case, there would be no need for
the many statutes authorizing the issuance ofbonds and other obligations. For the same reason, the
mere fact that the loan may be repaid without exceeding the article VIII, section 9 ceiling for the
county tax rate is not a sufftcient basis for a county to borrow the funds.

        A brief submitted by the Department ofTransportation suggests that the authority of a county
to borrow money from the State Infrastructure Bank and pledge tax revenues to repay the loan
without issuing bonds or other obligations may be inferred from the provisions in the Transportation
Code creating the Bank, particularly section 222.074 of subchapter D, which authorizes the Bank
to “extend credit by direct loan,” TEX. TRANSP. CODE ANN 5 222.074 (Vernon 1999). See Letter
Brief from Richard D. Monroe, General Counsel, Department of Transportation, to Elizabeth
Robinson, Office of the Texas Attorney General, at 2 (July 29, 1999) (on file with Opinion
Committee) [hereinafter “DOT Brief’]. For the reasons explained below, we disagree.

         No provision in subchapter D expressly authorizes a county to borrow funds from the State
Int?astructure Bank. Nor do we believe that county authority to borrow funds from the Bank must
be necessarily implied by subchapter D. The Bank is authorized to assist both public and private
entities in a variety ofways: It may assist directly by making a loan or, more indirectly, by generally
enhancing, insuring, or subsidizing payments securing debt issued by these entities to finance a
project. See TEX. TRANSP. CODE ANN. 5 222.074 (a)(l)-(X) (Vernon 1999); see also National
Highway System Designation Act of 1995, Pub. L. No. 104-59,§ 350(c), (o(3), 109 Stat. 568,618;
Transportation      Infrastructure Finance and Innovation Act of 1998, Pub. L. No. 105178,
$ 151 l(a)(l), (d), 112 Stat. 251 (defining “other assistance” to include providing credit
enhancements, serving as capital reserve for bonds or debt instruments, subsidizing interest rates,
The Honorable James W. Carr - Page 5              (X-0139)

ensuring issuance of letter ofcredit and credit instruments, financing purchase and lease agreements,
providing debt security, and providing other debt financing and leveraging approved by the
United States SecretaryofTransportation;     and providing that a state infrastructure bank “maymake
loans or provide other assistance to a public or private entity in an amount equal to all or part of the
cost of carrying out a project eligible for assistance”).

         Counties need not borrow funds from the State Infrastructure Bank in the manner proposed
by the county in order to participate in the Bank’s assistance programs. Counties may be able to
participate in the types of assistance the Bank is authorized to provide, within the statutory
framework for county financing, in several ways. With respect to the direct loan assistance, for
example, a county may issue bonds or other obligations that it is expressly authorized to issue for
road and bridge construction and sell them to the Bank in exchange for the “loan” of the funds or
purchase price. Neither subchapter D nor the Transportation Commission rules limit how a “direct
loan” is to be evidenced or made and, in fact, subchapter D appears to contemplate that the Bank will
acquire “obligations” that evidence loans it has made. See TEX. TRANSP.CODEANN. 5 222.075(d)
(Vernon 1999) (revenue bonds issued to obtain funds for Bank payable in part from principal and
interest payments paid on “acquired obligations”), (f) (Transportation Commission may require
participants to make charges, levy taxes, or otherwise provide for sufficient money to pay “acquired
obligations”).

         In addition, counties may be able to participate in the more indirect assistance the Bank is
authorized to provide.      For example, the Bank may provide credit enhancement to a county
authorized to execute credit agreements for obligations issued to finance transit projects. See id.
4 222.074(a)(2); TEX. GOV’T CODE ANN. 5 1371.001(l), (4), ,056 (authorizing certain issuers,
including home-rule cities and counties with certain population, to enter into credit agreements in
connection with issuance of bonds or other obligations).6 Furthermore, subchapter D appears to
authorize the Bank to “subsidize” interest payments on county obligations or to serve as a reserve
fund on such obligations, presumably enhancing the obligations’ security and marketability.

         Neither the county nor the Department ofTransportation asserts that the county cannot obtain
a loan from the Bank using traditional statutory financing methods. Rather, the county indicates that
it would like to obtain a loan from the Bank without following statutorily required procedures. But
these procedures are not optional; issuing bonds or other obligations is the exercise of the issuer’s
borrowing authority in accordance with legislatively mandated procedures.

         Given that the Bank may assist a variety of entities in a variety of ways, that it is not limited
to loaning funds only in the manner proposed by the county (i.e., without the county issuing bonds
and or other obligations), and that counties are authorized to participate in some forms of assistance
that the Bank has been established to provide, the authority of a county to borrow bank funds is not
essential to the Bank achieving its statutory purpose. Therefore, the authority of a county to borrow
money from the Bank may not be necessarily implied by subchapter D.
The Honorable James W. Carr - Page 6             (JC-0139)

        The brief from the Department of Transportation also observes that state law authorizes
counties to construct and maintain roads and bridges and to levy taxes for those purposes. See DOT
Brief at 2 (citing TEX. TRANSP. CODE ANN. $5 25 1.081 (Vernon 1999) (authorizing commissioners
court to erect and maintain any necessary bridge in the county); 256.001 (county road and bridge
fund)); see also TEX. TRANSP. CODE ANN. $ 251.003 (Vernon 1999) (authorizing commissioners
court to construct and maintain public roads). The brief states that the “power to create debt [to build
and improve county roads and bridges] is implicit in the grant of authority to levy taxes to build and
improve county roads and bridges,” citing Lasater v. Lopez and Attorney General Opinion JM-642.
DOT Brief at 2. But neither opinion stands for the proposition that county authority to borrow
money must be implied by these statutes.

         In Lusater v. Lopez, the court did not conclude that the authority to borrow money may be
implied. Rather the court held that the county could pay for road construction by issuing interest-
bearing county warrants. As subsequent courts have noted, there is a difference between obtaining
property or labor on credit, which Lusater sanctioned, and borrowing money, which Lasater did not
address. “Borrowed money can be diverted from its legitimate purpose and the voters deprived of
any benefit therefrom, but there is no such danger when authorized services or improvements are
obtained by the public on credit.” San Antonio RiverAuth. v. Shepperd, 299 S.W.2d 920,925 (Tex.
 1957) (CitingBridgersv.   CifyofLampasas,249 S.W. 10X3,1085 (Tex. Civ. App.-Austin 1923,writ
ref d)); see also Adams v. McGill, 146 S.W.2d 332,335 (Tex. Civ. App.-El Paso 1940, writ refd);
Tex. Att’y Gen. Op. No. JM-697 (1987) at 5-6 (noting that Shepperd relied on the distinction
between obtaining authorized services or improvements on credit and borrowing money; equating
purchase ofjail by lease-purchase contract with the former rather than the latter). Thus, Lasater
implies from statutes authorizing counties to expend money to make improvements the authority to
obtain property and labor on credit; it does not imply authority to borrow money.

         Nor does Attorney General Opinion JM-642 provide support for the proposition that a county
has implied authority to borrow money for bridge and road construction. That opinion concluded
that ajoint city-county hospital board is authorized to borrow funds to purchase equipment and make
renovations based on the entity’s express authority to establish and equip a hospital. Its conclusion
is expressly limited to a joint city-county hospital created under former article 44941 of the Revised
Civil Statutes. See Tex. Any Gen. Op. No. JM-642 (1987) at X-9. And, in an opinion on a county’s
implied authority to use its credit to purchase or construct a jail issued just a few months after
Attorney General Opinion JM-642, this office concluded that the prior opinion was inapplicable
because it “relied on the power of the home rule city in question to borrow funds.” Tex. Att’y Gen.
Op. No. JM-697 (1987) at 2. Thus, to the extent Attorney General Opinion JM-642 suggests that
a county may have implied authority to borrow money, it has not been followed. We are not aware
of any other attorney general opinion concluding that a county has implied authority to borrow
 funds.

         In sum, county authority to enter into debt must be express or necessarily implied by statute.
Subchapter D of chapter 222 of the Transportation Code neither expressly nor by implication
authorizes a county to borrow funds for road and bridge construction from the State Infrastructure
The Honorable James W. Carr - Page 7           (X-0139)

Bank and to repay the Bank with the proceeds of ad valorem property taxes levied for that purpose
over a term ofyears without issuing bonds or other obligations evidencing the loan. Neither Lasater
v. Lopez nor Attorney General Opinion JIM-642 supports the conclusion that a county has implied
authority to borrow funds for road and bridge construction.       Because no statute expressly or
impliedly authorizes a county to borrow money from the State Infrastructure Bank in the manner
proposed here, we conclude that Lavaca County may not borrow funds from the Bank and repay the
loan with the proceeds of ad valorem property taxes levied for that purpose over a term of years
without issuing bonds or other obligations evidencing the loan. Of course, counties may borrow
money from the Bank using traditional statutory financing methods for road and bridge construction.
The Honorable James W. Carr - Page 8           (JC-0139)

                                      SUMMARY

                       A county may not borrow money from the State Infrastructure
               Bank for road and bridge construction and repay the loan with the
               proceeds of ad valorem property taxes levied for that purpose over a
               term of years without issuing bonds or other obligations evidencing
               the loan.

                                             JOHN     CORNYN
                                             Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee