Court Opinion

ID: 4129127
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:47:42.602532+00
Date Added: 2024-06-11T14:31:19.992543
License: Public Domain

1_ OFFICE   OF THE   ATTORNEY   GENERAL   . STATE    OF   TEXAS

   JOHN      CORNYN

                                                     September      12,2002

The Honorable Warren Chisum                                        Opinion No. JC-0553
Chairman
Committee on Environmental Regulation                              Re: Whether a creating unit must review a
Texas House of Representatives                                     development corporation’s dissolution plan when
P.O. Box 2910                                                      the corporation is dissolving under article 5 190.6,
Austin, Texas 78768-2910                                           section 4A(k) of the Revised Civil Statutes, and
                                                                   related question (RQ-0527-JC)

Dear Representative         Chisum:

         You ask about the City of Pampa’s (the “City”) role in dissolving the Pampa Economic
Development Corporation (the “PEDC”), which voters have decided by election to dissolve under
article 5 190.6, section 4A(k) of the Revised Civil Statutes.* See TEX. REV. CIV. STAT. ANN. art.
5190.6, 9 4A(k) (V emon Supp. 2002). In particular, you question whether the PEDC’s dissolution
plan, “including, but not limited to, the terms of the sale of assets,” is subject to the City’s approval.
Request Letter, supra note 1, Attachment at 1. Because a municipality that has created an economic
development corporation has general authority to supervise and control the corporation, we conclude
that the PEDC’s dissolution plan must be reviewed by the City. See TEX. REV. CIV. STAT.ANN. art.
5 190.6, $5 21,23(a)( 12) (Vernon Supp. 2002). Significantly, however, a creating municipality, or
creating “unit,” may not prevent an economic development corporation that is dissolving pursuant
to section 4A(k) from accomplishing its statutory duty to “dispose of its assets and apply the
proceeds to satisfy [its] obligations.” Id. 8 4A(k); see id. 8 2( 13) (defining “unit” to include city that
“may create and utilize a corporation”).

        You also ask whether the PEDC may establish “a reserve account . . . to meet future financial
commitments after” it has paid its outstanding obligations. Request Letter, supra note 1, Attachment
at 3. We assume, by the term “reserve account,” you refer to an account like an escrow account. See
BLACK’SLAW DICTIONARY565 (7th ed. 1999) (listing “reserve account” as synonym for “escrow”).
We conclude that neither article 5 190.6 nor the Non-Profit Corporation Act, chapter 9 of the Revised
Civil Statutes, precludes the PEDC from establishing an escrow account as a way of satisfying its

           ‘See Letter from Honorable Warren Chisum, Chair, Committee on Environmental Regulation, Texas House of
Representatives, to Honorable John Comyn, Texas Attorney General (Mar. 25,2002) (on file with Opinion Committee)
[hereinafter Request Letter]; see also Letter from Don R. Lane, Attorney at Law, Pampa, Texas, to Honorable Warren
Chisum, Texas House of Representatives      at 2-3 (Mar. 22, 2002) (attachment to Request Letter) (on file with Opinion
Committee) [hereinafter Attachment].
The Honorable Warren Chisum           - Page 2           (JC-0553)

obligations.   See TEX.REV.CIV.STAT.ANN. ch. 9 (Vernon 1997), art. 5 190.6 (Vernon 1987 & Supp.
2002).

         According to facts you provide, City voters elected to dissolve the PEDC on November 6,
2001. See Request Letter, supra note 1, Attachment at 1. The PEDC, now in the process of
dissolving, has “several notes payable relating to projects” it had funded prior to the election; various
assets, including notes receivable, a commercial building subject to a lease with an option to
purchase, a section of land that the PEDC purchased for a minimal sum from Celanese Ltd.: a 213-
acre tract of land, and some personal property. See id. One PEDC project may have possible future
financial obligations that “may accrue because of increased employment criteria after all of the
[PEDC’s] indebtedness . . . is satisfied.” Id.

         Based on these facts, you ask two questions:

                  LDoestheCity..     . , as the creating unit, have approval authority over the
         plan of dissolution of the PEDC including, but not limited to, the terms of the sale
         of assets?

                  2. May a reserve account be established to meet future financial commitments
         after the outstanding obligations have been paid?

Id. at 1’3. Because the PEDC is a development corporation established under article 5 190.6, section
4A of the Revised Civil Statutes, we begin by setting out article 5 190.6’s relevant provisions. See
TEX. REV. CIV. STAT. ANN. art. 5 190.6,§ 4A (Vernon Supp. 2002); accord Tex. Att’y Gen. LO-97-
061, at 1.

         Article 5 190.6, the “Development Corporation Act of 1979” (the “Act”), see TEX. REV. CIV.
STAT.   ANN. art. 5 190.6, 5 1 (Vernon 1987)’ permits a municipality, county, or district (a “unit”) to
create an industrial development       corporation generally to promote and develop business and
commercial enterprises in the area on the unit’s behalf. Id. $0 3, 4(a) (Vernon Supp. 2002).
Provisions generally applicable to an industrial development corporation link the corporation closely
to its creating unit. In particular, section 21 requires a creating unit to supervise the corporation:
“The 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.” Id. 5 2 1. And, while an industrial development corporation has “all of
the rights, powers, privileges, authority, and functions given” to a nonprofit corporation incorporated
under the Texas Non-Profit Corporation Act, article 1396 of the Revised Civil Statutes, to the extent
that the Non-Profit Corporation Act does not conflict with the Act, its powers are “subject at all
times to the [creating unit’s] control.” Id. 8 23(a)(12). Indeed, the creating unit generally may

         2Materials you sent with your request state that the PEDC paid $10 for the real property, but a copy of the
contract between Celanese Ltd. and the PEDC indicates that the price was $1. Compare Request Letter, supra note 1,
Attachment at 1 with Sales Contract between Celanese Ltd. and PEDC 7 3 (Nov. 18, 1999) (on file with Opinion
Committee).
The Honorable    Warren Chisum     - Page 3          (JC-0553)

resolve to “terminate and dissolve the corporation” at “any time . . . in its sole discretion.”   Id. fj 34
(Vernon 1987).

        Section 4A, which was inserted into the Act in 1989, applies particularly to industrial
development corporations created by a municipality “located in a county with a population of
500,000 or fewer; or [, in certain circumstances] . . . with a population of fewer than 50,000.” Id.
§ Wa)W(2)       (V emon Supp. 2002); see Act of May 27, 1989,71st Leg., R.S., ch. 877, 8 2’1989
Tex. Gen. Laws 3 87 1’3871-73. “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.” TEX.REV.CIV.STAT.ANN. art.
5 190.6, 5 4A(h)(l) (V emon Supp. 2002). If a majority of the creating municipality’s electorate
authorizes the city to levy a sales-and-use tax to benefit the corporation, the municipality collects the
tax and delivers “the proceeds to the corporation to use in carrying out its functions.” Id. 8 4A(d),
(I). The corporation may be dissolved by a vote of the electorate:

                 On petition of [ten] percent or more of the registered voters of the city
        requesting an election on the dissolution of the corporation, the governing body shall
        order an election on the issue at the next available uniform election date . . . . If a
        majority of voters voting on the issue approve the dissolution, the corporation shall
        continue operations only as necessary to pay the principal of and interest on its bonds
        and to meet obligations incurred before the date of the election and, to the extent
        practicable, shall dispose of its assets and apply the proceeds to satisfy those
        obligations. When the last of the obligations is satisfied, any remaining assets of the
        corporation shall be transferred to the city, and the corporation is dissolved. A tax
        imposed under this section may not be collected after the last day of the first calendar
        quarter beginning after notification to the comptroller by the corporation that the last
        of its obligations is satisfied.

Id. 8 4A(k); see also id. $9 34’35 (Vernon 1987) (authorizing         creating municipality to dissolve the
corporation “[a]t any time . . . in its sole discretion” and authorizing the corporation to dissolve itself
when it has fulfilled its purpose); cf: id. 8 4B(o) (V emon Supp. 2002) (providing for dissolution of
certain industrial development corporations in cities located in county with population of 750,000
or more, or with a population of 400,000 or more).

         You ask whether a corporation’s plan of dissolution, including the terms of sales of assets,
must be reviewed and approved by the creating unit. See Request Letter, supra note 1, Attachment
at 1. This issue requires us to consider whether a development corporation’s specific duty under
section 4A(k) to “dispose of its assets and apply the proceeds to satisfy [its] obligations” conflicts
with the creating unit’s duty to control the development corporation under article 5 190.6’s general
provisions. See TEX.REV.CIV.STAT.ANN. art. 5 190.6,§ 4A(b)( 1) (Vernon Supp. 2002) (providing
that, to extent section 4A conflicts with another provision of article 5 190.6, section 4A prevails).
The Honorable   Warren Chisum     - Page 4         (JC-0553)

         We conclude that the two duties do not conflict. Rather, the duties may be harmonized so
that the creating unit retains control over the dissolution, although it may not thereby interfere with
the industrial development corporation’s duty to dispose of its assets and satisfy its obligations.

         A creating unit retains control and responsibility over the corporation. Cf: Gaut v. Amarillo
Econ. Dev. Corp., 921 S.W.2d 884,887 (Tex. App.-Austin 1996, no writ) (per curiam) (stating that
industrial development      corporation’s “broad powers” are subject to creating unit’s control).
Specifically, a development corporation is “subject at all times” to the creating unit’s control. TEX.
REv.CIV.STAT.ANN.~~~.        5190.6,§23(a)(12)(V    emon Supp. 2002); see also id. 8 34 (Vernon 1987)
(authorizing creating unit to dissolve corporation); HOUSECOMM. ON WAYS & MEANS, BILL
ANALYSIS,    Tex. S.B. 971, 71st Leg., R.S. (1989) (stating that industrial development corporation
would be within city council’s “total control”).

         Nevertheless, a creating unit may not use its duty to review and approve to interfere with the
development corporation’s duty to dispose of its assets and to satisfy its obligations. Section 4A(k)
of the Act requires a corporation that is dissolving under that section “to the extent practicable, to
dispose of its assets and apply the proceeds to satisfy [its] obligations.” TEX.REV.CIV.STAT.ANN.
art. 5 190.6, 8 4A(k) (Vernon Supp. 2002). Thus, the development corporation must dispose of its
assets, at least to the extent necessary to satisfy its obligations.       Moreover, the development
corporation should dispose of its real property in exchange for a fair market value. C$ Tex. Att’y
Gen. Op. No. JC-0109 (1999) at 2 (stating that 4B development corporation may not sell property
acquired with sales-and-use tax proceeds for less than the property’s fair market value).

         In this way, both a creating unit’s statutory duty and a development corporation’s statutory
duty are harmonized. Thus, for example, a creating unit may approve one means of disposing of a
particular asset but not another, where both will allow the development corporation to satisfy its
obligations, or the creating unit may disapprove of the development corporation’s plans for disposing
of a particular asset where the corporation can satisfy its obligations without disposing of the asset.

         You ask next whether a “reserve” or escrow account may be established to meet the PEDC’s
“future financial commitments.” Request Letter, supra note 1, Attachment at 3. You provide facts
indicating that after the PEDC settles all of its other obligations and when it is otherwise ready to
dissolve, it may have “one project” with “future financial commitments” that the PEDC may be
unable to complete. Id. According to the City, the “future financial commitments are determinable
since they are based on a fixed dollar amount on fixed numbers of increased employment.”          Id.
Furthermore, you tell us, if the City were to continue to collect sales-and-use tax revenue under
article 5 190.6, section 4A(d) on behalf of the PEDC to pay future obligations, the amount of tax
revenue “would far exceed the amount necessary to fund this future amount.” Id.

        Section 4A(k) permits a dissolving development corporation to “continue operations only
as necessary to pay the principal of and interest on its bonds and to meet obligations incurred before
the” dissolution election, and, “to the extent practicable,” to “dispose of its assets and apply the
proceeds to satisfy” its obligations. TEX.REV.CIV.STAT.ANN.art. 5 190.6’9 4A(k) (Vernon Supp.
2002). When the corporation has “satisfied” the last of its obligations, it must transfer “any
The Honorable Warren Chisum        - Page 5         (JC-0553)

remaining assets” to the city, “and the corporation is dissolved.” Id. A sales-and-use tax imposed
to benefit the corporation under section 4A(d) “may not be collected after the last day of the first
calendar quarter beginning after” the corporation notifies the comptroller that it has satisfied “the
last of its obligations.” Id.

         The Texas Non-Profit Corporation Act, chapter 9 of the Revised Civil Statutes, to which an
industrial development corporation is also subject to a certain extent, similarly requires a dissolving
nonprofit corporation to pay, satisfy, and discharge all liabilities and obligations. See TEX. REV. CIV.
STAT. ANN. art. 1396-6.02 (Vernon 1997); see also id. art. 5190.6, 8 23 (Vernon Supp. 2002)
(endowing corporation with all rights, powers, privileges, authority, and functions given to nonprofit
corporation created under Texas Non-Profit Corporation Act except to the extent the Non-Profit
Corporation Act is inconsistent with Act). Likewise, once a dissolving nonprofit corporation
 has paid, discharged, or made “adequate provision” for its liabilities and obligations, it must file
articles of dissolution with the Texas Secretary of State.              Id. art. 1396-6.05(A) (Vernon
supp. 2002)’*accord OFFICEOFTHE         SECRETARY   OFSTATE,CORPORATIONS         SECTION,FORMNO. 603:
ARTICLES OF DISSOLUTION NON-PROFIT CORPORATION (revised                            9/99), available    at
http://www.sos.state.tx.us/corn/forms/603     .pdf.

         We conclude that neither the Act nor the Non-Profit Corporation Act preclude the PEDC
from establishing an escrow account to meet calculable future financial obligations. Establishing
such an account is one means by which a dissolving corporation may “satisfy” its obligations under
section 4A(k). Once these obligations are satisfied, the corporation must notify the comptroller
accordingly and must cease the collection of taxes “after the last day of the first [subsequent]
calendar quarter.” TEX. REV. CIV.STAT. ANN. art. 5190.6, 9 4A(k) (Vernon Supp. 2002).
Establishing an escrow account also is one “practicable” method by which the corporation may
“dispose of its assets” and discharge its obligations. This conclusion appears to comport with the
PEDC’s Articles of Incorporation, which require the corporation, in the event of dissolution, to
transfer ownership of its assets to the City after satisfying or “providing for the satisfaction of debts
and claims.” ARTICLESOFINCORPORATION            OFPAMPAECONOMIC          DEVELOPMENT      CORPORATION,
INC.art. XII (Apr. 20’1992). We assume that establishing an escrow account is consistent with the
corporation’s contractual obligations, as well.
The Honorable Warren Chisum        - Page 6
                                                   (JC-0553)

                                       SUMMARY

                       An industrial development corporation that is dissolving
               under article 5 190.6, section 4A(k) of the Revised Civil Statutes must
               submit its dissolution plan to the corporation’s creating unit for its
               review and approval. See TEX. REV. CIV. STAT.ANN. art. 5190.6, 4
               4A(k) (Vernon Supp. 2002). But the creating unit may not use its
               approval power to prevent the development            corporation from
               performing its statutory duty to, “to the extent practicable, . . .
               dispose of its assets and apply the proceeds to satisfy” the
               corporation’s    obligations.   Id.  Neither article 5 190.6 nor the
               Non-Profit Corporation Act preclude an industrial development
               corporation from establishing an escrow account to meet calculable
               future financial commitments.

                                              Yo    sv     truly

                                              4-+fv
                                              JOkN     COkrrYN
                                              Attorney General of Texas

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Kymberly K. Oltrogge
Assistant Attorney General, Opinion Committee