    OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

    JOHN       CORNYN




                                                      April 4,200l



The Honorable David Sibley                                   Opinion No. JC-0362
Chair, Business and Commerce              Committee
Texas State Senate                                           Re: Whether the City of Port Arthur Economic
P. 0. Box 12068                                              Development Corporation may “grant” sales tax
Austin, Texas 78711                                          funds      for    a “rehabilitation    and  job
                                                             training/educational  facility” (RQ-028%JC)


Dear Senator Sibley:

         As an industrial development corporation established under section 4A of the Development
Corporation Act of 1979 (the “Act”), the City of Port Arthur Economic Development Corporation
(the “Corporation”) may expend sales and use tax proceeds to finance the cost of authorized projects,
which include, generally, facilities that promote business development and, more specifically, job
training. See TEX. REV. CIV. STAT. ANN. art. 5 190.6 (Vernon 1987 & Supp. 2001). The Port Cities
Rescue Mission (the “Mission”), a nonprofit organization established to provide shelter to needy
persons, rehabilitates substance abusers, trains them in skills that will enable them to obtain
employment, and places them in jobs at various companies.’ You ask whether the Corporation is
authorized to make a “grant” of section 4A tax revenues to the Mission for “a rehabilitation and job
training/educational    facility.” See Request Letter, note 1, at 1. We conclude that the Corporation
is authorized to expend section 4A tax revenues to finance such a facility only if the Corporation’s
board of directors reasonably finds that the facility will promote business development.    Any such
expenditure must be made pursuant to a contract or other arrangement which ensures that the funds
will be used for the authorized purpose and otherwise be in compliance with the Act.

         The Mission, you inform us, has implemented the “Lazarus Project,” which is a “a two-step
process in which [hardened substance abusers ready to change] live in two separate facilities, are
constantly monitored, have varying degrees of privileges and, subsequently, are placed into
employment while still living in the facility.” The project has successfully “placed twenty-two Port
Arthur residents in gainful employment.”       Id. at l-2. While your letter suggests that the Mission
“creates” jobs, it appears that the Mission’s role is limited to placing individuals in available jobs
with local employers. 2 See id. The Corporation would like to enter into a contract with the Mission
with respect to the Lazarus Project “for $5 1,500 to purchase a building, equipment, and supplies to



           ‘See Letter from Honorable David Sibley, Texas State Senator, to Honorable John Comyn, Attorney General
of Texas    (Sept. 26, 2000) (on file with Opinion Committee) [hereinafter Request Letter].

           2Telephone   Conversation   with Mark Sokolow, Port Arthur City Attorney (Dec. 2 1,200O).
The Honorable David Sibley - Page 2                   (JC-0362)




provide clients with skills which will enable them to actively seek, obtain, and retain productive
employment .” Id. at 2. Because you are concerned with whether the expenditure “would be in
accordance with requirements and limitations set forth in Section 4A,” id., we presume that you ask
about the Corporation’s authority to use section 4A tax proceeds to pay for the Mission’s facility as
an authorized “project” under the Act.

         In addressing your question, we assume that there are no limitations on the expenditure of
the section 4A tax proceeds particular to the Corporation. 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. 2001) (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. $0 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). In addition, we do
not address the authority of the Corporation to expend funds other than the section 4A tax proceeds.
Lastly, you do not tell us and we do not address the possible non-secular nature of the Lazarus
Project and the issues that may be implicated by the expenditure of public funds for such a project
to the extent it is non-secular.

         We begin our analysis of your question with a brief review of the somewhat byzantine
provisions of the Act. The Act generally authorizes a city, county, or a district to create an industrial
development corporation to finance the cost of authorized projects that “promote and develop new
and expanded business enterprises to promote and encourage employment and the public welfare.”
See id. $0 2(13); 21; 23(a)(l)-(7); see also id. 5 2(4) (defining “cost”); (11) (defining “project”).
In particular, section 4A of the Act authorizes a qualifying city to create an industrial development
corporation governed by that section, see id. @4A(h)(l), and authorizes the city to levy a sales and
use tax for the benefit of that corporation, see id. 3 4A(d). The tax is approved by the voters “for the
promotion and development of new and expanded business enterprises,” id. 8 4A(m), and the
proceeds delivered to the corporation “to use in carrying out its functions.” Id. fj 4A(f). The tax
proceeds may be used to finance authorized project costs. See id. $3 4A(f); 21; 23(a)(6). But see
Gaut v. Amarillo Econ. Dev. Corp., 92 1 S.W.2d 884,887 (Tex. App.-Austin 1996, no writ) (section
4A development corporation is not limited to “projects”). They “may also be used to pay expenses
incurred by the corporation under Section 38 of [the] Act relating to job training.” TEX. REV. CIV.
STAT.ANN. art. 5190.6,§ 4A(f) (Vernon Supp. 2001) (emphasis added).

           The section 4A terms “project” and “job training expenses” are defined and expanded upon
by other provisions of the Act. Section 2( 11) of the Act defines “project” and includes two
definitions related to job training. It first defines “project” as “land, buildings, equipment, facilities,
targeted infrastructure, and improvements (one or more) to promote new and expanded business
development or found by the board of directors to be required or suitable for the promotion of
development and expansion of. . . job creation and retention, job training, [or] educational facilities
. . . .” Id. 5 2( 1 l)(A); see also id. 9 2(4) (p roviding that “[clost as applied to a project shall mean and
The Honorable David Sibley - Page 3                      (JC-0362)




embrace the cost of acquisition, [and] construction . . . , including . . . the cost of all machinery and
equipment, . . . and other supplies”).    Separately, section 2(11) provides that “‘[plroject’ also
includes job training required or suitable for the promotion of development and expansion of
business enterprises and other enterprises described by this Act, as provided by Section 38 of this
Act.” Id. 6 2(1 l)(A) (emphasis added).

        Section 38 allows a development            corporation    to expend tax proceeds       for job training,
provided certain conditions are met:

                           (b) Except as provided by Subsection (c) of this section, a
                  corporation may spend tax revenue received under this Act for job
                  training offered through a business enterprise only if the business
                  enterprise has committed in writing to create new jobs that pay at
                  least the average weekly wage3 for the county in which the jobs are
                  to be located.

                          (c) In a county in which the unemployment         rate for the
                  preceding calendar year equals or exceeds 1.5 times the state average
                  unemployment      rate for the preceding calendar year, a corporation
                  may spend tax revenue received under this Act for job training
                  offered through a business enterprise only if the business enterprise
                  has committed in writing to create new jobs that pay at least 90
                  percent of the average weekly wage for the county in which the jobs
                  are to be located.

                          (d) A corporation may not spend tax revenue received under
                  this Act for job training in an amount that exceeds more than one-half
                  the actual cost of the job training.

                          (e) Unless the project is located in a county in which the
                 unemployment rate for the preceding calendar year equals or exceeds
                 1.5 times the state average unemployment          rate for the preceding
                 calendar year, a corporation may not spend tax revenue received
                 under this Act for job training if other state or federal funds dedicated
                 to job training are used in the project.

See id. 8 38(b), (c), (d), (e) (footnote added).

         The section 38 requirements, in our opinion, are limited to sales tax expenditures for job
training classes. A section 4A corporation is authorized to use sales tax proceeds to finance the cost


         31n section 38, “‘average weekly wage’ has the meaning defmed by the labor market information division    of
the Texas Workforce Commission.”      See TEX.REV. CIV. STAT.ANN. art. 5190.6, 0 38(a) (Vernon Supp. 2001).
The Honorable David Sibley - Page 4                       (JC-0362)




 of a “project.” See id. $0 4A(f); 23(a)(l), (6). “Project” is defined to include a facility promoting
job training and job training expenses. See id. 8 2( 11) (emphasis added). The facility definition of
project does not reference section 38. See id. And the section 4A provision specifically authorizing
use of the tax proceeds to “pay expenses incurred by the corporation under Section 38 of [the] Act
relating to job training[,]” by its tern-is, does not relate to a facility. See id. 6 4A(f). Moreover,
 section 38, by its terms, does not apply to a facility. Rather, it applies to a sales tax expenditure for
 “job training offered through a business enterprise” or, in other words, job training courses or
programs. See id. 0 38(b).4

         The section 4A and section 2( 11) requirement that a project promote business development,
in our opinion, applies to both types of job training projects. As discussed earlier, section 2( 11)
expressly defines a “project” to include facilities “to promote new and expanded business
development or found by the board of directors to be required or suitable for the promotion of
development and expansion of. . . job creation and retention, job training,” and “job training
required or suitable for the promotion of development and expansion of business enterprises.” Id
8 2( 11); see also id. 6 38 (requiring “business enterprise” to commit in writing to create new jobs
as a condition to sales tax expenditure for job training). More importantly, the section 4A sales and
use tax is authorized, approved, and levied only “for the promotion and development of new and
expanded business enterprises.” See id. 0 4A(m). In an election to adopt the tax, section 4A(m)
specifically directs that the “the ballot shall be printed to provide for voting for or against the
proposition:   ‘The adoption of a sales and use tax for the promotion and development of new and
expanded business enterprises at the rate of            of one percent.“’ Id. 9 4A(m). Tax proceeds,
of course, may be used only for the purpose authorized by the legislature and approved by the voters.
See Tri-City Fresh Water Supply Dist. No. 2 v. Mann, 142 S.W.2d 945, 948 (Tex. 1940) (taxing
power may be exercised only for purposes distinctly included in constitutional or legislative
provision); Robbins v. Limestone County, 268 S.W. 9 15,919 (Tex. 1925) (taxes levied and collected
for particular purpose may not be diverted to purposes other than for which they were voted). Thus,
use of the section 4A tax proceeds is limited to projects that promote business development.

         In sum, section 4A tax proceeds may be expended to finance the cost of a “project.” A
“project” includes: (1) job training facilities, or (2) job training expenses.     The section 38
requirements - that tax proceeds may be used to pay up to one-half of the cost of job training only
if a business enterprise has committed to creating new jobs that pay at least the “average weekly
wage for the county” or ninety percent of that wage in a high unemployment county and no other
state or federal funds are used for such purpose except in a high unemployment    county - do not


          4See also HOUSECOMM.ON ECON.DEV., BILL ANALYSIS,Tex. H.B. 1916,76th Leg., R.S. (1999) (“Worker
training is a major issue for companies wishing to relocate to Texas[,] and some economic development corporations
would like to be able to offer [these] companies funds for job training to make relocating more attractive to those
companies. The ability to use economic development         tax money for job training could be a spur to economic
development in areas with an acute shortage of trained workers.“); Hearings on Tex. H. B. I91 6 Before the House Comm.
on Econ. Dev., 76th Leg., R.S. (Mar. 22, 1999) (statement of Rep. Oliveira, sponsor of legislation enacting section 38:
“The bill would amend section 4A to allow sales tax revenues . . . to be used to pay for the expense incurred by a
business that wants to get certain job training done.“) (audio tape available from House Video/Audio Services).
The Honorable David Sibley - Page 5                          (JC-0362)




apply to the first type of a project, i.e., a job training facility.                Both job training project types,
however, must promote business development.

          You ask about the use of the section 4A tax proceeds for the Mission’s “rehabilitation and
job training/educational     facility.” See Request Letter, supra note 1, at 1. The funds will be used to
purchase a “building, equipment, and supplies, ” that will be used for job training, i. e., a job training
 facility. See id. at l-2. Thus, section 38 does not apply. But we must determine whether this facility
is an authorized facility project of the first kind? We conclude that it is an authorized facility project
only if it promotes business development.          While we think it unlikely that the facility directly
promotes business development, we cannot say as a matter of law that it does not.

          The facility in question would appear to promote social rehabilitation, given your description
of the facility (“rehabilitation and job training/educational     facility”) and the purpose (“provide
shelter”) and operation (“rehabilitate substance abusers”) of the Mission. See id. (“Lazarus Project,”
is a “a two-step process in which [hardened substance abusers ready to change] live in two separate
facilities, are constantly monitored, have varying degrees of privileges, and, subsequently, are placed
into employment while still living in the facility.“). While rehabilitation of habitual substance
abusers clearly promotes societal well-being, we think it unlikely that it directly promotes business
development by, for example, creating or attracting additional jobs, as required by the Act and as
contemplated by the voters when they approved the section 4A tax for that purpose.

          But the determination of whether a particular project will promote the economic development
 purposes of the Act is, in general, a question of fact within the discretion of the board of directors
 of the development corporation in the first instance, subject to judicial review for abuse of discretion.
 See TEX. REV. CIV. STAT. ANN. art. 5190.6, 9 2(11) (Vernon Supp. 2001); Tex. Att’y Gen. LO-95-
 072, 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-97-06 1 (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).         Here we cannot say as a matter of law that the Corporation’s board of
 directors would have no basis for determining that a facility described to us as a “rehabilitation and
job training/educational     facility” promotes business development. CJ Tex. Att’y Gen. LO-97-061.
Accordingly, the Corporation may expend section 4A tax proceeds to finance a “rehabilitation and
job training/educational     facility” if its board of directors finds that such a facility promotes business
 development.     The board’s determination must, of course, be reasonable in that it is supported by
 facts. See id. at 3 n.7 (“Clearly, the determination that an expenditure is within the purposes of the


         ‘Notwithstanding   the characterization   of the Mission’s   facility, we do not believe that it is an “educational
facility” as those terms are commonly    used and understood.
The Honorable   David Sibley - Page 6             (JC-0362)




act must be supported by the facts.“); Tex. Att’y Gen. LO-95-072 (board’s determination subject to
review for abuse of discretion). Additionally, the expenditure must comply with other applicable
requirements of the Act.

          Finally, we note that you ask whether the Corporation is authorized “to provide a grant” to
the Mission for the “rehabilitation and job training/educational   facility,” although you also indicate
that the expenditure will be pursuant to a contract. Because we are unclear as to how the expenditure
will be made, we briefly address this issue. The Act gives a development corporation broad authority
to contract with a “user” of a “project” to finance the project. See TEX. REV. CIV. STAT.ANN. art.
5 190.6, 9 23(a)(1)-(5) (V emon Supp. 2001). The term “user” includes a private, nonprofit entity,
such as the Mission.       See id. 8 2(15). But no provision in the Act expressly authorizes a
development corporation to make a “grant.” See id. fj 23; Tex. Att’y Gen LO-94-037, at 3 (“[Wle
find no provision in section 4A or elsewhere in the act . . . by which the legislature has specifically
authorized development corporations formed thereunder to make ‘grants.“‘); see also Tex. Att’y
Gen. Op. No. JC-0118 (1999) at 8-9 (Act does not authorize gift or donation of sales tax proceeds;
sales tax expenditures even for project costs must be pursuant to a contract). But see TEX. REV. CIV.
STAT.ANN. art. 5 190.6, $23(a)(4) (V emon Supp. 2001) (1999 amendment authorizing development
corporation to “donate” property to an institution of higher education “for a legal purpose of the
institution upon such terms and conditions as the corporation’s board of directors may deem
advisable and that are not in conflict with the provisions of this Act.“). We have previously stated
that any expenditures of sales tax funds, including those for authorized projects, must be made
pursuant to a contract or other arrangement sufficient to ensure that the funds are used for the
purposes authorized, consistent with the constitutional restrictions on the expenditure of public funds
and the requirements of the Act. See TEX. CONST.art. III, 9 52; Tex. Att’y Gen. Op. No. JC-0118
(1999) at 8-9; Tex. Att’y Gen. LO-97-061, at 4-5, LO-94-037, at 3. Consequently, any sales tax
expenditure for the Mission’s “rehabilitation and job training/educational        facility” must be made
pursuant to a contract or other arrangement that ensures that the funds will be used for the authorized
purpose and in compliance with the Act.
The Honorable David Sibley - Page 7              (JC-0362)




                                       SUMMARY

                 The City of Port Arthur Economic Development             Corporation is
          authorized to expend sales and use tax proceeds to finance the Port Cities
          Rescue Mission’s “rehabilitation and job training/educational     facility” only
          if the Corporation’s board of directors reasonably finds that such a facility
          promotes     business   development    and otherwise     complies      with the
          Development Corporation Act of 1979, article 5 190.6 of the Revised Civil
          Statutes. The Act does not expressly authorize a “grant” for the Mission’s
          facility. Instead, any sales tax expenditure for such a facility must be made
          pursuant to a contract or other arrangement that ensures that the funds will be
          used for the authorized purpose and otherwise be in compliance with the Act.




                                              Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVlN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General - Opinion Committee
