                                  The Attome,)/ General of Texas
                                                         Dlzcember 27.      1984
JIM MAllOX
Attorney General


                                Ronorable Jay T. Kfmbrough                                Opinion     No. JM-274
Supreme Court BuildIn
P. 0. Box 12545                 Bee County Attorney
Austin. TX. 78711. 2549         Room #204, Courthov se                                    Re:     Whether    the Bee County
51214752501                     Beeville,  Texas    78102                                 Community     Action   Agency    may
Telex 91OlS74-1357                                                                        receive     Interest   free   loans
TeIecoDier 51214750288
                                                                                          from a bank which is a depos-
                                                                                          itory   for Bee County
714 Jackson. Suite 700
Dsllar. TX. 752024506           Dear Mr. Kimbrough:
2141742-0944

                                       You     ask    whether      the      Bee    County      Comnity        Action      Agency
4824 Alberta Ave., Suit4 1.50   [hereinafter       Agency]    may receive        an interest-free         loan    from a bank
El Paso, TX. 799052793          which    is    a depository        for   Bee County.            Apparently.      the bank in
91515~3dS4                      question     gives    the Agency interest-free              loans   based on the county’s
                                credit    with the b,%nk. You refer               to the Agency as a not-for-profit
                                agency      but    indicate      that    it     is     organized      by    the    Bee    County
 Jo1 Texas, Suite 700
Houston. TX. 77002-3111         Commissioners        Court and funded         through      various    government      programs.
713l2255888                     Regardless      of whether     the county is even authorized                to organize      this
                                Agency.     we conclude     that such an Agency cannot               receive    interest-free
                                loans in the instances          described      herein.
806 Broadway. Suite 312
Lubbock, TX. 79401-3479
8061747.5239                           The basis   for this   conclusion    differs according   to whether                         the
                                Agency is an indepmsndent entity       or whether it is an “extension”   of                        the
                                county.    Because    1,t is unclear   which type of entity   is presently                           in
 4309 N. Tenth. Suite B         question,   each deserves    analysis.
 McAllen. TX. 78x)l.lSSS
 5121682.4547
                                       If the Agent:? in question                is an “extension”           of the county,           it
                                cannot     receive      inl:erest-free       loans because         the county       itself     cannot
 2&l Main Plaza. Salt0 400      receive     such loant;.         An agency or arm of a local               governmental        entity
 San Antonio. TX. 782052797
                                has no greater        pov’er than the local            governmental      entity     which creates
 51212254191
                                the agency.        Attorney       General Opinion JM-220 (1984).               Counties       possess
                                only the powers expressly                or by necessary          implication       authorized        by
 An Equal OPPOftUnitYl           the Texas Constitut:ion            or statutes.         _Canales v. Laughlin,           214 S.W.?d
 Aftirmstive Action Employer    451 (Tex.        1948).        Counties     lack     authority       eo borrow       money except
                                 through     the issuance         of bonds,     certificates         of. obligation,        or other
                                 forms of indebtedness             which are specifically            authorized       by law.        See
                                Tex.    Const.     art.      XI, 57; Brown v. Jefferson               County,     406 S.W.Zd 185
                                 (Tex.    1966) ; -mm
                                                    see also         Tex.   Const.      art.   III.     552-b;     art.     VIII,     59
                                 (because     counties       ere limited      in property       taxes    they may levy,           their
                                power to incur debt is limited);                   see generally        V.T.C.S.      arts.    701 g
                                -,        2368a.l;       cf.
                                                        --      V.T.C.S.   arts.      1644~.    1644c-1.       Accordingly,          the
honorable      Jay T. Kimbrough          -     Page 2      (JPI-274)




Agency      cannot     receive    interest-free           loans   from Bee County’s      depository
bank.

        If,      on     the     other     t la.nd,     the      Agency      is     an    independent
not-for-profit          legal    entity     with which the county               merely     contracts,
a,         for   the delivery        of certain         authorized       social     services      on an
independent         contract     basis,     then the Texas Constitution                 may prohibit
the loans        in question.          If the Agency           is a private,         not-for-profit
entity,       and thus not connected            to the county,        it would be free to seek
loans       from any bank,           subject       to    legal     limitations        applicable       to
not-for-profit           corporations       and associations           which are not in issue
here.       Apparently,       the bank in, question           gives the Agency interest-free
 loans based on the county’s              c,redit with the bank.              If the county acts,
 in this manner, as a guaran:or                   or surety       for these       loans,    the Texas
 Constitution         prevents      counties        from     lending      their     credit      to    any
 individual,       association,       or cclrporation.           Art. III,      §52(a).

         Article       III.   section    52(e)     provides       that

                   Pxcept as otherwis~z provided             by this section,       the
                   Legislature      shall    have no power to authorize             any
                   county,    city,    town or other        political    corporation
                   or subdivision       of t!ae State      to lend its credit        or
                   to grant public        money or thing of value in aid of,
                   or to any individr~~l.           association       or corporation
                   whatsoever,      or to become          a stockholder       in such
                   corporation,       assoc:i.ation     or company.         (Emphasis
                   added).

 See also      Tex.      Const.   art.   XI,     513.7.

        The      Texas      Constituticn       prohibits        the    use    by     a political
 subdivision        of its public       funds or credit       for private      purposes.      State
 v.    City     of    Austin,     331 S.‘rJ.2d      737    (Tex.     1960).      I!Io fixed    rule
 delineates        exactly    what con:;t:itutes       a public      purpose.       Nevertheless,
 the prohibition           of    article     III.    section      52,   extends       to private,
 not-for-profit          organizationa.        -See   Attorney      General    Opinions     MW-329
 (1981);     V-173 (1947).

        Consequently,        although     the county may occasionally            contract     with
 a private        entity     to deliver       certain     services     which    the county             is




 specifically         authorized      to     provide,      a county       may not       make an
 unconditional        grant of its #::redit to a private              entity.      See Attorney
 General      Opinion     H-1189 (1978).          An incidental       benefit     tz      private
 person or entity          is not prohibited.         Attorney      General Opinions       JM-220
 (1084);     MW-423 (1982);       see
                                  -     Barrington
                                       --              v.   Cokinos,    338   S.W.2d   133   (Tex.
 1960).       Virtual     donations     z.re prohibited.          Attorney     General    Opinion
 JM-65 (1983).         Any lending of credit          must be intended        to accomplish      an
 authorized        county    purpose    ::r:d must be accompanied            by conditions        to




                                                     P.    1220
Honorable     Jay T. Kimbrough          -   Page 3    (JM--274)




ensure      the uae of county   credit            for a public        purpose. See Attorney
General      Opinions m-220   (19184);           JM-103 (1983);        MW-423 (1982);  MU-60
(1979).



                  If the Bee County Cormsunity Action Agency in an
              "extension"         of     Bee County,         it   cannot      receive
              intereat-free           loa!>:,   from      a bank      which      is    a
              depository       for Bee County.           If, on the other hand,
              the     Agency      is     an independent,          private.       legal
              entity,       any      lending      of     county     credit       as    a
              guarantor       or surety       on loans to the Agency on an
              independent          Contl'sct       basis      must    be     for     an
              authorized       county     purpose and must have conditions
              attached       to ensure         the    accomplishment        of     that
              county purpose.




                                                         Attorney     General     of   Texas

TOM GREEN
First Assistant       Attorney      Ger:e,ral

DAVID R. RICHARDS
Executive Assistant         Attorney,       General

RICK GILPIN
Chairman, Opinion         Committee

Prepared     by Jennifer   Riggs
Assistant     Attorney   General

APPROVBD:
OPINION COMMITTEE

Rick Gilpin.    Chairman
Colin Carl
Susan Garrison
Tony Guillory
Jim Moellinger
Jennifer   Riggs
