                   THE     ATTORNEY    GENERAL
                              0F TEXAS

                               October 25, 1988




     Honorable Mike Millsap             Opinion No.   SM-970
     House Administration
     Texas House of Representatives     Re: Constitutionality of a
     P. 0. BOX 2910                     plan to finance renovation
     Austin, Texas 78769                of the Capitol  (RQ-1468)

     Dear Representative   Millsap:

          you ask about the authority of the Texas Public Finance
     Authority to issue bonds under article     601d-2, V.T.C.S.
     Specifically, you ask whether the authority may, without
     executing a lease with the State Preservation Board,   issue
     bonds for the renovation of the State Capitol and provide
     that the payment of principal and interest on the bonds will
     be paid   from appropriations  made directly to the Texas
     Public Finance Authority.

          The Texas Public Finance Authority (the authority)  was
     created by the 68th Legislature and was originally    called
     the Texas Public Building Authority.  Acts 1984, 68th Leg.,
     2d C.S., ch. 5, at 15 (repealing original version of Public
     Building Authority Act, Acts 1983, 68th Leg., ch. 700, at
     4360). A 1987 enactment changed the name of the authority
     from the Texas Public Building Authority to the Texas Public
     Finance Authority.  Acts 1987, 70th Leg., 2nd C.S., ch. 75,
     p. 234. The general provisions governing the authority   are
     set out in article 601d, V.T.C.S.

          Under article 601d the authority may issue and sell
     bonds for the financing, acquisition, construction,   repair,
     and renovation   of buildings     used by state     agencies.
     V.T.C.S. art. 601d, § 9.    Section 13 states that the bonds
     are payable mNsolely from revenue as provided by this Act";
     and section 12(a) states that the authority may provide   for
     the payment of the principal and interest on the bonds by
     (1) pledging all or part of the designated rents, issues and
     profits from leasing a building to the state or (2) from any
     other source lawfully available to the authority.     Section
     13 provides that bonds issued under article 601d are not a
,-   debt of the state or any state agency and that the bonds
     must contain on their face a statement to that effect.    Id.




                                      p. 4933
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Honorable Mike Millsap - Page 2   (JM-970)




5 13.   The legislature must specifically     authorize  any
project for which bonds are sold under article 601d, and the
bonds must be approved by the attorney general. z!L §§ 10,
16.

     Soon after the enactment of article 601d, the authority
proposed a bond issuance to finance the construction of a
state office building for the Texas Youth Commission and the
Texas Rehabilitation   Commission.   The attorney   general,
arguing that the bond issuance would violate several consti-
tutional provisions, refused to approve the proposed    bond
issuance. Therefore,   the authority  applied to the Texas
Supreme Court for a writ of mandamus directing the attorney
general to approve the bond issuance. Texas Public Buildinq
Authoritv v. Mattox,   686 S.W.2d 924     (Tex. 1985).   The
attorney general argued that the bond issuance would be in
violation of article 'III, section 49, which prohibits   the
creation of debt why or on behalf of the state." The court
rejected that argument by pointing out that article     601d
expressly provides that the bonds are not debts of the state
and not a pledge of the state's full faith and credit.   The
court also rejected the attorney general's argument that the
proposed bond issuance would violate   article III, section
44, which prohibits the appropriation of money to any indi-
vidual on a claim that is not provided for by pre-existing
law.1 We will return to the court's discussion of article
III, section 44, after we examine the provisions     of  the
statute you ask about, article 601d-2, V.T.C.S.

     After the Supreme Court upheld the provisions         of
article 601d, the legislature enacted article      601d-2 to
provide a means to finance renovation of the State Capitol.
Acts 1987, 70th Leg., ch. 626, p. 2407.       Article  601d-2
authorizes the board of directors of the authority to issue
and sell bonds for that purpose. V.T.C.S. art. 601d-2, .$2.
Proceeds from such bonds are to be deposited in the state
treasury to the account of the State Preservation      Board.
48, 5 3(a).  Article  601d-2 appropriates those funds to  the
State Preservation   Board for projects for the repair and
renovation of the State Capitol. Id. 5 3(b). Section 4 of
article 601d-2 provides:



   1. The attorney general also argued that the proposed
bond issuance would be in violation   of Article I, section
17; Article III, section 49a; and Article VIII, section  6,
of the Texas Constitution.  The court rejected all of those
arguments.




                              p. 4934
Honorable Mike Millsap - Page 3   (JM-970)




            (a) The board    [of the Public Finance
        Authority] may provide   for the repayment of
        the principal   and interest on the bonds
        issued under this Act from any source of
        funds lawfully available to the board.

            (b) From funds   appropriated  for   the
        purpose, the State Preservation Board shall
        pay to the board under a lease agreement  an
        amount   determined by   the board to     be
        sufficient to:

           (1) pay the principal and interest on   the
        bonds:

           (2) maintain any reserve fund necessary to
        service the debt: and

           (3) reimburse the authority     for other
        costs and expenses incurred by the authority
        relating to a project under this Act or to
        outstanding bonds.

            (c) Bonds payable from money appropriated
        by the legislature shall not mature or be
        subject to redemption before September      1,
        1989, and the date of the first interest
        payment to be made from appropriated    money
        shall not be scheduled to occur        before
       -September 1, 1989.

Section 6 provides that the State Preservation Board may
enter into lease agreements under article 601d-2 and may
spend appropriated funds or other funds for the purpose    of
making lease payments.   Section 5 provides that bonds issued
under article 601d-2 are subject to a number of provisions
of the Public Finance Authority Act, including section    13,
which provides that bonds issued under article 601d are not
a debt of the state or any state agency and that the bonds
must contain on their face a statement to that effect. Your
question is whether the authority may, without executing    a
lease with the State Preservation Board, issue bonds for the
renovation of the State Capitol and "repay the principal   of
and interest on the bonds from direct legislative appropria-
tions for that purpose."

     Although the authority's power to issue bonds for the
repair and renovation of the State Capitol is not explicitly
made dependent on the existence of a lease with the State
Preservation Board, article 601d-2 clearly contemplates that




                              P. 4935
Honorable Mike Millsap - Page 4   (JM-970)




bonds issued pursuant to that article will be paid      from
revenues from a lease with the State Preservation     Board.
Also, the incorporation  of section 13 of the Texas Public
Finance Authority Act, which provides that the bonds are to
be revenue bonds,2 indicates that the legislature   intended



   2. Article 601d gives the authority power to lease a
building financed with bonds issued under that article    to
any person or entity   if the state fails or refuses to pay
rental on the building.   V.T.C.S. art. 601d, 5 12(d). Thus,
there would be a potential   source of revenue from which to
pay principal   and interest on the bonds even if the
legislature failed to appropriate money   for the lease of a
building financed under article 601d.      However,  even if
there were a lease between the authority and the State
Preservation Board, bonds issued under article 601d-2 would
look less like revenue bonds than bonds issued under article
601d since the legislature did not even attempt to give the
authority power to lease the State Capitol to a person     or
entity other than the state.

     On the subject of a lease of the State Capitol &o the
State Preservation   Board   from the   authority,  it  is
interesting to note section 11(a) of article 601d, which
provides:

          Property financed by the authority under
     this Act does not become part of other property
     to which it may be attached or affixed or into
     which it may be incorporated, regardless of
     whether the other property is real or personal.
     The rights of the State Preservation Board in
     property financed by the authority under this
     Act are those of a lessee, and a person claiming
     under or through the State Preservation Board
     does not acquire any greater rights with respect
     to that property.

That section tracks  section 7 of article 601d-2, V.T.C.S.
Both provisions overrule the common law rule that fixtures
become part of the real property to which they are attached.
The provisions are important to the schemes provided for in
articles 601d and 601d-2 in instances     in which the bond
money is used for repair or renovation     of existing  state
buildings because they allow the state to assume the role of
lessee of improvements  to state buildings.    It is hard to
                                         (Footnote Continued)




                             p. 4936
Honorable Mike Millsap - Page 5      (JM-970)




that the bonds would be payable from revenue from the lease
of the State Capitol to the State Preservation        Board.
However, we need not determine whether the legislature
intended article 601d-2 to give the authority power to issue
bonds without executing a lease with the State Preservation
Board because we conclude that the proposal you ask about
would not be permissible under article III, ,section 44, of
the Texas Constitution.

     Article III,     section   44, of   the   Texas   Constitution
provides:

              The Legislature shall provide by law for
           the compensation of all officers,   servants,
           agents and public contractors, not provided
           for in this Constitution, but shall not grant
           extra compensation  to any officer,    agent,
           servant, or public contractors,   after such
           public service shall have been performed   or
           contract entered into, for the performance of
           the same: nor grant, by appropriation      or
           otherwise, any amount of money out of the
           Treasury of the State, to any individual,  on
           a claim, real or pretended, when the same
           shall not    have   been provided    for   by
           pre-existing law; nor employ any one in the
           name of the State, unless authorized       by
           pre-existing law.

This means that no money may be appropriated unless, at the
time the appropriation  is made, there is already in force
some valid law constituting the claim to be paid a legal and
valid obligation  of the state.    Austin National  Bank v.
Shevnard  71 S.W.2d 242 (Tex. 1934); State v. Per1 tein   79
S.W.2d 1;3 (Tex. Civ. App. - Austin 1934, writ disi#d).'

     In Texas Public Huildina Authoritv     v. Mattox,   686
S.W.2d 924, the court responded to the attorney general's
argument that appropriations for the purpose of making lease
payments to the authority would violate article III, section
44,   as   follows:




(Footnote Continued)
imagine what the substance of the state's leasehold would
be, however, if bonds issued under article 601d or 601d-2
were used, for example, for sand-blasting.




                                 p. 4937
Honorable Mike Millsap - Page 6   (JM-970)




           The Attorney    General  argues that    any
        appropriation   by the Legislature    to make
        rental payments to the Authority pursuant   to
        the lease agreement must necessarily   violate
        the article    III, section 44     prohibition
        against the making of grants of money out of
        the State Treasury to an individual      on a
        claim when the same shall not have been pro-
        vided for by pre-existing law. The execution
        of the Lease Agreement between the Authority
        and the Commission under the precise     terms
        contained therein is expressly authorized    by
        Section   12  of the Act.     The manner     of
        repayment of the bonds and the manner        in
        which the rents and fees to be paid by the
        Commission are to be calculated are likewise
        express;l.euthorized by the Act. We believe
        that           expressly   authorized   by    a
        pre-existing   statute, an appropriation     of
        funds in furtherance of an authorized project
        does not violate article III, section 44.

           The purpose of the article III, section 44
        proscription is the prevention     of 'raids'
        upon the State Treasury by private    individ-
        uals or entities.     We consider   inapposite
        authorities such as A stun Ntional    Bank v.
        Shevnard   123 Tex. 272: 71 S.W.2d 242 (1934)
        because 'here, the Legislature     itself ha;
        created the Authority     and authorized   the
        execution of contracts between it and state
        agencies, which contracts do not otherwise
        violate the state constitution.     Appropria-
        tions made in furtherance of those contracts
        are fully 'provided for by pre-existing law.'
        Thus, appropriations   made in the future by
        the Legislature in fulfillment of the Commis-
        sion's obligations under the Lease Agreement
        with the Authority    are not proscribed    by
        article III, section 44.

686 S.W.2d at 929.  In short, the Supreme Court found that
appropriations to the authority for the purpose of making
lease payments were proper because       the state agencies
involved had pre-existing authority to enter into leases for
building space. The proposal you ask about, however,    would
involve leg~islative appropriations   made directly   to the
authority for the purpose  of paying principal and interest
on the bonds.   Article 601d-2 expressly provides that the
bonds are not legal obligations   of the state and that they    4.




                              p. 4938
,

    Honorable Mike Millsap - Page 7     (JM-970)




    are revenue bonds.   Thus, not only would an appropriation
    for the purpose of paying principal   and interest on bonds
    issued under article 601d-2 be unauthorized by pre-existing
    law, it would be an appropriation to pay for something that
    the legislature had expressly proclaimed itself unobligated
    to pay.   &=   Attorney General Letter Advisory     No. 107
    (1975).

         It has been suggested that the proposal you ask about
    would not violate article III, section 44, because          an
    appropriation to the authority would not be an appropriation
    "on a claim."3    m   Jones, me     Future of Moral Obliaation
    Bonds as a Method of Government Finance in Texas, 54 Tex. L.
    Rev. 314, 328-30     (1976).    The suggestion    is that
    appropriation to the authority      would avert default on tz:
    bonds and would necessarily       avert the assertion   of any
    wclaims,"   i.e., lawsuits.     L      We disagree with that
    suggestion.   If bondholders did sue the state for payment,
    an appropriation to pay those claims would clearly violate
    article III, section 44.     Certainly    it follows that the
    legislature cannot circumvent     article III, section 44, by
    appropriating money for payments it is not obligated to make
    in order to prevent the assertion of Vlaims" not provided
    for by pre-existing   law. Therefore, we conclude that the
    proposal you ask about would be impermissible under article
    III, section 44, of the Texas Constitution.




                 A proposal whereby the Texas Public
            Finance Authority would issue llrevenuellbonds
            and provide that principal  and interest on




       3.  It has also been suggested that an appropriation   to
    the authority would     not be an     appropriation  to   an
    individual. We think, however, that an appropriation to the
    authority for the purpose of paying bondholders      is, in
    effect, an appropriation   to individuals.    See aenerallv
    Austin National Hank v. Shenvard, 71 S.W.2d 242 (Tex. 1934).




                                   P.   4939
Honorable Mike Millsap - Page 8    (JM-970)




        the bonds would be paid from direct legisla-
        tive appropriations  would be impermissible
        under article III, section 44, of the Texas
        Constitution.~




                                   J-h
                                     Very truly yo   ,
                                            .


                                     JIM     MATTOX
                                     Attorney General of Texas

MARYXELLXR
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAXLXY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General




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