          THE        ATIYBRNEY                GENERAL

                         OF      mXAs




Honorable Harry P. Burleigh             Opinion No. M-1157
Executive Director
Texas Water Development Board           Re:   If the Texas Water Quality
P. o. Box 13087                               Board and the Texas Water
Austin, Texas 78711                           Development Board jointly
                                              agree to amend Section
                                              300.1 to authorize the
                                              purchase of Certificates
                                              of Obligation, may such
                                              securities be delivered by
                                              an applicant to the Texas
                                              Water Development Board for
                                              cash, which transaction will
                                              secure the maximum Federal
Dear Mr. Burleigh:                            grant?
     In your opinion request you state that a city has made
application to the Board for financial assistance under the
provisions of subchapter I, Chapter 21, Texas Water Code, by
requesting the Board to purchase its Certificates of Obligation.
It is the Board's position that since the Certificates are
securities other than Bonds, it is prohibited from purchasing
them by Section 300.1 of the Joint Rules, Regulations, &
Policies of the Texas Water Quality Board and Texas Water
DeveloDment Board exceot under conditions that are not met by
the applicant.
     You have requested our opinion on whether your rules could
be amended to authorize this purchase.
     The Certificate of Obligation Act of 1971, Article 2368a.1,
Vernon's Civil Statutes, was enacted to provide a simplified
version of the Bond and Warrant Law of 1931, (Article 2368a,
V.C.S.). The basic authorization of the Act, like that of the
Bond and Warrant Law, is an exchange of certificates for claims
of contrac,torsincurred in the construction or acquisition of
public projects.
     Section 5 of Article 2368a.l requires the claimant to
elect whether to receive the Certificates themselves or under
Section 5 (ii) to sell and assign them to someone else and

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    Honorable Harry P. Burleigh, page 2,(M- 1157)


    receive cash. The only times the issuer may sell the certificates
    for cash are those limited instances    forth in Section 7 of
    the Act.
         A sale of the City's Certificates of Obligation to the
    Board for cash is therefore prohibited by Article 2368a.1,
    unless the proceeds are to be used for the purposes enumerated
    in Section 7 thereof.
         If the claimant elects to assign his certificates under
    Section 5 (ii), can the Board purchase the assigned certificates?
    In our opinion, it cannot.
         Section 5 (ii) states:
             "or (ii) that the governing body of any issuer
        has made provision for the contractor to sell and
        assign such certificates to another...   (Emphasis
        Zi3TT)
         Article III, Section gd-l(a) of the Texas Constitution is
    the authority for the Board to make loans of state funds for
    water quality enhancement and it authorizes only, "loans to
    political subdivisions". This limitation is carried forward
    into Section 21.603 of the Water Code. See also our opinion
    number M-1070 (1972) holding that financial assistance can
    only be given to political subdivisions.
         Further evidence of the intention of the Legislature on
    this point is the language of Sections 21.609(h) and 21.612
    of the Water Code. These sections read as follows:
         Section 21.609(h)
              "The Texas Water Development Board shall
         establish within funds previously created appropriate
         accounts for separate handling of money derived from
         payment of interest of and principal on bonds and
         other obligations purchased from political sub-
         divisions and repayment of direct loans made to
         politica subdivisions." (Emphasis added.)
         Section 21.612
              "When bonds or other obligations are purchased...
         ...water quality enhancement funds shall be delivered
         to the political subdivisions entitled to receive

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         Honorable Harry P. Burleigh, page 3,(M-,1157)


                    them and shall be used only to pay for construction
                    costs of treatment works approved as provided in
                    this subchapter..." (Emphasis added.)
              In this instance the issuer is simply accomodating the
         contractor in securing a market for his certificates. The
         certificates are delivered to the contractor and title passes
         to him. If he elects to "sell and assign" them to another,
         this is a transaction by the contractor in the secondary
         market and any money received must be delivered to the con-
         tractor. In this case, the Board would not be purchasing
         the certificates from the issuer because title to the
         certificates would be in the contractor or claimant.
                                     SUMMARY
                         The Texas Water Development Board and the Texas
                    Water Quality Board cannot amend their joint rules
                    and regulations to authorize the purchase of Certificates
                    of Obligation except in those instances where the
                    proceeds are to be used for the purpose enumerated
                    in Section 7 of Article 2368a.1, V.C.S.




             Prepared by Marvin F. Sentell
             Assistant Attorney General
             APPROVED:
             OPINION COMMITTEE
             Kerns Taylor, Chairman
             W. E. Allen, Co-Chairman
             Robert B. Davis
             John Reeves
             Roger Tyler
             Roland Allen
             SAMUEL D. MCDANIEL
             Staff Legal Assistant


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Honorable Harry P. Burleigh, page 4,(M- 1157)


ALFRED WALKER
Executive Assistant

NOM WHITE
First Assistant




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