                             ATTORNEYGENERAL                     OF TEXAS
                                          GREG       ABBOTT




                                             October 31, 2006



The Honorable David A. Castillo                        Opinion No. GA-0481
52nd Judicial District Attorney
Post Office Box 919                                    Re: Whether a city may use the proceeds of
Gatesville, Texas 76528-0919                           certificates of obligation for a water system
                                                       improvement project that is different from the one
                                                       contemplated when the certificates were issued
                                                       (RQ-0483-GA)

Dear Mr. Castillo:

         You ask whether the City of Copperas Cove (the “City”) may issue certificates of obligation
for a water system improvement project “based on a study done before issuance ofthe [certificates],
then have a second study done and use the proceeds . for the second study project instead of the
first study project[.]“’ You inform us that the City requested a study on the repairs required for its
water system and issued the certificates of obligation to pay for the recommended repair work. See
Request Letter, stlpra note 1, at 1. After issuance of the certificates but before commencement of
the repair work, the City directed a second study on the water system, which recommended repairs
different from those in the first study. See id. The City determined to use the certificate proceeds
for the second study repairs. See id: Some City residents question the City’s authority to use the
certificate proceeds for the second study repairs. See id. We understand your concern to be with the
use of the certificate proceeds for the second study repairs rather than with the city’s authority to
obtain a second study in the first place. See id. at l-2.

         Certificates of obligation are securities and one method to finance public projects authorized
by subchapter C, chapter 271 of the Local Government Code, the Certificate of Obligation Act of
1971 (the “Act”). See TEX. Lot. GOV’T CODE ANN. § 271.053 (Vernon 2005) (stating that
certificates of obligation are “debts of the issuer” within the meaning of the Texas Constitution and
when delivered constitute “securities” and “general obligations” under financing statutes); Lee Y.
Ccwm’rs Ct. ofJefferson Coimty, 81 F. Supp. 2d 712,713 (E.D. Tex. 2000), uff’, 252 F.3d434 (5th
Cir. 2001) (stating that the Act was adopted to provide an alternate procedure for cities and counties
to’finance public works and related projects). The Act authorizes a city to issue certificates of



         ‘Letterfrom HonorableDavid A. Castillo,52ndJudicialDistrictAttorney,to HonorableGregAbbott,Attorney
General of Texas, at 1 (Apr. 26, 2006) (on tile with the Opinion Committee, also availableaf www.oag.state.tx.us)
[hereinafterRequest Letter].
The Honorable David A. Castillo - Page 2                     (GA-048 1)



obligation to pay contractual obligations for authorized public works and projects. See TEX.Lot.
GOV’T CODE ANN. $5 271.043(7), .045(a) (Vernon 2005). The certificates are authorized by an
ordinance adopted by a city’s governing body. See id. 5 271.047. Before issuing the certificates,
with exceptions not applicable here, a city must publish a notice of its intention to do sol at least
fourteen days before the date set for adopting the certificate ordinance. See id. 5 271.049(a), (d).
The notice must state the date set for adopting the~certificate ordinance, the maximum amount and
purpose of the certificates, and whether the certificates will be paid with taxes, revenues, or a
combination of taxes and revenues. See id. 5 271.049(b). If before the date set for adopting the
certificate ordinance, the city receives a petition signed by at least five percent of the qualiftedvoters,
then the city must order and hold an election and obtain the voters’ approval to issue the certificates.
See id. 5 271.049(c). If no such petition is filed, then the city is authorized to issue the certificates
without conducting an election. See id

        Like other public securities, “[t]he proceeds [of the certificates] may be used only for the
purposes for which the certificates were authorized and issued.” Id. § 271.050(b); see also
Barrington v. Cokinos, 338 S.W.2d 133, 142 (Tex. 1960) (“It is elementary that the proceeds of
bonds voted by the people must be.expended for the purposes for which they were voted.“) (quoting
Lewis v. City of Fort Worth, 89 S.W.2d 975, 978 (Tex. 1936)). Your question requires us to
determine the purposes for which the particular City certificates in question were authorized and
issued.

         Based on the formal authorizing documents, the particular certificates were issued for water
and wastewater system improvements. As required by the Act, the City published notice of its intent
to issue the Combination Tax and Revenue Certificates of Obligation, Series 2001 (the
“Certificates”), which we understand you to ask about, and adopted an ordinance authorizing the
issuance and sale of the Certificates. See PUBLISHER’AFFDAVIT,
                                                          S           KILLEENDAILYHERALD(June
 182001) &NoTICE@ublished June 8 & 15,200l) [hereinafter the Notice]; COPPERAS           COVE,TEX.,
ORDINANCE      2001-27 RELATINGTO $8,400,000 CITY OF COPPERASCOVE,TEXASCOMBINA~ON
TAX ANDREVENUECERTIFICATES             OF OBLIGATION,   SERES 2001, at 1 (adopted June 28, 2001)
[hereinafter the Certificate Ordinance].’ The Notice and the Certificate Ordinance state that the
Certificates are issued, in part,’to pay for “improvements to the City water and wastewater system.”
Notice; Certificate Ordinance at 6. Neither document specifies particular improvements or
references a study or plan. Thus, pursuant to the authorizing documents required by the Act, the
Certificates were issued for water and wastewater system improvements, and the proceeds may be
used for any such improvements. See TEX. LOC.GOV’TCODEANN. 5 271.050(b) (Vernon 2005)
 (stating that proceeds may be used only for the purpose for which the certificates were issued); see


        *Sx also Letter from W. Glenn Opel, V&on & Elkiis, to HonorableGreg Abbott,Attorney Generalof Texas,
at 1 (May 25,2006) (on file with the Opinion Committee) [hereinafterBond Counsel Letter].

          ‘The Certificateswere issuedto also pay for the cost ofmunicipal court, animalcontrol, park, and public works
facilityimprovements;constructionand improvementofafire station;acquisitionoffirefighting equipmentandvehicles;
constructionofroadandstreet improvements;acquisitionofroadconstmctionequipment;constructionofcommunication
facilities and acquisition of communicationand computer equipment; and related professionaland issuancecosts. See
Notice; Certificate Ordinance at 6.
The Honorable David A. Castillo - Page 3             (GA-0481)



also Barrington, 338 S.W.2d at 143 (holding that voters’ approval of generally worded bond
proposition gave governing body discretion to use the bond proceeds for a particular project within
the proposition’s broad scope); Fletcher v. Ely, 53 S.W.2d 817, 818 (Tex. Civ. App.-Amarillo
 1932, writ refd) (“[IIn the absence of a definite identification of the specific road to be paved, a
discretion exists in the commissioners’ court as to which of two or more routes may be followed
between control points named in the pre-election orders, which discretion        is surrendered when
in response to a referendum ~. the particular route and road to be paved is identified and named.“).

         Given the broad scope of the authorizing documents’ language, any limits on the use of the
proceeds must necessarily derive from representations outside these formal actions of the City. In
the context of voter-approved bonds, there is conflicting case law regarding whether representations
of an issuer’s goveming body outside the formal election orders and resolutions on which the voters
may have relied in approving the bonds may bind the issuer to use the bond proceeds consistent with
such representations. Cotipare Dew-sky v. La Vega Indep. Sch. Dist., 635 S.W.2d 904,908 (Tex;
App.-Waco 1982, no writ) (holding that statements of school representatives regarding specific
building sites made before a bond election bound the school district notwithstanding that~it was not
a “formal” action), and Inverness Forest Improvement Dist. v. Hardy St. Investors, 54 1 S.W.2d 454,
460 (Tex. Civ. App.-Houston [lst Dist.] 1976, writ refd n.r.e.) (holding that a letter reflecting
water district improvements had the effect of pledging to voters that those improvements would be
made with bond proceeds), with Taxpayersfor Sensible Priorities v. City ofDallas, 79 S.W.3d 670,
675-76 (Tex. App.-Dallas 2002, pet. denied) (holding that issuing city “is not bound by any
representations made in the pamphlet or other document [outside election orders and resolutions]“).

         Moreover, no court has required adherence to informal representations in the context of
certificates of obligation issued without an election. It cannot be said that.the voters relied on such
informal representations regarding the use of the proceeds to votefor the certificates. Under the Act,
while a city is required to publish the notice of intent prior to adopting the authorizmg ordinance,
an election is required only if a qualifying petition is received. See TEX. LOC.GOV’TCODEANN.
5 271.049 (Vernon 2005). Because no petition was filed, no election was required or held, and the
City residents did not affirmatively vote to approve the Certificates. See Certificate Ordinance at 1
(reciting that “no petition of any kind has been tiled with the City Secretary, any member of the City
Council or any other offtcial of the City, protesting the issuance of such certificates of obligation”).
To enforce the City’s informal representations then, one would presumably need to show that such
representations influenced the absence of a petition for election by a sufficient percentage of the
qualified voters.

        But even assuming that the common law recognizes the binding effect of informal
representations and that such common law construct applies to certificates of obligation issued
without an election, we could not determine whether the use of the Certificate proceeds has been
limited. Whether any limiting representations were made and whether the City residents may have
relied on these representations in not submitting a petition for an election on the Certificates are
disputed questions of fact. The City authorized issuance and sale of the Certificates in June 2001.
See Certificate Ordinance. You state that the Certificates were issued based on the repairs
recommended by the first study and suggest that the proceeds were intended at that time to be used
The Honorable David A. Castillo - Page 4             (GA-048 1)



for those repairs. See Request Letter, supra note 1, at l-2. The City’s bond counsel, however, states
that the Certificates were not issued based on an individual study and that the City Council did not
represent to the public that the Certificate proceeds would be used for specific projects. See Bond
Counsel.Letter, supra note 2, at 1-2, 5. Such factual disputes cannot be resolved in the opinion
process. See, e.g., Tex. Att’y Gen. Op. No. GA-0003 (2002) at 1 (stating that attorney general
opinions do not determine questions of fact).

       In answer to your question, we conclude that the City may use the proceeds of the Certificates
for “improvements to the City water and wastewater system” including any such improvements
recommended by the second study. We cannot determine whether use of the certificate proceeds
may have been limited to particular improvements based on representations of the City outside the
formal authorizing documents.
The Honorable David A. Castillo - Page 5         (GA-0481)



                                     SUMMARY

                      The City of Copperas Cove (the “City”) may use the proceeds
              of $8,400,000 Combination Tax and Revenue Certificates of
              Obligation, Series 2001, formally issued for “improvements to the
              City water and wastewater system” for any such improvements.
              Although representations of an issuer’s governing body outside the
              formal authorizing documents may limit the use ofproceeds in certain
              circumstances, an attorney general opinion cannot determine whether
              the proceeds of any particular securities have been so limited.

                                            Verv trulv yours,




                                                        neral of Texas


KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Sheela,Rai
Assistant Attorney General, Opinion Committee
