    .


.


                            THE                  L%.TFORNEW                                  GENERAL
                                                            OF           -XAS




        Honorable             Howard          B.       Boswell                     Opinion          No.      M-634
        Executive           Director
        Texas        Water         Development                   Board
        Austin.           Texas                                                    Re:        Authority             of Texas              Water         De-
                                                                                              velopment              Board        to make               a
                                                                                               commitment               to political               sub-
                                                                                              divisions             to purchase              their
                                                                                              bonds         in the future,                 subject
                                                                                              to later          availability              of monies
                                                                                              in the        Texas       Water             Develop-
                                                                                              ment        Fund,        and      related           ques-
        Dear        Mr.     Boswell:                                                          tions.


                      In your          recent          request         for     an official           opinion          of this        department
        you      state     that,       under         the    present           state        of the     money          market,              and     due to
        the    constitutional                limit      upon       the       interest        which        the       Texas      Water            Develop-
        ment        Board        may       pay       on its       bonds,        the        Board      is unable          to market                its       bonds,
        and      therefore,            the    Board          is without            funds       to provide             financial            assistance
        or    aid    to,    or     purchase            bonds        of,      the    various          political         subdivisions,                    as
        authorized            by Section              15 of Article                8280-9,         Vernon’s            Civil      Statutes.                  You
        state:


                                     “Pursuant               to Article            III,     Section         49-c      of the
                      Texas         Constitution                 and     Article           8280-9,        Vernon’s             Re-
                      vised        Civil      Statutes            (Acts        1957,        55th Legislature,
                      Chapter           425,         as amended),                the       Texas       Water         Develop-
                      ment         Board         has       the    authority           to    sell     Texas          Water       De-
                      velopment               Bonds         and to use             the proceeds               to make          loans
                      to political             subdivisions,                 by purchasing                  their     bonds          or
                      other        securities,   for                the construction                   of water         conser-
                      vation        and development                    projects.


                                     “The        present           state       of the        municipal           bond       market
                      is    such       that      Texas           Water        Development                 Bonds       cannot          be
                      currently              sold      within       the      4% interest             rate     limitation             pre-




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Honorable          Howard           B.        Boswell,           page         2                M-634




            scribed         by the            Texas         Constitution.                  As     a result,              there        is
            not     enough         money             in the        Texas          Water         Development                  Fund
            to meet         all     of the loan               assistance                commitments                   that      have
            been       made        by the            Board,           and the           Board         is now         confronted
            with       the necessity                  of advising             certain           applicants              that     com-
            mitments              made          by    it to render                financial           assistance               through
            the     Board’s          purchase                of the      applicants’              bonds            cannot        be
            currently             fulfilled.            Furthermore,                      the    Board             is faced       with
            the     prospect             of    receiving              more         applications               from        other
            political          subdivisions                 which,           because            of the uncertain                     state
            of the municipal                     bond        market,              are    wholly         unable           to finance
            badly       needed           water         projects          without              state     assistance.


                           “The          Board         will     not be in position                      to obtain            loan-
            able       funds       by the            sale     of Texas             Water        Development                    Bonds
            unless         and until


            a.             the      market            for     state      and municipal                   bonds           im-
                           proves             to the point             that       such         bonds         are      salable
                           at a rate             of interest            not        exceeding            4%         or


            b.             the      Constitution                can be amended                        to lift      the     4%
                           ceiling            on the        rate       of interest             which          Texas        Water
                           Development                      Bonds       may         bear.


                           “Certain              political            subdivisions               are      in a position                to
            make        temporary                financial             arrangements                    for     the      sale     of
            their       bonds        bearing            interest           rates         of    8-8      l/2%        provided
            that     the    Texas             Water         Development                   Board         makes            a corn-
            mitment            to such           political            subdivisions               to purchase                 their
            bonds        in the future                 when        loanable             funds        become             available
            to the       Board.               It is     contemplated                    that    at the        time        the    Board
            fulfills       its     commitment                   a refunding                of the political                  sub-
            division’s             bonds         issued         as temporary                    financing            would        be
            necessary              to adjust            the     interest            rate       to the        Board’s            statu-
            tory       lending           rate        as prescribed                 by Section                15,     Article
            8280-9,          V.R.C.S.”


            In connection                 with        the     facts     above            stated,         we think it is significant
that   a proposed              amendment,                    i. e.,     Section            49-d-l         of Article III of the Con-




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Honorable           Howard              B.     Boswell,              page        3              M- 634




stitution        of Texas.              was        rejected             by the        voters      on August             5.      1969.             This
amendment               would         have         eliminated              the       4% per      annum         interest             rate      ceiling
in Section          49-c        of Article             III.       See       Acts       61st     Leg.      , H. J. R. , page                   3233
and table          showing            unfavorable                vote       on page            3257.


              You       ask:


                               “1.      Can        the      Texas          Water        Development               Board            make
              a commitment                     to political                subdivisions            to purchase                their
              bonds        in the        future,              subject        to the      later         availability            of monies
              in the          Texas      Water           Development                   Fund?


                               “2.      If the       answer              to question            no.      1 is affirmative,
              can       the     Texas         Water           Development                 Board          purchase            the     re-
              funding          bonds          of a political                subdivision            from        either         the     po-
              litical         subdivision              or      the      party(ies)         with        whom      the temporary
              financial          arrangements,                        outlined          above,         have     been         made?           ”


              We      have       concluded               that        the    authority           to commit             its     funds         for     future
disbursement                  in the     manner               outlined           ?n your        letter        is not        given      the        Board
by the      Constitution                (Section            49-c
                                                               of Article  III of the                          Constitution               of Texas)
nor    by the       statute           above         mentioned.     and. therefore,                             your first              question
must     be      answered              in the       negative.


              State       Boards             and    Agencies               can       exercise          only    such         authority              as     is
conferred           upon        them         by    the law            of the State of Texas   or necessarily   implied
from     a specific             grant         of authority.                Ft. Worth  Cavalry    Club v. Sheppard.
                                                                                                                 -
125 Tex.           339,        83 S. W. 2d 660 (1935);                           Tri-C’        ity Fresh        Water           Supply            Dist.
No.     2 v.     Mann,           135 Tex.              280,          142 S. W. 2d ’345 (1940).                         This          rule     of        strict
construction              is applied              with        special         emphasis            to statutes               giving      govern-
mental        units       the    authority               to incur           long      term       public       obligations              by         issuing
bonds       or   negotiable              paper        to pay for public   improvements.                                         Foster             -.
of Waco,           113 Tex.             352,        255  S. W.  1104 (1923);  Keel  v.                                Pulte,          10 S. W. 2d
694,     697 (Corn.             App.          1928);          American         Nat.  Ins. Co. v   Donald,    125 Tex.
597,     83 S. W. 2d 947 (1935);                              Citizen;      s Bank v. City of Terrell,    78 Tex.   450,
14 S. W.         1003         (1890).


              Section           49-c         of Article           III      of the      Texas       Constitution                creates             the      Texas
Water       Development                  Board           and      authorizes              it to issue          bonds          bearing              no more




                                                                        -3036-
Honorable                   Howard           B.    Boswell.             page     4                M-634




than      4% interest                 and to use             the     funds       received            from        the      sale       of    such      bonds
w             for       the purpose                of aiding         or     making           funds     available                           to the
various             political             subdivisions             or     bodies        politic       of the State                 of Texas
in the        conservation                   and        development              of the water               resources                of this       state
.          by       the acquisition,                      improvement,                 extension            or     construction                  of dams,
reservoirs                   and other            water      storage            projects                    ‘I (Emphasis                   added.     )


                Section             15 of Article             8280-9,            Vernon’s             Civil       Statutes            (enacted            in
1957),         provides               in part:


                                    “After         the    Board         has     examined             an application                   of a
                political             subdivision             for       financial           assistance            from         the     Fund
                and          determined              by    resolution            that       the     same         should        be ap-
                proved,              the     Board         may       give       financial           assistance            to the po-
                   litical         subdivision             by the purchase                   with     monies             out of the
                   Texas           Water          Development               Fund       of bonds          or      other         securities
                   issued          by the political                 subdivision             for     the purpose                of pro-
                   viding          funds      to finance            a project                       ” (Emphasis                added.        )


This       language                clearly          shows        that     the    Legislature               contemplated                    that     the        Board
would         purchase               the     direct        obligations             of a political                subdivision               seeking         financ-
ing     for        a specific             project.           Neither           the     constitutional              amendment                     quoted         above
(Article             III,        Section      49-c)        nor      the     statute         enacted         in conformity                   therewith               (Ar-
ticle      8280-9)                contain         any     provision            which        would      authorize               the     Board         to enter
into     an executory                      contract         to commit              itself     to purchase                bonds            from     a third
party         or     to purchase                  the political            subdivision’s               refunding              bonds.             In our
opinion.              such         a contract            would       constitute             the     creation           of a debt           in manner
other         than          that    authorized             by Section            49-c        of Article           III,        as   shown          above.
Furthermore.                        it would         constitute           an effort           to avoid           the constitutional                   limita-
tion     upon           interest           rates.


                   As       we     pointed         out above,             on August            5.     1969,       the     voters           refused             to
adopt         the proposed                   amendment               to the        Constitution               eliminating                 the 4% ceiling
on interest.                     Soon      thereafter.              in September.                   1969,        the     Legislature                enacted
Article             8280-9c,              Vernon’s          Civil        Statutes.            Section          2(a)      of    said       .4rticle        pro-
vides:


                                    “In    an order          to accomplish                   the purposes                for       which
                   water           improvement               bonds        were        approved           at an election




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,



    Honorable                Howard          B.        Boswell,          page         5                   M-634




                      or     otherwise            authorized,               a subdivision                    may           sell     its    water
                      improvement                 bonds,          use       the     proceeds                from           the     sale         for
                      the purchase                of     state     bonds           at not less               than          par     and      ac-
                      crued         interest           to date        of delivery,                and        sell      the        state      bonds,
                      even        at a discount,                 to the highest                  bidder.              In such             sale        of
                      state       bonds        at a discount,                 the     net        effective            interest             rate
                      shall       not     exceed         the     maximum                  net     effective                interest         rate
                      at which           such      subdivision                can     legally             sell       its     own        bonds.         ”
                      (Emphasis              added.        )


                      In our        opinion        this        provision            clearly            departs              from          the     authorization
    contained                in Section           49-c      of Article              III    of the         Constitution                    and must                 be held
    to be unconstitutional                         and therefore                    ineffective               to support                  the     action            of the
    Board            in making            the     commitment                  of its        funds           in the manner                    outlined               in your
    letter.            In the absence                  of Section             49-c         the     issuance                of the bonds                    by the         Board
    would        be an attempt                  to create             a debt         within         the       meaning               of Section                    49 of     said
    Article,               and,     except        for     the     provisions                of Section                49-c,         no statute                    could
    authorize                such     action.            This      office          has     previously                 held         that     unless                a contract
    is payable               out of current                revenues,                rather         than          future           revenues,                 it is        in-
    valid       under          Section          49 of Article               III.          Attorney            General’s                 Opinions                  C - 134
    (1963)           and     C-385(         1965).         In other           words,             Section            49-c          of Article                III    was
    adopted            for     the purpose               of authorizing                    the bonds                in question                 and,         unless
    Board            procedures              comply            with     the provisions                      of    said        Section            they         would            con-
    stitute          the     creation           of a debt          not      authorized               by the           terms             of Section                 49 of Ar-
    ticle      III.


                      In implementing                    the      1957      constitutional                    amendment                    (Section                49-c)
    quoted           above         the    Legislature                 could        not vary            or     enlarge             upon          the        authority
    of the       Board            to issue         bonds         and     use       the      funds          from            the    sale      of        such         bonds,
    because            such         a variance             or     enlargement                   would         render              the     statute            invalid
    and       the bonds             void.         81 C. J. S.            1239        States,              Section           179.          Section             15 of Ar-
    ticle      8280-9             quoted        above          conforms            to the provisions                          of Section               49-c          of Ar-
    ticle      III     of the        Constitution,                but the          1969          statute         (Article               8280-9~)              does         not
    conform                to the       constitutional             provision.                    The        latter          statute        attempts                 to
    authorize               political         subdivisions               to purchase                   Water           Development                      Board  bonds
    and       sell     them         at a discount.                    The procedures                    there           authorized                    do not come
    within           the terms            of Section             49-c       of Article              III     and must               fall     as an attempt                        to
    create           a debt,         in violation               of Section            49 of Article                   III     of the        Constitution.




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Honorable            Howard              B.     Boswell,               page        6                M- 634




              In our         opinion           the       1969         statute          attempts           to circumvent                   the     intent
and     spirit       of the         Constitution                 by     doing          indirectly          that        which         cannot        be      ac-
complished             directly.                In Christie               v.    Harris              County           Fresh         Water        Supply
District,         317 S. W. 2d 219,                          226 (Tex.             Civ.         App.       1958,           error         ref.     n. r. e.)
the    Court         said:


                                  “43    Am.         Jur.       382,      Public             Securities              and     Ob-
              ligations,                states:         ‘As      in the        case          of other          restrictions
              designed              to limit           the      contracting                  of indebtedness                  by
              municipal                 corporations                  and other              political          bodies,            nu-
              merous              schemes              have       been         devised           to get        around         the
              statutory             provision               against          a sale           of public          bonds        for
              less      than        par.            Finding           themselves                unable          to    sell    bonds
              at par,             officers           in charge            of bond             issues       frequently
              seek      to accomplish                        indirectly            what         they      are        prohibited
              from       doing           directly.               Needless               to say,          the    courts         have
              been      prompt                to declare              invalid          all     such      indirections.                   As
              in other             cases        where           it is     sought             to do indirectly                 what
              cannot          be        done        directly,           it is the            policy       of the        law     to look
              beyond          the face               of the      transaction                  and     to hold          unlawful
              any      agreement                having           the      effect         of avoiding              the       statutory
              prohibition.                ’


                                  “See     also        Deming           v.      Board           of Sup’rs             of Worth
              County,              237 Iowa             11,      21 N. W. 2d 19,                      162 A. L. R.             391
              et seq.         ; 91 A. L. R.                   7 et seq.         , and          authorities              therein
              collated.            ”


              In view             of the foregoing                     it is our             opinion       that       the     1969        statute,           Article
8280-9c,          is unconstitutional                           and     cannot           support          the        proposed            action       of the
Board,         and that            the provisions                     of Section              49-c       of Article            III   of the        Constitu-
tion    and      of the           1957     statute,             Article         8280-9,               do not authorize,                     either         expressly
or     by necessary                 implication,                 the action              of the          Board         in committing                 its      future
revenues          in the           manner             indicated           by your              letter.          Therefore,                your       first
question         must         be answered                     in the      negative.


              In view             of our       answer            to your           question              No.     1,     it is unnecessary                      to
answer         question             No.        2,     and,       although              some         of the foregoing                  may        bear        upon
question         No.         2,    it is not           intended’directly                       as an answer                  thereto.




                                                                      -3039-
    ,


,


        Honorable             Howard         B.   Boswell,        page     7           M-634




                                                             SUMMARY


                                     The     Texas      Water      Development             Board     cannot        make
                     a commitment                 to a political         subdivision         to purchase           their
                    bonds           in the    future,        subject     to the    later     availability          of monies
                     in the         Texas     Water         Development           Fund.      Section        2(a)   of Article
                     8280-9c,            V. C. S. , is unconstitutional.


                                                                         Respkp;ully          submitted,




                                                                         Attorn           General      of Texas
                                                                                   8

        Prepared             by    Ralph     R.   Rash
        Assistant            Attorney        General


        APPROVED:
        OPINION          COMMITTEE


        Kerns       Taylor,          Chairman
        W. E.     Allen,           Acting     Co-Chairman


        Joseph      H.         Sharpley
        Harold      Kennedy
        John     Reeves
        Jay     Floyd
        Earl     Hines
        Roger       Tyler


        MEADE           F.        GRIFFIN               ”
        Staff    Legal        Assistant


        ALFRED           WALKER
        Executive            Assistant


        NOLA        WHITE
        First     Assistant




                                                                -3040-
