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                                 October   24,    1988




         Mr. Glen Iiartman                 Opinion NO.   JM-969
         Executive Director
         Texas Public Finance              Re:    Whether all bonds to be
            Authority                      used to fund a project must
         P. 0. Box 12906                   be issued    before formaliza-
         Austin, Texas   70711             tion of construction      con-
                                           tracts    (RQ-1454)

         Dear Mr. Hartman:

              The Texas Public Finance Authority     is empowered    to
         issue and sell bonds in its name to finance the acquisition,
         construction, repair, renovation, or other improvement      of
         buildings and other facilities for the use of state agencies
         in Travis   County. V.T.C.S.   art. 601d, g 9.     Before the
         board may issue and sell bonds, the legislature must have
         authorized the specific project which the bonds are to
         finance. a     S 10; See also V.T.C.S. art. 717k-7   (approval
         of issuance by bond review board). The authority's power to
         finance a project does not affect the statutory authority of
         the State Purchasing and General Services Commission, or any
         other state agency or institution, to build the buildings.
         V.T.C.S. art. 601d, 5 l&(a).

              Under the authority  of article 601d-1, V.T.C.S.,    the
         Public Finance Authority may issue general obligation   bonds
         and revenue bonds and distribute bond proceeds to certain
         agencies for corrections institutions and mental health   and
         mental retardation institutions. V.T.C.S. art. 60ld-1, 55 4,
         5: w    Tex. Con&.   art. III, S 49-h (authorizing general
         obligation  bonds).   Specific   projects must have      been
         authorized by the legislature,   and the bonds may not be
         issued or the bond proceeds used to finance a project unless
         the issuance or project has been approved by the bond review
         board. V.T.C.S. art. 6016-1, 5.6 2(d), 10.

              You inform us that agencies undertaking a construction
         project have on occasion asked the board of directors of the
         authority to have all proceeds from the bond issue necessary
         to fund a given project in the treasury and available    for




                                      p.   a929
Mr. Glen Hartman - Page 2   (JM-969)




expenditure before they enter into any contract related to
the construction.  Recently, representatives from the Texas
Department of Corrections stated that all the funds re-
guested for prison construction   had to be available    for
disbursement prior to their entering into any contracts  for
projects to be built with bond proceeds.    On the basis of
this information, you ask the following question:

        [W]hat constitutional  or legislative autho-
        rity, if any, requires that all bonds to be
        used to fund a given project to completion
        must be issued before construction-related
        contracts may be formalized.

     On examination of the relevant statutes and constitu-
tional provisions,  we find no definitive answer to your
question.  However, we can point out certain provisions  of
law, the effect of which must be considered by the board in
determining the timing of bond approvals.

     The legislation governing the Public Finance Authority
is inconclusive as to such a requirement.   On the issuance
of revenue bonds, the board is required to notify the appro-
priate agency that the funds are available and to deposit        _-
the bond proceeds in the state treasury.      V.T.C.S.  art.
601d, 5 23; V.T.C.S. art. 601d-1, f 5. "Once the funds are
deposited and the comptroller of public accounts has certi-
fied that the funds are available . . . the aDDroDriatg
                                  .II V.T.C.S. art. 601d-1,
5 5 (emphasis added): see also V.T.C.S.    art. 601d, 5 23.
The underlined language indicates the intent of the legis-
lature that construction   not begin until the funds are
available.  There   is not, however,   a similar provision
pertaining to the issuance of general obligation bonds.

     Also relevant to your question are some of the general
rules of contract law which apply to the state and private
parties alike and constitutional    provisions applicable   to
the state of Texas. A contract is not binding unless it is
supported by consideration.   Stone v. Morrison 6 Powers   290
S.W. 538 (Tex. Comm'n App. 1927, holding approved).   A State
agency moreover cannot make a binding contract for construc-
tion of facilities unless the contract provides for payment;
otherwise, it would be invalid for attempting to create a
debt in violation of article   III, section 44, of the Texas
Constitution. Port Worth Cavalrv Club v. SheDDard, 83 S.W.2d
660 (Tex. 1935). The legislature may not appropriate     funds
from the treasury  in payment   of a claim under an invalid




                            p. 4930
Mr. Glen Hartman - Page 3   (JM-969)




contract. &S &2&,@     v. Fw       44 S.W. 480 (Tex. 1898);
State-            I 236 S.W.2d 8;6  (Tex. Civ. App. - Austin
1951, writ ref'd); Tex. Const. art. III, g 44; art. VIII,
8 6.
      Parties may enter into a valid and binding contract by
exchanging promises.    Teaoue v. Edwar-:    315 S.W.Zd   ;;;
(Tex. 1958); Texas-
S.W. 1101 (Tex. 1923). A conditional     promise can pr&ide
valid  consideration for a contract. Beaumont Traction Co v.
           & Ft. S. Railwav Co., 123 S.W. 124 (Tex. 19;)9);
Rose v. San Antonio & M. G. R. Co. 31 Tex. 49 (1868).     For
example, a state agency may enter' into a binding    contract
for a longer time than the two-year term for which appro-
priations are valid under article VIII, section 6, of the
constitution if the contract states that payment       there-
under is subject to the availability of appropriated   funds.
Attorney General Opinions M-656 (1970); M-253 (1968); C-206
 (1964). If, however, the legislature decides not to appro-
priate funds in payment of the contract, the comptroller may
not issue a warrant in payment to the party contracting with
the state. Attorney General Opinion C-206 (1964).

     Thus, although a state agency might be able to enter
into a legally binding   construction contract which makes
payment contingent on the Public Finance Authority    taking
actions in the future to provide funding for the contract,
this contract   term   would raise significant     practical
problems for the agency which needs a new facility and the
construction companies interested in building it. Moreover,
if under a particular contract, performance of the npromise'*
is entirely optional with the person who made the promise,
it is not consideration    for the contract.     Restatement
(Second) of Contracts 5 77   (1981). How these legal consi-
derations would apply to particular contract situations
cannot be determined in the opinion process.

                       SUMMARY

           Construction  financed by revenue bonds
        issued by the Texas Public Finance Authority
        may not begin until the bond proceeds      are
        deposited   in the state treasury    and the
        comptroller has certified that the funds are
        available.    No statute or    constitutional
        provision requires the Texas Public Finance
        Authority to issue all general obligation
        bonds needed to fund a given project to




                            p. 4931
                                                               .
Mr. Glen Hartman - Page 4     (JM-969)




        completion before construction-related   con-
        racts may be formalized.   The state may not
        make a binding contract without provision for
        payment, although payment provisions may be
        contingent on the availability of funds.




                                   JIM     MATTOX
                                   Attorney General of Texas

MARYKELLER
First Assistant Attorney General

Lou MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STRARLRY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General




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