                              The Attorney General of Texas
                                                June 22,   1984
JIM MAnOX
Attorney General



BUpIW7                     Honorable Carl A. Parker                    Opioio~   NO.   JM-178
P.
Atntln.TX. 70lll- 2548     c!-irun
512/4752501                Senate Eduutha Codttee                      Ile: Whether au officer of
Telex 9lwEl711567          'TexaeState 8enate                          banklug inetitutionwho eervee
Tdwo~lor 5W475.0288        P, 0. Box 12068.Capitol Station             am a member of the board of
                           ~Austln,Texu    78711                       higher education authority
714Jackson.Suit. 700                   ,                               eubject to article 988b.
oallaa, TX. 752024506                                                  V.T.C.S.
214il42a44
                           Dear SenatorParker:
4824AlberM Avr. Buna 1w
El Paso. TX. 7WO527W           You have .a&d the followingtwo quutimcr relating to the bill
01-                        frequently-referredto ae the Local Offlciale Conflict of Intereet
                           Bill:

                                         ,(l) Ia ac offlclal of a .backlcginetitutlon
                                      le~iog.ae a member of the board.:of
                                                                        dlrectoraof a
                                       hlgber ,,..educatioa
                                                         authority a 'local public
                                      .offlckl! under the.prwimlone of article 988b.
                                     j 7.T.C.S.T.~           .'   .,           3r.

                                               (2) If eo, and if the financial lnetltutlon
                                  ,i        yit~+tlch+qch~,boatdmember 1~ meociated. or aa
                             .>:'rqp   .I ~~fl&i+~e~,~~laatltatlon~  acb   am :1 Iback,aolding
                             -~'t ,-~-.
                                     ( 2c:.>$?qfmY~$ ,av-        t+.-makee::m:etudent:,.-~loace
                           !:,>Ti
                                I,)'7 ,,;sutnnteca.~b~'il~hipher    ~edacu:oa~cothorlty;  .doee
                                            euch board member then vioIate the prwieione of
200 MaIn PIUL suna 400                      •~~~1~,,,~988b.br~,particlpatlag In a vote or
Ban Antonlo. TX. 7Bm527w           ..,II   ..$e@eIpILof.tha board .ofdlrectoroIf hla back or
512G254181                              .,,filuncia~ lnetitutloca~::~affillatedtherevith
                                            recelvea..ln~ereet..:Ancome'011ln.~:eligible
                                                                                       etudect
An Equal oppwtunlty/                        $oan o~/procecdepeld in the ,weat of default oc
Aftlmutlva Actton Empkwr                    euch loan frao,,tho <guaraatee.fuad of the higher
                                            educationlutborlty?

                                 He con&de    that r-member of the board of directoreof a higher
                           lducatloc.aiihorltyie    l local.publicofficialuithia   the maniag
                           the Local OfficialaZocflict of Intereat Bill and. therefore.
                           subject   to the applicableprovieioneof the act.     It ie our opinion
                           thet    a board member ufth    a lubetantial interest in a lending
                           lcetltutloc vlolatee the urovleiono~of thet act bv knovlcgb
                            If

Honorable Carl A. Parker - Page 2   (JIG178)




participatingin a vote oredecisionof the board of directorsif the
member caa reasonablyforeecc that such action vi11 result In receipt
of Interest incolleetothe lending Institutionfrom eligible student
loans.

    Section l(1). article 988b. V.T.C.S. defines a "local public
official"as*
           .

          a member of the governingbody or another.offlcar.
          whether elected o tlppolated,paid ot unpaid. of
          any district (lncludlnS e school district),
          -U-Y.     city. precinct, central lppralaal
          diatrlct.transitauthorityor district.or other
          local   gave-ntal       entity UhO'      exercl8ee
          reaponsibilitiee beyond those that are advlaoryln
          nature.

      A higher educationauthorityIs craatedunder chapter 53 of the
 Texas EducationCode by the governingbody of a city or cities. Sec.
 53.11. .An-authority Isa "body politic.andcorporate"which may sue
 and be cued and may Uke. rrcnd. aad repeal its bylaws. Sec. 53.13.
 It is a governmentalbody mhlch is subject to the Cpen MeetingsAct,
 article 6252-17. V.T.C.S.. and to the Open Records Act, article
 625247a. V.T.C.S.'See AttorneyGeneralOpinionIfW-177(1980). It %e
 a local .gove-ntal: entity vhlch is governed by ltn board of
~dltectora. Sec. 53.14. A member of -such'aboard clearly exercises
 reeponalbUltlea beyond thorn8 that are advisory in nature and is
 subject to tha provialoas in article 988b vrhlch prohibit certain
 conduct.

  -~:.A.~
        .local~publlc-@rofflcial
                               c&to    a Claaa A tiedemeanor under
.section:S(a)@)of lrt4cle9SSb, ciecpt'lnthose lnmtancesprwidad.ln
'rectionb~~-(~ich:-pn*~ldes'~~tar~~al~for ~ibmtcntioa frop voting on
utt~~wh&ivthe~&ffclaf        la &atercsted)3f he knwingly
                 ._ c,,..~,..
          partldpatea'ina'vote or 'dedisionon a Utter
          invoWing ~.a bualnees entltp in ~whlch the local
   .      publioiofficial.haa‘a aubstaatlalinterest If it
          is reaaonably~'foreseaable'that'an ~actlonon the
          rtter ~vouldconfer an 'ecoiioric .benefltto the
          businessentity iaoolved . . . .

     The elements of the offenae involve aeveral factual
determinations.one of.uhichis vhethcr a local public officialhas a
lubstaatlalinterest In the business entity. Under eection 2 of the
act. a pereon has a oubstantlalInterestIn a business if:

             (1) the lntercrtIs ownershipof 10 percent or
          lora of the votluS stock or shares of the business



                                 p. 780
HonorableCarl A. Varker - Page 3 (J&178)




         entity or ownershipof $2.500 ot ore of the fair
         rrket value of the businessentity;or

            (2) :fuade received by the pereou from the
        ..bueineeeeutlty:e.xceed,10~percent
                                          of,the person's
         gross lncoms for the previousyeet . . . .

AIao. ao Interestof a peraon releted la the first or seconddegree by
either affix&y or coneanguinltyto the local public official is a
"eubetmtlal~lntereet."~  Sec. 2(c).
    ..::'+
         ,.
  .~~,~~.loca.public offlclalmust knowinglyparticipatein a vote or
d&i&m    'ou 'a'ratter .prohlbitedby article 988b to violate the
provlaionaof.tbatact. Section3(a)(l)appears to refer to aa actlou
ou a,.~eatter if .it ie .~reaeouablyforeseeablethat the action will
coafer s    lconoeic benefit to the business entity in queetloa,
regardleerof the source or the emouat of ecouomicbeaeflt.

     The student higher lducatiou loaae in question usually are made
by private leading inetitutioneat interest ratee 'lover than the
geuerally avaiIablerates. We understandthat until the loan is in
pay-back etatus, the holder of the loan recelvee from the federal
gwe-t      aa lntereet subsidy payment for the facial emouot of the
interest plus a variable leaders lpeclal lllmemce that brings the
interestlucoms up to the regularmarket level of Interest. When the
loan is la pay-back etatue. the student borrower pays the Interest
eubeidy payments ou reeainlug unpaid balances. and the federal
gwenmeet cootlnuee payment of the lenders epecial allovauce. In
case of default,the higher educationauthority~guaraateeing  tha loan
pays the ltudent'eunpaidprincipaland intereat. We believe that the
interest income to a lending Institution that it receives lo the
holder of a guaranteedatudeat loau constitutesau lcouoeic benefit
within the meealng of article988b.

    Therefore,leeuelug t&t a mmber of the board of directoreof a
higher lducatlou luthotity has a "eubetantlalinterest"in a leading
lnetltutloe.ve believe the hoard member vioIatee the provieioueof
article 988b ff the member kwvlmgly pattlcipatea In a vote or
decisionof the board vhea the member can reasonablyforeseethat euch
action vlll result la the leodiog inetltutiou receiving lnteteet
iacorc oe eligible ltudent loaae or receiving any other eccmmic
benefitfrom the higher educationauthority'sstudent loan program.

                           SUHMARY

            A camber of the board of directorsof a higher
         education authority is a public official vithin
         the eaaning of article 988b. V.T.C.S. Such a
         hoard member with a aubetantiel iatereet in a



                                p. 789
HonorableCarl A. Parker - Pa&e 4    (JH-178)




            lendinginetitutionvlolateethat act by knwingly
            participatiagla a vote or declelon of the board
            of directorsif the Prober can reasonablyforesee
            that such actionwL:llreeult in InterestIncome to
            the lending inetltstionfrom guaranteed student
            loeae.




                                       J k
                                          Verytrulyyou

                                                fk
                                          JIM        WATTOX
                                          Attorney    Generalof Texee

TOM GREEN
First AssistantAttorney   General

DAVID R. RICRARDS
ExecutiveAssistantAttorney   General

Preparedby Nancy Sutton
AeeisteutAttorneyGeneral

APPRGVRD:


Rick Gilpln.Chaimea
David Brooke
Colln Carl
Swan Garrieoo
JlmHoelIlnger
Nancy Sutton




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