                                         The Attorney              General of Texas
                                                              December 31.     1984
A4     MAlTOX
Attorney General


                                      Ms. Rita Honitz                                       Opinion   No. m-291
Supreme Coufl Suildin9
f- 0. son 1254s                       Executive Director
, :s:in, TX. 78711. 2549              State Pension Revlw Iboard                            Re: Whether a member of the
:.2!475-2501                          P. 0. Box 13498                                       board of trustees     of a local
Telex 91wS74-1367
                                      Austin,  Texas    78711                               pension plan violates    article
-   Im3Jplor    51214750288
                                                                                            988b,    V.T.C.S..  In certain
                                                                                            circumstances
714 Jackson. Suite 700
Plllas. TX. 75202-4506                Dear Ms. liorwite:
   U742.8944

                                             You seek au interpretation     of article   988b, V.T.C.S..   informally
‘-24 Albefla Ave.. Suile        160   known as the local     o!:flcials  conflict    of Interest act.    You ask tvo
   Paso, 7X. 799052793                questions    with regard     to the effect    of the act upon the board of
blY5333S4                             trustees   of the Dallarr Police and Fire Pension Fund:

       iaxar.    Suite 700
                                                        1. Does B board member’s $2500 investment                  in
houiton,       TX. 77002.3111                      the     stock     of a business     entity   constitute          a 1
713i22MSSS                                         ‘substantia:l       interest’   under .sectloa      2(a)        of
                                                   article     9881)‘!

SW3 Broadway. Suite 312
Lubbock. TX. 79401.3479
                                                       2.   Does a board member’s $2500 participation
    617476238
                                                   in a deferred        compensation    program constitute  a
                                                   ‘substantla:t      interest’     under   section   2(a) of
                                                   article    9881,:!
4309 N. Tenlh. SWe S
  :Allen. TX. 7S5Ol~lSSS
  21682.4Y7
                                              Article     988b III a comprehensive          local   conflict       of interest
                                      statute     vhich    applie:l    to a broad range of local           public    officials.
                                      Before the enactment of article             988b, no single     conflict      of interest
    D Main Plaza. Suite 400           statute     applied    generally    to all local public      officials.        See. e.g..
    m Antonio. TX. 182052797
                                      Woolridge v. Folsom, 564 S.W.2d 471 (Tex. Clv. App. - Dallas                      1978. no
cl12/225-4191
                                      writ).      Article   988b wplaced      article   988. V.T.C.S.,      repealed    in 1983.
                                      Acts 1983. 68th Leg., ch. 640, 57, at 4082.                  Article     988 was also a
                                      conflict      of interest      statute,    but it    applied   only to general            law
                                      cities.      Id.    Article   088b is not limited      to general     lav cities.

                                            Article     988b a?l>lies   a fairly      narrow     conflict          of   interest
                                      prohibition     to a broad group of local public officials.                  Section    l(1)
                                      of article       988b defi,nes  “local   public     official”       to       include     the
                                      following:




                                                                     p. 1293
Ms. Rlta    Horvftz   - Psge 2 (JM-291)




             a member of the goveruing             body or another officer,
             whether elected          or rqlpointed,     paid or unpaid,         of
             any      district       (incl.ctdlng    a    school     district),
             county,         city *      precinct,       central       appraisal
             district,       transit    aut’hority    or district.      or other
             local      governmental        entity   who exercises        respon-
             sibilities         beyond     ,%ose    that    are    advisory      in
             nature.        (Emphasis aacied).

      A  preliminary   question    must be resolved      of whether article        988b
applies   at all to the Dallas         Police and Fire Pension Fund Board of
TNSteeS.      No reported    cases deal directly      wfth the applicability          of
article   988b to a similar       bo;lrd of trustees.       Nevertheless,      several
courts   have dealt vith     similar    boards in other contexts;         these cases
must be addressed    In an analysis      of article   988b.

        The court    in Bolen v. Board of Firemen, Policemen and Fire Alarm
Operators       Trustees    of San AKtonio, Texas,          308 S.W.Zd 904-06        (Tex.
Civ. App.       - San Antonio       195r, writ     ref’d),    held   that   a similarly
constituted      board with powers parallel         to those of the board in issue
was simply not a political           carporation     or a political      subdivlslon     of
the state.        The court dealt with the pension board In the context                  of
srticle     III, section     52 of the Texas Constitution.           a provision     which
is not In issue here.         On the other     hand, prior to the Bolen case, the
Commission       of Appeals    held    that;   although    contributi%?made          by a
municipality       to a pension    fund pursuant      to article    6243a. the statute
authorizing       the fund in question        here,    do not violate      article    III.
section     52. such funds are ne\,ertheless         part of a "pblic       fund subject
to the control         of the 1egis:tature.v         (Emphasis    ad&r        McGuire v.
City of Dallas,        170 S.W.Zd 72i., 727-28 (Tex. 1943).

       The court in Creps v. BocEd of Firemen's Relief 6 Retirement       Fund
Trustees     of Amarillo,   456 S.V.2d 434. 439 (Tex. Civ. App. - Amarillo
1970, writ ref’d n.r.e.1.       heli  that a statutory  trust is not governed
by the Texas Trust Act,          the laws noverninn- the administration     of
private    trusts.    The court in !a      dealt with a fund created pursuant
to article     6243e.

       Similarly,    this office    clecided that the board of trustees          of a
Firamens’     Pension     and Retirement      Fund formed pursuant       to article
6243e, V.T.C.S..       is a "govew,mental        body" for purposes    of the Open
Meetings     Act,   article   6252-17.     V.T.C.S.     Attorney   General    Opinion
MU-506 (1982).         The relationship       between municipalities       and their
various   pension    fund boards cf trustees        as set forth in article     6243e
and the article      which authoriz,zd    the creation    of the Dallas Police and
Fire Pension Fund are analogol.;.          -See V.T.C.S. art.6243a.
       Consequently. the pension   fund board of trustees about which you
 inquire  may be a local  goveruaental   entity for some purposes and not




                                             p. 1294
Ms. Rita   Horwitz    - Page 3       (JN-291)




for others.      see also l4uzqui:c V. City of San Antonio,            586 F.2d 529
(5th Cir.     1978) (a similar      fund may be “like          a municipality”     for
purposes    of Civil    Rights Act.       42 U.S.C.    11983 (1982)).       Moreover,
unlike    the phrase “or other       ,political    corporation    or subdivision,”
which was construed       in the :)olen case not to include            a particular
pension fund board of trwsteei),‘-ehe         test in article    988b was intended
to address    a different    problem and is phrased broadly to lncludg             any
entity   that “exercises    respon#;ibilities     beyond those that are advisory
in nature.”     V.T.C.S. art. 98fRl. 11(l).

       The board of trustees          ia the instant        case Is composed of city
officials     serving    ex officio      and of members of the fire              and police
departments      elected    by the c~,ntributors        to the fund.         V.T.C.S.   art.
6243a. il.      The city treasurer        serves as ex officio          treasurer    for the
fund.     Id. 55.       Article    624:Ia grants      the board broad authority            to
administer     the fund.       Id. )Il.   lC, 15.      Moreover, the board holds the
power to reduce the percentages              (stipulated      in article      6243a) which
deal with disabilities           or w11:b awards granted to beneficiaries.               Id.
51.     Thus, the board clearly         “exercises     responsibilities       beyond those
that are advisory         in nature.”       Accordingly,      article     988b applies     to
the Dallas Police and Fire Pension Fund Board of Trustees.

      A    local   public   official     commits      a Class     A misdemeanor   under
section    3(a)(l)   of article    9811b, except     in those    instances provided   in
section     5, tf he “knowingly”

                 participates     in II vote or decision        on a matter
             involving     a business      entity     in which the local
             public official       bar, a substantial       Interest   if it
             is reasonably      forelseeable      that   an action   on the
             matter would confer          an economic benefit        to the
             business    entity   inv,,:Lved. . . . (Emphasis added).

       The elements      of the offense         involve    several   factual    determina-
tions.      See
            -     Attorney   General      Oplnlon     JM-178   (1984).    Your    question,
however,      pertains   only to sec:t.ion 2 of the act, which indicates                 what
constitutes        a “substantial       interest.”       In particular,       you inquire
about the meaning of section            Z(a)(l);    this subsection     indicates     that a
person has a substantial          inter,est    in a business     if

                  the interest  is ovJnership of 10 percent or more
              of the voting     stock  or shares    of the business
              entity  or ownership of $2,500 or more of the fair
              market  value of the ~bunlness entity.   . . .

Two different      interpretations       of this   language     have been suggested.

        It has been suggested     ,that the           legislature     meant to draw a
 distinction   in section 2(a)(L)    between         stock-issuing     corporations and




                                         p. 1295
I&.   Rita   Rorwitz   - Page 4       (JM-:!!bl)




business   entities   which do no1 issue   stock,   and to apply the $2500
limitation   only to the latter.   In our opinion,     however, the language
of the statute      cannot be so construed.       It is applicable    to the
“ownership   of $2500 or more of the fair market value” of a “business
lntfty.”
       You express     concern      that,    if the legislature           did intend a $2500
Investment     in stock to be a oabstantial                 interest      undes. the statute,
the board vould be paralyzed;             it   is quite likely         that individual     board
members might own at least $2500 worth of stock in a large corporation
in which the board might vaut                    to invest       pension      funds.     Section
3(a)(l).,   article     988b. requires         officials      to abstain       from voting       on
investment      decisions       involving       corporations         in which      they   own a
substantial     interest.       If a $2500 stock investment              were interpreted        to
he a substantial          interest.     abs,tentions       could be frequent.           Contrast
art. 988b. 12(a)(l)~ with art. 6252-9b.                  12(12)(B).

      Nevertheless,  the langual:c! enacted    by the legislature       applies
both the 10 percent       limit   and the $2500 limit      to “the business
rntity . ” “Business  entity”   Is d.efined by the statute   to include

              a     sole     proprietorship,               partnership,         firm,
              corporation,     holding     cmpany,         joint-stock       company,
              receivership,        trust,,     or          an9      other      entity
              recognized    in lav.

Ait:    988b,     11(2).       In construing    a statute,    it is no; ordinarily
permissible       to imply an exceqtion          vhere none ma9 be found in the
statute’s     literal    language.      Amrd v. Reard. 305 S.W.Zd 231 (Tex. Civ.
APP. - Galveston          1957, writ-;ef     ‘d) .   We conclude    therefore     that a
board member’s ownership of $2!iOO of the stock of any business                  entity,
including     one that       issues  sto&.   constitutes   a “substantial     Interest”
under section       2(a)(l).

        You also ask whether funds invested         by the board in a deferred
 compensation     program are subject       to article     988b.     The potential
 problem Is that a city offici,n:L who serves as a pension             fund trustee
 may have an interest       in a def’erred   compensation    system in which the
 pension   fund might vish     to Invest.     We must first      determine   vhether
 the board of trustees         may knvest     pension    funds    in a government
 employees’ deferred      compensat:ton   program at all.       The trustees     of a
 statutory    trust   have only thwe      powers and duties      set forth    in the
 statute   which authorized    the creation    of the oarticular     uension   fund.
 Creps v. Board .of Firemen’s_Relief            h Retirement     Fund Trustees       of
 Amarillo,   supra at 439.

      Section      15(b) of article   ,5243a is             a guide    for    those     investments
 the board is      authorized to make:




                                               p.   1296
Ms. Rita   Horvitz    - Page 5 (Jh-291)




                 In      making      investments        and       supervising
             investments,      members of the          Board of Trustees
             shall    exercise    the judgment        and care under the
             circumstances       then     prevailing,       which     men     of
             ordinary      prudence,     discretion      and Intelligence
             exercise     In the mana:gement of their           own affairs.
             not in regard        to ;tpeculation       but in regard         to
             probable     income thewfrom       as well as the probable
             safety    of their capital.

Thus, unlike provisions       which   govern other,     similar      types   of pension
fund trustees,     the board is nat expressly      limited     to specific      types of
investments.      Compare art.     6%3a,    115(b) with      art.     6243e.   123;   see
Attorney     General   Opinions   MU-506 (1982);n-607             (1970).     Thus, the
board could conceivably       consi~ier investing     in some type of “deferred
compensation”     program if the investment      met the test of article           6243a.
section   15(b).

       You do not,        however,   indicate     just    what   sort    of   deferred
compensation      program is in iwue.          As used by the legislature’           the
term “deferred      compensation” refers      to deferred    compensation    plans for
public    employees    as authorized    by article     6252-3b,   V.T.C.S.      Article
6252-3b does not create a program involving             the sale of bonds or other
investments;      thus it is not a program in which the board could invest
pension      funds.      Compare V.:l.,C.S.. Title       1LOB. Public       Retirement
Systems,     165.105 (1983 pamphlet) (authorizes          the Municipal     Retirement.
System to issue        bonds).     Cowequently , if the board cannot             invest
funds    in this     program,    no toard member could hsve           a conflict       of
interest     by participating      in s board vote or decision            on a matter
involving     investment    in this deferred    compensation    program.

        If, on the other hand, you refer to “deferred                  compensation”      in a
generic     sense.     i.e.   with regal:cl to retirement       plans generally,       and in
a context       otherthan        article    6252-3b,    a conflict      of interest      under
article     988b depends upon the --       nature of the interest        held by the board
member.       See, e.g.,       Creps v. _I)oard of Firemen’s         Relief    6 Retirement
Fund Trustees        of Amarillo,      afa      at 437; cf. art. 6252-3b (contractual
deferred      compensation        program may differfrom            retirement     program).
Accordingly’        this office       cann3.c answer,    in the abstract,       vhether     all
or any employees’             “deferred     compensation”     programs      could    cause      a
conflict       of    interest      under     article    988b vithout         examining      the
particular       program.       Board members will        have to acquaint        themselves
vith the portfolio          of any such program in which they have an interest
and refrain        from participating         in a board decision        when any security
that is a part of that portfo1.i.o is the subject                  of a decision.      if the
trustee’s      pro rata holding of that security              through the program is a
substantial       interest     as defined by article       988b.




                                          ,>. 1297
Ms. Rita     Ronitz       - Page 6      (JM-:291)




                   Section    ?(a)(l)     of     article       988b.   V.T.C.S.,
              prohibits     a board member of the Dallas Police and
              Fire Pension Fund :Srom voting               to invest     pension
              funds in any business           entity     in which he holds a
              $2500 ownership         interest,       whether      or not that
              Interest     is   in a tlusiness          entity     which issues
              stock.

                  Because a deferred      compensation     program under
              article    6252-3b    is not the sort      of program in
              which a pension fund board of trustees           could vote
              to Invest.    article   988b is inapplicable.




                                                            JIM        UATTOX
                                                            Attorney    General of Texas

TOU GREEN
First Assistant           Attorney   General         .

 DAVID R. RICEARDS
 Executive Assistant Attorney              General

 RICR GILPIN
 Chairman, Opinion           Committee

 Prepared     by Jennifer       Riggs
 Assistant     Attorney       General

 APPROVRD:
 OPINIONCOMMITTEE

 Rick Gilpln,   Chairman
 Susan Garrison
 Tony Guillory
 Jim Moellinger
 Jennifer  Riggs




                                                         p. 1298
