                      _ December 29, 1988




Honorable Bruce Gibson                    Opinion No.   JM-1000
Chairman
Committee on Financial Institutions       Re:   Whether a school
Texas House of Representatives            district may rent a
P. 0. Box 2910                            school building   owned
Austin, Texas ,78769                      by a nonprofit founda-
                                          tion   under    certain
                                          circumstances       and
                                          related questions
                                          (RQ-1476)

Dear Representative   Gibson:

     you request an opinion about certain powers of an
independent  school   district.   YOU   report that  rapid
fluctuations in the population    of the district make  it
difficult to plan for adequate classroom facilities.   YOU
describe the following proposal which the district      is
considering to deal with this problem.

        To save money and provide higher quality
        facilities, the district    is interested   in
        using removable classroom facilities acquired
        through a non-profit corporation that will be
        created by citizens of the school district to
        provide adjunct services to the school dis-
        trict as a tax-qualified public    foundation.
        The district will not be officially   involved
        in the creation,   organization, or operation
        of the foundation.

YOU note that two alternative plans are under consideration
using such a foundation to provide for the contemplated
classroom facilities.

           The foundation will issue bonds or notes
        to acquire a site and construct or install
        removable modular classroom buildings.    The
        bonds or notes will be secured by a deed of
        trust lien on the premises and will be pay-
        able solely from rentals paid by the district
        or a successor tenant or from proceeds of a



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       sale of the property.  The district will rent
       the facilities for a one-year term with the
       option to extend the tenancy annually for 25
       year.s; the district's   obligation  will be
       subject to the budgeting of the necessary
       amounts. The district will pay rent monthly
       or semiannually in fixed amounts that equal
       the amount due in a fiscal year on the found-
       ation's bonds plus any insurance and similar
       costs. On the date the district ceases to
       pay rent or the expiration     of 25 years,
       whichever  comes first, possession    of the
       property will return to the foundation.   The
       district believes interest on these bonds  is
       subject to federal income taxes.

          The second plan is the same as the first
       except that, before the bonds are issued, the
       foundation and district will agree that on
       full payment    of the    bonds the     rental
       agreement will terminate  and the foundation
       will convey title to the property     to the
       district, which will have agreed in advance
       to accept the donation of the property.    The
       board of the school district will adopt a
       resolution approving the foundation's     pur-
       poses and activities and consenting to the
       issuance of the foundation%    bonds for the
       described purposes.   Under this plan, the
       district believes the bonds can be issued on
       a tax-exempt basis under federal law.

     We provide you with our opinion on each of the
questions  you   ask in    relation to  the plans    under
consideration by the district. We have grouped  questions
one and two together,   along with our answers.   Question
three is addressed separately.

           (1) May the district,    under the law of
       this state      (including Section    20.48(c),
       Education Code), rent a school building owned
       by a     nonprofit    foundation   created    by
       interested citizens under these circumstanc-
       es, assuming:     (i) the    district  is    not
       obligated to pay rent or occupy the premises
       beyond the current fiscal year and does not
       create a debt:    (ii) funds are budgeted    for
       the year in which the rent is due: and     (iii)
       the nonprofit foundation retains title to the
       facilities?




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           (2) May the district, under the law of
        this state (including Section 23.26, Educa-
        tion Code), accept a donation of the property
        from the foundation after the bonds are paid
        in full?

     The trustees   of an independent school district have
exclusive power   "to manage and govern the public        free
schools of the district."    Educ. Code 5 23.26; Trustees   of
the Index. School    Dist.  of  Cleburne  v.  Johnson   County
Democratic  Executive   Comm., 52 S.W.2d 71 (Tex. 1932);
Attorney General Opinion JM-531 (1986); see also Attorney
General Opinion M-1047     (1972).   The discretion    of the
trustees is limited only to the extent that they may not
enter into agreements outside of the governmental     purposes
of the district.    In other words, every transaction    which
they approve must relate to the operation of the public
schools entrusted to their care. See River Rd. Neighborhood
Ass'n. v. South Texas Svorts, 720 S.W.2d 551 (Tex. App. -
San Antonio 1986, writ dism'd; Rovse Indev. School Dist. v.
Reinhardt, 159 S.W. 1010 (Tex. Civ. App. - Dallas 1913, writ
ref'd); Attorney General Opinion M-1047 (1972).

     Additionally, the specifically enumerated powers of the
trustees include the power to spend local tax funds for
"renting school houses," Educ. Code § 20.48(c),      and to
accept donations.    Educ.   Code 5 23.26(a).    Thus,   the
trustees of the school district may arrange to rent portable
classroom buildings and to accept a donation of the build-
ings from a private  foundation, subject to the limitations
discussed below.

     As a matter of law, an independent school district  may
not expend money except according to a budget item adopted
in due course as prescribed by law. Educ. Code 5 23.47(a);
see also 0 4.03(c). Of course, the question of whether   the
trustees have properly exercised these powers in relation to
a particular transaction concerning the lease of classroom
space ("school houses") also is in part a question of fact.
See River Road; Rovse Citv, suvra. Thus, whether or not a
lease transaction  results in fair value for the school
district is a question of fact which this office cannot
resolve. See, e.g., Attorney General Opinion JM-486 (1986).

     You also ask:

           Under Section 272.001(b)(5), Local Govern-
        ment Code, may the district, without competi-
        tive bidding,  sell a site for the school
        facilities to the foundation for development
        in accordance with the rental agreement    if
        the foundation's bond issue includes, and the



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        foundation pays to the district, an amount
        equal to the fair market value of         the
        property that will be paid to the district?

     An independent school district may sell its land only
if the proceeds of the transfer are used for "the purchase
of more convenient   and more desirable   school property"   or
for "the construction or repairing of school buildings"      or
for deposit "to the credit of the local maintenance fund of
the district."     Educ.   Code 5 23.30    (emphasis   added).
Additionally, the    property must no longer be needed      for
school purposes.   Attorney General Opinion O-1570 (1939).
Because, under the facts you have provided, the land in
question will be conveyed to a private party which will
erect structures   on it which will be leased back to the
school district   and used as classrooms,    the district   can
hardly claim that the land is "no longer needed for school
purposes."    In fact, under such a plan, the land is
precisely needed   for school purposes.    The district    thus
lacks the authority      to convey the land to a private
foundation for such purposes. We, therefore, need not reach
questions concerning the application    of section 272.001   of
the Local Government Code.

     Additionally,    several  aspects   of   the   proposed
transactions   contained   in the   second proposal    raise
questions about the authority   of the school district    to
proceed with its participation in such a plan. YOU relate
that, under that arrangement, the district, before bonds are
issued by a private foundation, must agree that:

           (1) on full payment    of the bonds the
        rental agreement will terminate     and  the
        foundation will convey title to the property
        to the district, which will have agreed   in
        advance to accept     the donation   of  the
        property:

           (2) The board of the school district will
        adopt a resolution approving the-foundation's
        purposes and activities and consenting to the
        issuance of the foundation's   bonds for the
        described purposes.

     You cite no authority for the district to enter into
these arrangements, and we can find none. cf. Educ. Code
5 20.48; see also Attorney General Opinion MW-522 (1982).

     The transaction which you have described to us requires
the trustees to take action that is beyond the powers bf an
independent school district.  The trustees of an independent
school district have the powers expressly conferred on them



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by law or necessarily implied from express powers. Harlinaen
Indev. School Dist. v. C. H. Paae & Bros., 48 S.W.2d       983
(Tex.   Comm'n   App.   1932,    judgment   adopted).     More
specifically, the board of trustees of the district has no
power to approve the organization, purposes, and activities
of a private foundation and "[to
                              Sf co sent
the foundation's    bonds for     the described    vurvoses. 'I
(Emphasis added.) Thus, we need not consider whether       the
district's "consent" to the issuance of bonds by a private
entity may violate article III, section 52(a) of the Texas
Constitution, which forbids independent     school districts
from lending public credit to private individuals,    associa-
tions, or corporations.  We also note that the arrangements
in the proposed second alternative may violate the doctrine
which prevents a political subdivision    from entering   into
arrangements that would potentially control or embarrass    it
in the exercise of its governmental powers. See Clear Lake
Citv Water Auth. v. Clear Lake Utilities Co., 549 S.W.2d 385
(Tex. 1977).

                       SUMMARY

             The board of trustees of an independent
        school district may rent classroom space for
        fair value in a transaction with a private
        foundation.  Educ. Code 5 20.48. The board
        may accept the donation of portable classroom
        buildings from such a foundation. Educ. Code
        § 23.26. An independent school district may
        sell its land only if the proceeds of the
        transfer are used for "the purchase of more
        convenient   and   more   desirable     school
        property" or for "the construction or repair-
        ing of school buildings"  or for deposit   "to
        the credit of the local maintenance fund of
        the district."    Educ. Code § 23.30.      The
        trustees of an independent school district
        have no power to l'consent" to the issuance of
        bonds by a private foundation.

                                     Very-truly yo~fs~



                                             MATTOX
                                     Attorney General of Texas

WARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General



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JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by D. R. Bustion, II
Assistant Attorney General




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