                                @ffice       of the Rlttornep            QBenecal
                                               &ate of Il[;exa$
DAN MORALES
 ATTORNEY
      GENERAL                                      July 18, 1997


   The Honorable Edmund Kuempel                            Opinion No. DM-444
   Chair, Committee on State Recreational
    Resources                                              Re: Whether New Braunfels Utilities is an agent
   Texas House of Representatives                          of the City of New Braunfels and related
   P.O. Box 2910                                           questions (RQ-93 1)
   Austin, Texas 78768-2910



   Dear Representative Kuempel:

            You ask several~questions about the nature of the relationship between New Braunfels
   Utilities (“NBU”) and the City of New Braunfels. You first ask whether NBU is an agent of the city,
   and if it is, how much authority the city may delegate to NBU’s board of trustees. Second, you ask
   whether NBU employees are in fact employees of the city, and whether the city may manage or
   control NBU employees. Third, you ask whether NBU may own real property, and whether the city
   or NBU’s board mtimately controls the use and disposal of property acquired for NBU purposes.

           We conclude that NBU is an agent of the city, but that the city may delegate to NBU all
   authority that V.T.C.S. article 1115 permits the city to delegate. We next conclude that NBU
   employees are in fact city employees, but that the city is authorized to and appears to have delegated
   to NBU the authority to manage and control those employees working for NBU. Finally, we
   conclude that NBU may acquire property only as an agent of the city; thus, the city ultimately
   controls the property.

           The city established NBU in 1942 in accordance with V.T.C.S. article 1115, presumably by
   the terms of its encumbrance.’ You state that the city transferred its water and sewer systems to
   NBU in 1959. Under city ordinance, the city has vested in NBU’s goveming board “the complete
   management and control” of the city’s utility system. ’ The ordinances further direct NBU’s board
   to “manage and operate the systems with the same freedom” the board of a private corporation



            ‘See V.T.C.S. art. 1115 (authoriziig municipal governing body to place management and control of utility
   system in board of trustees “by the terms of such encumbrance”). We note, in addition, that New Braunfels City
   Charter section 11.09 authorizes the city to create by ordinance a public utilities board to manage, control, and
   operate the city’s utility system.

            ‘NEW BRAUNFELSCODE5 130-26(a) (1995); see also id. 9 130-31 (giving NBU board “complete authority
   and control of the management and operation” of utilities systems).
The Honorable Edmund Kuempel - Page 2                     (DM-444)




operating similar properties enjoys and “and in the same manner as” such a private corporation.’
City ordinance directs the NBU board to appoint a general manager, who will, in turn, appoint all
other employees, althoughthe ordinances specifically prohibit the board from giving any employee
a contract of temrm4 Finally, with respect to your questions, the ordinances expressly provide for
and set the level of compensation for NBU board membem5 but say nothing about compensation
of employees working for NJ3U.6

         You indicate that your questions arise out of recent controversies that have arisen between
the city and NBU’s board. With respect to the applicability of city employment policies,
you indicate that NBU has established personnel policies and benefit programs that differ from the
city’s. Additionally, you indicate that the city and NBU are uncertain whether the city’s ethics
ordinance applies to NBU employees. With respect to the control and use of the land--specifically,
Comal Park-you indicate that the city would like either to build a new library on the real property
or sell it to a developer. The real property was purchased in 1969 using NBU funds, but in the name
of the city. You add that the real property was purchased “for municipal purposes,” but specifically
for “future expansion of [Nsu] Disposal Plant facilities.”

        We begin by considering your general questions about the city’s relationship with NE3U’s
board. You ask first whether NJ3U is an agent of the city or a separate legal entity. Article 1115,
V.T.C.S., authorizes a municipality to create a utility board to manage and control the utility system.
Prior decisions of the courts and this offrce have deemed the board of a municipal utility system,
created under article 1115, an agent of the municipality.’ We conclude, therefore, that the NBU
board is an agent of the city.

        As the Texas Court of Civil Appeals explained in Guadalupe-Blanco River Authority v.
Z’utt~e,*the members of a utility system board created under V.T.C.S. article 1115 are municipal
agents, and their powers are limited to those the municipality has conferred upon them:




        ‘Id. 5 130-27.

        ‘Id. $ 130-29

        51d. 5 130-30.

        %his of&x does not coastrue municipal charters or ordinances. See Attorney General Opinion JM-846 (1988)
at 1. We cite these sections only because they may relate to the questions you ask.

         ‘See Delta Elec. Constr. Co. v. City ofSan Antonio, 437 S.W.Zd 602,605 (Tex. Civ. App.-San Antonio 1969,
tit ref d n.r.e.); Guadnlupe-Blanco River Auth. Y. Tuttle, 171 S.W.2d 520, 521, 524-25 (Tex. Civ. App.--San Antonio
 1943, wit r&d warn); San Antonio Indep. Sch. Dirt. v. Water Works Bd. of Tmtea, 120 S.W.2d 861,865 (Tex. Civ.
App.-Beaumont 1938, writ r&d); Sifford Y. Waterworks Bd. of Trustees, 70 S.W.2d 476,477 (Tex. Civ. App.--San
Antonio 1934, writ r&d); Attorney General Opinion JM-4 (1983) at 2.

        ‘171 S.W.Zd 520 (Tex. Civ. App.-San Antonio 1943, wit r&d).




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The Honorable Edmund Kuempel - Page 3                       (DM-444)




                  The powers and duties of the Board of Trustees were fixed and are
              therefore limited by the express or necessarily implied provisions of the
              contract contained in the [municipal] ordinance . . . . Although the details
              and manner of the performance of its duties are left largely to the discretion
              of the Board, it is clear that its powers are also derived f?om and
              consequently dependent upon the provisions of the contract contained in the
              ordinance. Beyond the powers and duties therein conferred the Board cannot
              go?

         This leads us to your second question: how much authority the city may delegate to the
board under V.T.C.S. article 1115. On its face, article 1115 authorizes a municipality to delegate
only “management and control” of the utility system to the system’s board. We construe the terms
“management” and “control” in this context largely as synonymous;” the terms indicate governing,
supervising, directing, and conducting the affairs ofthe utility system.” Accordingly, a municipality
may delegate to the board of its utility system authority to govern, supervise, direct, and conduct the
affairs of the utility system. On the other hand, the municipality may not delegate to the board of
the utility system any authority beyond that permitted by article 1115.”

         Third, you ask whether employees who work for NBU are in fact city employees and whether
the city may manage or control NBU~employees, including the general manager. Because NBU is
an agent of the city, any contract with NBU is in fact a contract with the city.” An employment
contract ostensibly with NBU is in fact an employment contract with the city. We conclude,
therefore, that employees who work for NBU are in fact city employees.‘4

       We turn to the second half of your third question. We believe article 1115, by authorizing
a municipality to delegate to the board of its utility system the power to manage and control the



         ‘Id. at 521.

        “See Ha&y Y. State, 222 SW. 579,580      (Tex. Grim. App. 1920); S&Uev. Camper, 261 S.W.2d 465,468      (Tex.
Civ. App.--Dallas 1953, writ ref d).

          “See Animal Legal Defense Fund, Inc. v. Fisheries & Wildlife Bd., 624 N.E.Zd 556,560 (Mass. 1993); Carter
v. Cirter, 359 S.W.2d 184, 187 (Tex. Civ. App.--Waco), wrif dism ‘d woj., 362 S.W.Zd 646 (Tex. 1962) (per curiam);
Camper, 261 S.W.2d at 468; III THE OXFORDENGLISHDIC~ONARY851-52 (2d ed. 1989) (defining ‘%ontrol”); IX THE
OXFOROENGLISHDICTIONARY293 (2d ed. 1989) (defming “management”).

           ‘2Conversely, because V.T.C.S. article 1115 is written permissively, we do not believe a municipality must
grant to its utility system board full power to manage and control tbe system. Rather, we believe the municipality may
choose to delegate some lesser authority, so long as the delegated authority is included within tbe meaning of
“managment and control.”

         “See Delta Elec. Con&.    Co., 437 S.W.2d at 605

         ‘?Tee aLso National Council of Ry. Pafrolmen k Union v. Se&y, 56 F. Supp. 720,723     (SD. Tex. 1944).




                                                            p.   2483
The Honorable Edmund Kuempel - Page ~4                      (DM-444)




utility system, permits a municipality to delegate the management and control of employees who
work for the system. We are thus interpreting the term “system” to include those employees who
operate and administer the physical plant.‘5

         Moreover, we believe a court, looking at the city’s ordinances, would find that the city has
in fact delegated to the NBU board broad authority to manage and control employees working for
NBU, including the authority to set employee policies, compensation, and benefits. The city has,
for example, authorized the NBU board to “manag[e], control[], and operat[e]“t6 the utility system
just as if it were “the board of directors of a private corporation operating properties of a similar
nature.“‘7 More specifically, the city has authorized the NBU board “‘to employ and pay the
compensation of’ the general manager, attorneys, and other necessary personnel.‘s

         Fourth, you ask whether NBU may own real property or whether it holds real property only
as an agent of the city. We conclude that NBU may manage and control certain property for the city,
but only the city may own the property. A utility board cannot hold title to real property; only the
municipality that created the utility board may do so. I9 A possession and holding by a municipal
utility system is in fact a possession and holding by the municipality.” Any deed that lists NE3Uas
owner means merely that NBU acquired the real property as an agent of the city.

        In connection with this question, you ask whether the city or NBU has ultimate authority over
property acquired for NBU’s use and over the disposal of the property. Because the city, not NBU,
owns the property, the city has ultimate authority to determine the use to which property acquired
for the NBU will be put and how to dispose of the property. As the Court of Civil Appeals explained
in Guadalupe-Blanc0 River Authority v. Tuttle, r’ the board of a municipal utility system has “no



        “In this context, “system” denotes “a group of devices or artificial objects or an organization forming a
network     for distributing something.” WEBSTER’SNINTHNEW CQLLFLXATE      DICTIONARY   1199 (1990); see XVII THE
OXFORDENGLISHDICTIONARY496 (2d ed. 1989); see also Gov’t Code $3 12.002 (requiring interpreter of statutes to
give word its ordinary meaning unless word is term of art).

         %EW BRALJNFEL~       CODE$ 130-26. The city’s delegation is consistent with section 11.09 of its charter, which
authorizes the city council to create by ordinance a public utilities board “for the purpose of managing, controlling, and
operating” a utility system.

         “Id. 5 130-27.

         ‘*Id. $. 130-31

          “See Guadalupe-Blanco RiverAulh., 171 S.W.2d at 524-25; San Antonio Indep. Sch. Dist., 120 S.W.2d at 865;
Sifford, 70 S.W.Zd at 477. Under S#brd, the municipality,not the utility board, could be liable for injuries incurred
on the real property. See Sifford, 70 S.W.Zd at 477.

         ?Son Antonio Indep. Sch. Disf., 120 S.W.2d et 865.

         2’171 S.W.2d 520.



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The Honorable Edmund Kuempel - Page 5                        (DM-444)




character of title” to city property, even if the utility system possesses the property.” Moreover,
under V.T.C.S. article 1115, a municipality cannot delegate to the board of its utility system ultimate
control over city property.23 ~Amunicipality’s ownership is subject only to the~lien securing the
payment of revenue bonds.”

        You do not indicate that the real property was purchased using bond proceeds or if it is part
of the utility system. Bond proceeds, of course, may be spent only for the purposes for which the
bonds were issued and as provided by the authorizing bond documents.25 Additionally, a
municipality with a population less than 1.2 million may dispose of property constituting part of the
system only in accordance with the applicable covenants or mortgages and V.T.C.S. article 1112,
section 1. Subject to these and other statutory restrictions on the sale of property used as a park,26
we conclude that the city may use the property at issue for a city library if it wishes or sell the
property if it wishes, even if the city’s use of the property is contrary to NBU’s desires.




         uId. at 521,522,

         2’See id. at 521.

         241d.;seealsoV.T.C.S.arts.    1112, 1113, 111&a

          %ee, e.g., Matter ofTroy Dod.wn Chstr. Co., 993 F.Zd 1211, 1216 (5th Cir. 1993) (interpreting Texas law);
Barrington v. Cokinos, 338 S.W.Zd 133,142 (Tex. 1960) (quoting Lewis v. City ofFort Worth, 89 S.W.2d 975,978
(Tex. 1936)); Inverness Forest fmprovement Dirt v. Hardy St. Inv., 541 S.W.2d 454,460 (Tex. Civ. App.--Houston [lst
Dist.] 1976, wit ref d n.r.e.).

          *%e do not decide whether other statutory restrictions on the sale of the real propaty at issue here may apply.
See, e.g., Local Gov’t Code $5 253.001.272.001;   Parks&Wild. Code 5 26.001; V.T.C.S. art. 1015~. 5 4.



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The Honorable Edmund Kuempel - Page 6             (DM-444)




                                       SUMMARY

              The goveming board of a municipal utility system acts asan agent ofthe
          municipality that created it. Under V.T.C.S. article 1115, the municipality
          may delegate to the board “management and control” of the utility system,
          but the municipality may not delegate any authority inconsistent with article
          1115.

                Employees of a municipal utility system are in fact employees of the
           municipality. Article 1115 permits a municipality to delegate to the board of
           its utility system management and control of municipal employees working
           for the system. Where a municipality has granted to that board the authority
           to manage and control the system “with the same freedom” as and “in the
           same manner as” the board of a private corporation operating a similar
           system and to employ and pay all necessary personnel, a court probably
           would find that the municipality has in fact delegated the authority to manage
           and control employees working for the system.

               A municipal utility system may acquire or hold real property only as an
           agent of the municipality. Thus, the municipality may use the property or
           dispose of the property as it wishes. A municipality may not delegate to the
           governing board of its utility system ultimate control of municipal real
           property.




                                              DAN MORALES
                                              Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General




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