    ,   .




                                                  July     26,   1974


            The Honorable      James H. Harwell                         Opinion   No.   H-   357
            Executive    Director
            Taxaa Industrial      Commission                            Re: May a city purchase
            Box 12728, Capitol Station                                  property  for industrial
            Austin.   Texas     78711                                   development    by giving a
                                                                        note to be repaid out of
                                                                        the revenues   generated
                                                                        by the property.

            Dear   Mr.   Harwell:

                     You ask whether      a city may purchase      property     to be used by
            private   industry  by giving   a note to be repaid out of the revenues
            generated    by the property    and without any further liability        on the city’o
            part.   Appartntly    the United Staten harr discontinued        its use of one or
            more tract8 of land and har indicated        a willingners     to sell the properties
            to a Texan city.     You ask whether     the city might effect the purchase
            by giving:
c


                              . . . a promirrory       note in an amount equal to the
                              total conrideration     for the sale, payable to the
                              appropriate    agency    (or the United Staten) bearing
                              a negotiated    rate of interest    payable on negotiated
                              terms,    but expressly     providing   no liability on the
                              part of the City be transacted        including:

                              a. Term6   that call for repayment  out of rents               and
                              sale of such land and improvements.

                              b. Appropriate     release     clausee, and.other    mort-
                              gages,  deeds    of trust.    and customary    security   devices.




                                                           p. 1679
The Honorable       James    H. Harwell        page   2   (H-3571




          A home rule city’s       power to purchase.land           emanatea   from Article
XI, 0 5 of the Texas Constitution            which provide8      cities of more thani
5.000 inhabitants        with authority     to adopt or amend their charters         in
any manner not inconsistant           with the Constitution        and subject to s&h
limitations     arr may be prescribed         by the legirlature.       Thus if a city’s
charter     provider    for general    power to purchase        land this power can
be exercieed       subject only to whatever         constraints    are imposed    by the
Constitution      and any relevant      legislative    enactments.       Davis v. City of’
Taylor,       67 S. W. 2d 1033 (Tex.         1934); and Miller     v. Uvalde Co.,      20
S. W. 2d 403 (Tex.         Civ. App.,     San Antontio,      1929, writ dirm.).

           The Legislature      has specifically      approved    of city purchases        of
land for certain       public purposes.       Art.   1175, V. T. C. S. Under this
provision     land may be purchased         for water work8 (gll),        “electric
lighting    plant, telephone,     street railways,        scwcrage    planta.    fertilizing
planta.    abattoir,    municipal    railway    terminals,     docks,   wharfs,     ferries,
ferry    landings,    loading and unloading        devices   and shipping facilities,
 or any other public service         or public utility”      ($131.    Unquestionably,
then, the purchase        of land for these and similar         “public purpoae,a” in
within a city’s      power under the Conetitution.

         But the city with which you are concerned       propoeee    to purchase
land which will ultimately     be used by private  industry.    Article   3. § 52
and Article   11, 5 3 of the Texan Constitution   provide   in pertinent   part:

                    Art.  3, 5 52 (a) Except ae othcrwiee         provided   by
                    this section,  the Legislature     shall have no power
                    to authorize  any county.    city, town or other political
                    corporation   or subdivision    of the State to lend its
                    credit or to grant public money or thing of value
                    in aid of, or to any individual,     association     or
                    corporation   whatsoever,     or to become      a atock-
                    holder in such corporation,       association    or compa-
                    ny . . . .

                    Article   11, Sec. 3. No county,     city         or other
                    municipal    corporation shall hcrcafter           become


                                                  p. lb80
.


    The Honorable      James    H. Harwell,      page   3   (11-357)




             a subscriber    to the capital of any private   corpora-
             tion or association.     or make any appropriation     or
             donation to the s&me, or in anywise loan its credit;
             but this shall notbe construed      to in any way affect
             any obligation   heretofore   undertaken   pursuant to law.

         These provisions      of the Texas Constitution         expressly    proscribe     the
    lending of a city’s     credit to a private      corporation.       A statute authoriiing
    the purchase     of land for industrial      development,      Art.   5190.1,    V. ‘I. C. S.,
    has previously      been cited to this Office in support of a transaction              similar
    to the one before us now.          But this Office refused      to approve     bonds issued
    pursuant    to that statute on the ground that the statute violated              both of
    the above quoted constitutional         provisions    insofar   as it authorized      a city
    to purchase    land for industrial      development.        On December      19. 1973, the
    Supreme    Court overruled       the City’s motion for leave to file a petition for
    mandamus      requested    by the City of McAllen         to compel approval       of the
    bonds.    City of McAllen      v. Hill,    NO. B-4315, (17 Tex. Sup. Ct. J. p. 128).

         In that case it was the position   of this Office that revenue bonds
    issued to purchase    industrial property    were without constitutional  sanctton,
    even though the City expressly      was not and could not be liable on the bonds.

         We referred     the Supreme     Court of Texas to Village     of Moyie Springs,
    Idaho v. Aurora      Manfacturing     Company,     353 P. 2d 767 (Idaho 1960).   Con-.
    struing an I&ho      statute similar    to Article   5190.1. V. T. C. S., the Idaho
    Supreme    Court    said:

                 Article    8. §4, of our Constitution,      supra,
             goes further     and is more restrictive     in its
             scope than either ‘art. 8, 93, or art. 12. 54.
             It declares    that no municipality   ‘shall lend,
             or pledge the credit or faith thereof       directly
             or indirectly,     in any manner,   to, or in aid
             of any individual,     association  or corporation,
             for any amount or for any purpose whatever.’




                                                  p. 1681
.   .




        The Honorable   James    H. Harwell       page 4 (H-357)




                             It cannot be questioned          that the purpose of the
                        act now before the court and the ordinance                enacted by
                        the plaintiff     village    pursuant thereto is to lend the
                        credit and faith of the municipality             in aid of the
                        defendant     corporation.        In fact, that is the purpose
                        expressed      by the legislature       in its declaration    of
                        intent,   to-wit:      ‘inducing manufacturing,         industrial
                        and commercial          enterprises     to locate or expand in
                        this State. ’

                             We are aware of decisions          in other states
                        upholding     similar    legislation.    We have conridered
                        the following:     Village,of     Deming v. Hosdreg     Co.,
                        62 N.M.     18, 303 P. 2d 920; McConnell         v. City of
                        Lebanon,      Tenn.,     314 S. W. 2d 12;Bennett v. City
                        of Mayfield,     KY.,     323 S. W. 2d 573: Holly v. City
                        of Elisabethton,       193 Tenn. 46, 241 S. W. 2d 1001;
                        Albritton    v. Winona.       181 Miss.  75, 178 So. 799,
                        115 A. L. R. 1436; In re Opinion of the Justices,           256
                        Ala. 162. 53 So. 2d 840.

                             Some of these decisions         are distinguishable
                        from the present      case by reason of differences           in
                        the constitutional     provisions     involved.      But we
                        respectfully    disagree    with the reasoning        by which
                        the conclusion     is reached     in others,    that projects
                        such as we have here do not constitute              a lending
                        of the.credit   of the municipality.         Such decisions
                        read like apologies      to constitutional       limitations,
                        dictat~ed by expediency.

                             It is obvious that one of the prime purposes    of
                        having the necessary     bonds issued by and in the name
                        of a municipality   is to make them more readily     salable
                        on the market.     Thus. the credit of the municipality
                        is extended in aid of the project, regardless   of the
                        limitations placed upon the remedy    of the purchaser                 . . . .
                        (353 P. 2d at 772)



                                                    p. lb82
The Honorable       James    H. Harwell       page   5 (Ii-357)




          It is our opinion that the same arguments          which condemned      the
‘revenue bonds proposed        by the City of McAllen     equally condemn the pro-
 misaory    note proposed     by the city in question here insofar       as such a note
 would be used to purchase        land for private   industrial   use.    Even though
 the city would not be liable on the note given to purchase            the land, the
 land when so purchased        would be the city’s as would be the revenues         gene-
 rated by it.    The note would be the city’s as would be the credit on which
 it was issued.     In short,   we do not see how the property         can be acquired
 in the manner and for the use proposed          without violating     the Texas Constitu-
 tion.

          We do not attempt to imply that all dealings              with private    corpora-
tions of the general       type you envision       are invalid per se by force of Article
3 § 52 and Article      11 5 3. The credit       clauses do not prohibit       dealings
with private     corporations      and associations        so long as a legitimate      public
purpose is served,        but it is not considered        a public purpose      within    this
legal context,     when’municipal’ciedit         is used to’obtain     for the community        and
its citizens    the general     benefits   resulting   from the operation       of a private
industry.      Barrington     v. Cokinos,      338 S. W. 2d 133 (Tex.        1960); and
Bland V. City of Taylor,          37 S. W. 2d 291 (Tex.        Civ. App.,     Austin,    1931),
affirmed     sub. nom.,      Davis   v.  City  of  Taylor,     67  S. M?  2d 1033   (Tex.   1934).

                                             SUMMARY

                       It is not constitutionally      permissible     for a city to
                   purchase   land for future industrial        development     by
                   means ofa promissory         note to be paid out of revenues
                   generated   by the land without       recourse    to the city when
                   the benefit to the public from such a purchase            is such
                   benefit as may be derived        from the attraction      of new industry.

                                                          Very    truly   yours,       ’




                                               p. lb83
The Honorable James H. Harwell   page b (H-357)




LARRY v   Yk




u‘
DAVID M. KENDALL,
Opinion Committee
                      Chairman



1g




                                     p. lb84
