                            QWice of ttp Plttornep 43eneral
                                         &ate of PCexae
DAN MORALES
 .ATrORSEY
        GENERAL
                                             July 26, 1993

      Honorable Wfiiam R. Ratliff                     Opinion No. DM-240
      Chair
      Education Committee                             Re: Construction of Senate Bii 1342, Acts
      Texas State Senate                              1993, 73d Leg., ch. 964. which prohibits a
      P.O. Box 12068                                  school district from contracting with a
      Austin,Texas 78711                              business entity in which a trustee or his
                                                      spouse has a “signiticant interest” (RQ-571)

      Dear Senator RatliE

              You have requested our opinion regarding the proper construction of a portion of
      Senate Bill 1342. Acts 1993, 73d Leg., ch. 964. Section 2 of that bill amends chapter 23
      of the Education Code by adding a new section 23.201. which provides:

                     (a) The board of trustees of a school district may not enter into
                a contract with a trustee of the district, the spouse of a trustee, or a
                busiiess entity in which a trustee or the spouse of a trustee has a
                significant interest until the trustee’s current term has expired or until
                the trustee has resigned and a successor has been chosen to fill the
                vacancy created by the resignation.

                    (b) In this section, the term “busiiess entity” has the meaning
                provided by Section 17 1.001, Local Government Code.

                     (c) For purposes of this section, a person has a substantial
                interest in a business entity if the person has a substantial interest in
                the business entity for purposes of Chapter 171, Local Government
                Code.

                   (d) This section prevails over Chapter 171, Local Government
                Code, to the extent of any conflict.

      Specifically, you inquire about the meaning of the term “significant interest” as used in
      subsection (a), supru. Before we address the meaning of this provision, we shah consider
      the scope of chapter 171, of the Local Government Code.

             Chapter 171, first enacted in 1983 as article, 988b, V.T.C.S., and subsequently
      codiied in 1987, is the general “conflict of interest” statute regulating local governmental




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Honorable William R. Rathff - Page 2 (DM-240)




bodies. Section 171.002(a) provides that a “local public official”t has a substantial interest
in a business entity2 under the following circumstances:

           (1) the person owns 10 percent or more of the voting stock or
           shares of the business entity or owns either 10 percent or more or
           $5,000 or more of the fair market value of the business entity; or

           (2) funds received by the person from the business entity exceed 10
           percent of the person‘s gross income for the previous year.

An individual is considered to have “a substantial interest in real property if the interest is
an equitable or legal ownership with a fair market value of $2,500 or more.” Id.
171.002(b). Furthermore, the person is deemed to have a “substantial interest” in either a
business entity or in real property, as defined, “if a person related to the official in the Srst
degree by consanguinity or aflinity” has the requisite interest. Id. 171.002(c). Thus, for
example, a local governmental official may not avoid the proscription of chapter 171
merely by transferring ownership of a “business entity” to his spouse.

         Section 171.004 describes the consequences which flow from a local governmental
official’s having a “substantial interest in a business entity or in real property.” Prior to the
local governmental body’s “vote or decision on any matter involving the business entity or
the real property” in which the individual member has a substantial interest, the member is
required, under certain circumstances, to file “with the official record keeper of the
governmental entity” “an affidavit stating the nature and extent of the interest,” und to
“abstain 6om Snther participation in the matter.” Those circumstances arise if:

           (1) in the case of a substantial interest in a business entity the action
           on the matter will have a special economic effect on the business
           entity that is distinguishable from the effect on the public; or

           (2) in the case of a substantial interest in real property, it is
           reasonably foreseeable that an action on the matter will have a



        ‘A “localpublic offkial” is detinedto mean “a memberof the governingbody or anotherot?icq
whether elected, appointed, paid, or unpaid, of any district (including a school district), county.
muntcipality,precinct,central appraisaldistrict, transitauthorityor district,or other local govemmental
entity who exercises responsibilitiesbeyond those that an advisory in nature.” Local Gov’t Code
p 171.001(1).

       ‘A “businessentity’is defined as “a sole proprietorship,partnership,firm, corporation,holding
company,joint-stock company,receivership,trust, or any other entity Rcognized by law.” Local Gov?
Codeg 171.001(2).




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Honorable Wtlliam R. Ratliff - Page 3 (DM-240)




           substantial economic effect on the vah,te of                the   property,
           distinguishable from its effect on the public.“3

Id. $ 171.004(a).

        Subsection 171.003, ofthe Local Government Code, proscribes certain conduct by
a “local public official”: 1) failure to fde the affidavit and regain from voting in
accordance with section 171.004, supru; 2) acting “as surety for a business entity that has
work, business or a contract with the governmental entity;” and 3) acting “as surety on
any official bond required of an officer of the governmental entity.” Id. 3 171.003(a).
Each of these offenses is declared to be a class A misdemeanor. Id. 171003(b). Although
chapter 171 thus criminakes certain acts by a local governmental official, it does not
render voidable board action taken in violation of its provisions “unless the measure that
was the subject of an action involving a conflict of interest would not have passed the
governing body without the vote ofthe person who violated the chapter.” Id. 8 171.006.

        Thus, there are three principal distinctions between chapter 171 of the Local
Government Code and section 23.201of the Education Code. The tirst distinction relates
to the subject of regulation. Chapter 171 regulates the conduct of each individual board
member, by requiring disclosure of any interest he might have in a contract, and
prohibiting his participation in any discussion in or vote on such contract. Section 23.201,
on the other hand, is directed at the conduct of the entire board of trustees.

        The second distinction concerns the consequences of regulation. As we have
noted, under chapter 171, unless the disqualified member’s vote is the decisive one, even
his actual participation in the vote will not render the contract voidable. By contrast,
section 23.201 absolutely bars the board 6om entering into the contract in the Srst place.
Presumably, a contract entered in contravention of section 23.201 is at least voidable.

        The third distinction between the two “conflict of interest” provisions relates to the
particular kind of conduct which is proscribed. Under chapter 171, such conduct occurs
when a member of a local governmental body has, inter uliu, a “substantial interest” in a
business entity which is a party to a contract with the board of which he is a member. By
contrast, section 23.201 prohibits a school district board of trustees from contracting with,
inter uliu, “a business entity in which a [current] trustee or the spouse of a [current]
trustee has a significant interest. Acts 1993, 73d Leg., ch. 964, 9 2. The term “significant

        ‘If a mojori@of the membersof the governmentalbcdy are requiredto file a5davits in a
particnlar matter, the interestedmembersare not requiredto “abstainfrom further parttcipationin the
matter.” Local Gov’tCode p 171.004(c). Gbviously,such an exception is necessmy to prevent an
effectiveparalysisof the governmentalbody.




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interest” is not defined.4 Thus, the legislature has prohibited certain conduct, but has
failed to furnish any guidance as to the meaning of a key element of the conduct
proscribed. Furthermore, it has declared that the newly enacted section 23.201, Education
Code, shall prevail “to the extent of any conflict” with chapter 171 of the Local
Government Code. Id.

        It is axiomatic that, in construing a statute, the primary objective must be to
discern the legislative intent. Stare Y. Terrell, 588 S.W.2d 784 (Tex. 1979). To effectuate
that end, every word in a statute must, if possible, be given effect, and any construction
which renders any part of a statute supertluous should, if possible, be avoided. Gerst v.
Oak CliJfSuv. &Loan A&n, 432 S.W.2d 702 (Tex. 1968); Spnce v. Fenchler, 180 S.W.
597 (Tex. 1915). Relying on these rules of construction, one might argue that it is
necessary to read “significant” to mean “substantial” in order to avoid a construction that
would, in effect, nullify subsection (c).

        It is also the case, however, that particular language chosen by the legislature must
be presumed to have been selected with deliberation. Bomur v. Trinity Nut? Life &
Accident Ins. Co. 579 S.W.2d 464 (Tex. 1979); Car v. Robison, 150 S.W. 1149 (Tex.
1912); see also TEX. JUR. 3d Siutuies 3 132, at 735-36. These rules of construction
indicate that, in selecting the word “significant” in subsection (a), the legislature must have
meant something other than “substantial.” Although in some usages their meanings may
overlap, the two words are in no wise synonymous. See definition of “signitIcant,”
Omcm ENGLISH DICI?ONARY, V. 15, pp. 458-59 (2d ed. 1989). and defmition of
“substantial,” id. v. 17, pp. 66-68. Particularly in view of subsection (d), which, declares
the hegemony of section 23.201 “to the extent of conflict” with chapter 171, Local
Government Code, we simply cannot avoid the inference that the legislature deliberately
opted to use the word “significant,” and to endow it with a meaning d#erenf from that of
the word “substantial” as used in chapter 171.5

         In summary, the legislature did not provide a definition of the word “significant,”
nor did it descriie what “interest” might be deemed a “significant interest” for purposes of
subsection (a) of section 23.201. In determining the extent of the term “significant
interest,” and its relationship to the statutorily defined “substantial interest,” it should be
borne in mind that, whereas chapter 171 permits a member having a “substantial interest”
in a business entity to remain on the board, and further, does not prohibit the board from


        4Subsection(c) states that “a person h& a subsfmtiolinterest in a businessentity if the person
has a substantialinterest in the business entity for putposesof chapter 171 of the Local Govemment
Code.’ (Emphasisadded.) Since it is the word “sign&ant” that lacks the rqoisite definition, one is left
to wonderaboutwhy the legislaturehas herechosen to define the scopeof “sobstantial.”

          ?he bill analysis for Senate Bill 1342 is of no assistance in axertaioing legislatiw intent,
became seetion2, the portion under considerationhere, did not appearin the versionof the bill that was
reportedout of mmmittee. See House Comm. on public Education,Bill Analysis, S.B. 1342, 736 Leg.
(1993).



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Honorable William R. Ratliff - Page 5      W-240)




contracting with that entity, section 23.201 recognizes that, for some contracts, mere
recusal is not sufficient; rather, the relationship between an individual board member and a
business entity may be sufficiently troubling as to raise an absolute bar to any contract
between the board and that business entity.

        Furthermore, the language of section 23.201 may, in our view, be read to indicate
that the legislature might allow more flexibility in defining the standard of “signiticant
interest” in a sparsely populated district than in a large urban district. In addition, we
believe it is evident that section 23.201 was designed, however imperfectly, to permit a
school district to contract with, for example, Southwestern Bell, even though one of its
trustees is an employee of that company. It is manifest that the intent of this legislation
was to proscribe self-dealing. In applying section 23.201. one should focus on the extent
to which an individual trustee might benefit from a particular contract. Whether a
particuhu set of circumstances are included within the meaning of “significant interest”
requires the resolution of factual issues not appropriate to the opinion process.


                                   SUMMARY

               Although the legislature, in enacting section 23.201, Education
          Code, did not specifically define the boundaries of the term
          “significant interest,” it clearly intended thereby to proscribe self-
          dealing. Whether a particular set of circumstances are included
          within the meaning of “significant interest” requires the resolutioc of
          factual issues not appropriate to the opinion process.




                                                     DAN      MORALES
                                                     Attorney General of Texas




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WILL. PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Attorney General for Litigation

RENEA HICKS
State Solicitor

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Rick Gilpin
Deputy Chief, Opinion Committee




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