   OFFiCE   OF THE   ATTORNEY   GENERAL.   STATE   OF TEXAS

   JOHN      CORNYN




                                                   March 10, 1999



The Honorable Frank Madla                                       Opinion No. JC-0018
Chair, Committee on Intergovernmental              Relations
Texas State Senate                                              Re: Whether section 392.043 ofthe Local
P.O. Box 12068                                                  Government Code prohibits employees of
Austin, Texas 78711                                             housing authority from participating in
                                                                affordable housing program administered
                                                                by related nonprofit housing corporation
                                                                (RQ-1210)


Dear Senator Madla:

         You ask us to determine whether an employee of a municipal housing authority is barred by
a conflict of interest statute from leasing or purchasing a home through a housing program
administered by a related nonprofit housing corporation. Chapter 392 of the Local Government
Code, the Housing Authorities Law, establishes a housing authority in each Texas city for the
purpose of providing safe, clean, and affordable housing to low-income persons. You tell us that
the San Antonio Housing Authority (“SAHA” or “the housing authority”) has created several
nonprofit corporations in order to assist the housing authority in fulfilling the purposes of chapter
392. One of these corporations is the San Antonio Housing Opportunity Corporation (“SAHOC”
or “the housing corporation”).      “Although created by SAHA,” you explain, “SAHOC is an
independent corporate entity which carries its own tax identification numbers and tax-exempt
corporation designation by the Internal Revenue Service. It has the ability to enter into contracts and
can sue and be sued in its own name.” Letter from Sen. Frank Madla to Attorney General
Dan Morales 2 (Oct. 13, 1998) (on file with Opinion Committee). Your letter generally describes
the housing corporation as “separate” from but “related to” the housing authority. Id. at 3. We do
not consider whether or under what authority a chapter 392 housing authority is permitted to create
 a housing corporation such as the one you describe.

         You say that SAHA and SAHOC have “teamed together” to develop a housing program
whereby low-income employees of SAHA may acquire an affordable home through the program by
lease/purchase. Id. at 2. We must determine whether the program runs afoul of section 392.043 of
the Housing Authorities Law, which prohibits employee conflicts of interest, as follows:

                  (a) Except as provided by Subsection (b) or (c), an employee of an
              authority may not have dealings with a housing project for pecuniary gain
              and may not own, acquire, or control a direct or indirect interest in a:
The Honorable   Frank Madla   - Page 2             (X-0018)




                   (1) housing project;

                   (2) property included or planned to be included in a housing project;

                  (3) contract or proposed contract for the sale of land to be used for a
           housing project;

                    (4) contract or proposed   contract for the construction   of a housing
           project; or

                   (5) contract or proposed contract for the sale of materials or services
           to be furnished or used in connection with a housing project.

               (b) An employee may not have any dealings with a housing project for
           pecuniary gain except in the performance of duties as an employee of the
           housing authority.

               (c) Except as otherwise permitted by this chapter or another law, an
           employee of an authority may not be employed by or otherwise contract to
           provide services to another authority unless the first authority gives its
           written consent to the employment or contract. An employee of an authority
           who is employed by or who contracts to provide services to another authority
           under this subsection does not violate Subsection (a) or (b).

                 (d) An employee who knowingly or intentionally violates Subsection (a)
            or (c) commits an offense. An offense under this subsection is a felony of the
            third degree.

                (e) A person finally convicted under Subsection (d) is ineligible for
            future employment with the state, a political subdivision of the state, or a
            public corporation formed under the authority of the state or a political
            subdivision of the state.



 Section 392.002 defines a housing project.

                    (6) “Housing project” means a work or other undertaking        to:

                        (A) demolish, clear, or remove buildings from a slum area,
            including a work or other undertaking to adapt an area for use as a park, for
            another recreational or community purpose, or for any other public purpose;
The Honorable Frank Madla - Page 3                 (X-0018)




                        (B) provide decent, safe, and sanitary urban or rural housing for
           persons of low income, including buildings, land, equipment, facilities, and
           other real or personal property for necessary, convenient, or desirable
           appurtenances,    streets, sewers, water service, and parks, or for other
           purposes, including site preparation, gardening, administrative, community,
           health, recreational, educational, or welfare purposes;

                        (C) accomplish     a combination   of the purposes    described   by
           Paragraphs    (A) and (B); or

                      (D) plan buildings and other improvements, acquire property,
           demolish structures, construct, reconstruct, alter, and repair improvements,
           and perform other related work.

“Housing project” is defined broadly. On its face, the definition does not limit itself to projects
administered by a public housing authority established pursuant to chapter 392. We do not decide
the extent to which the conflict-of-interest     provisions of chapter 392 apply to various housing
projects. Rather, we consider the situation you present, in which the housing project is undertaken
by a housing corporation formed and organized at the instigation of a housing authority to carry out
the authority’s responsibilities. In these circumstances, the conflict-of-interest provisions ofchapter
392 apply to the housing projects of the housing corporation the same as to the housing authority.

    The employee conflict-of-interest provision of the Housing Authorities Law is consistent with
the long-standing policy of this state that no public officer or employee should have any interest,
financial or otherwise, direct or indirect, that substantially conflicts with the proper discharge of his
or her duties in the public interest. See City ofEdinburgv. Ellis, 59 S.W.2d 99,99-100 (Tex. 1933);
Tex. Att’y Gen. Op. No. DM-3 10 (1994) at 2; 60 TEX.JUR.3D Public 0fficers andEmployees 8 144,
at 561 (1988). This policy is reflected in a number of state laws. See, e.g., TEX. ALCO. BEV. CODE
ANN. 5 5.05 (Vernon 1995); TEX. Lot. GOV’T CODE ANN. 5 320.027 (Vernon 1988). It has been
said that laws prohibiting public officers from being interested in public contracts should be
“scrupulously enforced.” Ellis, 59 S.W.2d at 100.

    Construing the conflict-of-interest provision ofthe Housing Authorities Law, we said in Attorney
General Opinion IM-6 10 that a housing authority employee who owns a home included in a housing
project owns an interest in that project. Tex. Att’y Gen. Op. No. JM-610 (1986) at 4-5. We have
also said that a tenant of a housing project has an interest in the housing project in which the tenant
lives. Tex. Att’y Gen. Op. No. M-1096 (1972) at 2-4. Accordingly, we conclude that a housing
authority employee who leases or purchases a home included in a housing project has an interest in
the housing project.

    Thus while section 392.043 bars a housing authority employee from having an interest in a
housing project of the housing authority at which he is employed, your question requires us to
determine whether a housing authority employee is barred from having an interest in a housing
The Honorable   Frank Madla - Page 4               (X-0018)




project administered   by a housing corporation   that is “separate” from but “related to” the housing
authority.

    In Letter Opinion No. 97-056, this o&e considered whether conflict-of-interest        provisions
applicable to the commissioners of a housing authority applied to members ofthe boards of directors
of the authority’s nonprofit subsidiary corporations.     Tex. Att’y Gen. LO-97-056, at 2-3. The
subsidiary corporations were part of the structure of the housing authority and were established to
carry out the purposes of chapter 392. Id. The corporations were staffed by housing authority
personnel and were managed and operated out of the housing authority’s offices. Id. Housing
authority commissioners automatically served on the board of directors of the housing corporations
as part ofthe commissioners’ housing authority duties. Id. The corporations acted as public bodies
by complying with the Texas Open Meetings Act and other laws applicable to public bodies. Id.
We concluded, based on these facts, that the conflict-of-interest prohibitions applicable to housing
authority commissioners     applied equally to the directors of the housing authority’s subsidiary
corporations. Id.

    In this case, we have few details about the subsidiary housing corporation and its relationship
with the housing authority. You tell us that SAHOC has its own tax identification numbers and
federal tax-exempt status designation, and that it has the ability to enter into contracts and sue and
be sued in its own name. These facts alone, however, do not establish a separateness between the
two entities as a matter of law that might provide a sufficient basis for differentiating the housing
project of one from the other. Rather, the entities you describe are “related to” each other; SAHA
and SAHOC “teamed together” to create the employee housing program about which you ask.
Additionally, you advise that the housing corporation was created by SAHA specifically to enhance
SAHA’s ability to serve the purposes of chapter 392. On these facts, the housing authority employee
conflict-of-interest provision bars SAHA employees t?om participating in a housing project
administered by SAHOC.

    You argue in your letter that Letter Opinion No. 97-056 is distinguishable because unlike the
commissioners    at issue in that opinion, SAHA employees do not make policy decisions and have
no discretionary authority over the housing project homes. While housing authority employees may
not have the same powers as commissioners, they nevertheless may be in a position to influence or
affect the administration of a housing project. For example, employees might recommend housing
applications for approval or denial, set rent and purchase prices for homes, or authorize repairs or
improvements to homes. Section 392.043 certainly contemplates the existence of such influence by
barring employee interests in housing projects. Moreover, public employee conflict-of-interest  laws
seek to avoid even the appearance of impropriety. See Meyers V. Waker, 276 SW. 305,307 (Tex.
Civ. App.-Eastland      1925, no writ).

    You also ask whether SAHA may create a nonprofit subsidiary corporation that is completely
separate from SAHA and then transfer homes to the corporation to be leased to and purchased by
SAHA employees.     Because any analysis would depend heavily upon the facts of any particular
arrangement, we cannot assess the various unknowns and determine with any degree of certitude
The Honorable   Frank Madla - Page 5               (JC-0018)




whether such an arrangement would be barred by section 392.043. Additionally, we hesitate to
comment on ways inwhich the conflict-of-interest statute may be circumvented. We note that public
employee conflict-of-interest statutes are strictly construed by the courts and this office. See Ellis,
59 S.W.2d at 100; Meyers, 276 S.W. at 306, 307. In Attorney General Opinion DM-310, for
example, we concluded that amember of the Texas Alcoholic Beverage Commission was prohibited
from investing money in any corporation that engages in the sale of alcoholic beverages, even if the
member made the investment through an investment advisory firm. Any program devised by SAHA
to enable employees to lease and purchase housing project homes will be subject to strict review.

    We do not question the merits of the housing authority’s policy of employing low-income
persons, but we are constrained to follow the law enacted by the legislature. In 1972, this office held
that the conflict-of-interest provisions applicable to housing authority commissioners prohibited a
housing authority tenant from serving as a commissioner.       See Tex. Att’y Gen. Op. No. M-1096
(1972) at 2. Recognizing the need of tenants to be involved in the management of their own
housing, the legislature amended the statute to expressly authorize, then require, a municipality to
appoint a tenant to serve as a housing authority commissioner. See COMM.ONURBAN AFFAIRS, BILL
ANALYSIS, Tex. H.B. 1547, 73d Leg., R.S. (1993); TEX. Lot. GOV’T CODE ANN. 9 392.031(b)
(Vernon Supp. 1999) (“A commissioner may be a tenant of a public project over which the housing
authority has jurisdiction.“);     id. § 392.0331 (“[A] municipality       shall appoint at least one
commissioner to a municipal housing authority who is a tenant of a public housing project over
which the municipal housing authority has jurisdiction.“).    It is within the power of the legislature
to make a similar change with respect to housing authority employees.
The Honorable   Frank Madla - Page 6          (JC-0018)




                                     SUMMARY

               Chapter 392 of the Local Government Code, the Housing Authorities
           Law, prohibits an employee of a housing authority from leasing or
           purchasing a home included in a housing project administered by a related
           housing corporation.




                                            JOHN     CORNYN
                                            Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Prepared by Barbara Griffin
Assistant Attorney General
