                              ATTORNEY GENERAL OF TEXAS
                                           GREG        ABBOTT




                                                 April 8, 2009



The Honorable Bill Moore                                 Opinion No. GA-0706
Johnson County Attorney
Guinn Justice Center                                     Re: Authority of a commissioners court to lease
204 South Buffalo Avenue, Suite 410                      county property to a non-profit organization for
Cleburne, Texas 76033-5404                               less than fair market value (RQ-0756-GA)

Dear Mr. Moore:

        You tell us that the Johnson County Commissioners Court, after following the bidding
procedures in section 263.007, Local Government Code, leased county-owned office space to two
non-profit organizations.! You inform us that the leases to the two organizations provide, among
other things, for rental of $1.00 per year to Johnson County, which the commissioners court
recognizes is less than fair market value. See Request Letter at 2. You ask whether the county can
"lease county owned office space to a private non-profit organization for less than fair market value
and remain in compliance with the competitive bidding procedures of [section] 263.007 ofthe Texas
Local Government Code when no statutory exception to [section] 263.007 exists[.]" Id at 1.

        Section 263.007 authorizes a county commissioners court to adopt a competitive sealed-bid
or sealed-proposal procedure for the sale or lease of county-owned property. See TEX. Loc. GOV'T
CODE ANN. § 263.007(a) (Vernon Supp. 2008). Only subsection 263.007(c), which applies solely
to the sale of property, expressly refers to fair market value. That subsection requires a
commissioners court, "[b]efore selling property under this section . .. [to,] (1) obtain an appraisal
of the property's fair market value; and (2) determine a minimum bid amount, based on the
appraisal." Id § 263.007 (emphasis added). The requirements of subsection 263.007 (c) do not apply
to the leasing of property. Further, section 263.007 does not expressly prohibit the acceptance
of a bid that is for an amount less than fair market value in connection with a lease. Compare id
§ 263.007, with id § 263.002(c) (Vernon 2005) (prohibiting specified property from being sold or
leased for less than the reported fair market value or fair lease value); cf id § 272.005(b)(2) (Vernon
Supp. 2008) (authorizing lease of property by one political subdivision to another for less than fair
market value to promote and maintain political subdivision's public purpose). The acceptance of
a bid under section 263.007 is a matter the statute leaves to the reasonable discretion of the
commissioners court in the first instance, subject to judicial review. See Comm'rs Court o/Titus
County v. Agan, 940 S. W.2d 77, 80 (Tex. 1997) (recognizing district court's supervisory control over


        ISee Request Letter at 2 (available at http://www.texasattomeygeneral.gov).
The Honorable Bill Moore - Page 2               (GA-0706)



a commissioners court that acts beyond its jurisdiction or abuses its discretion). Accordingly, we
conclude that the mere fact a lease let under section 263.007 is for less than fair market value does
not violate the express terms of section 263.007.

        At the same time, a lease that may otherwise conform to a statutory provision must also
satisfy the Texas Constitution. See, e.g., TEx. CONST. art. III, § 52 (prohibiting counties from
making gifts or grants of public funds); id art. XI, § 7 (imposing limits on county debt). Article III,
section 52, precludes political subdivisions from using public funds for private purposes. However,
a use of public funds that benefits a private person or entity will avoid violating article III, section
52 if the use of public funds satisfies the following three part test: (1) the predominant purpose of
the expenditure is to accomplish a public purpose, not to benefit private parties; (2) there are
adequate public controls in place to ensure that the public purpose is accomplished and to protect
the public's investment; and, (3) the political subdivision is receiving adequate consideration. Tex.
Mun. League Intergovernmental Risk Pool v. Tex. Worker's Compo Comm 'n, 74 S.W.3d 377, 383
(Tex. 2002). The factual determination regarding whether a public expenditure satisfies this test is
for the governing body of the political subdivision in the first instance and is a determination to
which a court generally defers. See Tex. Att'y Gen. Op. No. JC-0582 (2002) at 6-7 (recognizing
question of sufficiency of consideration under article III, section 52 is determination for public entity
and judicial deference). Article XI, section 7 prohibits a county from incurring debt for any purpose
unless the county simultaneously provides for the levying and collecting of "a sufficient tax to pay
the interest thereon and provide at least two percent. .. as a sinking fund." TEX. CONST. art. XI,
§ 7; see also McNeill V. City o/Waco, 33 S.W. 322, 323 (Tex. 1895) (defining the term "debt" and
determining that a contract does not create a debt if the parties lawfully and reasonably contemplate
when the contract is made that the obligation will be satisfied out of current revenues for the year,
or out of some fund then within the immediate control of the governmental unit). Whether a
particular lease creates a debt for the purposes of article XI, section 7 will depend upon the lease
terms. See Tex. Att'y Gen. Op. No. GA-0652 (2008) at 4 (recognizing that analysis under article XI,
section 7 would require examination of contract dates and terms). As we have not reviewed the
terms of the proposed leases, we cannot determine whether they create a debt under article XI,
section 7 as a matter oflaw. See Tex. Att'y Gen. Op. No. JC-0395 (2001) at 3 (determining as a
matter of law that a multi-year contract for leasing office equipment constituted a "debt").
The Honorable Bill Moore - Page 3           (GA-0706)



                                     SUMMARY

                      A commissioners court's lease of county property for an
              amount less than fair market value does not violate the express terms
              of section 263.007, Local Government Code.

                                            Very truly yours,




                                            Attorney General of Texas


ANDREW WEBER
First Assistant Attorney General

JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee
