                        QBfficeof tfje ~2Utornep@eneral
                                    &ate of IBexae
DAN MORALES                         December 7,1992
 ATTORNEY
      GENERAL


     Honorable Gonzalo Barrientos                 Gpinion No. DM-185

     Committee on Nominations                 Re: Whether a municipality may esta-
     Texas State Senate                       blisb a program for econoniic develop
     P.O.Box1206S                             ment pursuant to section 380.001 of the
     Austin,Texas 78711                       Local Government Code, and related
                                              questions (RO-464)

     Dear Senator Barrientos:

            You have asked several questions about the constitutionality and proper
     construction of section 380.001 of tbe Local Government Code. Specikally, you
     ask the following:
                   1. I.5 the establishment of a proSram for economic
              development by a mmdcipality pursuant to Section 380.001 of
              the Imal Govermnent Code constitutional?

                  2. Do each of the incentives outlined [in your letter], when
              used singdarly or in combination, constitute a “program.. . to
              promote state or local economic development” as that phrase is
              used in Section 380.001 of the Local Government Code?

                  3. Can a municipality issue bonds to fund incentives which
              are included in a. program for economic development
              established under Section 380.001 of the Local Government
              code?

                  4. Are there any constitutional or statutory prohiiitions or
              preemptions that would preclude inclusion of any of the
              incentives outlined [in your letter] in a program for economic
              development established under Section 380.001 of the Local
              Government Code?




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       The legislature enacted section 380.001 of the Local Govermnent Code after
1987, when voters approved adding article III, section 52-a to the Texas
Constitutions Section 52-a provides as follows:
              Notwithstanding any other provision of this constitution, the
         legislature may provide for the creation of programs and the
         making of loans and grants of public money, other than money
         otherwise dedicated by this constitution to use for a different
         purpose, for the publk purposes of development and
         diversification of the economy of the state, the elimination of
         unemployment or underemployment in the state, the stimulation
         of agrkultural innovation. the fostering of the growth of
         enterprises based on agriculture, or the development or
         expansion of transportation or commerce in the state. Any
         bonds or other obligations of a county, municipality, or other
         political subdivision of the state that are issued for the purpose
         of making loans or grants in connection with a program
         authorized by the legislature under this section and that are
         payable from ad valorem tares must be approved by a.vote of
         the majority of the registered voters of the cotmty, municipality,
         or political subdivision voting on the issue. An enabling law
         enacted by the legislature in anticipation of the adoption of tbis
         amendment is not void because of its anticipatory character.

       One might argue that section 52-a authorizes the legislature to create state-
wide economic development programs, but it does not authorize the legislature to
delegate such responsibilities to counties, municipalities, or other political
subdivisions. Admittedly, the first sentence is ambiguous on this point. Reading the
section as a whole, however, section 52-a clearly envisions that a county,
municipality, or other political subdivision may issue bonds to pay for its economic
development program. Legislative history and this office’s prior interpretation of
section 52-a supports this construction of the section.

        In hearings on the resolution proposing to place this constitutional
amendment before the voters, a witness speaking before the House Committee on
Science and Technology explained the proposed amendment as one that does not
authorize, without further constitutional amendment, the state to issue general
obligation bonds for the purpose of encouraging economic development in the state.
Hearings on H.J.R. 5 Before the House Committee on Science and Technology,



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Honorable Gonxalo Barrientos - Page 3 (m-185)



70th Leg. (Mar. 3, 1987) (statement of Jerry Turner) (copy on file with House
Committee Coordinator). Rather, according to the witness, this amendment would
authorize tbe legislature, if it chose to do so, to enact legislation that would
empower local governments to issue bonds, provided that the people voting in the
affected taxing jurisdiction approved the issuance of such bonds at an election. Id.
Signiticantly, according to another witness, this amendment to the constitution
author&s a local government to provide any kind of assistance for the purposes
listed in the amendment, but only if the legislature has enacted enabling legislation
permitting the kind of program the local government seeks to establish, and, if the
local government seeks to use any tax funds, a majority of the voters voting at a
referendum on the issue have approved. Id. (testimony by Robert Randolph,
member of Speaker’s Economic Development Committee) (copy on tile with House
Committee Coordinator).

        This office examined article IQ section 52-a in Attorney General opinion
JM-1227 (1990) in reference to a project the City of Marlin proposed, in which the
City of Marlin contractually would agree with the Texas Department of Commerce
to take responsibility for the creation of jobs by a private entity. Attorney General
opinion JM-1227 at 1. If the private entity failed or failed to provide the jobs it
represented it would provide in its application for a loan from the Department of
Commerce, the City of Marlin would reimburse the Department of Commerce apro
mta portion of the department’s loan to the private entity. Id. This office stated
that the legislature and the voters intended section 52-a to create exceptions to pre-
existing constitutional prohibitions on the lending of public credit.1 See id at 3 (and
sources cited therein); see also Texas Const. art. III, $9 51.52. We advised, however,
that article III, section 52-a does not by itself expand a municipality’s authority to
lend credit, but it authorizes the legislature to enact laws that do so. Attorney
General Gpinion JM-1227 at 3. Thus, the legislature must enact enabling legislation


         lIn Attorney General Gpiioo JhGl255 (lWl), this &cc stated that article III, section 52-a of
the Texas Constitution expands tbe constitutional detkition of public purpose to include economic
dewlopmeat and diwhfication, elimination of unemployment end underemployment, stimulation and
poutb of agricelhue, and the expansion of state transportation and commerce. &omey General
GpbdmJ?vf-Us5      at 8. H-r,      neither the hguage of section 52-a nor of any relcnnt commentary
suggests that the voters and Iegishhue, by enacting section 52-a, %tended to change the require&nts
that public resources and powers be used for ‘the direct accompli&meat of a public purpose’ end that
traasactiors using such resources end powers a~ntain sufficient controls ‘to insure that the public
purposebe carriedout.‘” Id et &9 (and sowccs cited t&rein).




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to authorize the proposed transaction between the department of commerce and the
City of Marlin. Id.

        Section 380.001 of the Local Government Code provides as follows:
                (a) The governing body of a municipality may establish and
           provide for the administration of one or more programs, includ-
           ing programs for making loans and grants of public money and
           providing personnel and services of the municipality, to promote
           state or local economic development and to stimulate business
           and commercial activity in the municipality.

                 (b) The governing body may:

                   (1) administer a program by the use of municipal
           personnel;

                     (2) contract with the federal government, the state, a
           political subdivision of the state, a nonprofit organization, or any
           other entity for the administration of a program; and

                   (3) accept conmbutio~ gifts. or other resources to
           develop and administer a program.

The author of House Bill 3192, which proposed section 380.001 of the Local
Government Code, stated before the House Committee on Urban Aftairs that this
emxctment would be the enabling legislation for article III, section 52~a.2 Hearings

          %prem~h          hkCdough,    the author of House Bill 3192, testified before the House
Chmdtt~oaUrban~that~on380.001oftheLoealG                           ovemment Chle, if enacted, would
authorize a municipality to do the same thing that the legislature +d just authorized countim to do,
i.e., to participate in economic development matters. Hearings on H.B. 3192 Before the House.
committee on Urban Affaiq 71st Leg. (May l&1989) (testimony of Representative McCollough,
author) (copy on 6le with House C?mmittee Coordinator). Representatin McCollough did not cite a
particular act or code section; however, we believe he was referring to section 381.004 of the Local
Govcrnmwt Code, which the legislature added to the Local Gmrnment code by Acts 1989,7lst Leg.,
ch. 1060,$3, at 4307. Se&m 381JW(b) authorizes the fzommikoners court of a uxmty to stimulate
business and commercial activity in the county by developing and administering a program for state or
local euxmmic developmer& for small or disadvaatagcd business development; to stimulate,
wco-,        and develop business location and commercial activity in the coutlty, or to improve the
extent to wbicb women and minority busioe.ws are awarded county contrac& Subsection (c)(3), (4)
explicitly authoriws a wlmty wmmissiowrs court to use county employees or funds for the program,




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Honorable Gonzalo Barrientos - Page 5              UN-185)




on H.B. 3192 Before the House Committee on Urban Affaim, 71st Leg. (May 15,
1989) (testimony of Representative McCoIIough, author) (copy on file with House
fhumittee Coordinator). By enacting section 380.001, the legislature evidently
intended to authorize municipalities to perform any of the functions that article III,
section 52-a permitted the legislature to delegate. In our opinion, section 380.001 of
the Locai Government Code properly implements article III, section 52-a; thus, in
answer to your Srst question. we believe that section 380.001 of the Locai
Government Code is cotWitutionaLs

         Your second question asks us to delineate the kind of incentives that a
municipality properly may include in a “program.. . to promote state or local
economic development.” The legishtture did not expressly instruct what such a
program would be. In testimony before the Senate Committee on Intergovem-
mental Relations, the author of Senate BiIi 1820, a companion bill to House Bili
3192, stated that the bill would authorize cities to establish loan programs and to use
municipal personnel for the purpose of attracting new businesses to the area and
assisting existing businesses to expand. Hearings on S.B. 1820 Before the Senate
Committee on Intergovermnentai ReIations, 71st Leg. (May 18,1989) (testimony of
Senator Carriker, author) (copy on file with Senate Staff Setices); see &o id.
(testimony of Bob Hart, City Manager for City of Georgetown) (indicating
Georgetown’s interest in establishing direct lending program). It is outside the
scope of the opinion process, however, to determine specificaily which incentives,
when offered singuhuiy or in combination, constitute a “program.. . to promote
state. or Iocai economic development.”

       You next ask whether a municipality may issue bonds to fund incentives that
it desires to include in a “program . . . to promote state or local economic
development” that the municipality has established under section 380.001 of the

(fochotc continued)
and to accept contriiutions, gifts, or 0th rcsourccs to &v&p and administer the program. We
found no cases or attomcy gcmral opinions iaterprethg s&ion 381.004.

         Jwe bclicvc, however, that a municipality that imtitutcs a program to promote state or local
eumomic dtmdopmeot pursuant to s&ion 3&X001 of the Local Gommm cot Code must comply with
other wm6tutid      requirements. See supm note 1. Specihdy, the municipality must determine that
itis~publicfundsandrcsourctsforthcdircdaccomplishmentofapublicpurposcandthat
tramxtiom using the. public hods and resources contain sufticimt controls to ensurc that the public
purpose is carried out.




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Honorable Gonzalo Barrientos - Page 6         (aSl85)




Local Govermnent Code. Significantly, section 380.001 does not explicitly provide
that a municipality may finance such a program through bond revenues. However,
the municipality about which you specifically inquire is a home-rule municipality. A
home-rule municipality has “[t]be power to issue bonds upon the credit of the city
for . . . public purposes in the amount and to the extent provided by such charter,
and consistent with the Constitution of this State; provided, that said bonds shall
have first been authorized by a majority vote by the duly qualified property tax-
paying voters voting at an election held for that purpose.” V.T.C.S. art. 1175.
Therefore, if the proposed bond issuance is in accordance with the ‘home-rule
mmdcipality’s charter, and if a majority of the duly qualhied property tar-paying
voters voting at an election held to consider the bond issue have approved the
issuance, the municipality may issue bonds to fund an economic development
program established under section 380.001. But see supm note 3.

        Finally, you ask whether any constitutional or statutory prohibitions or
preemptions would preclude inclusion of any particular incentive in a program for
economic development that a municipality establishes pursuant to section 380.001 of
the Local Government Code. ‘Ihe legislature intended article III, section 52-a of
the Texas Constitution and section 380.001 of the Local Government Code to
authoriae municipalities to implement a range of programs designed to promote
economic development. Again, it is outside the scope of the opinion process to
determine whether any set of incentives, offered singularly or in combination, can
constitute an economic development program under section 380.001. However, we
are unaware ot and you have not specifically mentioned, any provisions that would
forbid a municipality from establishing a program to promote state or local
economic development and to stimulate business and commercial activity in the
municipality.

                                SUMMARY

              Section 380.001 of the Local Government Code, which the
         legislature enacted pursuant to article III, section 52-a of the
         Texas Constitution, is constitutional. The legislature intended
         section 380.001 to authorize municipalities to offer a range of
         incentives desigued to promote state or local economic
         development. It is outside the scope of the opinion process to
         determine, however, whether a particular incentive or
         combination of incentives constitutes a “program.. . to promote



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Honorable Gonzalo Barrientos - Page 7         (1x-185)




         state or local economic development” for purposes of section
         380.001 of the Local Government Code.

             A home-rule municipaLity may issue bonds to fund an
         economic development program that the municipality has
         established in accordance witb section 380.001, but only if two
         conditions are met. First, the bonds the munici@lity desires to
         issue must be in an amount and to the extent provided by the
         municipality’s charter. Second, a majority of the duly qualified
         property tax-paying voters voting at an election held to consider
         the bond issue must have approved the issuance.




                                                    DAN      MORALES
                                                    Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARYKELLER
Deputy Assistant Attorney General

RENEAHxcKs
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General




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