               THE       A-RNEY                GNNERAL
                              OP    TEXAS




The Honorable Hugh C. Yantis,      Jr.          Opinion No. H-       740
Executive Director
Texas Water C2uality Board                      Re: Constitutionality of procedures
P. 0. Box 13246                                 by which waste disposal systems
Austin, Texas 78711                            ’are financed.

Dear Mr.    Yantis:

          You have requested our opinion regarding   the financing    of waste disposal
systems    by various special districts.

           Your first question is whether the Regional Waste Disposal Act, section
25.001, et a,          Texas Water Code, grants to all districts created pursuant to
article 16, section 59 or article 3, section 52 of the Texas Constitution, the
authority to issue bonde to finance the acquisition,     construction,  improvement,
enlargement,       extension or repair of disposal systems, without regard to the
district’s    previous water pollution control efforts.   A portion of the Regional
Waste Disposal Act, section 25.051 provides:

                            In order to acquire,  construct, improve,
                         enlarge, extend, or repair disposal systems,
                         the district may issue bonds secured by a
                         pledge of all or part of the revenue from any
                         contract entered into under this chapter and
                         other income of the district.

Neither of the referenced    constitutional  provisions nor section 25.051 imposes
any requirement    that the bond issuance be related to the primary activities  of
the district or that the district itself be or have been engaged in the actual
operations of waste collection,     treatment and disposal.   We therefore answer
your first question in the affirmative.




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      The Honorable   Hugh C. Yantis,    Jr.,   - page two   (H-740)



               You also ask whether a district’s     role in providing waste collection,
      transportation,     treatment and disposal systems may be limited to its financing
      of such facilities,     and, if not, whether a pr’ocedure must be followed whereby
      title to the facilities   is transferred  from the district to the contracting company
      which would be the ultimate owner or operator of the facilities.          By the terms of
      the Water Code, a district is empowered to “acquire,           construct, improve,   en-
      large, extend, repair, operate and maintain one or more disposal systems, ”
      section 25.021; to “purchase or sell” such facilities,        section 25.022; and to
      “lease to or from any person, ” section 25.023.         A district is not granted the
      authority simply to “finance” a waste disposal system.           Consequently, the district
      must at some point have title to the system, so that it may sell or lease the system
      to the company.

               Your   next question is whether a district’s  ownership of a system is to be
      considered by the Texas Water Quality Board in certifying        the facilities as being
      for water pollution control purposes,     or by some other agency.      The Board is re-
      quired to make the essential determination      that a system’s “plans and specifi-
      cations. . . conform to the waste discharge requirements         and water quality
    ’ standards established by the board. ” Water Code 5 21.086(c).           The Attorney
      General, however,      is responsible for determining   that “the bonds are authorized
      and that the contract is made in accordance with the constitution and laws of this
       state. . . .‘I Water Code 0 25.0561~).     In order to be able to certify that the
      bonds are authorized and that the contract is made pursuant to law, the Attorney
      General must of course ascertain that the district does in fact have title to the
       system.

               Finally, you ask whether the Texas Constitution would prohibit a con-
       tracting company from realizing    a profit from the sale of a by-product which is
       removed from the waste stream.       Article  3, section 51 of the Constitution pro-
       scribes any “grant of public moneys ‘I to a private individual or corporation.
       Article 3, section 52 prohibits a governmental     entity from “lend[ing] its credit”
       for any private purpose.   If a waste disposal system has been financed through a
       public bond issue, and the contracting company realizes a profit from the sale of
       a by-product removed from the waste stream, and hence the profit is solely de-
       rived from the company’s ownership of the system, it could be stated as a general




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    The Honorable   Hugh C.   Yantis,   Jr.,   page three   (H-740)




    proposition that the contracting governmental    entity has acted in contra-
    vention of either or both of these constitutional provisions.

         In Barrington V. Cokinos, 338 S. W. 2d 133 (Tex. Sup. 1960). however,
    the Supreme Court held that a grant of public money or a loan of credit
    is not unlawful if it is for a valid public purpose and is not fraudulent,
    arbitrary   or capricious,   even though “a privately owned business may be
    benefited thereby. ” 338 S. W. 2d at 140. The construction and operation
    of pollution control facilities  unquestionably serves a valid public purpose,
    Tex. Const. art. 16, § 59(a); Parker V. San Jacinto County Water Control
    and Improvement District No. 1, 273 S. W. td 586 (Tex.Sup.        1954).

        In State v. City of Austin, 331 S. W. 2d 737 (Tex. Sup. 1960). the Supreme
    Court, in upholding the reimbursement        to certain utility companies of the
    cost of relocation of facilities  necessitated   by highway construction,  “noted
    that no net gain accrues to the utility.    . . . ” 331 S. W. 2d at 472. See also
    Harris County V. Dowlearn, 489 S. W. 2d 140 (Tex. Civ. App. --Houston
    114th Dist. ] 1972,writ ref’d n. r. e. ). This office will need to study each bond
    presentation and make a determination        based on the facts of each case as to
    whether or not the issue falls within or without the reasoning of these appli-
    cable authorities.

                                  SUMMARY

                 All districts  created pursuant to article 16,
            section 59 or article 3. section 52 of the Texas
            Constitution have the authority to issue bonds for
            the acquisition,   construction and repair of waste
            disposal systems without regard to the district’s
            previous water pollution control efforts.      A dis-
            trict may not simply “finance” a waste disposal




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    The Honorable   Hugh C. Yantir,    Jr.,     - page four   (H-740)



                       system, but it may purchase,     sell or lease
                       such a facility to or from a private entity.
                       The Attorney General is responsible for de-
                       termining that a district’s bonds are authorized
                       and that its contracts are made in accordance
                       with law.

                                              Very   truly yours,




                                              Attorney   General    of Texas


-   APPROVED:




    DAVID   Mz KENDALL,     First   Assistant




    C. ROBERT HEATH,       Ch’iirman
    Opinion Committee

    jad:




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