    OFFICEOF THEATTORNEYGENERAL                    - STATE    OF   TEXAS

    JOHN CORNYN




                                                                   May 11,200l


Mr. Jim Nelson                                                             Opinion No. JC-0378
Commissioner of Education
Texas Education Agency                                                     Re: Application of nepotism and conflict of
1701 North Congress Avenue                                                 interest statutes to the governing boards of open-
Austin, Texas 78701-1494                                                   enrollment charter schools (RQ-03 3 1-JC)


Dear Mr. Nelson:

        You ask whether members of the governing boards of open-enrollment charter schools and
of nonprofit corporations that establish such schools are subject to Government Code chapter 573
and Local Government Code chapter 17 1, provisions that relate respectively to nepotism and local
public officers’ conflicts of interest. See TEX. GOV’T CODEANN. $9 573.001-.084 (Vernon 1994 &
Supp. 2001); TEX. Lot. GOV’T CODE ANN. 88 171.001-.009 (Vernon 1999). Members of the
governing board of a nonprofit corporation that establishes an open-enrollment charter school and
the governing board of the school, if there is one, are not subject to chapter 573 of the Government
Code or chapter 171 of the Local Government Code.’

         Charter schools may be established pursuant to chapter 12 of the Education Code. Under this
chapter, “an independent school district, a school campus, or an educational program” may be
operated under a charter as an alternative to operating in the manner generally required by the
Education Code. TEX. EDUC. CODE ANN. 6 12.001 (Vernon 1996). There are three classes of
charter: a home-rule school district charter, a campus or campus program charter, and an open-
enrollment charter. See id. 6 12.002. We are concerned with the latter, which is governed by
subchapter D of chapter 12. See id. 8 12.002(3); see also id. 8 12.002(l), (2) (subchapters B and C
provide for a home-rule school district charter and a campus or campus program charter).

        Open-enrollment charter schools are public schools that are substantially released from state
education regulations and exist separate and apart from local independent school districts.2 See id.
0 12.105(a) (V emon Supp. 2001) (“open-enrollment      charter school is part of the public school
system”). They receive public funds, see id. 0 12.106 (Vernon 1996), and have the powers granted


         ‘We note tha t House Bill 6 is pending before the 77th Texas Legislature and proposes the adoption of section
12.1053(b) of the Education Code, which will make Local Government Code chapter 17 1 applicable to members of
governing bodies and offrcers of certain charter schools. See Tex. H.B. 6,77th Leg., R-S., $ 10 (2001).

          2T~~~ EDUCATION
                        AGENCY,TEXASOPEN-ENROLLMENT
                                                 CHARTER
                                                       SCHOOLS:
                                                              THIRDYEAREVALUATION,
                                                                                1998-99,
SECTION       I:   INTRODUCTION               TO    PART       ONE         OF   THE   1998-99   EVALUATION,    available   at
http://www.tea.state.tx.us/charter/eval99/1          .html.
Mr. Jim Nelson         - Page 2                              JC-0378




to schools under title 2 of the Education Code, see id. 8 12.104(a) (Vernon Supp. 2001). Open-
enrollment charter schools are subject to federal and state laws and rules governing public schools,
except that the Education Code and rules adopted under it apply to them only to the extent that the
application of the provision or rule is specifically provided. See id. 0 12.103(b) (Vernon 1996).
Among other Education Code provisions, open-enrollment charter schools are expressly subject to
provisions on public school accountability and high school graduation requirements.          See id.
8 12~1ww9@),        w w emon Supp. 2001).3 The schools are governed according to the governing
structure described by the charter, and instruction is provided to students according to the charter.
See id. 8 12.102 (Vernon 1996); see also id. 8 12.111 (Vernon Supp. 2001) (content of charter).

         The State Board of Education may grant an eligible entity a charter to operate an open-
enrollment charter school in a facility of a commercial or nonprofit entity or a school district. See
id. 8 12.101 (Vernon 1996). An “eligible entity” is a public or private institution of higher
education, a governmental entity, or “an organization that is exempt from taxation under Section
501(c)(3), Internal Revenue Code of 1986,” that is, a nonprofit corporation. See id.4 You inform
us that nonprofit corporations hold the vast majority of open-enrollment school charters granted by
the State Board of Education?          Although charter schools may be established by various
governmental entities and by private institutions of higher education as well as by nonprofit
organizations, your letter indicates that you are concerned only about charter schools established by
nonprofit corporations, and we will limit our discussion accordingly.

        You ask whether the members of the governing board of an entity that sponsors an open-
enrollment charter school and the members of the governing board of the charter school, if there is
a separate board, are subject to the prohibitions against nepotism in Government Code chapter 573
and the regulation of local public officers’ conflicts of interest in Local Government Code chapter
17 1. Although our answer will be limited to open-enrollment charter schools operated by private,
nonprofit corporations, we point out that in the usual case, officers of governmental entities and
boards are subject to Government Code chapter 573. See Pena v. Rio Grande City Consol. Indep.
Sch. Dist., 616 S.W.2d 658 (Tex. Civ. App.-Eastland 1981, no writ) (school board members, not



            3See Tex. H.B. 6,77th Leg., R.S., $9 7,8 (2001) (proposing   amendments   to sections 12.103 and 12.104 ofthe
Education     Code).

            4See also TEXASHOUSEOFREPRESENTATIVES,
                                               COMMITTEE
                                                       ONPUBLIC
                                                              EDUCATION,
                                                                      INTERIM
                                                                            REPORT
                                                                                 TOTHE76~~
TEXASLEGISLATURE,
               at 11 (Dec. 1998) (available          at Legislative Reference Library). The tax exemption provided by
section 50 1(c)(3) of the Internal Revenue Code applies to corporations and other organizations “organized and operated
exclusively for religious, charitable, scientific . . . or educational purposes, . . . no part of the net earnings of which
inures to the benetit of any private shareholder or individual . , . .” I.R.C. 6 501(c)(3) (1994). To receive the exemption,
such organizations may not participate in political campaigns involving an individual and are subject to statutory limits
on activities to influence legislation. See id.

         ‘See Letter from Mr. Jim Nelson, Commissioner of Education, to Honorable John Comyn,Texas Attorney
General, at 2 (Dec. 22,200O) (on file with Opinion Committee). See also TEXASHOUSEOFREPRESENTATIVES,     COMMITTEE
ON PUBLICEDUCATION,      INTERIMREPORT    TO THE77~~ TEXASLEGISLATURE,    at 11 (Dec. 2000) (available at Legislative
Reference Library).
Mr. Jim Nelson      - Page 3                        JC-0378




superintendent, are officers within nepotism statute); Tex. Att’y Gen. Op. No. JC-0184 (2000) (board
of Municipal Utility District); Tex. Att’y Gen. LA- 148 (1977) (university regent). Similarly, local
public officers are ordinarily subject to chapter 17 1 of the Local Government Code. See, e.g., Walk
v. State, 841 S.W.2d 430 (Tex. App.-Corpus Christi 1992, pet. ref d) (county judge); Dallas County
Flood Control Dist. No. I v. Cross, 815 S.W.2d 271 (Tex. App.-Dallas 1991, writ denied) (board
of flood control district); Tex. Att’y Gen. Op. Nos. JC-0184 (2000) (members of municipal utility
district board); JC-0155 (1999) (members of city council).

         Section 573.041 of the Government Code provides that “[a] public official may not appoint,
confirm the appointment of, or vote for the appointment or confirmation of the appointment of an
individual to a position that is to be directly or indirectly compensated from public funds” if the
individual is related to the public official within a degree described by the statute. TEX. GOV’T CODE
ANN. fj 573.041(l) (V emon 1994). If a public official is a member of a board that holds the
appointment power, he or she may not appoint an individual who is related to any member of the
board. See id. 8 573.041(2). An official who violates this prohibition commits an offense involving
official misconduct. See id. 8 573.084(a).

        Our question is whether the board members you inquire about are “public officials” for
purposes of chapter 573 of the Government Code. “Public official” is defined as:

                          (A) an officer of this state or of a district, county,
                 municipality, precinct, school district, or other political subdivision
                 of this state;

                          @) an officer or member of a board of this state or of a
                 district, county, municipality, school district, or other political
                 subdivision of this state; or

                         (C)   a judge.   ...

Id. 0 573.001(3).

         Thus, the prohibition against nepotism applies to state officers and to officers of political
subdivisions, including those political subdivisions specifically identified in the statute. A school
operated under charter by a nonprofit corporation “is part of the public school system of this state,”
TEX. EDUC.CODEANN. 8 12.1 OS(a) (Vernon Supp. 2001), but the nonprofit corporation that operates
it is not a state level governmental body or a school district. Education Code section 12.103
provides that “[a@ open-enrollment      charter school is subject to federal and state laws and rules
governing public schools . . . .” Id. 8 12.103 (Vernon 1996) (emphasis added). Government Code
chapter 573 applies to officers of a “school district,” not to officers of a “public school.” See TEX.
GOV’T CODE ANN. 6 573.001(3)(A), (B) (V emon 1994). Accordingly,                 section 12.103 of the
Education Code does not render chapter 573 applicable to an officer of an open-enrollment charter
school.
Mr. Jim Nelson     - Page 4                        JC-0378




         Moreover, the legislature has provided in Education Code section 12.105(b) that the
governing body of an open-enrollment        charter school is considered a governmental body for
purposes of Government Code chapter 55 1, the Open Meetings Act, and Government Code chapter
552, the Public Information Act. See TEX. EDUC.CODEANN. 0 12.105(b) (Vernon Supp. 2001).
Each of those Government Code provisions expressly applies to “a school district board of trustees.”
See TEX. GOV’T CODE ANN. $9 551.001(3)(E), 552.003(1)(A)(v) (Vernon Supp. 2001). The
legislature’s enactment of a provision stating that open-enrollment charter schools were subject to
the Open Meetings Act and the Public Information Act suggests that it did not consider the
governing bodies of these schools to be school district boards.

         An open-enrollment charter school is not “a district, county, municipality, precinct, . . . or
other political subdivision of this state” within section 573.001(3) of the Government Code. See id.
fj 573.001(3) (V emon 1994). In Guaranty Petroleum Corp. v. Armstrong, 609 S.W.2d 529 (Tex.
1980), the Texas Supreme Court described the characteristics of a “department, board, or agency of
the state” and a “political subdivision.” The court stated as follows:

                 A political subdivision has jurisdiction over a portion of the State; a
                 department, board or agency of the State exercises its jurisdiction
                 throughout the State. Members of the governing body of a political
                 subdivision are elected in local elections or are appointed by locally
                 elected officials; those who govern departments, boards or agencies
                 of the State are elected in statewide elections or are appointed by
                 State officials. Political subdivisions have the power to assess and
                 collect taxes; departments, boards and agencies do not have that
                 power.

Guar. Petroleum Corp.. 609 S.W.2d at 53 1.              .

         A nonprofit corporation that operates an open-enrollment charter school does not have the
characteristics of a state governing board or of a political subdivision. It does not have jurisdiction
throughout the state or even over a portion of the state, but only over the school program that it
operates. The directors of the nonprofit corporation are appointed pursuant to the provisions of the
Non-Profit Corporation Act and are not elected or appointed by public officers. See generally, TEX.
REV. CIV. STAT.ANN. art. 1396-2.14 (Vernon 1997). A nonprofit corporation has no authority to
assess or collect taxes.

          If a separate governing body for the open-enrollment charter school exists, its members will
not be “public officials” within chapter 573 of the Government Code. The charter school itself is
not a state level governmental body, or “a district, county, municipality, precinct, school district, or
other political subdivision of this state.” See TEX. GOV’T CODEANN. 8 573.001(3) (Vernon 1994).
Its jurisdiction is no more extensive than the jurisdiction of the nonprofit corporation that established
it. Its governing structure, including the manner in which officers and members of the governing
Mr. Jim Nelson      - Page 5                                JC-0378




body are selected, is established in the charter. See TEX. EDUC. CODE ANN. 5 12.11 l(8) (Vernon
Supp. 2001). The legislature has expressly provided that an open-enrollment charter school has no
authority to impose taxes. See id. 8 12.102(4) (Vernon 1996).

        We conclude that neither the members of the governing board of a nonprofit entity that
sponsors an open-enrollment charter school nor the members of the governing board of the charter
school, if there is a separate board, are officers or members “of a board of this state or of a district,
county, municipality, school district, or other political subdivision of this state,” under chapter 573
of the Governrnent Code. See TEX. GOV’T CODEANN. 8 573.001(3) (Vernon 1994). Accordingly,
these board members are not subject to chapter 573 of the Government Code.

          Chapter 171 of the Local Government Code regulates conflicts of interest of local public
officials. A local public official may not participate in a vote or decision on a matter that will have
a special economic effect on a business entity or real property in which he or she has a substantial
interest. See TEX. LOC. GOV’T CODEANN. 8 171.004 (Vernon 1999). Prior to a decision on the
matter, the officer must file an affidavit with the record keeper of the governmental entity stating the
nature and extent of the interest in the business entity or real property. See id. A public official’s
“substantial interests” include the officer’s ownership interests in real property and business entities
in excess of a minimum stated in the statute. See id. 8 171.002. The officer’s “substantial interests”
also include substantial interests owned by certain of his or her near relatives. See id. tj 171.002(c).
Thus, there is a nepotism element in chapter 171 of the Local Government Code.

         A “local public official” subject to Local Government Code chapter 17 1 is “a member of the
governing body . . . of any district (including a school district), county, municipality, precinct,
central appraisal district, transit authority or district, or other local governmental entity who exercises
responsibilities beyond those that are advisory in nature.” Id. 8 171 .001(l). We have already
determined in connection with Government Code chapter 573 that neither the members of a
governing board of a nonprofit corporation that sponsors an open-enrollment charter school nor the
members of the governing board of the charter school are officers of a school district or any other
political subdivision.     See generaZZy TEX. EDUC. CODE ANN. 3 12.103 (Vernon 1996) (“open-
enrollment charter school is subject to federal and state laws and rules governing public schools”)
(emphasis added). Thus, none of these persons are members of the governing body of the political
subdivisions expressly named in the definition of “local public official.” See Tex. Att’y Gen. LO-
94-049 (municipal utility districts, counties, precincts are political subdivisions of the state).

         Chapter 171 of the Local Government Code also applies to officers of a “local governmental
entity,” a term that chapter 171 does not define. After looking at this term in its context in chapter
171 of the Local Government Code and at definitions of it in other statutes, we conclude that the
persons you inquire about are not members of the governing body of any “local governmental
entity?


        6We note that the Texas Non-Profit   Corporation   Act includes provisions   on transactions   between a corporation
                                                                                                               (continued...)
Mr. Jim Nelson      - Page 6                              JC-0378




          Words and phrases in statutes are to be read in context. See TEX. GOV’T CODE ANN. 8
3 11 .Ol l(a) (Vernon 1998). Under the rule of ejusdem generis, the phrase “local governmental
entity,” is to be construed to include entities like those expressly mentioned. See County of Harris
v. Eaton, 573 S.W.2d 177, 179 (Tex. 1978); Tex. Att’y Gen. Op. No. JC-0014 (1999) at 3. The
entities expressly mentioned are all public entities, and accordingly, a “local governmental entity”
would encompass only public entities and would not include a private, nonprofit corporation.

          Moreover, a review of other statutes that define “local governmental entity” supports our
conclusion that this term refers to a public entity.        The Whistleblower Law defines “local
governmental entity” as a political subdivision of the state, including a county, municipality, public
school district, or special purpose district or authority. See TEX. GOV’T CODE ANN. tj 554.001(2)
(Vernon Supp. 2001). See also TEX. HEALTH& SAFETYCODE ANN. 0 366.002(5) (Vernon Supp.
2001) (“local governmental entity” means “a municipality, county, river authority or special
district”). Some statutes expressly distinguish “local governmental entities” from private entities.
For example, a sports facility district established by a county may contract with the federal
government, the state, “local governmental entities including the county, and private entities.” TEX.
LOC. GOV’T CODE ANN. 8 325.031(2) (Vernon 1999); see also TEX. HUM. RES. CODE ANN. $
3 1.0126(a)(3) (V emon 2001) (development of employment program “operated by anonprofit group
or local governmental entity”); TEX. LOC. GOV’T CODE ANN. 4 351.135(2) (Vernon 1999) (jail
district may contract with the federal government, the state, “local governmental entities including
the county, and private entities”).

         In some cases, the legislature has expressly defined “local governmental entity” to include
nonprofit corporations. A statute on joint turnpikes and toll projects defines “local governmental
entity” as “a political subdivision of the state, including a municipality or a county, . . . a group of
adjoining counties, a defined district, or a nonprofit corporation, including a transportation
corporation created under [Transportation Code] Chapter 43 1.” TEX. TFUNSP.CODE ANN. 8
362.001(4) (V emon 1999); see also TEX. GOV’T CODE ANN. 9 2256.002(7) (Vernon 2000) (“local
government” defined to include a nonprofit corporation acting on behalf of a political subdivision);
TEX. TRANSP. CODE ANN. 8 366.003(g) (Vernon 1999) (“local governmental              entity” defined to
include a nonprofit corporation).       Thus, when the legislature has wished the phrase “local
governmental entity” to include nonprofit corporations, it has expressly said so. Neither the
members of the governing board of a nonprofit corporation that sponsors an open-enrollment charter
school nor the members of the governing board of the charter school are officers of a “local
governmental entity” under chapter 17 1 of the Local Government Code. Accordingly, they are not
subject to this statute.




and its directors. See TEX.REV. CIV. STAT.ANN. art. 1396-2.28 (Vernon 1997) (“G eneral Standards       for Directors”);
id. art. 1396-2.30 (“Interested Directors”); see also Tex. Att’y Gen. Op. No. JC-0338 (2001) at 3-4.
Mr. Jim Nelson     - Page 7                          JC-0378




                                         SUMMARY

                          Open-enrollment     charter schools may be established by a
                 nonprofit corporation and certain other entities under Education Code
                 chapter 12, subchapter D. Members of the governing board of a
                 nonprofit corporation that establishes an open-enrollment       charter
                 school and the governing board of the school, if there is one, are not
                 governmental entities subject to the prohibitions against nepotism in
                 Government Code chapter 573 or the regulation of local public
                 officers’ conflicts of interest in Local Government Code chapter 17 1.

                                                Yo    sve   truly



                                              q,a(T
                                                JOHN     CORNYN
                                                Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

SUSAN D. GUSKY
Chair, Opinion Committee

Susan L. Garrison
Assistant Attorney General - Opinion Committee
