   OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

   JOHN     CORNYN




                                               August 28,2002



The Honorable Jim Solis                                    Opinion No. JC-0547
Chair, Committee on Economic Development
Texas House of Representatives                             Re: Whether a mayor may serve as both a
P.O. Box 2910                                              member and executive director of an industrial
Austin, Texas 78768-29 10                                  development corporation created by his city
                                                           (RQ-0521-JC)

Dear Representative     Solis:

         You have requested our opinion as to whether a mayor may simultaneously           serve as a
member and executive director of an industrial development corporation created by his city.’ For
the reasons set forth below, we conclude that there is no impediment to such service, but that, under
certain circumstances, the mayor may be obliged to disclose his salaried interest in the industrial
development corporation and abstain from participation in any matter involving the corporation that
is brought before the city council.

         You explain that the City of Crystal City (the “City”) has recently established an industrial
development corporation pursuant to article 5 190.6 of the Revised Civil Statutes. See Request
Letter, supra note 1. An “industrial development corporation” is defined as “a corporation created
and existing under the provisions of this Act as a constituted authority for the purpose of financing
one or more projects.” TEX. REV. CIV. STAT. ANN. art. 5 190.6,§ 2(10) (Vernon Supp. 2002). A city
is empowered to create an industrial development corporation under the statute’s general provisions
or under sections 4A and 4B. Under section 4A, a corporation “consists of five directors who are
appointed by the governing body of the city and who serve at the pleasure of the governing body.”
Id. 6 4A(c). A section 4B corporation “consists of seven directors who are appointed by the
governing body of the eligible city for two-year terms of office.” Id. 0 4B(c). “A director may be
removed by the governing body of the eligible city at any time without cause.” Id. 8 4B(c). You
indicate that the city council of Crystal City has appointed its mayor to serve as a member of the
board of its industrial development corporation. See Request Letter, supra note 1. The industrial
 development corporation in turn wishes to appoint that individual as its salaried executive director.
See id. We assume for purposes of this opinion that neither the municipal charter of the City nor the




           ‘Letter from Honorable  Jim Solis, Chair, Committee on Economic        Development,     Texas House of
Representatives, to Honorable John Cornyn, Texas Attorney General (Mar. 4,2002)   (on file with Opinion Committee)
[hereinafter Request Letter].
The Honorable    Jim Solis - Page 2             (JC-0547)




articles of incorporation or by-laws of the Crystal City Economic Development      Corporation present
an obstacle to such appointment.

         The common-law doctrine of incompatibility prohibits a public officer from holding two
positions with inconsistent public duties. See Thomas v. Abernathy County Line Indep. Sch. Dist.,
290 SW. 152, 153 (Tex. Comm’n App. 1927, judgm’t adopted). It also bars a public officer who
has the power of appointment from appointing himself to another office. Ehlinger v. Clark, 8
S.W.2d 666, 674 (Tex. 1928). A related aspect of the latter doctrine prohibits an individual from
holding both an office and an employment if the officer has a supervisory role over the employment.
See Tex. Att’y Gen. LA-l 14 (1975) at 2-3. Such “self-employment” incompatibility would, in the
situation you describe, bar a member of the board of an industrial development corporation from
simultaneously   serving as its executive director, but only if the board member holds a “public
office.”

         An industrial development      corporation is incorporated under the Texas Non-Profit
Corporation Act, article 1396-l .Ol, et seq. TEX. REV. CIV. STAT.ANN. art. 5 190.6,§ 23(a) (Vernon
Supp. 2002). It “shall have and exercise all of the rights, powers, privileges, authority, and functions
given by the general laws of this state to nonprofit corporations incorporated under the Texas Non-
profit Corporation Act.” Id. By statute, an industrial development corporation “is not intended to
be and shall not be a political subdivision or a political corporation within the meaning of the
constitution and the laws of the state.” Id. 8 22. Furthermore, “a unit [of government] shall never
delegate to a corporation any of such unit’s attributes ofsovereignty, including the power to tax, the
power of eminent domain, and the police power.” Id. (emphasis added). Seegenerally Tex. Att’y
Gen. Op. Nos. JC-0407 (2001), JC-0338 (2001), JC-0109 (1999). In Aldine Indep. Sch. Dist. v.
Standley, the Texas Supreme Court said that “the determining factor which distinguishes a public
officer from an employee is whether any sovereign function of the government is conferred upon the
individual to be exercised by him for the benefit of the public largely independent of the control of
others.” Aldine Indep. Sch. Dist. v. Standley, 280 S.W.2d 578,583 (Tex. 1955) (emphasis added).
Because, by the terms of article 5 190.6, an industrial development corporation bears none of the
“attributes of sovereignty,” it follows that, under the Aldine test, a member of the board of such a
corporation is not a “public officer” for purposes of the common-law doctrine of incompatibility.

         Our opinion in Attorney General Opinion JC-0 199 does not require a contrary result. There,
we concluded that a member of the Gilmer Volunteer Fire Department was barred by self-
employment incompatibility from simultaneously serving as a member of the Gilmer City Council.
In that case, however, the city charter created a “Fire Department for the City of Gilmer, to be
maintained by the Gilmer Volunteer Fire Department for the protection ofthe City.” Tex. Att’y Gen.
Op. No. JC-0199 (2000) at 2. The position of fire chief had to be approved by the city council. Id.
The chief, with the city manager’s approval, appointed and removed “the employees of the
department .” Id. In contrast to a volunteer fire department considered in a prior opinion, JC-0199
found that “the department in Gilmer is clearly under the control of the city, is housed on city
property, and is led by a chief who must be approved by the city council.” Id.
The Honorable Jim Solis - Page 3               (JC-0547)




         By contrast, article 5 190.6 makes clear that an industrial development corporation is not a
part of a city’s government.     The executive director is appointed by the board of directors of the
corporation, and is not under the control of the city. However fictional in practice the wall of
separation between a city and its industrial development corporation, the legislature has erected that
wall, and it is the legislature or the courts, and not this office, that must penetrate the wall of
separation. We recognize the potential for abuse inherent in the appointment of, as a corporation’s
executive director, the mayor of the city that creates the corporation. Nevertheless, we conclude that,
under existing law, “self-employment”      incompatibility is not a bar to a board member’s service as
executive director of the corporation.

         We must also consider the prohibition of article XVI, section 40 of the Texas Constitution,
which bars a public officer from holding “more than one civil office of emolument.” TEX. CONST.
art. XVI, 0 40. As we have noted, an industrial development corporation, by statute, has none of the
“attributes of sovereignty,” and that, as a result, under the test of Aldine, supra, a member of the
board does not hold a “public office.” It clearly follows then that a mere employee of the board does
not hold a public office. Thus, even though the mayor holds a public office, he does not contravene
article XVI, section 40 by holding the position of executive director of an industrial development
corporation, because the latter position does not constitute a “public office.” A mayor’s service as
executive director of his city’s industrial development corporation may, however, implicate the
conflict of interest provisions applicable to local public officials under chapter 171 of the Local
Government Code.

         Chapter 171 defines a “business entity” as “a sole proprietorship,          partnership, firm,
corporation, holding company, joint-stock company, receivership, trust, or any other entity
recognized by law.” TEX.Lot. GOV’T CODEAN-N.9 17 1.OOl(2) (Vernon 1999). Section 17 1.002( 1)
of the Local Government Code, which provides that “a person has a substantial interest in a business
entity if. . . he owns 10 percent or more of the voting stock or shares of the business entity or owns
either 10 percent or more or $15,000 or more of the fair market value of the business entity,” id. fj
171.002(a)(l), is not applicable to an industrial development corporation, because an industrial
development corporation is, by statute, “a nonmember, nonstock corporation.” TEX.REV.CIV. STAT.
ANN. art. 5 190.6, 8 5 (Vernon Supp. 2002). Section 171.002(2) provides, however, that “a person
has a substantial interest in a business entity if. . . funds received by the person from the business
entity exceed 10 percent of the person’s gross income for the previous year.” TEX.Lot. GOV’T CODE
ANN. 5 171.002(a)(2) (Vernon 1999). You indicate that, as executive director of the Crystal City
Industrial Development Corporation, the mayor will receive a salary. See Request Letter, supra note
1. Thus, if the income the mayor receives as an executive director of the industrial development
corporation exceeds ten percent of his total gross income for the previous year, he is deemed to have
“a substantial interest in” the industrial development corporation.

          Section 171 .OOl of the Local Government Code defines a “local public official” to include
“a member of the governing body . . . of any . . . municipality.” TEX. Lot. GOV’T CODEANN.
0 171.001(1) (V emon Supp. 2002). Thus, the mayor of whom you inquire is a “local public
official.” Section 171.004 requires a local public official who has a “substantial interest” in a
The Honorable Jim Solis - Page 4                 (JC-0547)




business entity to submit an affidavit disclosing that interest “before a vote or decision on any matter
involving the business entity” and to abstain from further participation in the matter if the action
would “have a special economic effect on the business entity that is distinguishable from its effect
on the public.” Id. 8 171.004(a)(l) (V emon 1999). The affidavit must be filed with the official
record keeper of the governmental entity. Id. 9 171.004(b). A violation of this provision is a class
A misdemeanor.     Id. 9 171.003. See generally Tex. Att’y Gen. Op. No. DM-303 (1994).

        We also note that section 171.009 of the Local Government Code does not prohibit the
mayor’s service as executive director of the industrial development corporation. That provision
states:

                It shall be lawful for a local public official to serve as a member of
                the board of directors of private, nonprofit corporations when such
                officials receive no compensation or other remuneration from the
                nonprofit corporation or other nonprofit entity.

TEX. Lot. GOV’T CODEANN. 8 17 1.009 (Vernon 1999). Although the mayor in the situation you
pose will receive a salary for his service with the industrial development corporation, that salary is
attached to his service as executive director. Section 171.009, on the other hand, prohibits the
payment of compensation       for one’s membership on the board of directors of an industrial
development corporation. Id. From the facts presented to us, the individual in question will not
receive any compensation by virtue of his membership on the board of directors.

         In sum, if the mayor that is the subject of this request receives more than ten percent of his
gross income from his compensation           as executive director of the Crystal City Industrial
Development Corporation, he must disclose that interest whenever the city council of Crystal City
considers any matter involving the industrial development corporation, so long as the action
contemplated will have an economic effect on the industrial development corporation that is different
from its effect on the public. In such instance, he must file “an affidavit stating the nature and effect
of the interest” and he must “abstain from further participation in the matter.”
The Honorable   Jim Solis - Page 5              (JC-0547)




                                         SUMMARY

                         Under current law, a mayor of a city that creates an industrial
                development corporation pursuant to article 5 190.6, Revised Civil
                Statutes, is not prohibited from serving as a salaried executive
                director of the corporation. If, however, he receives more than ten
                percent of his gross income from his compensation as executive
                director, he must disclose that interest whenever the city council
                considers    any matter involving         the industrial    development
                corporation,   so long as the action contemplated          will have an
                economic effect on the industrial development corporation that is
                different Ii-om its effect on the public. In such instance, he must file
                “an affidavit stating the nature and effect of the interest” and he must
                “abstain from further participation in the matter.”




                                                JOtiN    CORNYN
                                                Attorney General of Texas



HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DEMON       GUSKY
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee
