Dr. George W, Cox                    Opinions No. O-6943
State Health Officer
Texas State Board of Health          Rer   Revenue    Bonds,
Austin, Texas                              issuance    of
Dear Sir:
            We are in, receipt of ,your opinionrequest.         of November
16, 1945,   and quote from your ‘letter as follows:
           “The Community of Portland is very anxious
     to place into operation a sewer system and in this
     connection a discussion    of amendments Jly the Forty-
     Ninth Legislature  to. Articles  1086 and 1087 brought
     up the following  questi.ons:
           1. Portland wants to incorporate    about the
     middle of January; suppose they do”incorporate,     but
     do not desire to levy tax in the new city;    can they,
     under the statute mentioned~ above, proceed to issue                     t
     revenue bonds for ~a complete new sewer system?     If
          can they Include ~purchase ,of the water system in
     g%se revenue bonds?
          2. Will a revenue’bond       issue   have to be voted
     on by the ,citizens? :

           30 If the new city has to levy the maximum
     tax rate, isnot  this rate independent of the valua-
     tion placed on the property?   In otherwords,   could
     the valuation be held very low, and the tax rate at
     the maximumfigure and. in this. way comply with the
     statute?
           4. Does, the statute mentioned above ,cover sewer
     extensions  only, or will it oover an entirely  new
     sewer system?
           Your opinion on ‘the. ,above questions     will     be
     greatly appreciatedin        ,,
          We understand from the four questions asked by you
that you are primarily interested  in whether or not a city or
Dr. George W. Cox, page 2


town can issue water works and sewer system revenue bonds.    We
will attempt to answer your questions in a general discussion
of the authority of towns or cities  to issue such bonds.
          The power to issue bonds for public improvements, or
for money borrowed for the purpose of acquiring such improve-
ments, is a power which is regarded as being beyond the scope
of power of the governing body of a city or county, unless it
shall be soeciallv granted.    This extraordinary power, when
granted, can be exercised   only in the mode and for the purposes
specified in the grant,.  Foster v. City of Waco, 225 S.W. 1104;
Keel v. Pulte, 10 S.W. 692.
             After a careful reading of Articles   1086 and 1087
Revised Civil Statutes of Texas, we find no grant of author 1ty
in these statutes to issue revenue bonds for the purpose of
constructing     a sewer system or waterworks system.   Therefore,
a city or town has no authority to issue revenue bonds under
these particular     statutes.
            Before any oity or town may issue revenue bonds
said municipality    must be legally inoorporated under the i aws
of Texas and adopt Title 28 of the Revised Civil Statutes of
Texas.   When this procedure has been properly adopted, then the
city or town has authority to issue revenue bonds, as provided
in Articles   1111-1118, Revised Civil Statutes of Texas.
          Under the provisions      of said Articles   all cities  or
towns have the power to build and purchase, to mortgage and
encumber their light systems, water systems, sewer systems, or
sanitary disposal   equipment and appliances       or gas systems,
parks and swimmlng pools,    either   or all, the the franchise    and
income thereof,   and everything pertaining     thereto acquired or
to be acquired,   and to evidence the obligation      by the issuance
of bonds, notes or warrants.
           We call your attention   to the fact that the law pro-
vides, and the courts have so held, that no revenue bonds,
notes or warrants shall be issued against any system which al-
ready has any such indebtedness   outstanding until such outstand-
ing indebtedness   is fully paid off.
           These systems cannot be encumbered for more than
$5,000.00,  except for purchase money or to refund any outstand-
ing indebtedness,  unless the governing body is authorized to
do so by majority vote of the qualified   property taxpaying VO'G-
ers, voting at an election’ordered   and held as in the case of
the issuance of other municipal bonds.
Dr. George W.    Cox, page 3


           Although no election    is required to issue revenue
bonds to purchase an existing,utility      system, or to construct
a new one, it is necessary to publish notice of intention       to
i--s;; such bonds before the governing body has authority to
         Article 2368a Revised Civil Statutes of Texas.       This
notic;  must be published once each week for two consecutive
weeks, the first   publication  to be not less than fourteen days
prior to the date on which suoh bonds are to be authorized.
           If by the timefixed     for authorizing   such bonds, ten
per cent of the qualified    property taxpaying voters who own
taxable property in such city, and who have duly rendered same
for taxation,   present a petition    to the governing body asking
that an election    be held on the question     it is mandatory on
the governing body to order such an eleo c ion.
            While the law does not require :anelechion      to be held
on the question of issuing revenue bonds to purchase and con-
struct a utility    system, the governing,body    may orders such an
election   if it so desires.     It has become a :rather common prac-
tice for most municipalities      to submit the question to a vote
in order to ascertain     the will of the people.    Under this plan
of financing,    the net revenues of such systems are pledged
solely to the payment of the principal      and interest   of the
bonds, notes or warrants, and the holders of such securities         do
not have the right to demand payment of principal        or interest
out of funds raised by taxation.       The physical properties    of
such system may also be mortgaged to secure such indebtedness
and the holders of the indebtedness under such mortgage may be
granted a franchise     to operate the system for a period of not
more than twenty years in the event of foreclosure,         Revenue
bonds and notes are not considered a debt of the city or town
and do not operate against its power to issue bonds for other
purposes.
              Revenue bonds may or may not be submitted to the Attor-
ney General for his approval and to the State Comptroller for
registration.
            The sewer system and the waterworks bonds may be voted
at the same eleotion      provided the propositions     are separately
and distinctly    submitted to the qualified    voters.    If both pro-
positions   carry   then the bonds may be combined in the bond ordi-
nance and issue B for the purpose of oonstructing        a sewer system
and purchasing a water system.
           As we see it, your question No. 3 has no relation   to
the issuance of revenue bonds.   However, we call your attention
Dr. George W. Cox, page 4


to the fact that cities  and towns have their own tax assessor
and collector  and board of equalization   and therefore may
fix the valuations  of the property for c he purpose of taxation
at any figure not in excess of its true worth.
          Trusting   that this   answers your questions,   we are
                                     Yours very truly
                                     ,ATTORNEY
                                             GENERAL
                                                   OF TEXAS
                                     By /s/ Claud 0. Boothman
                                     Claud 0. Boothtnan, Assistant

APPROVED  NOV 27, 1945
/s/ Carlos C. Ashley
FIRST ASSISTANTATTORNEYGENERAL
APPROVED:OPINIONCOMMITTEE
BY:     BWB, CHAIRMAN
COB:vwb:wb
