Does a Texas city have to use competitive bidding when it spends federal CDBG grant money, including on nonprofits?

Plain-English summary

Cities get federal Community Development Block Grant (CDBG) money to pay for things like housing rehabilitation, public improvements, and local economic development. A state legislator asked the Attorney General whether a Texas city has to put that spending out for competitive bid under state law, and whether the answer changes when the city hands the money to a nonprofit rather than a for-profit company. The legislator pointed out that federal law does not itself require competitive bidding for CDBG grants to nonprofits, and that the Local Government Code, in section 373.005(c), talks separately about "federal money" and "municipal funds," which might suggest CDBG money sits outside the state bidding rules.

The office said the state bidding laws still apply. Its core reasoning: federal funds that a city chooses to take in and spend take on the character of municipal funds, so the ordinary state laws that govern municipal money govern CDBG money too, unless some state statute carves out an exception. The office noted that this would hold even without a federal provision pointing back to state law, and even if the federal program tried to set rules contrary to state law. It contrasted the old federal Revenue Sharing Act, now repealed, which had expressly made shared funds subject to the same state laws as a locality's other money; CDBG law, by comparison, just tells grantees to "comply with the other provisions of [the federal chapter] and with other applicable laws."

The office added two practical points. First, the separate terms "federal money" and "municipal funds" in section 373.005(c) were not meant to exempt CDBG spending from generally applicable state law; CDBG receipts still go through the municipal budget (section 102.003 requires the budget to include funds "from all sources") and into the municipal depository (chapter 105). If the legislature had wanted to exempt CDBG spending from competitive bidding, it knew how to do so explicitly, as it did for some other municipal contracts. Second, paying a nonprofit instead of a for-profit did not, by itself, lift the bidding requirement. Chapter 252 draws no general nonprofit/for-profit line, and the one narrow nonprofit carve-out it does contain (for certain management services at museums, parks, and zoos) actually signals that other nonprofit contracts over the threshold are covered. Whether any specific CDBG payment is a "contract" over the dollar threshold, or fits one of chapter 252's exceptions, the office said, depends on the facts.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The municipal competitive bidding statutes the opinion construed (chapter 252 of the Local Government Code) and the community development financing provisions (chapter 373, including section 373.005(c)) have been amended since 1995, and the dollar thresholds and the list of bidding exceptions have changed. The federal CDBG program rules have also been revised. Read this page for how the office analyzed the question as the law stood in 1995, and check the current Local Government Code and federal CDBG regulations before relying on any threshold or exception mentioned here.

What the opinion meant for those who asked

For the requesting legislator: The opinion answered that state competitive bidding laws reached a city's CDBG spending on qualifying contracts, and that routing the money to a nonprofit did not change that, while leaving the case-by-case "is this a contract over the threshold" question to the facts.

For Texas cities spending CDBG funds: Under the opinion, CDBG money in a city's hands was treated as municipal funds for state-law purposes, ran through the municipal budget and depository, and was subject to chapter 252 bidding when spent on contracts above the threshold and outside an exception.

For nonprofit and for-profit contractors: The opinion read chapter 252 to apply to nonprofit and for-profit contractees alike, so a nonprofit receiving CDBG-funded work over the threshold was generally subject to the same bidding process as a for-profit, unless a specific statutory exception applied.

Common questions

Did a Texas city have to bid out CDBG-funded contracts?
Yes, according to the opinion, when the spending was on a "contract" exceeding the threshold amounts in the state's municipal competitive bidding laws and did not fall within a listed exception.

Why did state law control money that came from the federal government?
The office reasoned that federal funds a city chooses to receive and spend take on the character of municipal funds, so the state laws that govern municipal money apply absent a specific state-law exception.

Did giving the money to a nonprofit avoid competitive bidding?
No. The opinion said chapter 252 makes no general nonprofit/for-profit distinction, and the existence of one narrow nonprofit exception suggested other nonprofit contracts over the threshold were covered.

Did the separate terms "federal money" and "municipal funds" in section 373.005(c) create an exemption?
The opinion said no. It read that wording as not intended to exempt CDBG spending from state laws generally applicable to municipal funds, noting CDBG receipts still go through the municipal budget and depository.

Background and statutory framework

Chapter 373 of the Local Government Code authorized a municipality to finance community development projects with federal funds it received as well as its own funds. Section 373.005(c) let a city run financing programs for acquiring, building, improving, or rehabilitating privately owned buildings, or to assist private for-profit entities for an economic development project, "through the use of loans and grants from federal money remitted to the municipality," while barring use of municipal property or funds for private purposes and requiring the program to fit an approved community development plan determined to be a public purpose.

The municipal competitive bidding rules sat in chapter 252. Section 252.021 required competitive bidding for a contract requiring an expenditure from municipal funds over the statutory threshold, and section 252.022 listed exceptions (for example, the section 252.022(a)(4) "personal or professional services" exception and the section 252.022(a)(11) exception tied to certain chapter 212 public improvement contracts), including a narrow exception in section 252.022(7)(P) for management services provided by nonprofit corporations to certain museums, parks, zoos, or other facilities.

On the federal side, the CDBG program is found in 42 U.S.C. chapter 69 and its regulations at 24 C.F.R. part 570; the federal statute directs grantees to "comply with the other provisions of [42 U.S.C. ch. 69] and with other applicable laws" (42 U.S.C. § 5304(b)(6)). The office contrasted this with the now-repealed federal Revenue Sharing Act (formerly in chapter 67 of title 31), which had expressly made shared funds subject to the same state laws and procedures as a locality's other money. Even without such an express tie, the office concluded, discretionarily received federal funds take on the character of municipal funds under state law. It also pointed to the municipal budget statute (section 102.003, requiring inclusion of funds "from all sources") and the municipal depository chapter (chapter 105, including sections 105.014-.015 and .031) as confirming that CDBG receipts move through the ordinary municipal-funds machinery, and noted that where the legislature wanted to exempt municipal spending from bidding it had done so expressly (for example, sections 212.071, 374.904, and 392.0565).

Citations

Statutory and regulatory provisions discussed:

• Local Government Code § 252.021 (municipal competitive bidding requirement); § 252.022(7)(P), (a)(4), (a)(11) (bidding exceptions)
• Local Government Code ch. 373, § 373.005(c) (community development financing with federal and municipal funds)
• Local Government Code § 102.003 (municipal budget to include funds "from all sources")
• Local Government Code ch. 105, §§ 105.014-.015, .031 (municipal depository)
• Local Government Code §§ 212.071, 374.904, 392.0565 (express bidding exemptions)
• 42 U.S.C. ch. 69; 24 C.F.R. pt. 570; 42 U.S.C. § 5304(b)(6) (federal CDBG program)
• 31 U.S.C. ch. 67 (Revenue Sharing Act, since repealed)

Other authority (prior Attorney General opinions referenced):

• Attorney General Opinions JM-716 (1987), MW-329 (1981), H-1189 (1978), H-1010 (1977), H-127 (1973) (revenue-sharing funds subject to state law)
• Attorney General Opinions JM-573 (1986), JM-385, JM-274 (1985), C-246 (1964)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0331
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1995/dm0331.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain (including footnote numbering) — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

March 10, 1995

Honorable David H. Cain
Texas State Senate
P.O. Box 12068
Austin, Texas 78711

Opinion No. DM-331

Re: Whether a city's expenditures of community development block grant funds are subject to state competitive bidding laws (RQ-644)

Dear Senator Cain:

In your capacity as chairman of the House Committee on Transportation you asked whether the state's competitive bidding laws apply to community development block grant ("CDBG") funds "received and distributed" by a city to (a) "nonprofit contractors" and (b) "for-profit entities." You say that federal law, at least, "does not require that CDBG funded projects be competitively bid if cities award a grant to a nonprofit corporation." Also, you note that, while the municipal competitive bidding provisions in section 252.021 of the Local Government Code apply to "[a] contract . . . [that requires an expenditure] . . . from one or more municipal funds," section 373.005(c) of the Local Government Code makes a distinction, in the context of municipal community development projects, between "federal money" and "municipal funds." In our opinion, a city's expenditures of CDBG funds are subject to competitive bidding under state law when spent on "contracts" exceeding the threshold amounts set out in those laws and not falling within any of the exceptions to the bidding requirements set out there or elsewhere in state law.

Chapter 373 of the Local Government Code generally authorizes a municipality to finance community development projects using federal funds received by the municipality as well as other funds of the municipality. Section 373.005(c), referenced in your request, reads in pertinent part:

A municipality may implement programs to provide financing for the acquisition, construction, improvement or rehabilitation of privately owned buildings and other improvements or to assist private, for-profit entities if the assistance is necessary or appropriate to carry out an economic development project, through the use of loans and grants from federal money remitted to the municipality. . . . A municipality may not provide municipal property or municipal funds for private purposes. The programs and financing must be in keeping with an approved community development plan that the municipality has determined to be a public purpose. A program established for financing the acquisition, construction, improvement, or rehabilitation of buildings and improvements, or for financing economic development projects, through the use of federal funds may prescribe procedures under which the owners of the buildings, improvements, or economic development projects agree to partially or fully reimburse the municipality. [emphasis added.]

The federal law providing for the granting of CDBG funds is found in 42 U.S.C. chapter 69. See also 24 C.F.R. pt. 570. We are aware of nothing in current federal law, however, that specifically addresses the applicability of state competitive bidding requirements to the use of CDBG funds by recipient municipalities.

Several prior opinions of this office concluded that federal "revenue sharing" funds received by local governments under chapter 67 of title 31 of the United States Code, the Revenue Sharing Act, now repealed, were subject to state laws generally applicable to those entities' public funds.[1] See Attorney General Opinions JM-716 (1987); MW-329 (1981); H-1189 (1978); H-1010 (1977), and H-127 (1973). In support of their conclusions, those opinions, inter alia, cited federal provisions specifically making recipient entities' expenditures of any federal revenue sharing funds received subject to the same laws and procedures applicable to other funds of those entities. See 31 U.S.C. § 6724(a) (repealed 1986). In contrast, the federal law pertaining to CDBGs provides merely that grantees must "comply with the other provisions of [42 U.S.C. ch. 69] and with other applicable laws." 42 U.S.C. § 5304(b)(6) (emphasis added).

In our opinion, however, federal funds discretionarily obtained and expended by Texas municipalities take on the character of municipal funds and are generally subject to the state laws pertaining to such funds absent specific exceptions made under state law. We believe this to be the case even in the absence of specific federal provisions acknowledging the applicability of state law, such as those in the now-repealed Revenue Sharing Act, and indeed even if the pertinent federal law specifically imposed requirements contrary to state law.

Further, as to the applicable state law here, while we think it unnecessary in this context to determine precisely what, if any, distinction the legislature intended to make in section 373.005(c) of the Local Government Code vis-a-vis the uses to which federal funds and funds from other sources could be put by a city on community development projects, we do not believe that the use of the distinct terms "federal money" and "municipal funds" in section 373.005(c) was itself intended to exempt expenditures of federal funds in the hands of a municipality from the operation of state law generally applicable to municipal funds.

CDBG receipts would presumably be subject to the municipal budget process — section 102.003 of the Local Government Code requires funds received and available "from all sources" to be included in the budget. Likewise, we would not imagine that CDBG receipts would not have to be deposited in the municipal depository under chapter 105 of the Local Government Code, even though those provisions consistently speak only to the deposit of "municipal funds." See id. §§ 105.014 - .015, .031. Had the legislature intended to exempt the expenditure of CDBG grant money from the state competitive bidding laws, we think it would have specifically done so. See, e.g., Local Gov't Code §§ 212.071 (excepting certain municipal public improvement contracts from bidding requirements), 374.904 (exempting certain municipal sales connected with urban renewal projects from state law bidding requirements), 392.0565 (added in response to Attorney General Opinion JM-573 (1986) specifically exempting municipal housing authorities from state law to extent necessary to participate in Consolidated Supply Program of Department of Housing and Urban Development); Attorney General Opinion JM-573 (1986) (municipal housing authority may not participate in Consolidated Supply Program of Department of Housing and Urban Development without also complying with state competitive bidding laws).

Moreover, we think it clear that the fact, in itself, that an expenditure of CDBG funds is made to a nonprofit as opposed to a for-profit entity does not take the expenditure out of the competitive bidding requirements. The municipal competitive bidding requirements in chapter 252 make no general distinction between nonprofit and for-profit contractees. Section 252.022(7)(P) does make a specific bidding requirement exception for "management services provided by . . . nonprofit corporations" to certain museums, parks, zoos, or "other facilit[ies]." This specific exception suggests that contracts over the threshold amounts with nonprofit entities are generally subject to the bidding requirements, absent specific exceptions. See also Attorney General Opinion JM-385 (finding that a county contract with a nonprofit entity was exempted from the competitive bidding requirements only because a state statute specifically applicable to contracts of the non-profit entities at issue there expressly excepted them from the requirements).

Of course, whether a particular expenditure of CDBG funds constitutes one under a "contract"[3] in a sufficient amount as to bring it within the competitive bidding provisions of chapter 252, or whether a particular contract would fall within the exceptions to the bidding requirements in that chapter or elsewhere in state law would depend on the facts of the particular case. See, e.g., Local Gov't Code § 252.022(a)(4) ("personal or professional services" exception to bidding requirements), (a)(11) (exception for certain public improvement contracts under chapter 212).

SUMMARY

Expenditures by a city of Federal Community Development Block Grant Funds on "contracts" exceeding the threshold amounts set out in the state's municipal competitive bidding laws and not falling within any of the exceptions to the bidding requirements set out there or elsewhere in state law are subject to competitive bidding.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by William Walker
Assistant Attorney General

[1] The Revenue Sharing Act was repealed in 1986. Pub. Law No. 99-372, Tit. XIV, § 14001(a)(1), Apr. 7, 1986, 100 Stat. 327.

[3] We note that your request speaks in part of cities' expenditures of CDBG funds in the form of "grants." The provisions of chapter 373 specifically authorize cities to make "grants" to certain entities, including certain kinds of nonprofit organizations. We do not speculate here as to whether particular grants must inevitably be "contracts" within the ambit of the bidding provisions of chapter 252. See, e.g., Attorney General Opinion C-246 (1964) (county may arrange without a written contract for the care of indigents). But see Attorney General Opinion JM-274 (1985) (state constitution requires public entity's grant or lending of credit to be accompanied by sufficient control to ensure that a public purpose of the entity is served).