Can a Texas city sell compost and mulch outside its city limits in competition with private businesses?

TX AG Opinion GA-0506: Can a Texas city sell compost outside its city limits?

Plain-English summary

A state representative asked whether a city may operate a commercial compost/mulch business and sell its products outside the city's limits. The concern was that some cities (Plano, Denton, Brenham, Texarkana, and others) produce, market, and sell compost and mulch in direct competition with private businesses that sell similar products. The request did not object to cities making compost and giving it free to residents or using it in city parks; it objected only to cities selling outside the city limits and supplying landscape contractors or nurseries.

The opinion explained that these are home-rule cities, which under article XI, section 5 of the Texas Constitution have all the powers of the state not inconsistent with the constitution, general laws, or their charters. For home-rule cities, courts look to the Legislature not for grants of power but for limitations, and the Legislature can restrict a home-rule city's broad powers only with "unmistakable clarity." So the opinion asked two questions: does selling compost comport with state law, and has the Legislature clearly limited a home-rule city's authority to sell compost outside its limits.

On the first question, the opinion found no constitutional or statutory bar. The U.S. Commerce Clause does not restrain a city acting as a "market participant," as the U.S. Supreme Court has held. And state law actually encourages composting, recycling, and the marketing and distribution of sludge products, directing the Texas Commission on Environmental Quality to provide incentives for composting and to permit compost facilities; none of those provisions limit sales to particular geographic areas.

On the second question, the opinion found no statute that limited a home-rule city's authority with unmistakable clarity. A subchapter on city landscaping services (chapter 756, subchapter G) addressed landscaping, not composting, so it did not apply. The opinion also addressed the proprietary-versus-governmental-function distinction, explaining it is generally used for immunity and contractual-liability questions and does not affect a city's authority to sell compost outside its limits. And it found no authority prohibiting cities from competing with private enterprises. The bottom line: a home-rule city may sell compost products outside its city limits.

Currency note

This opinion was issued in 2007. 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 Health and Safety Code provisions on solid waste and composting (chapters 361, 363, and 756) and the related Commission rules have been amended since 2007. Anyone evaluating a municipal compost operation today should check the current statutes and rules rather than relying on the 2001-2006 versions cited here.

Who this opinion affected (as of 2007)

Home-rule cities with composting programs: The opinion confirmed that these cities could sell compost and mulch products outside their city limits, since no constitutional or statutory provision clearly barred it and state law encouraged composting and the marketing of compost and sludge products.

Private compost and mulch businesses: The opinion meant that municipal sellers competing with private firms were not, on the authority cited, acting outside their legal powers; the request had not identified any law prohibiting a city from competing with private enterprise.

Landscape contractors and nurseries: The opinion's reasoning meant that a city's sales of bagged compost or mulch to these buyers, inside or outside the city, were within the city's home-rule authority absent a clear statutory limit.

Common questions

Can a Texas home-rule city sell compost and mulch outside its city limits?
Yes. The opinion concluded a home-rule city may sell compost products outside its city limits, because no constitutional or statutory provision generally bars it and the Legislature has not forbidden it with unmistakable clarity.

Does selling compost violate the Commerce Clause?
No. The opinion explained that under the U.S. Supreme Court's "market participant" cases, the Commerce Clause does not restrain a state or local government acting as a participant in the market rather than as a regulator.

Doesn't the landscaping-services law limit this?
No. The opinion concluded that chapter 756, subchapter G, addresses city landscaping services, not composting or the sale of compost products, so it does not limit a home-rule city's authority to sell compost outside its limits.

Does it matter whether composting is a "proprietary" function?
No. The opinion explained that the proprietary-versus-governmental distinction is generally relevant to immunity and contractual-liability questions, not to a city's authority to sell compost outside its city limits.

Can cities compete with private businesses?
The opinion found no authority that, as a matter of law, prohibits cities from competing with private enterprises.

Background and statutory framework

Home-rule cities derive their powers from article XI, section 5 of the Texas Constitution and have all the powers of the state not inconsistent with the constitution, general laws, or the city's charter; courts look to the Legislature only for limitations on those powers, and the Legislature may restrict them only with "unmistakable clarity" (Tex. Const. art. XI, § 5; Quick v. City of Austin, 7 S.W.3d 109, 122 (Tex. 1999); Lower Colo. River Auth. v. City of San Marcos, 523 S.W.2d 641, 643 (Tex. 1975); Proctor v. Andrews, 972 S.W.2d 729, 733 (Tex. 1998)).

No constitutional provision bars a city from acting as a market participant: the U.S. Supreme Court has held the Commerce Clause does not restrain a state or local government that enters the market as a participant (White v. Mass. Council of Constr. Employers, 460 U.S. 204, 208 (1983); Reeves, Inc. v. Stake, 447 U.S. 429, 437 (1980); U.S. Const. art. I, § 8, cl. 3). And state law encourages reduction of municipal solid waste through reuse and recycling and of municipal sludge through marketing and distribution of sludge products, and directs the Texas Commission on Environmental Quality to provide incentives for composting and to permit compost facilities, without limiting sales to particular geographic areas (Tex. Health & Safety Code Ann. § 361.003(6), (33), § 361.421(1), (2), § 361.022(a), (b)(2), (c)(3) (Vernon 2001); § 363.002; § 361.428(a)-(b) (Vernon Supp. 2006); 30 Tex. Admin. Code § 332.2(16), (38), (42), (43), § 332.3 (2006); Schulman v. City of Houston, 406 S.W.2d 219, 222 (Tex. Civ. App.-Tyler 1966, writ ref'd n.r.e.)).

No statute limits a home-rule city's authority with unmistakable clarity. Chapter 756, subchapter G, lets a city provide landscaping services inside and outside its limits if its governing body makes written findings, but it addresses landscaping, not composting and the sale of compost products (Tex. Health & Safety Code Ann. § 756.101 (Vernon Supp. 2006); § 756.102; §§ 756.101-.102; Tex. S.B. 585, 78th Leg., R.S. (2003)). The proprietary-versus-governmental distinction is generally used for tort immunity and contractual-liability questions and, under federal law, for some Commerce Clause analysis, but it does not affect a city's authority to sell compost outside its limits; nor does any authority prohibit cities from competing with private enterprises (Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006); Tex. Const. art. XI, § 13; Tex. Civ. Prac. & Rem. Code Ann. §§ 101.001-.109 (Vernon 2005 & Supp. 2006); Jefferson County Pharm. Ass'n, Inc. v. Abbott Labs., 460 U.S. 150, 154 n.6 (1983)).

Citations

Constitution, statutes, and regulations:

• Tex. Const. art. XI, §§ 5, 13; U.S. Const. art. I, § 8, cl. 3
• Tex. Health & Safety Code Ann. §§ 361.003(6), (33), 361.022(a), (b)(2), (c)(3), 361.421(1), (2), 363.002 (Vernon 2001); §§ 361.428(a)-(b), 756.101, 756.102 (Vernon Supp. 2006)
• 30 Tex. Admin. Code §§ 332.2(16), (38), (42), (43), 332.3 (2006)
• Tex. Civ. Prac. & Rem. Code Ann. §§ 101.001-.109 (Vernon 2005 & Supp. 2006)
• Tex. S.B. 585, 78th Leg., R.S. (2003)

Cases:

• Quick v. City of Austin, 7 S.W.3d 109, 122 (Tex. 1999)
• Lower Colo. River Auth. v. City of San Marcos, 523 S.W.2d 641, 643 (Tex. 1975)
• Proctor v. Andrews, 972 S.W.2d 729, 733 (Tex. 1998)
• White v. Mass. Council of Constr. Employers, 460 U.S. 204, 208 (1983)
• Reeves, Inc. v. Stake, 447 U.S. 429, 437 (1980)
• Schulman v. City of Houston, 406 S.W.2d 219, 222 (Tex. Civ. App.-Tyler 1966, writ ref'd n.r.e.)
• Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006)
• Jefferson County Pharm. Ass'n, Inc. v. Abbott Labs., 460 U.S. 150, 154 n.6 (1983)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0506
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2007/ga0506.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

January 30, 2007

The Honorable Dennis Bonnen
Chair, Committee on Environmental Regulation
Texas House of Representatives
Austin, Texas 78768-2910

Opinion No. GA-0506

Re: Whether a city may operate a commercial compost/mulch business that sells its products outside the city's limits (RQ-0509-GA)

Dear Representative Bonnen:

You ask whether a city may operate a commercial compost/mulch business and sell its products outside the city's limits.[1] You state that certain cities produce, market, and sell compost/mulch products in direct competition with private businesses that produce and sell similar products. See Request Letter, supra note 1, at 1. You do not object to the cities producing compost/mulch and providing such products "to homeowners in their communities free of any charge, or using compost/mulch in their city parks and common areas." Id. at 2. In your view here, "[t]he cities, however, should not be permitted to compete with private enterprises in the State of Texas nor in any way supply landscape contractors or sell bagged products to nurseries." Id.

As we understand it, in connection with the management and processing of municipal solid waste and wastewater, Texas cities such as Plano, Denton, Brenham, and Texarkana engage in "composting"[2] of the solid waste and sludge[3] and sell the resulting products such as compost, soil, and mulch to the public inside and outside their respective city limits.[4] Prior to these composting programs, the cities buried the solid waste and sludge in landfills. See Denton Brief, supra note 4, at 2; Austin Brief, supra note 4, at 1. The revenues generated from these sales are used to fund the cost of the composting programs. See Denton Brief, supra note 4, at 7; Plano Brief, supra note 4, at 2; Brenham Brief, supra note 4, at 2. Based on your question and letter, we do not understand you to question the cities' authority to engage in composting or to distribute compost products to the city residents. See Request Letter, supra note 1, at 1-2. Rather you question only the cities' authority to sell the compost products outside their city limits. See id. at 2.

The cities you ask about are home-rule cities that derive their powers from article XI, section 5 of the Texas Constitution.[5] See TEX. CONST. art. XI, § 5; Quick v. City of Austin, 7 S.W.3d 109, 122 (Tex. 1999); Lower Colo. River Auth. v. City of San Marcos, 523 S.W.2d 641, 643 (Tex. 1975). A home-rule city has "all the powers of the state not inconsistent with the Constitution, the general laws, or the city's charter." Proctor v. Andrews, 972 S.W.2d 729, 733 (Tex. 1998) (citing TEX. CONST. art. XI, § 5). "[I]t is necessary to look to the acts of the legislature not for grants of power to such cities but only for limitations on their powers." Lower Colo. River Auth., 523 S.W.2d at 643. The Legislature may circumscribe a home-rule city's broad power, but only if it does so with "unmistakable clarity." Id. at 645. Accordingly, to answer your specific question, we first consider whether the sale of compost products comports with state law and next consider whether the Legislature has, with unmistakable clarity, limited a home-rule city's authority to sell compost products outside the city limits. We assume, for purposes of this analysis, that the sale is consistent with the cities' respective charters. See, e.g., Tex. Att'y Gen. Op. Nos. JC-0142 (1999) at 4 (assuming for the purposes of such an analysis, that the city ordinance at issue was authorized by the city charter); JM-846 (1988) at 1 ("As a matter of policy, this office does not interpret city charter provisions . . . .").

You do not reference and we have not found a state or federal constitutional provision that on its face is contravened by a city's sale of compost products outside the city limits or by a city acting as a "market participant." See Request Letter, supra note 1, at 2. The Commerce Clause to the United States Constitution, article I, section 8, clause 3, does not restrain a city from acting as a market participant. See, e.g., White v. Mass. Council of Constr. Employers, 460 U.S. 204, 208 (1983) ("[W]hen a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause."); Reeves, Inc. v. Stake, 447 U.S. 429, 437 (1980) ("[T]he Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace. There is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market.") (citations omitted); U.S. CONST. art. I, § 8, cl. 3.

Nor have we found any state statutes contravened, as a matter of law, by a city's sale of compost products outside its city limits. Maximizing the sale of compost, in fact, would appear to be consistent with state laws generally encouraging reduction "to the maximum extent that is technologically and economically feasible" of municipal solid waste through "reuse or recycling" and of municipal sludge through "marketing and distribution of sludge and sludge products." TEX. HEALTH & SAFETY CODE ANN. § 361.022(a), (b)(2), (c)(3) (Vernon 2001) (Public Policy Concerning Municipal Solid Waste and Sludge); see also id. § 363.002 (stating that it is the state's policy to encourage reduction in solid waste and the proper management of solid waste, including its disposal and processing to extract usable materials); 30 TEX. ADMIN. CODE § 332.2(16) (2006) (Tex. Comm'n on Environmental Quality, Composting) ("Distribute--To sell, offer for sale, expose for sale . . . ."). And such activity would appear to be consistent with state law specifically encouraging composting and reuse of composting products. See TEX. HEALTH & SAFETY CODE ANN. § 361.428(a) (Vernon Supp. 2006); see also Schulman v. City of Houston, 406 S.W.2d 219, 222 (Tex. Civ. App.-Tyler 1966, writ ref'd n.r.e.) (stating that a home-rule city's garbage compost plant is "for the public purpose of disposing of garbage and for the welfare of the community" and is "a lawful business and an operation not subject to abatement"). Texas Health and Safety Code section 361.428 directs the Texas Commission on Environmental Quality (the "Commission") to provide incentives for composting programs capable of reducing municipal solid waste streams that would be disposed in landfills and to adopt rules for permitting compost facilities. See TEX. HEALTH & SAFETY CODE ANN. § 361.428(a)-(b) (Vernon Supp. 2006). Pursuant to this authority, the Commission has adopted rules governing the operation of composting facilities, including facilities operated by cities. See 30 TEX. ADMIN. CODE § 332.3 (2006) (applicability); id. § 332.2(38) (defining operator of facility), (42) (defining permit), (43) (defining person).[6] Neither the state law provisions nor the Commission rules limit the sale or distribution of compost products to particular geographical areas.

Finally, you do not reference and we have not found any statutory provisions whereby the Legislature has with unmistakable clarity limited a home-rule city's authority to sell compost products. A letter submitted to this office suggests that chapter 756, subchapter G, Health and Safety Code limits a city's authority to sell compost products outside its city limits.[7] Section 756.101 authorizes a city to "provide landscaping services, including tree-trimming, tree disposal, . . . and recycling services" to persons inside and outside the corporate limits of the city "only if the governing body of the municipality makes written findings as required by Section 756.102." TEX. HEALTH & SAFETY CODE ANN. § 756.101 (Vernon Supp. 2006). Section 756.102 requires the city to (1) identify the problem raising the need for providing the landscaping services; (2) identify the public health, safety, or welfare concern; (3) describe previous actions taken to address the problem; and (4) specify a definite time period necessary to address the problem. Id. § 756.102. Subchapter G, by its terms, addresses landscaping services rather than composting of municipal waste and the sale of compost products. See id. §§ 756.101-.102; see also SENATE COMM. ON NATURAL RESOURCES, BILL ANALYSIS, Tex. S.B. 585, 78th Leg., R.S. (2003) (enrolled version) ("This bill also authorizes certain landscaping services under certain conditions."). It does not evidence with unmistakable clarity the Legislature's intent to prohibit or limit a home-rule city's authority to sell compost products outside the city limits.

Your letter suggests that because the production and sale of compost products may be a proprietary rather than a governmental function, the cities may not sell the products to persons outside the city limits. See Request Letter, supra note 1, at 1-2. The proprietary-governmental distinction has generally been used to determine a city's immunity from suit for tortious conduct. Tooke v. City of Mexia, 197 S.W.3d 325, 343 (Tex. 2006); see also TEX. CONST. art. XI, § 13 (authorizing the Legislature to define and reclassify for all purposes municipal functions that are to be considered governmental and those that are proprietary); TEX. CIV. PRAC. & REM. CODE ANN. §§ 101.001-.109 (Vernon 2005 & Supp. 2006) (Texas Tort Claims Act). The distinction may also be relevant to a city's contractual liability. See Tex. Att'y Gen. Op. No. JC-0154 (1999) at 2-3 (discussing estoppel against a city acting in its proprietary capacity as distinguished from its governmental capacity). In addition, it may be relevant under federal law with respect to the application of economic regulation under the Commerce Clause. See Jefferson County Pharm. Ass'n, Inc. v. Abbott Labs., 460 U.S. 150, 154 n.6 (1983) ("It is too late in the day to suggest that Congress cannot regulate States under its Commerce Clause powers when they are engaged in proprietary activities."). But whether the compost activity is a proprietary or governmental function would appear to be irrelevant to a city's authority to sell compost products outside the city limits and is not a distinction that makes a difference here.

Lastly, your letter generally suggests that cities are not permitted to compete with private enterprises. See Request Letter, supra note 1, at 1-2. But you do not cite and we have not found any authority that as a matter of law prohibits cities from competing with private enterprises.

Because a home-rule city's sale of compost products to persons outside the city limits does not generally appear to contravene constitutional or statutory law, and because the Legislature has not with unmistakable clarity forbidden a home-rule city to sell compost products outside its city limits, we conclude that a home-rule city may sell compost products outside its city limits.

SUMMARY

Because a home-rule city's sale of compost products to persons outside the city limits does not generally appear to contravene constitutional or statutory law, and because the Legislature has not with unmistakable clarity forbidden a home-rule city to sell compost products outside its city limits, a home-rule city may sell compost products outside its city limits.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General, Opinion Committee

Footnotes

[1] See Letter from Honorable Dennis Bonnen, Chair, Committee on Environmental Regulation, Texas House of Representatives, to Honorable Greg Abbott, Attorney General of Texas, at 2 (July 12, 2006) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter].

[2] "Composting" is "the controlled biological decomposition of organic solid waste under aerobic conditions." TEX. HEALTH & SAFETY CODE ANN. § 361.003(6) (Vernon 2001); see also id. § 361.421(2) (similarly defining composting). "Compost is the disinfected and stabilized product of the decomposition process that is used or sold for use as a soil amendment, artificial top soil, growing medium amendment, or other similar uses." Id. § 361.421(1).

[3] "'Sludge' means solid, semisolid, or liquid waste generated from a municipal, commercial, or industrial wastewater treatment plant, water supply treatment plant, or air pollution control facility, excluding the treated effluent from a wastewater treatment plant." Id. § 361.003(33).

[4] See Letter from A. Vance Kemler, Director, Solid Waste Services, City of Denton, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 2 (Aug. 31, 2006) [hereinafter Denton Brief]; see also Letter from Thomas H. Muehlenbeck, City Manager, City of Plano, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 1 (Aug. 4, 2006) [hereinafter Plano Brief]; Letter from David Allan Smith, City Attorney, City of Austin, to Honorable Greg Abbott, Attorney General of Texas, at 1 (Aug. 31, 2006) [hereinafter Austin Brief]; Letter from Gary L. Bovey, City Attorney, City of Brenham, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 2 (Aug. 31, 2006) [hereinafter Brenham Brief]; Letter from Wiley Stem, III, Assistant City Manager, City of Waco, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 1-2 (Sept. 5, 2006) [hereinafter Waco Brief]; Letter from Adam S. Block, Texas Municipal League, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 1 (Aug. 25, 2006) (all briefs on file with the Opinion Committee).

[5] See http://www.municode.com (city charters for Plano, Denton and Texarkana); http://www.ci.brenham.tx.us (Brenham) (websites last visited Jan. 12, 2007).

[6] See also Waco Brief, supra note 4, at 1 ("[Waco] is in the process of obtaining the necessary authorization from the [Commission] to produce compost . . . ."); Letter from Thomas H. Muehlenbeck, City Manager, City of Plano, to Ms. Nancy Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 2 (Sept. 5, 2006) (on file with the Opinion Committee) ("All compost facilities must comply with state regulations. The City of Plano is listed with [the Commission] as a Notifications Operation.").

[7] See Letter from Honorable Vicki Truitt, Texas House of Representatives, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas, at 1 (July 25, 2006) (on file with the Opinion Committee).