Can a Texas city loan public money to a private developer for a housing project?

TX AG Opinion GA-0529: Can a city loan public money to a developer for housing?

Plain-English summary

The Jim Wells County Attorney questioned a decision by the City of Alice's City Council to commit to a loan to a private developer for a private housing project. She argued the council lacked authority because article III, section 52-a of the Texas Constitution and Local Government Code section 380.001, the economic-development provisions that authorize municipal loans and grants, do not mention housing, and she also contended the loan did not follow the city's economic-development ordinance and home-rule charter.

The Attorney General narrowed the question before answering. Whether the city actually violated a specific statute, ordinance, or charter provision is a fact question, and this office does not ordinarily construe a city's own charter and ordinances, leaving that to municipal officials in the first instance. So the opinion addressed only the legal question of whether section 52-a and section 380.001 permit a city to make a loan for a housing project at all.

On that question, the answer was yes, with a condition. Article III, section 52-a is an exception to the constitutional ban (article III, section 52) on a political subdivision lending its credit or giving public money to private parties; it lets the Legislature authorize loans and grants of public money for economic-development purposes such as developing and diversifying the economy, reducing unemployment, and developing commerce. Section 380.001 is the enabling statute, and it broadly allows a city's governing body to make loans and grants of public money to promote economic development and stimulate business activity. Neither provision lists or limits the type of project, and the opinion found no authority holding that housing projects, as a matter of law, do not promote economic development. So a city may loan money for a housing project if the project will promote economic development within the meaning of these provisions. Whether a particular housing project meets that standard is itself a fact question for the city's governing body to decide first, subject to judicial review.

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.

Article III, section 52-a of the Texas Constitution and Local Government Code section 380.001 may have been amended since 2007, and later opinions or cases may have refined when a project counts as promoting economic development. Confirm the current text and case law before relying on this analysis for any specific city loan or grant.

Who this opinion affected (as of 2007)

Cities and city councils: The opinion confirmed they could use section 380.001 economic-development loans and grants for housing projects, not just traditional business incentives, provided the governing body found the project would promote economic development.

Private developers: The opinion meant a developer could be a permissible recipient of a municipal economic-development loan for a housing project, subject to the city's finding that the project promotes economic development and to the city's own program rules.

Residents and officials challenging a loan: The opinion told them that whether a specific loan complied with the city charter and economic-development ordinance was a fact question for municipal officials and the courts, not something the Attorney General would resolve.

Common questions

Can a Texas city loan public money to a private developer for housing?
Yes, according to this opinion, if the housing project will promote economic development under article III, section 52-a and Local Government Code section 380.001.

Doesn't the constitution ban giving public money to private parties?
Article III, section 52 generally bars a city from lending its credit or granting public money to private parties, but the opinion explained that section 52-a was added as an exception for economic-development programs, which section 380.001 implements.

Does the law have to list housing specifically?
No. The opinion read both provisions as broad and not limited to particular project types. They require only that the program or measure promote economic development, and the opinion found nothing making housing categorically ineligible.

Who decides whether a given housing project promotes economic development?
The opinion said that is a fact question for the city's governing body to determine in the first instance, subject to judicial review.

Did the Attorney General say the City of Alice's loan was valid?
No. The opinion declined to decide whether the specific loan complied with the city's charter and ordinance, calling that a fact question and one for municipal officials to interpret.

Background and statutory framework

Article III, section 52-a of the Texas Constitution authorizes the Legislature to provide for programs and the making of loans and grants of public money for the public purposes of economic development, including developing and diversifying the economy, eliminating unemployment or underemployment, fostering agriculture-based enterprises, and developing transportation or commerce (Tex. Const. art. III, § 52-a). It operates as an exception to article III, section 52(a), which otherwise prohibits political subdivisions from lending their credit or granting public money to individuals, corporations, and associations (Tex. Const. art. III, § 52(a)).

Local Government Code section 380.001(a), enacted under section 52-a, permits a municipality's governing body to establish and administer programs, including programs for making loans and grants of public money, to promote state or local economic development and stimulate business and commercial activity (Tex. Loc. Gov't Code Ann. § 380.001(a) (Vernon 2005)). The opinion read both provisions as not limiting loans and grants to particular purposes or projects, requiring only that they promote economic development, and concluded that a housing project can qualify if the city's governing body finds it will promote economic development, a determination subject to judicial review.

Citations

Constitution and statutes:

• Tex. Const. art. III, §§ 52(a), 52-a
• Tex. Loc. Gov't Code Ann. § 380.001(a) (Vernon 2005)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0529
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2007/ga0529.pdf

Original opinion text

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

GREG ABBOTT

March 9, 2007

The Honorable Jesusa Sanchez-Vera
Jim Wells County Attorney
Post Office Drawer 2080
Alice, Texas 78333

Opinion No. GA-0529

Re: Whether Texas Constitution article III, section 52-a and Local Government Code section 380.001 authorize a city to make a loan to a private developer to fund a private housing project (RQ-0535-GA)

Dear Ms. Sanchez-Vera:

You ask about the validity of "action taken by the City Council of the City of Alice, Texas [the "City"] approving a commitment for a loan to a private developer for a private housing project . . . under the Texas Constitution, Texas Local Government Code [s]ection 380.001 et seq., the ordinance adopted under such statutory provision and the City Charter." You suggest that the City Council was not authorized to approve the loan commitment because Texas Constitution article III, section 52-a and section 380.001, enabling legislation under the constitutional amendment authorizing municipal loans and grants for economic development purposes, do not authorize loans for housing purposes. See Request Letter, supra note 1, at 4-6. You also suggest that the City Council's action did not conform to the requirements of the City's economic development program ordinance and the City's home rule charter. See id. at 7-9.

Our analysis of the issues you raise is necessarily limited. Whether specific laws or charter or ordinance provisions were violated in particular circumstances is a question requiring the determination of facts that cannot be answered in an attorney general opinion. See Tex. Att'y Gen. Op. No. GA-0431 (2006) at 2 (declining to determine whether specific laws or charter provisions were violated). Additionally, such a question requires construing the particular charter and ordinance with respect to the facts; this office does not ordinarily construe city charters and ordinances. See id.; Tex. Att'y Gen. Op. No. GA-0449 (2006) at 1 ("In deference to municipal officials' authority to interpret their charters and ordinances, this office does not ordinarily construe city charters or ordinances."). Consequently, we consider here only whether the City is authorized under article III, section 52-a and section 380.001 to make a loan for the development of a housing project.

Article III, section 52-a of the Texas Constitution permits the Legislature to authorize expenditure of public funds for economic development purposes and provides, in relevant part, as follows:

Notwithstanding any other provision of this constitution, the legislature may provide for the creation of programs and the making of loans and grants of public money . . . for the public purposes of development and diversification of the economy of the state, the elimination of unemployment or underemployment in the state, the stimulation of agricultural innovation, the fostering of the growth of enterprises based on agriculture, or the development or expansion of transportation or commerce in the state.

TEX. CONST. art. III, § 52-a (emphasis added). This constitutional amendment establishes that programs fostering economic growth or loans and grants of public funds to assist private businesses to foster economic growth serve a public purpose. See id.; Tex. Att'y Gen. Op. No. JC-0092 (1999) at 8; see also TEX. CONST. art. III, § 52(a) (prohibiting political subdivisions, including cities, from lending their credit or granting public money to individuals, corporations, and associations); Tex. Att'y Gen. Op. No. JM-1227 (1990) at 3 (stating that article III, section 52-a was intended to create exceptions to the constitutional prohibition on lending of public credit).

Pursuant to the authority granted by article III, section 52-a, the Legislature enacted Local Government Code section 380.001. See TEX. LOC. GOV'T CODE ANN. § 380.001(a) (Vernon 2005); see also Tex. Att'y Gen. Op. No. DM-185 (1992) at 4-5 (discussing the legislative history of section 380.001 and stating that it implements article III, section 52-a). Section 380.001(a) provides in relevant part as follows:

The governing body of a municipality may establish and provide for the administration of one or more programs, including programs for making loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality.

TEX. LOC. GOV'T CODE ANN. § 380.001(a) (Vernon 2005) (emphasis added).

You contend that because article III, section 52-a and section 380.001 do not expressly reference housing, they do not authorize loans for the development of housing projects. See Request Letter, supra note 1, at 5. Article III, section 52-a broadly authorizes the Legislature to "provide for the creation of programs and the making of loans and grants of public money" that will develop and diversify the economy, reduce unemployment, or develop commercial activity (collectively, "economic development"). See TEX. CONST. art. III, § 52-a. The amendment does not reference any programs or measures; it merely requires that the legislatively authorized programs or measures promote economic development. See id.; see also Tex. Att'y Gen. Op. No. DM-185 (1992) at 6 ("The legislature intended article III, section 52-a . . . and section 380.001 . . . to authorize municipalities to implement a range of programs designed to promote economic development.").

Like article III, section 52-a, section 380.001 broadly permits a city's governing body to make "loans and grants of public money" for purposes that will promote economic development. See TEX. LOC. GOV'T CODE ANN. § 380.001(a) (Vernon 2005). The statute does not, by its terms, limit loans and grants of public money to particular purposes or projects, but only requires that they promote economic development. See id.; see also Tex. Att'y Gen. Op. No. DM-185 (1992) at 5 ("The legislature did not expressly instruct what such [an economic development] program would be."). Furthermore, we have not found and you do not cite to any authority holding that housing projects, as a matter of law, do not promote economic development. Whether a particular housing project will promote economic development is a question of fact for a city's governing body to determine in the first instance, subject to judicial review. Cf. Tex. Att'y Gen. Op. No. JC-0362 (2001) at 5 ("the determination of whether a particular project will promote the economic development purposes of [the Development Corporation Act of 1979] is, in general, a question of fact within the discretion of the board of directors of the development corporation in the first instance").

Thus, in answer to your question, we conclude that article III, section 52-a and section 380.001 authorize a city to make a loan for a housing project if the project will promote economic development within the meaning of these provisions.

SUMMARY

Texas Constitution article III, section 52-a and Local Government Code section 380.001 authorize a city to make a loan for a housing project if the project will promote economic development within the meaning of these provisions.

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 Jesusa Sanchez-Vera, Jim Wells County Attorney, to Honorable Greg Abbott, Attorney General of Texas, at 1 (Sept. 25, 2006) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter].