How can a Texas county borrow money to build a voter-approved venue project?

TX AG Opinion GA-0602: How can a county borrow to build a venue project?

Plain-English summary

Chapter 334 of the Local Government Code lets a county build a voter-approved "venue project" (such as a sports facility, convention center, or tourist development area) and set up a venue project fund to pay the costs, often financed by a voter-approved sales and use tax. Terrell County's voters approved a venue-project sales tax in 2000, and the county placed the proceeds in its venue project fund. The county judge wanted to borrow money to pay for constructing a convention center facility and repay the loan from those sales-tax proceeds as they came in. The county attorney asked whether chapter 334 allows that.

The Attorney General gave a two-part answer. First, section 334.042(d) lets a county use its venue project fund to pay the costs of planning, constructing, or renovating an approved venue project, and to pay principal, interest, and other costs on bonds or other obligations issued for the project. So Terrell County could use venue-fund money to repay borrowing properly made under chapter 334. Second, on how the county may borrow, the opinion was restrictive. A county generally has no authority to simply borrow money from a bank; statutes letting local governments create debt are construed strictly, and the Constitution bars county debt without a sinking fund. Chapter 334 authorizes a county to borrow to pay venue-project costs only through section 334.043, by issuing bonds or other obligations that are submitted to the Attorney General for review and approval, are payable from and secured by the venue project fund, and mature within thirty years of issuance. No other provision in chapter 334 allows borrowing by other means. Because the county described only a general wish to borrow and did not specify the method, the opinion did not decide whether any particular financing arrangement would count as a permissible bond or obligation.

Currency note

This opinion was issued in 2008. 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.

Local Government Code chapter 334 (including sections 334.042 and 334.043) and the public-securities review provisions in Government Code chapter 1202 may have been amended since 2008. Confirm the current statutes and the bond-approval process before relying on this analysis.

Who this opinion affected (as of 2008)

Counties with approved venue projects: The opinion told them they could tap the venue project fund for construction costs and debt service, but could finance the project with borrowed money only by issuing bonds or other obligations under section 334.043, not by an ordinary loan.

County officials and bond counsel: The opinion underscored that the section 334.043 requirements (Attorney General review, security from the venue project fund, a thirty-year maturity cap) are the exclusive borrowing route under chapter 334, so the financing had to be structured as a public security.

Banks and lenders: The opinion reflected the longstanding rule that counties cannot simply borrow from a bank without statutory authority, so a lender dealing with a county venue project would be looking at a bond or obligation, not a conventional loan.

Common questions

Can the county just take out a bank loan for the convention center?
No. The opinion explained that counties generally have no authority to merely borrow money from a bank. Under chapter 334, the county may borrow to pay venue-project costs only by issuing bonds or other obligations under section 334.043.

Can venue sales-tax money be used to repay the borrowing?
Yes. Section 334.042(d) authorizes using the venue project fund to pay construction costs and to pay principal, interest, and other costs on bonds or obligations issued for the project, so the fund can repay borrowing made properly under chapter 334.

Did the AG approve the county's specific loan plan?
No. The county described only a general desire to borrow without specifying the method, so the opinion did not decide whether any particular financing arrangement qualified as a permissible issuance of an obligation under section 334.043.

Background and statutory framework

Under chapter 334, a county may develop a venue project once voters approve it (Tex. Loc. Gov't Code Ann. § 334.021(a); § 334.001(1) defining "approved venue project") and may finance it with voter-approved taxes including a sales and use tax (id. § 334.081(a)). The county has broad power to perform any act necessary to exercise its chapter 334 powers (id. § 334.041(a)) and must establish a venue project fund (id. § 334.042). Section 334.042(d) authorizes using the fund to pay project costs and to pay principal, interest, and other costs on bonds or other obligations.

Section 334.043 authorizes a county to issue bonds, including revenue and refunding bonds, or other obligations to pay the costs of an approved venue project; they must be approved as required by Government Code chapter 1202 (id. § 334.043(b); Tex. Gov't Code Ann. § 1202.003), be payable from and secured by the venue project fund (id. § 334.043(c)), and mature within thirty years. The opinion applied the rules that a county generally cannot merely borrow from a bank and that debt statutes are strictly construed (Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San Antonio 1977, no writ); Tex. Const. art. XI, § 7), concluding that section 334.043 is the only borrowing route under chapter 334.

Citations

Statutes:

• Tex. Loc. Gov't Code Ann. §§ 334.001(1), 334.021(a), 334.041(a), 334.042, 334.042(d), 334.043, 334.081(a) (Vernon 2005)
• Tex. Gov't Code Ann. § 1202.003 (Vernon 2000)
• Tex. Const. art. XI, § 7

Cases:

• Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San Antonio 1977, no writ)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0602
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2008/ga0602.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

February 13, 2008

The Honorable Marsha Monroe
Terrell County Attorney
Post Office Box 745
Sanderson, Texas 79848

Opinion No. GA-0602

Re: Whether, under Local Government Code chapter 334, Terrell County may borrow money to construct an approved venue project, to be repaid from the venue project fund (RQ-0618-GA)

Dear Ms. Monroe:

Local Government Code chapter 334 authorizes a county to construct an approved venue project and to establish a venue project fund to pay costs associated with the project. See generally TEX. LOC. GOV'T CODE ANN. ch. 334 (Vernon 2005 & Supp. 2007). You ask whether, under Local Government Code section 334.042, Terrell County (the "County") may "borrow funds" to construct an approved venue project.[1] You explain that "[t]he loan will be paid off from" sales and use taxes "as they are collected." Request Letter, supra note 1, at 1-2; see also TEX. LOC. GOV'T CODE ANN. § 334.081(a) (Vernon 2005) (authorizing a county to impose a sales and use tax).

I. The Relevant Statute: Local Government Code Chapter 334

Under chapter 334, a county may plan, acquire, establish, develop, construct, or renovate a venue project if, among other things, voters approve the project. See TEX. LOC. GOV'T CODE ANN. § 334.021(a) (Vernon 2005). For purposes of chapter 334, a "venue project" is a venue, such as a sports facility, a convention center facility, a tourist development area, or a project authorized by article 5190.6, section 4A or 4B of the Revised Civil Statutes, and related infrastructure "that is planned, acquired, established, developed, constructed, or renovated under" chapter 334. Id. § 334.001(4)-(5); see also TEX. REV. CIV. STAT. ANN. art. 5190.6, §§ 4A-4B (Vernon Supp. 2007) (authorizing the creation of development corporations in certain municipalities). An "approved venue project" is a venue project that has been approved by the county's voters. TEX. LOC. GOV'T CODE ANN. § 334.001(1) (Vernon 2005).

A county has broad power under chapter 334 to "perform any act necessary" to fully exercise its "powers under this chapter." Id. § 334.041(a). A county has specific authority to finance an approved venue project by imposing various types of taxes, including a voter-approved sales and use tax. See id. § 334.081(a), (c). A county also may, under section 334.043(a), issue "bonds, including revenue bonds and refunding bonds, or other obligations to pay the costs of the approved venue project." Id. § 334.043(a); see also id. § 334.043(b) (requiring the bonds and other obligations to be approved "as required by" Government Code chapter 1202); TEX. GOV'T CODE ANN. § 1202.003 (Vernon 2000) ("Review and Approval of Public Securities"). The "bonds or other obligations must be payable from and secured by the revenues in the venue project fund." TEX. LOC. GOV'T CODE ANN. § 334.043(c) (Vernon 2005).

In accordance with section 334.042, a county in which an approved venue project is located must establish a "venue project fund" into which the county must deposit the proceeds of any taxes approved by the voters under chapter 334, as well as bond revenues and certain other money. See id. § 334.042(a)-(b). Section 334.042(d) expressly authorizes a county to use its venue project fund to:

(1) reimburse or pay the costs of planning, acquiring, establishing, developing, constructing, or renovating one or more approved venue projects in the ... county;

(2) pay the principal of, interest on, and other costs relating to bonds or other obligations issued by the ... county or to refund bonds, notes, or other obligations; or

(3) pay the costs of operating or maintaining one or more approved venue projects.

Id. § 334.042(d).

II. Factual Background

You indicate that in November 2000 County voters approved imposing a sales and use tax to finance a "venue project[] and related infrastructure."[2] Request Letter, supra note 1, at 1-2. The County has placed the tax proceeds in the County's venue project fund. Id. at 2. The County Judge now asks "whether the [C]ounty may borrow funds to pay for construction of the convention center facility, which is part of the venue project." Id. You further inform us that the loan will be repaid from the proceeds of the sales and use tax dedicated to the venue project "as they are collected" and that the loan documents will recognize this "repayment scheme." Id. You therefore ask whether chapter 334 authorizes the County "to borrow funds, to be repaid from the venue tax proceeds, to pay for the construction of the convention center facility." Id.

III. Analysis

On its face, section 334.042(d) authorizes a county to use its venue project fund to pay the costs of constructing an approved venue project, including costs relating to bonds or other obligations issued to finance the project. See TEX. LOC. GOV'T CODE ANN. § 334.042(d)(1)-(2) (Vernon 2005). Consequently, the County may use money from the venue project fund to repay funds borrowed, in the manner authorized by chapter 334, to construct an approved venue project.

We next consider a county's authority to borrow funds to pay the costs of an approved venue project. In general, a county may not borrow money "except through the issuance of bonds, certificates of obligation, or other forms of indebtedness" that are specifically authorized by law. Tex. Att'y Gen. Op. No. JM-274 (1984) at 1. "Counties have no [general] statutory authority to merely borrow money from a bank." Tex. Att'y Gen. Op. No. JC-0139 (1999) at 3 (quoting 35 DAVID B. BROOKS, TEXAS PRACTICE: COUNTY AND SPECIAL DISTRICT LAW § 17.27 (1989)); see also TEX. CONST. art. XI, § 7 (prohibiting a county from incurring debt without the concomitant provision of a sinking fund). And "[s]tatutes respecting the power of local governments to create a debt must be strictly and narrowly construed." Lopez v. Ramirez, 558 S.W.2d 954, 957 (Tex. Civ. App.-San Antonio 1977, no writ); accord Tex. Att'y Gen. Op. No. JC-0036 (1999) at 10.

A county may borrow funds "to pay the costs of an approved venue project" only as permitted by section 334.043, which authorizes a county to "issue bonds ... or other obligations" that are submitted to the attorney general for review and approval as Government Code chapter 1202 requires, that are payable from and secured by the venue project fund, and that mature within thirty years of "their date of issuance." TEX. LOC. GOV'T CODE ANN. § 334.043(a)-(d) (Vernon 2005). No other statute in chapter 334 authorizes the borrowing of funds by other means. Thus, consistently with section 334.043, a county may not borrow money to pay the costs of an approved venue project by means other than the issuance of bonds or other obligations. See id. § 334.043(a).

You indicate that the County wishes to borrow money and contemplates a loan, but you do not further describe the means by which the County proposes to borrow the money or to evidence the loan. See Request Letter, supra note 1, at 1-2; cf. Tex. Att'y Gen. Op. No. JC-0139 (1999) at 3, 5 (suggesting that a loan may be evidenced by the issuance of "obligations ... sold to purchasers in exchange for money," but also suggesting that the requestor "would like to obtain a loan ... without following statutorily required procedures"). Nor do you ask about the legality of a particular method of financing. See Request Letter, supra note 1, at 1-2. Consequently, we do not consider whether any particular means of financing or of evidencing the loan constitutes a permissible issuance of an obligation under section 334.043. But cf. Tex. Att'y Gen. Op. No. JC-0139 (1999) at 3, 5 (stating that statutes that authorize a county to borrow funds for road and bridge construction require the county to issue and sell bonds or other obligations in compliance with statutory procedures and that these "procedures are not optional").

SUMMARY

A county, such as Terrell County, may use money in its venue project fund to pay any of the costs of constructing an approved venue project. The county may borrow money to pay such costs, to be repaid from the venue project fund, only by the "issuance of bonds ... or other obligations."

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Kymberly K. Oltrogge
Assistant Attorney General, Opinion Committee

Footnotes

[1] See Letter from Honorable Marsha Monroe, Terrell County Attorney, to Honorable Greg Abbott, Attorney General of Texas, at 2 (Sept. 4, 2007) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter]; see also TEX. LOC. GOV'T CODE ANN. § 334.042 (Vernon 2005) (requiring the establishment of a venue project fund in a municipality or a county in which an approved venue project is located).

[2] Attorney General Opinion GA-0156, issued in 2004, considers another aspect of the County's use of venue-project sales and use tax proceeds. See Tex. Att'y Gen. Op. No. GA-0156 (2004) at 1-2. That opinion analyzes whether the County could use the proceeds on a venue project consisting of "a convention and visitors center, two annexes to the center, and related infrastructure." Id. at 2. You advise that the County "has proceeded with its venue project in accordance with that opinion." Request Letter, supra note 1, at 2.