Can a Texas municipal development district fund a civic center owned and run by a nonprofit?

Plain-English summary

Rob Baiamonte, the Goliad County Attorney, asked the Attorney General whether the City of Goliad Municipal Development District could pay for a senior civic center that a nonprofit would own and run. The District wanted to give a grant to Goliad County Senior Citizens, Inc. to replace an aging building used for a "Senior Citizens and Civic Center," a place that serves low-cost meals to seniors and hosts health and nutrition programs, games, social and business events, and entertainment. Under the grant, the nonprofit would keep ownership and operation of the center.

The AG broke the question into pieces. Chapter 377 of the Local Government Code lets municipalities create development districts that can plan, build, or renovate "development projects," and "development project" is defined to include a civic center. Based on the description, the building probably would be a civic center, but whether a particular project actually meets the statutory requirements is a fact question for the development district's board of directors to decide first, so the AG would not give a definitive yes or no on this specific project.

On the broader legal questions, the AG drew a line between operating and owning. Chapter 377 expressly lets a district contract with a "public or private person" to plan, build, or renovate a development project, and the Code Construction Act defines "person" to include a corporation or organization. So a court would likely conclude the District may contract with a nonprofit to operate a civic center. Ownership was harder. Chapter 377 does not define "civic center," and the common dictionary meaning is a municipal building, often publicly financed. Using that meaning, a court could decide a municipality has to own the building for it to count as a "civic center," which would block nonprofit ownership. Without more guidance from the Legislature or the courts, the AG could not confirm that funding a civic center building owned by a nonprofit is authorized under chapter 377. Finally, the AG reminded the District that any grant of public funds to a private entity must satisfy the Texas Constitution's bar on gifts of public funds (article III, section 52(a)), which the Texas Supreme Court has reduced to a three-part test: a predominant public purpose, adequate public controls to protect the investment, and adequate consideration to the public.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later Attorney General 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.

What the opinion meant for those who asked

The Goliad County Attorney and the District (as the opinion described it): The opinion answered that a court would likely conclude chapter 377 authorizes the District to contract with a private nonprofit to operate a civic center, but it could not confirm that funding a civic center building owned by a nonprofit is authorized, and could not determine whether this particular project qualifies because that involves fact questions for the District's board.

Municipal development districts generally (as the opinion described it): The opinion described a district's contracting authority under section 377.071(b) as broad enough to reach a private nonprofit operator, while leaving open whether a nonprofit may own a building funded as a "civic center," and described any public-fund grant to a private entity as subject to the article III, section 52(a) three-part test.

Goliad County Senior Citizens, Inc. and similar nonprofits (as the opinion described it): The opinion treated a nonprofit as a "person" a district may contract with to operate a civic center, while flagging that nonprofit ownership of the funded building might not fit the undefined term "civic center," and that the funding would have to satisfy the gift-of-public-funds limits.

Common questions

Can a Texas municipal development district hire a nonprofit to run a civic center?
Likely yes, under this opinion. The AG concluded a court would probably find chapter 377 lets a district contract with a private nonprofit to operate a civic center, because the statute allows contracting with a "person," which includes an organization.

Can the nonprofit also own the building the district pays for?
That is uncertain. The AG explained that "civic center" is undefined in chapter 377, and a court could read the common meaning to require municipal ownership, so it could not confirm that funding a nonprofit-owned civic center is authorized.

Will the AG say whether this specific Goliad project is allowed?
No. The AG explained that whether a particular project meets the statutory requirements is a fact question within the discretion of the development district's board, which decides it in the first instance.

What constitutional limit applies to giving public money to a nonprofit?
Article III, section 52(a) of the Texas Constitution, which bars gratuitous grants of public funds for private purposes. The AG described the Texas Supreme Court's three-part test: predominant public purpose, adequate public controls, and adequate consideration.

Does a civic center count as a "development project"?
Yes, by definition. The AG noted that chapter 377 defines "development project" to include a civic center or civic center building, and that the described building would likely qualify as a civic center.

Background and statutory framework

Chapter 377 of the Local Government Code lets municipalities create development districts that may plan, acquire, establish, develop, construct, or renovate development projects beneficial to the district (Tex. Loc. Gov't Code Ann. § 377.021(a) (West 2005)), and "development project" includes a civic center or civic center building (id. § 377.001(3)(B) (West Supp. 2013)). Whether a particular project satisfies the statutory requirements is a fact question for the district's board (Tex. Att'y Gen. Op. No. GA-0264 (2004) at 10).

A district may contract with a public or private person to carry out a development project or other authorized act (Tex. Loc. Gov't Code Ann. § 377.071(b) (West 2005)), and "person" includes a corporation or organization (Tex. Gov't Code Ann. § 311.005(2) (West 2013)), so a court would likely find a district may contract with a nonprofit to operate a civic center. Because chapter 377 does not define "civic center," the AG looked to the common meaning of a municipal, often publicly financed building, and concluded it could not confirm that a nonprofit may own a building funded as a civic center. Any grant of public funds benefiting a private entity must satisfy Texas Constitution article III, section 52(a) (Tex. Const. art. III, § 52(a); Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)), which the Texas Supreme Court has reduced to a three-part test of public purpose, public controls, and adequate consideration (Tex. Mun. League Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)).

Citations

Statutory provisions:

• Tex. Loc. Gov't Code Ann. § 377.021(a) (West 2005) (powers of a municipal development district)
• Tex. Loc. Gov't Code Ann. § 377.001(3)(B) (West Supp. 2013) (civic center within "development project")
• Tex. Loc. Gov't Code Ann. § 377.071(b) (West 2005) (authority to contract with a public or private person)
• Tex. Gov't Code Ann. § 311.005(2) (West 2013) (definition of "person")
• Tex. Const. art. III, § 52(a) (prohibition on gifts of public funds for private purposes)

Cases:

• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Tex. Mun. League Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)

Other authority:

• New Oxford American Dictionary 313 (2001) (definition of "civic center")

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. No. GA-0264 (2004)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1058
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2014/ga1058.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

May 13, 2014

The Honorable Rob Baiamonte Opinion No. GA-1058
Goliad County Attorney
Post Office Box 24 Re: Whether a municipal development
Goliad, Texas 77963 district may fund a new building for a senior
civic center if the center will be operated by
a private nonprofit corporation
(RQ-1165-GA)

Dear Mr. Baiamonte:

You ask whether chapter 377 of the Local Government Code authorizes a municipal development district to fund a senior civic center that is owned and operated by a non-profit organization.[1] You explain that the City of Goliad Municipal Development District ("the District") would like to provide a grant to a nonprofit corporation to replace an existing building for a "Senior Citizens and Civic Center." The center is used to serve low-cost meals to senior citizens and to provide a venue for "health and nutrition education, games, social and business events and entertainment." Request Letter at 1. The center is, and under the terms of the grant application would continue to be, "owned and operated by Goliad County Senior Citizens, Inc., a non-profit corporation." Id.

Chapter 377 of the Local Government Code authorizes municipalities to create municipal development districts, which are authorized to "plan, acquire, establish, develop, construct, or renovate one or more development projects beneficial to the district." TEX. LOC. GOV'T CODE ANN. § 377.021(a) (West 2005). "Development project" is defined to include, among other things, a "civic center" or "civic center building." Id. § 377.001(3)(B) (West Supp. 2013). Based on your description of the proposed purpose and use of the building in question, it is likely that such a project would constitute a civic center. However, whether a particular project meets the statutory requirements to be funded as a development project involves questions of fact that are within the discretion of the board of directors of the development district to determine in the first instance. See Tex. Att'y Gen. Op. No. GA-0264 (2004) at 10 (explaining that whether a particular project satisfies the requirements of the Economic Development Act involves questions of fact within the discretion of the development corporation). Because of the fact questions involved, we cannot definitively answer whether the particular development project about which you ask is authorized by chapter 377 of the Local Government Code.

In addition to asking about this particular project, you also ask whether a civic center may qualify as an authorized project if it will be owned and operated by a nonprofit organization rather than the municipal development district. Request Letter at 2. No Texas court cases or attorney general opinions have addressed this issue. In establishing the powers and duties of a municipal development district, the Legislature has authorized a district to "contract with a public or private person to: (1) plan, acquire, establish, develop, construct, or renovate a development project; or (2) perform any other act the district is authorized to perform under [chapter 377]." TEX. LOC. GOV'T CODE ANN. § 377.071(b) (West 2005). Under the Code Construction Act, the term "person" is defined to include a "corporation" or "organization." TEX. GOV'T CODE ANN. § 311.005(2) (West 2013). Thus, the express terms of chapter 377 authorize a municipal development district to contract with a private, nonprofit organization to plan, acquire, establish, develop, construct, or renovate a civic center. Under this broad contracting authority, a court would likely conclude that a municipal development district may contract with a nonprofit organization to operate a civic center.

Whether chapter 377 authorizes development of a civic center that will be owned by a nonprofit organization is a more difficult question. Chapter 377 does not define "civic center," but the term is commonly understood to mean "a municipal building or building complex, often publicly financed, with space for conventions, sports events, and theatrical entertainment." NEW OXFORD AM. DICTIONARY 313 (2001). Using this definition, a court could conclude that a municipality must own the building in order for it to qualify as a "civic center," thereby prohibiting ownership by a nonprofit organization. Without further guidance from the Legislature or the courts, we are unable to confirm that funding a civic center building is an authorized project under chapter 377 of the Local Government Code if the building will be owned by a nonprofit organization rather than the municipal development district.

If a municipal development district decides to contract with a private entity to perform any functions related to a civic center, its grant of public funds must satisfy the requirements of Texas Constitution article III, section 52, which precludes political subdivisions from using public funds for private purposes. TEX. CONST. art. III, § 52(a). Article III, section 52(a) does not bar all funding from a political subdivision to a private entity. See Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995) (explaining that the purpose of this provision is to prevent the gratuitous grant of public funds for a private purpose). The Texas Supreme Court has explained that the grant of public funds that benefit a private entity will avoid violating article III, section 52(a) if it satisfies a three-part test: (1) the predominant purpose of the expenditure is to accomplish a public purpose, not to benefit private parties; (2) there are adequate public controls in place to ensure that the public purpose is accomplished and to protect the public's investment; and (3) the political subdivision is receiving adequate consideration. Tex. Mun. League Intergov'l Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). Thus, if a municipal development district decides to contract with a private organization to perform any functions related to a publicly funded civic center, it must ensure that these requirements are met.

SUMMARY

Whether any particular project of a municipal development district meets the statutory requirements in order to be funded as a development project involves questions of fact that cannot be determined through the opinion process.

A court would likely conclude that chapter 377 of the Local Government Code authorizes a municipal development district to contract with a private, nonprofit organization to operate a civic center.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Rob Baiamonte, Goliad Cnty. Att'y, to Honorable Greg Abbott, Tex. Att'y Gen. at 2 (Nov. 14, 2013), http://www.texasattorneygeneral.gov/opin ("Request Letter").