Do Texas school districts have to pay a city's stormwater drainage fee?

Plain-English summary

State Senator Royce West, chair of the Senate Committee on Jurisprudence, asked whether Texas school districts are exempt from a city's municipal drainage charge under the Municipal Drainage Utility Systems Act, which is chapter 552, subchapter C, of the Local Government Code. A city can adopt the Act by ordinance, declaring municipal drainage to be a public utility, and then charge benefitted property for drainage service. The Senator's two questions were whether the statute automatically exempts school districts from that charge, and whether the charge is really a tax (from which school districts are generally exempt).

On the first question, the AG concluded the exemption for school districts is permissive, not automatic. Subsections 552.053(a) and (b) say designated governmental entities, including school districts, "may be exempt" from the Act. The AG read "may" in its ordinary, permissive sense, especially because the same statute uses "shall be exempt" for certain other property in subsection (c) and creates a mandatory exemption in subsection (e) for a narrow class of school districts, those whose property sits in a city of more than 500,000 people within 50 miles of the international border. That mandatory exemption would be pointless if every school district were already exempt, and courts do not read one part of a statute to make another part meaningless. So a court would likely hold that subsections (a) and (b) give a permissive exemption.

The AG then asked who decides whether to grant that permissive exemption: the city or the school district. The Act's stated findings give cities broad authority to set the basis for drainage funding, to set fees, and to provide exemptions, which implies cities have the discretion to grant or withhold a permissive exemption. The Act does not give school districts any comparable authority to claim an exemption for themselves. The AG noted that when the Legislature wants to let a school district opt out of a charge, it knows how to say so, as it did with impact fees (which a school district need not pay unless its trustees consent). Reading the Act as a whole, the AG concluded a court would likely hold that the school-district exemption is permissive and that the city has discretion to decide whether to grant it, subject to the Act's limits.

On the second question, the AG concluded a reasonable drainage charge is not a tax. School district property is generally exempt from taxation by other governments under the Texas Constitution and Tax Code, but whether an exemption applies depends on the nature of the charge. Courts have distinguished taxes from reasonable charges for utility services: a city that owns and operates its own public utility acts in a proprietary capacity, and a reasonable charge for that service is not a tax that a school district's exemption would cover. Under the Act, a city provides drainage as a public utility and charges to recover the cost of the service, on any basis that is not tied to property value and is directly related to drainage. The AG concluded a court would likely hold that a reasonable drainage charge conforming to the Act is not a tax, so a school district is not exempt from paying it.

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

Senator West (as the opinion described it): The opinion answered both questions the Senator posed. It described the school-district exemption in subsections 552.053(a) and (b) as permissive, with the city holding the discretion to grant it, and it described a reasonable drainage charge conforming to the Act as a fee rather than a tax from which a school district would be exempt.

School districts (as the opinion described it): The opinion described school districts as not automatically exempt from a municipal drainage charge under subsections (a) and (b), and described the Act as giving districts no authority to claim a permissive exemption on their own. It described a separate, mandatory exemption as available only to a narrow class of districts (property in a city of more than 500,000 within 50 miles of the international border). It described a reasonable drainage charge as a utility fee that a district's tax exemption does not reach.

Cities operating municipal drainage utilities (as the opinion described it): The opinion described cities as having broad discretion under the Act to set the basis for drainage funding, classify benefitted property, and decide whether to grant a permissive exemption to a school district, subject to the Act's limitations. It described a reasonable drainage charge, levied on a basis not tied to property value and directly related to drainage, as a non-tax utility charge.

Common questions

Are Texas school districts automatically exempt from city drainage fees?
No. The AG concluded that the statute's language that school districts "may be exempt" is permissive, so a district is not automatically exempt; a court would likely hold the city has discretion to grant or withhold the exemption.

Who decides whether to exempt a school district, the city or the district?
The AG concluded the city does. The Act gives cities broad discretion to set funding bases and provide exemptions, but gives school districts no authority to claim a permissive exemption for themselves.

Is a drainage charge a tax that school districts don't have to pay?
No. The AG concluded that a reasonable drainage charge conforming to the Act is a fee for a utility service, not a tax, so a school district's tax exemption does not apply.

Which school districts are mandatorily exempt?
The AG noted that subsection 552.053(e) creates a mandatory exemption for property owned by a school district located in a municipality with a population of more than 500,000 that is within 50 miles of an international border.

How is a drainage charge different from a tax here?
The AG explained that a city operating its own drainage utility acts in a proprietary capacity, and a reasonable charge for that service, levied on a basis not tied to property value and directly related to drainage, is a charge for services rather than a tax.

Background and statutory framework

A municipality may adopt the Act by ordinance declaring municipal drainage to be a public utility (Tex. Loc. Gov't Code Ann. § 552.045(a) (West Supp. 2013)) and may then "charge a lot or tract of benefitted property for drainage service" (id. § 552.047(a)). A "drainage charge" recovers "the cost of the service of the municipality in furnishing drainage for any benefitted property" and certain other costs (id. § 552.044(4)), and a person must pay it to use the system unless the Act exempts the property (id. § 552.047(d)). Subsections 552.053(a) and (b) provide that designated entities, including school districts, "may be exempt" (id. § 552.053(a), (b) (West Supp. 2013)); subsection (c) provides that certain property "shall be exempt" (id. § 552.053(c)); and subsection (e)(2) makes property owned by a school district in a municipality of more than 500,000 within 50 miles of an international border "exempt from drainage charges under Section 552.047" (id. § 552.053(e)(2); see also id. § 552.044(8)(A)).

The AG read "may" and "shall" in the same statute according to their ordinary, permissive and mandatory meanings (id. § 552.053(a), (b); Tex. Gov't Code Ann. § 311.016(1)-(2) (West 2013); Valles v. Tex. Comm'n on Jail Standards, 845 S.W.2d 284, 288 (Tex. App.-Austin 1992, writ denied)), and noted that the mandatory exemption in subsection (e) would be superfluous if all districts were already exempt under (a) and (b), an outcome courts avoid (id. § 552.053(e) (West Supp. 2013); Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex. 2008)). The Act's findings give municipalities authority to prescribe funding bases and fees and to "provide exemptions" (Tex. Loc. Gov't Code Ann. § 552.042(a)(5), (6), (7)) and broad discretion to classify benefitted property (id. § 552.047(a)), while granting school districts no comparable authority to claim an exemption, unlike the impact-fee statute, under which districts need not pay unless their trustees consent (id. §§ 552.041-.054 (West Supp. 2013); id. § 395.022(b)). The AG noted that whether a particular charge is an "impact fee" under chapter 395 would turn on facts an opinion cannot resolve (id. § 395.001(4) (West 2005); id. § 552.054(c) (West Supp. 2013); Tex. Att'y Gen. Op. No. GA-0850 (2011) at 2).

On the tax question, school district property is generally exempt from taxation by other political subdivisions (Tex. Const. art. XI, § 9; id. art. VIII, § 2; Tex. Tax Code Ann. §§ 11.11, 11.21 (West 2008 & Supp. 2013)), but the nature of the charge controls whether the exemption applies (State v. City of El Paso, 143 S.W.2d 366, 368-69 (Tex. 1940); City of Garland v. Garland Indep. Sch. Dist., 468 S.W.2d 110, 111-14 (Tex. Civ. App.-Dallas 1971, writ ref'd n.r.e.)). A municipality that owns and operates its own public utility acts in a proprietary capacity (San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 264 (Tex. 1976)), and a reasonable charge for city-owned utility service is not a tax (City of San Antonio v. San Antonio Indep. Sch. Dist., 535 S.W.2d 671, 675-76 (Tex. Civ. App.-El Paso); Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907-08 (Tex. Civ. App.-San Antonio 1961, writ dism'd)). Because the Act provides drainage as a public utility (Tex. Loc. Gov't Code Ann. § 552.045(a) (West Supp. 2013)) and authorizes a charge to recover the cost of the service (id. § 552.044(4)(A)) levied on any basis not tied to property value and directly related to drainage (id. § 552.047(a)), the AG concluded a court would likely hold a reasonable drainage charge is not a tax.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. XI, § 9 (exemption for public property)
• Tex. Const. art. VIII, § 2 (authority to exempt public property used for public purposes)
• Tex. Loc. Gov't Code Ann. § 552.045(a) (West Supp. 2013) (municipal drainage as a public utility)
• Tex. Loc. Gov't Code Ann. § 552.047(a) (authority to charge benefitted property)
• Tex. Loc. Gov't Code Ann. § 552.047(d) (obligation to pay unless exempt)
• Tex. Loc. Gov't Code Ann. § 552.044(4), (4)(A) (definition of "drainage charge")
• Tex. Loc. Gov't Code Ann. § 552.044(8)(A) (definition cross-reference)
• Tex. Loc. Gov't Code Ann. § 552.053(a), (b) (West Supp. 2013) (permissive exemption for designated entities)
• Tex. Loc. Gov't Code Ann. § 552.053(c) (mandatory exemptions for certain property)
• Tex. Loc. Gov't Code Ann. § 552.053(e), (e)(2) (West Supp. 2013) (mandatory exemption for a narrow class of districts)
• Tex. Loc. Gov't Code Ann. § 552.042(a)(5), (6), (7) (legislative findings on municipal authority)
• Tex. Loc. Gov't Code Ann. §§ 552.041-.054 (West Supp. 2013) (the Act)
• Tex. Loc. Gov't Code Ann. § 552.054(c) (West Supp. 2013) (impact fees not precluded)
• Tex. Loc. Gov't Code Ann. § 395.022(b) (school districts and impact fees)
• Tex. Loc. Gov't Code Ann. § 395.001(4) (West 2005) (definition of "impact fee")
• Tex. Gov't Code Ann. § 311.016(1)-(2) (West 2013) (ordinary meanings of "may" and "shall")
• Tex. Tax Code Ann. §§ 11.11, 11.21 (West 2008 & Supp. 2013) (public-property tax exemptions)

Cases:

• Valles v. Tex. Comm'n on Jail Standards, 845 S.W.2d 284, 288 (Tex. App.-Austin 1992, writ denied)
• Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex. 2008)
• State v. City of El Paso, 143 S.W.2d 366, 368-69 (Tex. 1940)
• City of Garland v. Garland Indep. Sch. Dist., 468 S.W.2d 110, 111-14 (Tex. Civ. App.-Dallas 1971, writ ref'd n.r.e.)
• San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 264 (Tex. 1976)
• City of San Antonio v. San Antonio Indep. Sch. Dist., 535 S.W.2d 671, 675-76 (Tex. Civ. App.-El Paso)
• Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907-08 (Tex. Civ. App.-San Antonio 1961, writ dism'd)

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. No. GA-0850 (2011)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-1080
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2014/ga1080.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

September 22, 2014

The Honorable Royce West Opinion No. GA-1080
Chair, Committee on Jurisprudence
Texas State Senate Re: Whether school districts are exempt from the
Post Office Box 12068 municipal drainage charge under the Municipal
Austin, Texas 78711-2068 Drainage Utility Systems Act (RQ-1192-GA)

Dear Senator West:

You ask whether school districts are exempt from the municipal drainage charge under the Municipal Drainage Utility Systems Act (the "Act"), chapter 552, subchapter C, of the Local Government Code.[1]

A municipality may adopt the Act in an ordinance declaring municipal drainage to be a public utility. TEX. LOC. GOV'T CODE ANN. § 552.045(a) (West Supp. 2013). The Act authorizes such a municipality to "charge a lot or tract of benefitted property for drainage service." Id. § 552.047(a). A "drainage charge" is a "levy imposed to recover the cost of the service of the municipality in furnishing drainage for any benefitted property" and certain other costs. Id. § 552.044(4). A person must pay the drainage charge to use the municipal drainage system for a lot or tract unless the Act exempts the person's lot or tract. Id. § 552.047(d). You ask whether section 552.053 of the Act necessarily exempts school districts from paying the municipal drainage fee or allows a municipality to decide in its discretion whether to exempt school districts from the fee. Request Letter at 4.

Subsections 552.053(a) and (b) provide that designated governmental entities, including school districts, and their freehold interests in lots or tracts "may be exempt" from the Act and "ordinances, resolutions, and rules" adopted under the Act. TEX. LOC. GOV'T CODE ANN. § 552.053(a), (b) (West Supp. 2013). Subsection (c) provides that certain property "shall be exempt" from such municipal rules or ordinances, including property that has a "wholly sufficient and privately owned drainage system," and unimproved property under particular circumstances. Id. § 552.053(c). Under subsection (e)(2), property owned by a school district located in a municipality with a population of more than 500,000 and within 50 miles of an international border "is exempt from drainage charges under Section 552.047." Id. § 552.053(e)(2); see also id. § 552.044(8)(A).

The exemptions in section 552.053 from "ordinances, resolutions, and rules" adopted under the Act could include an exemption from a municipality's ordinance adopting a drainage charge. By using the words "may" and "shall" in the same statute, the Legislature indicated that "may be exempt" in subsections (a) and (b) refers to permissive, not mandatory exemptions. Id. § 552.053(a), (b); see also TEX. GOV'T CODE ANN. § 311.016(1)-(2) (West 2013) (providing the ordinary definitions of "may" and "shall"); Valles v. Tex. Comm'n on Jail Standards, 845 S.W.2d 284, 288 (Tex. App.-Austin 1992, writ denied) (stating that the use of "may" and "shall" in the same statute evidences legislative intent that the words have their ordinary meaning). Moreover, subsection 552.053(e) creates a mandatory exemption for property owned by a narrow class of school districts, which would be unnecessary if the property of all school districts were exempt under subsections (a) and (b). See TEX. LOC. GOV'T CODE ANN. § 552.053(e) (West Supp. 2013). Courts do not construe one provision of a statute in a manner that renders another provision meaningless or superfluous. Columbia Med. Ctr. of Las Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex. 2008). Under standard rules of construction, subsections 552.053(a) and (b) provide a permissive, not a mandatory or automatic, exemption from the Act for school districts.

Section 552.053 does not expressly state how the exemption in subsections (a) and (b) comes into effect-whether the municipality may grant an exception to a school district or whether a school district may claim the right to an exemption. See TEX. LOC. GOV'T CODE ANN. § 552.053(a), (b) (West Supp. 2013). The Legislature stated in the Act's findings that municipalities need the authority to "prescribe bases on which a municipal drainage utility system may be funded and fees in support of the system may be assessed, levied, and collected," to "provide exemptions" from the Act, and to prescribe other rules related to the subject of municipal drainage. Id. § 552.042(a)(5), (6), (7). To address these needs, the Act grants broad discretion to municipalities to establish the basis for their drainage services and to classify benefitted property. Id. § 552.047(a). These broad powers, when read in light of the legislative findings, imply that municipalities have discretion to decide whether to grant permissive exemptions according to law. By contrast, the Act does not grant authority to school districts from which it may be inferred that the school districts may decide whether to claim a permissive exemption. The Legislature could easily have authorized a school district to decide for itself whether it will be subject to municipal drainage charges, as exemplified by the authority the Legislature has granted school districts in other law respecting impact fees. Compare id. §§ 552.041-.054 (West Supp. 2013) (chapter 552, subchapter C), with id. § 395.022(b) (providing that school districts are not required to pay impact fees unless the district's trustees consent).[2] Construing the Act as a whole, a court would likely conclude that section 552.053's exemption from the Act for school districts is permissive and that a municipality has the discretion to decide whether to grant such an exemption, subject to limitations in the Act or other law.

Your second question is whether the drainage charges under the Act constitute a tax, such that a school district is exempt from paying the charges. Request Letter at 4. School district property is generally exempt from taxation by other political subdivisions. See, e.g., TEX. CONST. art. XI, § 9 (exempting certain "property devoted exclusively to the use and benefit of the public"); id. art. VIII, § 2 (authorizing the Legislature to "exempt from taxation public property used for public purposes"); TEX. TAX CODE ANN. §§ 11.11, 11.21 (West 2008 & Supp. 2013) (exemptions for public property of political subdivisions, including school districts). The nature of a governmental tax or fee will determine if a political subdivision such as a school district is exempt from the tax or fee. See State v. City of El Paso, 143 S.W.2d 366, 368-69 (Tex. 1940) (stating that article XI, section 9 of the Constitution creates an exemption from ad valorem, income, and occupation taxes but not from excise or user taxes); City of Garland v. Garland Indep. Sch. Dist., 468 S.W.2d 110, 111-14 (Tex. Civ. App.-Dallas 1971, writ ref'd n.r.e.) (determining that article XI, section 9 exempts a school district from a special assessment for paving a street abutting its property, distinguishing a special assessment from a reasonable charge for services of another public agency).

A municipality "which owns and operates its own public utility does so in its proprietary capacity." San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 264 (Tex. 1976). A reasonable charge for city-owned utility service is not a tax, and therefore a school district's tax exemption does not apply to such charges. See City of San Antonio v. San Antonio Indep. Sch. Dist., 535 S.W.2d 671, 675-76 (Tex. Civ. App.-El Paso) (determining that certain charges for city-owned gas and electric services were not a tax from which the school district was exempt), aff'd, 550 S.W.2d 262 (Tex. 1976); see also Bexar Cnty. v. City of San Antonio, 352 S.W.2d 905, 907-08 (Tex. Civ. App.-San Antonio 1961, writ dism'd) (determining that a city's reasonable charge for sewer services was not a tax and could be imposed on the county).

Under the Act, a municipality provides drainage services as a public utility. TEX. LOC. GOV'T CODE ANN. § 552.045(a) (West Supp. 2013). The Act authorizes a municipality to require payment of a "drainage charge" for its services. Id. § 552.047(a). The purpose of the charge is "to recover the cost of the service of the municipality in furnishing drainage for any benefitted property," and certain other costs. Id. § 552.044(4)(A). The Act allows the municipality to charge "on any basis" provided the charge (1) is not based on the value of property and (2) the basis is directly related to drainage. Id. § 552.047(a). Accordingly, a court would likely conclude that a reasonable drainage charge conforming to the Act is not a tax and therefore a school district is not exempt from reasonable drainage charges.

SUMMARY

A court would likely conclude that the exemption for school districts from the Municipal Drainage Utility Systems Act (the "Act") in subsections 552.053(a) and (b) of the Local Government Code is permissive and that a municipality has the discretion, within the limitations of the Act, to decide whether to grant such an exemption.

A court would likely conclude that a reasonable drainage charge under the Act is not a tax from which a school district is exempt.

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

William A. Hill
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Royce West, Chair, Senate Comm. on Jurisprudence, to Honorable Greg Abbott, Tex. Att'y Gen. (Mar. 26, 2014), http://www.texasattorneygeneral.gov/opin.

[2] An "impact fee" is a charge "against new development" to pay for "capital improvements or facility expansions necessitated by and attributable to the new development." TEX. LOC. GOV'T CODE ANN. § 395.001(4) (West 2005). The authority to create a municipal drainage utility system and charge for its services does not "preclude a municipality from imposing impact fees or other charges for drainage authorized by law." Id. § 552.054(c) (West Supp. 2013). "Whether any particular fee constitutes an 'impact fee' under chapter 395 would require the resolution of [factual questions] and, as a result, cannot be determined in an attorney general opinion." Tex. Att'y Gen. Op. No. GA-0850 (2011) at 2.