Can a city council member keep a tax abatement on property they own?

Plain-English summary

State Senator Chris Harris, chair of the Senate Committee on Administration, asked how the tax-abatement conflict rules apply to someone who has an ownership interest in a company that received a municipal tax abatement and then serves on the city council. The Attorney General answered three related questions about eligibility, continuing qualification, and the council member's votes.

The starting point is chapter 312 of the Tax Code, the Property Redevelopment and Tax Abatement Act, which lets a city enter a tax abatement agreement with the owner of taxable real property in a reinvestment zone, but excludes from abatement any property owned or leased by a member of the city's governing body or a member of its zoning or planning board. The opinion assumed the individual's ownership interest was large enough to make him an "owner" under the standard from Letter Opinion 98-001 (ownership requires some degree of control, not a mere beneficial interest). On the first question, the opinion concluded the Act does not bar a property owner from being elected to the council; instead, it removes the property from abatement eligibility once the owner sits on the council. On the second, it held the property does not continue to qualify for an existing abatement once its owner joins the council, because section 312.204(d) makes no exception for agreements already in effect, and conflict-of-interest provisions are construed strictly to avoid conflicts (citing City of Edinburg v. Ellis).

On the third question, the votes, the opinion drew a line. Votes on the tax abatement agreement itself are a nullity, because the agreement became ineffective when the owner joined the council. Votes on matters unrelated to the property are unaffected. Votes on other matters that do touch the member's property are governed by chapter 171 of the Local Government Code, which bars a local official with a "substantial interest" in a business entity or real property from voting when it is reasonably foreseeable that the action would confer a special economic benefit distinguishable from the effect on the public. The opinion laid out the chapter 171 thresholds for a substantial interest, the Class A misdemeanor for a knowing violation, and the rule that a tainted vote is voidable only if the measure would not have passed without it. It also reminded the city to check its own charter and ordinances, since section 171.004 is cumulative of local conflict rules.

Currency note

This opinion was issued in 1999. 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.

Background and statutory framework

Section 312.204 authorizes municipal tax abatement agreements for property in a reinvestment zone, and subsection (d) excludes property "owned or leased by a member of the governing body of the municipality or by a member of a zoning or planning board or commission of the municipality" from property tax abatement or tax increment financing. The opinion read that exclusion plainly: property owned by a council member may not receive a municipal abatement, and the statute carves out no grandfather clause for abatements granted before the owner took office. To support a strict reading, the opinion cited City of Edinburg v. Ellis, where the Texas Commission of Appeals said laws barring public officers from being interested in public contracts should be "scrupulously enforced," along with Opinions JC-0018 and DM-310.

The chapter 171 analysis governs the member's other votes. Section 171.004 requires a local public official with a substantial interest to file an affidavit and abstain when a special economic benefit is reasonably foreseeable. Under section 171.002, a substantial interest in a business entity means (10 percent or more of voting stock or shares, or 10 percent or more or $15,000 or more of fair market value, or funds from the entity exceeding 10 percent of the official's prior-year gross income) and in real property (an equitable or legal ownership interest worth $2,500 or more). A knowing violation is a Class A misdemeanor (section 171.003(b)). Under section 171.006, a violation makes the governing body's action voidable only if the measure would not have passed without the violating member's vote, so the statute generally punishes the offender rather than voiding the action. Under section 171.007(b), these rules are cumulative of municipal charter and ordinance conflict provisions.

Common questions

Can a person whose property has a city tax abatement run for city council?
Yes. The opinion concluded the Tax Abatement Act does not bar a property owner from being elected to the council. The catch is that holding the seat makes the property ineligible for the abatement.

Does an existing abatement survive when the owner joins the council?
No. The opinion held that section 312.204(d) makes the property ineligible once its owner becomes a council member, with no exception for agreements already in effect, so the abatement does not continue.

What happens to the council member's votes on the abatement?
Votes on the tax abatement agreement are a nullity because the agreement became ineffective once the owner joined the council. Votes on unrelated matters are not affected.

What about the member's votes on other matters involving the property?
Those are governed by chapter 171. If the member has a substantial interest and a special economic benefit is reasonably foreseeable, the member must file an affidavit and abstain, and a vote cast in violation is voidable only if the measure would not have passed without it.

Citations

Statutory provisions: Tex. Tax Code Ann. § 312.204 (Vernon 1992 & Supp. 1999), § 312.204(d) (Vernon 1992); Tex. Loc. Gov't Code Ann. § 171.004 (Vernon 1999), §§ 171.002(a), (b), 171.003(b), 171.006, 171.007(b).

Case: City of Edinburg v. Ellis, 59 S.W.2d 99 (Tex. Comm'n App. 1933, holding approved).

Prior Attorney General opinions discussed: LO-98-001; JC-0018 (1999); DM-310 (1994).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0155
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1999/jc0155.pdf

Original opinion text

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

OFFICE OF THE ATTORNEY GENERAL, STATE OF TEXAS

JOHN CORNYN

December 8, 1999

The Honorable Chris Harris
Chair, Committee on Administration
Texas State Senate
P.O. Box 12068
Austin, Texas 78711-2068

Opinion No. JC-0155

Re: Whether individual whose property is subject of tax abatement agreement may serve as member of city council that granted the abatement, and related questions (RQ-0102-JC)

Dear Senator Harris:

The Property Redevelopment and Tax Abatement Act, chapter 312 of the Tax Code, allows the governing body of a municipality to enter into a tax abatement agreement with the owner of taxable real property located in a reinvestment zone, under certain circumstances, for the purpose of economic development of the property. See TEX. TAX CODE ANN. § 312.204 (Vernon 1992 & Supp. 1999). Property that is owned or leased by a member of the municipality's governing body, however, is not eligible for a tax abatement agreement. See id. § 312.204(d) (Vernon 1992). You ask about the application of this provision to an individual "who has an ownership in a company that has received a municipal tax abatement." Letter from Honorable Chris Harris, Chair, Committee on Administration, Texas State Senate, to Honorable John Cornyn, Texas Attorney General (received Aug. 20, 1999) (on file with Opinion Committee) [hereinafter "Request Letter"].

Chapter 312 of the Tax Code removes property owned by a member of a governmental body from eligibility for a tax abatement from that body: "Property that is in a reinvestment zone and that is owned or leased by a member of the governing body of the municipality or by a member of a zoning or planning board or commission of the municipality is excluded from property tax abatement or tax increment financing." TEX. TAX CODE ANN. § 312.204(d) (Vernon 1992).

As a preliminary matter, we assume that the individual's ownership interest is sufficient to make the individual an "owner" of the property for purposes of the Tax Abatement Act. This office concluded in Attorney General Letter Opinion 98-001 that the terms "owned" and "owner" in chapter 312 "refer to a property interest that includes at least some degree of control over the property and do not embrace a mere beneficial or equitable interest in property completely lacking such control." Tex. Att'y Gen. LO-98-001, at 3. Thus, the opinion concludes that a person who owns legal title to property or who is the sole shareholder of a corporation who has the authority to dispose of corporate assets may be the owner of property for purposes of chapter 312, while the owner of a very small percentage of shares of a publicly held corporation is not. See id. In this case, we assume that the individual's level of "ownership in a company," as you describe it, makes the individual the owner of the property for purposes of chapter 312. See Request Letter.

You first ask whether it is acceptable for the owner of property that received a municipal tax abatement to be elected to and serve on the city council where the city council "reaffirms the abatement each year for the life of the original abatement." Id. The Tax Abatement Act does not speak to the eligibility of a property owner to serve as a member of the governing body that grants a tax abatement. Rather, it removes property from tax-abatement eligibility if the property owner is a member of the governing body. Thus, although the property owner is not barred by chapter 312 from being elected to the city council, the owner's position on the council makes his property ineligible for a tax abatement agreement.

You also ask whether property in a reinvestment zone continues to qualify for a municipal tax abatement once its owner is elected to the city council. We conclude that it does not. Section 312.204(d) states that property owned by a member of the governing body of the municipality "is excluded from property tax abatement." TEX. TAX CODE ANN. § 312.204(d) (Vernon 1992). Read plainly, the statute provides that property owned by a member of the city council may not receive a municipal tax abatement. The statute makes no exception for tax abatement agreements already in effect when the property owner becomes a member of the governing body. Courts and this office normally construe conflict-of-interest provisions strictly, so as to avoid a conflict. See City of Edinburg v. Ellis, 59 S.W.2d 99, 99-100 (Tex. Comm'n App. 1933, holding approved); Tex. Att'y Gen. Op. Nos. JC-0018 (1999) at 3; DM-310 (1994) at 3. The Texas Supreme Court has said, in a case involving a city council member's pecuniary interest in a contract with the city, that laws prohibiting public officers from being interested in public contracts should be "scrupulously enforced." Ellis, 59 S.W.2d at 100. Accordingly, we conclude that property may not continue to receive a municipal tax abatement once its owner is elected to the city council.

Finally, you ask about the status of any votes made by the property owner since his election to the city council. Votes on the tax abatement agreement are a nullity, since the agreement became ineffective once the property owner became a member of the city council. Votes on matters unrelated to the tax abatement agreement or to the tax-abated property are not affected by the council member's status as the owner of the property. However, votes the council member might have made on matters related to his property, if any such votes were made aside from votes on the tax abatement agreement, are governed by the conflict-of-interest provision in chapter 171 of the Local Government Code.

Chapter 171 of the Local Government Code prohibits a local public official from participating in a vote on a matter involving a business entity or real property in which the official has a substantial interest if it is reasonably foreseeable that an action on the matter would confer a special economic benefit on the business entity or real property that is distinguishable from the effect on the public. See TEX. LOC. GOV'T CODE ANN. § 171.004 (Vernon 1999). Chapter 171 defines what it means to have a "substantial interest" in a business or property:

(a) For purposes of [chapter 171], a person has a substantial interest in a business entity if:

(1) the person owns 10 percent or more of the voting stock or shares of the business entity or owns either 10 percent or more or $15,000 or more of the fair market value of the business entity; or

(2) funds received by the person from the business entity exceed 10 percent of the person's gross income for the previous year.

(b) A person has a substantial interest in real property if the interest is an equitable or legal ownership with a fair market value of $2,500 or more.

Id. § 171.002(a), (b). A public official who knowingly violates this prohibition commits a Class A misdemeanor. See id. § 171.003(b).

If the city council member about whom you ask has a substantial interest in the real property that is the subject of the tax abatement agreement, or in the business entity that owns the property, and it is reasonably foreseeable that an action on the matter would confer a special economic benefit on the business entity or property that is distinguishable from the effect on the public, then section 171.004 of the Local Government Code requires the city council member to file an affidavit stating the nature and extent of his interest and to abstain from participation in the matter.

Votes made in violation of section 171.004 of the Local Government Code are voidable only if the measures on which the council member voted would not have passed without his vote:

The finding by a court of a violation under this chapter does not render an action of the governing body voidable unless the measure that was the subject of an action involving a conflict of interest would not have passed the governing body without the vote of the person who violated the chapter.

Id. § 171.006. Thus, any actions taken by the city council that included the vote of the property owner in violation of section 171.004 are not void; they are voidable, but only under certain circumstances. Violations of section 171.004 are addressed by punishing the offender, not by voiding the council's action.

The city should also look to its own charter and ordinances to determine whether they place additional restrictions on a council member's participation in matters affecting property owned by the member. Section 171.004 of the Local Government Code is cumulative of municipal charter provisions and municipal ordinances defining and prohibiting conflicts of interest. Id. § 171.007(b).

SUMMARY

The Property Redevelopment and Tax Abatement Act, chapter 312 of the Tax Code, does not bar a property owner from serving on the city council that granted a municipal tax abatement to the property owner. However, the owner's position on the council makes his property ineligible to continue to receive a tax abatement. Section 171.004 of the Local Government Code bars him from participating in a vote on a matter involving the property if he has a substantial interest in the property or in the business that owns the property, and if it is reasonably foreseeable that an action on the matter would confer a special economic benefit on the property that is distinguishable from the effect on the public. Votes made in violation of section 171.004 of the Local Government Code are voidable only if the measures on which the property owner voted would not have passed without his vote.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Barbara Griffin
Assistant Attorney General - Opinion Committee