Can an employee of a private company that lives off a state contract still be paid as a Texas MUD board director?

Plain-English summary

A state senator asked the Attorney General a clean compensation question. A person sat as a director on a municipal utility district (MUD) board. He also worked, on salary, for a private company whose only income came from a contract with the Texas Department of Criminal Justice, a contract won by public bid and re-bid every three years. He owned no part of the company. The question was whether that arrangement made him someone "who receives all or part of his compensation either directly or indirectly from funds of the State of Texas," which would limit what he could be paid for serving on the MUD board.

The limit comes from article XVI, section 40 of the Texas Constitution. That provision says state employees and other individuals who get all or part of their pay from state funds, and who are not state officers, are not barred from serving on the governing bodies of school districts, cities, towns, or other local governmental districts, but they "shall receive no salary" for that local service. A MUD is one of those local governmental districts. Separately, the Water Code lets a MUD director collect fees of office up to $100 a day plus reimbursement of actual expenses. So the two provisions had to be squared: could this director take the Water Code fees, or did the constitutional proviso cut him off to expenses only?

The opinion concluded the proviso did not apply to him, so he could be paid. It reasoned that the no-salary proviso has always been applied to people who are essentially public employees whose local pay is topped up from state funds, like public school teachers, employees of a district attorney, or junior college district employees. The common thread is that those people are public employees. The director here was not a public employee, and he did not get his salary from state funds. He was paid by a private employer that happened to have a state contract. The opinion said reading the proviso to reach every employee of every private company holding a state contract would cast too wide a net. To fall within the proviso, a person must both receive all or part of his compensation from the state and be reasonably classifiable as a public employee. This director met neither test, so he could be compensated as a MUD director.

Currency note

This opinion was issued in 2001. 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. The Water Code provisions on district director fees and the constitutional compatibility rules have been amended and reorganized over the years, so verify the current statutes before relying on any specific dollar figure or rule mentioned here.

What the opinion meant for those who asked

Municipal utility district directors and boards (what the opinion held for them): The opinion held that a director who works for a private company is not barred by article XVI, section 40 from receiving the director fees the Water Code authorizes merely because the company's revenue comes from a state contract.

Private companies with state contracts and their employees (what the opinion held for them): The opinion held that an ordinary salaried employee of a private state contractor is not someone who receives compensation "directly or indirectly from funds of the State" for purposes of the section 40 proviso, because he is not a public employee.

Public employees serving on local boards (what the opinion held for them): The opinion reaffirmed that the proviso does apply to public employees whose local pay is supplemented from state funds (its examples were public school teachers, district attorney employees, and junior college district employees), who may serve but may not draw a salary beyond expense reimbursement for the local position.

Common questions

Does serving on a MUD board mean you can't be paid?
Not by itself. The opinion explained that the no-salary rule in article XVI, section 40 reaches people who receive state-funded pay and are reasonably classifiable as public employees. A private-sector director outside that category could still receive the Water Code's director fees.

Why doesn't a state contract count as getting paid from state funds?
The opinion reasoned that the employee was paid by a private employer, not by the state, even though the employer's revenue came from a state contract. It declined to read the proviso so broadly that it would catch every employee of every private state contractor.

What can a MUD director be paid?
The opinion noted the Water Code entitles a director to reimbursement of actual, reasonable expenses and to fees of office of not more than $100 a day for each day the director actually performs director duties.

Who is covered by the section 40 no-salary proviso?
The opinion said it covers individuals who both receive all or part of their compensation from the state and are reasonably classifiable as public employees, giving public school teachers, district attorney employees, and junior college district employees as examples.

Background and statutory framework

Municipal utility districts are conservation and reclamation districts created under article XVI, section 59 of the Texas Constitution and chapter 54 of the Water Code, governed by a five-member board of directors. Tex. Const. art. XVI, § 59; Tex. Water Code Ann. § 54.101 (Vernon 1972). Chapter 49 of the Water Code applies to such districts where it does not conflict with chapter 54. Tex. Water Code Ann. § 49.002(a) (Vernon 2000). A director is entitled to reimbursement of actual expenses and to fees of office of not more than $100 a day for days actually spent on district duties. Id. § 49.060(a), (b).

The compensation limit comes from article XVI, section 40, whose proviso allows individuals who receive all or part of their compensation from state funds, and who are not state officers, to serve on local governing bodies but bars them from receiving a salary for that local service. Tex. Const. art. XVI, § 40. The opinion noted that a county is not a "local governmental district" under that provision. County of Maverick v. Ruiz, 897 S.W.2d 843, 847 (Tex. App.-San Antonio 1995, no writ). It read the proviso, consistent with prior opinions, to reach only persons who are reasonably classifiable as public employees, citing Attorney General Opinion JM-118 (1983) and Letter Opinions LO-95-001, LO-93-033, LO-94-045, and LO-90-106.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. XVI, §§ 40, 59
• Tex. Water Code Ann. § 54.101 (Vernon 1972)
• Tex. Water Code Ann. § 49.002(a) (Vernon 2000)
• Tex. Water Code Ann. § 49.060(a), (b)

Cases:

• County of Maverick v. Ruiz, 897 S.W.2d 843 (Tex. App.-San Antonio 1995, no writ)

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. No. JM-118 (1983)
• Tex. Att'y Gen. LO-95-001, LO-94-045, LO-93-033, LO-90-106

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0391
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2001/jc0391.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS

JOHN CORNYN

June 19, 2001

The Honorable J. E. "Buster" Brown
Chair, Committee on Natural Resources
Texas State Senate
P.O. Box 12068
Austin, Texas 78711-2068

Opinion No. JC-0391

Re: Whether an individual employed by a company that receives all of its revenue from a contract with the State of Texas may be compensated as a director of a municipal utility district (RQ-0351-JC)

Dear Senator Brown:

You have requested our opinion as to whether an individual employed by a company that receives all of its revenue from a contract with the State of Texas may be compensated as a director of a municipal utility district. For the reasons set forth below, we conclude that such a person may be compensated for service on the board of a municipal utility district.

You explain that the individual in question is a director of a municipal utility district created under the provisions of article XVI, section 59 of the Texas Constitution, and chapter 54 of the Water Code. A municipal utility district is governed by a board of five directors. TEX. WATER CODE ANN. § 54.101 (Vernon 1972). Chapter 49 of the Water Code is applicable to municipal utility districts created under chapter 54 to the extent that the former's provisions do not directly conflict with any provision of the latter. Id. § 49.002(a) (Vernon 2000). A director of a municipal utility district is "entitled to receive reimbursement of actual expenses reasonably and necessarily incurred while engaging in activities on behalf of the district." Id. § 49.060(b). Furthermore, "[a] director is entitled to receive fees of office of not more than $100 a day for each day the director actually spends performing the duties of a director." Id. § 49.060(a). You relate that:

The director in question . . . is employed by a company . . . that receives its revenue from a contract with the Texas Department of Criminal Justice. . . . The contract is awarded by public bid. The bid resulted in a three year contract that is renewed annually. The contract is re-bid by TDCJ every three years. The TDCJ [contract] is the only contract that the Company has. The Director is strictly an employee and owns no part or portion of the Company. . . . He receives compensation in the form of a salary from the Company.

(Footnote: Letter from Honorable J. E. "Buster" Brown, Chair, Senate Committee on Natural Resources, to Honorable John Cornyn, Texas Attorney General (Feb. 13, 2001) (on file with Opinion Committee) [hereinafter Request Letter].)

Article XVI, section 40 of the Texas Constitution provides, in relevant part:

State employees or other individuals who receive all or part of their compensation either directly or indirectly from funds of the State of Texas and who are not State officers, shall not be barred from serving as members of the governing bodies of school districts, cities, towns, or other local governmental districts; provided, however, that such State employees or other individuals shall receive no salary for serving as members of such governing bodies.

TEX. CONST. art. XVI, § 40 (emphasis added). A municipal utility district is a "local governmental district." But cf. County of Maverick v. Ruiz, 897 S.W.2d 843, 847 (Tex. App.-San Antonio 1995, no writ) (county is not a "local governmental district" under article XVI, section 40 of Texas Constitution). This provision means that a person who receives his compensation from the state, either directly or indirectly, is entitled to serve as a member of a local governing body, such as a municipal utility district, only if he receives no salary for the latter position other than reimbursement for actual expenses. Tex. Att'y Gen. LO-95-001, LO-93-033. Subsection 49.060(a) of the Water Code authorizes the payment of fees beyond reimbursement for expenses to directors of a municipal utility district. Your question is whether the individual in question, who is compensated by a company whose only income derives from a state contract, may be said to be a person "who receives all or a part of his compensation either directly or indirectly from funds of the State of Texas." Request Letter, supra note 1, at 2.

The proviso of article XVI, section 40 is applicable to persons other than state employees. Teachers employed by an independent school district, employees of a district attorney, and employees of a junior college district are examples of individuals to whom the proviso applies. Their salaries as essentially local employees are supplemented from state funds. See Tex. Att'y Gen. Op. No. JM-118 (1983); Tex. Att'y Gen. LO-94-045, LO-90-106. The distinction that all these persons share, other than receiving part of their compensation from state funds, is that they are public employees. On the other hand, the individual of whom you inquire is not a public employee. Moreover, he does not receive his salary, either directly or indirectly, from funds of the state. Rather, he is compensated as an employee of a private employer that, as it happens, has contracted with the state. The proviso is no more applicable to such a person than it is to an employee of any other private company that receives state funds pursuant to a contract. The article XVI, section 40 proviso should not be construed to cast so wide a net. In order to fall within its ambit, we believe that an individual, in addition to receiving "all or part of his compensation" from the state, must also be reasonably classifiable as a public employee.

We conclude that an individual employed by a company that receives all of its revenue from a contract with the State of Texas may be compensated as a director of a municipal utility district.

SUMMARY

An individual employed by a company that receives all of its revenue from a contract with the State of Texas may be compensated as a director of a municipal utility district.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

SUSAN D. GUSKY
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General - Opinion Committee