Can a Texas rural fire prevention district take out a bank loan repaid from property taxes without holding an election?

Texas AG Opinion JM-1128: Can a Rural Fire District Borrow Money Without an Election?

Plain-English summary

A rural fire prevention district in Liberty County wanted to borrow money from a bank and repay it over ten years. The plan was structured so that the amount owed in any single year would stay below the roughly three cents per $100 valuation the district collected in ad valorem taxes, and no new taxes would be raised to cover the loan. The Liberty County Attorney asked the Attorney General whether the district could do this without holding a public election, and, if so, whether the bank could secure the loan with a lien on the financed property or a pledge of tax receipts.

The Attorney General said no, the district could not borrow this way without voter approval. Two provisions of the Health and Safety Code stood in the way. Section 794.071 bars a district from contracting for indebtedness in any one year that exceeds the funds then on hand or payable from current revenues for the year, except as allowed by a short list of other sections. The district's plan involved borrowing far more than a single year's funds, to be repaid over a decade, so it ran into that limit. The Attorney General examined the listed exceptions (sections 794.072 and 794.076 through 794.081) and found none that let the district commit itself to a multi-year obligation payable from future taxes without an election. Section 794.077(a) makes the point directly: a district may not authorize bonds and notes secured in whole or in part by taxes unless a majority of the voters who vote at an election called for that purpose approve the issuance.

Because the answer to the first question was no, the Attorney General did not reach the second question about how the bank could secure the loan.

Currency note

This opinion was issued in 1989. 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.

Rural fire prevention districts were formerly regulated by article 2351a-6, V.T.C.S., which the 71st Legislature carried into chapter 794 of the Health and Safety Code in 1989. Those provisions have since been recodified and amended again. Anyone dealing with a present-day district's borrowing authority should consult the current Health and Safety Code rather than the 1989 statute analyzed here.

Who this opinion affected (as of 1989)

Rural fire prevention districts: The opinion told these districts they could not borrow money repayable from future ad valorem taxes without first getting voter approval, even if the annual repayment stayed within a single year's tax revenue and no new taxes were levied.

Banks and lenders: A lender considering financing for such a district was on notice that a multi-year loan secured by or repaid from the district's tax revenue needed a voter-approved election before the district could commit to it. The opinion did not reach how such a loan, once authorized, could be secured.

District voters: The opinion confirmed that the decision to take on this kind of tax-backed debt rested with the district's qualified voters at an election called for that purpose, not with the district's board acting alone.

Common questions

Can a rural fire prevention district borrow money without an election?
Not when the money is repayable from ad valorem taxes to be collected in future years. The Attorney General concluded that a district may not incur that kind of multi-year, tax-backed obligation without first securing voter approval at an election.

What if the yearly payment is smaller than the district's yearly tax revenue?
That did not change the answer. Section 794.071 limits a district to indebtedness within the funds on hand or payable from current revenues for the year, and the plan called for borrowing well beyond a single year's funds to repay over ten years. None of the listed exceptions authorized it without an election.

Where does the election requirement come from?
Section 794.077(a) of the Health and Safety Code states that a district may not authorize bonds and notes secured in whole or in part by taxes unless a majority of the district's qualified voters who vote at an election called for that purpose approve the issuance.

Did the opinion decide whether the bank could take a lien on the financed property?
No. Because the district could not borrow this way without an election, the Attorney General did not reach the second question about how a lender could secure the loan.

Background and statutory framework

Rural fire prevention districts were formerly regulated by article 2351a-6, V.T.C.S. In 1989 a non-substantive revision carried those provisions into the new Health and Safety Code as chapter 794, effective September 1, 1989 (see Acts 1989, 71st Leg., ch. 678, at 2230, 3122; id. § 15, at 3165). Subchapter E of chapter 794 governs the financial transactions of such districts. When the 71st Legislature repealed article 2351a-6, it also passed an amendment to the repealed statute; that amendatory provision was saved by section 311.031(c) of the Government Code, which provides that the repeal of a statute by a code does not affect an amendment, revision, or reenactment of the statute by the same legislature that enacted the code (see Acts 1989, 71st Leg., ch. 1132, at 4676). The opinion noted the amendment was only tangentially pertinent and did not affect its conclusion.

The district intended to borrow an amount well in excess of its funds on hand or anticipated for a single year, to be repaid over ten years, though the amount scheduled for repayment in any single year would not exceed the taxes anticipated for that year. Section 794.071 provides that, except as allowed by section 794.072 and sections 794.076 through 794.081, a district may not contract for indebtedness in any one year in excess of the funds then on hand or payable from current revenues for the year. The Attorney General read that section to prevent the proposed transaction unless one of the cross-referenced sections authorized it.

Examining sections 794.072 and 794.076 through 794.081, the opinion found no provision permitting a district to obligate itself by contract to a multi-year monetary obligation payable from future ad valorem taxes without first securing the electorate's approval (see Attorney General Opinion JM-453 (1986)). Section 794.077(a) expressly requires an election: a district may not authorize bonds and notes secured in whole or in part by taxes unless a majority of the district's qualified voters who vote at an election called for that purpose approve their issuance (cf. Tex. Const. art. III, § 52(d)). The opinion therefore advised that the district lacked authority to borrow money repayable from future ad valorem taxes without first securing voter approval, and it did not reach the second question.

Citations

Statutory and constitutional authorities:

• V.T.C.S. art. 2351a-6 (former regulation of rural fire prevention districts, repealed 1989)
• Health and Safety Code ch. 794 (rural fire prevention districts, effective September 1, 1989); § 794.071 (limit on annual indebtedness); § 794.072 and §§ 794.076-794.081 (exceptions examined); § 794.077(a) (election required for tax-secured bonds and notes)
• Government Code § 311.031(c) (saving amendments made by the enacting legislature)
• Tex. Const. art. III, § 52(d) (referenced)
• Acts 1989, 71st Leg., ch. 678, at 2230, 3122; § 15, at 3165 (enacting Health and Safety Code ch. 794)
• Acts 1989, 71st Leg., ch. 1132, at 4676 (amendment to former art. 2351a-6)

Attorney General opinions referenced:

• JM-453 (1986)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1128
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1989/jm1128.pdf

Original opinion text

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

December 28, 1989

Honorable A. J. Hartel
Liberty County Attorney
P. O. Box 9127
Liberty, Texas 77575-9127

Opinion No. JM-1128

Re: Authority of a rural fire prevention district to borrow money without holding an election (RQ-1704)

Dear Mr. Hartel:

Your letter requesting an opinion of this office asks:

Does a Rural Fire District have the authority to borrow money from a bank, without a public election to approve the loan, if the amount of repayment per year is less than the revenues to be received per year from 3 cent[s] per $100 evaluation ad valorem taxes? (No additional taxes will be raised to support the loan.)

If the above question is yes, can the bank secure the loan with a lien on the financed property or must it be secured with a pledge of tax receipts?

Rural fire prevention districts were formerly regulated by article 2351a-6, V.T.C.S. In 1989, a non-substantive revision of the law carried the provisions of that statute into the new Health and Safety Code as chapter 794 thereof. See Acts 1989, 71st Leg., ch. 678, at 2230, 3122. Subchapter E of chapter 794 concerns the financial transactions of such districts. The new code became effective September 1, 1989. Id. ch. 678, § 15, at 3165.[Footnote 1]

We understand that the district intends to borrow an amount considerably in excess of its funds on hand or the amount anticipated to be on hand from tax collections (or other sources) for a single year. It is to be repaid over a ten year period, but the amount scheduled to be repaid in a single year would not exceed the amount anticipated to be collected in taxes for that year.

Section 794.071 of the Health and Safety Code provides:

Except as provided by Section 794.072 and Sections 794.076-794.081, a district may not contract for an amount of indebtedness in any one year that is in excess of the funds then on hand or that may be paid from current revenues for the year.

This provision prevents the proposed transaction, unless it is authorized by one of the sections mentioned, because the indebtedness incurred would exceed the funds of the district then on hand or that might be paid from anticipated current revenues for the year.

We have examined sections 794.072 and 794.076 through 794.081, and there is no provision in any of them that would permit the district to obligate itself by contract to assume a monetary obligation payable over several years from future ad valorem taxes without first securing the approval of the electorate. See Attorney General Opinion JM-453 (1986). Section 794.077(a) expressly states:

A district may not authorize bonds and notes secured in whole or in part by taxes unless a majority of the district's qualified voters who vote at an election called for that purpose approve the issuance of the bonds and notes.

cf. Tex. Const. art. III, § 52(d).

We advise that a rural fire prevention district does not possess authority to borrow money repayable from ad valorem taxes to be collected in future years without first securing the approval therefor from the electorate. We do not reach your second question.

SUMMARY

Without first securing approval therefor from the electorate, a rural fire prevention district is not authorized to borrow money repayable from ad valorem taxes to be collected in future years.

Very truly yours,

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Bruce Youngblood
Assistant Attorney General

Footnote 1: The 71st Legislature repealed article 2351a-6, V.T.C.S., when its provisions were incorporated into the Health and Safety Code, but it also passed an amendment to the repealed statute. The amendatory provision has been saved notwithstanding the repeal because section 311.031(c) of the Government Code provides:

(c) The repeal of a statute by a code does not affect an amendment, revision, or reenactment of the statute by the same legislature that enacted the code. The amendment, revision, or reenactment is preserved and given effect as part of the code provision that revised the statute so amended, revised, or reenacted.

Although the amendment is tangentially pertinent to the issue at hand, it does not affect the conclusion we reach. See Acts 1989, 71st Leg., ch. 1132, at 4676.