Can a Texas city give an employee a cash advance on salary not yet earned?

Texas AG Opinion JM-1194: Can a City Advance an Employee's Salary?

Plain-English summary

A state representative asked whether a municipality could advance compensation, in cash or property, to an employee on terms agreeable to the city, to be earned back within a year. The Attorney General could not give a final answer to such a general question, since no specific facts were presented, but said it could predict with a fair degree of certainty that a court would disapprove of the practice.

The opinion explained that while cities generally control their own finances and their employees' pay, the Texas Constitution's provisions against lending public credit or granting public funds to private individuals (article III, section 52(a), among others) apply to municipalities too. An advance of salary is, in substance, a loan to the employee, and a loan of public funds is only valid if it serves a genuine public purpose rather than just benefiting the individual employee. Since the bare question presented no such public purpose, the opinion concluded a court would likely find a general salary-advance practice unconstitutional.

Currency note

This opinion was issued in 1990. 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 mentioned here.

Who this opinion affected (as of 1990)

Texas municipalities considering salary advances for employees: The opinion warned that a general practice of advancing cash or property compensation to employees, to be earned back over time, would likely be treated by a court as an unconstitutional loan of public credit or grant of public funds absent a specific, demonstrated public purpose.

City officials and finance directors: The opinion confirmed that cities' general home-rule and type-A authority over their own finances and employee compensation, under Local Government Code sections 101.002 and 101.022, does not override the separate constitutional restrictions on lending credit or granting public funds to individuals.

Legislators and local officials weighing whether a specific advance program might be lawful: The opinion left open that a differently-structured program with an articulated public purpose might be evaluated differently, since the determination of a public purpose and an adequate quid pro quo are legislative, fact-based questions the opinion could not resolve on the general question presented.

Common questions

Can a Texas city just give an employee an advance on next month's paycheck?
Based on this 1990 opinion, probably not without more. The Attorney General treated a salary advance as a loan of public funds, which the Texas Constitution bars absent a legitimate public purpose, and the bare question presented did not supply one.

Why can't a city just decide this is a good employee benefit?
The opinion explained that a city's general authority over compensation and employment terms does not override the constitutional prohibition on lending public credit or granting public money to private individuals or corporations, which applies to cities as political subdivisions of the state.

Is there any way a salary advance program could be lawful?
The opinion noted that the Constitution does not invalidate an expenditure that only incidentally benefits a private interest if it is made for the direct accomplishment of a legitimate public purpose, and that determining whether a public purpose and adequate consideration exist are legislative, fact-specific questions not answered by the general question presented here.

Background and statutory framework

Texas cities have general authority over their own finances and over the compensation and conditions of employment of their employees under the Local Government Code's provisions for type A cities and home-rule cities. That authority, however, operates within the Texas Constitution's various restrictions on the use of public funds and credit. Article III, section 52(a) bars the legislature from authorizing a county, city, town, or other political subdivision to lend its credit or grant public money or a thing of value to any individual, association, or corporation. Related provisions bar the state from lending its own credit (section 50), from granting public moneys to individuals and corporations (section 51), and require that taxes be levied only for public purposes (article VIII, section 3), among other restrictions.

The opinion treated a salary advance as functionally a loan, since the employee receives money or property before it has been earned and is expected to earn it back over time; that made the constitutional lending-of-credit prohibition directly relevant. Texas case law construing these provisions holds that an expenditure of public funds is not automatically invalid merely because it incidentally benefits a private party, so long as it is made for the direct accomplishment of a legitimate public purpose. But identifying that public purpose, and confirming the public entity receives adequate consideration (a quid pro quo) for the expenditure, are legislative, fact-driven determinations. Because the question presented to the office was posed in the abstract, without any stated public purpose behind the proposed salary advances, the opinion concluded that a court would likely disapprove of the practice as presented.

Citations

Statutes:

• Local Gov't Code § 101.002 (type A cities)
• Local Gov't Code § 101.022 (home rule cities)
• Tex. Const. art. III, § 52(a) (prohibition on lending credit or granting public funds to individuals)
• Tex. Const. art. III, § 50 (prohibition on lending the credit of the state)
• Tex. Const. art. III, § 51 (prohibition on grant of public moneys to individuals and corporations)
• Tex. Const. art. VIII, § 3 (levy of taxes for public purposes only)
• Tex. Const. art. XI, § 3 (prohibition on political subdivisions subscribing to private capital)
• Tex. Const. art. XVI, § 6 (prohibition on appropriation for private purposes)
• Tex. Const. art. III, § 52-a (allowing grants of public money for economic development)
• Tex. Const. art. III, § 52(e) (allowing political subdivisions to invest funds as authorized by law)

Cases:

• Byrd v. City of Dallas, 6 S.W.2d 738 (Tex. 1928)
• Brazoria County v. Perry, 537 S.W.2d 89 (Tex. Civ. App.-Houston [1st Dist.] 1976, no writ)
• Storrie v. Houston City St. Ry. Co., 46 S.W. 796 (Tex. 1898)
• Barrington v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960)
• Dodson v. Marshall, 118 S.W.2d 621 (Tex. Civ. App.-Waco 1938, writ dism'd)
• Young v. City of Houston, 756 S.W.2d 813, 814 (Tex. App.-Houston [1st Dist.] 1988, writ denied)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1194
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1194.pdf

Original opinion text

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

July 27, 1990

Honorable George Pierce
Chairman
Committee on Urban Affairs
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78768-2910

Opinion No. JM-1194

Re: Authority of a municipality to advance compensation to an employee (RQ-1924)

Dear Representative Pierce:

You ask:

May a municipality advance compensation in the form of cash or other property to employees to be fully earned within one year on terms agreeable to the municipality?

Given such a general question, we are, of course, limited to a general answer. However, while we cannot fully and finally answer your question, we can say with a fair degree of certainty that a court would disapprove of such an expenditure of public funds.

Cities generally have control over their finances. See Local Gov't Code §§ 101.002 (type A cities), 101.022 (home rule cities). Cities also have control over the compensation and conditions of employment of their employees. See Byrd v. City of Dallas, 6 S.W.2d 738 (Tex. 1928). However, a city's expenditure of public funds is subject to constitutional restrictions.

The Texas Constitution is replete with provisions that prohibit the grant of public funds and the lending of public credit to private individuals or organizations. Specifically, article III, section 52(a) reads:

Except as otherwise provided by this section, the Legislature shall have no power to authorize any county, city, town or other political corporation or subdivision of the State to lend its credit or to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever, or to become a stockholder in such corporation, association or company. However, this section does not prohibit the use of public funds or credit for the payment of premiums on nonassessable life, health, or accident insurance policies and annuity contracts issued by a mutual insurance company authorized to do business in this State.

Tex. Const. art. III, § 52(a); see also id. §§ 50 (prohibition on the lending of the credit of the state), 51 (prohibition on the grant of public moneys to individuals and corporations); id. art. VIII, § 3 (levy of taxes for public purposes only); id. art. XI, § 3 (prohibition on political subdivisions' subscribing to private capital, and appropriation or loaning of credit to same); id. art. XVI, § 6 (prohibition on appropriation for private purposes). But see Tex. Const. art. III, §§ 52-a (allowing grants of public money for economic development), 52(e) (allowing political subdivisions to invest funds as authorized by law).

One constitutional scholar has analyzed the meaning of the term "lend its credit" found in section 52(a) and the variations of the term found in other constitutional provisions as follows:

Section 50 states that the legislature may not 'give' the credit of the state to anybody, 'lend' the credit of the state to anybody, or 'pledge' the credit of the state for anybody. . . . This is an involved and somewhat imprecise way of saying that the state may not aid anybody by lending him money.

1 G. Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 225 (1977) (emphasis added); see also Brazoria County v. Perry, 537 S.W.2d 89 (Tex. Civ. App.-Houston [1st Dist.] 1976, no writ); Attorney General Opinion JM-533 (1986). An advance of salary is clearly a loan and, thus, a lending of credit within the constitutional prohibition.

While the language found in section 52(a) only denies the legislature the power to authorize a political subdivision to "lend its credit," cases decided thereunder and other constitutional analyses make it clear that the constitutional prohibition also applies indirectly to political subdivisions. See, e.g., Storrie v. Houston City St. Ry. Co., 46 S.W. 796 (Tex. 1898); Braden, supra; Willatt, Constitutional Restrictions on Use of Public Money and Public Credit, 38 Tex. Bar J. 413 (May 1975).

The constitutional provisions cited above signify that the law generally abhors the expenditure of public funds for private purposes. In Brazoria County v. Perry, supra, the court addressed article III, section 52, and succinctly restated the rule as follows:

The clear purpose of this constitutional provision is to prevent the gratuitous application of funds to private use. [Citations omitted.] The Constitution does not, however, invalidate an expenditure which incidentally benefits a private interest if it is made for the direct accomplishment of a legitimate public purpose.

537 S.W.2d at 90-91; see also Barrington v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960); Dodson v. Marshall, 118 S.W.2d 621 (Tex. Civ. App.-Waco 1938, writ dism'd); Attorney General Opinions JM-1146 (1990); JM-551, JM-431 (1986); MW-89 (1979); WW-790 (1960).

The requirement stated in the Brazoria County case that the expenditure must be made "for the direct accomplishment of a legitimate public purpose" leads us to doubt that a court would approve the salary advance about which you ask. Your unadorned question offers no implicit public purpose; however, the determination of a public purpose and the establishment of a quid pro quo are legislative functions. See, e.g., Young v. City of Houston, 756 S.W.2d 813, 814 (Tex. App.-Houston [1st Dist.] 1988, writ denied); Dodson, supra; Attorney General Opinions JM-1146 (1990); MW-373 (1981).

SUMMARY

A city may not ordinarily advance salary to its employees.

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

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Karen C. Gladney
Assistant Attorney General