TX JM-274 December 27, 1984

Could a county-backed community action agency receive interest-free loans from the county's depository bank based on the county's credit?

Short answer: Not if the agency was an arm of the county, because a county lacked general authority to borrow that way. If it was an independent nonprofit, county credit could support its loan only for an authorized county purpose and with conditions ensuring that public purpose.

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This page answers the general question as of 1984. Ezel answers yours: what it means for your facts, under current Texas law, with citations.

Disclaimer: This is an official Texas Attorney General opinion. AG opinions are persuasive authority in Texas courts but are not binding precedent. This summary is for informational purposes only and is not legal advice. The opinion dates from 1984; verify current county-finance statutes and constitutional doctrine before relying on it.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official AG opinion. The original opinion (linked on this page as a PDF) is the authoritative source for any reliance.

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Texas AG Opinion JM-274: County Credit for Agency Loans

Plain-English summary

Bee County asked whether its Community Action Agency could receive interest-free loans from the county's depository bank when the bank extended those loans based on the county's credit. The record did not establish whether the agency was an arm of the county or an independent nonprofit contractor, so JM-274 analyzed both possibilities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

If the agency was an extension of Bee County, it could not receive the loans. An arm of local government possessed no greater power than the county, and the opinion said counties could borrow only through bonds, certificates of obligation, or other forms of debt specifically authorized by law. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

If the agency was an independent private nonprofit, it could seek loans on its own credit, subject to laws governing private nonprofits. But if Bee County acted as guarantor or surety and placed its own credit behind the loan, article III, section 52(a), restricted that arrangement. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

The opinion did not treat every public benefit as enough. Any use of county credit for the independent entity had to accomplish an authorized county purpose and include conditions ensuring that the credit was used for that public purpose; an unconditional or virtual donation was prohibited. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Currency note

This opinion was issued in 1984. 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.

Common questions

Could a county agency accept an ordinary interest-free bank loan?

Not under the facts analyzed in JM-274. If the community action agency was an arm of the county, its borrowing power could not exceed the county's specifically authorized debt powers. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Did the result change if the agency was a separate nonprofit?

Yes. A separate nonprofit could seek a loan independently, but using the county's credit as a guarantee or surety raised the constitutional lending-of-credit restriction. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Could the county guarantee a private nonprofit's loan simply because the nonprofit provided useful services?

No. The opinion required an authorized county purpose and conditions that ensured the county credit served that purpose. It rejected an unconditional grant of credit to a private entity. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Did nonprofit status remove the constitutional restriction?

No. JM-274 said article III, section 52, extended to private nonprofit organizations as well as other private entities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Did the opinion decide whether Bee County lawfully created the agency?

No. The Attorney General expressly reached the loan issue regardless of whether the county had authority to organize the agency. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Background and statutory framework

JM-274 began with the rule that counties possessed only powers expressly granted or necessarily implied by the Texas Constitution or statutes. It said counties lacked general borrowing authority outside specifically authorized forms of indebtedness. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Article III, section 52(a), prohibited the legislature from authorizing a county or other political subdivision to lend its credit or grant public money or a thing of value to a private individual, association, or corporation, subject to constitutional exceptions. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

The opinion distinguished a prohibited donation from a transaction serving a public purpose with adequate conditions. It cited prior Attorney General opinions recognizing that an incidental private benefit did not invalidate a public-purpose arrangement, while virtual donations remained prohibited. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Citations and references

Texas Constitution article III, section 52(a), and article XI, sections 3 and 7
V.T.C.S. articles 701 et seq., 2368a.1, 1644b, and 1644c-1
Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948)
Brown v. Jefferson County, 406 S.W.2d 185 (Tex. 1966)
State v. City of Austin, 331 S.W.2d 737 (Tex. 1960)
Barrington v. Cokinos, 338 S.W.2d 133 (Tex. 1960)
Attorney General Opinions JM-220 (1984), MW-329 (1981), V-173 (1947), H-1189 (1978), MW-423 (1982), JM-65 (1983), JM-103 (1983), and MW-60 (1979)

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Source

Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0274
Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0274.pdf

Original opinion text

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

The Attorney General of Texas

December 27, 1984

Honorable Jay T. Kimbrough
Bee County Attorney
Room 204, Courthouse
Beeville, Texas 78102

Opinion No. JM-274

Re: Whether the Bee County Community Action Agency may receive interest-free loans from a bank which is a depository for Bee County

Dear Mr. Kimbrough:

You ask whether the Bee County Community Action Agency [hereinafter Agency] may receive an interest-free loan from a bank which is a depository for Bee County. Apparently, the bank in question gives the Agency interest-free loans based on the county's credit with the bank. You refer to the Agency as a not-for-profit agency but indicate that it is organized by the Bee County Commissioners Court and funded through various government programs. Regardless of whether the county is even authorized to organize this Agency, we conclude that such an Agency cannot receive interest-free loans in the instances described herein.

The basis for this conclusion differs according to whether the Agency is an independent entity or whether it is an “extension” of the county. Because it is unclear which type of entity is presently in question, each deserves analysis.

If the Agency in question is an “extension” of the county, it cannot receive interest-free loans because the county itself cannot receive such loans. An agency or arm of a local governmental entity has no greater power than the local governmental entity which creates the agency. Attorney General Opinion JM-220 (1984). Counties possess only the powers expressly or by necessary implication authorized by the Texas Constitution or statutes. Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948). Counties lack authority to borrow money except through the issuance of bonds, certificates of obligation, or other forms of indebtedness which are specifically authorized by law. See Tex. Const. art. XI, §7; Brown v. Jefferson County, 406 S.W.2d 185 (Tex. 1966); see generally V.T.C.S. arts. 701 et seq., 2368a.1; cf. V.T.C.S. arts. 1644b, 1644c-1. Accordingly, the Agency cannot receive interest-free loans from Bee County's depository bank.

If, on the other hand, the Agency is an independent not-for-profit legal entity with which the county merely contracts, for the delivery of certain authorized social services on an independent contract basis, then the Texas Constitution may prohibit the loans in question. If the Agency is a private, not-for-profit entity, and thus not connected to the county, it would be free to seek loans from any bank, subject to legal limitations applicable to not-for-profit corporations and associations which are not in issue here. Apparently, the bank in question gives the Agency interest-free loans based on the county's credit with the bank. If the county acts, in this manner, as a guarantor or surety for these loans, the Texas Constitution prevents counties from lending their credit to any individual, association, or corporation. Art. III, §52(a).

Article III, section 52(a) provides that

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. (Emphasis added).

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