When a Texas town dissolves, can its leftover money and property go to a local nonprofit?

Plain-English summary

The 97th Judicial District Attorney, Paige Williams, asked the AG what happens to the leftover assets of a town that no longer exists. The City of Sunset, Texas, was a Type A general-law municipality until its voters chose to abolish it in 2007. After that vote, the city council members stayed in place under Local Government Code section 62.161 to wind the city down: take control of its property, sell it off, collect taxes, and pay the city's debts. By the end of the 2014 tax year the city had paid everything it owed and had about $10,000 in the bank, plus interests in civil and criminal judgment debt that together might amount to roughly $165,000. The district attorney wanted to know whether the city could hand those remaining assets to local not-for-profit corporations that benefit its former residents, and if not, where the money had to go.

The AG started with the one statute in chapter 62 that squarely addresses final disposition of an abolished city's assets, section 62.094(c). That provision tells a court-appointed receiver to deliver remaining money or property to a school district lying completely within the old city's boundaries, or, if there is no such district, to the county for the county's benefit. But that rule sits in the receivership subchapter, and Sunset's assets were not in receivership; they were being handled by former city officers under a different subchapter. So section 62.094(c) did not control. The AG read it as a signal of legislative intent that an abolished city's leftover assets be used for a local public purpose, not as a binding instruction here.

The AG then turned to section 62.161, the statute that actually governs the officers winding down the city. It tells those officers to take control of, sell, and dispose of the city's property and settle its debts. The AG reasoned that the power to "dispose of the municipality's property" necessarily includes the property left over after debts are paid, because a grant of statutory power carries the reasonable authority needed to carry it out. The catch is that the leftover assets stay public property. Under the Texas Constitution, public funds and property can be spent or transferred only for a public purpose, and for a municipality only a public purpose within its own powers, not a transfer that merely benefits the public at large or a private interest. Putting those pieces together, the AG concluded that a court is unlikely to disturb a transfer of an abolished city's remaining assets to a local nonprofit corporation, so long as the transfer serves a local public purpose that was within the city's powers before it was abolished.

Currency note

This opinion was issued in 2015. 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.

What the opinion meant for those who asked

Former officers winding down an abolished city (as the opinion described it): The opinion described the council members who remained in office under section 62.161 as holding the authority to dispose of the city's property, including the assets left after debts were settled. It described that disposal power as carrying an implied authority to make a final transfer of the remaining assets, subject to the public-purpose limit below.

Local nonprofit corporations (as the opinion described it): The opinion described a transfer of remaining municipal assets to a local nonprofit corporation as something a court would likely leave undisturbed, but only if the transfer served a local public purpose that was within the city's powers before abolition. It did not bless a transfer that served only a private interest or the public in general.

The county and any school district within the old city (as the opinion described it): The opinion described section 62.094(c), which routes a receiver's leftover assets to a school district lying entirely within the abolished city or, failing that, to the county. It explained that this rule applied only to receiverships and did not control where the city was wound down by its former officers, though it pointed toward a local-public-purpose use of the assets.

Common questions

What happens to a Texas town's money after voters dissolve it?
The AG described a wind-down process under chapter 62 of the Local Government Code. The officers in place at dissolution take control of the property, sell it, collect taxes, and pay the debts. The opinion addressed what may happen to whatever is left after the debts are paid.

Can the leftover assets go to a local charity or nonprofit?
The AG concluded that a court is unlikely to disturb a transfer of the remaining assets to a local nonprofit corporation, provided the transfer serves a local public purpose that the city itself could have pursued before it was abolished. The assets remain public property, so a transfer for a private benefit would not satisfy the constitutional public-purpose requirement.

Why couldn't the city just follow the rule that sends the money to a school district or the county?
That rule, section 62.094(c), applies to assets handled by a court-appointed receiver. Because Sunset's assets were being administered by its former officers rather than a receiver, the AG concluded that section did not control, although it suggested the Legislature wanted leftover assets used for a local public purpose.

Where does the "public purpose" requirement come from?
From the Texas Constitution. The AG cited article III, section 52 and article XI, section 3, which the opinion read to bar using public funds or property for purely private ends, and explained that a municipality's transfers must serve a public purpose within the municipality's own powers.

Background and statutory framework

Chapter 62 of the Local Government Code authorizes the abolishment of general-law municipalities by petition and election (Tex. Loc. Gov't Code Ann. §§ 62.001-.204 (West 2008)). Depending on the circumstances, the affairs of an abolished municipality may be administered by municipal officers, a court-appointed receiver, court-appointed trustees, or the commissioners court (id. §§ 62.041-.094 (receivership initiated by a creditor's application), § 62.123 (commissioners court control of certain public property), § 62.161 (administration by municipal officers), § 62.162 (appointment of trustees when officers fail to act)).

The only provision that expressly addresses the final disposition of an abolished municipality's assets is section 62.094(c), in the receivership subchapter. It directs a court-appointed receiver to deliver remaining money or property to a school district located completely within the boundaries of the abolished municipality or, if there is no such district, to the county for the county's benefit (Tex. Loc. Gov't Code Ann. § 62.094(c); see generally id. §§ 62.081-.094). Because Sunset's assets were administered by former municipal officers under subchapter E rather than a receiver under subchapter C, the AG concluded section 62.094(c) did not control, while reading it as evidence of a general legislative intent that an abolished municipality's remaining assets be used for a local public purpose (compare id. §§ 62.081-.094, with id. §§ 62.161-.163).

Section 62.161 is the only statute that expressly addresses the authority of municipal officers administering an abolished municipality's affairs. It requires those officers to take control of the municipality's property, sell and dispose of it, and settle the municipality's debts, and it lets them levy and collect a tax on residents to settle debts (Tex. Loc. Gov't Code Ann. § 62.161(a)-(b); see id. § 62.001). The statute does not spell out the kinds of final dispositions that are permissible, but the AG reasoned that the authority to "dispose of the municipality's property" necessarily includes the property remaining after debts are settled (id. § 62.161(a)(2)), because "[w]hen a grant of power is given by a statute, the statute must be construed to include the reasonable authority necessary to attain the end result" (Fort Bend Cnty. Wrecker Ass'n v. Wright, 39 S.W.3d 421, 425 (Tex. App.-Houston [1st Dist.] 2001, no pet.); accord Bullock v. Calvert, 480 S.W.2d 367, 372 (Tex. 1972)).

The remaining assets keep their character as public property, and the Texas Constitution requires that the disposition of public funds or property serve a public purpose, not merely a private interest (Tex. Const. art. III, § 52; id. art. XI, § 3). The AG further explained that a municipality may transfer funds or property only to serve public purposes within the municipality's own powers, not merely to benefit the public in general (State ex rel. Grimes Cnty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd); Davis v. City of Taylor, 67 S.W.2d 1033, 1034 (Tex. 1934); see also Tex. Att'y Gen. Op. Nos. GA-0894 (2011), JM-1255 (1990)). On that basis the AG concluded that a court is unlikely to disturb a transfer of an abolished municipality's remaining assets to a local nonprofit corporation if the transfer serves a local public purpose that was within the municipality's powers before abolition.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. III, § 52 (no grant of public funds or property to private parties)
• Tex. Const. art. XI, § 3 (limits on counties, cities, and towns lending or granting public funds)
• Tex. Loc. Gov't Code Ann. §§ 62.001-.204 (West 2008) (abolishment of general-law municipalities)
• Tex. Loc. Gov't Code Ann. §§ 62.041-.094 (West 2008) (municipal receivership)
• Tex. Loc. Gov't Code Ann. § 62.094(c) (receiver delivers remaining assets to a school district or county)
• Tex. Loc. Gov't Code Ann. §§ 62.081-.094 (subchapter C: payment of indebtedness and disposition under receivership)
• Tex. Loc. Gov't Code Ann. §§ 62.161-.163 (subchapter E: disposition by corporate officers or trustees)
• Tex. Loc. Gov't Code Ann. § 62.123 (commissioners court control of certain public property)
• Tex. Loc. Gov't Code Ann. § 62.161(a)-(b) (duties and taxing power of officers winding down a municipality)
• Tex. Loc. Gov't Code Ann. § 62.161(a)(2) (authority to dispose of the municipality's property)
• Tex. Loc. Gov't Code Ann. § 62.162 (appointment of trustees)
• Tex. Loc. Gov't Code Ann. § 62.001 (authorizing abolition of corporate existence)

Cases:

• Fort Bend Cnty. Wrecker Ass'n v. Wright, 39 S.W.3d 421, 425 (Tex. App.-Houston [1st Dist.] 2001, no pet.)
• Bullock v. Calvert, 480 S.W.2d 367, 372 (Tex. 1972)
• State ex rel. Grimes Cnty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd)
• Davis v. City of Taylor, 67 S.W.2d 1033, 1034 (Tex. 1934)

Prior Attorney General opinions referenced:

• Tex. Att'y Gen. Op. No. GA-0894 (2011)
• Tex. Att'y Gen. Op. No. JM-1255 (1990)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0035
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2015/kp0035.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 14, 2015

The Honorable Paige Williams Opinion No. KP-0035
97th Judicial District Attorney
Archer, Clay, and Montague Counties Re: Disposition of a dissolved municipality's
Post Office Box 55 remaining assets (RQ-0015-KP)
Montague, Texas 76251-0055

Dear Ms. Williams:

You ask about the disposition of a dissolved municipality's remaining assets. [1] You state that the City of Sunset, Texas (the "City") was a Type A general-law municipality when the voters elected to abolish the City in 2007. Request Letter at 1. You further tell us that when the City was abolished, the members of the city council remained in office under section 62.161 of the Local Government Code to liquidate City assets, collect ad valorem taxes, and pay down municipal debts. Id. You inform us that the City paid all of its debts by the end of the 2014 tax year and has a balance of about $10,000 in its accounts. Id. You state that the City also has interests in substantial civil and criminal judgment debt, so that the City controls assets that may total approximately $165,000. Id. at 1-2. You ask "whether the City may pay its remaining assets and assign its interests in the described judgments to ... local not-for-profit corporations which directly benefit its citizens, or, if not, then to whom must it pay its remaining assets and assign its interest in the described judgments?" Id. at 3.

Chapter 62 of the Local Government Code authorizes the abolishment of general-law municipalities by petition and election. TEX. LOC. GOV'T CODE ANN. §§ 62.001-.204 (West 2008). In particular circumstances, the affairs of an abolished municipality may be administered either by municipal officers, a court-appointed receiver, court-appointed trustees, or the commissioners court. [2]

The only statute in chapter 62 that expressly addresses the final disposition of an abolished municipality's assets is subsection 62.094(c), located in the subchapter concerning municipal receiverships. Id. § 62.094(c); see generally id. §§ 62.081-.094 (subchapter C). Subsection 62.094(c) requires a court-appointed receiver to deliver money or other remaining property to any school district that is "located completely within the boundaries of the abolished municipality" or, if there is no such school district, to the municipality's county to be used for the county's benefit. Id. § 62.094(c). Subsection 62.094(c) expressly applies to a receiver appointed under subchapter C but does not indicate that the subsection also applies to other entities administering an abolished municipality's assets under a different subchapter. Because the City's assets are not in receivership under subchapter C, but are being administered by its former municipal officers under subchapter E, subsection 62.094(c) does not control such officers' final disposition of the City's remaining assets. Compare id. §§ 62.081-.094 (subchapter C, "Payment of Indebtedness and Disposition of Assets under Receivership"), with id. §§ 62.161-.163 (subchapter E, "Payment of Indebtedness and Disposition of Assets by Corporate Officers or Trustees"). While subsection 62.094(c) does not expressly apply to final dispositions by municipal officers, it does, however, suggest a general legislative intent that the remaining assets of an abolished municipality be used for a local public purpose.

Section 62.161 is the only statute that expressly addresses the authority of municipal officers such as the City's former council members when they administer the affairs of an abolished municipality. Id. § 62.161; see id. § 62.001 (authorizing abolition of corporate existence). Section 62.161 provides:

(a) If a municipality or de facto municipality that has indebtedness outstanding is abolished, declared void by a court of competent jurisdiction, or ceases to operate and exercise municipal functions, the municipality's officers at the time the municipality is dissolved or ceases to function shall:

(1) take control of the municipality's property;

(2) sell and dispose of the municipality's property; and

(3) settle the debts owed by the municipality.

(b) For the purpose of settling the debts of the municipality, the former municipal officers may levy and collect a tax on the residents of the municipality in the same manner as the municipality could have done.

Id. § 62.161(a)-(b). Neither section 62.161 nor any other provision in chapter 62 expressly addresses municipal officers' authority to make a final disposition of an abolished municipality's assets. But section 62.161's grant of authority to municipal officers to "dispose of the municipality's property" necessarily includes the authority to dispose of the City's property that remains after settlement of debts. Id. § 62.161(a)(2). "When a grant of power is given by a statute, the statute must be construed to include the reasonable authority necessary to attain the end result." Fort Bend Cnty. Wrecker Ass'n v. Wright, 39 S.W.3d 421, 425 (Tex. App.-Houston [1st Dist.] 2001, no pet.); accord Bullock v. Calvert, 480 S.W.2d 367, 372 (Tex. 1972) (stating that courts "imply the authority to do those acts necessary to achieve the power or object expressly granted, because the Legislature must have intended to grant the constituent details within the larger commission").

While section 62.161 authorizes municipal officers to dispose of an abolished municipality's remaining assets without specifying the kinds of dispositions that are permissible, such assets retain their character as public property. The Texas Constitution requires that the disposition of public funds or property must serve a public purpose, not merely a private interest. See TEX. CONST. art. III, § 52; id. art. XI, § 3. Moreover, municipalities may expend or transfer municipal funds or property only to serve public purposes that are within the municipality's powers, not merely to benefit the public in general. See State ex rel. Grimes Cnty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd) (stating that to satisfy the public purpose test for a particular governmental entity, "[t]he purpose for which the ... payment ... was made must be within the powers of the entity ... making the payment"); see also Davis v. City of Taylor, 67 S.W.2d 1033, 1034 (Tex. 1934) (explaining that a payment is considered to serve a public purpose if "an object is beneficial to the inhabitants and directly connected with the local government"); Tex. Att'y Gen. Op. Nos. GA-0894 (2011) at 3 (stating that "the public purpose to be served by the grant must be an authorized public purpose of the granting entity"), JM-1255 (1990) at 3 (determining that "municipal resources and powers ... must be used to accomplish municipal purposes"). While no judicial opinion has addressed the issue, a court could require that a disposition of an abolished municipality's remaining assets under section 62.161 serve not only a public purpose, but a purpose within the powers of a municipality. Accordingly, a court is unlikely to disturb the final disposition of the assets of an abolished municipality if former municipal officers, acting under section 62.161 of the Local Government Code, transfer the remaining municipal assets to a nonprofit corporation to serve a local public purpose that was within the municipality's powers prior to its abolition.

SUMMARY

A court is unlikely to disturb the final disposition of the assets of an abolished municipality if former municipal officers, acting under section 62.161 of the Local Government Code, transfer the remaining municipal assets to a local nonprofit corporation to serve a local public purpose that was within the municipality's powers prior to its abolition.

Very truly yours,

KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

BRANTLEY STARR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

WILLIAM A. HILL
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Paige Williams, Dist. Att'y, 97th Jud. Dist., to Honorable Ken Paxton, Tex. Att'y Gen. at 2-3 (Mar. 3, 2015), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] See TEX. LOC. GOV'T CODE ANN. §§ 62.041-.094 (West 2008) (governing a receivership initiated by application of dissolved municipality's creditor), .123 (authorizing a commissioners court to manage and control an abolished municipality's "public buildings, public parks, public works, or other public property ... for the purposes for which the property was originally used and intended" in certain circumstances), .161 (requiring administration by municipal officers), .162 (authorizing the appointment of trustees when an abolished municipality's officers fail or refuse to settle its affairs under section 62.161).