Can a Texas county use public funds to help homeowners repair homes or to subsidize housing construction?

Plain-English summary

A Texas House committee chair asked the AG two related questions about county housing programs. First, without pointing to any particular program, he asked whether Texas law prohibits a county from using property taxes to directly help a homeowner rehabilitate a home, or to directly subsidize the construction of single-family or multi-family housing. Second, he asked the AG to describe the types of housing programs that Local Government Code section 381.003 authorizes.

On the first question, the AG started with the constitutional rule. A county may levy ad valorem property taxes only for public purposes, and it must spend that revenue for public purposes rather than solely to benefit private interests. Under Texas Supreme Court precedent, a county may pay public funds to an individual only when the payment serves a legitimate public purpose and yields a clear public benefit in return. The AG drew the line this way: a county cannot gratuitously use public funds to directly benefit a homeowner or subsidize a private construction project, but it may spend public funds to accomplish a predominantly public purpose of the county even if private interests incidentally benefit. The AG pointed to a 1940 Texas Supreme Court decision holding that spending public funds on housing programs to eliminate slum conditions and provide safe, sanitary dwellings for low-income persons serves a constitutional public purpose.

Because counties possess only the powers the constitution and statutes confer, the AG then surveyed the statutes. Chapter 392 lets a county create a county housing authority, a separate public body that can run housing projects to clear slums and provide decent housing for low-income individuals. Chapter 394 lets a county approve a nonprofit housing finance corporation, a separate public instrumentality that can seek financing and issue bonds (the county is not liable on those bonds) to provide affordable housing. Government Code chapter 2304 provides a state fund, administered by the Texas Department of Housing and Community Affairs, for repairing and rehabilitating deteriorating housing, with the commissioners court designating eligible areas and approving loan applications.

The AG concluded that, although many statutes let a county participate in and assist these housing programs, the statutes do not expressly say whether a county may use county funds to directly help a homeowner make repairs or directly subsidize housing. Whether a particular expenditure serves a predominantly public purpose is for the commissioners court to decide in the first instance, subject to judicial review.

On the second question, the AG explained that section 381.003 grants counties broad authority to pursue federally funded community and economic development and housing programs. Subsection (a) lets a commissioners court engage in projects authorized under Title I of the Housing and Community Development Act of 1974 or other federal community and economic development law, and subsection (b) lets a county fully participate in housing and community development programs under the Cranston-Gonzalez National Affordable Housing Act. The AG noted examples the Department identified, including community development block grants, the Texas Neighborhood Stabilization Program, and the HOME Investment Partnerships Program.

Currency note

This opinion was issued in 2018. 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

The legislator who requested the opinion: The AG concluded that no statute flatly bars a county from spending public funds on housing, but the constitutional public-purpose rule controls: a county may help a homeowner with repairs or subsidize housing construction only when the expenditure predominantly serves a public purpose, and the commissioners court decides that first, subject to court review.

County commissioners courts (as the opinion described their role): The opinion placed the public-purpose determination with the commissioners court in the first instance, citing the AG's earlier KP-0007 opinion that the court must decide whether a particular expenditure would be gratuitous or serve a predominantly public purpose.

Counties considering federal housing programs: The opinion explained that Local Government Code section 381.003 authorizes counties to pursue community and economic development and housing programs that qualify under federal law, generally those addressing the housing needs of low- and moderate-income persons.

Common questions

Can a Texas county just pay to fix up someone's house?
Not as a gift, the AG concluded. The constitution allows county spending only for public purposes, so a county cannot gratuitously benefit a private homeowner. It may spend funds that incidentally help a homeowner when the expenditure predominantly serves a public purpose.

Who decides whether a housing expenditure is a public purpose?
The commissioners court, in the first instance, subject to judicial review, the AG concluded, citing the AG's earlier KP-0007 opinion.

What housing programs can a county participate in?
The AG pointed to county housing authorities under Chapter 392, nonprofit housing finance corporations under Chapter 394, the state rehabilitation fund under Government Code chapter 2304, and federally funded programs under Local Government Code section 381.003.

Is the county on the hook for housing finance corporation bonds?
No. The AG explained that those bonds are the obligation of the corporation, not the county, although a county may buy them as an investment.

Background and statutory framework

A county may levy ad valorem taxes only for public purposes (Tex. Const. art. VIII, § 3) and must use the revenue for public purposes, not solely to benefit private interests (Tex. Const. art. III, §§ 51, 52(a); Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)). A county may pay public funds to an individual only when the payment serves a legitimate public purpose and affords a clear public benefit in return (Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002)). Spending on housing programs to eliminate slum conditions and provide safe, sanitary housing for low-income persons serves a constitutional public purpose (Hous. Auth. of Dallas v. Higginbotham, 143 S.W.2d 79, 83-85 (Tex. 1940)). Counties possess only powers expressly conferred or necessarily implied (City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003)).

On the statutory programs: Chapter 392 authorizes a county housing authority, a separate public body that may engage in housing projects for low-income individuals (Tex. Loc. Gov't Code §§ 392.012, 392.006, 392.002(6), 392.004, 392.052, 392.081, 392.051-.067; § 393.004). Chapter 394 authorizes a nonprofit housing finance corporation, a public instrumentality separate from the county that may seek financing and issue bonds that are the corporation's obligation, not the county's (§§ 394.002(a), .011, .015(d), .021(a), .037(a)(3), .055, .057(a)). Government Code chapter 2304 provides a state rehabilitation fund administered by the Texas Department of Housing and Community Affairs, with the commissioners court designating areas and approving loan applications (Tex. Gov't Code §§ 2304.003(2), .041, .021, .064(a), .102(a)). Whether any specific expenditure serves a predominantly public purpose is for the commissioners court to decide first, subject to judicial review (Tex. Att'y Gen. Op. No. KP-0007 (2015)).

On section 381.003: subsection (a) authorizes counties to engage in community and economic development projects under Title I of the Housing and Community Development Act of 1974 or other federal law, and subsection (b) authorizes full participation in programs under the Cranston-Gonzalez National Affordable Housing Act (Tex. Loc. Gov't Code § 381.003(a)-(b)). The Department identified examples, including community development block grants (42 U.S.C. § 5306; 24 C.F.R. pt. 570; Tex. Gov't Code § 401.105), the Texas Neighborhood Stabilization Program, and the HOME Investment Partnerships Program (42 U.S.C. § 12701-12859; Tex. Gov't Code §§ 2306.001(1)(A), (7), 2306.111(a)).

Citations

Statutory provisions:

• Tex. Const. art. VIII, § 3; art. III, §§ 51, 52(a)
• Tex. Loc. Gov't Code §§ 392.012, 392.006, 392.002(6), 392.004, 392.052, 392.081, 392.051-.067, 393.004
• Tex. Loc. Gov't Code §§ 394.002(a), .011, .015(d), .021(a), .037(a)(3), .055, .057(a), 381.003(a)-(b)
• Tex. Gov't Code §§ 2304.003(2), .041, .021, .064(a), .102(a), 2306.001(1)(A), (7), 2306.111(a), 401.105
• 42 U.S.C. § 5306; 42 U.S.C. § 12701-12859; 24 C.F.R. pt. 570

Cases and Attorney General opinions:

• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002)
• Hous. Auth. of Dallas v. Higginbotham, 143 S.W.2d 79, 83-85 (Tex. 1940)
• City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003)
• Tex. Att'y Gen. Op. No. KP-0007 (2015)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0219
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0219.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

September 26, 2018

The Honorable Lyle Larson Opinion No. KP-0219
Chair, Committee on Natural Resources
Texas House of Representatives Re: The authority of Texas counties to
Post Office Box 2910 pursue housing programs in specific
Austin, Texas 78768-2910 circumstances (RQ-0220-KP)

Dear Representative Larson:

    You ask about the authority of Texas counties to pursue housing programs in specific

circumstances. [1] Without reference to a particular housing program, you ask preliminarily whether
Texas law prohibits a county "from using property taxes to directly assist a homeowner in the
rehabilitation of his/her home," or "to directly subsidize the construction of single-family or multi-
family housing." Request Letter at 1.

    A county may levy ad valorem property taxes only for public purposes. See TEX. CONST.

art. VIII, § 3 ("Taxes shall be levied and collected . . . for public purposes only."). Moreover, a
county must use revenue from ad valorem taxes for public purposes, not solely to benefit private
interests. Id. art. III, §§ 51, 52(a); see Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740
(Tex. 1995). A county may pay public funds to an individual only when it "(1) serves a legitimate
public purpose; and (2) affords a clear public benefit received in return." See Tex. Mun. League
Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002). [2] Thus,
while a county may not gratuitously use public funds to directly benefit a homeowner or subsidize
a private construction project, a county may expend public funds to accomplish a predominately
public purpose of the county even though the expenditure may incidentally benefit those same
private interests. For example, several decades ago, the Texas Supreme Court determined that
expending public funds on housing programs to eliminate slum conditions and to provide safe and
sanitary dwelling accommodations for persons of low income serves a constitutional public
purpose. Hous. Auth. of Dallas v. Higginbotham, 143 S.W.2d 79, 83-85 (Tex. 1940).

    While the constitutional public-purpose doctrine sets the parameters for expending public

funds, counties nonetheless possess only those powers expressly conferred by or necessarily
implied from the constitution and statutes. City of San Antonio v. City of Boerne, 111 S.W.3d 22,
29 (Tex. 2003). Numerous state statutes authorize counties to participate in various community
projects to provide for or improve housing. Chapter 392 of the Local Government Code authorizes
a county to establish a county housing authority upon a finding of unsanitary or unsafe inhabited
housing in the county or insufficient safe or sanitary housing available to persons of low income.
TEX. LOC. GOV'T CODE § 392.012(a), (c), (f)(1)-(2). A county housing authority is a unit of
government and a "public body corporate and politic," separate from the county. Id. § 392.012(b);
see also id. § 392.006 (stating that a housing authority is a unit of government that performs
essential government functions). A county housing authority may engage in housing projects to
eradicate slum conditions and provide decent, safe, and sanitary housing for low income
individuals. See generally id. §§ 392.002(6) (defining "housing project" as including work to clear
slum areas and to "provide decent, safe, and sanitary urban or rural housing for persons of low
income"), 392.004 (requiring a housing authority to "set rentals at the lowest possible rates
consistent with providing decent, safe, and sanitary housing"), 392.052 (authorizing a housing
authority to engage in housing projects). While a county may participate in a county housing
authority project, the county housing authority remains primarily responsible for financing and
operating its housing projects. See id. §§ 392.081 (stating county housing authority bond
authority), 392.051-.067 (stating county housing authority powers), 393.004 (authorizing a county
to exercise its powers "[t]o aid and cooperate in the planning, undertaking, construction, or
operation of a housing project").

    A county may also approve the creation of a nonprofit housing finance corporation "to

provide a means to finance the cost of residential ownership and development that will provide
decent, safe, and sanitary housing at affordable prices for residents of local governments." Id.
§§ 394.002(a), .011 (requiring a local governing body to consider for approval of applications to
incorporate a housing finance corporation). A board of directors governs a housing finance
corporation as a public instrumentality separate from the county, although the corporation carries
out its public purposes on behalf of the general public, the county, and the State. Id. §§ 394.015(d),
.021(a). The corporation may seek financial assistance on its own behalf or on behalf of another
person from the federal government, the State, a county, or any other private or public source, and
may issue bonds to defray "costs associated with the provision of decent, safe, and sanitary housing
and nonhousing facilities that are an integral part of or are functionally related to an affordable
housing project." Id. § 394.037(a)(3). The bonds are the obligation of the corporation, not the
county, although a county may purchase housing finance corporation bonds as an investment. Id.
§§ 394.055, .057(a).

    Similarly, chapter 2304 of the Government Code provides for a state fund to provide

financial assistance for the repair and rehabilitation of deteriorating housing, administered by the
Texas Department of Housing and Community Affairs. TEX. GOV'T CODE §§ 2304.003(2), .041,
.021. The county commissioners court designates areas of the county that may qualify and
approves or disapproves of loan applications by local households according to state standards. Id.
§§ 2304.041, .064(a), .102(a).

    Thus, while numerous statutes authorize a county to participate and provide an assisting

role in statutory housing programs, the statutes do not expressly address whether a county may use
county funds to directly assist a homeowner to make repairs, or directly subsidize single- or multi-
family housing. Whether a particular expenditure serves a predominately public purpose of the
county is for the commissioners court to make in the first instance, subject to judicial review. See
Tex. Att'y Gen. Op. No. KP-0007 (2015) at 2-3 (determining that the commissioners court must
determine whether a particular county expenditure would be gratuitous or would serve a
predominately public purpose).

    You also ask us to advise you about the "types of housing programs" that section 381.003

of the Local Government Code authorizes. Request Letter at 1. Section 381.003(a) authorizes a
county commissioners court to "administer or otherwise engage in community and economic
development projects authorized under Title I of the Housing and Community Development Act
of 1974 [the 1974 Act] or under any other federal law creating community and economic
development programs." TEX. LOC. GOV'T CODE § 381.003(a) (emphasis added and footnote
omitted). Section 381.003(b) provides further:

             The commissioners court of a county may administer, engage in, and
             otherwise exercise all powers necessary for the county to fully
             participate in housing and community development programs
             authorized under the Cranston-Gonzalez National Affordable
             Housing Act.

Id. § 381.003(b). Thus, section 381.003 grants broad authority for counties to pursue federally-
funded housing, community, and economic development programs. Id. § 381.003(a)-(b). A
county may consult with the State Department of Housing and Community Affairs (the
"Department") to determine the federal programs appropriate to the county's particular
circumstances. TEX. GOV'T CODE § 2306.001(1)(A), (7) (requiring the Department to assist local
government to provide essential public services and "to serve as a source of information to the
public regarding all affordable housing resources and community support services in the state").
The Department submitted a brief to our office identifying several federally funded programs that
meet the requirements of section 381.003 of the Government Code. [3] For example, the 1974 Act
provides federal funding for community development block grants, which may include housing
projects for persons of low and moderate income in urban and rural settings. See Department Brief
at 2; 42 U.S.C. § 5306; 24 C.F.R. pt. 570; see also TEX. GOV'T CODE § 401.105 (authorizing the
Governor to designate one or more state agencies to administer the State's allocation of federal
funds under certain community development block grant programs under Title I of the 1974 Act).
The Texas Neighborhood Stabilization Program is a federally-funded program to acquire and
redevelop foreclosed, vacant, or abandoned homes. See Department Brief at 2 (citing to Division
B, Title II of the Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, and section
1497 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203
§ 1497). Another federal block grant program is the HOME Investment Partnerships Program for
procuring affordable housing for rent or homeownership or providing direct rental assistance to
low-income individuals as authorized by the Cranston-Gonzalez National Affordable Housing
Act. See Department Brief at 2; 42 U.S.C. § 12701-12859; see also TEX. GOV'T CODE
§ 2306.111(a) (requiring the Department to "administer all federal housing funds provided to the
state under the Cranston-Gonzalez National Affordable Housing Act or any other affordable
housing program"). Thus, section 381.003 of the Local Government Code authorizes counties to
engage in housing programs that qualify under federal law as community and economic
development programs or housing and community development programs, generally programs
that address the housing needs of persons with low and moderate income.

                                  SUMMARY

                  Although a county may not expend public funds to solely
          benefit a private interest, a county may make an expenditure to assist
          a homeowner to make repairs or subsidize the construction of single-
          or multi-family housing when the expenditure serves a
          predominantly public purpose of the county. Whether a particular
          expenditure serves a predominately public purpose of the county is
          for the commissioners court to make in the first instance, subject to
          judicial review.

                  Section 381.003 of the Local Government Code authorizes
          housing programs that qualify under federal law as community and
          economic development programs or housing and community
          development programs, which generally address the housing needs
          of persons with low and moderate income.

                                         Very truly yours,

                                         KEN PAXTON
                                         Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

WILLIAM A. HILL
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Lyle Larson, Chair, House Comm. on Nat. Res., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Apr. 5, 2018), https://www.texasattorneygeneral.gov/opinion/requests-for-opinions-rqs ("Request Letter").

[2] A three-part test from Municipal League determines whether a governmental entity's payment of public funds serves a constitutional public purpose, requiring the entity to (1) ensure that the payment is to "accomplish a public purpose, not to benefit private parties; (2) retain public control over the funds to ensure that the public purpose is accomplished and to protect the public's investment; and (3) ensure that the political subdivision receives a return benefit." Mun. League, 74 S.W.3d at 384.

[3] See Brief from Jeffry T. Pender, Deputy Gen. Counsel, Tex. Dep't of Hous. & Cmty. Affairs, to Virginia K. Hoelscher, Chair, Op. Comm. (May 23, 2018) (on file with the Op. Comm.) (hereinafter "Department Brief").