Does a city or its appointed utility board own and control a municipal water utility's property and staff?

Plain-English summary

New Braunfels Utilities (NBU) runs the water and sewer systems for the City of New Braunfels. The city created NBU in 1942 under a state statute (V.T.C.S. article 1115) that lets a city place the management and control of its utility system in a board of trustees, and in 1959 it transferred the systems to NBU. By ordinance the city gave the NBU board "complete management and control" of the utilities and told it to operate them with the same freedom as a private corporation's board. After friction developed between the city and the NBU board, including disputes over personnel policies, whether the city ethics ordinance covers NBU staff, and what to do with a tract known as Comal Park, State Representative Edmund Kuempel asked the Attorney General to sort out the legal relationship.

The first question was whether NBU is the city's agent or a separate legal entity. Texas courts had long treated a utility board created under article 1115 as an agent of the city that created it, with powers limited to what the city conferred. The Attorney General followed that line and concluded the NBU board is the city's agent. Article 1115 lets a city delegate the "management and control" of the system, which he read to mean governing, supervising, directing, and conducting the system's affairs, but the city cannot delegate anything the statute does not allow. (Because article 1115 is permissive, a city is also free to delegate something less than full management and control.)

On staffing, the logic of agency carried through. Because NBU acts as the city's agent, a contract with NBU is in law a contract with the city, so an employment relationship "with NBU" is really employment with the city. NBU workers are therefore city employees. But the opinion read article 1115's grant of power to "manage and control" the system to include the people who operate it, and concluded that a court looking at the city's ordinances would find the city had in fact delegated to the NBU board broad authority over those workers: setting their policies, compensation, and benefits, and employing and paying the general manager and other necessary staff. So the day-to-day control of NBU employees sat with the board even though the employees are legally the city's.

On property, the answer was the cleanest. A utility board cannot hold title to real estate; only the municipality that created it can own land. A holding by the utility system is in law a holding by the city, and a deed naming NBU as owner just means NBU took the land as the city's agent. Because the city owns the property, the city, not the board, ultimately decides how it is used and whether it is sold, and a city cannot delegate that ultimate control. The Comal Park tract had been bought in 1969 with NBU funds but in the city's name and for municipal purposes (future expansion of an NBU disposal plant). The opinion noted it did not know whether the tract was bought with bond proceeds or is part of the system, which would trigger extra limits, but concluded that, subject to those bond rules and the statutes governing the sale of system property and park land, the city could use the tract for a library or sell it even if NBU disagreed.

Currency note

This opinion was issued in 1997. 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 at the time

For cities and their utility boards: The opinion treated a utility board created under article 1115 as the city's agent, able to receive the "management and control" of the system but nothing beyond what the statute allows, and it said a city could choose to delegate less than full control because the statute is permissive.

For utility-system employees: The opinion held that workers for a municipal utility system are legally city employees, even where, as in New Braunfels, the city has delegated their day-to-day management, pay, and benefits to the board.

On utility-owned real estate: The opinion concluded a utility board cannot hold title to land; the city owns it, controls its use and disposition, and cannot delegate that ultimate control, so the city could decide the fate of the Comal Park tract subject to the usual bond and property-sale statutes.

Common questions

Is a city utility board its own separate government?

Under this opinion, no. The Attorney General followed Texas case law treating a board created under V.T.C.S. article 1115 as an agent of the city, with only the powers the city has conferred on it.

If I work for the city's utility, who is my employer?

The opinion concluded that employees of a municipal utility system are in fact city employees, because the board acts as the city's agent and a contract with the board is a contract with the city. In New Braunfels, though, the city had delegated to the NBU board the authority to manage those employees and set their pay and benefits.

Can the utility board block the city from selling utility land?

No. The opinion held that only the city can own the land and the city has ultimate authority over its use and disposal, which it cannot delegate. So the city could use or sell the Comal Park tract even over NBU's objection, subject to bond limits and statutes on selling system or park property.

Does the city control the utility's personnel and ethics policies?

The opinion said the city may delegate management and control of the system, including its employees, to the board, and that New Braunfels appears to have done so. It did not construe the city's ordinances or decide whether the city ethics ordinance reaches NBU staff, noting that interpreting municipal charters and ordinances is outside the opinion process.

Background and statutory framework

The request came from Representative Edmund Kuempel, chair of the House Committee on State Recreational Resources. V.T.C.S. article 1115 authorizes a municipal governing body to place the management and control of a utility system in a board of trustees by the terms of the encumbrance securing the system's revenue bonds; New Braunfels City Charter section 11.09 separately authorizes the city to create a public utilities board by ordinance. The city created NBU in 1942, transferred its water and sewer systems to it in 1959, and by ordinance (New Braunfels Code sections 130-26 through 130-31) gave the board complete management and control, directed it to operate with the same freedom as a private corporation, and authorized it to appoint and pay a general manager and other personnel while forbidding term contracts for employees.

On agency, the opinion relied on Guadalupe-Blanco River Authority v. Tuttle, which held that the members of an article 1115 utility board are municipal agents whose powers are limited to those conferred by the ordinance, along with Delta Electric Construction Co. v. City of San Antonio, San Antonio Independent School District v. Water Works Board of Trustees, Sifford v. Waterworks Board of Trustees, and Attorney General Opinion JM-4 (1983). In construing "management" and "control" as largely synonymous terms meaning to govern, supervise, and direct, the opinion drew on Hardy v. State, State v. Camper, Carter v. Carter, Animal Legal Defense Fund, Inc. v. Fisheries & Wildlife Board, and dictionary definitions, and pointed to Government Code section 312.002 (ordinary meaning of statutory words). It cited National Council of Railway Patrolmen's Union v. Sealy on the agency-contract point that an employment contract with the board is a contract with the city.

On property, the opinion again relied on Guadalupe-Blanco River Authority v. Tuttle (a board has "no character of title" to city property), San Antonio Independent School District, and Sifford (the city, not the board, would be liable for injuries on the property), and noted that a city's ownership is subject only to the lien securing its revenue bonds (citing V.T.C.S. articles 1112, 1113, and 1118a). On disposing of the Comal Park tract, it observed that bond proceeds may be spent only for their authorized purposes (Matter of Troy Dodson Construction Co.; Barrington v. Cokinos, quoting Lewis v. City of Fort Worth; Inverness Forest Improvement District v. Hardy Street Investors), that a city under 1.2 million population may dispose of system property only under V.T.C.S. article 1112, section 1 and the applicable covenants, and that other statutes on selling public or park land might apply (Local Gov't Code sections 253.001 and 272.001; Parks & Wildlife Code section 26.001; V.T.C.S. article 1015c, section 4). The opinion expressly declined to construe the city's charter or ordinances, citing Attorney General Opinion JM-846 (1988).

Citations

Statutes

• Tex. Rev. Civ. Stat. Ann. arts. 1112, 1113, 1115, 1118a; art. 1015c, § 4
• Gov't Code § 312.002
• Local Gov't Code §§ 253.001, 272.001
• Parks & Wild. Code § 26.001

Cases

• Guadalupe-Blanco River Auth. v. Tuttle, 171 S.W.2d 520 (Tex. Civ. App.-San Antonio 1943, writ ref'd)
• Delta Elec. Constr. Co. v. City of San Antonio, 437 S.W.2d 602 (Tex. Civ. App.-San Antonio 1969, writ ref'd n.r.e.)
• San Antonio Indep. Sch. Dist. v. Water Works Bd. of Trustees, 120 S.W.2d 861 (Tex. Civ. App.-Beaumont 1938, writ ref'd)
• Sifford v. Waterworks Bd. of Trustees, 70 S.W.2d 476 (Tex. Civ. App.-San Antonio 1934, writ ref'd)
• Hardy v. State, 222 S.W. 579 (Tex. Crim. App. 1920)
• State v. Camper, 261 S.W.2d 465 (Tex. Civ. App.-Dallas 1953, writ ref'd)
• Animal Legal Defense Fund, Inc. v. Fisheries & Wildlife Bd., 624 N.E.2d 556 (Mass. 1993)
• Carter v. Carter, 359 S.W.2d 184 (Tex. Civ. App.-Waco), writ dism'd w.o.j., 362 S.W.2d 646 (Tex. 1962)
• National Council of Ry. Patrolmen's Union v. Sealy, 56 F. Supp. 720 (S.D. Tex. 1944)
• Matter of Troy Dodson Constr. Co., 993 F.2d 1211 (5th Cir. 1993)
• Barrington v. Cokinos, 338 S.W.2d 133 (Tex. 1960)
• Lewis v. City of Fort Worth, 89 S.W.2d 975 (Tex. 1936)
• Inverness Forest Improvement Dist. v. Hardy St. Inv., 541 S.W.2d 454 (Tex. Civ. App.-Houston [1st Dist.] 1976, writ ref'd n.r.e.)

Attorney General opinions

• Tex. Att'y Gen. Op. Nos. JM-4 (1983), JM-846 (1988)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0444
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1997/dm0444.pdf

Original opinion text

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

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

July 18, 1997

The Honorable Edmund Kuempel
Chair, Committee on State Recreational Resources
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. DM-444

Re: Whether New Braunfels Utilities is an agent of the City of New Braunfels and related questions (RQ-931)

Dear Representative Kuempel:

You ask several questions about the nature of the relationship between New Braunfels Utilities ("NBU") and the City of New Braunfels. You first ask whether NBU is an agent of the city, and if it is, how much authority the city may delegate to NBU's board of trustees. Second, you ask whether NBU employees are in fact employees of the city, and whether the city may manage or control NBU employees. Third, you ask whether NBU may own real property, and whether the city or NBU's board ultimately controls the use and disposal of property acquired for NBU purposes.

We conclude that NBU is an agent of the city, but that the city may delegate to NBU all authority that V.T.C.S. article 1115 permits the city to delegate. We next conclude that NBU employees are in fact city employees, but that the city is authorized to and appears to have delegated to NBU the authority to manage and control those employees working for NBU. Finally, we conclude that NBU may acquire property only as an agent of the city; thus, the city ultimately controls the property.

The city established NBU in 1942 in accordance with V.T.C.S. article 1115, presumably by the terms of its encumbrance. You state that the city transferred its water and sewer systems to NBU in 1959. Under city ordinance, the city has vested in NBU's governing board "the complete management and control" of the city's utility system. The ordinances further direct NBU's board to "manage and operate the systems with the same freedom" the board of a private corporation operating similar properties enjoys and "and in the same manner as" such a private corporation. City ordinance directs the NBU board to appoint a general manager, who will, in turn, appoint all other employees, although the ordinances specifically prohibit the board from giving any employee a contract of term. Finally, with respect to your questions, the ordinances expressly provide for and set the level of compensation for NBU board members but say nothing about compensation of employees working for NBU.

You indicate that your questions arise out of recent controversies that have arisen between the city and NBU's board. With respect to the applicability of city employment policies, you indicate that NBU has established personnel policies and benefit programs that differ from the city's. Additionally, you indicate that the city and NBU are uncertain whether the city's ethics ordinance applies to NBU employees. With respect to the control and use of the land, specifically Comal Park, you indicate that the city would like either to build a new library on the real property or sell it to a developer. The real property was purchased in 1969 using NBU funds, but in the name of the city. You add that the real property was purchased "for municipal purposes," but specifically for "future expansion of [NBU] Disposal Plant facilities."

We begin by considering your general questions about the city's relationship with NBU's board. You ask first whether NBU is an agent of the city or a separate legal entity. Article 1115, V.T.C.S., authorizes a municipality to create a utility board to manage and control the utility system. Prior decisions of the courts and this office have deemed the board of a municipal utility system, created under article 1115, an agent of the municipality. We conclude, therefore, that the NBU board is an agent of the city.

As the Texas Court of Civil Appeals explained in Guadalupe-Blanco River Authority v. Tuttle, the members of a utility system board created under V.T.C.S. article 1115 are municipal agents, and their powers are limited to those the municipality has conferred upon them:

The powers and duties of the Board of Trustees were fixed and are therefore limited by the express or necessarily implied provisions of the contract contained in the [municipal] ordinance . . . . Although the details and manner of the performance of its duties are left largely to the discretion of the Board, it is clear that its powers are also derived from and consequently dependent upon the provisions of the contract contained in the ordinance. Beyond the powers and duties therein conferred the Board cannot go.

This leads us to your second question: how much authority the city may delegate to the board under V.T.C.S. article 1115. On its face, article 1115 authorizes a municipality to delegate only "management and control" of the utility system to the system's board. We construe the terms "management" and "control" in this context largely as synonymous; the terms indicate governing, supervising, directing, and conducting the affairs of the utility system. Accordingly, a municipality may delegate to the board of its utility system authority to govern, supervise, direct, and conduct the affairs of the utility system. On the other hand, the municipality may not delegate to the board of the utility system any authority beyond that permitted by article 1115.

Third, you ask whether employees who work for NBU are in fact city employees and whether the city may manage or control NBU employees, including the general manager. Because NBU is an agent of the city, any contract with NBU is in fact a contract with the city. An employment contract ostensibly with NBU is in fact an employment contract with the city. We conclude, therefore, that employees who work for NBU are in fact city employees.

We turn to the second half of your third question. We believe article 1115, by authorizing a municipality to delegate to the board of its utility system the power to manage and control the utility system, permits a municipality to delegate the management and control of employees who work for the system. We are thus interpreting the term "system" to include those employees who operate and administer the physical plant.

Moreover, we believe a court, looking at the city's ordinances, would find that the city has in fact delegated to the NBU board broad authority to manage and control employees working for NBU, including the authority to set employee policies, compensation, and benefits. The city has, for example, authorized the NBU board to "manag[e], control[], and operat[e]" the utility system just as if it were "the board of directors of a private corporation operating properties of a similar nature." More specifically, the city has authorized the NBU board "to employ and pay the compensation of" the general manager, attorneys, and other necessary personnel.

Fourth, you ask whether NBU may own real property or whether it holds real property only as an agent of the city. We conclude that NBU may manage and control certain property for the city, but only the city may own the property. A utility board cannot hold title to real property; only the municipality that created the utility board may do so. A possession and holding by a municipal utility system is in fact a possession and holding by the municipality. Any deed that lists NBU as owner means merely that NBU acquired the real property as an agent of the city.

In connection with this question, you ask whether the city or NBU has ultimate authority over property acquired for NBU's use and over the disposal of the property. Because the city, not NBU, owns the property, the city has ultimate authority to determine the use to which property acquired for the NBU will be put and how to dispose of the property. As the Court of Civil Appeals explained in Guadalupe-Blanco River Authority v. Tuttle, the board of a municipal utility system has "no character of title" to city property, even if the utility system possesses the property. Moreover, under V.T.C.S. article 1115, a municipality cannot delegate to the board of its utility system ultimate control over city property. A municipality's ownership is subject only to the lien securing the payment of revenue bonds.

You do not indicate that the real property was purchased using bond proceeds or if it is part of the utility system. Bond proceeds, of course, may be spent only for the purposes for which the bonds were issued and as provided by the authorizing bond documents. Additionally, a municipality with a population less than 1.2 million may dispose of property constituting part of the system only in accordance with the applicable covenants or mortgages and V.T.C.S. article 1112, section 1. Subject to these and other statutory restrictions on the sale of property used as a park, we conclude that the city may use the property at issue for a city library if it wishes or sell the property if it wishes, even if the city's use of the property is contrary to NBU's desires.

SUMMARY

The governing board of a municipal utility system acts as an agent of the municipality that created it. Under V.T.C.S. article 1115, the municipality may delegate to the board "management and control" of the utility system, but the municipality may not delegate any authority inconsistent with article 1115.

Employees of a municipal utility system are in fact employees of the municipality. Article 1115 permits a municipality to delegate to the board of its utility system management and control of municipal employees working for the system. Where a municipality has granted to that board the authority to manage and control the system "with the same freedom" as and "in the same manner as" the board of a private corporation operating a similar system and to employ and pay all necessary personnel, a court probably would find that the municipality has in fact delegated the authority to manage and control employees working for the system.

A municipal utility system may acquire or hold real property only as an agent of the municipality. Thus, the municipality may use the property or dispose of the property as it wishes. A municipality may not delegate to the governing board of its utility system ultimate control of municipal real property.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General

Footnotes

[Footnote citations in the scanned source include: V.T.C.S. art. 1115 (authorizing the municipal governing body to place management and control of the utility system in a board of trustees "by the terms of such encumbrance"); New Braunfels City Charter § 11.09; New Braunfels Code §§ 130-26(a), 130-27, 130-29, 130-30, 130-31 (1995); Attorney General Opinion JM-846 (1988) (this office does not construe municipal charters or ordinances); Delta Elec. Constr. Co. v. City of San Antonio, 437 S.W.2d 602, 605 (Tex. Civ. App.-San Antonio 1969, writ ref'd n.r.e.); Guadalupe-Blanco River Auth. v. Tuttle, 171 S.W.2d 520, 521, 524-25 (Tex. Civ. App.-San Antonio 1943, writ ref'd w.o.m.); San Antonio Indep. Sch. Dist. v. Water Works Bd. of Trustees, 120 S.W.2d 861, 865 (Tex. Civ. App.-Beaumont 1938, writ ref'd); Sifford v. Waterworks Bd. of Trustees, 70 S.W.2d 476, 477 (Tex. Civ. App.-San Antonio 1934, writ ref'd); Attorney General Opinion JM-4 (1983) at 2; Hardy v. State, 222 S.W. 579, 580 (Tex. Crim. App. 1920); State v. Camper, 261 S.W.2d 465, 468 (Tex. Civ. App.-Dallas 1953, writ ref'd); Animal Legal Defense Fund, Inc. v. Fisheries & Wildlife Bd., 624 N.E.2d 556, 560 (Mass. 1993); Carter v. Carter, 359 S.W.2d 184, 187 (Tex. Civ. App.-Waco), writ dism'd w.o.j., 362 S.W.2d 646 (Tex. 1962) (per curiam); National Council of Ry. Patrolmen's Union v. Sealy, 56 F. Supp. 720, 723 (S.D. Tex. 1944); Gov't Code § 312.002; Matter of Troy Dodson Constr. Co., 993 F.2d 1211, 1216 (5th Cir. 1993); Barrington v. Cokinos, 338 S.W.2d 133, 142 (Tex. 1960) (quoting Lewis v. City of Fort Worth, 89 S.W.2d 975, 978 (Tex. 1936)); Inverness Forest Improvement Dist. v. Hardy St. Inv., 541 S.W.2d 454, 460 (Tex. Civ. App.-Houston [1st Dist.] 1976, writ ref'd n.r.e.); V.T.C.S. arts. 1112, 1113, 1118a; Local Gov't Code §§ 253.001, 272.001; Parks & Wild. Code § 26.001; V.T.C.S. art. 1015c, § 4.]