Can a Texas county lease county office space to a nonprofit for less than fair market value?

TX AG Opinion GA-0706: Can a county lease property below market value to a nonprofit?

Plain-English summary

The Johnson County Attorney explained that the county commissioners court, after following the bidding procedures in Local Government Code section 263.007, leased county-owned office space to two nonprofit organizations for $1.00 per year, which the court recognized is less than fair market value. He asked whether the county can lease county office space to a private nonprofit for less than fair market value and still comply with section 263.007's competitive bidding procedures when no statutory exception exists.

The Attorney General looked at the text of section 263.007, which lets a commissioners court adopt a competitive sealed-bid or sealed-proposal procedure for the sale or lease of county property. Only subsection (c), which applies solely to sales, refers to fair market value, requiring an appraisal and a minimum bid before selling. Those requirements do not apply to leasing, and section 263.007 does not prohibit accepting a below-market bid for a lease. By contrast, other statutes expressly bar below-value sales or leases of certain property, and another expressly allows below-market leases between political subdivisions for a public purpose. Accepting a bid under section 263.007 is left to the reasonable discretion of the commissioners court, subject to judicial review. So a lease for less than fair market value does not, by itself, violate the express terms of section 263.007.

The opinion added an important caution: a lease that satisfies the statute must also satisfy the Texas Constitution. Article III, section 52 bars political subdivisions from using public funds for private purposes, but a use that benefits a private party survives if it meets a three-part test (predominant public purpose, adequate public controls, and adequate consideration), which the governing body determines first, subject to judicial deference. Article XI, section 7 limits county debt, and whether a lease creates a "debt" depends on its terms. Because the Attorney General had not reviewed the leases, the opinion could not say whether they satisfied the constitution.

Currency note

This opinion was issued in 2009. 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.

Section 263.007 and the related constitutional case law may have changed since 2009. Confirm the current statute and the public-purpose and county-debt rules before relying on this opinion.

Who this opinion affected (as of 2009)

County commissioners courts: The opinion concluded that leasing county property below fair market value did not, by itself, violate section 263.007, since its fair-market-value rule applies only to sales.

Nonprofits leasing county space: The opinion meant a below-market county lease was permissible under the bidding statute, but its constitutionality turned on whether the arrangement served a public purpose with adequate controls and consideration.

Taxpayers and watchdogs: The opinion flagged article III, section 52 (gifts of public funds) and article XI, section 7 (county debt) as the real constraints, determined by the facts of each lease.

Common questions

Can a county really lease office space for $1 a year?
As to the bidding statute, yes, the opinion said. Section 263.007's fair-market-value requirement applies only to sales, so a below-market lease does not violate its express terms.

Does the county have to get an appraisal first?
Only for sales. The opinion noted subsection (c)'s appraisal and minimum-bid requirements apply to selling property, not leasing it.

Is a below-market lease automatically legal then?
No. The opinion stressed the lease must still satisfy the constitution, including the article III, section 52 ban on gifts of public funds and the article XI, section 7 debt limit.

How is the public-purpose test met?
The opinion described a three-part test (predominant public purpose, adequate controls, and adequate consideration), which the commissioners court determines first, with courts generally deferring.

Background and statutory framework

Local Government Code section 263.007(a) lets a commissioners court adopt a competitive sealed-bid or sealed-proposal procedure to sell or lease county property, and only subsection (c), for sales, requires a fair-market-value appraisal and minimum bid (Tex. Loc. Gov't Code Ann. § 263.007(a), (c) (Vernon Supp. 2008)). The section does not bar a below-market lease bid, unlike statutes that expressly forbid below-value sales or leases of certain property or that allow below-market interlocal leases (id. §§ 263.002(c) (Vernon 2005), 272.005(b)(2) (Vernon Supp. 2008)). Accepting a bid is left to the commissioners court's reasonable discretion, subject to judicial review (Comm'rs Court of Titus County v. Agan, 940 S.W.2d 77, 80 (Tex. 1997)). A conforming lease must also satisfy the constitution: article III, section 52's bar on gifts of public funds, subject to the three-part public-purpose test (Tex. Mun. League Intergovernmental Risk Pool v. Tex. Worker's Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002); Tex. Att'y Gen. Op. No. JC-0582 (2002)), and article XI, section 7's debt limit, which turns on the lease terms (Tex. Const. art. III, § 52; art. XI, § 7; McNeill v. City of Waco, 33 S.W. 322, 323 (Tex. 1895); Tex. Att'y Gen. Op. Nos. GA-0652 (2008), JC-0395 (2001)).

Citations

Statutes:

• Tex. Loc. Gov't Code Ann. §§ 263.007(a), (c) (Vernon Supp. 2008), 263.002(c) (Vernon 2005), 272.005(b)(2) (Vernon Supp. 2008)
• Tex. Const. art. III, § 52; art. XI, § 7

Cases:

• Comm'rs Court of Titus County v. Agan, 940 S.W.2d 77, 80 (Tex. 1997)
• Tex. Mun. League Intergovernmental Risk Pool v. Tex. Worker's Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002)
• McNeill v. City of Waco, 33 S.W. 322, 323 (Tex. 1895)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0706
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2009/ga0706.pdf

Original opinion text

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

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

April 8, 2009

The Honorable Bill Moore
Johnson County Attorney
Guinn Justice Center
204 South Buffalo Avenue, Suite 410
Cleburne, Texas 76033-5404

Opinion No. GA-0706

Re: Authority of a commissioners court to lease county property to a non-profit organization for less than fair market value (RQ-0756-GA)

Dear Mr. Moore:

You tell us that the Johnson County Commissioners Court, after following the bidding procedures in section 263.007, Local Government Code, leased county-owned office space to two non-profit organizations.[1] You inform us that the leases to the two organizations provide, among other things, for rental of $1.00 per year to Johnson County, which the commissioners court recognizes is less than fair market value. See Request Letter at 2. You ask whether the county can "lease county owned office space to a private non-profit organization for less than fair market value and remain in compliance with the competitive bidding procedures of [section] 263.007 of the Texas Local Government Code when no statutory exception to [section] 263.007 exists[.]" Id. at 1.

Section 263.007 authorizes a county commissioners court to adopt a competitive sealed-bid or sealed-proposal procedure for the sale or lease of county-owned property. See TEX. LOC. GOV'T CODE ANN. § 263.007(a) (Vernon Supp. 2008). Only subsection 263.007(c), which applies solely to the sale of property, expressly refers to fair market value. That subsection requires a commissioners court, "[b]efore selling property under this section . . . [to,] (1) obtain an appraisal of the property's fair market value; and (2) determine a minimum bid amount, based on the appraisal." Id. § 263.007 (emphasis added). The requirements of subsection 263.007(c) do not apply to the leasing of property. Further, section 263.007 does not expressly prohibit the acceptance of a bid that is for an amount less than fair market value in connection with a lease. Compare id. § 263.007, with id. § 263.002(c) (Vernon 2005) (prohibiting specified property from being sold or leased for less than the reported fair market value or fair lease value); cf. id. § 272.005(b)(2) (Vernon Supp. 2008) (authorizing lease of property by one political subdivision to another for less than fair market value to promote and maintain political subdivision's public purpose). The acceptance of a bid under section 263.007 is a matter the statute leaves to the reasonable discretion of the commissioners court in the first instance, subject to judicial review. See Comm'rs Court of Titus County v. Agan, 940 S.W.2d 77, 80 (Tex. 1997) (recognizing district court's supervisory control over a commissioners court that acts beyond its jurisdiction or abuses its discretion). Accordingly, we conclude that the mere fact a lease let under section 263.007 is for less than fair market value does not violate the express terms of section 263.007.

At the same time, a lease that may otherwise conform to a statutory provision must also satisfy the Texas Constitution. See, e.g., TEX. CONST. art. III, § 52 (prohibiting counties from making gifts or grants of public funds); id. art. XI, § 7 (imposing limits on county debt). Article III, section 52, precludes political subdivisions from using public funds for private purposes. However, a use of public funds that benefits a private person or entity will avoid violating article III, section 52 if the use of public funds satisfies the following three part test: (1) the predominant purpose of the expenditure is to accomplish a public purpose, not to benefit private parties; (2) there are adequate public controls in place to ensure that the public purpose is accomplished and to protect the public's investment; and, (3) the political subdivision is receiving adequate consideration. Tex. Mun. League Intergovernmental Risk Pool v. Tex. Worker's Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002). The factual determination regarding whether a public expenditure satisfies this test is for the governing body of the political subdivision in the first instance and is a determination to which a court generally defers. See Tex. Att'y Gen. Op. No. JC-0582 (2002) at 6-7 (recognizing question of sufficiency of consideration under article III, section 52 is determination for public entity and judicial deference). Article XI, section 7 prohibits a county from incurring debt for any purpose unless the county simultaneously provides for the levying and collecting of "a sufficient tax to pay the interest thereon and provide at least two percent . . . as a sinking fund." TEX. CONST. art. XI, § 7; see also McNeill v. City of Waco, 33 S.W. 322, 323 (Tex. 1895) (defining the term "debt" and determining that a contract does not create a debt if the parties lawfully and reasonably contemplate when the contract is made that the obligation will be satisfied out of current revenues for the year, or out of some fund then within the immediate control of the governmental unit). Whether a particular lease creates a debt for the purposes of article XI, section 7 will depend upon the lease terms. See Tex. Att'y Gen. Op. No. GA-0652 (2008) at 4 (recognizing that analysis under article XI, section 7 would require examination of contract dates and terms). As we have not reviewed the terms of the proposed leases, we cannot determine whether they create a debt under article XI, section 7 as a matter of law. See Tex. Att'y Gen. Op. No. JC-0395 (2001) at 3 (determining as a matter of law that a multi-year contract for leasing office equipment constituted a "debt").

SUMMARY

A commissioners court's lease of county property for an amount less than fair market value does not violate the express terms of section 263.007, Local Government Code.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

ANDREW WEBER
First Assistant Attorney General

JONATHAN K. FRELS
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee

[Footnote 1: See Request Letter at 2 (available at http://www.texasattorneygeneral.gov).]