Can a Texas water conservation district transfer its assets to a private individual or company?

Plain-English summary

The Sandy Land Underground Water Conservation District had run a cloud seeding program aimed at precipitation enhancement, one of the goals in its state-approved management plan. When state funds for cloud seeding dried up, the District wanted to hand the program's assets to some individual or other entity that would keep the work going, so the District could still benefit from the data and research. A state representative asked the Attorney General whether the District had the legal authority to make that transfer, both as a matter of statute and under the Texas Constitution.

On the statute, the answer was straightforward. Section 36.158 of the Water Code lets a water conservation district make grants and enter related contracts with any source the board approves, including governmental entities. So in purely statutory terms, the District could transfer its cloud seeding assets to any entity the board considered appropriate.

The constitution is where it got harder. Article III, section 52(a) of the Texas Constitution forbids a political subdivision from gifting public money or anything of value to a private individual, association, or corporation. The Texas Supreme Court has read that to bar gratuitous transfers, but a transfer is not a forbidden gift if the public body gets return consideration and the deal serves a legitimate public purpose with continued public control and a return benefit. Whether this particular transfer would clear that test depends entirely on the facts of the deal, which the Attorney General did not have. So the Attorney General concluded the public-purpose determination is for the District's board to make in the first instance, subject to judicial review, and it cautioned that any transfer to a current director, officer, or employee brings in the conflict-of-interest rules in chapters 171 and 176 of the Local Government Code.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later Attorney General 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 water conservation district's board (as the opinion held for it): The opinion told the board it had broad statutory authority under Water Code section 36.158 to transfer the cloud seeding assets to any entity it considered appropriate, but that the constitutional question of whether a given transfer is a forbidden gift of public funds was its own to decide in the first instance, on the facts, subject to judicial review.

On the public-purpose test (what the opinion described): Under the opinion, a transfer of public assets is not a prohibited gift under article III, section 52(a) if it accomplishes a public purpose rather than benefiting private parties, the district keeps public control to protect its investment, and the district receives a return benefit.

For board members, officers, and employees (what the opinion flagged): The opinion pointed out that transfers to a current director, officer, or employee implicate chapter 176's conflicts-disclosure-statement requirement and chapter 171's affidavit-and-abstention rule, and that violating section 171.004 is a class A misdemeanor. The opinion urged the board to consult its attorney before disposing of the assets.

Common questions

Does a Texas water conservation district have authority to transfer its assets to a private party?
The opinion concluded the District has broad statutory authority under Water Code section 36.158 to transfer assets to any entity the board considers appropriate.

Can a district simply give its assets away?
The opinion explained that article III, section 52(a) of the Texas Constitution bars gratuitous transfers of public property, so a transfer must serve a legitimate public purpose, keep public control, and give the district a return benefit.

Who decides whether a particular transfer is constitutional?
The opinion concluded that determination is fact-specific and belongs in the first instance to the District's board of directors, subject to judicial review, because it involves mixed questions of law and fact beyond the scope of an attorney general opinion.

What if the district transfers assets to one of its own board members or employees?
The opinion warned that chapters 176 and 171 of the Local Government Code apply, requiring conflict disclosures and, for a substantial interest, an affidavit and abstention, with a violation of section 171.004 being a class A misdemeanor.

Background and statutory framework

Under chapter 36 of the Water Code, an underground water conservation district must develop a comprehensive management plan addressing particular goals, including precipitation enhancement where appropriate and cost-effective. Tex. Water Code Ann. § 36.1071(a)(7) (West 2008); see id. §§ 36.1071-.1072 (West 2008). Section 36.158 authorizes a district to make or accept grants, gratuities, advances, or loans to or from any source the board approves, including any governmental entity, and to enter into related contracts the board considers appropriate. Id. § 36.158 (West 2008). In purely statutory terms, that empowers the District to transfer its cloud seeding assets to any entity the board considers appropriate.

The constitutional constraint is article III, section 52(a), which prohibits the Legislature from authorizing a subdivision of the state to lend its credit or grant public money or a thing of value to any individual, association, or corporation. Tex. Const. art. III, § 52(a). The Texas Supreme Court has held this bars gratuitous payments, but a transfer is not gratuitous if the political subdivision receives return consideration, and such transfers are permissible if the authorizing statute 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); see also Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995); Davis v. City of Lubbock, 326 S.W.2d 699, 709 (Tex. 1959). The court's three-part test asks whether the transaction accomplishes a public purpose rather than benefiting private parties, retains public control over the assets, and ensures the political subdivision receives a return benefit. Tex. Mun. League Intergov'tl Risk Pool, 74 S.W.3d at 384.

Because the request did not supply the details of any specific transaction, the Attorney General could not determine whether a transfer would satisfy the constitutional test; that determination belongs first to the board, subject to judicial review. For transfers to a current director, officer, or employee, chapter 176 of the Local Government Code requires a conflicts disclosure statement in certain circumstances, Tex. Loc. Gov't Code Ann. §§ 176.001-.003, .005 (West 2008), and chapter 171 requires a local public official with a substantial interest in a business entity to file an affidavit and abstain, with a violation being a class A misdemeanor. Tex. Loc. Gov't Code Ann. § 171.001(1) (West 2008); id. § 171.004(a); id. § 171.003(b).

Citations

Statutes:

• Tex. Water Code Ann. § 36.1071(a)(7) (West 2008)
• Tex. Water Code Ann. §§ 36.1071-.1072 (West 2008)
• Tex. Water Code Ann. § 36.158 (West 2008)
• Tex. Const. art. III, § 52(a)
• Tex. Loc. Gov't Code Ann. §§ 176.001-.003, .005 (West 2008)
• Tex. Loc. Gov't Code Ann. § 171.001(1) (West 2008)
• Tex. Loc. Gov't Code Ann. § 171.004(a)
• Tex. Loc. Gov't Code Ann. § 171.003(b)

Cases:

• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002)
• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Davis v. City of Lubbock, 326 S.W.2d 699, 709 (Tex. 1959)

AG opinions referenced:

• Tex. Att'y Gen. Op. No. GA-0553 (2007)
• Tex. Att'y Gen. Op. No. JC-0080 (1999)
• Tex. Att'y Gen. Op. No. GA-0446 (2006)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0843
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2011/ga0843.pdf

Original opinion text

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

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

February 16, 2011

The Honorable Allan B. Ritter Opinion No. GA-0843
Chair, House Committee on Natural Resources
Texas House of Representatives Re: Authority of the Sandy Land Underground
Post Office Box 2910 Water Conservation District to transfer certain
Austin, Texas 78768-2910 assets to an individual or other entity
(RQ-0904-GA)

Dear Representative Ritter:

You ask about the authority of the Sandy Land Underground Water Conservation District (the "District") to transfer certain assets to an individual or other entity.[1]

Under chapter 36 of the Water Code, an underground water conservation district is directed to "develop a comprehensive management plan which addresses [particular] management goals," including, inter alia, "conservation, recharge enhancement, rainwater harvesting, precipitation enhancement, or brush control, where appropriate and cost-effective." TEX. WATER CODE ANN. § 36.1071(a)(7) (West 2008) (emphasis added). You tell us that the District developed a comprehensive management plan that included among its goals that of cloud seeding for the intended purpose of "precipitation enhancement."[2] Request Letter at 1-2; see SANDY LAND UNDERGROUND WATER CONSERVATION DIST., MANAGEMENT PLAN (2009-2014) at 14 (Goal #4).[3] Because state funds are no longer available for cloud seeding operations, the District proposes to transfer certain assets of its cloud seeding program to "an individual or other entity that will essentially carry on the program's work so that the District can continue to benefit from program data gathering, research, and cloud seeding functions." Request Letter at 2. You ask whether, both in statutory and constitutional terms, the District may do so. Id. at 6.

With regard to statutory authority, section 36.158 of the Water Code provides:

A district may make or accept grants, gratuities, advances, or loans in any form to or from any source approved by the board, including any governmental entity, and may enter into contracts, agreements, and covenants in connection with grants, gratuities, advances, or loans that the board considers appropriate.

TEX. WATER CODE ANN. § 36.158 (West 2008). Thus, in strictly statutory terms, the District is empowered to transfer the assets of its cloud seeding program to any entity "that the board considers appropriate." As you note in your request, however, we must also consider constitutional issues, specifically section 52(a) of article III of the Texas Constitution, which prohibits the Legislature from authorizing any 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." TEX. CONST. art. III, § 52(a).

We do not understand your request to question the facial constitutionality of section 36.158 of the Water Code in so far as it generally authorizes the District to "make ... grants." Rather, we construe your request to assume the constitutionality of the statute by reading it to require any particular grant to conform to the relevant constitutional constraints.

The Texas Supreme Court has frequently declared that the prohibition of article III, section 52(a) means that the Legislature may not "require gratuitous payments to individuals, associations, or corporations." Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002); see also Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995); Davis v. City of Lubbock, 326 S.W.2d 699, 709 (Tex. 1959). A political subdivision's transfer of public assets is not "gratuitous" if the political subdivision receives return consideration. Tex. Mun. League Intergov'tl Risk Pool, 74 S.W.3d at 383. Such transfers are permissible so long as the statute authorizing them "serves a legitimate public purpose" and "affords a clear public benefit received in return." Id.[4]

The Texas Supreme Court has articulated a three-part test to determine whether a statute accomplishes a public purpose under section 52(a). The entity contemplating the grant must (1) ensure that its purpose is to "accomplish a public purpose, not to benefit private parties"; (2) retain public control over the public assets and/or rights associated with the transaction in order to ensure that a public purpose is accomplished and to protect the public's investment; and (3) "ensure that the political subdivision receives a return benefit." Id. at 384. In a prior opinion, we said that the determination of whether a particular contract or agreement accomplishes a public purpose and satisfies the three-part test articulated by the court is in the first instance a matter to be determined by the board of directors of the District, subject to judicial review. Tex. Att'y Gen. Op. No. GA-0553 (2007) at 4; see also Tex. Att'y Gen. Op. No. JC-0080 (1999) at 5.

Whether article III, section 52(a) authorizes the transfer contemplated here will depend upon the facts of any particular transaction, including, inter alia, whether the transfer will accomplish the statutory goals of the District, e.g., precipitation enhancement. Because you have not provided us with sufficient information about the details of the transaction, we cannot determine whether the transfer in question satisfies the constitutional test.

You also ask a series of questions about the circumstances and conditions under which the District may generally transfer assets from the cloud seeding program, including, potentially, a transfer of title to one or more aircraft. Request Letter at 6-7. You suggest, inter alia, that the Board may wish to transfer assets to one or more members of the Board, or to its officers and/or employees. Id. To the extent these questions implicate the constitutional authority of the District to accomplish the referenced transfer of assets, we will address them together. However, we lack the necessary information to make that determination because such an inquiry would necessarily involve mixed questions of law and fact, and is therefore beyond the scope of an attorney general opinion. Like the determination about the constitutionality of the transfer of the District's assets, these matters belong, in the first instance, to the sound discretion of the District's board of directors, subject to judicial review. We can here, however, briefly advise you of certain statutory provisions that must be addressed when considering a transfer to any current director, officer, or employee of the District.

Chapter 176 of the Local Government Code applies to a member of the governing board of the District, as well as to any officer and certain employees and vendors of the District. TEX. LOC. GOV'T CODE ANN. §§ 176.001-.003, .005 (West 2008). A person to whom chapter 176 is applicable is required, under certain circumstances, to file a "conflicts disclosure statement" under section 176.003, the contents of which are described by section 176.004. See generally Tex. Att'y Gen. Op. No. GA-0446 (2006).

Likewise, chapter 171 of the Local Government Code is applicable to every "local public official," defined to include a member of the board of directors of the District. See TEX. LOC. GOV'T CODE ANN. § 171.001(1) (West 2008). If a current District director "has a substantial interest in a business entity," and a transaction between the District board and that business entity will have a "special economic effect on the business entity that is distinguishable from the effect on the public," then the director is required to "file, before a vote or decision on any matter involving the business entity ... an affidavit stating the nature and extent of the interest," and to "abstain from further participation in the matter." Id. § 171.004(a). Violation of section 171.004 constitutes a class A misdemeanor. Id. § 171.003(b). Before the board of directors of the District enters into any transaction to dispose of the assets described in your request, we urge the board to consult with its attorney.

SUMMARY

The board of directors of the Sandy Land Underground Water Conservation District has broad statutory authority to transfer certain assets to any individual or entity. Whether it may do so under article III, section 52(a) of the Texas Constitution depends upon whether such transfer comports with the public purpose analysis promulgated by the Texas Supreme Court in Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission, 74 S.W.3d 377 (Tex. 2002), and its progeny.

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

DAVID J. SCHENCK
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee

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

[2] We presume that the executive management plan was submitted to and approved by the executive administrator of the Texas Water Development Board, in accordance with the statutory directive of sections 36.1071 and 36.1072 of the Water Code. See TEX. WATER CODE ANN. §§ 36.1071-.1072 (West 2008).

[3] Available at http://www.sandylandwater.com/documents.html (last visited Feb. 14, 2011).

[4] The Texas Supreme Court's decision was concerned with the facial constitutionality of the statute at issue in the Risk Pool case. As we have noted, we are concerned in the present instance only with the question of whether the statute under consideration here, section 36.158 of the Water Code, may be constitutionally applied by the District. See Tex. Mun. League Intergov'tl Risk Pool, 74 S.W.3d at 383-84.