When does a state agency's demand to repay grant money count as a debt to the state in Texas?

Plain-English summary

Texas keeps a collection tool called the "warrant hold." Under Government Code section 403.055, a state agency reports to the comptroller anyone "who is indebted to the state," and the comptroller generally will not issue a warrant or an electronic funds transfer (a state payment) to a person on that list until the debt is cleared. The question in this opinion was when a debt arising from a grant dispute is solid enough to put someone on that list.

The Texas Commission on Environmental Quality runs the Texas Emissions Reduction Plan, which hands out grants to improve air quality. When the agency believed a grantee had not performed, it sent a written demand letter and invoice asking for the grant money back, adjusting the amount for whatever performance the grantee had managed before the breach. The agency's executive director (through his predecessor, who submitted the request) asked whether that demand letter, based on an unadjudicated breach claim, created a "debt to the state" for the warrant hold, and whether the agency's process satisfied due process.

The opinion said the demand letter, standing alone, does not create a debt. Texas courts define a "debt" as a specified sum of money owed, and earlier opinions of the office had said a debt to the state must be established by agreement between the state and the debtor, by a proper allegation of a debt by statutory reference, or by some other lawfully effective means. A letter asserting restitution damages from a not-yet-adjudicated breach fits none of those by itself. The opinion added three ways the agency could establish a debt: specific grant-contract terms that fix a sum owed, a statute that says misuse of those grant funds is a debt to the state, or an internal administrative process that gives the grantee the due process section 403.055(g) requires.

On due process, the opinion explained that section 403.055(g) bars an agency from reporting a person as indebted "unless the agency first provides the person with an opportunity to exercise any due process." At a minimum that means notice of the alleged breach and a chance to contest the amount or existence of the debt. The Legislature did not spell out the exact procedure, so the agency had to design one that met the constitutional floor. Until the grantee has had some opportunity to contest, the agency may not report the grantee to the comptroller.

Currency note

This opinion was issued in 2012. 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

State agencies using the warrant hold (as the opinion described it): The opinion read section 403.055 to require an actual debt, not merely a demand letter premised on an unadjudicated breach, before reporting a person to the comptroller. It identified three routes to establishing such a debt and required due process under subsection (g) first.

Grant recipients and government contractors (as the opinion described it): The opinion treated a recipient as entitled, at a minimum, to notice of the alleged breach and an opportunity to contest the amount or existence of the debt before the agency could place a warrant hold.

Government attorneys (as the opinion described it): The opinion declined to construe any particular grant contract or to specify an exact administrative procedure, noting those are tasks outside the opinion process and matters for the agency to determine in the first instance.

Common questions

Does a demand letter to repay a grant create a state debt that blocks payments?
Not by itself, as the opinion read the statute. A demand letter based on an unadjudicated breach claim does not establish a "debt to the state" under section 403.055.

How could the agency establish a real debt?
The opinion listed three ways: specific contract terms creating a debt by agreement, an allegation of the debt by statutory reference, or some other lawfully effective means, including an internal administrative process that provides due process.

What due process is required before the warrant hold?
At a minimum, notice of the alleged breach and an opportunity to contest the amount or existence of the debt, under section 403.055(g). The opinion said it could not specify the exact procedure beyond that floor.

Could the Attorney General decide whether a particular grant contract created a debt?
No. The opinion said construing the terms of a specific agreement is a task the office cannot undertake through the opinion process, so it answered only in general terms.

Background and statutory framework

Government Code section 403.055 directs state agencies to report persons indebted to the state to the comptroller, who then generally withholds warrants and electronic funds transfers to those persons (subsections (a) and (f)). Subsection (g) conditions a report on first affording the person due process. The grant program at issue was the Texas Emissions Reduction Plan, administered under Health and Safety Code section 386.051, which authorizes grants to improve air quality; a related program in section 391.302(c)-(d) expressly makes misuse of certain grant funds "a debt owed to the state."

The opinion drew its definition of "debt" from Seay v. Hall and Thomas v. State, and its due-process framing from University of Texas Medical School v. Than, alongside the office's prior opinions (DM-217, MW-416, GA-0171, and GA-0864) on what it takes to establish a state debt and what process subsection (g) requires.

Citations

Cases:

• Seay v. Hall, 677 S.W.2d 19, 23 (Tex. 1984)
• Thomas v. State, 919 S.W.2d 427, 431 n.5 (Tex. Crim. App. 1996)
• Univ. of Tex. Med. Sch. v. Than, 901 S.W.2d 926, 930 (Tex. 1995)

Statutes:

• Tex. Gov't Code Ann. § 403.055(a), (f), (g) (West 2005)
• Tex. Health & Safety Code Ann. §§ 386.051(a), 386.051(b) (West Supp. 2011)
• Tex. Health & Safety Code Ann. § 391.302(c)-(d) (West 2010)

Prior Attorney General opinions referenced:

• Tex. Att'y Gen. Op. Nos. DM-217 (1993), MW-416 (1981), GA-0171 (2004), GA-0864 (2011)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0970
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2012/ga0970.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

September 24, 2012

Mr. Zak Covar Opinion No. GA-0970
Executive Director
Texas Commission on Environmental Quality Re: Whether a state agency's demand for
Post Office Box 13087 restitution based upon an unadjudicated claim for
Austin, Texas 78711-3087 breach of a grant contract constitutes a "debt" to
the state for purposes of section 403.055,
Government Code (RQ-1054-GA)

Dear Mr. Covar:

Your predecessor asked two questions related to the ability of the Texas Commission on Environmental Quality ("TCEQ") to use the warrant-hold process under Government Code section 403.055 as a means of enforcing compliance with certain grant agreements.[1] TCEQ, in conjunction with the Comptroller of Public Accounts (the "comptroller") and the Public Utility Commission, administers the Texas Emissions Reduction Plan ("the Plan" or "TERP") under chapter 386 of the Health and Safety Code. TEX. HEALTH & SAFETY CODE ANN. § 386.051(a) (West Supp. 2011). The Plan authorizes TCEQ to provide grants or other funding for multiple projects designed to improve air quality. Id. § 386.051(b). If a grantee fails to comply with grant requirements, your predecessor explained that TCEQ sends a "formal written demand letter and invoice ... to the grantee requiring the return of grant funds paid based on the noncompliance," and that the "amount demanded is subject to modification by the amount of performance that was successfully achieved before the breach of the contract." Request Letter at 1.

The request letter notes that Government Code section 403.055 requires state agencies to report to the comptroller "each person who is indebted to the state," and that the comptroller generally "may not issue a warrant or initiate an electronic funds transfer to a person who has been reported" under that section. Id. at 2; TEX. GOV'T CODE ANN. § 403.055(a), (f) (West 2005). The request letter first asks whether "TCEQ's formal written demand for restitution damages based upon an unadjudicated claim for breach of a grant contract issued under Chapter 386 ... create[s] a 'debt to the state' for purposes of application of Section 403.055 of the Texas Government Code?" Request Letter at 2.

The Legislature has not defined "debt to the state" for purposes of section 403.055. Texas courts have defined "debt" to ordinarily mean "a specified sum of money owing to one person from another." Seay v. Hall, 677 S.W.2d 19, 23 (Tex. 1984); see also Thomas v. State, 919 S.W.2d 427, 431 n.5 (Tex. Crim. App. 1996) (citing BLACK'S LAW DICTIONARY 403 (6th ed. 1990) (defining "debt" as "[a] sum of money due by certain and express terms")). Prior opinions of this office have explained that for purposes of section 403.055, a debt to the state must be "established either by agreement between the state and the debtor; by the state's proper allegation of the existence of a debt by statutory reference; or by some other lawfully effective means." Tex. Att'y Gen. Op. Nos. DM-217 (1993) at 2, MW-416 (1981) at 2-3. The TCEQ letter itself does not fall into one of these three categories, and the act of sending a letter requesting restitution damages based upon an unadjudicated claim for breach of a grant contract issued under chapter 386 of the Health and Safety Code will not, by itself, establish a debt to the state for purposes of section 403.055 of the Government Code. If, however, TCEQ's formal written demand for restitution damages is premised on an agreement between the state and debtor, the existence of a debt by statutory reference, or some other lawfully effective means of creating a debt, TCEQ could establish a debt to the state under section 403.055.

We first consider whether TCEQ can establish a debt to the state on the basis of its agreements with TERP grantees. Determining whether any given TERP grant contract forms the basis of a debt to the state would require that we construe the terms of the agreement, a task this office cannot undertake through the opinion process. Tex. Att'y Gen. Op. No. GA-0864 (2011) at 3. However, we can answer general questions of law, and thus we rely upon the request letter's general description of TERP grant agreements, which reportedly require that grant funds be returned "after a failure to perform the activities required by the grant." Further, the brief indicated that the amount owed is "based upon the subsequent valuation of the calculated cost of the contract breach." Brief at 3. The request letter's description of these agreements does not suggest a "sum certain in money" owed such that the agreements would, by themselves, establish a debt. However, more specific contract terms could create a debt by agreement. We can advise only that a demand for restitution damages based upon breach of a TERP grant contract may or may not create a debt to the state under section 403.055, depending on the circumstances and the specific terms of the document that purportedly creates the debt.

It may also be possible for TCEQ to establish a debt to the state by statutory reference. The Legislature has authorized TCEQ to use the TERP Fund to provide grants for a number of different programs that are intended to improve air quality. TEX. HEALTH & SAFETY CODE ANN. § 386.051(b) (West Supp. 2011). Each of these programs is established in a separate chapter, subchapter, or section of the Health and Safety Code, which may or may not include a statutory basis for establishing a debt. See, e.g., id. § 391.302(c)-(d) (West 2010) (explaining that a misuse of grant funds provided under the new technology implementation grant program "results in a debt owed to the state" under section 403.055(g)). Within the confines of an attorney general opinion, we can advise only that TCEQ could establish a debt to the state under section 403.055 if the grant contract involves a legislative program wherein the enabling legislation specifically creates a debt.

Prior opinions of this office have explained that a debt to the state may also be established "by some other lawfully effective means." Tex. Att'y Gen. Op. Nos. DM-217 (1993) at 2, MW-416 (1981) at 2-3. One such lawfully effective means of establishing a debt could be an internal TCEQ administrative process that provides grantees with the due process required by section 403.055(g) of the Government Code, including notice and an opportunity to contest the amount or existence of a contract breach. See TEX. GOV'T CODE ANN. § 403.055(g) (West 2005). TCEQ would need to determine the specific nature of that administrative process in the first instance.

Along those lines, the request letter's second question asked whether "the TCEQ process for determination of the breach and amount of damages and demand thereof satisfy the due process requirements of Section 403.055(g), and if not, what extra due process protections may be necessary." Request Letter at 2. Under section 403.055(g), TCEQ "may not report a person" to the comptroller as indebted to the state "unless the agency first provides the person with an opportunity to exercise any due process or other constitutional or statutory protection that must be accommodated before the agency or the state may begin a collection action or procedure." TEX. GOV'T CODE ANN. § 403.055(g) (West 2005). In a prior opinion, we explained that under subsections 403.055(f)-(g) "[d]ue process requires notice and an opportunity ... to object to the amount or existence of the" breach. Tex. Att'y Gen. Op. No. GA-0171 (2004) at 6. Thus, in order to ensure that its procedures satisfy section 403.055(g), TCEQ must, at a minimum, provide grantees with notice of the alleged breach and an opportunity to contest the allegations. The Legislature has not established further procedures for complying with this due process requirement, and we therefore cannot specify what exact process must be afforded to each individual grantee.[2]

While the TCEQ demand letter may provide the requisite notice, due process also requires, at a minimum, that the alleged debtor have an opportunity to contest the demand for restitution. Although we are unable to provide you with the exact process necessary to comply with the statute's due process requirements, we can advise that until TCEQ has provided grantees with some opportunity to contest the amount or existence of the alleged debt, TCEQ "may not report a person" to the comptroller as indebted to the state under section 403.055(f). If, however, a debt to the state has been established at the conclusion of an administrative process that satisfies section 403.055(g), TCEQ may report the grantee to the comptroller as indebted to the state under section 403.055(f).

SUMMARY

The act of sending a letter requesting restitution damages based upon an unadjudicated claim for breach of a grant contract issued under chapter 386 of the Health and Safety Code will not, by itself, establish a debt to the state for purposes of section 403.055 of the Government Code. The Texas Commission on Environmental Quality could establish the existence of a debt to the state if specific contract terms that create an agreement between the state and grantee establish a debt, if the Commission can allege the existence of a debt by statutory reference, or if the Commission can establish the debt by some other lawfully effective means, including a TCEQ internal administrative process that provides the grantee with the requisite due process.

Once the Commission has established a debt to the state and provided grantees with due process, including an opportunity to contest the amount or existence of a contract breach, the Commission may report a person to the comptroller as indebted to the state under Government Code subsection 403.055(f).

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

JASON BOATRIGHT
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee

[1] See Letter and Brief from Mark R. Vickery, P.G., Exec. Dir., Tex. Comm'n on Env't Quality, to Honorable Greg Abbott, Tex. Att'y Gen. (Apr. 16, 2012), http://texasattorneygeneral.gov/opin ("Request Letter" & "Brief").

[2] The Texas Supreme Court has explained that "[w]hat process is due is measured by a flexible standard that depends on" three factors, which include: (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and (3) the government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. Univ. of Tex. Med. Sch. v. Than, 901 S.W.2d 926, 930 (Tex. 1995).