Does Texas prevailing-wage law apply to a project built by an economic development corporation?

Texas AG Opinion JC-0032: Prevailing Wage and Development Corporation Projects

Plain-English summary

The Potter County Attorney asked whether Texas's prevailing-wage statute, chapter 2258 of the Government Code, applies when an economic development corporation builds something. The specific facts: the Amarillo Economic Development Corporation, created by the City of Amarillo under section 4A of the Development Corporation Act of 1979, agreed to build a facility for a private company, lease it to that company, and give the company an option to buy after twenty years. The corporation would contract with a private builder, and neither the city nor any other government entity would be a party to that construction contract.

The Attorney General concluded chapter 2258 did not apply. The statute requires the prevailing wage only for a worker employed on a public work "by or on behalf of the state or a political subdivision." The Development Corporation Act says in plain terms that a development corporation is not a political subdivision or political corporation within the meaning of the constitution and the laws of the state. So a development corporation's own projects fall outside chapter 2258.

The harder argument was whether the corporation acts "on behalf of" the city that created it. Tracing chapter 2258 back to its 1933 predecessor (former article 5159a), which it codified without substantive change, the opinion read the phrases "on behalf of" and "any officer or public body" narrowly. Those phrases capture contracts to which the state or a political subdivision is actually a party, signed by an officer or governing body authorized to bind it. They do not stretch the law to public entities that are not political subdivisions. Nothing in the Development Corporation Act makes the creating city a party to the corporation's contracts, so the city was not a contracting party by operation of law. Whether a city is a party to a particular contract is a fact question of contract interpretation, which the Attorney General does not resolve.

The opinion also rejected the argument that paying for the project with public funds (here, sales-tax proceeds dedicated to the corporation) by itself makes it a covered "public work," and the argument that the corporation is a "public body" under the statute. The "public funds" provision narrows the definition of public works; it does not expand who is covered. The opinion closed by noting that the 1933 law predated entities like development corporations, and that whether to extend prevailing-wage coverage to their publicly financed projects is a decision for the Legislature.

Currency note

This opinion was issued in 1999. 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.

Common questions

Does Texas prevailing-wage law cover work done by an economic development corporation?
Not by itself. The opinion concluded chapter 2258 reaches only workers employed on a public work by or on behalf of the state or a political subdivision, and the Development Corporation Act expressly says a development corporation is not a political subdivision. So the corporation's own projects are not covered.

When would prevailing wage apply to a development corporation project?
Only if the state or a political subdivision is actually a party to the construction contract. The opinion read "on behalf of" to mean contracts the state or a political subdivision is a party to, signed by an officer or governing body authorized to bind it. If a city signs on as a contracting party, the analysis changes.

Is the city automatically a party because it created the corporation and approves its projects?
No. The opinion found nothing in the Development Corporation Act that makes the creating city a party to the corporation's contracts. The city's approval and oversight powers do not make it a contracting party. Whether the city is a party to a specific contract is a fact question of contract interpretation the opinion did not decide.

Does using public money (like sales-tax proceeds) make it a covered public work?
The opinion said no, not on its own. The provision tying coverage to projects paid for with public funds limits what counts as a "public work"; it does not expand the law to cover entities that are not the state or a political subdivision. The project still has to be undertaken by or on behalf of the state or a political subdivision.

Background and statutory framework

Chapter 2258 was first enacted in 1933 as article 5159a of the Revised Civil Statutes and was repealed and recodified, without substantive change, as chapter 2258 in 1995. Section 2258.021(a) requires the prevailing wage for a worker employed on a public work by or on behalf of the state or a political subdivision, and section 2258.021(c) defines when a worker employed by a private contractor is on a public work: when employed to execute a contract for the public work with the state, a political subdivision, or any officer or public body of the state or a political subdivision. Section 2258.001(2) defines "public body" as one awarding a contract on behalf of the state or a political subdivision, and section 2258.002(a) limits the chapter to public works paid for in whole or part from public funds.

Because chapter 2258 is a nonsubstantive codification, the opinion construed it consistently with former article 5159a (citing City of La Porte v. Barfield and Johnson v. City of Fort Worth). Reading section 1 of the old statute, the opinion explained that "on behalf of" covers private contractors employing workers for the state or a political subdivision, and that "any officer or public body" refers to officers and bodies authorized to contract on the government's behalf, such as a mayor or a city council, relying on Opinion O-2059 (1940). It did not extend coverage to public entities that are not political subdivisions.

Applying that to the Development Corporation Act of 1979, section 22 of article 5190.6 declares that a development corporation is not a political subdivision or political corporation within the meaning of the constitution and laws of the state. The opinion noted the corporation's other public-flavored attributes, governmental immunity and coverage under the Open Meetings and Open Records Acts (sections 4A(i), 11(b), 14A), and the city's approval and control powers (sections 21 and 23(a)(11)), but concluded none of that made the corporation a political subdivision or the city a contracting party. The "public funds" language in section 2258.002(a), derived from section 4 of former article 5159a, defines "public works" rather than expanding coverage (again citing O-2059). On the Attorney General's practice of not interpreting specific contracts, the opinion cited DM-383 (1996), DM-192 (1992), and JM-697 (1987). It left any expansion of coverage to the Legislature.

Citations

Statutes:

• TEX. GOV'T CODE ANN. §§ 2258.001(2), 2258.002(a), 2258.021(a), (c) (Vernon 1999)
• TEX. REV. CIV. STAT. ANN. art. 5190.6 (Development Corporation Act of 1979), §§ 22, 3(1), 4A(d), 4A(i), 11(b), 14A, 21, 23(a)(11) (Vernon 1987 & Supp. 1999)
• Former TEX. REV. CIV. STAT. ANN. art. 5159a (1933)

Cases:

• City of La Porte v. Barfield, 898 S.W.2d 288 (Tex. 1995)
• Johnson v. City of Fort Worth, 774 S.W.2d 653 (Tex. 1989)

Prior Attorney General opinions discussed: O-2059 (1940), DM-383 (1996), DM-192 (1992), JM-697 (1987).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0032
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1999/jc0032.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
JOHN CORNYN

April 12, 1999

The Honorable Sonya Letson
Potter County Attorney
500 South Fillmore, Room 303
Amarillo, Texas 79101

Opinion No. JC-0032

Re: Whether chapter 2258 of the Government Code, which requires payment of prevailing wages in connection with public work contracts, applies to a project of a development corporation created under article 5190.6 of the Revised Civil Statutes (RQ-1207)

Dear Ms. Letson:

You ask whether chapter 2258 of the Government Code, which requires payment of prevailing wages to workers employed on a public work by or on behalf of the state or a political subdivision of the state, applies to workers employed on a project undertaken by a development corporation created under the Development Corporation Act of 1979, TEX. REV. CIV. STAT. ANN. art. 5190.6 (Vernon 1987 & Supp. 1999). Because a development corporation created under the Development Corporation Act of 1979 is not a political subdivision for purposes of the laws of this state, see id. § 22 (Vernon 1987), we conclude that chapter 2258 does not apply to workers employed by or on behalf of a development corporation. Chapter 2258 will apply to workers employed on a project undertaken by a development corporation only if the development corporation employs the workers on behalf of the state or a political subdivision of the state. In order for the workers to be employed on behalf of the state or a political subdivision of the state, the state or political subdivision must be a party to the construction contract.

You inform us that the Amarillo Economic Development Corporation (the "AEDC"), a development corporation in your county created by the City of Amarillo (the "City") under section 4A of the Development Corporation Act of 1979, has agreed to construct a facility for a private company. Upon completion of the construction, the AEDC will lease the facility to the company, which will have the option to buy the land and improvements after twenty years. We assume, based on the information you provided, that the AEDC will enter into a contract for construction of the facility with a private contractor and that neither the City of Amarillo, the state, nor any other political subdivision of the state will be a party to the construction contract.

We begin with a brief review of the relevant statutory provisions. The prevailing wage statute was first enacted in 1933 as article 5159a of the Revised Civil Statutes. Article 5159a was repealed and codified as chapter 2258 of the Government Code as part of the nonsubstantive revision of statutes in 1995. Section 2258.021, the operative provision of chapter 2258, provides in pertinent part that:

(a) A worker employed on a public work by or on behalf of the state or a political subdivision of the state shall be paid [not less than the prevailing wage.]

. . .

(c) A worker is employed on a public work for purposes of this section if the worker is employed by a contractor or subcontractor in the execution of a contract for the public work with the state, a political subdivision of the state, or any officer or public body of the state or political subdivision of the state.

TEX. GOV'T CODE ANN. § 2258.021 (Vernon 1999). Section 2258.001 defines a "public body" as "a public body awarding a contract for a public work on behalf of the state or a political subdivision of the state." Id. § 2258.001(2). Section 2258.002 provides that:

This chapter applies only to the construction of a public work, including a building, highway, road, excavation, and repair work or other project development or improvement, paid for in whole or in part from public funds, without regard to whether the work is done under public supervision or direction.

Id. § 2258.002(a).

First, we consider whether the AEDC is a political subdivision subject to chapter 2258. Again, section 2258.021 provides: "A worker employed on a public work by or on behalf of the state or a political subdivision of the state shall be paid not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which the work is performed." Id. § 2258.021(a)(1) (emphasis added). A worker employed by a private contractor or subcontractor is employed on a public work if employed "in the execution of a contract for the public work with the state, a political subdivision of the state, or any officer or public body of the state or a political subdivision of the state." Id. § 2258.021(c). The Development Corporation Act of 1979 expressly provides that a development corporation created under the Act "is not intended to be and shall not be a political subdivision or a political corporation within the meaning of the constitution and the laws of the state." TEX. REV. CIV. STAT. ANN. art. 5190.6, § 22 (Vernon 1987). For this reason, we conclude that a development corporation is not a political subdivision for purposes of chapter 2258 and that chapter 2258 does not apply to workers employed by or on behalf of a development corporation or by a contractor in the execution of a contract with a development corporation.

Next, we must decide whether, for purposes of chapter 2258, a development corporation contracts on behalf of the city that created it. Based on the language of its statutory predecessor, we conclude that chapter 2258 applies only to work to which the state or a political subdivision of the state is a party by contract. We also conclude that cities are not generally party to the contracts of the development corporations they create.

We find the terminology of chapter 2258 unclear. Section 2258.021(a) establishes the right of workers "employed on a public work by or on behalf of the state or a political subdivision of the state" to be paid a prevailing wage. See TEX. GOV'T CODE ANN. § 2258.021(a) (Vernon 1999) (emphasis added). Section 2258.021(c) establishes that a worker employed by a private contractor or subcontractor is employed on a public work if the worker is employed "in the execution of a contract for the public work with the state, a political subdivision of the state, or any officer or public body of the state or a political subdivision of the state." Id. § 2258.021(c) (emphasis added). The meaning of the phrases "on behalf of" and "any officer or public body" in section 2258.021 is unclear. While these phrases could be read to further expand the scope of chapter 2258 to workers employed by or on behalf of public entities other than the state and its political subdivisions, we believe, based on the chapter's statutory predecessor, that this construction is incorrect.

As noted above, former article 5159a was repealed and codified as chapter 2258 without substantive change in 1995. The language of section 2258.021 derives from section 1 of former article 5159a. Because section 2258.021 is a nonsubstantive codification of section 1, we construe it consistently with its statutory predecessor. See City of La Porte v. Barfield, 898 S.W.2d 288, 294 (Tex. 1995) (construing nonsubstantive codification consistently with statutory predecessor); Johnson v. City of Fort Worth, 774 S.W.2d 653, 654-55 (Tex. 1989) (same).

Section 1 of former article 5159a provided that workers entitled to receive not less than the prevailing wage were those

employed by or on behalf of the State of Texas, or by or on behalf of any county, city and county, city, town, district or other political subdivision of the State, engaged in the construction of public works, exclusive of maintenance work. Laborers, workmen, and mechanics employed by contractors or subcontractors in the execution of any contract or contracts for public works with the State, or any officer or public body thereof, or in the execution of any contract or contracts for public works, with any county, city and county, city, town, district or other political subdivision of this State, or any officer or public body thereof, shall be deemed to be employed upon public works.

In the first sentence of this provision, the phrase "on behalf of" embraced situations in which others, such as private contractors or subcontractors, employ workers on behalf of the state or a political subdivision. The second sentence established when a worker employed by a private contractor or subcontractor is entitled to the prevailing wage, specifying that such a worker is entitled to the prevailing wage if the worker is employed to execute a contract "with" the state or a political subdivision. In this sentence, the phrase "with . . . any officer or public body" makes it clear that a contract executed by an "officer," such as the head of a state agency or a mayor, or a "public body," such as a state board, county commissioners court, or city council, is a contract "with" the state or political subdivision. We believe that the phrase "any officer or public body" refers to officers and bodies authorized to contract on behalf of the state or a political subdivision. See Tex. Att'y Gen. Op. No. O-2059 (1940) at 4 (concluding that Texas State Highway Department was a "public body" within the meaning of former article 5159a because "a contract made by the State Highway Department is a contract of the State"). We do not believe that the term "public body" expanded the scope of former article 5159a to workers employed by or on behalf of public entities other than the state and its political subdivisions. For this reason, we conclude that the phrases "on behalf of" and "any officer or public body" do not expand the scope of chapter 2258 beyond the contracts of the state and political subdivisions and that chapter 2258 applies only to those public works contracts to which the state or a political subdivision of the state is a party.

Cities are not generally party to the contracts of the development corporations they create. No provision in the Development Corporation Act of 1979 authorizes a development corporation to execute a contract on behalf of the unit that created it or provides that a unit that has created a development corporation is in any way a party to the development corporation's contracts. Of course, a city might be a party to a particular development corporation contract as a matter of fact. Whether a city (or the state or any other political subdivision) is a party to a particular contract, however, is a question of fact and contract interpretation beyond the purview of this office.

[Footnote: see Tex. Att'y Gen. Op. Nos. DM-383 (1996) at 2 (interpretation of contract not appropriate function for opinion process), DM-192 (1992) at 10 ("This office, in the exercise of its authority to issue legal opinions, does not construe contracts."), JM-697 (1987) at 6 ("review of contracts is not an appropriate function for the opinion process").]

Now we turn to your specific points about chapter 2258. You urge us to conclude that chapter 2258 applies to the AEDC project at issue for a number of reasons. First, you contend that chapter 2258 applies because the project is a "public work" given that it will be paid in part with public funds and that development corporation projects serve the "public purpose" of promoting economic development. See TEX. REV. CIV. STAT. ANN. art. 5190.6, § 3(1) (Vernon Supp. 1999).

In support of your argument that the AEDC project is a public work, you rely on section 2258.002, which provides:

This chapter applies only to the construction of a public work, including a building, highway, road, excavation, and repair work or other project development or improvement, paid for in whole or in part from public funds, without regard to whether the work is done under public supervision or direction.

TEX. GOV'T CODE ANN. § 2258.002(a) (Vernon 1999). While we agree that this provision, taken in isolation, could be construed to establish that chapter 2258 applies to the construction of any building paid in whole or in part with public funds, we do not believe that it may be construed so broadly. This language derives from section 4 of former article 5159a, which followed the language in section 1 establishing that the prevailing wage requirement applies to workers "employed by or on behalf" of the state or a political subdivision of the state engaged in the construction of public works. The purpose of section 4 was not to expand the scope of the prevailing wage requirement but rather to clarify the meaning of "public works." Section 4 established that only public works paid for in whole or in part with public funds were subject to the prevailing wage requirement. See Tex. Att'y Gen. Op. No. O-2059 (1940) at 6 (construing section 4 of former article 5159a to provide that a public work is "[a]ny construction or repair work done under contract, and paid for in whole or in part out of public funds").

Construing section 2258.002(a) consistently with its statutory predecessor and in light of chapter 2258 as a whole, we conclude that section 2258.002(a) does not define the term "public works," but rather limits the scope of chapter 2258 to public works paid for in whole or in part with public funds. In order to establish that chapter 2258 applies to a particular worker, one must first establish that the worker is "employed on a public work by or on behalf of the state or a political subdivision of the state." TEX. GOV'T CODE ANN. § 2258.021(a) (Vernon 1999) (emphasis added).

[Footnote: Section 2258.002(a) appears to derive from the following portion of section 4: "Any construction or repair work done under contract, and paid for in whole or in part out of public funds, whether or not done under public supervision or direction, or paid for wholly or in part out of public funds, shall be held to be 'public works' within the meaning of this Act. The term 'locality in which the work is performed' shall be held to mean the county, city and county, city, town, district or other political subdivision of this State in which the building, highway, road, excavation, or other structure, project, development or improvement is situated in all cases in which the contract is awarded by the State, or any public body thereof, and shall be held to mean the limits of the county, city and county, city, town, district or other political subdivisions on whose behalf the contract is awarded in all other cases." Act of Mar. 21, 1933, 43d Leg., R.S., ch. 45, § 4, 1933 Tex. Gen. Laws 91, 93 (emphasis added).]

We understand that the AEDC is financed with sales and use tax proceeds. See TEX. REV. CIV. STAT. ANN. art. 5190.6, § 4A(d) (Vernon Supp. 1999) (authorizing city to levy sales and use tax for the benefit of a development corporation if approved by a majority of the voters). Nevertheless, we believe a project of the AEDC does not constitute a "public work" within the meaning of chapter 2258 unless the project is undertaken by or on behalf of the state or a political subdivision of the state.

Next, while you acknowledge that the AEDC is not itself a political subdivision, you argue that the project is subject to chapter 2258 because the AEDC acts on behalf of the City of Amarillo. You suggest that the AEDC acts on behalf of the City of Amarillo because the City created it and must give final approval to the project. See id. §§ 21 ("[t]he unit will approve all programs and expenditures of the corporation"), 23(a)(11) (powers of development corporation "subject at all times to the control of the governing body of the unit under whose auspices the corporation was created"). You also note that the AEDC is an "authority and an instrumentality" for purposes of federal tax law "authorized to act on behalf of the" City. See id. § 22 (Vernon 1987). As noted above, however, we believe that the term "employed on a public work . . . on behalf of" as used in chapter 2258 refers to workers employed pursuant to contracts with the state or a political subdivision, contracts to which the state or a political subdivision is a party. Again, no provision in the Development Corporation Act of 1979 authorizes a development corporation to execute a contract on behalf of the unit that created it or provides that a unit that has created a development corporation is in any way a party to the development corporation's contracts. The City of Amarillo is not party to AEDC contracts by operation of the Development Corporation Act of 1979. Whether the City is a party to a particular AEDC contract will depend upon the terms of the contract.

Finally, you argue that the AEDC is a "public body" within the meaning of chapter 2258. In support of this argument, you note that a development corporation like the AEDC is entitled to governmental immunity and is subject to the Open Records and Open Meetings Acts. See id. §§ 4A(i) (Vernon Supp. 1999) (development corporation "is a governmental unit and its actions are governmental functions" for purposes of Texas Tort Claims Act); 11(b) (Vernon 1987) (development corporation board of directors subject to Open Meetings Act); 14A (development corporation board of directors subject to Open Records Act). You cite section 2258.001, which defines the term "public body" to mean "a public body awarding a contract for a public work on behalf of the state or a political subdivision of the state." TEX. GOV'T CODE ANN. § 2258.001(2) (Vernon 1999). Your argument suggests that the term "public body" extends chapter 2258 to workers employed by or on behalf of public entities other than the state and political subdivisions of the state. As noted above, however, we believe that the statutory predecessor to chapter 2258 demonstrates that the term "public body" refers to the governing body of a state agency or political subdivision authorized to execute a contract on the state's or political subdivision's behalf. We do not believe that the term "public body" extends the scope of chapter 2258 to include workers employed on contracts with public entities other than the state or political subdivisions.

In sum, chapter 2258 applies to a worker employed on a public work "by or on behalf of the state or a political subdivision of the state." Id. § 2258.021(a)(1). Because a development corporation created under the Development Corporation Act of 1979 is not a political subdivision for purposes of the laws of this state, see TEX. REV. CIV. STAT. ANN. art. 5190.6, § 22 (Vernon 1987), we conclude that chapter 2258 does not apply to a worker employed by or on behalf of a development corporation. Chapter 2258 will apply to a worker on a project undertaken by a development corporation only if the development corporation undertakes the project on behalf of the state or a political subdivision of the state. In order for the project to be undertaken on behalf of the state or a political subdivision, the state or political subdivision must be a party to the construction contract.

We note that the statutory predecessor to chapter 2258, enacted in 1933 as a response to the Great Depression, was drafted in a time before entities like development corporations were authorized to undertake projects with public monies. Furthermore, the legislature specified that a development corporation is not a political subdivision when it passed the Development Corporation Act in 1979, a decade before it first amended the Act to authorize cities to levy sales and use taxes for the benefit of section 4A and section 4B development corporations. Whether chapter 2258 or the Development Corporation Act of 1979 should be amended to guarantee a prevailing wage to workers on development corporations' publicly financed projects is a matter committed to the legislature.

SUMMARY

Chapter 2258 of the Government Code applies to a worker employed on a public work "by or on behalf of the state or a political subdivision of the state." TEX. GOV'T CODE ANN. § 2258.021(a) (Vernon 1999). Because a development corporation created under the Development Corporation Act of 1979 is not a political subdivision for purposes of the laws of this state, see TEX. REV. CIV. STAT. ANN. art. 5190.6, § 22 (Vernon 1987), chapter 2258 does not apply to a worker employed by or on behalf of a development corporation. Chapter 2258 will apply to a worker on a project undertaken by a development corporation only if the development corporation undertakes the project on behalf of the state or a political subdivision of the state. In order for the project to be undertaken on behalf of the state or a political subdivision, the state or political subdivision must be a party to the construction contract.

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General