Can a Texas city use its own crews to run utility lines to a new subdivision instead of hiring a contractor?

Plain-English summary

A state representative, on behalf of the City of Dumas, asked whether the City could extend utilities to a residential subdivision using City labor and equipment, running the lines along public easements and rights-of-way. The background, filled in by the Texas Municipal League and confirmed by City counsel, was that Dumas does not routinely extend utility mains and had used private contractors on some past projects. Normally the City required a developer to pay for the labor and materials, donate the lines to the City, and get reimbursed as homeowners tapped in. Here, the City wanted to do the work itself with its own crews to provide gas, water, and sewer service, with the developer compensating the City by donating park land. The subdivision was not gated, the easements and rights-of-way were public, and the facilities were utility mains in those public ways, not private distribution lines crossing private property. Some local contractors questioned the City's authority to use City labor and equipment.

The opinion concluded the City had clear authority. Local Government Code section 402.001 lets a municipality construct and operate a water, sewer, gas, or electricity system inside or outside its boundaries, and section 402.002 lets a home-rule municipality own, construct, maintain, and operate such utilities and charge for service. Because a city has express authority to own, construct, and operate public utilities, it may decide to extend its lines to serve a subdivision, and that decision is reviewable only for abuse of discretion. The city is not required to take consideration in return, and it may set its own policy on when it will extend lines and what it will ask of a developer, so long as the policy is applied impartially.

The opinion also disposed of two side issues. Competitive-bidding laws do not bar a city from using its own labor or equipment instead of hiring out the work, citing the principle that a governmental body may perform its own work. And the constitutional bans on gifts of public money or things of value to private entities (article III, section 52 and article XI, section 3) were not violated, because a city may spend public resources to accomplish a public purpose even if a private interest incidentally benefits, and extending utilities serves a public purpose.

Currency note

This opinion was issued in 2001. 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. The Local Government Code provisions on municipal utility systems and the constitutional public-purpose rules can be refined over time, so verify current law before relying on any specific section mentioned here.

What the opinion meant for those who asked

The City of Dumas and the requesting representative (what the opinion held for them): The opinion held that the City had express statutory authority under sections 402.001 and 402.002 to extend utility mains on public easements and rights-of-way using its own labor and equipment, and that its decision was reviewable only for abuse of discretion.

Private contractors (what the opinion held for them): The opinion held that competitive-bidding laws do not prevent a municipality from doing utility-extension work with its own crews instead of awarding a contract.

Developers and homeowners (what the opinion held for them): The opinion held that a city may set its own impartial policy on when and on what terms it will extend utility lines, and that taking park land as compensation did not make the project an unconstitutional gift because utility extension serves a public purpose.

Common questions

Can a city run utility lines with its own crews instead of bidding the job out?
Under this opinion, yes. The opinion concluded that competitive-bidding laws do not prohibit a municipality from using its own labor and equipment to extend utilities.

Where does the city's authority to extend utilities come from?
The opinion grounded it in Local Government Code sections 402.001 and 402.002, which give cities express authority to own, construct, and operate water, sewer, gas, and electric systems inside or outside their limits.

Is it an illegal gift if a developer pays the city in park land instead of cash?
The opinion concluded no. Because extending utilities serves a public purpose, the constitutional bans on gifts to private entities were not violated even though a private interest incidentally benefited.

Does a city have to extend utilities whenever a developer asks?
The opinion explained a city is not obligated to take consideration and may set its own policy on when it will extend lines and what it requires, as long as the policy is applied impartially.

Background and statutory framework

Local Government Code section 402.001 permits a municipality to construct or operate a "utility system" (defined as a water, sewer, gas, or electricity system) inside or outside its boundaries and to regulate it to protect the municipality's interests. Section 402.002(b) permits a home-rule municipality to own and construct, inside or outside its limits, a gas system, electric lighting plant, sewage plant, or other public utility, to charge for services, to use eminent domain to acquire needed property, and to adopt charter rules for the utility. Tex. Loc. Gov't Code Ann. §§ 402.001, 402.002 (Vernon 1999 & Supp. 2001).

The opinion drew its abuse-of-discretion and impartial-policy points from Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448 (Tex. Civ. App.-Corpus Christi 1968, writ ref'd n.r.e.). For the competitive-bidding point it relied on Director of Dep't of Agriculture & Environment v. Printing Industries Ass'n of Texas, 600 S.W.2d 264 (Tex. 1980), and prior opinions allowing governmental bodies to perform their own work. For the public-purpose conclusion it relied on the rule that public resources may be spent for a public purpose despite incidental private benefit, citing A. & M. Consolidated Independent School District v. City of Bryan, 184 S.W.2d 914 (Tex. 1945), and Lenzen v. City of New Braunfels, 35 S.W. 341 (Tex. Civ. App. 1896, no writ).

Citations

Statutory and constitutional provisions:

• Tex. Loc. Gov't Code Ann. § 402.001(a), (b) (Vernon 1999)
• Tex. Loc. Gov't Code Ann. § 402.002(b) (Vernon Supp. 2001)
• Tex. Const. art. III, § 52; art. XI, § 3; art. XVI, § 21

Cases:

• Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448 (Tex. Civ. App.-Corpus Christi 1968, writ ref'd n.r.e.)
• Director of Dep't of Agric. & Env't v. Printing Indus. Ass'n of Tex., 600 S.W.2d 264 (Tex. 1980)
• A. & M. Consol. Indep. Sch. Dist. v. City of Bryan, 184 S.W.2d 914 (Tex. 1945)
• Lenzen v. City of New Braunfels, 35 S.W. 341 (Tex. Civ. App. 1896, no writ)

Prior Attorney General opinions:

• Tex. Att'y Gen. Op. Nos. JC-0016 (1999); JC-0143 (1999); JC-0288 (2000); DM-242 (1993); V-506 (1948)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0368
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2001/jc0368.pdf

Original opinion text

Best-effort transcription from the official scanned PDF. Minor character-level errors from the source OCR have been corrected; the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS

JOHN CORNYN

April 13, 2001

The Honorable David Swinford
Chair, Agriculture and Livestock Committee
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. JC-0368

Re: Whether a municipality may provide labor and equipment to construct utilities on public easements and rights-of-way to serve a private subdivision (RQ-0313-JC)

Dear Representative Swinford:

On behalf of the City of Dumas (the "City"), you ask whether the City may extend utilities to a residential subdivision on public easements and rights-of-way using City labor and equipment. Sections 402.001 and 402.002 of the Local Government Code explicitly authorize the City to do so.

(Footnote: Letter from Honorable David Swinford, Chair, Committee on Agriculture and Livestock, Texas House of Representatives, to Ms. Susan D. Gusky, Chair, Opinion Committee, Office of the Attorney General (Nov. 15, 2000) (on file with Opinion Committee) [hereinafter Request Letter]; see also Letter from Thomas C. Moore, Moore, Lewis, Russwurm & Elliott, P.C., to Honorable David Swinford, Chair, Committee on Agriculture and Livestock, Texas House of Representatives (Nov. 8, 2000) (on file with Opinion Committee, attached to Request Letter) [hereinafter Request Letter].)

Although your letter provides little background, the Texas Municipal League has provided relevant facts, and counsel for the City has confirmed the Municipal League's information. The Texas Municipal League reports that the City "has not experienced extensive growth [and] does not routinely extend its utility mains to serve new development," but it has, for some past projects, contracted with private contractors to construct the facilities. TML Letter, supra note 2, at 1. City counsel also indicates that, in general, when the City receives a request to extend utility lines, it requires the requestor to pay for the labor and materials and to donate the utility lines to the City, and then the City reimburses the requesting developer as private home owners tap into the utility lines. See Telephone Conversation, note 3; cf. Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448, 460 (Tex. Civ. App.-Corpus Christi 1968, writ ref'd n.r.e.) (suggesting that some municipalities refund water-main-extension costs to developers while others do not). But in this case, the City would like to provide its own labor and equipment to extend utility mains to a new residential subdivision to provide residents with City gas, water, and sewer services, rather than to contract with a third party to do so. See TML Letter, supra note 2, at 1. The subdivision's developer and the City have agreed that the developer will compensate the City by donating park land to the City. See id. The residential subdivision to be served in this case "is not a private, gated community; . . . the easements and rights-of-way along which the utility lines will be installed are public in nature; and the facilities involved are utility mains rather than private distribution lines." Id.; cf. Crownhill Homes, Inc., 433 S.W.2d at 450 & 451 n.2 (describing "off-site or approach mains" and distinguishing "on-site or local benefit mains"). Thus, the facilities to be extended do not cross private property and do not connect directly to private residences. See TML Letter, supra note 2, at 1. Rather, a private home owner will pay to have his or her home connected to the City's utility lines, which run in public easements or rights-of-way. Id. One or more local contractors question the City's authority to use City labor and equipment to extend the utility lines.

(Footnote: See Letter from Monte Akers, Director, Legal Services, Texas Municipal League, to Ms. Susan D. Gusky, Chair, Opinion Committee, Office of the Attorney General (Dec. 20, 2000) (on file with Opinion Committee) [hereinafter TML Letter].)

(Footnote: Telephone Conversation with Tom Moore, Moore, Lewis, Russwurm & Elliott, P.C. (Feb. 9, 2001) [hereinafter Telephone Conversation].)

We refer to the subdivision as a "residential subdivision" rather than a "private subdivision." You describe the subdivision as private, see Request Letter, supra note 1, at 1, but you state that the subdivision is not gated. We deduce, therefore, that subdivision streets are open to the general public. See TML Letter, supra note 2, at 1. We consequently presume that your phrase "private subdivision" refers to a subdivision of private residences.

We assume that the current City charter permits the proposed use of City labor and equipment. See Telephone Conversation, supra note 3. This office normally defers to a city official's construction of a city charter. See Tex. Att'y Gen. Op. No. JC-0143 (1999) at 3.

Sections 402.001 and 402.002 of the Local Government Code explicitly authorize the City to extend its utilities in the circumstances about which you ask. Section 402.001 expressly permits a municipality to "construct[] or operate a utility system inside or outside the municipal boundaries and [to] regulate the system in a manner that protects the interests of the municipality." TEX. LOC. GOV'T CODE ANN. § 402.001(b) (Vernon 1999). A "utility system" is defined to mean "a water, sewer, gas, or electricity system." Id. § 402.001(a). Section 402.002(b) expressly permits a home-rule municipality to own a utility system and to construct necessary facilities:

(b) A home-rule municipality may . . . own, construct inside or outside the municipal limits, and maintain and operate a gas system, electric lighting plant, sewage plant, or other . . . public utility and may require and receive compensation for services furnished for private purposes or otherwise. The municipality may use eminent domain authority to appropriate real property, rights-of-way, or other property as necessary to efficiently carry out those objects. . . . In its charter, the municipality may adopt rules it considers advisable for the acquisition or operation of the . . . public utility.

Id. § 402.002(b) (Vernon Supp. 2001).

Because a municipality has express authority to own, construct, and operate public utilities, it may decide to extend its utility lines to serve a residential subdivision, and its decision is subject to limited review. See Crownhill Homes, Inc., 433 S.W.2d at 457. With respect to its public utilities, a municipality's exercise of discretion may be reviewed only for abuse. See id. at 458-59. Moreover, under sections 402.001 and 402.002, a municipality is not obligated to receive from those for whom it extends utilities some sort of consideration. A municipal governing body can establish its own policy as to the circumstances in which it will extend utility lines and what it will require of a requesting developer, so long as the policy is applied impartially. See id. at 457.

Given that the City has express statutory authority to extend its utilities and we do not understand the contractors here to question the City's authority in this regard the City may choose to accomplish the extension using City labor and equipment or by contracting with a third party. Competitive-bidding laws do not prohibit a municipality from using municipal labor or equipment to perform desired services. See Director of Dep't of Agric. & Env't v. Printing Indus. Ass'n of Tex., 600 S.W.2d 264, 268 (Tex. 1980) (stating that article XVI, section 21 of Texas Constitution "does not prohibit the State from performing its own printing needs"); cf. Tex. Att'y Gen. Op. Nos. DM-242 (1993) at 3 (concluding that school district need not competitively bid contract if it wished to perform work with district employees); V-506 (1948) at 3 (stating that county commissioners court has option of performing road work itself, rather than using statutory competitive-bidding procedure).

Counsel for the City suggests that the issue you raise implicates article III, section 52 and article XI, section 3 of the Texas Constitution. See Telephone Conversation, supra note 3 (mentioning article III, section 52 of Texas Constitution). Article III, section 52 of the Texas Constitution forbids the legislature generally to authorize a municipality "to grant public money or thing of value" to a private entity. TEX. CONST. art. III, § 52. Article XI, section 3 similarly forbids a municipality to donate funds or things of value to a private entity. See id. art. XI, § 3. Consequently, a municipality may not gratuitously apply public resources to a private use, but it may expend public resources to directly accomplish a public purpose, even if the expenditure incidentally benefits a private interest. See Tex. Att'y Gen. Op. No. JC-0016 (1999) at 3; cf. Tex. Att'y Gen. Op. No. JC-0288 (2000) at 2 (discussing "public use"). A utility extension serves a public purpose. See also A. & M. Consol. Indep. Sch. Dist. v. City of Bryan, 184 S.W.2d 914, 915-16 (Tex. 1945) (concluding that land owned by city for electric lines is used for public purpose); Lenzen v. City of New Braunfels, 35 S.W. 341, 343 (Tex. Civ. App. 1896, no writ) (suggesting public benefits of utility service generally).

SUMMARY

A municipality may use municipal labor and equipment to extend utility lines on public easements and rights-of-way to serve a residential subdivision. See TEX. LOC. GOV'T CODE ANN. §§ 402.001, .002 (Vernon 1999 & Supp. 2001).

Yours very truly,

JOHN CORNYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

SUSAN D. GUSKY
Chair, Opinion Committee

Kymberly K. Oltrogge
Assistant Attorney General - Opinion Committee