Can a Texas mayor serve as both a board member and the paid executive director of his city's industrial development corporation?

Plain-English summary

The chair of a House committee asked the Attorney General whether the mayor of Crystal City could hold two roles at once: a seat on the board of the city's new industrial development corporation, and the corporation's salaried executive director job. The city council had appointed the mayor to the board, and the corporation then wanted to hire him as executive director. The question was whether any conflict-of-interest or dual-office rule blocked that arrangement.

The Attorney General concluded that nothing in existing law barred the dual service, but flagged a disclosure-and-abstention duty that could attach. The analysis turned on whether a board seat at an industrial development corporation is a "public office." Under the test from Aldine Indep. Sch. Dist. v. Standley, an officer is someone who exercises a sovereign function of government largely independent of others' control. Article 5190.6 of the Revised Civil Statutes says an industrial development corporation is not a political subdivision and that a governmental unit may never delegate to it any "attributes of sovereignty," including the powers to tax, to take by eminent domain, or the police power. Because the corporation has none of those sovereign attributes, a board member is not a public officer, so the common-law doctrine of incompatibility (which bars one person from holding two offices with conflicting duties, or from appointing himself to a second office he supervises) did not apply. For the same reason, article XVI, section 40 of the Texas Constitution, which bars holding more than one "civil office of emolument," was not violated: the executive-director post is not a public office at all.

The opinion did not stop there. It explained that chapter 171 of the Local Government Code, which governs conflicts of interest for local public officials, could still apply to the mayor (who plainly holds a public office as a member of the city's governing body). A person has a "substantial interest" in a business entity if funds received from it exceed ten percent of the person's gross income for the previous year. If the mayor's executive-director salary crossed that line, he would have to file an affidavit disclosing the interest and abstain from any city council vote or decision on a matter involving the corporation that would have a special economic effect on it distinguishable from the effect on the public. Violating that duty is a Class A misdemeanor. The opinion also noted section 171.009, which lets local officials sit on nonprofit boards without compensation, did not change the result, because the mayor's pay was tied to the executive-director job, not to his unpaid board membership. The opinion acknowledged the "potential for abuse" in a mayor running a corporation his own city created, but said the Legislature built that wall of separation and only the Legislature or the courts, not the Attorney General, could change it.

Currency note

This opinion was issued in 2002. 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. Article 5190.6 of the Revised Civil Statutes was later recodified into the Local Government Code, so the statutory citations here may no longer match current code sections.

What the opinion meant for those who asked

The committee and the Legislature (what the opinion held): The opinion held that, under the law as it then stood, an industrial development corporation board seat was not a public office, so no incompatibility or dual-office rule barred a mayor from also serving as the corporation's paid executive director. It noted the potential for abuse but said correcting it was a job for the Legislature or the courts.

The mayor and other local public officials (what the opinion held): The opinion held that the mayor could take the salaried executive-director position, but that if the salary exceeded ten percent of his prior-year gross income he had a "substantial interest" in the corporation under chapter 171 and had to file a disclosure affidavit and abstain whenever the council acted on a matter with a special economic effect on the corporation.

City councils and economic development corporations (what the opinion held): The opinion held that an industrial development corporation under article 5190.6 is statutorily walled off from the city's government, with its executive director appointed by, and answerable to, the corporation's board rather than the city.

Common questions

Can a Texas mayor also be the paid director of the city's economic development corporation?
Under this opinion, yes. The Attorney General found no incompatibility or dual-office bar, because a board seat at an article 5190.6 industrial development corporation is not a "public office."

Why isn't that a prohibited dual office under the Texas Constitution?
Article XVI, section 40 bars holding more than one civil office of emolument, but it only reaches actual public offices. The opinion concluded the corporation exercises no sovereign powers, so neither the board seat nor the director job counts as a public office.

Does the mayor have to disclose anything?
Possibly. If the director's salary is more than ten percent of his gross income for the prior year, chapter 171 of the Local Government Code requires him to file an affidavit disclosing the interest and to abstain when the council considers a matter that affects the corporation differently from the public.

What happens if he doesn't disclose and abstain?
The opinion noted that violating the chapter 171 disclosure-and-abstention requirement is a Class A misdemeanor.

Background and statutory framework

An industrial development corporation is created by a city under article 5190.6 of the Revised Civil Statutes to finance projects. It is incorporated under the Texas Non-Profit Corporation Act and, by statute, "is not intended to be and shall not be a political subdivision or a political corporation," and a governmental unit "shall never delegate to a corporation any of such unit's attributes of sovereignty, including the power to tax, the power of eminent domain, and the police power." Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 2(10), §§ 4A(c), 4B(c), 5, 22, 23(a) (Vernon Supp. 2002); Texas Non-Profit Corporation Act, article 1396-1.01, et seq.

The common-law doctrine of incompatibility bars one person from holding two positions with inconsistent public duties, and bars a public officer with the power of appointment from appointing himself, including a "self-employment" branch barring an officer from also holding an employment he supervises. Thomas v. Abernathy County Line Indep. Sch. Dist., 290 S.W. 152, 153 (Tex. Comm'n App. 1927, judgm't adopted); Ehlinger v. Clark, 8 S.W.2d 666, 674 (Tex. 1928). Those rules apply only if the person holds a "public office." Under Aldine Indep. Sch. Dist. v. Standley, 280 S.W.2d 578, 583 (Tex. 1955), the test for a public officer is whether a sovereign function of government is conferred on the individual to be exercised largely independent of the control of others. Because an industrial development corporation has no attributes of sovereignty, the opinion concluded a board member is not a public officer, so neither incompatibility nor article XVI, section 40 of the Texas Constitution applied. Tex. Const. art. XVI, § 40.

Chapter 171 of the Local Government Code separately governs conflicts of interest for "local public officials," which includes a member of a municipality's governing body. Tex. Loc. Gov't Code Ann. § 171.001(1) (Vernon Supp. 2002), § 171.001(2) (Vernon 1999). A person has a "substantial interest" in a business entity if funds received from it exceed ten percent of the person's gross income for the previous year. Id. § 171.002(a)(2); see id. § 171.002(a)(1). An official with a substantial interest must file an affidavit and abstain before a vote or decision on a matter that would have a special economic effect on the entity distinguishable from its effect on the public, and a violation is a Class A misdemeanor. Id. § 171.004(a)(1) (Vernon 1999), § 171.004(b), § 171.003. Section 171.009 permits uncompensated service on nonprofit boards but does not authorize compensation for board membership; here the salary attached to the director position, not the board seat. Id. § 171.009 (Vernon 1999).

Citations

Statutes:

• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 2(10) (Vernon Supp. 2002)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4A(c)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 4B(c)
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 5
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 22
• Tex. Rev. Civ. Stat. Ann. art. 5190.6, § 23(a)
• Texas Non-Profit Corporation Act, article 1396-1.01, et seq.
• Tex. Const. art. XVI, § 40
• Tex. Loc. Gov't Code Ann. § 171.001(1) (Vernon Supp. 2002)
• Tex. Loc. Gov't Code Ann. § 171.001(2) (Vernon 1999)
• Tex. Loc. Gov't Code Ann. § 171.002(a)(1)
• Tex. Loc. Gov't Code Ann. § 171.002(a)(2)
• Tex. Loc. Gov't Code Ann. § 171.003
• Tex. Loc. Gov't Code Ann. § 171.004(a)(1) (Vernon 1999)
• Tex. Loc. Gov't Code Ann. § 171.004(b)
• Tex. Loc. Gov't Code Ann. § 171.009 (Vernon 1999)

Cases:

• Thomas v. Abernathy County Line Indep. Sch. Dist., 290 S.W. 152, 153 (Tex. Comm'n App. 1927, judgm't adopted)
• Ehlinger v. Clark, 8 S.W.2d 666, 674 (Tex. 1928)
• Aldine Indep. Sch. Dist. v. Standley, 280 S.W.2d 578, 583 (Tex. 1955)

Prior Attorney General materials referenced: Tex. Att'y Gen. Op. Nos. JC-0407 (2001), JC-0338 (2001), JC-0199 (2000), JC-0109 (1999), DM-303 (1994); Tex. Att'y Gen. LA-114 (1975).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0547
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2002/jc0547.pdf

Original opinion text

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

OFFICE OF THE ATTORNEY GENERAL - STATE OF TEXAS
JOHN CORNYN

August 28, 2002

The Honorable Jim Solis Opinion No. JC-0547
Chair, Committee on Economic Development
Texas House of Representatives Re: Whether a mayor may serve as both a
P.O. Box 2910 member and executive director of an industrial
Austin, Texas 78768-2910 development corporation created by his city
(RQ-0521-JC)

Dear Representative Solis:

You have requested our opinion as to whether a mayor may simultaneously serve as a member and executive director of an industrial development corporation created by his city.[1] For the reasons set forth below, we conclude that there is no impediment to such service, but that, under certain circumstances, the mayor may be obliged to disclose his salaried interest in the industrial development corporation and abstain from participation in any matter involving the corporation that is brought before the city council.

You explain that the City of Crystal City (the "City") has recently established an industrial development corporation pursuant to article 5190.6 of the Revised Civil Statutes. See Request Letter, supra note 1. An "industrial development corporation" is defined as "a corporation created and existing under the provisions of this Act as a constituted authority for the purpose of financing one or more projects." TEX. REV. CIV. STAT. ANN. art. 5190.6, § 2(10) (Vernon Supp. 2002). A city is empowered to create an industrial development corporation under the statute's general provisions or under sections 4A and 4B. Under section 4A, a corporation "consists of five directors who are appointed by the governing body of the city and who serve at the pleasure of the governing body." Id. § 4A(c). A section 4B corporation "consists of seven directors who are appointed by the governing body of the eligible city for two-year terms of office." Id. § 4B(c). "A director may be removed by the governing body of the eligible city at any time without cause." Id. § 4B(c). You indicate that the city council of Crystal City has appointed its mayor to serve as a member of the board of its industrial development corporation. See Request Letter, supra note 1. The industrial development corporation in turn wishes to appoint that individual as its salaried executive director. See id. We assume for purposes of this opinion that neither the municipal charter of the City nor the articles of incorporation or by-laws of the Crystal City Economic Development Corporation present an obstacle to such appointment.

The common-law doctrine of incompatibility prohibits a public officer from holding two positions with inconsistent public duties. See Thomas v. Abernathy County Line Indep. Sch. Dist., 290 S.W. 152, 153 (Tex. Comm'n App. 1927, judgm't adopted). It also bars a public officer who has the power of appointment from appointing himself to another office. Ehlinger v. Clark, 8 S.W.2d 666, 674 (Tex. 1928). A related aspect of the latter doctrine prohibits an individual from holding both an office and an employment if the officer has a supervisory role over the employment. See Tex. Att'y Gen. LA-114 (1975) at 2-3. Such "self-employment" incompatibility would, in the situation you describe, bar a member of the board of an industrial development corporation from simultaneously serving as its executive director, but only if the board member holds a "public office."

An industrial development corporation is incorporated under the Texas Non-Profit Corporation Act, article 1396-1.01, et seq. TEX. REV. CIV. STAT. ANN. art. 5190.6, § 23(a) (Vernon Supp. 2002). It "shall have and exercise all of the rights, powers, privileges, authority, and functions given by the general laws of this state to nonprofit corporations incorporated under the Texas Non-Profit Corporation Act." Id. By statute, an industrial development corporation "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." Id. § 22. Furthermore, "a unit [of government] shall never delegate to a corporation any of such unit's attributes of sovereignty, including the power to tax, the power of eminent domain, and the police power." Id. (emphasis added). See generally Tex. Att'y Gen. Op. Nos. JC-0407 (2001), JC-0338 (2001), JC-0109 (1999). In Aldine Indep. Sch. Dist. v. Standley, the Texas Supreme Court said that "the determining factor which distinguishes a public officer from an employee is whether any sovereign function of the government is conferred upon the individual to be exercised by him for the benefit of the public largely independent of the control of others." Aldine Indep. Sch. Dist. v. Standley, 280 S.W.2d 578, 583 (Tex. 1955) (emphasis added). Because, by the terms of article 5190.6, an industrial development corporation bears none of the "attributes of sovereignty," it follows that, under the Aldine test, a member of the board of such a corporation is not a "public officer" for purposes of the common-law doctrine of incompatibility.

Our opinion in Attorney General Opinion JC-0199 does not require a contrary result. There, we concluded that a member of the Gilmer Volunteer Fire Department was barred by self-employment incompatibility from simultaneously serving as a member of the Gilmer City Council. In that case, however, the city charter created a "Fire Department for the City of Gilmer, to be maintained by the Gilmer Volunteer Fire Department for the protection of the City." Tex. Att'y Gen. Op. No. JC-0199 (2000) at 2. The position of fire chief had to be approved by the city council. Id. The chief, with the city manager's approval, appointed and removed "the employees of the department." Id. In contrast to a volunteer fire department considered in a prior opinion, JC-0199 found that "the department in Gilmer is clearly under the control of the city, is housed on city property, and is led by a chief who must be approved by the city council." Id.

By contrast, article 5190.6 makes clear that an industrial development corporation is not a part of a city's government. The executive director is appointed by the board of directors of the corporation, and is not under the control of the city. However fictional in practice the wall of separation between a city and its industrial development corporation, the legislature has erected that wall, and it is the legislature or the courts, and not this office, that must penetrate the wall of separation. We recognize the potential for abuse inherent in the appointment of, as a corporation's executive director, the mayor of the city that creates the corporation. Nevertheless, we conclude that, under existing law, "self-employment" incompatibility is not a bar to a board member's service as executive director of the corporation.

We must also consider the prohibition of article XVI, section 40 of the Texas Constitution, which bars a public officer from holding "more than one civil office of emolument." TEX. CONST. art. XVI, § 40. As we have noted, an industrial development corporation, by statute, has none of the "attributes of sovereignty," and that, as a result, under the test of Aldine, supra, a member of the board does not hold a "public office." It clearly follows then that a mere employee of the board does not hold a public office. Thus, even though the mayor holds a public office, he does not contravene article XVI, section 40 by holding the position of executive director of an industrial development corporation, because the latter position does not constitute a "public office." A mayor's service as executive director of his city's industrial development corporation may, however, implicate the conflict of interest provisions applicable to local public officials under chapter 171 of the Local Government Code.

Chapter 171 defines a "business entity" as "a sole proprietorship, partnership, firm, corporation, holding company, joint-stock company, receivership, trust, or any other entity recognized by law." TEX. LOC. GOV'T CODE ANN. § 171.001(2) (Vernon 1999). Section 171.002(1) of the Local Government Code, which provides that "a person has a substantial interest in a business entity if . . . he owns 10 percent or more of the voting stock or shares of the business entity or owns either 10 percent or more or $15,000 or more of the fair market value of the business entity," id. § 171.002(a)(1), is not applicable to an industrial development corporation, because an industrial development corporation is, by statute, "a nonmember, nonstock corporation." TEX. REV. CIV. STAT. ANN. art. 5190.6, § 5 (Vernon Supp. 2002). Section 171.002(2) provides, however, that "a person has a substantial interest in a business entity if . . . funds received by the person from the business entity exceed 10 percent of the person's gross income for the previous year." TEX. LOC. GOV'T CODE ANN. § 171.002(a)(2) (Vernon 1999). You indicate that, as executive director of the Crystal City Industrial Development Corporation, the mayor will receive a salary. See Request Letter, supra note 1. Thus, if the income the mayor receives as an executive director of the industrial development corporation exceeds ten percent of his total gross income for the previous year, he is deemed to have "a substantial interest in" the industrial development corporation.

Section 171.001 of the Local Government Code defines a "local public official" to include "a member of the governing body . . . of any . . . municipality." TEX. LOC. GOV'T CODE ANN. § 171.001(1) (Vernon Supp. 2002). Thus, the mayor of whom you inquire is a "local public official." Section 171.004 requires a local public official who has a "substantial interest" in a business entity to submit an affidavit disclosing that interest "before a vote or decision on any matter involving the business entity" and to abstain from further participation in the matter if the action would "have a special economic effect on the business entity that is distinguishable from its effect on the public." Id. § 171.004(a)(1) (Vernon 1999). The affidavit must be filed with the official record keeper of the governmental entity. Id. § 171.004(b). A violation of this provision is a class A misdemeanor. Id. § 171.003. See generally Tex. Att'y Gen. Op. No. DM-303 (1994).

We also note that section 171.009 of the Local Government Code does not prohibit the mayor's service as executive director of the industrial development corporation. That provision states:

It shall be lawful for a local public official to serve as a member of the board of directors of private, nonprofit corporations when such officials receive no compensation or other remuneration from the nonprofit corporation or other nonprofit entity.

TEX. LOC. GOV'T CODE ANN. § 171.009 (Vernon 1999). Although the mayor in the situation you pose will receive a salary for his service with the industrial development corporation, that salary is attached to his service as executive director. Section 171.009, on the other hand, prohibits the payment of compensation for one's membership on the board of directors of an industrial development corporation. Id. From the facts presented to us, the individual in question will not receive any compensation by virtue of his membership on the board of directors.

In sum, if the mayor that is the subject of this request receives more than ten percent of his gross income from his compensation as executive director of the Crystal City Industrial Development Corporation, he must disclose that interest whenever the city council of Crystal City considers any matter involving the industrial development corporation, so long as the action contemplated will have an economic effect on the industrial development corporation that is different from its effect on the public. In such instance, he must file "an affidavit stating the nature and effect of the interest" and he must "abstain from further participation in the matter."

SUMMARY

Under current law, a mayor of a city that creates an industrial development corporation pursuant to article 5190.6, Revised Civil Statutes, is not prohibited from serving as a salaried executive director of the corporation. If, however, he receives more than ten percent of his gross income from his compensation as executive director, he must disclose that interest whenever the city council considers any matter involving the industrial development corporation, so long as the action contemplated will have an economic effect on the industrial development corporation that is different from its effect on the public. In such instance, he must file "an affidavit stating the nature and effect of the interest" and he must "abstain from further participation in the matter."

JOHN CORNYN
Attorney General of Texas

HOWARD G. BALDWIN, JR.
First Assistant Attorney General

NANCY FULLER
Deputy Attorney General - General Counsel

SUSAN DENMON GUSKY
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Jim Solis, Chair, Committee on Economic Development, Texas House of Representatives, to Honorable John Cornyn, Texas Attorney General (Mar. 4, 2002) (on file with Opinion Committee) [hereinafter Request Letter].