Could a higher-education-authority board member vote on student-loan matters benefiting a bank in which the member had a substantial interest?
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This page answers the general question as of 1984. Ezel answers yours: what it means for your facts, under current Texas law, with citations.
Texas AG Opinion JM-178: Student Loan Board Conflicts
Plain-English summary
JM-178 concluded that a director of a higher education authority was a local public official subject to article 988b's conflict-of-interest restrictions.
"A member of the board of directors of a higher education authority is a public official within the meaning of article 988b, V.T.C.S."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
A director with a substantial interest in a lending institution violated the act by knowingly participating in a board vote or decision when the director could reasonably foresee that the action would produce interest income or another economic benefit for the institution.
"Such a board member with a substantial interest in a lending institution violates that act by knowingly participating in a vote or decision of the board of directors if the member can reasonably foresee that such action will result in interest income to the lending institution from guaranteed student loans."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
The opinion treated interest received by a lender holding a guaranteed student loan as an economic benefit under the conflict statute.
"The interest income to a lending institution that it receives as the holder of a guaranteed student loan constitutes an economic benefit within the meaning of article 988b."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Currency note
This opinion was issued in 1984. 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
Why was a higher education authority director a local public official?
The authority was a locally created governmental entity governed by a board whose directors exercised responsibilities beyond advice.
"A member of such a board clearly exercises responsibilities beyond those that are advisory in nature and is subject to the provisions in article 988b which prohibit certain conduct."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
How was a higher education authority created?
A city or group of cities created it under Education Code chapter 53.
"A higher education authority is created under chapter 53 of the Texas Education Code by the governing body of a city or cities."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
What counted as a substantial ownership interest?
The statute included ownership of at least 10 percent of voting stock or shares or at least $2,500 of the business's fair market value.
"The interest is ownership of 10 percent or more of the voting stock or shares of the business entity or ownership of $2,500 or more of the fair market value of the business entity."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Could income from the business create a substantial interest?
Yes. The quoted statute included funds from the business exceeding 10 percent of the person's gross income for the previous year.
"Funds received by the person from the business entity exceed 10 percent of the person's gross income for the previous year."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Did a family member's interest count?
The statute attributed specified interests of people related within the first or second degree by affinity or consanguinity to the local official.
"An interest of a person related in the first or second degree by either affinity or consanguinity to the local public official is a 'substantial interest.'"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Was any foreseeable benefit enough, or only a large benefit?
JM-178 read the statute as applying when the board action foreseeably conferred an economic benefit, regardless of the benefit's source or amount.
"Section 3(a)(1) appears to refer to an action on a matter if it is reasonably foreseeable that the action will confer an economic benefit to the business entity in question, regardless of the source or the amount of economic benefit."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Background and statutory framework
The request concerned a bank officer serving on a higher education authority board when the bank or an affiliate made student loans guaranteed through the authority.
"If the financial institution with which such board member is associated, or an affiliate of such institution ... makes student loans guaranteed by the higher education authority" would participation violate the act?
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
The authority was a body politic and corporate that could sue, be sued, and adopt bylaws. It was also subject to the Open Meetings and Open Records Acts.
"An authority is a 'body politic and corporate' which may sue and be sued and may make, amend, and repeal its bylaws."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
The opinion described guaranteed-loan payments as including interest subsidies and lender allowances, with the authority paying unpaid principal and interest after default.
"In case of default, the higher education authority guaranteeing the loan pays the student's unpaid principal and interest."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Citations and references
- Article 988b supplied the local-official definition, substantial-interest tests, and prohibited participation rule.
"A local public official commits a Class A misdemeanor ... if he knowingly participates in a vote or decision on a matter involving a business entity in which the local public official has a substantial interest."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
- Education Code chapter 53 supplied the authority's creation, corporate status, and board governance.
"It is a local governmental entity which is governed by its board of directors."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Source
- Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0178
- Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1984/jm0178.pdf
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.
The Attorney General of Texas
June 22, 1984
JIM MAnOX
Attorney General
BUpIW7 Honorable Carl A. Parker Opioio~ NO. JM-178
P.
Atntln.TX. 70lll- 2548 c!-irun
512/4752501 Senate Eduutha Codttee Ile: Whether au officer of
Telex 9lwEl711567 'TexaeState 8enate banklug inetitutionwho eervee
Tdwo~lor 5W475.0288 P, 0. Box 12068.Capitol Station am a member of the board of
~Austln,Texu 78711 higher education authority
714Jackson.Suit. 700 , eubject to article 988b.
oallaa, TX. 752024506 V.T.C.S.
214il42a44
Dear SenatorParker:
4824AlberM Avr. Buna 1w
El Paso. TX. 7WO527W You have .a&d the followingtwo quutimcr relating to the bill
01- frequently-referredto ae the Local Offlciale Conflict of Intereet
Bill:
,(l) Ia ac offlclal of a .backlcginetitutlon
le~iog.ae a member of the board.:of
dlrectoraof a
hlgber ,,..educatioa
authority a 'local public
.offlckl! under the.prwimlone of article 988b.
j 7.T.C.S.T.~ .' ., 3r.
(2) If eo, and if the financial lnetltutlon
,i yit~+tlch+qch~,boatdmember 1~ meociated. or aa
.>:'rqp .I ~~fl&i+~e~,~~laatltatlon~ acb am :1 Iback,aolding
-~'t ,-~-.
( 2c:.>$?qfmY~$ ,av- t+.-makee::m:etudent:,.-~loace
!:,>Ti
I,)'7 ,,;sutnnteca.~b~'il~hipher ~edacu:oa~cothorlty; .doee
euch board member then vioIate the prwieione of
200 MaIn PIUL suna 400 •~~~1~,,,~988b.br~,particlpatlag In a vote or
Ban Antonlo. TX. 7Bm527w ..,II [email protected] board .ofdlrectoroIf hla back or
512G254181 .,,filuncia~ lnetitutloca~::~affillatedtherevith
recelvea..ln~ereet..:Ancome'011ln.~:eligible
etudect
An Equal oppwtunlty/ $oan o~/procecdepeld in the ,weat of default oc
Aftlmutlva Actton Empkwr euch loan frao,,tho <guaraatee.fuad of the higher
educationlutborlty?
He con&de that r-member of the board of directoreof a higher
lducatloc.aiihorltyie l local.publicofficialuithia the maniag
the Local OfficialaZocflict of Intereat Bill and. therefore.
subjectto the applicableprovieioneof the act. It ie our opinion
thet a
board member ufth a lubetantial interest in a lending
lcetltutloc vlolatee the urovleiono~of thet act bv knovlcgb
If
Honorable Carl A. Parker - Page 2 (JIG178)
participatingin a vote oredecisionof the board of directorsif the
member caa reasonablyforeecc that such action vi11 result In receipt
of Interest incolleetothe lending Institutionfrom eligible student
loans.
Section l(1). article 988b. V.T.C.S. defines a "local public
official"as*
.
a member of the governingbody or another.offlcar.
whether elected o tlppolated,paid ot unpaid. of
any district (lncludlnS e school district),
-U-Y. city. precinct, central lppralaal
diatrlct.transitauthorityor district.or other
local gave-ntal entity UhO' exercl8ee
reaponsibilitiee beyond those that are advlaoryln
nature.
A higher educationauthorityIs craatedunder chapter 53 of the
Texas EducationCode by the governingbody of a city or cities. Sec.
53.11. .An-authority Isa "body politic.andcorporate"which may sue
and be cued and may Uke. rrcnd. aad repeal its bylaws. Sec. 53.13.
It is a governmentalbody mhlch is subject to the Cpen MeetingsAct,
article 6252-17. V.T.C.S.. and to the Open Records Act, article
625247a. V.T.C.S.'See AttorneyGeneralOpinionIfW-177(1980). It %e
a local .gove-ntal: entity vhlch is governed by ltn board of
~dltectora. Sec. 53.14. A member of -such'aboard clearly exercises
reeponalbUltlea beyond thorn8 that are advisory in nature and is
subject to tha provialoas in article 988b vrhlch prohibit certain
conduct.
-~:.A.~
.local~publlc-@rofflcial
c&to a Claaa A tiedemeanor under
.section:S(a)@)of lrt4cle9SSb, ciecpt'lnthose lnmtancesprwidad.ln
'rectionb~~-(~ich:-pn*~ldes'~~tar~~al~for ~ibmtcntioa frop voting on
utt~~wh&ivthe~&ffclaf la &atercsted)3f he knwingly
._ c,,..~,..
partldpatea'ina'vote or 'dedisionon a Utter
invoWing ~.a bualnees entltp in ~whlch the local
. publioiofficial.haa‘a aubstaatlalinterest If it
is reaaonably~'foreseaable'that'an ~actlonon the
rtter ~vouldconfer an 'ecoiioric .benefltto the
businessentity iaoolved . . . .
The elements of the offenae involve aeveral factual
determinations.one of.uhichis vhethcr a local public officialhas a
lubstaatlalinterest In the business entity. Under eection 2 of the
act. a pereon has a oubstantlalInterestIn a business if:
(1) the lntercrtIs ownershipof 10 percent or
lora of the votluS stock or shares of the business
HonorableCarl A. Varker - Page 3 (J&178)
entity or ownershipof $2.500 ot ore of the fair
rrket value of the businessentity;or
(2) :fuade received by the pereou from the
..bueineeeeutlty:e.xceed,10~percent
of,the person's
gross lncoms for the previousyeet . . . .
AIao. ao Interestof a peraon releted la the first or seconddegree by
either affix&y or coneanguinltyto the local public official is a
"eubetmtlal~lntereet."~ Sec. 2(c).
..::'+
,.
.~~,~~.loca.public offlclalmust knowinglyparticipatein a vote or
d&i&m 'ou 'a'ratter .prohlbitedby article 988b to violate the
provlaionaof.tbatact. Section3(a)(l)appears to refer to aa actlou
ou a,.~eatter if .it ie .~reaeouablyforeseeablethat the action will
coafer s lconoeic benefit to the business entity in queetloa,
regardleerof the source or the emouat of ecouomicbeaeflt.
The student higher lducatiou loaae in question usually are made
by private leading inetitutioneat interest ratee 'lover than the
geuerally avaiIablerates. We understandthat until the loan is in
pay-back etatus, the holder of the loan recelvee from the federal
gwe-t aa lntereet subsidy payment for the facial emouot of the
interest plus a variable leaders lpeclal lllmemce that brings the
interestlucoms up to the regularmarket level of Interest. When the
loan is la pay-back etatue. the student borrower pays the Interest
eubeidy payments ou reeainlug unpaid balances. and the federal
gwenmeet cootlnuee payment of the lenders epecial allovauce. In
case of default,the higher educationauthority~guaraateeing tha loan
pays the ltudent'eunpaidprincipaland intereat. We believe that the
interest income to a lending Institution that it receives lo the
holder of a guaranteedatudeat loau constitutesau lcouoeic benefit
within the meealng of article988b.
Therefore,leeuelug t&t a mmber of the board of directoreof a
higher lducatlou luthotity has a "eubetantlalinterest"in a leading
lnetltutloe.ve believe the hoard member vioIatee the provieioueof
article 988b ff the member kwvlmgly pattlcipatea In a vote or
decisionof the board vhea the member can reasonablyforeseethat euch
action vlll result la the leodiog inetltutiou receiving lnteteet
iacorc oe eligible ltudent loaae or receiving any other eccmmic
benefitfrom the higher educationauthority'sstudent loan program.
SUHMARY
A camber of the board of directorsof a higher
education authority is a public official vithin
the eaaning of article 988b. V.T.C.S. Such a
hoard member with a aubetantiel iatereet in a
HonorableCarl A. Parker - Pa&e 4 (JH-178)
lendinginetitutionvlolateethat act by knwingly
participatiagla a vote or declelon of the board
of directorsif the Prober can reasonablyforesee
that such actionwL:llreeult in InterestIncome to
the lending inetltstionfrom guaranteed student
loeae.
J k
Verytrulyyou
fk
JIM WATTOX
Attorney Generalof Texee
TOM GREEN
First AssistantAttorney General
DAVID R. RICRARDS
ExecutiveAssistantAttorney General
Preparedby Nancy Sutton
AeeisteutAttorneyGeneral
APPRGVRD:
Rick Gilpln.Chaimea
David Brooke
Colln Carl
Swan Garrieoo
JlmHoelIlnger
Nancy Sutton
p. 790
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