Can a Texas county guarantee home loans or housing-finance-corporation bonds for low and moderate income families?

Texas AG Opinion JM-942: Can a County Guarantee Housing Loans?

Plain-English summary

Dallas County wanted to know how far it could go in helping low and moderate income families afford housing. Specifically, could the county guarantee their mortgage loans, either by backing the loans directly or by backing the bonds that a housing finance corporation issues to raise mortgage money? The Attorney General's answer, after two layers of analysis, was no.

The first layer is whether helping these families is a "public purpose" at all. Texas requires public money to be spent for public purposes, so if it were purely private charity the county could not touch it. The Attorney General had no trouble here. Texas courts have long held that providing decent housing for people of low income serves a public purpose. The Texas Supreme Court said as much when it upheld the state's Housing Authorities Law decades ago. The opinion added a careful point about the words "low income" and "moderate income": those are not fixed dollar amounts. A family called "moderate income" today can slip into "low income" if housing costs or inflation rise faster than their pay. So calling someone "moderate income" does not, by itself, kick them out of the group that can lawfully receive housing help. Still, whether any particular program is constitutional has to be judged one program at a time.

The second layer is the one that decided the case: does a county actually have the legal authority to guarantee these loans? Here Texas law draws a sharp line between cities and counties. A home rule city has general police power, a broad grant to act for the public welfare. A county does not. A commissioners court can do only what the constitution or a statute specifically lets it do. So the question was not whether guaranteeing housing loans is a good idea, but whether some statute grants that power. The Attorney General went through the relevant statutes and found none.

The key statute is the Texas Housing Finance Corporations Act, chapter 394 of the Local Government Code. It lets a city or county approve the creation of a nonprofit corporation that issues bonds to fund home mortgages for low and moderate income people. But the Act is deliberately built so the government is not on the hook. The bonds are "limited obligations," payable only from the corporation's own pledged revenues. Section 394.055 spells out that the local government and the state are not liable for the bonds and, in so many words, may not pay debt service on them. That language directly forbids the county from guaranteeing the bonds.

The Act is just as clear about the underlying mortgage loans. When those loans need a guarantee or insurance, the Act looks to the federal government or a private mortgage insurer, not to the county. One provision (section 394.036) does let a housing finance corporation accept financial assistance, including guarantees, from many sources, including a county. But that provision empowers the corporation to receive help; it does not empower the county to give a guarantee it otherwise has no authority to give. The Attorney General had made the same kind of point before: a general "accept assistance" clause does not create a new spending or guaranteeing power in the government entity.

Finally, the opinion rejected the idea that a county's old authority to "provide for the support of paupers" could be stretched to cover mortgage guarantees. That pauper-support power is far narrower than the elaborate police-power scheme the legislature built in chapter 394, and a county cannot use chapter 394's purpose as a hook for a different method of help that skips the controls chapter 394 imposes to protect county tax revenue.

Because the county had no statutory authority in the first place, the Attorney General did not need to decide the harder constitutional question of whether guaranteeing these loans would be an unlawful lending of the county's credit.

Currency note

This opinion was issued in 1988. 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.

Chapters 392 and 394 of the Local Government Code, and the constitutional provisions on public purpose and lending of credit, have been amended and further construed since 1988. The scope of county authority over housing finance may be different today, and the legislature has at various times expanded local tools for affordable housing. Anyone evaluating a county housing-finance arrangement now should work from the current Local Government Code and current case law, not the 1988 provisions cited here.

Who this opinion affected (as of 1988)

County commissioners courts: The opinion told them plainly that a county cannot guarantee housing mortgage loans or the bonds of a housing finance corporation, because no statute grants that power and counties have no general police power to supply it.

Housing finance corporations: The opinion confirmed these corporations may accept financial assistance from many sources, but their bonds remain limited obligations that no city or county backs.

Low and moderate income families and lenders: The opinion recognized housing assistance for these families as a valid public purpose, but it directed loan guarantees to federal and private insurers rather than the county, which affects how such deals must be structured.

Common questions

Can a Texas county co-sign or guarantee a low income family's mortgage?
No. The Attorney General concluded a county has no express or implied statutory authority to guarantee mortgage loans made to low and moderate income families, directly or indirectly.

Can a county guarantee the bonds a housing finance corporation issues?
No. Section 394.055 of the Local Government Code makes those bonds limited obligations of the corporation, states the local government and state are not liable, and provides that those entities may not pay debt service on the bonds.

Why can a city sometimes do things a county cannot?
Because a home rule city has general police power, while a county does not. A commissioners court may exercise only powers granted by the constitution or statutes, so it needs a specific statutory authorization that, here, does not exist.

Doesn't the Housing Finance Corporations Act let counties provide guarantees?
No. Section 394.036 lets the corporation accept financial assistance, including guarantees, from sources such as a county, but it does not authorize a county to grant a guarantee it otherwise has no power to give.

Is helping low and moderate income families with housing a public purpose?
Yes. Courts have long treated housing assistance for people of low income as a public purpose, and the opinion noted that labeling someone "moderate income" does not automatically remove him from the group who may receive help. The constitutionality of a specific program still has to be judged individually.

Background and statutory framework

The request raised two issues: whether a county has statutory authority to provide the housing assistance described, and, if so, whether that authority is consistent with the Texas Constitution's requirement that public funds be spent for public purposes (Tex. Const. art. III, sections 50, 51, 52; art. VIII, section 3). Attorney General Opinion JR-805 (1987) had concluded that housing assistance by a home rule city to low and moderate income families would not necessarily violate the public-purpose requirement. Courts accord great weight to legislative determinations of the public purpose served by housing assistance. In Housing Authority of City of Dallas v. Higginbotham, 143 S.W.2d 79 (Tex. 1940), the Texas Supreme Court upheld the Housing Authorities Law (now chapter 392 of the Local Government Code), which authorized construction of low-rent housing projects for persons of low income; the court held the use to which the projects would be devoted was a public use. The terms "low income" and "moderate income" are not fixed amounts but are measured by evaluating income against the cost of necessities, so a person's status can shift from moderate to low without any change in dollars earned. Attaching the "moderate income" label does not automatically remove a person from the class that may receive assistance consistent with the constitution (Attorney General Opinion O-2474 (1940)), though the constitutionality of any particular program must be evaluated individually.

Housing projects for low income persons, slum clearance, and similar programs fall within the general police power to provide for the public health, safety, and welfare (Spann v. City of Dallas, 235 S.W. 513 (Tex. 1921)), and the Housing Authorities Law and the Texas Housing Finance Corporations Act both contain legislative findings to that effect (Local Gov't Code sections 392.003(2), 394.002(b)(1)). But a commissioners court may exercise only such powers as the constitution or statutes confer; although a commissioners court has broad discretion in exercising powers expressly conferred, the legal basis for any action must be found in the constitution or statutes (Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948)). Unlike home rule cities, counties have no general police power (Commissioners' Court of Harris County v. Kaiser, 23 S.W.2d 840 (Tex. Civ. App. - Galveston 1929, writ ref'd); Attorney General Opinion JM-863 (1988)).

The Texas Housing Finance Corporations Act (chapter 394) provides a means of using tax-exempt financing to generate mortgage funds. It authorizes a city or county to approve the incorporation of public, nonprofit corporations that may issue bonds to fund home mortgages for persons of low or moderate income and pledge their revenues to pay the bonds (Local Gov't Code sections 394.003, 394.011, 394.037). Section 394.055 provides that the bonds are limited obligations of the corporation, payable solely from pledged revenues, that the local government and the state are not liable for them, and that those governmental entities may not pay debt service on the bonds. Accordingly, a county lacks authority to guarantee the payment of debt service on such bonds. The Act defines a "home mortgage" to require, in the covered situations, a guarantee or insurance by the United States or a private mortgage insurer (Local Gov't Code section 394.003(7)), or, under section 394.906, insurance of the corporation's bonds, so the legislature intended guarantees to come from federal or private entities rather than the county.

Although it was suggested that section 394.036 authorizes counties to guarantee mortgage loans, that provision merely authorizes a housing finance corporation to accept advances, loans, grants, guarantees, and other financial assistance from many sources, including a county; it gives the corporation broad authority to accept assistance but does not authorize the enumerated public and private entities to grant it. The Attorney General had reasoned similarly before that a general authorization does not expand an entity's own powers (Attorney General Opinion JM-604 (1986); Attorney General Opinions H-1180 (1978); O-4681 (1942)). A county therefore has no express or implied authority under chapter 394 to guarantee mortgage loans made to low and moderate income people. Nor may a county guarantee such loans under its authority to "provide for the support of paupers" (V.T.C.S. art. 2351(6)), because the chapter 394 program is an exercise of the state's police power far broader than that pauper-support authority, and a county may not use chapter 394's purpose clause as authority for a different method that ignores the controls chapter 394 imposes to protect its tax revenues. Because no statutory authority exists, the opinion did not reach whether the guarantees would be an unconstitutional lending of the county's credit under article III, section 52 (compare Attorney General Opinion H-120 (1973); Letters Advisory Nos. 119 (1977), 9 (1973)).

Citations

Statutory and constitutional authority:

• Chapter 392, Local Government Code (Housing Authorities Law)
• Chapter 394, Local Government Code (Texas Housing Finance Corporations Act)
• Section 394.055, Local Government Code (bonds are limited obligations; local government not liable and may not pay debt service)
• Section 394.036, Local Government Code (corporation may accept financial assistance from many sources)
• Article 2351, V.T.C.S. (county powers, including support of paupers)
• Article III, sections 50, 51, 52, Texas Constitution (public-purpose and lending-of-credit limits)

Cases:

• Housing Authority of City of Dallas v. Higginbotham, 143 S.W.2d 79 (Tex. 1940) (Texas Supreme Court; upholding the Housing Authorities Law as serving a public use)
• Spann v. City of Dallas, 235 S.W. 513 (Tex. 1921) (Texas Supreme Court; police power to protect public health, safety, and welfare)
• Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948) (Texas Supreme Court; commissioners court exercises only conferred powers)
• Commissioners' Court of Harris County v. Kaiser, 23 S.W.2d 840 (Tex. Civ. App. - Galveston 1929, writ ref'd) (Texas appellate court; counties have no general police power)

Prior Attorney General materials referenced: JR-805 (1987); O-2474 (1940); JM-863 (1988); JM-604 (1986); H-1180 (1978); O-4681 (1942); H-120 (1973); Letters Advisory Nos. 119 (1977), 9 (1973).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-942
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0942.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative.

August 19, 1988

Honorable John Vance
Criminal District Attorney
Dallas County
Services Building
Dallas, Texas 75202

Opinion No. JM-942

Re: Whether a county may guarantee loans made to low and moderate income families for housing purposes and related questions (RQ-1337)

Dear Mr. Vance:

You inquire about the powers of a county to provide financial assistance to low and moderate income families for housing purposes. You first ask whether the provision of financial assistance to low and moderate income families for housing purposes constitutes a "public purpose" for a county.

This question involves two issues: whether the county has express or implied statutory authority to provide such financial assistance to low and moderate income families, and, if so, whether such statutory authority is consistent with the Texas Constitutional provisions which require that public funds be spent for public purposes. See Tex. Const. art. III, sections 50, 51, 52; art. VIII, section 3.

Attorney General Opinion JR-805 (1987) concluded that the provision of housing assistance by a home rule city to low and moderate income families would not necessarily violate the public purpose requirements of the constitution. The courts have accorded great weight to legislative determinations of the public purpose to be served by the provision of housing assistance. In Housing Authority of City of Dallas v. Higginbotham, 143 S.W.2d 79 (Tex. 1940), the Texas Supreme Court upheld the Housing Authorities Law, which authorized the construction of low rent housing projects for persons of low income. Local Gov't Code chapter 392. The law defines "persons of low income" to mean

families or persons who lack the amount of income that an authority considers necessary to live, without financial assistance, in decent, safe, and sanitary housing without overcrowding.

Local Gov't Code section 392.002(g). The Supreme Court determined that the use to which the housing projects would be devoted was a public use. 143 S.W.2d at 85 (Tex. 1940). The terms "low income" and "moderate income" do not, in the abstract, stand for precise amounts of income or a particular standard of living. They are defined by evaluating income against expenditures for necessities, taking into consideration factors such as the costs of holding a job, family size, and local cost of living. If an individual's earnings do not increase in proportion to inflation, his income may decline from "moderate" to "low" over a period of time without any decrease in the amount of dollars earned. It is possible that persons and families who have a moderate income by some standards will meet the quoted test for "low income" persons and families because of local housing shortages or inflation in housing.

We will not address the constitutionality of housing assistance programs available for low and moderate income persons in the state. These must be evaluated individually, taking into consideration the legislature's statement of purpose, the means of effectuating that purpose, and the definitions of low and moderate income. We simply wish to make it clear that attaching the label "moderate income" to a person does not automatically remove him from the class of persons who may receive housing assistance consistently with constitutional provisions that protect public funds from expenditure for private purposes. See Attorney General Opinion O-2474 (1940) (A person need not be reduced to pauperism in the starkest meaning of the word before assistance may be extended to him under former section 11 of article 2351, V.T.C.S.).

We next consider whether the county has statutory authority to provide the kind of housing assistance you inquire about. You ask whether a county may guarantee loans made to low and moderate income families for housing purposes, either by directly guaranteeing the loans or indirectly, by guaranteeing the payment of debt service on bonds issued by a housing finance corporation.

Housing projects for low income persons, slum clearance, urban redevelopment, and similar programs are within the general police power to provide for the public health, safety, and welfare. 7 McQuillan, Municipal Corporations sections 24.563, 24.563b (3d rev. ed. 1981). The legislative findings in the Housing Authorities Law state a need for the exercise of the police power:

[H]ousing conditions are responsible for an increase in and spread of disease and crime, are a menace to the health, safety, morals, and welfare of the residents of the state, impair economic values, and necessitate excessive and disproportionate expenditures of public funds for crime prevention and punishment, public health and safety, fire and accident protection, and other public services and facilities . . . .

Local Gov't Code section 392.003(2). See Spann v. City of Dallas, 235 S.W. 513 (Tex. 1921) (providing that police power authorizes government to protect the health, safety, comfort, and welfare of the public). The Texas Housing Finance Corporations Act also includes a finding that it will promote the public health, safety, morals, and welfare. Local Gov't Code section 394.002(b)(1).

The commissioners courts may exercise only such powers as the constitution or the statutes have conferred upon them. Canales v. Laughlin, 214 S.W.2d 451, 453 (Tex. 1948). Although the commissioners' courts have broad discretion in exercising powers expressly conferred on them, the legal basis for any action by a commissioners court must be found in the constitution or the statutes. Unlike home rule cities, counties have no general police power. Commissioners' Court of Harris County v. Kaiser, 23 S.W.2d 840 (Tex. Civ. App. - Galveston 1929, writ ref'd); Attorney General Opinion JM-863 (1988); see Local Gov't Code section 54.004 (general police power of home-rule cities).

An examination of the relevant statutes persuades us that a commissioners court lacks authority to guarantee loans for housing purposes either directly or indirectly through guaranteeing the payment of debt service on bonds issued by a housing finance corporation.

The Texas Housing Finance Corporations Act provides a means of using tax-exempt financing to generate mortgage funds. Etter & Fraser, Housing Finance Corporations: The Texas Experience (A & M Real Estate Research Center, September 1986); see Local Gov't Code section 394.002(a). It authorizes the governing body of any city or county to approve the incorporation of public, nonprofit corporations which may issue bonds to defray costs of residential development or the costs of purchasing or funding home mortgages for persons of low or moderate income. Local Gov't Code sections 394.003(8), (11); 394.011; 394.037(a). The corporation may pledge all or a part of its revenues, receipts, or resources, including revenues or receipts received from residential development or home mortgages, to the payment of principal and interest on its bonds. Local Gov't Code section 394.037(b). Section 394.055 of the Local Government Code provides that bonds issued by a housing finance corporation are limited obligations of the corporation, payable solely from the revenue, receipts, and other resources pledged to their payment. The local government and the state are "not liable in any way regarding bonds issued by the housing finance corporation." Local Gov't Code section 394.055(b). Section 394.055 of the Local Government Code further states that:

The bonds do not constitute, within the meaning of a statutory or constitutional provision, an indebtedness, an obligation, or a loan of credit of the state, the local government, or any other municipality, county, or other municipal or political corporation or subdivision of the state. The bonds do not create a moral obligation on the part of any of those governmental entities with respect to the payment of the bonds. Those governmental entities may not pay [debt service on the bonds]. (Emphasis added.)

Local Gov't Code section 394.055(c). The underlined sentence prohibits cities and counties from paying debt service on bonds issued by a housing finance corporation. Accordingly, a county lacks authority to guarantee the payment of debt service on such bonds.

Nor does a county have statutory authority to guarantee mortgage loans made by a housing finance corporation to a low or moderate income person or family. The Texas Housing Finance Corporations Act defines "home mortgage" in part as

an interest-bearing loan to a mortgagor, or a participation in such a loan, that is:

. . . .

(D) except as provided by Section 394.906, guaranteed or insured by the United States, an instrumentality of the United States, or a private mortgage insurance or surety company to the extent the loan amount exceeds 80 percent of the lesser of the appraised value of the home at the time the loan is made or the sale price of the home.

Local Gov't Code section 394.003(7). Under section 394.906 of the Local Government Code, a federal guarantee or home mortgage insurance is not required if the housing finance corporation's bonds are guaranteed or insured by an agency, department, or instrumentality of the United States or by an insurance or surety company authorized to issue municipal bond insurance.

The Texas Housing Finance Corporations Act does not authorize a county to guarantee mortgage loans financed by a corporation established under that act. The legislature intended that such guarantees be provided by federal or private entities, and not by the city or county that established the housing finance corporation.

It is suggested that section 394.036 of the Local Government Code authorizes counties to guarantee mortgage loans made by housing finance corporations, but this provision merely authorizes such corporations to accept financial assistance from any source:

A housing finance corporation may apply for and accept on its own behalf or on behalf of another person, advances, loans, grants, contributions, guarantees, rent supplements, mortgage assistance, and other forms of financial assistance from the federal government, the state, a county, a municipality, or any other public or quasi-public body, corporation, or foundation, or from any other public or private source, for any of the purposes of this chapter. (Emphasis added.)

Local Gov't Code section 394.036(a). This provision gives such corporations broad authority to accept financial assistance, but it does not authorize the enumerated public and private entities to grant financial assistance.

In Attorney General Opinion JM-604 (1986), we held that a city could not designate a credit union as its depository, even though credit unions had express authority to serve as depositories of the United States, its agencies or instrumentalities, any state, or any city, county, school district, municipal corporation, political subdivision, or other taxing authority of Texas or any other state. The statutes authorizing the city to place funds in a depository governed the kind of financial institution which the city could use. See also Attorney General Opinions JW-832 (1987); MW-534 (1982); MW-224 (1980); H-723 (1975).

State agencies must have legislative authorization to receive gifts and grants, since the conditions attached to gifts may be inconsistent with the powers and duties given that agency. Attorney General Opinions H-1180 (1978); O-4681 (1942). Section 394.036 of the Local Government Code makes it clear that a housing finance corporation may accept gifts from any source and may include "reasonable and appropriate terms, not inconsistent with the purposes of this chapter" in a contract for financial assistance. Local Gov't Code section 394.036(b).

We conclude that a county does not have express or implied authority under chapter 394 of the Local Government Code to guarantee mortgage loans made to low and moderate income people and families.

Nor may the county, in our opinion, guarantee mortgage loans under its authority to "[p]rovide for the support of paupers." V.T.C.S. art. 2351(6). The program authorized by chapter 394 represents an exercise of the state's police power far broader than the authority delegated to counties by paragraph 6 of article 2351, V.T.C.S. The legislature has provided in chapter 394 of the Local Government Code a means whereby a county may increase the availability of mortgage loan funds to low and moderate income persons in the county, subject to strict controls protecting its tax revenues. The county may not use the purpose clause in chapter 394 as authority for a different method of providing mortgage funds which ignores the controls imposed by that chapter. Cf. Letter Advisory No. 119 (1977) (Texas Opportunity Plan Fund established by article III, section 50(b), may not be used as a reserve fund for insuring student loans).

Since we conclude that a county does not have statutory authority to guarantee bonds issued by a housing finance corporation or mortgage loans made to low or moderate income people, we need not consider whether the provision of such guarantees would be a loan of the county's credit in violation of article III, section 52, of the Texas Constitution. But see Attorney General Opinion H-120 (1973); Letters Advisory Nos. 119 (1977); 9 (1973) (providing that article III, section 52 does not bar lending of credit for a public purpose).

SUMMARY

A county lacks authority to guarantee the payment of bonds issued by a housing finance corporation under chapter 394 of the Local Government Code or to guarantee loans provided to low and moderate income persons for housing purposes.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General