Can a Texas general-law city collect HOA dues for a homeowners association through its water bill?

Plain-English summary

The City of Ovilla is a Type A general-law municipality. It had arrangements with two homeowners associations under which the city added each HOA member's monthly dues to that member's city water bill, collected the money, and passed it on to the HOAs. In return, the HOAs helped pay for the city's accounting software, which the brief said was bought solely to handle the HOA-dues collection, not the water billing. The city began to doubt whether it could legally keep providing that service, and the Ellis County and District Attorney asked the AG.

The AG said a Type A general-law municipality has no authority to do this. The analysis started with what HOA dues are. Under chapter 209 of the Property Code, a homeowners (property owners) association represents owners in a residential subdivision, and the duty to pay dues comes from restrictive covenants in the subdivision's dedicatory instrument. Dues are a contractual obligation among private property owners and their association, and the HOA must use them only for the benefit of those private owners. Texas courts treat HOA covenants and assessments like contracts among the parties.

The AG then looked at the city's powers. General-law municipalities are creatures of the State and have only the powers the State expressly confers, plus implied powers that are reasonably necessary, indeed indispensable, to carry out the express ones. Courts strictly construe that authority and resolve any fair, reasonable, substantial doubt against the city. Chapter 51 lets a city adopt ordinances for its good government and welfare and to carry out powers granted by law, and a Type A city may adopt ordinances necessary for the government, interest, welfare, or good order of the municipality as a body politic. But no statute expressly authorizes a general-law city to provide debt-collection services to a private entity like an HOA.

The city's defenders argued that collecting the dues serves the city's welfare because the money maintains property and promotes property values. The AG was not persuaded. The dues are unrelated to the city's utility services or any municipal function; they exist to benefit individual property owners. A court would likely conclude that the power to enact ordinances does not imply authority to collect fees for an HOA, because that is not indispensable or necessary for the municipality as a body politic. So the AG concluded a Type A general-law municipality does not have authority to collect dues on behalf of an HOA. Having reached that conclusion, the AG did not reach a related question, whether using municipal resources to benefit private interests would be an unconstitutional gift under article III, section 52(a).

Currency note

This opinion was issued in 2017. 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.

What the opinion meant for those who asked

The requesting county and district attorney and the City of Ovilla (as the opinion described them): The opinion answered that a Type A general-law municipality does not have express or implied authority to collect HOA dues on the HOAs' behalf, even with the HOAs defraying the city's accounting costs.

General-law municipalities (as the opinion described them): The opinion treated them as having only expressly granted powers and the implied powers indispensable to carrying them out, and found running debt-collection for a private HOA outside that authority.

Homeowners associations (as the opinion described them): The opinion described HOA dues as a contractual obligation among private property owners, to be used for their benefit, and not something a general-law city is authorized to collect for the HOA.

Property owners and HOA members (as the opinion described them): The opinion framed the dues as private obligations under the subdivision's restrictive covenants rather than a municipal charge the city is empowered to bill and collect.

Common questions

Can a general-law city add HOA dues to its water bills and collect them for the HOA?
Under this opinion, no. The AG concluded a Type A general-law municipality has no express or implied authority to provide debt-collection services to a private HOA.

Does it change anything that the HOA helped pay for the city's accounting software?
No. The opinion treated the dues as unrelated to any municipal function regardless of the cost-sharing, so the arrangement still fell outside the city's authority.

Why can't the city justify it as promoting property values?
The opinion rejected that argument. It found collecting the dues was not indispensable or necessary for the government, interest, welfare, or good order of the municipality as a body politic, which is the standard a Type A city's ordinances must meet.

What are HOA dues, legally?
The opinion described them as a contractual obligation arising from restrictive covenants in the subdivision's dedicatory instrument, owed by property owners to their association and used for the owners' benefit.

Did the AG decide whether this was an unconstitutional gift of public funds?
No. Because it concluded the city lacked authority to collect the dues in the first place, the AG did not reach the separate article III, section 52(a) gift question.

Background and statutory framework

The City of Ovilla is a Type A general-law municipality (Tex. Loc. Gov't Code §§ 5.001, 6.001). A homeowners or property owners association under chapter 209 of the Property Code represents owners in a residential subdivision and has a membership primarily of those owners (Tex. Prop. Code § 209.002(7); § 209.003(a)-(b)). The obligation to pay assessments, including dues, arises from restrictive covenants in the subdivision's dedicatory instrument (Tex. Prop. Code § 209.002(4)), and assessments must be designated for the benefit of the residential subdivision or the association's stated purposes (Tex. Prop. Code §§ 209.002(8)-(11), 209.002(12)(C)). HOA covenants and assessments are construed like contracts among the parties (Baywood Estates Prop. Owners Ass'n, Inc. v. Caolo, 392 S.W.3d 776, 782-84 (Tex. App.—Tyler 2012, no pet.); Harris Cty. Flood Control Dist. v. Glenbrook Patiohome Owners Ass'n, 933 S.W.2d 570, 580 (Tex. App.—Houston [1st Dist.] 1996, writ denied); Boudreaux Civic Ass'n v. Cox, 882 S.W.2d 543, 547 (Tex. App.—Houston [1st Dist.] 1994, no writ)).

General-law municipalities possess only powers the State expressly confers (Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 645 (Tex. 2004); Tex. Const. art. XI, § 4), plus implied powers reasonably necessary and indispensable to the express ones, with courts strictly construing that authority and resolving substantial doubt against the city (Town of Lakewood Vill. v. Bizios, 493 S.W.3d 527, 536 (Tex. 2016)). Chapter 51 lets a municipality adopt ordinances for its good government, peace, or order and to carry out powers granted by law (Tex. Loc. Gov't Code § 51.001), and a Type A municipality may adopt ordinances necessary for the government, interest, welfare, or good order of the municipality as a body politic (Tex. Loc. Gov't Code § 51.012). No statute expressly grants a Type A general-law municipality authority to provide debt-collection services to a private entity like an HOA.

Because HOA dues are designated for the benefit of the residential subdivision and its private owners (Tex. Prop. Code § 209.002(8)) and are unrelated to the city's utility services or other municipal functions, the AG concluded a court would likely find the power to enact ordinances does not imply authority to collect fees for an HOA (Tex. Loc. Gov't Code § 51.012; Bizios, 493 S.W.3d at 536). The opinion noted earlier conclusions that limited-authority governmental entities are not impliedly authorized to collect funds for other parties or unrelated purposes (Tex. Att'y Gen. Op. Nos. GA-0774 (2010), GA-0084 (2003), JM-338 (1985)). Having found no authority to collect the dues, the AG did not reach whether using municipal resources to benefit private interests would be an unconstitutional gift under article III, section 52(a) (Tex. Const. art. III, § 52(a); Tex. Att'y Gen. Op. No. KP-0035 (2015), citing State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ dism'd)).

Citations

Statutes and constitutional provisions:

• Tex. Loc. Gov't Code §§ 5.001, 6.001, 51.001, 51.012
• Tex. Prop. Code §§ 209.002(4), 209.002(7), 209.002(8), 209.002(8)-(11), 209.002(12)(C), 209.003(a)-(b)
• Tex. Const. art. XI, § 4; art. III, § 52(a)
• Tex. Att'y Gen. Op. Nos. GA-0774 (2010), GA-0084 (2003), JM-338 (1985), KP-0035 (2015)

Cases:

• Baywood Estates Prop. Owners Ass'n, Inc. v. Caolo, 392 S.W.3d 776 (Tex. App.—Tyler 2012, no pet.)
• Harris Cty. Flood Control Dist. v. Glenbrook Patiohome Owners Ass'n, 933 S.W.2d 570 (Tex. App.—Houston [1st Dist.] 1996, writ denied)
• Boudreaux Civic Ass'n v. Cox, 882 S.W.2d 543 (Tex. App.—Houston [1st Dist.] 1994, no writ)
• Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637 (Tex. 2004)
• Town of Lakewood Vill. v. Bizios, 493 S.W.3d 527 (Tex. 2016)
• State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ dism'd)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0171
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2017/kp0171.pdf

Original opinion text

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

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

November 13, 2017

The Honorable Patrick M. Wilson Opinion No. KP-0171
Ellis County and District Attorney
109 South Jackson Re: Whether a Type A general-law
Waxahachie, Texas 75165 municipality may collect dues on behalf of
homeowners associations in exchange for
partial payment of the municipality's
accounting expenses (RQ-0163-KP)

Dear Mr. Wilson:

    You ask whether a Type A general-law municipality may collect dues on behalf of homeowners associations ("HOAs") in exchange for partial payment of the municipality's accounting expenses. [1] The brief attached to your request states that the City of Ovilla (the "City") is a Type A general-law municipality. Brief at 1; see also TEX. LOC. GOV'T CODE §§ 5.001, 6.001. The brief explains that pursuant to the City's agreements with two HOAs, the City's monthly water utility bill to these HOA members includes a charge for their monthly HOA dues. Brief at 1-2. The City disburses the dues to the respective HOAs, which in return pay the City for a portion of the City's accounting software maintenance and service costs. Id. at 2. According to the brief, the "accounting software was not needed for the collection and accounting of water utility bills; it was purchased exclusively for the purpose of accounting for the collection of HOA member dues." Id. at 1 n.1. The brief states that the City now questions whether it may lawfully continue to provide dues collection services to the HOAs. Id. at 2.

    We begin by considering the nature of HOA dues. As pertinent here, an HOA, also known as a property owners association, is an incorporated or unincorporated association that

            (A) is designated as the representative of the owners of property in a residential subdivision;

            (B) has a membership primarily consisting of the owners of the property covered by the dedicatory instrument for the residential subdivision; and

            (C) manages or regulates the residential subdivision for the benefit of the owners of property in the residential subdivision.

TEX. PROP. CODE § 209.002(7); see also id. § 209.003(a)-(b) (stating that chapter 209 applies only to a residential subdivision subject to restrictions in a declaration making HOA membership mandatory and authorizing HOA assessments on property in the subdivision). An HOA's dedicatory instrument governs "the establishment, maintenance, and operation of a residential subdivision," and restrictive covenants in the dedicatory instrument obligate property owners to pay assessments to the HOA. Id. § 209.002(4). A regular assessment, including dues, must be "designated for use by the [HOA] for the benefit of the residential subdivision as provided by" restrictive covenants in a dedicatory instrument filed in appropriate property records. Id. § 209.002(8)-(11). An HOA may use a special assessment, including dues, for certain capital improvements in or maintenance and improvement of common areas, or "other purposes of the [HOA] as stated in its articles of incorporation or the dedicatory instrument for the residential subdivision." Id. § 209.002(12)(C). In sum, the obligation to pay HOA dues derives from a contractual relationship among private property owners and their representative, the HOA; the HOA must use dues only for the benefit of the private property owners. See generally Baywood Estates Prop. Owners Ass'n, Inc. v. Caolo, 392 S.W.3d 776, 782-84 (Tex. App.—Tyler 2012, no pet.) (enforcement of HOA assessments through restrictive covenants); Harris Cty. Flood Control Dist. v. Glenbrook Patiohome Owners Ass'n, 933 S.W.2d 570, 580 (Tex. App.—Houston [1st Dist.] 1996, writ denied) (stating that HOA covenants and restrictions are construed according to the same construction principles applicable to contracts); Boudreaux Civic Ass'n v. Cox, 882 S.W.2d 543, 547 (Tex. App.—Houston [1st Dist.] 1994, no writ) (stating that restrictive covenants for property owners to pay a subdivision's maintenance fee are "treated as contracts among the parties").

    Next, we consider the authority of a general-law municipality such as the City. "General-law municipalities ... are political subdivisions created by the State and, as such, possess those powers and privileges that the State expressly confers upon them." Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 645 (Tex. 2004); TEX. CONST. art. XI, § 4. A statutory grant of authority includes implied powers, but only those "as are reasonably necessary to make effective the powers expressly granted. That is to say, such as are indispensable to the declared objects of the [municipalities] and the accomplishment of the purposes of [their] creation." Town of Lakewood Vill. v. Bizios, 493 S.W.3d 527, 536 (Tex. 2016) (quotation marks omitted). Therefore, courts "strictly construe general-law municipal authority and [a]ny fair, reasonable, substantial doubt concerning the existence of power is resolved by the courts against the [municipality], and the power is denied." Id. (quotation marks omitted).

    Chapter 51 of the Local Government Code generally authorizes a governing body of a municipality to adopt an ordinance "that: (1) is for the good government, peace, or order of the municipality or for the trade and commerce of the municipality; and (2) is necessary or proper for carrying out a power granted by law to the municipality or to an office or department of the municipality." TEX. LOC. GOV'T CODE § 51.001. A Type A general-law municipality may adopt an ordinance "that is necessary for the government, interest, welfare, or good order of the municipality as a body politic." Id. § 51.012. However, no statute expressly grants a Type A general-law municipality authority to provide debt collection services to a private entity such as an HOA.

    According to the brief, the proponents of the billing practice argue "that collecting dues on behalf of the HOAs serves the welfare and good order of the municipality because the dues, once turned over to the HOAs, are used for the maintenance of property which, in turn, maintains and promotes property values in the City." Brief at 2. However, the City's statutory authority allows it to adopt ordinances only as "necessary for the government, interest, welfare, or good order of the municipality as a body politic." TEX. LOC. GOV'T CODE § 51.012 (emphasis added). From the materials you submitted, it appears that HOA dues are unrelated to the City's provision of utility services or any other municipal function or purpose, but instead are to be used for the direct benefit of individual property owners. See Brief at 1-2 & n.1; see also TEX. PROP. CODE § 209.002(8) (defining "regular assessment" as a required payment to the HOA "that is designated for use by the [HOA] for the benefit of the residential subdivision"). A court would likely conclude that a Type A general-law municipality's authority to enact ordinances does not imply the authority to collect fees for an HOA, because such authority is not "indispensable" or "necessary for the government, interest, welfare, or good order of the municipality as a body politic." See TEX. LOC. GOV'T CODE § 51.012; Bizios, 493 S.W.3d at 536. [2] Therefore, a Type A general-law municipality does not possess the authority to collect dues on behalf of an HOA. [3]

                                SUMMARY

                  A Type A general-law municipality does not possess the authority to collect dues on behalf of a homeowners association.

                                      Very truly yours,

                                      KEN PAXTON
                                      Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

WILLIAM A. HILL
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Patrick M. Wilson, Ellis Cty. & Dist. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (May 22, 2017) and attached brief from Mr. Ron G. Macfarlane, Jr., on behalf of the City of Ovilla (May 17, 2017), https://www.texasattorneygeneral.gov/opinion/requests-for-opinions-rqs ("Request Letter" and "Brief," respectively).

[2] In other circumstances, this office determined that the general powers of a limited-authority governmental entity do not impliedly authorize it to collect funds for other parties or for purposes unrelated to the entity's express powers. Cf. Tex. Att'y Gen. Op. Nos. GA-0774 (2010) at 4-5 (determining that school districts are not expressly or impliedly authorized to process payroll deductions for contributions to political committees); GA-0084 (2003) at 9-10 (determining that a general-law city was not authorized to collect a fee included in a city's water bill to pay a volunteer firefighter association); JM-338 (1985) at 1-2 (determining that a fee included in a city utility bill for maintenance of the police department was an unauthorized tax).

[3] Because we conclude that a Type A general-law municipality does not possess express or implied authority to collect HOA dues, we do not consider a related question, whether the use of municipal resources to directly benefit private interests constitutes an unconstitutional gift. See TEX. CONST. art. III, § 52(a); see also Tex. Att'y Gen. Op. No. KP-0035 (2015) at 3 (determining that article III, subsection 52(a) requires that a municipality utilize municipal resources "only to serve public purposes that are within the municipality's powers, not merely to benefit the public in general" (citing State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265 (Tex. Civ. App.—Houston [1st Dist.] 1978, writ dism'd)).