Can a Texas county education department set up a relief fund to give grants to local school districts after a hurricane?

Plain-English summary

Hurricane Harvey hit the Houston area in 2017 and left independent school districts across Harris County facing the cost of rebuilding. The Harris County Department of Education, the last remaining county school administration in Texas, wanted to set up a "Harvey Relief Fund" to grant money to those districts to help with recovery. The county attorney asked the AG whether the Department had the authority to do that, given that the fund would be paid for with public money, including the proceeds of the Department's countywide equalization tax.

The AG did not give a flat yes or no. Instead, the opinion laid out two separate legal limits the Department had to clear and explained that the Department, not the AG, had to apply them to its own facts.

The first limit came from the statutes that govern the Department. It operates under former chapters 17 and 18 of the Education Code, and chapter 18 says the property tax it collects may never be spent for any purpose except the ones the statute specifies: the advancement of public free schools, the equalization of educational opportunities, administration expenses, and the superintendent's salary and office expenses. So any tax revenue put into the relief fund had to fit within those categories. The AG noted that the Department itself reported that only about 20% of its money comes from that tax; the other 80% comes from grants and from fees it charges for services, and the chapter 18 spending limits apply only to the tax money, not to the fees.

The second limit applies to all of the Department's public funds, no matter the source. Article III, section 52(a) of the Texas Constitution, often called the gift clause, bars governments from making gratuitous grants of public money to any individual, corporation, or purpose. But Texas courts have long held that a transfer from one political subdivision to another is not a forbidden gift if it serves a purpose the transferring entity is itself empowered to pursue. The Texas Supreme Court reduced this to a three-part test: the government must (1) make sure the transfer accomplishes a public purpose of its own rather than benefiting private parties, (2) keep public control over the funds so the purpose is actually achieved and the public investment is protected, and (3) ensure it receives a return benefit.

Pulling the two limits together, the AG concluded that, assuming any tax revenue used meets the chapter 17 and 18 requirements, the Department may establish the Harvey Relief Fund if it determines that the spending satisfies all three prongs of the public-funds test. The opinion stressed that those determinations are for the Department to make first, subject only to judicial review for abuse of discretion. A court will not substitute its own judgment for the Department's unless the Department acts illegally, unreasonably, or arbitrarily.

Currency note

This opinion was issued in 2018. 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 Harris County Attorney who requested the opinion: The AG did not hand back a clean yes. The opinion told him the Department had the power to create the relief fund, but only if it cleared the chapter 18 limits on its tax money and the article III, section 52(a) three-part test for all of its public funds, and that making those calls was the Department's job in the first instance.

The Harris County Department of Education (as the opinion described it): The opinion treated the Department as able to establish the fund using its public money, while reminding it that its property tax revenue is locked to the purposes in former chapter 18 and that every dollar it spends, tax or fee or grant, has to survive the gift-clause test before it can flow to another district.

Independent school districts hoping to receive grants (as described in the opinion): The opinion framed the districts as the intended beneficiaries but made clear the money could reach them only through a structure that kept the Department in control of the funds and produced a return benefit to the Department, not as an outright gift.

Common questions

What is the gift clause, and why does it matter here?
Article III, section 52(a) of the Texas Constitution bars governments from making gratuitous grants of public funds. The AG explained that it does not block one political subdivision from transferring money to another when the transfer serves a public purpose the sending entity is empowered to pursue, but the entity has to meet a three-part test first.

Could the Department just hand grants to the school districts?
Not as a plain gift. The AG said the Department has to ensure the spending serves its own public purpose, keep enough control over the funds to make sure that purpose is achieved, and receive a return benefit. The opinion pointed to using a contract or agreement that obligates the recipient district to perform a function benefiting the Department.

Does the spending limit apply to all of the Department's money?
No. The AG explained that the former chapter 18 limits (advancing free schools, equalizing educational opportunity, administration, and superintendent expenses) apply only to the Department's tax revenue. Its fees for services, which it said make up most of its budget, are not subject to those statutory limits, though they are still subject to the gift clause.

Who decides whether a particular relief grant is allowed?
The Department, in the first instance. The AG said the determination is for the Department to make, subject to judicial review only for abuse of discretion. Quoting Texas case law, the opinion said a court cannot substitute its judgment for the governing body's unless that body acts illegally, unreasonably, or arbitrarily.

Background and statutory framework

The Harris County Department of Education is the last remaining county school administration in Texas. It is governed by former chapter 17 of the Education Code and supported, in part, by property tax revenue collected under former chapter 18 (Tex. Educ. Code §§ 17.01-App.-18.30-App. (Title 2-Appendix)). Those chapters were repealed in 1995, but Education Code section 11.301 authorizes a countywide school district that was operating under former chapters 17 and 18 on May 1, 1995, to continue to operate under the applicable law as it existed on that date and under state law generally applicable to school districts that does not conflict with those chapters (Tex. Educ. Code § 11.301(a)). Chapter 18 limits how the Department's tax revenue may be used: the tax may never be levied, assessed, or collected for any purpose other than those specified and the advancement of public free schools, and the funds must be expended for the equalization of educational opportunities and for the payment of administration expense, including the superintendent's salary and office expenses (Tex. Educ. Code §§ 18.26-App., 18.28-App., 18.30-App. (Title 2-Appendix)). Whether a particular expenditure satisfies those statutory limits is a determination for the Department to make in the first instance, subject to judicial review for abuse of discretion (Barrington v. Cokinos, 338 S.W.2d 133, 142-43 (Tex. 1960)).

All of the Department's public funds, whether grants, taxes, or fees, are also subject to article III, section 52(a) of the Texas Constitution, which prohibits the expenditure of public funds for private purposes. Its purpose is to prevent the gratuitous grant of public funds to any individual, corporation, or purpose (Byrd v. City of Dallas, 6 S.W.2d 738, 740 (Tex. 1928)). The provision does not invalidate an expenditure that incidentally benefits a private purpose if it is made for the direct accomplishment of a legitimate public purpose (Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)), and it does not prohibit a political subdivision from transferring public funds to another political subdivision to serve a purpose within the powers of the transferring subdivision (State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265-66 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd)). The Texas Supreme Court's three-part test requires the public entity to ensure the transfer accomplishes a public purpose rather than benefiting private parties, retain public control over the funds, and ensure it receives a return benefit (Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)). The Department may retain control and secure a return benefit by entering an agreement or contract obligating the recipient to perform a function benefiting the Department (Tex. Att'y Gen. Op. Nos. KP-0007 (2015), GA-0843 (2011), KP-0104 (2016)).

Citations

Cases and Attorney General opinions:

• Barrington v. Cokinos, 338 S.W.2d 133, 142-43 (Tex. 1960)
• Byrd v. City of Dallas, 6 S.W.2d 738, 740 (Tex. 1928)
• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265-66 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd)
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)
• Tex. Att'y Gen. Op. No. KP-0007 (2015)
• Tex. Att'y Gen. Op. No. GA-0843 (2011)
• Tex. Att'y Gen. Op. No. KP-0104 (2016)

Statutes and constitutional provisions:

• Tex. Educ. Code §§ 17.01-App.-18.30-App. (Title 2-Appendix)
• Tex. Educ. Code § 11.301
• Tex. Educ. Code §§ 18.26-App., 18.28-App., 18.30-App. (Title 2-Appendix)
• Tex. Const. art. III, § 52(a)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0208
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0208.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

May 16, 2018

The Honorable Vince Ryan Opinion No. KP-0208
Harris County Attorney
1019 Congress, 15th Floor Re: Whether the Harris County Department of
Houston, Texas 77002 Education may establish a relief fund to provide
grant funding to independent school districts
located in Harris County impacted by Hurricane
Harvey (RQ-0208-KP)

Dear Mr. Ryan:

    You ask whether the Harris County Department of Education ("Department") "may establish a relief fund to provide grant funding to independent school districts located in Harris County to assist with recovery efforts after Hurricane Harvey." [1] You tell us that the Department anticipates the "Harvey Relief Fund will be funded with public funds, including tax proceeds generated from the [Department's] countywide equalization tax." [2] Request Letter at 1. You state you believe the Harvey Relief Fund is "within [the Department's] authority to disburse, as it would assist school districts to further develop their collaborative relationships with [the Department] and not be distracted by the fiscal burdens of rebuilding after Hurricane Harvey." Id. at 2.

    The Department is the last remaining county school administration in Texas. It is governed by former chapter 17 of the Education Code and supported, in part, by property tax revenue collected under former chapter 18 of the Education Code. See generally TEX. EDUC. CODE §§ 17.01-App.-18.30-App. (Title 2-Appendix). Education Code section 11.301 authorizes a countywide school district, such as the Department, operating under former chapters 17 and 18 [3] on May 1, 1995, to "continue to operate under the applicable law as that chapter existed on that date and under state law generally applicable to school districts that does not conflict with that chapter." Id. § 11.301(a). Chapter 18 imposes limits on the Department's tax revenue. "The tax ... shall never be levied, assessed, or collected for any purpose other than those herein specified, and for the advancement of public free schools." Id. § 18.26-App. (Title 2-Appendix). Further, "[s]uch funds shall be expended ... for the equalization of educational opportunities ... and for the payment of administration expense." Id. § 18.28-App. (Title 2-Appendix); see also id. § 18.30-App. (Title 2-Appendix) (providing that the superintendent's salary and office expenses "shall be paid out of the funds realized from the collection of the tax"). Whether an expenditure of the Department's tax revenues to create the relief fund to aid Harris County school districts in their post-hurricane recovery efforts satisfies these statutory limitations is a determination ultimately for the Department to make in the first instance, subject to judicial review for abuse of discretion. See Barrington v. Cokinos, 338 S.W.2d 133, 142-43 (Tex. 1960) ("[A] court has no right to substitute its judgment and discretion for the judgment and discretion of the governing body upon whom the law visits the primary power and duty to act. Of course, if such governing body acts illegally, unreasonably, or arbitrarily, a court of competent jurisdiction may so adjudge, but there the power of the court ends.").

    The Department informs us that 20% of its funding derives from tax revenue and 80% from grants and the fees it charges for services it provides. Department Brief at 2. These fees for services are not subject to the limitations in former chapter 18, which apply to only tax revenue. See TEX. EDUC. CODE § 18.26-App. (Title 2-Appendix) (applying to the tax herein provided). Yet, all the Department's public funds, whether grants, taxes, or fees, are subject to Texas Constitution article III, section 52(a)'s restrictions on the use of public funds. [4]

    Article III, section 52(a) prohibits the expenditure of public funds for private purposes. TEX. CONST. art. III, § 52(a). The provision's purpose is "to prevent the gratuitous grant of [public] funds to any individual, corporation, or purpose whatsoever." Byrd v. City of Dallas, 6 S.W.2d 738, 740 (Tex. 1928). Texas courts explain that article III, section 52(a) does not invalidate an expenditure which incidentally benefits a private purpose if it is made for the direct accomplishment of a legitimate public purpose. Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995). Similarly, article III, section 52(a) does not prohibit a political subdivision from transferring public funds to another political subdivision in order to serve a purpose within the powers of the transferring political subdivision. State ex rel. Grimes Cty. Taxpayers Ass'n v. Tex. Mun. Power Agency, 565 S.W.2d 258, 265-66 (Tex. Civ. App.-Houston [1st Dist.] 1978, writ dism'd) (holding that payment made by cities to the power agency were not grants, donations, or gratuities, but instead "were payments made for services rendered"). The Texas Supreme Court articulated a three-part test to determine whether an expenditure of public funds satisfies article III, section 52(a). See Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). The three-part test requires the public entity to: (1) ensure that the transfer is to "accomplish a public purpose, not to benefit private parties; (2) retain public control over the funds to ensure that the public purpose is accomplished and to protect the public's investment; and (3) ensure that the political subdivision receives a return benefit." Id. at 384. The determination whether a particular expenditure satisfies the three-part test is for the Department to make in the first instance, subject to judicial review for abuse of discretion. See Tex. Att'y Gen. Op. Nos. KP-0007 (2015) at 2, GA-0843 (2011) at 2.

    Regarding the first prong, the Department must reasonably find that the expenditure for the Harvey Relief Fund serves a public purpose of the Department, meaning it is within the Department's powers enumerated in former chapters 17 and 18 as well as the nonconflicting provisions of the Education Code. See State ex rel. Grimes Cty. Taxpayers, 565 S.W.2d at 265 (stating that to satisfy the public purpose test for a particular governmental entity, "[t]he purpose for which the ... payment ... was made must be within the powers of the entity ... making the payment"); TEX. EDUC. CODE § 11.301 (providing for the applicability of "state law generally applicable to school districts that does not conflict with" the governing former chapters). Regarding the second and third prongs, the Department may retain public control over the use of its resources by entering into an agreement or contract that imposes an obligation on the recipient to perform a function benefitting the Department. See Tex. Att'y Gen. Op. No. KP-0104 (2016) at 2. That same contract could also serve to impose safeguards to ensure, in satisfaction of the third prong, that the Department receives a return benefit. See id. To meet the second and third prongs, the Department must reasonably find it will receive a return benefit, and it must exercise control over the funds to ensure the public purpose is accomplished. Accordingly, assuming any tax revenues used meet the statutory requirements of former chapters 17 and 18 of the Education Code, the Department may establish the proposed hurricane relief fund if it determines that the expenditure satisfies all prongs of the Texas Municipal League test.

                                  SUMMARY

                  Under former chapter 18 of the Education Code, the Harris County Department of Education's property tax revenues may be expended only for the advancement of public free schools, the equalization of educational opportunities, administration expenses, and superintendent salary and office expenses.

                  Assuming any tax revenues used meet the statutory requirements of former chapters 17 and 18 of the Education Code, the Department may use its public funds to establish a Harvey Relief Fund consistent with Texas Constitution article III, section 52(a), if the Department: (1) ensures the expenditure is to accomplish a public purpose of the Department, not to benefit private parties; (2) retains sufficient control over the public funds to ensure the accomplishment of the public purpose; and (3) ensures the Department receives a return benefit.

                                        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

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Vince Ryan, Harris Cty. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Jan. 24, 2018), https://texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] The Department informs us the public funds anticipated for the Harvey Relief Fund will include the Department's tax revenues, as well as its proceeds from the sale of services. See Brief from Sarah W. Langlois, Att'y for Harris Cty. Dep't of Educ., to Virginia K. Hoelscher, Chair, Op. Comm. at 2 (Feb. 23, 2018) (stating that the Harvey Relief Fund would be funded from Department taxes and fees for services) (on file with the Op. Comm.) (hereinafter "Department Brief").

[3] Former chapters 17 and 18 were repealed in 1995. See Act of May 27, 1995, 74th Leg., R.S., ch. 260, § 58(a)(1), 1995 Tex. Gen. Laws 2207, 2498.

[4] You do not provide information about the nature of the grant funds the Department receives. With respect to grant funds, we consider only article III, section 52(a) and do not opine on any limitations that may accompany a particular grant.