Is there a time limit or dollar cap on Texas county economic development loans and grants?

Plain-English summary

Texas counties use a Local Government Code provision, section 381.004, to run programs that encourage business and economic development, and those programs can take two main forms: tax-abatement agreements with property owners, and direct loans and grants of public money. The chair of the House Committee on County Affairs asked the AG a clarifying question: tax-abatement agreements are subject to a ten-year limit, but the loan-and-grant authority does not say anything about duration. Counties were getting loan and grant applications stretching past ten years, so did the ten-year limit apply to those too, and if not, did any other limit?

The AG started with the text. Subsection 381.004(g) ties tax-abatement agreements to specific Tax Code provisions that include a ten-year cap. Subsection 381.004(h), which authorizes "making loans and grants of public money," contains no comparable restriction. Courts read statutes to give effect to legislative intent, and one settled rule is that when the Legislature speaks to a subject in one place but stays silent on it in a parallel place, the silence is treated as intentional. Applying that, the AG concluded the ten-year limit and the other subsection (g) restrictions do not apply to loans and grants made under subsection (h).

That answer raised the obvious follow-up: are these loans and grants then unlimited? No. The AG explained that a county's spending of public funds implicates article III, section 52(a) of the Texas Constitution, which bars gratuitous grants of public money for private purposes, and that the Texas Supreme Court applies a three-part test: the expenditure's predominant purpose must be a public one, the county must keep enough control to ensure the public purpose is met, and the county must receive a return benefit. Article III, section 52-a separately establishes economic development as a public purpose and authorizes the Legislature to provide for loans and grants of public money to further it, so a subsection (h) economic-development loan or grant satisfies the public-purpose prong, though the county must still ensure the control and return-benefit prongs are met. The AG also flagged article XI, section 7, the county-debt provision, which can affect how a program is structured, while noting section 52-a provides that a loan or grant not secured by ad valorem taxes or financed by bonds payable from such taxes does not create a constitutional "debt." Bottom line: neither the statute nor these constitutional provisions impose a set durational or dollar cap, so subsection 381.004(h) leaves the duration and amount to the commissioners court's budgetary discretion in the first instance, subject to those constitutional limits.

Currency note

This opinion was issued in 2019. 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

Commissioners courts and county officials: At the time of the opinion, the AG read subsection 381.004(h) to leave the duration and amount of economic-development loans and grants to the commissioners court's budgetary judgment, free of the ten-year tax-abatement cap, but bounded by the constitutional public-purpose test and debt provisions. The court had to ensure each expenditure served a public purpose, kept sufficient public control, and produced a return benefit.

Legislators and county-affairs staff: The opinion explained why the two subsections diverge: the Legislature limited tax-abatement agreements by cross-referencing the Tax Code but did not similarly limit loans and grants, and that silence was read as a deliberate choice. It also noted a prior opinion (JC-0092) had been superseded by the 2001 statutory amendment that added the loan-and-grant authority.

Businesses seeking county incentives: The opinion indicated a county could structure economic-development loans and grants for terms longer than ten years, subject to the constitutional public-purpose requirements and to how the program is structured under the county-debt provision.

Common questions

Does the ten-year tax-abatement limit apply to county economic-development loans and grants?
No. The AG concluded the subsection 381.004(g) limits, including the ten-year cap, apply only to tax-abatement agreements, not to loans and grants made under subsection 381.004(h).

So is there any limit on the duration or amount of these loans and grants?
Not a fixed statutory one. The opinion said the duration and amount are left to the commissioners court's budgetary discretion in the first instance, subject to constitutional limits.

What constitutional rules still apply?
Article III, sections 52(a) and 52-a. The expenditure must serve a public purpose (economic development qualifies under 52-a), the county must keep sufficient control to ensure the public purpose, and it must receive a return benefit. Article XI, section 7 can also affect program structure.

Can these loans and grants create unconstitutional county "debt"?
The opinion noted section 52-a provides that a loan or grant not secured by ad valorem taxes or financed by bonds payable from such taxes does not constitute a constitutional debt, so structuring matters.

Background and statutory framework

Subsection 381.004(b) lets a commissioners court develop programs to stimulate business and commercial activity, including for economic development. Subsection (g) allows tax-abatement agreements and ties their execution, duration, and terms to Tax Code sections 312.204, 312.205, and 312.211 (which include a ten-year cap). Subsection (h) authorizes making loans and grants of public money and providing county personnel and services. The AG applied interpretive principles from Gunn v. McCoy and In re Xerox Corp., and the intentional-silence rule from Liberty Mutual Insurance Co. v. Adcock, to hold that the subsection (g) limits do not reach subsection (h).

On constitutional limits, the AG cited Edgewood Independent School District v. Meno for the purpose of article III, section 52(a) and Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission for the three-part public-purpose test, with section 52-a establishing economic development as a public purpose and prior opinions JM-1255 and KP-0116 on the control and return-benefit requirements and the commissioners court's first-instance role. On the debt provision, it cited Texas & New Orleans Railroad v. Galveston County for the constitutional meaning of "debt." A footnote explained that JC-0092 (1999) was superseded by the 2001 amendment adding subsection (h), citing the session law and Ex parte City of Irving. The opinion grounded the commissioners court's budgetary discretion in Guynes v. Galveston County, Griffin v. Birkman, article V, section 18(b), and Local Government Code sections 111.001-.075.

Citations

Constitutional, statutory, and session-law provisions:

• Tex. Loc. Gov't Code § 381.004(b)(1), (3); § 381.004(g), (h); §§ 111.001-.075
• Tex. Tax Code §§ 312.204, 312.205, 312.211
• Tex. Const. art. III, § 52(a); § 52-a; art. V, § 18(b); art. XI, § 3; art. XI, § 7
• Act of May 25, 2001, 77th Leg., R.S., ch. 1154, § 1, 2001 Tex. Gen. Laws 2560

Cases:

• Gunn v. McCoy, 554 S.W.3d 645, 672 (Tex. 2018)
• In re Xerox Corp., 555 S.W.3d 518, 522 (Tex. 2018)
• Liberty Mut. Ins. Co. v. Adcock, 412 S.W.3d 492, 497 (Tex. 2013)
• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002)
• Tex. & New Orleans R.R. v. Galveston Cty., 169 S.W.2d 713, 715 (Tex. 1943)
• Ex parte City of Irving, 343 S.W.3d 850, 855 (Tex. App.-Dallas 2011, pet. granted, judgm't vacated w.r.m.)
• Guynes v. Galveston Cty., 861 S.W.2d 861, 863 (Tex. 1993)
• Griffin v. Birkman, 266 S.W.3d 189, 195 (Tex. App.-Austin 2008, pet. denied)

Attorney General opinions:

• Tex. Att'y Gen. Op. No. JM-1255 (1990)
• Tex. Att'y Gen. Op. No. KP-0116 (2016)
• Tex. Att'y Gen. Op. No. JC-0092 (1999)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0261
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2019/kp0261.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

July 15, 2019

The Honorable Garnet Coleman Opinion No. KP-0261
Chair, Committee on County Affairs
Texas House of Representatives Re: Whether durational or amount limitations
Post Office Box 2910 exist for loans and grants issued for economic
Austin, Texas 78768-2910 development programs pursuant to subsection
381.004(h) of the Local Government Code
(RQ-0266-KP)

Dear Representative Coleman:

     You ask for clarification on a statute that concerns a commissioners court's authority to

stimulate business and commercial activity in a county.1 Subsection 381.004(b) of the Local
Government Code authorizes a commissioners court to develop and administer various programs
to stimulate business and commercial activity, including for purposes of "state or local economic
development" and "to stimulate, encourage, and develop business location and commercial activity
in the county." TEX. LOC. GOV'T CODE § 381.004(b)(1), (3). A program authorized by subsection
381.004(b) may provide for tax abatement agreements with property owners. See id. § 381.004(g).
A program for such purposes may also include "making loans and grants of public money and
providing personnel and services of the county." Id. § 381.004(h). Your question concerns a
restriction in the provision authorizing programs for tax abatement agreements that does not appear
in the provision authorizing loan and grant programs. Request Letter at 4. Specifically, subsection
381.004(g) states that the "execution, duration, and other terms" of a tax abatement agreement "are
governed, to the extent practicable, by the provisions of Sections 312.204, 312.205, and 312.211,
Tax Code, as if the commissioners court were a governing body of a municipality." TEX. LOC.
GOV'T CODE § 381.004(g); see also TEX. TAX CODE §§ 312.204 (generally limiting municipal tax
abatement agreements to a 10-year period), 312.205 (specifying terms of municipal tax abatement
agreements), 312.211 (limiting certain municipal tax abatement agreements to a 4-year period and
limiting the exemption amount available during each year of the agreement). You tell us that
Texas counties are currently receiving applications for loans and grants under subsection
381.004(h) that exceed a ten-year period. See Request Letter at 1. You ask whether the ten-year
period applicable to tax abatement agreement programs in subsection 381.004(g) applies to loan
and grant agreements under subsection 381.004(h) and, if not, whether other constitutional or
statutory limitations apply, particularly on the duration or amount of a loan or grant agreement.
Id. at 4.

    When construing a statute, a court's primary goal is to give effect to the Legislature's

intent. Gunn v. McCoy, 554 S.W.3d 645, 672 (Tex. 2018). Courts determine legislative intent "as
a matter of law using well-established interpretive principles to construe the statutory language."
In re Xerox Corp., 555 S.W.3d 518, 522 (Tex. 2018). One such principle is that "[w]hen the
Legislature expresses its intent regarding a subject in one setting, but ... remains silent on that
subject in another, [a court] generally abide[s] by the rule that such silence is intentional." Liberty
Mut. Ins. Co. v. Adcock, 412 S.W.3d 492, 497 (Tex. 2013) (construing the Legislature's express
provision for reevaluating temporary income benefits but not permanent income benefits as "a
deliberate choice" of the Legislature that courts must respect). Here, the Legislature expressly
limited "the execution, duration, and other terms" of tax abatement agreements entered into
pursuant to subsection 381.004(g) by requiring compliance with specified Tax Code provisions,
but did not limit the making of loans and grants under subsection 381.004(h) in the same way.
TEX. LOC. GOV'T CODE § 381.004(g), (h). Therefore, the limitations stated in subsection
381.004(g), including the ten-year durational limitation, do not apply to loans and grants made
under the authorization granted in subsection 381.004(h).

    To determine whether other limitations may nonetheless apply, we examine a county's

general spending authority. A county's expenditure of public funds implicates article III,
subsection 52(a) of the Texas Constitution, which limits the Legislature's power to authorize a
county "to lend its credit or to grant public money or thing of value in aid of, or to any individual,
association or corporation whatsoever." TEX. CONST. art. III, § 52(a); see also id. art. XI, § 3
(generally prohibiting a county from loaning its credit). The purpose of this provision is to prevent
the gratuitous grant of public funds for private purposes. See Edgewood Indep. Sch. Dist. v. Meno,
917 S.W.2d 717, 740 (Tex. 1995). However, the expenditure of public funds for a public purpose
that provides a clear public benefit in return is not an unconstitutional grant of public funds. See
Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383
(Tex. 2002). The Texas Supreme Court provides a three-part test to determine whether an
expenditure of public funds satisfies article III, subsection 52(a): (1) the expenditure's predominant
purpose must be to accomplish a public purpose of the public entity, not to benefit private parties;
(2) the public entity must retain sufficient control over the expenditure to ensure that the public
purpose is accomplished; and (3) the public entity must receive a return benefit. See id. at 384.

   The first prong of this test requires a public purpose. Another article III provision-section

52-a-establishes economic development as a public purpose and specifically authorizes the
Legislature to "provide for the creation of programs and the making of loans and grants of public
money" to further that purpose. TEX. CONST. art. III, § 52-a. A loan or grant of public money
made pursuant to subsection 381.004(h) for an economic development program authorized by
subsection 381.004(b) thus serves a public purpose and satisfies the first prong of the Court's test
for compliance with article III, subsection 52(a).2

    In addition to the public-purpose requirement, a loan or grant of public money for economic

development made by a county pursuant to subsection 381.004(h) must also satisfy the other two
prongs of the Texas Municipal League test for compliance with article III, subsection 52(a)-
sufficient controls to ensure the accomplishment of a public purpose and receipt of a return benefit.
See Tex. Mun. League Intergov'tl Risk Pool, 74 S.W.3d at 384; see also Tex. Att'y Gen. Op. No.
JM-1255 (1990) at 8-9 (noting "there is no language in either section 52-a or in the relevant
commentary to suggest that the amendment was intended to change the requirements . . . of a
public purpose and that transactions using such resources and powers contain sufficient controls
to insure that the public purpose be carried out"). The commissioners court must determine in the
first instance, subject to judicial review, whether an expenditure meets these additional
requirements. Tex. Att'y Gen. Op. No. KP-0116 (2016) at 5.

    A county's spending authority also implicates section 7 of article XI of the Texas

Constitution, which prohibits a county from incurring a "debt" without establishing a tax to cover
interest on the obligation and create a sinking fund of at least 2% to reduce the principal. See TEX.
CONST. art. XI, § 7. A "debt" for constitutional purposes means any contractual pecuniary
obligation except that which was within the lawful and reasonable contemplation of the parties, at
the time of the agreement, "to be satisfied out of the current revenues for the year or out of some
fund then within the immediate control of the county." Tex. & New Orleans R.R. v. Galveston
Cty., 169 S.W.2d 713, 715 (Tex. 1943). However, article III, section 52-a, the enabling provision
for economic development loans and grants made through subsection 381.004(h), specifies that a
loan or grant made "as provided by this section that is not secured by a pledge of ad valorem taxes
or financed by the issuance of any bonds or other obligations payable from ad valorem taxes of
the political subdivision does not constitute or create a debt" for constitutional purposes. TEX.
CONST. art. III, § 52-a (also providing that if a political subdivision does issue bonds or other
obligations payable from ad valorem taxes, it must gain voter approval). Thus, depending on the
circumstances, section 7 of article XI may impact how a particular loan or grant program is
structured by a county utilizing subsection 381.004(h) for economic development.3

    Regarding your specific concern about loans and grants made for economic development

under subsection 381.004(h), neither that statute nor the state constitutional provisions at issue
impose durational or amount restrictions. As the administrative head of county government, a
commissioners court has broad discretion to conduct county business and broad implied powers to
accomplish its legitimate directives. Guynes v. Galveston Cty., 861 S.W.2d 861, 863 (Tex. 1993);
see also TEX. CONST. art. V, § 18(b) (providing that a commissioners court "shall exercise such
powers and jurisdiction over all county business, as is conferred by this Constitution and the laws
of the State"). In fulfilling its statutory authority to approve and authorize a budget, the
commissioners court oversees the fiscal operation of the county, which carries with it "the essence
of the decision making entrusted to [its] judgment" as the commissioners court apportions funds
among the various operations and programs of the county. Griffin v. Birkman, 266 S.W.3d 189,
195 (Tex. App.-Austin 2008, pet. denied); see also TEX. LOC. GOV'T CODE §§ 111.001-.075.
Subsection 381.004(h) thus leaves the duration and amount of economic development loans and
grants to the commissioners court's budgetary discretion in the first instance, subject to the
constitutional limitations discussed herein.

                                 SUMMARY

                 With respect to specified programs authorized by section
          381.004 of the Local Government Code for stimulating business and
          commercial activity in a county, the limitations on tax abatement
          agreements stated in subsection 381.004(g) do not apply to loans
          and grants made pursuant to subsection 381.004(h).

                  Loan and grants authorized by subsection 381.004(h) must
          comply with sections 52(a) and 52-a of article III of the Texas
          Constitution. Section 7 of article XI of the Texas Constitution may
          also impact how such loans and grants are structured, depending on
          the circumstances.

                 Subject to these constitutional limitations, subsection
          381.004(h) leaves the duration and amount of economic
          development loans and grants to the commissioners court's
          budgetary discretion in the first instance.

                                        Very truly yours,

                                        KEN PAXTON
                                        Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

RYAN L. BANGERT
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

BECKY P. CASARES
Assistant Attorney General, Opinion Committee

1See Letter from Honorable Garnet Coleman, Chair, House Comm. on Cty. Affairs, to Honorable Ken Paxton, Tex. Att'y Gen. at 1, 4 (Jan. 9, 2019), https://www2.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").
2Prior to certain statutory amendments, this office concluded that section 381.004 of the Local Government Code was not intended to implement the constitutional provisions in article III, section 52-a, citing the omission of specific authority in section 381.004 at that time to make county economic development loans and grants and noting no reference to article III, section 52-a in the statute or its legislative history. See Tex. Att'y Gen. Op. No. JC-0092 (1999) at 7-13. However, the Legislature amended section 381.004 in 2001 to expressly authorize counties to make grants and loans of public money in connection with a program to stimulate business and commercial activity in a county, which includes grants and loans for local economic development, in what is now subpart (h) of section 381.004. See Act of May 25, 2001, 77th Leg., R.S., ch. 1154, § 1, 2001 Tex. Gen. Laws 2560, 2560 (amended 2003) (current version at TEX. LOC. GOV'T CODE § 381.004(h)). In addition, one appellate court recently determined that to invoke article III, section 52-a, the enabling legislation of a statute need not "expressly refer to section 52-a as long as it is clear that the legislature created the program with the intent to encourage economic development." Ex parte City of Irving, 343 S.W.3d 850, 855 (Tex. App.-Dallas 2011, pet. granted, judgm't vacated w.r.m.). Accordingly, Attorney General Opinion JC-0092 (1999) is superseded by statute.
3This opinion should not be read to construe section 381.004 as independently authorizing the issuance of debt.