Can a Texas school district sign a long-term ground lease letting a private company develop surplus school land for non-school uses?

Plain-English summary

A school district that owns land it no longer needs has a few ways to get value out of it: sell it, donate it, or lease it. Fort Worth Independent School District had identified 18 underused properties and wanted to do something more creative than a straight sale. Instead of selling, the district wanted to enter long-term ground leases with private developers who would build on the land for noneducational purposes, with the property eventually reverting to the district worth more than it is now and the expected financial benefit over the life of the lease far exceeding what a present-day sale would bring. Tarrant County's Criminal District Attorney, Sharen Wilson, asked the Attorney General whether a school district may do that.

The AG started with a problem: the Education Code expressly lets a board of trustees sell or even donate surplus property, but no statute expressly authorizes a board to lease district real estate. The authority to lease comes instead from the common law. A 1913 Texas court of appeals decision, Royse Independent School District v. Reinhardt, recognized that a school board has implied authority to lease school property when the lease serves a public purpose and does not harm the property or interfere with school activities. Later AG opinions built on Royse to recognize the same implied leasing authority. But a 1986 decision, River Rd. Neighborhood Ass'n v. S. Tex. Sports, drew a limit: a board cannot enter a lease that relinquishes its authority to control how the property is used. So the rule the AG distilled is that a board may lease district real property, but may not (i) permit uses that would interfere with the property's use for district purposes, or (ii) divest itself of the exclusive right to manage and control the property.

The AG then explained how "surplus" status fits in. Because the land is no longer necessary for the district's operation, a noneducational use is less likely to interfere with school purposes, and the board is less likely to be giving up control it actually needs. The AG had said as much in an earlier opinion, GA-0321. But the AG stopped short of blessing any particular deal: whether a given lease actually stays within those limits turns on the facts and the contract language, which is beyond what an AG opinion decides.

Finally, the AG pointed to the Texas Constitution's gift-clause, article III, section 52(a), which bars gifts of public funds. Letting a private entity use district land counts as a "thing of value," so the lease has to satisfy the three-part test the Texas Supreme Court laid out in Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission: the predominant purpose has to be a public purpose, the district has to retain enough control to ensure that purpose is achieved, and the district has to receive a return benefit. The expected long-term financial benefit and the reversion of improved property back to the district are factors that weigh in that analysis, but the AG left the application of the test to the district in the first instance, subject to judicial review for abuse of discretion.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The common-law leasing rules, the cited Education Code sections, and the gift-clause test described here can be revised by the Legislature or the courts, so verify current law before relying on any specific rule mentioned here.

What the opinion meant for those who asked

The opinion was written for a district attorney advising a school district that wanted to lease, not sell, its surplus land. For the school board and district administrators, the takeaway was that leasing surplus property to a private developer for noneducational use was legally possible under the common law, but only if the lease kept two things intact: it could not interfere with the property's use for district purposes, and it could not surrender the board's exclusive right to manage and control the property. The surplus finding helped on both points but did not guarantee compliance. For the district's lawyers, the opinion was a reminder that the harder work was in the lease drafting and the facts, which the AG would not pass on, and in documenting how the deal satisfied the gift-clause three-part test (public purpose, retained control, return benefit). For a private developer eyeing such a deal, the opinion meant the district could not simply hand over open-ended control of the land; the lease had to be structured so the district stayed in control and got a public benefit in return.

Common questions

Q: Can a Texas school district lease land it owns to a private company?
A: The AG concluded yes, under the common law, even though no Education Code section expressly authorizes leasing. The authority is implied from court decisions like Royse Independent School District v. Reinhardt, as long as the lease meets the limits below.

Q: What are the limits on such a lease?
A: The lease cannot permit uses that would interfere with the property's use for district purposes, and the board cannot give up its exclusive right to manage and control the property.

Q: Does it matter that the land is surplus and no longer needed for schools?
A: It helps. The AG treated the surplus, no-longer-necessary finding as a relevant factor showing the lease would not interfere with school purposes and would not improperly divest the board of control, but it did not by itself decide the question.

Q: What about the constitutional ban on gifts of public funds?
A: Letting a private entity use district land is a "thing of value" under article III, section 52(a). The district must satisfy a three-part test: a predominant public purpose, sufficient retained control, and a return benefit to the district. Applying that test is the district's decision in the first instance, subject to court review.

Q: Did the AG approve Fort Worth ISD's specific lease plan?
A: No. The AG explained the legal framework but said whether any particular lease satisfies the limits is a question of fact and contract interpretation, which is beyond the scope of an attorney general opinion.

Background and statutory framework

The opinion sits at the intersection of school-property law and the Texas gift-clause. Under Education Code chapter 11, a board of trustees holds school property in trust for the benefit of the district's school children and is expressly authorized to dispose of and sell property that is no longer necessary for the operation of the district (sections 11.151(c) and 11.154(a)) and even to donate surplus real property (section 11.1541). What chapter 11 does not contain is an express grant of leasing authority, so the AG turned to the common law. Royse Independent School District v. Reinhardt (1913) recognized a board's implied authority to lease property for a public purpose that does not harm the property or interfere with school activities, and a line of AG opinions (GA-0321, GA-0252, WW-1364, O-5354) followed it. River Rd. Neighborhood Ass'n v. S. Tex. Sports (1986) supplied the outer limit: a board cannot lease away its authority to control the property's use. The trust character of school property traces to early Texas Supreme Court decisions, Love v. City of Dallas (1931) and the Cleburne ISD trustees case (1932), which vest management and control of district property in the board. On the constitutional side, article III, section 52(a) forbids gratuitous gifts of public funds, and the Texas Supreme Court's decision in Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission (2002) supplies the three-part public-purpose, retained-control, and return-benefit test that the AG applied to the lease, consistent with its own prior opinions KP-0204 (2018) and KP-0007 (2015).

Citations and references

Constitutional and statutory provisions:

• Tex. Const. art. III, § 52(a) (prohibition on gifts of public funds)
• Tex. Educ. Code §§ 11.151, 11.154, 11.1541 (board authority to dispose of, sell, and donate surplus property)

Cases:

• Love v. City of Dallas, 40 S.W.2d 20 (Tex. 1931)
• Trs. of Indep. Sch. Dist. of Cleburne v. Johnson Cty. Democratic Exec. Comm., 52 S.W.2d 71 (Tex. 1932)
• Royse Independent School District v. Reinhardt, 159 S.W. 1010 (Tex. App.-Dallas 1913, writ ref'd)
• River Rd. Neighborhood Ass'n v. S. Tex. Sports, 720 S.W.2d 551 (Tex. App.-San Antonio 1986, writ dism'd)
• Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission, 74 S.W.3d 377 (Tex. 2002)

Related opinions:

• Tex. Att'y Gen. Op. Nos. GA-0321 (2005), GA-0252 (2004), WW-1364 (1962), O-5354 (1943), JM-531 (1986), KP-0204 (2018), KP-0007 (2015)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0338
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2020/kp-0338.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

October 20, 2020

The Honorable Sharen Wilson
Tarrant County Criminal District Attorney
401 West Belknap
Fort Worth, Texas 76196

Opinion No. KP-0338

Re: Whether an independent school district may enter into a long-term ground lease with a private entity that intends to develop surplus property owned by the district for non-educational purposes, where the expected financial benefit to the district will exceed the current value of a sale of the property (RQ-0350-KP)

Dear Ms. Wilson:

You ask whether an independent school district may enter into "a long-term ground lease with a private entity that intends to develop surplus property owned by the District for non-educational purposes, where the expected financial benefit to the District over the term of the lease is anticipated to far exceed the current value of a sale of the property[.]"¹ You explain that the Fort Worth Independent School District (the "District") "identified 18 underused school-owned properties that are not needed in the present nor likely to be used for school district purposes in the future." Request Letter at 1. You further explain that the District will make a finding that the properties are "no longer necessary for the operation of a school district" and that surplus land will be disposed of by sale or lease. Id. You tell us a lease would provide that the property developed under the lease will revert back to the District with greater value than it has now. See id. 1-2.

An independent school district's board of trustees holds school property in trust to be used for the benefit of school children in the district. See Love v. City of Dallas, 40 S.W.2d 20, 26 (Tex. 1931); see also Trs. of Indep. Sch. Dist. of Cleburne v. Johnson Cty. Democratic Exec. Comm., 52 S.W.2d 71, 72 (Tex. 1932) (recognizing that the management and control of school district property is vested in the board of trustees of such district). Provisions in Education Code chapter 11 authorize a board of trustees to "dispose of property that is no longer necessary for the operation of the school district" and to sell property held in trust for public school purposes. See TEX. EDUC. CODE §§ 11.151(c), .154(a); see also id. § 11.1541 (authorizing an independent school district board of trustees to donate surplus real property). Yet, no statutory provision expressly authorizes a board of trustees to lease school district real property to another entity. See generally id. §§ 11.001-.356.

However, in Royse Independent School District v. Reinhardt, a Texas court of appeals determined that a school board had implied authority to lease school district real property to another entity. 159 S.W. 1010, 1011 (Tex. App.-Dallas 1913, writ ref'd). With respect to the particular lease terms at issue in the case, the court observed that the "primary object in granting the privilege to [the lessee] to use its school grounds as a place to play baseball is to subserve a public purpose, and not to promote some private end." Royse, 159 S.W. at 1011. The court then determined that the lease would not harm the property or interfere with school activities. See id. The court concluded that "such use [of the property] is not so inconsistent with the purposes to which the property has been dedicated or set apart as renders the contract . . . illegal or unauthorized." Id. Attorney general opinions, relying on the Royse opinion, recognize "boards of trustees' implied authority to permit private groups to lease school property when the lease does not interfere with the property's school purpose." Tex. Att'y Gen. Op. No. GA-0321 (2005) at 5; see also Tex. Att'y Gen. Op. Nos. GA-0252 (2004) at 5, WW-1364 (1962) at 6, O-5354 (1943) at 9. A more recent judicial opinion considering a long-term lease concluded that a board of trustees lacks authority to enter a lease that relinquishes the board's authority to control the property's use. See River Rd. Neighborhood Ass'n v. S. Tex. Sports, 720 S.W.2d 551, 559-60 (Tex. App.-San Antonio 1986, writ dism'd). Thus, while a school district's board of trustees may lease school district real property, it may not "(i) permit uses of the property that would interfere with the property's use for district purposes; or (ii) divest itself of the exclusive right to manage and control the property in question." Tex. Att'y Gen. Op. Nos. GA-0321 (2005) at 6, GA-0252 (2004) at 6.

Because this property is no longer necessary for the school district's operation, you suggest that any noneducational use of the property by the lessee will not interfere with the District's use of the property for school purposes and that the board of trustees need not retain its right to manage and control the property for school district purposes. See Request Letter at 4. As this office recognized in Opinion GA-0321, the "fact that the land is not used by the school district is relevant to whether the proposed lease would permit uses of the property that would interfere with the property's use for district purposes." Tex. Att'y Gen. Op. No. GA-0321 (2005) at 7. Similarly, a finding that the land is no longer necessary for the operation of the school district is relevant to the question whether a lease divests the board of trustees of the right to manage and control the property. Id. Ultimately, the determination whether a particular lease satisfies the limitations involves questions of fact and contract interpretation and is thus beyond the purview of an attorney general opinion. See id.; see also Tex. Att'y Gen. Op. Nos. GA-0252 (2004) at 6, JM-531 (1986) at 2.

Lastly, the District should consider Texas Constitution, article III, section 52(a), which prohibits gratuitous payments or gifts of public funds to individuals, associations, or corporations. See TEX. CONST. art. III, § 52(a). "[A] school district's agreement to permit a private entity to use its land constitutes a 'thing of value' for purposes of article III, section 52(a)." Tex. Att'y Gen. Op. No. GA-0321 (2005) at 9. In Texas Municipal League Intergovernmental Risk Pool v. Texas Workers' Compensation Commission, the Texas Supreme Court articulated a three-part test by which to determine whether an expenditure or transfer of public funds satisfies article III, section 52(a). 74 S.W.3d 377, 384 (Tex. 2002). The test requires that (1) the predominant purpose of the expenditure is "to accomplish a public purpose, 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 receives a return benefit. Id. The determination whether a particular transaction satisfies this three-part test is for the District to make in the first instance, subject to judicial review for abuse of discretion. See Tex. Att'y Gen. Op. Nos. KP-0204 (2018) at 2, KP-0007 (2015) at 2. The fact that the property is no longer necessary for the District's operation does not negate article III, section 52(a)'s requirements, but is a factor for the District to consider as it evaluates the lease against the Texas Municipal League test. Similarly, the property's reversion back to the District as well as long-term expected financial benefit are other factors in the District's Texas Municipal League evaluation.

S U M M A R Y

Under the common law, an independent school district may lease school district real property to a private entity provided the lease does not interfere with the property's use for district purposes or divest the school district of the exclusive right to manage and control the property. That the real property is surplus and no longer necessary for the operation of the school district is a factor relevant to the district's determination that a proposed lease complies with these limitations.

Texas Constitution article III, section 52(a) prohibits gifts of public funds for private purposes. The District's agreement to permit a private entity to use its land constitutes a thing of value within the scope of article III, section 52(a) but does not violate that provision so long as the District: (1) ensures the expenditure is to accomplish a public purpose of the school district, not to benefit private parties; (2) retains sufficient control over the public funds to ensure the public purpose is accomplished; and (3) ensures the school district receives a return benefit. Whether a particular lease agreement satisfies this three-part test is a determination for the District in the first instance.

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

RYAN L. BANGERT
Deputy First Assistant Attorney General

RYAN M. VASSAR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

¹ See Letter from Honorable Sharen Wilson, Tarrant Cty. Crim. Dist. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Apr. 14, 2020), https://www2.texasattorneygeneral.gov/opinions/opinions/51paxton/rq/2020/pdf/RQ0350KP.pdf ("Request Letter").