Municipal Corner

by Troupe Brewer

The West Travis County PUA has statutory authority to contract with private entities seeking water services under terms its board of directors deems appropriate and that are within the agency’s permissible scope of authority, but whether specific contractual provisions are within this authority and further the PUA’s statutory purposes is a fact-based determination beyond the scope of an attorney general opinion. Tex. Att’y Gen. Op. KP-0178 (2018).

The Texas Attorney General (“AG”) was asked whether the West Travis County Public Utility Agency (the “PUA”) has the authority to impose impervious cover requirements as a contractual condition to receive water service on certain customers, such as new customers outside the service area boundaries of the PUA’s certificate of convenience and necessity. The AG noted that these customers are not owed a duty by the PUA to provide service, and that the PUA has discretion to provide such service to those outside of its service boundaries. The AG then turned to the PUA’s enabling statute, Chapter 572 of the Texas Local Government Code, to assess whether the PUA has the authority to require customers to comply with impervious cover limits as a contractual condition to receiving water service.

The AG first provides an overview of the authority of public utility agencies in general, noting that while the PUA was created by other public entities, the PUA itself is its own separate political subdivision of the state. Public utility agencies are created to “plan, finance, construct, own, operate, or maintain” water and wastewater facilities. Tex. Local Gov’t Code § 572.051(3). To accomplish those purposes, the PUA (like any statutorily-authorized political body) may exercise only those powers conferred to it by the Legislature and, by implication, those powers “reasonably necessary to carry out the express responsibilities given to it by the Legislature.” See Texas Coast Utils. Coal. v. R.R. Comm‘n of Tex., 423 S.W.3d 355, 359 (Tex. 2014). The AG notes that while it was created by other political entities, the PUA does not inherit any of the authorities of its creating bodies.

Under Chapter 572, the PUA is given the authority to “adopt rules to govern the operation of the agency and its employees, facilities, and service” and “perform any act necessary to the full exercise of the agency’s powers.” Tex. Local Gov’t Code § 572.058(b)(l), (4). Additionally, the PUA has all other powers “that are related to [water and wastewater] facilities and that are provided by law to a municipality that owns a facility,” save for the authority to impose taxes. Id. § 572.052(d). Chapter 552 governs municipally-owned utilities and confers the authority to “regulate the system in a manner that protects the interests of the municipality.” Id. § 552.00l(b). The AG concludes that the PUA therefore also has the authority to regulate its own water utility system in a manner that “protects its interests.” See id. §§ 552.00l(b), 572.052(d).

Specific to contracting authority, Chapter 572 expressly provides that the PUA may contract with private entities for water services “under terms the [PUA]’s board of directors considers appropriate,” and Chapter 552 confers similar authority on municipally-owned utilities to “contract with persons outside its boundaries to permit them to connect with [the water utility system] on terms the municipality considers to be in its best interest.” See id. §§ 572.060(2) and 552.001. Thus, for private entities seeking water service, the PUA’s Board of Directors has discretion in determining the contractual conditions upon which it will extend service. See id. §§ 552.00l(c), 572.052(d), 572.060(2).

Concluding its analysis, the AG turned to the specific contractual requirements imposed by the PUA regarding impervious cover. The AG stated that the key determination in analyzing contractual provisions revolves around whether the requirements further the PUA’s stated goals. If they do, then a Texas court would likely conclude that the PUA is within its statutory authority to impose these conditions. However, the AG concluded that such a determination involves a disputed factual analysis and is thus beyond the scope of the opinion process. The AG did note that factors that could be considered in making this determination could include where the PUA obtains its water and whether the proposed developments subject to the impervious cover requirements are within an aquifer recharge zone.

A Texas city is authorized to let its local Chamber of Commerce use the city’s employees, equipment, supplies, facilities, and/or property for events organized by the Chamber so long as the city ensures the use of resources is done to accomplish a public purpose, the city retains adequate control over the use of resources to ensure use for a public purpose, and the city ensures that it receives a benefit in return. Tex. Att’y Gen. Op. KP-0181 (2018).

The AG was asked whether the City of Petersburg (the “City”) has the authority as a Type-A general-law municipality to use city resources for various purposes in connection with events sponsored by the City’s Chamber of Commerce (the “Chamber”). The Chamber is a nonprofit organization that promotes activities and events within the City. In connection with these events, the Chamber asks the City for the use of its employees, equipment, and supplies, as well as facilities and property. The AG was asked by the City whether it is authorized under Article III, Section 52(a) of the Texas Constitution to allow the use of its employees, equipment and supplies, and facilities and property for this private purpose.

The AG first cited to Art. III, Sec. 52(a), which provides that the City is not authorized 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). The AG noted that Texas Courts have held that spending public funds for a “legitimate public purpose” with a clear “public benefit” is not an unconstitutional grant of public funds as discussed in Art. III § 52(a). See Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995). Further, an expenditure to directly accomplish a legitimate public purpose is constitutional even though it may incidentally benefit a private interest. See id.

Next, the AG noted that the Texas Supreme Court previously established a three-part test to determine whether an expenditure of public funds or use of other public resources satisfies Art. III
§ 52(a). Under that test, the public entity making the expenditure or authorizing the use of its other resources must: (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.” Texas Mun. League Intergov’tl Risk Pool v. Tex. Workers’ Comp. Comm’n, 74 S.W.3d 377, 384 (Tex. 2002).

Regarding the first element of the test, the AG cited a Texas Court of Appeals decision, which provides that to the extent a municipal expenditure or use of resources serves one of the municipality’s powers or functions, it serves the public purpose of the municipality. See 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). The AG also notes the statutory provisions regarding municipal purpose, providing that all municipalities may govern “for the good government, peace, or order of the municipality or for the trade and commerce of the municipality.” Tex. Local Gov’t Code § 51.001(1). The AG concluded that community events such as the ones put on by the Chamber may arguably serve the public purpose of improving the trade and commerce of the City.

As to elements two and three of the test, the AG cited to a previous Opinion from 2016 and states that a public entity 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 public. See Tex. Att’y Gen. Op. No. KP-0104 (2016) at 2. The same contract can also serve to satisfy the third prong by imposing safeguards to ensure the public entity receives a return benefit. See id.

The AG ended its Opinion by stating it cannot conclude, as a matter of law, that the use of City employees, equipment and supplies, and facilities, and property by the Chamber for the community events is unconstitutional. Yet, the AG notes generally that if the use of city resources for the Chamber’s events serves a public purpose of the City, then Article III, Section 52(a) authorizes the use of resources in this way.

Municipal Corner is prepared by Troupe Brewer. Troupe is an Associate in the Firm’s Water, Litigation, and Districts Practice Groups. If you would like additional information or have any questions related to these or other matters, please contact Troupe at 512.322.5858 or tbrewer@lglawfirm.com.