Municipal Corner

by Reid Barnes

Municipal hotel occupancy tax revenue may be used to repair a visitor information center owned and operated by a chamber of commerce if expenditures directly enhance and promote tourism and the convention and hotel industry as required by Tax Code section 351.101. Tex. Att’y Gen. Op. KP-0281 (2020).

The Honorable Laurie K. English, District Attorney (“DA”) for the 112th Judicial District, requested an opinion by the Attorney General (“AG”) to determine whether, under Tax Code § 351.101, a city council can provide tax revenue to improve a Chamber of Commerce Facility not owned or operated by the city. The DA suggested the law limits authorized expenditures to instances in which the municipality actually owns or leases the visitor center, and additionally that the use of funds for a private organization that promotes “all the private businesses of its members” would violate the statutory requirement that the funds only “promote tourism and the convention and hotel industry.” However, whether a city’s specific expenditure is permissible as a matter of law depends on fact issues not appropriate for the opinion process and therefore the AG only advised generally as to the situation.

The DA’s question requires addressing the use of public money for a private organization. The Texas Constitution prohibits the Legislature from authorizing a city “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). However, expenditures serving a legitimate public purpose and providing a clear public benefit qualify for an exception.

The Texas Supreme Court has articulated a three-part test to determine the constitutionality of an expenditure of public funds. A governmental entity considering a public expenditure must (1) ensure that the expenditure 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.” Tex. Mun. League Intergov’tl Risk Pool v. Tex. Workers’ Comp. Comm’n, 74 S.W.3d 377, 384 (Tex. 2002).

Interestingly, the governing body of the governmental entity itself gets to make the determination of whether its own expenditures satisfy this three-prong test. See Tex. Att’y Gen. Op. No.
KP-0208 (2018) at 2-3 (“The determination whether a particular expenditure satisfies the three-part test is for the [governmental entity] to make in the first instance, subject to judicial review for abuse of discretion.”).

For the issue here, the relevant provisions come from chapter 351 of the Tax Code, which governs municipal hotel occupancy taxes. Section 351.002(a) allows a municipality to impose a tax on the use or possession of a hotel room; however, expenditures of revenue from that tax must adhere to certain limitations. Relevant here, subsection 351.101(a)(1) provides that revenue from the municipal hotel occupancy tax may be used only to promote tourism and the convention and hotel industry, and is limited to “the acquisition of sites for and the construction, improvement, enlarging, equipping, repairing, operation, and maintenance of convention center facilities or visitor information centers, or both;” TEX. TAX CODE § 351.101(a)(1)(emphasis added).

Ordinarily, the term “and” is not synonymous with the term “or,” such that a court would construe a list of actions joined by the word “and” to require the fulfillment of every listed action, as opposed to the allowing for a selection among various options. See State v. Gammill, 442 S.W.3d 538, 541 (Tex. App. – Dallas 2014, pet. ref’d) (stating that “the terms ‘and’ and ‘or’ are not interchangeable in general”). But the terms “may be interpreted as synonymous when necessary to effectuate the legislature’s intent or to prevent ambiguity, absurdity, or mistake.” Id.

The latter interpretation takes precedence in the AG’s analysis. The AG opines it would be unreasonable for the Legislature to intend that municipalities must acquire sites and take one of several other actions for each expenditure of this tax revenue. This would compel multiple actions in every instance and prevent singular actions such as repairing an existing building even when this is all that is necessary. The Legislature could not reasonably have intended this result and thus subsection 351.101(a)(1) must be construed not as aggregate requirements but as listing alternative authorized uses of the tax revenue.

Furthermore, the definition of “visitor information center” in the Tax Code contains no requirement of municipal ownership or leasing whereas the definition of “convention center facilities” specifically includes a municipal ownership or management requirement. See TEX. TAX CODE § 351.001(8) (“visitor information center means a building or a portion of a building used to distribute or disseminate information to tourists”);
TEX. TAX CODE § 351.001(2)(defining convention center facilities as “civic centers, civic center buildings, auditoriums, exhibition halls, and coliseums that are owned by the municipality…or that are managed in whole or part by the municipality.” (Emphasis added). The contrast in these definitions likely supports a finding that “and” is synonymous with “or” as used in subsection
351.101(a)(1) and therefore this subsection does not limit the use of tax proceeds for visitor information centers only owned or leased by the municipality.

What about the other requirements of section 351.101? How do they come into play? Subsection 351.101(b) requires that municipal hotel occupancy tax revenue “be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry” (emphasis added); see also Tex. Att’y Gen. Op. No.
KP-0131 (2017) at 1-2 (noting that “directly” means “with nothing or no one in between”). Applying a notably different analysis than before, the AG construed this language literally in determining an expenditure of hotel occupancy tax revenue to repair a visitor information center must directly benefit a building, or portion of a building, used to distribute or disseminate information to comply with section 351.101.

In terms of statutory interpretation, this AG opinion serves as a helpful reminder to municipalities that not only the express language but also the broader context will often govern in a statute’s application. Literal interpretations will typically carry the day but it is not uncommon for exceptions to be found when the result of literal application would be unreasonable or the Legislature’s intent can be surmised in references to related provisions.

“Municipal Corner” is prepared by Reid Barnes. Reid is an Associate in the Firm’s Energy and Utility Practice Group. If you would like additional information or have any questions related to these or other matters, please contact Reid at 512.322.5811 or rbarnes@lglawfirm.com.