Untitled Texas Attorney General Opinion ( 1994 )

QPffice of tfie Bttornep @eneral
Mate of QCexae
DAN MORALES
ATTORNEYGENERAL August 11,1994
Honorable Edwin E. Powell, Jr. Opiion No. DM-299
Cotyd County Attorney
P.O. Box 7% Re: Whether section 4A(q) of the
Oatesville, Texas 76528 Development Act of 1979, V.T.C.S. art.
5190.6, would violate article J, section
16 of the Texas Constitution if applied
retroactively (RQ-670)
Dear Mr. Powell:
On behalf of the Copperas Cove Economic Development Corporation (the
“development corporation”), you ask about the effect of section 4A(q) of the Develop
me-m Act of 1979 (the “act”), V.T.C.S. art. 5190.6 (as amended by Acts 1993,73d Leg.,
ch. 1022,s 2), which provides as follows:
A corporation under this section may not assume a debt or make
any expenditure to pay principal or interest on a debt if the debt
existed before the date the city created the corporation.
A letter submitted with your request from the development corporation’s attorney states
that the development corporation is subject to section 4A. The attorney also provides the
following background information:
On May 16,1989, the City of Copperas Cove deeded four tracts
to the Copperas Cove Industrial Foundation. In the Participation
Agreement which was executed simultaneously, the City of Copperas
Cove became the payor of last resort for a S505,870.36 note secured
by a Deed of Trust on the property. On December 3, 1991, the
Copperas Cove Economic Development Corporation @DC) was
assigned the City of Copperas Cove’s interest in the Participation
Agreement, and the EDC assumed its thumcial obligation.r Foot-
note added.]
The development corporation’s attorney contends that if section 4A(q) is construed
to prohibit the development corporation from making payments on the note, it would run
‘We infer from the letterthat the developmentcaporation was createdafterMay 16,1989. We
do not examine the validity of the underlyingtraawtions you dcscrila?.See Tex. Const art. III, $5 52,
52a.
p. 1598
Honorable Edwin E. Powell, Jr. - Page 2 (DM-299)
afoul of article I, section 16 of the Texas Constitution which provides that “[n]o bill of
attainder, ex post facto law, retroactive law, or any law impairing the obligation of
contracts, shall be made.” The United States Constitution contains a similar prohibition
against the impairment of contractual obligations by the states. U.S. Const. art. I, 8 10,
cl. 1. This constitutional prohibition against laws which retroactively impair contracts
applies to contracts made by governmental entities. See Determan v. City ojlrving, 609
S.W.2d 565, 569 (Tex. Civ. App.-Dallas 1980, no writ); Attorney General Opiion
DM-31 (1991). In Cur&nar v. S&fe, 683 S.W.2d 128, 131 (Tex. App.-San Antonio
1984, no writ), the court explained that “the guaranty of the Constitution is directed
against the impairment of the obligation of contracts rather than the contract itself, that is,
what the party to a contract is required by duty and by law to perform. Any law which
releases a part of this obligation, . must impair it. . The obligation includes the
relevant law in force at the time the contract is made.” Ccr&ras, 683 S.W.2d at 131
(citations omitted). Because the statute at issue in that case would have impaired the
obligation of a contract if applied retroactively, the court declined to apply its provisions
retroactively. Id.
We agree that if section 4A(q) is construed to prohibit the development
corporation 6om making payments on the note, it would run afoul of article I, section 16
of the Texas Constitution because it would retroactively impair the development
corporation’s obligation to make payments on the note which it undertook in 1991, almost
two years prior to the enactment of that 1993 amendment to the act. We believe that in
such a case a court would wnstrue section 4A(q) only to apply to debts assumed by a
development corporation atIer its enactment date.
We further note that nothing in the legislative history suggests that the legislature
intended section 4A(q) to invalidate existing wntracts. The amendment that became
section 4A(q) was offered by Representative Holxheauser during a House Committee on
Economic Development hearing. In offering the amendment, Representative Holxheauser
explained:
It addresses a problem that I brought up the other night about
wmmunities being coerced into or feeling that they would have
to. or could get some benefit from taking on a project that may
have failed in the wmmunity. WeU this just says you can’t do that.
You can’t take on that debt that’s already there. It’s got to be a [new
project].
Hearings on H.B. 2297 Before the House Comm. on Economic Development, 73d Leg.
(March 17, 1993) (tape available through House Video/Audio Services 05ce). We
believe it is clear from this testimony that section 4A(q) is intended to prohibit
development corporations from assuming existing debts in the future, not to impair any
existing obligations.
p. 1599
Honorable Edwin E. Powell, Jr. - Page 3 (DM-299)
SUMMARY
Section 4A(q) of the Development Act of 1979, V.T.C.S. art.
5190.6, would violate article I, section 16 of the Texas Constitution
if applied retroactively. A wurt would construe section 4A(q) only
to apply to debts assumed by a development corporation after its
enactment date.
DAN MORALES
Attorney General of Texas
JORGE VEGA
Fii Assistant Attorney General
DREW DURHAM
Deputy Attorney General for Criminal Justice
JAVIER AGUILAR
Special Assistant Attorney General
RENEAHICKS
State Solicitor
SARAH J. SHIRLEY
Chair, Opiion Committee
Prepared by Mary R. Grouter
Assistant Attorney General
p. 1600