Untitled Texas Attorney General Opinion ( 1991 )

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August 6,199l
Honorable Edmund Kuempel Opinion No. DM- 31
Committee on House Administration
Texas House of Representatives Re: Whether a city may grant a home-
P.O. Box 2910 stead exemption that would compro-
Austin, Texas 78768-2910 miw its outstanding bond obligations
(RQ-75)
Dear Mr. Kuempel:
We have been informed that in September 1990 the city of Camp Wood
pledged all of its ad valorem tax revenues to the repayment of certain bonds. In
January of 1991, the citizens of Camp Wood approved through a referendum
election a proposition that the city grant a $50,000 homestead exemption from ad
valorem taxes to resident taxpayers 65 years old or older or disabled. Our
understanding is that an exemption of only $3,000 had been in place from the time
the revenues were pledged until the adoption of the present exemption. There is
grave concern that the application of the new exemption will impair the city’s debt
obligations. You have requested an opinion from this office as to whether a city
may grant a homestead exemption that would impair the city’s ability to pay debt
service on its outstanding bonds. We have determined that such an exemption may
not be applied under these circumstances.
Section 11.13(d) of the Tax Code provides the following:
In addition to [other exemptions] an individual
who is disabled or. 65 or older is entitled to an
exemption from taxation by a taxing unit of a portion
(the amount of which is fixed as provided by Subsection
(e) of this section) of the appraised value of his
residence homestead if the exemption is adopted either:
(1) by the governing body of the taxing unit; or
Honorable Edmund Kuempel - Page 2 (DM-31)
(2) by a favorable vote of a majority of the
qualified voters of the taxing unit at an election called
by the governing body of the taxing unit. . . .
Subsection (e) provides that the amount of the exemption be $3,000 unless a larger
amount is specified in the subsection (d) process of adopting the exemption. It is
our understanding that the exemption at issue here was adopted in accordance with
these statutory provisions. Section 11.13(i) addresses the propriety of granting an
exemption that would cause an impairment of outstanding contract obligations:
The assessor and collector -for a taxing unit may
disregard the exemptions authorized by Subsection (b),
(c), (d), or (n) of this section and assess and collect a tax
pledged for payment of debt without deducting the
amount of the exemption iE
(1) prior to adoption of the exemption, the unit
pledged the taxes for payment of a debt; and
(2) granting the exemption would impair the
obligation of the contract creating the debt.1
In the case of Camp Wood, the city pledged its ad valorem tax revenues to the
repayment bonds in September 1990. As noted above, the exemption election took
place the following January. Therefore, the facts of this case are within subsection
(i)(l) of section 11.13.2
‘section ll.U(d) of the Tax Code permits the adoption of the exemption at issue by a
referendum election carried alit in accordance with that section’s requirements. There seems to be no
question about the validity of the referendum vote in this case.
*Set?also Tea. Const. art. 8,s l-b(b) (“Where any ad valorem tax has theretofore been pledged
for the payment of any debt, the taxing officersof the political subdivision shall have authority to
eontiaueto levyand CO&XI the tax againstthe homesteadpropertyat the same rate as the tax so
pledged until the debt is discharged, if the cessation of the levy would impair the obligation of the
contract by which the debt was created.“). Section ll.U(i) is a statutory restatement of the
constilutional provision. 21 Howell, Property Taxes 0 208 (Texas Practice 1988,3d ed.). Accordingly,
any inconsistency bchvecn the language of the constitutional and stahltory provisions should be
resolved in favor of the former. Id We therefore construe the term “tax assessor and collector” in thr
statute broadly to encompass the “taxing oficcrs” specified in the constitution. In some instances, as
p. 143
Honorable Edmund Kuempel - Page 3 (DM-31)
Both the U.S. Constitution and the Texas Constitution prohibit legislation
impairing the obligation of contracts. U.S. Const. art. I, 8 10 cl. 1; Tex. Const. art. I,
5 16. This fact is critical to our determination of whether the city may grant the
exemption at issue. It is well established that the constitutional prohibition applies
to contracts made by states or municipalities, and that it applies to municipal by-
laws and ordinances. Determonv. City of Irving,609 S.W.2d 565, 569 (Tex. Civ.
App.-Dallas 1980, no writ), citing Von Hoffmanv. City of Quincy,71 U.S. 535
(1866), u&Atlantic Coast LineRR v. Cityof Goldrboro,232 U.S. 548, 555 (1914).
The court in Detennanfound that an amendment to a city charter limiting the
amount of yearly increases in ad valorem taxes was void as an impairment of the
obligation of the contract between the city and holders of outstanding bonds to
which the ad valorem taxes had been pledged. The court stressed that “the
protection of the contract clause was activated by unquantified financial loss or the
potentialfor financial loss resulting from a legislative act.” 609 S.W.2d at 570, citing
UnitedStatesTrustCo. v. NewJersey,431 U.S. 1 (1977), and Cityof AransmPm v.
Keeling,247 S.W. 818, 821 (1923) (emphasis added); see also Attorney General
Opinion JM-453 (1986). Thus, if application of the homestead exemption in this
case would impair the obligation of the pre-existing contract with the city’s
bondholders, the exemption would be unconstitutional.
Section 11.13(i) of the Tax Code is designed to deal with the circumstances
that Camp Wood may be facing. Section 11.13(i) states that the assessor-collector
of the taxing unit may disregard an exemption adopted pursuant to section
11.13(d)(2). Where granting an exemption would result in impairment of
contractual obligations, the only constitutionally permissible course available to the
tax assessor-collector is to deny the exemption.3
The homestead exemption at issue cannot validly be granted if doing so
would impair the city’s ability to fulfill its pre-existing contractual obligations to
bondholders. As this office cannot make factual determinations, we stress that this
opinion does not constitute a finding that granting the exemption at issue would
whenthctax assessor-collector is an employee of one of these entities, the taxiog officer may be a
mayor, city manager, or lhe city coumil.
3 The word ‘may” in a statute is sometimes construed as mandatory when used to describe the
duty of a public offkial to carry out functions that benefit private iudividuals. 1A Sutherland
STATUTORYCONSTRUCTION 5 25.04 (4th ed. 1985); see also Supervisors v. Llnircd States, 4 Wall. 435,
438 (U.S. lJ366).
p. 144
Honorable Edmund Kuempel - Page 4 (DM-31)
impair the contract obligations here; rather, it instructs that a taxing unit’s ability to
grant a duly adopted exemption is subject to constitutional limits.
SUMMARY
Under the Texas and the U.S. Constitutions, a city may not
apply a homestead exemption approved by referendum in
accordance with Texas Tax Code section 11.13(d) and (e) if
doing so will impair the obligation of a contract creating a debt
incurred by the taxing unit prior to adoption of the exemption.
Texas Tax Code section 11.13(i) authorizes the taxing officers of
the unit to disregard the duly adopted exemption when such
circumstances exist.
DAN MORALES
Attorney General of Texas
WILL PRYOR
First Assistant Attorney General
MARY KELLER
Executive Assistant Attorney General
JUDGE ZOLLKE STEAKLEY (Ret.)
Special Assistant Attorney General
RENEAHICKS
Special Assistant Attorney General
MADELEJNE B. JOHNSON
Chair, Opinion Committee
Prepared by Faith Steinberg
Assistant Attorney General
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