271 005 Ga0494

ATTORNEY GENERAL

OFTEXAS

GREG ABBOTT

December 22,2006

Shirley J. Neeley, Ed.D.

Commissioner of Education

Texas Education Agency

1701 North Congress Avenue

Austin, Texas 78701-1494

Opinion No. GA-0494

Re: Whether Education Code sections 44.03 1

and 44.033 apply to real and personal property

lease-purchase contracts authorized under Local

Government Code sections 271.004 and 27 1.005

(RQ-0500-GA)

You ask about the application of Education Code sections 44.03 1 and 44.033, which govern

procurement of school district contracts and purchases, to lease-purchase contracts for the acquisition

of real and personal property authorized under Local Government Code sections 271.004 and

271.005 respectively.’ You specifically ask the following four questions:

1. Are school districts required to use a method authorized by

Section[] 44.031 or 44.033 [of the Texas Education Code], as

applicable, to enter all or part of lease-purchase agreements under

Sections 271.004 and 271.005 [of the Texas Local Government

Code]?

2. If your answer to Question 1 above is “yes”, must the financing

agreement entered into by the district be selected pursuant to a

method authorized by Section[] 44.031 or 44.033, as applicable,

distinct from the underlying purchase of real or personal property?

3. May a school district enter into a lease-purchase agreement under

Section271.004 or Section271.005 aspartofasingletransactionthtit

includes the retention of a financial consultant under Section

2254.003, Government Code without utilizing the procedures

required by Section 44.031 or Section 44.033?

‘SeeLetter from Shirley J. Neeley, Ed.D., CommissionerofEducation, TexasEducation Agency, to Honorable

Greg Abbott, Attorney General of Texas, at 1 (June 12,2006) (on file with the Opinion Committee, also

mailable al

http://~.oag.state.tx.us) [hereinatkr Request Letter].

Shirley J. Neeley, Ed.D. - Page 2 (GA-0494)

4. To the extent a financial consultant is contracted for under

Chapter2254, must arequest for qualifications or similar competitive

process be used to select the provider? Does the selection and

negotiation procedure in Section 2254.004 apply to contracting with

a financial consultant?

Request Letter, supra note 1, at 2-3 (footnote omitted).

I. Statutory Background

A. Education Code sections 44.031 and 44.033

Chapter 44, subchapter B of the Education Code governs school district contracts and

purchases. See TEX. EDUC. CODE ANN. 5s 44.031-,044 (Vernon 2006). Section 44.031 of the

Education Code generally requires a school district to make each contract valued at $25,000 or more

by a method, of the ten methods listed, that provides the best value:

Except as provided by this subchapter, all

school district

contracts,

except contracts for the purchase of produce or vehicle

fuel, valued at $25,000 or more in the aggregate for each 12-month

period

shall be made by the method, of the following methods,

that

provides the best value for the district:

(1) competitive bidding;

(2) competitive sealed proposals;

(3) a request for proposals, for services other than

construction services;

(4) a catalogue purchase as provided by Subchapter B,

Chapter 2157, Government Code;

(5) an interlocal contract;

(6) a design/build contract;

(7) a contract to construct, rehabilitate, alter, or repair

facilities that involves using a construction manager;

(8) a job order contract for the minor construction, repair,

rehabilitation, or alteration of a facility;

(9) the reverse auction procedure as defined by Section

2155.062(d), Government Code; or

Shirley J. Neeley, Ed.D. - Page 3 (GA-0494)

(10) the formation of a political subdivision corporation

under Section 304.001, Local Government Code.

Id. 5 44.03 1 (a) (emphasis added) (footnote omitted). In addition to contracts to purchase produce

or vehicle fuel, the statute expressly excepts from its application contracts for professional services;

computers and related equipment acquired through the Building and Procurement Commission; and

items available only from a single source. See

id.

3 44.03 1 (a), (t), (i)-(j). It also excepts contracts

to replace or repair equipment and school facilities in certain emergency situations. See

id.

§ 44.0310.

Section 44.03 1 requires a school district to select the method that provides best value and to

then compiy with the procedures applicable to that purchasing method.

See id. § 44.03

l(a);

Duniels

Bldg.

&

Co&r.,

Inc. v.

S&bee Indep. Sch. Disk, 990

S.W.2d 947,949-50 (Tex. App.-Beaumont

1999, pet. dism’d); see also Tex. Att’y Gen. Op. No. JC-0037 (1999) at 2-3. Subsequent provisions

in section 44.03 1 and subchapter B set forth procurement procedures and vendor selection criteria

applicable to particular listed methods. ’ Section 44.031(e) provides that “[t]o the extent of any

conflict, this subchapter prevails over any other law relating to the purchasing of goods and services

except a law relating to contracting with historically underutilized businesses.”

TEX. EDUC. CODE

ANN. § 44.03 l(e) (Vernon 2006).

Section 44.033 applies to personal property purchases of less than $25,000.. See

id.

3 44.033(a). It requires a school district to purchase personal property, if its “value is at least

$10,000 but less than $25,000, in the aggregate, for a 12-month period,” through a “vendor list”

created by the district for categories of personal property. Id. 5 44.033(a)-(b). Before making a

purchase, a school district must obtain quotes from vendors on the list, and “the purchase shall be

made from the lowest responsible bidder.”

Id.

5 44.033(c). “In the alternative, the school district

may purchase those items in accordance with Section[] 44.03 l(a) [competitive bidding] and (b)

[competitive sealed proposals]~.”

Id. 5

44.033(a).

B. Public Property Finance Act

Chapter 271, subchapter A of the Local Government Code, the Public Property Finance Act

(the “Act”), furnishes “governmental agencies with a feasible means to purchase or otherwise

acquire, use, and finance public property.” TEX. Lot.

GOV’T CODE ANN. §$ 271.001, .002(b)

(Vernon 2005). The Act authorizes contracts, includmg lease-purchase contracts, to acquire personal

and real property. See

id.

@ 271.004-,005. Section 271.004, which applies solely to school

districts, authorizes a school district to “execute, perform, and make payments under a contract under

this Act for the use or purchase or other acquisition of

real property or an improvement to real

%~TEX.EDUC.CODEANN.

$5 44.03 l(g) (Vemon2006) (publicationofnoticeforbids andproposals),44.035

(evaluation of construction service bids and proposals), 44.036 (facility design-build contratits), 44.037 (constmction

manager-agent contracts), 44.038 (construction manager-at-risk contracts), 44.039 (selecting construction services

contractor through sealed proposals), 44.040

(selecting construction services

through bids), 44.041(facility job order

contracts).

Shirley J. Neeley, Ed.D. - Page 4 (GA-0494)

property.”

Id.

§ 271.004(a) (emphasis added)? A real property contract in the form of a lease-

purchase contract must be submitted to and approved by the attorney general. See id. 5 271.004(g).

Section 271.005 authorizes governmental agencies generally,, which by definition include a

school district, to “execute, perform, and make payments under a contract for the use or the

purchase or other acquisition of anypersonalproperty, or the financing thereof.”

Id. 5

271 .OOS(a)~

(emphasis added); see

also id.

§ 271.003(4) (“‘Governmental agency’ means amunicipality, county,

school district, conservation and reclamation district, hospital organization, or other political

subdivision of this state.“). The personal property contract may be in the form of a lease, a lease-

purchase, an installment purchase, “or any other form considered appropriate by the governing body

including an instrument which would be required to be approved by the attorney general under

Chapter 1202, Government Code.” Id. § 271.005(a)(2); see also TEX.

GOV’T CODE ANN.

5 1202.003(a) (Vernon 2000) (requiring issuers to submit public securities for attorney general

approval before the securities are issued).

You do not ask about a particular lease-purchase contract. Lease-purchase contracts

generally enable the purchaser of the property to spread the purchase price over a number of years,

while receiving immediate use of the purchased property. Tex. Att’y Gen. Op. No. JM-697 (1987)

at 1;

see

also

ASSOCIATION FOR GOVERNMENTAL LEASING & FINANCE, AN INTRODUCTION TO

MUNICIPAL LEASE FINANCNG: ANSWERS TO FREQUENTLY ASKED QUESTIONS,

at 3 (July 1,2000),

available at

http://www.aglf.org/downloads/Municipal_lcing.pdf (last visited Dec. 20,

2006) (“In a ‘financing’ lease, the lessee enjoys the benefits and bears the burdens of ownership of

the leased property. In effect, the lease payments represent the lessee’s installment purchase of

the leased property over time.“) [hereinafter

MUNICIPAL LEASE FINANCING].

In B typical lease-

purchase contract involving a school district, the lessor extends funds or credit to acquire the

property, and the school district as the lessee repays that amount by making fixed installment

payments over the term ofthe agreement.

See, e.g., Blundlndep. Sch. Dist. v. Blue, 34

S.W.3d 547,

549 (Tex. 2000) (describing a school district lease-purchase agreement executed under the Act for

the construction of a high school building). Under such an arrangement, a school district may

execute separate and additional contracts with other vendors for the actual construction or,

improvement of the property subject to the provisions of the lease-purchase contracts. See

id. ;

Tex.

Att’y Gen. Op. No. JM-800 (1987) at 1 (describing a proposed county lease-purchase agreement for

construction of a county jail under the Act).

‘Before executing such a contract, the district must publish notice of its intent to enter into the contract at least

sixty days beforethe date set for execution ofthe contract. TEX.LOC.GOV'TCODEANN. 5 271.004(a)(Vemon2005).

If within the sixty days the district receives a petition signed by at least five percent of the district’s registered voters,

the district may not “approve the contract or publish the first advertisement for bids for construction of improvements”

unless the contract is approved by a majority of the voters at a referendum called for that purpose.

Id. 5

271.004(b).

Shirley 5. Neeley, Ed.D. - Page 5 (GA-0494)

II. Analysis

A. Application of Education Code sections 44.031 and 44.033 to lease-purchase

contracts

Your first two questions essentially ask whether Education Code sections 44:03 1 and 44.033

apply to school district lease-purchase contracts authorized under the Act. See Request Letter, supra

note 1, at 2. You suggest that prior attorney general opinions, particularly Attorney General Opinion

JC-0492, indicate that sections 44.03 1 and 44.033 apply. See id.

In Attorney General Opinion JC-0492, this office determined, based on the language of

section 44.03 1, that a school district was not authorized to participate in a political subdivision

corporation created under Local Government Code section 304.001 to purchase electricity with an

aggregate value of $25,000 or more. See Tex. Att’y Gen. Op. No. K-0492 (2002) at 5; see also Tex.

Att’y Gen. Op. Nos. JC-0205 (2000) at 6 (concluding that because use of a designated broker of

record is not authorized by sections 44.031 and 44.033, a junior college district may not use such

method to purchase insurance contracts), DM-418 (1996) at 13 (stating that a school district must

award contracts for items other than produce, professional services, or vehicle fuel in accordance

with sections 44.03 1 and 44.033). The opinion relied on the following factors: First, section 44.03 1

at that time did not expressly include participation by a school district in a political subdivision

corporation as an available purchasing method.4 See Tex. Att’y Gen. Op. No. JC-0492 (2002) at 5.

Second, the school district’s participation in a political subdivision corporation did not fit within

any of the nine contract types expressly listed in the statute at that time.

Id.

Finally, the opinion

concluded, “a school district may not use a purchasing method provided by a statute outside of the

Education Code that is not expressly listed or included within those methods listed in section 44.03 1

unless the [other] statute explicitly permits the school districts to do so.”

Id.

at 6. Local Government

Code section 304.001, which did not expressly include school districts within its definition of the

term “political subdivision,” did not explicitly authorize a school district to participate in apolitical

subdivision corporation to purchase electricity. See

id.

at 7.

Section 44.03 1 does not expressly include lease-purchase contracts as one of the authorized

methods. Nor do such lease-purchase contracts fit within one of the

ten

methods expressly listed.

But unlike the statute addressed by Attorney General Opinion JC-0492, the Act expressly authorizes

school districts to enter into lease-purchase contracts to acquire personal and real property.

Compare

id. (noting that the political subdivision corporation statute did not include school districts within

the definition of “political subdivision”),

with

TEX. LOC. GOV’T CODE

ANN. 5 271.003(4) (Vernon

2005) (including school districts within the definition of “governmental agency”),

and id §

271.004

(authorizing school districts to execute lease-purchase contracts for real property). Consequently,

the question here is not whether a school district may execute lease-purchase contracts, but “whether

the competitive procedures under sections 44.03 1 and 44.033 must be used to enter into agreements

‘In 2003, the legislature amended section 44.031 to add subsection (a)(lO), authorizing the formation of a

political

subdivision corporation as a permissible purchase method. See Act of June 1,2003,7Sth Leg., RX, ch. 201,

5 38,2003 Tex. ‘An. Laws 812, 823.

Shirley .I. Neeley, Ed.D. - Page 6 (GA-0494)

under [slections 271.004 and 271.005.” Request Letter,

supra

note 1, at 2 n.6. No Texas court or

attorney general opinion has addressed this question.

Section 44.03 1 by its terms applies to all school district contracts valued at $25,000 or more

other than those specifically excepted, and it requires that all contracts subject to the statute be made

by the authorized method that provides~ the best value. See TEX. EDUC. CODE ANN. 5 44.03 l(a), (c),

(e)

(Vernon

2006); Daniels Bldg. & Constr., Inc., 990

S.W.2d at 949-50; see

also

Tex. Att’y Gen.

Op. No. JC-0492 (2002) at 6 (stating that section 44.03 1 provides an exclusive list of permissible

purchasing methods for contracts over acertain value). Additionally, section 44.03 1 by its terms is

not limited to personal property. See TEX. EDUC. CODE ANN- 5 44.031 (Vernon 2006); see also

id

5 44.03 l(a)(6), (8) (providing for construction and facility contracts). In contrast, section 44.033 by

its terms is limited to personal property purchases valued between $10,000 and $25,000 and requires

that such purchases be made in accordance with its vendor list method or the competitive bid and

competitive sealed proposal methods provided by section 44.03 l(a) and (b). See

id 5

44.033(a); see

also Tex. Att’y Gen. Op. No. JC-0205 (2000) at 6 (stating that “[slection 44.03 1 and its sister statute,

section 44.033, establish a list of permissible purchasing methods for contracts over a certain

aggregate yearly value”). Sections 44.031 and 44.033 do not except from their application lease-

purchase contracts for personal and real property entered under the Act. See

UnigardSecurity Ins.

Co. v.

Schaefer,

572 S.W.2d 303, 307 (Tex. 1978) (“When specific exclusions or exceptions to a

statute are stated by the Legislature, the intent is usually clear that no

others

shall apply.“).

The Act by its terms authorizes school district contracts, including lease-purchase contracts,

for the purchase or acquisition of personal and real property. See TEX. Lot. GOV’T CODE ANN.

§§271.004,-,005 (Vemon2005); seealso

id.

5 271.003(2) (“‘Contract’ means anagreemententered

into under this subchapter but does not mean a contract solely for the construction of improvements

to real property.“). But the Act does not address how a school district must award lease-purchase

contracts or select the lessor or seller of the property. See M.

DAVID GELFAND, STATE AND LOCAL

GOVERNMENT DEBT FINANCING

49 (2000) (“The lessor may be the manufacturer of the property,

a vendor, a real estate developer, or a lease broker.“).’ Furthermore, it does not expressly except

lease-purchase contracts from Education Code sections 44.03 1 and 44.033. See

TEX. EDUC. CODE

ANN..5 44.031(e) (Vernon 2006) (stating thatchapter 44, subchapter B prevails over any other law

relating to purchases of goods and services); Tex. Att’y Gen. Op. No. JC-0492 (2002) at 6 (stating

that in light of section 44.031(e), any exceptions to section 44.031 must be express). Section

271.006, in fact, suggests that the legislature intended governmental agencies to comply with the

procurement procedures generally applicable to them in entering into the contracts authorized by the

Act. See

TEX.

LOC. GOV’T CODE ANN. 5 271.006 (Vernon 2005). Section 271.006 provides that

“[i]n entering into

the contract,

a municipality must comply with the requirements of Chapter 252

‘The lessor may also be a public facility corporation~created by a school district to specifically acquire a “public

facility” for the sole purpose of leasing or conveying it to the school district pursuant to the Public Facility Corporation

Act (the “Facility Act”). See TEX. Lot. Gov’r CODE ANN $5 303.003(1 I), ,023, ,041 (Vernon 2005). You do not ask

sod we do not consider whether Education Code sections 44.03 I and 44.033 would apply to a lease-purchase con&act

between a~school district and its public facility corporation constititing~a “sponsor obligation” under the Facility Act.

See id $3 303.003(12) (defining “sponsor obligation”), 303.072 (providing that bonds issued by a public facility

corporation arc payable from facility revenues or sponsor obligations).

Shirley J. Neeley, Ed.D. - Page 7 (GA-0494)

[Purchasing and Contracting Authority of Municipalities] and a county must comply with the

requirements of Subchapter C, Chapter 262 [Purchasing and Contracting Authority of Counties;

Competitive Bidding in General].“6

Id.

5 271.006(a) (emphasis added); see also

id $5

271.003(2)

(defining “contract”), 27 1.0065 (providing additional procedures for “any procedure for competitive

bidding under this subchapter”). Thus, no provision in the Act expressly prohibits the application

of the procurement methods of Education Code sections 44.031 and 44.033 to lease-purchase

contracts or is inconsistent with such application. See

In re Jane Doe,

19 S.W.3d 249, 255 (Tex.

2000) (“Our focus in construing this statute is to determine the Legislature’s intent; this we discern

primarily from the plain meaning of the words chosen.“).

Finally, no inherent feature or characteristic of lease-purchase contracts precludes awarding

such contracts using a section 44.03 1 or 44.033 method. See, e.g., M. DAVID GELFAND, STATE AND

LOCAL GOVERNMENT DEBT FINANCING 28 (2000) (“In some jurisdictions, the lease-purchase

contract itself must be competitively bid or waiver or exemption obtained.“); MUNICIPAL LEASE

FINANCING, at 24, supra p. 4 (“Certain state statutes would also require that the lease itself should

be publicly bid as part of the acquisition of the property to be leased.“).

A brief submitted on behalf of Shiner Independent School District appears to contend that

lease-purchase contracts under the Act are not subject to sections 44.03 1 and 44.033 because they

are financing contracts

or

because they are public securities rather than purchase contracts.7 While

the brief does not articulate it, we presume that the legal argument underlying this contention is that

extension of credit or issuance of securities is not “property” to which sections 44.031 and 44.033

apply.

First, while lease-purchase contracts may be financing contracts, they are nonetheless, by

definition, contracts for the purchase or acquisition of property. See TEX. Lot. GOV’T CODE ANN.

$5 271.004,-,005 (Vernon

2005); see

alsoSpur

Indep. Sch. Dist. v. K4. Halt Co., 88

S.W:2d 1071,

1073 (Tex. Civ. App.-Waco 1935, no writ) (stating that “purchase” is the “transmission ofproperty

from one person to another by voluntary a&and agreement, founded on a valuable consideration”).

The financing arranged with the lessor or creditor is simply the means of purchasing the property that

is the subject of the lease-purchase contract.

See Bland Indep. Sch. Dist., 34

S.W.3d at 549

(describing school district lease-purchase transaction to acquire school building);

Knight v. Int’l

Harvester Credit Corp., 627

S.W.2d 382,389 (Tex. 1982) (describing installment sale agreement

with extension of credit as a single transaction for the purchase of a truck rather than simply an

extension of credit or borrowing of money under the Deceptive Trade Practice Act).

%‘ben the Act was adopted, only cities and counties were subject to the competitive b$l requirements of the

source law (former article 236X& Vernon’s Texas Civil Statutes). See TEX. Lot. GOV’T CODE ANN. 5 271.006 revisor’s

note(Vernon2005);PublicPropertyFinanceAct, 66thLeg.,R.S., ch. 749, $5,1979Tex. Gen. Laws 1839,1X41 C’Each

gownmental agency currently subject thereto shall comply with the terms of. (Article 2368% Vernon’s Texas Civil

Statutes), in entering into contracts, including the requirement that certain contracts be awarded pursuant to public bids

“).

‘See Brief from George E. Grimes, Jr., Walsh, Anderson, Brown, Schulz & Aldridge, P.C., on behalf of Shiner

Independent School District, to Nancy S. Fuller, Chair, Opinion Committee, Office of the Attorney General of Texas

(Aug. 4,2006) [hereinafter Shiner ISD Briefj.

Shirley J. Neeley, Ed.D. - Page 8 (GA-0494)

Second, lease-purchase contracts as provided for under sections 271.004 and 271.005 ofthe

Act are not described as, nor are they, public securities as a matter of law. See TEX.~LOC. GOV’T

CODE ANN. 55 271.004.005 (Vernon 2005).

Compare

id., with

id.

$5 271.050 (stating that

certificates of obligations are subject to Government Code provisions dealing with “public

securities”), 271.053 (stating that certificates of obligation “are ‘security’ within the meaning of

Chapter 8, Business &Commerce Code”). A section 27 1.005 contract for the acquisition of personal

property may be in the form of “an instrument which would be required to be approved by the

attorney general under Chapter 1202, Government Code,” i.e., a public security, but is not required

to be in that form.

Id §

271.005(a)(2); see also TEX. GOV’T CODE ANN. § 1202.003(a) (Vernon

2000) (requiring governmental issuers to submit public securities for review and approval by the

attorney general). That a personal property lease-purchase contract is not, as a matter of law, in that

form is evidenced by the fact that it is not otherwise required to be submitted to the attorney general

for approval. See TEX. Lot. GOV’T CODE ANN. 5 271.007 (Vernon 2005) (providing that a

governing body

may

submit a contract providing for the payment of $100,000 or more). As the brief

notes, section27 1.004(g) specifically requires area1 property lease-purchase contractto be submitted

to the attorney general for review and approval. See

id.

§ 271.004(g); Shiner ISD Brief, supra note

7, at 5. That requirement, however, does not support the briefs contention that the contract is a

public security. If section 271.004 did not specifically require it, real property lease-purchase

contracts, like the personal property lease-purchase contracts, would not be subject to such approval

under Government Code chapter 1202 because they would generally not meet the definition ofpublic

security. See TEX. GOV’TCODEANN. $5 1202.001(3) (Vernon Supp. 2006), .003(a) (Vemon2000).

Chapter 1202 ofthe Government Code generally requires attorney general approval ofpublic

securities issued by or on behalf of governmental entities. See

id.

5 1202.001(2) (Vernon Supp.

2006) (defining “issuer”);

id.

5 1202.003(a) (Vernon 2000) (requiring issuers to submit public

securities for review and approval). Section 1202.001(3) defines “public security,” consistently with

the established definition of the term “security,” as follows:

“Public security” means an instrument, including a bond, note,

certificate of obligation, certificate of participation or other

instrument evidencing

aproportionate interest inpayments due to be

paid by an issuer,

or

other type of obligation that:

(A) is issued* or incurred by an issuer under the issuer’s

borrowing power, without regard to whether it is subject to annual

appropriation; and

(B) is represented by

an instrument issued in bearer or

registeredform

or is not represented by an instrument

but the transfer

ofwhich is registered on books maintained

for that purpose by or on

behalf of the issuer.

‘See TEX. Gov’r CODE ANN. 5 1202.001(l) (Vernon Supp. 2006) (“‘Issuance’ means the initial delivery by an

issuer of evidence of an obligation of a public security issued by the issuer to the initial purchaser in exchange for the

purchase price of the public security.“).

Shirley J. Neeley, Ed.D. - Page 9 (GA-0494)

Id. 5 1202.001(3) (emphasis and footnote added);

see

also

TEX. BUS. & COMM. CODE ANN. 5 8.102

(15) (Vernon Supp. 2006) (defining “security”); id. § 8.102 cmt. 15 (Vernon 2002) (summarizing

and explaining the section 8.102( 15) definition of “security” as an interest or participation that is (i)

fully transferable because the issuer maintains transfer books or it is in registered or bearer form; (ii)

one of a class or series rather than an individual contractual obligation; and (iii) of a type dealt in or

traded on securities markets or exchanges, or is a medium of investment specifically governed by

article 8 of the Business and Commerce Code, Uniform Commercial Code-Investment Securities).

A lease-purchase contract, unlike a bond, note, certificate of obligation, certificate of

participation, or similar instrument, does not represent a proportionate interest in the payments

to be paid by the school district. See,

e.g., LEASE PURCHASE AGREEMENT, BETWEEN AIG

COMMERCIAL

EQUIPMENT FINANCE, Irjc. AND SHINER INDEPENDENT SCHOOL DISTRICT (July 1,

2005).9 Nor is such contract “issued” in bearer or registered form or fully transferable. See, e.g.,

id.

While the lease-purchase contract may serve as the underlying source of payment for

securities-bonds or certificates of participation”-that may be issued and sold to obtain the funds

necessary to acquire the property, the contract itself is not such a security. See TEX.

GOV’T CODE

ANN. 5 1202.001(3) (Vernon Supp. 2006);

TEX.

Bus. & COMM.

CODE ANN. 5 8.102(15)

(Vernon

Supp. 2006);

see also M. DAWD

GELFANLI, STATE AND LOCAL GOVERNMENT DEBT FINANCING,

at

50-51 (2000) (stating that while certificates of participation in governmental lease-purchase

agreements have been deemed “municipal securities” under federal securities law, “[a] series of SEC

no-action letters suggest that single investor municipal lease tinancings will not constitute a

‘security”‘).

In answer to yours first and second questions, we conclude that because Education Code

sections 44.031 and 44.033 apply to all school district purchase contracts other than those

specifically excepted and because the Act does not state that sections 44.031 and 44.033 do not

apply, the two statutes apply to school district lease-purchase contracts entered ,under Local

Government Code sections 271.004 and 271.005.

B. Procedures applicable to financial consultant services contract

In your fourth question, you ask whether under Government Code chapter 2254 a financial

consultant must be selected pursuant to a request for qualification or similar competitive process and

whether the section 2254.004 selection and negotiation procedures apply to such selection. See

Request Letter, supra note 1, at 3.

?See attachment to Request Letter, supra note 1 (Exhibit C).

?See Tex. Dep’t

of

Corrections Y. Anderson County Appraisal Disk, 834

S.W.2d 130, 130-31 (TM.

App.-Tyler 1992, writ denied) (describing certificates ofparticipation issued by a trustee bank and securedbythe lease-

purchase contract payments assigned to

the trustee

by the lessor); In re

An&, ,936

P.2d 637, 639 n.3 (Haw. 1997)

(describing lease-purchase transaction and certificates of participation issued by a trustee evidencing proportionate

interests in the rental payments under the lease);

MUNICIPAL

LEASE

FNQWNG,

at 13-15, supra p. 4 (discussing the

structure of certificates of participation and lease revenue bonds secured by financing leases).

Shirley J. Neeley, Ed.D. - Page 10 (GA-0494)

Section 44.031(f) provides that “[tlhis section does not apply to a contract for professional

services rendered, including services of an architect, attorney, or fiscal agent.”

TEX. EDUC. CODE

ANN. 5 44.03 l(f) (Vernon 2006). The statute, however, proceeds to expressly address the services

of a financial consultant: “A school district may, at its option, contract for professional services

rendered by a financial consultant or a technology consultant in the manner provided by Section

2254.003, Government Code [Professional Services Procurement Act], in lieu of the methods

provided by this section.”

Id

In other words, in selecting a financial consultant, a school district

may choose to comply with either section 44.031(a) or Government Code section 2254.003.

The Professional Services Procurement Act, chapter 2254, subchapter A of the Government

Code (the “Professional Services Act”), prohibits a governmental entity from selecting a provider

ofprofessional services or awarding a contract for professional services on the basis of competitive

bids. See TEX.

GOV’T CODE

ANN. 5 2254.003 (Vernon 2000); see also id. 5 2254.002(2) (defining

“professional services”). Section 2254.003 requires that such professional service providers

be selected and the contracts for such services be awarded “on the basis of demonstrated

competence and qualifications to perform the services” and “for a fair and reasonable price.”

Id.

5 2254.003(a)(1)-(2). Section2254.003 does notmandate anyparticular selection process. Section

2254.004 sets forth additional procedures that a governmental entity must follow in procuring three

of the nine expressly listed types of professional services: architectural, engineering, or land

surveying services. See

id.

@ 2254.002(2), .004(a). The governmental entity must select the most

highly qualified service provider and then attempt to negotiate with that provider a fair and

reasonably priced contract.

Id.

3 2254,004(a)(1)-(2). If a satisfactory contract cannot be negotiated

with the most highly qualified provider, the governmental entity must terminate negotiations

with that provider and select and negotiate with the next most highly qualified provider. See

id.

3 2254.004(b)(1)-(3). The governmental entity must repeat the process “until a contract is entered

into.” Id. 5 2254.004(c).

In answer to your fourth question, we conclude that Education Code section 44.03 1 permits

a school district to contract for financial consultant services pursuant to the Professional Services

Act. Under the Professional Services Act, a financial consultant. may, but is not required to, be

selected through a request for qualifications or similar competitive process. We note that the most

reasonable way to assure that such service providers are selected on the basis of demonstrated

competence and qualification to perform the services, as the statute mandates, is through a request

for qualifications or similar competitive process. Additionally, because the negotiation procedure

of section 2254.004 of the Professional Services Act applies only to architectural, engineering, or

land surveying services, those procedures are not required when contracting with a financial

consultant.

C. Application of sections 44.031 and 44.033 to lease-purchase contracts that

include financial consultant services

In your third question, you ask whether a school district may enter into a lease-purchase

agreement under the Act that includes the services of a financial consultant retained under

Government Code section 2254.003 without complying with Education Code sections 44.03 1 or

44.033. See Request Letter, supra note 1, at 3.

Shirley J. Neeley, Ed.D. - Page 11 (GA-0494)

We assume that your question is premised on the conclusion of a 1990 attorney general

opinion. In Attorney General Opinion JM-1189, this office construed the statutory predecessor to

the Professional Services Act to prohibit a governmental entity from awarding a design-build

contract on the basis of competitive bids because professional services would comprise a component

ofthe contract. See Tex. Att’y Gen. Op. No. JM-1189 (1990) at 34. Attorney General Opinion JM-

1189, however, does not address the authority for such contracts, nor does it address sections 44.03 1

or 44.033, or the Act.

The Act authorizes lease-purchase contracts for the use, purchase, or other acquisition of

real andpersonal property. See TEx.Loc. GOV’TCODEANN. $5 271.002, .004(a), .005(a) (Vernon

2005); see also

id.

5 271.005(c) (authorizing contracts for the materials and labor incident to the

installation of personal property). Because financial consultant services are neither real nor personal

property, the Act does not authorize lease-purchase contracts for acquiring financial consultant

services. See

id.,

$5 271.004-,005. Thus, a school district is not authorized to combine the services

of a financial consultant with the acquisition of property under a~ lease-purchase contract entered

under the Act. Second, even if financial consultant services were authorized to be combined with

the acquisition of property under a lease-purchase contract, it is unclear how this would allow such

a contract to be procured under the Professional Services Act. On the one hand, the Professional

Services Act does not apply to contracts for the acquisition of property. See TEX. Gov’TCODEANN.

$5 2254.002%1003 (Vernon 2000). On the other hand, sections 44.03 1 and 44.033 specifically do

apply to such property contracts. See TEX. EDUC. CODE ANN. $5 44.031, ,033 (Vernon 2006); see

also supra p. 9. Moreover, the Education Code provisions prevail over conflicting procurement

provisions. See

id.

4 44.03 l(e). Finally, Attorney General Opinion JM-1189 is premised on the

Professional Services Act’s prohibition against selecting providers of professional services subject

to the statute on the basis of competitive bids. See Tex. Att’y Gen. Op. No. JM-1189 (1990) at 2-3.

However, this prohibition does not apply here because a school district may contract for financial

consultant services using one of the methods authorized under Education Code section 44.033(a),

including competitive bidding. See TEX. EDUC. CODE ANN. $44.03 1 (a), (e)-(f) (Vernon 2006); see

also supra p. 10. Thus, Attorney General Opinion JM-1189 is inapplicable. Accordingly, we

conclude that a school district is not authorized to enter into a lease-purchase contract under the Act

that includes the services of a financial consultant without complying with Education Code section

44.031 or 44.033.

Shirley J. Neeley, Ed.D. - Page 12 (GA-0494)

SUMMARY

Education Code sections 44.03 1 and 44.033 apply to school

district lease-purchase contracts entered under Local Government

Code sections 271.004 and 271.005.

Section 44.031 ofthe Education Code allows a school district

to contract for financial consultant services pursuant to chapter 2254,

subchapter A of the Government Code, which permits but does not

require a financial consultant to be selected through a request for

qualifications or similar competitive process. Additionally, the

negotiation procedures of Government Code section 2254.004 do not

apply to contracting with a financial consultant. A school district

would not avoid the applicability of section 44.031 or 44.033 of the

Education Code to a lease-purchase contract under Local Government

Code section 271.004 or 271.005 by including the services ‘of a

financial consultant in the contract.

eneral of Texas

KENT C. SULLIVAN

First Assistant Attorney General

ELLEN L. WITT

Deputy Attorney General for Legal Counsel

NANCY S. FULLER

Chair, Opinion Committee

Sheela Rai

Assistant Attorney General, Opinion Committee

271 005 Ga0494

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