Bond Review

Chapter 1202 of the Government Code requires all governmental entities, as well as certain nonprofit corporations created to act on their behalf, to submit all bonds and similar obligations to the Attorney General for review before the bonds can be issued. Included in the governmental entities subject to this requirement are all state agencies, cities, counties, school districts, municipal utility districts, hospital districts, and institutions of higher education.

The Public Finance Division is the division responsible for performing this review and approval process. The review is a legal one, not a financial one, though division attorneys do review whether bonds can apparently be paid within any statutory or constitutional limits on taxation or historic or reasonably projected revenues. The Attorney General's approval does not address the wisdom or advisability of the financing techniques employed or the expenditures which the bonds are intended to finance.

The Bond Review Board is the state agency whose mission is to ensure that debt financing of state agencies and other entities having statewide jurisdiction is used prudently to meet Texas' infrastructure needs and other public purposes. More information about this and other functions of the Bond Review Board is available on the Bond Review Board's Web site.

More about Bond Review

Bonds and similar obligations must be submitted along with the proceedings authorizing such obligations (the “bond transcript”). If the Attorney General determines that the bonds have been authorized in accordance with law, he is to approve them and send them to the Comptroller for registration, after which they can be delivered to the purchasers in exchange for the purchase price.

After approval by the Attorney General, the bonds are, under state law, valid, enforceable and incontestable in any court for any reason, except for a constitutional defect. Some state agency bonds are specifically authorized by the state constitution, with a constitutional requirement for Attorney General review which carries with it constitutional incontestability.

Since 1991, the Attorney General has had the additional responsibility of determining whether school bonds can be paid without exceeding a legislatively specified tax rate (currently $0.50 per $100 valuation), taking into account the various kinds of state aid to school districts.

The Public Finance Division

The attorneys in the Public Finance Division review all bonds and their authorizing proceedings. Many bond transcripts, such as those for voted tax bonds of cities, counties and, until recently, school districts, are fairly straightforward to review, but others, such as bonds for sports facilities or economic development, tax increment bonds, bonds for health facilities or housing, and bond financings involving lease purchase agreements, can be extremely complex.

The division ordinarily requires bond transcripts to be submitted at least 10 working days before the scheduled delivery date of the bonds (12 working days for bonds issued by nonprofit corporations on behalf of a government entity). However, these time frames may not be sufficient for the most complex cases and may be adjusted for peak periods of issuance. See the All Bond Counsel Letters for the most current timing requirements. In addition, the agency's rules governing the approval of public securities can be found in chapter 53 of Title I of the Texas Administrative Code

As the agency proposes amendments to the rules governing the approval of public securities, the division will make the proposed rules available on this Web site in PDF format. The proposed rules will be available on this site for informal review until the commencement of formal rulemaking pursuant to chapter 2001 of the Texas Government Code. Comments on the proposed rules may be submitted to the attention of Martha Rodriguez at Martha.Rodriguez@texasattorneygeneral.gov.

There are occasions when problems arise after submission of the bond transcript. Some of these problems may require remedial action by the governing body of the issuer and in some rare instances the division will refuse to approve a bond issue after it is submitted because the legal defect simply cannot be cured.

All Bond Counsel Letters

The Attorney General is authorized to give advice to "the proper legal authorities in regard to the issuance of bonds," (section 402.044, Tex. Gov't Code) and thus the attorneys in the division frequently talk to counsel for governmental entities, and sometimes directly to governmental officials, regarding various legal issues related to the issuance of bonds. OAG attorneys are prohibited from providing legal counsel or interpretations of the law, or answering questions about the law, for private individuals and organizations.

For complex bond financings, bond counsel for the entity issuing bonds (who sometimes submit legal memoranda or briefs) are encouraged to discuss with division attorneys prior to submission of the transcript the legal issues raised by a particular bond issuance.

Periodically, letters “To All Bond Counsel” are sent to a list of attorneys practicing in this area, advising them of positions taken by the division on particular legal issues or problems. The All Bond Counsel Letters are available on this Web site in PDF and HTML format.