Ken Paxton

Public Finance Division

 Attorney General Role in Legal Review of Public Securities

The Office of the Attorney General reviews for compliance with state law all public securities issued by governmental entities, including water districts and other special purpose districts, as well as certain nonprofit corporations created to act on behalf of governmental entities.  If the Attorney General determines that the public security has been issued in conformity with law, he is required to approve the security and deliver to the comptroller a copy of his legal opinion stating this approval, along with the record of proceedings.  Once approved by the Attorney General, registered by the comptroller and delivered against payment by the purchaser, the public security is valid, incontestable and binding in any court for all purposes according to its terms, absent a constitutional defect. 

Authority:  Chapter 1202, Texas Government Code

Nature of the Legal Review

The Public Finance Division is the division within the Office of the Attorney General responsible for the review of public securities.  The division’s review solely focuses on the legality of a proposed transaction, and does not address any financial advisability or wisdom.  Procedurally, an issuer of a public security will submit to the division a transcript comprising the bond authorization documents and various certificates which must establish the statutory authority to incur the debt, the statutory or constitutional authority for the pledge and the stated purpose for the debt, as well as demonstrate compliance with any conditions precedent to the issuance such debt.  Thus if the particular law authorizing the debt or the constitution requires prior notice, an election, or approval for the project by another governmental entity such as the Texas Commission on Environmental Quality as a precondition for issuance, the division will require and review evidence of compliance with any such condition.  The issuer must cite express authority in the Texas Constitution to pledge its ad valorem tax revenues to the payment of a public security.  A pledge of revenues from other sources must similarly cite specific statutory authorization for such a pledge.  The review of the pledge focuses solely on whether the pledge for repayment of the public security complies with any statutory or constitutional limits on the use or pledge of taxes or revenues, and does not reach any financial wisdom or impact of the issuance. In summary, division attorneys make a legal review to ensure that the debt is authorized by state law for the stated purpose and that the pledge for repayment complies with any statutory or constitutional limitations and requirements.