Because the Texas Attorney General’s Office (the “Texas AG”) must approve most bond issues, the Texas AG has significant authority over the interpretation and implementation of the many laws that impact bond issues. On December 29,2023, the Texas AG released an All Bond Counsel Letter (the “ABC Letter”) that has important implications for school bond elections. Important takeaways from the ABC Letter include the following:

1. Until the enactment of Section 45.003(g), Texas Education Code (“TEC”) in 2019, school districts could combine all election projects into a single bond proposition. Over the past few years, school districts have been required to separate certain “special” projects from their “general” proposition (i.e., the proposition authorizing traditional school facilities). These “special” projects include: (a) certain large stadiums, (b) natatoriums, (c) certain recreational facilities, (d) performing arts facilities, (e) teacher housing, and (f) certain types of technology equipment.

Since Section 45.003(g), TEC took effect, the Texas AG has generally relied upon school district certifications to ensure compliance with this statute. Essentially, the Texas AG has deferred to school districts on their interpretation of this statute. The ABC Letter marks a sea change in this regard. School districts must now provide information regarding bond projects to the Texas AG so that the Texas AG can make its own assessment as to whether Section 45.003(g),TEC’s requirements have been satisfied.

In view of this new landscape, school districts should proceed cautiously on projects that may be difficult to categorize pursuant to Section 45.003(g), TEC. School districts should also consider having bond counsel review and comment on all online bond project information, as it appears that this information will now be heavily scrutinized by the Texas AG.

2. The Texas AG also signaled in the ABC Letter that gymnasiums are of particular interest. If a gymnasium has over 1,000 seats, is a second gymnasium on a particular campus, or is a standalone facility, the Texas AG may take the position that the facility is a “special” project that cannot be included in a bond     proposition containing traditional school facilities. Presumably, the Texas AG views these facilities as potentially being either a large stadium or a recreational facility. Unfortunately, the Texas AG’s guidance leaves many questions unanswered. In fact, the Texas AG has yet to define the term “recreational facility.” As a result, districts should involve bond counsel early in the bond election process, especially where athletic facilities will be financed, to ensure that there is sufficient time to consider Section 45.003(g), TEC matters and confer with the Texas AG if appropriate.

3. The Texas AG also appears to have formulated a new test for whether a facility may be financed by a school district. According to the Texas AG, each facility     must have a predominantly educational function. If a facility does not have an “obvious, predominantly educational function,” the Texas AG may decline to approve of a bond issue that attempts to finance such a facility. The Texas AG has called out athletic and recreational facilities as potential areas of concern, but the Texas AG declined to provide workable guidance to bond counsel. As a result, a school district will likely need to work closely with the Texas AG prior to an election if the district plans to finance a facility that: (a) is of a type that is uncommon for a school district, or (b) may be used significantly by members of the public.

Leon | Alcala is one of the most active law firms serving as bond counsel to school districts on bond elections and resulting bond issues. In 2023, Leon| Alcala participated in over thirty (30) bond transactions involving nearly$1.3 billion in bonds and served as counsel on twenty (20) separate bond elections involving over $3.3 billion in bonds. Our firm also assisted five (5)school districts on voter-approval tax rate elections (or VATREs). If you have any questions regarding this School Bond Brief or anything else related to school bond elections or bond issues, please do not hesitate to reach out to your Leon| Alcala attorney.

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