Opinion No. GA-0506

Attorney General of Texas — Opinion
January 30, 2007.

GREG ABBOTT, Attorney General of Texas.

The Honorable Dennis Bonnen Chair, Committee on Environmental Regulation Texas House of Representatives Austin, Texas 78768-2910

Re: Whether a city may operate a commercial compost/mulch business that sells its products outside the city’s limits (RQ-0508-GA)

Dear Representative Bonnen:

You ask whether a city may operate a commercial compost/mulch business and sell its products outside the city’s limits.[1] You state that certain cities produce, market, and sell compost/mulch products in direct competition with private businesses that produce and sell similar products. See Request Letter, supra note 1, at 1. You do not object to the cities producing compost/mulch and providing such products “to homeowners in their communities free of any charge, or using compost/mulch in their city parks and common areas.” Id. at 2. In your view here, “[t]he cities, however, should not be permitted to compete with private enterprises in the State of Texas nor in any way supply landscape contractors or sell bagged products to nurseries.”Id.

As we understand it, in connection with the management and processing of municipal solid waste and wastewater, Texas cities such as Plano, Denton, Brenham, and Texarkana engage in “composting”[2] of the solid waste and sludge[3] and sell the resulting products such as compost, soil, and mulch to the public inside and outside their respective city limits.[4] Prior to these composting programs, the cities buried the solid waste and sludge in landfills. See Denton Brief, supra note 4, at 2; Austin Brief, supra note 4, at 1. The revenues generated from these sales are used to fund the cost of the composting programs. See Denton Brief, supra note 4, at 7; Plano Brief, supra note 4, at 2; Brenham Brief, supra note 4, at 2. Based on your question and letter, we do not understand you to question the cities’ authority to engage in composting or to distribute compost products to the city residents. See Request Letter, supra note 1, at 1-2. Rather you question only the cities’ authority to sell the compost products outside their city limits See id. at 2.

The cities you ask about are home-rule cities that derive their powers from article XI, section 5 of the Texas Constitution.[5] See Tex. Const. art. XI, § 5; Quick v. City of Austin, 7 S.W.3d 109, 122 (Tex. 1999); Lower Colo. Riv. Auth. v. City of San Marcos, 523 S.W.2d 641, 643
(Tex. 1975). A home-rule city has “all the powers of the state not inconsistent with the Constitution, the general laws, or the city’s charter.” Proctor v. Andrews, 972 S.W.2d 729, 733 (Tex. 1998) (citing Tex. Const. art. XI, § 5). “[I]t is necessary to look to the acts of the legislature not for grants of power to such cities but only for limitations on their powers.” Lower Colo. Riv. Auth., 523 S.W.2d at 643. The Legislature may circumscribe a home-rule city’s broad power, but only if it does so with “unmistakable clarity.” Id. at 645. Accordingly, to answer your specific question, we first consider whether the sale of compost products comports with state law and next consider whether the Legislature has, with unmistakable clarity, limited a home-rule city’s authority to sell compost products outside the city limits. We assume, for purposes of this analysis, that the sale is consistent with the cities’ respective charters. See, e.g., Tex. Att’y Gen. Op. Nos. JC-0142
(1999) at 4 (assuming for the purposes of such an analysis, that the city ordinance at issue was authorized by the city charter); JM-846
(1988) at 1 (“As a matter of policy, this office does not interpret city charter provisions. . . .”).

You do not reference and we have not found a state or federal constitutional provision that on its face is contravened by a city’s sale of compost products outside the city limits or by a city acting as a “market participant.” See Request Letter, supra note 1, at 2. The Commerce Clause to the United States Constitution, article I, section 8, clause 3, does not restrain a city from acting as a market participant See, e.g., White v. Mass. Council of Constr. Employers, 460 U.S. 204, 208 (1983) (“[W]hen a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause.”); Reeves, Inc. v. Stake, 447 U.S. 429, 437 (1980) (“[T]he Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace. There is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market.”) (citations omitted); U.S. Const. art. I, § 8, cl. 3.

Nor have we found any state statutes contravened, as a matter of law, by a city’s sale of compost products outside its city limits. Maximizing the sale of compost, in fact, would appear to be consistent with state laws generally encouraging reduction “to the maximum extent that is technologically and economically feasible” of municipal solid waste through “reuse or recycling” and of municipal sludge through “marketing and distribution of sludge and sludge products.” Tex. Health Safety Code Ann. § 361.022(a), (b)(2), (c)(3) (Vernon 2001) (Public Policy Concerning Municipal Solid Waste and Sludge); see also id. § 363.002 (stating that it is the state’s policy to encourage reduction in solid waste and the proper management of solid waste, including its disposal and processing to extract usable materials); 30 Tex. Admin. Code § 332.2(16) (2006) (Tex. Comm’n on Environmental Quality, Composting) (“Distribute — To sell, offer for sale, expose for sale. . . .”). And such activity would appear to be consistent with state law specifically encouraging composting and reuse of composting products. See Tex. Health Safety Code Ann. § 361.428(a)-(b) (Vernon Supp. 2006); see also Schulman v. City of Houston, 406 S.W.2d 219, 222 (Tex.Civ.App.-Tyler 1966, writ ref’d n.r.e.) (stating that a home-rule city’s garbage compost plant is “for the public purpose of disposing of garbage and for the welfare of the community” and is “a lawful business and an operation not subject to abatement”). Texas Health and Safety Code section 361.428
directs the Texas Commission on Environmental Quality (the “Commission”) to provide incentives for composting programs capable of reducing municipal solid waste streams that would be disposed in landfills and to adopt rules for permitting compost facilities. See Tex. Health Safety Code Ann. § 361.428(a)-(b) (Vernon Supp. 2006). Pursuant to this authority, the Commission has adopted rules governing the operation of composting facilities, including facilities operated by cities See 30 Tex. Admin. Code § 332.3 (2006) (applicability); id. § 332.2(38) (defining operator of facility), (42) (defining permit), (43) (defining person).[6] Neither the state law provisions nor the Commission rules limit the sale or distribution of compost products to particular geographical areas.

Finally, you do not reference and we have not found any statutory provisions whereby the Legislature has with unmistakable clarity limited a home-rule city’s authority to sell compost products. A letter submitted to this office suggests that chapter 756, subchapter G, Health and Safety Code limits a city’s authority to sell compost products outside its city limits.[7] Section 756.101 authorizes a city to “provide landscaping services, including tree-trimming, tree disposal, . . . and recycling services” to persons inside and outside the corporate limits of the city “only if the governing body of the municipality makes written findings as required by Section 756.102.” Tex. Health Safety Code Ann. § 756.101 (Vernon Supp. 2006). Section 756.102 requires the city to (1) identify the problem raising the need for providing the landscaping services; (2) identify the public health, safety, or welfare concern; (3) describe previous actions taken to address the problem; and (4) specify a definite time period necessary to address the problem Id. § 756.102. Subchapter G, by its terms, addresses landscaping services rather than composting of municipal waste and the sale of compost products. See id. §§ 756.101-.102; see also Senate Comm. on Natural Resources, Bill Analysis, Tex. S.B. 585, 78th Leg., R.S. (2003) (enrolled version) (“This bill also authorizes certain landscaping services under certain conditions.”). It does not evidence with unmistakable clarity the Legislature’s intent to prohibit or limit a home-rule city’s authority to sell compost products outside the city limits.

Your letter suggests that because the production and sale of compost products may be a proprietary rather than a governmental function, the cities may not sell the products to persons outside the city limits See Request Letter, supra note 1, at 1-2. The proprietary-governmental distinction has generally been used to determine a city’s immunity from suit for tortious conduct. Tooke v. City of Mexia, 197 S.W.3d 325, 343
(Tex. 2006); see also Tex. Const. art. XI, § 13 (authorizing the Legislature to define and reclassify for all purposes municipal functions that are to be considered governmental and those that are proprietary); Tex. Civ. Prac. Rem. Code Ann. §§ 101.001-.109 (Vernon 2005 Supp. 2006) (Texas Tort Claims Act). The distinction may also be relevant to a city’s contractual liability. See Tex. Att’y Gen. Op. No. JC-0154 (1999) at 2-3 (discussing estoppel against a city acting in its proprietary capacity as distinguished from its governmental capacity). In addition, it may be relevant under federal law with respect to the application of economic regulation under the Commerce Clause. See Jefferson County Pharm. Ass’n, Inc. v. Abbott Labs., 460 U.S. 150, 154
n. 6 (1983) (“It is too late in the day to suggest that Congress cannot regulate States under its Commerce Clause powers when they are engaged in proprietary activities.”). But whether the compost activity is a proprietary or governmental function would appear to be irrelevant to a city’s authority to sell compost products outside the city limits and is not a distinction that makes a difference here.

Lastly, your letter generally suggests that cities are not permitted to compete with private enterprises. See Request Letter, supra note 1, at 1-2. But you do not cite and we have not found any authority that as a matter of law prohibits cities from competing with private enterprises.

Because a home-rule city’s sale of compost products to persons outside the city limits does not generally appear to contravene constitutional or statutory law, and because the Legislature has not with unmistakable clarity forbidden a home-rule city to sell compost products outside its city limits, we conclude that a home-rule city may sell compost products outside its city limits.

SUMMARY

Because a home-rule city’s sale of compost products to persons outside the city limits does not generally appear to contravene constitutional or statutory law, and because the Legislature has not with unmistakable clarity forbidden a home-rule city to sell compost products outside its city limits, a home-rule city may sell compost products outside its city limits.,
Very truly yours,
GREG ABBOTT Attorney General 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