HomeMy WebLinkAboutAM Create Two Nonprofit Corporations TOWN OF WESTLAKE
MEMO
To: Honorable Mayor and Board of Aldermen
From: Trent Petty, Town Manager
Thomas Allen Moon,Finance ounsel
Subject: Regular Meeting of February 12,2001
Date: February 7, 2001, 2001
ITEM
Need for Town to Create Two Nonprofit Corporations to Facilitate (1) Obtaining an Open Enrollment
Charter for a K-12 School and(2) Providing the Infrastructure for a Civic Center.
RECOMMENDATIONS
In order to obtain a charter for the Westlake Academy and provide fmancing for the Westlake Civic
Center in the most efficient means possible,without any loss of control by the Board of Aldermen of
the development, financing, ownership, and operations of the proposed Westlake Civic Center, it is
recommended that the Board of Aldermen authorize the creation of the Westlake Academy
Corporation and the Westlake Civic Center Corporation.
BACKGROUND
Obtaining a Charter for an Open Enrollment School
The Town of Westlake(the "Town") is attempting to obtain a charter for an"Open Enrollment Charter
School (the"Westlake Academy"). Under the Education Code, a charter can be granted to any of the
following:
(1) an institution of higher education,
(2) an organization that is exempt from taxation under Section 501(c)(3), Internal Revenue
Code of 1986; or
(3) a governmental entity.
Although the Education Code authorizes a charter to be granted to a "governmental entity," Type A
cities, such as the Town, have not been expressly empowered to provide K12 public educational
services. Given this lack of express statutory authorization, substantial issues exists concerning
whether the Town itself may offer K12 public education services.
Education Instrumentality
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Regardless of whether the Town is empowered to provide public education services,the Board of
Aldermen can cause to be created an educational instrumentality(the "Education Instrumentality")
which could obtain(on behalf of the Town)the charter for the Westlake Academy. In this respect,the
Education Instrumentality would be a nonprofit corporation, created under the Texas Nonprofit
Corporation Act, whose board of directors would be appointed (and be subject to removal)by the
Board of Aldermen, whose articles of incorporation and bylaws would be approved (and be subject to
amendment) by the Board of Aldermen, and whose assets,upon dissolution, would pass to the Town.
If organized on this basis,the State Board of Education should treat the Education Instrumentality as a
"governmental entity." Since the Education Instrumentality would have all appropriate powers
authorized under the Texas Nonprofit Corporation Act, it would be expressly authorized to provide
K12 public education services.
The Education Code,provides that entities granted charters shall have generally the same powers (and
are subject to the same requirements) as school districts except such entities cannot tax.
As the entity holding a charter,the Education Instrumentality would be entitled to per pupil
distributions of state education funds..
Under federal tax law,the Education Instrumentality would possess many of the same attributes as a
501(c)(3)nonprofit corporation in that(1) contributions made to it for educational purposes would be
tax deductible and (2) it would not be subject to federal income taxes.
Policy Advantages to Using the Educational Instrumentality
From a policy standpoint,the use of the Education Instrumentality(instead of the Town itself) as the
entity that would seek the charter for and operate the Westlake Academy has the following advantages:
(1) Unlike the Town,the sole purpose of the Education Instrumentality would be to provide
K12 public educational services.
(2) The board of directors of the Education Instrumentality could include a number of
professional educators who would bring enhanced educational credibility.
(3) The Education Instrumentality, as a nonprofit corporation, would be free of many legal
constraints that apply to political subdivisions.
For both legal and policy reasons, the Town should consider organizing a nonprofit corporation as its
Education Instrumentality in connection with obtaining the charter for and operating the Westlake
Academy.
The Westlake Civic Center
In connection with obtaining a charter for the Westlake Academy, the Town is attempting to provide a
civic center complex (the "Westlake Civic Center") comprised of one or more of the following
components:
(1) a recreational center, including athletic and swimming facilities;
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(2) a library, including electronic media and computer services;
(3) a museum and arts display area;
(4) a cultural and performance center;
(5) an auditorium;
(6) a conference center;
(7) meeting rooms;
(8) rooms suitable for use as classrooms for both K12 and higher education;
(9) campus-like park facilities; and
(10) related facilities.
In order to obtain financing for the Westlake Civic Center, in the most efficient manner possible and
without pledging taxes, it will be necessary to grant the investor who provides the funds to finance the
facility with a first lien mortgage. Because of legal restrictions applicable to municipalities, it is
practically impossible for the Town to mortgage property owned by the Town.
Infrastructure Instrumentality
Although the Town is subject to the municipal land sale statutory restrictions, an instrumentality
created by the Town to own property to be developed into the Westlake Civic Center would not be
subject to the restrictions. Therefore,the Town should create an infrastructure instrumentality(the
"Infrastructure Instrumentality"), similar in many respects to the Education Instrumentality, for the
purpose of facilitating the development of the Westlake Civic Center by avoiding the municipal land
sale restrictions applicable to the Town.
Just as the Education Instrumentality,the Infrastructure Instrumentality would be a nonprofit
corporation, created under the Texas Nonprofit Corporation Act, whose board of directors would be
appointed(and be subject to removal)by the Board of Aldermen, whose articles of incorporation and
bylaws would be approved(and be subject to amendment)by the Board of Aldermen, and whose
assets,upon dissolution, would pass to the Town.
Under federal tax law,the Infrastructure Instrumentality would possess many of the same attributes as
a 501(c)(3)nonprofit corporation in that(1)contributions made to it for educational purposes would be
tax deductible and (2)it would not be subject to federal income taxes.
Instead of the Town directly taking title to land obtained by gift or bequest from a benefactor or by
mandate from a developer for the purpose of developing the Westlake Civic Center,the Town could
have the Infrastructure Instrumentality take title to the land. Since the Infrastructure Instrumentality is
not a political subdivision subject to statutory and constitutional restrictions,it could hold title to land
and grant mortgage in the land and improvements thereby facilitating the development and financing
of the Westlake Civic Center.
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