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City attorney outlines narrow legal conditions for city funding of nonprofits; council signals tighter standards
Summary
City Attorney Brad Bullock and the Texas Municipal League guidance briefed the council on legal limits for general fund and hotel‑occupancy‑tax grants to nonprofits; councilors signaled they will tighten oversight and consider contract arrangements rather than automatic annual payments.
The Lago Vista City Council heard legal guidance on whether the city may make grants or donations to nonprofit organizations and under what rules such funding would be lawful.
City Attorney Brad Bullock told the council that gratuitous donations by a city to private parties are generally prohibited by the Texas Constitution (Article 16, Section 50) and the prohibition against lending the city's credit (Article 3, Section 52). He said expenditures that incidentally benefit private interests can be valid only if the expenditure is for a legitimate public purpose and is directly connected to the inhabitants. The attorney and TML guidance cited case law requiring specific public‑purpose demonstrations and post‑expenditure reporting.
Bullock explained that hotel‑occupancy‑tax (HOT) funds are governed by a statutory list of permissible uses — generally tourism and economic development that demonstrably "put heads in beds" — and are therefore easier to defend if the grantee can provide measurable tourism economic benefits. General‑fund grants are more legally constrained and require stricter oversight: formal applications, written agreements, permitted uses, and post‑award reporting and auditing.
Councilors discussed past informal practices of making recurring grants to local nonprofits. Several council members said the city had historically dispersed funds with limited oversight; some supported suspending automatic annual grants while staff and council draft tighter policies and contracting arrangements. Council consensus favored pausing the current practice for the coming budget cycle and developing a program (applications, contracts, reporting) that would allow funding where a public purpose can be established, for example when a nonprofit performs a service the city otherwise would provide.
City Attorney Bullock and staff said they had prepared memos and would return with recommended ordinance or resolution language to establish review criteria, application forms, and reporting requirements for any future grants.
No final city policy change was adopted at this meeting; councilors said staff should return with formal options for the budget process.
