The local government and TxDOT may only contract with each other to perform functions and services that state law authorizes them to perform. If either party does not have the authority to perform an act, TxDOT cannot enter into an Interlocal contract to pay a local government to perform the act for TxDOT. The same is true for the local government. For example, TxDOT does not have its own statutory authority to build and operate a library, so TxDOT cannot enter an Interlocal agreement for a local government to provide a library for TxDOT, even though that service is a governmental function.