### THE ATTORNEY GENERAL OF TEXAS

March 8, 1989

Honorable Billy Ray Stubblefield Opinion No. JM-1026 Williamson County Attorney P. 0. BOX 1078 Re: Whether Williamson Georgetown, Texas 78627 County may use the interest earned from investment ofbond proceeds for the construction of its courthouse/jail complex to fundadditional construction onthe project (RQ-1510)

bearMr. Stubblefield:

You inform us that Williamson County has issued and sold $16.5million inbonds tobuild anew county courthouse and jail complex. The proceeds fromthe sale of the bonds
were invested andhave earned a sizable amount of interest. Some of the interest hasbeen transferred tothe interest and sinking fund, and some remains in the principal construction account.

Thebids for construction ofthe project received by theWilliamson County Commissioners Court were all higher than expected. The commissioners court would like to transfer the interest onthebond proceeds to the principal amount sothat they can afford thekind of courthouse/jail complex that they had envisioned. YOU ask the following question:

Way the interest earned fromthe investment of Courthouse/Jail complex construction bonds proceeds be added to the principal amount, in order to provide additional construction funds for completion of the project?

You have not submitted additional facts norhave you provided us copies of thebond covenants orother documents relevant to the bond issuance. Our opinion will answer your narrow legal question in the context of the information

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before us andwill not speculate at length about all other circumstances which might suggest adifferent result.

The commissioners court of a county has statutory authority to issue county bonds tobuild acounty courthouse and jail. V.T.C.S. arts. 718; 237013, § 3. See also Tex. Const. art. XI, 02 (construction of jails, court-houses, bridges, and certain other improvements shall be provided forby general law):Mitchell Countv .Citv Nat'1 Paducgb. Kvc, 43 S.W. 880 (Tex. 18z8) Bank of (legislature has authority to grant county power to issue bonds for the construction of bridges and acourthouse and jail). The statutes donot address the question you ask. You however raise thepossibility that Attorney General Opinion JM-545 (1986)prohibits you fromadding the interest earned from investment ofbond proceeds to the principal amount. See &&Q Attorney General Opinion JM-530 (1986).

Attorney General Opinion JM-545 (1986)concerned the disposition of interest earned on the invested proceeds of roadbonds issued by Austin County under article 6702-1, V.T.C.S., the County Road and Bridge Act. **Section** 4.411(b) of that act provides that road bonds issued thereunder "shall **be** issued
. . ,as contemplated and authorized by Article III, Section 52, of the Texas Constitution.l* Article III, section 52,ofthe constitution authorizes the legislature to empower counties to issuebonds for specified purposes, including the construction, operation, and maintenance of roads. Attorney General Opinion JM-545 stated that the "use ofpublic debt inthe formofbonds to create a fund for investment as an indenendent or exclusive undertam is not a purpose sanctioned by article III, section 52,of the Texas Constitution." Attorney General Opinion JM-545 at 5 (emphasis inoriginal). Austin County authorized the sale ofthree million dollars worth of road bonds but had spent less than onemillion dollars for road purposes. &at 4. In themeantime, the costs of some county road improvements were paid fromthe regular county budget, instead ofbeing charged against the bond proceeds. & The holding of Attorney General Opinion JM-545 was based upon a specific and narrow set of facts, which indicated that bond proceeds were used for investment as "an independent or exclusive undertaking."

Theholding ofAttorney General Opinion JM-545 thus does not prohibit Williamson County from adding interest earned from the investment of courthouse/jail bond proceeds to the principal amount, toprovide additional construction funds. The common law rule isthat interest, as an

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accretion to the principal fund earning it,becomes part of theprincipal unless lawfully separated from it. Sellers v.
!2i%FT% 403 S.W.2d 242 (Tex.1972); bawson v. Baker, 272 (Tex. Civ. APL'.- Austin 1920, ref'dj.' See ilsp Attorney General Opinion H-1167 writ (1978) (interest on constitutional fund for state college and university construction is first applied toretire bonds and then to finance additional permanent improvements); Annot. 143ALR 1341 (1943) (disposition of interest earned on special funds ofmunicipalities).

As already stated, we findno statute that separates the interest from the principal fund. You have not submitted thebond covenants to us; therefore, we do not consider whether anyprovision ofthe bond covenants would separate the interest onthebond proceeds fromthe proceeds andplace it inthe sinking fund, limit expenditures for building the courthouse/jail complex toan amount thatwould be exceeded by adding interest to principal, or for any other reason require adeparture fromthe common law rule. In the absence of a statute, bond covenant, or other provision or instrument that otherwise allocates the interest earned on bond proceeds, the common law rule applies to the interest, and the interest may be added to 'theprincipal amount to finance the project forwhich the bonds were issued.

Attorney General Opinion JM-545 disapproved two earlier opinions ofthis office, stating as follows:

Attorney General Opinion C-537 (1965)held that a school board might deposit interest earned by excess school bond proceeds in the sinking fundcreated to retire the indebtedness. To the extent the opinion suggests the board possessed discretion todo otherwise, it is disapproved. A similar question was presented in,

Attorney General Opinion R-1174 (1978),which construed section
. . .120.42) of the Education Code topermit theuse of such interest forother purposes. To that extent, it isdisapproved, also.
Attorney General Opinion JM-545 at 7.

Attorney General Opinions C-537 andR-1174 dealt with school district bonds, not county bonds issuedunder article III, section 52, of the Texas Constitution. Thus, the constitutional basis of theholding in Attorney General

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Opinion JW-545 was not relevant to the twoprior opinions, and they should have been distinguished, rather than disapproved. Their disapproval byAttorney General Opinion JW-545 should accordingly **be** disregarded.

SUMMARY According to the common law rule, interest, as an accretion to the .principal fund earning it,becomes part ofthe principal unless lawfully separated from it. This rule applies to interest earned on the investment of the proceeds ofbonds issued byWilliamson County tobuild a courthouse/ **jail** complex, and the interest may be added to the principal amount andused to finance theproject forwhich thebonds were issued unless a statute, bond covenant, or other provision or instrument prevents this allocation.

Ve 

# J

JIM MATTOX . Attorney General of Texas

WARYKELLER FirstAssistant Attorney General

mu nCcREARY Executive Assistant Attorney General

JUDGE ZOLLIE STRARLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by Susan L.Garrison Assistant Attorney General

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