### THEATIYORNEP GENERAL

OFTEXAS

Honorable 0. P. Lockhart Chairman,Board of Insurance Commissioners Austin, Texas

Dear Sir; Opinion

### No.O-4375 R0: Whether revenue bonds issuedby localTexas.Houslng authbrltles lncorporatedunder the.TexasHousing Act, not secured.'bg valid-first lien on Texas'real estate are ellgible.astax reducing I'Texas securities"under the Rob.ertson Lawi Articles 4765-4769,as amended, and as tax reducing b&ciwltles under ArtFcle 7064, as amended.

Your letter of January 19, 'L942,-.submlttlng in substance the above question to this Department-for an oplnlon is quoted as follows:

"Pleaseadvisewhether revenue bonds issuedby localTexas Housing Authorities incorporatedunder the Texas Rousing Authority Act (Article 1269k, Vernon's Texas Civil Statutes,H.B. 821 Acts~l937, 45th Legislature, Chapter 

### 462,pages 1144-1157; Sets. l-26, as amendedby B.B. 102;Acts 1937;&th Legislature, Second called session, Chapter 41, pages 1924-1939,Sets. 1 and 2),which bonds are not securedby valid first liensupon Texas real estatebut are secured only by pledges of (1) annual contributions of funds from the United States Housing Authority under its assistance contract illth the local Texas HousingAuthority at San Antonio; (2)rents and revenues from the SanAntonio prboject properties themselves; (3) reserve funds set aside by the issuing local San Antonio Authorlty~for maintenance, repairs, replacements, vacancies and collection losses; (4) as to a seriesA, a special find set aslde,by the issuingSan Antonio local authority with.l'tsfiscal agent equal in amount to the prlnclpal'afidinterestmaturing for the first nine years, are eligible as tax reducing 'Texasseburltles' tinderthe Robertson Law, Articles 4765-4769, as amended, and as tax reducing securitiesunder Article 

### 7064asHonorable 0. P. Lockhart, page 2 

### o-4375

amended. In this connectionwe inviteyour attention to Art. 1269k-1." (Acts 1939, Leg. p. 427, et seq.)

Under the terms of your letterwe must assume that such bonds have been issued in full conformitywlth the law, but we learn from our records that they have not been submitted to the Attorney General's Department for approval, and nothing contained herein is to be interpretedas passing on the legality or val1dLt.y of these bonds.

Chapter 4 of Title 78,Vernon's Civil Statutes of the State of Texas, I'Texas Securities and Gross Receipts Tax'! known
as the "RobertsonLaw"; as originally enactedand as amended, provided for and required of life insurance companies engaged in transacting the business ofwriting life insurance in this State the investment of a sum ofmoney equal to at least seventy-five per cent of the aggregate amount of the legal reserve requiredby the laws of the state of lts domicile in "Texassecurltles"and in "Texasreal estate". Such Investmentsto be made and maintained
on account of Its policies of insurance in forcewritten on the lives of citizens of this State consltutlng the reserve denomlnated by the act as its "Texasreserves".

The act defined the term "Texassecurities" as follows:

"The term 'TexasSecurities,'asused.ln~thls.,.~, Chapter, shallbe held to includeall bonds issued under and by virtue of the Federal Farm Loan Act approved July 17, 

### 1916,when suchbonds are issued against and securedby promissorynotes or other obligations the payment of which is securedby mortgage, deed of trust. or othervalid lienupon unencumbered real estate situated in this State; bonds of the~State of Texas; bonds or lnterestbearing warrants of any county, city, town, school district or other Im*nlclpality or subdivisionwhich 1snow ormay hereafterbe constituted or organized and authorized to issue suchbonds orwarrantsunder the Constitution and laws of this State; notes or bonds secured by mortgage or trust deed insuredby the Federal Housing Administrator;promissory **notes** and other obligations, the payment ofwhich Is securedby a mortgage, deed of trust, or othervalid llenupon unencumbered real estate situated In this State, the title to which real estate is valid and the market value of which is forty (40)per cent
more than the amount loaned thereon, exclusive of buildingsunless suchbuildings are insured against fire and kept insured in some company authorized toHonorable 0. P. Lockhart,page 

### 3 o-4375

transact business ln the State of Texas, and the policy orpolicies transferred to the company taking suchmortgage or lien; orupon first liens upon leasehold estates inreal property and improvements situated thereon, the title towhich Is valid, and the leaseholdhas not less than thirty 

### (30) years to run before expiration,provided that the duration of any loanupon such leasehold estates shall not exceeda period of ten (10)years. If any part of the value of such real estate Is inbuildings, such buildings shall be insuredagainst fire and kept insuredfor at least fifty (50)per cent of the value thereof in some company authorized to transact business Inthis State and the policy or policies shall be transferredto the company taking such mortgage or lien.

"Theterm 'TexasSecurities,' as used ln'this Chapter, shall also be held to include obligations secured collaterallyby such first lien notes-;flrst mortgage bonds of any solvent Corporation lncorporated under the laws of this State and doing business in this State, and which has pal&out of Its actual earning,dividends of an average of at least five 

### (5) per cent per a@umpn the par value of all of its par value stock outstandingand on the sale value of .a&?ofL$i~.

t-icxm W.ue stock outa_ta~Wf3.f?r. a~ period of at least five '(5)years next~F&edlng the date of such investment,and which has not at any timedefaulted In the payment of intereston any of its obligations,any such investment In the bonds of any one such corporation not to exceed five 

### (5) per cent of the admitted assets of the Insurance company making the investment,and loansmade to pollcyholders on the sole security of the reserve values of their policies. The investmentsrequired by this Chapter may be made by the purchase of not more than
one building site, and ln the erection thereon of not more than one officebuilding, or in the purchase, at Its reasonablemarket value, of such office bulldlng already constructedand the ground upon which the
same 1s located in any city of the State of more than four thousand (4,000) inhabitants. All real estate owned by life insurance companies in this State on December 31, 1909, and all thereafter acquiredunder the provisions of this Chapter, or by foreclosure of
a lien thereon shall be treated, to the extent of **its** reasonablemarket value, as a part of the investment required by this Chapter. And 'TexasSecurities' shall be held to include every character of lnvestmentHonorable 0. P. Lockhart, page 4 O-4375

authorized by the terms of

. . . _ .. thisArticle; provided tnat tne aoove restrlctlons concerningmortgage loans shall not apply to loans insuredby the Federal Housing Administrator. As amendedActs 1941, 47th Leg., P. 848, ch. 524, 11."

The above paragraph contains in substance the provlslons ofArticle 4766,Vernon's Clvll Statutes of Texas, and sets out in detail the character of investment thatmay be made by life insurance companies operating inTexasunder the Robertson law. This article does not. mention the mattersof~taxatlon. The article of the Robertson Law relating to taxation, the amount of taxes to be paid by such life insurancecompanies operating in Texas, and the reductions to be allowed such companiesunder the law,when certain investments are made by them in the State of Texas, isArticle No. 4769, and for your Article No. 4769 in full as follows: informationwe quote

"Each life insurance company not organized under the laws of this StBte, transactingbuslnessin this State, shalI annually, on or bef,orethe 1st day of March, make a report to the Commissioner; which report shall be sworn to by either the presldent or vice-president and secretary or treasurer of such company,'whlch shall show the gross amount of premiums colle‘cted during the year ending on December 31st,~precedlng,~.from~citlzens of~thls Stateupon policies of insurance. Each such company shall pay annually a tax equal to four and sixty-five hundredths (4.65)per cent of such gross premium receipts. When the report of the Investment inTexas securities,as deflned by law, of any such companies as of December 31st of any year shall show that it has investedon saiddate as much as thirty (30)per cent of its total Texas reserves as defined by law, in promissory notes or other obligations securedby mortasa deed of trust, or other lien on Texas real esi%te and/or in loans to residents or citizens of Texas securedby the legal reserve on the respective policies held by such borrowers, the rate of occupation tax shallbe reduced to four and five one hundredths 34.05 per cent; and when such report shall show that such company has so Invested on said date asmuch as sixty (60)per cent of its total Texas reserve, the rate of such tax shall be reduced to three and six tenths (3.6)per cent; and when such report shall show that such company has so invested, on said date, as'much as seventy-five (75)per cent of its total Texas reserve, the rate of such tax shallbe reduced to three and one tenth (3.1)per cent. All such companies shall, In any event,make the investments lnHonorable 0. P. Lockhart, page 5 0-4375

Texas securities in proportion to the amount of Texas reserves as requiredby law. Such taxes shall be for and on account of the business transactedwithin this State during the calendar year inwhich such premiumswere collected, or for that portion thereof during which the company shall have transacted business in this State. This Act shall not in any manner affect the obligation for the payment of any taxes that have accrued and that
are now due or owing,but the obligationas now provided by law for the payment of such taxes shall continue-in full force and effect. As amended Acts 1941, 47th Leg. (Emphasisaddedj H. B. #8, Art. XVIII, 3. 3."

We have underlined in the above paragraph the parts which we think bear most directly on your question. We think it 1s also well to mention in this connection that this article
was last amended by the 47th session of the legislature,under theActs of 1941, and~to point-out that such amendment is later in time than.elther Article 1269k orArticle 1269k-1, herein- -after referred to, lndlcatlng that the legislature did not intend to include the Housing Authoritybonds in the terms of Art. 4769.

1937;andArticle 1269k, as enactedby the 45th Legislature, in

as amended by the 2nd Called Session of the 45th Legls: lature, In 1937, provided for the organization of local housing ~__ aiithorStSes, __-_.__

---~~~~~.eli~

suchTocal-houtiIns' -tiuthorrtless~~su-e
bonds and to make provisions for the payment thereof. Article 1269k-1, enacted by the 46thLegislature, in 1939, provides that suchbonds shall be valid and legal Investments for life insurance companies, other organlzatlonsand individuals, the relevant part of said article being as follows:

"Notwithstandingany restrictions on investments contained in any laws.of this State, the State and all public officers, mnlcipal corporations, political subdivisions, and public bodies, all banks, bankers, trust companies, savings banks and institutions,building and loan associations, savingsand loan associations, investment companies, and other persons carrying on a banking business, all insurance companies, insurance associations and other persons carrying on an Insurance business and all executors, administrators, guardians, trustees and other fiduciariesmay legally invest any sinking funds, moneys or other funds belonging to them
orwithin their control in any bonds or other obligations Issuedby a housing authority pursuant to the Housing Authorities Law (Chapter 462,Regular Session of the Forty-fifth Legislature, as amended by House Bill No. 102,Honorable 0. P. Lockhart, page 6 o-4375

Second Called Session of the Forty-fifthLegislature, and amendments thereto) or issuedby any public housing authority or agency in the United States,when such bonds or other obligationsare securedby a pledge of annual contributions to be paid by theUnited States Government or any agency thereof, and suchbonds and other obligations shallbe authorized security for all public deposits; itbeing the purpose of thisAct to authorize all persons, firms, corporations,associations, political subdivisions,bodies and officers,public or private, to use any funds owned or controlledby them, :lnclualng (butnot limited to sinking, issuance, Invest: ment, retirement, compensation,pension and trust funds, and funds held on deposit, for the purchase of any such bonds or other obligations;provided however, that nothing contained in this Act shallbe construed as relieving any person, firm, or corporation from any duty of exercising reasonable care in selecting securities."

You will-note that this articlemakes no special reference to taxationnor to the ellglbllltyof such bond~sforuse as tax reducing "Texas securities" quoted hereinabove. as .descrlbedinArticle 4769,

.~

The Commission of Appeals of the Supreme Courtsof Texas

_ in Santa Rosa Infirmaryv. City of San Antonio, 259 3.X. 926, in passingon the provisions-of-Article ,a,Section 2,.~of-~theConstltutlon of Texas, holds as follows:

"Exemptionsfrom taxation are never favored and in construing laws exempting any citizen or class of propertyall doubts are resolved against the exemption."

It is our view that the rule of statutory construction here expressedwould apply with equal force In the interpretation of laws reducing taxation.

It 1s therefore our opinion that the answer to the first part of your question should be in the negative, That is, that the bonds in questlon Issuedby local Texas housing authorities, not securedby valid first liens on Texas real estate, are not eligibleas tax reducing "Texas securities"under the Robertson Law, Articles 4765-4769, as amended.

We think, however, that it is correct to take a differentview in regard to the eligibilityof such bonds as tax reducing "Texassecurities"under Article 7064, as amended.

Article 7064, as amended,Acts 1941, 47th Legislature, H.B. No. 8,Art. XVIII, Section 1, applies to insurance companies,Honorable 0. P. Lockhart, page 7 o-4375

other than life and other than fraternalbenefit associations, and provides for a tax on gross premiums. The applicable part of said article, as it relates to your question Is quoted as follows:

"If any such insurance carrier shall have as much as one-fourth of its entire assets, as shown by said sworn statement, invested in any or all of the following securities: real estate in this State, bonds of this State, or any county, incorporated city
or town of this State, or other property In this State Inwhich by law such insurance carriersmar invest their funds, the annual tax-of any such~lnsurance carrier shallbe one and one-half per cent of its gross premium receipts; and if any such insurance carrier shall invest as aforesaid as much as onehalf of Its assets, then the annual tax on such lnsurance carrier shall be three fourths of one per cent of itsgross premium receipts as above defined." (Emphasisadded)

We haveunderlined the part of the above quotation which we think applies most directly to your question, and we believe thatArticle 1269k-1, quoted hereinabove,brings the

-- bonds referred to in your question within the classlflcat-Ioncontemplatedby the clause: or other property in this State 1; which by law such insurance carriersmay invest their funds. ' .~. _.. We are therefore of the opinion that the second part of your question should be answered in the affirmative, and that the bonds in question are eligible as tax reducing "Texas securities" under the provisions of Article 7064, as amended, provided the bonds havebeen legally Issued.

We do not however here pass on the question as to whether the San Antonio bonds to which you refer are legal investments for Insurance companies sincewe do not know whether they were issuedas the lawdirects and in view of the fact that their validity has not been passed on by the Attorney General's Department.

We trust that we have satisfactorilyanswered your lnquiry.. .

Honorable 0. P. Lockhart, page 8 o-4375

Yours very truly

ATTORNEYGENERAL OF TEXAS

By s/RobertF. Cherry Assistant

RF'C:AMM:wc

APPROVED MARCR 16, 1942 s/Grover Sellers FIRST ASSISTANT ATTORNEY GENERAL
Approved Opinion CommitteeBy s/GWB Chairman