WILL WILSON

ATTOHN- OLZNEHAI. AUSTIN 11. T&x&s

March 6, 1959

HonorableWilliam S. Fly Chairman Senate Finance Committee

HonorableWilliam S. Heatley Chairman House Appropriations Committee Capitol Station .; Austin, Texas
Gentlemen: Opinion No. W-565
Re: Whether the Employees RetirementSystem and and the TeachersRetirement System are administrative agencies of the State for which administration.expenses

should be appropriated

by the Legislature,

Andy related questions.

In y0ur.reques.t

for an opinionyourecite that the Legislative

Budget Board has raised a question as' to whether it isnecessary for, the .Legislature

to make biennialapproriations 4 covering the administration expensesof the Employees etirementSystem and the TeachersRetirementSystem of Texas. You further advise that the Senate Finance Committeeand the House Appropriations. Committee

desire.,the

o,pinion

of the Attorney General as to the legal,:status of the.variousfunds of these two retirementsystems,, in order,,,that the Legislature might act in the manner prescribedby law in making appropriations for these two agencies.

The answer to the questions submittedis dependent upon the constructionof the,provisions of the statutesrelating to the creation and administration of the two retirementsystems. The statutoryprovisionsrelating to the Teacher RetirementSystem are embodied in Article 2,922-l ~of Vernon's Civil Statutes,while ,the provisions.relating to the EmployeesReti.rement System are containedin Article 6220-a. If the various funds of the two retirementsystems are required 'to be deposited in ,the State Treasury it must follow, pursuant ~to Section 6 of Article VIII of the Constitution of Texas that such funds cannot be expended or drawn from the Tre;y;nk.ein pursuanceof specif'ic appropriations

made by law. other hand, such funds are in reality trustfunds and: hence, not required to be deposited in the State Treasury, then the
same may be expendedby the Board of Trusteesof each Retirement System in accordance with the general statutespertaining to the Systemswithout prior specificappropriations by the Legislature.HonorableWilllam S. Fly, HonorableWilliam'S. FleathY,

page 2, W-565)

gectlon‘2 of Artlcl\e'&2-1 speaks of the %orpora~te exlstence*f;

of ,the EeachersRetirementSystem. It further recites that the RetirementSystem shall have the power and privilegesof's corporation and shall transact all of its busine~ss in then name of the Teachers ~Retirement,System of Texas. Section 10 creates and describes the various funds of the Teachers Retirement System includingthe ,Expense~ Fund from which bll expenses of~admi&tration and .maintenance are paid. The Expense.Rundis constituted by membershippayments contributed annually by each member of the.Retirement Gvstem inthe amount

., ‘ :

.P. of,

Two and'no/lOO ($2.00) Dollars,

abut it is provided that if the expenses of the State Board of Trustees are in excess of Two and no/100 ($2.00) Dollars

~.per contributor:for

.the year, the Board:of Trustees shall transfer to the Expense Fund from the Interest Fu@an amount:necessar'y~to cover theexpenses as esti,mated::for'the

year;, but in no ‘evcn~t~sh&ll the,amount.

trans-:' : ferred exceed in.any:one.year Fifty Cents ($.50)per member of .record

as.af~.August.31~

of that year. .~

Section12 .places"'the..~~ general admlhistration~and~~res'ponsibility~ for the proper operation.of .the',.~tirem~nt-.System.'in a~.Board

of Trustees and fur- : ther autho?izes'the Board to ~establish'rules and regulations for the administration.of the:.'ftkds

created by.

theeAct.and,for~

': the transactionof~its:.businegs~, that: This Section further provides'.' :

11..

. . ersonsengaged by the State Board of *Trustees,

fan x ally other expenses of .the. Board ..'necessary

~forthe,~operation.of the Retirement Sys-

.~ tern, shall.be Raid at such rates and insuch 'f. amounts as.the,State Board..of.lVus,tces.

shalla&~~. prove,~provided

that in no.&8 ,sh@lthey'be ~greater.

than that'.paid~for~~l%ke or: s$.mZlar

service .' ..of"the

State .ofTexas;".~

.,.. .,
: :.Sectioli:,13,pr~~des::tha~"the Stat& Board of Trustees shail.be;

thee%rustees~

of:.the. 'several'.,fun8g.,'created by the and.@11 seo~lties, ~motii'es;'and othex.aagets..qf

:the Act Retire& i System;'~and~~have

full power to invest~&dre-invest same subject to ~the~limitatlons and restri&ic~s:th&ei.n contained. SubGectlon.3 of Sectlcn:U reads as'foll.c+s: :

Yl'he Treasurerof ,theState of'Texas shall be
cu todu of all bonds ~s6curities and funds : %~&entsfrom saidfunds s&l be ma&by h& on:war.rapts

drawn bythe,State .Com&xoller:of,pUb-.' .~.~ ~1li.c &coantq: supported~a upcq:vo~che~ti~~signed~ ~. ~.~ by the Rxe~cutive.

Seoretary,of:~the,Ret.~ement.,Sy~~, ." tem:,.;A

duly:attdsted

copyoi ti+ +++int+o?l of ,thc ',. :

HonorableWilliam S. Fly, HonorableWilliam S. Heatley, 3 (WW-565)

State Board of Trusteesdesignatingsuch person shall be filed with said Comptroller as his authority for issuing such warrants." (Emphasis added.).
Subsection 2 of Section 16 directs that the Treasurer of the State of.Texas shall ,RetirementFund give a bon no/100 ($5O,OOOjDollars. L! upon becoming custodian of the in the sum of Fifty Thousandand

In the interest of brevity we will not set out in detail the various provisionsof the EmployeesRetirementAct (Article6228a of Vernon's Civil Statutes)which we consider pertinent to your ~inquiry, but it seems sufficientto say that said Act.containsprovisionssubstantially the same as those pravisionsof the TeacherRetirement Act above described. In this connection,

we call attention to the following sections of Article 6228a: Subsection6 of Section 6, Sections 7A,and 7C, and Subsections 5 of Section 8.

In the case of New &&, et al.d~151 S.W.2d ~$l~*t~,k$%rn~?%&% ;ixas
was concerne with the status of the Employees Compensation Fund and the necessity for speoific ~legislative

appropriation

prior to the expenditure.of'the fund in the payment of unemployment benefits. In concludingthat legislativeappropriation‘was not necessary, the Court stated;.

%ubdivision b of Section 7 of Article 5221b constitutesthe State ~$reasurer treasurerand custodian of the UnemploymentCompensation F'und. Un-' der the provisionsof th$s subdivisionthe mone$ collected for such fund 1s never paid into the State Treasury shall ever be Ii

nor is it contemplated, that such
one. The officer who fills the office of State Treasurer:issimply given an added duty or responsibility. It 'is made the duty of such officer to act as custodian of the Unemployment Compensation Fund, and to pay it over as pro- ;zd.by the Act. The money collectedfor such ,--thoughlevied and collected in the form of excise taxes,--isnot levied or .collected to become
a fund of the State, as such. To the contrary it is levied and collectedunder statutoryprovislons~ that set it apart for the purpose for which it was collected,and it can be used for no other purpose. Simvlr stated& he fund created bv t Y ry incemon ~Eecomes he Act in its the urocertv of a t usk.' c:eated for the benefit of a cl.ass:of citiiens of .,'

,Honorable William S. Fly, HonorableWilliam S. ,Heatley, page k W-565) I

this State,--theunemployed whose employershave created it. The taxes are levied and collected for such fund. and not for the State in Its soygreisn canacitv. The statute wermanentlvauurola,es this fund to be used for the euruoses . +

or which it was collected without the necessitv pf an auurouriation bv the Lesislatureeverv two years:" (Emphasis added.)

Tex

. See also: Manion v. Lockhart. State Treasurer 175, 114 S.W.2d 218; Smith v. Paschal, 1 S.W.2d lo&, 131
(Tex.Comm.App);

Tatum v. Wheeless,180'~iss. 800, 178 So. 95; 108 A.L.R. 595; Attorney General's+Op%nion W-241 (1957).

The applicability

of.the holding of the-SupremeCourt .' of Texas in the Friedman case a, to the question here presented is readily apparent. it leads us here to the same co& elusion reached by the,Supreme Court to the effect &at the funds provided for in both the Teacher Retirementand the Em- R ployee RetirementActs become the property of a trust created for the benefit of ,a~class of citizens of this State,---the employees and the teachers of the State, respectively whrlcontri.?ute

in a large measure to the respectivefunds. $he funds'
so received by the two systems are held in trust by the State and may be expended for no purpose other than that for which received. We do not believe from a careful study of the various 'statutory

provisionsrelating to the administration of the two systems that the Legislatureeither contemplated or ks required that there must be a specificappropriationof these funds before the same may be expended for the purposes received;but on the contrarywe believe that the effect of the language used when consideredin light of the purposes of the two acts, 1s to constitutea permanentand continuing appropriationof the funds accruing to each system, thereby eliminating'

the necc:sity of recurring legislativeappropriations cnch two years, As in the Friedman case State Treasurerhas been constitutedthe K suura, the custo ian of each of the two funds. The funds are not required to be paid into the State Treasury but the applicablestatutes require that they be placed in the hands of the State Treasureras custodian. ;Ls the Su'preme

Court pointed out in the Friedman case, "the officerwho fills the office of State Treasurer is simply given an additionalduty or responsibility."

It must follow from what we have said that it is our opinion that the respective. funds of the two retirement systems here involvedmay be expended in accordancewith the general laws governlng~theoperation of the two,systems without priorHonorableWilliam S. Fly, HonorableWilliam S. Reatley,

page 5 (W-565)

specific appropriation by the Legislature of Texas. This is true because the two retirementActs do not contemplatethat funds of either system shall be placed in the4tate Treasury, and Section 6 of Article VIII of the Constitutionof Texas, requires specific legislative appropriation

only for funds expended or drawn from the Treasury.

The two retirement systems,however,may not expend any portion.

of the unexpendedbalances of the funds now on deposit in the State Treasury~without specificappropriation of said funds made by th'e Legislature,

even though it is our view that it was error, under existing statutes for the funds to h&ve been so deposited. Section 6, krticle $111, Constitution of Texas. We suggest, therefore,that then biennial appropriations

bill appropriateany unex;?ended balances of funds belonging to the systems,now on deposit in the State Treasury,' and direct and authorize the transferof such balances to a special .trust

account with the Sta$e Treasureracting as custodian. When this is accomplishedit will not be necessary for the Legislatureto make further.appropriatiohs'of these funds before they may be legally.expended by the governing board of each retirement system.forthe pur~osea for which re: ceived. The BiennialAppropriations Act should also appropriate to the Employees Retirement'System and TeachersRetirement System the State~'s matching contribution. In the case of the Teachers RetirementSystem the State contributionshould be appropriatedfrom.the allocationsof the, Om@bus~Tax Fund, while the State'smatching contribution for theEmployees RetirementSystem should be made from the respective funds from,;: which the employees,benefited by the Act,receive their respeotive~salaries. This statementrests on the assumption that the Legislaturewill desire to continue to provide matching funds for the two retirementsystems from the same source.5
as in the current BiennialAppropriations Act (H.B. 133, Acts ;, of the 55th Legislature, Regular Session, 1957).
By way of summary, the BiennialAppropriations Act for the ensuing biennium should~contain two items for each '~ retirementsystem. One item should appropriateand authorize

. -the transfer int0.a special trust account in the hands of the .J

.State Treasurer the unexpendedbalances of the funds now credited to the account of the respectiveretirement systems which are deposited in the State Treasury. The other item should appropriate to each system the State'smatching contribution for the ensuing biennium.

We wish to emphasize, however, that the Legislature has full authority, if it so desires, to amend the existing

.#o;:orable William S. Fly, HonorableWilliam-S.Heatley, pace 6 (WW-565)

statutes so as to provide that all funds of the two retirement systems be carried in special.accounts within the State Treasury. Should this be accomplished no portion of said funds could be expendedwithout specific,prior appropriation by the Legislatureand in accordance with such appropriations. Even if the funds of the two systemsare not deposited in the State Treasury, thereby eliminatingthe necessity of legislativeappropriations the' Legislature~may,

by general statute, impose such restrictionsupon the expenditureof the funds as it may deem necessary so long as such restrictions do not result in a diversion of the funds to unauthorizedpurposes.

SUMMARY The~respectivefunds of the Teachers Retirement System and of the Employees RetirementSystem are trust funds receivedby the State for a special purpose and under existing statutesshould be placed h the hands of the State Treasureras custodian 'but

out of the State Treasury.

The Biennial'Appropriations .Act .forthe ensuing biennium should appropriatethe State'smatching contributionsfor each system and should also appropriate the unexpendedbalances of funds deposited to the credit of each system now in the estate Treasuryand authorizeand direct the trarisfer of

. such balances to said special trust account!'Funds hereafter accruing to each retirementsystem should be deposited in such trust account.

Yours very truly,

WILL WILSON * Attorney General of Texas

LP:mfh:wb B onard Passmore AssistantHonorableWilliam

page 7 (W-565) .

S. Fly, HonorableWilliam S. HeatleY,

APPROVED:

OPINION COMMITTEE

Geb. P. Blackburn, Chairman Dean Davis William E. Allen Riley Eugene Fletcher
John !B,.

Webster

RJXLEWEDFOR TBEATTORNEYCENERAL

BY: W. V. Geppert

,.,, .</ ..y