T~~A~ORNEY GENERAL 

OFTEXAS 

Hon. Jesse James Opinion No. O-3724 

Acting State Treasurer Re: Authority of the State Board 

4stin, Texas of Education to purchase certain 

bonds. 

Dear Sir: 

We are in receipt of your letter of June 20, which 

reads as follows: 

“The State Board of Education is purchasing 

$500,000 of Corpus Christi Independent School District Bonds dated 6-l-41.; Nos. l/500 inclusive at 

$1,000 each; interest rate 2@ on the first 50 

bonds; 2-3/4$ on the next 80 bonds and 3% on the 

remaining 370 bonds, payable semi-annually on June 

1st and December 1st of each year. 

“Article, 2671 as amended provides that no 

bonds, obligations or pledges shall be purchased 

that bear less than 2-l/2$ interest. Bonds Nos. 

S/50 of the above mentioned series bear only 2*$ 

interest. 

We kindly request that at your very earliest 

convenience you give us your written opinion as to 

whether or not bonds Nos. l/50 of this issue can be 

legally paid for out of the State Permanent School 

Pund . ” 

Your question Implies that the first fifty bonds, 

bearing interest at the rate of 2z@, might be waived by the 

Board of tiducation and the balance of the $500,000 issue 

purchased under the option afforded by Article 2673 of 

Vernon’s Annotated Civil Statutes. Briefly, the option 

given to the State Board of Education provides that before 

the bonds of any county, city, school district, or other 

taxing agency, are sold, bids shall be taken on the total 

amount desired to be sold and the best bona fide bid received shall be submitted to the State Board of Bducation 

said Board having an option of ten days within which to 

meet said bid, and in the event the bonds are not purchased 

by the Board, the issuing district, or subdivision, may then 

proceed to seil said bonds to the party or parties making 

the best bona fide bid. Such bids are made upon the basis 
Hon. Jesse James, page 2 (O-3724) 

of bonds offered by the issuing political subdivision,, Ed, 

if such offering Is bid for as a block, then under ,the XL 

the Board of Education is required to meet the price ofP~~...i 

for the bonds as a block. It does not have the authority to 

purchase thp,bonds so offered under any other conditions. 1;Ic, 

other words, the Board is not at liher,ty to pass up the firs~t 

fifty bonds of the above described issue and exercise its 

option as to the remaining 450 bonds. It must take either 

all or none of said offering. This it has endeavored to do, 

treating the offering as one unit of investment, namely, 

$500,000, said unit beari.ng interest at the coupon r:ztes i;,f 

2)$ for the first fifty bonds, 2-j/4$ for the next eighty 

bonds, and 3% for the remai,nder. 

For convenience in handling said debt aggregati.ng 

$500,0OC1 has been set u~p in $l,OOC? pieces, rnmbered i to 503, 

inclusive e The debtor dis,trict is obligated to pay on said 

debt an average interes,t of 2.90% throughout the life of the 

debt. Conversely, the State Permanent School Fund, as the 

owner of the evidence of the debt, .wil.l earn on its investment an average of 2.90% per annum throughout the life of the 

debt. This brings before us the question as to whether hr-ticle 2671. of Vernon’s Annotated Civil Statutes, which rea,ds, 

in part, as follows: 

“No bonds) obligations or pledges shall be 

purchased that bear less than 2$& interest ***II 

means that the bonds themselves shall bear a coupon interest 

rate of not less than 2&s, or does it mean that no ingestment by the State Board of Education shall ‘be made which 

will not return as income on the investment a minimum yield 

of 2#? We think the statute was intended to provide-,a minimum of return on the investment. Artic1.e 2671 as amended, 

is merely a secti,on of the law enacted by the Forty-first 

Legislature, Regular Session, 1929 Chapter 278, page 573, 

which law was an amendment .to the Hcts of 190’; page 215 

and whic:h last named Act amended .the original’iaw, ‘tots Gf 

1905, page 263, governing investment of .the State Permanent 

School Fund. The entire law relating to this subjec~t m,ust be 

read together in order to arrive at the correct legislative 

intent . By reference to this law we find that ,the State Board 

of Education is authorized to pay a premium for any bonds 

authorized by law to be purchased as an investment for the 

School Fund and, likewise, said Board is authorized to purchase bonds at a discount (Art. 267.3), and then we find this 

language: 

“The price paid for bonds, obligations and 

pledges, shall be endorsed thereon at the time 

the same are purchased.” 
- --. 

Hon. Jesse James, page 3 (O-3724) 

This indicates to us that the investment shall not be determined 

by the denomination of the component pieces as prescribed by the 

Issuing munlclpallty or political subdivision, but by the sum of 

money lald out by the Permanent School Fund in the purchase of 

such evidences of debt. It seems clear that the Legislature 

Intended that all investments made by the Board in behalf of the 

permanent School Fund should return not less than 2&% interest 

on ‘funds so Invested. 

Manifestly, the framers of the Constitution had In mind 

providing some sort of fixed income for the operation of the 

schools of the State. Section 5 of titicle 7 of the Constitution 

provides, In part, as follows: 

“The principal of all bonds and other funds, 

and the princlpaI arising from the sale of lands 

hereinbefore set apart to said School Fund, shall 

be the Permanent School Fund, and all the interest 

derivable therefrom *** shall be the Available 

School Fund ***‘IO 

Responsive to this constitutional mandate the Legislature has endeavored to provide a minimum of income for the Available Fund, 

and we conclude that the language contained in Article 2671, su- 

“No bonds obligations or pledges shall be purchased that 

gi:j? less than’2@ lnterest I’ is Intended as the leglslative dlrection that the Board of Education, In making investments as 

provided by law, shall make no investment yielding less than 2*$ 

Interest on the amount so invested. 

Under date of July 23, 1937, the Honorable Joe J. Ksup, 

Assistant Attorney General, ln an opinion addressed to the Honorable Ghent Sanderford, President, State Board of Education, 

reached the conclusion above set forth. We quote, in part, from 

his opinion -- 

“We are of the opinion that the phrase ‘bear 

less than 3% interest’ means that the State Board 

shall realize 3$ on thelr investment. We do not 

feel that the coupon face shall evidence $ lnterest o In view of the fact that these statutes were 

enacted for the protection of the school funds of the 

State, we cannot see how we can consistently arrive 

at any other legislative intent.” 

Since the above quoted opinion was rendered? Article 

2671 has been amended, *lowering Interest from 3% to 22,%- In 

this conaection we find further support for the conclusion herein reached in the emergency clause of the law amending Article 

2671; which clause reads as follows: 
Hon. Jesse James, page 4 (O-3724) 

“The fact that prevailing Interest rates on 

shorter maturity bonds in the case of a great 

many desirable investments Is less than 3$, and 

the fact that under the present law the State 

Board of Education Is not permitted to Invest 

in these securities because of the fact that the 

present law requires a of 3$, creates an 

emergency *** .I 

It will be noted In this quotation that the Leglslature has used the word “yield” which we flna by reference to 

Webster’s International Dictionary to be a synonym of the word 

“bear”; therefore, we think that the legislative intendnent In 

Article 2671, as above quoted, was that no bonds, obligations 

or pledges , shall be purchased yielding less than 2s interest. 

Following receipt of the above quoted opinion the 

State Board of Education proceeded from that day forward to 

Invest its funds on such a basis as would yield not less than 

the minimum amount provlaed by statutes. In some instances 

this yield was determined by the payment of a premium for bonds 

so purchased, and In others It was reached through the purchase 

of bonds at a discount, but according to the records of the 

State Board of Education, no bonds have been purchased yielding 

less than the statutory mlnlmum. We are Informed by the State 

Board of Education that this has been their practice for the 

years following the obtaining of the Attorney General’s opinion interpreting Article 2671 relative to the minimum amount 

of interest that might be borne by bonds so purchased. 

This practice was being followed by the Board of Education at the time Article 2671 was amended by the Acts of the 

Forty-sixth Legislature, Regular Session, 1939, and in accordance with the decision of the Supreme Court In the case of 

Federal Crude Oil vs. Youht-Lee Oil Company, et al., 52 S.W. 

(2d) 56, such amendment by the Legislature will be presumed to 

have been made with knowledge of the Interpretation placed upon 

Article 2671 by the Attorney General and the Board of Education. 

Judge Leady used the following language in that case: 

“Where the officers of the State government during 

a long period of years have construed a statute of 

doubtful Import, and the same Is later reenacted by the 

Legislature in substantially the same form, it will be 

presumed that the law-making body knew of the constructicn placed upon its language by Its officers, and that 

if it was not satisfied that Its Intention had been 

rightly interpreted, It would have so changed the verbiage of the Act as to have shown clearly a contrary intention.” 
Hon. Jesse James, page 5 (O-3724) 

In support of this statement Judge Leddy cited the cases of 

Houston and T. C. R. Co., v. State of Texas, 95 Tex. 521. 

6A R, W. 777: Galveston H.& S. A. Ry. Co. v. State, 17 S.W. 

67; Stephens County v. Hessler, 16 S.W. (Jd) 804. Therefore, 

the presumption being In favor of the interpretation placed 

upon the statute by the Attorney General and the Board of 

Education, we think It conclusive on this department to hold 

that by the amendment of 1939, the Legislature In effect, 

approved the construction placed upon Article ii671 by the 

Attorney General and the Board of Education. 

Accordingly, you are advised that in our opinion bonds 

nr?mbered l/50, inclusive, bearing interest at the face rate of 

2+$ can be legally paid for out of State Permanent School Funds, 

so long as such bonds constitute a part of the entire unit of 

Investment, namely, $500 000, and so long as the Income yield 

on the total sum Invested Is not less than 2&g. 

Trusting that the foregoing fully answers your Inquiry, 

we are 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

By, /s/ Clarence E. Crowe 

Clarence E. Crowe, Assistant 

APPROVED JUL 1, 1941 

/s/ Gerald C. Mann 

ATTORNEY GENERAL CS’ TEXAS 

(This opinion considered and approved in limited conference) 

CEC-s:wb 

.