TEIEA.TF~RXEYGENERAI. 

OF -lTExAs 

Gerald c. Mann Au- ai. TEXAE 

. *-mIs- a-- 

Honorable Tom C. gins 

State Auditor and Rffloienoy Expert 

Austin, Texas 

Dear Sirs Opinion Wo. O-1662 

Rer May paynmnts of prlnolpal and 

Lriterest be made out of college 

funds for thd'l'etlretint of 

Dormitory Revenue Bonds4 

Your rsqueit for an oplnloi~ has be&n reoelved by this offlos. 

Ws quote from your letter as r0ii0wst 

*'An audit of one of the State Teaohers Colleges of Texas, 

reveals that on October 1, 1934 then College executed a 

bond issue to Oeoure a grant of ,the Publio Works 

Adminlatratlon, an agency of the Federal Government, to 

make posslble the ereotlon of a new boys' dormitory. 

The bands are labeled 'Boys* Dormitory Revenue Bonds*. 

Vhla a&ion was taken under authority of Chapter 5, 

Aots ad C. S., 45 rd legislature, whloh beosme 

ef'feotlve February 16, 1934. That act au'thorlnes 

suoh bonds to be issue&, rwithout cost to the State of 

Texas', and oontlnuesr. 

(Sea. 2 That sald Boards ars further authorized 

to make any .oontraot with referenoe to ths 

~oolleotion and disposition of the revenues derived 

from any building so owstruoted Ln the acquisition 

or oonstruotlon, management and malntenanoe of any 

building or buildings aoqulred hereunder, and In 

sntiolpatlon of the odlleotlon of euoh revenues, 

and for the~purpose of paying the oost of the 

oonatruotion or acquisition of said building or 

buildings and grounds aafd boarda are severally 

empowered%y rssolution to authorize, sell, and 

deliver ita negotiable bonds or notes from tlme 

to time and in auoh amount or amounts as it may 

oonsider neoessary. Any bond or notes issued 

hereunder shall bear lnterest at not to exoeed 

six per cent per annum, and shall finally mature 

not more than forty years from date. 
Eon. Tom C. King, page 2, O-1662 

cS80. 3 Subject to the above restrictions each of said 

boards 1s given complete discretion in fixing the form, 

conditions, and details of such bonds or notoa. &ny 

bonds or notes issued hereunder shall not be an lndebtedness of the State of Texas, but shall be payable solely 

from the revenues to be derived from the operation of 

said bufLd%ngsr. 

"The resolution ok the Board of Regents authorlalng the 

issuance of the Dormitory Bonds sets forth the form ln whhioh 

they are to be drawn. This presorlbed form oontalns, among 

others, the followtig provisions: 

'This bond . . . . is payable solely from the Bond Fund 

of said college oreated.for that purpose from the revenues 

to be derived from the operation of said Project, all as 

provided by the oonst%tutlon Aiid laws of the State of 

Texas and particularly Chapter 5'of the Acts of the 2nd 

C.S. of the 43rd legislature of Texas and as provided 

Ln that certain resolution of-the Board~of Regents . . .r. 

' . . . . the holder hereof shall nevsr have the right 

to demand payment of this obligation out of any funds 

ralssd or to be raised by taxation .' : .I'. 

"The resolution further provides,,. 

'Section 8 That subject only to the payment of.reasonable 

oosts for operation and maintenance of the Project to be 

construoted with the proceeds of 'the scrle of said bonds, 

the gross revenues to be derived from the operation of 

said project are hereby irrevocably pledged to the payment of prlnoipal of and titerest on the bonds herein 

authorized . . . .t 

"All payments on interest and principal for the retirement 

of these bonds have been regularly made; but the revenues 

from the building, after payment of the expenses of its 

operation, have been oonslstently lnsufflolent for the 

purpose and have been supplemented by tithdrawals from other 

local funds of the oolls$e to meet .the deflolency. 

“Your opinion la respeotfully reques'ted on the following 

questiona: 

(1) Under the laws and the authorlsed terms of the 

bonds, can payments for the retirement of their principal 

and interest be lawfully mad8 out of Oollege'Funds other 

than the @ass revenues of the proje'ot, with reasonable 

operatLon and maintenanoe oosts deduoted? 

(2) If payments are made from other soutides .than suoh 

rgrosa FeVBnuee' do they constitute a claim on behalf of 
. - 

Eon. Tom C. King, page 3, O-1662 

the College and against the bond holders?" 

Our answer to your first question 1s that under the laws and 

the authorized t8lmS of the bonds in question, payments for 

the retirement of their principal and interest cannot be 

lawfully made out of oolle e 

revenues of the Projeot, w 1 th reasonableoperation and 

funds othnr than the gross 

maintenance costs deduoted. As pointed out Fn your letter, 

and quoted above, the bond expressly provides that lt can ln 

nowlse be oonstrued to be a llablllty against the State. 

Furthermore, Chapter 5, Aots of the Second Called Session, 

Forty-third Legislature, the Act under which these bonds were 

issued, provides that suoh bond shall be payable solely from 

the revenues to be derived from theoperation of said building. 

The power of the regents to execute the bonds and to provide 

for the payment of the loan out of the revenues from said 

bulldlng over a period of years is exempt from the constltutional prohibitions in Artlole 3, Seotlons 49 and 50 and 

Article 8, Section 6, solely because no debt against the' 

State is created and there is no pledging of the credit of 

the State, nor is there any appropriation of public funds 

Fn the pledging of the revenues from the building. 

It would seem, therefore, olearly to follow that an 

appropriation of public funds, either ikom the general fund 

in the State Treasury or from local or Lnstltutlonal funds, 

would be ln violation of Article 3, Section 44 of the 

Constitution, which provides, in part, that the Legislature 

shall not "grant, by appropriation or otherwise,-any money 

out of the.Treasurg of the State to any individual, on a 

claim, real or pretended, when the same shall not have been 

provided for by preexisting law 8 G %I'. 

There being no llablllty against the State because of the 

construotion of said building under the expressed terms of 

the contract and of the statutes authorizing the construction 

of the building, there would be no wpreexlstlng law" to serve 

as the basis of the appropriations of any public funds to 

repay the loan and such appropriations would be in violation 

of Article 3, Section 44. Fort Worth Calvary Club vs. 

Sheppard, 83 S.W. (2d) 660. 

We believe that the s ame prohibition would apply to local 

funds as well as to funds whloh had been deposited in the 

State Treasury. This department has previously ruled that 

similar fees collected by the Department of Education are 

public funds. See Conference Opinion Wo. 3012, dated 

February 3, 1938, by Assistant Attorney General Wm. J. Kemp, 

addressed to honorable Tom C. King, State Auditor and Wffioienoy Expert-, and found ln the published opinions of the 

Attorney General, 1936-38, page 127. 

Furthermore, we wish to direct your attention to the fact 
- * 

Hon. Tom C. King, page 4, O-1662 

that the local funds of an educational Institution have been 

treated by the kglslature as public funds, ln that they have 

been approrplated to suoh lnstltutlons ln the General 

Eduoational Appropriation Bill. House Bill #255, Acts of the 

Regular Session of the Forty-sixth Legislature, 1939. Subdivision 3 of the general provisions attached to said bill 

provides as follows: 

"Subdivision 3. Institutional Reoelpts. No property 

belonglng to; any of the lnstltutl~s provided for, or 

any agency thereof, shall be sold or disposed of without 

the consent of its governing board, and all proceeds from 

the sale of such property, from labor performed, from the 

sale of materials, crops and supPlies, from fees and 9 

and all other receipts shall become and are hereby 

appropriated as maintenance or oontlngent fund to be 

expended under the direction and with the apprOVa1 of the 

governing board having jurlsdlctlon. Said governrng board.3 

are authorized to use out of the proceeds of sald.recelpts 

and funds, in accordance with the-provisions of this Act, 

such amounts as they shall deem necessary for the support, 

malntenanoe, operation and improvements of said institutions. Any balances remaining to the credit of any 

of said institutional looal funds at said institutions or 

ln the State Treasury at the end of any fiscal year are 

hereby reappropriated for the above mentioned purposes 

'for the succeeding year.” 

We believe that there should be no distlnotlon made between funds 

required by law to be deposited in the State Treasury and local 

educational or institutional funds, which under the statute may 

be retained and placed ln depository banks by the Board of 

of Regents of the State Teachers Colleges, and that the Board 

of Regents would not be authorized to use either appropriations 

from the general fund or such local or institutional funds in 

payment of the bonds mentioned in your letter. 

In reply to your second question you are advised that this is a 

question of fact as well as of law and it is necessary that we 

have addltianal information befOr8 we can determine whether or 

not the College may maintain an aatlon against the bondholders 

for recovery of payments made out of the local funds. 

Trusting that this answers your questions, we are 

Very truly yours 

ATTORNEY GENERAL OF TEKAS 

s/.Claud 0. Bootbman 

COB-s/cg Bi 

Claud 0. Boothman 

APPROVRD FEB~.27, 1940 Assistant 

s/ W. F. Moore 

FIRST ASSISTART ATTORREY GRRERAL Considered and approved ln 

limited conference