## TEIEA.TF~RXEYGENERAI. OF -lTExAs

**Gerald c.**  **Mann Au-**  **ai. TEXAE** 

**.** ***-mIs- a--** 

Honorable Tom C. gins StateAuditor and Rffloienoy Expert Austin, Texas

Dear Sirs Opinion Wo. O-1662



### RerMay 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 reoelvedby 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 

### Oeourea grant of ,thePublio 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 

### authorityof 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 

### furtherauthorized tomake any .oontraotwith referenoe to ths ~oolleotion

### and disposition of the revenues derived from any building so owstruoted Ln the acquisition

**or** oonstruotlon,management andmalntenanoe of any building or buildings aoqulredhereunder, 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 oonsiderneoessary. Any bond or notes issued hereunder shall bear lnterest at not to exoeed six per cent per annum, and shall finallymature 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 

### 1sgiven completediscretion in fixing the form, conditions, and details of such bonds or notoa. &ny bonds or notes issuedhereunder shallnot be an lndebtedness of the State of Texas, but shall

### be payable solely from therevenues to be derived from the operationof said bufLd%ngsr.

"Theresolution ok the Board of Regents authorlalngthe issuance of the Dormitory Bonds sets 

### forththe form lnwhhioh they are to be drawn. This presorlbed form oontalns,among others, the followtig provisions:

'Thisbond

. . . . ispayable solely from theBond Fund of said college oreated.for that purpose from the revenues tobe derived from the operation of said Project, all as providedby the oonst%tutlonAiidlaws of the State of Texas and particularly Chapter 5'of the Acts of the 2nd C.S. of the 43rd legislatureof Texas and as provided Ln that certainresolution of-the Board~ofRegents

. . .r.

'

. . . . theholder hereof shallnevsr 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 construotedwith the proceeds of 'thescrle of saidbonds, the gross revenues to be derived from the operationof said project arehereby irrevocably pledged to the payment of prlnoipal of and **titerest** on the bondsherein authorized

. . . .t
"All payments on interestand principal for the retirement of these bondshave been regularlymade; but the revenues from thebuilding, after payment of the expenses of its operation,have been oonslstently lnsufflolent for the purpose and have been supplementedby tithdrawals from other local funds of the oolls$e to meet .thedeflolency. “Your opinion la respeotfullyreques'tedon the following questiona:
(1) Under the laws and the authorlsed terms of the bonds, can payments for the retirement of theirprincipal and interestbe lawfullymad8 out of Oollege'Fundsother than the @ass revenues of the proje'ot, with reasonable operatLon and maintenanoe oosts deduoted?
(2) If payments are made from other soutides .thansuoh rgrosa FeVBnuee' do they constitute a claim onbehalf 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 thebonds 

### in question,payments for the retirement of their principal and interest cannot be lawfully made out of oolle e revenues of the Projeot,w th reasonableoperationand 1 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 theoperationof said building. The power of the regents to execute the bonds and to provide for the payment of the loan out of therevenues from said bulldlng over a period of years is exempt from the constltutional prohibitions inArtlole 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 thebuilding.

It would seem, therefore, olearly to follow that an appropriation of public funds, either ikom thegeneral fund in the State Treasury or from local or Lnstltutlonalfunds, 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,-anymoney out of the.Treasurg of the State to any individual,on a claim, real or pretended,when the same shallnot have been provided for by preexisting law 8 G %I'.

There being no llablllty against the State because of the construotion of saidbuilding under the expressed terms of the contract and of the statutes authorizing the construction of the building, therewould be no wpreexlstlnglaw" to serve as thebasis of the appropriations of any public funds to repay the loan and such appropriationswould be in violation of Article 3, Section 44. Fort Worth Calvary Clubvs. Sheppard, 83 S.W. (2d) 660.

We believe that thesame prohibitionwould apply to local funds as well as to fundswhloh had been deposited in the State Treasury. This departmenthas previouslyruled that similar fees collectedby the Department of Education are public funds. See Conference OpinionWo. 3012, dated February 3, 1938,by Assistant Attorney GeneralWm. 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 Institutionhave been treatedby the kglslature as public funds, ln that theyhave been approrplated to suoh lnstltutlons ln theGeneral 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:
"Subdivision3. InstitutionalReoelpts. 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 shallbecome and are hereby appropriated as maintenance **or** oontlngentfund tobe expended under the direction andwith the **apprOVa1** of the governingboard having jurlsdlctlon. Said governrng board.3 are authorized to use out of the proceeds of sald.recelpts and funds, in accordancewith the-provisionsof thisAct, such amounts as they shall deem necessary for the support, malntenanoe, operation and improvementsof 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 fiscalyear are hereby reappropriated for theabovementioned purposes 'forthe succeeding year.”

We believe that there should be no distlnotlonmade between funds requiredby law tobe deposited in the State Treasury and local educational or institutional funds,which under the statutemay be retained and placed ln depository banksby 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 institutionalfunds 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 isnecessary thatwe have addltianal informationbefOr8 we can determinewhether or not the Collegemay maintain an aatlon againstthe bondholders for recovery of paymentsmade 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 ASSISTARTATTORREY GRRERAL Consideredand approved ln limited conference