- .



# THE ATTOWNEY GENERAL

Q,PTEXAS

PRICE DANIEL 

## AUUTIN ~.TEXAS .m*ORNEY GENERAL June 28, 1951

Hon. Allan Shivers Opinion No. V-1198 Governor of Texas Austin, Texas He:

Dear Governor:

You have requested the constitutionality ofHouse Bill 603. Constitutionality ofHouse Bill No. 603, authorizing agreements between the State ofTexas and the Federal Government to extend Federal old-age and survivors insurance coverage to certain public employees. opinion bfthis office on the

House Bill 603 provides that the State Department of Public Welfare, hereafter referred tobs the State Agency, shall administer the provisions ofthe Act. The State Agency is author’- ized to enter into agreements with the,Federal Security Administrator for the purpose of extending Federal old-age and survivors insurance coverage to employees of any of the counties or municipalities of the State other than employees engaged in performing .serw es in connection with aproprietary function. .d
The State Agency is authorized toenter into agreements with the governing bodies of eligible counties and municipalities when such counties and municipalities desire old-age and survivors insurance coverage for employees covered by the Act. The term “employee” is defined as including an officer or employee of acounty or municipality. H.B. 603, Sec. l(c).

Section 8reads, in part, as follows:

“Each county or municipality as towhich aplan has been approved

...shall pay tothe State Agency

...contributions inthe amounts and at the rates specified by the applicable agreement.

... Counties or municipalities

.,.are authorized, in consideration of the employees retention inor entry upon employment, to impose upon its employees

...acontribution with respect towages inkeeping with applicable State and Federal requirements. Contributions so collected shall be paid to the State Agency in partial discharge ofthe liability of the county or municipality, but failureHon. Allan Shivers, Page Z.(V-1198)

to deduct contributions from employees’ wages shall not relieve the employee or the employer ofliability for the contribution.

... Matching contributions by the employing counties or municipalities

...shall be paid from the respective source offunds from which covered employees receive their compensation.”

The respective governing bodies ofthe various counties or municipalities are authorized to pay out.ofany available funds not otherwise dedicated such amounts as may be necessary tofinance their proportionate share of the administrative cost of the program at the State level. At the end of each fiscal year, the State Agency must pay from the Social Security Administration Fund tothe State Treasurer for deposit to the General Revenue Fund ofthe State of Texas an amount not less than ten per cent (10%) of the payments made to such fund during the preceding year until such time as the amount appropriated tothe State Agency from funds ofthe State for administrative purposes has been reimbursed in full.

Section 11empowers the State Agency tocollect any delinquencies and interest thereon from counties and municipalities. Likewise, the State Agency “may direct the deduction of any delinquent payments with interest from any moneys payable to the delinquent county or municipality by the State or any department or agency of the State, provided, however, that deductions shall be made only from such prior appropriations as were expressly made subject to such deductions. The Comptroller and the State Treasurer are empowered and directed to comply with the State Agency’s deduction directives and to remit the deducted amounts to the State Agency in trust for the contributions of th&delinquent county or municipality. ”

Section 6provides that the respective governing bodies ofsuch counties and municipalities as enter into agreements with the State Agency under the Act are authorized to pay contributions as required by these agreements from those funds from which the covered employees receive their compensation and “it is expressly provided that all prior laws and parts oflaws which fix amaximum compensation for any covered employees of counties are hereby amended tdallow payment ofthe matching contribution necessary tothis program in addition to any maximum compensation otherwise fixed by law.”

Section 7of the Act authorizes counties and municipalities to submit for approval by the State Agency plans for extending the benefits ofthe Federal old-age Cl.l-id survivors insurance system to the employees of the county or municipality other than those engaged in p.:rforming services in connection with aproprietary- .

Hon. Allan Shivers, Page 3(V-1198)

function ofthe subdivision. Submitted plans must meet stated requirements, one ofwhich is that each plan must specify the **source** or sources from which the funds necessary to make the payments required are tobe derived and must contain **guarantees** that these sources will be adequate for this purpose. The State Agency may require guarantees inthe form of surety bonds, advance payments into escrow, detailed representations and assurances ofpriority dedication, or any legal undertaking to create adequate security that each county or municipality will be financially responsible for its share in the program for at least a minimum period equivalent tothat specified by Federal requirements to precede coverage cancellation.

Section 12establishes “a special fund, separate and apart from all public moneys or funds of this Stdte, tobe known as the Social Security Fund, which shall be administered as directed by the State Agency exclusively for the purposes of this Act. The State Treasurer shall be treasurer and custodian of the fund. He shall administer such fund in accordance with the directions of the State Agency, and the Comptroller shall issue warrants upon it in accordance with such regulations as the State Agency shall prescribe. The State Agency shall deposit all moneys collected under the provisions of this Act, except moneys to defray administrative expenses at the State ,level, in the Social Security Fund. All moneys so deposited with the State Treysurer in the Social Security Fund shall be held in trust, separate and apart from all public moneys or funds ofthis State. The State Agency is vested with full power, authority, andjurisdiction over the fund and may perform any and all acts necessary to the administration thereof and to pay the amounts required tobe paid to the appropriate Federal authorities and any refunds or adjustments necessary under this Act.”

Moneys collect.ed from counties and municipalities to defray the cost of administrative expenses are tobe deposited in another special fund ofwhich the State Treasurer is made treasurer and custodian **subject to** the directions ofthe State Agency. The moneys in both funds are to be disbursed upon warrants issued by the Comptroller of Public Accounts pursuant to sworn vouchers executed by the State Agency. Section 13states that

“These funds will not be State funds, and shall not be subject to legislative appropriation.”

Section 14appropriates the sum of $ZO,OOO.OO to the State Agency “for the purposes enumerated in Section 13and to investigate,, study, negotiate, defend, and administer this program during the two (2) years immediately succeeding the effective date of this Act.”. .

Hon. Allan Shivers, Page 4 (V-1198)

Section 15contains the usual severability clause and Section 16declares an emergency.

House Bill 603 is designed to take advantage of Section 106 ofthe “Social Security Act Amendments of 1950.” Public Law 734--8lst Cong. Section 106 amended Title 2ofthe Social Security Act by adding Section 218. (42 U.S.C.A. Sec. 418.),

The first paragraph ofSection 218 reads as follows:

“(a)(l) The Administrator shall, at the request of any State, enter into an agreement with such State for the purpose of extending the insurance system established by this title to services performed by individuals as employees of such State or any political subdivision thereof. Each such agreement shall contain such provisions, not inconsistent with the provisions ofthis section, as the State may request.”

Section 218(b) defines certain terms used in Section 218. The term “coverage group” is defined as follows:

“(5) The term ‘coverage group’ means (A) employees ofthe State other than those engaged inperforming service:; in connection with aproprietary function; (B) employees of apolitical subdivision of a State other than those engaged in performing service in connection with aproprietary function; (C) employees of aState engaged in performing service in connection with asingle proprietary function; or (D) employees of apolitical subdivision ofaState engaged in performing service in connection with asingle proprietary function.

...”

Paragraph (c)(l) ofSection 218 reads as follows:

“An agreement under this section shall be applicable toany one or more coverage groups designated by the State.”

Paragraphs (c)(2), (c)(3), (c)(5), and (c)(6) deal with the services tobe included in agreements relating or applicable to each coverage group.

Paragraph (c)(4) provides that prior agreements with aState may be modified so as to include any coverage group to which prior agreements have not applied or so as to include services previously excluded from the agreement consistently with the provisions ofthe section of the Act applicable in the case of an original agreement.Hon. Allan Shivers, Page 5(V-1198)

218! We quote in full the following paragraphs ofSection

“(d) No agreement with any State may be made applicable (either in the original agreement or by any modification thereof) toany service performed by employees as members of any coverage group in positions covered by aretirement system on the date such agreement is made applicable to such coverage group.”

“(e) Each agreement under this section shall provide --

“(1) that the State will pay to the Secretary of the Treasury, at such time or times as the Administrator may by regulations prescribe, amounts equivalent to the sum of the taxes which would be imposed by sections 1400 and 1410 of the Internal Revenue Code ifthe services of employees covered by the agreement constituted employment as defined in s,ection 1426 of such code; and

“(2) that the State will comply with such regulations relating topayments and reports as the Administrator may prescribe tocarry out the purposes ofthis section. ”

“(g)(l) Upon giving at least two years’ advance notice inwriting to the Administrs.tor, aState may terminate, effective at the end of acalendar quarter specified in the notice, its agreement with the Administrator either--

“(A) in its entirety, but only ifthe agreement has been ineffect from its effecti’/= date for not less than five years prior to the receipt ofsuch notice; or

“(B) with respect to any coverage group designated by the State, but only ifthe agreement has been in effect with respect to such coverage group for not less than five years prior to the receipt of such notice.

“(2) Ifthe Administrator, after reasonable notice and opportunity for hearing to aState with whom he has entered into an agreement pursuant tothis section, finds that the State has failed or is no longer legally able to comply substantially with any provision ofsuch agreement or of this section, he shall notify such State that the agreement will be terminated in its.

Xon. Allan Shiver.s, Page 6(V-1198)

entirety, or with respect toany one or more coverage groups designated by him, at such time, not later than two years from the date of such notice, as he deems appropriate, unless prior to such time he finds that there no longer is any such failure or that the cause for such legal inability has been removed,

“(3) Ifany agreement entered into under this section is terminated in its entirety, the Administrator and the State may not again enter into anagreement pursuant to this section. Ifany such agreement is terminated with respect to any coverage group, the Administrator and the State may not thereafter modify such agreement so as toagain make the agreement applicable with respect to such coverage group.”

“(j) In case any State does not make, at the time or times due, the payments provided for under an agreement pursuant to this section, there shall be added, as part of the amounts due, interest at the rate of 6 per centum per annum from the date due until paid, and the Administrator may, in his discretion, deduct such amounts plus interest from any amounts certified by him to the Secretary of the Treasury for payment to such State under any other provision ofthis Act. Amounts so deducted shall be deemed tohave been paid tothe State under such other provision ofthis Act. Amounts equal to the amounts deducted under this subsection are hereby appropriated to the Trust Fund.”

“(k) The Administrator may,at the request of any instrumentality oftwo or more States, enter into an agreement with such instrumentality for the purpose of extending the insurance system established by this title to services performed by individuals as employees of such instrumentality. Such agreement, to the extent ,practicable, shall be governed by the provisions of this section applicable inthe case of an agreement with a State.” I

It is clear from the above summary ofHouse Bill 603 that its provisions devolve financial responsibility upon participating countiesand municipalities. In other words, the State Agency will simply receive or, ifnecessary, collect the payments due from the counties and municipalities and will transmit the proper portion of said payments tothe Secretary of the Treasury of the United States. The authorization to the governing bodies.of such counties and municipalities as obtain coverage for their employees to meet this financial obligation by paying contributions in the. .

Hon. Allan Shivers, Page 7(V-1198)

amount required by the Federal Act from funds from which the covered employees receive their compensation (H.B. 103, Sec.6) is not obnoxious to Sections 51and 52of Article III ofthe Constitution of the State of Texas nor toSection 3ofArticle VIIL1 This is so because House Bill 603 does not authorize or attempt to **au** thorize agratuity. The employee’s right to receive the coverage benefits will be apart of the agreed compensation paid for services rendered.’ Byrd v. City of Dalla$, 118 Tex. 28, 6S.W.2d 730 (1928); Friedman v. American Surety Co. ofNew York, 137 Tex. 149, 15< Despite the fact that House Bill 603 contemplates that participating counties and municipalities--not the State--shall shoulder the financial burdens incident to obtaining coverage for ’ their officers and employees, it is equally clear that the Federal Act requires the State tobe the responsible party to any agreement with the Administrator for coverage for such officers and employees. Under the Federal Act the State is the only party **au** thorized to enter into agreements with the Administrator, Se&. 218 (a),(l),, and tomodify or terminate such agreements, Sec. 218(c)(4) and Sec. 218(g). The State must make the payments and reports required by the Act, Sec. 218(e) ;and, in the event the State does not make the payments provided for under the agreement at the time said payments are due, six per cent interest will be added thereto until paid; and the amount due, plus such interest, may, in the discretion of the Administrator, be deducted from payments to the State under any other provision of the Social Security Act, and shall be deemed tohave been paid to the State under such other provision, Sec. 218(j).

’ The pertinent portions of these constitutional provisions read as follows:
Art. III, Sec. 51: “The Legislature shall have

no power to make any grant or authorize the making of any grant ofpublic money toany individual, association of individuals, municipal or other corporations whatsoever.

..*’

Art. III, Sec. 52: “The Legislature shall have no power toauthorize any county, city, town or other political corporation or subdivision ofthe State to lend its credit or to grant public money or thing ofvalue inaid of, or to any individual, association or corporation whatsoever.

..‘*
Art. VIII, Sec. 3: “Taxes shall be levied and collected by general laws and for public purposes only.”. .

Hon. Allan Shivers, Page 8(V-l 198)

It must be conclusively presumed, of course, that the Legislature was familiar with the provisions of the Federal Act and that therefore it intended to authorize the State Agency to enter into such agreements with the Federal Security Administrator as are contemplated by the Federal Act. We will next consider whether the Legislature may validly authorize aState agency to enter into the type of agreement required by the Federal Act in order toobtain coverage for the officers and employees of the counties and ofmunicipalities ofthe State other than employees engaged in performing services in connection with aprbprietary function.
Section 50ofArticle III ofthe Constitution of the State of Texas reads, in part, as follows:

“The Legislature shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the State inaid of, or to any person, association or corporation, whether municipal or other, or topledge the credit ofthe State in any manner whatsoever, for the payment of the liabilities, present or prospective, ofany individual, association of individuals, municipal or other corporation whatsoever.”
Ifthe agreement required by the Federal Act and authorized by House Bill 603 amounts to alending ofthe State’s credit to the counties or municipalities whose officers and employees will obtain coverage, the Act would be invalid. A limitation on the power ofthe Legislature to lend or give the state’s credit does not apply to aloan or gift of the state’s credit for state purposes. 59 C.J. 208, States, Sec. 346. In construing the prohibition contained in Section 50ofArticle III, the Supreme Court in City ofAransas Pass v, Keeling, 112 Tex. 339, 247 S.W. 818, 820 (lY23), made the tXiowin8 statGirent:

“To the extent that the State aids inprotecting Aransas Pass from the menace of storms through a grant of part of the State taxes, shfedischarges aState obligation, and.hence no questionil.rises as to lending or pledging the State s~credit to amunicipal corporation or for payment of the liabilities of such acorporation. (Emphasis added.)

We are ofthe,opinion that to the extent the State aids its counties inobtaining coverage agreements for their officers ar.d employees under the Federal Act, it is likewise discharging aState obligation and that therefore no question can arise as to me lending or pledging ofthe State’s credit in their behalf. TheHon. Allan Shivers, Page 9(V-1198)

decisions in this State are uniform in their recognition of counties as agencies of the State through which the State discharges the duties which the State as an organized government **assumes** to every person and by which it can best promote the welfare of all. City of Galveston v. Posnainsky, 62 Tex. 118 (1884). The functions of county officers and employees are so tied inwith State government as to be essential to its proper functioning; and the State, therefore, has avery vital interest in the efficient functioning of county government. Itis obviously in the best interest of the State toattract to, and retain in the service of, the counties the highest type of officers and employees. That there is an inducement to enter and remain in the services of an employer who provides some form of retirement or pension plan is so well recognized as to require no elaboration. Thus, providing some such plan is ofvital concern not only tothe county but also to the State as awhole. The proper method for making such provision, the particular plan, is amatter which properly lies within the discretion ofthe Legislature. This discretion the Legislature has exercised, and the coverage agreements for county officers and employees, as authorized by House Bill 603,do not constitute alending of the State’s credit within the meaning ofthe constitutional prohibition.
This construction ofSection 50ofArticle III is consistent with the construction which has been placed upon Section 51 ofArticle III by those decisions which recognize that the prohibition against legislative grants ofpublic money toany individual, association of individuals, municipal or other corporations does not prohibit anappropriation ofState funds to counties to be used by them in carrying out apart of the duties or governmental functions which properly rest on the State. Jefferson County v. Board of County and District Road Indebtedness, 143 Tex. 99, 182 S.W. 2d 908 (1944). A contrary interpretation of Section 50ofArticle III would do violence to the well established principle that the Constitution must be construed as awhole so as togive effect toall its provisions, and, if possible, toharmonize them. Texas Nat. Guard Armory Board v. McGraw, 132 Tex. 613, 126 S.W.Zd 627, -therein.
We will next consider whether agreements entered intoby the State toobtain coverage for employees ofmunicipalities, other than those engaged in performing services in connection with aproprietary function, would constitute alending of the State’s credit inviolation ofthe prohibition ofSection 50ofArticle III.

Although municipal corporations have been said to be created primarily to regulate the internal concerns ofthe inhabitants of adefined locality in matters peculiar to the place incorporated, Bexar County v. Linden, 110 Tex. 339, 220 S.W.Zd 61 (1920),Hon. Allan Shivers, Page 10(V-1198)

nevertheless they’have atwo-fold character, one governmental and the other private, and, in so far as their character is governmental, they are agencies of the state, and subject to state control.” Yett v. Cook, 115 Tex. 205, 281 S.W. 837 (1926), and authorities cited therein; 1Cooley, Constitutional Limitations (8th Ed. 1927) 43. InTexas Nat. Guard Armory Board v. McGraw, supra, the court said:

“The State has avital interest in its cities. In

its governmental capacity acity is aptilitical subdivision of the State, and in many instances is considered as anagent of the State; and the State may use such agent in the discharge of its duties.”

The agreements authorized by House Bill 603 would obtain coverage only for such employees of municipalities as are engaged in governmental functions as distinguished from proprietary functions. We think that the State’s interest inthe efficient discharge of city government is equally as great as its interest in the efficient discharge and functioning of county government. The whole is no better than the sum of its parts, .and we think that the public benefit tobe derived from the maintenance ofthe highest type of local government clearly imposes aduty and an obligation upon the State to aid inobtaining such government. The reasoning which justifies the assumption of an obligation on the part ofthe State to aid the counties in the efficient discharge of county functions justifies aState obligation which will enable municipalities to efficiently perform their governmental functions. The inhibition ofSection 50ofArticle III was never intended to prevent the State from lending its credit for proper purposes. If the State cannot use its credit for governmental purposes, asituation might well arise inwhich it could not function. Article III, Section 50 and its related provisions in the Constitution ofTexas which were enacted for the purpose ofprotecting public funds were never intended to apply to such legitimate use ofthe State’s credit. Rather, their purpose and those of similar constitutional provisions enacted by other states in the Union were toput an end to the use of the credit of the State infostering private business, apractice which prevailed in the early days ofthe history of most states.

The Supreme Court ofIowa, in construing the Iowa constitutional provision that “The credit of astate shall not inany manner, be given or loaned to, or in aid of, any individual, association, or corporation” stated that the provision was the result of the past experience ofstates in loaning their credit freely and extravagantly to corporate enterprises such as ~railways, canals, wate,rpowers, etc., and that itwas for the purpose ofinhibiting the incurring of obligations by the indirect method of secondary liability that the constitutional provision was enacted. Grout v.Iion. Ailan Shivers, Page 11 (V-l 198)

Kendall, 192 N.W. 529, i95 Iowa 467 (1923). See also the dissentingioion by Judge Cardozo in People v. Westchester Nat. Bank, 231 N.Y. 465, 132 N.E. 241 (19211.

Had we any doubt as to the constitutionality ofthe provisions of House Bill 603 which we are presently discussing, the well settled rule that all doubts must be resolved infavor of const:itutionality wbuld require us to sustain these provisions. Brown v. City of Galve:ston, 97Tex. 1, 75S.W. 488 (1903); Greene v.- .~_. ..-~. <on, IT~x. 516 8S.W.2d 655 (1928); Duncan v. Gabler, 147 zn, 215 S.W.2d I;5 (1948); 9Tex. Jur. 479 Tex. Constltutlonal Law, Sec. 60; 1Cooley, Constitutional Limitatiods (8th Ed. 1927) 354i 355, 375. Having concluded that the agreements authorized by House Bill 603 do not constitute alending of the credit ofthe Stati, we pass toaconsideration ofwhether any provision of the **Texa.6** Constitution will be violated by acompliance with the requirem& ofSection 218(g) ofthe Federal Act that agreements entered i,nto between the states and the Administrator shall be binding &or **at** least afive-year period.

The State’s right to contract is unlimited. except by the Constitution. As stated by the Supreme Gout-t in Texas Nat. Guard Armory Board v. McGraw, supra:

“The subjects of contract,, the Length of term for which acontract may be made,, and the general policy re,lating to contracts, are clearly withm the power of the Legislature. The Constitution does not provide for the length ofterm for which acontract may be made by the State. The only provisions of the Constitution which might affect the term of acontract are those which prohibit the creation of any debt by or on behalf ofthe State (Section 49 ofArticle 3,of the Constitution) and that no appropriation of,money may be made for a longer term than two years (Section 6ofArticle 8of the Constitution), and that monopolies shall never be allowed (Section 26ofArticle 1ofthe Constitution).”

Under the provisions ofHouse Bill 603 it is clear that no debt is created by or on behalf of the State; nor is any appropriation ofmoney for longer than atwo-year peridd attempted, We are therefore of the opinion that the legislative authorization to comply with the requirements ofSection~218(g) is constitutional.

The trust funds which are established by Section 12of House Bill 603 are similar to the trust fund which was considered and upheld in the Friedman case, supra, in the face of the conten-Hon. Allan Shivers, Page 12 (V-1198)

tion that the requirements ofSection 6ofArticle VIII of the State Corlstitution had not been met.2 The requisites of this provision are therefore satisfied.

We have discussed only those provisions of the Constitution which raise some serious question as to the validity of the provisions ofHouse Bill 603. We have not mentioned or discussed those provisions ofthe Constitution which are not involved or which are clearly satisfied, Likewise, we have not discussed any provisions of the Federal Constitution sixe none of its provisions cast any doubt upon the validity of this legislation. Our conclusion is that the Act is valid, and you are accordingly so advised.

SUMMARY

The provisions of House Bill 603 which authorize the State to enter into agreements with the Federal Government for the purpose of extending Federal oldage and survivors insurance coverage to employees of counties and municipalities of the State other than employees engaged in performing services in connection with aproprietary function do not constitute alending ofthe State’s credit within the meaning ofSection 50of Article III, Constitution of Texas. The authorization to governing bodies of counties and municipalities topay contributions in the amount required by the Federal Act from the funds from which covered employees receive their compensation is not obnoxious toSections 51and 52ofArticle III, or toSection 3ofArticle VIII> since employees’ right to receive coverage benefits will be apart of the agreed compensation paid for services rendered. Byrd v. City of Dallas, 118 Tex. 28, 6 S.W.Zd 738 (1928); Friedman v. American Surety Co. of New York, 137 Tex. 149, 151 S.W.Ld 570 (1941). The State may enter into acoverage agreement for the minimum five-year term, since the only constitutional provisions (Sec. 49, Art. III; Sec. 6,Art. VIII; Sec. 26,

2Section 6ofArticle VIII reads, in part, as follows:

“No money shall be drawn from the Treasury but inpursuance of specific appropriations made by law; nor shall any appropriation ofmoney be made for, a longer term than two years. ..‘I

### Hon. Allan Shivers, Page 13(V-1198) ,,

,,,/. ,,.:,. ~,I

‘:~:,~Art.I,Tex. Const.) which may affect theterm ofa State contract have notbeenviolated. SeeTexas Nat. Guard Armory Board v.McGraw, 123Tex. 613 126

. . (lm). The provisions ofHo,use

### Biil 603 which create andprovide for theadministration ofthe Social Security FundandtheSocial Security Administration Funddonotviolate Section 6ofArticle VIIIof theConstitution. Friedman v.American’ **Surety Co.**  

### ofNew York, supra. House Bill 603isconstitutional.

**Yours very**  **truly,** 

### PRICE DANIEL. Attorney General

APPROVED: 

### B

‘W,V. Geppert T,axation Division Assistant

Jesse P. Luton, Jr. Reviewing Assistant Charles D.Mathews First Assistant

MMC/mwb