August I%,1959

Hon. Bill Allcorn, Commissioner Opinion.No.WW-678 General Land Office Austin 14, Texas Re:Authority of Veterans' Land Board to purchase and cancel State of Texas Veterans' Land Dear Sir: Bonds.

You have requested an opinion as followsr "OurAccounting Department advises that the Veterans' Land Board DivisionA Pund cash balance is increasing from an accumulationof monies received from such sources as Paid in Pull Contracts, Bonuses, Gravel and Timber Sales, Homesite Purchases, etc., in an amount considerably above our anticipatedreceipts from these sources. These additional receipts are over and above those normal anticipated receipts required as bond reserves and to retire the bonds and to pay interest as it falls due. "Prom time to time, the Veterans' Land Board is offered the opportunity to purchasebonds sold as TexasVeterans' Land Bonds Series 1949, 1950, and 1950A. The Veterans' Land Board DivisionA Fund mentioned above is the Pund in the State Treasury in which the proceeds of the sale of the above series of Texas Veterans' Land Bonds are deposited. Returns from the purchase and resale of land to veterans and receipts from other sources related to this Fund are also deposited to the credit of this DivisionA Fund. "TheVeterans' Land Boardhas authorizedme to present to you the followingquestions for an official opinion:Hon. fillAllcorn, page #2 (WW-678)

1. 1s theVeterans' Land Board authorized to purchase and cancel Texas Veterans' Land Bonds from Series 1949, 1950, and 1950A in the open market at a price that does not exceed par, with fundswhich are now deposited in Texas Veterans' Land Fund DivisionA? 2. If the answer to question #l is in the affirmative, is the Veterans' Land Board authorized to purchase and cancelbonds from other series and other funds, after the specified date in each specificbond resolution,afterwhich theVeterans' Land Board cannot use any of the funds for the purchase of land for resale to Texas veterans, but must use all the receipts from any sources for the purpose of maintaining required bond reserves and payment of interest and principal on the outstandingbonds?" Pursuant to the provisions of Section 49b of Article III of the Constitutionof Texas as adoptedNovember 7, 1946, and Senate BillNo. 29, Chapter 318,Acts of the 51st Legislature, Regular Session, 1949, (Art.5421m,V.C.S.) theVeterans' Land Board issued $25,000,000.00in negotiablebonds for the purpose of creating a fundknown as theVeterans' Land Fund to be used for purchasing land tobe resold subsequentlyto Texas Veterans of World War II.

These bonds were issued and sold in three installments, as follows:

(a) State of TexasVeterans' Land Bonds, Series 1949, dated October 1, 1949, in the amount of $5,000,000.00. (b) State of Texas Veterans' Land Bonds, Series 1950, datedApril 1, 1950, in the amount of $10,000,000.00. (c) state of Texas Veterans' Land Bonds,Hon. BillAllcorn, page #3 (WW-678)

Series 1950-A, dated August 1, 1950, in the amount of $10,000,000.00.
We have re-examinedthe transcriptsof proceedings underlying the issuance of these bonds, including the resolutionsby theVeterans' Land Board authorizing their issuance, and your first question is answered in the affirmative, provided the required "Reserves"are maintained intact and, in addition, adequatemoneys are retained in the proper division of theVeterans' Land Fund to provide for the prompt payment of the principal of and interest on each of the outstandingbonds when due.

The reserveswhich must be maintained intact for each of these three issues, respectively, in accordancewith covenants contained in the resolutions are as follows:

(a) Series 1949, $600,000.00 (b) Series 1950, $1,200,000.00 (c) Series 1950-A, $1,200,000.00

The constitutionalprovisions, **the** statute, and the resolutionsof the Board all provide that from and after November **25,** 1954, (8years after the effectivedate of the constitutionalprovision)no money in theVeterans' Land Fund can be used except to pay the principal of and interest on the bonds. The purchase of thesebonds prior to theirmaturityby the Board at a price not exceeding their facevalue is consonant with such specifieduse of the Fund and constitutesnothing more than the purchase of outstandingbonds with moneys coming from the applicable interestand sinking fund.

It is clear that this portion of theVeterans' Land Fund, after the expirationof the 8-yearperiod, is an interest and sinking fund. It is a fund specially earmarked for the extinctionof a debt, and the object of every such fund is to diminish the debtwhose existencewarranted its foundation. Clark v. City of Philadelphia,Supreme Court of Pennsylvania, 196A. 384, 387, 388; 328 Pa. 521. Bank for Savingsv. Grace, **7** N.E. 162, 168; 102 N.Y. 313.Hon. fillAllcorn, page #4 (VW-578)

At the time these "DivisionA'* bonds were issued Section 9 of Article 5421m,V.C.S., provided, in part, as follows:
*

. . . After eight (8)years from the effective date of said constitutionalamendment, all moneys receivedby the Veterans' Land Board under the terms of this Act, or so much thereof as may be necessary, shallbe set aside and used to pay principal and interest on bonds then outstandingas they shall mature

. . . The moneys so set aside
. D .may be invested by the Board inbonds of the United States, or the State of Texas, . . .I* The 55th Legislature,Regular Session, 1957, added Section 2(A) to this statute,which, in part, provides:

"Theduties of theVeterans' Land Board
. . . shallbe
. . ~ to formulate such policies, rules and regulationsas may be necessary, not in conflictwith the provisions of the law, to insure the proper administrationof the law and to carry out the intent and purposes thereof." This is a broad grant of discretionarypower to the Board to properly administer the program. For example,when an opportunity is presented to the Board to purchase its own bonds at a price less than their face value,because the bonds have an attached interest couponwhich is then considered "low* due to the fluctuationsof thebond market, itwould obviously constitute "properadministration" for the Board to purchase and cancel thosebonds, thereby retiring that portion of the debt prior to maturity and realizing substantial savings in interest cost and principal as comparedwith the amounts which the Boardwould otherwise remain obligated to pay.

The Legislature, in using the words "as they shall mature", was merely declaring that the Boardmust set aside such moneys -- *somuch thereof as may be necessary" -- in order that no bond obligationwould remain unpaidwhen due.. .

Hon. BillAllcorn, page #5 (WW-678)

Such a default obviously could not occur in the case of a bond which had been purchasedby the Board and cancelled prior to itsmaturity date.

We find nothing in the Constitution, the statute or in the bond resolutionswhich either expressly, orby implication, limits the authority of the Board to follow such an obviously appropriate course of action, provided the Fund is not depleted so as to interferewith the prompt payment when due of those obligationswhich remain outstanding.

It is the duty of the Veterans, Land Board, insofar as the inflow of money into theVeterans, Land Fundwill permit, to assure the availabilityof sufficientmoney in the Fund so that the principal of and interest on eachbond not so purchased and cancelledprior to maturitywill be promptly paid when due. The Boardhas recognized this obligation. For example, in advertising thebonds for sale in a nationally circulated financialpublication,and invitingbids for purchase of the bonds, the Board authorized the following statement: -It is anticipated that therewill be

some creditmargin between the amount of payments which will be received from the land notes and the interest and principalpayments which the Statewill be required to make on the Bonds.
. . .The Reserve deposited and accumulated in the Fundwill be further assurance." Section 49-b of Article III of the Constitutionof Texas was amended in 1951 and again in 1957, authorizing additionalbonds in the amounts of $75 millions and $100 millions, respectively. Purusant to these amendmentsbonds have been issuedby the Board in installmentsas follows:

1951Amendment (a) State of Texas Veterans, Land Bonds, Series 1951, dated December 1, 1951, in the amount of $15,000,000.00.. .

Hon. BillAllCOrn, page #6 (WW-678)

(b) State of Texas Veterans, Land Bonds, Series 1952, dated october 1, 1952, in the amount of $10,000,000.00. (c) State of Texas Veterans, Land Bonds, Series 1953, dated April 1, 1953, in the amount of $10,000,000.00. (d) State of Texas Veterans, Land Bonds, Series 1953-A, dated September 1, 1953, in the amount of $15,000,000.00. (e) State of Texas Veterans, Land Bonds, Series 1954, dated April 1, 1954, in the amount of $15,000,000.00. (f) State of Texas Veterans, Land Bonds, Series 1954-A,dated September 1, 1954, in the amount of $10,000,000.00. 1957 Amendment (a) State of TexasVeterans, Land Bonds, Series 1957, dated December 1, 1957, in the amount of $12,500,000.00. (b) State of Texas Veterans, Land Bonds, Series 1958, datedApril 1, 1958, in the amount of $12,500,000.00. (c) State of Texas Veterans, Land Bonds, Series 1958-A, dated July 1, 1958, in the amount of $12,500,000.00. Thus, of the authorized total of $200,000,000.00a total of $137,500,000.00of bonds has been issued and sold.

The $75millions of bonds authorizedby the constitutional amendment of 1951 are servicedby Division B of the Veterans, Land Fund; the $100 millions of bonds authorized in 1957, $37.5millions of which have been issued and sold, are servicedby Division C of the Fund.Hon. BillAllcorn, page #7 (WW-678)

We have also re-examined the transcriptsof proceedings pertaining to all the "DivisionB* issues and "Divisions C" issues and your second question is affirmativelyanswered, provided similar duties and precautions are observedby the Board as mentioned in the answer to your first question and the bonds are purchased at a price not exceeding their face' value, except that funds in Division B of the Fund may not be used for such purchase of Division B bonds until after December 1, 1959, and the correspondingdate for the Division C bonds is December 1, 1965.

SUMMARY

The Veterans, Land Boardmay purchase and cancel State of TexasVeterans, Land Bonds provided certain duties and precautions are observedby the Board.

Yours very truly,
WILL WILSON Attorney General of Texas

HWM-s APPROVBD: OPINION COMWITTEE: Geo. P. Blackburn,Chairman

c. K. Richards Linward Shivers Robert G. Scofield Assistant

RBVIBWED FOR THE ATTORNRY GEWERAL By: Leonard Passmore