Mr. Kenneth Il. Ashworth 

Commissioner 

Coordinating Board 

Texas College and University 

system 

P. 0. Box 12788 

Austin, Texas 78711 

Dear Mr. Ashworth: 

Opinion No. JM-710 

Re: Whether certain local funds 

may be appropriated for use by the 

Coordinating Board under section 

56.039 of the Education Code 

You ask whether the legislature may appropriate local funds set 

aside for Texas Public Educational Grants and redirect their use as 

provided in section 56.039 of the Education Code. 

The Sixty-fourth Legislature enacted the Student Financial 

Assistance Act of 1975, codified as chapter 56 of the Education Code. 

Acts 1975, 64th Leg., ch. 720, 51, at 2323. The purpose of chapter 56 

iS 

to establish financial assistance programs to 

enable qualified students to receive a postsecondary education. 

Educ. Code $56.002. 

Sections 56.031 through 56.039 of the Education Code authorize 

and govern the Texas Public Educational Grants Program. Educ. Code 

$56.031. Individual grants awarded pursuant to this program are 

identified as Texas Public Educational Grants. & Section 56.033 of 

the Education Code requires state institutions of higher education to 

set aside a specified portion of each student's tuition to fund Texas 

Public Educational Grants. See generally Attorney General Opinion 

H-746 (1975). The governing board of each institution of higher 

education establishes guidelines for eligibility for grants, 

subject to statutory limitations and to review and approval by the 

Coordinating Board, Texas College and University System. Educ. Code 

556.034. As well as using funds set aside under this program to make 

direct grants to its students, an Institution of higher education may 

transfer some or all of these funds to the coordinating board to use 

for matching federal or other grant funds for its students. Educ. 

Code 956.036. As established in 1975, the Texas Public Educational 

Grants Program provided that funds transferred to the coordinating 

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Mr. Keoaeth Ii. Ashworth - Page 2 (JM-710) 

board would be used only for students of the institution that 

collected them: 

The coordinating board may not use funds trausferred to it pursuant to this subchapter from one 

institution to award grants to students of a 

different institution. Should matching funds be 

unavailable for an institution, all funds transferred from that institution to the coordinating 

board shall be returned to that institution. 

Educ. Code 556.038; Acts 1975, 64th Leg., ch. 720, at 2323, 2326. 

By 1985, the legislature became aware that some state colleges, 

universities, and community colleges were not awarding the full amount 

of funds collected each year. Several institutions were carrying over 

large amounts of Texas Public Educational Grant Program funds from 

year to year instead of applying them to grants. See Letter from 

Representative Al Luna to Kenneth Ashworth, hay %, 1985. The 

Sixty-ninth Legislature added the following provision to the Texas 

Public Educational Grant Program: 

At the end of a fiscal year, if the total 

amount of unencumbered funds that have been set 

aside under this subchapter by an institution of 

higher education, together with the total amount 

of unencumbered funds transferred by that institution to the Coordinating Board, Texas College and 

University System, exceeds 150 percent of the 

amount of funds set aside by that institution in 

that fiscal year, the institution shall transfer 

the excess amount to the coordinating board. The 

coordinating board shall use funds transferred 

under this section to award scholarships as 

provided by law to students at institutions other 

than the institution that transferred the funds. 

Educ. Code 556.039 (added by Acts 1985, 69th Leg., ch. 708, 113, at 

2497, 2502). 

This provision limits the amount of grant funds which an institution of higher education may carry over from one fiscal year to the 

next. It provides that unencumbered funds in excess of 150% of the 

amount of funds set aside in a fiscal year will be transferred to the 

coordinating board to be used to award scholarships to students of 

another college or university. It thereby encourages an institution 

of higher education to use the funds it collects to award scholarships 

to its qualifying students and ensures that excess funds will be 

available for qualifying students of other institutions. You wish to 

know whether the legislature has authority to redirect the use of 

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Mr. Kenneth H. Ashworth - Page 3 (JM-710) 

funds collected by one college or university to students at another 

institution. 

You refer to the Texas Public Educational Grant funds as "local 

funds." This term has been used to describe institutional receipts in 

contrast to funds appropriated from the general revenue fund or other 

funds in the treasury. See Attorney General Opinion No. V-1427 

(1952). Local funds are-nonetheless state funds, subject to 

appropriation and control by the legislature. See. e.g., Educ. Code 

9651.002, 51.008; Attorney General Opinion Nos. m-575 (1986); V-1427 

(1952); V-715 (1948); O-1662 (1940). 

The Texas Public Educational Grant Program was established by 

legislative authority and may be changed by legislative authority. No 

constitutional provision sets out the requirements of this scholarship 

program. See generally Tex. Coast. art. III, PS50a (State Medical 

Education Fund for grants, loans or scholarship for medical students), 

50(b). 50b-1 (Texas College Student Loan Bonds). Although as 

originally established, the money collected by each institution could 

not be used for students of other institutions, nothing required the 

collecting institution to make grants to its students. No student 

could claim a right or expectancy in having the program continue in 

its original form. The legislature's redirection of excess funds in 

1985 does not constitute a retroactive law or an impairment of the 

obligation of contract in violation of article I, section 16, of the 

Texas Constitution. 

Article VIII. section 7, of the Texas Constitution prohibits 

the legislature from diverting from its purpose any special fund 

established by the constitution. Gulf Insurance Co. v. James, 185 

S.W.2d 966 (Tex. 1945). The Texas Public Educational Grant Program is 

established by statute and the legislature may change the use of funds 

collected thereunder without violating article VIII, section 7. of the 

Texas Constitution. Id.; see also Attorney General Opinion Nos. C-250 

(1964); V-107 (1947).- 

You have pointed out no reason why section 56.039 of the 

Education Code might be invalid, and our research has not brought any 

to our attention. Section 56.039 of the Education Code represents a 

valid exercise of the power vested in the legislature under article 

III. section 1. of the Texas Constitution. The legislature may 

redirect the use of funds collected for Texas Public Educational 

Grants as it has done in section 56.039 of the Education Code. 

You also ask whether section 56.039 of the Education Code applies 

to funds set aside for Texas Public Educational Grants before the fall 

semester 1985. This provision became effective on August 26, 1985. 

Acts 1985, 69th Leg., ch. 708. 023. at 2497, 2505. It applies to 

certain unencumbered funds "set aside under this subchapter" that 

remain at the end of a fiscal year. It does not distinguish between 

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Mr. Kenneth H. Ashworth - Page 4 (JM-710) 

funds set aside before the effective date and those set aside 

thereafter. The governing body of an institution of higher education 

is thus required to transfer funds set aside before the fall semester, 

1985, if they constitute excess funds on the last day of any fiscal 

year subject to section 56.039 of the Education Code. The institution 

will be allowed to retain unencumbered funds in the amount of 150% of 

collections during that fiscal year. 

SUMMARY 

Section 56.039 of the Education Code validly 

requires state colleges and universities to 

transfer to the Coordinating Board, Texas Colleges 

and Universities, excess funds set aside under the 

Texas Public Educational Grant Program. ThiS 

section applies to excess funds, whether they were 

set aside before or after the effective date of 

the statute. 

Attorney General of Texas 

JACK HIGHTOWER 

First Assistant Attorney General 

MARY KELLER 

Executive Assistant Attorney General 

JUDGE ZOLLIE STKAKLPX 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison 

Assistant Attorney General 

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