Mr. Kenneth Il. Ashworth Commissioner CoordinatingBoard Texas College andUniversity system P. 0. Box 12788 Austin,Texas 78711

DearMr. Ashworth: OpinionNo. JM-710

Re: Whether certain local funds may be appropriatedforuse by the Coordinating Board under section 56.039 of the EducationCode

You ask whether the legislaturemay appropriate local funds set aside for Texas Public Educational Grants and redirect their use as provided in section 56.039 of the EducationCode.

The Sixty-fourth Legislature enacted the Student Financial AssistanceAct of 1975, codified as chapter 56 of the EducationCode. 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 postsecondaryeducation.

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 identifiedas Texas Public EducationalGrants. & Section 56.033 of the Education Code requires state institutionsof higher education to set aside a specifiedportion 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 thisprogram tomake direct grants to its students,an Institutionof higher educationmay transfer some or all of these funds to the coordinatingboard 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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board would be used only for students of the institution that collected them:

The coordinatingboardmay 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 shallbe returned to that institution.

Educ. Code 556.038;Acts 1975,64th Leg., ch. 720, at 2323, 2326.
By 1985, the legislaturebecame aware that some state colleges, universities,and community collegeswere not awarding the full amount of funds collected eachyear. Several institutionswere 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 EducationalGrant Program:

At the end of a fiscal year, if the total amount of unencumbered funds that have been set aside under this subchapterby an institution of higher education, together with the total amount of unencumbered funds transferredby that institution to the CoordinatingBoard, 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 coordinatingboard. The coordinating board shall use funds transferred under this section to award scholarships as provided by law to students at institutions other than the institutionthat transferredthe funds.

Educ. Code 556.039 (addedby Acts 1985, 69th Leg., ch. 708, 113, at 2497, 2502).

This provision limits the amount of grant fundswhich an institution of higher educationmay 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 fiscalyear 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 touse 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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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 termhas been used to describe institutionalreceipts 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 OpinionNos. m-575 (1986);V-1427 (1952);V-715 (1948);O-1662 (1940).

The Texas Public Educational Grant Program was established by legislativeauthorityandmay be changedby legislativeauthority. No constitutionalprovision sets out the requirementsof this scholarship program. See generally Tex. Coast. art. III, PS50a (State Medical EducationFund for grants, loans or scholarshipformedical students), 50(b). 50b-1 (Texas College Student Loan Bonds). Although as originally established, themoney collectedby each institutioncould 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'sredirection 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 EducationalGrant Program is establishedby statuteand the legislaturemay change theuse of funds collected thereunderwithoutviolating articleVIII, section 7. of the Texas Constitution. Id.; see alsoAttorney GeneralOpinionNos. C-250 (1964);V-107 (1947).-

You have pointed out no reason why section 56.039 of the Education Codemight be invalid,and our researchhas 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 ithas done in section 56.039 of the EducationCode.

You also askwhether section 56.039 of the EducationCode applies to funds set aside forTexas Public EducationalGrantsbefore 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 distinguishbetween

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funds set aside before the effective date and those set aside thereafter. The governingbody of an institutionof higher education is thusrequired to transfer funds set asidebefore the fall semester, 1985, if they constitute excess funds on the last day of any fiscal year subject to section 56.039 of the EducationCode. The institution will be allowed to retain unencumbered funds in the amount of 150% of collectionsduring that fiscalyear.

SUMMARY
Section 56.039 of the Education Code validly requires state colleges and universities to transfer to the CoordinatingBoard, Texas Colleges andUniversities, excess funds set asideunder the Texas Public Educational Grant Program. ThiS sectionapplies to excess funds,whether theywere set aside before or after the effective date of the statute.

Attorney General of Texas

JACKHIGHTOWER FirstAssistantAttorney General

MARY KELLER ExecutiveAssistantAttorney General

JUDGE ZOLLIE STKAKLPX SpecialAssistantAttorney General

RICK GILPIN Chairman,OpinionCommittee
Preparedby SusanL. Garrison AssistantAttorney General

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