Honorable B. F. McKee County Auditor Hidalgo County Edinburg Texas

Dear Sir:
Opinion Number O-4816 Re: Under the facts set forth do the discounts correctly belong to the State of Texas or to the Hidalgo County issue when the sinkihg fund ofthe Hidalgo County issue supplied the funds from which the purchases ofbonds were made?

We have **your** letter stating certain facts and requesting
our opinion onthe question stated. We quote from your letter as follows:

‘Hidalgo County has outstanding an issue ofRoad and Bridge Bonds dated June 15. 1932, and maturing April 1, 1952 and ithas been determined bythe Board that the issue is 55% eligible for participation inthe County and Road District Highway Fund. Inasmuch as the issue was in the original amount of $1.099,000 and is a ‘term’ issue with no serial principal maturities, the Board has each year from 1933 to 1942 inclusive transferred from’its avai,Aab.lefundknown as ‘County and Road District Highway Fund’ the sum ,of $30,222:50 to a-fundknown as

‘Hidaigo :Cwty Road and Brrdge Refunding Bonds - Series 1932 - Sinking Fund’

. Under theprovisions of Section 6 (M) ofthe Road Board Act which reads inpart
as follows:

u’* * * The Board ofCounty and District Road Indebtedness shall have and possess full authority to invest all such sinking funds * * * in any eligible obligations of the various political sub-divisions ofthis State, which mature within the current biennium inwhich such securities
are purchased and where there ,is onhand a sufficient amount of moneys or securities tothe &edit ofany one political sub-division to retire some ofits obligXn”;;-. .. .

Honorable B. F. McKee, page #2 (O-4816)

whether then due or not, the Board of County and District Road Indebtedness may, ifit deems itadvisable, purchase and cancel said obligations ofsuch particular political subdivision, irrespective of maturity dates * * * ’

“the Board has purchased various amounts ofthis issue from the funds so transferred, at various prices for cancellation. Due tothe fact that the bonds were purchased at a discount inthe total amount of $44.097.87 we will appreciate your opinion as towhether or not the discounts correctly belong to the State of Texas or tothe Hidalgo County issue, when the sinking fund ofthe Hidalgo County issue supplied the funds from which the purchases ofbonds

were made.”

The general purpose ofthe State Aid Act is to repay the various counties and road districts for sums advanced for the construction ofState highways. The Legislature did not make a gift or donation but undertook to fairly, justly and equitably compensate the counties and defined road districts, as stated inthe following excerpt taken from Section 1ofthe Act itself:

” * * *And it is hereby determined that the further provisions ofthis Act constitute fair, just, and equitable compensation, repayment, and reimbursement to said counties and defined districts and for their aid and assistance to the State inthe construction ofState Highways and for the construction ofsaid roads which are ancillary to, but do not constitute a part ofsaid system ofState Highways, and fully discharges the legally implied obligations ofthe State to compensate, repay, and reimburse the agencies of the State for expenses incurred at the instance and solicitation ofthe State, as well as for expenses incurred for the benefit ofthe State, and fully discharges the State’s legally implied obligation to such counties and defined road districts to provide additional funds for the further construction of roads not designated as a part ofthe State Highway System.”

The extent ofState eligibility or ofits “legal and moral obligation” to compensate and reimburse such counties and defined road districts is clearly defined in Section 6(a) oftheAct which reads in part
as follows:

“All bonds, warrants or other evidences of indebtedness heretofore issued by counties * * *which mature on or after January 1. 1933. ins~ofar as amounts ofsame were issued for and the proceeds have been actually expended inthe construction of roads that c’onstitutedHonorable B. F. McKee, page #3 (O-4816)

and comprised a part ofthe system ofdesignated State Highways on September 17, 1932 * * * shall be eligible to participate inthe distribution ofthe moneys coming into said County and Road Distric’t Highway Fund * * *‘a.

Itwas under this provision that the State Board ascertained and determined that 55% ofthe original amount ofthe issue under consideration had been expended upon roads that constituted a part ofthe State Highway System.

Subsection (c) of Section 6provides, in part:

“It shall be the duty ofthe Board of County and District Road Indebtedness * * * to ascertain and determine the amount ofindebtedness eligible under the provisions ofthis Sectibn * * * to participate inthe moneys coming into said County and Road District Highway Fund * 4:* And said obligation to said amount and extent shall be eligible for participation inthe moneys coming into the County and Road District HigbinrayFund and ascertainment and determination shall be certified to the County Judge by said Board and all ofthe unmatured outstanding obligations ofsaid issue shall ratably have thebenefit of said participation in said moneys * * * The ascertainment and determination by the Board, after reasonable notice and hearing, ofthe amount ofany county or defined road district obligation eligible under the provisions ofthis Act * * * shall be final and conclusive and shall not be subject to review inany other tribunal.’

Subsection (j) ofSe,ction 6ofHouse Bill 6ofthe Fortyseventh Legislature reads in part as follows:

‘“All moneys to be deposited to the credit of the County and Road District Highway Fund from September 1, 1941 toAugust 31, 1943. both inclusive,
are hereby appropriated to said respective counties and road districts and shall be received, held, used and applied by the State Treasurer as Ex-offlclo Treasurer of said respectrve counties and defined road drstrrcts. * * 8And each year thereafter until all ofsaid eligible obligations are fully paid, all moneys coming into the credit ofthe County and Road District Highway Fund with the State Treasurer and all moneys remaining therein from the previous year shall be received and held by him as Ex-officio Treasurer ofsuch c~ounties and defined road districtss. j(.**-Honorable B. F. McKee. page #4 (O-4816)

Subsection (p)of Section 6reads as follows:

“In the event this Act is repealed. or shall become inoperative as to any county or defined road district, then it shall be the duty ofthe Board to ascertain immediately the amount of moneys remaining onhand with it or with the State Treasurer belonging tothe several counties or defined road districts affected, and forthwith to return the same to the County Treasurer ofthe county entitled thereto, accompanied by an itemized statement ofthe account ofthe county or defined r,oaddistrict.”

Itwill be noted in Subsection (j) hereinabove quoted that the Legislature has expressly appropriated all moneys to the credit of the said counties and defined road districts and commands that it shall be received, held, used and applied by the State Treasurer as Ex-officio Treasurer of such c.ounties for the purposes and uses specifically set forth intheAct and has further expressly provided that until all such obligations have been fully paid, the money coming into the County and Road District Highway Fund and such money as remains therein from the previous year are to be received and held by the State Treasurer as Err-officio Treasurer ofthe county. This section seems clearly to characterize these funds as county funds. Subsection (p) seems to confirm the conclusion reached inthe next preceding paragraph. Itprovides that the money remaining with the State Treasurer belonging to the several counties shall be returned to the County Treasurer, whenever the Act is repealed or shall be or become inoperative.

Subsection (q) reads as follows:

“All funds on hand belonging to, and hereafter credited to, the several countres and defmed road dlstracts ofthe State, shall be considered State funds, and
as such shall be deposited at intervals inthe depositories provided for by the State laws, and all interest earned

on such funds and onthe securities inwhfch they are invested shall belong to said counti~es or defined r~oaddistricts, and shall be credited to them by the State Treasurer as earned and collected.”

Since the Legislature has declared that the interest on such funds shall belong tothe counties, it is manifest that the funds behmg to the counties, since the counties would not be entitled to interest earned

**on** State funds.

Itseems clear tous that the Board used funds belonging to Hidalgo County when it purchased and cancelled the bonds referred to in your letter, since the only authority we find intheAct for retiring unmatured bonds is found inSection 6 (m) which reads, in part, as follows:. .Honorable B. F. McKee, page #5 (O-4816)

u* * * The Board ofCounty and District Road Indebtedness shall have and possess full authority to invest all such sinking funds, including all future sinking funda.acquirad insany manner whatsoever, in any eligible obligations ofthe various political subdivisions ofthis State, which mature within the current biennium inwhich such securities are purchased, andwhere there is onhand a sufficient amount of moneys or secur.ities to the credit ofany one political subdivision to retire
some ofits outstanding obligations, whether due or not, the Board ofCounty and District Road Indebtedness may, if it deems advisable, purchase and cancel said oblige tions ofsuch political subdivision. irrespec~tive of maturity dates * * *

.”

This subsection (m) authorizes the Board to invest any of the sinking funds inany eligible obligati~ons ofthe various subdivisions which mat& ~withinthe biennium inwhich the investment is made, but only authorizes the purchase and cancellation ofunmatured bonds when ituses the funds belonging to the particular c~ountyor subdivision whose bonds are thus purchased and cancelled. No authority is found to retire obligations from any other fund. The purchases and cancellation ofthe bonds in question have been from funds ofa particular subdivision. and the instant bonds are eligible ina certain percentage oftheir par value. Ifany ofthe bonds are acquired at less than their par value we think the saving should accrue to the county, and that the Board will still be obliged to pay such portion ofthe debt as it had previously determined to be eligible for participation.

At the time the bonds were made eligible for participation the Board set aside such funds as were contemplated toproperly reimburse and compensate the c-ounty, and such previously determined obligation cannot be affected by a subsequent diminishing ofthe county’s portion ofthe bonds.

You are, therefore, advised that in our opinion the payment by the State should be made onthe basis ofthe par value ofthe bonds.

We are attaching a copy of our Opinion Number O-3623, which deals with a somewhat similar question.

Approved SEP 23. 1942 Very truly yours
ATTORNEY GENERAL OF TEXAS /s/ Gerald C. Mann Attorney General of Texas By /s/ C. F. Gibson C. F. Gibson Assistant

CFG/s:cm Encls. This Opinion Considered and approved in limited

conference.