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 of the 

Hidalgo County issue supplied 

the funds from which the purchases of bonds were made? 

We have your letter stating certain facts and requesting 

our opinion on the question stated. We quote from your letter as follows: 

‘Hidalgo County has outstanding an issue of Road 

and Bridge Bonds dated June 15. 1932, and maturing April 

1, 1952 and it has been determined by the Board that the 

issue is 55% eligible for participation in the 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.le fundknown 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 the provisions of 

Section 6 (M) of the Road Board Act which reads in part 

as follows: 

u’* * * The Board of County 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 of this State, which mature within the current biennium in which such securities 

are purchased and where there ,is on hand a sufficient 

amount of moneys or securities to the &edit of any one 

political sub-division to retire some of its obligXn”;;- 
. . . . 

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

whether then due or not, the Board of County and District 

Road Indebtedness may, if it deems it advisable, purchase 

and cancel said obligations of such particular political subdivision, irrespective of maturity dates * * * ’ 

“the Board has purchased various amounts of this issue 

from the funds so transferred, at various prices for cancellation. Due to the fact that the bonds were purchased 

at a discount in the total amount of $44.097.87 we will appreciate your opinion as to whether or not the discounts 

correctly belong to the State of Texas or to the Hidalgo 

County issue, when the sinking fund of the Hidalgo County 

issue supplied the funds from which the purchases of bonds 

were made.” 

The general purpose of the State Aid Act is to repay the 

various counties and road districts for sums advanced for the construction of State 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 in the following excerpt taken from 

Section 1 of the Act itself: 

” * * * And it is hereby determined that the further provisions of this 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 in the construction of State Highways and 

for the construction of said roads which are ancillary to, 

but do not constitute a part of said system of State Highways, 

and fully discharges the legally implied obligations of the 

State to compensate, repay, and reimburse the agencies of 

the State for expenses incurred at the instance and solicitation of the State, as well as for expenses incurred for the 

benefit of the 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 of the State Highway 

System.” 

The extent of State eligibility or of its “legal and moral 

obligation” to compensate and reimburse such counties and defined road 

districts is clearly defined in Section 6(a) of the Act 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 

of same were issued for and the proceeds have been actually expended in the construction of roads that c’onstituted 
Honorable B. F. McKee, page #3 (O-4816) 

and comprised a part of the system of designated 

State Highways on September 17, 1932 * * * shall 

be eligible to participate in the distribution of the 

moneys coming into said County and Road Distric’t 

Highway Fund * * * ‘a. 

It was under this provision that the State Board ascertained 

and determined that 55% of the original amount of the issue under consideration had been expended upon roads that constituted a part of the 

State Highway System. 

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

“It shall be the duty of the Board of County 

and District Road Indebtedness * * * to ascertain 

and determine the amount of indebtedness eligible 

under the provisions of this Sectibn * * * to participate in the moneys coming into said County and 

Road District Highway Fund * 4: * And said obligation to said amount and extent shall be eligible for 

participation in the moneys coming into the County 

and Road District Higbinray Fund and ascertainment 

and determination shall be certified to the County 

Judge by said Board and all of the unmatured outstanding obligations of said issue shall ratably have 

the benefit of said participation in said moneys * * * 

The ascertainment and determination by the Board, 

after reasonable notice and hearing, of the amount 

of any county or defined road district obligation eligible under the provisions of this Act * * * shall 

be final and conclusive and shall not be subject to 

review in any other tribunal.’ 

Subsection (j) of Se,ction 6 of House Bill 6 of the 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 to August 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. * * 8 And each year thereafter until 

all of said eligible obligations are fully paid, all 

moneys coming into the credit of the 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 of such c~ounties and defined road districtss. 

j(.**- 
Honorable B. F. McKee. page #4 (O-4816) 

Subsection (p) of Section 6 reads 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 of the Board to ascertain 

immediately the amount of moneys remaining on hand 

with it or with the State Treasurer belonging to the several counties or defined road districts affected, and 

forthwith to return the same to the County Treasurer 

of the county entitled thereto, accompanied by an itemized statement of the account of the county or defined 

r,oad district.” 

It will 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 in the Act 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 of the county. This section seems clearly to characterize these funds as county funds. Subsection (p) seems to confirm 

the conclusion reached in the next preceding paragraph. It provides 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 of the State, shall be considered State funds, and 

as such shall be deposited at intervals in the depositories provided for by the State laws, and all interest earned 

on such funds and on the securities in whfch they are invested shall belong to said counti~es or defined r~oad districts, 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 to the counties, it is manifest that the funds behmg to 

the counties, since the counties would not be entitled to interest earned 

on State funds. 

It seems clear to us 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 in the Act for retiring unmatured bonds is found in Section 6 (m) which reads, in part, as follows: 
. . 

Honorable B. F. McKee, page #5 (O-4816) 

u * * * The Board of County and District Road 

Indebtedness shall have and possess full authority to 

invest all such sinking funds, including all future sinking funda.acquirad ins any manner whatsoever, in any eligible obligations of the various political subdivisions 

of this State, which mature within the current biennium 

in which such securities are purchased, and where there 

is on hand a sufficient amount of moneys or secur.ities 

to the credit of any one political subdivision to retire 

some of its outstanding obligations, whether due or not, 

the Board of County and District Road Indebtedness may, 

if it deems advisable, purchase and cancel said oblige 

tions of such political subdivision. irrespec~tive of maturity dates * * * .” 

This subsection (m) authorizes the Board to invest any of 

the sinking funds in any eligible obligati~ons of the various subdivisions 

which mat& ~within the biennium in which the investment is made, but 

only authorizes the purchase and cancellation of unmatured bonds when 

it uses the funds belonging to the particular c~ounty or subdivision whose 

bonds are thus purchased and cancelled. No authority is found to retire 

obligations from any other fund. The purchases and cancellation of the 

bonds in question have been from funds of a particular subdivision. and 

the instant bonds are eligible in a certain percentage of their par value. 

If any of the 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 of the 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 to properly reimburse and compensate the c-ounty, and such previously determined obligation cannot be affected by a subsequent diminishing of the county’s portion of the bonds. 

You are, therefore, advised that in our opinion the payment 

by the State should be made on the basis of the par value of the 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.