JIMMAl-TOX AttorneyGeneral

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AnEqualOpportunity/ AffirmativeAction Employer 

# TheAttorney General ofTexas

October 2. 1986

Mr.John ‘3. Cargile Chairman Board of Regents Texas State Univers:Lty System 505SamAouston Bui:Lding Austin, Texas 787Dl Opinion No. 34-551

Re: Whether Southwest Texas State University mayexpend appropriated funds on behalf of real property donated in trust, and related questions

DearMr. Cargile:

Youask several questions concerning the Rarold M.FreemanEducational Foundation which was created to make use of certain ranch property available to Southwest Texas State University by the medium of atestamentary trust. Theproperty is not devised to the state or to the university or to a nonprofit corporation that supports the educational purposes of the university. Frost National Bank of San Antonio is an “Inactive Co-Trustee” and Southwest Texas State University is an“3:perating Co-Trustee.” Subject to the conditions of the trust, the ranch property is to be used and operated solely for farm, ranch, and game management, educational. and experimental purposes in connec:t:ion with the educational activities carried on by Southwest Texas Sta.te University for the benefit of its students and the public. The trust did not receive funds with which to operate the trust property except for funds that maybe generated by its own operation.
Thetrust is e’hereal ownerof the property. Thetrustees have a legal title, coupled with apower that maybe exercised subject to the conditions of the must. See Parrish v. Looney, 194 S.W.Zd 419, 423 (Tex. Civ. App.

-’ 1946, nowrit). The trust in question contains several restrictionq and conditions. AsOperating Co-Trustee, South-

. west Texas State I’niverslty is directed to operate the trust property
as a self-supporting entity fiscally separate from the university. All income earned by the trust shall be retained for the maintenance, operation, and improvement of the trust property and expenses of administering the trust. Theuniversity is directed to payadvalorem taxes and insurance premiums for liability and fire and extended coverage insurance: from the funds of the trust. Neither the income nor corpus of the trust maybe used for or distributed to any individual or institution. including the trustees. The trustees maynot mortgage, encumber
, lease, sell, or exchange any of the trust’s real property. Onthe resignation or removal of the Operating Co-Trustee for failure to operate the trust for the specified purposes and

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according to the terms and conditions of the trust, the Inactive Co-Trustee is directed tc replace the Operating Co-Trustee with another qualifying organimtion or to transfer the property of the trust to the Ema FreemanFoundation or to terminate the trust and distribute the proceeda of the sale of its assets to former beneficiaries of the Emma FreelamFoundation.

You ask whether Southwest Texas State University mayspend state funds appropriated to it to erect permanent improvements on the trust’s real property or ta payoperational expenses of the trust and purchase equipment and livl!stock necessary to operate the trust. We
assume that your inquiry relates to authority granted by the Texas Constitution, by the Texas statutes
, andby the testamentary trust.
Part of your inquiry Is whether the expenditure of appropriated funds to permanently improve the trust real property or to operate the trust would violate the pr~bibitions of article III, section 51, and article XVI, section 6, J:Ethe Texas Constitution. Article III, section 51, provides, in part, that

[t]he Legislature: shall have nopower to makeany grant or author::z:e the making of any grant of public moneys tc’ any individual, association of individuals, municipal or other corporations whatsoever.

. . , Article XVI, section 6, provides, in part, that

[n]o appropriati~x~ for private or individual poses shall be made, unless authorized by Constitution.

. , . purthis

Both the courts and this office have approved statutes and appropriations that authorize grants of public funds to private entities so lonn as~the exaenditure is madefor the direct accomulishment of a legitimate publ:ic purpose. See Barrington v. Cokinos, 338 S.W.Zd 133, 140 (Tex. 1963). See alsoState v. City of Austin, 331 S.W.Zd 737 (Tex. 1960); Davis v. City of Lubbock, 326S.W.2d 699 (Tex. 1959): Attorney GeneralTz.nions KW-89(1979) : E-1260 (1978). Also, the &blic entity mustre;:eive adequate consideration to avoid making
a gift or grant of public funds to a private entity in violation of article III, section 51. SeeAttorney General Opinions H-1309 (1978); H-403 (1974). Whenthe st:E seeks to accomplish apublic purpose by granting funds to aprivate entity, it must maintain adequate control
over the use of the funds t,osee that the public purpose is achieved. SeeAttorney General Opinions MW-423(1982); MW-373(1981).
- No fixed rule del~leates exactly what constitutes a public purpose. Public educati~z~ is, however. an essential governmental function. Bainey v. Malo:~~, 141 S.W.Zd 713 (Tex. Civ. App. - Austin 1940. no writ); Attorney General Opinion M-1221 (1972). It is our

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opinion that enentity and.aprogram that contributes to the promotion of education serves a public and governmental purpose. See Attorney
- General Opinions MU-373(19,Bl); H-391 (1969).
Southwest Texas State University is under the management and control of the Board of Regents, Texas State University System. Educ. Code OP95.01, 96.41. Theboard is responsible for the general control and management of the universities in the system and, among other things, may perform such acts, as in the judgment ofcthe board, contribute to the developsent of the universities in the system and the welfare of ‘their studmts. Educ. Code 995.21(a). All approprietions madeby the legislamre for the support andmaintenance of the system universities, for the purchase of land or buildings for the universities, for the e::ection or repair of buildings, for the purchase of apparatus, libraries

, or equipment of anykind, or for any other improvement of any kind shall be disbursed under the direction and authority of the boartl. Educ. Code 595.28. Theboard mayaccept donations, gifts, grants, and endowments.for the universities under its control to be held in trust andadministered by the board for the purposes and under the directions, limitatious, and provisions declared in writing in tt.e donation, gift, grant, or endowment, not inconsistent with the laws of the state or with the objectives and proper management of the universities. Educ

. Code 195.34. In our opinion, the legislature, in delegating such duties to the board, authorized the board to determine whether any particular expenditure constitutes avalid publi’: purpose. Thedetermination is to be made initially by the Board of Begents and, if challenged, ultimately by a court. SeeAttorney General Opinions MW-373(1981); H-1312 (1978).

- It is our opinion that funds appropriated andallocated for use by Southwest Texas State Uuiversity for permanent improvements maybe used, as provided by article VII. section 17, of the Texas Constitution and by chapter 62 of the Education Code, on the trust reai property without violating article III. section 51. or article XVI, section 6. Themere fact that improvements are located on land that is not ownedby the stats!, or the fact that the interest in land is subject to reverter or termination, facto, does not render expenditures, ipso

violative of the constitution. In Attorney General Opinion H-403 (1974). this office determined that the question of constitutionality depends on whet,her the expenditure for a livestock export station onleased landwasaproper public purpose andin exchange for adequate public benefits. See also Attorney General Opinion H-416 (1974) (Texas Aeronautics Commission maymakea grant of state funds for improvements onmunic:ipal airfield on leased land if grant is for
a proper public purpose andan adequate consideration). In Attorney General Opinion H-655 (l!l75), this office stated that it was aware of no constitutional inhtbitlons to the construction of permanent improvements by astate university onland subject to apossibility of reverter and that, as with improvements on leased land, article III, section 51, andits associated provisions would not beviolated if the expenditure is for apropc:r public purpose andadequate consideration.

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See also, Attorney General Opinions E-257 (1974) (Parka andWildlife Department could spend state funds to construct facilities on land ownedby the federal govermeent vithout violating article III, section 51 because expenditure had valid public purpose and adequate public benefit); MW-514(1982) (Texas Tech University Eealth Sciences Center mayconstruct medical school, facilities on land subject to rights of reversion without violating article III, section 51). Cf. Attorney General Opinion C-395 (1961i) (prohibition In article VIIzection 17 against use of general revenue fund for permanent improvements by designated universities did not apply to construction of building on state-owned land for museum.that is aseparate entity but administered by auniversity).
The authority of the university to spend state funds to imp,rove
or operate the trust propsarty is determined not only by the Texas Constitution and statutes bsutalso is determined by the terms and conditions of the trust. ‘Thetrustee of a testamentary trust can exercise only such auth0rit.y as Is vested in himby the will under which he acts. Williams v. .Smith. 200S.W.2d 201. 207 (Tex. Civ. App.
--
- Galveston 1947),~ rev’d. on other grounds 206 S.W.Zd 208. As we previously mentioned, artic1.e 95.34 of the Education Code authorizes the Board of Regents to accept donations, gifts, grants, and endowments for the universities under its control to be administered for the purposes and under the directions, limitations. and provisions declared in writing in the donation, gift. grant, or endowment.
The will that creates the trust in question directs. the university, as the Operating Co-Trustee, to manage and operate the day-to-day and long-term operations of the trust property as a selfsupporting entity fiscally separate from the operation of Southwest Texas State University. It appears that the terms of theewill preclude the university’s ua,eof its ownfunds for the improvement or operation of the trust property as a laboratory in support of its agricultural andrange managementeducational programs. SeeAttorney General Opinion MW-425 (19.82) (funds donated to Pan bxcan University maybeused only fcr purposes authorized bythe donor pursuant to section 112.34 of the E,ducation Code). However, to carry out the purposes of a trust, a cocrt maydirect or permit the trustee to do acts that are not authorlzt,d or that are forbidden by the terms of the trust if, because of circumstances not known or anticipated by the settler, compliance with t.he terms of the trust would defeat or substantially impair the accomplishment of the purposes of the trust. See Property Code 1112.054; Smithv. Drake, 94 S.W.2d 236, 238 (Tex. civ. App. - Austin 1936, nowrit).

In addition to the provision of the will specifying that the trust and trust property ‘be operated as a self-supporting entity fiscally separate fromthe university, thewill also provides that the university, as the Operating Co-Trustee, shall. from the trust fund, discharge all obligations of the trust, including without limitation, property costs such as ad valorem taxes and insurance premiums for

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Mr.JohnS. Cargile - Page 5 (JM-5S4

general liability and fi::e and extended coverage insurance on the improvements. Hence, it appears that the terms of the trust also preclude the university’s use of appropriated funds to purchase insurance. You Inquire, however, whether the university mayspend appropriated funds to purchase fire andextended coverage insurance as required by the will.

It is the policy of this state that the state shall carry its
owninsurance on state buildings and contents and that no insurance policies be purchased on my of the public buildings of this state or their contents. See Senate Concurrent Resolution No. 3, Acts 1921, 37th Leg.. 2nd Cx, at 369. In view of the legislative intent expressed in that resolution, this office in Attorney General Opinion M-1257 (1972) determined that Tyler State College could not purchase fire and extended coverage insurance on college buildings or their contents. See also Attorney General Opinions C-193 (1963); O-6246 (1944). The state has continued to self-insure its ownproperty for fire andextended coverag,! Insurance andmakes special appropriations to repair andreplace facjlities andequipment destroyed or damagedby such events as fire, flood, windstorm, and hurricane. For instance, chapter 21, appropriates ,fundsto Southwest Texas State University to repair or replace propert)’ damagedor destroyed by aflood onJune 20, 1981. Acts 1981, 67th LelI,,, 1st C.S., ch. 21, at 239. See also Acts 1981. 67th Leg., chs. 628, 585, 83 (appropriations to PanAmerican University for damagecaused by hurricane, to North Texas State University for wind damage, and to Texas Forest Service of Texas AhM University System for wine,storm damage); Acts 1979, 66th Leg., ch. 20, at 30 (appropriation to SrmHouston State University for damagecaused by fire).
The governing bodies of state universities are creatures of statute andmayexercise only powers delegated to them by the legislature. See Attorney Genera.1Opinion MW-475(1982). The legislature has notauthorized Southwest Texas State University to purchase fire andextended coverage insurance for the university’s property. Weare not aware of a statute tha,t authorizes the university to purchase insurance on property belonging to a trust that the university operates in connection with its educ:stional activities.

You also inquire wt.ether article V. section 56, of the 1985 General Appropriations Act or any other state law prevents the university from spending appropriated funds to purchase liability insurance covering tort claims that mayarise from its operation of the trust property.
The Texas Tort Claims Act generally authorizes a governmental unit to purchase liability insurance to cover its operations. The provision in section 9 ol: article 6252-19, V.T.C.S., nowcodified as section 101.027(a) of the Civil Practice 6 Remedies Code, provides that

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[e]ach governmental unit maypurchase insurance policies protect:tng the unit and the unit’s employees against claims under this chapter [Texas Tort Claims Act].
Ewever, the legislature clxlsistently has provided that none of the funds appropriated in the biennial General Appropriations Act maybe expended for the purpose of purchasing policies of insurance covering claims arising under the Tex,asTort Claims Act. See Acts 1985. 69th Leg., art. V, ch. 980, 5515;;Attorney General Opinion H-900 (1976). The restriction in article V, section 56, of the Appropriations Act applies only to claims under the Tort Claims Act anddoes not apply to liability insurance purchas’rd under article 6252-19a. V.T.C.S. Article 6252-19a provides that

[t]he State Depa::tments or Agencies whoown and operate motor vehicles, aircraft andmotorboats or watercraft of all. types and sizes shall have the authority to insure their officers and employees from liability arising out of the use, operation and maintenance of such automobiles, trucks, tractors, power equipment, aircraft andmotorboats
or watercraft used or which maybe used in the operation of such Department or Agency.
There is a distinction between appropriations for claims arising under the Torts Claims Act and those arising under article 6252-19a and the commonlaw. See Attorney General Opinion H-158 (1973). See also Attorney General Opfnions M-1257 (1972) (college may paypremiums onliability insurance on college owned vehicles under article 6252-19a); M-1215 (1972) (Parks andWildlife Department maypurchase liability Insurance under article 6252-19a since prohibition against
use of appropriated funds applied only to-insurance coverage purchased under Torts Claims Act); t&521 (1969) (Appropriations Act prohibited purchase of insurance cove.ring liability under Torts Claims Act); M-559 (1970) (HighwayDepartment maypurchase liability insurance as provided byarticle 6252-19a).

Hovever
, article 6252..1.9apermits only the purchase of insurance to cover liability incurred bythe operation of astate-owned vehicle. See Attorney General Opin:.on H-559 (1970). It is our opinion that neither article 6252-19a nt’r anyother statute authorizes the expenditure of appropriated funds to purchase liability insurance covering tort claims that mayarise from the operation of the trust property. Since there is no statutoq authority for the paymentof such premiums by a state university, l.i,ability insurance to cover tort claims arising from the universit:r”s operation of the trust property maynot be purchased with appropriated funds. See Attorney General Opinions
- H-1318 (1978); D-742 (1975:.

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Youaskwhether the trust property is eligible for exemption from advalorem property taxes under section 11.11 or any,other section of the Tax Code. Weconclude that the trust property in question is not taxable.
Article VIII, section 2, of the Texas Constitution authorizes the legislature to exempt from taxation public property used for public purposes. All real and tangible personal property that this state hasjurisdiction to tax is taxable unless exempt by law. Tax Code 511.01(a). Effective January 1, 1984, section 11.11 of the Tax Code
wasamendedbyadding subsection (e), which provides that

property that is held or dedicated for the support, maintenance, or benefit of aninstitution of higher education as defined by section 61.003(7), Texas Education Code, b,ut is not rented or leased for compensation to L.private business enterprise to be used by it for apurpose not related to the performance of the duties and functions of the state or is not rented or leased to provide private residential housing to membersof the public other than students andemployees of the state is not taxable.

Asnowdefined by section 61.003(S) of the Education Code, instead of section 61.003(7), an “institution of higher education” includes a public senior college or university such as Southwest Texas State University.

It is our opinion t!rat the property in question is held and dedicated by the terms of the trust for the support and benefit of Southwest Texas State Unive,rsity. TheTexas SupremeCourt has stated that the word “dedicate” ,:learly means to appropriate and set apart one’s private property to somepublic use. Vlscard& v. Pajestka, 576 S.W.2d 16. 

### ia(Tex. 19781, Virtually the‘samedefinition appears in Ford v. Moren. 592 S.W.2d 385, 390 (Tex. Civ. App. - Texarkana 1979, writ ref

’d n.r.e.). Not cnly is the property belonging to the trust not rented or leased for compensation to aprivate business enterprise to be used for apurpose not related to the performance of the duties and functions of the state! or to provide private residential housing to membersof the public, ‘but the terms and conditions of the trust prohibit the trustee from renting or leasing anyof the trust’s real property. As previously Ilointed out, the terms of the trust provide that Southwest Texas State University mayuse andoperate the property solely for farm. ranch, andgamemanagement, educational, and experimental purposes in connecl:ion with the educational activities of the university for the benefj.t of its students or the general public. Hence, it is our opinion t’vlt section 11.11(e) of theTaxCodeexempts the trust property from ad valorem taxes.
Youask about other sections of the TaxCodethat mayexempt the trust property from ad valorem taxes. Therefore, we mention that

p. 2448Mr. JohnS. Cargile - Page 3 W-551)

section 11.16 provides that farm products. vhich includes livestock and poultry, in the hands of the producer are exempt from taxation. Also, implements of husbandry used in the production of farm andranch products are exempt from ad,valoremtaxation. TaxCode 111.161.

SUMMARY

A state university serving as trustee of. a testamentary trust created to make ranch property available to the university to use in its educatio* programs mayspeai appropriated funds for permanent improvements and operation of the trust vithout violating the Texs,sConstitution or statutes, so long
as the expenditure is for aproper public purpose and
anadequate consi(.eratlon. If the terms of the trust prohibit the us,? of appropriated funds by the trustee, a court has the power to direct or permit the trustee to deviate from terms of the trust that would defeat or substantially impair the accompllshment of the purpcses of the trust. The legislature has not authorizetl the university to purchase general liability or fire .andextended coverage insurance on property belonging to a trust that the university operates in connection with its educational sctivities, and insurance for the trust maynot be purchased with appropriated funds. Theproperty of the trust in question ,is exempt from advalorw taxation under section 11.:.1.(e) of the TaxCode.

. Attorney General of Texas

JACKAIGHTOWER First Assistant Attorney General

MARY KELLER Executive Assistant Attornay General

RICKGILPIN Chairman, Opinion Committee Prepared by Nancy Sutton Assistant Attorney General

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