The Attorney General of Texas 

JIM MATTOX 

Attorney General 

April 11, 1984 

Supreme Court Building 

P. 0. Box 12546 

Austin. TX. 78711. 2546 

512,475.2501 

Telex 9101674-1367 

Telecopier 5121475-0266 

714 Jackson, Suite 700 

Dallas, TX. 75202-4506 

2141742-6944 

4624 Alberta Ave., Suite 160 

El Paso, TX. 79905-2793 

Honorable Luther Jones 

El Paso County At,torney 

Room 201, City-County Building 

El Paso, Texas 79901 

Opinion No..~+l42 

Re: Whether a water district 

may use excess bond monies 

levied for the interest and 

sinking fund for a water project not described in the bond 

issue 

Dear Mr. Jones: 

You ask us the following question: 

9151533.3464 

,r- 

)Ol Texas, Suite 700 

Houston. TX. 77002-3111 

7,3/223-5666 

Can a water district use the proceeds of a bond 

issue passed pursuant to an act of the Thirtyninth Legislature, chapter 25, 1925, for water 

projects other than the project described in the 

original bond issue? 

606 Broadway, Suite 312 

We understand you to ask whether the district can expend surplus 

Lubbock, TX. 79401.3479 monies levied for the interest and sinking fund on water projects 

6061747.5236 other than that described in the original bond issue. We conclude 

that monies in the interest and sinking fund cannot be expended for 

4309 N. Tenth. Suite B 

any purpose other than those set forth in section 51.436 of the Water 

t&Allen. TX. 76501-1665 Code. After the outstanding bonds are retired, any surplus my either 

5,2!662-4547 be refunded if practicable, to taxpayers or be transferred to the 

district's maintenance fund. 

200 Main Plaza. Suite 400 

San Antonio, TX. 76205.2797 

You have supplied us with the following information. The El Paso 

5,2,225-4191 County Water Control and Improvement District No. 4 issued a series of 

sewer bonds in 1956 in the amount of $275.000.00. Sections 51.433 and 

51.434 of the Water Code require the district's board to levy a tax 

An Equal Opportunity/ 

Affirmative Action Employe!~ 

for the purpose of redeeming and discharging the bonds and paying the 

interest thereon. The fund created thereunder is now in excess of 

$390.000.00, with approximately $31,000.00 in bonds outstanding. The 

district proposes to use the excess funds for an Environmental 

Protection Agency project after the district has retired the remaining 

$31.000.00 in bonds. 

Section 51.436 of the Water Code provides the following: 

p. 607 
Honorable Luther Jones - Page 2 (JM-142) 

(a) The district shall have an interest and 

sinking fund which shall include all taxes 

collected under this chapter. 

(b) Money in the interest and sinking fund may 

be used only: 

(1) to pay principal and interest on the 

bonds; 

(2) to defray the expenses of assessing and 

collecting the taxes; and 

(3) to pay principal and interest due under 

a contract with the United States if bonds have 

not been deposited with the United States. 

(c) Money in the fund shall be paid out of the 

fund on warrants by order of the board as provided 

in this chapter. 

(d) The depository shall receive and cancel 

each interest coupon and bond as it is paid and 

shall deliver it to the board to be recorded, 

cancelled, and destroyed. (Emphasis added). 

Unsmbieuous statutorv laneuaee is not subiect to construction, 

but must b; enforced as-writ&~.- Ex parte RAoff, 510 S.W.2d 913 

(Tex. 1974); Col-Tex Refining Co. v. Railroad Comission of Texas, 240 

S.W.2d 747 (Tex. 1951). The clear language of the statute requires 

that money in the interest and sinking fund be expended only for three 

specified purposes. The district is without authori~ty to expend the 

funds for any other purpose. But see Water Code 151.437 (permitting 

the investment of the funds in certain instances). Moreover, absent 

specific statutory authority to the contrary, monies in an interest 

and sinking fund may be used for no other purpose than the one for 

which it was created. Bexar County Hospital District v. Crosby, 327 

S.W.2d 445 (Tex. 1959). _ See Attorney General Opinion H-658 (1975). 

This rule applies when bonds remain outstanding. The rule is 

less clear when all of the outstanding bonds have been retired and 

there remains a surplus in the interest and sinking fund. In specific 

instances, the Texas Legislature has permitted the expenditure of 

surplus interest and sinking fund monies after the bonds outstanding 

are retired. See, e.g.. V.T.C.S. arts. 723, 752a. The Water Code, 

however, is silent 8s to whether surplus monies in the interest and 

sinking fund can be expended after the bonds outstanding are retired. 

It has been suggested that any surplus monies in the interest and 

sinking fund can be expended for any lawful purpose of the taxing 

p. 608 
Honorable Luther Jones - Page 3 (JM-142) 

unit. Cited in support of such a proposition is Madeley v. Trustees 

of Conroe Independent School District, 130 S.W.2d 929 (Tex. Civ. App. 

- Beaumont 1939, writ dism’d judgmt co=.). We disagree both with the 

proposition and with the characterization of the Madeley case. 

Madeley concerned the disposition of surplus monies in the maintenance 

fund of an independent school district which the trustees sought to 

expend on the erection and equipment of a school building. The court 

held that the surplus monies in the maintenance fund ceased to be 

governed by the strictures imposed thereon by statutes specifying the 

purposes for which maintenance funds could be expended once the 

purpose of the statutes has been effectuated. 

If and when the statutes cease to control the 

fund, then it becomes a constitutional fund and 

not a statutory fund, and may be used by the 

trustees for the constitutional purposes; one of 

the constitutional purposes is ‘the erection and 

equipment of school buildings’ within the 

district. what we have said is in full 

recognition of the legal proposition that the fund 

collected for the support and maintenance of the 

public free schools, to the extent that it is 

needed for thnt purpose, can not be diverted to 

any other purpose. 

Madeley v. Conroe Independent School District, supra at 934. 

The following language in Madeley is that cited in support of the 

proposition that surplus monies in the interest and sinking fund may 

be expended for any lawful purpose of the taxing unit. 

The following illustration is in point on our 

holding: Where a district has issued bonds and 

voted a tax to retire them, what becomes of the 

surplus of the tax when the bonds are retired? 

Since it is not reasonable that the exact amount 

of the bonds will be collected, on every bond 

issue the trustees will have in their hands a 

surplus. Again, a tax payer permits his tax to 

become delinquent until after the bonds are 

retired; when sued, can he defend on the ground 

that the bonds for which the tax against his 

property was levied have been paid off? When the 

delinquent tax is collected, how shall it be 

expended? These questions find their answer in 

Sec. 3 of Art. 7 of the Constitution; where the 

bonds hnve been paid off the statutes regulating 

the expenditure of the funds for their payment 

cease to control the power of the trustees in the 

expenditure of the surplus, and its expenditure 

p. 609 
Honorable Luther Jones - Page 4 (m-142) 

rests in the discretion of the trustees, under 

Sec. 3 of Art. 7 of the Constitution. 

Id. For two reasons we conclude that such language is not dispositive 

of the issue before us. First, the paragraph is dicta. At issue in 

Madeley was a surplus in the maintenance fund, not in the interest and 

sinking fund. 

Second, and more importantly, the court specifically held that 

article VII, section 3 of the Texas Constitution permitted school 

districts to levy a maintenance tax for “the erection and equipment of 

school buildings” within the district, as well as “for the further 

maintenance of public free schools.” Tex. Const. art. VII, $3. The 

court noted that. for years, trustees of independent school districts 

had expended surplus monies in maintenance funds for erection of 

public school buildings. The constitutional provisions under which 

water control and improvement districts are created do not contain 

language similar to that of article VII, section 3. See Water Code 

551.011. Article III, section 52 of the Texas Constitution authorizes 

the legislature to permit political subdivisions to issue bonds for 

certain specified purposes and to “levy and collect taxes to pay the 

interest thereon and provide a sinking fund for the redemption 

thereof . . . .” Clearly, article III, section 52 contemplates the 

creation of a discrete, segregated interest and sinking fund; there is 

no language which could be construed to permit the expenditure of any 

surplus interest and sinking fund monies for any purpose other than 

the payment of interest and the redemption of outstanding bonds. 

Likewise, article XVI, section 59 of the Texas Constitution 

authorizes the legislature to permit conservation and reclamation 

districts to issue bonds “as may be necessary to provide all 

improvements and the maintenance thereof requisite to the achievement 

of the purposes of this amendment” and to levy and collect “all such 

taxes, equitably distributed, as may be necessary for the payment of 

the interest and the creation of a sinking fund for the payment of 

such bonds; and also for the maintenance of such districts and 

improvements . . . .‘I Again, it is clear that the constitution 

contemplates the creation of at least two discrete funds, one for 

maintenance of the districts and one for the payment of interest on 

and redemption of outstanding bonds. And again, there is no language 

in article III, section 52 which could be construed to pensit the 

expenditure of surplus interest and sinking fund monies for any lawful 

purpose of the taxing unit. 

There is admittedly a dearth of explicit, direct authority in 

this area. Courts in other jurisdictions have held that surplus 

monies in an interest and sinking fund can be expended after outstanding bonds have been redeemed for purposes other than those for 

which the bonds were originally issued and sold, but only when such 

was specifically provided by statute. See, e.g., Diver v. Village of 

p. 610 
Honorable Luther Jones - Page 5 (JM-142) 

Glencoe, 379 N.E.2d 1214 (Ill. App. 1978); Jack's Cookie Corp. v. 

Giles County, 407 S.W.Zd 446 (Term. 1966); St. Louis-San Francisco Ry. 

Co. v. Ottawa County Excise Board, 207 P.7.d 275 (Okla. 1949); King v. 

Duval County, 174 So. 817 (Fla. 1937); Flint v. Duval County, 170 So. 

587 (Fla. 1936); Rothschild v. Village of Calumet Park, 183 N.E. 337 

(Ill. 1932). 

The dearth of authority in this area may be easily explained by 

the fact that constitutional and statutory provisions which govern the 

creation of sinking funds ordinarily contemplate that no more taxes 

shall be collected than are necessary to meet the principal and 

interest on the bonds. See, e.g., East St. Louis v. Uniied States, ex 

rel. Zebley. 110 U.S. 321 (1884); E.T. Lewis Co. v. Winchester. 130 

S.W. 1094 (Ky. App. 1910); Rogge v. Petroleu 

(Mont. 1938); State v. 

q County, 80 P.2d 380 

Board of Public Instrut ction for Dade County, 

170 so. 602 (Fla. 1936); 15 E. McQuillin, M unicipal Corporations, 

943.133 (1970). In fact, somt ecourts have held that anv levv creatine 

such a surplus is void as to the excess. People ex ;el. -Brenza v: 

Fleetwood, 109 N.E.2d 741 (Ill. 1952); People ex rel. Manifold v. 

Wabash RY. Co.. 53 N.E.2d 976 (Ill. 1944); Rogge v. Petroleum County, 

supra. 

We construe the Water Code to permit only the imposition of an 

interest and sinking fund levy sufficient to pay the bonds and 

interest as they become due. It clearly does not permit nor does it 

contemplate the creation of a surplus. Section 51.433 provides the 

following in pertinent part: 

551.433. Tax Levy 

(a) At the time bonds are voted, the board 

shall levy a tax on all property inside the 

district in a sufficient amount to redeem and 

discharge the bonds at maturity. 

(b) The board annually shall levy or have 

assessed and collected taxes on all property 

inside the district in a sufficient amount to pay 

for the expenses of assessing and collecting the 

taxes. 

Cc) If a contract is made with the United 

States, the board annually shall levy taxes on 

property inside the district in a sufficient 

amount to pay installments and interest as they 

become due. 

(d) The board may issue the bonds in serial 

form or payable in installments, and the tax levy 

shall be sufficient if it provides an amount 

p. 611 
IIonorable Luther Jones - Page 6 (JM-142) 

sufficient to pay the interest on the bonds, the 

proportionate amount of the principal of the next 

maturing bonds, and the expenses of assessing and 

collecting the taxes for that year. (Emphasis 

added). 

Section 51.434 of the code provides the following: 

551.434. Adjustment of Tax Levy 

(a) The tax levy wade in connection with the 

issuance of bonds shall remain in force from year 

to year until a new levy is made. 

(b) The board may from time to time increase 

or diminish the tax to adjust it for the taxable 

values of the property subject to taxation by the 

district and the amount required to be collected. 

(c) The board shall raise an amount sufficient 

to pay the annual interest of and principal on all 

outstanding bonds. (Emphasis added). 

It is suggested that Attorney General Opinion MW-97 (1979) 

controls this issue. In Attorney General Opinion MW-97 (1979). this 

office declared that, in an instance in which the applicable statutes 

were silent as to the disposition of any surplus interest and sinking 

fund monies after the redemption of bonds outstanding, such funds may 

be expended only for the same "public improvements" for which the 

bonds were originally issued. Quoting McQuillin, Municipal 

Corporations at Volume 15, 543.134, the opinion declared: 

A sinking fund should be applied to the payment of 

the principal and interest on the bonds which it 

was created to service, and even though the bonds 

have been declared void, cannot be diverted to 

other purposes. Thus, it is an unlawful diversion 

to transfer a sinking fund to the general 

fund. . . . It has been held that an unallocated 

surplus remaining after the payment of principal 

and interest of outstanding bonds may be used for 

the construction of a public improvement . . . . 

(Emphasis added). 

The case cited by McQuillin in support of the above underscored 

language is King v. Duval County, B. As we have already noted, 

the rule in King is not a general rule of law with respect to the 

disposition of surplus interest and sinking fund levies; the transfer 

permitted in King was specifically authorized by statute. Such is not 

the case in the Water Code. Attorney General Opinion MW-97, 

p. 612 
Honorable Luther Jones - Page 7 (JM-142) 

therefore, relied upon authority which does not support the 

proposition for which it was cited. Accordingly, to the extent to 

which Attorney General Opinion MW-97 conflicts with this opinion, it 

is hereby overruled. 

In the absence of specific statutory authority, the prevalent 

judicial and legislative reasoning appears to be that such surplus 

monies may be refunded to taxpayers, see, e.g., Diver v. Village of 

Glencoe, a; City of Stuttgart v. McCuing, 234I,".sW;.; eyett(Ark. 

1950). unless such refund would be impracticable. , the 

surplus levy may be transferred to the general maintenance fund. See 

Morton v. Baker, 494 S.W.2d 122 (Ark. 1973); Lawrence v. Jones.73 

S.W.2d 228 (Ark. 1958). 

We conclude that, in the absence of statutory authority directing 

the disposition of any surplus monies levied for the interest and 

sinking fund, the water district may refund such excess to taxpayers 

or. in the event that such refund is impracticable, transfer such 

monies to the maintenance fund of .the district. We note that section 

51.352 of the Water Code specifies the purposes for which monies in 

maintenance fund may be expended. See also Water Code 951.351 

(provides that proceeds from the sale of bonds shall be deposited in 

the construction fund and that, after the payment of obligations for 

which the bonds were issued, any remaining money in the construction 

fund may be transferred to the maintenance fund). 

SUMMARY 

In the absence of statutory authority directing 

the disposition of any surplus monies levied for 

the interest and sinking fund after the redemption 

of bonds outstanding, the El Paso County Water 

Control and Improvement District No. 4 may refund 

such excess to taxpayers or, in the event that 

such refund is impracticable, transfer such monies 

to the maintenance fund. 

JIM MATTOX 

Attorney General of Texas 

TOM GREEN 

First Assistant Attorney General 

DAVID R. RICHARDS 

Executive Assistant Attorney General 

p. 613 
Honorable Luther Jones - Page 8 (JM-142) 

Prepared by Jim Noellinger 

Assistant Attorney General 

APPROVD: 

OPINION COMMITTEE 

Rick Gilpin. Chairman 

Jon Bible 

Colin Carl 

Susan Garrison 

Jim Moellinger 

Nancy Sutton 

p. 614