# 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 HonorableLuther Jones El Paso CountyAt,torney Room 201, City-CountyBuilding El Paso, Texas 79901 OpinionNo..~+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 thebond issue
Dear Mr. Jones:
You ask us the followingquestion:
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 originalbond 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 outstandingbonds are retired,any surplusmy either 5,2!662-4547 be refunded if practicable, to taxpayers or be transferred to the district'smaintenance fund.
200 Main Plaza. Suite 400 San Antonio, TX. 76205.2797 You have suppliedus with the following information. The El Paso 5,2,225-4191 CountyWater Controland ImprovementDistrictNo. 4 issued a seriesof sewerbonds in 1956 in the amountof $275.000.00. Sections51.433 and 51.434 of the Water Code require the district's board to levy a tax An Equal Opportunity/ Affirmative Action Employe!~ for thepurpose of redeemingand 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 ProtectionAgencyprojectafter the districthas retired the remaining $31.000.00 inbonds. Section51.436 of theWater Codeprovides the following:

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(a) The district shall have an interest and sinking fund which shall include all taxes collectedunder this chapter. (b) Money in the interestand sinking fundmay be usedonly: (1) to pay principal and interest on the bonds; (2) to defray the expensesof assessingand collectingthe taxes;and (3) topay principaland interestdue under a contractwith theUnited States ifbondshave not been depositedwith theUnited States. (c) Money in the fund shallbe paid out of the fundon warrantsby order of theboard 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. (Emphasisadded). 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-TexRefining Co.v. Railroad Comission of Texas, 240 S.W.2d 747 (Tex. 1951). The clear language of the statute requires thatmoney in the interestand sinking fundbe expendedonly for three specifiedpurposes. The district is without authori~tyto 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).

_ SeeAttorneyGeneralOpinionH-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 remainsa surplus in the interestand 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 canbe expendedafter thebonds outstandingare retired.
It hasbeen suggestedthat any surplusmonies in the interestand sinking fund can be expended for any lawful purpose of the taxing

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unit. Cited in support of such a proposition is Madeley v. Trustees of Conroe Independent SchoolDistrict, 130 S.W.2d 929 (Tex.Civ. App.

- Beaumont 1939,writ dism’d judgmt co=.). We disagreeboth with the proposition and with the characterization of the Madeley case. Madeley concerned thedispositionof surplusmonies in themaintenance fund of an independent school district which the trustees sought to expend on the erection and equipment of a schoolbuilding. The court held that the surplus monies in the maintenance fund ceased to be governedby the strictures imposed thereonby statutes specifying the purposes for which maintenance funds could be expended once the purpose of the statuteshas 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 constitutionalpurposes; one of the constitutionalpurposes is ‘the erection and equipment of school buildings’ within the district. what we have said is in full recognitionof the legalpropositionthat 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 otherpurpose. Madeleyv. Conroe IndependentSchoolDistrict,supra at 934. The following language inMadeley is that cited in supportof the proposition that surplusmonies in the interest and sinking fund may be expended for any lawfulpurpose of the taxingunit.

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 propertywas leviedhave 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

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rests in the discretion of the trustees, under Sec. 3 ofArt. 7 of the Constitution. Id. For two reasonswe conclude that such language is not dispositive of the issue before us. First, the paragraph is dicta. At issue in Madeleywas a surplus in themaintenance fund,not in the interestand 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 erectionand equipmentof 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, section52 of theTexas Constitutionauthorizes the legislature to permit political subdivisions to issue bonds for certain specifiedpurposes 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 creationof a discrete, segregatedinterest and sinking fund; there is no languagewhich couldbe construed to permit the expenditureof any surplus interest and sinking fund monies for any purpose other than thepayment of interestand the redemptionof outstandingbonds. 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 improvementsand 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 redemptionof outstandingbonds. And again, there is no language in article III, section 52 which could be construed to pensit the expenditureof surplus interestand sinking fundmonies for any lawful purpose of the taxingunit. 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 specificallyprovidedby statute. See, e.g., Diver v. Village of

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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 FranciscoRy. Co.v. Ottawa County Excise Board, 207 P.7.d275 (Okla. 1949);King v. Duval County, 174 So. 817 (Fla. 1937);Flint v. Duval County, 170 So. 587 (Fla. 1936);Rothschildv. 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 constitutionaland statutoryprovisionswhich govern the creation of sinking funds ordinarily contemplate that no more taxes shall be collected than are necessary to meet the principal and intereston thebonds. See, e.g., East St.Louisv. 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, Municipal Corporations, 943.133 (1970). In fact, somt e courtshave held that anv levv creatine such a surplus is void as to the excess. People ex ;el. -Brenzav: Fleetwood, 109 N.E.2d 741 (Ill. 1952); People ex rel. Manifold v. Wabash RY. Co.. 53 N.E.2d 976 (Ill. 1944);Roggev. 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 pertinentpart:

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 dischargethebonds at maturity. (b) The board annually shall levy or have assessed and collected taxes on all property inside the district in a sufficientamount 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

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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 51.434of the codeprovides the following: 551.434. Adjustmentof Tax Levy (a) The tax levy wade in connectionwith the issuanceof bonds shall remain in force from year toyear until a new levy ismade. (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 taxationby the districtand the amount required tobe collected. (c) The board shall raise an amount sufficient topay the annual interestof and principalon all outstandingbonds. (Emphasisadded).
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 dispositionof any surplus interestand sinking fundmonies after the redemptionof bonds outstanding, such fundsmay be expended only for the same "public improvements" for which the bonds were originally issued. Quoting McQuillin, Municipal CorporationsatVolume 15, 543.134,the opiniondeclared:

A sinking fund shouldbe applied to thepayment 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 otherpurposes. Thus, it is an unlawfuldiversion 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 outstandingbonds may be used for the construction of a public improvement
. . . . (Emphasisadded). 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 inKing was specificallyauthorizedby statute. Such is not the case in the Water Code. Attorney General Opinion MW-97,

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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 conflictswith this opinion, it ishereby 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 refundwould be impracticable. , the surplus levymay be transferredto the generalmaintenance 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 statutoryauthoritydirecting 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 themaintenance fund of .thedistrict. 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 (providesthat 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 remainingmoney in the construction fundmay be transferredto themaintenance fund).
SUMMARY
In the absenceof statutoryauthoritydirecting the disposition of any surplus monies levied for the interestand sinking fund after the redemption of bonds outstanding, the El Paso County Water Control and ImprovementDistrict No. 4 may refund such excess to taxpayers or, in the event that such refund is impracticable,transfer suchmonies to themaintenance fund.

JIM MATTOX AttorneyGeneralof Texas TOM GREEN FirstAssistantAttorneyGeneral
DAVIDR. RICHARDS ExecutiveAssistantAttorneyGeneral

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Preparedby JimNoellinger AssistantAttorneyGeneral
APPROVD: OPINION COMMITTEE Rick Gilpin.Chairman Jon Bible Colin Carl SusanGarrison Jim Moellinger Nancy Sutton

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