Honorable EarlRudder OpinionNO. ~~-82

Commissioner General Land Office Re: Bonds issuedunder Austin, Texas Article 3, Section 49-b, Constitution of Texas, are general obligations of Dear Mr. Rudder: the State of Texas.

You ask whether or not Veterans' Land Bonds issued underArticle 3, Section 49-b of the Constitution of Texas, are general obligationsbacked by the full faith and credit of this State.

Article 3, Section 49-b, Constitution of Texas, creates a Veterans' Land Board; preECribe6 itsmembership; endows itwith the prerogativeto issue installmentbonds not to exceed Two Hundred Million Dollars; sets up a fund to receive the proceeds; provides for Its expenditure on land purchases for resale to veterans,and provides a revolving fund feature to absorb Income therefrom; and, dedicatesa sufficient amount therefrom to pay interest on the bonds and declares that after December 1, 1965, "allmonies receivedby the (Board) from the sale of the lands and Interest on payments, or 60much thereof as may be necessary, shallbe set aside for the retlrement of said additionalbonds and to pay interest thereon ~ m -"

The question is whether these bonds are general obligations of the State of Texas for the payment of which the full faith and credit of the State are pledged.

Article 3, Section 49-b of the Constitution provides that all "suchbonds shallbe executedby saidBoard as an obligation of the State of Texas."

The Issuingauthority, the Veterans' Land Board, was created and exists pursuant to constitutionalauthority. It is a department of the State Governmentby virtue thereof and the bonds It legally issuesare obligations of the State of Texas and not of the Board. But It does not follow ipso factoHonorable Earl Rudder, page 2 (W-82)

that the S,tate

has pledged Its general power of taxation to the payment thereof,

The prime factor that constitutesa general state obligation is whether or not the taxing power of the state may be called on to serviceand dischar e it. State v. FlorIda State ImprovementComm., 34 so. 2, 4 3, & 451 T1946).
In the Instant case, we have a specific fund and the board Is directed to se't aside thereinmoneys for the payment of Interestand bond retirement. If the bonded Indebtedness Is to be paid exclusively from this fund, then they are not general obligations of the state.

In 1948, Louisiana approved a constitutionalamendment relative to veterans'bonuses, to be paid by a tax on beer. Under the Louisiana scheme, a stateboard was allowed to anticipate tax collectionsand issuebonds and to pledge and dedicate the avails and proceeds of the beer tax as security therefor.

The resultingbonds came under attack when issuedas a general.obligatIonof the state. In sustaining them as such, the Supreme Court of Louisiana in State v. Board of Liquidation of State Debt, 39 So. 2d 333, 334, said:

"It is well established that a statute, authorizing the contracting of debt on behalf of a public'agency,which provides a special fund for the payment of the debt, contemplates the issuance of a general obligation to represent the debt so incurredunless It provides, expressly or by necessary ImplIcatIon,that payment of the debt shallbe limited to the special fund." There isno declaration inArticle 3, Section 49-b, established fund shall alone be applied to the paythat the ment of the principaland interest of the bonds, nor is there any express provision that suchbonds are payable exclusively out of the fund, nor is there any implicationthat payment of the bonds is Intendedto be limited solely to the fund. On the contrary,Article 3, Section 49-b, provides: "*

. .Ali bonds Issued hereunder

. ~ ~ shall constitute obligations of the State under the ConstitutionofTexas.", Honorable Earl Rudder, page 3 (~~-82)

We have previouslyruled thatArticle 5421m,V.A.C.S., is applicable toArticle 3, Section 49-b. Attorney General Opinion No. W-2 (Jan.14, 1957).

Section 9(c) ofArticle 5421m provides: "If saidBoard (Veterans'Land Board), at any time during the existence of saidVeterans' Land Fund, shall determine that during the followingbiennium there will not be sufficient moneys In said Fund to pay principal of and/or interest on saidbonds which will fall due during the said followingbiennium, the Legislature shall appropriate from the General Fund of the State sufficientmoneys to meet such obligation

. . ." (Emphasisours)

The Constitutionand statutes in force and effect at the time bonds are issued will necessarilybecome a part of the contract.

You are respectfully advised that the bonds issued underArticle 3, Section 49-b, Constitution of Texas, after approval by theAttorney General of Texas, registrationby the Comptroller, and delivery to the purchaser or purchasers, will constitutegeneral obligationsof this State, for the payment of which the full faith, credit and resources of the State of Texas are unconditionallyand Irrevocablypledged.

SUMMARY Bonds Issuedby the Veterans' Land Board constitute,under the Constitutionand Laws of this State, a general obligationbacked by the full faith and credit of the State of Texas.

Very truly yours,

APPROVED: OPINION COMMITTEE By: H. Grady~Chandler,

Chairman WILL WILSON