.

JIM MATTOX Attorney General 

# The Attorney General of Texas

September25. 1985

6upreme Court Buildin P. 0. Box 12546 Austin, TX. 7671l- 2546 512,4752501 Telex 9101674.1367 Telecopier 512/4750266 Honorable Charles F. Aycock Parmer CountyAttorney P. 0. Box 286 Farwell, Texas 79325 opinionNo. JM-355

RS: Distributionof proceeds from thepermanent school fund in Parmer County

714 Jackson. Suite 7M] Dallas, TX. 75202.4508 2141742.6944

4624 A,bel,a Ave.. Suite 160 E, Paso, TX. 79905-2793 9151533.3464

1001 Texas. Suite 700 tbuston, TX. 77002-3111 7131223-5666

606 Broadway, Suite 312 ,.ubbock. TX. 79401-3479 666,747.5236

4309 N. Tenth, Suite B ~cA,,en, TX. 76501-1665 5121662-4547

2CClMain Plaza, Suite 400 sari Antonio. TX. 70205-2797 512n25-4191 DearMr. Aycock:

YOU ask us several questions relating to the distribution of county permanent whool funds pursuant to article VII, section 6b of the Texas Constitution. That constitutionalprovisionprovides:

Sec. 6b. Notwithstanding the provisions of Section 6, Article VII, Coastirution of the State of Texw, any county, acting through the commissione:cscourt, may reduce the county permanent school f'und

of that county and may distribute the amount of the reduction to the independent and
co-n school districts of the county on a per scholastic basis to be used solely for ehe Purpose,5of reducingbonded indebtedness of those distriws or for making permanent improvemenrs. The co&ssioners court shall, however, retain a suffici(nltamount of the corpus of the county permanent school fund to pay ad valorem taxes on school lands or royalty interests owned at the time of the distribution. Nothing in this Section affects financial aid to any school district by the staw. AdoptedNov. 7, 1972. (Emphasisadded).

Article VII, seccimon6 states that the county permanent school lands and theproceeds from their sale "shallbe held by said counties alone
as a trust for thebenefit of nublic schools therein: saiduroceeds to be invested

. . . and the cknties shall be reiponsibie for all investment

8.

. . ,

IN Tex. Const. arr.VII. 96 (emphasisadded).

You informw that rhe Parmer County CommissionersCourtmet with the superintenden(:r; of each of the school districts located in Parmer County together wL,thnumerous board members representing each of the districts. The representatives of the various school disrricts were

p. 1623Bonorable Charles F. Aycock .-Page 2 (JM-355

instructed as to the requimments of article VII, section 6b of the Texas Constitution. You also inform us that none of the school districts indicated to the commissionerscourt that the fundswould be used for reducing bonded iidebtedness,and all but one of the school districts indicated that 11:did not intend to use the money for permanent improvements. That one school district (FrionaIndependent School District), through its representatives, indicated to the commissioners court that in order to comply with the Education Code, it would at some point in time make permanent improvements. The school district did **not** sllxuitany plans to the court nor was any indication given to the court as to when the improvements might be made or the specificnature of the improvements.

You inform us that the county has invested the school fund in certificatesof depositwhich matured inMarch 1985. In that regard, the Friona Independent Scho,olDistrict has requested its portion of the fund and has indicated that it would create a sinking fund in which its share of thepermanent school fundswould be placed until it proceedswith its futureplans forpermanent improvements.

You first ask:

May the commissioners court distribute the principal and interest after retaining a sufficient amount of.the principal to pay ad valorem taxes to a scho,LLdistrict upon the district's statement that it intends to make permanent improvementswithout first ascertainingwhether or not the permanen: improvementswill be made, and how much of the district's portion of the permanent school fundwill be used in constructionof **the** permanant improvements.

It is important to **note** thatunder articleVII, section 6 of the Texas Constitution counties are trustees of school lands for the benefit of the schools. Tex. Const. art.VII, 96. As the governingboard of the county, the commissioners court acts as trustee in distributing the school fund under article VII, section 6b of the constitution. See Attorney General Opinions H-878 (1976); H-391, H-239 (1974); M-1104 (1972). As trustees, the:.rpowers must be strictly construed, and they may neither divest themselves of the powers conferrednor assume powers not conferred. Set!Potter County v. C. C. Slaughter Cattle CO., 254 S.W. 775 (Tax.i%iim'n App.. - Sec. B, 1923,opinion adopted).
Section 6b lodges discretion of how and when to distribute the county school fund in the wmmissioners court. Tex. Const. art. VII, §6b. Neither the time of the distribution nor the manner of distribution is specified :Lnthe constitutional provision. On the contrary, the purposes for which the fund may be distributed are

p. 1624Honorable CharlesF. Aycock - Page 3 (JM-355)

clearly expressed. Id. Thus, the answer to your first question depends on what stan=d is applied to a tmstee exercising his discretion to distributetest funds to thebeneficiaries.

In exercising discretionary powers, the tmstee must act within the "bounds of a reasonatle judgment." See First National Bank of BeaumontV. Howard, 229 S.W.2d 781, 783 (Tz 1950). We believe that under this standard, a trustee is required to manifest the care, skill, prudence, and diligence of an ordinary prudent wan engaged in similarbusiness affairs. Cf. Attorney General Opinion M-1104 (1972) (prudentwan standard is applicable to investments). Inplicitwithin this standard is a duty tc investigateand ascertain facts tomake an informed judgment. Therefore, in response to your first question we conclude that it is within the cowmissioners court's duty as trustee to ascertainwhether permanent improvementswill be made and how much of the school district'sportion of the permanent school fundwill be used in the construction of permanent improvements before funds are distributed to schooldist~c:tcts.

You next askwhether ,sschooldistrictmay receive itsportion of the fund and create a sinking fund or reinvest the funds in a certificate of deposituntil it proceedswith its plans for permanent improvements. We believe that this situation is possible only if there is a justifiable expectation on the part of the county commissioners that the fund. will be used within a reasonable time to satisfy the constitutional purposes. See Attorney General Opinion H-878 (1976). To distribute permanent school funds to a school district for thepurpose of allowing the schooldistrict to invest the funds or establish a sinktug fund with no impending expectation that the funds will be used for the constitutional purposes within a reasonabletimewould be cnrtrary to the intentand purpose of article VII. section 6b. See Pal:tersonv. City of Dallas, 355 S.W.2d 838 (Tex. Civ. App. -ml=-1962, writ ref'd n.r.e.) (interpretation shouldnot thwart legislativeintent);appeal dismissedper curiam, 83 S.Ct. 873 (1963).

Article VII, section 6b outlines standards for members of the commissioners court for t'heinvestment of the school funds. The constitution wakes no provision governing investments by a school district. General tmst principles provide that a tmstee cannot delegate the authority that has been conferredupon him. See West v. Dapgood, 174 S.W.2d 963 (Tex. 1943) (trustee nay onlydelegate mechanical orministerial BIXS).

However, this office briefly discussed a limited circumstance in which a school district sought permission to deposit its portion of the county school fund in .aninterestbearing account. See Attorney GeneralOpinionH-878 (1975').In that opinion, itwas argued that

p. 1625Honorable CharlesF. Aycock '-Page 4 (JM-355)

logically, the dj.stribution of funds could not be immediately applLed towards reduction of bonded indebtednessor constructionofpermanent improvements and that investing the funds in the interim periodwould insure thatno earningswould be lost to the school chjldrenof the county.

Id. The opinion concluded that an investmentby a schooldistrictwas Frmissible as long as the resulting income (interest) and the principal are not expended except as directed by [articleVII, sec. 6bl." Attorney General 0p:tnion H-878. The opinion clearly suggested that the investmentwould te temporaryand that a determinationby the county commissioners had been made to distribute the funds for the constitutional purpose. IIf! believe that only under these limited circumstancesmay the schocN1 districtbe allowed to invest itsportion of the fund once distributcld, by the county. Finallyyou ask:

If the commisr;i.oners court elects to distribute the corpus and ,Lnterestof the permanent school fund to those districts satisfying the requirements of article VII, is it incumbent upon each schooldistrict to determine thenumber of persons residing in the !schooldistrict eligible by age for free education whether the persons *re enrolled in private or public schools and then present that data to the commissioners court so that the commiss'toners court can make the distribution on a per wholastic basis.

Article VII, section.6b of the Texas Constitution provides that when more than one school distl:ictis located in the county, the commissioners court is requirei. to distribute the funds to the various school districts on wa pel'scholasticbasis." Tex. Coast. Art. VII, 56b. In Attorney GeneralOpinionH-47 (1973).this officedefined the phrase "on a per scholasticbasis" as "on the basis of the number of persons residing in the school district eligible by age for free education." The computationof students on a per scholasticbasis has
no relation to the avera$;e: daily attendance. See Attorney General OpinionH-47 (1973);hut s(?e Educ. Code 016.006.- --- Prior to 1975. the l@!gislature had provided for the taking of a scholastic census whereby the number of students of scholastic age residing in a particular rrchooldistrict could be determined,but in 1975 the provision was repealed. See Educ. Code 514.02, repealed by Acts 1975, 64th Leg., ch. (4,§l. at, eff. Feb. 13, 1975. We have not found nor have you ini'ormed us of any official method by which a tabulationmay be made whereby the county fundsmay he distributed in

p. 1626Ronorable CharlesF. Aycod. - Page 5 (JM-355)

compliancewith the constitutional requirement. See Love v. City of Dallas, 40 S.W.2d 20 (Tex. 1931); see also Attorney General Opinion H-47 (1973). Since sectlone: 6 and 6b of the constitutionare directed to the county commissione:rscourt, we believe that it is incumbent upon the county commissionersas trustees of the fund to formulatea method to determine the scholastic population within a school district. Again, we advise that these commissionersare required to manifest the care, skill, p:cudence, and diligence of ordinary prudent persons engaged in similart#usiness affairs.

SUMMARY

Before distributing the funds to school districts, the ctmrmissioners court, as trusteesof the county school fund, is under a duty to investigate whe,clleror not certain permanent improvements will be made by a school district. In ascertaining this information, the commissioners court 111required to manifest the care, skill, prudence, and diligence of an ordinary prudentman engat:ed in similarbusiness affairs.

Before funds are distributed to any school district in the county, the commissioners court must satisfy itself that the funds will he used within a reasonzble time for either of the constitutionalpurposes.

It is incumbe~nt

upon the county commissioners
as trustees of the fund to formulate a method to determine the scholastic population within a schooldistrict.

Ve 

# 4

JIM MATTOX Attorney General of Texas

TOM GREEN FirstAssistantAttorney General

DAVID R. RICHARDS ExecutiveAssistantAttorney General

ROBERT GRAY SpecialAssistantAttorney General

p. 1627, HonorableCharles F. Aycock - Page 6 (33-355)

RICK GILPIN Chairman, Opinion Committee
Preparedby Tony Guillory AssistantAttorney General

APPROVED: OPINION COMMITTEE

Rick Gilpin, Chairman Colin Carl SusanGarrison Tony Guillory JimMoellinger JenniferRiggs Nancy Sutton SarahWoelk

p. 1628