October 8. 1974

?he Honorable Jesse James 5tate Treasurer 5ate of Texas Austin, Texas 78701 Opinion No. H- 415 Re: Use ofbonds ofaleased housing corporation as security for the deposit of state funds. Dear Mr. James:

You have asked **our** opinion

as towhether the leased housing revenue bonds that are tobe issued by the Guadalupe Leased Housing Corporation, Victoria, Texas may be accepted, when issued, as collateral for State Funds and if such bonds will be unconditionally guaranteed by the United States Government as to payment ofboth principal and interest.’ The basic requirements for collateral for the deposit of state funds are set outinArticle 2529, V.T. C.S., which provides in part:

The Treasurer shall. require each bank so designated toqualify as a State Depository on or before the 25th day of November next,
. . . (b) by pledging with the Treasurer any securities ofthe following kinds: bonds and certificates and other evidences ofindebtedness ofthe United States, and all other bonds which are guaranteed as toboth principal and interest by the United States; An additional means ofproviding security for deposit of state funds is outlined inArticle 1269k-1, V.T. C.S., which provides inpart:

p. 1936The Honorable Jesse James page 2 (H-415)

Notwithstanding any restrictions oninvestments contained in any laws of this State, the State [and other designated agencies,corporations and persons] may legally invest any sinking funds, moneys or other funds belonging to them **or** within their **control** inany bonds or other obligations issued bya housing authority pursuant tothe Housing Authorities Law (Chapter ‘462, Regular Sessioh ofthe 45th’Legislature, as amended byHouse Bill No. 102, 2nd Called Session of the 45th Legislature, and amendments thereto) or issued byany public housing authority or agency in the United States, when such bonds or .other obligations are secured byapledge ofannual contributions tobe paid **by** the United States Government or any agency thereof, or secured or guaranteed byapledge ofthe full faith and credit ofthe United States Government or any agency thereof, and such bonds and other obligations shall be authorized security

. for all public deposits: The bonds in question are the type commonly issued tofinance programs under 523 ofthe United States Housing Act of 1937, as amended, !42 U.S.C. §1421b). A leased housing corporation, anon-profit body which in this case is the Guadalupe Leased Housing Corporation, is created and contracts to construct a project. A Public Housing Authority, in this case the Housing Authority of the City ofVictoria, Texas, agrees tolease the project and upon completion will in turn lease units toqualified individuals and f.amiiies. The federal Department ofHousing and Urban Development enters into anAnnual Contribution Contract !ACC) with the Public Housing Authority. TheACC is designed tocover the annual principal and interest requirements ofthe bonds. The public housing authority pledgee its receipts under theACC tomeet its lease payments tothe leased housing corporation and the leased housing corporation uses the money tomeet its obligations to the bondholders. IIIother words, the public housing authority uses the leased housing corpkation as a conduit for the issuance ofbonds and pledges its receipts under its ACC with the Department ofHousing and Urban Development to the payment ofits lease obligations which are designed tomeet the principal and interest due on the bonds.

p. 1937The Honorable Jesse James page 3 (H-41 5)

A similar question **was** considered inAttorney General Opinion WW-11 (1957). There you asked whether bonds issued by\apublic housing authority, rather than by a private leased housing corporation as in this case, could serve as collateral for the deposit of state funds. In considering whether the public housing authority bonds qualified as collateral under Article 2529 that opinion stated:

The contract between the Federal Government and the Public Housing Authority may provide that the interest and sinking fund will be used for the purpose of paying the obligation, but this payment ofthe obligation is not guaranteed by ,theUnited States Government. Accordingly, the bonds **are** not eligible as collateral for State deposits under the provisions ofArticle 2529, V. C.S., since the quoted language, when taken with the other language of the Act, evidences a clear intent that the payment ofthe principal and interest must be the obligation guaranteed by the Federal Government. (emphasis in original) Here, as in the situation considered inAttorney General Opinion WW-11, the federal government is guaranteeing only the payment of.a

. specified sum tothe public housing authority and not the ultimate payment ofthe principal and interest to the bondholder. Therefore, itis our opinion that the bonds about which you inquire do not qualify under Article 2529 to **secure** the deposit of state funds.

Attorney General Opinion WW-11 went ontohold that the public housing authority bonds did qualify as collateral under the specific provisions ofArticle 1269k-1, V.T. C.S., notwithstanding the failure to qualify under the more general Article 2529. Article 1269k-1, however, is limited to bonds or other obligations “issued by **any** public housing authority or agency. ” Although apublic housing authority has pledged its annual contribution contract from the federal government for the payment oflease obligations, the issuer of the bonds is the leased housing corporation and therefore outside the scope ofArticle 1269k-1. We recognize that there is little practical difference between this type financing arrangement and the one approved in Attorney General Opinion WW-11 (1957); however, we are not at liberty to ignore the language ofArt. 1269k-1

p. 1938The Honorable Jesse James, page 4 (U-41 5)

which restricts its application to bonds issued bypublic housing authorities. SUMMARY

Bonds issued by the Guadalupe Leased Housing Corporation do not qualify to secure the deposit of state funds. Very truly yours,



# c/ Attorney General of Texas

\ LAk Y !F’

.YO K, First

DAVID M. KENDALL, Chairman Opinion Committee

p. 1939