October 8. 1974 

? he Honorable Jesse James 

5 tate Treasurer 

5 ate of Texas 

Austin, Texas 78701 

Opinion No. H- 415 

Re: Use of bonds of a leased 

housing corporation as security 

for the deposit of state funds. 

Dear Mr. James: 

You have asked our opinion 

as to whether the leased housing revenue bonds that 

are to be 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 of both principal and interest.’ 

The basic requirements for collateral for the deposit of state funds 

are set out in Article 2529, V. T. C. S., which provides in part: 

The Treasurer shall. require each bank so designated 

to qualify as a State Depository on or before the 25th 

day of November next, . . . 

(b) by pledging with the Treasurer any securities 

of the following kinds: bonds and certificates and other 

evidences of indebtedness of the United States, and all 

other bonds which are guaranteed as to both principal 

and interest by the United States; 

An additional means of providing security for deposit of state funds 

is outlined in Article 1269k-1, V. T. C. S., which provides in part: 

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

Notwithstanding any restrictions on investments 

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 

in any bonds or other obligations issued by a housing 

authority pursuant to the Housing Authorities Law 

(Chapter ‘462, Regular Sessioh of the 45th’Legislature, 

as amended by House Bill No. 102, 2nd Called Session of 

the 45th Legislature, and amendments thereto) or issued 

by any public housing authority or agency in the United 

States, when such bonds or .other obligations are secured 

by a pledge of annual contributions to be paid by the United 

States Government or any agency thereof, or secured or 

guaranteed by a pledge of the full faith and credit of the 

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 to finance 

programs under 5 23 of the United States Housing Act of 1937, as amended, 

!42 U. S. C. § 1421b). A leased housing corporation, a non-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 of Victoria, Texas, agrees to lease the 

project and upon completion will in turn lease units to qualified individuals 

and f.amiiies. The federal Department of Housing and Urban Development 

enters into an Annual Contribution Contract !ACC) with the Public Housing 

Authority. The ACC is designed to cover the annual principal and interest 

requirements of the bonds. The public housing authority pledgee its receipts 

under the ACC to meet its lease payments to the leased housing corporation 

and the leased housing corporation uses the money to meet its obligations to 

the bondholders. III other words, the public housing authority uses the leased 

housing corpkation as a conduit for the issuance of bonds and pledges its 

receipts under its ACC with the Department of Housing and Urban Development to the payment of its lease obligations which are designed to meet the 

principal and interest due on the bonds. 

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

A similar question was considered in Attorney General Opinion 

WW-11 (1957). There you asked whether bonds issued by\a public 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 of the obligation is not 

guaranteed by ,the United States Government. Accordingly, 

the bonds are not eligible as collateral for State deposits 

under the provisions of Article 2529, V. C. S., since the 

quoted language, when taken with the other language of 

the Act, evidences a clear intent that the payment of the 

principal and interest must be the obligation guaranteed 

by the Federal Government. (emphasis in original) 

Here, as in the situation considered in Attorney General Opinion 

WW-11, the federal government is guaranteeing only the payment of.a . 

specified sum to the public housing authority and not the ultimate payment 

of the principal and interest to the bondholder. Therefore, it is 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 on to hold that the public 

housing authority bonds did qualify as collateral under the specific provisions of Article 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 a public housing authority has pledged its 

annual contribution contract from the federal government for the payment 

of lease obligations, the issuer of the bonds is the leased housing corporation and therefore outside the scope of Article 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 of Art. 1269k-1 

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

which restricts its application to bonds issued by public 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