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# TheAttorney General ofTexas

October 5. 1981

MARK WHITE Attorney General

290 Mai”Flu..suit*uo S,”A”lonii.TX.

75205 512J7294191 Mr. E,D.Walker, Chancellor The University of Texas System 601 Colorado Street Austin, Texas 78701

DearMr.Walker: Opinion No. ml-373
Re: Agreement between the University of Texas Law School Foundation andthe University of Texas School of Law

You inquire about the relationship between the University of Texas and the University of Texas Law School Foundation. The University of Texas LawSchool Foundation is a nonprofit corporation vith the purpose of supporting the educational undertaking of the School of Lavof the Universi.ty of Texas. It solicits donations and expends funds to benefit the law school, acting as conduit and coordinator of gifts made by other parties. You state that the foundation and school of law wish to formalize their relationship through aMemorandum of Understanding which youhave submitted to us. The memorandumstates the foundation’s intent to continue to make donations to the university. describes the purposes to be,served by these donations, and states certain conditions under vhich the university will accept them.

You ask whether the university’s compliance vlth its representations under the Memorandum of Understanding would constitute
a gift or grant of public money to a corporation in violation of article III, section 51 of the constitution. which provides in pertinent part:

The Legislature shall have no power to make

anygrant or authorize the makingof anygrant of public moneys to any individual, association of individuals, municipal or other corporations whatsoever.

The Memorandum

of Understanding raises this constitutional question because, in .addition to providing for donations flowing from the foundation to the lawschool, it also states that the lawschool will provide, for example, office space, utilities, and some staff assistance to the foundation.E. D. Walker - Page 2 ow373)

.
We must first, hovever, determine vhether the university has statutory authority to accept the terms of the five sections of the memorandum. Section 6S.31 of the Education Codestates aomerelevant powers of the University of TexasRegents.

(a) The board is authorized anddirected to govern. operate, support, andmaintain each of the component institutions that are nov or may hereafter be included in apart of TheUniversity of Texas System.

.... (c) Theboard hasauthority to promulgate and enforce such other rules and regulations for the operation, control, and management of the university system and the component institutions thereof as the board maydeemeither necessary or desirable....
(e) The board Is specifically authorized. upon terms and conditions acceptable to it, to accept and administer gifts, grants, or donations of any kind, from any source. for use by the system or anyof thecomponent institutions of the system.

Section 65.31(e) of the Education Codegives the regents considerable discretion to accept donations “of anykind” with conditions attached by the donor. Webelieve this broad language authorioes~ the regents to accept gifts of money, other intangibles, real and personal property, andservices. SeeLetter Opinion R-1009 (ToHonorable Frank Smith. Jan. 27, 1948). ?he conditions attached to the grant mustbe acceptable to the regents.

The board has considerable latitude in exercising powers delegated to it by the legislature, subject to review for abuse of discretion. Foley v. Benedict, SS S.W.2d 805 (Tex. 1932); Letter Advisory No. 6 (1973). However, the board is charged vith the governing of the university system, see Education CodeSection 65.11, andthe exercise of its specific powersmust be In furtherance of this duty. A“university system” is the assoclatlon of agencies of higher education under a single governing board. Educ. Code 561.00319. The broad powers granted the regents by section 65.31(a), (c), and (e). &. to support and maintain, to promulgate rules and regulations, and to accept gifts. are to be exercised onbehalf of the component institutions of the system. TheUniversity of Texas at Austin is an

“institution of higher education within The University of Texas System.” Educ. Code $67.02. Thusthe board of regents must exercise its powers of governance for the purpose of higher education as carried out by the component Institutions. Grants accepted for the university at Austin must reasonably relate to its purposes as an

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educational institution. See Attorney General Opinions M-391 (1969); W-334 (1958); WW-S(1957).’

TheMemorandumof Understanding contains a numberof statements
as to the foundation’s goal of serving the educational purposes of the law school and the kind of assistance it has rendered in the past and proposes to render in the future. These statements are found in sections one through three:

1. TheFoundation has engaged in development activities for TheUniversity of Texas School of Law(The LawSchool), has assisted in maintaining alumni reletions onbehalf of TheLawSchool, has participated~ ins the Continuing Legal Education (CLE) program of The Law School, has provided various and substantial support for the development of The LawSchool, its faculty and staff, and has furnished important administrative and other services to The Law School and The University. Thecontinuation of these activities is essential to the maintenance of alawschool of the first class. The University and The Foundation deemit appropriate to, anddohereby, memorialize thenature of the relationship between The Foundation and The University and The Law School, ratify and approve these past activities by The Foundation, and agree mutually for the future regarding the respective roles, rights, and obligations of The University and The Foundation in this relationship.

2. TheFoundation is anonprofit educational corporation chartered in 1952for the purposes of supporting the educational undertaking of The Law School by furthering legal education, legal research, financial assistance to deserving students, and the progress of law, and of soliciting donations for particular objectives to accomplish such purpose, and of cooperating with the ~advancement of the general welfare of The University as a whole. The Statement of Development Policy bytheBoardof Trustees of The Foundation includes the activities of securing, holding in trust.~ andadministering funds for the benefit of TheSchool of Lawof TheUniversity of Texas at Austin.

3. The Foundation agrees that, during the term of this Memorandumof Understanding, The Foundation: (1) will continue to invest and administer the funds presently on hand for the benefit of TheLawSchool; (2) will continue to

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conduct a development program for the benefit of The Lav School and The University to insure procurement and retention of outstanding law faculty members, to enrich the educational environment of The Law School, and by other reasonable meansto enhance the prestige of, and to advance, TheLawSchool, andwill utilize its expertise, resources, and personnel for such purposes; (3) will use reasonable efforts to finance and conduct, or work with law school alumni groups interested in financing and conducting, programs and publications designed to maintain good alumni relations on behalf of The LawSchool; (4) will use on behalf of Ihe Law School, or will lease, loan, or give to The Law School fromtime to time, to theextent~that it is feasible to do so, equipment needed by The Law School or helpful to its operations; (5) will continue to render other assistance to The Law School of the general nature of the assistance that it has rendered in the past, and to render other assistance to TheLawSchool in the future
as maymutually appear desirable; and (6) will continue to recognize The School of Lav of The University of Texas at Austin as the sole beneficiary of its development policy and its educational support.

These provisions restate and elaborate on the foundation’s purpose, as expressed in its charter, which is to support legal education by soliciting and expending donations for that purpose. They express numerousspecific purposes directed at serving the law school’s educational enterprise: the provision of administrative services, financial aid for students, andfunds andservices directed at faculty recruitment. In addition, it has participated in the law school Continuing Legal Education programand has workedwith alumni groups. With the possible exception of the latter endeavor, these activities are closely related to the educational function of the university. See Attorney General Opinions M-391 (1969)(provision of financial aido students); WW-334 (19SB)(Texas Tech television channel may accept conxnercial programs provided directors find reasonable relationship to statutory purposes of college); WW-S (19S7)(Texas Tech mayengage in educational television broadcasting); V-1476 (1952)(salary of university comptroller maybe supplemented with donated funds); O-4167 (1941)(University mayspend funds for purpose of soliciting gifts from potential donors). ct. Attorney General Opinion M-223 (1968)(hospital district mayspend public funds to pay travel costs of employees whorecruit prospective employers). Thelegislature has in fact recognized that universities maycooperate with alumni associations. See V.T.C.S. art. 1396-2.23A(E)(8). It has, hovever. prohibited the= of appropriated funds for the support and maintenance of alumni organizations Of activities. General

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Appropristlons Act, Acts 1979. 66th Leg., ch. 843. art. IV, 117. at 2859. Thus, if the regents of the university believe that the support of alumni organizations will benefit the educstional purposes of the school, they will have to locate a permissible funding source’ The foundation canprovide precisely that.

Section four of the memorandumstates in part the terms and conditions onwhich the university is willing to accept donations from the foundation:

4. The University agrees that, during the

term of this Hemorandumof Understanding, The University: (1) will provide reasonable space in
or near The LawSchool building, as approved by TheUniversity President andTheLavSchool Dean, to TheFoundation for the purpose of carrying out its obligations hereunder and for its general operations on behalf of TheLawSchool* provide the utilities and telephon: “
,‘e% reasonably needed by The Foundation in carrying out its activities under this Memorandumof Understanding; and (3) will permit reasonable use of University equipment andpersonnel asneeded to coordinate the activities of The Foundation with the educational operations of TheLawSchool, and hereby expressly recognizes that the Dean, Associate Deans, and members of The LawSchool faculty mayreasonably assist fromtime to time in development programs as maybe needed or helpful in coordinating those Foundation activities with theoperations of TheLawSchool.

In our opinion, the university has statutory authority to provide the foundation with the items enumerated in section 4 as “terms and conditions’ attached to donations. See Educ. Code 165.31(e). University property is state property, see Walsh v. University of Texas’ 169S.W.2d993 (Tex. Civ. App. - El-so 1942, writ ref ’d), but the regents have power to determine the use of campus buildings. Splawn v. Woodard, 287 S.W. 677 (Tex. Civ. App. - Austin 1926. no writ). CompareV.T.C.S. art. 601b. 54.01 (Purchasing and General Services Commission’s control of public building does not extend to higher education buildings).

Counties have been oermitted to provide a nrivate entity with space in apublic building where convenient or necessary to carry out
a county purpose. See Sullivan v. Andrevs County, 517 S.W. 2d 410 (Tex. Civ. App. - KPaso 1974, writ ref ’d n.r.e.)(county leased clinic to physicians); Dodsonv. Marshall, 118S.W. 2d 621 (Tex. Civ. APP. - Waco 1938, writ dism’d)(space in courthouse leased. to individual for concession stand); Attorney General Opinions MU-200 (1980)(county provided rent free space in courthouse to employees credit union); H-912 (1976)( contract ,with physician to practice in

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county medical clinic). Countfes have only those powers expressly or impliedly granted by the constitution and statutes. Canales v. Laughlin, 214 S.W.2d 451 (Tex. 1948); Anderson **V.** Wood’ 1084 (Tex. 1941). The regents of the University of Texas have far broader powers to operate andmanagecomponent institutions within the system pursuant to regulations they deem necessary and desirable. Educ. Code 565.31(c). In our opinion, the board of regents has statutory authority over the provision of apace to private entitles at least as great as, and in all probability greater thsn. that of the commlasioners court. Theprovision of utilities maybe regarded as incidental to the provision of space in the lav school,in viewof the difficulty of the foundation makingseparate provision for them.

Section 65.31(e) of the Education Codepermits the university to

“accept andadminister” grants. This language implicitly acknowledges that the university vi11 have to devote some of its resources to administering grants it accepts, in particular the services of personnel. Theregents have statutory authority todecide whether or not to accept agrant which involves particular administrative coats for the university.

There is little ornoprecedent for agovernmental body providing telephone services and the use of equipment to a private entity which

uses space provided by the governmental body. See Attorney General Opinion MW-200 (1980) (county may provide media free space in courthouse, but maynot provide free telephone service). tlovever, we believe the regents mayregard the provision of this assistance as incidental to the provision of office space in the lawschool to the foundation. Thefoundation exists to serve the educational purposes of the law school by makingvarious types of donations. Thejoint purposes of the lawschool andfoundation maypossibly be accomplished in a more cost effective way if the board of regents provides the foundation with a telephone and some equipment, rather than requiring it to use foundation resources topay Its telephone bills andbuyits
owncopy machine. Weconclude that the board of regents has authority under section 65.31 of the Education Codewhich permits the lawschool to provide to the foundation in reasonable amount the resources enumerated in section four of thememorandum.

Section five of the agreement states as follows:

5. It is expressly mutually agreed that: (1) staff personnel working for or serving The Foundation maybe paid as University employees, but the salaries and TheUniversity’s portion of retirement benefits for such personnel will be reimbursed to The University by The Foundation, andother usual benefits for such personnel will be provided by The University: however, all such personnel are subject to all of the rules. regulations’ and personnel policies of The University; (2) funds raised by the development

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activities of TheFoundation maybe subject to a reasonable managementor operations charge or fee byTheFoundation, butall such charges or fees in regard to endoved funds shall comefromincome and not from corpus; all funds, whether endowed, restricted, or unrestricted, raised by the development activities of TheFoundation shall be held, invested. managed, and disbursed by The Foundation for the aole benefit of TheLawSchool, subject to any restrictions placed thereon by particular donors.

We understand section five, subsection (1) to provide that foundation employees are permitted tobe ontheuniversity payroll and to be eligible for retirement and other benefits provided by the university to its ownemployees. Thestatutes andappropriations act forbid this arrangement. Theappropriations act provides funds for departmental operating expense and staff benefits. Acts 1979, 66th Leg., ch. 043, art. IV, at 2787. See V.T.C.S. art. 68138. In our opinion, these funds are appropriatedfor university employees, and maynot be specifically allocated for salaries or fringe benefits for the employees of a private corporation which is under contract with the university. See Acts 1979, 66Leg., ch. 843. art. V. II(p), at 2895. Nothing in-e university’s budget request to the sixty-sixth legislature indicates that any of the lav school’s departmental operating expense was to be allocated to foundation employees. State of Texas Request for Legislative Appropriations, Fiscal Years Ending August 31, 1980 and 1981, the University of Texas of Austin, at 74, ~87.

Whereauthorized by law. state agencies mayemploy an independent contractor, but he does not occupy an office or position under the state nor is heanagent of thestate. Attoiney General Opinion V-345 (1947). See also Attorney General Opi.lion H-1304 (1978). In addition, the appropriations act mayauthorize an expenditure for a consultant. Attorney General Opinion S-13 (1953). Hovever. vhere the appropriations act indicates that work is to be done by employees under the direct control of the agency, it may not expend its appropriation to contract for the performance of those services by an independent contractor. Attorney General Opinion S-80 (1953). Inour opinion, employees of the TexasLawSchool Foundation are not entitled to be paid by the university. Nor are they entitled to receive vacation andsick leave benefits which the appropriations act provides state employees. Acts 1979. 66th Leg., ch. 843. art. V, $7(a),(b),(c). at 2901. Employees of the LawSchool Foundation maynot become membersIn the Teacher.Retirement System. Section 3.03(b) of the Education Code provides as follows:

Every employee in anypublic school or other branch or unit of thepublic school system of this

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State is a memberof the retirement system ao a condition of his employment.

“Employee” is defined in part as “any person elnployed to .render service on a full-time, regular salary basis

... by the board of regents of any college or university.” Educ. Code #3.02(s)(3). In Attorney General Opinion O-3399 (1941), it YPSdetermined that public school teachers whowere employed and paid by the federal government and vhose services were controlled by a federal agency could not participate in the teacher retirement system. These persons were not teachers as that term is defined in the retirement statute because they were not employed by any state educational agency but were employeddirectly andexclusively by the federal government. Seealso Attorney General Opinion O-3409 (1941). Since employees of the Law School Foundation are not university employees, they are’ not eligible for retirement benefits under the teacher’s retirement system.

Norare employees of the foundation entitled to participate in the group insurance plan which the university provides its employees. Article 3.50-3 of the Insurance Code, the Texas State College and University Employees Uniform Insurance Benefits Act, provides group coverage for all employees of Texas state colleges anduniversities.

“Employee” is defined as any person employedbyagoverning board of a state university, senior or community/junior college, or any other agency of higher education. Ins. Code art. 3.50-3. 13(a)(4)(A). Employees of the Texas Law School Foundation do not fit this definition and consequently are not eligible for insurance benefits

‘under article 3.50-3 of the Insurance Code. See also V.T.C.S. art. 5221b-6(b) (2)(unemployment compeqsation for state employees); art. 6252-19 (Tort Claims Act makes state liable for torts of persons in paid service of state); art. 83098 (workmen’s compensation for state employees).
Raving examined the memorandumfrom the perspective of the university’s statutory authority to agree to it, w turn to your question: whether the university would violate article III. section 51 by complying with its representations under the memorandum. Article III, section 51 of the constitution provides in pertinent part:

TheLegislature shall have nopower to make

anygrant or authorize the makingof anygrant of public moneys to any individual, association of individuals, municipal or other corporations whatsoever

This provision prevents the legislature fromgiving awaypublic funds
or enacting a.statute which authorizes a state agency or political subdivision to do so. See Texas Pharmaceutical Ass’n v; DooleF. 90 S.W. 2d 328 (Tex. Civ.App. - Austin 1936, no wit). Thus, the legislature maynot authorize the University of Texas to grant public funds toanindividual or corporation.

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Although article III, section 51 on its face prohibits only grants of money, it hasbeen liberslly construed toprohibit the grant of state property and contract rights as well as money. Rhoads Drilling ~Co. v. Allred. 70 S.W. 26 576. 582 (Tex. 1934)(dicta); Attorney General Opinions WW-790(1960); I&153 (1957).

Wenote that provisions one through three of the memorandumdo not raise the constitutional issue which concerns you. These provisions describe the foundation’s donative purposes, and do not refer to benefits flowing from the university to the foundation. Section five does not raise,the article III, section 51 issue, because various statutes prevent the university from providing foundation employees with thedescribed benefits.

Section four of the memorandum does, however, raise the constitutional issue. It states that the university will provide the foundation with office space, telephone service, utilities, assistance from university staff and the use of university equipment. Wehave determined that the regents have statutory authority to provide this assistance to the foundation; wemust next consider whether statutes granting such authority are constitutional as applied to the situation you present.

Article III, section 51of the constitution requires that agrant by the university to the foundation must serve a public purpose, appropriate to the function of a university, and that adequate consideration must flow to the public. Attorney General Opinions hW-89 (1979); H-1260 (1978); H-520 (1975); H-403 (1974). In addition, the university must,maintain some controls over the foundation’s activities, to ensure that the public purpose is actually achieved. Attorney General Opinions MW-89(1979); H-1309 (1978); H-912 (1976). If these conditions are met, the grant by the public entity is not unconstitutional.

As madeclear by sections one through three of the memorandum, and by its charter, the foundation exists to serve the educational function of the law school. Public education is an essential governmental functiog. Rainey v. Malone, 141 S.W. 2d 713 (Tex. Civ. APP. - Austin 1940, no writ). The assistance provided by the foundation to the university helps it accomplish a public purpose entrusted to it.

Thefoundation’s charter requires it to devote Its resources to benefitting the law school; therefore, the law school would still receive donations from the foundation even if it did not provide office space andother in klnd,assistance. SeeBoydv. Frost National

- Bank, 196S.W.2d497 (Tex. 1946).
Nonetheless, a public purpose maybe served by providing the foundation with rent-free space In the lawschool. This determination is to be made by the university in the first instance. and if challenged, ultimately by a court. Attorney General Opinion H-403

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. . (1974); see also Dodsonv. Harshall, z, at 624. Although welack sufficient information to state with certainty howthe foundation’s presence in the law school serves the public purpose of higher education, wecan at least raise some poasibilitles for consideration by the regents.

For example, if lawstudents andfaculty membershave easy access to the foundation office, they maylearn about andbenefit from the scholarship andresearch grants it offers. Thefoundation’s presence in the law school mayhelp achieve full and efficient use of its

resources by prospective recipients. It will also serve the convenience of persons in the law school who can contact the foundation vith aminimal expenditure of time. SeeAttorney General

- Opinion MS-200(1980).

Lawschool administrators workwith the foundation to coordinate foundation activities with those of the lav school. Their convenience will be served if the foundation is easily available for consultations. If the foundation also provides administrative services, these canbeutilized easiest onthe lawschool premises.

Another factor to consider is whether the provision of office space and other assistance to the foundation enhances the cost effectiveness of operating the foundation. Theregents might consider the value of the office space, telephone, utilities, equipment, and staff assistance the lawschool will provide as compared to equivalent items purchased on the market. Rental paid for an office would probably include a landlord’s profit. Since the foundation’s
resources are to be used to benefit the university, savings on overhead costs should go to the lawschool. Providing the foundation with an office might free some resources worth morethan the office from use for overhead so they could be devoted to law school education.

In addition to serving apublic purpose, the provision of office space and related assistance to the foundation must be subject to controls, contractual or otherwise. to insure that the public purpose is met. TheMemorandum of Understanding is not acontract, since the representations madeby the foundation either relate to Its past activities or express generalized intentions as to future help. The promises appear too vague to be enforceable as a contract, and the foundation’s compliance with its legal duties under the charter does not constitute~consideration. See Teaguev. Edwards, 315 S.W. 2d950
- (Tex. 1958).

llovever

, other controls exist to assure that the provision of university office space and other benefits to the foundation serves and will continue to serve a public purpose, whether it is the convenience of the law school or increasing the value of the foundation’s contributions to public education. Theboard of regents has sufficient rule-making power to establish controls over this transaction. SeeEduc. Code 565.31. In particular, it has authority

-

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to control the use of university property. Splawnv. Woodard. w. Thememorandumrecognizes this in noting that the university president and law school dean will control the allocation of space to the foundation subject to a test of reasonableness. Other office-related assistance going to the foundation is provided subject to a test of reasonableness. Memorandum,section 4. Lawschool administrators can
see that the office space andother items provided actually serve the lawschool’s purposes.
With respect to gifts for professorships and scholarships, section 65.36 of the Education Code provides detailed controls as to conditions which maybe attached to these donations. Moreover, the convenient location of the foundation may enable law school administrators to shape foundation activities to some extent toward fulfilling the current needs of the law school. If the foundation’s presence on university property ceases to serve apublic purpose, it maybe removedat anytime’ since it has nolease. Theuniversity has control of its premises andmayrequire the foundation to vacate the office it uses. Cf. Morris v. Novotny’ 323 S.W. 2d 301 (Tex. Civ. APP

. - Austin 195x writ ref. n.r.e.), cert. denied, 361 U.S. 889 (1959).

Additional controls over the allocation of university space to the foundation are found outside of the university. Thestate auditor is required to audit the use of public funds by the university and report to the Legislative Audit Committee. V.T.C.S. art. 4413a-13(l),(2). Thus, university expenditures on behalf of the foundation will be subject to examination by the auditor and legislature.

In addition, the OpenRecords Act defines ‘governmental body’ **to** include the portion of every corporation “which is supported invhole

or in part bypublic funds....” V.T.C.S. art. 6252-17a. 52(F). Since the foundation receives support from the university that is financed by public funds’ its records relating to the activities supported by public funds will be subjec,t to public scrutiny. See OpenRecords

- Decision No. 228 (1979).
Despite the absence of contractual controls designed to ensure that the presence of the foundation in the law school will serve a public purpose, webelieve the regents can exercise sufficient control
over this transaction pursuant to statutory authority. Furthermore, additional limitations onthe foundation derive fromother statutes as discussed above. Consequently, the university maycomply with its representation under section four of the memorandum.

SUMMARY

TheUniversity. of Texas mayprovide the Law School Foundation with office space and other

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assistance where apublic purpose will thereby be served, The regents have authority to decide in the first instance whether a public purpose is served. Sufficient statutory controls exist to
ensure that the public Purpose will be achieved. Thus, the university mayprovide the foundation with the stated benefits vithout violating article III, section 51of the constitution.

The university lacks authority to place foundation ,employees on its payroll andgive them fringe benefits reserved for state employees.

**HARK** WHITE Attorney General of Texas

JOHNW. FAINTER, JR. First Assistant Attorney General

RICHARDE. GRAYIII Executive Assistant Attorney General
Prepared bySusanGarrison Assistant Attorney General

APPROVED: OPINIONCOMHITTEE

SusanL. Garrison. Chairman JonBible JimNoellinger

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