MARK WHITE Attorney General

Supreme Court Building P.0. Box 12546 Ausfin. TX. 78711. 2548 5121475.2501 Telex 9101674-1367 Telecopier 5121475.0266

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An Equal Opportunityi Affirmative Action Employer 

# TheAttorney General ofTexas

September

Mr. James R.Hine Acting Administrator Texas Employment Commission TEC Building Austin, Texas 78778

DearMr. Hine: 2, 1982

Opinion No. MW-512

Re: Whether Texas Employment may obtain advance to state unemployment trust fund from Federal Unemployment Account

You askwhether the statemay legally obtain an advance from the federal unemployment account to the state unemployment trust fund under section 1201of theSocial SecurityAct, 42U.S.C. §1322, should
an advance be needed to augment the fund. You wish to know whether article III, section 49 of theTexas Constitution orarticle 5221b-16, V.T.C.S., prohibits the state from securing such anadvance.

As you note in your request letter, theprovisions of the Texas Unemployment Compensation Act and the operations of the Texas Employment Commission under itmust be approved by the United States Secretary of Labor pursuant to the Federal Unemployment Tax Act and the Social Security Act. I.R.C. §3304; 42U.S.C. §503. If the state fails topay unemployment benefits under the 'TexasUnemployment Act, it would lose ixhenecessary federal approval. In consequence, the staff would no longer receive federal funding for the administration of the Unemployment Compensation Act and Texas employers would not qualify for ehe federal unemployment tax credit under section 3302 of the Internal Revenue Code.

TheTexas Employment Commission has abroad grant ofauthority to make the expenditures and take the actions necessary to carry out its duty to administer the Unemployment Compensation Act. V.T.C.S. art. 5221b-9. We believe the commission would have implied statutory authority to seek an advance from the federal unemployment account to the stateunemployment trust fundas longasnoother Texas statute or constitutional provision prevented itfromdoing so.

The authority forthegranting ofadvances tothe states from the federal unemployment account intheunemployment trust fundappears in section 1321 of Title 42, United States Code. By amendment of sections 1321and 1322 in 1981, these advances arenow required tobe repaid by the state with interest ac a percentage rate determined

P. 1849Mr. James R.Hine -Page 2 (KIV-512)

according to a formula contained in section 1322, unless they are repaid in full before the close of September 30 of the calendar year inwhich theadvances were made. Section 1322also provides that the interest required tobepaid shallnotbepaidbya state fromamounts in itsunemployment fund. If thestatepays such interest d1~rectlyor indirectly from its unemployment fund, the state's unemployment compensation lawwill notbe certified by theUnited States' Secretary of Labor. However, the statemay repay theadvances inwhole orpart atany timeby requesting a transfer from itsunemployment account to the federal unemployment account of the appropriate amount. In the event the advances are not paid voluntarily within the no-interest time frame, section 3302(c)(2) of the Internal Revenue Code provides for their recovery by a reduction of the tax credits allowed to the taxpayers of the State and theapplication of the additional revenues consequentially obtained by the federal government tothe repayment of such delinquent advances. We have found no provision for an involuntary recoupment ofunpaid interest.

Article 5221b-16, V.T.C.S., provides that benefits shall be deemed tobedue andpayable under theTexas Unemployment Compensation Act only to the extent provided in the act and to the extent that moneys are available therefor to the credit of the Unemployment Compensation Fund, and neither the state nor the commission shall be liable for any amount in excess of such sums. This provision limits the commission's liability for payment of benefits to the moneys "available therefor to the credit of the Unemployment Compensation Fund." The statute does not purport to limit the commjssion's power to seek the advances in question. Article 5221b-16 is directed only to the payment of benefits under the Texas Employment Commission Compensation Act.

Article III, section 49 of the Texas Constitution provides in part that "["lo debt shallbe created by or onbehalf of the [sltate, except to supply casual deficiencies of revenue, repel invasion, suppress insurrection, defend the [sItate in war, or pay existing debt." (Emphasis added). In construing this section of the constitution, the Texas Supreme Court in the case of Charles Scribner's Sonsv.Marrs, 262 S.W. 722 (Tex. 1924), held, among other things, that obligations that run current with revenues arenot debts within the contemplation of the constitution. The holding in this
casewas restated with approval by theTexas Supreme Court in 1966 in the case of City of Big Spring v. Board of Control, 404 S.W.2d 810, 814 (Tex. 1966). In view of these constructions of article III, section 49, it does not, in our "pinion, present any bar to the state's obtaining such advances. Presumably, the commission would expect torepay theprincipal of theadvance with current state funds. If repayment is not made before interest accrues, by federal action such advances will be recouped by a reduction of the tax credits of the state's taxpayers.

P. 1850Mr. James R.Hine -Page 3 (MW-512)

We also believe that the commission may contract topay interest
on theproposed advances, and that the interest could legallybe paid from the Unemployment Compensation Special Administrative Fund established by article 5221b-22a, V.T.C.S. As noted above, the commission has broad authority under article 5221b-9, V.T.C.S., "G administer this Act" and to "make such expenditures... and take such other action as it deems necessary or suitable to that end." (Emphasis added). Article 5221b-22a, V.T.C.S., provides inpart:

There ishereby established as a special fund, separate andapart fromallpublicmoneys or funds of this state, an Unemployment Compensation Special Administration Fund which may be used by theCommission for thepurposes ofpaying costs of theadministration of thisAct including thecosts of reimbursing the Unemployment Compensation Benefit Accounts for unemployment compensation benefits paid to former employees of the State of Texas which are based on service for the state, and the costs of construction and purchase of buildings and land necessary in such administration. The State Treasurer shall be the Treasurer and custodian of the fund. He shall administer such fund in accordance with the directions of the Commission, and the Comptroller shall issue warrants upon it in accordance with the directions of the Commission. All interest and penalties collected under the provisions of this Act and all moneys now on deposit in the Unemployment Compensation Special Administration Fund shall be paid into this fund.... The Commission may, by resolution duly entered in its Minutes, authorize to be charged against said moneys any expenditures which it deems proper in the interest of good administration of this Act, provided the Commission in such resolution finds thatno other funds are available or canproperly be used to finance such expenditures. All moneys which are deposited orpaid into theUnemployment Compensation Special Administration Fund may be expended inaccordance with theprovisions of this Act, upon appropriation by the legislature, and shall not lapse at any time or be transferred to any other fund. (Emphasis added).

See &Xl Attorney General Opinion m-474 (1982) (discussing composition andusa of fund).

P. 1851Mr. James R.Hine -Page 4 (MWW-512)

The Unemployment Compensation Special Administrative Fund, denominated Fund 165, isappropriated by the following language inthe current General Appropriations Act.

Out of the Unemployment Compensation Special Administrative FundNo. 165, tobe:

There is hereby appropriated to the Texas Employment Commission all funds which the COllUXiSSiOn,by resolution duly entered in its Minutes, deems proper in the interest of good administration of the Texas Unemployment Compensation Act, provided thatno other funds are available or can properly be used to finance such expenditures. This estimate is based on the assumption that Congress will enact legislation extending Section 903 of the Social Security Act to authorize the Texas Employment Commission to expend funds outof theFederal Unemployment Trust Fund for the administration of the Unemployment Compensation Law andpublic employment offices.

Acts 1981, 67th Leg., ch. 875, at 3402 (amount of appropriation omitted).

As an examination of these provisions of the Unemployment Compensation Act and theAppropriations Act shows, the commission may contract to pay interest from Fund 165 if the interest is a cost of administering theAct. As ageneral rule, the state isnot liable for interest intheabsence ofa statute orexpress contract providing for the payment thereof. State v. Hale, 146 S.W.Zd 731 (Tex. 1941); Walker v. State, 103S.W.Zd 404 (Tex.Civ.App. -Waco 1937,nowrit). However, prior opinions of this office indicate that a state agency may agree topay interest on thebasis of implied statutory authority.

Attorney General Opinion H-691 (1975) held that the trustee of the Mental Health and Mental Retardation Patient Benefit Fund could place the fund in certificates of deposit and then pledge such certificates as collateral for loans. The opinion considered whether the purpose and effects of the transaction were consistent with the relevant statutes, and did not seek express statutory authority for the loan transaction. Attorney General Opinion H-340 (1974) concluded that the State Bar could finance the construction of the State Bar Center by pledging voluntary contributions and revenues generated by the building. The statutory authority was found in language giving theState Bar "power to contract with relation to its own affairs and necessary tocarry out thepurposes of thisAct." The opinion didnot specifically address the question of interest. However, such a financing arrangement would necessarily involve the payment of

P. 1852. .

Mr. James R.Hine -Page 5 (MW-512)

interest. SeealsoAttorney General Opinion M-656 (1970) (purchase of equipment on installment plan).

Webelieve the commission maymake thepayments in question even though it does not have express statutory authority topay interest. Expenditures incident tomaintaining anadequate flowof funds through the state unemployment trust fund could reasonably be characterized as "costs of the administration of this Act." V.T.C.S. art. 5221b-22a. This office concluded in Attorney General Opinion O-128 (1939) that Fund 165 could be used for payment of legal fees and court costs incurred by the commission in civil suits brought to collect delinquent contributions under the act. The commission may charge against Fund 165 "any expenditures which it deems proper in the interest of good administration of this Act...." This is a broad grant of authority. Under this grant of authority we believe the commission could conclude that the interest payments incident to maintaining thebalance of theunemployment trust fundwould beproper administrative expenditures. Such interest payments mightwell enable the commission to continue tomake benefit payments inanorderly and timely fashion during a period of fiscal adjustment. We cannot say that the proposed expenditure isnot authorized. The commission may agree tomake interest payments that it can reasonably expect to pay from current revenues inthis fund.

It is therefore our opinion that theTexas Employment Commission may legally seek toobtain advances toits trust fund from the federal unemployment account of the Social Security Act pursuant to the procedures found in section 1201 of that act, and, ifnecessary, pay interest thereon from moneys available in the special administrative fund.

SUMMARY

The state may legally obtain advances to its Texas Employment Commission Unemployment Trust Fund from the Federal Unemployment Account of the Social Security Act.

MARK WHITE Attorney General ofTexas

JOUNW. FAINTER, JR. FirstAssistant Attorney General

RICHARD E.GPxAYIII Executive Assistant Attorney General

P. 1853. ,

Mr. JamesR.Him -Page 6 (me512)

Prepared byRobert L.Lattimore Assistant Attorney General

APPROVED: OPINION COMMITTEE

SusanL.Garrison, Chairman Rick Gilpin Patricia Hinojosa Robert L.Lattimore JimMoellinger

P. 1854