MARK WHITE 

Attorney General 

Supreme Court Building 

P. 0. Box 12546 

Ausfin. TX. 78711. 2548 

5121475.2501 

Telex 9101674-1367 

Telecopier 5121475.0266 

1607 Main St., Suite 1400 

Dallas. TX. 75201-4709 

214,742.8944 

4624 Alberta Ave.. Suite 160 

El Paso, TX. 79905.2793 

9151533-3484 

1220 Dallas Ave., Suite 202 

Houston, TX. 770026966 

7131650-0666 

606 Broadway. Suite 312 

Lubbock. TX. 79401-3479 

6061747-5236 

4309 N. Tenth. Suite 6 

McAtle”. TX. 76501-1665 

512/682-4547 

200 Main Plaza, Suite 400 

San Antonio. TX. 76205-2797 

5121225-4191 

An Equal Opportunityi 

Affirmative Action Employer 

The Attorney General of Texas 

September 

Mr. James R. Hine 

Acting Administrator 

Texas Employment Commission 

TEC Building 

Austin, Texas 78778 

Dear Mr. Hine: 

2, 1982 

Opinion No. MW-512 

Re: Whether Texas Employment 

may obtain advance to state 

unemployment trust fund from 

Federal Unemployment Account 

You ask whether the state may legally obtain an advance from the 

federal unemployment account to the state unemployment trust fund 

under section 1201 of the Social Security Act, 42 U.S.C. §1322, should 

an advance be needed to augment the fund. You wish to know whether 

article III, section 49 of the Texas Constitution or article 5221b-16, 

V.T.C.S., prohibits the state from securing such an advance. 

As you note in your request letter, the provisions of the Texas 

Unemployment Compensation Act and the operations of the Texas 

Employment Commission under it must 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; 42 U.S.C. §503. If the state 

fails to pay unemployment benefits under the 'Texas Unemployment Act, 

it would lose ixhe necessary 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. 

The Texas Employment Commission has a broad grant of authority 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 state unemployment trust fund as long as no other Texas statute or 

constitutional provision prevented it from doing so. 

The authority for the granting of advances to the states from the 

federal unemployment account in the unemployment trust fund appears in 

section 1321 of Title 42, United States Code. By amendment of 

sections 1321 and 1322 in 1981, these advances are now required to be 

repaid by the state with interest ac a percentage rate determined 

P. 1849 
Mr. 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 

in which the advances were made. Section 1322 also provides that the 

interest required to be paid shall not be paid by a state from amounts 

in its unemployment fund. If the state pays such interest d1~rectly or 

indirectly from its unemployment fund, the state's unemployment 

compensation law will not be certified by the United States' Secretary 

of Labor. However, the state may repay the advances in whole or part 

at any time by requesting a transfer from its unemployment 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 the application of the additional revenues 

consequentially obtained by the federal government to the repayment of 

such delinquent advances. We have found no provision for an 

involuntary recoupment of unpaid interest. 

Article 5221b-16, V.T.C.S., provides that benefits shall be 

deemed to be due and payable under the Texas 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 shall be created by or on behalf 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 Sons v. Marrs, 262 S.W. 722 (Tex. 1924), held, among other 

things, that obligations that run current with revenues are not debts 

within the contemplation of the constitution. The holding in this 

case was restated with approval by the Texas 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 to repay the principal of the advance 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. 1850 
Mr. James R. Hine - Page 3 (MW-512) 

We also believe that the commission may contract to pay interest 

on the proposed advances, and that the interest could legally be 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 in part: 

There is hereby established as a special fund, 

separate and apart from all public moneys or funds 

of this state, an Unemployment Compensation 

Special Administration Fund which may be used by 

the Commission for the purposes of paying costs of 

the administration of this Act including the costs 

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 

that no other funds are available or can properly 

be used to finance such expenditures. All moneys 

which are deposited or paid into the Unemployment 

Compensation Special Administration Fund may be 

expended in accordance with the provisions 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 and usa of fund). 

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

The Unemployment Compensation Special Administrative Fund, 

denominated Fund 165, is appropriated by the following language in the 

current General Appropriations Act. 

Out of the Unemployment Compensation Special 

Administrative Fund No. 165, to be: 

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 that no 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 out of the Federal Unemployment Trust 

Fund for the administration of the Unemployment 

Compensation Law and public 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 the Appropriations Act shows, the commission may 

contract to pay interest from Fund 165 if the interest is a cost of 

administering the Act. As a general rule, the state is not liable for 

interest in the absence of a statute or express contract providing for 

the payment thereof. State v. Hale, 146 S.W.Zd 731 (Tex. 1941); 

Walker v. State, 103 S.W.Zd 404 (Tex. Civ. App. - Waco 1937, no writ). 

However, prior opinions of this office indicate that a state agency 

may agree to pay interest on the basis 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 

the State Bar "power to contract with relation to its own affairs and 

necessary to carry out the purposes of this Act." The opinion did not 

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. See also Attorney General Opinion M-656 (1970) (purchase of 

equipment on installment plan). 

We believe the commission may make the payments in question even 

though it does not have express statutory authority to pay interest. 

Expenditures incident to maintaining an adequate flow of 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 the balance of the unemployment trust fund would be proper 

administrative expenditures. Such interest payments might well enable 

the commission to continue to make benefit payments in an orderly and 

timely fashion during a period of fiscal adjustment. We cannot say 

that the proposed expenditure is not authorized. The commission may 

agree to make interest payments that it can reasonably expect to pay 

from current revenues in this fund. 

It is therefore our opinion that the Texas Employment Commission 

may legally seek to obtain advances to its trust fund from the federal 

unemployment account of the Social Security Act pursuant to the 

procedures found in section 1201 of that act, and, if necessary, 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 of Texas 

JOUN W. FAINTER, JR. 

First Assistant Attorney General 

RICHARD E. GPxAY III 

Executive Assistant Attorney General 

P. 1853 
. , 

Mr. James R. Him - Page 6 (me512) 

Prepared by Robert L. Lattimore 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Susan L. Garrison, Chairman 

Rick Gilpin 

Patricia Hinojosa 

Robert L. Lattimore 

Jim Moellinger 

P. 1854