DAN MORALES 

ATTORNEY GENERAL 

@ffice of toe Rttornep @enera 

Mate of ‘Qexas 

July 24, 1992 

Mr. Lionel R. Meno 

Commissioner of Education 

Texas Education Agency 

1701 North Congress Avenue 

Austin, Texas 78701-1494 

Opinion No. DM-143 

Re: Whether the Proprietary School 

Tuition Protection Fund as created by 

Texas Education Code section 32.91 

manifests sufficient characteristics of a 

trust to require interest from the fund to 

be credited to the Tuition Protection 

Fund rather than the General Revenue 

Fund (RQ-309) 

Dear Commissioner Meno: 

You have asked our opinion about the proper disposition of interest 

generated by the Proprietary School Tuition Protection Fund (the “fund”). As a 

threshold matter, your question requires us to determine whether the fund is a trust 

fund within the state’s general revenue fund. We conclude that the fund is not a 

trust fund, and thus that interest on the fund should be credited to the general 

revenue fund. 

Section 32.91(a) of the Education Code creates the fund, which is “a special 

fund in the state treasury.” Under section 32.91(a), the fund is financed with a fee 

the State Board of Education (the “board”) collects from each proprietary school> 

‘The Texas Proprietary School Act, Education Code chapter 32, defines ‘proprietary school” 

as fouowsz 

any business enterprise operated for a profit, or on a nonprofit basis, which 

maintains a place of business within the State of Texas, or solicits busiacss 

within the State of Texas, and which is not specifically exempted by [§ 324 

and; [sic] 

(A) which offers or maintains a course or courses of instruction or study. 

Or 

p. 743 
Mr. Lionel R. Meno - Page 2 (W-143) 

See Ekhtc. Code Q 32.91(b) (describing how board shall calculate amount of fee); id 

Q 32.71 (providing for certificate and registration fees); see u&o 19 T.A.C. 0 69.128 

(describing how board shall calculate amount of fee). The board assessed fees in an 

amount to bring the balance of the fund to S250,OCKI by January 1.1992. Educ, Code 

5 32.91(b). After January 1.1992, the board must collect fees during any year in 

which the fund balance falls below $200,000. Id Q 32.91(c). Significantly, section 

32.91(d) states that “[t]he state treasurer shall invest the fund in the same manner as 

other state funds.” 

Monies from the fund are to be used for various expenditures that accrue 

upon the closing of a proprietary school. When a proprietary school closes, the 

Central Education Agency (the “agency”) is to attempt to arrange for students of the 

closed school to attend another proprietary school. Id Q 32.92(a); see id 0 32.21 

(defining general powers and duties of the Ce.ntral Education Agency). The fund 

assists the agency in placing students of the closed school in two ways. First, the 

agency must use the fund to refund tuition and fees to those students whom the 

agency cannot place in other proprietary scbook, or who refuse available, 

reasonable places in other proprietary schools. Id 0 3292(c), (d); see id P 32.39(b) 

(stating mandated refund policy for unused portion of tuition and fees); id 

3 32.39(d) (stating required refund policy for students who refuse places in other 

proprietary schools); 19 TAC 0 69.127(b)(5) (stating required cancellation and 

refund policy). Second, the agency must use the fund to reimburse proprietary 

schools that accept students from a closed proprietary school pursuant to section 

32.92 for all expenses directly related to completing the training of students who 

attend the school because of the closure. Educ. Code 0 32.92(b). 

You advise that “[c]urrently, the interest earned by the fund is credited to the 

General Revenue Fund in accordance with Section 3.042(a) of Article 4393-1, 

V.T.CS., as a normal statutory account.” On behalf of the Texas Education Agency, 

(footnote wn6nucd) 

(B) stwhichplaaofbuJincsssuchscourscorco~ofipctrtlctionor 

study is available through classroom instmctiou or by wrread or 

both,toapcrsonospersoasforthep~oTtrainineorpreppringthc 

person for a G&l of endeavor in a business, trade, techi& or Mutrial 

oceupali~ 04 for avocational or personal improvemen& except as 

hereinafter excluded. 

E&z. Code 03211(l); see G/SO 19 TA.C 069.122. See gvlurrll 19 TA.C ch. 69, sub&. E 

(establishing minimum standards for operation of proprietary schools). 

p. 744 
Mr. Lionel R. Meno - Page 3 (m-143) 

you contend that the interest on the fund should be credited to the fund, not to the 

general revenue fund. Initially, we note that the legislature has repealed V.T.CS. 

article 4393-1, section 3.042 (see Acts 1987,7Oth Leg., ch. 147.0 6(a); Acts 1989,71st 

Leg., ch. 4, Q 2.07(b)), codifying the text as section 404.071 of the Government Code. 

Section 404.071(a) states as follows: 

(a) Interest received from investments of money in funds 

and accounts in the charge of the treasurer shall be allocated on 

a monthly basis as follows: 

(1) the pro rata portion of the interest received due to 

each constitutional fund shall be credited to that fund; and 

(2) the remainder of the interest received, except the 

portion required by other statutes to be cre4lite.d on a pro 

rata basis to protested payments, shall be credited to the 

general revenue fund. 

Section 404.071(a) distinguishes between two types of funds: those that are 

constitutionally dedicated (see Gov’t Code 0 404.071(a)(1)),2 and those that are 

ThisoollJtihltoMlprovisionhasbewcwstmed to require &at interest on cons&tioaaUy dedicated 

fundsbespcntoalyfortbcpurposcsforwhifht6efuadawcrccrcatcd;a~ofsuchiatenstto 

other purposes would violate the constitution. Luwscm v. Baker, 220 S.W. 26Q, 272 (Tu Civ. App.- 

Aualin 1920, wit rePd); Attorney General Opinion JM-549 (1986) at 1. ConsqucatJy, iatcre& camed 

ona~~tutionathurdmustbecnditedtothathm4~tbecomstihltiolldircdsothuwise. 

Attorney General Opinion JM-549 at 1. On the other hand, the interest on state funds dcdbtcd by 

statute legally may be severed and placed in the general revenue fund. Id; see GUyIns. cb. v. James, 

185 s.w.2d -971 (Tex 1945); &aws Riw Gnuewation & Recklmation Dist. v. hfcamv, 91 s.w.2d 

665,674 (Tex. 1936). Section 404071(a) of the Gowmment Code effects such a severance of interest 

on statutory funds as a general rule. See Attorney General Opinion JM-549 at 2 (disc&&g V.T.C.S. 

article 2543d, immediate predecessor to V.T.C.S. article 4393-1, f 3.042(a), now codifii as Gowmment Code 5 404.071(a)). 

p. 745 
Mr. Lionel R Meno - Page 4 (m-143) 

statutory funds (see id 0 404.071(a)(2)). See Attorney General opinions JM-S49 at 

2, JM-539 at 3-4 (1986). The funds about which you are concerned are statutory 

funds. Ordinarily, therefore, section 404.071(a) would require the interest on such 

funds to be credited to the general revenue fund. See Attorney General Opiions 

JM-549 at 2, JM-539 at 4. However, numerous prior opinions have stated that 

section 404.071(a)‘s predecessors -which are substantially the same as section 

404.071(a) -did not apply to the disposition of interest earned by the deposit of 

trust funds. See, eg., id; JM306 at 2, JM300 at 2 (1985); MW-338 (1981) at 2; 

MW-82 (1979) at 1; H-1040 (1977) at 1-2. With regard to trust funds, the interest 

becomes part of the principal and, consequently, part of the fund that generated the 

interest. Attorney General Opinions JM-549 at 2; JM-539 at 4; JM-306 at 2. 

To be characterized as trust funds, “the funds in question should reflect, 

among other thins (1) that they are administered by a trustee or trusw (2) that 

the funds neither are granted to the state in its sovereign capacity nor cokcted for 

the general operation of state government, and (3) that they are to be spent and 

invested for specific, limited purposes and for the benefit of a specific group of 

individuals.” Attorney General Gpinions JM-549 at 3; JM-539 at 4; JM-300 at 2; see 

also Attorney General opinion JM-632 (1987) at 2 (&scus&g disposition of interest 

on county trust funds). In previous opinions concluding that a trustee or trustees 

administered the funds in question, thereby satisfy@ the first prong of the trust 

fund test, this office has relied on express statutory provisions requirkg 

administration by a trustee, trustees, or any public officer “in trust.” See, eg., 

Attorney General opinions JM-539 at 4; JM306 at l-2; Jhf-300 at 2; MW-82 at 2; 

H-1040 at 2. Compme Attorney General opinions JM-632 at 2; JM-549 at 5. Hem, 

however, we find no provision in the statute expressly providing that the state 

treasurer shah hold these particular funds in trust or act as a trustee. Indeed, 

section 32.91(d) of the Education Code specifies that “[t]he state treasurer shah 

invest the fund in the same manner as other state funds.” Thus, with regard to the 

ftmd, the state treasurer is charged with no duty beyond his or her duty as to other 

state funds. Accordingly, we conclude that the fund is not a trust fund and that 

therefore, it is subject to section 404.071(a) of the Government Code. Interest 

accruing on the fund must be credited to the general revenue fund. 

p. 746 
Mr. Lionel R. Meno - Page 5 (m-143) 

SUMMARY 

The Proprietary School Tuition Protection Fund, created 

pursuant to section 32.91 of the Education Code, is not a trust 

fund. Consequently, interest that accrues on the fund must be 

credited to the general revenue fund pursuant to section 

404.071(a) of the Government Code. 

DAN MORALES 

Attorney General of Texas 

WILL PRYOR 

First Assistant Anomey General 

MARYKELLER 

Deputy Assistant Attorney General 

RENEAHICKS 

Special Assistant Attorney General 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General 

p. 747