DAN MORALES

ATTORNEY GENERAL 

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Mate of‘Qexas July 24, 1992

Mr. Lionel R. Meno Commissioner ofEducation Texas Education Agency 1701North 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 isa 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) ofthe Education Code creates the fund, which is “aspecial 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” asfouowsz
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

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See Ekhtc.Code Q32.91(b) (describing howboard shall calculate amount offee); id Q32.71 (providing for certificate and registration fees); see u&o 19T.A.C. 069.128 (describing howboard shall calculate amount offee). The board assessed fees in an amount to bring the balance ofthe fundto S250,OCKI byJanuary 1.1992. Educ, Code 532.91(b). After January 1.1992, the board must collect fees during any year in which the fund balance falls below $200,000. Id Q32.91(c). Significantly, section 32.91(d) states that “[t]hestate 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”)isto attempt to arrange for students ofthe closed school to attend another proprietary school. Id Q32.92(a); see id 032.21 (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 03292(c), (d); seeid P32.39(b) (stating mandated refund policy for unused portion of tuition and fees); id 332.39(d) (stating required refund policy for students who refuse places in other proprietary schools); 19 TAC 069.127(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 ofthe closure. Educ. Code 032.92(b).
You advise that “[c]urrently,the interest earned by the fund iscredited 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 ofthe Texas Education Agency, (footnote wn6nucd) (B) stwhichplaaofbuJincsssuchscourscorco~ofipctrtlctionor study isavailable through classroom instmctiou orbywrread or both,toapcrsonospersoasforthep~oTtrainineorpreppringthc person foraG&l

ofendeavor in abusiness, trade, techi& or Mutrial oceupali~ 04 for avocational or personal improvemen& except as hereinafter excluded.
E&z. Code 03211(l); see G/SO19 TA.C 069.122. See gvlurrll 19 TA.C ch. 69, sub&. E (establishing minimum standards foroperation ofproprietary schools).

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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(seeActs 1987,7OthLeg.,ch. 147.0 6(a); Acts 1989,71st Leg.,ch.4, Q

2.07(b)), codifyingthe textas section 404.071ofthe Government Code. Section 404.071(a) states asfollows: (a) Interest received from investments of money in funds and accounts in the charge ofthe treasurer shall be allocated on a monthly basisasfollows: (1) the pro rata portion of the interest received due to each constitutional fund shallbe credited to that fund; and (2) the remainder of the interest received, except the portion required by other statutes to be cre4lite.don 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 0404.071(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, 220S.W. 26Q,272 (Tu Civ. App.- Aualin 1920,wit rePd);Attorney General OpinionJM-549 (1986) at 1. ConsqucatJy, iatcre& camed ona~~tutionathurdmustbecnditedtothathm4~tbecomstihltiolldircdsothuwise. Attorney General OpinionJM-549at 1. On the other hand, the interest on state funds dcdbtcd by statute legallymay be severed and placed inthe general revenue fund. Id; see GUyIns. cb. v.James, 185s.w.2d -971 (Tex 1945);&aws Riw Gnuewation & Recklmation Dist.v. hfcamv, 91 s.w.2d 665,674 (Tex. 1936). Section404071(a) ofthe Gowmment Code effects such a severance ofinterest on statutory funds as ageneral rule. SeeAttorney General Opinion JM-549at 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 5404.071(a)).

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statutory funds (seeid 0404.071(a)(2)). SeeAttorney 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 ofthe principal and, consequently, part ofthe fund that generated the interest. Attorney General Opinions JM-549 at 2;JM-539 at 4;JM-306 at2.
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 ofinterest 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 ischarged 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 tothe general revenue fund.

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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) ofthe Government Code.

DAN MORALES Attorney General ofTexas 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

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