### THEAITORNEYGENERAI.

OFTEXAS

October 10, 

### 1949

Hon. Bascom &iles, Chairman Veterans'Land Board General Land Office Austin, Texas OpinionNo. V-930

Re: Investmentof Permanent School Fund in bonds issued by Veterans'Land Bo&rd and necessity of advertisementfor compeDear Sir: titive bidding.

You have requestedan opinion on the following questions,which are quoted from your letter:

"1. It is noted that under Article 2669 the State Botid of Education is authorized to Invest the PermanentPublic Free School Funds of the State in bonds of 'the State of Texas.' The Board has been acting on the assumptionthat the bonds will be State bonds having in mind the declarationsin the provis~ion of the Constitutionand in the Act that they are obl&gatlonsof the State of Texas. Are ~the

proposedbonds eligible for investmentas bonds of the State of Texas?

"2. If the bonds are eligible for such investmentand acceptableto the State Board of Educationcan a sale be made to the State Board of Educationwithout compliancewith the requirementsof Sections

### 6 and 7 of Senate Bill 1Bo.

29 requiringpublicationof notice and request for competitive bids?


### "3.In issuing the proposedbonds the Board will reserve an option of redemption prior to rmturity. The bonds will bear an interestrate less than 23s per annum. Will the provisionsof Article 

### 2675exceptingthe State bonds render inapplicablethe restrictions contained in kticle 

### 2671that bondsHon. Bascom Gilea, page 2 (V-930)

purchasedfor the PermanentPublic Free School Fund shall bear interestat not less than 23% per annum?"

The bonds to which you refer are those provided for In Section 49-b, Article III of the Constitutionof Texas, which sectionwas adopted on November 7, 1946, and in the enablingact, Senate Bill No. 29, Acts of the Fifty-first

Legislature. Your first question is manifestly answeredby the constitutional provision itself. It is specifically

provided therein that bonds issued thereunder "shallbe executedby said Board as an obligation of the State of Texas." These bonds would, therefore, be eligible investments under Article 2669, V.C.S., which provides that the State Board of Education is authorized and empowered~toinvest the permanentpublic free school funds of the State "In bonds of the United States,~the State of Texas

. . ."

However, It is our opinion that compliancemust be had with the requirementsof Sections 6 and 7 of Senate Bill No. 29 with respect to the publicationof notice ,and request for competitive bids even though the bonds ultimately may be purchasedfor the benefit of the Permanent School Fund. In Sections 6 and 7, it is provided:

"Sec. 6. When the Board shall have authorizedthe issuance of a series of said bonds and shall have determinedto call for bids therefor, it shall be the duty of the Board to rxlblish

at least one (1) time not less than twenty (20)days before the date of said sale an appropriatenotice thereof. Such publicationshall be made in a daily newspaper

. . .
"Sec. 7. None of said bonds shall be sold for less than their face value with accrued interest from date, and all of such bonds shall be sold after competitive biddlnq to the highest and best bidder, except in those cases where the administrators of the state's funds iven priority exercise,within fifteen (15

ej days after notice thereof, their right of priorityto take such bonds at the highest nrlce bid bv another

. . ." (Emphasis

added):

.

Hon. Bascom Glles, Page 3 (V-930)

Section 6 makes it the duty of the Board to publish the notice of sale. Section 7 provides that all such bonds shall be sold after competitive bidding and then to the highest and best bidder except where the administrators

of the state's funds exercise their right of priority. Such right of prioritycan be exercised only to purchasethe bonds "at the highest price bid by another." It is obvious that the quoted phrase could refer only to a bid submittedafter proper notice had been given. It is our opinion that the statute contemplates that the Veterans'Land Board issue the bonds on the best possible terms regardlessof whether they are purchasedby administrators as investmentsfor state's funds or whether they are purchasedby private investors. We have been advised that the Board subsequentto the date of your letter of request determinedto publish notice of sale and request for competitivebids and that the same has now been published. It is our opinion that the Board in this determination has compliedboth with the letter and the spirit of the law.

Your third questionpresentsmore difficult problems. Article 2675 provides in part:

"The provisionsof the six preceding articles shall extend to any bonds or securities other than the bonds of the State
or of the United States

. . ."

Article 2671, which Is one of the "six preceding articles,"outlines the conditionsupon which bonds may be purchasedby the Board of Education. It provides in part:
,t

. . . No bonds, obligations, or pledges shall be so purchasedthat bear less than two and one-half (2

3%) per cent interest. No bonds, obligations, or pledges cxcent those of the United States, the State of Texas. and the Universityof Texas, shall be so purchasedwhen the indebtedness

of the county, city, precinct,
or district issuing same, inclusiveof those offered, shall exceed seven (7%) per cent of the a:sessedvalue of the real estate therein

. . . (Emphasis

added)

It is noted that the exceptionprovisionapplies only to the seven (79%) limitation, and that no exception Is providedwith respect to the 23% limitation. The. ‘

..

Hon. Bascom Giles, page 4 (V-930)

clear inference is, therefore,that the 2s limitation would apply to all bonds purchased.

,Both Articles 2671 and 2675 were originally enactedas part of Chapter 124, Acts of the Twentyninth Legislaturein 1905. They appear as Sections, 4 and 9, respectively. AlthoughArticle 2671 has been amended numerous times since its original enactment, Article 2675 has not been changed. Moreover,the exception, "exceptthose of the United States, the State of Texas, and the Universityof Texas," in Article 2671 did not appear In the originalact and was not added theretountil the enactment in 1929 of Chapter 278, Acts of the Forty-firstLegislature. If neither the limitation as to interestrate nor the 7% valuation limitation applied to bonds of the State of Texas by virtue of the provisionsof Article 2675', then it could be argued that the reason why the 7s assessedvaluationexceptions was added to Article 2671 was to make the interestrate limitationapplicableto all bonds purchasedby the Board **of** Education. The 1929 act, being sub,sequent in time of passage to the 1905 act, would govern.

However,we have concluded in any event that the Constitutional amendment Itself and the enablingact make these bonds eligible Investmentsfor the Permanent School Fund. The Constitutional amendmentprovides that the bonds shall bear Interestat a rate not to exceed three 

### (3%)

per cent per annum. It also provides that in "the sale of any such bonds, preferential right of purchase shall be given to the administrators of the various teacherretirementfunds, the PermanentUniversityFunds, and the PermanentFree School Funds." See also Section 

### 5 of Senate Bill No, 29, which contains a similar provision.

You will note that the only~limitation as to interestrate specified in the Constitutionis the maxinmm tbree 

### (3%)

per cent, and that no limitationis placed
on a minimum rate. You will also note that the preferential right is given to the administrators of the named funds In the sale of any such bonds. This preferential right of purchase is granted by the ConstitutionItself, and is independentof any other constitutional or statutory grant. It is our opinion that the preferential right attaches to any bonds issued under this constltutional or statutorygrant at the interestrate specified in the "highestprice bid by another,"regardlessof the fact that such rate may be less than 24%. As a practical consideration, It may be added that during the past: . .

Hon. Bascom GileS, page 5 (V-930)

severalyears millions of dollars of bonds have been issued that bear less than 24% interest. We think that it clearlywas within the contemplationof the Legislature in providingfor the submissionof Section 49-b of Artlcle III and of the qualifiedvoters in adopting the same that the bonds could bear less than 23% interest,and in most probabilities would. The preferential right attaches to the sale of any such bonds, and it is our opinion that this provisionmakes them eligibleas investments for the PermanentSchool Fund. If there Is any conflict betweenArticle 2671 and Section 49-b, then, of course, the Constitution

would govern in this regard.

SUMMARY ',

Bonds issuedby the Veterans'Land Board under the authority of Section 49-b, Article III, Constitutionof Texas, and 'its enabling act (S. B. 29, Acts 51st Leg., 1949) are obligations of the State of Texas, and are eligible investmentsfor the PermanentSchool Fund even though such,bondsmay bear less than 23%.

The Veterans*Land Board in the sale of any bonds must comply with the requirementsof Sections 6 and 7 of Senate Bill No. 29 requiring publicationof notice of sale and request for competitive

bids. Such.

bonds may be purchased by the Board of Sducation for the benefit of the PermanentSchool Fund only after such publicationand only if the Board of Education properly exercisesits right of priority to purchase the bonds at the highest price bid by another.

ATTORNEYGRRERAL

GWS-s Very truly yours,

George W. Sparks Assistant