Court Opinion

ID: 4134851
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:55:31.975903+00
Date Added: 2024-06-11T14:34:23.276007
License: Public Domain

Honorable C. H. Cavness
State Auditor      '
Sam Houston Building
Austin, Texas   ._
                               Opinion NO. c-610
                               RCt: Expenditure by institutions
                                    of higher learning of income
                                    on short term investments of
Dear Mr. Cavnessr                   certain restricted   funds.
       Your request   for   an opinion   on the above subject   matter
reads as follows,:
             "The Staff of the Coordinating Board,
       Texas College and Upiversity      System, joins
       me in respectfully   'requesting your Opinion
       as to the legality    of using certain funds
       at some of the State's    Institutions    of Righ-
       er Learning for the purpose of supplementing~
       the salaries   of their presidents.      The funds
       about which we are concerned are from sources
       other than State appropriations,       and are com-
       posed of income from various funds the uses
       of which are restricted    to some certain pur-
       poses by their payor sources.       In particular,
       this income is from interest      earned on time
       deposits   or short term investments of restrict-
       ed funds~ over which the payor's Instructions
       are silent as to the disposition       of any such
       earnings.    We are not satisfied     as to whether
       or~not these uridesi&nated earnings on restrict-
       ed funds inherit a restrictive      character which
       would limit their use to the same purposes as
       that of their principals,     and thus prevent
       their use for the supplementing of any line-
       item salary appropriations     that have been au-
       thorized in the Appropriation      Acts.
            "Provisions of Article   No. 2654d, V.C.S.,
       and of parts of the current Ap ropriation   Act
       (H.B. Ho. 12, 59th Legislature P deal with
Hon. C. H. Cavness,     page 2 (C-610)

           institutional    local funds. The-.supplement-
                                                    _
           ing, with such funds, or any salaries     beyona
           amounts fixed in the Legislative    appropria-
           tions of funds in the State Treasury is pro-
           hibited.    but thrrxrm       funds income can
           be so used since they are handled through
           local bank accounts in view of the fact they
           are exempt from being deposited in the State
        ,, Treasury.
                “It is mentioned that in all Instances
          this salary supplementing being done is with
          the approval of the respective  governing boards,
          and that so f~ as we know everything is in
          order in this connection if the use of the earn-
          ings described above la legal.    Your Opinion
          on that puastion will be appreciated   very much.”
        The governing boards of the respective    institutions
named in Article   26346, Vernon’s Civil Statutes,    are authoriz-
ed to select depository   banks and to place certain monies on
deposit with said depoaitory banks,,provided    said depositories
pay interest   on said deposits at a rate to be agreed upon by
said depositories   and the governing.boards.
          Sections 3 and 8a of Article    2634d, Vernon’s     Civil   Stat-
utes,    read as follows,:
                 “Secri:, 3. Separate acaounts  shall be kept
          on the books of the respective’ institutions
          showing the sources of all sums collected,       and
          the purposes for which expended.       All trust
          funds handled by the governing bodies of such
          institutions      shall be deposited in separate ac-
          counts and shall not be commingled with the
          general income frpm student fees or other local
  .’      instity.$ional     Income, and all such trust funds
          shall be secured by separate bonds or securities.’
                “sec. 88. No part of any of these funds
          shall ever be used to inorease any salary beyond
          the sum fixed by the Legislature   in the appropria-
          tions bill,  and this law shall be subordinate and
          subservient  to the biennial appropriation  bills
         ,for the support of the several institutions    here-
          in mentioned.”
          Generally, ‘in the event that the corpus of a testamentary
trust    produces surplus income for which no provision  has been

                               -2959-
Hon. C. B. Cavness,    page 3 (C-610)

made directing     either its distribution       or accumulation,    such
income will be,accuPlulated        and will be distributable     as a
  art of the corpus.      Stoffels    v. Stoffels,     18 NJ. Super. 300
fi6 A.2d 806 1952); Tobler v. Moncrief             ‘72 N.J. Super. 48 176
A.2d 105 (19 f!2).     Thus, it -‘Moore                  v. Sanders, i06
S.U.2d 337 (Te~.Civ.App.,        1937):
              “The gene’ral rule is well settled  that,
        where trust money.cannot be applied either im-
        mediately or within a short time to the purposes
        of the trust, it is the duty of the trustee to
        make the trust productive   to the cestui que
        trust by investment of it in some, proper secur-
        ity, and a duty to invest arises by necessary
        implication  from direction  to pay over the in-
        terest or income.”
        The same rule applies to the &&rest    earned by deposit
of special funds.    It was held in Lawson v. Baker, 220 S.W. 260,
272 (Tt3~.Ci~.App. 1920, error ref.11
               w* c . Interest,   according   to all the au-
        thorities,   is an accretion    to the principal
        fund earning it, and, unless lawfully        separat-
        ed therefrom, becomes a part thereof.         We think
        it is clear that the interest       earned by deposit
        of special funds is an increment that sccrues to
        such special   fund, and any attempt of the Legie-
        lature to make such interest      a part of the,gener-
        al revenue is futile,     in the race of the constitu-
        tional provisions    creating or dedicating     these
        funds to special purposes .‘I
          Therefore,  in the event no provision     has been made di-
 recting distribution      of income, it is our opinion that income
 derived from interest      on time deposits or short term invest-
 ments of restricted     funds becomes a part of the restricted
,funds and can be expended only for the purposes for which the
 restricted   funds &y be expended.       You are accordingly    advised
 that, under the facts submitted in your request,          the salaries
 of presidents    of institutions    of higher learning.cannot     be
 supplemented with funds derived as income from interest           on
 “restricted”    funds named in Article     265&d, Vernon’s Civil Stat-
 utes .

        Income derived from interest    on time de-
        posits or shortterm    investments of re-
        stricted funds becomes a part of the ,-
                           -2960-
                                                         .   .

Hon. C. H, Cavnees,   page 4 (c-610)

        restricted  funds, and can be expended only
        for the purposes for which the restricted
        funds may be expended, unless specific    pro-
        vision is made for distribution   of Income,
        and qy not Ij& expended for the purpose of
        supplementing salaries.

                                Yours   very truly,
                                WACKIOWERCARR
                                Attorney General

                                 <‘~-’ John Reeves
                                       Assistant
JR:&6
APPROVED:
OPINIOR C0l@u1!llm
W. V. oeppert,   Chairman
John Banks
Paul Phy
Roy Sohrason
Phillip C!z+awford
APPROVEDFOR TFE ATTORIVEX
                        QEIVERAL
Bya T. B. Wright

                            -2961-