Court Opinion

ID: 4134199
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:47:13.548182+00
Date Added: 2024-06-11T14:37:40.574032
License: Public Domain

Bon. Jesse James                     Opinion No. &l-468
State Treasurer
Treasury Department                  Re:   Construction of Bouse
State of Texas                             Bill 1217, Acts of the
Austin, Texas 78711                        61st Legislature,
                                           Regular Session, 1969,
                                           Chapter 885, Page 2703
                                           relating to depositing
                                           interest on various
Dear Mr. James:                            funds
          Your request for an opinion reads in part
as follows:
         "Please advise this office by official
    opinion whether depository interest earned by
    this office on the following listed special
    funds should be deposited to the General
    Revenue Fund as directed by the provisions of
    Article 2543d. Texas Revised Civil Statutes.
    The funds in question are as follows:
        FUND NO.      FUND    NAME OR TITLE
          21          Trust Aocount, Federal Aid
                        Highway Act
          26          Unemployment Compensation Adm.
          28          Federal Old Age Assistance
          30          Education Agency Driver Fund
          37          Federal Child Welfare Service
          92          Federal Disaster

                        -   2330 -
Hon. Jesse James,   Page   2 (M-468)

    FUND NO.               FUND NAME OR TITLE
      111                  Federal Disabled Assistance
                             Fund

      117                  Federal Public Welfare Adm.
      118                  Federal Public Library.Service
      127                  Federal Economic Oportunity
                            'Fund

      131                  Federal Blind Assistance

      132                  Federal Childreh Assistance

      134                  Federal Older Americans
      135                  Federal Mental Health &
                             Mental Retardation
      136                  Denton State School Federal
                             Fund
      141                  Federal Adult Blind
      148                  Federal Health, Education 6
                             Welfare
      159                  Federal Medical Assistance Fund
      169                  Federal Educational
      171                  Federal School Lunch
      186                  College Building 1948/1957

      219                  Federal Higher Education Fund

      221                  Federal Civil Defense &
                             Disaster Relief

      222                  Federal Department Public
                             Safety

                           - 2331-
Hon. Jesse James, Page 3 (M-468)

      FUND    NO.     FUND NAME OR TITLE
        223           Land & Water Conservation
        224           Governor's Office Federal Projects
        268           Federal Market   News

        273           Federal Health
        290           Federal Drought Relief Fund
        300           College Building 1958/1967
        389           College Building 1966/1967
        903           Flood Area School 6 Road Fund"
          Section 1 of Article 2543d, Vernon's Civil Statutes
(as enacted by House Bill 1217 Acts of the 61st Legislature,
Regular Session, 1969, Chapter 885, Page 2703) provides<.
              "Interest received on account of time
     deposits of moneys in funds and accounts in
     the charge of the State Treasurer shall be
     allocated as follows: To each constitutional
     fund there shall be credited the pro rata por-
     tion of the interest received due to such
     fund. The remainder of the interest received,
     with the exception of that portion required
     by other statutes to be credited on a pro rata
     basis to protested tax payments, shall be
     credited to the General Revenue Fund. The
     interest     received shall be allocated on a
     monthly basis."
Each of the funds named in your request is money granted
the State by the Federal Government for certain designated
purposes with the exception of Fund Nos. 186 - College
Building 1948/1957, 300 - College Building 1958/1967, and
389 - College Building 1966/1967.
          The three funds mentioned above which do not
consist of Federal moneys (Fund Nos. 186, 300, and 389) are
funds derived from the provisions of Section 17 of Article 7,
Constitution of Texas, providing for a College Building fund.

                        -   2332 -
Hon. Jesse James, Page 4 (M-468)

Therefore, these funds are each constitutional funds within.
the meaning of Section 1 of Article 2543d, and the
interest received on account of time deposits of such funds
is to be credited to such funds.
          Article 2543d as applied to the other funds states
that the interest received on account of time deposits shall
be credited to the General Revenue Fund. Therefore, the
interest on the Federal funds mentioned in your request is to
be credited to the General Revenue Fund unless such action
constitutes diversion of the purpose for which the Federal
grants were made. Each of the Federal funds mentioned in
your request constitutes a special fund granted by the
Federal government to be expended for specific purposes and
are held by the State in trust for the benefit of the procrams
being administered. Riedman v. American Surety of New York
137 Tex. 149, 151 S.W.Zd 570 (1941) Attorney General's
Opinions NOS. V-427 (1947), W-241 i1957), M-71 (1967), M-266
(1958), V-1250 (1951) and C-530 (1965).
          Generally in the event that the corpus of the
testamentary trust produces supplementary income for which
no urovision has been made directinc its distribution or
accinnulationsuch income will be ac&nulated and will.be
distributable as part of the corpus. Stoff1es.v. Stoffles
18 N.J. Super. 300, 86 A.2d 806 (1952); 'oblerv. Moncrief
72 N.J. Super. 48, 178 A.2d 105 (1962). Attorney General's
Opinion No, C-610~ (1966). Thus it was held in Moore vi Sanders
106 S.N.2d 337 (Tex.Civ.App.,no writ, 1937):
         "The general 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 ,isthe duty of the trustee
    to make the trust productive to the cestui
    que trust by investment of it in some proper
    security, and a duty to invest arises by
    necessary implication from direction to pay
    over the interest or income."
          The same rule applies to interest earned by a
deposit of special fund: It was held in Lawson v. Baker,
220 S.W. 260, 272 (Tex.Civ.App. 1920, error ref.):

                       -2333-
Hon. Jesse James, Page 5 (M-468)

         II
          ...Interest. according to all the
    authorities, is an accretion to the principal
    fund earning it, and, unless lawfully separated
    therefrom, becomes a part thereof. We think
    it is clear that the interest earned by deposit
    of special funds is an increment that accrues
    to such special fund, and any attempt of the
    Legislature to make such interest a part of the
    general revenue is futile, m' the face of the
    constitutional provisions creating or dedicating
    these funds to special purposes." (Emphasis added.)
Therefore, in Attorney General's Opinion C-610,
supra, it was stated that income derived from interest
on time deposits or short term investments of restricted
funds becomes a part of the restricted funds and can be
expended only for the purposes for which the restricted
funds may be expended, unless specific provision is made
for distribution of income. In Attorney General's Opinion
C-530 (19651, it was stated:
         "The Legislature, recognizing the trust nature of
    the Federal funds, proceeded to enact House Bill
    No. 12, Acts of the 59th Legislature, Regular Session,
    1965 (the General Appropriations Act for the
    biennium beginning September 1, 1965 and ending
    August 31, 19671, which appropriates the Federal
    funds and stipulates the conditions under
    which such funds may be expended. Reference is
    made to Article V, Section 27 of said General
    Appropriations Act which provides as follows:
         "'Sec. 27. FEDERAL FUNDS APPROPRIATED
    FOR USE. Any funds received by the agencies
    of the State named in this Act from the
    United States Government are hereby appropri-
    ated to such agencies for the purposes for
    &ich the Federal grant, allocation, aid
    or payment was made, subject to the provisions
    of this Act. Within thirty (30) days after
    the receipt of any such Federal grants,
    allocations, aid or payments, the amounts
    thereof and the purposes for which they
    were made shall be reported to the Governor
    and the Legislative Budget Board.' (Under-
    scoring added for emphasis.)

                        -   2334   -
lion.Jesse James, Page 6 (M-468)

          "It appears clearly that the United States
    Government has intended to impose upon the
    states who accept the Federal funds as trans-
    feree  of the funds equitable duties (or con-
    ditions) to deal with same for the benefit
    of the trainees, and the fact that no formal
    or technical language was used, such as
    'trust' or 'trustee', is not controlling. The
    test of whether a trust was created is whether
    the Federal government, as settlor, manifested
    an intention to create the kind of relation-
    ship which to lawyers is known as a trust.
    Scott on Trusts, Vol. 1, Section 24, page 147;
    Bogert, Trusts and Trustees, Vol. 1, Section
    45, pages 293, 294; Restatement, Trusts,
    Vol. 1, Chapter 1, Section 2, page 6.
         "A fundamental requisite of a trust is
    the separation of the legal estate from the
    equitable estate and the beneficial enjoy-
    ment. 54 Am.Jur., Trusts, Section 35, at
    pages 46 and 47; 10 Am.Jur., Charities,
    Section 4, at page 587.
         "We are of the opinion that the Federal
    government, as settlor, intended to create
    a trust which would be for a public purpose.
         "It is recognized generally that the
    state or sovereign, as well as public officers,
    may be a trustee with respect to matters falling
    within its functions. 90 C.J.S. 133, Trusts,
    Sec. 204; 81 C.J.S. 1189, 1191, States, Sec.
    154.
         'In 81 C.J.S. 1146, States, Sec. 132,
    the general rule is recognized that,
         “‘With respect to the handling of public
    funds, the legislature is in a position similar
    to that of a trustee, and the rule of fidu-
    ciary law that a trustee shall not be allowed
    to advantage himself in dealing with trust
    funds is apposite.'

                       -   2335   -
Hon. Jesse James, Page 7 @l-468)

         "The caption of S.B. No. 163 is clear in
    '...authorizing the State Department of
    Public Welfare to accept and expend any Federal
    moneys allocated to the said Department for
    any projects or programs established to carry
    out the purposes of this Act and for adminis-
    trative expenses and/or any other expenses
    incident to the administration of said pro-
    jects or programs...'
          "Section 2 of the Act provides that I...
     such funds shall be subject to withdrawals
     upon authorization of the Commissioner of
     Public Welfare...' Section 3 also repeats
     this provision.
          "Under the statute no implementing state
     funds whatever is required, and the Federal
     funds are trust funds which are being held
     in custody subject to withdrawal only for the
     purposes and administration of the Federal
     statute.
         "We have heretofore recognized and held
    that funds of similar character are to be im-
    pressed with a trust when deposited in a special
    account with the State Treasurer as custodian,
    and so held and expended by state officials.
    See Attorney General Opinions WW-565, WW-600,
    and W-1321, and authorities cited."'
            In Attorney General's opinion WW-122 (19571, it
was held:
         'We pass to a consideration of the proper
    depository for the dividend checks. It is clear that
    the funds which have been and will be received
    from this stock never become 'State funds' in
    the sense that they could be placed in the
    general revenue fund and appropriated by the
    Legislature. The stock dividends are impressed
    with a trust and may be expended only for the
    purposes stated in the deed of gift. Further-
    more, we think it is apparent that it was not

                         -   2336   -
Hon. Jesse James, Page 8 (~-468)

     the intention of the settler that these funds
     be placed within some special fund In the State
     Treasury because the State's title to the stock
     and any revenues therefras would terminate
     should the State fall to comply with the condl-
     tlon of the gift. In such event, any revenues
     then on hand could not revert to the Grantor, her
     heirs or assigns upon giving notice to the State
     Parks Hoard because a legislativeappropriation
     would be necessary to withdraw said revenues
     from the State Treasury,"
          In view of the foregoing,we conclude that We
Federal funds mentioned in your request constitute special
funds held in trust by the state, and that Interest derived
from said funds becomes a part of the trust funds, and can
only be expended for the purposes for which the moneys were
granted, Since none of the moneys were granted for the
general operation of state government but on the contrary
were granted for specific purposes.,you are advised that
depository Interest earned on the special funds should be
deposited to the credit of the special funds rather than
the General Revenue Fund. The purpose for which federal
grants may be expended Is governed by the Acts of Congress,
and the Legislaturecannot authorize such grants to be ex-
pended for purposes not included In the grants,

                       SUMMARY
                       -------
         Depository interest earned on special
    constitutionalfunds or federal trust funds
    created for speclflc purposes should be de-
    posited to the credit of those specific funds
    rather than the General Revenue Fund.

                          -2337-
Hon. Jesse James, Page 9 (M-468)

Prepared by John Reeves
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
George Kelton, Vice Chairman
Bill Craig
Rick Fisher
John Grace
Thomas Sedberry
MEADD F. GRIFFIN
Staff Legal Assistant
HAWTHORNE PHILLIPS
Executive Assistant
XOLA WHITE
First Assistant

                        -   2338-