Court Opinion

ID: 4130916
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:09:53.065837+00
Date Added: 2024-06-11T14:33:26.320621
License: Public Domain

The Attorney General of Texas
 JIM MAl-TOX                                             October   2. 1986
 Attorney General

 Supreme Court Euildin9              Mr. John ‘3. Cargile                       Opinion No.     34-551
 P. 0. BOX 12549
 Austin. TX. 70711. 254S             Chairman
 5121475~2501                        Board of Regents                           Re: Whether Southwest Texas State
 Telex 9101574-1357                  Texas State Univers:Lty System             University may expend appropriated
 Telecopier 5121475aS9               505 Sam Aouston Bui:Lding                  funds on behalf of real property
                                     Austin, Texas 787Dl                        donated   in trust,   and related
 714 Jackso”. suite 700                                                         questions
 Dallas, TX. 75202.4508
 21417424944                         Dear Mr. Cargile:

                                            You ask several questions concerning the Rarold M. Freeman Educa-
  4524 Alberta Ave., Suite 150
, El Paso. TX. 798052793             tional    Foundation which was created         to make use of certain         ranch
  9154533.3494                       property available        to Southwest Texas State University        by the medium
                                     of a testamentary trust.         The property is not devised to the state or
                                     to the university         or to a nonprofit     corporation     that supports   the
  1001 Texas, Suite 700              educational      purposes of the university.        Frost National Bank of San
  H~~slon. TX. 77002-3111
                                     Antonio     is    an “Inactive     Co-Trustee”     and Southwest      Texas State
  713e23.5895
                                     University     is an “3:perating Co-Trustee.”      Subject to the conditions     of
                                     the trust,      the ranch property is to be used and operated solely            for
  806 Broadway. Suite 312            farm,    ranch,     and game management, educational.             and experimental
  Lubbock. TX. 79401.3479            purposes in connec:t:ion with the educational          activities    carried on by
  808/747-5239
                                     Southwest Texas Sta.te University        for the benefit      of its students and
                                     the public.       The trust  did not receive funds with which to operate the
  4309 N. Tenth. Suite S             trust property       except for funds that may be generated by its own
  McAllen, TX. 79501-1995            operation.
  51N92.4547
                                           The trust is e’he real owner of the property.             The trustees have a
  200 Main Plaza. Suite 400          legal title,   coupled with a power that may be exercised             subject to the
  San Antonio, TX. 79205-2797        conditions   of the must.         See Parrish v. Looney, 194 S.W.Zd 419, 423
  5W225419l                          (Tex. Civ. App. -’ 1946, nowrit).               The trust in question        contains
                                     several restrictionq     and conditions.         As Operating Co-Trustee,      South-
                                 .   west Texas State I’niverslty        is directed    to operate the trust property
  An Equal Opportunity/
  Affirmative Action Employer        as a self-supporting        entity    fiscally    separate    from the university.
                                     All income earned by the trust shall be retained for the maintenance,
                                     operation,    and improvement of the trust             property    and expenses of
                                     administering    the trust.     The university      is directed   to pay ad valorem
                                     taxes and insurance       premiums for liability           and fire     and extended
                                     coverage insurance: from the funds of the trust.                 Neither the income
                                     nor corpus of the trust may be used for or distributed                to any indivi-
                                     dual or institution.        including      the trustees.     The trustees     may not
                                     mortgage, encumber , lease,        sell,    or exchange any of the trust’s        real
                                     property.     On the resignation         or removal of the Operating Co-Trustee
                                      for failure    to operate       the trust     for the specified        purposes   and

                                                                        p. 2442
Mr. John S. Cargile      - Page i   (JM-551)

according   to the terms and conditions    of the trust,     the Inactive
Co-Trustee    is directed   tc replace  the Operating    Co-Trustee   with
another qualifying    organimtion  or to transfer    the property of the
trust to the Ema Freeman Foundation or to terminate the trust and
distribute   the proceeda of the sale of its     assets  to former bene-
ficiaries  of the EmmaFreelam Foundation.

        You ask whether Southwest Texas State University may spend state
funds     appropriated   to it to erect     permanent improvements on the
trust’s    real property or ta pay operational     expenses of the trust and
purchase equipment and livl!stock      necessary to operate the trust.    We
assume that your inquiry relates        to authority   granted by the Texas
Constitution,     by the Texas statutes , and by the testamentary trust.

       Part of your inquiry Is whether the expenditure     of appropriated
funds to permanently improve the trust real property or to operate the
trust would violate     the pr~bibitions  of article  III, section 51, and
article    XVI, section     6, J:E the Texas Constitution.    Article  III,
section 51, provides,     in part, that

            [t]he Legislature: shall have no power to make any
            grant or author::z:e the making of any grant of
            public moneys tc’ any individual,    association    of
            individuals,    municipal  or  other    corporations
            whatsoever.   . . ,

Article   XVI, section    6, provides,     in part,   that

            [n]o appropriati~x~ for private or individual      pur-
            poses shall be made, unless authorized      by     this
            Constitution.   . , .

       Both the courts     and this     office    have approved statutes     and
appropriations      that authorize     grants    of public    funds to private
entities   so lonn as~the exaenditure is made for the direct accomulish-
ment of a legitimate      publ:ic purpose.      See Barrington v. Cokinos, 338
S.W.Zd 133, 140 (Tex. 1963).         See alsoState      v. City of Austin, 331
S.W.Zd 737 (Tex. 1960); Davis v. City of Lubbock, 326 S.W.2d 699 (Tex.
 1959) : Attorney General Tz.nions       KW-89 (1979) : E-1260 (1978).     Also,
the &blic     entity must re;:eive adequate consideration        to avoid making
a gift or grant of public funds to a private entity in violation              of
article   III, section 51.      See Attorney General Opinions H-1309 (1978);
H-403 (1974).      When the st:E    seeks to accomplish a public purpose by
granting funds to a private entity,          it must maintain adequate control
over the use of the funds t,o see that the public purpose is achieved.
-See Attorney General Opinions MW-423 (1982); MW-373 (1981).
      No fixed    rule del~leates    exactly   what constitutes    a public
purpose.    Public    educati~z~ is,  however.  an essential    governmental
function.   Bainey v. Malo:~~, 141 S.W.Zd 713 (Tex. Civ. App. - Austin
1940. no writ);     Attorney General Opinion M-1221 (1972).       It is our

                                         p. 2443
Hr. John S. Cargile      - Page 13 (JM- 559

opinion that en entity and .a program that contributes to the promotion
of education  serves a public and governmental purpose.    -See Attorney
General Opinions MU-373 (19,Bl); H-391 (1969).

       Southwest Texas State University           is under the management and
control of the Board of Regents, Texas State University System.                  Educ.
Code OP95.01, 96.41.        The board is responsible        for the general control
and management of the universities            in the system and, among other
things,    may perform such acts,          as in the judgment of c the board,
contribute     to the developsent      of the universities       in the system and
the welfare of ‘their studmts.           Educ. Code 995.21(a).       All approprie-
tions made by the legislamre          for the support and maintenance of the
system universities,        for the purchase of land or buildings             for the
universities,       for  the e::ection     or repair      of buildings,      for    the
purchase of apparatus, libraries , or equipment of any kind, or for any
other improvement of any kind shall be disbursed under the direction
and authority      of the boartl.    Educ. Code 595.28.        The board may accept
donations,     gifts,   grants,   and endowments .for the universities            under
its control     to be held in trust and administered by the board for the
purposes      and under the directions,            limitatious,     and provisions
declared    in writing     in tt.e donation,    gift,    grant, or endowment, not
inconsistent      with the laws of the state or with the objectives                 and
proper management of the universities.                Educ . Code 195.34.       In our
opinion,     the legislature,      in delegating      such duties    to the board,
authorized     the board to determine whether any particular             expenditure
constitutes     a valid publi’: purpose.       The determination      is to be made
initially     by the Board of Begents and, if challenged,           ultimately     by a
court.    -See  Attorney   General   Opinions  MW-373    (1981);  H-1312  (1978).

       It is our opinion that funds appropriated                and allocated   for use
by Southwest Texas State Uuiversity for permanent improvements may be
used, as provided by article           VII. section      17, of the Texas Constitu-
tion and by chapter 62 of the Education Code, on the trust                          reai
property without violating           article    III.   section    51. or article    XVI,
section    6.    The mere fact that improvements are located on land that
is not owned by the stats!, or the fact that the interest                    in land is
subject to reverter or termination,            does not render expenditures,        ipso
facto,    violative     of the constitution.           In Attorney General Opinion
H-403 (1974).       this office     determined that the question of constitu-
tionality     depends on whet,her the expenditure             for a livestock     export
station on leased land was a proper public purpose and in exchange for
adequate public        benefits.      See also Attorney General Opinion H-416
 (1974) (Texas Aeronautics         Commission may make a grant of state funds
for improvements on munic:ipal airfield              on leased land if grant is for
a proper public purpose and an adequate consideration).                     In Attorney
General Opinion H-655 (l!l75),            this office     stated that it was aware
of no constitutional          inhtbitlons     to the construction         of permanent
 improvements by a state university           on land subject to a possibility         of
reverter     and that, as with improvements on leased land, article                 III,
 section 51, and its associated          provisions     would not be violated     if the
 expenditure is for a propc:r public purpose and adequate consideration.

                                    p. 2444
Mr. John S. Cargile     - Page li    (JH-553

See also, Attorney General Opinions E-257 (1974) (Parka and Wildlife
Department could spend state funds to construct               facilities      on land
owned by the federal govermeent vithout violating           article      III, section
51 because expenditure had valid public purpose and adequate public
benefit);  MW-514 (1982) (Texas Tech University Eealth Sciences Center
may construct     medical school, facilities      on land subject       to rights of
reversion   without violating     article    III,   section   51).      Cf. Attorney
General Opinion C-395 (1961i) (prohibition          In article     VIIzection        17
against   use of general revenue fund for permanent improvements by
designated   universities   did not apply to construction            of building     on
state-owned land for museum .that is a separate entity but administered
by a university).

      The authority   of the university     to spend state funds to imp,rove
or operate the trust propsarty is determined not only by the Texas
Constitution   and statutes   bsut also is determined by the terms and
conditions   of the trust.      ‘The trustee   of a testamentary       trust can
exercise   only such auth0rit.y as Is vested in him by the will under
which he acts.    Williams v. --.Smith. 200 S.W.2d 201. 207 (Tex. Civ. App.
- Galveston    1947),~ rev’d.   on other grounds 206 S.W.Zd 208.            As we
previously   mentioned, artic1.e 95.34 of the Education Code authorizes
the Board of Regents to accept donations,          gifts,    grants,  and endow-
ments for the universities       under its control     to be administered      for
the purposes and under the directions,          limitations.      and provisions
declared in writing in the donation, gift.        grant, or endowment.

       The will     that creates    the trust in question      directs.  the uni-
versity,     as the Operating       Co-Trustee,   to manage and operate        the
day-to-day     and long-term operations      of the trust property as a self-
supporting     entity fiscally     separate from the operation       of Southwest
Texas State University.           It appears that the terms of thee will
preclude the university’s        ua,e of its own funds for the improvement or
operation     of the trust property as a laboratory          in support of its
agricultural     and range management educational      programs.     See Attorney
General Opinion MW-425 (19.82) (funds donated to Pan bxcan                    Uni-
versity may be used only fcr purposes authorized by the donor pursuant
to section     112.34 of the E,ducation Code).       However, to carry out the
purposes of a trust,       a cocrt may direct     or permit the trustee to do
acts that are not authorlzt,d or that are forbidden by the terms of the
trust if,     because of circumstances       not known or anticipated       by the
settler,     compliance with t.he terms of the trust            would defeat    or
substantially      impair the accomplishment of the purposes of the trust.
See Property Code 1112.054; Smith v. Drake, 94 S.W.2d 236, 238 (Tex.
civ. App. - Austin 1936, no writ).

        In addition    to the provision    of the will    specifying that the
 trust    and trust property     ‘be operated   as a self-supporting    entity
 fiscally    separate from the university,    the will also provides that the
 university,     as the Operating Co-Trustee,    shall.  from the trust fund,
 discharge all obligations      of the trust, including without limitation,
 property     costs such as ad valorem taxes and insurance premiums for

                                     p. 2445
.   I

        Mr. John S. Cargile    - Page 5     (JM- 5S4

        general liability    and fi::e   and extended coverage   insurance   on the
        improvements.     Hence, it appears that the terms of the trust also
        preclude   the university’s     use of appropriated    funds to purchase
        insurance.    You Inquire,    however, whether the university     may spend
        appropriated   funds to purchase fire and extended coverage insurance as
        required by the will.

               It is the policy      of this state that the state shall carry its
        own insurance on state buildings           and contents and that no insurance
        policies    be purchased on my of the public buildings           of this state or
        their contents.      See Senate Concurrent Resolution          No. 3, Acts 1921,
        37th Leg..      2nd Cx,      at 369.      In view of the legislative         intent
        expressed in that resolution,         this office   in Attorney General Opinion
        M-1257 (1972) determined that Tyler State College could not purchase
        fire    and extended coverage insurance on college            buildings   or their
        contents.      See also Attorney General Opinions C-193 (1963);              O-6246
        (1944).     The state has continued to self-insure         its own property for
        fire and extended coverag,! Insurance and makes special             appropriations
        to repair and replace facjlities         and equipment destroyed or damaged by
        such events as fire,       flood,   windstorm, and hurricane.        For instance,
        chapter 21, appropriates        ,funds to Southwest Texas State University         to
        repair or replace propert)’ damaged or destroyed by a flood on June 20,
        1981.     Acts 1981, 67th LelI,,, 1st C.S., ch. 21, at 239.          See also Acts
        1981. 67th Leg.,      chs. 628,     585, 83 (appropriations       to Pan American
        University    for damage caused by hurricane,         to North Texas State Uni-
        versity    for wind damage, and to Texas Forest Service of Texas A h M
        University System for wine,storm damage); Acts 1979, 66th Leg., ch. 20,
        at 30 (appropriation      to Srm Houston State University for damage caused
        by fire).

              The governing   bodies    of state universities     are creatures     of
        statute and may exercise    only powers delegated to them by the legisla-
        ture.   See Attorney Genera.1 Opinion MW-475 (1982).        The legislature
        has notauthorized    Southwest Texas State University      to purchase fire
        and extended coverage insurance for the university’s      property.    We are
        not aware of a statute    tha,t authorizes the university    to purchase in-
        surance on property belonging to a trust that the university         operates
        in connection with its educ:stional activities.

              You also   inquire  wt.ether article V. section  56, of the 1985
        General Appropriations     Act or any other     state law prevents     the
        university   from spending appropriated    funds to purchase  liability
        insurance covering    tort claims that may arise from its operation     of
        the trust property.

              The Texas Tort Claims Act generally        authorizes  a governmental
        unit to purchase liability       insurance to cover its operations.      The
        provision   in section   9 ol: article  6252-19, V.T.C.S.,  now codified  as
        section   101.027(a)   of the Civil Practice     6 Remedies Code, provides
        that

                                             p. 2446
Hr. John S. Cargile    - Page 6    (J&551)

           [e]ach   governmental unit may purchase insurance
           policies    protect:tng the unit  and the unit’s
           employees against claims under this chapter [Texas
           Tort Claims Act].

Ewever,       the legislature    clxlsistently    has provided that none of the
funds appropriated        in the biennial      General Appropriations   Act may be
expended for the purpose of purchasing policies             of insurance covering
claims arising under the Tex,as Tort Claims Act.              See Acts 1985. 69th
Leg.,     art. V, ch. 980, 5515;; Attorney General Opinion H-900 (1976).
The restriction       in article    V, section     56, of the Appropriations   Act
applies only to claims under the Tort Claims Act and does not apply to
liability      insurance purchas’rd under article      6252-19a. V.T.C.S. Article
6252-19a provides that

           [t]he State Depa::tments or Agencies who own and
           operate motor vehicles,     aircraft and motorboats or
           watercraft    of all. types and sizes shall have the
           authority    to insure their officers    and employees
           from liability     arising  out of the use, operation
           and maintenance        of  such automobiles,    trucks,
           tractors,   power equipment, aircraft   and motorboats
           or watercraft     used or which may be used in the
           operation of such Department or Agency.

       There is a distinction     between appropriations   for claims arising
under the Torts Claims Act and those arising under article              6252-19a
and the common law.       See Attorney General Opinion H-158 (1973).          See
also Attorney General Opfnions M-1257 (1972) (college         may pay premiums
onliability       insurance   on college      owned vehicles     under article
6252-19a);    M-1215 (1972) (Parks and Wildlife       Department may purchase
liability    Insurance under article     6252-19a since prohibition      against
use of appropriated     funds applied only to-insurance     coverage purchased
under Torts Claims Act); t&521 (1969) (Appropriations           Act prohibited
purchase of insurance       cove.ring liability    under Torts Claims Act);
M-559 (1970) (Highway Department may purchase liability            insurance as
provided by article     6252-19a).

      Hovever , article     6252..1.9a permits only the purchase of insurance
to cover liability     incurred by the operation of a state-owned vehicle.
See Attorney General Opin:.on H-559 (1970).                It is our opinion     that
neither article    6252-19a nt’r any other statute authorizes           the expendi-
ture of appropriated        funds to purchase liability          insurance covering
tort claims that may arise from the operation of the trust property.
Since there is no statutoq          authority for the payment of such premiums
by a state      university,     l.i,ability     insurance    to cover   tort  claims
arising from the universit:r”s         operation of the trust property may not
be purchased with appropriated            funds.    -See Attorney General Opinions
H-1318 (1978); D-742 (1975:.

                                     p. 2447
Hr. John S. Cargile    - Page 7     (JM-551,

      You ask whether the trust property is eligible for exemption from
ad valorem property taxes under section   11.11 or any ,other section of
the Tax Code.   We conclude that the trust property in question is not
taxable.

       Article VIII, section 2, of the Texas Constitution      authorizes the
legislature    to exempt from taxation      public property used for public
purposes.     All real and tangible      personal  property that this state
has jurisdiction      to tax is taxable unless exempt by law.        Tax Code
511.01(a).     Effective   January 1, 1984, section    11.11 of the Tax Code
was amended by adding subsection      (e), which provides that

             property that is held or dedicated for the support,
             maintenance, or benefit   of an institution    of higher
             education   as defined by section     61.003(7),   Texas
             Education Code, b,ut is not rented or leased for
             compensation to L. private business enterprise     to be
             used by it for a purpose not related to the perfor-
             mance of the duties and functions      of the state or
             is not rented or leased to provide private         resi-
             dential housing to members of the public other than
             students and employees of the state is not taxable.

As now defined by section    61.003(S) of the Education Code, instead of
section   61.003(7),  an “institution  of higher education”   includes a
public   senior college  or university    such as Southwest Texas State
University.

       It is our opinion     t!rat the property         in question     is held and
dedicated by the terms of the trust for the support and benefit                     of
Southwest Texas State Unive,rsity.         The Texas Supreme Court has stated
that the word “dedicate”       ,:learly  means to appropriate         and set apart
one’s private property to some public use.              Vlscard& v. Pajestka,      576
S.W.2d 16. ia (Tex. 19781,         Virtually     the ‘same definition      appears in
Ford v. Moren. 592 S.W.2d 385, 390 (Tex. Civ. App. - Texarkana 1979,
writ ref’d n.r.e.).      Not cnly is the property belonging to the trust
not rented or leased for compensation to a private business enterprise
to be used for a purpose not related to the performance of the duties
and functions     of the state! or to provide private residential             housing
to members of the public,        ‘but the terms and conditions         of the trust
prohibit    the trustee from renting or leasing any of the trust’s                real
property.     As previously   Ilointed out, the terms of the trust provide
that Southwest Texas State University may use and operate the property
solely   for farm. ranch, and game management, educational,               and experi-
mental purposes in connecl:ion with the educational             activities     of the
university     for the benefj.t of its students or the general public.
Hence, it is our opinion t’vlt section 11.11(e) of the Tax Code exempts
the trust property from ad valorem         taxes.

         You ask about other sections     of the Tax Code that may exempt the
 trust    property  from ad valorem      taxes.   Therefore, we mention that

                                       p. 2448
Mr.   John S. Cargile   - Page 3     W-551)

section  11.16 provides that farm products.    vhich includes   livestock
and poultry,  in the hands of the producer are exempt from taxation.
Also, implements of husbandry used in the production of farm and ranch
products are exempt from ad ,valorem taxation.   Tax Code 111.161.

                                    SUMMARY

                  A state    university     serving     as trustee      of. a
           testamentary    trust    created    to make ranch property
           available   to the university      to use in its educatio*
           programs may speai appropriated           funds for permanent
           improvements and operation           of    the trust      vithout
           violating   the Texs,s Constitution      or statutes,     so long
           as the expenditure is for a proper public purpose and
           an adequate consi(.eratlon.        If the terms of the trust
           prohibit     the us,? of      appropriated       funds by the
           trustee,   a court has the power to direct            or permit
           the trustee to deviate from terms of the trust that
           would defeat or substantially          impair the accompllsh-
           ment of the purpcses of the trust.             The legislature
           has not authorizetl the university         to purchase general
           liability    or fire .and extended coverage insurance on
           property   belonging    to a trust       that the university
           operates    in connection      with its      educational     scti-
           vities,   and insurance for the trust may not be pur-
           chased with appropriated        funds.     The property of the
           trust in question ,is exempt from ad valorw              taxation
           under section 11.:.1.(e) of the Tax Code.

                          .
                                                Attorney    General of Texas

 JACK AIGHTOWER
 First Assistant Attorney      General

 MARYKELLER
 Executive Assistant     Attornay   General

 RICK GILPIN
 Chairman, Opinion Committee

 Prepared by Nancy Sutton
 Assistant Attorney General

                                      p. 2449