             THEAITORNEYGENERAI.
                         OFTEXAS



                   October 10, 1949


Hon. Bascom &iles, Chairman
Veterans' Land Board
General Land Office
Austin, Texas             Opinion No. V-930
                         Re: Investment of Permanent
                             School Fund in bonds is-
                             sued by Veterans' Land
                             Bo&rd and necessity of
                             advertisementfor compe-
Dear Sir:                    titive bidding.
         You have requested an 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 Permanent Public Free School
      Funds of the State in bonds of 'the State of
      Texas.' The Board has been acting on the
      assumption that the bonds will be State bonds
      having in mind the declarationsin the pro-
      vis~ionof the Constitutionand in the Act
      that they are obl&gatlonsof the State of
      Texas. Are ~theproposed bonds eligible for
      investmentas bonds of the State of Texas?
         "2. If the bonds are eligible for such
      investmentand acceptable to the State Board
      of Education can a sale be made to the State
      Board of Education without compliance with
      the requirementsof Sections 6 and 7 of Sen-
      ate Bill 1Bo.29 requiring publicationof
      notice and request for competitivebids?
         "3. In issuing the proposed bonds the
      Board will reserve an option of redemption
      prior to rmturity. The bonds will bear an
      interest rate less than 23s per annum. Will
      the provisions of Article 2675excepting the
      State bonds render inapplicablethe restric-
      tions contained in kticle 2671that bonds
Hon. Bascom Gilea, page 2 (V-930)


      purchased for the Permanent Public Free
      School Fund shall bear interest at 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 section was adopted on November 7, 1946, and
in the enabling act, Senate Bill No. 29, Acts of the
Fifty-firstLegislature. Your first question is manifest-
ly answered by the constitutionalprovision itself. It
is specificallyprovided therein that bonds issued there-
under "shall be executed by said Board as an obligation
of the State of Texas." These bonds would, therefore,be
eligible investmentsunder Article 2669, V.C.S., which
provides that the State Board of Education is authorized
and empowered~toinvest the permanent public 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 competitivebids even though the bonds ulti-
mately may be purchased for the benefit of the Permanent
School Fund. In Sections 6 and 7, it is provided:
         "Sec. 6.  When the Board shall have
    authorized the issuance of a series of said
    bonds and shall have determined to call for
    bids therefor, it shall be the duty of the
    Board to rxlblishat 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 news-
    paper . . .
         "Sec. 7.  None of said bonds shall be
    sold for less than their face value with ac-
    crued interest from date, and all of such
    bonds shall be sold after competitivebiddlnq
    to the highest and best bidder, except in
    those cases where the administratorsof the
    state's funds iven priority exercise, with-
    in fifteen (15ejdays after notice thereof,
    their right of priority to take such bonds
    at the highest nrlce bid bv another . . ."
    (Emphasisadded)
:   .




        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 competitivebidding and
        then to the highest and best bidder except where the
        administratorsof the state's funds exercise their right
        of priority. Such right of priority can be exercised
        only to purchase the bonds "at the highest price bid by
        another." It is obvious that the quoted phrase could
        refer only to a bid submitted after proper notice had
        been given. It is our opinion that the statute contem-
        plates that the Veterans' Land Board issue the bonds on
        the best possible terms regardless of whether they are
        purchasedby administratorsas investmentsfor state's
        funds or whether they are purchased by private invest-
        ors. We have been advised that the Board subsequentto
        the date of your letter of request determined to 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 determinationhas complied both with
        the letter and the spirit of the law.
                 Your third question presents more difficult
        problems. Article 2675 provides in part:
                  "The provisions of the six preceding
             articles shall extend to any bonds or se-
             curities other than the bonds of the State
             or of the United States . . ."
                  Article 2671, which Is one of the "six preced-
        ing articles," outlines the conditions upon which bonds
        may be purchased by the Board of Education. It provides
        in part:
                  ,t. . . No bonds, obligations,or pledges
             shall be so purchased that bear less than two
             and one-half (23%) per cent interest. No
             bonds, obligations,or pledges cxcent those of
             the United States, the State of Texas. and the
             University of Texas, shall be so purchased when
             the indebtednessof the county, city, precinct,
             or district issuing same, inclusive of those
             offered, shall exceed seven (7%) per cent of
             the a:sessed value of the real estate therein
             . . .   (Emphasisadded)

                  It is noted that the exception provision appli-
        es only to the seven (79%) limitation,and that no excep-
        tion Is provided with 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.
          ,BothArticles 2671 and 2675 were originally
enacted as part of Chapter 124, Acts of the Twenty-
ninth Legislature in 1905. They appear as Sections,
4 and 9, respectively. Although Article 2671 has been
amended numerous times since its original enactment,
Article 2675 has not been changed. Moreover, the ex-
ception, "except those of the United States, the State
of Texas, and the University of Texas," in Article 2671
did not appear In the original act and was not added
thereto until the enactment in 1929 of Chapter 278, Acts
of the Forty-firstLegislature. If neither the limita-
tion as to interest rate nor the 7% valuation limitation
applied to bonds of the State of Texas by virtue of the
provisions of Article 2675',then it could be argued that
the reason why the 7s assessed valuation exceptionswas
added to Article 2671 was to make the interestrate
limitationapplicable to all bonds purchased by 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 Constitutionalamendment Itself and the enabling act
make these bonds eligible Investmentsfor the Permanent
School Fund. The Constitutionalamendment provides that
the bonds shall bear Interest at a rate not to exceed
three (3%)per cent per annum. It also provides that in
"the sale of any such bonds, preferentialright of pur-
chase shall be given to the administratorsof the various
teacher retirement funds, the Permanent UniversityFunds,
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~limitationas to
interest rate specified in the Constitutionis the maxi-
nmm tbree (3%)per cent, and that no limitation is placed
on a minimum rate. You will also note that the preferen-
tial right is given to the administratorsof 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 constitutionalor statu-
tory grant. It is our opinion that the preferential
right attaches to any bonds issued under this constltu-
tional or statutory grant at the interest rate specified
in the "highest price bid by another," regardless of the
fact that such rate may be less than 24%. As a practi-
cal consideration,It may be added that during the past
: .   .




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


          several years millions of dollars of bonds have been is-
          sued that bear less than 24% interest. We think that it
          clearly was within the contemplationof the Legislature
          in providing for the submission of Section 49-b of Artl-
          cle III and of the qualified voters in adopting the same
          that the bonds could bear less than 23% interest, and in
          most probabilitieswould. The preferentialright attach-
          es to the sale of any such bonds, and it is our opinion
          that this provision makes them eligible as investments
          for the Permanent School Fund. If there Is any conflict
          between Article 2671 and Section 49-b, then, of course,
          the Constitutionwould govern in this regard.
                                  SUMMARY       ',
                   Bonds issued by the Veterans' Land Board
              under the authority of Section 49-b, Article
              III, Constitutionof Texas, and 'itsenabling
              act (S. B. 29, Acts 51st Leg., 1949) are obli-
              gations of the State of Texas, and are eligible
              investmentsfor the Permanent School Fund even
              though such,bondsmay bear less than 23%.
                   The Veterans* Land Board in the sale of any
              bonds must comply with the requirements of Sec-
              tions 6 and 7 of Senate Bill No. 29 requiring
              publicationof notice of sale and request for
              competitivebids. Such.bonds may be purchased
              by the Board of Sducation for the benefit of
              the Permanent School Fund only after such pub-
              lication and only if the Board of Education
              properly exercises its right of priority to
              purchase the bonds at the highest price bid by
              another.


                                              Very truly yours,




          ATTORNEY GRRERAL                           George W. Sparks
                                                            Assistant
          GWS-s
