                        August I%,1959

Hon. Bill Allcorn, Commissioner   Opinion.No. WW-678
General Land Office
Austin 14, Texas                  Re: Authority of Veterans'
                                      Land Board to purchase
                                      and cancel State of
                                      Texas Veterans' Land
Dear Sir:                             Bonds.

       You have requested an opinion as followsr

           "Our Accounting Department advises that the
       Veterans' Land Board Division A Pund cash bal-
       ance is increasing from an accumulation of
       monies received from such sources as Paid in Pull
       Contracts, Bonuses, Gravel and Timber Sales,
       Homesite Purchases, etc., in an amount consider-
       ably above our anticipated receipts from these
       sources. These additional receipts are over and
       above those normal anticipated receipts required
       as bond reserves and to retire the bonds and to
       pay interest as it falls due.

           "Prom time to time, the Veterans' Land Board
       is offered the opportunity to purchase bonds
       sold as Texas Veterans' Land Bonds Series 1949,
       1950, and 1950A. The Veterans' Land Board Divi-
       sion A Fund mentioned above is the Pund in the
       State Treasury in which the proceeds of the sale
       of the above series of Texas Veterans' Land Bonds
       are deposited. Returns from the purchase and re-
       sale of land to veterans and receipts from other
       sources related to this Fund are also deposited
       to the credit of this Division A Fund.

            "The Veterans' Land Board has authorized me
        to present to you the following questions for an
        official opinion:
Hon. fill Allcorn, page #2 (WW-678)


            1. 1s the Veterans' Land Board authorized
            to purchase and cancel Texas Veterans'
            Land Bonds from Series 1949, 1950, and
            1950A in the open market at a price that
            does not exceed par, with funds which are
            now deposited in Texas Veterans' Land
            Fund Division A?

           2. If the answer to question #l is in the
           affirmative, is the Veterans' Land Board
           authorized to purchase and cancel bonds
           from other series and other funds, after
           the specified date in each specific bond
           resolution, after which the Veterans' Land
           Board cannot use any of the funds for the
           purchase of land for resale to Texas veterans,
           but must use all the receipts from any
           sources for the purpose of maintaining re-
           quired bond reserves and payment of interest
           and principal on the outstanding bonds?"

        Pursuant to the provisions of Section 49b of Article III
of the Constitution of Texas as adopted November 7, 1946, and
Senate Bill No. 29, Chapter 318, Acts of the 51st Legislature,
Regular Session, 1949, (Art. 5421m, V.C.S.) the Veterans' Land
Board issued $25,000,000.00 in negotiable bonds for the purpose
of creating a fund known as the Veterans' Land Fund to be used
for purchasing land to be resold subsequently to Texas Veterans
of World War II.

        These bonds were issued and sold in three installments,
as follows:

        (a) State of Texas Veterans' Land Bonds,
            Series 1949, dated October 1, 1949,
            in the amount of $5,000,000.00.

        (b) State of Texas Veterans' Land Bonds,
            Series 1950, dated April 1, 1950,
            in the amount of $10,000,000.00.

        (c) state of Texas Veterans' Land Bonds,
Hon. Bill Allcorn, page #3 (WW-678)


            Series 1950-A, dated August 1, 1950,
            in the amount of $10,000,000.00.

        We have re-examined the transcripts of proceedings
underlying the issuance of these bonds, including the reso-
lutions by the Veterans' Land Board authorizing their is-
suance, and your first question is answered in the affirma-
tive, provided the required "Reserves" are maintained intact
and, in addition, adequate moneys are retained in the proper
division of the Veterans' Land Fund to provide for the prompt
payment of the principal of and interest on each of the out-
standing bonds when due.

        The reserves which must be maintained intact for each
of these three issues, respectively, in accordance with cove-
nants contained in the resolutions are as follows:

            (a) Series 1949, $600,000.00

            (b) Series 1950, $1,200,000.00

            (c) Series 1950-A, $1,200,000.00


        The constitutional provisions, the statute, and the
resolutions of the Board all provide that from and after
November 25, 1954, (8 years after the effective date of the
constitutional provision) no money in the Veterans' Land Fund
can be used except to pay the principal of and interest on the
bonds. The purchase of these bonds prior to their maturity by
the Board at a price not exceeding their face value is conso-
nant with such specified use of the Fund and constitutes nothing
more than the purchase of outstanding bonds with moneys coming
from the applicable interest and sinking fund.

        It is clear that this portion of the Veterans' Land
Fund, after the expiration of the 8-year period, is an interest
and sinking fund. It is a fund specially earmarked for the
extinction of a debt, and the object of every such fund is to
diminish the debt whose existence warranted its foundation.
Clark v. City of Philadelphia, Supreme Court of Pennsylvania,
196 A. 384, 387, 388; 328 Pa. 521. Bank for Savings v. Grace,
7 N.E. 162, 168; 102 N.Y. 313.
Hon. fill Allcorn, page #4 (VW-578)



        At the time these "Division A'*bonds were issued
Section 9 of Article 5421m, V.C.S., provided, in part, as
follows:
            *
             . . . After eight (8) years from the ef-
        fective date of said constitutional amendment,
        all moneys received by the Veterans' Land
        Board under the terms of this Act, or so much
        thereof as may be necessary, shall be set aside
        and used to pay principal and interest on bonds
        then outstanding as they shall mature . . .
        The moneys so set aside . D . may be invested
        by the Board in bonds of the United States, or
        the State of Texas, . . .I*

        The 55th Legislature, Regular Session, 1957, added
Section 2(A) to this statute, which, in part, provides:

        "The duties of the Veterans' Land Board . . .
        shall be . . ~ to formulate such policies,
        rules and regulations as may be necessary,
        not in conflict with the provisions of the
        law, to insure the proper administration of
        the law and to carry out the intent and pur-
        poses thereof."

        This is a broad grant of discretionary power to the
Board to properly administer the program. For example, when
an opportunity is presented to the Board to purchase its own
bonds at a price less than their face value, because the bonds
have an attached interest coupon which is then considered
"low* due to the fluctuations of the bond market, it would
obviously constitute "proper administration" for the Board to
purchase and cancel those bonds, thereby retiring that portion
of the debt prior to maturity and realizing substantial savings
in interest cost and principal as compared with the amounts
which the Board would otherwise remain obligated to pay.

        The Legislature, in using the words "as they shall
mature", was merely declaring that the Board must set aside
such moneys -- *so much thereof as may be necessary" -- in
order that no bond obligation would remain unpaid when due.
.    .




    Hon. Bill Allcorn, page #5 (WW-678)



    Such a default obviously could not occur in the case of a
    bond which had been purchased by the Board and cancelled
    prior to its maturity date.

            We find nothing in the Constitution, the statute or
    in the bond resolutions which either expressly, or by impli-
    cation, limits the authority of the Board to follow such an
    obviously appropriate course of action, provided the Fund
    is not depleted so as to interfere with the prompt payment
    when due of those obligations which remain outstanding.

            It is the duty of the Veterans, Land Board, insofar
    as the inflow of money into the Veterans, Land Fund will
    permit, to assure the availability of sufficient money in the
    Fund so that the principal of and interest on each bond not
    so purchased and cancelled prior to maturity will be promptly
    paid when due. The Board has recognized this obligation.
    For example, in advertising the bonds for sale in a nationally
    circulated financial publication, and inviting bids for pur-
    chase of the bonds, the Board authorized the following state-
    ment:

               -It is anticipated that there will be
           some credit margin between the amount of pay-
           ments which will be received from the land
           notes and the interest and principal payments
           which the State will be required to make on
           the Bonds. . . . The Reserve deposited and
           accumulated in the Fund will be further as-
           surance."

            Section 49-b of Article III of the Constitution of
    Texas was amended in 1951 and again in 1957, authorizing ad-
    ditional bonds in the amounts of $75 millions and $100 mil-
    lions, respectively. Purusant to these amendments bonds have
    been issued by the Board in installments as follows:

            1951 Amendment

            (a) State of Texas Veterans, Land Bonds,
                Series 1951, dated December 1, 1951,
                in the amount of $15,000,000.00.
                                                                .   .




Hon. Bill AllCOrn, page #6 (WW-678)


        (b) State of Texas Veterans, Land Bonds,
            Series 1952, dated october 1, 1952,
            in the amount of $10,000,000.00.

        (c) State of Texas Veterans, Land Bonds,
            Series 1953, dated April 1, 1953,
            in the amount of $10,000,000.00.

        (d) State of Texas Veterans, Land Bonds,
            Series 1953-A, dated September 1,
            1953, in the amount of $15,000,000.00.

        (e) State of Texas Veterans, Land Bonds,
            Series 1954, dated April 1, 1954,
            in the amount of $15,000,000.00.

        (f) State of Texas Veterans, Land Bonds,
            Series 1954-A, dated September 1,
            1954, in the amount of $10,000,000.00.

        1957 Amendment

        (a) State of Texas Veterans, Land Bonds,
            Series 1957, dated December 1, 1957,
            in the amount of $12,500,000.00.

        (b)   State of Texas Veterans, Land Bonds,
              Series 1958, dated April 1, 1958,
              in the amount of $12,500,000.00.

        (c) State of Texas Veterans, Land Bonds,
            Series 1958-A, dated July 1, 1958,
            in the amount of $12,500,000.00.

        Thus, of the authorized total of $200,000,000.00 a
total of $137,500,000.00 of bonds has been issued and sold.

        The $75 millions of bonds authorized by the constitu-
tional amendment of 1951 are serviced by Division B of the
Veterans, Land Fund; the $100 millions of bonds authorized in
1957, $37.5 millions of which have been issued and sold, are
serviced by Division C of the Fund.
Hon. Bill Allcorn, page #7 (WW-678)



        We have also re-examined the transcripts of proceed-
ings pertaining to all the "Division B* issues and "Divisions
C" issues and your second question is affirmatively answered,
provided similar duties and precautions are observed by the
Board as mentioned in the answer to your first question and
the bonds are purchased at a price not exceeding their face'
value, except that funds in Division B of the Fund may not be
used for such purchase of Division B bonds until after Decem-
ber 1, 1959, and the corresponding date for the Division C
bonds is December 1, 1965.


                          SUMMARY

            The Veterans, Land Board may purchase
        and cancel State of Texas Veterans, Land Bonds
        provided certain duties and precautions are
        observed by the Board.



                                Yours very truly,

                                WILL WILSON
                                Attorney General of Texas




HWM-s                                 Assistant

APPROVBD:

OPINION COMWITTEE:
Geo. P. Blackburn, Chairman

c. K. Richards
Linward Shivers
Robert G. Scofield

RBVIBWED FOR THE ATTORNRY GEWERAL
By: Leonard Passmore
