Mr. Kenneth Il.Ashworth              Opinion No. JM-710
Commissioner
Coordinating Board                   Re: Whether certain local funds
Texas College and University         may be appropriated for use by the
   system                            Coordinating Board under section
P. 0. Box 12788                      56.039 of the Education Code
Austin, Texas   78711

Dear Mr. Ashworth:

     You ask whether the legislature may appropriate local funds set
aside for Texas Public Educational Grants and redirect their use as
provided in section 56.039 of the Education Code.

     The Sixty-fourth Legislature enacted the Student Financial
Assistance Act of 1975, codified as chapter 56 of the Education Code.
Acts 1975, 64th Leg., ch. 720, 51, at 2323. The purpose of chapter 56
iS


          to establish financial assistance programs to
          enable qualified students to receive a post-
          secondary education.

Educ. Code $56.002.

     Sections 56.031 through 56.039 of the Education Code authorize
and govern the Texas Public Educational Grants Program. Educ. Code
$56.031. Individual grants awarded pursuant to this program are
identified as Texas Public Educational Grants. &    Section 56.033 of
the Education Code requires state institutions of higher education to
set aside a specified portion of each student's tuition to fund Texas
Public Educational Grants. See generally Attorney General Opinion
H-746 (1975). The governing board of each institution of higher
education establishes guidelines for eligibility for          grants,
subject to statutory limitations and to review and approval by the
Coordinating Board, Texas College and University System. Educ. Code
556.034. As well as using funds set aside under this program to make
direct grants to its students, an Institution of higher education may
transfer some or all of these funds to the coordinating board to use
for matching federal or other grant funds for its students. Educ.
Code 956.036. As established in 1975, the Texas Public Educational
Grants Program provided that funds transferred to the coordinating



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Mr. Keoaeth Ii.Ashworth - Page 2      (JM-710)




board would be    used   only   for   students of   the   institution that
collected them:

             The coordinating board may not use funds traus-
          ferred to it pursuant to this subchapter from one
          institution to award grants to students of a
          different institution. Should matching funds be
          unavailable for an institution, all funds trans-
          ferred from that institution to the coordinating
          board shall be returned to that institution.

Educ. Code 556.038; Acts 1975, 64th Leg., ch. 720, at 2323, 2326.

     By 1985, the legislature became aware that some state colleges,
universities, and community colleges were not awarding the full amount
of funds collected each year. Several institutions were carrying over
large amounts of Texas Public Educational Grant Program funds from
year to year instead of applying them to grants. See Letter from
Representative Al Luna to Kenneth Ashworth, hay %,         1985. The
Sixty-ninth Legislature added the following provision to the Texas
Public Educational Grant Program:

            At the end of a fiscal year, if the total
         amount of unencumbered funds that have been set
         aside under this subchapter by an institution of
         higher education, together with the total amount
         of unencumbered funds transferred by that institu-
         tion to the Coordinating Board, Texas College and
         University System, exceeds 150 percent of the
         amount of funds set aside by that institution in
         that fiscal year, the institution shall transfer
         the excess amount to the coordinating board. The
         coordinating board shall use funds transferred
         under this section to award scholarships as
         provided by law to students at institutions other
         than the institution that transferred the funds.

Educ. Code 556.039 (added by Acts      1985, 69th Leg., ch. 708, 113, at
2497, 2502).

     This provision limits the amount of grant funds which an institu-
tion of higher education may carry over from one fiscal year to the
next. It provides that unencumbered funds in excess of 150% of the
amount of funds set aside in a fiscal year will be transferred to the
coordinating board to be used to award scholarships to students of
another college or university. It thereby encourages an institution
of higher education to use the funds it collects to award scholarships
to its qualifying students and ensures that excess funds will be
available for qualifying students of other institutions. You wish to
know whether the legislature has authority to redirect the use of



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Mr. Kenneth H. Ashworth - Page 3   (JM-710)




funds collected by one college or university to students at another
institution.

     You refer to the Texas Public Educational Grant funds as "local
funds." This term has been used to describe institutional receipts in
contrast to funds appropriated from the general revenue fund or other
funds in the treasury. See Attorney General Opinion No. V-1427
(1952).   Local funds are-nonetheless      state funds, subject to
appropriation and control by the legislature. See. e.g., Educ. Code
9651.002, 51.008; Attorney General Opinion Nos. m-575 (1986); V-1427
(1952); V-715 (1948); O-1662 (1940).

     The Texas Public Educational Grant Program was established by
legislative authority and may be changed by legislative authority. No
constitutional provision sets out the requirements of this scholarship
program. See generally Tex. Coast. art. III, PS50a (State Medical
Education Fund for grants, loans or scholarship for medical students),
50(b). 50b-1 (Texas College Student Loan Bonds).          Although as
originally established, the money collected by each institution could
not be used for students of other institutions, nothing required the
collecting institution to make grants to its students. No student
could claim a right or expectancy in having the program continue in
its original form. The legislature's redirection of excess funds in
1985 does not constitute a retroactive law or an impairment of the
obligation of contract in violation of article I, section 16, of the
Texas Constitution.

     Article VIII. section 7, of the Texas Constitution prohibits
the legislature from diverting from its purpose any special fund
established by the constitution. Gulf Insurance Co. v. James, 185
S.W.2d 966 (Tex. 1945). The Texas Public Educational Grant Program is
established by statute and the legislature may change the use of funds
collected thereunder without violating article VIII, section 7. of the
Texas Constitution. Id.; see also Attorney General Opinion Nos. C-250
(1964); V-107 (1947).-

     You have pointed out no reason why section 56.039 of the
Education Code might be invalid, and our research has not brought any
to our attention. Section 56.039 of the Education Code represents a
valid exercise of the power vested in the legislature under article
III. section 1. of the Texas Constitution. The legislature may
redirect the use of funds collected for Texas Public Educational
Grants as it has done in section 56.039 of the Education Code.

     You also ask whether section 56.039 of the Education Code applies
to funds set aside for Texas Public Educational Grants before the fall
semester 1985. This provision became effective on August 26, 1985.
Acts 1985, 69th Leg., ch. 708. 023. at 2497, 2505. It applies to
certain unencumbered funds "set aside under this subchapter" that
remain at the end of a fiscal year. It does not distinguish between




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Mr. Kenneth H. Ashworth - Page 4     (JM-710)




funds set aside before the effective date and those set aside
thereafter. The governing body of an institution of higher education
is thus required to transfer funds set aside before the fall semester,
1985, if they constitute excess funds on the last day of any fiscal
year subject to section 56.039 of the Education Code. The institution
will be allowed to retain unencumbered funds in the amount of 150% of
collections during that fiscal year.

                              SUMMARY

              Section 56.039 of the Education Code validly
         requires state colleges and universities to
         transfer to the Coordinating Board, Texas Colleges
         and Universities, excess funds set aside under the
         Texas Public Educational Grant Program.       ThiS
         section applies to excess funds, whether they were
         set aside before or after the effective date of
         the statute.




                                        Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

JUDGE ZOLLIE STKAKLPX
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General




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