r      -




                       THE.ATTOFWEY              GENERAL
                                   OF-TEXAS
    Gerald C. Mann                AUSTIN~I.'~'EZAR




           Hon. 0. E. Gerron       Opinion NO. o-2231
           County Attorney         Re: The authority of an independent
           Ector County
                   -               school district - to borrow
                                                          _-      money
                                                                   ~~   for the
           Odessa, Texas           erection of a football      stadium beyond
                                   the current available     funds of the dis-
           Dear Sirr               trict.
                     Your request for opinion of April 15, 1940, has been
           received and carefully  considered by this department. We quote
           from your letter  of request as follows:
                      "1 wish an opinion as to the legality    of the following
                loan made by theFirst National Bank, Odessa, Texas, to the
                Ector County Independent School District    for the expansion
                of their football  stadium and field:
                                      "STATEMENT
                                               OF FACTS
                       "A warrant signed by the president and secretary of the
                Board of Trustees of the Ector County Independent School
                District   and countersigned  by the Superintendent of the
                school to the amount of eighteen thousand dollars       ($18,000)
                made payable to the First National Bank of Odessa and se-
                cured by current taxes to the amount of two hundred and
                sixty four thousand dollars($264,000)      delinquent taxes to
                the amount of twelve thousand dollars       ($12,000) and one
                half of the net gate receipts     of all the ball games played
                by the Odessa High School football      team during the duration
                of the loan.     The agreement between the bank officials     and
                the school officials    was as follows:
                      'It That the First National Bank would make the loan
                of eighteen thousand dollars      ($18,000) in the above men-
                tioned warrant and that although the loan was secured by
                current and delinquent taxes, the bank was to permit the
                loan to be repaid out of net gate receipts,        the amount
                yearly to vary according to gate receipts       for the duration
                of the loan not to exceed three years.        The entire loan,
                principal   and interest was made for the school fiscal       year
                beginning September 1, 1939 to August 31, 1940, at which
                time two thousand dollars      ($200.00) of the principal    will
                have been paid and interest      in full will have been paid.
                On September 1, 1940, a new warrant will be issued to the
                First National Bank of Odessa by the Ector County Independ-
                ent School District     securing the principal    of sixteen
                                                                           .




Hon. 0. E. Gerron,     page 2   (O-2231)


     thousand dollars    ($16,000) with current taxes for the year
     1940-41, delinquent taxes and one ~half of the net gate re-
     ceipts of that year and so’on until said loan is paid, prin-
     ci~pal and interest    in full.    The bank is permitting the
     school district   to pay the loan from gate receipts      although
     it is secured by their school taxes.        However, the Board
     of Trustees has agreed to pay the loan from taxes should
     the gate receipts    fail.     The loan was made September 9,
     193YJ"
          Article - 2827,
                     --   Vernon’s    Annotated Texas Civil    Statutes,
reads in part as hollows:
              “The public free school funds shall   not be expended
     except     for the following purposes:
           110 * * 0

           “Local school funds from district    taxes, tuition fees
     of pupils not entitled  to free tuition    and other local
     sources may be used for the purpose enumerated for State
     and county funds and for purchasing appliances and supplies,
     for the payment of insurance premiums, janitors      and other
     employees, for buying school sites,     buying, building and re-
     pairing and renting school houses, and for other purposes
     necessary in the conduct of the public schools to be deter-
     mined by the Board of Trustees,   0 . . ..I*
            Article 2749, Vernon’s     Annotated Texas Civil   Statutes,
contains   the following language.
          II. . ..provided.    that the trustees,  in making contracts
     with teachers,      shall not create a deficiency   debt against
     the district *I1
          The Supreme Court of Texas in the case of Collier    vs.
Peacock, 54 SW 1O279 held that a Board of Trustees is not author-
ized to execute a teacher’s   contract which would cause a defici-
ency debt against the school fund of a district   for any particu-
lar year.   The same doctrine has been extended and applied not
only to teachers’ contracts but to other obligations,   such as
the purchase of supplies,   equipment, and permanent improvements
to the school property.
           In the case of Templeman CommonSchool District   V. R.C.
Head Company, 101 SW 2d 352, two warrants were issued in payment
for septic toilets,   said warrants being dated February 22, 1933,
due February 22, 1934, and ~April 1, 1934.   These were renewal
warrants and there was no showing that the district   had any
available  funds on hand for the year for which the purchase was
Hon. 0. E. Gerron,   page 3   (O-2231)


made. The court in holding     that recovery    could not be had &
said warrants stated:
            ‘%lhile the loan refused in said statute (2749) refers
     specifically     to a deficiency  created in the employment of
     teachers,     it has been held that it applies with equal force
     to debts incurred in the purchase of equipment.       In this
     connection,     the Court of Civil Appeals in Stevenson vs.
     Union Feeding Company, 62 SW 128, 129, in referring      to the
     holding of the Supreme Court in the case of Collier      vs.
     Peacock, supra, said:
             “‘It is held that a warrant for teacher’s       salary in ex-
     cess of the sum apportioned to the district         for the year
    ‘can not be made a charge upon the funds of a subsequent
     year.      gPticle 3959 (now Article 2749) was construed as a
      limitation     upon the powers of the trustee to contract any
      debt which would cause a deficiency      in the school fund of
     the district.        While the article applies alone to contracts
      for teachers salaries,      we think the construction    based upon
      it by the Supreme Court applies with equal force to the
      articles    controlling   the purchase of school furniture.‘”
           This same doctrine has been applied to independent
school districts.     Trustees of Crosby Independent School District
VS~ Mest Disinfectant    Company, 121 SW 2nd 661; First National
Bank vs. Murcheson Independent School District,     114 SW 2nd 382*
In the last cited case, the suit was upon warrant accruing one,
two and three years after date, bearing six per cent interest,
payable out of the local maintenance fund for furniture     or money
advanced to purchase furniture.     The court stated:
          Vor were there, for the particular  years over and
     above the amounts necessary to conduct the school any avail-
     able fund out of these these debts could be paid.”
           We quote from the case of Harlingen Independent School
District  vs. B. H, Page & Bros., (Comm. of App. 1932) 48 SW 2d
983, as follows:
           “From the above it is evident that the powers of the
     school board to expend the funds of the district    are at
     all times limited to an available   fund, and to the particu-
     lar thing prescribed  by the statute,    The board never has
     any authority .to expend funds that are not available.*
           Opinion No. O-1387 of this department holds that an
independent school district    may use any surplus fund in its lo-
cal maintenance fund for the purpose of erecting    a school build-
ing,  and may issue its  evidence  of indebtedness in contemplation
of current revenue; but whatever the form of said evidence of
Hon. 0. E. Gerron,      page 4    (O-2231)


indebtedness the board of trustees     is not authorized to create
a deficiency    debt against said fund for future years, and that
the person advancing such money must look solely to the surplus
funds accumulated for the year said obligation
                                             .. . . was^ created and
not to the revenue of subsequent years, tne time sor payment
not bein     controlling.   We enclose herewith a copy of opinion
No, O-13 %7 of this department.
              Article 2802e-1,    Vernon’s   Annotated Texas Civil      Stat-
utes,    reads as followsl
               “Sect ion 1.   All independent school districts,         and all
        cities which have assumed the control of the public schools
        situated therein,     shall have power to build or purchase
        buildings    and grounds located within or without the district
        or city, for the purpose of constructing            gymnasia, stadia,
        or other recreational      facilities,    and to mortgage and en-
        cumber the same, and the income, tolls,           fees, rents, and
        other revenues therefrom,        and everything pertaining      thereto 9
        acquired or to be acquired,         and to evidence the obligation
        therefor by.,the issuance of bonds to secure the payment of
        funds to purchase or to construct,         or to purchase and con-
        struct the same, including the purchase of equipment and
        appliances for use therein,         and as additional    security
        therefor by the terms of such encumbrance, may grant to the
        purchaser under sale or foreclosure          thereof a franchise     to
        operate said properties       so purchased for a term of not
        more than ten (10) years after such purchase.             No such ob-
        ligation    shall ever be a debt of any such. school district
        or city, but solely a charge upon the property so encum-
        bered, and shall never be reckoned in determining the pow-
        er of any such school district         or city, to issue bonds for
        any other purpose authorized by law; provided that no
        election    for the issuance of the bonds herein authorized
        shall be necessary,     but the same may be authorized by a
        majority vote of the board of trustees           of such independent
        school district     or the governing body of such city.
             %ece 2, Projects   financed in accordance with thfs
        law are hereby declared to be self-liquidating    in charac-
        ter and supported by charges other than taxation.
               “Sec. 3.  Such bonds shall be payable from the net
        revenues of the project together with all future exten-
        sions or additions thereto or replacements thereof,     and
        the governing body of such such school district,    or city,
        shall provide in the ordinance or resolution    authorizing
        the bonds, that the cost of maintaining and operating the
        project   shall be a first charge against such revenue, the
        maintenance and operating expenses to include only such
Hon. 0. E. Gerron,    page 5    (O-2231)


      items as are set forth in said ordinance or resolution0
      After the payment of such maintenance and operating ex-
      penses a sufficient   amount of the revenues remaining shall
      be set aside in a fund known as the Gymnasium or Stadium
      Bond Interest   and Redemption Fund to provide for the pay-
      ment of principal   and interest  upon such bonds plus a rea-
      sonable amount as a margin for safety.     Such fund shall be
      used for no other purpose than to pay the principal     of and
      interest  on said bonds.    Any revenues renalnine after mak-
      ing the payments hereinabove provided for may Ge used for
      mY lawful purpose.
           “Sec. 4. Every bond issued or executed         under this
      law shall contain the following clause:
           “‘The holder hereof shall       never have the right to de-
      mand payment of this obligation       out of any funds raised
      or to be raised by taxation.’
           “Such bonds shall be presented to the Atto-*ney General
      for his approval of other school bonds and in such cases the
      bonds shall be registered  by the State Comptroller as in the
      case of other school bonds.
            “Sec. !ie No bonds authorized to be issued or executed
      under this Act shall be issued or executed after the expi-.
      ration of two t 2 1 years from the effective date of this a:t.
            “Sec. 6. No land upon which is situated any of the
      school improvements other than as described herein shall
      ever be subject to the payment of any indebtedness created
      hereunder, nor shall any encumbrance ever be executed there-
      on.
            “Sec. 7. That all acts performed, proceedingd had and
      contracts executed by school districts   to which this Act is
      applicable,  and by the governing bodies thereof,   which acts,
      proceedings  and contracts were unauthorized by law at the
      time of their performance or execution,   but which wou1.d
      have been authorized under the terms of this Act had the
      same been in force at such time, are hereby validated,    rati-
      fied, approved and confirmed in all respects,    as fully as
      though they had been duly and legally   performed, had and
      executed in the first   instance.”
                Article 2802e-1 became effective      March 25, 1939, and
  only provides for the issuance of bonds in the manner and for
  the purposes stated therein.          Any project financed in accordance
 with Article 2802e-1,supra, 1s declared by the statute “to be
  self-liquidating      in character and supported by charges other
,than taxation.”        The obligations    created in financing  any of the
                                                                      -




Hon. 0. E. Gerron,     page 6   (O-2231)


above mentioned projects are to be evidenced “by the issuance
of bonds to secure the payment of funds to purchase or to con-
struct or to purchase and construct the same, including the
purchase of equipment and appliances for use therein.”   None
of the above mentioned obligations  shall ever be a debt of any
city or school district, but solely a charge upon the property
encumbered.
           &ticle    2827, supra, prescribes  the general powers of
boards and officers    over funds belonging to school districts,
and the manner in which those powers shall be exercised.        The
course prescribed    by law must be followed to the exclusion    of
all other methods and any authority given to boards and officers
to draw on school funds is governed and limited by the provi-
sions of the general statute.     Thompson vs. Elmo Independent
School District,    269 SW 868; Texas Juris.,  Vol. 37s page 968.
              We quote from Texas Jurisprudence,    Vol.   37s page 970,
as follows:
             “Trustees are authorized to expend fund derived from
      local sources,     and the Surplus from the state and county
      available    school funds, for any and all the purposes enum-
      erated by law, and for such other purposes as, in the dis-
      cretion of the board, may be reasonably necessary in the
      maintenance of the schools.      The powers granted are suffi-
      ciently broad to authorize the appropriation         of surplus
      funds to the construction     of living quarters for teachers.
      The powers of the trustees     are also sufficiently     broad to
      authorize the expenditure of local funds for the establish-
      ment of a health department and its maintenance as a part
      of the school system, and for the employment of an attor-
      ney to represent the trustees in legal proceedings         respect-
      ing school affairs.
            “The board is authorized to use public funds to pay
      premiums upon insurance policies  issued to cover every
      school building in the State, the title   to which is vested
      either in the State, county or district.”
            Under the facts as stated (paragraph 2 of the state-
ment of facts)   apparently it is contemplated by the contracting
parties that the note would not be paid from the revenues of
current school years, but only a portion thereof would be so
paid and the balance out of future xevanuec..    Qs above stated,
it is clear that the trustees of school districts    are author-
ized to expend funds derived from local sources and the surplus
in the state and county available    school funds for any and all
purposes enumerated by law and for such other purposes as, in
the discretion   of the board, may be reasonably necessary in
the maintenance of the schools.~    Also, the board of trustees   is
_ . . -




          Bon. 0. 6. Gerron,     page 7    (O-2231)


          authorized and given the power to build or purchase building
          and grounds located within or without the atstrict     for the pur-
          pose of constructing  gymnasia, stadla, or other recreational
          facilities,  and to mortgage and encumber the same, and the in-
          come, tolls,  fees, rents, and other revenues therefrom,     and
          everything pertaining   thereto,   acquired or to be acquired,  and
          to evidence the obligation    therefor by the issuance of bonds to
          secure the payment of said fund, under Article 2802e-1.
                       Bs shown by the statement of facts in your inquiry the
          school district     has not complied with Article 2802e-1 In that no
          “,,o;$&ave    been issued in accordance with the provisions  of said
                       Neither is the above mentioned contract authorized by
          kticle’2827,      suprae
                       In view of the foregoing,   you are respectfully     advised
          that it is the opinion of this department that an independent
          school district     has no authority to pledge or expend funds of
          the district     that are not available.   And that the Board of Trus-
          tees is not authorized to create a deficiency        debt against
          School's   Local Maintenance Fund. You are further advised that
          it is the opinion of this department that the loan obtained by
          the district     was not such a loan as the district    was authorized
          to negotiate,     and that the above described agreement is invalid
          as it attempts to pledge future tax revenues of the school dis-
          trict   and that no bonds have been issued in compliance with k-
          title   2802e-1.
                      Trusting   that the foregoing      fully     answers your inquiry,
          we remain
                                                      Yours very truly
                                                      ATTORNEY
                                                             GENERAL
                                                                   OF TEXAS
                                                      By /s/     Ardell Williams
                                                      graell     Williams, &sistant

          APPROVED:JUN 12, 1940
          /s/ Gerald C. Mann
          ATTORNEY  GENERAL
                          OF TEXAS
          (This   opinion   considered    and approved in limited       conference)
          AW:AW:wb
