Honorable B. F. McKee
County Auditor
Hidalgo County
Edinburg  Texas

Dear   Sir:

                                       Opinion Number O-4816
                                       Re: Under the facts set forth do
                                             the discounts correctly   be-
                                             long to the State of Texas or
                                            to the Hidalgo County issue
                                           when the sinkihg fund of the
                                            Hidalgo County issue supplied
                                            the funds from which the pur-
                                            chases of bonds were made?

               We have your letter     stating certain facts and requesting
our opinion on the question stated.    We quote from your letter as follows:

                   ‘Hidalgo County has outstanding an issue of Road
         and Bridge Bonds dated June 15. 1932, and maturing April
         1, 1952 and it has been determined     by the Board that the
         issue is 55% eligible for participation    in the County and
         Road District Highway Fund. Inasmuch as the issue was
         in the original amount of $1.099,000     and is a ‘term’ issue
         with no serial principal maturities,    the Board has each
         year from 1933 to 1942 inclusive transferred       from’its
         avai,Aab.le fundknown as ‘County and Road District High-
         way Fund’ the sum ,of $30,222:50     to a-fundknown    as
         ‘Hidaigo :Cwty     Road and Brrdge Refunding Bonds -
         Series 1932 - Sinking Fund’.    Under the provisions      of
         Section 6 (M) of the Road Board Act which reads in part
         as follows:

                  u’* * * The Board of County and District Road In-
         debtedness   shall have and possess    full authority to invest
         all such sinking funds * * * in any eligible obligations     of
         the various political sub-divisions    of this State, which ma-
         ture within the current biennium in which such securities
         are purchased and where there ,is on hand a sufficient
         amount of moneys or securities      to the &edit of any one
         political sub-division  to retire some of its obligXn”;;-
                                                                                  . .. .


Honorable   B. F. McKee,   page #2 (O-4816)




       whether then due or not, the Board of County and District
       Road Indebtedness     may, if it deems it advisable,   purchase
       and cancel said obligations    of such particular  political sub-
       division, irrespective   of maturity dates * * * ’

        “the Board has purchased various amounts of this issue
       from the funds so transferred,    at various prices for can-
       cellation.  Due to the fact that the bonds were purchased
       at a discount in the total amount of $44.097.87    we will ap-
       preciate your opinion as to whether or not the discounts
       correctly  belong to the State of Texas or to the Hidalgo
       County issue, when the sinking fund of the Hidalgo County
       issue supplied the funds from which the purchases      of bonds
       were made.”

                 The general purpose of the State Aid Act is to repay the
various counties and road districts     for sums advanced for the construc-
tion of State highways.    The Legislature   did not make a gift or donation
but undertook to fairly, justly and equitably compensate     the counties
and defined road districts,   as stated in the following excerpt taken from
Section 1 of the Act itself:

                ” * * * And it is hereby determined      that the fur-
       ther provisions   of this Act constitute fair, just, and equit-
       able compensation,    repayment,    and reimbursement      to said
       counties and defined districts     and for their aid and assist-
       ance to the State in the construction     of State Highways and
       for the construction   of said roads which are ancillary      to,
       but do not constitute a part of said system of State Highways,
       and fully discharges    the legally implied obligations    of the
       State to compensate,     repay, and reimburse     the agencies of
       the State for expenses     incurred at the instance and solicita-
       tion of the State, as well as for expenses incurred for the
       benefit of the State, and fully discharges     the State’s legally
       implied obligation to such counties and defined road dis-
       tricts to provide additional funds for the further construc-
       tion of roads not designated as a part of the State Highway
       System.”

                  The extent of State eligibility   or of its “legal and moral
obligation” to compensate    and reimburse       such counties and defined road
districts  is clearly defined in Section 6(a) of the Act which reads in part
as follows:

                “All bonds, warrants   or other evidences     of in-
        debtedness heretofore  issued by counties * * *     which
        mature on or after January 1. 1933. ins~ofar as     amounts
        of same were issued for and the proceeds have        been actu-
        ally expended in the construction   of roads that   c’onstituted
Honorable   B. F. McKee,    page #3 (O-4816)




      and comprised   a part of the system of designated
      State Highways on September     17, 1932 * * * shall
      be eligible to participate in the distribution of the
      moneys coming into said County and Road Distric’t
      Highway Fund * * * ‘a.

              It was under this provision that the State Board ascertained
and determined   that 55% of the original amount of the issue under con-
sideration had been expended upon roads that constituted a part of the
State Highway System.

               Subsection   (c) of Section   6 provides,    in part:

               “It shall be the duty of the Board of County
      and District Road Indebtedness * * * to ascertain
      and determine     the amount of indebtedness      eligible
      under the provisions      of this Sectibn * * * to parti-
      cipate in the moneys coming into said County and
      Road District Highway Fund * 4: * And said obliga-
      tion to said amount and extent shall be eligible for
      participation   in the moneys coming into the County
      and Road District Higbinray Fund and ascertainment
      and determination      shall be certified to the County
      Judge by said Board and all of the unmatured out-
      standing obligations     of said issue shall ratably have
      the benefit of said participation     in said moneys * * *
      The ascertainment      and determination     by the Board,
      after reasonable    notice and hearing, of the amount
      of any county or defined road district obligation el-
      igible under the provisions      of this Act * * * shall
      be final and conclusive      and shall not be subject to
      review in any other tribunal.’

                Subsection (j) of Se,ction 6 of House      Bill 6 of the Forty-
seventh   Legislature   reads in part as follows:

               ‘“All moneys to be deposited to the credit of
      the County and Road District Highway Fund from
      September     1, 1941 to August 31, 1943. both inclusive,
      are hereby appropriated      to said respective    counties
      and road districts     and shall be received,   held, used
      and applied by the State Treasurer       as Ex-offlclo
      Treasurer     of said respectrve   counties and defined
      road drstrrcts.     * * 8 And each year thereafter     until
      all of said eligible obligations are fully paid, all
      moneys coming into the credit of the County and
      Road District Highway Fund with the State Treasurer
      and all moneys remaining therein from the previous
      year shall be received and held by him as Ex-officio
      Treasurer     of such c~ounties and defined road districtss.
      j(.**-
Honorable   B. F. McKee.    page #4 (O-4816)




               Subsection   (p) of Section 6 reads    as follows:

               “In the event this Act is repealed.    or shall be-
      come inoperative      as to any county or defined road dis-
      trict, then it shall be the duty of the Board to ascertain
      immediately      the amount of moneys remaining on hand
      with it or with the State Treasurer     belonging to the sev-
      eral counties or defined road districts     affected, and
      forthwith to return the same to the County Treasurer
      of the county entitled thereto, accompanied       by an item-
      ized statement of the account of the county or defined
      r,oad district.”

                It will be noted in Subsection (j) hereinabove    quoted that
the Legislature    has expressly   appropriated   all moneys to the credit of
the said counties and defined road districts      and commands that it shall
be received,   held, used and applied by the State Treasurer        as Ex-officio
Treasurer    of such c.ounties for the purposes and uses specifically       set
forth in the Act and has further expressly      provided that until all such
obligations  have been fully paid, the money coming into the County and
Road District Highway Fund and such money as remains therein from
the previous year are to be received and held by the State Treasurer             as
Err-officio Treasurer     of the county.  This section seems clearly to char-
acterize these funds as county funds.       Subsection (p) seems to confirm
the conclusion    reached in the next preceding paragraph.       It provides that
the money remaining with the State Treasurer          belonging to the several
counties shall be returned to the County Treasurer,         whenever the Act is
repealed or shall be or become inoperative.

               Subsection   (q) reads   as follows:

               “All funds on hand belonging to, and hereafter
      credited to, the several countres and defmed road dls-
      tracts of the State, shall be considered   State funds, and
      as such shall be deposited at intervals in the depositor-
      ies provided for by the State laws, and all interest earned
      on such funds and on the securities    in whfch they are in-
      vested shall belong to said counti~es or defined r~oad dis-
      tricts, and shall be credited to them by the State Treas-
      urer as earned and collected.”

               Since the Legislature has declared that the interest on such
funds shall belong to the counties, it is manifest that the funds behmg to
the counties, since the counties would not be entitled to interest earned
on State funds.

               It seems clear to us that the Board used funds belonging to
Hidalgo County when it purchased and cancelled     the bonds referred  to in
your letter, since the only authority we find in the Act for retiring un-
matured bonds is found in Section 6 (m) which reads, in part, as follows:
.   .

        Honorable     B. F. McKee,   page #5 (O-4816)




                       u * * * The Board of County and District Road
              Indebtedness shall have and possess      full authority to
              invest all such sinking funds, including all future sink-
              ing funda.acquirad   ins any manner whatsoever,     in any el-
              igible obligations  of the various political subdivisions
              of this State, which mature within the current biennium
              in which such securities    are purchased,    and where there
              is on hand a sufficient amount of moneys or secur.ities
              to the credit of any one political subdivision to retire
              some of its outstanding obligations,    whether due or not,
              the Board of County and District Road Indebtedness        may,
              if it deems advisable,    purchase and cancel said oblige
              tions of such political subdivision.  irrespec~tive of ma-
              turity dates * * * .”

                        This subsection   (m) authorizes  the Board to invest any of
        the sinking funds in any eligible obligati~ons of the various subdivisions
        which mat&      ~within the biennium in which the investment     is made, but
        only authorizes   the purchase and cancellation    of unmatured bonds when
        it uses the funds belonging to the particular    c~ounty or subdivision whose
        bonds are thus purchased and cancelled.        No authority is found to retire
        obligations from any other fund. The purchases        and cancellation    of the
        bonds in question have been from funds of a particular       subdivision.    and
        the instant bonds are eligible in a certain percentage     of their par value.
        If any of the bonds are acquired at less than their par value we think the
        saving should accrue to the county, and that the Board will still be obliged
        to pay such portion of the debt as it had previously     determined to be eli-
        gible for participation.

                       At the time the bonds were made eligible for participation
        the Board set aside such funds as were contemplated       to properly reim-
        burse and compensate     the c-ounty, and such previously   determined   obli-
        gation cannot be affected by a subsequent diminishing      of the county’s por-
        tion of the bonds.

                      You are, therefore, advised that in our opinion the payment
        by the State should be made on the basis of the par value of the bonds.

                        We are attaching a copy of our Opinion Number           O-3623,
        which deals    with a somewhat similar question.

                                                Very     truly yours
        Approved    SEP 23.   1942
                                                ATTORNEY        GENERAL       OF TEXAS
        /s/  Gerald C. Mann
        Attorney General of Texas               By /s/    C. F. Gibson
                                                          C. F. Gibson
                                                              Assistant

        CFG/s:cm                                                            This Opinion
        Encls.                                                         Considered   and ap-
                                                                       proved in limited
                                                                              conference.
