                           TIZE:A~TORNEYGENERAE~
                                     OF TI3XAS
                                             AUUTIN.            Teas                  78711




                                                     February             25,        1974



The     Honorable          Elmo       Parsons                                                    Opinion      No.       H-     239
County       Attorney
Falls     County                                                                                 Re:     Questions            concerning          the
Marlin,         Texas        76661                                                               county    permanent               school     funds
                                                                                                 as affected           by the amendment
                                                                                                 to Article       7 of the Constitution.


Dear      Mr.     Parsons:


          A letter        from      your      office      has    asked:


                  “Is     it proper         for    the Falls         County            Commissioners
                  Court      to purchase             Chilton         school           bonds       with    the Falls
                  County         Permanent            School         Funds?           ”


          The     letter      explains        that       the Commissioners                        Court     would        like      to purchase
Chilton      Independent            School         District      Bonds           in the amount              of $85,          000   with     Falls
County       Permanent             School         Fund    money,           that the bonds                 would        bear     interest      at
the rate        of l/l0     of 1% per         annum        and that they would be purchased                                     on an “entire
per     capita      county        student     basis”        so as not to discriminate against                                    other school
districts        in the county.


          We     have      also     received         an inquiry            about          this    matter      from        Representative
Dan     Kubiak,         Chairman           of the House              of Representatives                    Committee               on Education,
who asks         about      the application              of Article             7,    $ 6b of the Texas                 Constitution.


          The     county         permanent           school  fund is impressed                          with      a trust in favor of the
localtiabitants              and schools,             and the commissioners                            court      administers   the fund
as trustee,          with     the duties           of trustee.            Art.         7 $ 6,      Texas       Constitution:               Love
v.    City   of Dallas,           40 S. W, 2d 20 (Tex.                    1931).            DeltaCounty           v.    Blackburn,
S. W.     419 (Tex.          1906);    Potter          County        v.    C. C.          Slaughter        Cattle        Co.,        254    S. W.       775
(Corn.       App.       1923).




                                                                p.    1110
The     Honorable           Elmo          Parsons,        page        2     (H-239)




         Attorney           General           Opinion         M-1104        (1972)       dealt     with     the precise         question
asked      here,       and was            written      in response               to a request         by a prior            County      Attorney
of Falls       County.           That        opinion      concluded              that    investment          of Falls        County         Perma-
nent    School        Fund      monies             in Falls      County          obligations         bearing       a return          of only      l/10
of 1% per       annum         is improper,               among            other     reasons,          as violative           of the     “prudent
man”     test      of Article             7425b-46       V. T. C. S.               See    90 C. J. S. , Trusts               5 323.


         The       “prudent”              character       of an investment                   is ordinarily            one    of fact,       unless
reasonable          minds            could     not disagree.                But the         same     considerations             which        applied
in Opinion         M-1104            apply     here     to foreclose               the question.            We believe          that      the courts,
in today’s         world,        if presented            the case           as presented             to us,      would       consider          the con-
templated          investment              improper           as a matter               of law.


         We     believe         that       that     Opinion         is still       dispositive        of the issue,             despite         the
addition       of Section             6b to Article           7 of the Constitution                   in 1972.


         This       provision             reads       in part:

                              ,f .    .      [A]    Roy county,           acting     through        the commissioners
                              court,          may     reduce          the county          permanent          .school        fund of
                             that         county      and may          distribute           the amount           of the reduction
                             to the independent                     and common               school       districts         of the
                              county          on a per        scholastic            basis     to be used          solely      for     the
                             Purpose               of reducing         bonded           indebtedness          of those        districts
                              or for         making       permanent                improvements.             ”


         The       new      constitutional             language            was      construed         in Attorney           General         Opinion
H-47     (1973)       which          explains        the application                of the term           “per    scholastic          basis.      ”


         Section         6b does           not affect         the     standards           to which        a trustee         is held     regarding
investment            of then county               permanent          school        fund.         It does    authorize         distribution
of the       corpus      to the school               districts        for    the purpose             of reducing            of bonded          indebt-
edness        or making              permanent          improvements.


         If the Chilton                Independent            School        District        proposes         to make         permanent
improvements                or to reduce              bonded        indebtedness              and the proposed                bond      sale     is
for    one    of these        purposes,              Section        6b authorizes             the direct          distribution          of a portion
of the corpus            of the Falls               County       Permanent               School     Fund      to the Chilton            district.




                                                                 p.       1111
The     Honorable         Elmo       Parsons,          page       3      (H-239)




This     portion     may       not exceed        Chilton          Independent               School     District’s         pro-rata            enti-
tlement       determined           on a per          scholastic          basis,        and a sufficient             portion       of the fund
must     be retained          to pay       any applicable               ad valorem’taxes.                 Article        7,    Section        6b,
Texas        Constitution.


           It is our      understanding              that both          the Marlin           School      District        and the Rosebud-
Lott    School      District        have     previously           sold       bonds      to the Fund            at a similar            rate     of
interest        as that proposed             here.        The     proprie          t’y’of     these      prior      transactions              should
be considered          in light         of the analysis               above.         The     Chilton      Independent            School
District        is entitled        to have     its     distributable              share      of the county           permanent            school
fund based         upon      a restored         fund,      or     one adjusted              to allow      a fair        distribution           in
the light       of transaction            already       completed              between        the Fund          and other         school
districts.


                                                                  SUMMARY


                             The    Commissioners                     Court     may       distribute          to the     Chilton
                   Independent          School        District         a portion        of the county            permanent
                   school     fund for       permanent                improvements              or to reduce             bonded
                   indebtedness            so long      as the proper                pro-rata         entitlement             of the
                   school      district      is not exceeded,                  and     so long        as a sufficient            portion
                   of the fund       remains           to pay         applicable        ad valorem             taxes,         but the
                   Commissioners              Court       may          not purchase           on behalf          of the county
                   permanent         school      fund bonds              of the      school         district     bearing         interest
                   at only     l/lOth      of 1% per       annum.


                                                                                              ery     truly     yours,




                                                                                  I/        Attorney          General         of Texas


                                                                         ,



       R&Y-F.       Y dpK>First             yssistant



DAVID         M.    KENDALL,              Chairman
Opinion        Committee




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