                   TEEEA~ORNEYUSICNERAL                                                           .

                           OF TEXAS
                                 Aunnw.-                 7S7ll

A-       o-A&
                                           Augurt 5, 1974


     The Honorable   Grover E. Murray                      Opinion No. H-   365
     President,  Texas Tech University
     P.O. Box 461                                           Re: May Texan Tech University
     Lubbock, Texar     79409                             . purchare group term life inrrurance
                                                            from a mutuaL.tiompany?


     Dear President    Murray:

               Your requert for our opinion indicator &t Tex&c Tech Univerrity
     contractr with inrurancc       companier to’provide   optional group term life
     insurance    for itr faculty and staff members,     with the policiM   taken.in‘.
     the name of the univerrity.       A part of the premiuma     ir paid by the univer-
     lity out of rtate appropriationm and the balance ia paid by payroll deduc-
     tionr . Your question ir whether or not it ir legally proper to permit
     mutual life insurance       companier to bid on this insurance and to provide
     a nonaererrable      policy.

              It ham been ruggerted that the purchsee df inrurance     from a mutual
     insurance company     would run counter to the provirionr    of Subsection (a)
     of Section 52 of Article  3 of the Texar Coartitution.    T h a lt
                                                                      ubrection pro-
     hibitr “any county, city, town or other political . . . rubdivirion of the
     State:’ (emghasir ourn) from betaming a rtockholder in any corporation,
     aaeociation or company.      And it has been held that thin applier to pro-
     hibit a county or other politial    subdivision from purchasing insurance in
     a mutual insurance company.       Attorney General Opinion O-924 (1939);
     City of Tyler-v.    Texas kn~loyerr’    Insurance Asebciation,    288 S. W.
     409 (Tex. Comm. App., 1926), motion for rehearing overruled,          294 S. W.
     195 (Tex. Comm. App., 1927); Lewir v. Independent School District of
     City of Austin, 161 S. W. 2d 450 (Tex. 1942)h




                                             p.   1708
.f.   .:




                                                                                           I
      The Honorable   Grover   E. Murray      page 2    (H-365)



               Whether a rtate university,    in general, or Texas Tech Univermity
      in particular,  ia a “political rubdiviaion of the State” ia a quertion that
      har never been directly answered in Texar.         Obviourly, it ia not a county,
      city or town. % believe that, within the purview and intent of Subsection
      (a) of Section 52 of Article 3 of the Texar Conatitution,it ia not a “political
      rubdivision” either .

              In Bolen v. Board of Firemen,     Policemen,  and Fire Alarm Operatorr,
      308 S. W. 2d 904 ~(Tex. Civ. App., San Antonio, 1957, err. ref’d.),    it
      wae held that the conetitutional provirion did not limit the Board in ite
      investment of pension funde.    The Court maid:

                          The Board jurt eimply ir not a political corpora-
                      tion nor a political ehbdivirion of the State. It doe@
                      not have any of the attributer of c political rubdivirion.
                      A political ‘rubdivirion contemplrter:   geographical area
                      and boundaries, public electionm, public officialr,     taxing
                      power and a general public purpore or benefit.       The
                      Board ham none of the@? attributer . . . (308 S. W. 2d
                      at 905).

      Citing an Idaho decimion, the Court rtated, am dictum: “The Board of
      Regent0 of a State Univermity ir not a political rubdivision of the State. ”
      (308 S. W., 2d at 906). See Attorney General Opinion H-338 (19’14)).

               It has been raid that the primary function of a municip$ corporation
      ir to regulate  and adminirter   the internal concerns of the inbabitantr of a
      defined locality in matter8 peculiar to the place incorporated    and not
      common to the people of the rtate at large.      Hatcher v. State, 81 S. W. 2d
      499, ‘500 (Tex. 1935).
                                                  \*
              In Welch v. State, 148 S.‘W. 2d 876, 879 (Tex. Civ. App.,          Dallas,
      1941, err.. ref’d.),   a municipal,corporation      ie defined am a:
                                                                           A.
                        I      . body pal’itic and* .cozporat& aria tiMed by the
                        kirporation     of thd-inhabitant, of a definite   ,




                                              p. 1709
The Honorable    Grover   E. Murray,    page 3        (H-365)




        locality for the purporea    of local government - the
        organization of a certain    geographical   district under
        authority of law. ’

     We believe that the better view ir that, within the purview and intent
of Subsection(a)  of Section 52 of ,Article 3 of the Texas Constitution. a
state university ie an official arm of the State, and not a political sub-
divieion.   That this distinction should be considered between the state
and ita agencies,   on the one hand, and political rubdivirrions. on the
other, is borne out by the recent enactment of Arttcler        8309g and 8309h
of the Civil Statute6 (Acts 1973, 63rd Leg.,       ch. 88, p. 195) recognizing
and applying reparately     to the two groupa of governmental      entitiee.
Article 8309g provider for workmen’s        compenration for rtate employees
and include* in that group employeer of inrtitutionr of higher educatioa.
Article 8309h applier to employee8 of a political rubdivirion,        defined to
mean "a county, home-nrle city, a city, town, or village organized
under the general law! of thin state, a rpecial dimtrict, a school district,
a junior college dirtrict,    or any other legally constituted political Bub-
division of the &ate.”     Sec. l(1).

      When the factr surrounding thir particular contemplated transaction
are analyzed     from a “lending of credit” or “grant of public fundr” rtand-
point, it doer not appear violative of thenprovirions       of Section8 50 and 51
 of Article 3 of the Texer Constitution.       The only obligation of a policy-.
holder in a legal rererve mutual company operating under Chapter 11 of
 the Insurance Code of Texae ir the contractual obligation to pay the
 initial premium,     the same burden a policylioltler:would     have with a etock
life insurance company.       Lending   of credit ia  prohibited  if there is a
 possibility  of ass’eesment liability.    No provieion for additional aezess-
 ments ia included in the policies issued by legal reserve mutual companies
 operating under Chapter 11, supra, so no lending of the University’s           credit
 ie involved.    City of Tyler,  aupra.

    The “grant of public money” prohibition  contemplate8 a “gratuitous
appropriation  of public money or property.”  City of Tyler,   aupra at 412.
Texan Insurance Code, Article 3.51, Sec. l(a), authorizes the governing
board of a university to purchare inrurance for ita employees.     The pay-
ment of inrurance premiumr in part of the compensation paid the employeer,




                                          p.   1710
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      I,                                                                                                    L


                                                                                                   .   ,,




           The Honorable    Grover   E. Murray      page 4    (H-365)




           and iz for a conztitutional public purpoze.    It ir not a gratuitour  appropria-
           tion: zee Byrd v. City of Dallaz,    6 S. W. 2d 738 (Tex. 1938); Attorney
           General Opinion6 M-125 (1967) and M-582 (1970).         Later decizionz have
           firmly established that when an expenditure of public funds iz made for
           the direct accomplishment    of a proper’ public purpose rezulting in public
           benefit@, the exchange iz not gratuitouz,   even though private persona
           may incidentally benefit therefrom.     See Barrington v. Cokinoz, 338
           S. W. 2d 133 (Tex. 1960); Brazoz River Authority v. Carr, 405 S. W.
           2d 689 (Tex. 1966); State v. City of Awtin,      331 S. W. 2d 737 (Tax 1960).
              .
                    Under,the particulir   factz here, no impermizzible        lending of credit
           or grant of jjublic fundz will occur in violation of Article 3, Seer. 50 and
           51 of the Texaz Conztitution.     Texaz Tech Uaiverzity       iz not within the
           zcope of Article    3. Sec. 52(a) of the Teuz   Conrtitution,     l e the University
           i# not, within the purpose and intent of there oectione,        a political corpora-
           tion or political rubdivimion.    To the extent that it may conflict with this
           opinion,   Attorney   General Opinion M-582 (1970) in overruled.

                                                  SUMMARY

                                 Texaz Tech    Univerzity may purchare nona~zcarable
                            group term life   insurance   policiez for itz faculty and
                            ztaff izzued by   mutual life inzurance companiez author-
                            ized by Chapter    11 of the Texzz Inruraake   Code.

                                                              Very   truly   yowr,




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            The Honorable   Grover   E. MurFry   pa#e 5      (H-365)




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