                        The Attorney                    General of Texas
                                                  May       24,   1978
JOHN L. HILL
Attorney General



                   Honorable Bill Clayton                                     Opinion   No. H- 1167
                   Speaker of the House
                   State Capitol                                              Re:    Use of funds         by   state-
                   Austin, Texas 787ll                                        supported universities.

                   Dear Speaker     Clayton:

                           You have requested    our opinion regarding    the use of              funds by state-
                   supported universities.    You first ask whether interest monies               accumulated     on
                   constitutionally   dedicated   funds, appropriated      funds, and              other revenue
                   defined as “local funds” may be used at the discretion           of             the particular
                   university.

                         Section 11 of article  7 of the Texas Constitution,    which creates                     the
                   Permanent    University Fund on behalf of the University  of Texas System                      and
                   the Texas A & M University System, provides that

                                 the interest    accruing   thereon   shall be subject               to
                                 appropriation   by the Legislature     to accomplish              the
                                 purpose declared in [article 7, section 101.

                   Section   lla of article    7 provides     further    that the

                                 interest,   dividends and~other income accruing from the
                                 investments     of the Permanent     University Fund, except
                                 the portion       thereof   which is appropriated      by the
                                 operation of Section 18 of Article VII for the payment
                                 of principal      and interest   on bonds or notes issued
                                 thereunder,     shall he subject to appropriation      by the
                                 Legislature      to accomplish    the purposes   declared   in
                                 Section 10 of Article VII of this Constitution.

                   Section 18, which authorizes    the issuance of bonds by the various institutions
                   of the University  of Texas and Texas A & M University Systems, directs that
                   bonds issued thereunder   “shall be payable solely out of the income from the




                                                             P.    4720
 Honorable   Bill Clayton    -    Page 2        (B-1167)



 Permanent    University   Fund.”     Finally, section 17 creates “a special fund for the
 purpose   of acquiring,    constructing      and initially equipping   buildings or other
 permanent   improvements”     at designated institutions   of higher learning.

         A pro rata portion of the interest  from each university’s fund under sections
 17 and 18 of article 7 is credited to that institution’s account in the state treasury,
 pursuant to erticle 2543d, V.T.C.S., and is used, first, to retire outstanding     bond
 obligations.     Any surplus must be used to finance additional    permanent  improve-
 ments.        Thus, interest   on these funds is subject     to appropriation   for the
 constitutionally    specified purposes.

       With regard to other      funds, section     51.008(b) of the Education       Code requires
 that every state institution

             deposit in the state treasury          all cash receipts . . . that may
             be derived from all sources             except auxiliary     enterprises,
             noninstructional       services,     agency     and restricted       funds,
             endowment        funds, student      loan funds, and Constitutional
             College Building Amendment            funds.

Any interest received on such deposits which is not credited to a constitutional    fund
under article 2543d is allocated to the General Revenue Fund, “with the exception of
that portion      required   by other statutes   to be credited  on a pro rata basis to
protested     tax payments.”     A state university  thus has no control over the use of
interest accruing on any funds which are deposited in the state treasury, since such
interest    becomes     a part of the General Revenue Fund and subject to legislative
appropriation.

        As we have noted, section 51.008 of the Education            Code describes various
kinds of university   receipts     which need not be deposited        in the state treasury.
Section  51.002 further    authorizes    certain   institutions  to retain control of sums
derived from certain activities.       Expenditure     of these local funds is controlled  by
section 51.004 of the Education Code, which requires that separate accounts be kept
“showing the sources of all sums collected and the purposes for which disbursements
are made,” and specifically,      that general funds be kept separate       from trust funds.
Education Code 5 51.004(b). Interest on each of these accounts

             may be credited to an appropriate     account iQ either general
              funds or trust funds in relation to the sources of temporary
             investments    in time deposits,    if the disposition  of the
             earnings was not specified by the grantor.

 See Acts 1977, 65th Leg., ch. 872, at 3094, art. IV, S 2 (appropriating    institutional
 Gds   for the operation,    maintenance  and improvement   of the respective     colleges
 and universities).   Education    Code S 51.004(d). Thus, subject to any restrictions




                                           P.     4721
.   -


        Honorable   Bill Clayton      -    Page 3    (R-1167)



         imposed by the Legislature     in the Appropriations    Act or otherwise,     interest    from
        local funds which aFe not classified as trust funds may be proportionately            credited
         to the appropriate   account and used by the university.       The disposition of interest
         accruing on trust funds may be specified by the grantor, but if it is not, it must be
         made “available for loans, scholarships,   fellowships,   institutional  research,     faculty
         aid, and other lawful purposes.” $&

               You also ask whether state-supported     universities   are required to engage in
        standard  competitive   bidding practices   regardless    of the funding source of the
        purchase.  Article 664-3, section 5, V.T.C.S., requires that the Board of Control

                     purchase     all supplies,       materials,  services,  and equipment
                     used by each Department             of the State Government,       includ-
                     ing the State          Prison     System,    and each     eleemosynary
                     institution,    Teachers     College, Agricultural     and Mechanical
                     College, University        of Texas, and each and all other State
                     Schools OF Departments           of the State Government      heretofore
                     or hereafter     created.     . . .

              Certain   purchases    may be made without         Board authority,    however,     including

                     [pl urchases of supplies, materials,    services and equipment
                     for resale, for auxiliary enterprises,    for organized activities
                     relating    to instructional  departments      of institutions     of
                     higher learning,    and for similar activities     of other State
                     Agencies, and purchases made from gifts and grants . . . .

        As to this latter group of items, the statute       does not require Board of Control
        approval, and, as a result, an institution    is not expressly required  to make such
        purchases on the basis of competitive   bidding.

                                                 SUMMARY

                     Interest accruing on funds under sections 17 and 18 of article
                     7 of the Texas Constitution              must be used to retire
                     outstanding       bond obligations     and to finance       permanent
                      improvements.       Interest on the remainder    of the Permanent
                     University      Fund is subject to legislative     appropriation.     ln
                     general, accrued interest on local funds may be expended by
                     the    particular     university,   but certain    restrictions     are
                     imposed upon the use of trust funds. Competitive             bidding is
                     required     by article 664-3, V.T.C.S., on most purchases            by
                     state-supported      universities, but certain items are excepted
                     therefrom.




                                                     P.   4722
Honorable Bill Clayton   -   Page 4        (1.1-1167)



                                               Very truly yours,




APPROVED:




C. ROBERT HEATH, Chairman
Opinion Committee




                                      p.     4723
