                      March 30,    1964



Honorable J. W. Edgar             Opinion No. C- 232
Commissionerof Education
Texas Education Agency            Re: Whether the Texas Education
Austin, Texas                         Agency should, in determining
                                      the economic Index and in
                                      calculatingthe amount of
                                      local funds to be charged
                                      to each scho,oldistrict in
                                      Harrison County, remove from
                                      the total ‘value added by
                                      manufacture"the value of
                                      products manufactured on
                                      federally-ownedmilitary
                                      reservations in Harrison
Dear Mr. Edgar:                       County.
            Your office has requested an opinion on the following
question:
         'In determiningthe economic index and
    in calculating the amount of local funds to
    be charged to each school district In Harrison
    County, legally may and should the Texas Educa-
    tion Agency remove from the total ‘value added
    by manufacture' for Harrison County the value
    of p~roductsmanufacturedat Longhorn Ordnance
    Works?"
            The facts contained in your statementare the following:
         "Located within the Karnack Independent
    School District in Harrison County Is a govern-
    ment-owned and controlled installationknown as
    'LonghornOrdnance Works.' It reportedly com-
    prises (8,50~  acres) 13.32 square miles of area
    in the Karnack district which has 114 square
    miles of territory. For purposes of Section 5
    of Article 2922-16,  the Longhorn Ordnance Works
    installationis recognizedby this Agency as a
    Federal-ownedmilitary reservationwithin the

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Hon. J. W. Edgar, page 2 (C-232)


     confines of the Karnack district; the school
     district enjoys an adjusted reduction in its
     local fund assignment therefor as prescribed
     and provided Sn the law.
          "This reservation (LonghornOrdnance Works)
     and its facilities are not assessed for taxes;
     it does not comprise any portion of the assessed
     valuation in or for Harrison County. The reserva-
     tion is under the direct control of the United
     States Army, Ordnance Corps; all its lands and
     facilities sre owned by the Government.
          'The Governmenthas contractedwith a
     corporation (Thlokol Chemical Corporation)for
     the manufacture and sale of certain rocket fuels.
     All,paymentsare made to Thlokol by the United
     States Army; all its products are sold exclusively
     to the Qovernment. All expendituresof every kind
     including payrolls and manufacturemade by Thlokol
     are reimbursed to Thiokol by the Government, sub-
     ject to approval and acquiescenceof the ffovernment.
     Located upon the reservationare reservation em-
     ployees of the Government,under the direction of
     its CommandingOfficer.
          'In determinationof the economic index for
     Harrison County, there has been included~the
     factor, 'value added by manufacture',for Harrison
     County pursuant to subdivisionc.(Artlcle2922-16,
     Section 3).  The total value added by manufacture
     for Harrison County encompassesthe value of pro-
     ducts manufacturedat the reservationby Thiokol
     which are rocket fuels, their value being collec-
     tively reported under the broad category, trans-
     portation equipment, in Department of Commerce
     Reports. The economic index calculatedby this
     Agency for Harrison County does not include nor
     add a value for 'payrolls'at Thlokol; this be-
     cause the reservationor Thlokol is not recognized
     as a retail, wholesale or service establishment
     referred to in subdivisionc for payroll factor
     purposes.
          "A school district in Harrison County. . .
     vigorously complains and contends that value
     of manufacture of products manufacturedat
     Thlokol legally should not have come Into the


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Hon. J. W. Edgar, page   3 (C-    232)



     calculationsof the economic Index for Harrison
     County, that such value should have been ascer-
     tained from proper Governmentreporting agencies
     and deducted from the total 'value added by man-
     ufacture,'determined for Harrison County In ar-
     riving at that county's economic index. Further,
     that not to deduct such 'value'results in an
     Improper and unfair charging of higher local
     fund assignments against the local school dis-
     tricts of Harrison County and particularlythe
     Marshall district; that the law itself contem-
     plates that value of manufacture of tax exempt
     reservationsor corporations,such as Thlokol,
     should not be used In arrlvlng at the economic
     index.'
          Section 3 of Article 2922-16, In so far as pertinent
to the presentationherein, prescribes as follows:
          'In determiningthe taxpaying ability of
     each school district, the State Commissioner
     of Education, subject to the approval of the
     State Board of Education, shall calculate an
     economic index of the financial ability of-
     each county to support th F    d tl   School
     Program. The economic inzex"xy E c&ty    shall
     be calculated to approximate the
                                      =$%%%ich
     the total taxpaying ability in the
     is in a given county, and shall constitute
     for the purpose of thisAct a measure of one
     county's ability to support schools in relation
     to the ability of other counties of the State.
     .Theeconomic index for each county shall be
    ,based upon and determined by the following
     weighted factors:
          a. Assessed valuation of the county,
             weighted by. . .(20);
          b.   Scholasticpopulation of the county,
               weighted by. . .(8);
          c. Income for the county measured by:
             Value added by manufacture, value
             of minerals produced, value of agri-
             cultural products, payrolls for retail
             establishments,payrolls for wholesale
             establishments,payrolls for service
             establishments,weighted collectively
             by. . .(72).

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                                                                -   .




Hon. J. W. Edgar, page 4 (C-232)


           !I               ‘I
                .   .   .



          Se&Ion 5 of Article 2922-16  recites the formula
for determination(annually)of the amount of local funds
to be charged to each school district in support of its local
school operation as follows:
          "Divide the State and county assessed
     valuation of all property in the count
     ject to school district taxation I53%e%&t
     preceding school year Into the State and county
     assessed valuation of the district for the next
     preceding school year, findlng the district's
     percentage of the county valuation. Multiply
     the district'spercentage of the county valua-
     tion by the amount of funds assigned to all of
     the districts in the county. The product shall
     be the amount of local funds that the district
     shall be assigned to raise toward the financing
     of its foundation school program.
          "Provided,however, that in any district
     containing. . ., Federal-ownedmilitary reser-
     vations. .'.the amount assigned to such school
     district shall be reduced In proportion that
     the area included in the above-named classifi-
            bears to the total area of the district.
     catiol;f.
     . . .
          Section 3 of Article 2922-16 of Vernon's Civil
Statutes provides that the Texas Education Agency shall cal-
culate an economic index of the financial ability of each
county to support the Foundation School Program. It further
provides three guides to measure the wealth of a county:
land value, (2) scholasticpopulation and (3) Income. In(%.s
instance we are concernedwith the third, i.e., Income, specifi-
cally, income for the county measured by value added by manu-
facturing within that county.
          Although there is a specific exclusion of federally-
owned military reservationareas in the county, this office can
find no extilusionsin the statutes or cases which would support
a contention that income created ,bythe manufacturingof trans-
portation equipment (rocket fuel) on a federal reservation by
an independentcontractor should not be included In determining
the economic index of a county.
          Furthermore,we cannot conceive of any reason why,
from an economic standpoint,the income from a manufacturing


                                 -1127-
Hon. J. W. Edgar, page 5 (C- 232)


independentcontractor,who sells all of his manufactured
products to the Federal Government, is not the same and should
not stand on the same footing as other manufacturingconcerns
in arriving at the economic index of a county.
                     SUMMARY
          In determiningthe economic index and In
     calculatingthe amount of funds to be charged
     to each county, the Texas Education Agency
     should include the income for the county using
     the "value added by manufacturing"of an independ-
     ent contractor on a federally-ownedmilitary
     reservation.
                               Yours very truly,
                               WAQQONER CARH
                               Attorney General



                               BY'B&r!!%?~
BMjr:sj:mkh                       Assistant '     *
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Pat Bailey
Paul Phy
Paul Robertson
Gordon Appleman
APPROVED FOR THE ATTORNEY GENERAL
BY: H. Grady Chandler




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