Honorable Walter F. Woodul, Member
Board of Regents
North Texas State Teachers College
Chronlcle~Bullding
Houston 2, Texas -
Dear Sir:              Opinion No. O-6036
                       Re: Whether Board of Regents of~North
                            Texas State Teachers' College~may
                            apply "local funds" In payment of
                            revenue bonds issued for construc-
                            tion of college buildings.
        We have your opinion request on the above question
in which you enclose a letter to you dated September 8, 1945,
from Mr. W. J. McConnell, President of the North Texas State
Teachers' College. The facts and the questions are clearly
set out in Mr. McConnell's letter, as follows:
       "The three-story Music Hall was built in 1940'
   with funds derived from the sale of revenue bonds;
   Orchestra Hall was built nine years ago by means
   of revenue bonds. The two have been combined into
   Music-Orchestra Hall.~ A sinking fund for the retire-
   ment of these bonds was to be sustained from rentals
   of students who were to occupy the third floor as a
   dormitory, from practice piano rentals, and from
   room rental of certain houses of the cooperative unit.
        "Two floors of the building were designed for
    and have been used from the beginning for instruc-
    tional purposes. The dire need of instructional
  1 buildings on the campus and the growth of the School
    of Music, which has been at the rate of 500% since
    this building was erected, have necessitated the
    use of half of the third floor (the dormitory part)
    for classrooms, and we are in desperate need of the
    remaining part of the building for that purpose.
       "All bonds on the Music-Orchestra Hall are now
   callable. With the use of $28,000 from local funds
   all bonds can be retired. An Act of the Forty-sixth
   Legislature prescribes some limitations which cannot
   be ignored. You will find what I regard as a provi-
Hon. Walter F. Woodul, page 2         O-6836


    sion for taking care of the 'emergency' with which we
    are faced In Article 2909a, Vernon's Texas Statutes,
    Centennial Edition, 1939, or under Acts of the Fortg-
    sixth Legislature, page 259.
        "Another alternatlve -- and get it might resolve
    itself into the same matter legally -- would be for
    the College to pay into the sinking fund the sum of
    $28,000, which would be a rental for use of the build-
    ing for instructional purposes.
        "I think this matter resolves itself into two
    questions: (1) Does the college's need of the en-
    tire building for instructional purposes constitute
    an 'emergency' iinderthe statute to which I have re-
    ferred? (2) May the college legally pay at this
    time a sum of rental for the past seven years on the
    part of the building which has been used for class-
    room purposes?. . .
        You state in your letter that:
        "These two buildings, which are now one, were
    built with revenue bonds and it will only take
    $28,000 from local funds to retire these outstand-
    ing bonds when it Is permissible to devote thishall
    entirely to Instructional purposes. It is Impractical,
    even if another building were available, to divide up
    the functions of this hall and the Regents feel an em-
    ergency exists to pay from local funds the $28,000.00
    and convert the bullaing to its highest use.
        "The building, of course, although paid from bonds,
    belongs to the state, subject to this indebtedness. The
    nominal growth of the School of Music makes it an abso-
    lute necessity that this be done.
        “AS I stated to you, Dr. McConnell assures me
    that $28,000 can be easily paid from the local fund
    and be less than the 25% referred to in Article
    2909a, and further that the local fund of this school
    Is In such shape it would not directly or Indirectly
    necessitate the state making appropriation for pur-
    poses for which this fund might otherwise be used. . .'
        Section 1 of Article 2909a, V.A.C.S. (Acts, 46th Leg.,
R. S., 1939, p. 259), reads as follows:
        "Section 1. The Board of Directors of Texas
    Technological College, the Board of Directors of
r       .




    Ron. Walter F. Woodul, page 3            o-6836


            the Texas Agricultural and Mechanical College, the
            Board of Regents of the University of Texas, the
            Board of Directors of the State Teachers' ColGes
            of Texas, the Board of Directors of the Texas State
            College for Women, ardthe Board of Directors of the
            College of Arts and Industries, are hereby authorized
            and empowered to erect and equip, and to contract with
            any person, firm or corporation, for the erection,
            completion and equipping of dormitories, cottages or
            stadiums, to be erected either on the campus or real
            estate then owned by said colleges, or on other real
            estate purchased or leased for the purpose, and the
            said Board of Directors are hereby expressly author-
            ized to purchase, or lease additional real estate for
            such purposes, provided said Institutions have suffi-
            cient surplus from local funds, but not exceeding
            twenty-five (25%) per cent of the total for any fis-
            cal year, to pay cash for any purchase of land; or
            the purchase of land is made from funds derived from
            the sale of revenue bonds or notes. The bonds or
            notes authorized herein are to be paid solely from
            the revenues of the dormitories, cottages and stadium,
            and shall never be charged against the State nor any
            appropriation made by the State nor shall any portion
            of said appropriation ever be used for the payment of
            said notes or bonds; nor shall any local or institu-
            tional funds in excess gf twenty-five (s$) oer cent
            of the total for any calendar year ever be used for
            the payment of said notes or bonds, It being the in-
            tention of the Legislature to authorize the payment of
            said notes and bonds solely from revenues derived from
            the improvements authorized herein and an emergency to
            to be sunulemented'from local funds not exceeding
            twenty-five (25%) per cent for any fiscal year."
            It appears from Mr, McConnell's letter that Music Hall
    was ~built in 1940 with funds derived from the sale of revenue
    bonds and that Orchestra Hall was built nine years ago by means
    of revenue bonds. The bonds for Orchestra Hall must, there-
    fore, have been issued under Ch. 5, Acts 43rd Leg., 2nd C. S.,
    1934, p. 14, or Ch. 459, Acts 44th Leg., 2nd C. S., 1935, p.
    1752,
            These two acts were further amended by Ch. 2, Acts
    46th Leg., R. S., 1939,~~page262. The 1934 Act, with the amend-
    ments by the 1935 Act, and the 1939 Act are codified as Article
    2603c, VeA.C.S.
            The revenue bonds for Music Hall may have been issued
    under Article 2603~ as amended or under Ar,ticle2909a, quoted
                                                         .




Hon. Walter F. Woodul, page 4         0 -6836


above. Article 2603~ contains no provision for use of local
or institutionalfunds in acquisition of the buildings which
the act authorizes or in satisfactionof the revenue issued
therefor. It provided when it was first enacted in 1934 and
still provides that "any bonds or notes issued hereunder shall
not be an indebtednessof the State of TexaS, but shall be
payable solely from the revenues to be derived from the oper-
ation of said buildings" We held in our Opinion No. o-1662,
issued February 27, 1940, that local or institutionalfunds
of State Teachers Colleges could not be used~to ay revwnue
bonds issued under the authority of Ch. 5,'Acts $3rd Leg., 26
C. S. 1934, page 14. We now hold that the same rule applies
to all revenue bonds which were,issued for buildings acquired
under thw,amwndmentsto the 1934 Act, which are codified as
Article 2603c, V.A.C.S.
        We have previously pasaed on the 25% of local funds
provision in Article 2909a, V.A.C.S. In our Opinion No.
O-1273, addressed to Honorable J. A. Hill; President of West
Texas State Teachers College on August 26, 1939, we passed on
this Act, which was there referred to aa Senate Bill #28. We
said:
       "Section3 of Senate Bill #28 (Art. 2909a,
   V.A.C.S.) ,expresslyauthorizea the Board to
   issue their obligations in such aum or sums and
   upon such terms and condii$onsas to said Board
   may awem advisable for the erection, completionand
   equipping of such              cottages and stadiums
   and to pledge the -,
                     ne rents, feea, revenues and in-
   comes therefrom to the payment of the interest and
   principal of said obligationa.Section 1 thereof ex-
   pressly provides that in the wve.ntthe revenuea de-
   rived from such improvementsare insufficientto
   meet the annual debt requirementa,then and in that
   event the funaa may be supplementedfrom local funda
   not exceeding 25s for any fiscal year. It is clear
   to us that the authority to use any part of the
   local fund4 Tar the purpose of paying obligations
   incurred under the authority of this bill, applies
   only to suoh buildings as are authorieed under Senate
   Bill #28. . . .”
          But, regardless of whether your revenue bonds wwrw is-
sued under Article 2909a, or Article 26030, V.A.C.S., we are
of the opinion that under the facta stated in yourletter,
$28,000 of local funds may be uaed to liquidate the balance of
the bond issue or issues on your Music-OrchestraHall in order
to secure   essential classroom space for the proper operation
of the college. The bond holders could not require the regents
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Hon. Walter F. Woodul, page 5           O-6836


to do this but you have the discretion to use the local funds
for this purpose under the circumstances mentioned Ln your
letter, under the provisions of Article 2654d, V.A.C.S. and
subsection 3 of Ch, 377, Acts 49th Legislature, R.S., 1945,
which is your current appropriation bL11. Although Music-
Orchestra Hall is encumbered with a lien to secure the revenue
bonds still outstanding, the hall is "owned and held" by the
North Texas State Teachers' College as the property of the
State of Texas. San Antonio Independent School District v.
Water Works Board of Trustees, et al, 120 S. W. (2d) 861, er-
ror refused. We presumeas long as these bonds are ou,tstand-
ing, you woul~dbe compelled to use a portion of the Hall as
a dormitory in order to obtain revenue for the sinking fund
for the bonds. Your bonds and the trust instrument in con-
nect1on with them no doubt requpre this since your bullding
must have been constructed under the statutes authorizing the
acquisrtion of "dormitories".
        Article 2654d, V.A.C.S., provides that the Board of
Regents may retain control of certain enumerated fees and col-
lections. Subsection 3 of your current appropriation bill ap-
propriates these local or institutional receipts to North
Texas State Teachers' College "as maintenance or contingent
funds to be expended under the direction and .wFththe approval
of the governing board. o s s ;, This act further provides
that your Board of Regents is authorized to use out of the
proceeds of said receipts and funds, in accordance with the
prov‘isi.ons
           of this act, such amounts as they sh::lldeem neces-
sary for the supportl,maintenance, operation and improvements
of said ?nstltutior,   The Board of Regents is "charged with
the responsibility of tbe general control and menagement" of
the Nor,thTexas State Teachers' College and it "may erect
equip and repair buildings". Article 2647, V.P,C.S.-'-'
                                                      The only
question here is whether local funds can be used to pay off
a lien in order to secure the exclusive use of a school build-
ing for classroom purposes. The power of the Board of Regents
to "operate" the school and to use "contingent funds" which
have been appropriated for this purpose, exists independently
of the powers conferred by ArtZcles 2603~ and 29Oga, V.A.C.S.
with reference to the issuance of revenue bonds. The Board of
Regents would without question have power to use local funds
tc retire a general indebtedness under similar circumstances
snd we do not think that the statutes authorizing the issuance
of revenue bonds prevent their doing so in this instance.
          Trusting that the foregoing answers your inquiry,,we
are
                                                       .   .




Hon. Walter F. Woodul, page 6         o-6836


                                Yours very truly,
                           ATTORNEY GENERAL OF TEXAS


                                By sbagan Dickson
                                     Fagan Dickson
                                         Assistant

FD :rt:wc

APPROVED OCT 8, 1945
s/Carlos C. Ashley
FIRST ASSISTANT
ATTORNEY GENERAL
This Oplnlon Considered And Approved In Limited Conference
