                                                      .

               THICA~TORNEX                     GENERAL
                             OF
                        AU==%         TnuAm     78711




                                 July 2, 1974


The Honorable J. W. Edgar,     Commissioner               Opinion No. H-339
Texas Education Agency
201 East Eleventh Street                                  Re:    Application to
Austin, Texas 78701                                       Independent School Districts
                                                          and Regional Junior Colleges
The Honorable  Bevington Reed,                            of statute authorizing issuance
Commissioner,   Coordinating Board                        of Certificate   of Indebtedness
Texas College and University System
P. 0. Box 12788, Capitol Station
Austin, Texas 78711

Gentlemen:

    Each of you has requested our opinion about the effect of Article
2784g-2. V. T. C. S., currently Sec. 20.51 of the Texas Education Code,
dealing with “Certificates of Indebtedness” issued by school districts.

   Dr. Edgar   asks:

            In authorizing a school district board to issue
       certificates   of indebtedness (in amount(s) not to
       exceed $250,000) without the requirement      of a local
       election to approve such indebtedness,     does [Sec.
       20. 511 contravene Article VII, Section 3 of the
       Constitution of Texas.

    His second question,   relating   to a specific   school district   is:

           Since [Sec. 20.511 was not enacted prior to the
       time when the district electorate  voted an authorized
       maximum maintenance tax rate (in July 1968). may a
       school district board legally appropriate and/or




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     The Honorable   J. W. Edgar
     The Honorable   Betington Reed     page 2




                     irrevocably  pledge local maintenance taxes as
                     payment for certificates  of indebtedness issued
                     pursuant to [Sec. 20.511 as amended?

             Dr. Reed inquires for the Wilbarger    County Junior College District
     about the legality of the issuance of such certificates  by the District for the
     purpose of constructing physical. education facilities  on the campus of Vernon
     Regional Junior College which the District operates.

             Pertinent provisions  of 5 20.51 of the Education    Code, incorporating
     the 1973 amendment to Article    2784g-2 61 (a), are:

                          (a) Any school district,   including a junior college
                     district,    may issue interest bearing Certificates    of
                     Indebtedness for the purpose of (1) providing funds for
                     the erection and equipment of school buildings within
                     the boundaries of the district,     (2) refinancing outstanding
                     certificates   as herein provided,    or (3) purchasing sites
                     for the future construction of public school facilities.
                     The term certificates,     as used in thin Act [Section] shall
                     include all obligations authorized to be issued hereunder
                     and the term ohall include interest thereon, unless
                      clearly indicated by the context that another meaning is
                     intended.

                         (b) The governing body of the district shall make
                     provision for the payment of the certificates   issued
                     . . . by. . . the appropriation  and pledge of local
                     school funds derived and to be derived from main-
                     tenance taxes levied and assessed or to be levied
                     and assessed under authority of Sections 20.02 and
                     130.122 of this code . . . or other similar law . . .
                     which limits the amount of tax which may be levied
                     for maintenance purposes, as distinguished from
                     bond requirements.    The appropriation    and pledge
                     may be in the nature of a continuing irrevocable


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The Honorable   J. W. Edgar
The Honorable   Bevington Reed     page 3




                pledge to apply the firrt money6 collected or to
                be collected annually from the tax levy to the pay-
                ment of the obligation6 or by the irrevocable
                prerent levy and appropriation     of the amount of the
                maintenance tax as ir required to meet the annual debt
                service requirement6     of the obligations, in which
                event the governing body 6hall covenant to annually
                set aside the amount in the annual tax levy, showing
                the same is a portion of the maintenance tax. The
                governing body shall annually budget the amount
                required to pay the debt service requirements,      prin-
                cipal and interest,  of the obligations which may be
                scheduled to become due in any fircal year. Nothing
                herein shall be conetrued a6 permitting the levy of
                a maintenance tax in exce6a of the amount approved
                by the resident qualified property taxpaying voter6
                of the district.

                     (f) Certificates   authorized to be irsued hereunder
                shall be payable at 6uch times, be in such form and
                denomination or denomination6 . . . and contain such
                other provision6 ar the governing body of the district
                may determine,        but in no event rhall any certificate
                mature    over a period in exce6s of 25 year6 from the
                date thereof, or bear interest at a rate in exce66 of
                seven percent per annum.

                     (k) Certificate6 is6ued under the provi6ions of thi6.
                section shall be an indebtednerr of the school diltrict
                i6suing them, but the holder thereof shall not have the.
                right to demand payment thereof out of any fund or
                fund6 other than thoee pledged to it6 payment. . . .

                                         *****




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The Honorable        J. W. Edgar
The Honorable         Bevington Reed     psge 4




                          (n) The provi6ionr  of this section shall be
                     cumulative of existing law6 relating to the financing
                     of the cost of erecting and equipping rchool building6
                     by 6chool districts , it being the legislative intent
                     that thi6 section shall be complete authority for the
                     issuance, sale, and delivery of certificates    by school
                     districtcr.

                                              *****


           These provisions have not yet been conrtrued         by the appellate   courts,
but we believe    they will be held constitutional.

           Article   7, Sec.   3, of the Constitution   of Texas reads in part as
follows:

                     . . . and the Legislature     may authorize an additional
                     ad valorem tax to be levied and collected within all
                     school districts heretofore     formed or hereafter formed,
                     for the further maintenance of public free schools, and
                     for the erection and equipment of school buildings
                     therein; provided that a majority of the qualified property
                     taxpaying voter6 of the district voting at an election to be
                     held for that purpose, &all vote such tax not to exceed
                     in any one year one ($1.00) dollar on the one hundred
                     dollars valuation of the property subject to taxation in
                      such district,  but the limitation upon the amount of
                      school district tax herein authorized shall not apply to
                     incorporated    cities or towns constituting separate and
                     independent 6chool di6tricts.      nor to independent or
                      common school district6 created by general or special
                     law. (Emphasis added)

         Although the portion of Article 7, Sec. 3, here considered appears to
refer to a single tax to be voted for maintenance and school building purposes,
the Lgiilrtum,    historically, has treated taxes for such respective purpose6


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The Honorable   J. W. Edgar
The Honorable   Bevington Reed,   page 5




as separate, distinct taxes, each requiring separate voter approval.
(See, Seer. 20.02,   20.04, 130.122, V. T. C.S., Education Code).

    In Madeley v. Trustee6 of Conroe I. S. D., 130 S. W. 2d 929 (Tex.
Civ. App. , Beaumont, 1939, err. dt6%n., judgment car. ), the Court
conridered two statutory forerunner6  of the above noted Education Code
provisions.   All the public free 6ChOOl6 in the dirtrict were adequately
maintained and a large surplur had accumulated in the maintenance tax
fund which the Trustee6 proposed to 6pend for building improvementr.

           What shall the Trustees do with thir ru,~lur?      It
       cannot be expended in the support and maintenance
       of the public free 6ch0016, for it is not needed for that
       purpose; it cannot be diverted from public free school
       purposes,    for under the Conrtitution it was collected
       for that purpore.   It cannot be returned to the tax
       payers.

             It6 allocation to the maintenance fund was by
       legislative    edict for the purpore of rupporting and
       maintaining the public free rchool.      When that
       purpose ha6 been effectuated,      the fund io no longer
       6ubject to the control of the statutes, for the purpore
       of the statute6 has been fully effectuated,     If and
       when the statutes cease to control the fund, then
       it becomes a conrrtitutional fund and not a rtatutory
       fund, and may be ured by the trurteer for the con-
        stitutional nurpose6; one of the constitutional purposes
       is ‘the erection and equipment of rchool buildingr’
       within the dirtrict.     (Emphasir added)

     In Allen v. Channelview Ind.Sch. Dist., 347 S. W. 2d 27 (Tex. Civ.App.,
Xaco, i961, writ ref’d. ) the plaintiff attacked the constitutionality  of
Article 2786e, V. T. C. S., now Sec. 20.43(a) of the Education Code,
which authorized school districts to issue time warrants against main-
tenance tax proceeds for certain purposes, including the repair,       pur-
chase, renovation and equipment of 6ChOOl properties.        The rtatute, in
effect, pledged “delinquent taxerr (except bond taxes) penalties and
interest to the payment of outstanding warrants.”     But the Court denied
that Article 7, Sec. 3 of the Constitution forbade deficit financing.

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    The Honorable   J. W. Edgar
    The Honorable   Bevington Reed,    page 6




         The plaintiff argued that the previour maintenance tnx elections had
    authorized levy and collection of taxes for maintenance only for a current
    year, and that no new elections had been held to authorize the collection
    of taxes to pay such time warrants.      But Ue Court noted that only
    “available”   maintenance trx money, collected purmant to an election,
    properly held, was used. [Prelrumably,       surplus tax money rimilar
    to the hind discuseed in the Madeley case: note Sec. 3 of Acts 1953,
    53rd Leg.,    R. S., p. 1038, ch. 427, and see Attorney General Opinion
    C-197 (1963)].

       In discussing   thi6 claim,   the Court said:

                They contend the statute unconstitutionally
           authorizes issuance of warrant6 payable from taxes
           without an election at which the tax is voted.   If by
           this is meant a special election at the time the
           warrants are irsued, Section 3 does not require it,
           and there is no contention maintenance taxes ‘available’
           were not properly voted.    (Emphasis added)

         The Madeley case would seem to teach that where the statute authorize6
    the collection   of the tax for current year maintenance purpo6e6    only, the
    money cannot be ueed for anything else until all maintenance requirements
    for the year have been met.      The Allen case teaches that maintenance tax
                                                                                       ..
    funds “available”    can be pledged to pay time warrants,  if the practice is
    legislatively  sanctioned.

         In our view, surplus maintenance tax receipts,    remaining unexpended
    after maintenance purpose6 have been fulfilled,    may be pledged as payment
    for Certificates  of Indebtedners under the above-quoted portions of Sec. 20.51,
    whether the election authorizing the levy of the maintenance tax funds Used
    for iia accomplishment    occurred before or after the effective date of
    Sec. 20. 51.

                                 SUMMARY

                 Surplus maintenance tax receipts, remaining
           unexpended after maintenance purposes have been
           fulfilled,  may be pledgriar payment for Certificate6


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     The Honorable   J. W. Edgar
     The Honorable   Bevington Reed,    page 7




            of Indebtedne66 under the above-quoted portion6
            of Sec. 20.51, whether the election authorizing
            the levy of the maintenance t6x fund6 ured for it6
            accomplirhment    occurred before or after the
            effective date of Sec. 20.51.

                                                 Very   truly yours,




     DAVID M. KENDALL,       Chairman
     Opinion Committee




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