                             ATTORNEY GENERAL OF TEXAS
                                          GREG       ABBOTT




                                               April 1, 2008



The Honorable Wayne Smith                            Opinion No. GA-0611
Chair, Committee on County Affairs
Texas House of Representatives                       Re: Whether chapter 572, Government Code,
Post Office Box 2910                                 relating to the filing of personal financial
Austin, Texas 78768-2910                             statements, is applicable to the board members of
                                                     the Tobacco Settlement Permanent Trust Account
                                                     Investment Advisory Committee (RQ-0626-GA)

Dear Representative Smith:

        You seek our opinion regarding whether chapter 572, Government Code, relating to the filing
of financial statements, is applicable to the board members of the Tobacco Settlement Permanent
Trust Account Investment Advisory Committee. 1

I.      Background

      To answer your question, it is helpful to understand the origin of the Tobacco Settlement
Permanent Trust Account Investment Advisory Committee.

        A.    Tobacco Litigation

        In 1996 the attorney general sued the tobacco industry on behalf of the State of Texas. See
State of Tex. v. Am. Tobacco Co., No. 5-96CV-91, (E.D. Tex. July 24, 1998); see also SENATE
COMM. ON FINANCE, BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S. (1999); HOUSE RESEARCH
ORG., BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S. (1999). The lawsuit sought to recover money
the State had expended to treat Medicaid patients for tobacco-related illnesses. See State ofTex. v.
Am. Tobacco Co., No. 5-96CV-91, (E.D. Tex. July 24, 1998); see also HOUSEREsEARCHORG., BILL
ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S. (1999). In July 1998, the parties reached a settlement
agreement wherein the tobacco industry agreed to pay the State of Texas billions of dollars over
twenty-five years. See HOUSECOMM. ON APPROPRIATIONS, BILL ANALYSIS, Tex. H.B. 1161, 76th
Leg., R.S. (1999); HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S. (1999).


         lSee Letter from Honorable Wayne Smith, Chair, Committee on County Affairs, to Honorable Greg Abbott,
Attorney General of Texas, at 1 (Sept. 13, 2007) (on file with the Opinion Committee, also available at
http://www.oag.state.tx.us) [hereinafter Request Letter].
The Honorable Wayne Smith - Page 2                    (GA-0611)




        B.     Settlement Agreement

        "Hospital districts and counties had intervened in the settlement, claiming that it would have
barred them from obtaining damages oftheir own for all ofthe tobacco-related indigent health care
they have provided." HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S.
(1999). The attorney general entered into a separate settlement agreement ("settlement agreement")
with the intervening hospital districts and counties. 2 See id In the separate settlement agreement,
the State agreed to "direct $2.275 billion3 to a permanent trust account from which Texas counties
and hospital districts would be reimbursed for costs of indigent health care." Id. (footnote added).

        The settlement agreement provided that all ofthe money received by the State resulting from
the increased payments from a most-favored-nation provision would be distributed to the "exclusive
benefit" of the "Political Subdivisions."4 Agreement, supra note 2, ~ 4. The settlement agreement
allocated the money into two fund pools. See id. One of the fund pools was the Permanent Trust
Account (the "Trust Account") for the "exclusive and long term benefit" of the political
subdivisions. Id. The Trust Account was to be placed under the auspices of the Comptroller but
used for "the exclusive benefit of the Political Subdivisions." Id. Moreover, the settlement
agreement expressly stated that "[i]n no event shall the Permanent Trust Account be placed into the
State Treasury, nor shall such Permanent Trust Account funds or any earnings generated therefrom
be subject to legislative appropriation." Id

        With respect to management of the Trust Account, the settlement agreement provided that
the Comptroller was to "manage and invest the funds ... for the exclusive benefit of the Political
Subdivisions." Id. ~ 6. "In addition, the Comptroller shall act as paying agent for purposes of
making distributions of the earnings from the Permanent Trust Account." Id. The settlement
agreement also called for the creation of an advisory board "consisting of representatives of the
Political Subdivisions [to be] created . . . for the express purpose of providing advice and
consultation to the Comptroller of Public Accounts regarding investments of the Permanent Trust
Account." Id.

        c.     Legislation'

      The Legislature enacted House Bill 1161 as the enabling legislation for the settlement
agreement. See SENATE COMM. ON FINANCE, BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S.


         2"Agreement Regarding Disposition ofSettlement Proceeds," in State ofTex. v. Am. Tobacco Co., No. 5-96CV-
91, (E.D. Tex. July 24, 1998) [hereinafter Agreement].

         3"The $2.275 billion accrued to Texas because of a 'most favored nation' provision in the tobacco settlement,
which awarded Texas with increased payments comparable to Minnesota's subsequent settlement on somewhat more
favorable terms." HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S. (1999).

          4The settlement agreement defines the "Political Subdivisions" to mean "all hospital districts, other local
political subdivisions owning and maintaining public hospitals, and counties of the State of Texas responsible for
providing indigent health care to the general public." Agreement, supra note 2, ~ 3(e).
The Honorable Wayne Smith - Page 3                      (GA-0611)




(1999); HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. H.B. 1161, 76th Leg., R.S (1999); see also
Act of May 27, 1999, 76th Leg., R.S., ch. 753, § 1.01, 1999 Tex. Gen. Laws 3364,3364. House Bill
1161 gave the Comptroller the trustee and investment manager-type duties envisioned by the
settlement agreement. See Act of May 27,1999, 76th Leg., R.S., ch. 753, § 1.01,1999 Tex. Gen.
Laws 3364, 3364-66 (codified at TEX. GOV'T CODE ANN. §§ 403.1041-.1042). The enabling
legislation also placed certain administrative duties with the Texas Department ofHealth. Id. § 2.01,
at 3368-69 (codified at TEX. HEALTH & SAFETY CODE ANN. §§ 12.132-.134). And the enabling
legislation created two eleven-member advisory committees: one to advise the Comptroller; and one
to advise the Department ofHealth. Id. § 1.01, at 3365-66.; 3369-70 (codified at TEX. GOV'TCODE
ANN. § 403.1042; TEX. HEALTH & SAFETY CODE ANN. § 12.137).

        Pertinent to your question, House Bill 1161 created the Tobacco Settlement Permanent Trust
Account Investment Advisory Committee (the "committee"). See TEX. GOV'T CODE ANN.
§ 403.1042 (Vernon Supp. 2007). The committee is made up of eleven members: One member of
the committee is appointed by the Comptroller and the other members are appointed by
representatives of the political subdivisions. 5 See TEX. GOV'T CODE ANN. § 403.1 042(b) (Vernon
Supp. 2007). The committee advises the Comptroller with respect to the Trust Account. See ide
§ 403.1 042(a); see also ide § 403.1041(b) (Vernon 2005) (authorizing the Comptroller to administer
and manage the assets of the account "[w]ith the advice of and in consultation with the advisory
committee"), 403.1 041(c) ("In managing the assets ofthe account, the comptroller, with the advice
of and in consultation with the advisory committee . . . ."), 403.1041(e) (stating that "[t]he
comptroller, with the advice of and in consultation with the advisory committee, may use the
earnings" as specified). Specifically, the committee "shall provide the comptroller guidance with
respect to the investment philosophy that should be pursued in managing these assets and the extent
to which, at any particular time, the assets should be managed to maximize growth of the corpus or
to maximize earnings." Id. § 403.1042(a) (Vernon Supp. 2007). The Legislature expressly provided
that, with a specified exception, "the advisory committee serves in an advisory capacity only and is
not a fiduciary with respect to the account." Id.

        The specified exception involves the Comptroller's power to adopt rules. The Comptroller
is given, in section 403.1041 (h), the power to adopt rules necessary to "implement the comptroller's
duties" under section 403.1041. See ide § 403.1041 (h) (Vernon 2005). The Comptroller's rule,
however, may not become effective without the approval of the committee. Id.

         With that extensive background, we consider your question about the committee.

II.      Texas Ethics Commission

       In 1999, the Texas Ethics Commission (the "Commission") determined that the committee
was not a state agency and, accordingly, that the members ofthe committee were not required to file


          5The representatives of the political subdivisions that are designated to appoint members to the committee
include the: political subdivisions that, in the preceding year, received certain large distributions from the Account, the
County Judges and Commissioners Association of Texas, the North and East Texas County Judges and Commissioners
Association, the South Texas County Judges and Commissioners Association, the West Texas County Judges and
Commissioners Association. See TEX. GOV'T CODE ANN. § 403.1 042(b)(2)-(8) (Vernon Supp. 2007).
The Honorable Wayne Smith - Page 4                      (GA-0611)




personal financial statements under chapter 572, Government Code. 6 More recently, the
Commission determined that the committee is a state agency such that its members must file a
financial statement under chapter 572. 7 Noting a need for clarification on the question, you ask
whether the members of the committee must file the chapter 572 financial statements. See Request
Letter, supra note 1, at 1.

        We must first consider whether it is appropriate for the Office of the Attorney General to
opine on this matter. The Commission is charged with the administration and enforcement of
chapter 572, which pertains to personal financial disclosures, standards ofconduct, and conflicts of
interest. See TEX. GOV'T CODE ANN. § 571.061(a)(I) (Vernon Supp. 2007) (providing for the
Commission's authority over chapter 572). See generally ide ch. 572 (Vernon 2004 & Supp. 2007)
(chapter entitled "Personal Financial Disclosure, Standards of Conduct, and Conflict of Interest").
And the Commission is authorized to prepare written opinions about the application of chapter 572.
Id. § 571.091(a)(5) (Vernon Supp. 2007). The Commission's governing statute expressly provides
that the "authority of the commission to issue an advisory opinion does not affect the authority of
the attorney general to issue an opinion as authorized by law." Id. § 571.096(a} (Vernon 2004).
Moreover, the Commission's enabling legislation provides that the Commission "shall rely on
opinions issued by the attorney general and the courts of this state." Id. § 571.096(c). Here, you
claim there is sufficient confusion on the matter to justify clarification by the Office ofthe Attorney
General. See Request Letter, supra note 1, at 1 (stating that you believe "there exists sufficient
confusion on this issue to warrant clarification"). Therefore, we will independently assess whether
the members of the committee are subject to the financial statement requirement.

III.     Legal Analysis

         A.     Chapter 572, Government Code, Financial Statements

         For purposes ofchapter 572, Government Code, a financial statement must generally include
"an account of the financial activity of the individual required ... to file a financial statement and
an acco~nt ofthe financial activity ofthe individual's spouse and dependent children [under certain
circumstances]." TEX. GOV'T CODE ANN. § 572.023(a) (Vernon 2004); see also id. § 572.023(b)
(listing requirements for an account of financial activity). Under chapter 572, financial statements
are required of state officers. 8 Id § 572.021 (Vernon Supp. 2007).



          6See Texas Ethics Commission Request For Determination ofFiling Status (Oct. 19, 1999) (attached to Request
Letter, supra note 1) (on file with the Opinion Committee).

         7See Letter to Martin A. Hubert, Deputy Comptroller, Texas Comptroller ofPublic Accounts, from Natalia Luna

Ashley, General Counsel, Texas Ethics Commission (May 2, 2007) (attached to Request Letter, supra note 1) (on file
with the Opinion Committee).

         8A fmancial statement is also required ofa "partisan or independent candidate for an office as an elected officer"

and a "state party chairman." TEX. GOV'T CODE ANN. § 572.021 (Vernon Supp. 2007). Neither of these is of concern
here.
The Honorable Wayne Smith - Page 5               (GA-0611)



        A "state officer" under chapter 572 is defined, in relevant part, to include "an appointed
officer." See ide § 572.002(12). An "appointed officer" is, again in relevant part, "an officer of a
state agency who is appointed for a term of office specified by the Texas Constitution or a statute
of this state." Id. § 572.002(1)(C). And for purposes of chapter 572, a "state agency" is:

               (A) a department, commission, board, office, or other agency that:

                        (i)   is in the executive branch of state government;

                     (ii) has authority that is not limited to a geographical portion
               of the state; and

                        (iii) was created by the Texas Constitution or a statute of this
               state;



Id. § 572.002(10); see also TEX. CIV. PRAC. & REM. CODE ANN. § 105.001(3) (Vernon 2005)
(providing similar definition of"state agency"); TEX. GOV'T CODE ANN. § 2004.001 (Vernon 2000)
(same); TEX. HEALTH & SAFETY CODE ANN. § 361.421(10) (Vernon 2001) (same); TEX. LAB. CODE
ANN. § 21.002(14)(A) (Vernon 2006) (same). As the members ofthe committee are appointed and
serve a six-year term as specified by statute, we must determine whether the committee satisfies the
requirements in section 572.002(1 O)(A) and is a "state agency" under chapter 572. See TEX. GOV'T
CODE ANN. § 572.002(1)(C) (Vernon SUppa 2007); see also ide § 403.1042(e) (establishing six-year
term for committee members).

       B.    State Agency

         The three elements ofthe definition of"state agency" are joined by the word "and." The term
is usually used in a conjunctive sense and here we find no indication its use is intended to be
otherwise. SeeBd. o/Ins. Comms'rsofTex. v. Guardian Life Ins. Co. ofTex., 180 S.W.2d906, 908
(Tex. 1944) (describing the word "and" as a conjunctive term and one not ordinarily interchangeable
with the word "or"). Under this definition, therefore, unless an entity satisfies all three elements
listed in section 572.002(10)(A), it is not a "state agency." The committee was clearly created by
Texas statute. See TEX. GOV'T CODE ANN. § 403.1042 (Vernon SUppa 2007). And due to its
placement in the Government Code and its operation under the Comptroller, it is likely a court would
consider it to be part of the executive branch of state government. Accordingly, we will focus on
the second element of section 572.002(1 O)(A) and determine whether the committee has "authority
that is not limited to a geographical portion of the state." Id. § 572.002(10)(A)(ii).

         An entity that functions in an advisory capacity only does not have "authority" and does not
satisfy the second element. See Ope Tex. Ethics Comm'n No. 243 (1995) ("If an executive branch
entity functions in an advisory capacity only and is not authorized to exercise actual governmental
authority, it is not a state agency for purposes of chapter 572."); see also Ope Tex. Ethics Comm'n
The Honorable Wayne Smith - Page 6             (GA-0611)




No. 369 (1997). Section 403.1042 provides the committee with-mere advisory tasks. See TEX.
GOV'T CODE ANN. § 403.1042 (Vernon Supp. 2007); see also ide § 403.1041(b) (Vernon 2005)
(authorizing the Comptroller to administer and manage the assets of the account "[w]ith the advice
of and in consultation with the advisory committee"),· 403.1 041 (c) ("In managing the assets of the
account, the comptroller, with the advice of and in consultation with the advisory committee
...."), 403.1041(e) ("The comptroller, with the advice of and in consultation with the advisory
committee, may use the earnings" as specified). As noted earlier, section 403.1042 expressly
states, with a specified exception, that the committee "serves in an advisory capacity only." Id.
§ 403.1 042(a) (Vernon Supp. 2007). Thus, but for the specified exception, it is clear the Legislature
intended the committee to serve in only an advisory capacity. We must therefore examine the power
provided by the exception to determine whether it constitutes "authority" under the second element
of section 572.002(10)(A).

        The exception involves the adoption of rules. See infra at p. 3. The Comptroller is
authorized to adopt rules related to the Comptroller's duties with respect to the Trust Account. See
TEX. GOV'T CODE ANN. § 403.1041(h) (Vernon 2005). As it is primarily advisory in nature, the
committee has no independent authority to adopt rules. See generally ide § 403.1042 (Vernon Supp.
2007). The committee has power only to approve or disapprove the Comptroller's proposed rules
that relate to the Trust Account. And any proposed rule of the Comptroller is itself confined to the
Comptroller's limited authority over the Trust Account.

        We find no judicial or attorney general opinion that provides direct precedent helpful to your
inquiry. The Commission, however, has issued an opinion that offers us some guidance. See Ope
Tex. Ethics Comm'nNo. 369 (1997). The Commission, in Ethics Advisory Opinion 369, considered
the nature ofthe Agriculture Resources Protection Authority ("ARPA"). See id The ARPA served
as a "'coordinating body' for six state agencies' policies and programs regulating pesticides." Id.
Relevant here, the ARPA had authority to "adopt rules relating to its duties." Id. In the opinion, the
Commission noted that the Texas Department ofAgriculture, which provided administrative support
for the ARPA, argued that the ARPA acted in only an advisory capacity. See ide The Commission
agreed stating that "[a]lthough the ARPA has rule-making authority, it may adopt rules only relating
to its duties, all of which are advisory." Id Under Ethics Advisory Opinion 369, an entity with
actual power to adopt rules does not exercise authority under section 572.002(10) so long as the rules
are statutorily limited to an advisory role.

        The committee's power with respect to rules is no greater than the power of the entity
considered by Ethics Advisory Opinion 369. The committee's power to approve or withhold
approval of a proposed rule ofthe Comptroller provides the committee some ability to influence the
rules adopted regarding the Trust Account. Yet, its power to influence rules does not equate to an
affirmative grant of power to adopt rules. See TEX. GOV'T CODE ANN. § 403.1041(h) (Vernon
2005). Cf Ope Tex. Ethics Comm'n No. 369 (1997). And any power of the committee to approve
or withhold approval of a Comptroller rule is nonetheless confined by the committee's limited
advisory role. See TEX. GOV'T CODE ANN. §§ 403.1041-.1042 (Vernon 2005 & Supp. 2007)
(providing committee with only advisory duties). Cf Ope Tex. Ethics Comm'nNo. 369 (1997). We
believe the committee's primary role as set out in the statute is to advise the Comptroller, and that
The Honorable Wayne Smith - Page 7             (GA-0611)



its power to influence a Comptroller-proposed rule is de minimus when compared to its primary
function of advising the Comptroller. See generally Tex. Att'y Gen. Ope No. JM-141 (1984)
(examining Texas Sesquicentennial Commission's executive power as compared to its advisory and
ceremonial duties and determining the executive power was, comparatively, de minimus).
Accordingly, we believe the committee's role in influencing rules is merely an extension of its
advisory power vis-a.-vis the Trust Account. We therefore conclude that the committee acts in an
advisory capacity only. Absent authority, the committee does not fall within the definition of a state
agency under section 572.002(10).

IV.    Conclusion

        Because the committee is not a state agency under section 572.002(10), a member of the
committee is not an officer of a state agency who is appointed for a term of office specified by the
Texas Constitution or a statute of this state. Therefore, a member of the committee is not a state
officer under chapter 572 and not subject to section 572.021 's financial statement requirement.
The Honorable Wayne Smith - Page 8          (GA-0611)



                                     SUMMARY

                     Chapter 572, Texas Gov~rnment Code, relating to the filing
              offinancial statements, is not applicable to the board members ofthe
              Tobacco Settlement Permanent Trust Account Investment Advisory
              Committee.




KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee
