                        TEIEA.TF~RXEYGENERAI.
                                 OF -lTExAs
Gerald   c.    Mann                 Au-     ai. TEXAE
  . *-mIs-      a--




     Honorable Tom C. gins
     State Auditor and Rffloienoy Expert
     Austin, Texas
     Dear Sirs                        Opinion Wo. O-1662
                                      Rer May paynmnts of prlnolpal and
                                      Lriterestbe made out of college
                                      funds for thd'l'etlretintof
                                      Dormitory Revenue Bonds4
     Your rsqueit for an oplnloi~has be&n reoelved by this offlos.
     Ws quote from your letter as r0ii0wst
              *'Anaudit of one of the State Teaohers Colleges of Texas,
              reveals that on October 1, 1934 thenCollege executed a
              bond issue to Oeoure a grant of ,thePublio Works
              Adminlatratlon, an agency of the Federal Government, to
              make posslble the ereotlon of a new boys' dormitory.
              The bands are labeled 'Boys* Dormitory Revenue Bonds*.
              Vhla a&ion was taken under authority of Chapter 5,
              Aots ad C. S., 45 rd legislature, whloh beosme
              ef'feotlveFebruary 16, 1934. That act au'thorlnes
              suoh bonds to be issue&, rwithout cost to the State of
              Texas', and oontlnuesr.
                       (Sea. 2 That sald Boards ars further authorized
                       to make any .oontraotwith referenoe to ths
                      ~oolleotion and disposition of the revenues derived
                       from any building so owstruoted Ln the acquisition
                       or oonstruotlon, management and malntenanoe of any
                       building or buildings aoqulred hereunder, and In
                       sntiolpatlon of the odlleotlon of euoh revenues,
                       and for the~purpose of paying the oost of the
                       oonatruotion or acquisition of said building or
                       buildings and grounds aafd boarda are severally
                       empowered%y rssolution to authorize, sell, and
                       deliver ita negotiable bonds or notes from tlme
                       to time and in auoh amount or amounts as it may
                       oonsider neoessary. Any bond or notes issued
                      hereunder shall bear lnterest at not to exoeed
                       six per cent per annum, and shall finally mature
                      not more than forty years from date.
Eon. Tom C. King, page 2, O-1662


    cS80. 3 Subject to the above restrictions each of said
    boards 1s given complete discretion in fixing the form,
    conditions, and details of such bonds or notoa. &ny
    bonds or notes issued hereunder shall not be an lndebted-
    ness of the State of Texas, but shall be payable solely
    from the revenues to be derived from the operation of
    said bufLd%ngsr.
  "The resolution ok the Board of Regents authorlalng the
  issuance of the Dormitory Bonds sets forth the form ln whhioh
  they are to be drawn. This presorlbed form oontalns, among
  others, the followtig provisions:
     'This bond . . . . is payable solely from the Bond Fund
     of said college oreated.for that purpose from the revenues
     to be derived from the operation of said Project, all as
     provided by the oonst%tutlon Aiidlaws of the State of
     Texas and particularly Chapter 5'of the Acts of the 2nd
     C.S. of the 43rd legislature of Texas and as provided
     Ln that certain resolution of-the Board~of Regents . . .r.
     ' . . . . the holder hereof shall nevsr have the right
     to demand payment of this obligation out of any funds
     ralssd or to be raised by taxation .': .I'.
  "The resolution further provides,,.
     'Section 8 That subject only to the payment of.reasonable
     oosts for operation and maintenance of the Project to be
     construoted with the proceeds of 'the scrleof said bonds,
     the gross revenues to be derived from the operation of
     said project are hereby irrevocably pledged to the pay-
     ment of prlnoipal of and titerest on the bonds herein
     authorized . . . .t
  "All payments on interest and principal for the retirement
  of these bonds have been regularly made; but the revenues
  from the building, after payment of the expenses of its
  operation, have been oonslstently lnsufflolent for the
  purpose and have been supplemented by tithdrawals from other
  local funds of the oolls$e to meet .the deflolency.
  “Your opinion   la respeotfully reques'tedon the following
  questiona:
     (1) Under the laws and the authorlsed terms of the
     bonds, can payments for the retirement of their principal
     and interest be lawfully mad8 out of Oollege'Funds other
     than the @ass revenues of the proje'ot,with reasonable
     operatLon and maintenanoe oosts deduoted?
     (2) If payments are made from other soutides.thansuoh
     rgrosa FeVBnuee' do they constitute a claim on behalf of
.   -




        Eon. Tom C. King, page 3, O-1662


                the College and against the bond holders?"
        Our answer to your  first question 1s that under the laws and
        the authorized t8lmS of the bonds in question, payments for
        the retirement of their  principal and interest cannot be
        lawfully made out of oolle e funds othnr than the gross
        revenues of the Projeot, w1 th reasonableoperation and
        maintenance costs deduoted. As pointed out Fn your letter,
        and quoted above, the bond expressly provides that lt can ln
        nowlse be oonstrued to be a llablllty against the State.
        Furthermore, Chapter 5, Aots of the Second Called Session,
        Forty-third Legislature, the Act under which these bonds were
        issued, provides that suoh bond shall be payable solely from
        the revenues to be derived from theoperation of said building.
        The power of the regents to execute the bonds and to provide
        for the payment of the loan out of the revenues from said
        bulldlng over a period of years is exempt from the constltu-
        tional prohibitions in Artlole 3, Seotlons 49 and 50 and
        Article 8, Section 6, solely because no debt against the'
        State is created and there is no pledging of the credit of
        the State, nor is there any appropriation of public funds
        Fn the pledging of the revenues from the building.
        It would seem, therefore, olearly to follow that an
        appropriation of public funds, either ikom the general fund
        in the State Treasury or from local or Lnstltutlonal funds,
        would be ln violation of Article 3, Section 44 of the
        Constitution, which provides, in part, that the Legislature
        shall not "grant, by appropriation or otherwise,-any money
        out of the.Treasurg of the State to any individual, on a
        claim, real or pretended, when the same shall not have been
        provided for by preexisting law 8 G %I'.
        There being no llablllty against the State because of the
        construotion of said building under the expressed terms of
        the contract and of the statutes authorizing the construction
        of the building, there would be no wpreexlstlng law" to serve
        as the basis of the appropriations of any public funds to
        repay the loan and such appropriations would be in violation
        of Article 3, Section 44. Fort  Worth Calvary Club vs.
        Sheppard, 83 S.W. (2d) 660.
        We believe that the s ame prohibition would apply to local
        funds as well as to funds whloh had been deposited in the
        State Treasury. This department has previously ruled that
        similar fees collected by the Department of Education are
        public funds. See Conference Opinion Wo. 3012, dated
        February 3, 1938, by Assistant Attorney General Wm. J. Kemp,
        addressed to honorable Tom C. King, State Auditor and Wffi-
        oienoy Expert-,and found ln the published opinions of the
        Attorney General, 1936-38, page 127.
        Furthermore, we wish to direct your attention to the fact
                                                                    -   *




Hon. Tom C. King, page 4, O-1662


that the local funds of an educational Institution have been
treated by the kglslature as public funds, ln that they have
been approrplated to suoh lnstltutlons ln the General
Eduoational Appropriation Bill. House Bill #255, Acts of the
Regular Session of the Forty-sixth Legislature, 1939. Sub-
division 3 of the general provisions attached to said bill
provides as follows:
     "Subdivision 3. Institutional Reoelpts. No property
    belonglng to;any of the lnstltutl~s provided for, or
    any agency thereof, shall be sold or disposed of without
    the consent of its governing board, and all proceeds from
    the sale of such property, from labor performed, from the
    sale of materials, crops and supPlies, from fees and 9
    and all other receipts shall become and are hereby
    appropriated as maintenance or oontlngent fund to be
    expended under the direction and with the apprOVa1  of the
    governing board having jurlsdlctlon. Said governrng board.3
    are authorized to use out of the proceeds of sald.recelpts
    and funds, in accordance with the-provisions of this Act,
    such amounts as they shall deem necessary for the support,
    malntenanoe, operation and improvements of said in-
    stitutions. Any balances remaining to the credit of any
    of said institutional looal funds at said institutions or
     ln the State Treasury at the end of any fiscal year are
    hereby reappropriated for the above mentioned purposes
    'for the succeeding year.”
We believe that there should be no distlnotlon made between funds
required by law to be deposited in the State Treasury and local
educational or institutional funds, which under the statute may
be retained and placed ln depository banks by the Board of
of Regents of the State Teachers Colleges, and that the Board
of Regents would not be authorized to use either appropriations
from the general fund or such local or institutional funds in
payment of the bonds mentioned in your letter.
In reply to your second question you are advised that this is a
question of fact as well as of law and it is necessary that we
have addltianal information befOr8 we can determine whether or
not the College may maintain an aatlon against the bondholders
for recovery of payments made out of the local funds.
Trusting that this answers your questions, we are
                              Very truly yours
                          ATTORNEY GENERAL OF TEKAS
                          s/.Claud 0. Bootbman
COB-s/cg                  Bi
                                  Claud 0. Boothman
APPROVRD FEB~.27, 1940                    Assistant
s/ W. F. Moore
FIRST ASSISTART ATTORREY GRRERAL       Considered and approved ln
                                       limited conference
