                                 October    8.   1974



? he Honorable   Jesse James                            Opinion   No. H-   415
5 tate Treasurer
5 ate of Texas                                          Re: Use of bonds of a leased
Austin,   Texas  78701                                  housing corporation   as security
                                                        for the deposit of state funds.

Dear Mr.   James:

        You have asked     our   opinion

                as to whether the leased housing revenue bonds that
                are to be issued by the Guadalupe Leased Housing
                Corporation,    Victoria,    Texas may be accepted,   when
                issued,  as collateral    for State Funds and if such bonds
                will be unconditionally     guaranteed by the United States
                Government    as to payment of both principal and interest.’

        The basic requirements   for collateral for the deposit of state funds
are set out in Article 2529, V. T. C. S., which provides in part:

                 The Treasurer    shall. require each bank so designated
                 to qualify as a State Depository   on or before the 25th
                 day of November next, . . .

                      (b) by pledging with the Treasurer   any securities
                 of the following kinds: bonds and certificates    and other
                 evidences    of indebtedness of the United States, and all
                 other bonds which are guaranteed as to both principal
                 and interest by the United States;

         An additional   means of providing   security for deposit of state funds
is outlined in Article   1269k-1, V. T. C. S., which provides in part:




                                       p.   1936
The Honorable    Jesse   James    page 2     (H-415)




                     Notwithstanding   any restrictions      on investments
                 contained in any laws of this State, the State [and
                 other designated agencies,corporations         and persons]
                 may legally invest any sinking funds, moneys or
                 other funds belonging to them or within their control
                 in any bonds or other obligations      issued by a housing
                 authority pursuant to the Housing Authorities         Law
                 (Chapter ‘462, Regular Sessioh of the 45th’Legislature,
                 as amended by House Bill No. 102, 2nd Called Session of
                 the 45th Legislature,    and amendments       thereto) or issued
                 by any public housing authority or agency in the United
                 States, when such bonds or .other obligations are secured
                 by a pledge of annual contributions       to be paid by the United
                 States Government     or any agency thereof,       or secured or
                 guaranteed by a pledge of the full faith and credit of the
                 United States Government      or any agency thereof, and such
                 bonds and other obligations     shall be authorized security       .
                 for all public deposits:

          The bonds in question are the type commonly issued to finance
programs     under 5 23 of the United States Housing Act of 1937, as amended,
 !42 U. S. C. § 1421b). A leased housing corporation,         a non-profit   body which
in this case is the Guadalupe Leased Housing Corporation,             is created and
contracts    to construct a project.     A Public Housing Authority,       in this case
the Housing Authority of the City of Victoria,         Texas, agrees to lease the
project and upon completion        will in turn lease units to qualified individuals
and f.amiiies.     The federal Department of Housing and Urban Development
enters into an Annual Contribution        Contract !ACC) with the Public Housing
Authority.      The ACC is designed to cover the annual principal and interest
requirements      of the bonds.    The public housing authority pledgee its receipts
under the ACC to meet its lease payments to the leased housing corporation
and the leased housing corporation         uses the money to meet its obligations       to
the bondholders.       III other words, the public housing authority uses the leased
housing corpkation        as a conduit for the issuance    of bonds and pledges its
 receipts  under its ACC with the Department         of Housing and Urban Develop-
 ment to the payment of its lease obligations        which are designed to meet the
 principal and interest due on the bonds.




                                      p.   1937
The Honorable   Jesse   James    page        3     (H-41 5)




         A similar question was considered       in Attorney General Opinion
WW-11 (1957).      There you asked whether bonds issued by\a public housing
authority,    rather than by a private leased housing corporation    as in this
case,   could serve as collateral    for the deposit of state funds. In considering
whether the public housing authority bonds qualified as collateral      under
Article    2529 that opinion stated:

                The contract between the Federal Government          and the
                Public Housing Authority may provide that the interest
                and sinking fund will be used for the purpose of paying
                the obligation,   but this payment of the obligation is not
                guaranteed by ,the United States Government.        Accordingly,
                the bonds are not eligible as collateral     for State deposits
                under the provisions     of Article 2529, V. C. S., since the
                quoted language,     when taken with the other language of
                the Act, evidences     a clear intent that the payment of the
                principal   and interest    must be the obligation guaranteed
                by the Federal Government.         (emphasis in original)

          Here, as in the situation considered     in Attorney General Opinion
WW-11, the federal government        is guaranteeing   only the payment of.a .
specified    sum to the public housing authority and not the ultimate payment
of the principal and interest to the bondholder.        Therefore,  it is our opinion
that the bonds about which you inquire do not qualify under Article 2529 to
secure    the deposit of state funds.

         Attorney General Opinion WW-11 went on to hold that the public
housing authority bonds did qualify as collateral      under the specific pro-
visions of Article 1269k-1, V. T. C. S., notwithstanding     the failure to
qualify under the more general Article        2529. Article 1269k-1, however,
is limited to bonds or other obligations     “issued by any public housing
authority or agency. ” Although a public housing authority has pledged its
annual contribution    contract from the federal government     for the payment
of lease obligations,    the issuer of the bonds is the leased housing corpora-
tion and therefore    outside the scope of Article 1269k-1.    We recognize
 that there is little practical   difference  between this type financing arrange-
 ment and the one approved in Attorney        General Opinion WW-11 (1957) ;
 however,    we are not at liberty to ignore the language of Art. 1269k-1




                                        p.       1938
The Honorable      Jesse       James,   page 4     (U-41 5)




which restricts    its application      to bonds issued       by public   housing
authorities.

                                 SUMMARY

            Bonds issued by the Guadalupe Leased Housing
        Corporation   do not qualify to secure the deposit
        of state funds.

                                                   Very   truly yours,




                                            c/     Attorney     General    of Texas




                           \
LAk    Y !F’. YO    K, First




DAVID M. KENDALL,                Chairman
Opinion Committee




                                            p.   1939
