             THE   ATTORNEY         GENERAL
                      OF TEXAS


                         March 8, 1989



Honorable Billy Ray Stubblefield    Opinion No.   JM-1026
Williamson County Attorney
P. 0. BOX 1078                      Re:    Whether Williamson
Georgetown, Texas 78627             County may use the in-
                                    terest earned from invest-
                                    ment of bond proceeds  for
                                    the construction    of its
                                    courthouse/jail complex to
                                    fund additional  construc-
                                    tion on the project
                                    (RQ-1510)

bear Mr. Stubblefield:

     You inform us that Williamson County has issued and
sold $16.5 million in bonds to build a new county courthouse
and jail complex. The proceeds   from the sale of the bonds
were invested and have earned a sizable amount of  interest.
Some of the interest has been transferred to the interest
and sinking fund, and some remains in the          principal
construction account.

     The bids for construction of the project received by
the Williamson County Commissioners Court were all higher
than expected.    The commissioners   court would  like to
transfer the interest on the bond proceeds to the principal
amount so that they can afford the kind of courthouse/jail
complex that they had envisioned.    YOU ask the following
question:

           Way the interest earned from the invest-
        ment of Courthouse/Jail complex construction
        bonds proceeds be added to the principal
        amount,   in order    to provide  additional
        construction  funds for completion   of the
        project?

     You have not submitted additional facts nor have you
provided us copies of the bond covenants or other documents
relevant to the bond issuance. Our opinion will answer your
narrow legal question in the context of the information




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Honorable Billy Ray Stubblefield - Page 2   (JM-1026)




before us and will not speculate at length about all    other
circumstances which might suggest a different result.

     The commissioners   court of a county has statutory
authority to issue county bonds to build a county courthouse
and jail. V.T.C.S.    arts. 718; 237013, § 3. See also Tex.
Const. art. XI, 0 2 (construction of jails, court-houses,
bridges, and certain other improvements    shall be provided
for by general law): Mitchell   Countv  . Citv Nat'1 Bank of
Paducgb. Kvc, 43 S.W. 880 (Tex. 18z8)       (legislature has
authority to grant county power to issue bonds       for the
construction of bridges and a courthouse     and jail).   The
statutes do not address the question you ask. You however
raise the possibility that Attorney General Opinion JM-545
(1986) prohibits you from adding the interest earned     from
investment of bond proceeds to the principal amount.      See
&&Q Attorney General Opinion JM-530 (1986).

     Attorney General Opinion JM-545    (1986) concerned   the
disposition of interest earned on the invested proceeds     of
road bonds   issued by Austin County under article     6702-1,
V.T.C.S., the County Road and Bridge Act. Section    4.411(b)
of that act provides     that road bonds issued thereunder
"shall be   issued . . , as contemplated and authorized     by
Article   III, Section   52, of the Texas      Constitution.l*
Article III, section 52, of the constitution authorizes    the
legislature to empower counties to issue bonds for specified
purposes,   including   the construction,    operation,    and
maintenance   of roads.    Attorney  General Opinion    JM-545
stated that the "use of public debt in the form of bonds to
create a fund for investment as an indenendent or exclusive
undertam     is not a purpose    sanctioned by article    III,
section 52, of the Texas Constitution."     Attorney  General
Opinion JM-545 at 5 (emphasis in original). Austin      County
authorized the sale of three million dollars worth of road
bonds but had spent less than one million dollars for road
purposes.   &at     4. In the meantime, the costs of some
county road improvements were paid from the regular     county
budget, instead of being charged against the bond proceeds.
&    The holding of Attorney     General Opinion JM-545 was
based upon a specific and narrow set of facts, which
indicated that bond proceeds were used for investment as "an
independent or exclusive undertaking."

     The holding  of Attorney  General Opinion JM-545   thus
does not prohibit Williamson   County from adding   interest
earned from the investment of courthouse/jail bond proceeds
to the principal amount, to provide    additional  construc-
tion funds. The common law rule is that interest, as an




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Honorable Billy Ray Stubblefield - Page 3   (JR-1026)




accretion to the principal fund earning it, becomes part of
the principal unless lawfully separated from it. Sellers v.
               403 S.W.2d 242 (Tex. 1972); bawson v. Baker,
!2i%FT%          272 (Tex. Civ. APL'. - Austin   1920, writ
ref'dj.' See ilsp Attorney General Opinion H-1167      (1978)
(interest on constitutional    fund for state college     and
university construction is first applied to retire bonds and
then to finance additional permanent improvements);   Annot.
143 ALR 1341    (1943) (disposition of interest earned on
special funds of municipalities).

      As already stated, we find no statute that separates
the interest    from the principal    fund.   You have   not
submitted the bond covenants to us; therefore,     we do not
consider whether any provision   of the bond covenants would
separate the interest on the bond proceeds from the proceeds
and place it in the sinking fund, limit expenditures     for
building the courthouse/jail complex to an amount that would
be exceeded by adding interest to principal, or for any
other reason require a departure   from the common law rule.
In the absence of a statute, bond covenant,         or other
provision   or instrument   that otherwise    allocates  the
interest earned on bond proceeds,      the common   law rule
applies to the interest, and the interest may be added to
'the principal amount to finance the project for which the
bonds were issued.

     Attorney General Opinion JM-545 disapproved two earlier
opinions of this office, stating as follows:

           Attorney General Opinion C-537 (1965) held
        that a school board might deposit    interest
        earned by excess school bond proceeds in the
        sinking fund created to retire the indebted-
        ness. To the extent the opinion suggests the
        board possessed discretion  to do otherwise,
        it is disapproved.   A similar question was
        presented in,Attorney General Opinion R-1174
        (1978), which construed section . . . 120.42)
        of the Education  Code to permit the use of
        such interest for other purposes.    To that
        extent, it is disapproved, also.

Attorney General Opinion JM-545 at 7.

     Attorney General Opinions C-537 and R-1174 dealt with
school district bonds, not county bonds issued under article
III, section  52, of the Texas Constitution.      Thus, the
constitutional basis of the holding    in Attorney   General




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Honorable Billy Ray Stubblefield   - Page 4   (JM-1026)




Opinion JW-545 was not relevant to the two prior opinions,
and they should have been distinguished,       rather    than
disapproved.  Their disapproval by Attorney General   Opinion
JW-545 should accordingly be disregarded.

                        SUMMARY
                According   to the common law       rule,
           interest, as an accretion to the .principal
           fund earning it, becomes    part of the prin-
           cipal unless   lawfully separated    from it.
           This rule applies to interest earned on the
           investment of the proceeds of bonds     issued
           by Williamson County to build a courthouse/
           jail complex, and the interest may be added
           to the principal amount and used to finance
           the project for which the bonds were    issued
           unless a statute, bond covenant, or other
           provision   or   instrument    prevents   this
           allocation.



                                   J
                                   Ve


                                                               .
                                   JIM     MATTOX
                                   Attorney General of Texas

WARYKELLER
First Assistant Attorney General

mu nCcREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STRARLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General




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