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