TIZE:A~TORNEYGENERAE~
OF TI3XAS
AUUTIN. Teas 78711
February 25, 1974
The Honorable Elmo Parsons Opinion No. H- 239
County Attorney
Falls County Re: Questions concerning the
Marlin, Texas 76661 county permanent school funds
as affected by the amendment
to Article 7 of the Constitution.
Dear Mr. Parsons:
A letter from your office has asked:
“Is it proper for the Falls County Commissioners
Court to purchase Chilton school bonds with the Falls
County Permanent School Funds? ”
The letter explains that the Commissioners Court would like to purchase
Chilton Independent School District Bonds in the amount of $85, 000 with Falls
County Permanent School Fund money, that the bonds would bear interest at
the rate of l/l0 of 1% per annum and that they would be purchased on an “entire
per capita county student basis” so as not to discriminate against other school
districts in the county.
We have also received an inquiry about this matter from Representative
Dan Kubiak, Chairman of the House of Representatives Committee on Education,
who asks about the application of Article 7, $ 6b of the Texas Constitution.
The county permanent school fund is impressed with a trust in favor of the
localtiabitants and schools, and the commissioners court administers the fund
as trustee, with the duties of trustee. Art. 7 $ 6, Texas Constitution: Love
v. City of Dallas, 40 S. W, 2d 20 (Tex. 1931). DeltaCounty v. Blackburn,
S. W. 419 (Tex. 1906); Potter County v. C. C. Slaughter Cattle Co., 254 S. W. 775
(Corn. App. 1923).
p. 1110
The Honorable Elmo Parsons, page 2 (H-239)
Attorney General Opinion M-1104 (1972) dealt with the precise question
asked here, and was written in response to a request by a prior County Attorney
of Falls County. That opinion concluded that investment of Falls County Perma-
nent School Fund monies in Falls County obligations bearing a return of only l/10
of 1% per annum is improper, among other reasons, as violative of the “prudent
man” test of Article 7425b-46 V. T. C. S. See 90 C. J. S. , Trusts 5 323.
The “prudent” character of an investment is ordinarily one of fact, unless
reasonable minds could not disagree. But the same considerations which applied
in Opinion M-1104 apply here to foreclose the question. We believe that the courts,
in today’s world, if presented the case as presented to us, would consider the con-
templated investment improper as a matter of law.
We believe that that Opinion is still dispositive of the issue, despite the
addition of Section 6b to Article 7 of the Constitution in 1972.
This provision reads in part:
,f . . [A] Roy county, acting through the commissioners
court, may reduce the county permanent .school fund of
that county and may distribute the amount of the reduction
to the independent and common school districts of the
county on a per scholastic basis to be used solely for the
Purpose of reducing bonded indebtedness of those districts
or for making permanent improvements. ”
The new constitutional language was construed in Attorney General Opinion
H-47 (1973) which explains the application of the term “per scholastic basis. ”
Section 6b does not affect the standards to which a trustee is held regarding
investment of then county permanent school fund. It does authorize distribution
of the corpus to the school districts for the purpose of reducing of bonded indebt-
edness or making permanent improvements.
If the Chilton Independent School District proposes to make permanent
improvements or to reduce bonded indebtedness and the proposed bond sale is
for one of these purposes, Section 6b authorizes the direct distribution of a portion
of the corpus of the Falls County Permanent School Fund to the Chilton district.
p. 1111
The Honorable Elmo Parsons, page 3 (H-239)
This portion may not exceed Chilton Independent School District’s pro-rata enti-
tlement determined on a per scholastic basis, and a sufficient portion of the fund
must be retained to pay any applicable ad valorem’taxes. Article 7, Section 6b,
Texas Constitution.
It is our understanding that both the Marlin School District and the Rosebud-
Lott School District have previously sold bonds to the Fund at a similar rate of
interest as that proposed here. The proprie t’y’of these prior transactions should
be considered in light of the analysis above. The Chilton Independent School
District is entitled to have its distributable share of the county permanent school
fund based upon a restored fund, or one adjusted to allow a fair distribution in
the light of transaction already completed between the Fund and other school
districts.
SUMMARY
The Commissioners Court may distribute to the Chilton
Independent School District a portion of the county permanent
school fund for permanent improvements or to reduce bonded
indebtedness so long as the proper pro-rata entitlement of the
school district is not exceeded, and so long as a sufficient portion
of the fund remains to pay applicable ad valorem taxes, but the
Commissioners Court may not purchase on behalf of the county
permanent school fund bonds of the school district bearing interest
at only l/lOth of 1% per annum.
ery truly yours,
I/ Attorney General of Texas
,
R&Y-F. Y dpK>First yssistant
DAVID M. KENDALL, Chairman
Opinion Committee
p. 1112