Bon. Jesse James Opinion No. &l-468
State Treasurer
Treasury Department Re: Construction of Bouse
State of Texas Bill 1217, Acts of the
Austin, Texas 78711 61st Legislature,
Regular Session, 1969,
Chapter 885, Page 2703
relating to depositing
interest on various
Dear Mr. James: funds
Your request for an opinion reads in part
as follows:
"Please advise this office by official
opinion whether depository interest earned by
this office on the following listed special
funds should be deposited to the General
Revenue Fund as directed by the provisions of
Article 2543d. Texas Revised Civil Statutes.
The funds in question are as follows:
FUND NO. FUND NAME OR TITLE
21 Trust Aocount, Federal Aid
Highway Act
26 Unemployment Compensation Adm.
28 Federal Old Age Assistance
30 Education Agency Driver Fund
37 Federal Child Welfare Service
92 Federal Disaster
- 2330 -
Hon. Jesse James, Page 2 (M-468)
FUND NO. FUND NAME OR TITLE
111 Federal Disabled Assistance
Fund
117 Federal Public Welfare Adm.
118 Federal Public Library.Service
127 Federal Economic Oportunity
'Fund
131 Federal Blind Assistance
132 Federal Childreh Assistance
134 Federal Older Americans
135 Federal Mental Health &
Mental Retardation
136 Denton State School Federal
Fund
141 Federal Adult Blind
148 Federal Health, Education 6
Welfare
159 Federal Medical Assistance Fund
169 Federal Educational
171 Federal School Lunch
186 College Building 1948/1957
219 Federal Higher Education Fund
221 Federal Civil Defense &
Disaster Relief
222 Federal Department Public
Safety
- 2331-
Hon. Jesse James, Page 3 (M-468)
FUND NO. FUND NAME OR TITLE
223 Land & Water Conservation
224 Governor's Office Federal Projects
268 Federal Market News
273 Federal Health
290 Federal Drought Relief Fund
300 College Building 1958/1967
389 College Building 1966/1967
903 Flood Area School 6 Road Fund"
Section 1 of Article 2543d, Vernon's Civil Statutes
(as enacted by House Bill 1217 Acts of the 61st Legislature,
Regular Session, 1969, Chapter 885, Page 2703) provides<.
"Interest received on account of time
deposits of moneys in funds and accounts in
the charge of the State Treasurer shall be
allocated as follows: To each constitutional
fund there shall be credited the pro rata por-
tion of the interest received due to such
fund. The remainder of the interest received,
with the exception of that portion required
by other statutes to be credited on a pro rata
basis to protested tax payments, shall be
credited to the General Revenue Fund. The
interest received shall be allocated on a
monthly basis."
Each of the funds named in your request is money granted
the State by the Federal Government for certain designated
purposes with the exception of Fund Nos. 186 - College
Building 1948/1957, 300 - College Building 1958/1967, and
389 - College Building 1966/1967.
The three funds mentioned above which do not
consist of Federal moneys (Fund Nos. 186, 300, and 389) are
funds derived from the provisions of Section 17 of Article 7,
Constitution of Texas, providing for a College Building fund.
- 2332 -
Hon. Jesse James, Page 4 (M-468)
Therefore, these funds are each constitutional funds within.
the meaning of Section 1 of Article 2543d, and the
interest received on account of time deposits of such funds
is to be credited to such funds.
Article 2543d as applied to the other funds states
that the interest received on account of time deposits shall
be credited to the General Revenue Fund. Therefore, the
interest on the Federal funds mentioned in your request is to
be credited to the General Revenue Fund unless such action
constitutes diversion of the purpose for which the Federal
grants were made. Each of the Federal funds mentioned in
your request constitutes a special fund granted by the
Federal government to be expended for specific purposes and
are held by the State in trust for the benefit of the procrams
being administered. Riedman v. American Surety of New York
137 Tex. 149, 151 S.W.Zd 570 (1941) Attorney General's
Opinions NOS. V-427 (1947), W-241 i1957), M-71 (1967), M-266
(1958), V-1250 (1951) and C-530 (1965).
Generally in the event that the corpus of the
testamentary trust produces supplementary income for which
no urovision has been made directinc its distribution or
accinnulationsuch income will be ac&nulated and will.be
distributable as part of the corpus. Stoff1es.v. Stoffles
18 N.J. Super. 300, 86 A.2d 806 (1952); 'oblerv. Moncrief
72 N.J. Super. 48, 178 A.2d 105 (1962). Attorney General's
Opinion No, C-610~ (1966). Thus it was held in Moore vi Sanders
106 S.N.2d 337 (Tex.Civ.App.,no writ, 1937):
"The general rule is well settled that,
where trust money cannot be applied either im-
mediately or within a short time to the purposes
of the trust, it ,isthe duty of the trustee
to make the trust productive to the cestui
que trust by investment of it in some proper
security, and a duty to invest arises by
necessary implication from direction to pay
over the interest or income."
The same rule applies to interest earned by a
deposit of special fund: It was held in Lawson v. Baker,
220 S.W. 260, 272 (Tex.Civ.App. 1920, error ref.):
-2333-
Hon. Jesse James, Page 5 (M-468)
II
...Interest. according to all the
authorities, is an accretion to the principal
fund earning it, and, unless lawfully separated
therefrom, becomes a part thereof. We think
it is clear that the interest earned by deposit
of special funds is an increment that accrues
to such special fund, and any attempt of the
Legislature to make such interest a part of the
general revenue is futile, m' the face of the
constitutional provisions creating or dedicating
these funds to special purposes." (Emphasis added.)
Therefore, in Attorney General's Opinion C-610,
supra, it was stated that income derived from interest
on time deposits or short term investments of restricted
funds becomes a part of the restricted funds and can be
expended only for the purposes for which the restricted
funds may be expended, unless specific provision is made
for distribution of income. In Attorney General's Opinion
C-530 (19651, it was stated:
"The Legislature, recognizing the trust nature of
the Federal funds, proceeded to enact House Bill
No. 12, Acts of the 59th Legislature, Regular Session,
1965 (the General Appropriations Act for the
biennium beginning September 1, 1965 and ending
August 31, 19671, which appropriates the Federal
funds and stipulates the conditions under
which such funds may be expended. Reference is
made to Article V, Section 27 of said General
Appropriations Act which provides as follows:
"'Sec. 27. FEDERAL FUNDS APPROPRIATED
FOR USE. Any funds received by the agencies
of the State named in this Act from the
United States Government are hereby appropri-
ated to such agencies for the purposes for
&ich the Federal grant, allocation, aid
or payment was made, subject to the provisions
of this Act. Within thirty (30) days after
the receipt of any such Federal grants,
allocations, aid or payments, the amounts
thereof and the purposes for which they
were made shall be reported to the Governor
and the Legislative Budget Board.' (Under-
scoring added for emphasis.)
- 2334 -
lion.Jesse James, Page 6 (M-468)
"It appears clearly that the United States
Government has intended to impose upon the
states who accept the Federal funds as trans-
feree of the funds equitable duties (or con-
ditions) to deal with same for the benefit
of the trainees, and the fact that no formal
or technical language was used, such as
'trust' or 'trustee', is not controlling. The
test of whether a trust was created is whether
the Federal government, as settlor, manifested
an intention to create the kind of relation-
ship which to lawyers is known as a trust.
Scott on Trusts, Vol. 1, Section 24, page 147;
Bogert, Trusts and Trustees, Vol. 1, Section
45, pages 293, 294; Restatement, Trusts,
Vol. 1, Chapter 1, Section 2, page 6.
"A fundamental requisite of a trust is
the separation of the legal estate from the
equitable estate and the beneficial enjoy-
ment. 54 Am.Jur., Trusts, Section 35, at
pages 46 and 47; 10 Am.Jur., Charities,
Section 4, at page 587.
"We are of the opinion that the Federal
government, as settlor, intended to create
a trust which would be for a public purpose.
"It is recognized generally that the
state or sovereign, as well as public officers,
may be a trustee with respect to matters falling
within its functions. 90 C.J.S. 133, Trusts,
Sec. 204; 81 C.J.S. 1189, 1191, States, Sec.
154.
'In 81 C.J.S. 1146, States, Sec. 132,
the general rule is recognized that,
“‘With respect to the handling of public
funds, the legislature is in a position similar
to that of a trustee, and the rule of fidu-
ciary law that a trustee shall not be allowed
to advantage himself in dealing with trust
funds is apposite.'
- 2335 -
Hon. Jesse James, Page 7 @l-468)
"The caption of S.B. No. 163 is clear in
'...authorizing the State Department of
Public Welfare to accept and expend any Federal
moneys allocated to the said Department for
any projects or programs established to carry
out the purposes of this Act and for adminis-
trative expenses and/or any other expenses
incident to the administration of said pro-
jects or programs...'
"Section 2 of the Act provides that I...
such funds shall be subject to withdrawals
upon authorization of the Commissioner of
Public Welfare...' Section 3 also repeats
this provision.
"Under the statute no implementing state
funds whatever is required, and the Federal
funds are trust funds which are being held
in custody subject to withdrawal only for the
purposes and administration of the Federal
statute.
"We have heretofore recognized and held
that funds of similar character are to be im-
pressed with a trust when deposited in a special
account with the State Treasurer as custodian,
and so held and expended by state officials.
See Attorney General Opinions WW-565, WW-600,
and W-1321, and authorities cited."'
In Attorney General's opinion WW-122 (19571, it
was held:
'We pass to a consideration of the proper
depository for the dividend checks. It is clear that
the funds which have been and will be received
from this stock never become 'State funds' in
the sense that they could be placed in the
general revenue fund and appropriated by the
Legislature. The stock dividends are impressed
with a trust and may be expended only for the
purposes stated in the deed of gift. Further-
more, we think it is apparent that it was not
- 2336 -
Hon. Jesse James, Page 8 (~-468)
the intention of the settler that these funds
be placed within some special fund In the State
Treasury because the State's title to the stock
and any revenues therefras would terminate
should the State fall to comply with the condl-
tlon of the gift. In such event, any revenues
then on hand could not revert to the Grantor, her
heirs or assigns upon giving notice to the State
Parks Hoard because a legislativeappropriation
would be necessary to withdraw said revenues
from the State Treasury,"
In view of the foregoing,we conclude that We
Federal funds mentioned in your request constitute special
funds held in trust by the state, and that Interest derived
from said funds becomes a part of the trust funds, and can
only be expended for the purposes for which the moneys were
granted, Since none of the moneys were granted for the
general operation of state government but on the contrary
were granted for specific purposes.,you are advised that
depository Interest earned on the special funds should be
deposited to the credit of the special funds rather than
the General Revenue Fund. The purpose for which federal
grants may be expended Is governed by the Acts of Congress,
and the Legislaturecannot authorize such grants to be ex-
pended for purposes not included In the grants,
SUMMARY
-------
Depository interest earned on special
constitutionalfunds or federal trust funds
created for speclflc purposes should be de-
posited to the credit of those specific funds
rather than the General Revenue Fund.
-2337-
Hon. Jesse James, Page 9 (M-468)
Prepared by John Reeves
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
George Kelton, Vice Chairman
Bill Craig
Rick Fisher
John Grace
Thomas Sedberry
MEADD F. GRIFFIN
Staff Legal Assistant
HAWTHORNE PHILLIPS
Executive Assistant
XOLA WHITE
First Assistant
- 2338-
Untitled Texas Attorney General Opinion
Combined Opinion