- .
THE ATTOWNEY GENERAL
Q,P TEXAS
AUUTIN ~.TEXAS
PRICE DANIEL
.m*ORNEY
GENERAL
June 28, 1951
Hon. Allan Shivers Opinion No. V-1198
Governor of Texas
Austin, Texas He: Constitutionality of House
Bill No. 603, authorizing
agreements between the
State of Texas and the Fed-
eral Government to extend
Federal old-age and survi-
vors insurance coverage to
Dear Governor: certain public employees.
You have requested the opinion bf this office on the
constitutionality of House Bill 603.
House Bill 603 provides that the State Department of
Public Welfare, hereafter referred to bs the State Agency, shall
administer the provisions of the Act. The State Agency is author’-
ized to enter into agreements with the, Federal Security Adminis-
trator for the purpose of extending Federal old-age and survivors
insurance coverage to employees of any of the counties or munic-
ipalities of the State other than employees engaged in performing
.serw .d es in connection with a proprietary function.
The State Agency is authorized to enter into agree-
ments with the governing bodies of eligible counties and munic-
ipalities when such counties and municipalities desire old-age and
survivors insurance coverage for employees covered by the Act.
The term “employee” is defined as including an officer or employ-
ee of a county or municipality. H.B. 603, Sec. l(c).
Section 8 reads, in part, as follows:
“Each county or municipality as to which a plan
has been approved . . . shall pay to the State Agency
. . . contributions in the amounts and at the rates spec-
ified by the applicable agreement. . . . Counties or
municipalities . , . are authorized, in consideration of
the employees retention in or entry upon employment,
to impose upon its employees . . . a contribution with
respect to wages in keeping with applicable State and
Federal requirements. Contributions so collected
shall be paid to the State Agency in partial discharge
of the liability of the county or municipality, but failure
Hon. Allan Shivers, Page Z. (V-1198)
to deduct contributions from employees’ wages shall
not relieve the employee or the employer of liability
for the contribution. . . . Matching contributions by
the employing counties or municipalities . . . shall be
paid from the respective source of funds from which
covered employees receive their compensation.”
The respective governing bodies of the various coun-
ties or municipalities are authorized to pay out. of any available
funds not otherwise dedicated such amounts as may be necessary
to finance their proportionate share of the administrative cost of
the program at the State level. At the end of each fiscal year, the
State Agency must pay from the Social Security Administration
Fund to the State Treasurer for deposit to the General Revenue
Fund of the State of Texas an amount not less than ten per cent
(10%) of the payments made to such fund during the preceding year
until such time as the amount appropriated to the State Agency
from funds of the State for administrative purposes has been reim-
bursed in full.
Section 11 empowers the State Agency to collect any
delinquencies and interest thereon from counties and municipal-
ities. Likewise, the State Agency “may direct the deduction of any
delinquent payments with interest from any moneys payable to the
delinquent county or municipality by the State or any department
or agency of the State, provided, however, that deductions shall
be made only from such prior appropriations as were expressly
made subject to such deductions. The Comptroller and the State
Treasurer are empowered and directed to comply with the State
Agency’s deduction directives and to remit the deducted amounts
to the State Agency in trust for the contributions of th& delinquent
county or municipality. ”
Section 6 provides that the respective governing bodies
of such counties and municipalities as enter into agreements with
the State Agency under the Act are authorized to pay contributions
as required by these agreements from those funds from which the
covered employees receive their compensation and “it is expressly
provided that all prior laws and parts of laws which fix a maximum
compensation for any covered employees of counties are hereby
amended td allow payment of the matching contribution necessary
to this program in addition to any maximum compensation other-
wise fixed by law.”
Section 7 of the Act authorizes counties and municipal-
ities to submit for approval by the State Agency plans for extending
the benefits of the Federal old-age Cl.l-idsurvivors insurance system
to the employees of the county or municipality other than those
engaged in p.:rforming services in connection with a proprietary
- .
Hon. Allan Shivers, Page 3 (V-1198)
function of the subdivision. Submitted plans must meet stated
requirements, one of which is that each plan must specify the
source or sources from which the funds necessary to make the
payments required are to be derived and must contain guarantees
that these sources will be adequate for this purpose. The State
Agency may require guarantees in the form of surety bonds, ad-
vance payments into escrow, detailed representations and assur-
ances of priority dedication, or any legal undertaking to create
adequate security that each county or municipality will be finan-
cially responsible for its share in the program for at least a
minimum period equivalent to that specified by Federal require-
ments to precede coverage cancellation.
Section 12 establishes “a special fund, separate and
apart from all public moneys or funds of this Stdte, to be known
as the Social Security Fund, which shall be administered as di-
rected by the State Agency exclusively for the purposes of this
Act. The State Treasurer shall be treasurer and custodian of the
fund. He shall administer such fund in accordance with the direc-
tions of the State Agency, and the Comptroller shall issue warrants
upon it in accordance with such regulations as the State Agency
shall prescribe. The State Agency shall deposit all moneys col-
lected under the provisions of this Act, except moneys to defray
administrative expenses at the State ,level, in the Social Security
Fund. All moneys so deposited with the State Treysurer in the
Social Security Fund shall be held in trust, separate and apart
from all public moneys or funds of this State. The State Agency
is vested with full power, authority, and jurisdiction over the fund
and may perform any and all acts necessary to the administration
thereof and to pay the amounts required to be paid to the appro-
priate Federal authorities and any refunds or adjustments neces-
sary under this Act.”
Moneys collect.ed from counties and municipalities to
defray the cost of administrative expenses are to be deposited in
another special fund of which the State Treasurer is made treas-
urer and custodian subject to the directions of the State Agency.
The moneys in both funds are to be disbursed upon warrants is-
sued by the Comptroller of Public Accounts pursuant to sworn
vouchers executed by the State Agency. Section 13 states that
“These funds will not be State funds, and shall not be subject to
legislative appropriation.”
Section 14 appropriates the sum of $ZO,OOO.OO to the
State Agency “for the purposes enumerated in Section 13 and to
investigate,, study, negotiate, defend, and administer this program
during the two (2) years immediately succeeding the effective date
of this Act.”
. .
Hon. Allan Shivers, Page 4 (V-1198)
Section 15 contains the usual severability clause and
Section 16 declares an emergency.
House Bill 603 is designed to take advantage of Sec-
tion 106 of the “Social Security Act Amendments of 1950.” Public
Law 734--8lst Cong. Section 106 amended Title 2 of the Social
Security Act by adding Section 218. (42 U.S.C.A. Sec. 418.),
The first paragraph of Section 218 reads as follows:
“(a)(l) The Administrator shall, at the request
of any State, enter into an agreement with such State
for the purpose of extending the insurance system es-
tablished by this title to services performed by indi-
viduals as employees of such State or any political
subdivision thereof. Each such agreement shall con-
tain such provisions, not inconsistent with the provi-
sions of this section, as the State may request.”
Section 218(b) defines certain terms used in Section
218. The term “coverage group” is defined as follows:
“(5) The term ‘coverage group’ means (A) em-
ployees of the State other than those engaged in per-
forming service:; in connection with a proprietary
function; (B) employees of a political subdivision of a
State other than those engaged in performing service
in connection with a proprietary function; (C) employ-
ees of a State engaged in performing service in con-
nection with a single proprietary function; or (D) em-
ployees of a political subdivision of a State engaged in
performing service in connection with a single pro-
prietary function. . . .”
Paragraph (c)(l) of Section 218 reads as follows:
“An agreement under this section shall be appli-
cable to any one or more coverage groups designated
by the State.”
Paragraphs (c)(2), (c)(3), (c)(5), and (c)(6) deal with
the services to be included in agreements relating or applicable
to each coverage group.
Paragraph (c)(4) provides that prior agreements with
a State may be modified so as to include any coverage group to
which prior agreements have not applied or so as to include serv-
ices previously excluded from the agreement consistently with the
provisions of the section of the Act applicable in the case of an
original agreement.
Hon. Allan Shivers, Page 5 (V-1198)
We quote in full the following paragraphs of Section
218!
“(d) No agreement with any State may be made
applicable (either in the original agreement or by any
modification thereof) to any service performed by
employees as members of any coverage group in posi-
tions covered by a retirement system on the date such
agreement is made applicable to such coverage group.”
“(e) Each agreement under this section shall
provide --
“(1) that the State will pay to the Secretary of
the Treasury, at such time or times as the Adminis-
trator may by regulations prescribe, amounts equiva-
lent to the sum of the taxes which would be imposed
by sections 1400 and 1410 of the Internal Revenue Code
if the services of employees covered by the agreement
constituted employment as defined in s,ection 1426 of
such code; and
“(2) that the State will comply with such regula-
tions relating to payments and reports as the Adminis-
trator may prescribe to carry out the purposes of this
section. ”
“(g)(l) Upon giving at least two years’ advance
notice in writing to the Administrs.tor, a State may
terminate, effective at the end of a calendar quarter
specified in the notice, its agreement with the Admin-
istrator either--
“(A) in its entirety, but only if the agreement
has been in effect from its effecti’/= date for not less
than five years prior to the receipt of such notice; or
“(B) with respect to any coverage group desig-
nated by the State, but only if the agreement has been
in effect with respect to such coverage group for not
less than five years prior to the receipt of such notice.
“(2) If the Administrator, after reasonable no-
tice and opportunity for hearing to a State with whom
he has entered into an agreement pursuant to this sec-
tion, finds that the State has failed or is no longer
legally able to comply substantially with any provision
of such agreement or of this section, he shall notify
such State that the agreement will be terminated in its
.
Xon. Allan Shiver.s, Page 6 (V-1198)
entirety, or with respect to any one or more cover-
age groups designated by him, at such time, not later
than two years from the date of such notice, as he
deems appropriate, unless prior to such time he finds
that there no longer is any such failure or that the
cause for such legal inability has been removed,
“(3) If any agreement entered into under this
section is terminated in its entirety, the Administra-
tor and the State may not again enter into an agree-
ment pursuant to this section. If any such agreement
is terminated with respect to any coverage group, the
Administrator and the State may not thereafter modify
such agreement so as to again make the agreement
applicable with respect to such coverage group.”
“(j) In case any State does not make, at the time
or times due, the payments provided for under an a-
greement pursuant to this section, there shall be added,
as part of the amounts due, interest at the rate of 6
per centum per annum from the date due until paid, and
the Administrator may, in his discretion, deduct such
amounts plus interest from any amounts certified by
him to the Secretary of the Treasury for payment to
such State under any other provision of this Act. A-
mounts so deducted shall be deemed to have been paid
to the State under such other provision of this Act.
Amounts equal to the amounts deducted under this sub-
section are hereby appropriated to the Trust Fund.”
“(k) The Administrator may,at the request of
any instrumentality of two or more States, enter into
an agreement with such instrumentality for the purpose
of extending the insurance system established by this
title to services performed by individuals as employees
of such instrumentality. Such agreement, to the extent
,practicable, shall be governed by the provisions of this
section applicable in the case of an agreement with a
I
State.”
It is clear from the above summary of House Bill 603
that its provisions devolve financial responsibility upon participat-
ing countiesand municipalities. In other words, the State Agency
will simply receive or, if necessary, collect the payments due
from the counties and municipalities and will transmit the proper
portion of said payments to the Secretary of the Treasury of the
United States. The authorization to the governing bodies.of such
counties and municipalities as obtain coverage for their employees
to meet this financial obligation by paying contributions in the
. .
Hon. Allan Shivers, Page 7 (V-1198)
amount required by the Federal Act from funds from which the
covered employees receive their compensation (H.B. 103, Sec.6)
is not obnoxious to Sections 51 and 52 of Article III of the Consti-
tution of the State of Texas nor to Section 3 of Article VIIL1 This
is so because House Bill 603 does not authorize or attempt to au-
thorize a gratuity. The employee’s right to receive the coverage
benefits will be a part of the agreed compensation paid for serv-
ices rendered.’ Byrd v. City of Dalla$, 118 Tex. 28, 6 S.W.2d 730
(1928); Friedman v. American Surety Co. of New York, 137 Tex.
149, 15<
Despite the fact that House Bill 603 contemplates that
participating counties and municipalities--not the State--shall
shoulder the financial burdens incident to obtaining coverage for ’
their officers and employees, it is equally clear that the Federal
Act requires the State to be the responsible party to any agree-
ment with the Administrator for coverage for such officers and
employees. Under the Federal Act the State is the only party au-
thorized to enter into agreements with the Administrator, Se&. 218
(a),(l),, and to modify or terminate such agreements, Sec. 218(c)(4)
and Sec. 218(g). The State must make the payments and reports
required by the Act, Sec. 218(e) ; and, in the event the State does
not make the payments provided for under the agreement at the
time said payments are due, six per cent interest will be added
thereto until paid; and the amount due, plus such interest, may,
in the discretion of the Administrator, be deducted from payments
to the State under any other provision of the Social Security Act,
and shall be deemed to have been paid to the State under such other
provision, Sec. 218(j).
’ The pertinent portions of these constitutional provisions read
as follows:
Art. III, Sec. 51: “The Legislature shall have
no power to make any grant or authorize the making
of any grant of public money to any individual, asso-
ciation of individuals, municipal or other corporations
whatsoever. . .*’
Art. III, Sec. 52: “The Legislature shall have
no power to authorize any county, city, town or other
political corporation or subdivision of the State to lend
its credit or to grant public money or thing of value
in aid of, or to any individual, association or corpora-
tion whatsoever. . .‘*
Art. VIII, Sec. 3: “Taxes shall be levied and
collected by general laws and for public purposes only.”
. .
Hon. Allan Shivers, Page 8 (V-l 198)
It must be conclusively presumed, of course, that the
Legislature was familiar with the provisions of the Federal Act
and that therefore it intended to authorize the State Agency to en-
ter into such agreements with the Federal Security Administrator
as are contemplated by the Federal Act. We will next consider
whether the Legislature may validly authorize a State agency to
enter into the type of agreement required by the Federal Act in
order to obtain coverage for the officers and employees of the
counties and of municipalities of the State other than employees
engaged in performing services in connection with a prbprietary
function.
Section 50 of Article III of the Constitution of the State
of Texas reads, in part, as follows:
“The Legislature shall have no power to give
or to lend, or to authorize the giving or lending, of
the credit of the State in aid of, or to any person, as-
sociation or corporation, whether municipal or other,
or to pledge the credit of the State in any manner
whatsoever, for the payment of the liabilities, pres-
ent or prospective, of any individual, association of
individuals, municipal or other corporation whatso-
ever.”
If the agreement required by the Federal Act and au-
thorized by House Bill 603 amounts to a lending of the State’s credit
to the counties or municipalities whose officers and employees will
obtain coverage, the Act would be invalid. A limitation on the pow-
er of the Legislature to lend or give the state’s credit does not
apply to a loan or gift of the state’s credit for state purposes. 59
C.J. 208, States, Sec. 346. In construing the prohibition contained
in Section 50 of Article III, the Supreme Court in City of Aransas
Pass v, Keeling, 112 Tex. 339, 247 S.W. 818, 820 (lY23), made the
tXiowin8 statGirent:
“To the extent that the State aids in protecting
Aransas Pass from the menace of storms through a
grant of part of the State taxes, shfe discharges a State
obligation, and.hence no questionil.rises as to lending
or pledging the State s ~credit to a municipal corpora-
tion or for payment of the liabilities of such a corpo-
ration. (Emphasis added.)
We are of the,opinion that to the extent the State aids
its counties in obtaining coverage agreements for their officers
ar.d employees under the Federal Act, it is likewise discharging
a State obligation and that therefore no question can arise as to
me lending or pledging of the State’s credit in their behalf. The
Hon. Allan Shivers, Page 9 (V-1198)
decisions in this State are uniform in their recognition of coun-
ties as agencies of the State through which the State discharges
the duties which the State as an organized government assumes
to every person and by which it can best promote the welfare of
all. City of Galveston v. Posnainsky, 62 Tex. 118 (1884). The
functions of county officers and employees are so tied in with
State government as to be essential to its proper functioning; and
the State, therefore, has a very vital interest in the efficient func-
tioning of county government. It is obviously in the best interest
of the State to attract to, and retain in the service of, the counties
the highest type of officers and employees. That there is an in-
ducement to enter and remain in the services of an employer who
provides some form of retirement or pension plan is so well rec-
ognized as to require no elaboration. Thus, providing some such
plan is of vital concern not only to the county but also to the State
as a whole. The proper method for making such provision, the
particular plan, is a matter which properly lies within the discre-
tion of the Legislature. This discretion the Legislature has exer-
cised, and the coverage agreements for county officers and em-
ployees, as authorized by House Bill 603, do not constitute a lending
of the State’s credit within the meaning of the constitutional pro-
hibition.
This construction of Section 50 of Article III is con-
sistent with the construction which has been placed upon Section
51 of Article III by those decisions which recognize that the pro-
hibition against legislative grants of public money to any individual,
association of individuals, municipal or other corporations does
not prohibit an appropriation of State funds to counties to be used
by them in carrying out a part of the duties or governmental func-
tions which properly rest on the State. Jefferson County v. Board
of County and District Road Indebtedness, 143 Tex. 99, 182 S.W.
2d 908 (1944). A contrary interpretation of Section 50 of Article
III would do violence to the well established principle that the Con-
stitution must be construed as a whole so as to give effect to all
its provisions, and, if possible, to harmonize them. Texas Nat.
Guard Armory Board v. McGraw, 132 Tex. 613, 126 S.W.Zd 627,
-therein.
We will next consider whether agreements entered in-
to by the State to obtain coverage for employees of municipalities,
other than those engaged in performing services in connection with
a proprietary function, would constitute a lending of the State’s
credit in violation of the prohibition of Section 50 of Article III.
Although municipal corporations have been said to be
created primarily to regulate the internal concerns of the inhabit-
ants of a defined locality in matters peculiar to the place incorpo-
rated, Bexar County v. Linden, 110 Tex. 339, 220 S.W.Zd 61 (1920),
Hon. Allan Shivers, Page 10 (V-1198)
nevertheless they’have a two-fold character, one governmental
and the other private, and, in so far as their character is govern-
mental, they are agencies of the state, and subject to state control.”
Yett v. Cook, 115 Tex. 205, 281 S.W. 837 (1926), and authorities
cited therein; 1 Cooley, Constitutional Limitations (8th Ed. 1927)
43. In Texas Nat. Guard Armory Board v. McGraw, supra, the
court said:
“The State has a vital interest in its cities. In
its governmental capacity a city is a ptilitical subdivi-
sion of the State, and in many instances is considered
as an agent of the State; and the State may use such
agent in the discharge of its duties.”
The agreements authorized by House Bill 603 would
obtain coverage only for such employees of municipalities as are
engaged in governmental functions as distinguished from propri-
etary functions. We think that the State’s interest in the efficient
discharge of city government is equally as great as its interest
in the efficient discharge and functioning of county government.
The whole is no better than the sum of its parts, .and we think that
the public benefit to be derived from the maintenance of the high-
est type of local government clearly imposes a duty and an obli-
gation upon the State to aid in obtaining such government. The
reasoning which justifies the assumption of an obligation on the
part of the State to aid the counties in the efficient discharge of
county functions justifies a State obligation which will enable munic-
ipalities to efficiently perform their governmental functions. The
inhibition of Section 50 of Article III was never intended to prevent
the State from lending its credit for proper purposes. If the State
cannot use its credit for governmental purposes, a situation might
well arise in which it could not function. Article III, Section 50
and its related provisions in the Constitution of Texas which were
enacted for the purpose of protecting public funds were never in-
tended to apply to such legitimate use of the State’s credit. Rather,
their purpose and those of similar constitutional provisions enacted
by other states in the Union were to put an end to the use of the
credit of the State in fostering private business, a practice which
prevailed in the early days of the history of most states.
The Supreme Court of Iowa, in construing the Iowa
constitutional provision that “The credit of a state shall not in any
manner, be given or loaned to, or in aid of, any individual, asso-
ciation, or corporation” stated that the provision was the result
of the past experience of states in loaning their credit freely and
extravagantly to corporate enterprises such as ~railways, canals,
wate,rpowers, etc., and that it was for the purpose of inhibiting
the incurring of obligations by the indirect method of secondary
liability that the constitutional provision was enacted. Grout v.
Iion. Ailan Shivers, Page 11 (V-l 198)
Kendall, 192 N.W. 529, i95 Iowa 467 (1923). See also the dissent-
ingioion by Judge Cardozo in People v. Westchester Nat. Bank,
231 N.Y. 465, 132 N.E. 241 (19211.
Had we any doubt as to the constitutionality of the pro-
visions of House Bill 603 which we are presently discussing, the
well settled rule that all doubts must be resolved in favor of con-
st:itutionality wbuld require us to sustain these provisions. Brown
v. City
.~_...-~. of Galve:ston, 97 Tex. 1, 75 S.W. 488 (1903); Greene v.-
since employees’ right to receive coverage benefits
will be a part of the agreed compensation paid for serv-
ices rendered. Byrd v. City of Dallas, 118 Tex. 28, 6
S.W.Zd 738 (1928); Friedman v. American Surety Co. of
New York, 137 Tex. 149, 151 S.W.Ld 570 (1941). The
State may enter into a coverage agreement for the
minimum five-year term, since the only constitutional
provisions (Sec. 49, Art. III; Sec. 6, Art. VIII; Sec. 26,
2 Section 6 of Article VIII reads, in part, as follows:
“No money shall be drawn from the Treasury but
in pursuance of specific appropriations made by law;
nor shall any appropriation of money be made for, a
longer term than two years. . .‘I
Hon. Allan Shivers, Page 13 (V-1198) ,, ~, I
,,,/. ,,. :,.
‘:~:,~Art. I, Tex. Const.) which may affect the term of a
State contract have not been violated. See Texas Nat.
Guard Armory Board v. McGraw, 123 Tex. 613 126
. . (lm). The provisions of Ho,use Biil 603
which create and provide for the administration of the
Social Security Fund and the Social Security Adminis-
tration Fund do not violate Section 6 of Article VIII of
the Constitution. Friedman v. American’ Surety Co.
of New York, supra. House Bill 603 is constitutional.
Yours very truly,
PRICE DANIEL.
Attorney General
APPROVED: B
‘W, V. Geppert Assistant
T,axation Division
Jesse P. Luton, Jr.
Reviewing Assistant
Charles D. Mathews
First Assistant
MMC/mwb