Honorable Walter F. Woodul, Member
Board of Regents
North Texas State Teachers College
Chronlcle~Bullding
Houston 2, Texas -
Dear Sir: Opinion No. O-6036
Re: Whether Board of Regents of~North
Texas State Teachers' College~may
apply "local funds" In payment of
revenue bonds issued for construc-
tion of college buildings.
We have your opinion request on the above question
in which you enclose a letter to you dated September 8, 1945,
from Mr. W. J. McConnell, President of the North Texas State
Teachers' College. The facts and the questions are clearly
set out in Mr. McConnell's letter, as follows:
"The three-story Music Hall was built in 1940'
with funds derived from the sale of revenue bonds;
Orchestra Hall was built nine years ago by means
of revenue bonds. The two have been combined into
Music-Orchestra Hall.~ A sinking fund for the retire-
ment of these bonds was to be sustained from rentals
of students who were to occupy the third floor as a
dormitory, from practice piano rentals, and from
room rental of certain houses of the cooperative unit.
"Two floors of the building were designed for
and have been used from the beginning for instruc-
tional purposes. The dire need of instructional
1 buildings on the campus and the growth of the School
of Music, which has been at the rate of 500% since
this building was erected, have necessitated the
use of half of the third floor (the dormitory part)
for classrooms, and we are in desperate need of the
remaining part of the building for that purpose.
"All bonds on the Music-Orchestra Hall are now
callable. With the use of $28,000 from local funds
all bonds can be retired. An Act of the Forty-sixth
Legislature prescribes some limitations which cannot
be ignored. You will find what I regard as a provi-
Hon. Walter F. Woodul, page 2 O-6836
sion for taking care of the 'emergency' with which we
are faced In Article 2909a, Vernon's Texas Statutes,
Centennial Edition, 1939, or under Acts of the Fortg-
sixth Legislature, page 259.
"Another alternatlve -- and get it might resolve
itself into the same matter legally -- would be for
the College to pay into the sinking fund the sum of
$28,000, which would be a rental for use of the build-
ing for instructional purposes.
"I think this matter resolves itself into two
questions: (1) Does the college's need of the en-
tire building for instructional purposes constitute
an 'emergency' iinderthe statute to which I have re-
ferred? (2) May the college legally pay at this
time a sum of rental for the past seven years on the
part of the building which has been used for class-
room purposes?. . .
You state in your letter that:
"These two buildings, which are now one, were
built with revenue bonds and it will only take
$28,000 from local funds to retire these outstand-
ing bonds when it Is permissible to devote thishall
entirely to Instructional purposes. It is Impractical,
even if another building were available, to divide up
the functions of this hall and the Regents feel an em-
ergency exists to pay from local funds the $28,000.00
and convert the bullaing to its highest use.
"The building, of course, although paid from bonds,
belongs to the state, subject to this indebtedness. The
nominal growth of the School of Music makes it an abso-
lute necessity that this be done.
“AS I stated to you, Dr. McConnell assures me
that $28,000 can be easily paid from the local fund
and be less than the 25% referred to in Article
2909a, and further that the local fund of this school
Is In such shape it would not directly or Indirectly
necessitate the state making appropriation for pur-
poses for which this fund might otherwise be used. . .'
Section 1 of Article 2909a, V.A.C.S. (Acts, 46th Leg.,
R. S., 1939, p. 259), reads as follows:
"Section 1. The Board of Directors of Texas
Technological College, the Board of Directors of
r .
Ron. Walter F. Woodul, page 3 o-6836
the Texas Agricultural and Mechanical College, the
Board of Regents of the University of Texas, the
Board of Directors of the State Teachers' ColGes
of Texas, the Board of Directors of the Texas State
College for Women, ardthe Board of Directors of the
College of Arts and Industries, are hereby authorized
and empowered to erect and equip, and to contract with
any person, firm or corporation, for the erection,
completion and equipping of dormitories, cottages or
stadiums, to be erected either on the campus or real
estate then owned by said colleges, or on other real
estate purchased or leased for the purpose, and the
said Board of Directors are hereby expressly author-
ized to purchase, or lease additional real estate for
such purposes, provided said Institutions have suffi-
cient surplus from local funds, but not exceeding
twenty-five (25%) per cent of the total for any fis-
cal year, to pay cash for any purchase of land; or
the purchase of land is made from funds derived from
the sale of revenue bonds or notes. The bonds or
notes authorized herein are to be paid solely from
the revenues of the dormitories, cottages and stadium,
and shall never be charged against the State nor any
appropriation made by the State nor shall any portion
of said appropriation ever be used for the payment of
said notes or bonds; nor shall any local or institu-
tional funds in excess gf twenty-five (s$) oer cent
of the total for any calendar year ever be used for
the payment of said notes or bonds, It being the in-
tention of the Legislature to authorize the payment of
said notes and bonds solely from revenues derived from
the improvements authorized herein and an emergency to
to be sunulemented'from local funds not exceeding
twenty-five (25%) per cent for any fiscal year."
It appears from Mr, McConnell's letter that Music Hall
was ~built in 1940 with funds derived from the sale of revenue
bonds and that Orchestra Hall was built nine years ago by means
of revenue bonds. The bonds for Orchestra Hall must, there-
fore, have been issued under Ch. 5, Acts 43rd Leg., 2nd C. S.,
1934, p. 14, or Ch. 459, Acts 44th Leg., 2nd C. S., 1935, p.
1752,
These two acts were further amended by Ch. 2, Acts
46th Leg., R. S., 1939,~~page262. The 1934 Act, with the amend-
ments by the 1935 Act, and the 1939 Act are codified as Article
2603c, VeA.C.S.
The revenue bonds for Music Hall may have been issued
under Article 2603~ as amended or under Ar,ticle2909a, quoted
.
Hon. Walter F. Woodul, page 4 0 -6836
above. Article 2603~ contains no provision for use of local
or institutionalfunds in acquisition of the buildings which
the act authorizes or in satisfactionof the revenue issued
therefor. It provided when it was first enacted in 1934 and
still provides that "any bonds or notes issued hereunder shall
not be an indebtednessof the State of TexaS, but shall be
payable solely from the revenues to be derived from the oper-
ation of said buildings" We held in our Opinion No. o-1662,
issued February 27, 1940, that local or institutionalfunds
of State Teachers Colleges could not be used~to ay revwnue
bonds issued under the authority of Ch. 5,'Acts $3rd Leg., 26
C. S. 1934, page 14. We now hold that the same rule applies
to all revenue bonds which were,issued for buildings acquired
under thw,amwndmentsto the 1934 Act, which are codified as
Article 2603c, V.A.C.S.
We have previously pasaed on the 25% of local funds
provision in Article 2909a, V.A.C.S. In our Opinion No.
O-1273, addressed to Honorable J. A. Hill; President of West
Texas State Teachers College on August 26, 1939, we passed on
this Act, which was there referred to aa Senate Bill #28. We
said:
"Section3 of Senate Bill #28 (Art. 2909a,
V.A.C.S.) ,expresslyauthorizea the Board to
issue their obligations in such aum or sums and
upon such terms and condii$onsas to said Board
may awem advisable for the erection, completionand
equipping of such cottages and stadiums
and to pledge the -,
ne rents, feea, revenues and in-
comes therefrom to the payment of the interest and
principal of said obligationa.Section 1 thereof ex-
pressly provides that in the wve.ntthe revenuea de-
rived from such improvementsare insufficientto
meet the annual debt requirementa,then and in that
event the funaa may be supplementedfrom local funda
not exceeding 25s for any fiscal year. It is clear
to us that the authority to use any part of the
local fund4 Tar the purpose of paying obligations
incurred under the authority of this bill, applies
only to suoh buildings as are authorieed under Senate
Bill #28. . . .”
But, regardless of whether your revenue bonds wwrw is-
sued under Article 2909a, or Article 26030, V.A.C.S., we are
of the opinion that under the facta stated in yourletter,
$28,000 of local funds may be uaed to liquidate the balance of
the bond issue or issues on your Music-OrchestraHall in order
to secure essential classroom space for the proper operation
of the college. The bond holders could not require the regents
. -
Hon. Walter F. Woodul, page 5 O-6836
to do this but you have the discretion to use the local funds
for this purpose under the circumstances mentioned Ln your
letter, under the provisions of Article 2654d, V.A.C.S. and
subsection 3 of Ch, 377, Acts 49th Legislature, R.S., 1945,
which is your current appropriation bL11. Although Music-
Orchestra Hall is encumbered with a lien to secure the revenue
bonds still outstanding, the hall is "owned and held" by the
North Texas State Teachers' College as the property of the
State of Texas. San Antonio Independent School District v.
Water Works Board of Trustees, et al, 120 S. W. (2d) 861, er-
ror refused. We presumeas long as these bonds are ou,tstand-
ing, you woul~dbe compelled to use a portion of the Hall as
a dormitory in order to obtain revenue for the sinking fund
for the bonds. Your bonds and the trust instrument in con-
nect1on with them no doubt requpre this since your bullding
must have been constructed under the statutes authorizing the
acquisrtion of "dormitories".
Article 2654d, V.A.C.S., provides that the Board of
Regents may retain control of certain enumerated fees and col-
lections. Subsection 3 of your current appropriation bill ap-
propriates these local or institutional receipts to North
Texas State Teachers' College "as maintenance or contingent
funds to be expended under the direction and .wFththe approval
of the governing board. o s s ;, This act further provides
that your Board of Regents is authorized to use out of the
proceeds of said receipts and funds, in accordance with the
prov‘isi.ons
of this act, such amounts as they sh::lldeem neces-
sary for the supportl,maintenance, operation and improvements
of said ?nstltutior, The Board of Regents is "charged with
the responsibility of tbe general control and menagement" of
the Nor,thTexas State Teachers' College and it "may erect
equip and repair buildings". Article 2647, V.P,C.S.-'-'
The only
question here is whether local funds can be used to pay off
a lien in order to secure the exclusive use of a school build-
ing for classroom purposes. The power of the Board of Regents
to "operate" the school and to use "contingent funds" which
have been appropriated for this purpose, exists independently
of the powers conferred by ArtZcles 2603~ and 29Oga, V.A.C.S.
with reference to the issuance of revenue bonds. The Board of
Regents would without question have power to use local funds
tc retire a general indebtedness under similar circumstances
snd we do not think that the statutes authorizing the issuance
of revenue bonds prevent their doing so in this instance.
Trusting that the foregoing answers your inquiry,,we
are
. .
Hon. Walter F. Woodul, page 6 o-6836
Yours very truly,
ATTORNEY GENERAL OF TEXAS
By sbagan Dickson
Fagan Dickson
Assistant
FD :rt:wc
APPROVED OCT 8, 1945
s/Carlos C. Ashley
FIRST ASSISTANT
ATTORNEY GENERAL
This Oplnlon Considered And Approved In Limited Conference