THE ATTORNEY GENERAL
OF TEXAS
March 8, 1989
Honorable Billy Ray Stubblefield Opinion No. JM-1026
Williamson County Attorney
P. 0. BOX 1078 Re: Whether Williamson
Georgetown, Texas 78627 County may use the in-
terest earned from invest-
ment of bond proceeds for
the construction of its
courthouse/jail complex to
fund additional construc-
tion on the project
(RQ-1510)
bear Mr. Stubblefield:
You inform us that Williamson County has issued and
sold $16.5 million in bonds to build a new county courthouse
and jail complex. The proceeds from the sale of the bonds
were invested and have earned a sizable amount of interest.
Some of the interest has been transferred to the interest
and sinking fund, and some remains in the principal
construction account.
The bids for construction of the project received by
the Williamson County Commissioners Court were all higher
than expected. The commissioners court would like to
transfer the interest on the bond proceeds to the principal
amount so that they can afford the kind of courthouse/jail
complex that they had envisioned. YOU ask the following
question:
Way the interest earned from the invest-
ment of Courthouse/Jail complex construction
bonds proceeds be added to the principal
amount, in order to provide additional
construction funds for completion of the
project?
You have not submitted additional facts nor have you
provided us copies of the bond covenants or other documents
relevant to the bond issuance. Our opinion will answer your
narrow legal question in the context of the information
p. 5296
Honorable Billy Ray Stubblefield - Page 2 (JM-1026)
before us and will not speculate at length about all other
circumstances which might suggest a different result.
The commissioners court of a county has statutory
authority to issue county bonds to build a county courthouse
and jail. V.T.C.S. arts. 718; 237013, § 3. See also Tex.
Const. art. XI, 0 2 (construction of jails, court-houses,
bridges, and certain other improvements shall be provided
for by general law): Mitchell Countv . Citv Nat'1 Bank of
Paducgb. Kvc, 43 S.W. 880 (Tex. 18z8) (legislature has
authority to grant county power to issue bonds for the
construction of bridges and a courthouse and jail). The
statutes do not address the question you ask. You however
raise the possibility that Attorney General Opinion JM-545
(1986) prohibits you from adding the interest earned from
investment of bond proceeds to the principal amount. See
&&Q Attorney General Opinion JM-530 (1986).
Attorney General Opinion JM-545 (1986) concerned the
disposition of interest earned on the invested proceeds of
road bonds issued by Austin County under article 6702-1,
V.T.C.S., the County Road and Bridge Act. Section 4.411(b)
of that act provides that road bonds issued thereunder
"shall be issued . . , as contemplated and authorized by
Article III, Section 52, of the Texas Constitution.l*
Article III, section 52, of the constitution authorizes the
legislature to empower counties to issue bonds for specified
purposes, including the construction, operation, and
maintenance of roads. Attorney General Opinion JM-545
stated that the "use of public debt in the form of bonds to
create a fund for investment as an indenendent or exclusive
undertam is not a purpose sanctioned by article III,
section 52, of the Texas Constitution." Attorney General
Opinion JM-545 at 5 (emphasis in original). Austin County
authorized the sale of three million dollars worth of road
bonds but had spent less than one million dollars for road
purposes. &at 4. In the meantime, the costs of some
county road improvements were paid from the regular county
budget, instead of being charged against the bond proceeds.
& The holding of Attorney General Opinion JM-545 was
based upon a specific and narrow set of facts, which
indicated that bond proceeds were used for investment as "an
independent or exclusive undertaking."
The holding of Attorney General Opinion JM-545 thus
does not prohibit Williamson County from adding interest
earned from the investment of courthouse/jail bond proceeds
to the principal amount, to provide additional construc-
tion funds. The common law rule is that interest, as an
p. 5297
Honorable Billy Ray Stubblefield - Page 3 (JR-1026)
accretion to the principal fund earning it, becomes part of
the principal unless lawfully separated from it. Sellers v.
403 S.W.2d 242 (Tex. 1972); bawson v. Baker,
!2i%FT% 272 (Tex. Civ. APL'. - Austin 1920, writ
ref'dj.' See ilsp Attorney General Opinion H-1167 (1978)
(interest on constitutional fund for state college and
university construction is first applied to retire bonds and
then to finance additional permanent improvements); Annot.
143 ALR 1341 (1943) (disposition of interest earned on
special funds of municipalities).
As already stated, we find no statute that separates
the interest from the principal fund. You have not
submitted the bond covenants to us; therefore, we do not
consider whether any provision of the bond covenants would
separate the interest on the bond proceeds from the proceeds
and place it in the sinking fund, limit expenditures for
building the courthouse/jail complex to an amount that would
be exceeded by adding interest to principal, or for any
other reason require a departure from the common law rule.
In the absence of a statute, bond covenant, or other
provision or instrument that otherwise allocates the
interest earned on bond proceeds, the common law rule
applies to the interest, and the interest may be added to
'the principal amount to finance the project for which the
bonds were issued.
Attorney General Opinion JM-545 disapproved two earlier
opinions of this office, stating as follows:
Attorney General Opinion C-537 (1965) held
that a school board might deposit interest
earned by excess school bond proceeds in the
sinking fund created to retire the indebted-
ness. To the extent the opinion suggests the
board possessed discretion to do otherwise,
it is disapproved. A similar question was
presented in,Attorney General Opinion R-1174
(1978), which construed section . . . 120.42)
of the Education Code to permit the use of
such interest for other purposes. To that
extent, it is disapproved, also.
Attorney General Opinion JM-545 at 7.
Attorney General Opinions C-537 and R-1174 dealt with
school district bonds, not county bonds issued under article
III, section 52, of the Texas Constitution. Thus, the
constitutional basis of the holding in Attorney General
P. 5298
Honorable Billy Ray Stubblefield - Page 4 (JM-1026)
Opinion JW-545 was not relevant to the two prior opinions,
and they should have been distinguished, rather than
disapproved. Their disapproval by Attorney General Opinion
JW-545 should accordingly be disregarded.
SUMMARY
According to the common law rule,
interest, as an accretion to the .principal
fund earning it, becomes part of the prin-
cipal unless lawfully separated from it.
This rule applies to interest earned on the
investment of the proceeds of bonds issued
by Williamson County to build a courthouse/
jail complex, and the interest may be added
to the principal amount and used to finance
the project for which the bonds were issued
unless a statute, bond covenant, or other
provision or instrument prevents this
allocation.
J
Ve
.
JIM MATTOX
Attorney General of Texas
WARYKELLER
First Assistant Attorney General
mu nCcREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STRARLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 5299
Untitled Texas Attorney General Opinion
Combined Opinion