Untitled Texas Attorney General Opinion

. THE A’II’ORNES GENERAL OF TEXAS aH*WFoRD c. MARTlN AUSTIN.TEXAS 78711 March 28, 1972 Honorable Thomas Bartlett Opinion No. M-1104 County Attorney Falls County Courthouse Re: Whether certain Certificates Marlin. Texas 76661 I of Obligation of Falls County. Issued.by the Commissioners ~' Court pursuant to Article 2368a.1, V.C.S., may be pur- chased by the Permanent School Dear Mr. Bartlett: Fund of Falls County? In your recent letter you have requested the opinion of this department on the following question: "Whether certain Certificates of,Obllgation of Falls County, issued by the Commissioners Court pursuant to Article 2368a.1, V.A.T.S., may be pur- chased by the Permanent School Fund of Falls County?" In answering this question we should first examine the posi,,tion of ,theFal.lsCounty Commissioners Court in matters of this natllre~ Article VII, Section 6 of the Texas *Consti,tutionstates that the county permanent school lands and the proceeds from their sale "D0.shall be held by said counties alone as a trust for the benefit of public schools..." (Emphasis added). Section 17.82(b) of the Texas Education Code makes reference to this trust wherein it states that when school lands are sold "the proceeds of any such sale shall be invested in bonds,. 01)and further that "These bonds shall be held by the county in trust for the benefit of its public free schools, and only interest thereon may be used and expended annually." With reference to the investment of the trust proceeds Article VII Section 6 of the Texas Constitution states that the proceed; can be "invested in bonds of the United States, the State of Texas, or counties in said state, or in such other securities9" as designated in See, 17.82(b) of the Texas Education Code. Section 6 of Article VII also states that any such investtnen,t will be made *.-under such restric- tions as may be prescribed by law" and that the "counties -5383- i Honorable Thomas Bartlett, page 2, (M-1104) shall be responsible for all investments" should there be any question as to the misuse of funds. County School Trustees of Brazorla County v. Brazorla Count 240 s.w* 6’75 676 (Tex.Ci A 1922 it ) Coman%e County v. Burks 166 S.;: t%, 4739 (;:x?iv:A;p. 1914, error iGrr--$ The court in the Comanche Counte case at page 473 referring to the actions of a commissioners' court in the investment of the counties "permanent school fund," states: "The county for which they act holds the proceeds as an express trust, and the invest- ment thereof in the securities named In the Constitution or otherwise, as may be prescribed by law, necessarily involves an exercise of judgment and discretion." (Emphasis added). The Texas Trust Act, Article 7425b-2, Vernon's Civil Statutes, defines a "trust" for Its purposes as being an "express trust," and there can be no doubt that the "trust" in our situation is such a trust. Article 7425b-12 of the W;sie;;t clearly states that "a trustee" may not "...buy either directly or indirectly, any property owned by'or belonging to the trust estate, from or to itself or an affiliate." hit is clear from the language of the Texas Trust Act that the commissioners court could not sell to the County's Permanent School Fund bonds or other securities issued by the county while serving as Trustees of said fund. It has been brought to our attention in this case that the Certificates of Obligation which Falls County wishes to sell to the county's permanent school fund bear interest at l/lOth of 1 percent per annum. The only income that the schools within a county receive as a result of the investments of its "permanent fund" is the "interest thereon" or other Income realized as a result thereof, all of which make up the County's"available fund." This presents the additional question of the propriety of such an investment considering the extremely low interest rate on these certificates. Article 74a5b-46 states "*** the trustee shall exercise the judgment and care under the circumstances then prevailing, which men of ordinary prudence, -5384- Honorable Thomas Bartlett, page 3, (M- 1104) discretion and intelligence exercise in the management of thei,rown affairs.. r" It would not seem rceasonablethat any one of the County Commissioners would invest their personal funds at such a low rate of interest notwithstanding the "prudent man test" and it would seem inconsistent with the manifest purpose of the "permanent fund" to make such an investment. page 474,in the Comanche County The coui't,a,t. case made clear the point ,that".* .in the matter of the trust under consideration we see no reason why the county should not be held'to the same rules of law that are applicable to other trustees..." and in.that case held the county liable for interest at the then prevailing legal rate on an improper investment, Consequently, great caution should be exercised to insure that the highest prevaili~ngrate of interest, consistent with investment safety, is secured on any investment of county permanent school funds, and that said funds are invested in securl- ties other than those issued by the trustee-commissioners. SUMMARY Certificates of Obligation of Falls County, issued by the Commissioners Court, may not be purchased by the Permanent School Fund of Falls County for the Commissfoners of said Court are the Trustees of said fund and prohibl,tedby the Texas Trust A& f,rommaking sucAan Investment. Prepared by Robert B. Davis Assistant Attorney General APPROVED: OPINION COMMITTEE Kerns Taylor, Chairman W. E. Allen, Co-Chairman -5385- Honorable Thomas Bartlett, page 4, (M-1104) John Reeves Jim Swearingen John Banks Bob Lattimore SAMUEL D. MCDANIEL Staff Legal Assistant ALFRED WALKER Executive Ass1stan.t NOLA WHITE First Assistant . -5386-