T~~A~ORNEY GENERAL
OFTEXAS
Hon. Jesse James Opinion No. O-3724
Acting State Treasurer Re: Authority of the State Board
4stin, Texas of Education to purchase certain
bonds.
Dear Sir:
We are in receipt of your letter of June 20, which
reads as follows:
“The State Board of Education is purchasing
$500,000 of Corpus Christi Independent School Dis-
trict Bonds dated 6-l-41.; Nos. l/500 inclusive at
$1,000 each; interest rate 2@ on the first 50
bonds; 2-3/4$ on the next 80 bonds and 3% on the
remaining 370 bonds, payable semi-annually on June
1st and December 1st of each year.
“Article, 2671 as amended provides that no
bonds, obligations or pledges shall be purchased
that bear less than 2-l/2$ interest. Bonds Nos.
S/50 of the above mentioned series bear only 2*$
interest.
We kindly request that at your very earliest
convenience you give us your written opinion as to
whether or not bonds Nos. l/50 of this issue can be
legally paid for out of the State Permanent School
Pund . ”
Your question Implies that the first fifty bonds,
bearing interest at the rate of 2z@, might be waived by the
Board of tiducation and the balance of the $500,000 issue
purchased under the option afforded by Article 2673 of
Vernon’s Annotated Civil Statutes. Briefly, the option
given to the State Board of Education provides that before
the bonds of any county, city, school district, or other
taxing agency, are sold, bids shall be taken on the total
amount desired to be sold and the best bona fide bid re-
ceived shall be submitted to the State Board of Bducation
said Board having an option of ten days within which to
meet said bid, and in the event the bonds are not purchased
by the Board, the issuing district, or subdivision, may then
proceed to seil said bonds to the party or parties making
the best bona fide bid. Such bids are made upon the basis
Hon. Jesse James, page 2 (O-3724)
of bonds offered by the issuing political subdivision,, Ed,
if such offering Is bid for as a block, then under ,the XL
the Board of Education is required to meet the price ofP~~...i
for the bonds as a block. It does not have the authority to
purchase thp,bonds so offered under any other conditions. 1;Ic,
other words, the Board is not at liher,ty to pass up the firs~t
fifty bonds of the above described issue and exercise its
option as to the remaining 450 bonds. It must take either
all or none of said offering. This it has endeavored to do,
treating the offering as one unit of investment, namely,
$500,000, said unit beari.ng interest at the coupon r:ztes i;,f
2)$ for the first fifty bonds, 2-j/4$ for the next eighty
bonds, and 3% for the remai,nder.
For convenience in handling said debt aggregati.ng
$500,0OC1 has been set u~p in $l,OOC? pieces, rnmbered i to 503,
inclusive e The debtor dis,trict is obligated to pay on said
debt an average interes,t of 2.90% throughout the life of the
debt. Conversely, the State Permanent School Fund, as the
owner of the evidence of the debt, .wil.l earn on its invest-
ment an average of 2.90% per annum throughout the life of the
debt. This brings before us the question as to whether hr-ti-
cle 2671.of Vernon’s Annotated Civil Statutes, which rea,ds,
in part, as follows:
“No bonds) obligations or pledges shall be
purchased that bear less than 2$& interest ***II
means that the bonds themselves shall bear a coupon interest
rate of not less than 2&s, or does it mean that no ingest-
ment by the State Board of Education shall ‘be made which
will not return as income on the investment a minimum yield
of 2#? We think the statute was intended to provide-,a mini-
mum of return on the investment. Artic1.e 2671 as amended,
is merely a secti,on of the law enacted by the Forty-first
Legislature, Regular Session, 1929 Chapter 278, page 573,
which law was an amendment .to the Hcts of 190’; page 215
and whic:h last named Act amended .the original’iaw, ‘tots Gf
1905, page 263, governing investment of .the State Permanent
School Fund. The entire law relating to this subjec~t m,ust be
read together in order to arrive at the correct legislative
intent . By reference to this law we find that ,the State Board
of Education is authorized to pay a premium for any bonds
authorized by law to be purchased as an investment for the
School Fund and, likewise, said Board is authorized to pur-
chase bonds at a discount (Art. 267.3),and then we find this
language:
“The price paid for bonds, obligations and
pledges, shall be endorsed thereon at the time
the same are purchased.”
- --.
Hon. Jesse James, page 3 (O-3724)
This indicates to us that the investment shall not be determined
by the denomination of the component pieces as prescribed by the
Issuing munlclpallty or political subdivision, but by the sum of
money lald out by the Permanent School Fund in the purchase of
such evidences of debt. It seems clear that the Legislature
Intended that all investments made by the Board in behalf of the
permanent School Fund should return not less than 2&% interest
on ‘funds so Invested.
Manifestly, the framers of the Constitution had In mind
providing some sort of fixed income for the operation of the
schools of the State. Section 5 of titicle 7 of the Constitution
provides, In part, as follows:
“The principal of all bonds and other funds,
and the princlpaI arising from the sale of lands
hereinbefore set apart to said School Fund, shall
be the Permanent School Fund, and all the interest
derivable therefrom *** shall be the Available
School Fund ***‘IO
Responsive to this constitutional mandate the Legislature has en-
deavored to provide a minimum of income for the Available Fund,
and we conclude that the language contained in Article 2671, su-
“No bonds obligations or pledges shall be purchased that
gi:j? less than’2@ lnterest I’ is Intended as the leglslative dl-
rection that the Board of Education, In making investments as
provided by law, shall make no investment yielding less than 2*$
Interest on the amount so invested.
Under date of July 23, 1937, the Honorable Joe J. Ksup,
Assistant Attorney General, ln an opinion addressed to the Hon-
orable Ghent Sanderford, President, State Board of Education,
reached the conclusion above set forth. We quote, in part, from
his opinion --
“We are of the opinion that the phrase ‘bear
less than 3% interest’ means that the State Board
shall realize 3$ on thelr investment. We do not
feel that the coupon face shall evidence $ lnter-
est o In view of the fact that these statutes were
enacted for the protection of the school funds of the
State, we cannot see how we can consistently arrive
at any other legislative intent.”
Since the above quoted opinion was rendered? Article
2671 has been amended, *lowering Interest from 3% to 22,%- In
this conaection we find further support for the conclusion here-
in reached in the emergency clause of the law amending Article
2671; which clause reads as follows:
Hon. Jesse James, page 4 (O-3724)
“The fact that prevailing Interest rates on
shorter maturity bonds in the case of a great
many desirable investments Is less than 3$, and
the fact that under the present law the State
Board of Education Is not permitted to Invest
in these securities because of the fact that the
present law requires a of 3$, creates an
emergency *** .I
It will be noted In this quotation that the Leglsla-
ture has used the word “yield” which we flna by reference to
Webster’s International Dictionary to be a synonym of the word
“bear”; therefore, we think that the legislative intendnent In
Article 2671, as above quoted, was that no bonds, obligations
or pledges , shall be purchased yielding less than 2s interest.
Following receipt of the above quoted opinion the
State Board of Education proceeded from that day forward to
Invest its funds on such a basis as would yield not less than
the minimum amount provlaed by statutes. In some instances
this yield was determined by the payment of a premium for bonds
so purchased, and In others It was reached through the purchase
of bonds at a discount, but according to the records of the
State Board of Education, no bonds have been purchased yielding
less than the statutory mlnlmum. We are Informed by the State
Board of Education that this has been their practice for the
years following the obtaining of the Attorney General’s opin-
ion interpreting Article 2671 relative to the minimum amount
of interest that might be borne by bonds so purchased.
This practice was being followed by the Board of Edu-
cation at the time Article 2671 was amended by the Acts of the
Forty-sixth Legislature, Regular Session, 1939, and in accord-
ance with the decision of the Supreme Court In the case of
Federal Crude Oil vs. Youht-Lee Oil Company, et al., 52 S.W.
(2d) 56, such amendment by the Legislature will be presumed to
have been made with knowledge of the Interpretation placed upon
Article 2671 by the Attorney General and the Board of Education.
Judge Leady used the following language in that case:
“Where the officers of the State government during
a long period of years have construed a statute of
doubtful Import, and the same Is later reenacted by the
Legislature in substantially the same form, it will be
presumed that the law-making body knew of the construc-
ticn placed upon its language by Its officers, and that
if it was not satisfied that Its Intention had been
rightly interpreted, It would have so changed the verb-
iage of the Act as to have shown clearly a contrary in-
tention.”
Hon. Jesse James, page 5 (O-3724)
In support of this statement Judge Leddy cited the cases of
Houston and T. C. R. Co., v. State of Texas, 95 Tex. 521.
6A R, W. 777: Galveston H.& S. A. Ry. Co. v. State, 17 S.W.
67; Stephens County v. Hessler, 16 S.W. (Jd) 804. Therefore,
the presumption being In favor of the interpretation placed
upon the statute by the Attorney General and the Board of
Education, we think It conclusive on this department to hold
that by the amendment of 1939, the Legislature In effect,
approved the construction placed upon Article ii671by the
Attorney General and the Board of Education.
Accordingly, you are advised that in our opinion bonds
nr?mbered l/50, inclusive, bearing interest at the face rate of
2+$ can be legally paid for out of State Permanent School Funds,
so long as such bonds constitute a part of the entire unit of
Investment, namely, $500 000, and so long as the Income yield
on the total sum Invested Is not less than 2&g.
Trusting that the foregoing fully answers your Inquiry,
we are
Yours very truly
ATTORNEYGENERALOF TEXAS
By, /s/ Clarence E. Crowe
Clarence E. Crowe, Assistant
APPROVEDJUL 1, 1941
/s/ Gerald C. Mann
ATTORNEYGENERALCS’TEXAS
(This opinion considered and approved in limited conference)
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