Untitled Texas Attorney General Opinion ( 1966 )

Honorable C. H. Cavness
State Auditor '
Sam Houston Building
Austin, Texas ._
Opinion NO. c-610
RCt: Expenditure by institutions
of higher learning of income
on short term investments of
Dear Mr. Cavnessr certain restricted funds.
Your request for an opinion on the above subject matter
reads as follows,:
"The Staff of the Coordinating Board,
Texas College and Upiversity System, joins
me in respectfully 'requesting your Opinion
as to the legality of using certain funds
at some of the State's Institutions of Righ-
er Learning for the purpose of supplementing~
the salaries of their presidents. The funds
about which we are concerned are from sources
other than State appropriations, and are com-
posed of income from various funds the uses
of which are restricted to some certain pur-
poses by their payor sources. In particular,
this income is from interest earned on time
deposits or short term investments of restrict-
ed funds~ over which the payor's Instructions
are silent as to the disposition of any such
earnings. We are not satisfied as to whether
or~not these uridesi&nated earnings on restrict-
ed funds inherit a restrictive character which
would limit their use to the same purposes as
that of their principals, and thus prevent
their use for the supplementing of any line-
item salary appropriations that have been au-
thorized in the Appropriation Acts.
"Provisions of Article No. 2654d, V.C.S.,
and of parts of the current Ap ropriation Act
(H.B. Ho. 12, 59th Legislature P deal with
Hon. C. H. Cavness, page 2 (C-610)
institutional local funds. The-.supplement-
_
ing, with such funds, or any salaries beyona
amounts fixed in the Legislative appropria-
tions of funds in the State Treasury is pro-
hibited. but thrrxrm funds income can
be so used since they are handled through
local bank accounts in view of the fact they
are exempt from being deposited in the State
,, Treasury.
“It is mentioned that in all Instances
this salary supplementing being done is with
the approval of the respective governing boards,
and that so f~ as we know everything is in
order in this connection if the use of the earn-
ings described above la legal. Your Opinion
on that puastion will be appreciated very much.”
The governing boards of the respective institutions
named in Article 26346, Vernon’s Civil Statutes, are authoriz-
ed to select depository banks and to place certain monies on
deposit with said depoaitory banks,,provided said depositories
pay interest on said deposits at a rate to be agreed upon by
said depositories and the governing.boards.
Sections 3 and 8a of Article 2634d, Vernon’s Civil Stat-
utes, read as follows,:
“Secri:, 3. Separate acaounts shall be kept
on the books of the respective’ institutions
showing the sources of all sums collected, and
the purposes for which expended. All trust
funds handled by the governing bodies of such
institutions shall be deposited in separate ac-
counts and shall not be commingled with the
general income frpm student fees or other local
.’ instity.$ional Income, and all such trust funds
shall be secured by separate bonds or securities.’
“sec. 88. No part of any of these funds
shall ever be used to inorease any salary beyond
the sum fixed by the Legislature in the appropria-
tions bill, and this law shall be subordinate and
subservient to the biennial appropriation bills
,for the support of the several institutions here-
in mentioned.”
Generally, ‘in the event that the corpus of a testamentary
trust produces surplus income for which no provision has been
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Hon. C. B. Cavness, page 3 (C-610)
made directing either its distribution or accumulation, such
income will be,accuPlulated and will be distributable as a
art of the corpus. Stoffels v. Stoffels, 18 NJ. Super. 300
fi6 A.2d 806 1952); Tobler v. Moncrief ‘72 N.J. Super. 48 176
A.2d 105 (19 f!2). Thus, it -‘Moore v. Sanders, i06
S.U.2d 337 (Te~.Civ.App., 1937):
“The gene’ral rule is well settled that,
where trust money.cannot be applied either im-
mediately or within a short time to the purposes
of the trust, it is the duty of the trustee to
make the trust productive to the cestui que
trust by investment of it in some, proper secur-
ity, and a duty to invest arises by necessary
implication from direction to pay over the in-
terest or income.”
The same rule applies to the &&rest earned by deposit
of special funds. It was held in Lawson v. Baker, 220 S.W. 260,
272 (Tt3~.Ci~.App. 1920, error ref.11
w* c . Interest, according to all the au-
thorities, is an accretion to the principal
fund earning it, and, unless lawfully separat-
ed therefrom, becomes a part thereof. We think
it is clear that the interest earned by deposit
of special funds is an increment that sccrues to
such special fund, and any attempt of the Legie-
lature to make such interest a part of the,gener-
al revenue is futile, in the race of the constitu-
tional provisions creating or dedicating these
funds to special purposes .‘I
Therefore, in the event no provision has been made di-
recting distribution of income, it is our opinion that income
derived from interest on time deposits or short term invest-
ments of restricted funds becomes a part of the restricted
,funds and can be expended only for the purposes for which the
restricted funds &y be expended. You are accordingly advised
that, under the facts submitted in your request, the salaries
of presidents of institutions of higher learning.cannot be
supplemented with funds derived as income from interest on
“restricted” funds named in Article 265&d, Vernon’s Civil Stat-
utes .
Income derived from interest on time de-
posits or shortterm investments of re-
stricted funds becomes a part of the ,-
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. .
Hon. C. H, Cavnees, page 4 (c-610)
restricted funds, and can be expended only
for the purposes for which the restricted
funds may be expended, unless specific pro-
vision is made for distribution of Income,
and qy not Ij& expended for the purpose of
supplementing salaries.
Yours very truly,
WACKIOWERCARR
Attorney General
<‘~-’ John Reeves
Assistant
JR:&6
APPROVED:
OPINIOR C0l@u1!llm
W. V. oeppert, Chairman
John Banks
Paul Phy
Roy Sohrason
Phillip C!z+awford
APPROVEDFOR TFE ATTORIVEX
QEIVERAL
Bya T. B. Wright
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