THEATTQW~Y GENERAL 0F%?EXAS ,AUSTIN. TEXAB 78711 December 19,,1963 Dr. J. W. Edgar OPINION NO. C-197 Commissioner of Education Texas Education Agency Re: Whether an Independent Austin, Texas school district can exe- cute a binding obligation In the form of an lnterest- bearing note or time war- rant for a school construc- tion loan secured by pledg- ing of anticipated incentive aid payments amounting to approximately $41,000 an- nually for a period of nine Dear Dr. Edgar: years. You have requested that the Attorney General answer the following three questions: "(1) Can the Independent school district execute a binding obligation In the form of Interest-bearing note or time-warrant for a school construction loan secured by or pledging of anticipated Incentive aid payments approximately $41,000 annually for a period of nine years? "(2) May incentive aid payments be applied both to principal and Interest on such a loan, or to payment of principal only? "(3) If (1) is answered yes: Is assignability of the Incentive aid'payments permissible in payment of the loan; VIZ., this Agency to forward such pay- ments as are determined annually to the assignee lender on its filing of a copy of the assignment instrument?" The statutory provision for lncentlve:ald payments to consolidated Independent school districts Is found in Artlcl,e 2815-3, Vernon's Civil Statutes, Section 1 of which provides, In part, as follows: "C . The Incentive Aid Payments shall be used ex- clusively to retire the existing bonded lndebted- ness of the school districts which have been -949- Dr. J. W. Edgar, page 2 (C-197) consolidated, or Shall be applied to the cost of constructing new buildings required by the reorgan- ized district." The authority . of a school district t0 iSSUe interest- Dearlng tlme warrants is found In Article 2'@6e, Vernon's Civil Statutes, Section 8'of which defines "Interest-bearing time warrants' as being a "promissory note, interest-bearing time warrant, orobligation or other evidence of Indebtedness issued under this Act." Section 1 of Article 2786e provides that 'BUCh warrants Shall mature in serial Installments of not more than five (5) years from their date of ~iBBUe" and further that "Such war- rants shall upon maturity be payable out of any available funds Of such BChOOl district." (Emphasis added.) Section 3 of Article 2786e limits the amount of such warrants that a school district can issue, including the fol- lowing: "No BChOOl district Shall have outstanding at any one time warrants totalling in excess of Twenty-Five Thousand Dollars ($25,000) under the provisions of this Act." In answering your first question we have only to deter- mine whether or not the school district could execute the con- templated obligation without violating the provisions of Article 2786e. The answer Is that It clearly could not in that to do so would violate all the requirements of Sections 1 and 3 which are referred to above. Not only would the con- templated obligation be in an amount of approximately $4.00,000 (as o posed to the maximum of $25,000 allowed by Article 27&e P and extend over a nine year period (as opposed to the maximum of five years allowed by Article 2786e), but It would attempt to secure the loan by pledging specific funds for its payment, whereas Article 2786e specifically says that such obligations Shall be payable out of "any available funds." There is no provision in Article 2786e that authorizes specific ~fUndB of an kind to be pledged for payment of time warrants, nor does7F rticle 2815-3 authorize pledging of anticipated future incentive aid-payments for any purpOBe. Since your first question has been answered in the negative it is unnecessary to answer your second and third queBtlonB. -950- Dr. J. W. Edgar, page 3 (c-197) SUMMARY The authority of a school district to execute an Interest-bearing note or time warrant Is set out in Article 2786e, Vernon's Civil Statutes and la limited by the provisions of Bald Act. Thus the BpeClflC obligation contemplated here would be unlawful In that it would pledge specific funds for payment rather than 'any available funds" and would also exceed the statutory maximum as to both amount and duration of the obligation. Very truly yours, WAGGONER CARR Attorney General ASSiStant JMS:da APPROVED: OPINION COMMITTEE W. V. Geppert, Chairman V. F. Taylor Ben Harrlscn Howard Maya Jerry Brock APPROVED FOR THE ATTORNEY GENERAL BY: II. Grady Chandler -951-