Untitled Texas Attorney General Opinion

The Attorney General of Texas
JIM MAl-TOX October 2. 1986
Attorney General
Supreme Court Euildin9 Mr. John ‘3. Cargile Opinion No. 34-551
P. 0. BOX 12549
Austin. TX. 70711. 254S Chairman
5121475~2501 Board of Regents Re: Whether Southwest Texas State
Telex 9101574-1357 Texas State Univers:Lty System University may expend appropriated
Telecopier 5121475aS9 505 Sam Aouston Bui:Lding funds on behalf of real property
Austin, Texas 787Dl donated in trust, and related
714 Jackso”. suite 700 questions
Dallas, TX. 75202.4508
21417424944 Dear Mr. Cargile:
You ask several questions concerning the Rarold M. Freeman Educa-
4524 Alberta Ave., Suite 150
, El Paso. TX. 798052793 tional Foundation which was created to make use of certain ranch
9154533.3494 property available to Southwest Texas State University by the medium
of a testamentary trust. The property is not devised to the state or
to the university or to a nonprofit corporation that supports the
1001 Texas, Suite 700 educational purposes of the university. Frost National Bank of San
H``slon. TX. 77002-3111
Antonio is an “Inactive Co-Trustee” and Southwest Texas State
713e23.5895
University is an “3:perating Co-Trustee.” Subject to the conditions of
the trust, the ranch property is to be used and operated solely for
806 Broadway. Suite 312 farm, ranch, and game management, educational. and experimental
Lubbock. TX. 79401.3479 purposes in connec:t:ion with the educational activities carried on by
808/747-5239
Southwest Texas Sta.te University for the benefit of its students and
the public. The trust did not receive funds with which to operate the
4309 N. Tenth. Suite S trust property except for funds that may be generated by its own
McAllen, TX. 79501-1995 operation.
51N92.4547
The trust is e’he real owner of the property. The trustees have a
200 Main Plaza. Suite 400 legal title, coupled with a power that may be exercised subject to the
San Antonio, TX. 79205-2797 conditions of the must. See Parrish v. Looney, 194 S.W.Zd 419, 423
5W225419l (Tex. Civ. App. -’ 1946, nowrit). The trust in question contains
several restrictionq and conditions. As Operating Co-Trustee, South-
. west Texas State I’niverslty is directed to operate the trust property
An Equal Opportunity/
Affirmative Action Employer as a self-supporting entity fiscally separate from the university.
All income earned by the trust shall be retained for the maintenance,
operation, and improvement of the trust property and expenses of
administering the trust. The university is directed to pay ad valorem
taxes and insurance premiums for liability and fire and extended
coverage insurance: from the funds of the trust. Neither the income
nor corpus of the trust may be used for or distributed to any indivi-
dual or institution. including the trustees. The trustees may not
mortgage, encumber , lease, sell, or exchange any of the trust’s real
property. On the resignation or removal of the Operating Co-Trustee
for failure to operate the trust for the specified purposes and
p. 2442
Mr. John S. Cargile - Page i (JM-551)
according to the terms and conditions of the trust, the Inactive
Co-Trustee is directed tc replace the Operating Co-Trustee with
another qualifying organimtion or to transfer the property of the
trust to the Ema Freeman Foundation or to terminate the trust and
distribute the proceeda of the sale of its assets to former bene-
ficiaries of the EmmaFreelam Foundation.
You ask whether Southwest Texas State University may spend state
funds appropriated to it to erect permanent improvements on the
trust’s real property or ta pay operational expenses of the trust and
purchase equipment and livl!stock necessary to operate the trust. We
assume that your inquiry relates to authority granted by the Texas
Constitution, by the Texas statutes , and by the testamentary trust.
Part of your inquiry Is whether the expenditure of appropriated
funds to permanently improve the trust real property or to operate the
trust would violate the pr~bibitions of article III, section 51, and
article XVI, section 6, J:E the Texas Constitution. Article III,
section 51, provides, in part, that
[t]he Legislature: shall have no power to make any
grant or author::z:e the making of any grant of
public moneys tc’ any individual, association of
individuals, municipal or other corporations
whatsoever. . . ,
Article XVI, section 6, provides, in part, that
[n]o appropriati~x~ for private or individual pur-
poses shall be made, unless authorized by this
Constitution. . , .
Both the courts and this office have approved statutes and
appropriations that authorize grants of public funds to private
entities so lonn as~the exaenditure is made for the direct accomulish-
ment of a legitimate publ:ic purpose. See Barrington v. Cokinos, 338
S.W.Zd 133, 140 (Tex. 1963). See alsoState v. City of Austin, 331
S.W.Zd 737 (Tex. 1960); Davis v. City of Lubbock, 326 S.W.2d 699 (Tex.
1959) : Attorney General Tz.nions KW-89 (1979) : E-1260 (1978). Also,
the &blic entity must re;:eive adequate consideration to avoid making
a gift or grant of public funds to a private entity in violation of
article III, section 51. See Attorney General Opinions H-1309 (1978);
H-403 (1974). When the st:E seeks to accomplish a public purpose by
granting funds to a private entity, it must maintain adequate control
over the use of the funds t,o see that the public purpose is achieved.
-See Attorney General Opinions MW-423 (1982); MW-373 (1981).
No fixed rule del~leates exactly what constitutes a public
purpose. Public educati~z~ is, however. an essential governmental
function. Bainey v. Malo:``, 141 S.W.Zd 713 (Tex. Civ. App. - Austin
1940. no writ); Attorney General Opinion M-1221 (1972). It is our
p. 2443
Hr. John S. Cargile - Page 13 (JM- 559
opinion that en entity and .a program that contributes to the promotion
of education serves a public and governmental purpose. -See Attorney
General Opinions MU-373 (19,Bl); H-391 (1969).
Southwest Texas State University is under the management and
control of the Board of Regents, Texas State University System. Educ.
Code OP95.01, 96.41. The board is responsible for the general control
and management of the universities in the system and, among other
things, may perform such acts, as in the judgment of c the board,
contribute to the developsent of the universities in the system and
the welfare of ‘their studmts. Educ. Code 995.21(a). All approprie-
tions made by the legislamre for the support and maintenance of the
system universities, for the purchase of land or buildings for the
universities, for the e::ection or repair of buildings, for the
purchase of apparatus, libraries , or equipment of any kind, or for any
other improvement of any kind shall be disbursed under the direction
and authority of the boartl. Educ. Code 595.28. The board may accept
donations, gifts, grants, and endowments .for the universities under
its control to be held in trust and administered by the board for the
purposes and under the directions, limitatious, and provisions
declared in writing in tt.e donation, gift, grant, or endowment, not
inconsistent with the laws of the state or with the objectives and
proper management of the universities. Educ . Code 195.34. In our
opinion, the legislature, in delegating such duties to the board,
authorized the board to determine whether any particular expenditure
constitutes a valid publi’: purpose. The determination is to be made
initially by the Board of Begents and, if challenged, ultimately by a
court. -See Attorney General Opinions MW-373 (1981); H-1312 (1978).
It is our opinion that funds appropriated and allocated for use
by Southwest Texas State Uuiversity for permanent improvements may be
used, as provided by article VII. section 17, of the Texas Constitu-
tion and by chapter 62 of the Education Code, on the trust reai
property without violating article III. section 51. or article XVI,
section 6. The mere fact that improvements are located on land that
is not owned by the stats!, or the fact that the interest in land is
subject to reverter or termination, does not render expenditures, ipso
facto, violative of the constitution. In Attorney General Opinion
H-403 (1974). this office determined that the question of constitu-
tionality depends on whet,her the expenditure for a livestock export
station on leased land was a proper public purpose and in exchange for
adequate public benefits. See also Attorney General Opinion H-416
(1974) (Texas Aeronautics Commission may make a grant of state funds
for improvements on munic:ipal airfield on leased land if grant is for
a proper public purpose and an adequate consideration). In Attorney
General Opinion H-655 (l!l75), this office stated that it was aware
of no constitutional inhtbitlons to the construction of permanent
improvements by a state university on land subject to a possibility of
reverter and that, as with improvements on leased land, article III,
section 51, and its associated provisions would not be violated if the
expenditure is for a propc:r public purpose and adequate consideration.
p. 2444
Mr. John S. Cargile - Page li (JH-553
See also, Attorney General Opinions E-257 (1974) (Parka and Wildlife
Department could spend state funds to construct facilities on land
owned by the federal govermeent vithout violating article III, section
51 because expenditure had valid public purpose and adequate public
benefit); MW-514 (1982) (Texas Tech University Eealth Sciences Center
may construct medical school, facilities on land subject to rights of
reversion without violating article III, section 51). Cf. Attorney
General Opinion C-395 (1961i) (prohibition In article VIIzection 17
against use of general revenue fund for permanent improvements by
designated universities did not apply to construction of building on
state-owned land for museum .that is a separate entity but administered
by a university).
The authority of the university to spend state funds to imp,rove
or operate the trust propsarty is determined not only by the Texas
Constitution and statutes bsut also is determined by the terms and
conditions of the trust. ‘The trustee of a testamentary trust can
exercise only such auth0rit.y as Is vested in him by the will under
which he acts. Williams v. --.Smith. 200 S.W.2d 201. 207 (Tex. Civ. App.
- Galveston 1947),~ rev’d. on other grounds 206 S.W.Zd 208. As we
previously mentioned, artic1.e 95.34 of the Education Code authorizes
the Board of Regents to accept donations, gifts, grants, and endow-
ments for the universities under its control to be administered for
the purposes and under the directions, limitations. and provisions
declared in writing in the donation, gift. grant, or endowment.
The will that creates the trust in question directs. the uni-
versity, as the Operating Co-Trustee, to manage and operate the
day-to-day and long-term operations of the trust property as a self-
supporting entity fiscally separate from the operation of Southwest
Texas State University. It appears that the terms of thee will
preclude the university’s ua,e of its own funds for the improvement or
operation of the trust property as a laboratory in support of its
agricultural and range management educational programs. See Attorney
General Opinion MW-425 (19.82) (funds donated to Pan bxcan Uni-
versity may be used only fcr purposes authorized by the donor pursuant
to section 112.34 of the E,ducation Code). However, to carry out the
purposes of a trust, a cocrt may direct or permit the trustee to do
acts that are not authorlzt,d or that are forbidden by the terms of the
trust if, because of circumstances not known or anticipated by the
settler, compliance with t.he terms of the trust would defeat or
substantially impair the accomplishment of the purposes of the trust.
See Property Code 1112.054; Smith v. Drake, 94 S.W.2d 236, 238 (Tex.
civ. App. - Austin 1936, no writ).
In addition to the provision of the will specifying that the
trust and trust property ‘be operated as a self-supporting entity
fiscally separate from the university, the will also provides that the
university, as the Operating Co-Trustee, shall. from the trust fund,
discharge all obligations of the trust, including without limitation,
property costs such as ad valorem taxes and insurance premiums for
p. 2445
. I
Mr. John S. Cargile - Page 5 (JM- 5S4
general liability and fi::e and extended coverage insurance on the
improvements. Hence, it appears that the terms of the trust also
preclude the university’s use of appropriated funds to purchase
insurance. You Inquire, however, whether the university may spend
appropriated funds to purchase fire and extended coverage insurance as
required by the will.
It is the policy of this state that the state shall carry its
own insurance on state buildings and contents and that no insurance
policies be purchased on my of the public buildings of this state or
their contents. See Senate Concurrent Resolution No. 3, Acts 1921,
37th Leg.. 2nd Cx, at 369. In view of the legislative intent
expressed in that resolution, this office in Attorney General Opinion
M-1257 (1972) determined that Tyler State College could not purchase
fire and extended coverage insurance on college buildings or their
contents. See also Attorney General Opinions C-193 (1963); O-6246
(1944). The state has continued to self-insure its own property for
fire and extended coverag,! Insurance and makes special appropriations
to repair and replace facjlities and equipment destroyed or damaged by
such events as fire, flood, windstorm, and hurricane. For instance,
chapter 21, appropriates ,funds to Southwest Texas State University to
repair or replace propert)’ damaged or destroyed by a flood on June 20,
1981. Acts 1981, 67th LelI,,, 1st C.S., ch. 21, at 239. See also Acts
1981. 67th Leg., chs. 628, 585, 83 (appropriations to Pan American
University for damage caused by hurricane, to North Texas State Uni-
versity for wind damage, and to Texas Forest Service of Texas A h M
University System for wine,storm damage); Acts 1979, 66th Leg., ch. 20,
at 30 (appropriation to Srm Houston State University for damage caused
by fire).
The governing bodies of state universities are creatures of
statute and may exercise only powers delegated to them by the legisla-
ture. See Attorney Genera.1 Opinion MW-475 (1982). The legislature
has notauthorized Southwest Texas State University to purchase fire
and extended coverage insurance for the university’s property. We are
not aware of a statute tha,t authorizes the university to purchase in-
surance on property belonging to a trust that the university operates
in connection with its educ:stional activities.
You also inquire wt.ether article V. section 56, of the 1985
General Appropriations Act or any other state law prevents the
university from spending appropriated funds to purchase liability
insurance covering tort claims that may arise from its operation of
the trust property.
The Texas Tort Claims Act generally authorizes a governmental
unit to purchase liability insurance to cover its operations. The
provision in section 9 ol: article 6252-19, V.T.C.S., now codified as
section 101.027(a) of the Civil Practice 6 Remedies Code, provides
that
p. 2446
Hr. John S. Cargile - Page 6 (J&551)
[e]ach governmental unit may purchase insurance
policies protect:tng the unit and the unit’s
employees against claims under this chapter [Texas
Tort Claims Act].
Ewever, the legislature clxlsistently has provided that none of the
funds appropriated in the biennial General Appropriations Act may be
expended for the purpose of purchasing policies of insurance covering
claims arising under the Tex,as Tort Claims Act. See Acts 1985. 69th
Leg., art. V, ch. 980, 5515;; Attorney General Opinion H-900 (1976).
The restriction in article V, section 56, of the Appropriations Act
applies only to claims under the Tort Claims Act and does not apply to
liability insurance purchas’rd under article 6252-19a. V.T.C.S. Article
6252-19a provides that
[t]he State Depa::tments or Agencies who own and
operate motor vehicles, aircraft and motorboats or
watercraft of all. types and sizes shall have the
authority to insure their officers and employees
from liability arising out of the use, operation
and maintenance of such automobiles, trucks,
tractors, power equipment, aircraft and motorboats
or watercraft used or which may be used in the
operation of such Department or Agency.
There is a distinction between appropriations for claims arising
under the Torts Claims Act and those arising under article 6252-19a
and the common law. See Attorney General Opinion H-158 (1973). See
also Attorney General Opfnions M-1257 (1972) (college may pay premiums
onliability insurance on college owned vehicles under article
6252-19a); M-1215 (1972) (Parks and Wildlife Department may purchase
liability Insurance under article 6252-19a since prohibition against
use of appropriated funds applied only to-insurance coverage purchased
under Torts Claims Act); t&521 (1969) (Appropriations Act prohibited
purchase of insurance cove.ring liability under Torts Claims Act);
M-559 (1970) (Highway Department may purchase liability insurance as
provided by article 6252-19a).
Hovever , article 6252..1.9a permits only the purchase of insurance
to cover liability incurred by the operation of a state-owned vehicle.
See Attorney General Opin:.on H-559 (1970). It is our opinion that
neither article 6252-19a nt’r any other statute authorizes the expendi-
ture of appropriated funds to purchase liability insurance covering
tort claims that may arise from the operation of the trust property.
Since there is no statutoq authority for the payment of such premiums
by a state university, l.i,ability insurance to cover tort claims
arising from the universit:r”s operation of the trust property may not
be purchased with appropriated funds. -See Attorney General Opinions
H-1318 (1978); D-742 (1975:.
p. 2447
Hr. John S. Cargile - Page 7 (JM-551,
You ask whether the trust property is eligible for exemption from
ad valorem property taxes under section 11.11 or any ,other section of
the Tax Code. We conclude that the trust property in question is not
taxable.
Article VIII, section 2, of the Texas Constitution authorizes the
legislature to exempt from taxation public property used for public
purposes. All real and tangible personal property that this state
has jurisdiction to tax is taxable unless exempt by law. Tax Code
511.01(a). Effective January 1, 1984, section 11.11 of the Tax Code
was amended by adding subsection (e), which provides that
property that is held or dedicated for the support,
maintenance, or benefit of an institution of higher
education as defined by section 61.003(7), Texas
Education Code, b,ut is not rented or leased for
compensation to L. private business enterprise to be
used by it for a purpose not related to the perfor-
mance of the duties and functions of the state or
is not rented or leased to provide private resi-
dential housing to members of the public other than
students and employees of the state is not taxable.
As now defined by section 61.003(S) of the Education Code, instead of
section 61.003(7), an “institution of higher education” includes a
public senior college or university such as Southwest Texas State
University.
It is our opinion t!rat the property in question is held and
dedicated by the terms of the trust for the support and benefit of
Southwest Texas State Unive,rsity. The Texas Supreme Court has stated
that the word “dedicate” ,:learly means to appropriate and set apart
one’s private property to some public use. Vlscard& v. Pajestka, 576
S.W.2d 16. ia (Tex. 19781, Virtually the ‘same definition appears in
Ford v. Moren. 592 S.W.2d 385, 390 (Tex. Civ. App. - Texarkana 1979,
writ ref’d n.r.e.). Not cnly is the property belonging to the trust
not rented or leased for compensation to a private business enterprise
to be used for a purpose not related to the performance of the duties
and functions of the state! or to provide private residential housing
to members of the public, ‘but the terms and conditions of the trust
prohibit the trustee from renting or leasing any of the trust’s real
property. As previously Ilointed out, the terms of the trust provide
that Southwest Texas State University may use and operate the property
solely for farm. ranch, and game management, educational, and experi-
mental purposes in connecl:ion with the educational activities of the
university for the benefj.t of its students or the general public.
Hence, it is our opinion t’vlt section 11.11(e) of the Tax Code exempts
the trust property from ad valorem taxes.
You ask about other sections of the Tax Code that may exempt the
trust property from ad valorem taxes. Therefore, we mention that
p. 2448
Mr. John S. Cargile - Page 3 W-551)
section 11.16 provides that farm products. vhich includes livestock
and poultry, in the hands of the producer are exempt from taxation.
Also, implements of husbandry used in the production of farm and ranch
products are exempt from ad ,valorem taxation. Tax Code 111.161.
SUMMARY
A state university serving as trustee of. a
testamentary trust created to make ranch property
available to the university to use in its educatio*
programs may speai appropriated funds for permanent
improvements and operation of the trust vithout
violating the Texs,s Constitution or statutes, so long
as the expenditure is for a proper public purpose and
an adequate consi(.eratlon. If the terms of the trust
prohibit the us,? of appropriated funds by the
trustee, a court has the power to direct or permit
the trustee to deviate from terms of the trust that
would defeat or substantially impair the accompllsh-
ment of the purpcses of the trust. The legislature
has not authorizetl the university to purchase general
liability or fire .and extended coverage insurance on
property belonging to a trust that the university
operates in connection with its educational scti-
vities, and insurance for the trust may not be pur-
chased with appropriated funds. The property of the
trust in question ,is exempt from ad valorw taxation
under section 11.:.1.(e) of the Tax Code.
.
Attorney General of Texas
JACK AIGHTOWER
First Assistant Attorney General
MARYKELLER
Executive Assistant Attornay General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Nancy Sutton
Assistant Attorney General
p. 2449