Untitled Texas Attorney General Opinion

The Attorney General of Texas
April 11, 1984
JIM MATTOX
AttorneyGeneral
Supreme Court Building Honorable Luther Jones Opinion No..~+l42
P. 0. Box 12546 El Paso County At,torney
Austin. TX. 78711. 2546 Room 201, City-County Building Re: Whether a water district
512,475.2501
El Paso, Texas 79901 may use excess bond monies
Telex 9101674-1367
Telecopier 5121475-0266
levied for the interest and
sinking fund for a water pro-
ject not described in the bond
714 Jackson, Suite 700 issue
Dallas, TX. 75202-4506
2141742-6944
Dear Mr. Jones:
4624 Alberta Ave., Suite 160 You ask us the following question:
El Paso, TX. 79905-2793
9151533.3464
Can a water district use the proceeds of a bond
issue passed pursuant to an act of the Thirty-
,r- ninth Legislature, chapter 25, 1925, for water
)Ol Texas, Suite 700
Houston.
TX. 77002-3111 projects other than the project described in the
7,3/223-5666 original bond issue?
We understand you to ask whether the district can expend surplus
606 Broadway, Suite 312
Lubbock, TX. 79401.3479
monies levied for the interest and sinking fund on water projects
6061747.5236 other than that described in the original bond issue. We conclude
that monies in the interest and sinking fund cannot be expended for
any purpose other than those set forth in section 51.436 of the Water
4309 N. Tenth. Suite B
t&Allen. TX. 76501-1665
Code. After the outstanding bonds are retired, any surplus my either
5,2!662-4547 be refunded if practicable, to taxpayers or be transferred to the
district's maintenance fund.
200 Main Plaza. Suite 400
You have supplied us with the following information. The El Paso
San Antonio, TX. 76205.2797
5,2,225-4191
County Water Control and Improvement District No. 4 issued a series of
sewer bonds in 1956 in the amount of $275.000.00. Sections 51.433 and
51.434 of the Water Code require the district's board to levy a tax
An Equal Opportunity/ for the purpose of redeeming and discharging the bonds and paying the
Affirmative Action Employe!~ interest thereon. The fund created thereunder is now in excess of
$390.000.00, with approximately $31,000.00 in bonds outstanding. The
district proposes to use the excess funds for an Environmental
Protection Agency project after the district has retired the remaining
$31.000.00 in bonds.
Section 51.436 of the Water Code provides the following:
p. 607
Honorable Luther Jones - Page 2 (JM-142)
(a) The district shall have an interest and
sinking fund which shall include all taxes
collected under this chapter.
(b) Money in the interest and sinking fund may
be used only:
(1) to pay principal and interest on the
bonds;
(2) to defray the expenses of assessing and
collecting the taxes; and
(3) to pay principal and interest due under
a contract with the United States if bonds have
not been deposited with the United States.
(c) Money in the fund shall be paid out of the
fund on warrants by order of the board as provided
in this chapter.
(d) The depository shall receive and cancel
each interest coupon and bond as it is paid and
shall deliver it to the board to be recorded,
cancelled, and destroyed. (Emphasis added).
Unsmbieuous statutorv laneuaee is not subiect to construction,
but must b; enforced as-writ&~.- Ex parte RAoff, 510 S.W.2d 913
(Tex. 1974); Col-Tex Refining Co. v. Railroad Comission of Texas, 240
S.W.2d 747 (Tex. 1951). The clear language of the statute requires
that money in the interest and sinking fund be expended only for three
specified purposes. The district is without authori~tyto expend the
funds for any other purpose. But see Water Code 151.437 (permitting
the investment of the funds in certain instances). Moreover, absent
specific statutory authority to the contrary, monies in an interest
and sinking fund may be used for no other purpose than the one for
which it was created. Bexar County Hospital District v. Crosby, 327
S.W.2d 445 (Tex. 1959). _See Attorney General Opinion H-658 (1975).
This rule applies when bonds remain outstanding. The rule is
less clear when all of the outstanding bonds have been retired and
there remains a surplus in the interest and sinking fund. In specific
instances, the Texas Legislature has permitted the expenditure of
surplus interest and sinking fund monies after the bonds outstanding
are retired. See, e.g.. V.T.C.S. arts. 723, 752a. The Water Code,
however, is silent 8s to whether surplus monies in the interest and
sinking fund can be expended after the bonds outstanding are retired.
It has been suggested that any surplus monies in the interest and
sinking fund can be expended for any lawful purpose of the taxing
p. 608
Honorable Luther Jones - Page 3 (JM-142)
unit. Cited in support of such a proposition is Madeley v. Trustees
of Conroe Independent School District, 130 S.W.2d 929 (Tex. Civ. App.
- Beaumont 1939, writ dism’d judgmt co=.). We disagree both with the
proposition and with the characterization of the Madeley case.
Madeley concerned the disposition of surplus monies in the maintenance
fund of an independent school district which the trustees sought to
expend on the erection and equipment of a school building. The court
held that the surplus monies in the maintenance fund ceased to be
governed by the strictures imposed thereon by statutes specifying the
purposes for which maintenance funds could be expended once the
purpose of the statutes has been effectuated.
If and when the statutes cease to control the
fund, then it becomes a constitutional fund and
not a statutory fund, and may be used by the
trustees for the constitutional purposes; one of
the constitutional purposes is ‘the erection and
equipment of school buildings’ within the
district. what we have said is in full
recognition of the legal proposition that the fund
collected for the support and maintenance of the
public free schools, to the extent that it is
needed for thnt purpose, can not be diverted to
any other purpose.
Madeley v. Conroe Independent School District, supra at 934.
The following language in Madeley is that cited in support of the
proposition that surplus monies in the interest and sinking fund may
be expended for any lawful purpose of the taxing unit.
The following illustration is in point on our
holding: Where a district has issued bonds and
voted a tax to retire them, what becomes of the
surplus of the tax when the bonds are retired?
Since it is not reasonable that the exact amount
of the bonds will be collected, on every bond
issue the trustees will have in their hands a
surplus. Again, a tax payer permits his tax to
become delinquent until after the bonds are
retired; when sued, can he defend on the ground
that the bonds for which the tax against his
property was levied have been paid off? When the
delinquent tax is collected, how shall it be
expended? These questions find their answer in
Sec. 3 of Art. 7 of the Constitution; where the
bonds hnve been paid off the statutes regulating
the expenditure of the funds for their payment
cease to control the power of the trustees in the
expenditure of the surplus, and its expenditure
p. 609
Honorable Luther Jones - Page 4 (m-142)
rests in the discretion of the trustees, under
Sec. 3 of Art. 7 of the Constitution.
Id. For two reasons we conclude that such language is not dispositive
of the issue before us. First, the paragraph is dicta. At issue in
Madeley was a surplus in the maintenance fund, not in the interest and
sinking fund.
Second, and more importantly, the court specifically held that
article VII, section 3 of the Texas Constitution permitted school
districts to levy a maintenance tax for “the erection and equipment of
school buildings” within the district, as well as “for the further
maintenance of public free schools.” Tex. Const. art. VII, $3. The
court noted that. for years, trustees of independent school districts
had expended surplus monies in maintenance funds for erection of
public school buildings. The constitutional provisions under which
water control and improvement districts are created do not contain
language similar to that of article VII, section 3. See Water Code
551.011. Article III, section 52 of the Texas Constitution authorizes
the legislature to permit political subdivisions to issue bonds for
certain specified purposes and to “levy and collect taxes to pay the
interest thereon and provide a sinking fund for the redemption
thereof . . . .” Clearly, article III, section 52 contemplates the
creation of a discrete, segregated interest and sinking fund; there is
no language which could be construed to permit the expenditure of any
surplus interest and sinking fund monies for any purpose other than
the payment of interest and the redemption of outstanding bonds.
Likewise, article XVI, section 59 of the Texas Constitution
authorizes the legislature to permit conservation and reclamation
districts to issue bonds “as may be necessary to provide all
improvements and the maintenance thereof requisite to the achievement
of the purposes of this amendment” and to levy and collect “all such
taxes, equitably distributed, as may be necessary for the payment of
the interest and the creation of a sinking fund for the payment of
such bonds; and also for the maintenance of such districts and
improvements . . . .‘I Again, it is clear that the constitution
contemplates the creation of at least two discrete funds, one for
maintenance of the districts and one for the payment of interest on
and redemption of outstanding bonds. And again, there is no language
in article III, section 52 which could be construed to pensit the
expenditure of surplus interest and sinking fund monies for any lawful
purpose of the taxing unit.
There is admittedly a dearth of explicit, direct authority in
this area. Courts in other jurisdictions have held that surplus
monies in an interest and sinking fund can be expended after out-
standing bonds have been redeemed for purposes other than those for
which the bonds were originally issued and sold, but only when such
was specifically provided by statute. See, e.g., Diver v. Village of
p. 610
Honorable Luther Jones - Page 5 (JM-142)
Glencoe, 379 N.E.2d 1214 (Ill. App. 1978); Jack's Cookie Corp. v.
Giles County, 407 S.W.Zd 446 (Term. 1966); St. Louis-San Francisco Ry.
Co. v. Ottawa County Excise Board, 207 P.7.d275 (Okla. 1949); King v.
Duval County, 174 So. 817 (Fla. 1937); Flint v. Duval County, 170 So.
587 (Fla. 1936); Rothschild v. Village of Calumet Park, 183 N.E. 337
(Ill. 1932).
The dearth of authority in this area may be easily explained by
the fact that constitutional and statutory provisions which govern the
creation of sinking funds ordinarily contemplate that no more taxes
shall be collected than are necessary to meet the principal and
interest on the bonds. See, e.g., East St. Louis v. Uniied States, ex
rel. Zebley. 110 U.S. 321 (1884); E.T. Lewis Co. v. Winchester. 130
S.W. 1094 (Ky. App. 1910); Rogge v. Petroleuq County, 80 P.2d 380
(Mont. 1938); State v. Board of Public Instrut ction for Dade County,
170 so. 602 (Fla. 1936); 15 E. McQuillin, Municipal Corporations,
943.133 (1970). In fact, somte courts have held that anv levv creatine
such a surplus is void as to the excess. People ex ;el. -Brenza v:
Fleetwood, 109 N.E.2d 741 (Ill. 1952); People ex rel. Manifold v.
Wabash RY. Co.. 53 N.E.2d 976 (Ill. 1944); Rogge v. Petroleum County,
supra.
We construe the Water Code to permit only the imposition of an
interest and sinking fund levy sufficient to pay the bonds and
interest as they become due. It clearly does not permit nor does it
contemplate the creation of a surplus. Section 51.433 provides the
following in pertinent part:
551.433. Tax Levy
(a) At the time bonds are voted, the board
shall levy a tax on all property inside the
district in a sufficient amount to redeem and
discharge the bonds at maturity.
(b) The board annually shall levy or have
assessed and collected taxes on all property
inside the district in a sufficient amount to pay
for the expenses of assessing and collecting the
taxes.
Cc) If a contract is made with the United
States, the board annually shall levy taxes on
property inside the district in a sufficient
amount to pay installments and interest as they
become due.
(d) The board may issue the bonds in serial
form or payable in installments, and the tax levy
shall be sufficient if it provides an amount
p. 611
IIonorableLuther Jones - Page 6 (JM-142)
sufficient to pay the interest on the bonds, the
proportionate amount of the principal of the next
maturing bonds, and the expenses of assessing and
collecting the taxes for that year. (Emphasis
added).
Section 51.434 of the code provides the following:
551.434. Adjustment of Tax Levy
(a) The tax levy wade in connection with the
issuance of bonds shall remain in force from year
to year until a new levy is made.
(b) The board may from time to time increase
or diminish the tax to adjust it for the taxable
values of the property subject to taxation by the
district and the amount required to be collected.
(c) The board shall raise an amount sufficient
to pay the annual interest of and principal on all
outstanding bonds. (Emphasis added).
It is suggested that Attorney General Opinion MW-97 (1979)
controls this issue. In Attorney General Opinion MW-97 (1979). this
office declared that, in an instance in which the applicable statutes
were silent as to the disposition of any surplus interest and sinking
fund monies after the redemption of bonds outstanding, such funds may
be expended only for the same "public improvements" for which the
bonds were originally issued. Quoting McQuillin, Municipal
Corporations at Volume 15, 543.134, the opinion declared:
A sinking fund should be applied to the payment of
the principal and interest on the bonds which it
was created to service, and even though the bonds
have been declared void, cannot be diverted to
other purposes. Thus, it is an unlawful diversion
to transfer a sinking fund to the general
fund. . . . It has been held that an unallocated
surplus remaining after the payment of principal
and interest of outstanding bonds may be used for
the construction of a public improvement . . . .
(Emphasis added).
The case cited by McQuillin in support of the above underscored
language is King v. Duval County, B. As we have already noted,
the rule in King is not a general rule of law with respect to the
disposition of surplus interest and sinking fund levies; the transfer
permitted in King was specifically authorized by statute. Such is not
the case in the Water Code. Attorney General Opinion MW-97,
p. 612
Honorable Luther Jones - Page 7 (JM-142)
therefore, relied upon authority which does not support the
proposition for which it was cited. Accordingly, to the extent to
which Attorney General Opinion MW-97 conflicts with this opinion, it
is hereby overruled.
In the absence of specific statutory authority, the prevalent
judicial and legislative reasoning appears to be that such surplus
monies may be refunded to taxpayers, see, e.g., Diver v. Village of
Glencoe, a; City of Stuttgart v. McCuing, 234I,".sW;.;
eyett(Ark.
1950). unless such refund would be impracticable. , the
surplus levy may be transferred to the general maintenance fund. See
Morton v. Baker, 494 S.W.2d 122 (Ark. 1973); Lawrence v. Jones.73
S.W.2d 228 (Ark. 1958).
We conclude that, in the absence of statutory authority directing
the disposition of any surplus monies levied for the interest and
sinking fund, the water district may refund such excess to taxpayers
or. in the event that such refund is impracticable, transfer such
monies to the maintenance fund of .the district. We note that section
51.352 of the Water Code specifies the purposes for which monies in
maintenance fund may be expended. See also Water Code 951.351
(provides that proceeds from the sale of bonds shall be deposited in
the construction fund and that, after the payment of obligations for
which the bonds were issued, any remaining money in the construction
fund may be transferred to the maintenance fund).
SUMMARY
In the absence of statutory authority directing
the disposition of any surplus monies levied for
the interest and sinking fund after the redemption
of bonds outstanding, the El Paso County Water
Control and Improvement District No. 4 may refund
such excess to taxpayers or, in the event that
such refund is impracticable, transfer such monies
to the maintenance fund.
JIM MATTOX
Attorney General of Texas
TOM GREEN
First Assistant Attorney General
DAVID R. RICHARDS
Executive Assistant Attorney General
p. 613
Honorable Luther Jones - Page 8 (JM-142)
Prepared by Jim Noellinger
Assistant Attorney General
APPROVD:
OPINION COMMITTEE
Rick Gilpin. Chairman
Jon Bible
Colin Carl
Susan Garrison
Jim Moellinger
Nancy Sutton
p. 614