Attorney General Opinion JM-0355

. JIM MATTOX Attorney General The Attorney General of Texas September 25. 1985 6upreme Court Buildin P. 0. Box 12546 Austin, TX. 7671 l- 2546 512,4752501 Telex 9101674.1367 Telecopier 512/4750266 Honorable Charles F. Aycock Parmer County Attorney P. 0. Box 286 Farwell, Texas 79325 opinion No. JM-355 RS: Distribution of proceeds from the permanent school fund in Parmer County 714 Jackson. Suite 7M] Dallas, TX. 75202.4508 2141742.6944 4624 A,bel,a Ave.. Suite 160 E, Paso, TX. 79905-2793 9151533.3464 1001 Texas. Suite 700 tbuston, TX. 77002-3111 7131223-5666 606 Broadway, Suite 312 ,.ubbock. TX. 79401-3479 666,747.5236 4309 N. Tenth, Suite B ~cA,,en, TX. 76501-1665 5121662-4547 2CCl Main Plaza, Suite 400 sari Antonio. TX. 70205-2797 512n25-4191 Dear Mr. Aycock: YOU ask us several questions relating to the distribution of county permanent whool funds pursuant to article VII, section 6b of the Texas Constitution. That constitutional provision provides: Sec. 6b. Notwithstanding the provisions of Section 6, Article VII, Coastirution of the State of Texw, any county, acting through the com- missione:cs court, may reduce the county permanent school f'und of that county and may distribute the amount of the reduction to the independent and co-n school districts of the county on a per scholastic basis to be used solely for ehe Purpose,5 of reducing bonded indebtedness of those distriws or for making permanent improvemenrs. The co&ssioners court shall, however, retain a suffici(nlt amount of the corpus of the county permanent school fund to pay ad valorem taxes on school lands or royalty interests owned at the time of the distribution. Nothing in this Section affects financial aid to any school district by the staw. Adopted Nov. 7, 1972. (Emphasis added). Article VII, seccimon 6 states that the county permanent school lands and the proceeds from their sale "shall be held by said counties alone as a trust for the benefit of nublic schools therein: said uroceeds to be invested . . . and the cknties shall be reiponsibie for all investment 8. . . , IN Tex. Const. arr. VII. 96 (emphasis added). You inform w that rhe Parmer County Commissioners Court met with the superintenden(:r; of each of the school districts located in Parmer County together wL,th numerous board members representing each of the districts. The representatives of the various school disrricts were p. 1623 Bonorable Charles F. Aycock .- Page 2 (JM-355 instructed as to the requimments of article VII, section 6b of the Texas Constitution. You also inform us that none of the school districts indicated to the commissioners court that the funds would be used for reducing bonded iidebtedness, and all but one of the school districts indicated that 11: did not intend to use the money for permanent improvements. That one school district (Friona Independent School District), through its representatives, indicated to the commissioners court that in order to comply with the Education Code, it would at some point in time make permanent improvements. The school district did not sllxuit any plans to the court nor was any indication given to the court as to when the improvements might be made or the specific nature of the improvements. You inform us that the county has invested the school fund in certificates of deposit which matured in March 1985. In that regard, the Friona Independent Scho,ol District has requested its portion of the fund and has indicated that it would create a sinking fund in which its share of the permanent school funds would be placed until it proceeds with its future plans for permanent improvements. You first ask: May the commissioners court distribute the principal and interest after retaining a suffi- cient amount of. the principal to pay ad valorem taxes to a scho,LL district upon the district's statement that it intends to make permanent improvements without first ascertaining whether or not the permanen: improvements will be made, and how much of the district's portion of the per- manent school fund will be used in construction of the permanant improvements. It is important to note that under article VII, section 6 of the Texas Constitution counties are trustees of school lands for the benefit of the schools. Tex. Const. art. VII, 96. As the governing board of the county, the commissioners court acts as trustee in distributing the school fund under article VII, section 6b of the constitution. See Attorney General Opinions H-878 (1976); H-391, H-239 (1974); M-1104 (1972). As trustees, the:.r powers must be strictly construed, and they may neither divest themselves of the powers conferred nor assume powers not conferred. Set! Potter County v. C. C. Slaughter Cattle CO., 254 S.W. 775 (Tax. i%iim'n App.. - Sec. B, 1923, opinion adopted). Section 6b lodges discretion of how and when to distribute the county school fund in the wmmissioners court. Tex. Const. art. VII, §6b. Neither the time of the distribution nor the manner of distribution is specified :Ln the constitutional provision. On the contrary, the purposes for which the fund may be distributed are p. 1624 Honorable Charles F. Aycock - Page 3 (JM-355) clearly expressed. Id. Thus, the answer to your first question depends on what stan=d is applied to a tmstee exercising his discretion to distribute test funds to the beneficiaries. In exercising discretionary powers, the tmstee must act within the "bounds of a reasonatle judgment." See First National Bank of Beaumont V. Howard, 229 S.W.2d 781, 783 (Tz 1950). We believe that under this standard, a trustee is required to manifest the care, skill, prudence, and diligence of an ordinary prudent wan engaged in similar business affairs. Cf. Attorney General Opinion M-1104 (1972) (prudent wan standard is applicable to investments). Inplicit within this standard is a duty tc investigate and ascertain facts to make an informed judgment. Therefore, in response to your first question we conclude that it is within the cowmissioners court's duty as trustee to ascertain whether permanent improvements will be made and how much of the school district's portion of the permanent school fund will be used in the construction of permanent improvements before funds are distributed to school dist~c:tcts. You next ask whether ,s school district may receive its portion of the fund and create a sinking fund or reinvest the funds in a certificate of deposit until it proceeds with its plans for permanent improvements. We believe that this situation is possible only if there is a justifiable expectation on the part of the county commissioners that the fund. will be used within a reasonable time to satisfy the constitutional purposes. See Attorney General Opinion H-878 (1976). To distribute permanent school funds to a school district for the purpose of allowing the school district to invest the funds or establish a sinktug fund with no impending expectation that the funds will be used for the constitutional purposes within a reasonable time would be cnrtrary to the intent and purpose of article VII. section 6b. See Pal:terson v. City of Dallas, 355 S.W.2d 838 (Tex. Civ. App. -ml=-1962, writ ref'd n.r.e.) (interpretation should not thwart legislative intent); appeal dismissed per curiam, 83 S.Ct. 873 (1963). Article VII, section 6b outlines standards for members of the commissioners court for t'he investment of the school funds. The constitution wakes no provision governing investments by a school district. General tmst principles provide that a tmstee cannot delegate the authority that has been conferred upon him. See West v. Dapgood, 174 S.W.2d 963 (Tex. 1943) (trustee nay onlydelegate mechanical or ministerial BIXS). However, this office briefly discussed a limited circumstance in which a school district sought permission to deposit its portion of the county school fund in .an interest bearing account. See Attorney General Opinion H-878 (1975'). In that opinion, it was argued that p. 1625 Honorable Charles F. Aycock '- Page 4 (JM-355) logically, the dj.stribution of funds could not be immediately applLed towards reduction of bonded indebtedness or construction of permanent improve- ments and that investing the funds in the interim period would insure that no earnings would be lost to the school chjldren of the county. Id. The opinion concluded that an investment by a school district was Frmissible as long as the resulting income (interest) and the principal are not expended except as directed by [article VII, sec. 6bl." Attorney General 0p:tnion H-878. The opinion clearly suggested that the investment would te temporary and that a determination by the county commissioners had been made to distribute the funds for the constitutional purpose. IIf! believe that only under these limited circumstances may the schocN1 district be allowed to invest its portion of the fund once distributcld, by the county. Finally you ask: If the commisr;i.oners court elects to distribute the corpus and ,Lnterest of the permanent school fund to those districts satisfying the require- ments of article VII, is it incumbent upon each school district to determine the number of persons residing in the !school district eligible by age for free education whether the persons *re enrolled in private or public schools and then present that data to the commissioners court so that the commiss'toners court can make the distri- bution on a per wholastic basis. Article VII, section. 6b of the Texas Constitution provides that when more than one school distl:ict is located in the county, the commis- sioners court is requirei. to distribute the funds to the various school districts on w a pel' scholastic basis." Tex. Coast. Art. VII, 56b. In Attorney General Opinion H-47 (1973). this office defined the phrase "on a per scholastic basis" as "on the basis of the number of persons residing in the school district eligible by age for free education." The computation of students on a per scholastic basis has no relation to the avera$;e: daily attendance. See Attorney General Opinion H-47 (1973); hut s(?e Educ. Code 016.006. - --- Prior to 1975. the l@!gislature had provided for the taking of a scholastic census whereby the number of students of scholastic age residing in a particular rrchool district could be determined, but in 1975 the provision was repealed. See Educ. Code 514.02, repealed by Acts 1975, 64th Leg., ch. (4, §l. at, eff. Feb. 13, 1975. We have not found nor have you ini'ormed us of any official method by which a tabulation may be made whereby the county funds may he distributed in p. 1626 Ronorable Charles F. Aycod. - Page 5 (JM-355) compliance with the constitutional requirement. See Love v. City of Dallas, 40 S.W.2d 20 (Tex. 1931); see also Attorney General Opinion H-47 (1973). Since sectlone: 6 and 6b of the constitution are directed to the county commissione:rs court, we believe that it is incumbent upon the county commissioners as trustees of the fund to formulate a method to determine the scholastic population within a school district. Again, we advise that these commissioners are required to manifest the care, skill, p:cudence, and diligence of ordinary prudent persons engaged in similar t#usiness affairs. SUMMARY Before distributing the funds to school districts, the ctmrmissioners court, as trustees of the county school fund, is under a duty to investigate whe,cller or not certain permanent improvements will be made by a school district. In ascertaining this information, the commis- sioners court 111 required to manifest the care, skill, prudence, and diligence of an ordinary prudent man engat:ed in similar business affairs. Before funds are distributed to any school district in the county, the commissioners court must satisfy itself that the funds will he used within a reasonzble time for either of the con- stitutional purposes. It is incumbe~nt upon the county commissioners as trustees of the fund to formulate a method to determine the scholastic population within a school district. Ve 4 JIM MATTOX Attorney General of Texas TOM GREEN First Assistant Attorney General DAVID R. RICHARDS Executive Assistant Attorney General ROBERT GRAY Special Assistant Attorney General p. 1627 , Honorable Charles F. Aycock - Page 6 (33-355) RICK GILPIN Chairman, Opinion Committee Prepared by Tony Guillory Assistant Attorney General APPROVED: OPINION COMMITTEE Rick Gilpin, Chairman Colin Carl Susan Garrison Tony Guillory Jim Moellinger Jennifer Riggs Nancy Sutton Sarah Woelk p. 1628