Untitled Texas Attorney General Opinion ( 1995 )

QBffice
of ttje !&tornep @enera
&date of PCexae
DAN MORALES December 18, 1995
A-ITORNEY
GENERAL
Mr. Wfiiam G. Burnett, P.E. Opiion No. DM-370
Executive Director
Texas Department of Transportation Re: Whether article VIII, section 7-a of
125 East 1lth Street the Texas Constitution applies to the
Austin, Texas 78701-2483 distribution of oil and gas royalties received
from highway rights-of-way (RQ-782)
Dear Mr. Burnett:
We have been informed that the State owq in fee simple, highway rights-of-way
in several tracts located within the boundaries of two unitized oil fields.1 Recently, a
‘Chspter101 of the NaturalResomwa Codeaothorizes,sobjeUtothoapprovaloftheRaibnad
Commission,see Nat Res. Cde fi 101.001, personsowning or controllingintemstsio separateproperty
in the same oil or gas field to establish pooled onits. Id. 8 101.011. Establishingpooled units may be
accomplishedfor the following pmposes: Pint, pooling may be aweamryto’effact~ndmyrwovery
operstion~for oil or gas,” and second,pooling maykc nuxsary for the conservationmuIuse of gas. Id.
Prior to approving an agreement for pooledunits, the RailroadCommissionmust find:
(1) ths~theagncnuntisneassarytoaaomplish[thctwopqoscsliacd
abavel;
(2) that it is in the iotetst of the public welfare as being reasonably
wwsmry to preventwaste and to promotethe womrvationof oil or gas or both;
(3) thattherightsoftheownersofalltheioterMsinthef&,whether
signenoftheunitagr&mcntornot,Woplldk~underitsopaatio~
(4) that the catimstedsdditiord WQ if any, of co~uclhlg the epemtion
willnotex~thcvalucofadditionaloilandgasso-~~orankbalfof
the several pmons affected, including royalty ownem, owners of overAiog
myalti~oilandgas~~~carriedintereas,limc~andothwas
well as the I-;
(5) that ether a&able or exiatiag methods or t%cilitiesfor samMary
rrcovayopcrationsorforihccoascrvationandutiliuuionofgasinthc~ulat
mea or field wncerned or forboth am inadequatefor the pmposes;and
Mr. William G. Burnett, P.E. - Page 2 (DM-370)
citizen discovered the State’s ownership and believes the state lands are inside the
boundaries of producing oil fields, although the State never has leased the oil and gas
rights to the land.2 If the State pursues a claim for lost royalties, you assert, it may
recover a share of the oil and gas royalties earned from wells located in the two fields.
The citizen contracted witb the State to provide information about the State’s land
in return for a finder’s fee of five percent of the amount of any revenue the State recovers
as a result of the citizen’s information. 3 You suggest, however, that any proceeds the
State recovers may be subject to disposition in accordance with article VIII, section 7-a of
the Texas Constitution. If so, you believe the State may not pay the citizen a finder’s fee
from the recovered proceeds. You phrase your question, which is based on these facts, as
follows: “whether income from land purchased with constitutionally dedicated funds
must be credited to the constitutional fbnd.”
Id. 8 101.013(a). The RailroadC~mmission’s decision whelher Io approveaa applicationto eatablii a
pooled maitis basedupon the applicationaad a hearing. Id.
%‘ummntto section 101.013(a)(6),see supra note 1, each ownerofan interestwithin the ama to
beunitizdmwtrewiveanofkrtojointhemdt. Wemubtand the Departmmtof Traqortation wvar
wss wtified that an applicationto unitize the land on which the highway rights-of-wayat issue hem bad
bceo filed and that a hearing on the matter WBSimminant. &e Nat. Res. Code Q101.013(a).
Fmlhermore, the Departmentof Transportationnever mwived aa offer to join the unit. See id.
8 101.013(a)(6);see also id. p§ 101.051 - .052.
3Swtion 403.0195 of the GovermnentCode pertainsto contractsfor informationabut pmparty
the State may k entitled to mcovcr. Subsection(a) authorizesthe comptrollerof public aaanmts of the
State of Texas, see Gov’t Coda 5 403.001(a), to wntrac~ with a person for the receiptof infonmuion
waceming a possiile claim the Statemaybe entitledtc pmsue 10recoverrevenueor otherpmperty. The
Statemaynotwntracttopaythcinfo~rmorethanfiveperantoftheamountofthcrevmucorthe
value of the propertythe state actaauyrecoven as a msnltof pursuingUmclaim aboutwhich the informer
pmvidkdinformation. Id. p 403.0195(e). Unders§ion (e),
[i]f the statemcoversproperlyin wnnecdon with a contraclexecaredunder
this
section and paymmt of the wmmctual wnsideration is not [otherwise]
pm~~ited....anamountnottoucacdfivepcrccntofthe~ountofr0rcnue0r
proacdsfromthesalecdproputyncovuedshallbcdeporitcdtoihcneditofthe
comptroller’sopemting fund for paymentof the wnsideration. Tha balance of
therrnnworproc&sli0mthesaleofproparty mwveredshalIbedepositedto
thecnditofthegeneralrevcnuefundort~specialfundasreguindbyLaw.
CJ Aaoraey Gcneml opinion DM-316 (1995) (wncluding that GovrrnmmtCede section 403.0195 dom
sot authorizewmptroller to contractto psy wnsidemtion for informationabout properlyrrcaverablcby
pormsumt school timi).
p. 2009
Mr. William G. Burnett, P.E. - Page 3 (DM-370)
Article VIII, section 7-a of the constitution provides in pertinent part as follows:
Subject to legislative appropriation, allocation and direction, all
net revenues remaining after payment of all retbnds allowed by law
and expenses of collection derived from motor vehicle registration
fees,’ and all taxes, except gross production and ad valorem taxes, on
motor fimls and lubricants used to propel motor vehicles over public
roadways,5 shall be used for the sole purpose of acquiring rights-of-
way, constructing, maintaining, and policing such public roadways,
and for the administration of such laws as may be prescribed by the
Legislature pertaining to the supervision of tra& and safety on such
roads; and for the payment of the principal and interest on [certain]
county and road district bonds or warrants . ; provided, however,
that one-fourth (%) of such net revenue from the motor fuel tax shall
be allocated to the Available School Fund; and, provided, [that
counties will derive certain minimum net revenue from motor vehicle
fees]. [Footnotes added.]
Your question assumes that the state acquired the highway rights-of-way about
which you ask using 8mds dedicated by article VIII, section 7-a. We have been informed,
however, that the state acquired the highway rights-of-way about which you ask in the
1920s and the 1930s. The electorate did not amend the constitution to add article VIII,
section 7-a until 1946. Generally, a constitutional provision must be construed to operate
prospectively, not retroactively.6 See Grigsbr v. Peak, 57 Tar. 142, 146 (1882); 16 C.J.S.
?Ses Act of h@’ 1, 1995,74th Leg., P.S., ch. 165, g 1, 1995 Tex. Sess. Law Serv. 1025, 1494-98
00 bc) wdiiiod at Transp.Code 56 502.160- ,173);Act of May 19, 1995,74th Leg., RS., ch. 350, p 1,
1995 Tex Seas. Law Serv. 2880, 2880 (amending V.T.C.S. ari. 6675a6c, repealed by Act of
May 1.1995, 74th Leg., KS., ch. 165, g 24(a), 1995 Tex. Sess. Law Serv. 1025, 1871); Act of
May24,1995, 74th Leg., RS.. ch. 705, 8 1, 1995 Tex. Seas. Law Seiv. 3719, 3720 (to be coditied at
V.T.C.S. art. 6675c. 8 3).
%ee Tax Codech. 153.
%ticle VIJl, section 7-a doe6 not indicste on its face that it WBs intended to operate
reUc&ively. Moreover,upon m examinationof statmespredatingarticleVIII, section 7-a. we donbtthe
&Umate 60 intended. We base our belief on the existence,beforethe additionof articleVI& section 7-a
to the wnstimtion, of detailediwtmclions for the disrributionof the motorvehicle registrationfeea and
gaaounetaxcs.
Immediatelyprior to the 1946 mnmdmmttoIhewnatimtion,thelswrequimdtJlcwmytax
wktor to depsit in the comny depository,to the creditof the comny road and bridge fimd, all of the
motorvehicle registrationikids wllecled until the amomnof fmnlsfor the cakndaryear equaledS5QOOO.
See Act nf July 1,1929,41st Leg,, 2d C.S., ch. 88.8 10, 1929 Tex. Gen. Laws 172, 177-78. Then and
uotil(hccountyhadwIlcctcdanamountcgualto$l75,ooO,ihewuntytaxwll~rwastodepositinthc
anmty depository5OYYof the smwnt received.Id. 8 10, at 178. The countytax wkctor was to remitthe
mmaining so”/, snd all amwnts om Sl75,000, to the State?lighwsy Deprtmmtfor Ihe benelit of the
Stste HighwayFmd. See id. $8 10 - lOa, at 177-78. The 1929 statutewas not amendedpriorto the 1946
amstiMiooal SmmdmmL
P. 2010
Mr. William G. Burnett, P.E. - Page 4 (DM-370)
ConstitutionaZkrw 8 36(a), at 109 (1984). Moreover, because the fimd established by
article VIII, section 7-a did not exist until 1946, it could not have been used to purchase
land prior to that date.
We will assume for purposes of this opinion, however, that the highway rights-of-
way were purchased with that portion of the receipts from motor vehicle registration fees
and motor fuel tax revenues that are constitutionally dedicated to “acquiring rights-of-
way, constructing, maintaining, and policing such roadways, and for the administration of
such laws as may be prescribed by the Legislature pertaining to the supervision of trailic
and safety on such roads. . .” See Tex. Const. art. VIII, 8 7-a. If the constitution
dedicates money to a particular purpose, that money cannot be allocated to any other
purpose. Attorney General Opinion JM-593 (1986) at 2; see also Gu~Ins. Co. v. James,
185 S.W.Zd 966, 971 (Tex. 1945); Brazes River Conservation & Reclamation Dist. v.
McGraw, 91 S.W.2d 665,674 (Tex. 1936); Attorney General Opinion V-107 (1947) at 4.
This office previously has stated that the proceeds from a sales tax on gasoline may be
used only for the purposes listed in article VIII, section 7-a. See Attorney General
Opinion JM-593 (1986) at 2.
A court of civil appeals, as well as this office, has determined that interest accruing
on a special fund dedicated by the constitution becomes part of the special timd. Luwson
v. B&r, 220 S.W. 260 (Tex. Civ. App.-Austin 1920, writ refd); Attorney General
Opinion JM-321 (1985). We are unaware of any judicial decision or attorney general
opinion that considers whether oil and gas royalties, or similar earnings, received for the
depletion of land the State purchased with monies from a constitutionally established
special fund also become part of the special fund. Your question therefore presents a
novel issue.
We believe, however, that Lawson v. Baker provides, by comparison to the issue
before us here, some guidance. In Lawson the court of civil appeals considered whether
the legislature may separate interest accrued on a constitutionally created special 8md
from the Bmd itself and divert the interest to another fund or another purpose. LUWJXXI,
220 S.W. at 261-62. The legislature had enacted a statute transferring the interest on
constitutionally created special fimds to the general revenue fund. Id. at 272; see id. at
261 (summarizing constitutional provisions establishing special funds).
(foomotewndnual)
Also priorto the 1946 constitutionalamendment,the law requiredIhe Sate trca6mwtodaposit
iato a special fund called the HighwayGasolineTax FunQ revenws genemIcdby the gasoline, or motor
fwl,tsx. Anymoaeyiathatfimdthatwasaotnealedtordimdcweqqmm tswasdividedbdwcenthe
Available School Ford and the Highway Fund. One-fourthof the money in the Highway Gawline Tax
Fund was to be deposited in lhe Available School Fund, and the remaining three-fourthswas to be
depositedin the Hi&way Fund.
P. 2011
Mr. William G. Burnett, P.E. - Page 5 (DM-370)
The court analyzed the enactment under article VIII, section 7 of the Texas
Constitution, which prohibits the legislature from diverting “from its purpose[] any special
timd that may or ought to come into the treasury.” Id. at 261. In regard to a
constitutionally created special fund, the court said:
Interest, according to all the authorities, is an accretion to the
principal timd earning it, and, unless lawfully separated therefrom
becomes a part thereof. We think it is clear that the interest earned
by deposit of special flmds is an increment that accrues to such
special tkd, and any attempt of the Legislature to make such interest
a part of the general revenue is futile, in the face of the constitutional
provisions creating or dedicating these timds to special purposes.
Id. at 272; see also Oregon ex rel. Sprague v. Straub, 400 P.2d 229, 233 (Or. 1965)
State Highway Comm ‘n v. Spinhower,
(agreeing with reasoning and holding of Lawson);
504 S.W.2d 121,126 (MO. 1973) (citing Lawson with approval). The Lawson court thus
construed the enactment at issue narrowly, so that it did not apply to interest accrued on
constitutionally created special timds.7 220 SW. at 273.
The -*on court defined the term “interest” as “an accretion to the principal fund
earning it.” See id. at 272. In its usual sense, “accretion” describes the “slow gradual
building up of land by the gradual deposit by the river of a solid material.” See Barakis v.
American Cjunamid Co., 161 F. Supp. 25,29 (N.D. Tex. 1958). In relation to the corpus
of a fund, “accretion” similarly indicates an increase by natural growth. See Revloc Supply
Co. v. Troxell, 126 A. 774, 775 (Pa. 1924); see also BLACK’S LAW DICTIONARY19 (5th
ed. 1979) (defining “accretion” as “[t]he act of growing to a thing; usually applied to the
gradual and imperceptible accumulation of land by natural causes, as out of the sea or a
river”); WEBSTER’SNINTHNEW COLLEGIATE DICTIONARY 50 (1990) (defining “accretion”
as “the process of growth or enlargement by a gradual buildup”).
In our opinion, royalties the State receives from the depletion of oil and gas under
property the State acquired with constitutionally dedicated funds differ from interest
accrued on those funds. Fist, royalties do not accrue on the special, “principal” fund
‘This office considereda similar question in Altomey GeneralOpinion J’M-321:whether the
legislatoremay, by statute or appmpristionsact, divert to the gmeral revenuefund interest on the fimd
wnstinaionally dedicated,in article VIll, section 7-a, to highway pmposes. AttorneyGeneralOpinion
JM-321 (1985) at 2. The opinion first cited arlicle VIII, section 7 of the wnstitution for the pmposition
that the legislahue may not divertfrom its purposeany speciallimd establishedby the wnstihhn. Id. at
3.
Then, relying on the court’s decision in Lowson, the opinion stated, “mhe le.@amre lacks
powerIOmad a stah& diwxtingintercs~ on wnstitutionally dcdicakd funds to gemal rcvaw,” Id. at
34. &msequenUy,the opinion wnchled, the legislatureis anauthorizedto eaact a statutedivertingto
the gencrd mvenuefond hnwcst on the motorvehicle fees and motorfoe1taxes articleWI, &on 7-a of
the constitution
dedicatesto highwaypmposes.Id. at 4.
p. 2012
Mr. Willii G. Burnett, P.E. - Page 6 (DM-370)
itself; rather, they are received for the depletion of real property, which in this case was
purchased with money from the special fimd. Second, royalties do not naturally adhere to
real property.
Significantly, the legislature has determined by statute that proceeds from the sale
of highway right-of-way need not be disposed in accordance with article VIB, section
7-a of the Texas Constitution. Section 202.021(a) of the Transportation Codes decrees
that proceeds from the sate of any interest the state holds in an acquired (as opposed to a
donatedy highway right-of-way that is no longer needed for highway purposes must,
unless the interest was acquired by a city or county, be deposited into the State Treasury
to the credit of the State Highway Fund. Act of May 1, 1995, 74th Leg., R.S., ch. 165,
8 1, 1995 Tex. Sess. Law Serv. 1025,1125 (to be codified at Transp. Code Q 202.021(a));
see u&o id. at 1126 (to be codified at Tramp. Code 5 202.027).
Furthermore, on its face, article VIII, section 7-a dedicates only motor vehicle
regkbation fees and revenues from gasoline taxes; it does not refer to proceeds on land
the state has purchased with the registration fees and gasoline taxes. We note, by
contrast, article VII, section 11 of the Texas Constitution, which establishes the
Permanent University Fund comprised of, among other things, certain “lands and other
property . . , together with all the proceeds of sales of the same. . .I’ The Texas
Supreme Court has interpreted article VII, section 11 to require that payments made under
an oil and gas lease on land belonging to the Permanent University Fund are “proceeds”
that become part of the Permanent University Fund.tO State ex rel. Attory Gen. v.
Hatcher, 281 S.W. 192, 194 (Tex. 1926).
Similarly, article VII, section 4 of the Texas Constitution requires that proceeds
corn the sale of any land dedicated to the Public Free School fimd “be used to acquire
other land for the Public Free School fund.” In addition, article VII, section 5(a) allots to
the permanent school fund “the principal arising from the sale of lands” previously
dedicated to the permanent school tbnd. This office concluded in Attorney General
“The legislature enacted the original statutorypredecewr to Tmnqmxtation Code section
202.021(a), V.T.C.S. atticle 6673a, in 1931. See Act approvedMay 5, 1931,42d Leg., R.S., ch. 99, 1931
Tea. GUI.Laws 170. The 1931 stah~tepnwided that money derivedfrom the sale of highway righti-
way “shall he depot&d with the fnndsfromwhich it was originallytaken.” Id. 8 1, at 170.
9Sation 202.025(l) of the Transportation Codeauthorizesthe g-or to collvy to a grantoror
the grantor’sheirs or assignees title to sn abandonedhighway right-of-waythat was donatedto the state.
See Aa of May 1. 1995, 74th Leg., RS., ch. 165, 5 1, 1995 Tex. Sass. Law Serv. 1025, 1125 (to be
adifd at Transp.CndeP 202.025(l)).
*~CCOUrtitBSOI1Cdtoilandgaqwhjleinsiru,arrpanoftberralpropaty. Sratee.xreL
Ath~nry Gm. Y. If&her, 281 S.W. 192. 194 (Ikx. 1926) (quoting Sate Y. Snyder, 212 P. 758 (wyo.
1923)). Depletion of the minemls amstitates a permanentand final taking of a portion of the real
pm~etty. Id.at195. Oilandgasmyaltiesarr,thmforr,“promds”tromthcsaledtheland Id.
P- 2013
Mr. Wtiam G. Burnett, P.E. - Page 7 (DM-370)
Gpiion O-176 (1939) that income received from the mineral development of river beds
within the state must, pursuant to article VII, section 5, along with relevant statutes, be
deposited to the credit of the permanent school timd. Attorney General Opinion O-176
(1939) at 2-3. We have located other cases deciding oil and gas royalties must accrue to a
special fund, and all of them rely upon constitutional or statutory language similar to that
found in article VII, section 4, S(a), or 11 defining the special timd to include proceeds
from the sale of land. See Sta!e ex rel. Faizer v. Board ofRegents, 269 P.2d 425, 431,
434 (Kan. 1954); Scho& Dist. No. 23 v. Commissioners ofLand Ofice, 27 P.2d 149,
150, 151 (Okla. 1933); cf. Montana ex rel. Dickgraber v. Sheridan, 254 P.2d 390, 394,
396-97 (Mont. 1953).
If the legislature had wished to propose to the electorate a constitutional
amendment that dedicated proceeds received for the use of land purchased with motor
vehicle registration fees and revenues from the gasoline tax, it clearly could have done so.
In the absence of such a provision, we conclude that article VIII, section 7-a does not
require the department to credit to the special fund created in article VIII, section 7-a oil
and gas royalties received for the depletion of highway rights-of-way acquired with money
from the special fund. Instead, such royalties must be distributed in accordance with
applicable statutes.
You do not ash which statute governs the disposition of the oil and gas royalties in
this case, although your letter suggests that you desire to know how the proceeds must be
disposed. Section 404.094 of the Government Code, which you cite, stipulates that
money not statutorily required to be deposited in a special fund, tntst fund, or special
account outside the general revenue must be deposited in the general revenue t%nd. Gov’t
Code 5 404.094(b). You believe the proceeds at issue here must be deposited in the State
Highway Fund, not in the general revenue funds.
We have located three statutes that may apply in this situation:tt Act of
May 1, 199574th Leg., R.S., ch. 165, 4 1, 1995 Tex. Sess. Law Serv. 1025, 1127, 1486
(to be codiied at Tramp. Code $5 202.054, 502.051); Act of May 17, 1985, 69th Leg.,
RS., ch. 327, 3 6, 1985 Tex. Gen. Laws 1389, 1391. Each ofthese provisions stipulates
ltYoo statethat genemlly the School LandBoard,see Nat. Rea. Cada 5 32.011 (mating School
Land Board), handle oil and gas leasing on state agency property,including highway rights-of-way.
Section 32.157(b) of the NaturalRcsmms Code directsthat ‘[a]11money collected as bonus, royalty,
rental, paymentsfor easements,and pmnit fees attributableto land cowed by this chapter.. shall be
dcpositedinthespscialmineralfundofthedepartment...owningtheland.” Chapter32oftheNatoral
Resowos Code does not apply, however, to oil and gas onderlying State-ownedland that the State
acsuirrdm cDndructormaintainahighwinl.“ifthcdosatbwndarylineofthearrfaaofruchlandis
within 2,500 feet of a well capableof producingoil or gas in paying qoantitiesas of January1, 198S,”id.
5 32.002(b), onless the oil or gas is leased for the specik poqmse of drilling a horizontal wll. Id.
5 32.002(a)(4). You statethat the highway rights-of-wayaboutwhich you ask are within 2,Mo feet of a
well. tbseqocatly, chapter32, inclWg the mvenuedistribotionplan providedin section 32.157, does
ootapplytotheprozedsatiamehere.
P. 2014
Mr. William G. Burnett, P.E. - Page 8 (DM-370)
that monies received pursuant to that provision directly or ‘indirectly be deposited in a
special fimd for the use of the department. I* See Act of h4ay 1, 1995, 74th Leg., RS., ch.
165, § 1, 1995 Tex. Sess. Law Serv. 1025, 1127 (to be codified at Transp. Code
3 202.054) (providing that Texas Department of Transportation must deposit to credit of
state highway fund payments department receives from lease of highway right-of-way); id.
5 1, 1995 Tex. Sess. Law Serv. at 1486 (to be codified at Transp. Code 8 502.051)
(requiring Texas Transportation Commission and Texas Department of Transportation to
deposit all money “received from registration fees in the state treasury to the credit of the
state highway fbnd”); Act of May 17,1985,69th Leg., R.S., ch. 327, 8 6, 1985 Tex. Gen.
Laws 1389, 1391 (declaring that “[alny money held by a leaseholder, producer, operator,
or purchaser in a suspense, escrow, or other special account on January 1, 1985, which is
attributable to unleased state-owned minerals under a highway right-of-way, shall. . . be
paid to the commissioner of the General Land office for placement in the special fimd for
leasing of highway rights-of-way”). You do not ask, and we therefore do not consider,
whether Government Code section 403.0195, which authorizes the comptroller to pay five
percent of the proceeds of recovered property to the citizen who provided information
leading to the recovery of the property, prevails over any of the statutes dedicating oil and
gas revenues on highway rights-of-way to the highway fund to the extent of that five
percent.
‘*WhileWCsre itot awareof any o&r SNNNS thatmay apply,c/: Act of May 1,1995,74th kg.,
RS., ch. 165, 5 1, 1995 Tar. Sess. Law Serv. 1025, 112s. 1138 (N be codified at Transp. CC&
$5 202.021, 222.001- .002); Nat. I&s. Code $5 34.017. .018, our search was not exhaustiw
Consqucntly,we¬wirhtoimplythatthethrrcstahlttswchavc~inthctW,A*d
May 1,1995,74th Leg.. RS., ch. 165.5 1.1995 Tcx. Scs. Law Serv. 1025.1127.1486 (to be cod&d at
Tramp Code $5 202.054.502.051); Act of May 17.1985.691h Lq.. RS., ch. 327, 5 6, 1985 Tex. Gen.
Laws 1389.1391. arcth only statutesthat may applyin this sihmion.
P. 2015
Mr. William G. Burnett, P.E. - Page 9 (DM-370)
SUMMARY
Article VIII, section 7-a of the Texas Constitution does not
apply to oil and gas royalties received for the depletion of highway
rights-of-way that the state acquired using funds dedicated by article
VIII, section 7-a. Rather, the disposition of such royalties is
governed by statute.
DAN MORALES
Attorney General of Texas
JORGE VEGA
Fii Assistant Attorney General
SARAH J. SHIRLEY
Chair, Opiion Committee
Prepared by Kymberly K. Oltrogge
Assistant Attorney General
P. 2016