Untitled Texas Attorney General Opinion ( 2005 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
December 282005
The Honorable Cheryl Swope Lieck Opinion No. GA-0388
Chambers County Attorney
Post Office Box 1200 Re: Whether Chambers County has authority to
Anahuac, Texas 775 14 contract with a bank to invest and manage its
permanent school fund (RQ-0364-GA)
Dear Ms. Lieck:
You ask whether Chambers County has authority to contract with a bank to invest and
manage its permanent school fund.’
Your questions concern the public school lands granted to Chambers County for the benefit
of the county’s public schools. See Request Letter, supra note 1, at 2. The Republic of Texas began
making land grants to counties for these purposes in 1838. See TEX. CONST. art. VII, 4 6 interp.
commentary (Vernon 1993). Article VII, section 6 of the Texas Constitution provides for the county
school lands’ ownership and disposition:
All lands heretofore, or hereafter granted to the several counties of
this State for educational purposes, are of right the property of said
counties respectively, to which they were granted, and title thereto is
vested in said counties, and no adverse possession or limitation shall
ever be available against the title of any county. Each county may
sell or dispose of its lands in whole or in part, in manner to be
provided by the Commissioners Court of the county. Said lands, and
the proceeds thereoJ when sold, shall be held by said counties alone
as a trustfor the benefit ofpublic schools therein; said proceeds to be
invested in bonds of the United States, the State of Texas, or counties
in said State, or in such other securities, and under such restrictions
as may be prescribed by law; and the counties shall be responsiblefor
all investments; the interest thereon, and other revenue, except the
principal shall be available fund.
‘See Letter from Honorable Cheryl Swope Lieck, Chambers County Attorney, to Honorable Greg Abbott,
Attorney General ofTexas (July 6,2005) (on file with Opinion Committee, also available nt http://www.oag.state.tx.us)
[hereinafter Request Letter].
The Honorable Cheryl Swope Lieck - Page 2 (GA-0388)
Id. art. VII, 4 6 (emphasis added).2 Counties may lease or sell their school lands. See Fall County
v. Delaney, 11 S.W. 492,492 (Tex. 1889). A provision in the Education Code related to article VII,
section 6 provides that county school lands and the proceeds from their sale constitute the county
permanent school fund. See TEX. EDUC. CODE ANN. tit. 2, 5 17.81-App. (Vernon 1996).3 County
permanent school fund investment opportunities are limited. See id. 9 17.82(b) (enumerating
approved permanent school fund investments); see also TEX. CONST. art. VII, 3 6 (“said proceeds
to be invested in bonds of the United States, the State of Texas, or counties in said State, or in such
other securities, and under such restrictions as may be prescribed by law”). The revenues generated
either by lease or investment of the county permanent school fund are placed in the county available
school fund. See TEX. CONST. art. VII, Q 6; TEX. EDUC. CODE ANN. tit. 2, $.17.82-App. (Vernon
1996); Tex. Att’y Gen. Op. No. O-2111 (1940) at 3.
Most counties have sold their county school lands and invested the proceeds in authorized
securities. See 36 DAVID B. BROOKS, TEXASPRACTICE: COUNTY AND SPECIALDISTRICT LAW 4 30.2
(2002). Chambers County, however, still holds its land, which it uses to generate revenue for its
available school fund by leasing the land for oil and gas production, grazing and hunting. See
Request Letter, supra note 1, at 2. You note that Chambers County’s permanent school fund has
assets currently worth about $6,000,000. See id. You also note that “[wlith the increase in the size
of the permanent school fund, the complexities with oil and gas leases and negotiation, the rapid
market fluctuation in the interest rates, record keeping, accounting, and other general oversight
responsibilities, Chambers County is having a difficult time keeping up with the school land and
school funds.” Id. Thus, you ask whether Chambers County has the authority to hire a professional
investment entity, like a bank, to manage the land and other assets of its permanent school fund. Id.
at 1.
Texas Constitution article VII, section 6 has been construed in numerous court opinions and
in this office’s opinions as creating an express trust for which the county is trustee.4 The county
holds the proceeds as an express trust and invests these funds as an exercise of its judgment and
discretion. See Comanche County v. Burks, 166 S.W. 470,473 (Tex. Civ. App.-Fort Worth 1914,
writ ref’d). Similarly, county school land management is an exercise ofjudgment and discretion by
the county as trustee over the land. See Logan v. Stephens County, 83 S.W. 365,366 (Tex. 1904).
*See also TEX. Lot. GOV’TCODEANN. 9 263.003(b) (Vernon 1999) ( commissioners court may dispose of
county school lands only as provided by law); Act of June 2, 1969,Glst Leg., R.S., ch. 889, 9 1, sets. 17.81-X3, 1969
Tex. Gen. Laws 2735,2846-47, reprinted in TEX. EDUC.CODEANN. tit. 2, $0 17.81-.83-App. (Vernon 1996) (former
Education Code sections 17.81-.83).
3These provisions were repealed in 1995, but Education Code section 11.301 provides for their continued
application to county public school lands. See Act of May 27, 1995,74th Leg., R.S., ch. 260,§ 58, 1995 Tex. Gen. Laws
2207, 2498; TEX. EDUC. CODEANN. tit. 2, 9 11.301-App. (Vernon 1996).
4See Delta County v. Blackburn, 93 S.W. 419,420,422 (Tex. 1906) (counties are trustees for benefit of state’s
public schools); nccorcl Co7m77zcl1e County v. Burks, 166 S.W. 470,473 (Tex. Civ. App.-Fort Worth 1914, writ ref d);
County Sch. Trs. v. Brazorin County, 240 S.W. 67.5,676 (Tex. Civ. App.-Galveston 1922, no writ); see also, e.g., Tex.
Att’y Gen. Op. No. JC-0004 (1999) at l-2 (stressing the fiduciary nature of a county’s duty to invest the county
permanent school fund); H-506 (1975) at 2 (county commissioners court acts in fiduciary capacity as school fund
trustee); TEX. CONST.art. VII, $6 (“Said lands, and the proceeds thereof, when sold, shall be held by said counties alone
as a trust for the benefit of public schools therein.“).
The Honorable Cheryl Swope Lieck - Page 3 (GA-0388)
It is well settled that the commissioners court has no power to delegate to another person or entity
its discretionary authority over the land it owns as an asset of its permanent school fund. See
Williams v. Pure Oil Co., 78 S.W.2d 929,931 (Tex. 1935); accord Potter County v. C. C. Slaughter
Cattle Co., 254 S.W. 775, 777-78 (Tex. Comm’n App. 1923, judgm’t adopted). For the same
reasons, the county has no power to delegate to another person or entity its discretionary authority
to invest and manage the non-land assets of its county permanent school fund. See Tex. Att’y Gen.
Op. No. JC-0399 (2001) at 5 (opining that a provision in the Texas Property Code, which allows
trustees of a trust to delegate investment decisions to an investment agent, does not overcome article
VII, section 6’s constitutional mandate that county permanent school fund investment decisions be
made by the county); see also TEX. CONST.art. VII, 4 6 (“and the counties shall be responsible for
all investments”).
You nevertheless direct us to Government Code chapter 2256, the Public Funds Investment
Act, as relevant to this discussion. See Request Letter, supra note 1, at 4-7; see also TEX. GOV’T
CODEANN. $4 2256.001-.055 (Vernon 2000); id. 4 2256.001 (“This chapter may be cited as the
Public Funds Investment Act.“). The Public Funds Investment Act, among its provisions, permits
a county as a local government to “contract with an investment management firm . . . to provide
for the investment and management of its public funds or other funds under its control.” Id.
0 2256.003(b); see also id. 5 2256.002(7) (defining “local government” to include counties). This
section, you assert, authorizes Chambers County to contract with a bank to manage Chambers
County’s permanent school fund. See Request Letter, supra note 1, at 5. However, neither the
Public Funds Investment Act nor any other statutory authority overcomes article VII, section 6’s
constitutional requirement that counties shall be responsible for the county public school land and
investments. Thus, the Public Funds Investment Act’s language notwithstanding, until Texas
amends the constitution to authorize counties to delegate their permanent school fund trustee duties,
Chambers County is the only entity authorized to invest and manage its permanent school fund. Of
course, nothing would prohibit a county from employing an investment expert’s services, like a
bank’s, so long as the expert’s compensation does not come from the county’s permanent school
fund or available school fund and so long as the county maintains its decision-making authority. See
Matagorda County v. Casey, 108 S.W. 476,477 (Tex. Civ. App.-Fort Worth 1908, writ ref d).
You also ask two related questions the answers to which are premised on an opinion finding
authority for Chambers County to delegate its trustee duties over its permanent school fund.
Consequently, we need not address them.
The Honorable Cheryl Swope Lieck - Page 4 (GA-0388)
SUMMARY
Chambers County may not contract with a bank to invest and
manage its permanent school fund.
Very truly yours,
Attorn&&&reral of Texas
BARRY R. MCBEE
First Assistant Attorney General
NANCY S. FULLER
Chair, Opinion Committee
Daniel C. Bradford
Assistant Attorney General, Opinion Committee