Untitled Texas Attorney General Opinion ( 1949 )

THEAITORNEYGENERAI. OFTEXAS October 10, 1949 Hon. Bascom &iles, Chairman Veterans' Land Board General Land Office Austin, Texas Opinion No. V-930 Re: Investment of Permanent School Fund in bonds is- sued by Veterans' Land Bo&rd and necessity of advertisementfor compe- Dear Sir: titive bidding. You have requested an opinion on the following questions,which are quoted from your letter: "1. It is noted that under Article 2669 the State Botid of Education is authorized to Invest the Permanent Public Free School Funds of the State in bonds of 'the State of Texas.' The Board has been acting on the assumption that the bonds will be State bonds having in mind the declarationsin the pro- vis~ionof the Constitutionand in the Act that they are obl&gatlonsof the State of Texas. Are ~theproposed bonds eligible for investmentas bonds of the State of Texas? "2. If the bonds are eligible for such investmentand acceptable to the State Board of Education can a sale be made to the State Board of Education without compliance with the requirementsof Sections 6 and 7 of Sen- ate Bill 1Bo.29 requiring publicationof notice and request for competitivebids? "3. In issuing the proposed bonds the Board will reserve an option of redemption prior to rmturity. The bonds will bear an interest rate less than 23s per annum. Will the provisions of Article 2675excepting the State bonds render inapplicablethe restric- tions contained in kticle 2671that bonds Hon. Bascom Gilea, page 2 (V-930) purchased for the Permanent Public Free School Fund shall bear interest at not less than 23% per annum?" The bonds to which you refer are those provided for In Section 49-b, Article III of the Constitutionof Texas, which section was adopted on November 7, 1946, and in the enabling act, Senate Bill No. 29, Acts of the Fifty-firstLegislature. Your first question is manifest- ly answered by the constitutionalprovision itself. It is specificallyprovided therein that bonds issued there- under "shall be executed by said Board as an obligation of the State of Texas." These bonds would, therefore,be eligible investmentsunder Article 2669, V.C.S., which provides that the State Board of Education is authorized and empowered~toinvest the permanent public free school funds of the State "In bonds of the United States, ~the State of Texas . . ." However, It is our opinion that compliancemust be had with the requirementsof Sections 6 and 7 of Senate Bill No. 29 with respect to the publicationof notice ,and request for competitivebids even though the bonds ulti- mately may be purchased for the benefit of the Permanent School Fund. In Sections 6 and 7, it is provided: "Sec. 6. When the Board shall have authorized the issuance of a series of said bonds and shall have determined to call for bids therefor, it shall be the duty of the Board to rxlblishat least one (1) time not less than twenty (20) days before the date of said sale an appropriatenotice thereof. Such publicationshall be made in a daily news- paper . . . "Sec. 7. None of said bonds shall be sold for less than their face value with ac- crued interest from date, and all of such bonds shall be sold after competitivebiddlnq to the highest and best bidder, except in those cases where the administratorsof the state's funds iven priority exercise, with- in fifteen (15ejdays after notice thereof, their right of priority to take such bonds at the highest nrlce bid bv another . . ." (Emphasisadded) : . Hon. Bascom Glles, Page 3 (V-930) Section 6 makes it the duty of the Board to publish the notice of sale. Section 7 provides that all such bonds shall be sold after competitivebidding and then to the highest and best bidder except where the administratorsof the state's funds exercise their right of priority. Such right of priority can be exercised only to purchase the bonds "at the highest price bid by another." It is obvious that the quoted phrase could refer only to a bid submitted after proper notice had been given. It is our opinion that the statute contem- plates that the Veterans' Land Board issue the bonds on the best possible terms regardless of whether they are purchasedby administratorsas investmentsfor state's funds or whether they are purchased by private invest- ors. We have been advised that the Board subsequentto the date of your letter of request determined to publish notice of sale and request for competitivebids and that the same has now been published. It is our opinion that the Board in this determinationhas complied both with the letter and the spirit of the law. Your third question presents more difficult problems. Article 2675 provides in part: "The provisions of the six preceding articles shall extend to any bonds or se- curities other than the bonds of the State or of the United States . . ." Article 2671, which Is one of the "six preced- ing articles," outlines the conditions upon which bonds may be purchased by the Board of Education. It provides in part: ,t. . . No bonds, obligations,or pledges shall be so purchased that bear less than two and one-half (23%) per cent interest. No bonds, obligations,or pledges cxcent those of the United States, the State of Texas. and the University of Texas, shall be so purchased when the indebtednessof the county, city, precinct, or district issuing same, inclusive of those offered, shall exceed seven (7%) per cent of the a:sessed value of the real estate therein . . . (Emphasisadded) It is noted that the exception provision appli- es only to the seven (79%) limitation,and that no excep- tion Is provided with respect to the 23% limitation. The . ‘.. Hon. Bascom Giles, page 4 (V-930) clear inference is, therefore, that the 2s limitation would apply to all bonds purchased. ,BothArticles 2671 and 2675 were originally enacted as part of Chapter 124, Acts of the Twenty- ninth Legislature in 1905. They appear as Sections, 4 and 9, respectively. Although Article 2671 has been amended numerous times since its original enactment, Article 2675 has not been changed. Moreover, the ex- ception, "except those of the United States, the State of Texas, and the University of Texas," in Article 2671 did not appear In the original act and was not added thereto until the enactment in 1929 of Chapter 278, Acts of the Forty-firstLegislature. If neither the limita- tion as to interest rate nor the 7% valuation limitation applied to bonds of the State of Texas by virtue of the provisions of Article 2675',then it could be argued that the reason why the 7s assessed valuation exceptionswas added to Article 2671 was to make the interestrate limitationapplicable to all bonds purchased by the Board of Education. The 1929 act, being sub,sequent in time of passage to the 1905 act, would govern. However, we have concluded in any event that the Constitutionalamendment Itself and the enabling act make these bonds eligible Investmentsfor the Permanent School Fund. The Constitutionalamendment provides that the bonds shall bear Interest at a rate not to exceed three (3%)per cent per annum. It also provides that in "the sale of any such bonds, preferentialright of pur- chase shall be given to the administratorsof the various teacher retirement funds, the Permanent UniversityFunds, and the PermanentFree School Funds." See also Section 5 of Senate Bill No, 29, which contains a similar provision. You will note that the only~limitationas to interest rate specified in the Constitutionis the maxi- nmm tbree (3%)per cent, and that no limitation is placed on a minimum rate. You will also note that the preferen- tial right is given to the administratorsof the named funds In the sale of any such bonds. This preferential right of purchase is granted by the ConstitutionItself, and is independentof any other constitutionalor statu- tory grant. It is our opinion that the preferential right attaches to any bonds issued under this constltu- tional or statutory grant at the interest rate specified in the "highest price bid by another," regardless of the fact that such rate may be less than 24%. As a practi- cal consideration,It may be added that during the past : . . Hon. Bascom GileS, page 5 (V-930) several years millions of dollars of bonds have been is- sued that bear less than 24% interest. We think that it clearly was within the contemplationof the Legislature in providing for the submission of Section 49-b of Artl- cle III and of the qualified voters in adopting the same that the bonds could bear less than 23% interest, and in most probabilitieswould. The preferentialright attach- es to the sale of any such bonds, and it is our opinion that this provision makes them eligible as investments for the Permanent School Fund. If there Is any conflict between Article 2671 and Section 49-b, then, of course, the Constitutionwould govern in this regard. SUMMARY ', Bonds issued by the Veterans' Land Board under the authority of Section 49-b, Article III, Constitutionof Texas, and 'itsenabling act (S. B. 29, Acts 51st Leg., 1949) are obli- gations of the State of Texas, and are eligible investmentsfor the Permanent School Fund even though such,bondsmay bear less than 23%. The Veterans* Land Board in the sale of any bonds must comply with the requirements of Sec- tions 6 and 7 of Senate Bill No. 29 requiring publicationof notice of sale and request for competitivebids. Such.bonds may be purchased by the Board of Sducation for the benefit of the Permanent School Fund only after such pub- lication and only if the Board of Education properly exercises its right of priority to purchase the bonds at the highest price bid by another. Very truly yours, ATTORNEY GRRERAL George W. Sparks Assistant GWS-s