Untitled Texas Attorney General Opinion ( 2017 )

KEN PAXTON
ATTORNEY GENERAL OF TEXAS
April 17, 2017
David Fleeger, M.D. Opinion No. KP-0142
Chair, Board of Directors
Texas Health Services Authority Re: Whether certain funds received by
5900 Southwest Parkway, Building 2, Suite 201 the Texas Health Services Authority are
Austin, Texas 78735 public funds under the Public Funds
Investment Act, chapter 2256 of the
Government Code (RQ-0136-KP)
Dear Dr. Fleeger:
The Legislature created the Texas Health Insurance Risk Pool ("Pool") to provide health
insurance to Texans who were unable to obtain coverage from commercial insurers. See Tex.
Health Ins. Risk Pool v. Sigmundik, 315 S.W.3d 12, 13 n.1 (Tex. 2010) (describing function of
Pool). In the wake of changes to federal law pertaining to health insurance, the Legislature
abolished the Pool through passage of Senate Bill 1367 . 1 As part of the Pool's dissolution, Senate
Bill 1367 distributed $5 million in funds controlled by the Pool to the Texas Health Services
Authority ("Authority"). 2 You inform us that the Authority is updating its investment policies and
ask whether the Public Funds Investment Act ("PFIA"), a law generally governing investment of
public funds, applies to the $5 million transferred from the Pool. 3
To answer your question, we must further expound on the funds' ongm. The Pool
originally amassed these funds by collecting penalties and interest payments assessed against
health insurance companies for late payment of claims. See Senate Bill 1367, § 6(e); TEX. INS.
CODE§§ 843.342(m), 1301.137(/). The Legislature then authorized the Pool to use these funds
for the purpose of financing premium dis~ounts on its health insurance policies to qualified Texans
based on financial need. 4 When these funds were no longer necessary to fund premium discounts
upon dissolution of the Pool, Senate Bill 13 67 provided for the distribution of $5 million of these
funds to the Authority to be used for any purpose specified in its enabling statute. See Senate Bill
1
See Act of May 21, 2013, 83d Leg., R.S., ch. 615, 2013 Tex. Gen. Laws 1640; 1640-42 ("Senate Bill
1367").
2
See id § 6(e)(l).
3
See Letter from David Fleeger, M.D., Chair, Bd. of Dirs., Tex. Health Servs. Auth., to Honorable Ken
Paxton, Tex. Att'y Gen. at 1-2 (Sept. 19, 2016), https://www.texasattomeygeneral.gov/opinion/requests-for-opinion-
rqs ("Request Letter").
4
Act of May 18, 2009, 81st Leg., R.S., ch. 265, § 4, 2009 Tex. Gen. Laws 724, 725 (enacting former
Insurance Code section 1506.260), repealed by Senate Bill 1367, § 8(b ).
David Fleeger, M.D. - Page 2 (KP-0142)
1367, § 6( e)(1 ). The Authority is a public-private collaborative established by the Legislature to
improve the health care system in the State by promoting and coordinating the exchange of
electronic health records. See Request Letter at 1; TEX. HEALTH & SAFETY CODE § 182.001. The
Authority's enabling statute vests it with the power to pursue a multitude of purposes, including
establishing a statewide health information exchange. TEX. HEALTH & SAFETY CODE§ 182.101.
The PFIA generally governs the investment of "funds" under the control of certain
governmental entities. TEX. Gov'T CODE § 2256.003(a). The Legislature defined "funds" for
purposes of the PFIA as ''public funds in the custody of a state agency or local government that:
(A) are not required by law to be deposited in the state treasury; and (B) the investing entity has
authority to invest." 5 Id. § 2256.002(3) (emphasis added). The $5 million in funding at issue is
currently in the custody of the Authority, which appears to meet the definition of a state agency
for purposes of the PFIA. 6 To determine whether the PFIA applies, however, we must establish
whether these are "public funds."
Yet, as you observe, the PFIA does not define the term. See Request Letter at 2. This
office previously used the following definition-adopted by a court of appeals-to define "public
funds" for purposes of the PFIA:
[Public funds are] funds belonging to the state or to any county or
political subdivision of the state; more specifically taxes, customs,
moneys, etc., raised by the operation of some general law, and
appropriated by the government to the discharge of its obligations,
or for some public or governmental purpose; and in this sense it
applies to the funds of every political division of the state wherein
taxes are levied for public purposes. The term does not apply to
special funds, which are collected or voluntarily contributed, for the
sole benefit of the contributors, and of which the state is merely the
custodian.
See San Antonio Bldg. & Constr. Trades Council v. City of San Antonio, 224 S.W.3d 738, 746
(Tex. App.-San Antonio 2007, pet. denied) (adopting Texas Attorney General's definition of
public funds to construe PFIA (citations omitted)); see also Tex. Att'y Gen. Op. No. GA-0257
(2004) at 3 ("Public funds in section 2256.002(3) denotes funds that belong to the investing entity
collected by virtue of some general law, and that are designated to a public purpose." (quotation
marks omitted)). In applying this definition, this office looked to several characteristics to
determine whether funds may be characterized as public, including: whether the funds belong to
the State or are held merely in a custodial role and whether the State may use the funds to discharge
5
Y our question assumes the Authority has investment authority; therefore, we do not address this issue. See
Tex. Att'y Gen. Op. No. GA-0768 (2010) at 2 ("[T]he PFIA is generally in addition to or cumulative of a
governmental entity's investment authority granted by other law." (quotation marks omitted)).
6
The Authority is a public nonprofit corporation described by the Legislature as a public-private
collaborative. TEX. HEALTH & SAFETY CODE§§ 182.001, .051(b). Entities subject to the PFIA include a nonprofit
corporation acting on behalf of a governmental entity. See TEX. Gov'T CODE § 2256.002( 13) (defining state agency
to include nonprofit corporation acting on behalf of governmental entity).
David Fleeger, M.D. - Page 3 (KP-0142)
a public purpose or draw upon them only to benefit particular individuals. See Tex. Att'y Gen.
Op. No. GA-0257 (2004) at 3 ("The funds were not public funds because they did not belong to
the state, because the Department held them as a mere custodian, and because they would not be
used to discharge a general public purpose."). Thus, for example, child-support payments
submitted to a state agency and held by the State as a custodian for transmittal to private
beneficiaries are special, rather than public funds, because the State holds the funds merely in a
custodial role for the benefit of the contributors. See id ("[F]unds a state agency possesses merely
as a custodian, for the benefit of contributors, are not public funds." (quotation marks omitted)).
Looking to the characteristics of the $5 million in funding at issue, a Texas court would
likely conclude that for purposes of the PFIA the funds are more akin to public, rather than special
funds. Here, the Pool amassed the funds by assessing penalties against insurers through operation
of a general law. See Phil H Pierce Co. v. Watkins, 263 S.W. 905, 906 (Tex. 1924) (defining
general laws as "[l]aws which apply to and operate uniformly upon all members of any class of
persons, places, or things"); see also Sterling v. Alexander, 99 S.W.3d 793, 800 (Tex. App.-
Houston 2003, pet. denied) ("A monetary penalty paid to the government becomes public funds.").
Moreover, although the Legislature initially specified that the Pool could use the funds only to
provide premium discounts, the Pool did not hold the money as a custodian or in trust for
individuals who qualified for the discount. Rather, these funds belong to the State as evidenced
by the Legislature's abolishment of the Pool and transfer of the funds to the Authority to be used
for an entirely different public purpose. Cf Tex. Att'y Gen. Op. No. GA-0257 (2004) at 3--4
(concluding charges to municipal utility customers not public funds where funds did not belong to
utility but were held in trust to pay for nuclear decommissioning costs and utility would return any
excess funds to customers). Nor are the funds currently held in trust or custodial capacity, as the
Authority may use the money for any of its purposes. Cf Tex. Att'y Gen. L0-96-023 (1996) at 2
(concluding money deposited in court registry pending outcome of litigation not public funds, as
court holds money in trust for litigants and may not use funds for another purpose); see also S.B.
1367, § 6(e)(l) (Authority may use funds for any purpose specified in its enabling statute). Based
on these characteristics, a court would likely conclude that the funds are public and governed by
the PFIA.
David Fleeger, M.D. - Page 4 (KP-0142)
SUMMARY
A court would likely conclude that funds received by the
Texas Health Services Authority as a result of the dissolution of the
Texas Health Insurance Risk Pool are public funds under the Public
Funds Investment Act.
Very truly yours,
KEN PAXTON
Attorney General of Texas
JEFFREY C. MATEER
First Assistant Attorney General
BRANTLEY STARR
Deputy First Assistant Attorney General
VIRGINIA K. HOELSCHER
Chair, Opinion Committee
ASHLEY FRANKLIN
Assistant Attorney General, Opinion Committee