THEATTQW~Y                   GENERAL
                       0F%?EXAS

                  ,AUSTIN.   TEXAB    78711

                     December 19,,1963


Dr. J. W. Edgar                   OPINION NO. C-197
Commissioner of Education
Texas Education Agency            Re: Whether an Independent
Austin, Texas                         school district can exe-
                                      cute a binding obligation
                                      In the form of an lnterest-
                                      bearing note or time war-
                                      rant for a school construc-
                                      tion loan secured by pledg-
                                      ing of anticipated incentive
                                      aid payments amounting to
                                      approximately $41,000 an-
                                      nually for a period of nine
Dear Dr. Edgar:                       years.

     You have requested that the Attorney General answer the
following three questions:

     "(1) Can the Independent school district execute a
     binding obligation In the form of Interest-bearing
     note or time-warrant for a school construction loan
     secured by or pledging of anticipated Incentive aid
     payments approximately $41,000 annually for a period
     of nine years?

     "(2) May incentive aid payments be applied both to
     principal and Interest on such a loan, or to payment
     of principal only?

     "(3) If (1) is answered yes: Is assignability of
     the Incentive aid'payments permissible in payment
     of the loan; VIZ., this Agency to forward such pay-
     ments as are determined annually to the assignee
     lender on its filing of a copy of the assignment
     instrument?"

     The statutory provision for lncentlve:ald payments to
consolidated Independent school districts Is found in Artlcl,e
2815-3, Vernon's Civil Statutes, Section 1 of which provides,
In part, as follows:

     "C . The Incentive Aid Payments shall be used ex-
     clusively to retire the existing bonded lndebted-
     ness of the school districts which have been




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Dr. J. W. Edgar, page    2   (C-197)


        consolidated, or Shall be applied to the cost of
        constructing new buildings required by the reorgan-
        ized district."

     The authority
          .        of a school district t0 iSSUe interest-
Dearlng tlme warrants is found In Article 2'@6e, Vernon's
Civil Statutes, Section 8'of which defines "Interest-bearing
time warrants' as being a "promissory note, interest-bearing
time warrant, orobligation  or other evidence of Indebtedness
issued under this Act."

        Section 1 of Article 2786e provides that 'BUCh warrants
Shall    mature in serial Installments of not more than five (5)
years    from their date of ~iBBUe" and further that "Such war-
rants    shall upon maturity be payable out of any available
funds    Of such BChOOl district."   (Emphasis added.)

     Section 3 of Article 2786e limits the amount of such
warrants that a school district can issue, including the fol-
lowing: "No BChOOl district Shall have outstanding at any
one time warrants totalling in excess of Twenty-Five Thousand
Dollars ($25,000) under the provisions of this Act."

     In answering your first question we have only to deter-
mine whether or not the school district could execute the con-
templated obligation without violating the provisions of
Article 2786e. The answer Is that It clearly could not in
that to do so would violate all the requirements of Sections
1 and 3 which are referred to above. Not only would the con-
templated obligation be in an amount of approximately $4.00,000
(as o posed to the maximum of $25,000 allowed by Article
27&e P and extend over a nine year period (as opposed to the
maximum of five years allowed by Article 2786e), but It would
attempt to secure the loan by pledging specific funds for its
payment, whereas Article 2786e specifically says that such
obligations Shall be payable out of "any available funds."
There is no provision in Article 2786e that authorizes
specific ~fUndB of an kind to be pledged for payment of time
warrants, nor does7F rticle 2815-3 authorize pledging of
anticipated future incentive aid-payments for any purpOBe.

     Since your first question has been answered in the
negative it is unnecessary to answer your second and third
queBtlonB.




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Dr. J. W. Edgar, page 3 (c-197)



                          SUMMARY

     The authority of a school district to execute an
     Interest-bearing note or time warrant Is set out in
     Article 2786e, Vernon's Civil Statutes and la limited
     by the provisions of Bald Act. Thus the BpeClflC
     obligation contemplated here would be unlawful In
     that it would pledge specific funds for payment
     rather than 'any available funds" and would also
     exceed the statutory maximum as to both amount and
     duration of the obligation.

                             Very truly yours,

                             WAGGONER CARR
                             Attorney General




                                     ASSiStant

JMS:da

APPROVED:

OPINION COMMITTEE

W. V. Geppert, Chairman
V. F. Taylor
Ben Harrlscn
Howard Maya
Jerry Brock

APPROVED FOR THE ATTORNEY GENERAL
BY: II. Grady Chandler




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