When a Georgia school district or county collects an Education SPLOST or special county SPLOST and the money sits in an interest-bearing account before being spent, who gets the interest and what can it be used for?

Plain-English summary

The State Auditor asked whether interest earned on Education SPLOST and special county tax proceeds had to be used exclusively for the purposes specified in the resolution or ordinance authorizing the tax. The opinion explains that the proceeds must be kept in a separate account and not commingled with other county funds. Applying the rule that "interest follows principal," the AG concluded that interest earned on the proceeds becomes part of the tax fund and must be used exclusively for the specified purposes.

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context

Education SPLOST sits in Article VIII, Section VI, Paragraph IV of the Georgia Constitution. The proceeds must be used for capital outlay projects for educational purposes or to retire general obligation debt previously issued for capital outlay projects of the school system. The local board of education's authorizing resolution and the ballot question must each describe the specific projects to be funded or the specific debt to be retired. The Constitution requires the Education SPLOST to "correspond to and be levied in the same manner as the special county tax."

The Special County SPLOST is in O.C.G.A. § 48-8-121(a)(1), which sets up the two-part rule: (1) proceeds must be used "exclusively for the purpose or purposes specified in the resolution or ordinance calling for the imposition of the tax," and (2) proceeds must be kept in a separate account, not commingled with other county funds. If general obligation debt is issued in conjunction with the SPLOST, that debt is "payable first from the separate account" holding the SPLOST proceeds.

The AG reasoned that the separate-account requirement and the ban on commingling show legislative intent that all money in the account, including interest, is dedicated to the purposes specified in the resolution or ordinance. The opinion applies the "interest follows principal" rule, citing Phillips v. Washington Legal Found. (1998), Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), and state cases involving public funds, including Grand Rapids Pub. Sch. v. City of Grand Rapids, Board of County Comm'rs v. Laramie County Sch. Dist. No. One, and Marshall v. Commonwealth.

The AG also pointed to a previous Georgia AG opinion, 1984 Op. Att'y Gen. 84-6, which had read the constitutional motor-fuel tax dedication ("all money derived from motor fuel taxes") to include interest on motor-fuel revenues. The same logic applied to SPLOST proceeds.

The opinion concludes that interest earned on Education SPLOST and special county tax proceeds becomes part of the tax proceeds and must be used exclusively for the purposes specified in the authorizing resolution or ordinance.

For county finance directors at the time

A county collecting a special county SPLOST had to keep the proceeds in a separate account without commingling them with other county funds. The opinion concludes that interest in the account is part of the tax proceeds and must be used exclusively for the purposes specified in the authorizing resolution or ordinance.

For school district CFOs at the time

The same rule applied to Education SPLOST. The opinion concludes that interest earned on the education tax becomes part of the tax proceeds and must be used exclusively for the purposes specified in the authorizing resolution.

For debt administration at the time

If general obligation debt was issued in conjunction with the special county tax, the opinion quotes the statute as providing that the debt is payable first from the separate account holding the tax proceeds. It also concludes that interest in that account is part of the tax proceeds.

For state auditors at the time

The opinion answers the State Auditor's question by concluding that interest earned on the education tax and special county tax becomes part of the tax proceeds and must be used exclusively for the purposes stated in the authorizing resolution or ordinance.

Common questions

Q: What does "interest follows principal" mean?
A: It is a common-law rule that interest earned on a fund is part of the fund itself, owned by whoever owns the principal. Applied to a dedicated SPLOST account, it means interest belongs to the SPLOST fund and can only be spent on the same dedicated purposes.

Q: What kind of earnings does the opinion address?
A: It addresses interest earned on education tax and special county tax proceeds held in the account fund. The opinion concludes that this interest becomes part of the tax proceeds.

Q: What if the county's general account earns interest pooled with SPLOST money?
A: The opinion quotes the requirement that the proceeds be kept in an account separate from other county funds and not be commingled with other county funds. It does not address how to allocate interest after commingling.

Background and statutory framework

The education tax is authorized by Paragraph IV of Section VI of Article VIII of the Georgia Constitution. The opinion says its proceeds must be used for educational capital outlay projects or to retire previously incurred general obligation debt for school-system capital outlay projects, with the projects or debt described in the resolution and ballot question. The special county tax is authorized by Part 1 of Article 3 of Chapter 8 of Title 48. Its proceeds must be used exclusively for the purposes stated in the authorizing resolution or ordinance and kept separate from other county funds. The opinion concludes that these limits include interest earned on the proceeds.

The opinion applies the "interest follows principal" rule to the education tax and special county tax proceeds. It cites cases stating that interest earned on public funds is an incident of the principal and becomes part of the account fund.

Citations and references

Constitutional and statutory:

• Ga. Const., Art. VIII, Sec. VI, Para. IV (Education SPLOST)
• O.C.G.A. § 48-8-141 (Education SPLOST corresponds to county SPLOST)
• O.C.G.A. § 48-8-121 (special county SPLOST proceeds use; separate account)
• O.C.G.A. § 48-8-111(f)(2) (general obligation debt funded from SPLOST)
• O.C.G.A. § 1-3-1(a) (statutory construction)

Cases:

• Phillips v. Washington Legal Found., 524 U.S. 156 (1998)
• Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980)
• Grand Rapids Pub. Sch. v. City of Grand Rapids, 381 N.W.2d 783 (Mich. App. 1985)
• Board of County Comm'rs v. Laramie County Sch. Dist. No. One, 884 P.2d 946 (Wyo. 1994)
• Marshall v. Commonwealth, 20 S.W.3d 478 (Ky. Ct. App. 2000)

Prior AG opinions:

• 1984 Op. Att'y Gen. 84-6 (motor fuel tax interest)
• 1999 Op. Att'y Gen. 99-11

Source

• Landing page: https://law.georgia.gov/opinions/2001-3

Original opinion text

You have asked if interest earned on educational purpose sales taxes (the "education tax") or on special county one percent sales and use taxes (the "special county tax") is required to be used exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition of the respective tax. An answer to your question involves a review of the provisions of the Constitution and the statutes authorizing the education tax and the special county tax in order to ascertain the legislative intent and purpose in enacting the law. O.C.G.A. § 1-3-1(a); 1999 Op. Att'y Gen. 99-11. The education tax is authorized by Paragraph IV of Section VI of Article VIII of the Georgia Constitution. The proceeds of the education tax must be used for capital outlay projects for educational purposes or to retire previously incurred general obligation debt issued for capital outlay projects of the school system. GA. CONST. Art. VIII, Sec. VI, Para. IV(b). The resolution adopted by the local board of education calling for imposition of the tax and the ballot question submitted to the voters in the subsequent referendum must each describe the specific capital outlay projects to be funded or the specific debt to be retired. GA. CONST. Art. VIII, Sec. VI, Para. IV(c)(1). The Constitution requires that the education tax shall correspond to and be levied in the same manner as the special county tax. GA. CONST. Art. VIII, Sec. VI, Para. IV(a). See also O.C.G.A. § 48-8-141 (Supp. 2000). The special county tax is authorized by Part 1 of Article 3 of Chapter 8 of Title 48 of the Official Code of Georgia Annotated. Under O.C.G.A. § 48-8-121(a)(1) (Supp. 2000), the proceeds of the tax must be used and accounted for in accordance with a limitation expressed in two parts. First, proceeds of the tax must be used by the county exclusively for the purpose or purposes specified in the resolution or ordinance calling for the imposition of the tax. Second, the county is required to keep the proceeds in an account separate from other county funds, and such proceeds must not in any manner be commingled with other funds of the county. O.C.G.A. § 48-8-121(a)(1) (Supp. 2000). See also O.C.G.A. §§ 48-8-111(f)(2) (Supp. 2000) and 48-8-121(c) (Supp. 2000) (if general obligation debt is issued in conjunction with the special county tax, then such debt "shall be payable first from the separate account in which are placed the proceeds" of the special county tax). The two-part limitation set forth at O.C.G.A. § 48-8-121(a)(1) applies to both the education tax and the special county tax. See GA. CONST. Art. VIII, Sec. VI, Para. IV(a) and O.C.G.A.§ 48-8-141 (Supp. 2000). The requirement of a separate account and the mandate that the proceeds placed in the account not be commingled with other funds, as set forth in the second part of the statutory limitation, demonstrate a legislative intent that all money in the account, including any interest, is dedicated for the purposes specified in the involved resolution or ordinance, as required by the first part of the statutory limitation. This determination of legislative intent is consistent with the general rule that "interest follows principal." See Phillips v. Washington Legal Found., 524 U.S. 156, 165 (1998) ("[t]he rule that 'interest follows principal' has been established under English common law since at least the mid-1700's"). Under the "interest follows principal" rule, interest earned on public funds is an incident of principal and becomes a part of the account fund. See Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 164 (1980) ("[t]he earnings of a fund are incidents of ownership of the fund itself"); Grand Rapids Pub. Sch. v. City of Grand Rapids, 381 N.W. 2d 783, 785 (Mich. App. 1985) ("in absence of a clear statutory provision to the contrary, the general principle is that interest on public funds designated for a specific purpose follows those funds"); Board of County Comm'rs v. Laramie County Sch. Dist. No. One, 884 P.2d 946, 954 (Wyo. 1994) ("interest is an accretion or increment to the fund earning such interest and follows those funds") and Marshall v. Commonwealth, 20 S.W.3d 478 (Ky. Ct. App. 2000) (interest earned on school tax funds placed in interest bearing accounts must be paid to county school districts, rather than used for sheriff/tax collector's office expenses). See also 1984 Op. Att'y Gen. 84-6 (under Article III, Section IX, Paragraph VI(b) of the Georgia Constitution, which appropriates an amount equal to all money derived from motor fuel taxes for the immediately preceding fiscal year for roads and bridges, the language "all money derived from motor fuel taxes" includes interest on motor fuel revenues). Consequently, interest earned on education taxes and on special county taxes becomes part of the tax proceeds in the account fund, which fund is required to be used exclusively for the purpose or purposes specified in the resolution or ordinance calling for imposition of the respective tax. Prepared by: DANIEL M. FORMBY Deputy Attorney General