Does interest on Texas's proprietary school tuition fund go back to the fund or to general revenue?

Plain-English summary

The Commissioner of Education asked a narrow money question with a long history behind it: when the Proprietary School Tuition Protection Fund earns interest, does that interest go back into the fund, or to the state's general revenue fund? The Texas Education Agency argued the interest should stay with the fund. The Attorney General concluded it should not. The fund is not a trust fund, so its interest belongs to general revenue.

The fund exists to protect students when a proprietary school, a private business that offers vocational courses, closes its doors. Education Code section 32.91 creates the fund as "a special fund in the state treasury," paid for by fees the State Board of Education collects from proprietary schools. The board sets fees to keep a balance in the fund and collects more whenever the balance drops too low. When a school closes, the agency tries to place the students in another proprietary school. The fund pays for that effort in two ways: it refunds tuition and fees to students the agency cannot place (or who decline a reasonable placement), and it reimburses schools that take in displaced students for the costs of finishing their training.

The rule for interest comes from Government Code section 404.071(a). That statute splits state funds into two kinds. For funds that the constitution itself dedicates, the share of interest earned by each constitutional fund is credited back to that fund, because spending that interest on anything else would violate the constitution. For everything else, the leftover interest (apart from a special carve-out for protested tax payments) is credited to general revenue. The tuition protection fund was created by statute, not by the constitution, so ordinarily its interest would flow to general revenue.

There is one recognized exception, and it was the heart of the question: trust funds. A long line of Attorney General opinions held that the predecessors of section 404.071(a), which read substantially the same, did not govern interest on trust funds; for a trust fund, the interest becomes part of the principal and stays with the fund that earned it. So the opinion asked whether this fund qualifies as a trust fund. Drawing on its earlier opinions, it listed what a trust fund should look like: the money is administered by a trustee or trustees, it is not granted to the state in its sovereign capacity or collected to run the general operations of government, and it is spent and invested for specific, limited purposes for the benefit of a specific group. The most important feature, and the one the opinion turned on, is the first: in past opinions finding a trust fund, the office relied on an express statutory provision requiring administration by a trustee, or by some public officer "in trust." Here there was no such provision. Nothing in the statute said the state treasurer holds these funds in trust or acts as trustee. Just the opposite: section 32.91(d) says the treasurer "shall invest the fund in the same manner as other state funds," charging the treasurer with no duty beyond the ordinary one. So the opinion concluded the fund is not a trust fund, section 404.071(a) governs, and interest accruing on the fund must be credited to the general revenue fund.

Currency note

This opinion was issued in 1992. 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. The Texas Proprietary School Act and the tuition-protection provisions in Education Code chapter 32, as well as the treasury and fund-interest provisions, have been amended and reorganized since 1992 (the state treasurer's functions were later absorbed by the comptroller), so confirm current law before relying on anything described here.

Background and statutory framework

Section 32.91(a) of the Education Code creates the fund as "a special fund in the state treasury," financed with a fee the State Board of Education collects from each proprietary school. The Texas Proprietary School Act, Education Code chapter 32, defines a "proprietary school" generally as a for-profit or nonprofit business that maintains or solicits business in Texas and offers a course or courses of instruction or study, with statutory exceptions. See Educ. Code § 32.11(1); 19 Tex. Admin. Code § 69.122. The board assessed fees to bring the fund balance to $250,000 by January 1, 1992, and after that date must collect fees in any year the balance falls below $200,000. Educ. Code § 32.91(b), (c). Section 32.91(d) provides that "[t]he state treasurer shall invest the fund in the same manner as other state funds."

The fund's money is used for expenditures that arise when a proprietary school closes. The Central Education Agency attempts to arrange for students of the closed school to attend another proprietary school. Educ. Code § 32.92(a). The fund assists in two ways: the agency must use it to refund tuition and fees to students it cannot place, or who refuse available reasonable placements, id. § 32.92(c), (d); see id. § 32.39(b), (d); and the agency must use it to reimburse proprietary schools that accept students from a closed school for all expenses directly related to completing those students' training, id. § 32.92(b).

The agency advised that the interest earned by the fund was being credited to the general revenue fund under former V.T.C.S. article 4393-1, section 3.042(a), and contended the interest should instead be credited to the fund. The opinion noted the Legislature had repealed article 4393-1, section 3.042 (Acts 1987, 70th Leg., ch. 147, § 6(a); Acts 1989, 71st Leg., ch. 4, § 2.07(b)) and codified the text as Government Code section 404.071. Section 404.071(a) provides that interest received from investments of money in funds and accounts in the treasurer's charge is allocated monthly so that (1) the pro rata portion due to each constitutional fund is credited to that fund, and (2) the remainder, except the portion other statutes require to be credited on a pro rata basis to protested payments, is credited to the general revenue fund.

Section 404.071(a) thus distinguishes constitutionally dedicated funds from statutory funds. Interest on a constitutionally dedicated fund must be spent only for the purposes for which the fund was created; diverting it would violate the constitution. Lawson v. Baker, 220 S.W. 260, 272 (Tex. Civ. App.-Austin 1920, writ ref'd); Attorney General Opinion JM-549 (1986) at 1. By contrast, interest on state funds dedicated by statute may legally be severed and placed in the general revenue fund. See Gulf Ins. Co. v. James, 185 S.W.2d 971 (Tex. 1945); Brazos River Conservation & Reclamation Dist. v. McCraw, 91 S.W.2d 665, 674 (Tex. 1936). Section 404.071(a) effects such a severance of interest on statutory funds as a general rule. The funds at issue here are statutory funds, so ordinarily section 404.071(a) would require interest on them to be credited to general revenue. See Attorney General Opinions JM-549 at 2, JM-539 (1986) at 4.

Numerous prior opinions had stated, however, that section 404.071(a)'s predecessors, substantially the same as the current statute, did not apply to interest earned on trust funds; for a trust fund, the interest becomes part of the principal and thus part of the fund that generated it. See, e.g., Attorney General Opinions JM-549 at 2; JM-539 at 4; JM-306 at 2, JM-300 at 2 (1985); MW-338 (1981) at 2; MW-82 (1979) at 1; H-1040 (1977) at 1-2. To be characterized as trust funds, the funds in question should reflect, among other things, "(1) that they are administered by a trustee or trustees, (2) that the funds neither are granted to the state in its sovereign capacity nor collected for the general operation of state government, and (3) that they are to be spent and invested for specific, limited purposes and for the benefit of a specific group of individuals." Attorney General Opinions JM-549 at 3; JM-539 at 4; JM-300 at 2; see also Attorney General Opinion JM-632 (1987) at 2. In prior opinions finding the first prong satisfied, the office relied on express statutory provisions requiring administration by a trustee, trustees, or a public officer "in trust." See, e.g., Attorney General Opinions JM-539 at 4; JM-306 at 1-2; JM-300 at 2; MW-82 at 2; H-1040 at 2.

Here, the opinion found no provision in the statute expressly providing that the state treasurer shall hold these particular funds in trust or act as a trustee. Indeed, section 32.91(d) specifies that the treasurer "shall invest the fund in the same manner as other state funds," so the treasurer is charged with no duty beyond his or her duty as to other state funds. The opinion therefore concluded the fund is not a trust fund and is subject to section 404.071(a), and that interest accruing on the fund must be credited to the general revenue fund.

Common questions

Who pays into the Proprietary School Tuition Protection Fund?
Proprietary schools, through fees. The opinion explained that the State Board of Education collects a fee from each proprietary school to fund and replenish the account, which exists to help students when a private vocational school closes.

Why does the interest go to general revenue instead of back into the fund?
Because the fund was created by statute, not by the constitution, and is not a trust fund. The opinion read Government Code section 404.071(a) to send interest on statutory funds to general revenue, reserving fund-credited interest for constitutionally dedicated funds and for true trust funds.

What would have made this a trust fund?
Chiefly, a statute making the state treasurer hold the money "in trust" or act as a trustee. The opinion said prior trust-fund findings rested on such express language, and that this fund's statute had none; section 32.91(d) just tells the treasurer to invest it like any other state fund.

Does this affect how the fund itself can be spent on students?
No. The opinion addressed only where the interest earnings go. The fund's principal is still used as the statute directs, to refund tuition to displaced students and reimburse schools that take them in when a proprietary school closes.

Citations

• Education Code §§ 32.11, 32.21, 32.39(b), (d), 32.71, 32.91(a)-(d), 32.92
• Gov't Code § 404.071(a)
• V.T.C.S. art. 4393-1, § 3.042 (repealed; Acts 1987, 70th Leg., ch. 147, § 6(a); Acts 1989, 71st Leg., ch. 4, § 2.07(b))
• 19 Tex. Admin. Code §§ 69.122, 69.127, 69.128; ch. 69, subch. E
• Lawson v. Baker, 220 S.W. 260 (Tex. Civ. App.-Austin 1920, writ ref'd)
• Gulf Ins. Co. v. James, 185 S.W.2d 971 (Tex. 1945)
• Brazos River Conservation & Reclamation Dist. v. McCraw, 91 S.W.2d 665 (Tex. 1936)
• Attorney General Opinions JM-549, JM-539, JM-632, JM-306, JM-300, MW-338, MW-82, H-1040

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0143
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1992/dm0143.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, and case names and reporter citations degraded in the scan are corrected here against the reporters. The linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

July 24, 1992

Mr. Lionel R. Meno
Commissioner of Education
Texas Education Agency
1701 North Congress Avenue
Austin, Texas 78701-1494

Opinion No. DM-143

Re: Whether the Proprietary School Tuition Protection Fund as created by Texas Education Code section 32.91 manifests sufficient characteristics of a trust to require interest from the fund to be credited to the Tuition Protection Fund rather than the General Revenue Fund (RQ-309)

Dear Commissioner Meno:

You have asked our opinion about the proper disposition of interest generated by the Proprietary School Tuition Protection Fund (the "fund"). As a threshold matter, your question requires us to determine whether the fund is a trust fund within the state's general revenue fund. We conclude that the fund is not a trust fund, and thus that interest on the fund should be credited to the general revenue fund.

Section 32.91(a) of the Education Code creates the fund, which is "a special fund in the state treasury." Under section 32.91(a), the fund is financed with a fee the State Board of Education (the "board") collects from each proprietary school.[1]

[Footnote 1: The Texas Proprietary School Act, Education Code chapter 32, defines "proprietary school" as follows: any business enterprise operated for a profit, or on a nonprofit basis, which maintains a place of business within the State of Texas, or solicits business within the State of Texas, and which is not specifically exempted by [§ 32.12], and; [sic] (A) which offers or maintains a course or courses of instruction or study; or (B) at which place of business such course or courses of instruction or study is available through classroom instruction or by correspondence, or both, to a person or persons for the purpose of training or preparing the person for a field of endeavor in a business, trade, technical or industrial occupation, or for avocational or personal improvement, except as hereinafter excluded. Educ. Code § 32.11(1); see also 19 Tex. Admin. Code § 69.122. See generally 19 Tex. Admin. Code ch. 69, subch. E (establishing minimum standards for operation of proprietary schools).]

See Educ. Code § 32.91(b) (describing how the board shall calculate the amount of the fee); id. § 32.71 (providing for certificate and registration fees); see also 19 Tex. Admin. Code § 69.128 (describing how the board shall calculate the amount of the fee). The board assessed fees in an amount to bring the balance of the fund to $250,000 by January 1, 1992. Educ. Code § 32.91(b). After January 1, 1992, the board must collect fees during any year in which the fund balance falls below $200,000. Id. § 32.91(c). Significantly, section 32.91(d) states that "[t]he state treasurer shall invest the fund in the same manner as other state funds."

Monies from the fund are to be used for various expenditures that accrue upon the closing of a proprietary school. When a proprietary school closes, the Central Education Agency (the "agency") is to attempt to arrange for students of the closed school to attend another proprietary school. Id. § 32.92(a); see id. § 32.21 (defining general powers and duties of the Central Education Agency). The fund assists the agency in placing students of the closed school in two ways. First, the agency must use the fund to refund tuition and fees to those students whom the agency cannot place in other proprietary schools, or who refuse available, reasonable places in other proprietary schools. Id. § 32.92(c), (d); see id. § 32.39(b) (stating mandated refund policy for unused portion of tuition and fees); id. § 32.39(d) (stating required refund policy for students who refuse places in other proprietary schools); 19 Tex. Admin. Code § 69.127(b)(5) (stating required cancellation and refund policy). Second, the agency must use the fund to reimburse proprietary schools that accept students from a closed proprietary school pursuant to section 32.92 for all expenses directly related to completing the training of students who attend the school because of the closure. Educ. Code § 32.92(b).

You advise that "[c]urrently, the interest earned by the fund is credited to the General Revenue Fund in accordance with Section 3.042(a) of Article 4393-1, V.T.C.S., as a normal statutory account." On behalf of the Texas Education Agency, you contend that the interest on the fund should be credited to the fund, not to the general revenue fund. Initially, we note that the legislature has repealed V.T.C.S. article 4393-1, section 3.042 (see Acts 1987, 70th Leg., ch. 147, § 6(a); Acts 1989, 71st Leg., ch. 4, § 2.07(b)), codifying the text as section 404.071 of the Government Code.

Section 404.071(a) states as follows:

  (a) Interest received from investments of money in funds and accounts in the charge of the treasurer shall be allocated on a monthly basis as follows:

  (1) the pro rata portion of the interest received due to each constitutional fund shall be credited to that fund; and

  (2) the remainder of the interest received, except the portion required by other statutes to be credited on a pro rata basis to protested payments, shall be credited to the general revenue fund.

Section 404.071(a) distinguishes between two types of funds: those that are constitutionally dedicated (see Gov't Code § 404.071(a)(1)), and those that are statutory funds (see id. § 404.071(a)(2)).[2] See Attorney General Opinions JM-549 at 2, JM-539 at 3-4 (1986). The funds about which you are concerned are statutory funds. Ordinarily, therefore, section 404.071(a) would require the interest on such funds to be credited to the general revenue fund. See Attorney General Opinions JM-549 at 2, JM-539 at 4. However, numerous prior opinions have stated that section 404.071(a)'s predecessors, which are substantially the same as section 404.071(a), did not apply to the disposition of interest earned by the deposit of trust funds. See, e.g., id.; JM-306 at 2, JM-300 at 2 (1985); MW-338 (1981) at 2; MW-82 (1979) at 1; H-1040 (1977) at 1-2. With regard to trust funds, the interest becomes part of the principal and, consequently, part of the fund that generated the interest. Attorney General Opinions JM-549 at 2; JM-539 at 4; JM-306 at 2.

[Footnote 2: This constitutional provision has been construed to require that interest on constitutionally dedicated funds be spent only for the purposes for which the funds were created; allocation of such interest to other purposes would violate the constitution. Lawson v. Baker, 220 S.W. 260, 272 (Tex. Civ. App.-Austin 1920, writ ref'd); Attorney General Opinion JM-549 (1986) at 1. Consequently, interest earned on a constitutional fund must be credited to that fund unless the constitution directs otherwise. Attorney General Opinion JM-549 at 1. On the other hand, the interest on state funds dedicated by statute legally may be severed and placed in the general revenue fund. Id.; see Gulf Ins. Co. v. James, 185 S.W.2d 971 (Tex. 1945); Brazos River Conservation & Reclamation Dist. v. McCraw, 91 S.W.2d 665, 674 (Tex. 1936). Section 404.071(a) of the Government Code effects such a severance of interest on statutory funds as a general rule. See Attorney General Opinion JM-549 at 2 (discussing V.T.C.S. article 2543d, immediate predecessor to V.T.C.S. article 4393-1, § 3.042(a), now codified as Government Code § 404.071(a)).]

To be characterized as trust funds, "the funds in question should reflect, among other things (1) that they are administered by a trustee or trustees, (2) that the funds neither are granted to the state in its sovereign capacity nor collected for the general operation of state government, and (3) that they are to be spent and invested for specific, limited purposes and for the benefit of a specific group of individuals." Attorney General Opinions JM-549 at 3; JM-539 at 4; JM-300 at 2; see also Attorney General Opinion JM-632 (1987) at 2 (discussing disposition of interest on county trust funds). In previous opinions concluding that a trustee or trustees administered the funds in question, thereby satisfying the first prong of the trust fund test, this office has relied on express statutory provisions requiring administration by a trustee, trustees, or any public officer "in trust." See, e.g., Attorney General Opinions JM-539 at 4; JM-306 at 1-2; JM-300 at 2; MW-82 at 2; H-1040 at 2. Compare Attorney General Opinions JM-632 at 2; JM-549 at 5. Here, however, we find no provision in the statute expressly providing that the state treasurer shall hold these particular funds in trust or act as a trustee. Indeed, section 32.91(d) of the Education Code specifies that "[t]he state treasurer shall invest the fund in the same manner as other state funds." Thus, with regard to the fund, the state treasurer is charged with no duty beyond his or her duty as to other state funds. Accordingly, we conclude that the fund is not a trust fund and that therefore, it is subject to section 404.071(a) of the Government Code. Interest accruing on the fund must be credited to the general revenue fund.

                               SUMMARY

      The Proprietary School Tuition Protection Fund, created pursuant to section 32.91 of the Education Code, is not a trust fund. Consequently, interest that accrues on the fund must be credited to the general revenue fund pursuant to section 404.071(a) of the Government Code.

                                            DAN MORALES
                                            Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Kymberly K. Oltrogge
Assistant Attorney General