Can a Texas school district put public money into a scholarship program that pays for its graduates to attend a community college?

Plain-English summary

The Amarillo Independent School District wanted to join a scholarship program built as a partnership with Amarillo College, the Amarillo Economic Development Corporation, and the Amarillo Area Foundation. The program would cover tuition, fees, and book costs for up to sixty credit hours at Amarillo College for graduates of any district high school, as long as the students hit a grade-point or college-readiness threshold, met compulsory attendance rules, stayed out of major behavior trouble, applied for admission and financial aid at the college, and fell within a family-income limit. The Potter County Attorney asked the AG whether the district could lawfully participate.

The AG's answer ran in two parts, and both came down to decisions the district itself had to make.

First was the district's statutory authority. The Education Code gives a board of trustees the exclusive power to govern the schools, and it can spend district funds only as the code allows. Section 45.105(c) lets local school funds be used not just for listed purposes but for "other purposes necessary in the conduct of the public schools" as the board determines, and the AG read "necessary" to mean appropriate or conducive to running a school, not strictly indispensable. The AG had already said in a 1990 opinion that a scholarship can be structured to further a legitimate public purpose of a district, because encouraging and motivating students toward academic achievement is an appropriate function of public schools. So the first step belonged to the trustees: they had to decide whether this scholarship was appropriate or conducive to running their schools.

Second was the constitution. Article III, section 52(a) bars governments from spending public funds for private purposes, to stop gratuitous grants of public money. But Texas courts hold that spending which serves a public purpose and brings a clear public benefit in return is not an unconstitutional gift, even if it incidentally helps a private interest. The Texas Supreme Court reduced this to a three-part test: the spending's predominant purpose must be the entity's own public purpose rather than benefiting private parties, the entity must keep enough control to make sure that purpose is achieved, and it must receive a return benefit. Here the district pointed to motivating students, improving college readiness, attendance, and behavior, and even recapturing budget funds by drawing students back to district schools. Whether those claims actually satisfied each prong was, again, for the trustees to find, subject to judicial review only for abuse of discretion.

Currency note

This opinion was issued in 2018. 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.

What the opinion meant for those who asked

The Potter County Attorney who requested the opinion: The AG did not return a flat yes or no. The opinion told him that the district had a plausible path to participate, but that whether the scholarship was a permissible school expenditure and whether it satisfied the constitution's three-part public-funds test were determinations for the district's board of trustees to make first.

The Amarillo Independent School District (as the opinion described it): The opinion treated the board as holding the decision in its own hands. It had to find that the scholarship was appropriate or conducive to running its schools under section 45.105, and then find that the spending met all three prongs of the Texas Municipal League test before any public money could flow into the program.

Students and families who would benefit (as described in the opinion): The opinion framed the eligible graduates as the intended beneficiaries, but it made clear the money could reach them only through a structure the district controlled and that produced a return benefit to the district, not as a bare gift.

Common questions

Can a Texas school district spend money on a scholarship at all?
The AG said yes in principle. Section 45.105(c) of the Education Code lets a district spend its local funds on purposes its board finds necessary, meaning appropriate or conducive, to running the schools, and the AG had recognized since a 1990 opinion that a scholarship can be structured to serve a district's legitimate public purpose.

What is the gift clause and why does it apply here?
Article III, section 52(a) of the Texas Constitution prohibits spending public funds for private purposes. The AG explained that it does not block spending that serves a genuine public purpose with a return benefit, even if a private party incidentally gains, but the district has to satisfy a three-part test first.

What does the three-part test require?
The AG quoted the Texas Supreme Court: the expenditure's predominant purpose must be the district's own public purpose rather than benefiting private parties; the district must retain enough control to ensure that purpose is accomplished; and the district must receive a return benefit.

Who decides whether this particular scholarship qualifies?
The district's board of trustees, in the first instance. The AG said that decision is subject to judicial review only for abuse of discretion, and courts will not interfere with the board's judgment unless there is a clear abuse.

Background and statutory framework

An independent school district's board of trustees has the exclusive power and duty to govern and oversee the management of the district's public schools (Tex. Educ. Code § 11.151(b)). The board approves the district's budget and may spend district funds only as the Education Code provides (Tex. Educ. Code §§ 44.004(a), 45.105(a)). Section 45.105(c) allows local school funds from district taxes, tuition fees, other local sources, and undesignated state funds to be used for the purposes listed for state and county available funds and for "other purposes necessary in the conduct of the public schools determined by the board of trustees" (Tex. Educ. Code § 45.105(c)). The AG read "necessary" to mean "appropriate or conducive to the conduct of a public school rather than indispensable thereto" (Tex. Att'y Gen. Op. No. JM-1265 (1990) at 3 (citing Moseley v. City of Dallas, 17 S.W.2d 36, 41 (Tex. Comm'n App. 1929, judgm't adopted) and Bozeman v. Morrow, 34 S.W.2d 654, 656-57 (Tex. Civ. App.-El Paso 1931, no writ))). Opinion JM-1265 had concluded that a scholarship could be structured to further a legitimate public purpose of a district provided the constitutional restrictions on public expenditures are met.

Texas Constitution article III, section 52(a) prohibits the expenditure of public funds for private purposes, mirroring the language applicable to political subdivisions in sections 50 and 51 (Tex. Const. art. III, §§ 50, 51, 52(a); Tex. Att'y Gen. Op. No. H-1010 (1977) at 2). Its purpose is to prevent the gratuitous grant of public funds for private purposes (Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)). An expenditure for a public purpose that provides a clear public benefit in return is not an unconstitutional grant of public funds, and an expenditure that directly accomplishes a legitimate public purpose is constitutional even if it incidentally benefits a private interest (Barrington v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960)). The Texas Supreme Court's three-part test asks whether the expenditure's predominant purpose is to accomplish the public entity's public purpose rather than to benefit private parties, whether the entity retains sufficient control to ensure the public purpose is accomplished, and whether the entity receives a return benefit (Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383-84 (Tex. 2002); Tex. Att'y Gen. Op. No. GA-0076 (2003) at 6-7). The public purpose served must be an authorized public purpose of the political subdivision itself, not the general good of the public (Tex. Att'y Gen. Op. No. GA-0743 (2009) at 2). Whether a particular expenditure satisfies the test is for the board to decide in the first instance, subject to judicial review for abuse of discretion (Tex. Att'y Gen. Op. Nos. KP-0099 (2016) at 4, GA-0850 (2011) at 3-4, JM-1265 (1990) at 4; Tex. Att'y Gen. LO-93-093 (1993) at 5).

Citations

Cases and Attorney General opinions:

• Moseley v. City of Dallas, 17 S.W.2d 36, 41 (Tex. Comm'n App. 1929, judgm't adopted)
• Bozeman v. Morrow, 34 S.W.2d 654, 656-57 (Tex. Civ. App.-El Paso 1931, no writ)
• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383-84 (Tex. 2002)
• Barrington v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960)
• Tex. Att'y Gen. Op. No. JM-1265 (1990)
• Tex. Att'y Gen. Op. No. H-1010 (1977)
• Tex. Att'y Gen. Op. No. GA-0076 (2003)
• Tex. Att'y Gen. Op. No. GA-0743 (2009)
• Tex. Att'y Gen. Op. No. GA-0850 (2011)
• Tex. Att'y Gen. Op. No. KP-0099 (2016)
• Tex. Att'y Gen. LO-93-093 (1993)

Statutes and constitutional provisions:

• Tex. Educ. Code § 11.151(b)
• Tex. Educ. Code §§ 44.004(a), 45.105(a)
• Tex. Educ. Code § 45.105(c)
• Tex. Const. art. III, §§ 50, 51, 52(a)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0204
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0204.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

May 16, 2018

The Honorable Scott Brumley Opinion No. KP-0204
Potter County Attorney
500 South Fillmore, Room 301 Re: Whether an independent school district
Amarillo, Texas 79101 may contribute funds to a scholarship program
for graduates of the district to attend a
community college (RQ-0202-KP)

Dear Mr. Brumley:

    You ask whether the Amarillo Independent School District ("District") "can lawfully participate in a scholarship program." [1] You describe the proposed scholarship program as a partnership between multiple financial partners: the District, Amarillo College, the Amarillo Economic Development Corporation, and the Amarillo Area Foundation. Brief at 2. You explain that the scholarship program would be offered to all eligible District students and "will cover tuition, fees, and book expenses for up to sixty (60) credit hours at Amarillo College, following graduation from any District high school campus." Id. You also tell us that "eligible students must earn a final grade point average of 80 or higher on a 100-point scale, or meet Texas Success Initiative ... college readiness as set by the Texas Higher Education Coordinating Board." Id. You state that eligible students must meet compulsory attendance requirements, avoid any major behavior infractions, and "must apply for and complete admission, financial aid, and scholarship assistance at Amarillo College." Id. at 3. Lastly, you state that the scholarship program "includes a family income restriction for the student to be eligible." Id.

    We first consider the authority of the District's board of trustees. The Education Code gives the trustees of an independent school district the "exclusive power and duty to govern and oversee the management of the public schools of the district." TEX. EDUC. CODE § 11.151(b). A district's board of trustees approves the district's budget and can spend the district's funds only in accordance with provisions in the Education Code. See id. §§ 44.004(a) (providing that the board must approve the district's budget), 45.105(a) (providing that "public school funds may not be spent except as provided by this section"). Education Code subsection 45.105(c) provides that the expenditure of

            [l]ocal school funds from district taxes, tuition fees of students not entitled to free education, other local sources, and state funds not designated for a specific purpose may be used for the purposes listed for state and county available funds and for . . . other purposes necessary in the conduct of the public schools determined by the board of trustees.

Id. § 45.105(c). The term "necessary" in this provision means "appropriate or conducive to the conduct of a public school rather than indispensable thereto." Tex. Att'y Gen. Op. No. JM-1265 (1990) at 3 (citing Moseley v. City of Dallas, 17 S.W.2d 36, 41 (Tex. Comm'n App. 1929, judgm't adopted) and Bozeman v. Morrow, 34 S.W.2d 654, 656-57 (Tex. Civ. App.-El Paso 1931, no writ)). With respect to scholarships, Opinion JM-1265 specifically stated:

           The encouragement and motivation of students in academic achievement would seem to be an appropriate function of the public free schools. Accordingly, it is not possible to say, as a matter of law, that a scholarship could not be structured to further the achievement of a legitimate public purpose of a school district in its conduct of public schools [provided certain constitutional restrictions on public expenditures are met].

Tex. Att'y Gen. Op. No. JM-1265 (1990) at 4. The District's trustees must determine in the first instance whether the proposed scholarship program is appropriate or conducive to the conduct of its public schools. See id.; see also TEX. EDUC. CODE § 45.105.

    We next consider the constitutionality of the expenditure. Texas Constitution article III, section 52(a) prohibits the expenditure of public funds for private purposes. See TEX. CONST. art. III, § 52(a); see also id. §§ 50, 51; Tex. Att'y Gen. Op. No. H-1010 (1977) at 2 (observing that language applicable to political subdivisions in article III, section 52 is the same as in article III, sections 50 and 51). Its purpose is to prevent the gratuitous grant of public funds for private purposes. See Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995). The Texas Supreme Court recognizes an expenditure of public funds for a public purpose that provides a clear public benefit in return is not an unconstitutional grant of public funds. See Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 383 (Tex. 2002). Furthermore, an expenditure to directly accomplish a legitimate public purpose is constitutional even though it incidentally benefits a private interest. See Barrington v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960). The Texas Supreme Court provides a three-part test to determine whether an expenditure of public funds accomplishes a public purpose as contemplated by article III, section 52(a). Tex. Mun. League Intergov'tl Risk Pool, 74 S.W.3d at 384. A public expenditure satisfies article III, section 52(a) if: (1) the expenditure's predominant purpose is to accomplish a public purpose of the public entity, not to benefit private parties; (2) the public entity retains sufficient control over the expenditure to ensure that the public purpose is accomplished; and (3) the public entity receives a return benefit. See id.; see also Tex. Att'y Gen. Op. No. GA-0076 (2003) at 6-7.

   The District's board of trustees must decide in the first instance, and subject to judicial review for abuse of discretion, whether the expenditure for the scholarship satisfies the three-part Texas Municipal League test. Tex. Att'y Gen. Op. Nos. KP-0099 (2016) at 4, GA-0850 (2011) at 3-4, JM-1265 (1990) at 4; see also Moseley, 17 S.W.2d at 41 (acknowledging that courts will not interfere unless there is a clear abuse of discretion). Regarding the first prong concerning a public purpose, we emphasize that the public purpose to be served is not the general good of the public, but a specific purpose of the District. See Tex. Att'y Gen. Op. No. GA-0743 (2009) at 2 ("The public purpose served by the expenditure must be an authorized public purpose of the political subdivision."). You tell us the District's participation in the scholarship serves to encourage and motivate its students to attain high academic achievement within the District's schools, as well as improve their college readiness, school attendance, and appropriate student behavior. See Brief at 11 (stating that these are appropriate functions of the District); see also Tex. Att'y Gen. Op. No. JM-1265 (1990) at 4 (recognizing that the "encouragement and motivation of students in academic achievement would seem to be an appropriate function of the public free schools"), Tex. Att'y Gen. LO-93-093 (1993) at 5 (same). Further, you aver that the scholarship supports the District's mission "to graduate every student prepared for success beyond high school." Brief at 11. Thus, to meet the first prong, the District must reasonably find that the scholarship will indeed incentivize the aims that you claim and that those aims serve the purposes of the District.

    Regarding the second and third prongs, you tell us the agreement between the financial partners will include sufficient controls to ensure accomplishment of the public purpose. See id. You note that the District will control the scholarship by awarding it to only those students who meet the criteria. And you state that the District will receive a return benefit in the form of students succeeding in, as well as avoiding trouble in, high school. See id. at 11-12. You further state that students who live in the District but who do not attend a District school may be induced by the scholarship to return to a District school, enabling the District to "recapture funding and add[] much-needed funds to its budget." Id. at 12. To meet the second and third prongs, the District must reasonably find that it will receive a return benefit, and it must exercise control over the funds to ensure the public purpose is accomplished.

                                   SUMMARY

                  Section 45.105 of the Education Code authorizes an expenditure of an independent school district's funds for "other purposes necessary in the conduct of the public schools determined by the board of trustees." Accordingly, the Amarillo Independent School District's trustees must determine whether the proposed scholarship program is appropriate or conducive to the conduct of its public schools.

                   Article III, section 52(a) of the Texas Constitution prohibits the expenditure of public funds for private purposes. A school district's expenditure for a scholarship program does not violate article III, section 52(a) provided that the school district: (1) ensures the expenditure is to accomplish a public purpose of the school district, not to benefit private parties; (2) retains sufficient control over the public funds to ensure the public purpose is accomplished; and (3) ensures the school district receives a return benefit. Whether a particular expenditure satisfies this three-part test is a determination for the school district in the first instance, subject to judicial review.

                                          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

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

[1] See Letter and Brief from Honorable Scott Brumley, Potter Cty. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Dec. 11, 2017), https://texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter" and "Brief," respectively).