Can the Texas Agricultural Finance Authority use bond proceeds to reimburse the Department of Agriculture for its administrative costs?

Plain-English summary

The Texas Agricultural Finance Authority is a state body that helps agricultural businesses get financing. The actual day-to-day work, running the programs, preparing the Authority's part of the annual report, and including the Authority in internal audits, was done by the finance division of the Texas Department of Agriculture, paid for out of the department's general-revenue appropriations. The Authority's chair asked the Attorney General whether the Authority could use the Texas Agricultural Fund, including bond proceeds and investment income, to pay the department back for that administrative help.

The Attorney General concluded it could. The Authority's enabling statute (Agriculture Code section 58.015(a)) flatly directed the board to "reimburse the Department of Agriculture for expenses incurred as required by the business of the authority" when a majority of the board approves. That settled the reimbursement question on its face. The only complication was a constitutional one: article III, section 49-i of the Texas Constitution restricts the Texas Agricultural Fund to providing financial assistance to agricultural businesses (and, for investment income, to creating agricultural and rural small-business jobs). The Attorney General read the constitutional grant of power to carry, by necessary implication, the additional power needed to make it work, including paying the administrative costs of running the assistance programs.

The opinion then walked through the specific statutes. Bond proceeds deposited in the fund could be used to pay the costs of administering a financial-assistance program (section 58.031). Repayments of financial assistance and investment income, once they were not committed to debt service or to making new loans, could likewise be used to pay the expenses of administering the fund (sections 58.032 and 58.023). Putting it together, the Attorney General held the Authority was not prohibited from using the fund, in any of those forms, to reimburse the department for administrative expenses incurred on the Authority's behalf, so long as the spending furthered the specific purposes for which the fund was created.

Currency note

This opinion was issued in 1993. 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 Agricultural Finance Authority statutes (Agriculture Code chapter 58) and article III, section 49-i of the Texas Constitution have been amended over the decades; confirm the current provisions before relying on anything described here.

Background and statutory framework

The Texas Agricultural Finance Authority operates through the Texas Agricultural Fund, which the chair described as three accounts: a program account, an interest-and-sinking account, and a reserve account. The Authority's only business is providing financial assistance through that fund. Because the Authority has no separate staff for routine administration, the Department of Agriculture's finance division did the work and the Authority asked whether it could pay the department back from the fund itself rather than leaving that cost on the department's general-revenue appropriation.

Two layers of law had to fit together. The statutory layer was permissive. Agriculture Code section 58.015(a) said the commissioner administers the Authority and the board "shall reimburse the Department of Agriculture for expenses incurred as required by the business of the authority" with majority board approval. Section 58.031 provided that eligible agricultural businesses or lenders pay the costs of applying for and administering the programs, and any costs they do not pay "shall be paid from the funds of the authority, including those funds established from bond proceeds"; it also let bond proceeds be applied to pay the costs of administering a financial-assistance program. Section 58.032 governed repayments and investment income, allowing money not needed for debt service or reserves to be used for "any other authorized purpose of the authority," and section 58.023(c) allowed the fund, including investment income, to pay the expenses of the financial-assistance program.

The constitutional layer was the limit. Article III, section 49-i(a) confines the Texas Agricultural Fund to providing financial assistance to agricultural businesses domiciled in Texas, and subsection (c) directs investment income not committed to bonds or assistance toward creating agricultural and rural small-business employment. The Attorney General reconciled the two by treating administrative costs of running the assistance programs as a power necessarily implied by the constitutional grant, citing a 1931 Texas Court of Civil Appeals decision for the principle that bond proceeds may be used in ways necessarily implied to carry out the purpose of a constitutional provision. Administering the fund is part of providing the assistance the constitution authorizes, so paying (and reimbursing) those administrative costs fell within the permitted use.

Common questions

Could the Texas Agricultural Finance Authority pay the Department of Agriculture back for running its programs?
Yes. The Authority's enabling statute, Agriculture Code section 58.015(a), directed the board to reimburse the department for expenses incurred as required by the Authority's business, subject to majority board approval. The Attorney General agreed that text supported reimbursement.

Didn't the Texas Constitution limit the fund to helping agricultural businesses?
It did. Article III, section 49-i restricts the Texas Agricultural Fund to providing financial assistance (and, for investment income, to creating agricultural and rural small-business jobs). The Attorney General read that grant to include, by necessary implication, the power to pay the administrative costs of running the assistance programs.

Could bond proceeds specifically be used for administrative costs?
Yes, to the extent the bond resolution allowed. Agriculture Code section 58.031 let bond proceeds in the fund be applied to the costs of administering a financial-assistance program, so the Attorney General concluded they could also reimburse the department for like expenses on the Authority's behalf.

What about loan repayments and investment income in the fund?
Once those funds were not needed for debt service or reserves, sections 58.032 and 58.023(c) allowed them to be used for the authorized purposes of the Authority, including the expenses of administering the fund. The Attorney General concluded they too could cover administrative costs.

Citations

Constitutional and statutory provisions discussed:

• Tex. Const. art. III, § 49-i(a), (c) (restriction on use of the Texas Agricultural Fund)
• Tex. Agric. Code § 58.015(a) (board shall reimburse the Department of Agriculture)
• Tex. Agric. Code § 58.031(c), (d) (use of fund and bond proceeds for program costs)
• Tex. Agric. Code § 58.032(c), (d) (repayments and investment income)
• Tex. Agric. Code § 58.023(c) (fund and investment income may pay program expenses)

Case discussed:

• First Nat'l Bank of Port Arthur v. City of Port Arthur, 35 S.W.2d 258 (Tex. Civ. App.—Beaumont 1931, no writ)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0255
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1993/dm0255.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

September 15, 1993

Ms. Mary Webb
Chair
Texas Agricultural Finance Authority
P.O. Box 12847
Austin, Texas 78711

Opinion No. DM-255

Re: Whether the Texas Agricultural Finance Authority may use bond proceeds from the Texas Agricultural Fund to reimburse the Department of Agriculture for administrative expenses incurred on behalf of the authority (RQ-393)

Dear Ms. Webb:

You have requested an opinion concerning the Texas Agricultural Finance Authority's ("the authority") use of the Texas Agricultural Fund ("the fund") for reimbursement of administrative costs. You advise us that the fund consists of three separate accounts: a program account; an interest and sinking fund account; and a reserve account. Currently, the only business conducted by the authority is related to the provision of financial assistance through the fund. The finance division of the Department of Agriculture ("the department") administers various programs on behalf of the authority, prepares the authority's portion of the annual report and covers the authority in its internal audits. These expenses are financed by appropriations to the department from the state's general revenue fund. You ask whether the authority is prohibited from using the fund and the investment income contained therein to reimburse the department for various administrative expenses which you state are necessary as "preparation to meet the need of providing financial assistance to the agricultural community." It is our opinion that the authority is not prohibited from making expenditures from the fund to pay for expenses incurred in administering the fund in furtherance of the specific purposes for which it was created.

The authority's enabling legislation provides that:

The commissioner with the assistance of the board shall administer the Texas Agricultural Finance Authority. The board shall reimburse the Department of Agriculture for expenses incurred as required by the business of the authority with the approval of a majority of the board.

Agric. Code § 58.015(a) (emphasis added). You have suggested that the enabling legislation, specifically the above italicized language, clearly supports the proposition that the department shall be reimbursed for various administrative expenses incurred on behalf of the authority. We agree. However, the Texas Constitution places a restriction on the use of the fund by prohibiting its use for any purpose other than to provide financial assistance to agricultural businesses. Specifically, article III, section 49-i of the constitution provides in part:

(a) The Texas agricultural fund shall be used only to provide financial assistance to develop, increase, improve, or expand the production, processing, marketing, or export of crops or products grown or produced primarily in this state by agricultural businesses domiciled in this state. . . .
. . .
(c) Income from the investment of money in the fund that is not immediately committed to the payment of the principal of and interest on the bonds or the provision of financial assistance shall be used to create new employment and business opportunities in the state through diversification and expansion of agricultural or rural small businesses, as provided by the legislature.

Tex. Const. art. III, § 49-i(a), (c) (emphasis added). The specific grant of power in article 49-i(a) carries with it by necessary implication the grant of such additional powers as may be necessary to effectuate its purpose. See First Nat'l Bank of Port Arthur v. City of Port Arthur, 35 S.W.2d 258 (Tex. Civ. App.—Beaumont 1931, no writ) (bond proceeds may be used in a manner necessarily implied to carry out purpose and intent of constitutional provision).

Furthermore, we are cognizant of the fact that the fund and more specifically, the bond proceeds may be used for reimbursement of administrative costs.

Eligible agricultural businesses or lenders participating in the authority's programs shall pay the costs of applying for, participating in, and administering and servicing the program, in amounts the board considers reasonable and necessary. Any costs not paid by the eligible agricultural businesses or lenders shall be paid from the funds of the authority, including those funds established from bond proceeds. (Emphasis added.)
. . .
Proceeds of the bonds issued under Subsection (c) of this section shall be deposited in the Texas agricultural fund and applied in accordance with the resolution authorizing the bonds:
(1) to provide financial assistance to eligible agricultural businesses;
(2) to pay costs of issuance of those bonds and the administration of any financial assistance program established with the money in the Texas agricultural fund, and
(3) together with any other available funds, to pay the principal of or interest on or to discharge or redeem, in whole or in part, any outstanding bonds issued by the authority.

Agric. Code § 58.031(c), (d) (emphasis added). It is clear that to the extent allowed by the resolution authorizing the bonds, the bond proceeds may be used to pay for the administrative expenses of the authority in the administration of authorized purposes as enunciated in article III, section 49-i of the Texas Constitution. Hence we conclude that such proceeds may also be used to reimburse the department for like expenses on behalf of the authority.

We now turn to the repayments of financial assistance and the investment income which is also contained in the fund. Section 58.032(c) of the Agriculture Code provides in part:

Repayments of financial assistance under any program funded in whole or in part with the proceeds of any series of general obligation bonds shall be deposited first in the interest and sinking account as prescribed by the board's resolutions authorizing such series of general obligation bonds, and second in the reserve account in respect of such series resolutions authorizing such series of general obligation bonds until that account is fully funded as prescribed by the board's resolutions. . . .

In addition

To the extent the board determines that any money credited to the Texas agricultural fund from repayments of financial assistance is not required by Subsection (c) of this section . . . that money may be used by the authority to pay the principal of and interest on revenue bonds issued by the authority or for any other authorized purpose of the authority, in accordance with this chapter and the authority's resolutions authorizing general obligation bonds.

Id. § 58.032(d) (emphasis added). Furthermore, article III, section 49-i(c) mandates that the investment income contained in the fund which is not obligated to the payment of the principal of and interest on the bonds or the provision of financial assistance shall be used to provide for specific agricultural purposes, as provided by the legislature. In section 58.023(c) of the Agriculture Code, the legislature provides that the fund, including investment income, may be used to pay the expenses of the financial assistance program. Hence, we conclude that repayments of financial assistance and income on investment money contained in the fund may be used to pay for the expenses of administering the fund.

SUMMARY

The Texas Agricultural Finance Authority may use bond proceeds from the Texas Agricultural Fund to reimburse the Department of Agriculture for administrative expenses incurred on behalf of the authority.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Attorney General for Litigation

RENEA HICKS
State Solicitor

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Toya C. Cook
Assistant Attorney General