Can Texas pay a finder's fee for tips that help recover permanent school fund property?

Plain-English summary

The Commissioner of the General Land Office asked the Attorney General about a tool the comptroller has for clawing back money and property the state is owed. Section 403.0195 of the Government Code lets the comptroller contract with a person who provides information about a possible claim the state could pursue, and pay that person a contingency fee of up to five percent of whatever the state recovers. The way the statute is built, the fee comes out of the very property recovered: up to five percent goes to the comptroller's operating fund to pay the informant, and the rest goes to general revenue or wherever the law directs. The Commissioner wanted to know whether the comptroller could use this arrangement to pay for tips that helped recover property belonging to the permanent school fund.

The Attorney General said no. The permanent school fund is an endowment the Texas Constitution sets aside for the public schools, and article VII, section 5(a) forbids any law that ever appropriates any part of it "to any other purpose whatever," with only a few narrow exceptions written into the section. The Commissioner argued that recovered property does not become school-fund property until after it is actually recovered, so a fee skimmed during recovery would not touch the fund. The office disagreed. Recoverable permanent school fund lands and property are part of the corpus of the endowment, and have to be treated that way even before they are physically recovered. So when the state recovers them, the whole proceeds must be deposited into the fund; the constitution does not allow a slice to be peeled off to pay the informant.

The office did leave one door open in theory. Article VII, section 5(c) lets the legislature appropriate part of the related available school fund "for administration of the permanent school fund," and the office thought paying for information that leads to a recovery could fit that description. But section 403.0195 only contemplated paying the fee out of the recovered property itself, not out of the available school fund, and no other statute authorized that source either. Even where a recovery included accrued interest that would go to the available school fund, tapping it would require an express legislative appropriation, which section 403.0195 was not. The bottom line: the state could not enter into a section 403.0195 contract to pay for information about property recoverable by the permanent school fund.

Currency note

This opinion was issued in 1995. 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.

Section 403.0195 of the Government Code and the Education Code's school-fund provisions have been amended and recodified since 1995. The constitutional protection of the permanent school fund in article VII remains, but the statutory details described here should be checked against current law before relying on how a particular recovery or appropriation would be handled today.

What the opinion meant for those who asked

For the General Land Office and the comptroller: The opinion concluded that the comptroller's contingency-fee contracting tool in section 403.0195 could not be used to pay for information leading to the recovery of permanent school fund property, because the constitution required the full recovered proceeds to go into the fund.

For the legislature: The opinion identified a possible alternative it did not endorse as already available: the legislature could appropriate available school fund money for "administration of the permanent school fund" under article VII, section 5(c), but only by an express appropriation, and section 403.0195 was not one.

For anyone hoping to be paid for a tip about school-fund property: The opinion meant there was no statutory mechanism to pay that fee out of the recovered property, so a section 403.0195 contract for that purpose could not be executed.

Common questions

Can the state pay a finder's fee out of recovered permanent school fund property?
No. The Attorney General concluded the Texas Constitution requires the full proceeds of recovered permanent school fund property to go into the fund, so no percentage could be diverted to pay an informant.

Why doesn't the property count only after it is recovered?
Because the office treated recoverable permanent school fund lands and property as already part of the endowment's corpus, even before physical recovery. So the recovery proceeds belonged to the fund from the start.

Could the available school fund be used instead?
In theory the legislature could appropriate available school fund money for "administration of the permanent school fund" under article VII, section 5(c). But the office concluded section 403.0195 did not authorize paying the fee from that source, and only an express legislative appropriation could.

What about accrued interest that would go to the available school fund?
The office said tapping that interest would still require an express legislative appropriation, and section 403.0195 was not sufficient to authorize it.

Background and statutory framework

Section 403.0195 of the Government Code authorizes the comptroller to contract for information about a possible claim the state may pursue to recover revenue or other property, with a fee contingent on recovery and capped at five percent. Its subsection (e) directs that up to five percent of the revenue or sale proceeds be deposited to the comptroller's operating fund to pay the consideration, with the balance going to general revenue or a special fund as required by law.

The constitutional backdrop is article VII of the Texas Constitution. Section 2 creates the perpetual school fund out of the funds, lands, and property set apart for the public schools, and section 5 governs the permanent school fund (the principal) and the available school fund (the interest and designated taxes). Section 5(a) provides that, except as the section itself allows, "no law shall ever be enacted appropriating any part of the permanent or available school fund to any other purpose whatever." Section 5(b) allows the permanent school fund and its income to back school-district bond guarantees, and section 5(c) lets the legislature appropriate part of the available school fund for administration of the permanent school fund or a bond-guarantee program. The office treated the section 2 "perpetual school fund" and the section 5 "permanent school fund" as the same thing, consistent with Education Code section 15.01(a), which describes the permanent school fund as a perpetual endowment, and a leading constitutional treatise. Section 15.01(a) and (b) of the Education Code spell out what makes up the permanent fund (including land recovered by suit and other property) and the available fund (interest, dividends, lease money, and designated tax revenue). Reading these together, the office concluded that recoverable permanent school fund property is part of the corpus before recovery, so its proceeds must be deposited in the fund, and section 5(a) bars diverting a percentage to pay a section 403.0195 fee.

Citations

Constitutional and statutory provisions discussed:

• Tex. Const. art. VII, § 2 (perpetual school fund); § 5 (permanent and available school funds; § 5(a) bar on appropriating the funds to any other purpose; § 5(c) administration appropriations)
• Gov't Code § 403.0195 (comptroller's contingency-fee information contracts; subsection (e) deposit mechanism)
• Educ. Code § 15.01(a) (composition of the permanent school fund); § 15.01(b) (composition of the available school fund)

Secondary authority discussed:

• 2 George D. Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 510 (1977)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0316
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1995/dm0316.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

January 13, 1995

Honorable Garry Mauro
Commissioner
General Land Office
1700 North Congress Avenue
Austin, Texas 78701-1495

Opinion No. DM-316

Re: whether the state may enter into contracts to pay consideration for information about property recoverable by the permanent school fund under section 403.0195 of the Government Code (RQ-714)

Dear Commissioner Mauro:

You ask whether the comptroller may enter into contracts to pay consideration for information about property recoverable by the "public free school fund" under section 403.0195 of the Government Code. Section 403.0195 authorizes the comptroller to contract with a person for the receipt of information about a possible claim that the state may be entitled to pursue for the recovery of revenue or other property. The consideration to be paid by the state must be contingent on recovery by the state and may not exceed five percent of the amount of revenue or the value of other property the state recovers as a result of pursuit of the claim. Subsection (e) provides that

[i]f the state recovers property in connection with a contract executed under this section . . ., an amount not to exceed five percent of the amount of revenue or proceeds from the sale of property recovered shall be deposited to the credit of the comptroller's operating fund for payment of the consideration. The balance of the revenue or proceeds from the sale of property recovered shall be deposited to the credit of the general revenue fund or to any special fund as required by law.

Section 2 of article VII of the Texas Constitution creates the "perpetual school fund" consisting of "[a]ll funds, lands and other property heretofore set apart and appropriated for the support of public schools . . . and all sums of money that may come to the State from the sale of any portion of the same." Section 5 of article VII describes and governs the "permanent school fund" and the "available school fund." Section 5 provides in pertinent part as follows:

(a) The principal of all bonds and other funds, and the principal arising from the sale of the lands hereinbefore set apart to said school fund, shall be the permanent school fund, and all the interest derivable therefrom and the taxes herein authorized and levied shall be the available school fund. The available school fund shall be applied annually to the support of the public free schools. Except as provided by this section, no law shall ever be enacted appropriating any part of the permanent or available school fund to any other purpose whatever; and the available school fund herein provided shall be distributed to the several counties according to their scholastic population and applied in such manner as may be provided by law.

(b) The Legislature by law may provide for using the permanent school fund and the income from the permanent school fund to guarantee bonds issued by school districts or by the state for the purpose of making loans to or purchasing the bonds of school districts for the purpose of acquisition, construction, or improvement of instructional facilities . . .

(c) The legislature may appropriate part of the available school fund for administration of the permanent school fund or of a bond guarantee program established under this section.

We refer to both the "perpetual school fund" referred to in section 2 and the "permanent school fund" referred to in section 5 as the "permanent school fund." See Educ. Code § 15.01(a) ("The permanent school fund, which shall constitute a perpetual endowment for the public free schools of this state, shall consist of . . ."); 2 George D. Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 510 (1977) (suggesting that the "perpetual school fund" and the "permanent school fund" are one and the same).

Over the years, the legislature has enlarged the permanent school fund endowment in section 15.01 of the Education Code. Pursuant to this provision, the permanent school fund consists not only of all land appropriated for public schools by the constitution, but also all the unappropriated public domain remaining in Texas, including all land recovered by the state by suit, all proceeds from the authorized sale of permanent school fund land and other property, all investments of properties belonging to the permanent school fund, and all income from the mineral development of the permanent school fund, including income from mineral development of river beds and other submerged land. Educ. Code § 15.01(a). The available school fund has also been expanded by section 15.01 to consist of

(1) the interest and dividends arising from any securities or funds belonging to the permanent school fund;

(2) all interest derivable from the proceeds of the sale of land set apart for the permanent school fund;

(3) all money derived from the lease of land belonging to the permanent school fund;

(4) all revenue collected by the state from an annual state ad valorem tax of an amount not to exceed 35 cents on the $100 valuation, exclusive of delinquencies and cost of collection;

(5) one-fourth of all revenue derived from all state occupation taxes, exclusive of delinquencies and cost of collection;

(6) one-fourth of revenue derived from state gasoline and special fuels excise taxes as provided by law; and

(7) all other appropriations to the available school fund as made or may be made by the legislature for public free school purposes.

Id. § 15.01(b).

You ask whether consideration otherwise payable pursuant to a contract under section 403.0195 of the Government Code may be paid from revenue or sale proceeds resulting from the recovery of permanent school fund property. You suggest that such monies do not become part of the permanent school fund until after the property has been recovered. We disagree. It is clear from section 2 and section 5 of article VII of the Texas Constitution and section 15.01(a) of the Education Code that the permanent school fund is a permanent endowment and that recoverable permanent school fund lands and other property are part of the corpus of that endowment, and must be treated as such, even before they are actually recovered. Therefore, in the event that the state recovers permanent school fund property, the revenues or proceeds from the sale of such property must be deposited in the fund. The constitutional provisions establishing the permanent school fund and limiting its use do not permit a percentage of the amount of the revenue or proceeds from the sale of property recovered to be deposited to the credit of the comptroller's operating fund for payment of the consideration as provided in section 403.0195 of the Government Code. Section 5(a) of article VII provides that "no law shall ever be enacted appropriating any part of the permanent school fund . . . to any other purpose whatever," with certain limited exceptions set forth elsewhere in the section. The purpose embodied in section 403.0195 of the Government Code, i.e., payment of consideration for information leading to the recovery of permanent school fund property, is not permitted by any of the exceptions in section 5 or by any other constitutional provision.

You suggest that the constitutional provisions may permit the use of the available school fund to pay the consideration owed under a section 403.0195 contract. Section 5(c) of article VII provides that the legislature may appropriate part of the available school fund "for administration of the permanent school fund." We believe that this provision permits the legislature to appropriate available school fund monies to pay consideration for information leading to the recovery of permanent school fund property. But section 403.0195 of the Government Code, which contemplates that the consideration will be paid from revenue or the proceeds from the sale of recovered property, does not authorize the consideration to be paid from other sources, such as the available school fund, nor does any other statute of which we are aware.

You specifically suggest that in cases where the recovery of property includes accrued interest that would be allocated to the available school fund, the accrued interest could be used to pay the consideration. We believe that the language in section 5(c) of article VII providing that the legislature may appropriate part of the available school fund for administration of the permanent school fund requires an express legislative appropriation. Section 403.0195 of the Government Code is not sufficient to authorize recovered available school funds to be used for this purpose.

SUMMARY

The state may not enter into contracts under section 403.0195 of the Government Code to pay consideration for information about property recoverable by the permanent school fund.

Yours very truly,

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Mary R. Crouter
Assistant Attorney General