Can a Texas school district use student activity funds to pay college scholarships for graduates?

Texas AG Opinion JM-1265: Can a School District Use Activity Funds for College Scholarships?

Plain-English summary

Schools hold a lot of money that is not tax money: proceeds from class ring sales, yearbook photos, student club and class balances, and money raised by the PTA, the band, drill team, and athletic booster clubs. Some of that money belongs to the outside organization, and the school just holds it as custodian. But under some custodial arrangements, surplus money is transferred to the district and actually becomes district property. The Commissioner of Education asked the Attorney General whether that kind of money, once it belongs to the district and is not a donation, can be used to fund college scholarships the district awards to its graduates.

The Attorney General said it can, subject to a finding by the school board. The controlling statute is section 20.48 of the Education Code, which lists the purposes local school funds may be spent on and then adds that they may be used "for other purposes necessary in the conduct of the public schools to be determined by the board of trustees." The Commissioner had wondered whether a scholarship could really be "necessary" to run a school. The opinion answered that "necessary" in this statute does not mean indispensable. Texas courts had long read the same word (in section 20.48 and its predecessor, article 2827) to allow spending on things like medical inspection, cafeterias, crossing guards, and reimbursing school board members' expenses, none of which is strictly indispensable. In this context, "necessary" means appropriate or conducive to running the schools.

Applying that, the opinion reasoned that encouraging and motivating students toward academic achievement is an appropriate function of the public schools, so it could not say as a matter of law that a scholarship could never serve a legitimate public purpose of the district. Activity or agency funds that had become district property, and were not otherwise restricted, could therefore be used for college scholarships found to be "necessary in the conduct of the public schools" within section 20.48. Two limits framed the answer: the money has to have genuinely become school property (the opinion noted it assumed this happened by contract, not by donation, since donated funds are governed separately by section 21.903), and any expenditure of public funds must serve a true public purpose, not private ends (Tex. Const. art. III, § 51). Whether a particular scholarship is "necessary" is a factual judgment the Legislature left to the board of trustees.

Currency note

This opinion was issued in 1990. 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.

Who this opinion affected (as of 1990)

School districts and boards of trustees: The opinion told districts that activity or agency funds that had become district property could be used for college scholarships if the board found the scholarships necessary in the conduct of the public schools. It placed that necessity determination squarely with the board.

The Texas Education Agency and the Commissioner: The opinion answered the Commissioner's question that a scholarship was not automatically disqualified as unnecessary, while making clear the money had to have actually become school property and the expenditure had to serve a public purpose.

Students and graduates: Where a district properly funded scholarships from qualifying activity funds, graduates could receive them; the opinion framed encouraging academic achievement as an appropriate public-school function.

Common questions

Can any activity or booster club money be used for scholarships?
No. The opinion applies only to funds that have actually become the district's property. Money that still belongs to a booster club, PTA, or student organization (with the school acting only as custodian) is not the district's to spend, and the opinion did not authorize using it.

Does a scholarship really count as "necessary" to run a school?
Under section 20.48 of the Education Code, "necessary" does not mean indispensable. The opinion read it to mean appropriate or conducive to conducting the schools, consistent with court decisions allowing spending on cafeterias, crossing guards, and similar items, and concluded encouraging academic achievement can qualify.

Who decides whether a particular scholarship is necessary?
The board of trustees. The opinion said the Legislature delegated that factual determination to the board, which exercises sound discretion in deciding whether an expenditure is necessary in the conduct of the public schools.

What if the funds were donated to the district?
Then a different statute governs. The opinion assumed the funds became school property by contract rather than donation, and noted that donated funds and their income are handled under section 21.903 of the Education Code.

Background and statutory framework

The request concerned "activity funds" or "agency funds," described in an earlier opinion (Attorney General Opinion JM-42 (1983)) as monies belonging to organizations like the PTA, bands, drill teams, and booster clubs, held by a district for safekeeping, not derived from taxes, and remaining the property of the organization while the district acts only as custodian. The Commissioner explained that such funds may also include money a school generates from class ring sales, photos, and student club and class balances, and that under some custodial agreements surplus is transferred to the district and becomes district property.

Section 20.48 of the Education Code prescribes the purposes for which public free school funds may be spent. Subsection (c) enumerates purposes for local school funds from district taxes, tuition, and other local sources, and adds that such funds may be used "for other purposes necessary in the conduct of the public schools to be determined by the board of trustees." The opinion construed "necessary" not as "indispensable" but as appropriate or conducive to conducting the schools, citing decisions that upheld expenditures like medical inspection, cafeterias, crossing guards, and reimbursement of school board members' expenses under section 20.48 and its predecessor, article 2827, V.T.C.S. (Moseley v. City of Dallas, 17 S.W.2d 36 (Tex. Comm'n App. 1929, judgm't adopted); Bozeman v. Morrow, 34 S.W.2d 654 (Tex. Civ. App. - El Paso 1931, no writ); see also Attorney General Opinions JM-490 (1986), H-133 (1973)). Whether an expenditure is necessary is a matter for the board's sound discretion (Attorney General Opinion H-133), and any expenditure of public funds must serve a true public purpose, not merely private ends (Tex. Const. art. III, § 51). A footnote noted that donated funds and their income are governed by section 21.903 of the Education Code, under which trustees may spend such funds for the donor's designated purpose or, absent one, for purposes authorized by State Board of Education rule.

Citations

Statutory and constitutional authorities:

• Education Code § 20.48 (purposes for which public free school funds may be expended; subsection (c) local funds and "other purposes necessary in the conduct of the public schools")
• Education Code § 21.903 (expenditure of donated funds and their income)
• article 2827, V.T.C.S. (predecessor to section 20.48)
• Tex. Const. art. III, § 51 (public funds must serve a public purpose)

Cases:

• Moseley v. City of Dallas, 17 S.W.2d 36 (Tex. Comm'n App. 1929, judgm't adopted)
• Bozeman v. Morrow, 34 S.W.2d 654 (Tex. Civ. App. - El Paso 1931, no writ)

Prior Attorney General opinions referenced:

• Attorney General Opinion JM-42 (1983) (describing activity/agency funds)
• Attorney General Opinion JM-490 (1986); Attorney General Opinion H-133 (1973) (scope of "necessary" expenditures; board discretion)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1265
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1265.pdf

Original opinion text

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

December 19, 1990

Dr. W. N. Kirby
Commissioner of Education
Texas Education Agency
1701 N. Congress Avenue
Austin, Texas 78701-1494

Opinion No. JM-1265

Re: Whether certain funds from school-related activities may be used by a school district to provide scholarships for graduates (RQ-2092)

Dear Dr. Kirby:

You ask whether, in the absence of a donation, locally derived monies that have become public school property may be used for college scholarships awarded by the public school district. Specifically, you refer to so-called "activity funds" or "agency funds," which you describe as the funds considered by this office in an earlier, unrelated opinion, Attorney General Opinion JM-42 (1983). In that opinion, these funds were described as follows:

[T]hose monies belonging to various organizations such as the PTA (Parent-Teachers Association), school bands, drill team clubs, and athletic booster clubs which are held by a school district for safekeeping and accounting. The monies are not derived from taxes but are generally obtained by an organization through solicitation of contributions, promotions and similar functions for the sole benefit of the organization, with such monies being the property of the organization and not the school districts. The school district merely acts as custodian of the monies.

You advise that, in addition to the above described funds, "activity funds" or "agency funds" may include funds generated by a public school from class ring sales, photos, student club and class balances, and other activities. According to your letter,

[p]ublic schools have varying arrangements with patron/student groups. In some cases surplus monies are transferred to the district and become district property under the terms of the custodial agreement; in other cases the monies remain the property of the patron/student organization and surplus can be donated to the district.

As an example, you enclose a letter from the superintendent of the Aldine Independent School District to the Texas Education Agency that describes the following fact situation:

The district manages agency funds generated by school activities. The district keeps a ledger record of the monies deposited from each activity. These commingled monies are to be used for their students, and the balance remaining in the single interest-bearing bank account is carried forward from year to year.

The superintendent's letter goes on to inquire whether interest accruing on the funds in the above-described account may be used for college scholarships. You do not explain how the interest accrued on the account described in the superintendent's letter becomes the property of the school district, but presumably, it is by contractual agreement and not by donation.[Footnote 1]

Section 20.48 of the Education Code prescribes the purposes for which funds of the public free school system may be expended. Subsection (c) of that section enumerates purposes for which "[l]ocal school funds from district taxes, tuition fees of pupils not entitled to free tuition and other local sources" may be used. (Emphasis added.) In addition to the purposes specifically enumerated, subsection (c) provides that such funds may be used "for other purposes necessary in the conduct of the public schools to be determined by the board of trustees." (Emphasis added.)

You suggest that an expenditure for scholarship purposes would not appear "necessary" to conduct a public school. Certainly such an expenditure is not "necessary" if necessary is taken to mean "indispensable." However, the word necessary as used in section 20.48 and its predecessor statute, article 2827, V.T.C.S., has been construed as permitting such expenditures as medical inspection, cafeterias, crossing guards, and the reimbursement of certain expenses incurred by school board members. See Moseley v. City of Dallas, 17 S.W.2d 36 (Tex. Comm'n App. 1929, judgm't adopted); Bozeman v. Morrow, 34 S.W.2d 654 (Tex. Civ. App. - El Paso 1931, no writ); Attorney General Opinions JM-490 (1986); H-133 (1973). Other examples could be cited. None of the expenditures in these examples is, strictly speaking, indispensable to the conduct of a public school. In the context of section 20.48, "necessary" appears to mean appropriate or conducive to the conduct of a public school rather than indispensable thereto. Accord Black's Law Dictionary 928 (6th ed. 1990) (definition of "necessary").

Determining whether an expenditure is necessary is a matter for a school board in its sound discretion. Attorney General Opinion H-133. Moreover, any expenditure of public funds must serve a true public purpose and not merely private ends. Tex. Const. art. III, § 51; see G. Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 229-36, and authorities cited therein.

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 the public schools. The use of "activity funds" or "agency funds" not being otherwise restricted, they may be used for college scholarships found to be "necessary in the conduct of the public schools" within the meaning of section 20.48 of the Education Code. The authority to make such a determination of fact has been delegated by the legislature to the board of trustees.

                   SUMMARY

       In the absence of a donation, monies derived from various organizations such as the PTA, school bands, drill team clubs, and athletic booster clubs or generated by a public school from class ring sales, photos, student club and class balances, and other activities ("activity funds" or "agency funds") that have become public school property may be used for college scholarships awarded by the public school district if such scholarships are found to be "necessary in the conduct of the public schools" within the meaning of section 20.48 of the Education Code. The authority to make such determination of fact has been delegated by the legislature to the board of trustees.

                               Very truly yours,

                               JIM MATTOX
                               Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by John Steiner
Assistant Attorney General

Footnote 1: Section 21.903 of the Education Code provides, in part:

(b) The funds or other property donated or the income therefrom may be expended by the trustees:

(1) for any purpose designated by the donor so long as that purpose is in keeping with the lawful purposes of the schools for the benefit of which the donation was made; or

(2) for any purpose authorized by rule of the State Board of Education in the event that no specific purpose is designated by the donor.