Did interest earned on Texas's Unemployment Compensation Fund belong to that fund or to the state's General Revenue Fund?

Texas AG Opinion JM-306: Unemployment Fund Interest

Plain-English summary

The Texas Employment Commission asked whether interest on the Unemployment Compensation Fund should be credited to that fund or to General Revenue. JM-306 stated: “You ask whether interest earned on money in the Unemployment Compensation Fund ... should be credited to that Fund or to the state's General Revenue Fund.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

The opinion concluded that the interest stayed with the unemployment fund. Its summary stated: “Interest earned on money in the Unemployment Compensation Fund established by article 5221b-7, V.T.C.S., should be credited to the Unemployment Compensation Fund.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

The key distinction was that the fund was not state property held within the State Treasury. Quoting the Texas Supreme Court, JM-306 described it as “a trust fund to be held out of the State Treasury, but in the hands of the State Treasurer as trustee, for the benefit of a class of employees.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Because the State Treasurer held the money as trustee, article 2543d's general direction to place certain interest in General Revenue did not apply. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Currency note

This opinion was issued in 1985. 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.

Common questions

Was the Unemployment Compensation Fund state property?

No. JM-306 said the Texas Supreme Court had determined that “the fund is not the property of the state and the money collected for the fund does not belong in the State Treasury.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Did the State Treasurer still hold the fund?

Yes, but as custodian and trustee. The opinion stated that “the State Treasurer acts as custodian and trustee of the fund.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

What did the original fund statute say about interest?

It expressly included “interest earned upon any moneys in the fund” among the fund's components. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Why did article 2543d not send the interest to General Revenue?

JM-306 relied on the established interpretation that the statute did not apply to “trust funds which are not the property of the state and which the State Treasurer holds as trustee out of the State Treasury.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

What normally happens to interest earned by such a trust fund?

The opinion stated that prior opinions consistently treated the interest as “part of the principal and part of the fund which generated the interest.” Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Background and statutory framework

The 1936 enactment created a fund “separate and apart from all public moneys or funds of this State” and directed the commission to administer it exclusively for the unemployment law's purposes. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Article 2543d generally allocated interest on time deposits held by the State Treasurer, crediting constitutional funds proportionally and sending the remainder to General Revenue subject to stated exceptions. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Friedman v. American Surety Co. of New York supplied the controlling classification of the unemployment fund as a trust outside the State Treasury. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Citations and references

• Texas Unemployment Compensation Act section 9, article 5221b-7, V.T.C.S.
• Article 2543d, V.T.C.S.
• Friedman v. American Surety Co. of New York, 151 S.W.2d 570 (Tex. 1941)
• Attorney General Opinions O-3607 (1941), M-468 (1969), H-1040 (1977), MW-82 (1979), and JM-300 (1985)

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0306
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1985/jm0306.pdf

Original opinion text

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

The Attorney General of Texas

April 9, 1985

Mr. Ed Grisham
Chairman
Texas Employment Commission
T.E.C. Building, Room 624
Austin, Texas 78770

Opinion No. JM-306

Re: Disposition of interest earned on money in the Unemployment Compensation Fund

Dear Chairman Grisham:

You ask whether interest earned on money in the Unemployment Compensation Fund established by section 9 of the Texas Unemployment Compensation Act, codified as article 5221b-7, V.T.C.S., should be credited to that Fund or to the state's General Revenue Fund. We conclude that such interest should be credited to the Unemployment Compensation Fund.

The fund in question was established in 1936 as a

special fund, separate and apart from all public moneys or funds of this State . . . which shall be administered by the Commission exclusively for the purposes of this Act. This fund shall consist of (1) all contributions collected under this Act . . . (2) all fines and penalties collected pursuant to the provisions of this act; (3) interest earned upon any moneys in the fund; (4) any property or securities acquired through the use of moneys belonging to the fund; and (5) all earnings of such property or securities.

Acts 1936, 44th Leg., 3rd C.S., ch. 402, §9(a), at 2004. Section 9(b) of that act provides that the “State Treasurer shall be treasurer and custodian of the fund. . . .” Id. Although these provisions were subsequently amended, the character of the fund has not changed. See Acts 1945, 49th Leg., ch. 347, §5, at 594.

In 1941, the Texas Supreme Court determined that the State Treasurer acts as custodian and trustee of the fund but the fund is not the property of the state and the money collected for the fund does not belong in the State Treasury. Friedman v. American Surety Co. of New York, 151 S.W.2d 570 (Tex. 1941). The Supreme Court stated that the money in the Unemployment Compensation Fund

is not the property of the state in any capacity, but is a trust fund to be held out of the State Treasury, but in the hands of the State Treasurer as trustee, for the benefit of a class of employees. . . .

Id. at 580.

Also in 1941, this office referred to the Supreme Court decision in Friedman v. American Surety Co. of New York, in determining that the designation of the unemployment fund as a trust fund and the admonition to establish a separate fund to be held apart from all public money of this state differentiates this money from the general and special funds of the state. Attorney General Opinion O-3607 (1941).

Subsequent to the act establishing the Unemployment Compensation Fund, the legislature, in 1959, enacted a statutory provision relevant to the disposition of depository interest. Article 2543d, V.T.C.S., provides, in pertinent part, that

Section 1. Interest received on account of time deposits of moneys in funds and accounts in the charge of the State Treasurer shall be allocated as follows: To each constitutional fund there shall be credited the pro rata portion of the interest received due to such fund. The remainder of the interest received, with the exception of that portion required by other statutes to be credited on a pro rata basis to protested tax payments, shall be credited to the General Revenue Fund. The interest received shall be allocated on a monthly basis.

. . . .

Sec. 3: As to the proper interpretation and application of this Article, the State Treasurer is entitled to rely upon the opinion and advice of the Attorney General.

This office previously has determined that the provision of article 2543d which directs that interest earned on money in funds in the charge of the State Treasurer be credited to the General Revenue Fund does not apply to interest on trust funds which are not the property of the state and which the State Treasurer holds as trustee out of the State Treasury. Opinions issued by this office consistently have determined that interest on such trust funds becomes part of the principal and part of the fund which generated the interest. See Attorney General Opinions JM-300 (1985); MW-82 (1979); H-1040 (1977); M-468 (1969). Cf. Attorney General Opinions MW-338 (1981); H-1167 (1978).

The Supreme Court settled the issue that the Unemployment Compensation Fund is a trust fund out of the State Treasury for the benefit of a class of employees. It is our opinion that interest earned on the Unemployment Compensation Fund should not be deposited to the General Revenue Fund pursuant to article 2543d but, instead, should be credited to the Unemployment Compensation Fund.

SUMMARY

Interest earned on money in the Unemployment Compensation Fund established by article 5221b-7, V.T.C.S., should be credited to the Unemployment Compensation Fund.

Very truly yours,

JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Nancy Sutton
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Chairman
Jon Bible
Colin Carl
Susan Garrison
Tony Guillory
Jim Moellinger
Jennifer Riggs
Nancy Sutton