Can a Texas county spend leftover road-bond money or an unused workers' compensation reserve to build a jail?

Texas AG Opinion JM-530: Road Bond Surplus

Plain-English summary

Anderson County wanted to build a new jail and asked whether it could tap two pots of leftover money to pay for it. The first was about $1.4 million in surplus from a road bond issue. In 1969 county voters approved $750,000 in road bonds under article 752a for the county's share of right-of-way and fencing on 98 miles of state and U.S. highways. Because state participation in those costs grew, the money sat unspent for a long time and piled up a large amount of interest, and the bonds were eventually paid off, leaving a surplus. The second pot was about $800,000 remaining in an account the county had built up while it was self-insured for workers' compensation from 1972 to 1984; since 1984 the county had paid premiums to the Texas Association of Counties instead. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

On the road bond surplus, the AG said no. Article 752a did contain language letting surplus be used for "any other lawful permanent improvement," which read alone might seem to cover a jail. But the statute has to be read in context. Bonds issued under article 752a are issued "as contemplated and authorized by section 52, article 3, of the Constitution," and that constitutional provision lets the Legislature authorize county bonds only for a short list of purposes: improving rivers and streams, building water projects like reservoirs and canals, and constructing roads and turnpikes. So the "permanent improvements" a road-bond surplus can fund are limited to those constitutional purposes, which do not include a jail. On top of that, a settled rule requires bond proceeds to be spent for the purposes for which the voters approved them, and a county cannot hold onto a surplus to spend on projects the voters never approved. A jail was not what these road-bond voters signed up for. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

On the workers' compensation reserve, the AG said yes. That $800,000 was never bond money or dedicated tax revenue voted for a specific project. It was simply "set aside" in a special account to pay workers' compensation costs if they came up while the county self-insured. Nothing required the county to actually spend all of it on workers' compensation, and there was no guarantee it would even be enough. Once the county stopped self-insuring and the purpose for the reserve ended, the AG saw no obstacle to returning the unused money to the general fund, from which it could be spent on any proper county purpose. Counties have statutory authority to build jails, so the jail qualifies. The AG added that it was not improper to have funded part of the reserve from the road and bridge fund, because a county may consolidate its constitutional funds or move money from the road and bridge fund into the general fund. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Currency note

This opinion was issued in 1986. The statutes it construes have changed: article 752a was repealed in 1983, the county workers' compensation statutes (articles 8309c and 8309h) and the county-powers statute (article 2351) have been recodified, largely into the Labor Code, Government Code, and Local Government Code. Treat this page as historical context, not current legal advice. Verify the current statutes before relying on any specific section number mentioned here.

Common questions

Can a county use leftover road-bond money for a non-road project like a jail?

No. The AG concluded that surplus from road bonds issued under article 752a can be spent only on the purposes article III, section 52 of the Texas Constitution allows counties to bond for (roads and certain water projects), and that bond proceeds must go to the purposes the voters approved. A jail is not one of those purposes. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Why doesn't the phrase "any other lawful permanent improvement" let the county spend it on a jail?

Because that phrase must be read in context. The AG explained that article 752a bonds are issued as contemplated by article III, section 52, so the "permanent improvements" it allows are limited to the constitutional bond purposes. Reading the phrase broadly would let a county circumvent the voters' expressed will by keeping a surplus for unvoted projects. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Can the county spend the money left in its old workers' compensation reserve on a jail?

Yes. The AG concluded that the money was merely set aside in a reserve for workers' compensation costs if needed, with no requirement that it all be spent that way. Once the county stopped self-insuring and the reserve's purpose ended, the unused money could return to the general fund and be spent for any proper county purpose, and counties have authority to build jails. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Did it matter that some of the reserve came from the road and bridge fund?

No. The AG explained that county expenditures ordinarily come from the general fund, but a county may consolidate its constitutional funds or transfer money from its road and bridge fund into its general fund, so it was not improper to have set aside road and bridge fund money for workers' compensation, or to return the unused balance to the general fund. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Background and statutory framework

The road-bond analysis turned on reading article 752a together with the constitution. Article 752a authorized counties and their subdivisions to issue road bonds "as contemplated and authorized by section 52, article 3, of the Constitution," and provided that any surplus left in the sinking fund after the bonds were paid could be used for roads "or for any other lawful permanent improvement." Article III, section 52 limits county bonds to three categories: improving rivers, creeks, and streams; building water projects (pools, lakes, reservoirs, dams, canals, waterways); and constructing roads and turnpikes. Reading the statute as a harmonious whole (State ex rel. Childress v. School Trustees of Shelby County), the AG limited the surplus's permissible uses to those constitutional purposes. The AG reinforced this with the rule that bond proceeds must be spent for the purposes for which they were voted (Lewis v. City of Fort Worth; Madeley v. Trustees of Conroe Independent School District), and that a governing body may not arbitrarily repudiate pledges the voters relied on (Hudson v. San Antonio Independent School District; Devorsky v. La Vega Independent School District; Inverness Forest Improvement District v. Hardy Street Investors; compare Garcia v. Duval County). Because two versions of article 752a were adopted in 1955, the later-enacted (chapter 113) version controlled to the extent of any inconsistency (Wright v. Broeter). Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

The workers' compensation analysis was different because that money was a reserve, not voted funds. County workers' compensation for self-insured counties was authorized first under article 8309c (section 16, repealed 1973) and then article 8309h, both allowing a county to set aside an amount for workers' compensation costs in a separate account. County expenditures ordinarily must be paid from the general fund unless a law charges them to a special fund (Bexar County v. Mann), but a county may consolidate its four constitutional funds or transfer road and bridge fund money into the general fund (see article VIII, section 9; Attorney General Opinion MW-516). Since the set-aside money was only a contingency reserve with no mandate to spend it all on workers' compensation, the AG concluded the unused balance could revert to the general fund once the county stopped self-insuring, and then be spent on a jail, which counties are authorized to build under article 2351(7). Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Citations and references

The opinion cited the following authorities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Constitutional and statutory provisions:

• Tex. Const. art. III, § 52 (county bonds); art. VIII, § 9 (county funds)
• V.T.C.S. art. 752a (county road bonds; repealed 1983)
• V.T.C.S. art. 8309c, § 16 (county workers' compensation; repealed 1973); art. 8309h (political subdivision workers' compensation)
• V.T.C.S. art. 2351(7) (county authority to build jails)

Cases:

• Wright v. Broeter, 196 S.W.2d 82 (Tex. 1946)
• State ex rel. Childress v. School Trustees of Shelby County, 239 S.W.2d 777 (Tex. 1951)
• Lewis v. City of Fort Worth, 89 S.W.2d 975 (Tex. 1936)
• Madeley v. Trustees of Conroe Independent School District, 130 S.W.2d 929 (Tex. Civ. App. - Beaumont 1939, writ dism'd judgmt cor.)
• Hudson v. San Antonio Independent School District, 95 S.W.2d 673 (Tex. 1936)
• Devorsky v. La Vega Independent School District, 635 S.W.2d 904 (Tex. App. - Waco 1982, no writ)
• Inverness Forest Improvement District v. Hardy Street Investors, 541 S.W.2d 454 (Tex. Civ. App. - Houston [1st Dist.] 1976, writ ref'd n.r.e.)
• Garcia v. Duval County, 354 S.W.2d 237 (Tex. Civ. App. - San Antonio 1962, writ ref'd n.r.e.)
• Bexar County v. Mann, 157 S.W.2d 134 (Tex. 1941)

The opinion also cited Attorney General Opinion MW-516 (1982), which appears in the reproduced text below.

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0530
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0530.pdf

Original opinion text

Best-effort transcription from a scanned PDF text layer. Minor OCR errors may remain; the linked PDF is authoritative.

The Attorney General of Texas

August 8, 1986

JIM MATTOX
Attorney General

Honorable Richard Handorf
Criminal District Attorney
Anderson County Courthouse
Palestine, Texas 75801

Opinion No. JM-530

Re: Whether Anderson County may expend surplus money from road bonds and from its workmen's compensation account to build a jail

Dear Mr. Handorf:

You ask whether Anderson County may spend certain county funds for the construction of a new jail. Your first question is whether Anderson County may spend $1.4 million in surplus from an issuance of road bonds. You explain that in 1969 the voters of Anderson County voted to issue $750,000 in road bonds pursuant to article 752a, V.T.C.S., repealed by Acts 1983, 68th Leg., ch. 288, at 1526. At the time of that bond election article 752a provided [footnote 1]:

Any county, or any political subdivision of a county, or any road district that has been or may hereafter be created by any General or Special Law, is hereby authorized to issue bonds for the purpose of the construction, maintenance and operation of macadamized, graveled or paved roads and turnpikes, or in aid thereof, in any amount not to exceed one-fourth of the assessed valuation of the real property of such county or political subdivision or road district, and to levy and collect ad valorem taxes to pay the interest on such bonds and provide a sinking fund for the redemption thereof. Such bonds shall be issued in the manner hereinafter provided, and as contemplated and authorized by Section 52, of Article 3, of the Constitution of this State. The term 'Political Subdivision,' as used in this Act, shall be construed to mean any commissioners precinct or any justice precinct of a county, now or hereafter to be created and established. Provided, when the principal and all interest on said bonds are fully paid, in the event there is any surplus remaining in the sinking fund, said remaining surplus not used in the full payment of the principal and interest on said bond or bonds may be used by the county, political subdivision of the county, or any local district that has been or may hereafter be created by any General or Special Law for the purpose of the construction, maintenance, and operation of macadamized, graveled or paved roads and turnpikes or in the aid thereof or for any other lawful permanent improvement as may be determined by the Commissioners Court of any county or the officials of any political subdivision of a county or any said road district. (Emphasis added).

Acts 1955, 54th Leg., ch. 113, §1, at 393.

[Footnote 1: The original version of article 752a was adopted in 1926. Acts 1926, 39th Leg., ch. 16, at 23. In 1955 the legislature adopted two separate amended versions of article 752a. Acts 1955, 54th Leg., ch. 113, at 393, and Acts 1955, 54th Leg., ch. 69 at 348. Both versions appeared in Vernon's Texas Civil Statutes. The version of article 752a set out in the text of this opinion is the version that appeared in chapter 113. The first paragraph of the other version was essentially the same except that it did not contain the words "or for any other lawful permanent improvement." Both versions passed the Senate on the same day. After that, the chapter 113 version, which is the version set out in the text of this opinion, passed the House later than the other version. Therefore, to the extent that the versions are inconsistent, the chapter 113 version controls. See Wright v. Broeter, 196 S.W.2d 82, 85 (Tex. 1946) (later-enacted statute controls).]

The election order for the 1969 bond election stated that the voters would be voting on the following proposition:

WHETHER or not the bonds of said Anderson County, Texas, shall be issued in the amount of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000), to bear interest at a rate not to exceed the maximum prescribed by law at the time of issuance, and to mature serially over a period of not to exceed TWELVE (12) years from the date thereof, in conformity with the Constitution and laws of the State of Texas, particularly Section 52 of Article III of the Constitution, as amended, for the purpose of the construction, maintenance and operation of macadamized, graveled or paved roads and turnpikes or in aid thereof, in Anderson County, Texas; and shall ad valorem taxes be levied on all taxable property in said County subject to taxation for the purpose of paying the interest on said bonds and to provide a sinking fund for the redemption thereof at maturity. (Emphasis added).

You also sent us a copy of a "Proposed Election Hand-out." That handout states:

Proceeds of the bond issue will be used to finance the County's participation in Right-Of-Way and fencing of 98 miles of U.S. and State highways. The State of Texas shares equally with the county in the purchase of R-O-W and fencing of the same. This 98 miles of R-O-W and fencing involves 20 projects along State Highways #155, #294 and #819 and U.S. Highways #79, #84, #287 and Loop #256.

You inform us that the projects described in that handout were not all completed. You do not inform us who issued the handout, when it was issued, or how it was distributed.

You also provide the following information:

The $750,000.00 voted in the Bond Election was eventually spent on right of way costs but . . . due to the increased amount of state participation the money was not used for a considerable length of time and it accumulated a tremendous amount of interest. The interest and principal of the Bond Election have been totally paid off.

You ask whether Anderson County may spend the surplus money on the construction of a new jail. We conclude that it may not. Standing alone, the language in article 752a that says that surplus from bonds may be used for any lawful permanent improvement might be read to allow a county to spend such surplus for any permanent improvement for which a county could lawfully spend money. However, that language must be read in context. Article 752a provides that bonds issued thereunder "shall be issued . . . as contemplated and authorized by section 52, article 3, of the Constitution of this State." That constitutional provision authorizes the legislature to authorize counties to issue bonds for the following purposes only:

(1) The improvement of rivers, creeks, and streams to prevent overflows, and to permit of navigation thereof, or irrigation thereof, or in aid of such purposes.

(2) The construction and maintenance of pools, lakes, reservoirs, dams, canals and waterways for the purposes of irrigation, drainage or navigation, or in aid thereof.

(3) The construction, maintenance and operation of macadamized, graveled or paved roads and turnpikes, or in aid thereof.

Because article 752a is based on article III, section 52, of the constitution, we think that the type of permanent improvements for which surplus from bonds may be spent is limited to the purposes for which article III, section 52, allows counties to issue bonds. See State ex rel Childress v. School Trustees of Shelby County, 239 S.W.2d 777, 781 (Tex. 1951) (all sections of a bill should be read so as to present a harmonious whole). Also, we think that a narrow reading of article 752a makes sense in light of the well-established rule that proceeds of bonds must be spent for purposes for which they were voted. Lewis v. City of Fort Worth, 89 S.W.2d 975, 978 (Tex. 1936). As a practical matter, there may often be some surplus after bond proceeds have been spent for the purposes for which the bonds were issued and the bonds have been retired. See Madeley v. Trustees of Conroe Independent School District, 130 S.W.2d 929, 934 (Tex. Civ. App. - Beaumont 1939, writ dism'd judgmt cor.). But we do not think that article 752a should be read so broadly that it would potentially permit political subdivisions to attempt to circumvent the expressed will of the voters in order to maintain a surplus for use on projects on which the voters have not voted.

In regard to the use of bond proceeds we also note that when an election order or pledge does not specify projects for which bond proceeds are to be used, the governing body of the entity issuing the bonds is left free to exercise its discretion in expending the funds. Hudson v. San Antonio Independent School District, 95 S.W.2d 673, 674 (Tex. 1936). In such cases, however, the governing body must not act unreasonably or arbitrarily. Lewis v. City of Fort Worth, 89 S.W.2d 975, 978 (Tex. 1936). Also, when voters have relied on orders pledging that bond proceeds will be used on certain projects, the governing body of the entity issuing the bonds may not arbitrarily ignore or repudiate those pledges. Hudson v. San Antonio Independent School District, 95 S.W.2d 673 (Tex. 1936). We express no opinion about the nature of the election handout you provided to us, but we call your attention to the following language in a 1982 Court of Appeals case:

Although it is the general rule, relied upon by appellees, that a contract or agreement made by a public agency like appellee School District is valid and binding only when adopted by a resolution or order at a meeting of the governing body and entered in its minutes, we have found no authority expressly holding that a statement to the voters designating a particular site to be purchased with the proceeds of a bond issue, made by a governing body with the power of site selection, under the circumstances and for the deliberate purpose and the effect alleged here by appellant, must be adopted at a meeting entered in the minutes of the governing body before it can officially become and be relied upon by the voters as part of the proposition submitted in the bond proposal.

Devorsky v. La Vega Independent School District, 635 S.W.2d 904, 909 (Tex. App. - Waco 1982, no writ); See also Inverness Forest Improvement District v. Hardy Street Investors, 541 S.W.2d 454, 460 (Tex. Civ. App. - Houston [1st Dist.] 1976, writ ref'd n.r.e.) (letter by directors of improvement district represented and pledged to voters that bond proceeds would be used for certain projects even though letter was not official action of the board). But see Garcia v. Duval County, 354 S.W.2d 237, 240 (Tex. Civ. App. - San Antonio 1962, writ ref'd n.r.e.).

Your second question is whether Anderson County can spend approximately $800,000 that was set aside from its general fund and its road and bridge fund for payment of worker's compensation claims. You explain that from 1972 through 1984 Anderson County chose to be self-insured for purposes of worker's compensation. In 1972 the statute governing worker's compensation for county employees was codified as article 8309c, V.T.C.S. Section 16 of article 8309c provided as follows:

Sec. 16. The county is hereby authorized to set aside from available appropriations, other than itemized salary appropriations, an amount not to exceed five per cent (5%) of the annual employee payroll of the county for the payment of all costs, administrative expenses, charges, benefits, insurance and awards authorized by this Act.

The amount so set aside shall be set up in a separate account in the records of the county, which account shall show the disbursements authorized by this Act; provided the amount so set aside shall not exceed five per cent (5%) of the annual employee payroll at any one time. A statement of the amount set aside for the disbursements from said account shall be included in an annual report made to the County Treasurer and the Commissioners Court.

Article 8309c was repealed in 1973. Acts 1973, 63rd Leg., ch. 88, at 200. It was replaced by article 8309h, which contains essentially the same provision:

(a) The political subdivision is hereby authorized to set aside from available appropriations, other than itemized salary appropriations, an amount sufficient for the payment of all costs, administrative expenses, charges, benefits, insurance, attorney fees, and awards authorized by this article.

(b) The amount so set aside shall be set up in a separate account in the records of the political subdivision, which account shall show the disbursements authorized by this article. A statement of the amount set aside for the disbursements from the account shall be included in an annual report made to the political subdivision treasurer and the duly and legally constituted governing body of the political subdivision.

V.T.C.S. art. 8309h, §7.

As background to your question, we note that all county expenditures lawfully authorized to be made by a county must be paid out of a county's general fund unless there is some law that makes such expenditures a charge against a special fund. Bexar County v. Mann, 157 S.W.2d 134 (Tex. 1941). Therefore, expenditures made out of the money set aside pursuant to article 8309c or 8309h should have come from the county's general fund. However, a county may consolidate its four constitutional funds or it may transfer money into its general fund from its road and bridge fund. See Attorney General Opinion MW-516 (1982) (discussion of county funds and article VIII, section 9, of the Texas Constitution). Consequently, it was not improper for Anderson County to set aside money from its road and bridge fund for worker's compensation purposes.

You explain that since 1984 Anderson County has not been self-insured but has paid premiums to the Texas Association of Counties. Over $800,000 remains in the account set aside pursuant to articles 8309c and 8309h. You explain that the county auditor has suggested that a certain amount be set aside for expenses that might arise in connection with claims that arose before 1984. You ask whether Anderson County may spend the remaining money on the construction of a jail. We conclude that Anderson County may do so. The money in question was merely "set aside" in a special account to be used for worker's compensation costs, if needed. There was no requirement that all the money set aside actually be spent on worker's compensation, nor any guarantee that the money set aside would be sufficient to meet the county's worker's compensation costs. The statutes merely allowed the county to set aside a reserve for potential costs. Once the purpose for the special account no longer exists, we see no impediment to returning the unused money to the county's general fund. Therefore, Anderson County may spend that money for any proper county purpose. See V.T.C.S. art. 2351(7) (counties have authority to build jails).

SUMMARY

Anderson County may not spend surplus from an issuance of road bonds on the construction of a new jail. Anderson County may spend on the construction of a new jail money set aside for worker's compensation purposes but no longer needed for such purposes.

Very truly yours,

JIM MATTOX
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee