Require Certain State Agencies to Move their Funds into the General Revenue Fund in the State Treasury

The state should require the Board of Pharmacy, the State Advisory Commission on Emergency Communications and the Board of Medical Examiners to move their funds into the General Revenue Fund in the State Treasury.

Several state agencies and institutions of higher education have statutory authority to retain certain specific funds in local bank accounts, however, the recommendations listed below are addressed only to specific state agencies. (See Table 1.) In additio n, the funds outside the Treasury referenced in this recommendation do not include petty cash accounts which most agencies hold and a separate statute governs. 1

Table 1 State Agencies Authorized to Hold Funds Outside the State Treasury

Funds Held
Outside State Treasury Percent
State Agencies (FY1992 Balances)** of Total

Department of Housing and Community Affairs* $380,017,636 43.71%
National Research Laboratory Commission* 200,000,000 23.00
Water Development Board* 136,800,000 15.73
Department of Transportation 97,000,000 11.16
Firefighters' Pension Commissioner 12,000,000 1.38
Department of Mental Health & Mental Retardation 10,448,601 1.20
Advisory Commission on Emergency Communications* , + 8,800,000 1.01
Teacher Retirement System 8,400,000 0.97
State Bar of Texas + 3,595,138 0.41
National Guard Armory Board 3,300,000 0.38
Department of Criminal Justice (Windham Schools) 2,935,070 0.34
Department of Banking* 1,704,810 0.20
General Land Office 1,012,000 0.12
Secretary of State 850,000 0.10
Board of Pharmacy 627,630 0.07
Youth Commission 502,178 0.06
Board of Law Examiners + 400,000 0.05
Board of Medical Examiners 193,146 0.02
Workers Compensation Commission* 180,000 0.02
Parks and Wildlife Department 167,006 0.02
Department of Commerce* 56,552 0.01
Soil and Water Conservation Board 36,000 0.00

Total $869,445,346 100.00%

* Texas Treasury Safekeeping Trust Company manages these funds.
+ Agencies that are not appropriated funds in the General Appropriations Act.
** Telephone survey of selected agencies.

When the Legislature creates state agencies, their governing statutes often state where the agencies funds are to be deposited. If the statute is silent on the funds disposition, the State Funds Reform Act generally becomes the governing statute. However, one Legislature cannot bind another, and thus, statutes passed after the Funds Reform Act may not necessarily be bound by the act. The act states: (a) Fees, fines, penalties, taxes, charges, gifts, grants, donations, and other funds collected or received by a state agency under law shall be deposited in the treasury, credited to a special fund or funds, and subject to appropriation only for the purposes for which they are otherwise authorized to be expended or disbursed. 2 (emphasis added)

Agencies historically have been authorized to hold certain funds in local bank accounts for a variety of reasons. The most common reasons are: funds locally held are not subject to the state s bureaucratic purchasing processes which provides greater spending flexibili ty; funds are held in trust for a specific person or narrow purpose; funds are not appropriated by the Legislature, thus there is no reason to put the funds in the Treasury; fear that if the funds are held in the Treasury, the Legislature will sweep the funds or fund balances for other purposes than originally collected or appropriated, or investment yield is higher than the Treasury s.

However, numerous reasons exist why agencies should be required to place funds in the Treasury. For instance, agencies who have funds in the Treasury are ensured that their funds are managed appropriately and investment yields are maximized to benefit the funds recipients. In addition, agencies are more easily held accountable by the Legislature since the funds can only be spent in accordance with state laws.

Of the 20 state agencies with funds held in local bank accounts, it appears there is sufficient justification to suggest that three of the agencies should be required to move their funds from local banks to the State Treasury.

Of the three agencies, one the Advisory Commission on Emergency Communications is not governed by the General Appropriations Act nor are the funds appropriated by the Legislature. The other two agencies the Board of Medical Examiners and the Board of Pharmacy have locally held funds that are appropriated in the General Appropriations Act.

Board of Pharmacy
In the case of the Board of Pharmacy, the Comptroller s office has established special procedures for the board to ensure that their expen ditures do not exceed their appropriation and that the board complies with all state laws and regulations governing state expenditures. These special procedures are inefficient requiring the board to transfer its funds to a special account in the Treasury against which state vouchers are processed.

The process could be greatly simplified if the board simply placed their funds in the Treasury and processed vouchers against those funds, just as other state agencies are required to do. In addition, the board s funds are placed in a checking account that earns interest and invested in certificates of deposit. The Treasury, on the other hand, has greater latitude and expertise to invest funds. It appears that the board s investment yield would be enhanced if the funds were placed in the Treasury and the cumbersome procedures for processing vouchers could be eliminated.

Board of Medical Examiners
In the case of the Board of Medical Examiners, the State Auditor s Office (SAO) conducted an investigation in 1990 du e to financial irregularities. The SAO recommended that the board should be required to move its funds into the Treasury in accordance with the State Funds Reform Act. 3 In addition, the Treasurer requested an Attorney General s Opinion as to the disposition of the board s funds. 4

The Attorney General ruled that the State Funds Reform Act was not applicable to the fees, except annual registration fees, collected by the board. The ruling was based on a determination that revisions to the Funds Reform Act we re not substantive and that although the provision which originally exempted the board from the act was deleted, the original intent had not changed. This determination is guided by a Texas Supreme Court ruling which states when a conflict exists between a former statute and a revision made pursuant to the legislature s directive to the Texas Legislative Council to make a nonsubstantive revision of the statutory law, the former statute will control. 5 (emphasis added)

The opinion also stated that all annual registration fees collected by the board, must, however, be deposited in the Treasury pursuant to section 3.10 (a) of the Medical Practice Act, Article 4495b, V.T.C.S. 6 To date, the Board of Medical Examiners has refused to comply with the Attorney General s Opinion.

Advisory Commission on State Emergency Communications
The Advisory Commission on State Emergency Communications was created by H.B. 911 enacted by the 70th Legislature. Two fees were authorized by the statute. One fee of up to 50 cents pe r month is assessed on telephone users in certain areas, varying by region. The funds collected by the telephone service provider is given to regional planning commissions for distribution to county public agencies to furnish 9-1-1 services. The second fee is a surcharge on every telephone customer receiving intrastate long-distance service at a rate not to exceed one-half of one percent of charges for intrastate long distance service. The revenue from this fee is deposited in an account in the Treasury Saf ekeeping Trust Company to pay for the commission s annual administrative costs ($1.43 million per year) and for allocations to each regional planning commission to use in carrying out regional plans.

The disposition of the surcharge on long-distance service collected by the commission came under dispute subsequent to enactment by the Legislature.

The Comptroller s office contended that the commission did not have authority to retain the surcharge fee outside the Treasury. The Comptroller requested an Attorney General s Opinion in 1988 to clarify this issue. The argument hinged on the meaning and interpretation of Section 6(b) of article 1432f, which states The advisory commission shall manage the surcharges outside the state treasury until they are allocated to regional planning commissions. The advisory commission may retain from surcharges collected under this section the amount necessary for the advisory commission to carry out its duties under this Act. 7 (emphasis added)

The Attorney General s Opi nion ruled that Section 6(b) of Article 1432f, allowing the surcharges to be kept outside the treasury, was enacted after the State Funds Reform Act. The ruling was based on interpretation of Section 311.026(b), Government Code which provides that if a general provision of law irreconcilably conflicts with a special provision, the special provision prevails, unless the general provision is the later enactment and the manifest intent is that the general provision prevails. 8 Thus, the opinion ruled that the fees could be retained outside the State Treasury.

Although the enabling legislation did not require an appropriation by the Legislature for the commission to operate, it appears that the executive management of the commission reached an agreement with the Comptroller s office to seek appropriations at the next legislative session. The commission has yet to seek an appropriation and the Legislature, thus far, has not required the commission to make such a request.

The commission operates like any other state agency its employees are members of the Employees Retirement System, earn compensatory time and received the pay raises authorized by H.B. 1, General Appropriations Act. The agency is also subject to the Texas Sunset Act and files an annual financial report as required by Article V of the General Appropriations Act. The exception is the agency s funds are not appropriated by the Legislature.

It would appear that it is in the best interest of the taxpayers that the Legislature place the commission under the General Appropriations Act and move its funds into the Treasury. It is believed that the Legislature s original authorization for the agency to exist outside the Treasury and appropriations process was intended to provide the commission maximum lati tude in meeting its objective to provide every county in Texas access to 9-1-1 services. Given that the commission has largely met its objective 226 counties of the 230 eligible have 9-1-1 services it seems appropriate that the Legislature regain its oversight of the commission s activities.

In addition, it is questionable whether a state entity that administers a statewide tax should be allowed to operate without legislative oversight of its budget and taxing authority. Given the philosophy of the state strategic plan and related budget refor m, it seems appropriate that the Legislature place the commission under the same rules so that it can be determined whether or not the commission s ongoing strategies and goals assist the state in meeting its overall goals and objectives.

A. The Legislature should statutorily require the Board of Pharmacy, the Advisory Commission on Emergency Communications and the Board of Medical Examiners to move all funds held in local bank accounts into special accounts in the General Revenue Fund in t he Treasury beginning September 1, 1994.

B. The Legislature should make appropriations for the Advisory Commission on Emergency Communications in the General Appropriations Act for the 1994-95 biennium.

The Advisory Commission on Emergency Communications should be required to submit Legislative Appropriations Requests to the Legislative Budget Office and the Governor s Office of Budget and Planning biennially and to conform to the requirements of the State Strategic Plan authorized by H.B. 2009, 71st Legislature.

C. The Legislature should require the Funds Review Advisory Committee (established by Senate Bill 3, 71st Legislature, Second Called Session) to review state agencies and higher education institutions w ith funds held outside the Treasury and make a recommendation to the 74th Legislature on the disposition of those funds.

The committee could produce a report that would provide the Legislature guidelines on when funds should be allowed to be deposited to locally held bank accounts and those which would benefit from being deposited to the Treasury. Additionally, the committe e could recommend which funds held outside the Treasury should be moved into the Treasury.

The Legislature will be better assured that the funds spent by the Advisory Commission on Emergency Communications are spent to achieve the missions and goals of the state. The taxpayers will benefit from the Legislature s oversight of a state agency that administers a statewide tax. The agencies and beneficiaries of the funds will benefit from the expertise of the Treasury in investing the funds since investment earnings should be increased.

Fiscal Impact
The gain to the General Revenue Fund is based on the balances in the locally held funds that will be placed in the Treasury and the additional interest that will be earned. Due to the operation of the state s fiscal system, this would result in a one-time gain in amounts available for certification by the Comptroller.

Fiscal Gain to the General Change
Year Revenue Fund 001 in FTEs

1994 $10,256,000 0
1995 675,000 0
1996 686,000 0
1997 688,000 0
1998 678,000 0

1 V.T.C.A., Chapter 403.241, Subchapter K, Petty Cash Accounts.
2 V.T.C.A., Chapter 404.094, Funds Reform Act.
3 Texas Sunset Advisory Commission, Special Investigative Report, Results of the Investigation of Certain Alleged Financial Errors or Irregularities at the Texas State Board of Medical Examiners, Austin, Texas, April 1990, p. 27.
4 Treasurer Ann W. Richards, Request for Attorney General s Opinion, RQ-2115, August 29, 1990, ID# 10440.
5 Attorney General s Opinion No. JM-1230, October 5, 1990, p. 6546.
6 Ibid, pp. 6546-6547.
7 V.T.C.A., Article 1432f, Section 6(b).
8 Government Code, Section 311.026(b).