The State Board of Education may invest money accruing to or currently in the public school fund pursuant to Article IX, Section 5 of the Missouri Constitution without first securing an appropriation from the General Assembly, the State Board of Education may sell securities held by the public school fund before those securities mature, and it may sell those securities at less than their original cost to the fund if a portion of the interest received from the securities purchased with the proceeds is devoted to replenishment of the principal of the fund.

SCHOOLS : SCHOOL FUNDS: STJ\'I'E BOJ\RD OF EDUCATION : The State Board of Education may invest money accruing to or cur- rently in the public schooJ fund pursuant to J\rticle IX, Section 5 oi the Missouri Constitution without first securing an appropri- ation from the General Assembly, the State Board of Education may sell securities held by the public school fund before those securities mature, and it may sell those securities at less than their original cost to the fund if a portion of the interest re- ceived from the securities purchased with the proceeds is devoted to replenishment of the principal of the fund. OPINION NO . 19 January 24, 1974 Dr. Arthur L . Mallory Commissioner of Education Departme nt of Education Jeffe rson State Office Building Jefferson City , Missouri 65101 Dear Dr . Mallory : Fl LED ICf This official opinion is in response to your request for a ruling on the following questions: "Can the State Board of Education invest money accruing to the Public School Fund and also re-invest maturing bonds belong- ing to the Public School Fund without an appropriation from the General Assembly? "Can the State Board of Education sell and re-invest existing bond holdings that have not matured to improve the financial posi- tion of the Public School Fund without an appropriation from the General Assembly? " We understand that your request is prompted by the fact that recent changes in money market conditions have made it unwise to continue hol d i ng securities purchas ed several years ago for the publ ic school fund . Before changing the portfolio of the fund, however, the State Board of Education desires an opinion on the legality of a ny such changes and the necessity for legislative approval of them . Dr. Arthur L. Mallory The public school fund (hereafter, the fund) is created in Article IX, Section 5 of the Missouri Constitution, which reads as follows: "The proceeds of all certificates of indebted- ness due the state school fund, and all moneys, bonds , lands, and other property belonging to or donated to any state fund for public school purposes, and the net proceeds of all sales of lands and other property and effects that may accrue to the state by escheat, shall be paid into the state treasury, and securely invest- ed under the s upervision of the state board of education, and sacredly preserved as a public school fund the annual income of which shall be faithfully appropriated for establishing and maintaining free public schools , and for no other uses or purposes whatsoever." The rules governing the operation of the fund are set forth in Sections 166.011 through 166 . 111, RSMo . These section~ in brief , provide that the State Board of Education shall invest the money held in the fund (Section 166.011), that the State Trea- surer i s the custodian and trustee of the money and securities held by the fund (Sections 166.021 through 1 66 . 031), and that the Director of Revenue has the authority to accept gifts to the fund which he shall turn over to the Treasurer (Sections 166.061 through 166.111) . Income from the investments owned by the fund is paid into the state treasury , credited to the state school moneys fund, and appropriated for the support of free public schools in this state (Sections 166.011, 166 . 051). I Because both of your questions inquire as to the necessity for legislative appropriations for the public school fund , we shall deal with this problem first. The framers of the Missouri Constitution set down the general rule that no money may be paid out of the state treasury in the absence of a corresponding "ap- propriation made by law ." This conclusion arises from the opera- tion of three constitutional provisions. The first is Article III, Section 36 , which provides in part as follows: "All revenue collected and money received by the state shall go into the treasury and the general assembly shall have no power to di- vert the same or to permit the withdrawal of money from the treasury, except in pursuance of appropriations made by law .... " - 2 - Dr . Arthur L. Mallory The second , Article IV, Section 15, provides : "The state treasurer shall be cu8todian of all state funds. All revenue collected and moneys rece ived by this state from any source whatsoever shall go promptly into the state treasury, and all interest, income and re- turns therefrom shall belong to the state . " Finally, Article IV, Section 28, states : "No money shall be withdrawn from the state t reasury except by warrant drawn in accor- dance with an appropriation made by law, nor shall any obligation for that payment of money be incurred unless the commissioner of administration certifies it for payment and certifies that the expenditure is with- in the purpose as directed by the general assembly of the appropriation and that there is in the appropriation an unencumbered bal- ance sufficient to pay it. " Since Article IX, Section l(a), establishes public schools as a state responsibility , and Article IX, Section 5, requires certain types of money received by the state to be paid into the treasury for the fund, it is clear that these quoted pro- visions requiring appropriations apply to the fund. Compare State ex rel. Thompson v. Board of Regents for Northeast Missouri State Teachers' College, 264 s.w. 698 (Mo . Bane 1924), with Petition of Board of Public Buildin s, 363 S.W . 2d 598 (Mo. Bane 1962 . However , appropriat1on made by law'' does not necessar- ily mean " appropriat ion made by statute ," and an appropriation may be made by action of the Constitution itself. The Missouri Supreme Court has adopted the following test to be used to determine if a constitutional provision is self- executing : " . .. 'One of the recognized rules is that a constitutional provision is not self-execu- ting when it merely lays down general princi- ples, but that it is self- executing if it supplies a sufficient rule by means of which the right which it grants may be enjoyed and protected , or the duty which it imposes may be enforced, without the aid of a legislative - 3 - Dr. Arthur L. Mallory enactme nt. * * * Another way of s tating this gene r:-tl, <JOVC'rn i ng pr incipl <' is tha t .:1 con s ti - tub o n,ll provi.s i o n is self- l' X<'cu l i nq i f llwrc' i s noLhjn<J t o b<' done by thl' lcqisl .:-~Lu r\' Lo put it i.n operilti on. " S t ate ex rcl. City of Fulton v. Smith , 194 S .W.2d 302, 304 (Mo. Bane 1946). While the court in the above case was concerned with whether the Constitution gave cities the power to issue and sell bonds in the absence of any statutory provisions on the subject , the rule may also be applied to questions dealing with appropriations. The test to be applied is whether the terms of the Constitution determine the distribution of the funds without reference to l eg- islative action. The Missouri Supreme Court has held on at least two occasions that the provisions of the Constitution designating certain money for the support of education are self-executing . In Gross v. Gentry County , 8 S.W.2d 887 (Mo . Bane 1928), the court said, in reference to the provision now found at Article IX, Section 7: "Incidentally it may be said that , since the adoption of section 5 of article 9 of the Constitution of 1865, which was contin- ued in force in section 8 of article 11 of the Constitution of 1875 , the legal neces- sity of the enactment of statutes directing the disposition of funds arising from fines, penalti es , and forfeitures has not existed, except to give formal legislative recogni - tion to the constitutional provision in regard thereto . This provision is affirma- tive in its nature and direct in its terms; it consists simply in a mandatory declara- tion as to the disposition that is to be made of the public funds designated, and is self-executing. 11 8 S.W.2d at 889-890. Similarly, the court in New Franklin School Dist. No. 28 v. Bates, 225 S.W . 2d 769 (Mo. 1950), held that twenty-five percent of all state revenue stands appropriated for the support of pub- lic schools by action of Article IX, Section 3. Applying the principles of these cases to the problem before us, we conclude that those provisions of Article IX, Section 5, dedicating certain money to the public school fund are self- executing, and that this money becomes part of the fund upon - 4 - Dr. Arthur L . Mallory receipt by the treasurer without the necessity of legislative ~1ction or appropriation , <tnd it may be inunediatcly invested by Llw State Board of Educ.:tlion. This conclusion is required because the Constitution allows no room for legislative discretion con- cerning this money. If money described by one of the categories enumerated in Section 5 is received by the state , the legislature does not have the power to devote it to any use other than the fund, and the legislature also lacks the power to decline to turn it over to the fund. Therefore, in the words of the City of Fulton case quoted above, "there is nothing to be done by the legislature to put it in operation. " This conclusion applies both to money accruing to the fund and to money already in the fund. When a bond held by the fund matures or is sold and the principal is returned to the fund, this money is not subject to legislative action . Rather, it, too, may be reinvested by the State Board of Education without an appro- priation . Therefore, it is our opinion that an appropriation by the legislature is never necessary with regard to money devoted by the Constitution to the corpus of the public school fund, since the constitutional provision creating the fund is self-executing . II The other problem raised by your opinion request is whether the State Board of Education has the power to sell securit ies held by the fund before they mature , and if so , does the State Board have the power to sell those securities at a l oss . The two statutory provisions relevant to our inquiry here are Sections 166.011 and 166.021 , RSMo .* Section 166 . 011 , r eads in part as follows : '' . . All such funds shall be paid into the state treasury and securely invested by the state board of education , and sacredly pre- served as a public school fund, the annual income of which shall be fai thfully appropri- ated for establishing and maintaining free public schools and for no other uses or pur- poses whatsoever." *It should be noted that the legislature retains power to regu- late the operational details of a self-executing constitutional provision. State e x rel. City of Fulton v. Smith, s upra. - 5 - Dr. Arthur L. Mallory s~ction 166 . 021 , reads as follows : "1. 7\ll funds accruing to the state public s chool f und, except the interest on the fund, shrtll be i nvested by the state board of edu- cation i n registered bonds of the United Stote:, or the state , bonds of school dis- tricts of the state , or bonds or other se- curities payment of which is fully guar anteed by the United States, of not l e ss than par value. "2. Whe never the state board of education contracts with the seller of any such bonds or securities , the board shall requis i tion and the state comptroller shall approve and forthwith issue a warrant upon the state treasurer for the purchase price agreed upon, payable out of the state public school fund, in favor of the seller . "3. All bonds or securities so purchased s ha ll be made payable to, or be regjstered in the nam~ or, Lhe state treas ur c..:: r as trus t ee of th e s t.-1 tc pul> 1 i c school f und and s hall be deposile d as part of the state public school fund with the state treasurer who shall give his receipt therefor to the board of educa- tion." The limitations in Section 166.021(1) are intended to make the money inves t ed in the fund as secure as possible by restrict- ing investments to government bonds and government-guarantee securities, and then only to those bonds not selling at discount. The duties of the board are not limited to caring for the safety of the fund, however. The fund exists to produce income for the support of the public schools, Article IX, Section 5, and the board must see that the money is invested productively. Thus the board' s duty is to purchase securities which will produce the maximum return consistent with the safety of the money in the fund . This duty is a continuing one . The board' s responsibilities with respect to the manageme nt of the public school fund a re in many respects paralle l to those of the trustee of another' s f unds , a nd a trustee mus t always monitor the money in his custody . As explained by Professor Scott in his treatise on the law of trusts: - 6 - Dr. Arthur L . Mallory "The mere f~ct that when the trustee receives or makes a n investment it is a proper trust investment docs not relieve him of all f urther responsibility . He is under a duty to see whether it continues to be a proper trust investment. Ordinarily he need not make as complete an investigation as he was under a duty to make originally, and he need not ~atch the ticker as a speculator would . It is his duty , however, from time to time to examine the state of the investments to see whether any of them have become such that it is no longer proper to retain them . "Where the i nvestments, ... have ceased to be proper investments , it becomes the duty of the trustee to dispose o f them, within ~ reasonable time. " III Scott, Law of Trusts, Third Edition, Sec . 231, p . 1882 . Ther efore , when the board reviews the portfo lio of the fund and concludes either that a security is no longer safe or that the income of the fund could be improved without increasing risk by shifting the fund ' s holdings, the board has the duty to dispose of the offending bonds or securities. We believe further that the board may exercise this duty con- sistently wi th the Constitution and the statutes . Only two state courts have discussed the problem of the legal investment powers of the trustees of stat e school funds in recent years , and they reached exactly contrary conclusions . In Schelle v . Foss , 83 N.W. 2d 847 (S . D. 1957), the relevant constitutional provisions pro- vided that the money i n the funds "shall be invested by the Corn- missioner of Public Lands" and that "the principal [of the f und] shall forever remain involate, and may be increased but shall never be diminished ... " The court held that the first of these provisions contained no implied power to sell securities once they are purchased, and that in any event the second pro- hibited a sale for less than the purchase price . In In re Montana Trust and Legacy Fund, 388 P. 2d 366 (Mont . 1964) , on the other hand, the court held that a constitutional provision stating that the "public school fund shall forever remain inviolate, guar- anteed by the state against loss or diversion , to be invested , so far as possible, in public securities within the state," did not prohibit the sale of securities at a l oss before maturity . Both of these cases cite the same precedents , and we have examined the legal reasoning of each ; we believe the Montana case is more soundly reasoned . - 7 - Dr. A~thur L . Mallory I n djscussing the implied power to sell securities as neces- sari ly i mplied from the express power to make i nves tme nts , the court in the Montana Trust and Legacy Fund case s aid : " . we are aware of no cogent reason why the general authority of investment and admin- istration of funds should not include the au- thority to administer investments in a manner consistent with the realities of the secur- i ties market. See 2 Scott , Trusts, § 186 (2d ed. 1956). Indeed, we should be most reluctant to announce a rule which would pre- clude the appropriate state authorities from being able to take advantage of a "better deal," so long as it may likewise be classed as a safe and conservative investment. Be- cause of the constitutional and statutory limitations respecting the type of securi- ties which may be purchased, we do not be- lieve our position throws the door open to dangerous speculation ." 388 P.2d, at 370. The court then discussed the problem of whether the constitu- t ional requirement that the f und ''remain inviolate" (s imilar to Missouri ' s requirement that it be "sacredly preserved") prevented s ales of securities at a l oss : " ... The question presented by these provi- s ions is whether the announced rule of invio- lability of the funds is an absolute prohi- bition against the incurrence of a short term diminution of principal (by selling securities at less than face value or purchasing at a premium) . We conclude the answer is in the negative. Bearing in mind that the purpose of the funds is to help finance this state ' s educational institutions with income gener- ated therefrom, we do not believe the framers of the Constitution intended to establish a rule which could, under some circumstances , defeat that purpose. There is no doubt but that the varying yield values of different securities render it prudent at times to take a temporary loss of principal in return for a greater realization of income (of course , the measurement of jncome yield must be made in light of the necessity of allocating a - 8 - Dr. Arthur L. Mallory portion thereof to restoration of l ost prin- cipal.) Therefore, we do not construe the word ' inviolate ' as prohibiting the sale of securities at less than purchase price or face value or the purchase thereof at a pre- mium, provided the income gain resulting from such transactions is partially used to restore the temporary loss of principal .... " 388 P.2d, at 370. The allocation of interest to the restoration of principal does not violate the constitutional command that the income of the fund be appropriated for establishing and maintaining free public schools . The Montana court discussed this problem in the following language: "We are mindful of the following sentence in Section 12 , Article XI , Constitution of Montana: ' The interest of said invested funds [of the state educational institutions ] * * * shall be devoted to the maintenance and perpetua- tion of these respective institutions '. In our opinion, this mandate is satisfied wheth- er the interest is devoted directly or indi- rectly to the maintenance and perpetuation of those institutions. In other words, we [do] no t believe the constitutional require- ment is violated by an allocation of some interest toward restoration of a temporary loss of principal when the overall effect of the plan is to improve the income posture of the funds. Such allocation of income is certainly, in the long run , in the interest of maintaining and perpetuating the insti- tutions for whose benefit the funds exist . " 388 P.2d , at 371. Accord, Moses v . Baker , 299 N. W. 315 , 31 6 , 317 [2] (N.D. 1941) . We find the same considerations which guided the Montana court to be present here . Interest rates are at historically high levels, and we are advised that the sale of some of the older securities will increase the total income of the fund s ubstantially without any long-term depletion of the corpus of the fund. We believe that the powers given to the State Board - 9 - Dr. Arthur L . Mallory of Education by the Con~titution would permit it to sell secur- itiC's with low int0rest r.-:1tes and purchase securities with hiqher interest rates so long uS a portion of the incrcused inconw is userl to replenish the principal over a reasonable span of years. Although Sections 166 .011 and 166 . 021 , RSMo 1969, contain lan- guage which could be read as in conflict with the Constitution on this point, these sections may be fairly construed consistently with the constitutional grant of authority to sell securities, and where more than one construction of a statute is possible, that one most in accord with the Constitution should be adopted. State ex rel . State Hi hwa Commission v. Paul, 368 S.W . 2d 419 Mo. Bane 1 63 . T ere ore, we conclude that the State Board of Education may exercise all the powers granted to it in Article IX of the Constitution. CONCLUSION It is, therefore, the opinion of this office that the State Goard of Education may invest money accruing to or currently in the public school fund pursuant to Article IX, Section 5 of the Missouri Constitution without first securing an appropriation from the General Assembly , that the State Board of Education may sel l securities held by the public school fnnd before those secu- rities mature , and that it may sell those securities at less than their original cost to the fund if a portion of the interest received from the securities purchased with the proceeds is devoted to replenishment of the principal of the fund. This opinion, which I hereby approve , was prepared by my assistant, Richard E. Vodra. Very truly yours , JOHN C. DANFORTH Attorney General - 10 -