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AGO 1989 No. 14 - July 20, 1989
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Ken Eikenberry | 1981-1992 | Attorney General of Washington

STATE ‑- STATE TREASURER ‑- STATE INVESTMENT BOARD ‑- COMMISSIONER OF PUBLIC LANDS ‑- TRUSTS ‑- STATE TRUST MONEYS ‑- AUTHORITY TO INVEST PROCEEDS FROM SALE OR USE OF TRUST LANDS

1.         The State Treasurer may invest funds contained in the natural resources deposit fund established pursuant to RCW 43.85.130(1)(c), except for funds derived from the sale or disposition of public lands.

2.         The State Investment Board may invest funds contained in the natural resources deposit fund and derived from the sale or disposition of public lands, and held in a temporary depository, pursuant to RCW 43.33A.010. 

3.         The State Treasurer may, pursuant to RCW 43.84.080, invest funds in the resource management cost account (RCW 79.64.020). 

4.         The State Treasurer may, pursuant to RCW 43.84.090, deduct twenty percent of all income received from the investment of the surplus contained in the natural resources deposit fund and the resource management cost account, except for income from the investment of trust moneys; this income must be apportioned to the appropriate funds pursuant to RCW 79.64.055.

 5.         RCW 43.84.090 does not authorize the State Treasurer to deduct any portion of income received from the investment of trust funds which obtain their revenue from the management of trust lands; the Legislature could authorize such a deduction to the extent consistent with general trust principles.

                                                               - - - - - - - - - - - - - 

 [[Orig. Op. Page 2]] 

                                                                    July 20, 1989

Brian Boyle
Commissioner of Public Lands
Department of Natural Resources
Olympia, WA 98504 

Daniel Grimm
State Treasurer
Legislative Building
Olympia, WA 98504-0423 

Cite as:  AGO 1989 No. 14                                                                                                                

 Dear Mr. Boyle and Mr. Grimm:

             By letters previously acknowledged, you requested our opinion on several questions pertaining to the authority of the State Treasurer to invest funds which obtain their fund balance from management of "State lands".  We have paraphrased your questions as follows:

             1.         May the State Treasurer pursuant to RCW 43.84.080 invest funds contained in the natural resources deposit fund and the resource management cost account?

             2.         If the answer to question 1 is affirmative, may the State Treasurer pursuant to RCW 43.84.090 deduct a portion of the income from the investments to be deposited in the state general fund?

             3.         May the State Treasurer pursuant to RCW 43.84.090 deduct twenty percent of income received from investments of trust funds which obtain their revenue from management of trust lands or must the deduction be related to the cost of administering the account?

             We answer your questions in the manner set forth in our analysis.

                                                                INTRODUCTION

             Before answering your questions, it would be helpful to provide some background regarding the State's public lands.  Public lands of the State of Washington are lands belonging to or held in trust by the State, which are not devoted to or  [[Orig. Op. Page 3]] restricted to or reserved for a particular use by law, and include state lands, tidelands, shorelands, harbor areas, and beds of navigable waters.  RCW 79.01.004.  "State lands", as defined by RCW 79.01.004, include the following:

                         School lands, that is, lands held in trust for the support of the common schools;

                         University lands, that is, lands held in trust for university purposes;

                        Agricultural college lands, that is, lands held in trust for the use and support of agricultural colleges;

                         Scientific school lands, that is, lands held in trust for the establishment and maintenance of a scientific school;

                         Normal school lands, that is, lands held in trust for state normal schools;

                         Capitol building lands, that is, lands held in trust for the purpose of erecting public buildings at the state capital for legislative, executive and judicial purposes;

                         Institutional lands, that is, lands held in trust for state charitable,, educational, penal and reformatory institutions; and

                         All public lands of the state, except tidelands, shorelands, harbor areas and the beds of navigable waters.

             "State lands" are held in trust for a specific beneficiary.  the principal source of these lands was a grant by the federal government to the State in the Washington Enabling Act, ch. 180, 25 Stat. 676 (1889).  The ownership of these granted lands was acknowledged in article 16 of the Washington Constitution.  These lands are also known as "federally granted" lands.  County of Skamania v. State, 102 Wn.2d 127, 129, 685 P.2d 576 (1984).  Other lands "held in trust" by the State for a specific beneficiary are those deeded by various counties to the State after tax foreclosures pursuant to RCW 76.12.030.  See AGO 1987 No. 10.  The beneficiaries are the various grantor counties.  These lands are sometimes known as "forest board" lands.  State lands must be held, appropriated, and disposed of exclusively for the purposes for which they were granted.

             The other major category of public lands, besides State lands, is "aquatic lands".  See Const. art. 17, § 1.  Aquatic  [[Orig. Op. Page 4]] lands include tidelands, shorelands, harbor areas, and beds of navigable waters.  The State's ownership of its aquatic lands is subject to the "public trust doctrine".  These lands are held by the State in trust for the benefit of the public at large, rather than for a specific beneficiary.  SeeCaminiti v. Boyle, 107 Wn.2d 662, 732 P.2d 989 (1987).

             Under section 11 of the Washington Enabling Act, the proceeds from the sale or other permanent disposition of lands granted for educational purposes constitute permanent funds for the support and maintenance of public schools and the various state institutions for which they were granted.  These funds are to be separate from the general fund.  RCW 43.79.010.  The permanent funds are:  (1) the common school permanent fund, Const. art. 9, § 3; (2) the state university permanent fund, RCW 43.79.060; (3) the scientific permanent fund, RCW 43.79.110; (4) the agricultural permanent fund, RCW 43.79.130; and (5) the normal school permanent fund, RCW 43.79.160.

             The proceeds from the sale or permanent disposition of the capitol building lands and the institutional lands do not constitute permanent funds.  However, like the income from the land trusts and the permanent funds, such proceeds must be used exclusively for the purpose for which the underlying lands were granted.  See Washington Enabling Act, ch. 180, §§ 12, 17, 25 Stat. 676 (1889),amended by Act approved Feb. 26, 1957, Pub. L. No. 85-6, 71 Stat. 5; RCW 79.01.004;County of Skamania v. State, 102 Wn.2d at 132.

                                                                      ANALYSIS

             With this background in mind, we turn to your questions.

 Question 1

             May the State Treasurer pursuant to RCW 43.84.080 invest funds contained in the natural resources deposit fund and the resource management cost account?

                         The two accounts at issue, the natural resources deposit fund and resource management cost account, contain funds derived from the administration of public lands.  RCW 43.85.130; RCW 79.64 [chapter 79.64 RCW].  The question is whether the surplus contained in these accounts may be invested by the State Treasurer pursuant to RCW 43.84.080 or by the State Investment Board pursuant to chapter 43.33A RCW.

             RCW 43.84.080 provides in part:

             Wherever there is in any fund or in cash balances in the state treasury more than sufficient to meet the  [[Orig. Op. Page 5]] current expenditures properly payable therefrom, the state treasurer may invest or reinvest such portion of such funds or balances as the state treasurer deems expedient  . . .

             . . .

 On the other hand, the State Investment Board is authorized to invest "public trust and retirement funds".  RCW 43.33A.010.1/

             To determine whether the State Treasurer or the State Investment Board has the authority to invest these funds, we must first determine what funds constitute "public trust funds" within the meaning of RCW 43.33A.010.  This is not apparent from the face of the statute, the term being undefined in chapter 43.33A RCW.  Absent a statutory definition, words of a statute should be accorded their usual and ordinary meaning, unless a contrary intent appears.  Dennis v. Department of Labor and Indus., 109 Wn.2d 467, 745 P.2d 1295 (1987).  But where words have no fixed, ordinary meaning, the court must consider the subject matter, the context in which the words are used, and the purpose of the statute.  KSLW v. Renton, 47 Wn. App. 587, 736 P.2d 664 (1986).  Further, in construing a statute, the court's duty is to ascertain and give effect to the intent of the Legislature.  Stewart Carpet Serv., Inc. v. Contractors Bonding & Ins. Co., 105 Wn.2d 353, 715 P.2d 115 (1986).  A statute should be construed in light of the legislative purposes behind its enactment, some of which can be found by examining the historical context in which a statute was passed.  Washington State Nurses Ass'n v. Board of Med. Examiners, 93 Wn.2d 117, 605 P.2d 1269 (1980).

             The words "public trust funds" do not have a fixed, ordinary meaning.  We turn, therefore, to the legislative history and the purposes behind the enactment of chapter 43. 33A RCW.  The State Investment Board was created in 1981.  Laws of 1981, ch. 3.  The bill creating the State Investment Board, Substitute House Bill 1610, originally was passed in 1980, but was vetoed by Governor Ray.  The Legislature overrode her veto during the next session.

             The law transferred the authority to invest certain funds from the State Finance Committee to the State Investment Board.  The State Investment Board was created to more easily make critical management decisions regarding investment policy and to  [[Orig. Op. Page 6]] have greater management control over the State's investments.  Under previously existing law, the authority to invest state trust and retirement funds was shared among various retirement system boards and the State Finance Committee.  See Final Legislative Report, 46th Legislature (1980), at 34.

             The final bill report on House Bill 1610 states:

             The funds over which the Investment Board has investment authority are Public Employees' Retirement System funds, Law Enforcement Officers and Firefighters Retirement Fund, Teachers' Retirement System Fund, Washington State Patrol Retirement Fund, Judicial Retirement Fund, medical aid and accident funds, andpermanent trust funds.

 Final Legislative Report, 47th Legislature (1981), at 97 (emphasis added).

             The permanent trust funds specified in section 21, chapter 3, Laws of 1981 were:  the permanent common school fund, the agricultural college permanent fund, the normal school permanent fund, the scientific school permanent fund, and the university permanent fund.  The State Investment Board is specifically authorized to invest the surplus moneys contained in those funds.  RCW 43.84.170.

             It also appears that the Legislature did not intend to expand the authority of the State Investment Board beyond that previously held by the State Finance Committee.  Based upon the evidence of legislative intent contained in the final bill report and upon the context and subject matter of chapter 43.33A RCW, we conclude that the phrase "public trust funds" as used in RCW 43.33A.0102/

              means the permanent funds specified in RCW 43.84.170, the accident fund, the medical aid fund, and the game special wildlife account.3/

              [[Orig. Op. Page 7]]

             With the foregoing conclusions in mind, we turn to the two funds at issue.  We will first consider the natural resources deposit fund.  RCW 43.85.130(1)(c) states:

                         The natural resources deposit fund is hereby created.  The state treasurer is the custodian of the fund.  All moneys or sums which remain in the custody of the commissioner of public lands awaiting disposition or where the final disposition is not known shall be deposited into the natural resources deposit fund.  Disbursement from the fund shall be on the authorization of the commissioner  . . . .

 This fund contains moneys or sums which remain in the custody of the Commissioner of Public Lands awaiting disposition or where the final disposition is unknown.  These funds may be derived from the sale or other dispositions of public lands, such as leases and easements.

             Having earlier construed "public trust funds", as the phrase is used in RCW 43.33A.010, to be limited to the permanent funds, the accident fund, the medical aid fund, and the game special wildlife account, we conclude that the natural resources deposit fund is not a "public trust fund".  It is not one of the permanent funds enumerated under RCW 43.84.031, chapter 43.79 RCW, or the Washington Enabling Act.  Although the natural resources deposit fund may contain the proceeds from the sale of trust lands,4/

              the mere placement of these proceeds in the fund does not convert it into a "permanent fund".  Such a result would increase the number of permanent funds without a constitutional or statutory basis and would place an unnecessary restriction on the other moneys contained in the fund.

             Since the account in question is not within the investment authority of the State Investment Board, we conclude that the State Treasurer may, with one exception, invest any surplus contained in the account pursuant to the Treasurer's general authority granted in RCW 43.84.080.  The exception is that the Treasurer may not invest any surplus of funds derived from thesale of trust lands.  Under section 11 of the Washington Enabling Act, article 9, section 9 of the Washington Constitution, and chapter 43.79 RCW, these proceeds constitute the corpora of the permanent funds, even while held in temporary depository.  The State Investment Board under the authority granted in RCW  [[Orig. Op. Page 8]] 43.33A.010, may invest any surplus of funds derived from the sale of trust lands held in a temporary depository.

             With respect to the resource management cost account, RCW 79.64.020 states:

                         A resource management cost account in the state treasury is hereby created to be used solely for the purpose of defraying the costs and expenses necessarily incurred by the department in managing and administering public lands and the making and administering of leases, sales, contracts, licenses, permits, easements, and rights of way as authorized under the provisions of this title.  Appropriations from the account to the department shall be expended for no other purposes.  Funds in the account may be appropriated or transferred by the legislature for the benefit of the trust from which the funds were derived.

             Funds in the account are derived from deductions made from the gross proceeds of all leases, sales, contracts, licenses, permits, easements, and rights of way issued by the Department of Natural Resources and affecting public lands.5/

              The deductions must not exceed twenty-five percent of the total sum received by the Department.  RCW 79.64.040.  Under the provisions of RCW 79.64.030, funds in the account derived from the gross proceeds of leases, sales of valuable materials, contracts, licenses, permits, easements and rights of way issued by the Department affecting trust lands must be expended solely for the purpose of defraying the costs and expenses necessarily incurred in managing and administering public lands of the same trust.

             We conclude that this account is not a "public trust fund" within the meaning of RCW 43.33A.010 based on our earlier analysis of that section.  The account is not a permanent fund since it is not one of the funds specified under the State Enabling Act, RCW 43.84.031, or chapter 43.79 RCW.  Although some of its funds may be derived from transactions involving trust lands, the inclusion of these funds does not convert the account  [[Orig. Op. Page 9]] into a permanent fund.  The moneys at issue do not form the corpora of any of the permanent funds.  Therefore, the State Treasurer, pursuant to the authority granted in RCW 43.84.080, may invest the surplus contained in this account.

             In summary, the natural resources deposit fund and the resource management cost account do not constitute "public trust funds".  Therefore, the surplus contained in these accounts, with the exception of funds derived from the sale of trust lands, may be invested by the State Treasurer pursuant to RCW 43.84.080.

 Question 2

             If the answer to question 1 is affirmative, may the State Treasurer pursuant to RCW 43.84.090 deduct a portion of the income from the investments to be deposited in the state general fund?

             RCW 43.84.090 provides:

             Except as otherwise provided by RCW 67.40.025, [6]/

             twenty percent of all income received from such investments [made pursuant to RCW 43.84.080] shall be deposited in the state general fund.

            We conclude that the State Treasurer may deduct twenty percent of all income received from the investment of the surplus contained in the natural resources deposit fund and the resource management cost account, except for income from the investment of trust moneys.  This interpretation of RCW 43.84.090 is consistent with the Washington Enabling Act, article 16 of the Washington Constitution, and RCW 79.64.055.

             RCW 79.64.055 states:

                         Interest earned by trust moneys in the resource management cost account shall be deemed trust income to be apportioned according to the source and paid into the appropriate fund in the state treasury.  Interest earned by other than trust moneys shall be paid into the general fund of the state treasury.

 The term "trust moneys" is not defined in chapter 79.64 RCW.  However, RCW 79.64.030 identifies the lands from which the trust moneys are derived.  These are school lands, university lands, agricultural college lands, scientific school lands, normal  [[Orig. Op. Page 10]] school lands, capitol building lands, and institutional lands.  Based on the rule of statutory construction that the context in which the words are used and the purpose of the statute should be considered in construing a statute, we conclude that "trust moneys" refers to income derived from the lands specified in RCW 79.64.030.

             RCW 79.64.055 directs that all interest earned by the investment of trust moneys must be apportioned according to its source and paid into the appropriate fund.  This section grants no authority to deduct a portion of the income to deposit it in the general fund.

             Although RCW 43.84.090 and RCW 79.64.055 seem to conflict, these two statutes can be harmonized.  The general rule is that apparently conflicting statutes should be reconciled and effect given to each of them.  Tommy P. v. Board of Cy. Comm'rs, 97 Wn.2d 385, 391-92, 645 P.2d 697 (1982).  The only way to reconcile the two statutes is to interpret RCW 43.84.090 as not applying to the income earned from the investment of trust funds.  By interpreting RCW 43.84.090 in this manner, each statute may be given effect and meaning.

             An account similar to the resource management cost account was the subject ofMoon v. State Bd. of Land Comm'rs, lll Idaho 389, 724 P.2d 125 (1986).  In this case, the Idaho State Treasurer challenged the constitutionality of a statute which provided that revenues obtained from leases and timber sales on certain state lands could be used for expenses incurred in administering those lands.  A reasonable amount, not to exceed ten percent, of the revenues were placed in a special account to be used for the maintenance, management, and protection of the lands.

             The court held that the interest earned on the account was an integral part of the total moneys received from school lands.  Therefore, it had to be used for the protection of the lands constituting the trust res or for school purposes.  Moon v. State Bd. of Land Comm'rs, 724 P.2d at 130.

             Similarly, earnings from the investment of the surplus balances in the natural resources deposit fund and the resource management cost account that are derived from transactions involving state lands are an integral part of the moneys received from these lands.  These moneys may not be expended for purposes other than those stated in the Washington Enabling Act.  The Enabling Act limits the expenditure of such funds to the maintenance and support of public schools and public institutions and the acquisition and construction of such facilities.  The  [[Orig. Op. Page 11]] investment income therefore must be used only for the benefit of the specific beneficiary.7/

             Additionally, trust property does not lose its character by conversion into funds, other property or investment.  Townsend v. Rainier Nat'l Bank, 51 Wn. App. 19, 23, 751 P.2d 1214 (1988).  The funds derived from the sale or other disposition of state lands retain their character as trust assets.  The income from the investment of these funds also is a trust asset and must therefore be used for the benefit of the specific trust beneficiary.

             Thus, pursuant to RCW 43.84.090, the State Treasurer may deduct twenty percent of the income received from investment of the surplus balances, except to the extent the income is derived from the investment of trust moneys.  This income from the investment of trust moneys, being a trust asset, must be used for the benefit of the specific trust beneficiary and may not be paid into the general fund.

 Question 3

             May the State Treasurer pursuant to RCW 43.84.090 deduct twenty percent of income received from investments of trust funds which obtain their revenue from management of trust lands or must the deduction be related to the cost of administering the account?

            Our conclusion in question 2 that the State Treasurer may not deduct any portion of the income received from the investment of trust moneys answers the first part of question 3.  The second part of the question relates to whether a deduction may be made if related to the cost of administering the account.

             An examination of the legislative history of RCW 43.84.090 indicates that this statute does not provide any authority to deduct a portion of the investment income to defray the costs and expenses incurred by the State Treasurer in managing and investing the surplus balances of trust funds.  RCW 43.84.090 was amended in 1981.8/

              It previously provided that twenty percent of all income received from investments would be set aside in a  [[Orig. Op. Page 12]] reserve account.  The Legislature was authorized to appropriate certain amounts from this account to pay the operating expenses of the State Treasurer incurred in servicing of investments and outstanding bonded indebtedness of the State and to pay the operating expenses of the State Finance Committee and the State Building Authority.  The 1981 amendment deleted the provisions relating to the reserve account and required that the funds deducted be deposited in the state general fund.

             Also in 1981, the State Investment Board was created.9/

              Section 16, chapter 3, Laws of 1981 provided that the State Investment Board was to be funded from the investment reserve account created by RCW 43.84.090.  Section 16, chapter 3, Laws of 1981 was amended by section 1, chapter 242, Laws of 1981 to provide that the State Investment Board be funded from the earnings of the funds managed by the Board.

             Section 2, chapter 242, Laws of 1981 amended RCW 43.84.090 to provide that the twenty percent deducted from the income of investments made be deposited in the general fund.  Reading all of these amendments together, the Legislature apparently did not intend that the twenty percent deduction be used to defray the costs incurred by either the State Investment Board or the State Treasurer in investing surplus funds.  Instead, the Legislature apparently intended that these funds be deposited in the general fund to benefit the public.

             This opinion should not be interpreted as concluding that the State Treasurer may not be reimbursed for his expenses.  General trust principles apply to state land trusts and permanent funds.  County of Skamania v. State, 102 Wn.2d at 132.  The general rule is that trustees are entitled to compensation for their services in administering the trust.  Wilson v. Biggama, 73 Wash. 444, 447, 132 P. 43 (1913).  However, since the deduction authorized by RCW 43.84.090 does not seem to be related to the cost of managing the trust fund, we conclude that this particular statute may not be applied to trust funds that obtain their revenue from management of trust lands, because of the principles discussed in question 1.  The Legislature might, of course, choose to reimburse the State Treasurer for the cost of administering the funds in any of several ways, but has not done so.

             Since the deduction authorized by RCW 43.84.090 does not seem to be related to the management of trust funds, we conclude that no deduction based on RCW 43.84.090 for expenses incurred in investing the surplus may be made.  If a deduction for managing  [[Orig. Op. Page 13]] trust funds is made, it must comply with general trust principles.

             We trust the foregoing will be of assistance to you.

 Very truly yours,
KENNETH O. EIKENBERRY
Attorney General

NOELLA HASHIMOTO
Assistant Attorney General 

                                                         ***   FOOTNOTES   ***

 1/The State Treasurer phrased his question to us in terms of "permanent" and "current" funds.  The characterization of these two accounts as permanent or current is misleading because the words "permanent funds" are not used to describe the State Investment Board's management authority.

 2/The phrase "public trust funds" used in other contexts may have a different meaning.  Our construction of the phrase in this opinion is solely for the purposes of delineating the authority of the State Investment Board under the provisions of RCW 43.33A.010.

 3/Under RCW 77.12.323, the State Investment Board is authorized to invest and reinvest the surplus contained in the game special wildlife account.

4/As used in this opinion, "trust lands" are those federally granted lands whose sale proceeds form the corpora of the permanent funds.  This definition of "trust lands" does not include the aquatic lands.

 5/We understand that the resource management cost account does not contain the proceeds from the sale of public lands.  The account contains the proceeds from the sale of valuable materials on or in public lands, such as timber or shellfish.

             Also, the resource management cost account does not contain funds derived from transactions involving forest board lands.  Forest board lands have their own management account, the forest development account.  RCW 76.12.030(1).  See AGO 1987 No. 10.

 6/RCW 67.40.025 refers to the construction of the State Convention Center.

 7/See also RCW 43.79.010 ("All moneys paid into the state treasury, except  . . . the several permanent and irreducible funds of the state and the moneys derived therefrom, shall be paid into the general fund of the state.").

 8/Laws of 1981, ch. 242, § 2, p. 1003.

 9/Laws of 1981, ch. 3.

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