Do any or all of you accrue interest on your hot check collection funds? My auditor wants to convert that to an interest bearing account and divert that interest to the county. I have read AG JC-0062 and don't really have any problem with the idea, just looking for anything I might not have thought of that might come back to bite me later.
Thanks

You are handling that correctly. The interest should be separated from the principal and the interest should then go to the county. Local Gov't Code section 114.002.

A.G. Opinion No. DM-398 and JM-632

[This message was edited by Markus Kypreos on 05-09-05 at .]

Three years ago, I analyzed whether JC-62 had been rightly decided.

I concluded that the AG's opinion -- which held that interest on hot check funds accrues to the benefit of the county rather than following the principal -- had not been well-reasoned and could be flipped in a declaratory judgment action.

The downside: your DA will have to break ranks with his county. Also, the interest on hot check funds may not be substantial enough to merit litigating against your county commissioners, especially when they control your budget.

Here's what I wrote in 2002:

The "hot check fund" is a "special fund" maintained in the county treasury and comprised of the statutory fees imposed by the District Attorney for collecting and processing bad checks. Expenditures from this fund are at the sole discretion of the District Attorney and may be used only to defray the salaries and expenses of the District Attorney's office.

No one questions the District Attorney's control of the hot check fund. Apparently, however, a question arose in 1997 about the disposition of the interest generated from the hot check fund. On December 12, 1997, Assistant County Attorney John Renfrow sent the Attorney General an opinion request that asked:

Should the interest earned on funds collected by the Harris County District Attorney pursuant to TEX. CODE CRIM. PROC. ANN. art. 102.007 (Vernon 1998) accrue to the "hot check" fund itself or to the county's general revenue fund?

Renfrow's opinion request acknowledged that the Attorney General had ruled in Tex. Att'y Gen. Op. No. JM-632 (1987) that interest on the hot check fund must be credited to the county general revenue fund rather than to the hot check fund itself. Renfrow argued, however, that JM-632 had been incorrectly decided.

JM-632 had been predicated on two principles: (1) interest accruing on special funds goes to the county unless the fund is constitutional or a trust; and (2) the hot check fund was neither constitutional nor a trust. Renfrow conceded the first principle, but argued that the hot check fund, if not explicitly a trust, was implicitly a trust and that the interest belonged to the hot check fund instead of the county general fund.

On June 3, 1999, the Attorney General responded. Citing Section 113.021 of the Local Government Code, the Attorney General held that Subsection (c) would govern disposition of the interest in the District Attorney's hot check fund if the hot check fund was "money belonging to a county" under Subsection (a). For the reasons discussed in more detail below, the AG held that the hot check fund was money "belonging to" Harris County. JC-0062 at 2-3. After so finding, the AG approved severance of the interest from the hot check fund principal and stated that transfer of those funds to the Harris County general fund was a permissible use of the money. Id. at 3.

The AG based its conclusion that the hot check fund interest belongs to the county on three grounds, none of which stand up to close scrutiny:

(1) Citing Tex. Att'y Gen. Op. No. DM-396 (1996), the AG asserted that "legislative history" indicates that money belongs to the county when it benefits "some aspect of county government" as opposed to benefiting "another (noncounty) public entity or a private individual or entity." JC-0062 at 2.

A review of DM-396 reveals no such legislative history on that point. Instead, it simply states that justice court restitution is not "money belonging to a county" under Section 113.021 because it merely passes through the JP to the victim and does not need to be deposited in the county treasury. All DM-396 really means is that publicly collected private restitution is not county money. I believe that there is no authority for the AG's overbroad "some aspect" standard, which is inconsistent with the narrower "belonging to the county" language of the statute.

Under either standard, however, the hot check fund does not belong to the county. The use of this money is determined and controlled by the District Attorney, to the express exclusion of the Commissioners Court, and the legislature failed to include county officers or some other designation of officials in Section 113.021 when referring specifically to funds belonging to a county.

(2) The AG then cited the predecessor legislation to Section 112.002 of the Local Government Code, which provides that the auditor may regulate collection of "revenues and other funds and fees belonging to the county or to a person for whom a district clerk, district attorney, county officer, or precinct officer has made a collection or for whose use or benefit the officer holds or has received funds." The AG concluded that because the Legislature "did not contemplate an alternative owner" of collected funds other than the county and a private entity, money collected by the District Attorney therefore can only be either county money or private money. JC-0062 at 2-3.

This reliance on collateral language in the auditor's statute is misguided and too narrow. The District Attorney, in the context of hot check funds, can just as logically be considered another person for whom he has collected, received, or held such funds. The District Attorney is more akin to a private or local government entity than the county because he, not the commissioners court, controls the use of the hot check fund principal.

(3) The AG finally concluded that because the money is placed in the county treasury, and because the county treasurer is the custodian of all money belonging to the county, then the money placed the county treasury must be money belonging to the county. JC-0062 at 3.

This is a false syllogism because it assumes that the only money that the county treasurer can accept is money belonging to the county. Such an assumption is incorrect: for example, under Section 76.013 of the Government Code, the community supervision and corrections department is obliged to deposit court-ordered restitution payments into an interest-bearing account in the county treasury to be disbursed only to either the victim or to the state comptroller.

As such, the District Attorney is in the same position as a restitution recipient: his fees are stored, pursuant to statutory dictate, by the county treasurer for his general use as a state officer. Just as restitution funds do not "belong" to the county simply because the county treasurer stores them, the hot check funds do not belong to the county simply because they are stored in the county treasury.

Bottom line: the AG's opinion is predicated on the unsupported conclusion that the hot check fund is "money belonging to the county." If, as we contend, the hot check fund falls outside that category of funds, then Section 113.021 does not apply and the interest on the hot check fund should accrue to the benefit of the District Attorney.

[This message was edited by Scott Durfee on 05-19-05 at .]