June 29, 1995
Stan C. Broadway North Carolina State Education Assistance Authority General Administration The University of North Carolina UNC Research Triangle Park Building 10 Alexander Drive Research Triangle Park NC 27709
Re: Advisory Opinion; Proposed CollegeVision Fund; North Carolina Education Assistance Authority’s Power to Guarantee Investments.
Dear Mr. Broadway:
On June 7, 1995, you wrote to request our opinion regarding the North Carolina State Education Assistance Authority’s (Authority) power to guarantee the investments of participants in the proposed CollegeVision Fund. In particular, you asked for an advisory opinion on the following questions:
- Does the Authority have the power to guarantee the investments of participants in the CollegeVision Fund against loss of principal and interest during the investment phase of the program?
- If the Authority issues bonds or contracts for lines of credit to meet its obligation to make loans to participants in the CollegeVision Fund during the lending phase of the program, does the Authority have the power to provide any security for those bonds or lines of credit other than the revenues expected from the repayment of loans made through the CollegeVision Fund program?
It is our opinion that the Authority does not have the power to guarantee the investments of participants in the CollegeVision Fund against loss of principal or interest during the investment phase of the Program. The General Assembly has clearly prohibited the Authority from pledging the full faith and credit of the State to back any of its programs. N.C. Gen. Stat. § 116-202, for example, expressly states that no bonds issued by the Authority are deemed to constitute a debt of the State or a pledge of the faith and credit of the State. This limitation on the Authority’s powers is reiterated in N.C. Gen. Stat. § 116-209.12. In light of these express prohibitions, it is our opinion that the Authority does not have the power to guarantee the investments of any parents who may desire to participate in the proposed CollegeVision Fund against the loss of principal or interest during the investment phase of the program.
Furthermore, the role of the State Treasurer in holding and investing the participants’ contributions to the CollegeVision Fund does not shield the participants from any risk of loss of principal or interest. As explained in the letter from Andrew A. Vanore, Chief Deputy Attorney General, to you dated February 3, 1995, the Fund may be invested by the State Treasurer pursuant to N.C. Gen. Stat. § 147-69.2(a)(18), but the contributions and any earnings thereon will remain the property of the participants in the program. Pursuant to N.C. Gen. Stat. § 147-69.3(e) the State Treasurer acts as a general fiduciary with respect to those investments which he manages under N.C. Gen. Stat. § 147-69.2. While he is a public officer and is responsible to "the General Assembly and the people of North Carolina for the efficient and faithful exercise of the responsibilities of his office," he has no specific legal duty to preserve the corpus of any fund and generate a minimum rate of return. N.C. Gen. Stat. § 147-68(e) (1993). As a fiduciary, he can be expected to exercise that degree of care which an ordinarily prudent person, who is a fiduciary of the property of others, would exercise and to employ any special skills and expertise available to him in such capacity. See N.C. Gen. Stat. § 36A-2(a) (1984). However, absent a specific undertaking of the General Assembly to guarantee the payment or return of any funds managed by the State Treasurer for investment, the State Treasurer has no independent authority to guarantee investments by virtue of his office.
The question of whether the Authority may pledge anything other than the revenues expected from the repayment of loans made through the CollegeVision Fund Program as security for any debt which it incurs to finance the CollegeVision Fund Program, i.e., bonds or contracts for lines of credit, is addressed in N.C. Gen. Stat. § 116-209.24(e). N.C. Gen. Stat. § 116-209.24 is the statute under which the Authority is authorized to participate in the CollegeVision Program. See letter from Andrew A. Vanore, Chief Deputy Attorney General to Stan C. Broadway dated February 3, 1995. N.C. Gen. Stat. § 116-209.25(e) provides that the Authority is "authorized to provide for the issuance, at one time or from time to time, of bonds or revenue bonds, as such terms are defined in G.S. § 116-201(4), in conformity with the provisions of this section." N.C. Gen. Stat. § 116-201(b)(4) in turn defines bonds or revenue bonds as obligations "evidencing the Authority’s obligation to repay borrowed money from revenues, funds and other money pledged or made available therefor by the Authority under this Article." Therefore, under the terms of
N.C. Gen. Stat. § 116-201(b)(4), the Authority may pledge as security for debt incurred for purposes of the CollegeVision Fund Program only those revenues expected from the repayment of loans made to parents participating in the CollegeVision Fund Program or "other money pledged or made available therefor by the authority under this Article."
This latter phrase would give the Authority the power to secure any debt issued to support the CollegeVision Fund Program with money other than the revenues expected from the repayment of parental loans made through the program provided that the Authority has any monies available for that specific purpose. A review of the monies available to the Authority under Article 23 of Chapter 116 demonstrates that the Authority has no other such funds. In fact, as noted in the letter of February 3, 1995, but for some of the broad language in N. C. Gen. Stat. § 116-209.24, the Authority would not have the power to offer the CollegeVision Fund Program at all because all of its assets and revenues are dedicated to buying, selling and securing eligible student loans consistent with the Higher Education Act of 1965, as amended, 20 U.S.C. § 1071 et seq., and its agreements with the Secretary of the U.S. Department of Education. Therefore, absent the existence of any other available revenue sources, the only security for any bonds or lines of credit that the Authority may pledge to support the CollegeVision Fund Program is the revenue which the Authority expects to receive from the parents who participate in the program as they repay the loans made from the CollegeVision Fund. All of the Authority’s other funds are pledged to the federal student loan programs, including the parental component of those programs, and may not be pledged to secure bonds that may be issued for the parental loans made under the CollegeVision Fund Program.
In sum, it is our opinion that the Authority does not have the power to guarantee the investments of parents who may choose to participate in the CollegeVision Fund against the loss of principal or interest during the investment phase of the program nor does the Authority have available any security other than the revenues expected from the repayment of loans made to parents during the lending portion of the program to secure any bonds or lines of credit needed to finance the program.
Andrew A. Vanore, Jr. Chief Deputy Attorney General
Thomas J. Ziko
Special Deputy Attorney General