G en. 441] 441
S TATE TREAS URER
T RE AS UR E R M AY I NVES T I N S E CU RI T I E S OF V A R I OUS F E DE RA L I NSTRUMENTALI TI ES

O ct ober20, 1994

The H onor abl e Luci l l e M

aur er St at e Tr eas ur er Y o u h a v e re q u e ste d o u r o p in io n w h e th e r th e S tate T re a su re r is author i zed byl aw t o i nves tfunds overw h ich t he Tre as ur erhas cus t odyi n s ecur i t i es i s s ued bythe fo ll o w i ng s i x ent i t i es : t he G over nm ent N at i onal M or t gage A s s oci at i on, t he Feder al N at i onal M o rt gage A s s oci at i on, t he Feder al H om e Loan M or t gage C o rp o ra tio n , a F e d e ra l H o m e L o a n B a n k , a F e d e ra l F a r m C r e d it B ank, and t he StudentL oan M ar ket i ng A s s oci at i on. For t he r eas ons sta ted b e lo w , w e c o n c lu d e th a t th e se in v e stm e n ts a re leg a lly p e rm is s ib le

. I Backg r ound
In a re c e n tly f

iled a n d w e ll-p u b liciz e d law su it i n f e d e ra l co u rt, C har l es C ount yi s at t empt i ng t o s ecur e re paym entfr om var i ous s ecur i t i es deal er s of m i l l i ons of dol l ar s t hat had bee n i nves t ed byt he C ount y ’ s for m erD eputyT r ea sur eri n der i vat i ves and otherr i s ky lo n g -te rm in v e stm e n ts. T h e C o u n ty’ s m a in a rg u m e n t in th e su it i s t hatt he tr ans act ions w er e ul t r a vi r es , beca us e thes e form s of in v e stm e n t w e re n o t p e rm itt e d b y th e g o v e rn in g p ro v isio n o f p u b lic l ocal l aw
. A s a s econda r yar gum ent , how ever , t he C ount ycont ends t hati f ( contr aryt o i t s m ai n ar gum ent ) t he i nves t m entauthor i t y of t he C ount yT r eas ur erw er e governed bya pr ovi s i on of pu bl i c gene r al l a w ) A r t i cl e 95, §22 of t he M ary l and C ode

)the tran sac ti o n s w ere still ul tr a vi r es , beca us e the i nves t m ent s w er e notauthor i zed byt hat p ro v is io n e ith e r.
In th e c o u rse o f

m a k in g th is la tter a rg u m e n t, th e C o u n ty c o n te n d s th a t th e se c u rities o f se v e ra l o f

th e e n tit ies id e n tifie d in y o u r in q u irya re n o t “a n yo b lig a tio n th a t a f e d e ra l ag e n c yiss u e s in acc o rda nce w i t h an ac tof C ongr es s ” and ther efor e ar e not p e r m i s s ib le in v e s tm e n ts

. See M e mor a n d u m i n Su p p o r to f M o t i on442 [7 9 O p
. A tt ’y

In 1993, State inves tm en t s in these sec urities totalled about 1 $169,000,000.
We take no position, of course , concerning the public local law 2 on wh ic h Ch arl e s Co unty

princ ipally rel ies in its s uit . N or do e s th is opinion discuss p ru d enti al or other limit ations on the typesof sec urities ( e.g., d e riv ati v e s ) th at mi ght b e p ur c h a s e d

. O ur f o c u s is s o le ly o nthe status of the issuers unde r the pe rtinent State law.
None of the obligations in question i s backe d by the full faith and 3 c re dit of the Uni tedS tat es, a cat egory of p erm is si bl e inves tm entregardl e ss of the “ fede ral ag ency” status of the issuer. SF §6-222(a)(1)

. SF §6-222 also authorizes other ty

pes of investments that are no t rele vant to your i n qu i r y. f o r P re lim in a ry In

ju n c tio n , C ount

y C om m is s i oners of

C har l es C o u n ty, Ma ry la n d v . L ib e rty C a p ita l Ma rk e ts, In c ., e t a l. , C as e N o. D K C 9 4 -21 8 8 (“C o u n tyM em o ran d u m ”).
B eca us e t he St at e Tre as ur er ’ s offi ce ha s i nves t ed i n s ecur i t i es iss u e d b yth e se e n tit ies , the a rg u m e n t o f th e C o u n ty , if c o rre c t, w oul d have a m aj ori m pacton t he St at e’ s exi s t i ng inv estm ent por t fol i o and on futur e i nves t m ent s
. G i ven the s i gni fi canc e of t he 1 i s s ue fort he St at e, w e ar e maki ng an exc ept i on t o ourus ual pol i cy of r efr ai ni ng fr om addr es s i ng i n an opi ni on an i s s ue thati s pendi ng befor e a cour t

. A s expl ai ned bel ow , w e r eac h a di ffe r entconcl us i on t h a n t h e Co u n t ya b o u tt h e me a n i n g o f t h e S t a t e l a w. 2

II
T re a su re r’s In v estm en t A u th o rity
A rt icl e 9 5 , § 2 2 p rov ides that co u n tyco m m issi o n ers a n d o thers m ayi nves tany“unexpe nded ors urpl us m o n ies in a nyfund or acc ounti n w hi ch t heyhave c us t odyorcontr ol i n obl igations or r epur ch ase agre ement s of t he type i n w hi ch the Tre as ur erm ay re in v e st u n d e r § 6 -2 2 2 o f th e S tate F in a n c e a n d P ro c u re m e n t A rticle

. . . . ” The l at t erpr ovi des , i n per t i nent p art, tha tt he Tre as ur erm ay i nves ti n “any obl i gat i on t hat a fe der al agenc yi s s ues i n acc or dance w i t h an ac tof C ongr es s
. . . . ” §6- 222( a) ( 2) of t he St at e Fi nance and Pr ocur ement ( “SF” A r t i cl e) , M ary l and C ode. 3G en. 441] 443
O ne of the ent i t i es aboutw hi ch y o u inqui r e, t he G overnm ent N at i onal M or t gage A s s oci at i on, i s a “f eder al agenc y , ” a c om ponent o f th e f e d e ra l D e p a rt m e n t o f H o u s in g a n d U rb a n D e v e lo p m e n t. See 1 2 U .S .C . § § 1 7 1 6 b , 1 7 1 7 (a )(2 )(A ), an d 1 7 2 3 . In v e stm e n ts in G N M A s ecur i t i es ar e unques t i onabl yauthori zed unde rSF §6- 2 2 2 (a )( 2 ), a n d th e C o u n ty d o e s n o t s u g g e s t o th e rw is e in its s u it.
T he C ou ntydo es contend t hat four of t he en t i t i es
)t he Feder al N at i onal M or t gage A s s oci at i on ( “FN M A ”) , t he Feder al H om e Loan M or t gag e C o rpor at i on ( “FH L M C ”) , t he Feder al H om e Loan B ank (“F H L B ”), an d th e F e d era l Fa rm C red itB an k (“F F C B ”)

)ar e not fede r al agenc i es
. Speci fi cal l y , t he C ounty reg ar ds i tas “cl eart hat FN M A i s nota fe der al agenc y , buti s a pr i vat e, fede r al l y - s pons or ed corpor at i on. ” C ount yM emora ndum at 12. W i t h r es pectt o t he FH L M C , t he C ount yar gues t hat“l i ke FN M A , FH L M C i s a pr i vat e, f e d e ra lly -sp o n s o re d c o rp o ra tio n , n o t a f e d e ra l ag e n c y .” C o u n ty M emora nd u m a t1 3

. W i t h r e s p e c tt o a n FHLB, t h e Cou n t ya r gues t hat , “gi ven [i t s ] s t ructur e and gove r nance
. . . i t ca n n o t be char act er i zed a s a fe der al agency
. ” C ount yM emora ndum at15. Fi nal l y , w i t h r es pect t o an FFC B , t he C ount y ar gues t hat i t “i s notan agenc yof t he U ni t ed St at es ” buti s i ns t ead “ a f ed era ll ychart er ed i ns t rum ent al i t y of t he U ni t ed S t at es
. ” C ount y M emora ndum at16.
In su m m a riz in g th is a sp e c t o f its a rg u m e n t, th e C o u n ty acknow l edges t hat thes e ent i t i es “mayfors om e purpos es be ch aract er i zed a s fede r al i ns t rum ent al i t i es
. ” Id

. Po i n t i n g t o t he C om m uni tyD ev el opm entA dm i ni s t r at i on s t atut e, how ever , w hi ch r efers to o b li g ati o n s “issu ed by fede r al agenc i es or i ns t rum ent al i t i es , ” the C ount ycont ends t hat“the M ary l and G ener al A s s embl yr ec o g n i zes a di ffe r ence betw een f eder al agenc i es and fe d eral i ns t rum ent al i t i es ” and, i n SF §6-222, “chos e nott o i ncl ude in s tr u m e n ta litie s in th e lis t o f is s u e rs o f

p e rm itte d in v e s tm e n ts

... .” C o u n ty M e m o ra n d u m a t 1 7

. Cf

. A r t i cl e 83B , §2- 208( b) of t he M a ryla n d C o d e
. T h e C o u n tyd id n o t h a v e o c c a sio n in its m e m o ra n d u m to di s cus s t he s t atus of the S tudentL oan M ar ket i ng A s s oci at i on ( “ SLM A”)

. Th e a n a l y s i s , h o wev e r , wou l d b e t h e s a me
. Th e SLM A i s a fe der al l y - chart er ed, pr ivate corpor at i on. 20 U

. S. C

. §1087- 2. W h i l e t h e S LM A mi g h tb e a f e de r a l i n s t ru me n t a l i t yf o rs o me p u rp o s e s , i f t h e F NM A i s n o ta f e d e r a l a g e n c y , n e i t h e ri s t h e S L M A.444 [7 9 O p
. A tt ’y
W e ac ceptt he pr emi s e of t he C ount y ’ s ar gum ent : E xceptfor t he G N M A , al l of the enti t i es abou tw hich y ou i nq uir e are best ch ara cterized as f

ed era l i n stru m en tal it ies. A lth o u g h they w ere es t abl is hed byC ongr es s and author i zed byC ongr es s t o i s s ue securi t i es, t heyare not regar ded as federal agen ci es i n the st ri ctsense of t hatt er m
. T hey ar e not par t of t he execut i ve bra nch of t he fe der al governmenti n t he w ayt hatcabi netdepart m ent s ori ndepende nt r egul at or yagenc i es ar e. I f t he G ener al A s s embl y w as cogni zantof t he di s t i nct i on betwee n f e d e r a l a g e n c i e s a n d f

e d e r a l i ns t rum ent al i t i es w hen i tenac t ed w hat i s now SF §6-222( a) ( as i tobvi ous l yw as w hen i tenac t ed th e Commu n i tyDev e l o p me n tAdmi n i s tr at i on s t atut e) , t hen t he r efe r ence t o “fe der al agenc i es ” s houl d be t aken t o ex clud e the ob l i gati on s of t hese federal i nst rum ental i t i es, as t he C ou ntyargues.

A s a g e n e r a l m a t t e r , h o w e v e r , t h e t w o t e r m s a r e n o ta l w a ys us ed w i t h fi ne di s t i nct i ons i n m i nd. T he l eadi ng l aw di ct i onary , for exam ple, defines “federal i nst rum ental i t y ” as a “m eans oragency us ed by t he feder al governm entt o i m pl ement orcarr youta fe der al law o r f u n c tio n
.. .. A g o v e rn m e n t agency im m u n e f ro m S tate co n tr ol

. ” B l ack’s La w D i ct i on ary 61 1 (6t h ed

. 19 90 ) ( em ph a sis add ed). T his sam e dict i on arygo es on to define t he F H L M C as a
“ f e d e r a l a g e n c y ,” e v e n th o u g h it is a p ri v a te c o rp o ra tio n
. Id

. The evol ut i on of t he st atut e t hat i s now SF §6-222( a) m akes cl eart hatt he t erm “fed eral ag e n c y ” in t his con t ext w as notin ten d e d to re f lec t a t echni cal ornar r ow m eani ng of th att er m , s o as excl ude fe der al i ns t rum ent al i ti es. R ather , t he G ener al A s s embl ym eant“fe der al a g e n c y ” to in c lu d e p re c is e ly th e e n titie s a b o u t w h ic h y o u in q u ir e
. T he or i g ina l l aw t hataddr es s ed the i nves t m ental t ernat i ves o p e n to th e T re a su re r, e n a c ted in 1 9 4 3 , li m ited th o se in v e stm e n ts to i nst rum ents back ed b y t he ful l fai t h and cr edit of the U nit ed S t at es. See C hapt er78, L aw s of M ary l and 1943.
T he nexts i gni fi cantdevel opm entoccurr ed i n 1968, w hen the G e n e ra l A ss e m b lya m e n d e d f o rm e r A r ti c le 9 5 , § 2 2 to e x p re ss ly author i ze i nves t m enti n t he obl i g ati o n s of t he Feder al N at i onal M or t gage A s s oci at i on. C hapt er127 of t he Law s of M ary l and 1968. W h e n C h a p te r 1 2 7 w a s e n a c te d , th e F N M A w a s a f e d e ra l a g e n c y , a component of t he fe der al D ep ar t m entof H ous i ng and U rban D evel opm ent

. A t t hat veryt i m e, how ever , l egi s l at i on w as pendi ng b e f o re C o n g re s s to c o n v e rt th e F N M A t o p r iv a te s ta tu s
. See H. R. 17989 and S. 3497 ( 90t h C ong. , 2d Ses s
. )

. T hi s fede r al l egi s l at i on, p a rt o f th e H o u sin g a n d U rb a n D e v e lo p m e n t A c t o f 1 9 6 8 , p a ss e d in th e s u m m e r o f th a t yea r. See Pub. L

. N o. 90- 448, 82 St at

. 476. T heG en. 441] 445

Ac c ordin gto no te s in the bil l fi le , the on ly te sti mony on thebil l 4 was that of its true sponsor , former Trea surer

J am es , wh o testified that “[t] he bill simpl y

uses Fe deral Governme nt agenc ies instead of the ag encie s’ spec ific name , which is subject to cha ng e. Fe deral Governme nt

(continued...) leg isla tio n d iv id e d th e o ld F N M A in h a lf , ret a in in g a n e w e n tity cal l ed t he G overnm ent N at i onal M or t gage A s s oci at i on as par tof t he fede r al D ep ar t m entof H ous i ng and U rban D evel opm entand rec o n s ti tuti n g the F N M A as a fe d era ll ych artered , stoc k h o ldero w n e d c o rp o ra tio n . T h e F N M A ’s p riv a te s tatu s b e c a m e e f f e c tiv e in 1 9 7 0

.O ne y earl at er , i n C hapt er 240 of t he Law s of M ary l and 1971, t he G ener al A s s embl yr epea l ed and r eena ct ed A r t i cl e 95, §22. T he r eena ct ed ver s i on cont i nued t o author i ze i nves t m enti n t he o b l i g a t i o n s o f

t h e F NM A

)th e n a p r iv a te c o rp o ra tio n , jus t as it i s n o w ) and adde d author i zat i on fori nves t m enti n t he obl i gat i ons of “fe der al l and banks , fede r al i nt er m edi at e cr edi t b an k s orbanks for cooper at i ves , i s s ued pur s uantt o A ct s of C ongr es s
. . . . ” T hes e banks w er e notagenc i es of t he fe der al go v ern m en ti n t he narr ow s ens e. R a th e r, th e y w e re (a n d still a re , in th e ir c u rre n t f o rm a s F a rm C re d it B a n k s ) f e d e ra l in s tr u m e n ta litie s
. See Feder al Land Bank of St

. P aul v. B is m ar ck Lum berC o. , 3 1 4 U .S . 9 5 (1 9 4 1 ).
T he l as tm aj orchange occurr ed i n 1976, w i t h t he ena ct m entof C h a p ter 3 2 9 (S e n a te B ill 8 2 5 ). T h is bill a m e n d e d A rticle 9 5 , § 2 2 to del et e t he r efe r ence t o “the F eder al N at i onal M or t gage A s s oci at i on, feder al l and banks , fede r al i nt er m edi at e cr edi tbanks orbanks for cooper at i ves , ” and s ubs t i tut e i ns t ead the t er m “fe der al governm ent al agenc i es
. ” The r epor t of t he Senat e B udgetand Taxat i on C om m i t t ee stat es t hat the p urpose o f t he legi sl at i on w as t o “all ow t he S t a te T rea su rer to inv est i n a w ider ran g e o f f ed era l ob li g ati o n s. ” R ep o rt on SB 825 ( M ar ch 11, 1976)

. T he r epor ts um m ar i zed the thencurr entl aw as “s peci f[y i ng] cert ai n fede r al agenc i es s uch as Feder al N at i onal M or t gage A s s oci at i on, fede r al land banks , fede r al in ter m e d iate c re d it b a n k s, w h ich th e S tate m a yin v e st in th e ir obl i gat i ons
. T hi s bi l l change s t he s peci fi c des i gnat i ons t o al l Feder al a g e n c ies .” It is o b v io u s f ro m th is re p o rt th a t th e G e n e ra l A ss e m b ly w as notus i ng t he t er m “fe der al agenc i es ” i n anyt echni cal s ens e, as di s t i ngui s hi ng federal ag en cies f rom instrum en tal it ie s , butr atherw as u sin g th e ter m sim p lya s a n in c lu siv e lab e l f o r th e k in d o f

f e d e ra lly s pons or ed ent i t ypr evi ous l yl i s t ed i n t he s t atut e
)in c lu d in g , in part i cular , t he F N M A and fede ral l and ban ks. 4446 [7 9 O p
. A tt ’y

(...continued) 4 Ag encie s is a broade r term.”
The fisc al note also pointed out that, “a s the secti o n o f th e law 5 amende d by

this bil l also g o v erns the investment opportunities of the su bdivi sio ns , th e ir

inv e stm e nt p oo l syste m w ille xpand and presu ma bly their investment re turn should grow.” T he fi s cal not e accompany i ng Senat e B i l l 825 s um m ar i zed the b ill a s a u th o riz in g th e S tate T re a su re r “ to in v e st a n ya v a ilab le S tate funds as appr opr i at e i n t he obl i gat ion s o f anyFeder al governm ent a g e n c yra th e r t h a n th e s p e c if ie d f e w p re s e n tly a llo w e d in th e la w .” T he bi l l w oul d “af

for [d] t he Tre as ur er an opportuni t yt o i nves ti n a w id e r r a n g e o f

F e d e ra l g o v e rn m e n t o b lig a tio n s .” 5
L at er e nactm ent s r edes i gnat ed the pr ovi s i ons governi ng i nves t m ent s byt he Tre as ur er b u t di d notchange t he s cope of p e rm is s ib le in v e s tm e n ts in f e d e ra lly-a f

f ilia te d is s u e rs
. See C hapt er 604, L aw s of M ar y l and 1981, and C hapt er55, L aw s of M ary l and 1983. Th e n , i n Cha p t e r 1 1 o f t h e La ws o f M a r y l a n d 1 9 8 5 , t he G ener al A s s embl yr ecodi fi ed the pr ovi s i on as SF §§6-222 a nd 6- 223. T he R evi s or ’ s N ot e confi r m s t hat t he r ecodi fi cat i on w as “new l a n g u a g e d e r i v e d wi t h o u t s u b s t a n t i v e c h a n g e ” f r o m th e s o u r c e l a w. I n l i ght of t hi s l egi s l at i ve hi s t or y , w e conc l ude thatt he G ener al A ss e m b lyu se d th e ter m “ f e d e ra l ag e n c y ” in S F § 6

- 2 2 2 (a )(2 ) to encompas s notonl yent i t i es t hat are fe d er al agenc i es i n t he s t r i ct s ense butal s o t hos e thatw er e cr eat ed C ongr es s t o advanc e fe der al pol i cyt hr ough t he i s s uance of s ecur i t i es
. T hes e en ti ti es have, by sta tu te, a re latio n sh ip to th e f e d e ra l g o v e rn m e n t th a t m a k e s th e ir obl i g ati o n s m or e s ecur e than i s s uer s w i t houts uch a r el at i ons hi p. T he U nit ed Stat es i s exp res sl y em po w ered, for exam ple, t o p urchase th e se c u rities o f th e F N M A , F H L B , F F C B , an d S L M A , so a s to s a f e g u a r d a g a in s t liq u id ity p ro b le m s
. See 12 U

. S. C

. §1719( c) (F N M A ); 1 2 U

. S

. C

. § 1 4 3 1 (i ) (FH L B ); 1 2 U

. S

. C

. § 2 1 5 8 (F F C B ); 2 0 U .S .C . § 1 0 8 7 -2 (h )( 5 ) ( S L M A ). See a l so 1 2 U .S .C . § 1 4 5 5 (j) ( uns ecur ed obl i gat i ons of t he FH L M C t o be i s s ued w i t h appr oval of Tr e a s u r ySe c r e t a r y ) ; 1 2 U. S. C. § 1 4 5 2 ( f ) ( o b l i g a t i o n s o f

t h e FHLM C

“ m a yb e a c c e p ted a s s e c u rityf o r a ll .

.. f u n d s ... u n d e r th e a u th o rity a n d c o n tr o l o f

th e U n ite d S ta te s o r a n yo f f ic e rs th e re o f

” ).G en. 441] 447
III
C oncl usi on
I n s um m ary , i t i s our opi ni on t hat t he T r eas ur er i s au t hor i zed byl aw t o i nves ti n t he obl i gat i ons o f the G overnm entN at i onal M or t gage A s s oci at i on, t he Feder al N at i onal M or t gage A s s oci at i on, a Feder al H om e Loan B ank, t he Feder al H om e Loan M or t gage C orpor at i on, a Feder al Far m C r edi tB ank, an d the St udentL oan M a rk e tin g A s s o c ia tio n
.

J. Jo sep h C u rran , Jr. A t t or ney G ener al
Ja c k S c h w a rtz C hi ef C ouns el O pi ni ons & Advi ce