DAN MORALES 

ATTORNEY GENERAL 

@ffice of toe EWmwp Q&nerd 

Bate of fEexae 

Ms. Catherine A. Ghiglieri 

Commissioner 

Texas Department of Banking 

2601 North Lamar Boulevard 

Austin, Texas 78705-4294 

November 12, 1998 

Opinion No. DM-489 

Re: Whether Government Code chapter 2256, 

the Public Funds Investment Act, applies to 

various funds administered by the Department of 

Banking (RQ-1105) 

Dear Commissioner Ghiglieri: 

The governing body of a state agency may, under Government Code section 2256.003(2), 

invest its public funds as chapter 2256, subchapter A permits. You ask how the tempublicfunds 

is defined for purposes ofthe Public Funds Investment Act (“act”), Government Code chapter 2256,’ 

and whether the Commissioner of Banking (“Commissioner”) or the Department of Banking 

(“Department”) may invest under the act certain funds in the control of the Commissioner or 

Department. (To be succinct, we will hereafter use the term Commissioner to refer to both the 

Commissioner and the Department.) We define the tempublicfunds to include only funds that the 

state or a political subdivision collects in accordance with a general law and that will be used to 

benefit the public generally. Of the five funds you list, we conclude that four of them are not public 

funds that may be invested under the act. We also conclude the remaining fund is a public fund, but 

the Commissioner may not invest it under the act because the Commissioner lacks statutory 

authority to do so. 

You further question whether funds that are deposited with the Texas Treasury Safekeeping 

Trust Company are invested under Government Code section 404.024 and thus beyond the act’s 

reach. Because none ofthe five funds you list may be invested under the act, we do not consider this 

question. 

Before we consider whether the act applies to particular funds, we will consider what funds 

may be invested under the act. We begin by looking at the act generally. Originally enacted in 

1987, the act was intended to “broaden” certain governmental entities’ “investment opportunities.“2 

‘See Gov’t Code 5 2256.001. 

zSee Fiscal Note, C.S.H.B. 1488,7Otb Leg., RX (1987). But see Gov’t Code 5 2256.024. 
Commissioner Catherine A. Ghiglieri - Page 2 (DM-489) 

Thus, Government Code section 2256.003 authorizes, but does not require,’ the governing body of 

a state agency, among other entities, to “purchase, sell, and invest” certain public funds “in 

investments authorized under [chapter 2256, subchapter A] in compliance with investment policies 

approved by the governing body and according to the standard of care prescribed by Section 

2256.006.“4 As section 2256.003 directs, an entity may avail itself of the investment opportunities 

that subchapter offers if the entity has adopted a written investment policy that complies with section 

2256.005. In addition, the investing entity must exercise the standard of care established in section 

2256.006. Other sections in chapter 2256, subchapter A list authorized investments.5 

The act permits a governmental entity to invest funds and funds under its control, but the act 

defines the term funds to mean only certain public funds.6 For the purposes of our discussion here, 

the termfunds includes only those “public funds in the custody of a state agency or local government 

that the investing entity has authority to invest.“’ This offrice, in the past, has looked to statutes 

other than the act to determine an entity’s authority to invest.’ As you observe, the act does not 

define the term public funds. We will, consequently, seek to define it now. 

We conclude that the tempublicfunds denotes funds that belong to the Department, as an 

agent of the state, that the Department collected by virtue of some general law, and that are 

designated to a public purpose. We find that the phrase public funds has developed an accepted 

common-law meaning:9 

The term “public funds” means funds belonging to the state or to any 

county or political subdivision of the state; more specifically taxes, customs, 

moneys, etc., raised by the operation of some general law, and appropriated 

by the government to the discharge of its obligations, or for some public or 

‘Government Code section 2256.003 states that an entity listed in that section “may” purchase, sell, and invest 

as chapter 2256, subchapter A describes. The word may generally cOnnOtes an option. See BRYAN A. GARNER, A 

DICTIONARY OF MODERN LEGAL USAGE 502 (1987) (contrasting shall and may). - 

‘As originally enacted, the act did not apply to state agencies generally. See Act of May 27, 1987,7Oth Leg., 

R.S., ch. 889, 5 2, 1987 Tex. Gen. Laws 2985, 2985. The legislature extended the act to encompass state agencies 

generally in 1995. See ActofMay 18, 1995,74thLeg., R.S., ch. 402, sec. 1,s 2256.003(2), 1995 Tex. Gen. Laws 2958, 

2959. 

?See Gov’t Code $5 2256.009 ,020. 

%ze id. 4 2256.003 

‘Id. 9: 2256.002(3)(B) 

8See Letter Opinion No. 96-074 (1996) at 2 (fading commissioners court’s authority to invest county funds 

in Local Gov’t Code 5 116.112). 

‘See Gov’t Code 5 3 11 ,011 (directing conshuer of statute to read words and phrases consistently with common 

usage or with acquired meaning). 

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Commissioner Catherine A. Ghiglieri - Page 3 (DM-489) 

governmental purpose; and in this sense it applies to the funds of every 

political division of the state wherein taxes are levied for public purposes. 

The term does not apply to special funds, which are collected or voluntarily 

contributed, for the sole benefit of the contributors, and of which the state is 

merely the custodian.“’ 

Funds a state agency possesses merely as custodian, for the benefit of contributors, are not public 

funds.” Thus, bond revenues the Lower Colorado River Authority uses for public purposes are 

public funds,12 while a private party’s child-support payments to a state agency for transmittal to 

the private beneficiaries are not public funds. ‘r Similarly, a Nebraska court determined that the 

state’s “Second Injury Fund,” mnded by annual assessments from each insurance company doing 

business in the state,r4 held in trust by the state,” and used to pay employees with a preexisting 

partial disability who subsequently suffer a compensable injury,16 is not a public ftmd.‘7 

In the Commissioner’s case, therefore, the Commissioner, acting for the Department (a state 

agency),r8 may purchase, sell, or invest in accordance with the act the Department’s public funds or 

public funds in its control if the Commissioner is statutorily authorized to invest the funds and if the 

Commissioner has complied with other requirements set forth in the act. Whether particular funds 

are public funds and whether the Commissioner has statutory authority to invest particular funds are 

questions of law that are well-suited to our consideration. 

‘OPokornyv. WayneCounfy,33N.W.2d641,642(Mich. 1948)(quoting50C.J. 540,at854);occordSebastian 

County ChapterofAm. Red Cross v. Weather@-d, 846 S.W.2d 641,643 (Ark. 1993); Sherardv. Nebraska, 509N.W.2d 

194, 199 (Neb. 1993) (per curiam); In re StateMotor Fuel Tax Liab., 273 N.W.2d 737, 742 (S.D. 1978) (citing Wood 

Eros. Constr. CO. Y. Bngley, 6N.W.2d397,400(Iowa ~~~~));BLACK’SLAWDICTIONARY 1106(5thed. 1979);seealso 

Lower Cola. River Auth. Y. Chemical Bank & Trust Co., 185 S.W.2d 461, 468 (Tex. Civ. App.--Austin), aff’d, 190 

S.W.2d48 (Tex. 1945). 

“See Navajo Tribe v. Arizona Dep’t ofAdmix, 528 P.2d 623, 624-25 (Ariz. 1974) (en bane) 

“See Lower Cola. River Auth., 185 S.W.Zd at 468. 

“See People v. Cm, 342 P.2d 43,46 (Cal. Dist. Ct. App. 1959) 

“See Sherard, 509 N.W.2d at 199. 

“See id. 

‘%‘ee Neb. Rev. Stat. 5 48-128(l)(a), (2)(a) 

“See Sherard, 509 N.W.2d at 199. 

IsSee Gov’t Code 9 2256.003(2) (listing srote agency as govemmental entity that may invest under act). 

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Commissioner Catherine A. Ghiglieri - Page 4 (DM-489) 

We will now analyze the Department’s authority under the act to invest each of the specific 

funds about which you ask. You list five funds about which you are specifically concerned: 

1. Corporate and trust funds held pursuant to court-supervised receivership 

and liquidation of a bank or trust company pursuant to TEX. FIN. CODE 

ANN. Sections 36.001 et seq. or TEX. F&v. CIV. STAT. ANN. arts. 

342a-7.001 et seq. ; 

2. Corporate and trust funds held pursuant to court-supervised receivership 

of a perpetual care cemetery pursuant to TEX. HEALTH & SAFETY CODE 

ANN. Section 712.0441(g) and TEX. CIV. PRAC. & REM. CODE ANN. 

[chapter 641; 

3. Seized trust funds of a prepaid funeral contract seller held pursuant to 

TEX. FIN. CODE ANN. Sections 154.412 and 154.413: 

4. The prepaid funeral contract guaranty fund established under TEX. FIN. 

CODEANN. Section 154.351 and7T.A.C. Sections25.17-25.20,operated 

and maintained by the advisory council created under TEX. FIN. CODE 

ANN. Section 154.355: and 

5. The travel advance fund maintained by the Department. 

Funds of a liquidated, uninsured bank or a trust comuanv in conservatorsbiu 

The first funds you describe are the funds of a failed financial institution that the 

Commissioner controls as receiver or conservator of the financial institution. In the unlikely event 

that the Commissioner liquidates a bankI9 not insured by the Federal Deposit Insurance 

Corporation, *O for example, the Commissioner may serve as receiver,2’ Similarly, if the 

Commissioner declares a trust company insolvent:* an employee of the Commissioner may be 

“See Fin. Code 3 36.20 1 (authorizing Commissioner to close and liquidate state hank in certain circumstances). 

‘%e id. 5 36.003 (permitting Commissioner to tender state bank that has been closed for liquidation to Federal 

Deposit Insurance Corporation if bank’s deposits were insured by that corporation on date of closing). 

2’See id. $5 36.202, ,203; see also Frank J. Skillem, Closing and Liquidation of Banks in Texas, 26 SW. L.J. 

830,833 (1972) (stating that FDIC has acted as receiver for all state banks closed in Texas in years preceding article). 

‘2See V.T.C.S. art. 342a-6.104(b). 

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Commissioner Catherine A. Ghiglieri - Page 5 (DM-489) 

appointed conservator. 23 In either situation, the Commissioner “take[s] charge”*4 of the bank’s or 

trust company’s assets. 

The funds of a liquidated, uninsured bank or trust company in conservatorship are not public 

mnds and, consequently, may not be invested under the act. Unquestionably, the funds do not 

belong to the state.25 Additionally, the Commissioner holds the funds merely as custodian, and the 

funds will not be used to discharge a public purpose. Consequently, even when the Commissioner 

holds the funds as conservator of a failed trust company, in which capacity the Commissioner may 

exercise any of the powers of the directors, managers, managing participants, officers, and 

shareholders of the trust company, 26 the Commissioner may not invest the funds under the act. 

Funds of a liquidated Deraetual-care cemetery 

Second, you ask about perpetual-care-cemetery liquidation funds. The Commissioner may 

report a perpetual-care-cemetery corporation’s uncorrected violation of law to the attorney general, 

who must bring suit or quo warranto proceedings to forfeit the corporation’s charter and dissolve the 

corporation.z7 You state that the dissolution necessarily entails putting the corporation in 

receivership and that occasionally the Commissioner is appointed receiver. As receiver, the 

Commissioner “take[s] charge” of the corporation’s property.28 

We conclude that these funds, like the financial institution’s liquidation funds, are not public 

funds; consequently, the Commissioner may not invest them under the act. As you suggest, these 

funds probably belong to the cemetery and to those who have purchased burial plots there; 

unquestionably, they do not belong to the state. Furthermore, the funds will not be used to discharge 

a public purpose; rather, there is a duty to persons interred in the private cemetery to expend the 

“See id. arts. 342a-6.102, -6.104(b)(2), -6.107, -6.108. You indicate that in fact one trust company currently 

is in conservatorship. See Southwest Guar. Trust Co. v. Providence Trust Co., 970 S.W.2d 777, 781 n.7 (Tex. App.-- 

Austin 1998, pet. denied). 

*‘See V.T.C.S. art. 342&6.107(a); Civ. Prac. & Rem. Code 5 64.031(l) 

‘5Finance Code section 36.209pexmitsthereceiverto depositmoney collectedonbehalfofthe bankestate only 

in certain depositories: (1) the TTSTC; or (2) an insured state bank “if the receiver, using sound fmancial judgment, 

determines that it would be advantageous to do so.” 

TSee V.T.C.S. art. 342a-6.107(b). A conservator’s powers may be limited, however, by the court 

order appointing the conservator and by the trust company’s articles of incorporation. See id. arts. 342a-3.002(3)(B), 

-6.107(b). 

“See Health & Safety Code 5 712.0441(g); see id. 9 712.001(2) (defining Commissioner). 

28See Civ. Prac. &Rem. Code 5 64.031(l). 

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Commissioner Catherine A. Ghiglieri - Page 6 (DM-489) 

funds to maintain the cemetery in perpetuity. z9 Of course, if the Commissioner, aa receiver, has 

obtained a court order permitting him or her to invest the perpetual-care-cemetery liquidation funds, 

the Commissioner may invest the funds, but not under the act.jO 

Seized DreDaid-funeral-contract funds 

You ask third about seized prepaid-funeral-contract funds. The Commissioner”’ may seize 

the prepaid-funeral money collected by a person whose permit to sell prepaid-funeral benefits is 

canceled32 or who fails to renew a permit while the person has contracts outstanding.” In addition, 

the Commissioner may seek to liquidate the business and to have the court appoint a receiver.34 We 

presume the Commissioner may be appointed receiver. You inform us that the seized timds 

represent money paid or collected on trust-funded, prepaid-funeral contracts.35 

Once again, we conclude that the prepaid-funeral-contract funds are not public funds that 

may be invested under the act. Private individuals paid the funds to a private company to cover the 

costs ofthose individuals’ funerals, relieving the survivors ofthe burden ofpaying funeral bills. The 

Commissioner, as receiver, holds the funds merely as a custodian for the beneficiaries, and, you 

inform us, funds are withdrawn upon the death of a contract holder to pay funeral expenses. As we 

stated with reference to the perpetual-care-cemetery funds, the Commissioner, as receiver of the 

prepaid-funeral-contract corporation, is statutorily authorized to invest the seized funds if the 

Commissioner has obtained a court order authorizing the Commissioner to do ~0.3~ The 

Commissioner’s investment authority under a court order does not make the funds public funds for 

purposes of the act, however. 

‘%ee Health & Safety Code 5 712.021(f)(l). 

“Civil Practice and Remedies Code section 64.034, part of a chapter providing for receivership generally, 

permits a receiver to invest for interest any funds he or she holds, but only if the receiver has obtained a court order to 

which all parties have consented. 

“See Fin. Code 5 154.002(2) (defming Commissioner). 

‘*See id. $ 154.109 (providing grounds for cancellation or refusal to renew permit) 

“‘See id. 5 154.107 (requiring permit holder to renew permit until outstanding contracts are discharged) 

“See id. 5 154.414 

“See also id. subch. F. You do not mention that prepaid funeral benefits also may be insurance funded. See 

id. subch. E. 

‘%e Civ. Prac. &Rem. Code 5 64.034. 

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Commissioner Catherine A. Ghiglieri - Page 7 (DM-489) 

Prepaid-funeral-contract euarantv fund 

You ask next about the prepaid-funeral-contract guaranty fund. Finance Code chapter 154, 

subchapter H creates a guaranty fund, amassed from assessments on permit holders,37 to ensure that 

purchasers of prepaid-funeral-benefits contracts receive the benefits for which they paid?* The 

Commissioner is responsible to maintain the fimd:” and the chapter also creates an advisory council 

to supervise the operation and maintenance of the guaranty fund.40 

In our opinion, monies in the prepaid-funeral-contract guaranty fund are not public funds and 

therefore may not be invested under the act. In particular, these monies are collected only from 

entities selling prepaid-funeral-benefits contracts. The funds are not tax revenues. Additionally, 

only purchasers of prepaid-funeral-benefits contracts (or rather the survivors of the purchasers) may 

benefit from the funds if the seller has gone out ofbusiness. Consequently, we believe a Texas court 

would analyze the guaranty fund similarly to the Supreme Court of Nebraska’s analysis of that 

state’s Second Injury Fund in Sherard v. Nebraska4’ The Sherard court determined that the Second 

Injury Fund is not a public fund for three apparent reasons. First, monies in the Second Injury Fund 

are raised by collecting annual assessments the state director of insurance levies on each insurance 

company doing business in the state. 42 Thus the fund is not amassed through taxation or by a 

general law applicable to the public at large. 43 Second , the funds are used to compensate employees, 

hired with a preexisting permanent partial disability, who subsequently suffer another compensable 

injury. 44 Thus , it may be drawn upon only to benefit particular individuals.45 Finally, the fund is 

held in trust by the state treasurer. Q In our view, the fact that the guaranty fund about which you ask 

may or may not be held in trust is not dispositive where the fund is not amassed through general laws 

and where the fund benefits so few individuals. 

“See Fin. Code 5 154.352. 

‘SSeeid. $ 154.351. 

‘?See id. 

?See id. 9 154.355, .355(a). 

4’Sherard, 509 N.W.Zd at 199. 

‘2See id.; Neb. Rev. Stat. 5 48-128(2)(a). 

43See Sherard, 509 N.W.2d at 199 (in paa citing Allen v. Cily of Omaha, 286 N.W. 916 (1939)). 

4’See Neb. Rev. Stat. $48-128(1)(a), (Z)(a). 

%‘ee Sherard, 509 N.W.2d at 199. 

“See id.; Neb. Rev. Stat. 5 48-128(2)(a). 

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Commissioner Catherine A. Ghiglieri - Page 8 (DM-489) 

Travel-advance fund 

Finally, we consider monies appropriated to fund travel advances that the Commissioner 

currently has deposited in a checking account at a state depository. Clearly, these are public funds 

for purposes of the act. Determining whether travel-advance tkds may be invested under the act 

involves at least one additional consideration, however: whether the Commissioner is statutorily 

authorized to invest the funds.47 

Because we conclude that the Commissioner is not statutorily authorized to invest traveladvance funds, we must also conclude that travel-advance funds are not funds that may be invested 

under the act. We find no statutory authority for the Commissioner to invest the Department’s funds 

generallf8 or these funds in particular,@ and you do not cite any. Section 2256.003 ofthe act cannot 

itself function to statutorily authorize the Commissioner to invest the funds because it applies only 

to funds, which, according to the act’s definition, a governmental entity must be authorized by 

statute to invest, Without the requisite statutory authority to invest the Department’s funds, the 

Commissioner may not invest them under the act.” 

“See Gov’t Code 5 2256,002(3)(B). 

Yiee, e.g., Fin. Code ch. 12 

“‘Cf: Local Gov’t Code 5 116.112 (authorizing commissioners courts to invest county funds); Letter Opinion 

No. 96.074 (1996) at 2. 

“As a state agency the Department possesses only those powers expressly delegated to it as well as those 

powers necessarily implied. ‘See Tri-City Fresh Water Supply Disf. No. 2 Y. Mann, 142 S.W.2d 945,946 (Tex. 1940); 

Harris County Water Control 8s Improvement Dist. No. 58 v. City ofHouston, 357 S.W.2d 189,795 (Tex. Civ. App.-- 

Houston 1962, writ ref d n.r.e.). 

You state that some agencies, which you have apparently polled for guidance in your own situation, have 

concluded that their own travel-advance monies are invested as authorized by Government Code section 404.024 and 

therefore subject to investment under the act, even though the comptroller does not have custody of the funds. YOU 

question these agencies’ interpretation of the act. This issue is irrelevant to resolving your question, so we do not 

discuss it. 

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Commissioner Catherine A. Ghiglieri - Page 9 (DM-489) 

SUMMARY 

The Public Funds Investment Act, Government Code chapter 2256, 

subchapter A, applies only to certain public funds. Public funds are those 

funds belonging to the state or a political subdivision that the state has 

collected in accordance with a general law and that will be used to serve the 

public interest generally. A governmental entity may invest under the act 

only public funds that, among other things, the entity is authorized to invest 

by a statute other than the act. 

The Commissioner of Banking may not invest under the act funds of a 

liquidated, uninsured bank or a trust company in conservatorship because the 

funds are not public funds. Likewise, the Commissioner may not invest 

under the act funds of a liquidated perpetual-care cemetery. The 

Commissioner may not invest under the act seized prepaid-funeral-contract 

funds, nor may the Commissioner invest under the act money in the prepaidfuneral-contract guaranty fund. Finally, the Commissioner may not invest 

travel-advance funds under the act because the Commissioner does not have 

statutory authority to do so. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

First Assistant Attorney General 

SARAH J. SHIRLEY 

Chair, Opinion Committee 

Prepared by Kymberly K. Oltrogge 

Assistant Attorney General 

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