July 26, 1988 

Honorable 0. Ii. '*Ike@' Harris Opinion No. JM-932 

Chairman 

Economic Development Committee Re: Whether l*local governTexas State Senate ments," as defined in the 

P. 0. Box 12068 

Austin, Texas 

Interlocal Cooperation Act, 

78711 article 4413(32c), V.T.C.S., 

may pool their funds for 

purposes of an authorized 

investment (RQ-1360j 

Dear Senator Harris: 

You ask whether the Interlocal Cooperation Act, article 

4413(32c), V.T.C.S., authorizes local governments as defined 

in the act to pool and jointly invest their public funds in 

investments authorized by other law and to create an 

to administer the investments. 

agency 

You state that~the participating local governments would provide for joint investment 

of public funds by contract, combining their funds in the 

pool. Each local government would own an undivided interest 

in pool assets. Money fin the pool would be invested in 

obligations in which each participating local government's 

funds may be lawfully invested. Earnings and losses from 

all investments, as well as administrative costs of the 

pool, would be equitably and proportionately allocated to 

participants. 

The contract would establish a Joint Powers Agency 

governed by a board of directors consisting of officials or 

other designees of participating local governments initially 

appointed by the contracting parties and thereafter elected 

by vote of.the participating local governments. The Joint 

Powers Agency would hold legal title to the pooled investments as custodian for the participating local governments. 

The agency would make investments in accordance with basic 

rules and policies established by its board of directors and 

approved by the governing bodies of the participating local 

governments. 

p. 4678 
Honorable 0. Ii. "Ike" Harris - Page 2 (JM-932) 

Your question relates to local governments as defined 

in article 4413(32c), V.T.C.S., the Interlocal Cooperation 

Act. These are as follows: 

'local government' means a county: a home 

rule city or a city, village, or town 

organized under the general laws of this 

state: a special district; a school district; 

a junior college district: any other legally 

constituted political subdivision of the 

State of Texas or any adjoining state: or a 

combination of political subdivisions. 

V.T.C.S. art. 4413(32c), 5 3(l). 

Your question and the accompanying statement of facts 

raises an issue of the authority of public officers to 

delegate their power and authority to invest public funds to 

a joint powers agency such as the one you describe. The 

discussion of this issue requires us to look at the statutes 

which authorize political subdivisions to make investments. 

Since you ask about local governments generally, we will 

discuss article 4413(34c), V.T.C.S., and article 842a-2, 

V.T.C.S., two statutes which 

governments. Article 4413(34~)~~~!~.~oS a r~~~ad$te~4~ 

1979 to place a duty on each state age;cy and political 

subdivision to adopt rules governing the investment of its 

local funds. Acts 1979, 66th Leg., ch. 810, at 2071. See 

Bill Analysis, Tex. H.B. 2122, 66th Leg. (1979). Article 

842a-2, V.T.C.S., was adopted in 1987 to provide a comprehensive plan for the investment of public funds, 

including authorization for specific kinds of investments. 

Acts 1987, 70th Leg., ch. 889, at 2985. See Bill Analysis, 

Tex. H.B. 1488, 70th Leg. (1987). There are in addition 

statutes which authorize a narrow class 

specific local governments. See, 

of investments by 

a Local Gov't Code 

§ 104.002 (investment of trust fundseand'.special deposits by 

certain cities): 5 140.002 (investment in obligations of 

United States funds remaining in political subdivision 

accounts at end of year). Because of the general nature of 

your question, we will not address the narrower statutes. 

Article 4413(34c), V.T.C.S., governs the investment of 

local funds, defined as follows: 

'Local funds' means public funds in the 

custody of a state agency or political 

subdivision that are not required by law to 

p. 4679 
Honorable 0. H. "Ike" Harris - Page 3 (JM-932) 

be deposited in the state treasury and that 

the agency or subdivision has legal authority 

to invest. 

V.T.C.S. art. 4413(34c), 5 l(1). A "political subdivision" 

is a county, incorporated city or town, or special purpose 

district. XL 5 l(3). 

If no ,law assigns an officer responsibility for 

investment of local funds, the political subdivision shall 

designate one or more officers or employees of the 

subdivision to have that responsibility. V.T.C.S. art. 

4413(34c), '5 3(a). The political subdivision shall adopt 

rules governing the investment of its funds, including rules 

that clearly specify the scope of authority of the 

designated officers and employees to invest public funds. 

Id. 0 2. No one may "deposit, withdraw, invest, transfer, 

or otherwise manage local funds" without express written 

authority of the governing body or chief executive officer 

of the subdivision. .kL 5 3 (b) . 

Article 842a-2, the Public Funds Investment Act of 

1987, authorizes an incorporated city or town, a county, a 

school district, or an institution of higher education as 

defined by section 61.003 of the Education Code to invest 

its funds in various obligations, certificates, or agreements set out in the statute. A nonprofit corporation 

acting on behalf of any of these entities may exercise its 

investment authority under the statute. Section 5 of 

article 842a-2, V.T.C.S., provides‘that investments shall be 

made in accordance with written policies 

governing body, 

approved by the 

which must address "liquidity, diversification, safety of principal, yield, maturity, and quality and 

capability of investment management, with primary emphasis 

on safety and liquidity.** Section 4 provides the following 

standard of care for investing funds under article 842a-2, 

V.T.C.S.: 

Investments shall be made with judgment 

and care, under circumstances then prevailing, that persons of prudence, discretion, and intelligence exercise in the 

management of their own affairs, not for 

speculation, but for investment, considering 

the probable safety of their capital as well 

as the probable income to be derived. 

V.T.C.S. art. 842a-2, 5 4. 

p. 4680 
Honorable 0. H. "Ike" Harris - Page 4 (JM-932) 

Article 4413(34c), V.T.C.S., establishes that a governmental body shall control the investment of its funds. It 

is explicit as to the persons to whom responsibility for 

investment may be delegated: officers or employees of the 

governmental body. V.T.C.S. art. 4413(34c), §§ 2, 3(a). 

The scope of their authority must be clearly specified by 

rule, and they must have the written authority of the 

governing body or chief executive officer of the political 

subdivision to deposit, withdraw, invest, transfer, or 

otherwise manage funds eligible for investment. Id., §§ 2, 

3(b). This statute does not authorize the governmental body 

of a political subdivision to delegate its responsibility 

for investment decisions to another political subdivision, 

or to a Joint Powers Agency created by contract among 

several political subdivisions. Nor does it permit a 

governmental body to delegate to a Joint Powers Agency the 

authority to hold legal title as custodian to investments 

purchased with its funds. 

Article.E42a-2, V.T.C.S., deals primarily with the 

kind of investment instruments in which governmental bodies 

may place their funds. It allows a nonprofit corporation 

acting on behalf of any of the enumerated governmental 

entities to invest its funds according to the provisions of 

this act, but it does not itself authorize the formation of 

such a corporation. V.T.C.S. art. 842a-2, § 2(a). Cf. 

V.T.C.S. art. 5190.6, 55 21, 22 (development corporations). 

Nor does it indicate that investment of funds by a nonprofit 

corporation would involve any relinquishment of power or 

responsibility by the political subdivision. This statute 

does not authorize the delegations of authority which would 

be necessary to establish the investment pool you describe. 

In the absence of express authority, the governing body 

of a municipality may not delegate to other persons the 

discharge of duties requiring an exercise of discretion. 

Horne Zooloaica 1 Arena Co. v. Citv of Dallas 45 S.W.Zd 714 

(Tex. Civ. App. - Waco 1931, no writ); see a&erallv Canales 

v. Lauahlin, 214 S.W.Zd 451 (Tex. 1948); Linsev v. Texas 

Deoartment of Health, 727 S.W.2d 61 AAz;;. App. - Austin 

1987, writ ref'd n.r.e.); Newsom v. , 451 S.W.Zd 948 

(Tex. Civ. App. - Beaumont 1970, no writ): Moodv v. Texas 

Water Commission, 373 S.W.Zd 793 (Tex. Civ. App. - Austin 

1963, writ ref'd n.r.e.). And some governmental functions 

are not delegable at all. See Clear Lake Citv Water 

Authoritv v. Clear Lake Utilities Co., 549 S.W.Zd 385 (Tex. 

1977). 

p. 4681 
Honorable 0. H. *lIke@q Harris - Page 5 (JM-932) 

The Texas Supreme Court has made the following distinction between discretionary and ministerial duties: 

Where the law prescribes and defines the 

duties to be performed with such precision 

and certainty as to leave nothing to the 

exercise of discretion or judgment, the act 

is ministerial; but where the act to be done 

involves the exercise of discretion 

judgment, it is not to be deemed mere:; 

ministerial. 

Rains v. SimusoB, 50 Tex. 495, 501 (1878). 

The statutes we have discussed do not define investment 

duties with precision and certainty. They require public 

officers to exercise their judgment subject to a high 

standard of care. m V.T.C.S. art. 842a-2, 5 4. The courts 

have held that the selection of a depository is a discretionary matter for the commissioners court of a county and 

the city council of a city. Citizens State Bank of Robv 

McCai& 274 S.W.2d 184 (Tex. Civ. App. - Eastland 1954, zo 

writ): Hartford Accident & Indemnity Co. v. Temoleman, 18 

S.W.2d 936 (Tex. Civ. App. - Galveston 1929, no writ). The 

investment oft public funds requires an exercise of judgment 

and discretion to an even greater extent than the selection 

of a depository. It involves decisions about the amount of 

money to invest and the allocation of funds to different 

kinds of investme.nts, as well as the degree of risk to 

accept in exchange for an anticipated return. The governmental body or officer in which these responsibilities are 

vested may not delegate them to other persons in the absence 

of express authority. 

As already pointed out, neither article 842a-2, 

V.T.C.S., nor article 4413(34c), V.T.C.S., authorizes the 

delegation of investment authority necessary to establish 

the investment pool you describe. Article 4413(32c), 

V.T.C.S., the Interlocal Cooperation Act, does not permit 

the necessary delegation either. This statute provides 

that a local government may contract with another local 

government to perform governmental functions and services. 

"Governmental functions and services" is defined as follows: 

'governmental functions and services' means 

all or part of any function or service 

included within the following general areas: 

police protection and detention services: fire 

p. 4682 
Honorable 0. H. "Ike" Harris - Page 6 (JM-932) 

protection: streets, roads, and drainage: 

public health and welfare; parks: recreation: 

library services: museum services ; waste 

disposal; planning: engineering; administrative functions: and such~ other governmental 

functions which are of mutual concern to the 

contracting parties. 

V.T.C.S. art. 4413(320), 5 3(2). "Administrative functions" 

is defined as follows: 

(3) 'administrative functions# means 

functions normally associated with the 

routine operation of government such 

tax assessment and collection, personnZS 

services, purchasing, data processing, warehousing, equipment repair, and printing. 

XL 5 3(3). 

No provision of article 4413(32c), V.T.C.S., expressly 

authorizes a local government to contract away its power to 

perform discretionary duties. We need not decide whether 

there is any implied authority to delegate the discretionary 

aspect of any function or service set out in article 

4413(32c), V.T.C.S., based on 

function or service. 

the nature of the particular 

See Lipsev v. Denartment of Health, 

727 S.W.Zd at 65. The statute on the whole involves 

services and functions for which local governments may 

contract without delegating governmental powers. See 

Attorney General Opinion H-1018 (1977) (contract for road 

construction). Investment decisions, because they involve a 

risk of loss and possibility of gain to public funds, are 

governmental responsibilities of a nature to require an 

express indication of legislative intent before the officers 

to whom they are entrusted may delegate their exercise to 

other persons, if they are delegable at all. Article 

4413(32c) is silent as to contracts for investment services, 

and we conclude that this statute does not authorize the 

delegation of investment authority to an entity created by 

contract. 

Attorney General Opinion MW-347 (1981) concluded that 

local governments had power under the Interlocal Cooperation 

Act to contract to form self insurance pools to cover risks 

inherent in providing governmental functions and services. 

This opinion, 

opinion as 

however, also stated that "[we] express no 

to how such a insurance pool should be 

p. 4683 
, 

Honorable 0. H. "Ike" Harris - Page 7 (JM-932) 

structured, and how obligations may be allocated among the 

members. II Hut see Local Gov't Code ch. 119 

creation of 

(authorizing 

county Government Risk Management Pool). 

Thus, Attorney General Opinion MN-347 did not consider any 

question of delegation of discretionary powers. 

Finally, the legislature has considered the possibility 

of establishing a local government investment pool but has 

not adopted legislation accomplishing this. 

Advisory 

See Texas 

Commission on Intergovernmental Relations, 

Statutory Update: Investment of Idle Funds by Local 

Governments (1985). 

investment pool 

A bill creating a 

was introduced 

local government 

Session but was not adopted. 

in the 69th Legislative 

See Tex. H.B. 1464, 69th Leg. 

(1985). The proposed legislation would have established 

the investment pool as a fund in the custody of the state 

treasurer held outside the treasury. Local governments would 

have been authorized to pay funds to the treasurer for 

deposit in the investment pool and investment under the 

authority and responsibility of the treasurer. The 69th 

Legislature did pass Senate Concurrent Resolution No. 1 

directing the state treasurer's office to "investigate the 

potential benefits of enhancing and supplementing financial 

management services that are made available to political 

subdivisions of the state." 

(1985). The resolution 

Tex. S. Con. Res. 1, 69th Leg. 

specifically stated that the 

investigation must consider implementation of an investment 

pool program for political subdivisions. Id.; see also 

Texas Advisory Commission of Intergovernmental Relations, 

Statutory Update, suora. 

considered 

The fact that the legislature has 

establishing an investment pool for local 

governments and has referred this matter to the treasurer#s 

office for study indicates the legislature's belief that 

local governments do not have authority to pool their funds 

for investment, and it supports our conclusion that they may 

not contract under the Interlocal Cooperation Act to form an 

investment pool such as you describe. 

In view of our answer to your first question, we need 

not answer your second question 

and counties to 

on the authority of cities 

withdraw funds from their depositories to 

invest jointly through an investment pool in obligations 

described in the Public Investment Act of 1987. Hut see 

Attorney General Opinions MN-343 (1981); MN-224 (1980) 

(discussing authority of cities and counties to withdraw 

funds from their depositories to invest them in federal debt 

instruments). 

p. 4684 
Honorable 0. H. "Ike" Harris - Page 8 (JM-932) 

-\ 

Local governments are not authorized by 

the Interlocal Cooperation Act, article 

4413(32c), V.T.C.S., to pool and jointly 

invest their public funds under the administration of an agency created pursuant to that 

act. The investment of public funds is a 

matter involving the exercise of discretion 

and it may not be delegated in the absence 

of express statutory authority, if at all. 

Article 4413(32c), V.T.C.S., does not 

authorize local governments to delegate to 

another entity their authority to make 

investments: nor does article 842a-2, 

V.T.C.S., or article 4413(34c) authorize such 

delegation. 

Very truly you J A;, /tbh 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

Lou MCcREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison 

Assistant Attorney General 

p. 4685