July 26, 1988

Honorable 0.Ii.'*Ike@' Harris Opinion No. JM-932 Chairman Economic Development Committee Re: Whether l*localgovernTexas 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 askwhether the Interlocal Cooperation Act, article 4413(32c), V.T.C.S., authorizes local governments asdefined inthe act topool and jointly invest their public funds in investments authorized byother law and to create an to administer the investments. agency You state that~the participating local governments would provide for joint investment ofpublic funds by contract, combining their funds in the pool. Each local government would own anundivided interest inpool assets. Money finthe pool would be invested in obligations inwhich each participating local government's funds may be lawfully invested. Earnings and losses from all investments, aswell as administrative costs of the pool, would be equitably and proportionately allocated to participants.

The contract would establish a Joint Powers Agency governed by aboard ofdirectors consisting ofofficials or other designees ofparticipating local governments initially appointed by the contracting parties and thereafter elected byvote of.the participating local governments. The Joint Powers Agency would hold legal title tothe pooled investments ascustodian for the participating local governments. The agency would make investments inaccordance with basic rules and policies established by itsboard ofdirectors and approved bythe governing bodies ofthe participating local governments.

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

Your question relates to local governments as defined inarticle 4413(32c), V.T.C.S., the Interlocal Cooperation Act. These are as follows:

'local government' means acounty: a home rule city or a city, village, or town organized under the general laws of this state: aspecial district; aschool district;
ajunior college district: any other legally constituted political subdivision of the State ofTexas or any adjoining state: or a combination ofpolitical subdivisions.

V.T.C.S. art. 4413(32c), 53(l).

Your question and the accompanying statement of facts raises an issue 

## ofthe authority ofpublic officers to delegate their power and authority to invest public funds to
ajoint powers agency such as the one you describe. The discussion ofthis issue requires usto look atthe statutes which authorize political subdivisions tomake 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 ar~~~ad$te~4~ 1979 to place a duty on each state age;cy and political subdivision toadopt 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 toprovide 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 anarrow class specific local governments. See, of investments by
a Local Gov't Code §104.002 (investment oftrust fundseand'.special deposits by certain cities): 5140.002 (investment in obligations of United States funds remaining in political subdivision accounts at end ofyear). Because of the general nature of your question, wewill 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. 4679Honorable 0.H. "Ike" Harris -Page 3 (JM-932)

bedeposited inthe state treasury and that the agency or subdivision has legal authority to invest.

V.T.C.S. art. 4413(34c), 5l(1). A "political subdivision" isacounty, incorporated city ortown, or special purpose district. XL 5l(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), '53(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. 02. No one may "deposit, withdraw, invest, transfer,
orotherwise manage local funds" without express written authority ofthe governing body orchief executive officer of the subdivision. .kL 53(b). Article 842a-2, the Public Funds Investment Act of 1987, authorizes an incorporated city ortown, acounty, a school district, or an institution of higher education as defined by section 61.003 ofthe Education Code to invest its funds in various obligations, certificates, or agreements set out in the statute. A nonprofit corporation acting onbehalf ofany ofthese 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 ofprincipal, yield, maturity, and quality and capability of investment management, with primary emphasis
on safety and liquidity.** Section 4provides the following standard of care for investing funds under article 842a-2, V.T.C.S.:

Investments shall bemade 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 oftheir capital as well
asthe probable income tobederived.

V.T.C.S. art. 842a-2, 54.

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

Article 4413(34c), V.T.C.S., establishes that agovernmental body shall control the investment of its funds. It isexplicit as tothe persons to whom responsibility for investment may bedelegated: 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 ofthe 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 ofapolitical 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 todelegate to aJoint Powers Agency the authority tohold 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 inwhich governmental bodies may place their funds. Itallows anonprofit corporation acting on behalf of any of the enumerated governmental entities to invest its funds according tothe provisions of this act, but itdoes 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 anonprofit corporation would involve any relinquishment of power or responsibility by the political subdivision. This statute does not authorize the delegations ofauthority which would benecessary toestablish the investment pool you describe.

Inthe absence ofexpress authority, the governing body ofa municipality may not delegate toother persons the discharge of duties requiring anexercise of discretion. Horne Zooloaica 1Arena Co.v. Citv ofDallas 45S.W.Zd 714 (Tex. Civ. App. -Waco 1931, nowrit); see a&erallv Canales
v. Lauahlin, 214 S.W.Zd 451 (Tex. 1948); Linsev v. Texas Deoartment of Health, 727 S.W.2d 61AAz;;. 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. 4681Honorable 0.H. *lIke@q Harris -Page 5 (JM-932)

The Texas Supreme Court hasmade the following distinction between discretionary andministerial duties:

Where the law prescribes and defines the duties to beperformed with such precision and certainty as to leave nothing to the exercise ofdiscretion or judgment, the act isministerial; butwhere the act tobe done involves the exercise of discretion judgment, it is not to be deemed mere:; ministerial.

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

The statutes wehave discussed donot 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, 54.The courts have held that the selection 

## ofa depository isa discretionary matter forthe commissioners court

## ofacounty and the city council ofacity. Citizens State Bank ofRobv 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, nowrit). The investment oftpublic funds requires anexercise of judgment and discretion to aneven greater extent than the selection ofadepository. It involves decisions about the amount of money to invest and the allocation of funds to different kinds of investme.nts, as well asthe degree of risk to accept inexchange for ananticipated return. The governmental body orofficer inwhich these responsibilities are vested may not delegate them toother persons inthe 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 toperform governmental functions and services. "Governmental functions and services" isdefined 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

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protection: streets, roads, and drainage: public health andwelfare; 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), 53(2). "Administrative functions" isdefined 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 53(3).

Noprovision ofarticle 4413(32c), V.T.C.S., expressly authorizes alocal government tocontract away its power to perform discretionary duties. Weneed not decide whether there isany implied authority todelegate 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 ofgain topublic funds, are governmental responsibilities of anature to require an express indication of legislative intent before the officers towhom they are entrusted may delegate their exercise to other persons, if they are delegable at all. Article 4413(32c) issilent asto contracts for investment services, andwe conclude that this statute does not authorize the delegation of investment authority toan 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 inproviding 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 ofdelegation ofdiscretionary powers.
Finally, the legislature has considered the possibility ofestablishing alocal 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 butwas not adopted. in the 69th Legislative See Tex. H.B. 1464, 69th Leg. (1985). The proposed legislation would have established the investment pool as afund inthe custody ofthe state treasurer held outside the treasury. Local governments would have been authorized topay funds tothe 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 ofthe state." (1985). The resolution Tex. S.Con. Res. 1, 69th Leg. specifically stated that the investigation must consider implementation ofan 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 andhas referred this matter to the treasurer#s office for study indicates the legislature's belief that local governments donot have authority topool their funds for investment, and itsupports our conclusion that they may not contract under the Interlocal Cooperation Act to

## forman investment pool such asyou describe.

Inview ofour answer toyour first question, we need not answer your second question and counties to onthe authority of cities withdraw funds from their depositories to invest jointly through an investment pool in obligations described inthe 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. 4684Honorable 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 ofanagency created pursuant to that act. The investment ofpublic funds is a matter involving the exercise of discretion and it may not bedelegated inthe 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., orarticle 4413(34c) authorize such delegation.

Very truly you 

# J /tbh

A;, JIM MATTOX Attorney General ofTexas

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

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