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C Mr. Bruce Campbell

President Brazes River Authority P. 0. Box 7555 Waco, Texas 76714 Opinion NO. JM-832
Re: The selection and qualification of depositories for the funds ofRiver Authorities (RQ-1034)
DearMr. Campbell:
At the request of the board ofdirectors of the Brazes River Authority, established in 1929by special law, see Acts 1929, 41st Leg., 2dC.S., Special Laws, ch. 13, at 22,you pose three questions about the power of the river authority tomake deposits of its funds. You ask:

Under the 44Gi34c) provisions of article

,can funds of the authority be deposited inbanks offering FDIC [Federal Deposit Insurance Corporation] insurance to the extent that the deposits are fully covered by such insurance without requiring pledge of securities to additionally secure such deposits?
b. Under article 4413(34c), can the authority enter into arrangements with members of bank holding company families which will take deposits in excess of $100,000.00 anddistribute them among other members of theholding company families, so that all of the deposits are fully insured by FDIC insurance, without requiring each of the depositories to qualify inthe manner provided for incounty depositories?

C. Under article. 4413(34c) can the authority deposit its funds in&counts of or certificates of deposit issued by banks which have not qualified asdepositories of authority funds in themanner provided for county depositories if such deposits are fully covered by FDIC insurance?

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.h,

P Each ofyour questions concerns the intent and scope

of article 4413(34c), V.T.C.S., a 1979 act relating to the investment of public funds inthe custody of state agencies and political subdivisions. SeeActs 1979, 66th Leg., ch. 810,.at 2071. The statute provides inpertinent part: Section 1. InthisAct:

(1) 'Local funds'means public funds in the custody of a state agency or political subdivision that arenot required by law to be deposited in the state treasury and that the aaencv authoritv to invezg. subdivision has leaal

(2) 'State agency' means an office, department, commission, board, or other agency, including an institution of higher education or a river authority, that is a part of anybranch of state government.

. . . . Sec. 2. Each state agency or political subdivision shall adopt rules,governing the investment of local funds of the agency or ~subdivision. The rules shall clearly specify the scope of authority of officers and employees of the agency or subdivision that are designated to invest the local funds.

. . . . Sec. 6. A state agency or political subdivision shall invest local funds in investments that yield the highest possible rate of return while providing necessary protection of the principal consistent with the operating requirements asdetermined by the governing body.
Sec. 7. This section does not prohibit an investment specifically authorized by other lawnor authorize an investment soecificallv orohibited bv other law. (Emphasis added.)
As this office observed inAttorney General Opinion MB-224 (1980),article 4413(34c), V.T.C.S., applies only

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to fundswhich the political subdivision or state agency has authority to invest, andplacing funds inadepository isnot an investment of those funds. Lawson v. Baker, 220 S.W. 260 (Tex. Civ.App. - Austin 1920, writ ref'd). Thus, article 4413(34c), does not authorize the Brazes River Authority to invest funds which other statutes require to be placed inan official depository. See Attorney General Opinion Nos. MW-343 (1981): H-1013 (1977):H-723 (1975). Nor does it inany way alter legal requirements forofficial depositories.
The original designation of the Brasos River Authority was "The Brazes River Conservation and Reclamation District." Acts 1929, 41st Leg., 2dC.S., Special Laws, ch. 13, at 22. The namewas changed in 1953. See Acts 1953, 53rd Leg., ch. 194, 51,at 531. this office determined In 1939, that article 7880-113, V.T.C.S., governed the selection and usage ofadepository for the SanJacinto River Conservation andReclamation District, a similar agency created by special act. See General Opinion O-1707 (1939). Attorney The language found in the statute creating the SanJacinto River district upon which Attorney General Opinion O-1707 relied for its conclusion isalso found in the Brazes River Authority statute. We conclude that both are governed by the same law respecting depositories. Cf.Acts 1934, 43rd Leg., 4th C.S., ch. 7, 517, at 19, 31 (LowerColorado River Authority Act -- "no other lawwith regard to the . . .deposit of the proceeds [ofbonds] . . .shall be construed as applying"); Lower Colorado River Authoritv v. Chemical Bank and Trust Co. 185 S.W.Zd 461 (Tex.Civ. App. -Austin), aff'd, 190 S.W.2d 48 (Tex. 1945). With the enactment ofthe Water Code in 1971, see Acts 1971, 62d Leg., ch. 58,at 110,portions ofarticle 7880-113 became sections 51.356 and 51.357 of the code. Section 51.356 provides:

(a) The board shall select a depository for the district inthemanner provided for the selection of acounty depository and shall perform all duties provided by law for the selection ofa depository, acceptance and approval ofbonds, and other acts. (b) The depository shall execute a good and sufficient bond or security thatwill be the same asprovided by law for a county depository approved by the board to fully protect the district and to guarantee the preservation of the funds and the

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P

P accountability of the depository asprovided by law. The bond or security shall be recorded inthe district office and kept in a fireproof vault or safe. (c) Except as otherwise provided, the duties and the bond and security of the depository shall be the same asprovided by law foracounty depository. Section 51.357 reads:

(a) Funds of the district shall be deposited in the depository and shall be paid out asprovided inthis chapter. (b) The funds shall bedeposited in the interest and sinking fund account, the construction account, or the maintenance account, and each account shall be maintained separately. (c) No money may be paid from the interest and sinking fund account except to pay interest and principal onbonds and to pay the expenses ofassessing and collecting taxes topay forthe bonds. (d) The depository shall make a report of allmoney received and paid outby it at the end of each month and shall file the report and thevouchers with the records of the district in the depository vault. A copy of the report shall bemade available for inspection by any taxpayer and shall be delivered to the successor of the depository. Sub:;ection(b)of section 51.356 specifies that the depository shall execute abond or security "thatwill he the same asprovided by law foracounty depository." The law that controls thebond or security to be furnished by acounty depository isnow found inchapters 116, 117, 130 and 131 of the Local Government Code. Section 116.060 thereof reads:

Adepository is not required to provide security for the deposit of county funds to the extent the deposits are insured under 12 U.S.C.A. Sections 1811-1832.

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Sections 1811-1832 of 12U.S.C. dealwith the Federal Deposit Insurance Corporation. Consequently, in reply to your first question, toqualify as the depository for the river authority, the selected depository need not furnish bonds orpledge securities to protect the amount to be deposited that will be insured by the Federal Insurance Corporation. Deposit

Inresponse toyour second question, we advise that the authority cannot arrange with abank holding company todistribute the authority's deposits among member banks that have not qualified according to law as official depositories of the authority. See Attorney General Opinion Nos. JM-383 (1985);H-1185 (1978).
We answer your third question in the samevein. The authority may not deposit its funds inaccounts .ofbanks which have not qualified asdepositories of the authority, nor purchase certificates ofdeposit fromanybank in lieu of following the requirements of law for the selection of depositories. @g Attorney General Opinion Nos. JM-383 (1985);MW-343 (1981);MW-224 (1980);H-1013 Local Gov't Code 5116.112(a), (b) (withdrawal (1977). cf. in certain circumstances ofdeposits investment in direct debt exclusively for

securities of theUnited States or collateralized fully repurchase agreements): V.T.C.S. art. 6252-5a.(permissible investments inother circumstances).
SUMMARY Article 4413(34c), V.T.C.S., does not alter legal requirements for official depositories. The Brazes cannot directly River Authority or indirectly deposit its funds in depositories that have not qualified according to law,but inorder to qualify as an official depository the depository selected need not furnish bonds orpledge securities to protect that are insured by the Federal deposits Deposit Insurance Corporation.

JIM MATTOX Attorney General of Texas
MARY KELLER Executive Assistant Attorney General

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JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General
RICK GILPIN Chairman, Opinion Committee Prepared by Bruce Youngblood Assistant Attorney General

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