# The Attorney General of Texas
May 28, 1981 MARK WHITE Attorney General

Honorable 0. H.“Ike” Harris Honorable Chairman Economic Development Committee Texas State Senate Austin, Texas 787ll

Dear Senator Harris: Opinion No. ~~-343 Re: Whether cities may invest their funds in United States Treasury Bills and Notes instead of Treasury instead city depositories

You have asked usseveral questions concerning the authority ofcities, including home rule cities, to invest their funds in United States Treasury Bills and Treasury Notes rather than maintaining them in time deposits in the city depository selected inaccordance with article 2559-2566a, V.T.C.S. ,Yourfirst question isasfollows:

(1) Are city officials permitted to withdraw funds from the city depository to invest them in United States securities in situations other ~than those expressly permitted bystatute? Article 2561,V.T.C.S., provides that assoon as the depository hasbeen selected, the city treasurer must transfer to it all funds in hi hands belonging to the city. Attorney General Opinion MW-224 (1980) construed the similar language of article 2549, V.T.C.S., relating to the county depository. The opinion concluded that where astatute provides that all the money be placed in the depository, a more specific statute providing an exception must exist before the political subdivision may withdraw funds to place them infederal debt instruments. See, e.g., V.T.C.S. art. 1182g.
You next ask:

(2)If the answer to question (l)above isno, should such unauthorized investment by city officials constitute abreach ofthe city depository contract?Honorable 0. H. “Ike” Harris - Page Two (MW-343)

Aswestated in Attorney General Opinion MW-224, the laws existing at the time of contract formation become part of the contract. Langever v. Miller, 78 S.W. 2d 1025(Tex. 1934); Winder Bros. v. Sterling, 12S.W. 2d 127(Tex. 19291. Weconcluded that if the county withdrew funds from the depository in orders to invest them in United States securities other than as authorized by statute, it would breach its depository contract.. We believe the same reasoning is applicable to the city depository contract. Your third question isas follows:

(31Are provisions contained in a city depository contract which are inconsistent or conflict with the city depository statutes unenforceable? A city availing itself of the procedures for selecting a depository set out in articles 2559-2566a, V.T.C.S., is bound by those provisions. It may not enter into a depository contract containing inconsistent provisions. See Attorney General Opinion M-224. Thus, inconsistent provisions added to the depository contract would be unenforceable. City ofDalhart v. Childers, 18F.Supp. 903,907 (N.D.Tex. 1937). Younext ask

(4) Does article 12893-3,Tex. Rev. Civ. Stat. Ann., authorize city officials to withdraw at the end of a fiscal year and place in federal obligations funds which were collected for expenditure insubsequent fiscal years? Article 1269j-3, V.T.C.S., reads asfollows:

All polltiaal subdivisions of the State of Texas which have balances remaining in their accounts at the end of any fiscal year may invest such balances in Defense Bonds or other obligations ofthe United States of America; provided, however, that when such funds are needed the obligations of the United States in which such balances are invested shall be sold or raedeemed and the proceeds ofsaid obligations shall bedeposited in the accounts from which they were originally &awn. Acity isapolitical subdivision. City of Corpus Chrlsti v.Gregg, 275S.W.2d547(Tex. Civ. App.-San Antonio 1954,no writ); Rxparte Ernest, 136S.W. 2d 595 (Tex. Crim. App. 1939). It is therefore subject to article 1269j-3, V.T.C.S. This provision authorizes cities to invest only the monies remaining as surplus in the separate accounts for the preceding fiscal year. Attorney General Opinion MW-224 (1980). Money collected to finance public expenditures in the subsequent fiscal year are attributable to accounts for the newyear, not the old one, and article 12891-3does not permit their withdrawal until the conclusion ofthe new fiscal year.

p. 1131Honorable 0. H.“Ike” Harris - Page Three (MW-343)

Your final question is8sfollows:

(5)Since article 2559, Tex. Rev. Civ. Stat. Ann., expressly applies to ‘Home Rule’ cities and in view of the fact that under article 11,section 5of the constitution, a ‘Home Rule’ city does not have the power to take action prohibited by or inconsistent with the constitution or the statutes of the state ofTexas, are your conclusions with respect to the city depository statutes applicable to ‘Home Rule’ cities as well as other cities, ,towns and villages inTexas? Article 2559, V.T.C.S., states inpertinent part:

The governing body of every city, town and village in the State ofTexas, incorporated under either the General or Special Laws, including those operating under special charter or amendments of charter adopted pursuant to the ‘Home Rule’ provisions of the Constitution, is authorized to receive aoolications for the custody of city funds from any.. . banker.

.. that may desire to-be selected as a depository.

.. . (Emphasis added). A city entering into a depository contract must do so according to the provisions of articles 2559-2566a, V.T.C.S. The only judicially noted exception is a city incorporated under special law prior to the enactment of the city depository law. The deoositorv orovisions in the soecial charter were not renealed by the general law. divan ;. kity of Galveston, i7 S.W. 2d478 (Tex. Civ. App.- Gaivestonl928), aft’d, 34S.W.2d808(Tex. Comm’n App. 1931,jdgmt adopted). A home rule city, on the other hand, may not enact charter provisions inconsistent with general law. Tex. Const. art. XI, S5. When it places its funds in a depository, it must comply with the general statute authorizing cities to use depositories. The home rule city is limited by article 2559, V.T.C.S., to the same extent asgeneral law cities. See V.T.C.S. art. 2529c, gl. - SUMMARY When a city uses a depository it must comply with the procedures set out in articles 2559-2566a, V.T.C.S. City officials may withdraw funds from the depository to invest them in United States securities only as expressly permitted by statute. To withdraw such funds would constitute a breach of the depository contract. Any provisions contained in the depository contract inconsistent with the city depository statutes are unenforceable. Article 12693-3, V.T.C.S., authorizes cities to invest infederal obligations only the monies remaining as surplus from the proceeding fiscal year.

p. 1132Honorable 0. H.“Ike” Harris - Page Four (m-343)

MARK WHITE Attorney General ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General RICHARD E.GRAY, 111 Executive Assistant Attorney General Prepared by Susan L.Garrison Assistant Attorney General APPROVED: OPINION COMMl’lTEE Susan L.Garrison, Chairman James Allison Rick Gilpin Jim Moelinger Bruce Youngblood

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