The Attorney General of Texas 

May 28, 1981 

MARK WHITE 

Attorney General 

Honorable Honorable 0. H. “Ike” Harris 

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 Treasury Bills and Notes instead instead of 

city depositories 

You have asked us several questions concerning the authority of cities, 

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 in accordance with article 2559-2566a, V.T.C.S. 

,Your first question is as follows: 

(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 by statute? 

Article 2561, V.T.C.S., provides that as soon as the depository has been 

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 a statute 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 in federal debt instruments. See, e.g., V.T.C.S. art. 1182g. 

You next ask: 

(2) If the answer to question (l) above is no, should 

such unauthorized investment by city officials 

constitute a breach of the city depository contract? 
Honorable 0. H. “Ike” Harris - Page Two (MW-343) 

As we stated 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, 12 S.W. 2d 127 (Tex. 19291. We concluded 

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 is as follows: 

(31 Are 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 of Dalhart v. Childers, 18 F. Supp. 903,907 (N.D. Tex. 1937). 

You next 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 in subsequent fiscal years? 

Article 1269j-3, V.T.C.S., reads as follows: 

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 of the 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 of said obligations shall be deposited 

in the accounts from which they were originally &awn. 

A city is a political subdivision. City of Corpus Chrlsti v. Gregg, 275 S.W. 2d 547 (Tex. 

Civ. App. - San Antonio 1954, no writ); Rx parte Ernest, 136 S.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 new year, not the old one, and article 12891-3 does not 

permit their withdrawal until the conclusion of the new fiscal year. 

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

Your final question is 8s follows: 

(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 5 of 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 of Texas, are 

your conclusions with respect to the city depository statutes 

applicable to ‘Home Rule’ cities as well as other cities, ,towns 

and villages in Texas? 

Article 2559, V.T.C.S., states in pertinent part: 

The governing body of every city, town and village in the 

State of Texas, 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. 2d 478 (Tex. Civ. App. - Gaivestonl928), aft’d, 

34 S.W. 2d 808 (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 as general 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 in federal obligations only the monies 

remaining as surplus from the proceeding fiscal year. 

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

MARK WHITE 

Attorney General of Texas 

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 Y oungblood 

p. 1133