THE ATTORNEY GENERAL 

OF TEXAS 

July 1, 1988 

Honorable Rene Guerra 

Criminal District Attorney 

Hidalgo County Courthouse 

Edinburg, Texas 70539 

Opinion No. JM-928 

Re: Selection of a depository by a hospital authority (RQ-1350) 

Dear Mr. Guerra: 

You ask: 

1. If a hospital authority created 

city under the provision of TEX. REV. 

STAT. ANN. Art. 4437e (1976 and Supp. 

selects a depository different from the 

under the provision of Sec. 15 of said 

by a 

CIV. 

1988) 

city 

Act, 

do the provisions of Chapter 105, titled 

Depositories for Municipal Funds, of the 

Texas Local Government Code apply to the 

hospital authority's depository? 

2. If so, can said depository transfer 

part of such authority's funds to sister 

banks owned by the same holding company such 

that all of the funds are covered by Federal 

Deposit Insurance, thus avoiding, under Sec. 

105.037 of the Local Government Code, having 

to provide security for funds not so insured, 

as otherwise required by subchapter C of 

Chapter 105 of the Local Government Code? 

YOU furnish this office with the following background 

information: 

The Edinburg Hospital Authority was 

created by the city of Edinburg under the 

provisions of TEX. REV. CIV. STAT. ANN. Art. 

4437e (1976 and Supp. 1988). Pursuant to EE; 

provisions of Sec. 15 of said statute, 

Edinburg Hospital Authority has selected a 

depository different from that of the City of 

Edinburg. In the Authority's Depository 

p. 4655 
Honorable Rene Guerra - Page 2 (JM-928) 

contract it is provided that the monies of 

the Authority can be used to purchase certificates of deposit in various banks affiliated 

with the depository bank in less than 

$lOO,OOO.OO increments, thus providing that 

at all times under the contract the Authority's funds will be provided with F.D.I.C. 

insurance. The designated depository has 

chosen tom purchase certificates of deposit 

with the Authority's monies in the Authority's name from its affiliates under the 

provisions of its depository contract. There 

are two or more banks doing business within 

the city of Edinburg. 

Section 15 of the Hospital Authority Act, article 

4437e, V.T.C.S., provides the answer to your question: 

The Authoritv may select a deoositorv or 

devositories accordina to the vrocedures 

p.rovided bv law for the selection of citv 

deoositoriea or it may award its depository 

contract to the same depository or depositories selected by the City or Cities and on 

the same terms. (Emphasis added.) 

In o~ther words, a hospital authority created by a 

pursuant to article 4437e, V.T.C.S., need not select cikZ 

sase depositorjj as the city. Ii, however, it chooses a 

different depository, it must make its selection pursuant to 

the procedures set out in chapter 105 of the Local 

Government Code. 

Several provisions in chapter 105 deal with the 

provision of security. Section 105.014 provides: 

(a) After considering the applications, 

the governing body of the municipality shall 

select as municipal depositories one or more 

banks that offer the most favorable terms and 

conditions for the handling of the municipal 

funds. 

(b) The governing body may reject any of 

the applications and readvertise for 

applications. 

(c) The conflict of interests provisions 

of Chapter 179, Acts of the 60th Legislature, 

Regular Session, 1967 (Article 2529c, 

p. 4656 
Uonora~ble Rene Gurrra - Page 3 (JM-928) 

Vernon's Texas Civil Statutes), apply to the 

selection of the depositories. 

Section 105.015 provides: 

(a) When 1 rovided in 

accordance with Subchavter C and is avoroved 

bv the oovernina body of the municivalitv. 

the CQ ov rnin bod 

order recorded in its minutes. the bank as a 

devositorv for the municivalitv's funds. 

(b) If a bank selected as a municipal 

depository does not provide security by the 

deadline prescribed by Section 105.031, the 

selection of the bank as a depository is 

void, and the governing body shall publish 

notice, receive applications, and select 

another depository in the regular manner. 

(Emphasis added.) 

Section,105.037 provides: 

A depository is not required to provide 

security for the deposit of municipal funds 

to the extent the deposits are insured under 

12 U.S.C.A. Sections 1811-1832. 

Your second question follows from these provisions 

regarding security. YOU restate the second question 

succinctly, as follows: 

Assuming that the preliminary hurdle of 

determining whether the above-described rules 

apply to a hospital authority created under 

Article 4437e is resolved with a decision 

that they do apply, the unresolved issue 

becomes whether a designated local depository 

may, within the statutory rules, buy certificates of deposit from non-local, non-depository banks and thus avoid the local preference 

and security requirements of the codified 

statutes governing public fund depositories. 

In Attorney General Opinion JM-832 (1987), an analogous 

issue was presented regarding the selection and qualification of depositories for the funds of river authorities. In 

Attorney General Opinion JM-832 one of the questions asked 

was 

p. 4651 
Honorable Rene Guerra - Page 4 (JM-92.8) 

Under article 4413(34c), can the authority 

enter into arrangements with members of bank 

holding company families which will take 

deposits in excess of $lOO,OOO.OO and distribute them among other members of the holdino 

company families, 

are fully insured 

requiring each of 

in the manner 

depositories? 

so that all of the deposits 

by FDIC insurance, without 

the depositories to qualify 

provided for in county 

Article 4413(34c), V.T.C.S., relates to the investment 

of public funds in the custody of state agencies and 

political subdivisions. Section 51.356 of the Water Code 

provides that the river authority shall select a depository 

in the same manner provided for the selection of a county 

depository. It was concluded in Attorney General Opinion 

JM-832 that the river authority may not arrange with a bank 

holding company to distribute the authority's deposits among 

member banks that have not qualified according to law as 

official depositories of the authority. 

We conclude that the requirement that a hospital 

authority select a depository according to the procedures 

provided by law for the selection of a city depository set 

forth in section 18 of article 4437e mandates the same 

result. The hospital authority may not contract with a 

depository to transfer part of the authority's funds to 

sister banks owned by the same holding company that have not 

qualified according to subchapter C of. chapter 105 of the 

Local Government Code. 

SUMMARY 

The provisions of chapter 108 of the Local 

Government Code relating to depositories for 

~~~~~~~‘Au~~~~~ty."p~~e ~~,,,~~~, f$b;zz 

enter into a contract that allows the 

depository to transfer funds to sister banks 

owned by the same holding company that do not 

qualify according to law as official depositories for a municipality. 

-Jzy& 

JIM MATTOX 

Attorney General of Texas 

-. 

p. 4658 
Honorable Rene Guerra - Page 5 (JM-928) 

MARY K?3LLER 

First Assistant Attorney General 

LOU MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Tom G. Davis 

Assistant Attorney General 

p. 4659