### 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 adepositoryby ahospital authority (RQ-1350)
**Dear Mr.**  **Guerra:**
You ask: 1. Ifahospital authority created city under the provision of TEX. REV. STAT. ANN. Art. 4437e (1976and Supp. selects adepository different from the under the provision of Sec. 15of 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 sameholding company such that all of the funds are covered by Federal Deposit Insurance, thus avoiding, under Sec. 105.037 of the LocalGovernment Code, having toprovide security for fundsnot so insured, asotherwise required by subchapter C of Chapter 105of the Local Government Code?
YOU furnish this office with the following background information:

The Edinburg Hospital Authority was created by the city ofEdinburg under the provisions ofTEX. REV. CIV. STAT. ANN. Art. 4437e (1976and Supp. 1988). Pursuant to EE; provisions of Sec. 15of said statute, Edinburg Hospital Authority has selected a depository different fromthat of the City of Edinburg. In the Authority's Depository

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

contract it is provided that the monies of the Authority canbeused topurchase certificates ofdeposit invarious 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 tompurchase certificates of deposit with the Authority's monies inthe Authority's name from its affiliates under the provisions of itsdepository contract. There are two ormore banks doing business within the city of Edinburg. Section 15 of the Hospital Authority Act, article 4437e, V.T.C.S., provides the answer toyour question:

TheAuthoritv may select a deoositorv or devositories accordina to the vrocedures p.rovidedbv 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~therwords, ahospital 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, itmust 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 themunicipality shall select asmunicipal depositories one or more banks that offer themost favorable terms and conditions for thehandling 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. 4656Uonora~bleRene Gurrra -Page 3 (JM-928)

Vernon's Texas Civil Statutes), apply to the selection of thedepositories. Section 105.015 provides:

(a)When 1 rovided in accordance with Subchavter Cand is avoroved bv the oovernina body of the municivalitv. the ov rnin CQ bod order recorded in itsminutes. thebank as a devositorv forthemunicivalitv's funds. (b)Ifa 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:
Adepository isnot required to provide security for the deposit ofmunicipal funds to the extent the deposits are insured under 12U.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 thepreliminary 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 adesignated localdepository may,within the statutory rules, buy certificates ofdeposit fromnon-local, non-depositorybanks and thus avoid the localpreference and security requirements of the codified statutes governing public funddepositories.
InAttorney General Opinion JM-832 (1987), an analogous issuewas presented regarding the selection and qualification ofdepositories for the funds of river authorities. In Attorney General Opinion JM-832 one ofthe questions asked was

p. 4651Honorable 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 ofpublic 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 inthe samemanner provided forthe selection of a county depository. Itwas concluded in Attorney General Opinion JM-832 that the river authority may not arrange with a bank holding company todistribute 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 forthe selection of a city depository set forth in section 18of 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 sameholding company that have not qualified according to subchapter Cof. chapter 105 of the Local Government Code.

SUMMARY

Theprovisions of chapter 108of the Local Government Code relating todepositories 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 sameholding company that do not qualify according to law asofficial depositories foramunicipality.-Jzy&

JIM MATTOX Attorney General of Texas -.

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

MARY K?3LLER First Assistant Attorney General
LOUMCCREARY Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General
RICK GILPIN Chairman, Opinion Committee Prepared byTom G. Davis Assistant Attorney General

p. 4659