ATTORNEY GENERAL OF TEXAS GREG ABBOTT



### The Honorable Richard J. Miller Bell County Attorney Post Office Box 1127 Belton, Texas 76513

Dear Mr. Miller: January 12, 2011
Opinion No. GA-0834 Re: Whether a local governmentalbody subjectto the Public Funds Investment Act, chapter 2256, Government Code, may invest in money market and other demand accounts (RQ-0895-GA)

You ask whether a local governmental body subjectto Government Code chapter2256, the Public Funds Investment Act, may "invest" in money market deposit accounts or other demand accounts that are insured by the Federal Deposit Insurance Corporation. l 

### Chapter 2256 applies to various kinds of governmental bodies, among which is "a local government." TEX. GOV'T CODE ANN. § 

### 2256.003(a)(1) (West 2008). A local government is specifically permitted to "purchase, sell, and invest its funds and funds under its control in investments authorized under this subchapter in compliance with investment policies approved by the governing body and according to the standard ofcare prescribed by SeCtion 2256.006." [d. § 

### 2256.003(a). Section 2256.009 lists various kinds ofpermissible investments, and otherprovisions of chapter 2256 describe other kinds of authorized investments, such as certificates of deposit, repurchase agreements, commercial paper, and mutual funds. See, e.g., id. §§ 

### 2256.009, .010, .011, .013, .014. You suggest that "investments" in demand accounts maybe permittedby aprovision of section 2256.009 that lists, as one kind ofauthorized investment under chapter 2256, other obligations, the principal and interest of which are unconditionally guaranteed or insured by, or backed by the full faith and credit of, this state or the United States or their respective agencies and instrumentalities. [d. § 

### 2256.009(a)(4); Request Letter at 1-4. We have found nothing in statutory or case law that would indicate that a demand account cannotbe properly deemed an "other obligation" under section 2256.009 ofthe Government Code.
'RequestLetter at 1 (available at http://www.texasattorneygeneral.gov).The Honorable Richard J. Miller

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Chapter 2256 specifically provides that "[t]he authority grantedby this subchapter is in addition to that granted by other law." TEX. GOy'T CODE ANN. § 2256.024(a) (West 2008). In construing a statute, however, we are mindful that we must consider "the consequences of a particular construction." [d. § 311.023(5) (West 2005). The "other obligations" authorized as an investment by section 2256.009 mustbeinsuredby, inter alia, the "fullfaith andcreditof

...the UnitedStates." [d. § 2256.009(a)(4) (West 2008). Demand deposits, ofthe kind ofwhich you inquire, are insured onlyto the maximumextent offederal law, which is atpresent$250,000. See Act ofJuly 21, 2010, Pub. L. No. 111-203, § 335(a)(1),124 Stat. 1376, 1540 (2010) (to be codified at 12 U.S.c. § 1821(a)(1)(E».2 You should also be aware that the kind of deposit of which you inquire is governed by chapter 2257, Government Code, the Public Funds Collateral Act. See TEX. GOy'T CODE ANN. § 2257.001 (West2008) ("Thischaptermaybe citedas thePublicFunds CollateralAct."). "Deposit ofpublicfunds" underchapter2257 "means publicfunds ofapublic entitythat: (A) the comptroller does not manage under Chapter 404; and (B) are held as a demand or time deposit by a depository institution expressly authorized by law to accept a public entity's demand or time deposit." [d. § 2257.002. Demand accounts held for a local governmental body must be fully secured under chapter2257 bycollateral providedbythe depository institution. [d. § 2257.021. At the request of a public entity other than a state agency, a depository for that entity is required to "deposit with a custodian a security pledged to secure a deposit ofpublic funds." [d. § 2257.041(b) (West SUpp. 2010). "Acustodian holds in trust the securities to secure the deposit ofpublic funds ofthe public entity in the depository pledging the securities." [d. § 2257.041(e). Thus, while a local governmental body may "invest" its funds in money market deposit accounts under chapter 2256, Government Code, those funds are governed, when they exceed the maximum amount insured under federal law, by chapter 2257, Government Code.

2Your question appears to reflect a misunderstanding ofthe nature ofan "investment." A "demand deposit," for purposes ofthe deposit ofcounty funds, is defined as "adeposit offunds that may be withdrawn on the demand of thedepositor." TEx. Loc. GOV'TCODEANN. § 116.001(2) (West2008). See also BLACK'S LAW DICTIONARY504(9th ed. 2009) (defining "demand deposit" as "a bank deposit that the depositor may withdraw at any time without prior notice to the bank"). The statutes authorizing deposits of county funds distinguish between the terms "deposit" and "investment." For example, a commissioners court "may direct the county treasurer to withdraw any county funds depositedina county depositorythatarenotimmediatelyrequiredto pay obligations ofthecountyand investthosefunds as provided by this section." TEx. Loc. GOV'T CODE ANN. § 116.112(a) (West 2008).The Honorable Richard J. Miller

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### SUMMARY While a local governmental body may "invest" its funds in money market deposit accounts under chapter 2256, Government Code, the Public Funds Investment Act, those funds are governed, when they exceed the maximum amount insured under federal law, bychapter2257, GovernmentCode, thePublicFunds Collateral Act.

DANIEL T. HODGE First Assistant Attorney General DAVID J. SCHENCK Deputy Attorney General for Legal Counsel NANCY S. FULLER Chair, Opinion Committee Rick Gilpin Assistant Attorney General, Opinion Committee