Attorney General Opinion JM-0928

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 depos- itory by a hospital auth- ority (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 certif- icates 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 Author- ity'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 Author- ity'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 deposit- ories 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 ov rnin CQ 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 certifi- cates of deposit from non-local, non-deposit- ory 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 qualifica- tion 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 $lOO,OOO.OO and distri- bute them among other members of the holdino company families, are fully insured requiring each of in the manner depositories? so that all of the deposits by FDIC insurance, without the depositories to qualify provided for in county Article 4413(34c), V.T.C.S., relates to the investment of public funds in the custody of state agencies and political subdivisions. Section 51.356 of the Water Code provides that the river authority shall select a depository in the same manner provided for the selection of a county depository. It was concluded in Attorney General Opinion JM-832 that the river authority may not arrange with a bank holding company to distribute the authority's deposits among member banks that have not qualified according to law as official depositories of the authority. We conclude that the requirement that a hospital authority select a depository according to the procedures provided by law for the selection of a city depository set forth in section 18 of article 4437e mandates the same result. The hospital authority may not contract with a depository to transfer part of the authority's funds to sister banks owned by the same holding company that have not qualified according to subchapter C of. chapter 105 of the Local Government Code. SUMMARY The provisions of chapter 108 of the Local Government Code relating to depositories for ~~~~~~~‘Au~~~~~ty."p~~e ~~,,,~~~, f$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 deposit- ories 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