Opinion Number ( 1995 )

Dear Mr. White:

You have requested an opinion of the Attorney General relative to the authority of the Southern University System ("System") to enter into three proposed agreements forwarded to you by City National Bank ("Bank"), to wit:

(1) Automatic Investment Service ("Automatic Agreement");

(2) Zero/Target Balance Account Service ("Zero/Target Agreement"); and

(3) Master Repurchase Agreement ("Master Agreement").

As you are probably aware, permissible investments for institutions of higher education are set forth in R.S. 49:327(C) which provides, in pertinent part, the following:

C. Funds not on deposit in state treasury. (1)(a) The heads of all state departments, boards, commissions, and agencies are authorized and directed to invest monies under their control and not on deposit in the state treasury which they in their discretion may determine to be available for investment in time certificates of deposit of state banks organized under the laws of Louisiana, or national banks having their principal office in the state of Louisiana, in savings accounts or shares of savings and loan associations and savings banks, as defined by R.S. 6:703(15) and (16), or in share accounts and share certificate accounts of federally or state chartered credit unions.

(b) Notwithstanding the provisions of Subparagraph (a) of this Paragraph, institutions of higher education may invest monies under their control and not on deposit in the state treasury in any or all of the instruments set forth in Subsection B(1) of this Section in accordance with a written investment policy adopted by the management board of the investing institution of higher education, which investment policy has been approved by an investment advisory committee composed of the state treasurer, the legislative auditor, and the commissioner of administration. Income from such investments shall not be credited to the state general fund.

Among the investments authorized in Paragraph (B)(1) are Direct Security Repurchase Agreements and Reverse Direct Security Repurchase Agreements of any federal book entry only securities enumerated in Subparagraphs (a) and (b) above. Thus, if the Master Agreement conforms to that authorized by Section 327, it would be a permissible investment vehicle. In this regard, it should be noted that the State currently has a Master Repurchase Agreement with City National Bank of Baton Rouge, dated November 1, 1991. I am enclosing a copy of this document for your reference and convenience.

With regard to the Automatic and Zero/Target Agreements, we note that they both contain "Hold Harmless and/or Indemnity Clauses" which may be contrary to the public policy of the state of Louisiana as noted in R.S. 38:2195. Further, the Automatic Agreement refers to a Repurchase Agreement involving the bank's interest in "certain securities issued by the United States Government or agencies thereof, or mortgage related securities as defined by the Secondary Mortgage Market Enhancement Act of 1984 ("Secondary Act")". As previously noted, the System's investments are limited to those authorized by R.S. 49:327. Accordingly, the "mortgage related securities" referred to in the Automatic Agreement must be among those enumerated in Section 327.

As noted above, the System's investment policy must be in writing and approved by the Investment Advisory Committee (the "Committee") comprised of the State Treasurer, the Legislative Auditor and the Commissioner of Administration. In light of this provision, we believe it appropriate for representatives of each of these agencies and/or the Committee, as well as the System's legal counsel, to review and approve these Agreements.

As previously discussed, I am also faxing copies of these Agreements to Ms. Susan Smith, Esq., Director of the Office of Contractual Review for her perusal. We recommend that you contact Ms. Smith at 504/342-7907 for any comments she may have.

Should you have any additional questions concerning these matters, please do not hesitate to contact us.

With kindest regards, I am

Very truly yours,

RICHARD P. IEYOUB Attorney General

By: ___________________________ ROBERT E. HARROUN, III Assistant Attorney General

RPI/Rob, III/cla

Enclosures

cc: Hon. Mary Landrieu, Treasurer, State of Louisiana Raymond LaBorde, Commissioner of Administration Dr. Daniel Kyle, Legislative Auditor's Office Ms. Mary Beth Arceneaux, Counsel for the LA Bankers Association Ms. Susan Smith, Director of the Office of Contractual Review

Date Received:

Date Released:

ENCLOSURES

It should further be noted that the State currently has a Master Agreement with City National Bank of Baton Rouge, dated November 1, 1991. I am enclosing a copy of this document for your reference and convenience.