Untitled Texas Attorney General Opinion ( 1988 )

July 26, 1988
Honorable 0. Ii. '*Ike@'Harris Opinion No. JM-932
Chairman
Economic Development Committee Re: Whether l*local govern-
Texas State Senate ments," as defined in the
P. 0. Box 12068 Interlocal Cooperation Act,
Austin, Texas 78711 article 4413(32c), V.T.C.S.,
may pool their funds for
purposes of an authorized
investment (RQ-1360j
Dear Senator Harris:
You ask whether the Interlocal Cooperation Act, article
4413(32c), V.T.C.S., authorizes local governments as defined
in the act to pool and jointly invest their public funds in
investments authorized by other law and to create an agency
to administer the investments. You state that~the partici-
pating local governments would provide for joint investment
of public funds by contract, combining their funds in the
pool. Each local government would own an undivided interest
in pool assets. Money fin the pool would be invested in
obligations in which each participating local government's
funds may be lawfully invested. Earnings and losses from
all investments, as well as administrative costs of the
pool, would be equitably and proportionately allocated to
participants.
The contract would establish a Joint Powers Agency
governed by a board of directors consisting of officials or
other designees of participating local governments initially
appointed by the contracting parties and thereafter elected
by vote of.the participating local governments. The Joint
Powers Agency would hold legal title to the pooled invest-
ments as custodian for the participating local governments.
The agency would make investments in accordance with basic
rules and policies established by its board of directors and
approved by the governing bodies of the participating local
governments.
p. 4678
Honorable 0. Ii. "Ike" Harris - Page 2 (JM-932)
Your question relates to local governments as defined
in article 4413(32c), V.T.C.S., the Interlocal Cooperation
Act. These are as follows:
'local government' means a county: a home
rule city or a city, village, or town
organized under the general laws of this
state: a special district; a school district;
a junior college district: any other legally
constituted political subdivision of the
State of Texas or any adjoining state: or a
combination of political subdivisions.
V.T.C.S. art. 4413(32c), 5 3(l).
Your question and the accompanying statement of facts
raises an issue of the authority of public officers to
delegate their power and authority to invest public funds to
a joint powers agency such as the one you describe. The
discussion of this issue requires us to look at the statutes
which authorize political subdivisions to make investments.
Since you ask about local governments generally, we will
discuss article 4413(34c), V.T.C.S., and article 842a-2,
V.T.C.S., two statutes which
governments. Article 4413(34~)``~!~.~oS a r``~ad$te~4~
1979 to place a duty on each state age;cy and political
subdivision to adopt rules governing the investment of its
local funds. Acts 1979, 66th Leg., ch. 810, at 2071. See
Bill Analysis, Tex. H.B. 2122, 66th Leg. (1979). Article
842a-2, V.T.C.S., was adopted in 1987 to provide a com-
prehensive plan for the investment of public funds,
including authorization for specific kinds of investments.
Acts 1987, 70th Leg., ch. 889, at 2985. See Bill Analysis,
Tex. H.B. 1488, 70th Leg. (1987). There are in addition
statutes which authorize a narrow class of investments by
specific local governments. See, a Local Gov't Code
§ 104.002 (investment of trust fundseand'.special deposits by
certain cities): 5 140.002 (investment in obligations of
United States funds remaining in political subdivision
accounts at end of year). Because of the general nature of
your question, we will not address the narrower statutes.
Article 4413(34c), V.T.C.S., governs the investment of
local funds, defined as follows:
'Local funds' means public funds in the
custody of a state agency or political
subdivision that are not required by law to
p. 4679
Honorable 0. H. "Ike" Harris - Page 3 (JM-932)
be deposited in the state treasury and that
the agency or subdivision has legal authority
to invest.
V.T.C.S. art. 4413(34c), 5 l(1). A "political subdivision"
is a county, incorporated city or town, or special purpose
district. XL 5 l(3).
If no ,law assigns an officer responsibility for
investment of local funds, the political subdivision shall
designate one or more officers or employees of the
subdivision to have that responsibility. V.T.C.S. art.
4413(34c), '5 3(a). The political subdivision shall adopt
rules governing the investment of its funds, including rules
that clearly specify the scope of authority of the
designated officers and employees to invest public funds.
Id. 0 2. No one may "deposit, withdraw, invest, transfer,
or otherwise manage local funds" without express written
authority of the governing body or chief executive officer
of the subdivision. .kL 5 3 (b) .
Article 842a-2, the Public Funds Investment Act of
1987, authorizes an incorporated city or town, a county, a
school district, or an institution of higher education as
defined by section 61.003 of the Education Code to invest
its funds in various obligations, certificates, or agree-
ments set out in the statute. A nonprofit corporation
acting on behalf of any of these entities may exercise its
investment authority under the statute. Section 5 of
article 842a-2, V.T.C.S., provides‘that investments shall be
made in accordance with written policies approved by the
governing body, which must address "liquidity, diversifica-
tion, safety of principal, yield, maturity, and quality and
capability of investment management, with primary emphasis
on safety and liquidity.** Section 4 provides the following
standard of care for investing funds under article 842a-2,
V.T.C.S.:
Investments shall be made with judgment
and care, under circumstances then pre-
vailing, that persons of prudence, discre-
tion, and intelligence exercise in the
management of their own affairs, not for
speculation, but for investment, considering
the probable safety of their capital as well
as the probable income to be derived.
V.T.C.S. art. 842a-2, 5 4.
p. 4680
Honorable 0. H. "Ike" Harris - Page 4 (JM-932)
Article 4413(34c), V.T.C.S., establishes that a govern-
mental body shall control the investment of its funds. It
is explicit as to the persons to whom responsibility for
investment may be delegated: officers or employees of the
governmental body. V.T.C.S. art. 4413(34c), §§ 2, 3(a).
The scope of their authority must be clearly specified by
rule, and they must have the written authority of the
governing body or chief executive officer of the political
subdivision to deposit, withdraw, invest, transfer, or
otherwise manage funds eligible for investment. Id., §§ 2,
3(b). This statute does not authorize the governmental body
of a political subdivision to delegate its responsibility
for investment decisions to another political subdivision,
or to a Joint Powers Agency created by contract among
several political subdivisions. Nor does it permit a
governmental body to delegate to a Joint Powers Agency the
authority to hold legal title as custodian to investments
purchased with its funds.
Article.E42a-2, V.T.C.S., deals primarily with the
kind of investment instruments in which governmental bodies
may place their funds. It allows a nonprofit corporation
acting on behalf of any of the enumerated governmental
entities to invest its funds according to the provisions of
this act, but it does not itself authorize the formation of
such a corporation. V.T.C.S. art. 842a-2, § 2(a). Cf.
V.T.C.S. art. 5190.6, 55 21, 22 (development corporations).
Nor does it indicate that investment of funds by a nonprofit
corporation would involve any relinquishment of power or
responsibility by the political subdivision. This statute
does not authorize the delegations of authority which would
be necessary to establish the investment pool you describe.
In the absence of express authority, the governing body
of a municipality may not delegate to other persons the
discharge of duties requiring an exercise of discretion.
Horne Zooloaica 1 Arena Co. v. Citv of Dallas 45 S.W.Zd 714
(Tex. Civ. App. - Waco 1931, no writ); see a&erallv Canales
v. Lauahlin, 214 S.W.Zd 451 (Tex. 1948); Linsev v. Texas
Deoartment of Health, 727 S.W.2d 61 AAz;;. App. - Austin
1987, writ ref'd n.r.e.); Newsom v. , 451 S.W.Zd 948
(Tex. Civ. App. - Beaumont 1970, no writ): Moodv v. Texas
Water Commission, 373 S.W.Zd 793 (Tex. Civ. App. - Austin
1963, writ ref'd n.r.e.). And some governmental functions
are not delegable at all. See Clear Lake Citv Water
Authoritv v. Clear Lake Utilities Co., 549 S.W.Zd 385 (Tex.
1977).
p. 4681
Honorable 0. H. *lIke@qHarris - Page 5 (JM-932)
The Texas Supreme Court has made the following distinc-
tion between discretionary and ministerial duties:
Where the law prescribes and defines the
duties to be performed with such precision
and certainty as to leave nothing to the
exercise of discretion or judgment, the act
is ministerial; but where the act to be done
involves the exercise of discretion
judgment, it is not to be deemed mere:;
ministerial.
Rains v. SimusoB, 50 Tex. 495, 501 (1878).
The statutes we have discussed do not define investment
duties with precision and certainty. They require public
officers to exercise their judgment subject to a high
standard of care. m V.T.C.S. art. 842a-2, 5 4. The courts
have held that the selection of a depository is a discre-
tionary matter for the commissioners court of a county and
the city council of a city. Citizens State Bank of Robv
McCai& 274 S.W.2d 184 (Tex. Civ. App. - Eastland 1954, zo
writ): Hartford Accident & Indemnity Co. v. Temoleman, 18
S.W.2d 936 (Tex. Civ. App. - Galveston 1929, no writ). The
investment oft public funds requires an exercise of judgment
and discretion to an even greater extent than the selection
of a depository. It involves decisions about the amount of
money to invest and the allocation of funds to different
kinds of investme.nts, as well as the degree of risk to
accept in exchange for an anticipated return. The govern-
mental body or officer in which these responsibilities are
vested may not delegate them to other persons in the absence
of express authority.
As already pointed out, neither article 842a-2,
V.T.C.S., nor article 4413(34c), V.T.C.S., authorizes the
delegation of investment authority necessary to establish
the investment pool you describe. Article 4413(32c),
V.T.C.S., the Interlocal Cooperation Act, does not permit
the necessary delegation either. This statute provides
that a local government may contract with another local
government to perform governmental functions and services.
"Governmental functions and services" is defined as follows:
'governmental functions and services' means
all or part of any function or service
included within the following general areas:
police protection and detention services: fire
p. 4682
Honorable 0. H. "Ike" Harris - Page 6 (JM-932)
protection: streets, roads, and drainage:
public health and welfare; parks: recreation:
library services: museum services ; waste
disposal; planning: engineering; administra-
tive functions: and such~ other governmental
functions which are of mutual concern to the
contracting parties.
V.T.C.S. art. 4413(320), 5 3(2). "Administrative functions"
is defined as follows:
(3) 'administrative functions# means
functions normally associated with the
routine operation of government such
tax assessment and collection, personnZS
services, purchasing, data processing, ware-
housing, equipment repair, and printing.
XL 5 3(3).
No provision of article 4413(32c), V.T.C.S., expressly
authorizes a local government to contract away its power to
perform discretionary duties. We need not decide whether
there is any implied authority to delegate the discretionary
aspect of any function or service set out in article
4413(32c), V.T.C.S., based on the nature of the particular
function or service. See Lipsev v. Denartment of Health,
727 S.W.Zd at 65. The statute on the whole involves
services and functions for which local governments may
contract without delegating governmental powers. See
Attorney General Opinion H-1018 (1977) (contract for road
construction). Investment decisions, because they involve a
risk of loss and possibility of gain to public funds, are
governmental responsibilities of a nature to require an
express indication of legislative intent before the officers
to whom they are entrusted may delegate their exercise to
other persons, if they are delegable at all. Article
4413(32c) is silent as to contracts for investment services,
and we conclude that this statute does not authorize the
delegation of investment authority to an entity created by
contract.
Attorney General Opinion MW-347 (1981) concluded that
local governments had power under the Interlocal Cooperation
Act to contract to form self insurance pools to cover risks
inherent in providing governmental functions and services.
This opinion, however, also stated that "[we] express no
opinion as to how such a insurance pool should be
p. 4683
,
Honorable 0. H. "Ike" Harris - Page 7 (JM-932)
structured, and how obligations may be allocated among the
members. II Hut see Local Gov't Code ch. 119 (authorizing
creation of county Government Risk Management Pool).
Thus, Attorney General Opinion MN-347 did not consider any
question of delegation of discretionary powers.
Finally, the legislature has considered the possibility
of establishing a local government investment pool but has
not adopted legislation accomplishing this. See Texas
Advisory Commission on Intergovernmental Relations,
Statutory Update: Investment of Idle Funds by Local
Governments (1985). A bill creating a local government
investment pool was introduced in the 69th Legislative
Session but was not adopted. See Tex. H.B. 1464, 69th Leg.
(1985). The proposed legislation would have established
the investment pool as a fund in the custody of the state
treasurer held outside the treasury. Local governments would
have been authorized to pay funds to the treasurer for
deposit in the investment pool and investment under the
authority and responsibility of the treasurer. The 69th
Legislature did pass Senate Concurrent Resolution No. 1
directing the state treasurer's office to "investigate the
potential benefits of enhancing and supplementing financial
management services that are made available to political
subdivisions of the state." Tex. S. Con. Res. 1, 69th Leg.
(1985). The resolution specifically stated that the
investigation must consider implementation of an investment
pool program for political subdivisions. Id.; see also
Texas Advisory Commission of Intergovernmental Relations,
Statutory Update, suora. The fact that the legislature has
considered establishing an investment pool for local
governments and has referred this matter to the treasurer#s
office for study indicates the legislature's belief that
local governments do not have authority to pool their funds
for investment, and it supports our conclusion that they may
not contract under the Interlocal Cooperation Act to form an
investment pool such as you describe.
In view of our answer to your first question, we need
not answer your second question on the authority of cities
and counties to withdraw funds from their depositories to
invest jointly through an investment pool in obligations
described in the Public Investment Act of 1987. Hut see
Attorney General Opinions MN-343 (1981); MN-224 (1980)
(discussing authority of cities and counties to withdraw
funds from their depositories to invest them in federal debt
instruments).
p. 4684
Honorable 0. H. "Ike" Harris - Page 8 (JM-932)
-\
Local governments are not authorized by
the Interlocal Cooperation Act, article
4413(32c), V.T.C.S., to pool and jointly
invest their public funds under the adminis-
tration of an agency created pursuant to that
act. The investment of public funds is a
matter involving the exercise of discretion
and it may not be delegated in the absence
of express statutory authority, if at all.
Article 4413(32c), V.T.C.S., does not
authorize local governments to delegate to
another entity their authority to make
investments: nor does article 842a-2,
V.T.C.S., or article 4413(34c) authorize such
delegation.
J /tbh
Very truly you
A;,
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
Lou MCcREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Susan L. Garrison
Assistant Attorney General
p. 4685