Untitled Texas Attorney General Opinion ( 1998 )

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DAN MORALES
ATTORNEY
GENERAL November 12, 1998
Ms. Catherine A. Ghiglieri Opinion No. DM-489
Commissioner
Texas Department of Banking Re: Whether Government Code chapter 2256,
2601 North Lamar Boulevard the Public Funds Investment Act, applies to
Austin, Texas 78705-4294 various funds administered by the Department of
Banking (RQ-1105)
Dear Commissioner Ghiglieri:
The governing body of a state agency may, under Government Code section 2256.003(2),
invest its public funds as chapter 2256, subchapter A permits. You ask how the tempublicfunds
is defined for purposes ofthe Public Funds Investment Act (“act”), Government Code chapter 2256,’
and whether the Commissioner of Banking (“Commissioner”) or the Department of Banking
(“Department”) may invest under the act certain funds in the control of the Commissioner or
Department. (To be succinct, we will hereafter use the term Commissioner to refer to both the
Commissioner and the Department.) We define the tempublicfunds to include only funds that the
state or a political subdivision collects in accordance with a general law and that will be used to
benefit the public generally. Of the five funds you list, we conclude that four of them are not public
funds that may be invested under the act. We also conclude the remaining fund is a public fund, but
the Commissioner may not invest it under the act because the Commissioner lacks statutory
authority to do so.
You further question whether funds that are deposited with the Texas Treasury Safekeeping
Trust Company are invested under Government Code section 404.024 and thus beyond the act’s
reach. Because none ofthe five funds you list may be invested under the act, we do not consider this
question.
Before we consider whether the act applies to particular funds, we will consider what funds
may be invested under the act. We begin by looking at the act generally. Originally enacted in
1987, the act was intended to “broaden” certain governmental entities’ “investment opportunities.“2
‘See Gov’t Code 5 2256.001.
zSee Fiscal Note, C.S.H.B. 1488,7Otb Leg., RX (1987). But see Gov’t Code 5 2256.024.
Commissioner Catherine A. Ghiglieri - Page 2 (DM-489)
Thus, Government Code section 2256.003 authorizes, but does not require,’ the governing body of
a state agency, among other entities, to “purchase, sell, and invest” certain public funds “in
investments authorized under [chapter 2256, subchapter A] in compliance with investment policies
approved by the governing body and according to the standard of care prescribed by Section
2256.006.“4 As section 2256.003 directs, an entity may avail itself of the investment opportunities
that subchapter offers if the entity has adopted a written investment policy that complies with section
2256.005. In addition, the investing entity must exercise the standard of care established in section
2256.006. Other sections in chapter 2256, subchapter A list authorized investments.5
The act permits a governmental entity to invest funds and funds under its control, but the act
defines the term funds to mean only certain public funds.6 For the purposes of our discussion here,
the termfunds includes only those “public funds in the custody of a state agency or local government
that the investing entity has authority to invest.“’ This offrice, in the past, has looked to statutes
other than the act to determine an entity’s authority to invest.’ As you observe, the act does not
define the term public funds. We will, consequently, seek to define it now.
We conclude that the tempublicfunds denotes funds that belong to the Department, as an
agent of the state, that the Department collected by virtue of some general law, and that are
designated to a public purpose. We find that the phrase public funds has developed an accepted
common-law meaning:9
The term “public funds” means funds belonging to the state or to any
county or political subdivision of the state; more specifically taxes, customs,
moneys, etc., raised by the operation of some general law, and appropriated
by the government to the discharge of its obligations, or for some public or
‘Government Code section 2256.003 states that an entity listed in that section “may” purchase, sell, and invest
as chapter 2256, subchapter A describes. The word may generally cOnnOtes an option. See BRYAN A. GARNER, A
DICTIONARY OF MODERN LEGAL USAGE 502 (1987) (contrasting shall and may). -
‘As originally enacted, the act did not apply to state agencies generally. See Act of May 27, 1987,7Oth Leg.,
R.S., ch. 889, 5 2, 1987 Tex. Gen. Laws 2985, 2985. The legislature extended the act to encompass state agencies
generally in 1995. See ActofMay 18, 1995,74thLeg., R.S., ch. 402, sec. 1,s 2256.003(2), 1995 Tex. Gen. Laws 2958,
2959.
?See Gov’t Code $5 2256.009 ,020.
%ze id. 4 2256.003
‘Id. 9:2256.002(3)(B)
8See Letter Opinion No. 96-074 (1996) at 2 (fading commissioners court’s authority to invest county funds
in Local Gov’t Code 5 116.112).
‘See Gov’t Code 5 3 11 ,011 (directing conshuer of statute to read words and phrases consistently with common
usage or with acquired meaning).
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Commissioner Catherine A. Ghiglieri - Page 3 (DM-489)
governmental purpose; and in this sense it applies to the funds of every
political division of the state wherein taxes are levied for public purposes.
The term does not apply to special funds, which are collected or voluntarily
contributed, for the sole benefit of the contributors, and of which the state is
merely the custodian.“’
Funds a state agency possesses merely as custodian, for the benefit of contributors, are not public
funds.” Thus, bond revenues the Lower Colorado River Authority uses for public purposes are
public funds,12 while a private party’s child-support payments to a state agency for transmittal to
the private beneficiaries are not public funds. ‘r Similarly, a Nebraska court determined that the
state’s “Second Injury Fund,” mnded by annual assessments from each insurance company doing
business in the state,r4 held in trust by the state,” and used to pay employees with a preexisting
partial disability who subsequently suffer a compensable injury,16 is not a public ftmd.‘7
In the Commissioner’s case, therefore, the Commissioner, acting for the Department (a state
agency),r8 may purchase, sell, or invest in accordance with the act the Department’s public funds or
public funds in its control if the Commissioner is statutorily authorized to invest the funds and if the
Commissioner has complied with other requirements set forth in the act. Whether particular funds
are public funds and whether the Commissioner has statutory authority to invest particular funds are
questions of law that are well-suited to our consideration.
‘OPokornyv. WayneCounfy,33N.W.2d641,642(Mich. 1948)(quoting50C.J. 540,at854);occordSebastian
County ChapterofAm. Red Cross v. Weather@-d, 846 S.W.2d 641,643 (Ark. 1993); Sherardv. Nebraska, 509N.W.2d
194, 199 (Neb. 1993) (per curiam); In re StateMotor Fuel Tax Liab., 273 N.W.2d 737, 742 (S.D. 1978) (citing Wood
Eros. Constr. CO. Y.Bngley, 6N.W.2d397,400(Iowa ~~~~));BLACK’SLAWDICTIONARY 1106(5thed. 1979);seealso
Lower Cola. River Auth. Y. Chemical Bank & Trust Co., 185 S.W.2d 461, 468 (Tex. Civ. App.--Austin), aff’d, 190
S.W.2d48 (Tex. 1945).
“See Navajo Tribe v. Arizona Dep’t ofAdmix, 528 P.2d 623, 624-25 (Ariz. 1974) (en bane)
“See Lower Cola. River Auth., 185 S.W.Zd at 468.
“See People v. Cm, 342 P.2d 43,46 (Cal. Dist. Ct. App. 1959)
“See Sherard, 509 N.W.2d at 199.
“See id.
‘%‘ee Neb. Rev. Stat. 5 48-128(l)(a), (2)(a)
“See Sherard, 509 N.W.2d at 199.
IsSee Gov’t Code 9 2256.003(2) (listing srote agency as govemmental entity that may invest under act).
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We will now analyze the Department’s authority under the act to invest each of the specific
funds about which you ask. You list five funds about which you are specifically concerned:
1. Corporate and trust funds held pursuant to court-supervised receivership
and liquidation of a bank or trust company pursuant to TEX. FIN. CODE
ANN. Sections 36.001 et seq. or TEX. F&v. CIV. STAT. ANN. arts.
342a-7.001 et seq. ;
2. Corporate and trust funds held pursuant to court-supervised receivership
of a perpetual care cemetery pursuant to TEX. HEALTH & SAFETYCODE
ANN. Section 712.0441(g) and TEX. CIV. PRAC. & REM. CODE ANN.
[chapter 641;
3. Seized trust funds of a prepaid funeral contract seller held pursuant to
TEX. FIN. CODE ANN. Sections 154.412 and 154.413:
4. The prepaid funeral contract guaranty fund established under TEX. FIN.
CODEANN. Section 154.351 and7T.A.C. Sections25.17-25.20,operated
and maintained by the advisory council created under TEX. FIN. CODE
ANN. Section 154.355: and
5. The travel advance fund maintained by the Department.
Funds of a liquidated, uninsured bank or a trust comuanv in conservatorsbiu
The first funds you describe are the funds of a failed financial institution that the
Commissioner controls as receiver or conservator of the financial institution. In the unlikely event
that the Commissioner liquidates a bankI9 not insured by the Federal Deposit Insurance
Corporation, *O for example, the Commissioner may serve as receiver,2’ Similarly, if the
Commissioner declares a trust company insolvent:* an employee of the Commissioner may be
“See Fin. Code 3 36.201(authorizingCommissioner to close and liquidatestatehank in certain circumstances).
‘%e id. 5 36.003 (permitting Commissionerto tender state bank that has been closed for liquidation to Federal
Deposit Insurance Corporation if bank’s deposits were insured by that corporation on date of closing).
2’Seeid. $5 36.202, ,203; see also Frank J. Skillem, Closing and Liquidation ofBanks in Texas, 26 SW. L.J.
830,833 (1972) (stating that FDIC has acted as receiver for all state banks closed in Texas in years preceding article).
‘2SeeV.T.C.S. art. 342a-6.104(b).
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Commissioner Catherine A. Ghiglieri - Page 5 (DM-489)
appointed conservator. 23 In either situation, the Commissioner “take[s] charge”*4 of the bank’s or
trust company’s assets.
The funds of a liquidated, uninsured bank or trust company in conservatorship are not public
mnds and, consequently, may not be invested under the act. Unquestionably, the funds do not
belong to the state.25 Additionally, the Commissioner holds the funds merely as custodian, and the
funds will not be used to discharge a public purpose. Consequently, even when the Commissioner
holds the funds as conservator of a failed trust company, in which capacity the Commissioner may
exercise any of the powers of the directors, managers, managing participants, officers, and
shareholders of the trust company, 26the Commissioner may not invest the funds under the act.
Funds of a liquidated Deraetual-care cemetery
Second, you ask about perpetual-care-cemetery liquidation funds. The Commissioner may
report a perpetual-care-cemetery corporation’s uncorrected violation of law to the attorney general,
who must bring suit or quo warranto proceedings to forfeit the corporation’s charter and dissolve the
corporation.z7 You state that the dissolution necessarily entails putting the corporation in
receivership and that occasionally the Commissioner is appointed receiver. As receiver, the
Commissioner “take[s] charge” of the corporation’s property.28
We conclude that these funds, like the financial institution’s liquidation funds, are not public
funds; consequently, the Commissioner may not invest them under the act. As you suggest, these
funds probably belong to the cemetery and to those who have purchased burial plots there;
unquestionably, they do not belong to the state. Furthermore, the funds will not be used to discharge
a public purpose; rather, there is a duty to persons interred in the private cemetery to expend the
“See id. arts. 342a-6.102, -6.104(b)(2), -6.107, -6.108. You indicate that in fact one trust company currently
is in conservatorship. See Southwest Guar. Trust Co. v. Providence Trust Co., 970 S.W.2d 777, 781 n.7 (Tex. App.--
Austin 1998, pet. denied).
*‘See V.T.C.S. art. 342&6.107(a); Civ. Prac. & Rem. Code 5 64.031(l)
‘5Finance Code section 36.209pexmitsthereceiverto depositmoney collectedonbehalfofthe bankestate only
in certain depositories: (1) the TTSTC; or (2) an insured state bank “if the receiver, using sound fmancial judgment,
determines that it would be advantageous to do so.”
TSee V.T.C.S. art. 342a-6.107(b). A conservator’s powers may be limited, however, by the court
order appointing the conservator and by the trust company’s articles of incorporation. See id. arts. 342a-3.002(3)(B),
-6.107(b).
“See Health & Safety Code 5 712.0441(g); see id. 9 712.001(2) (defining Commissioner).
28See Civ. Prac. &Rem. Code 5 64.031(l).
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funds to maintain the cemetery in perpetuity. z9 Of course, if the Commissioner, aa receiver, has
obtained a court order permitting him or her to invest the perpetual-care-cemetery liquidation funds,
the Commissioner may invest the funds, but not under the act.jO
Seized DreDaid-funeral-contract funds
You ask third about seized prepaid-funeral-contract funds. The Commissioner”’ may seize
the prepaid-funeral money collected by a person whose permit to sell prepaid-funeral benefits is
canceled32 or who fails to renew a permit while the person has contracts outstanding.” In addition,
the Commissioner may seek to liquidate the business and to have the court appoint a receiver.34 We
presume the Commissioner may be appointed receiver. You inform us that the seized timds
represent money paid or collected on trust-funded, prepaid-funeral contracts.35
Once again, we conclude that the prepaid-funeral-contract funds are not public funds that
may be invested under the act. Private individuals paid the funds to a private company to cover the
costs ofthose individuals’ funerals, relieving the survivors ofthe burden ofpaying funeral bills. The
Commissioner, as receiver, holds the funds merely as a custodian for the beneficiaries, and, you
inform us, funds are withdrawn upon the death of a contract holder to pay funeral expenses. As we
stated with reference to the perpetual-care-cemetery funds, the Commissioner, as receiver of the
prepaid-funeral-contract corporation, is statutorily authorized to invest the seized funds if the
Commissioner has obtained a court order authorizing the Commissioner to do ~0.3~ The
Commissioner’s investment authority under a court order does not make the funds public funds for
purposes of the act, however.
‘%ee Health & Safety Code 5 712.021(f)(l).
“Civil Practice and Remedies Code section 64.034, part of a chapter providing for receivership generally,
permits a receiver to invest for interest any funds he or she holds, but only if the receiver has obtained a court order to
which all parties have consented.
“See Fin. Code 5 154.002(2) (defming Commissioner).
‘*See id. $ 154.109 (providing grounds for cancellation or refusal to renew permit)
“‘See id. 5 154.107 (requiring permit holder to renew permit until outstanding contracts are discharged)
“See id. 5 154.414
“See also id. subch. F. You do not mention that prepaid funeral benefits also may be insurance funded. See
id. subch. E.
‘%e Civ. Prac. &Rem. Code 5 64.034.
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Prepaid-funeral-contract euarantv fund
You ask next about the prepaid-funeral-contract guaranty fund. Finance Code chapter 154,
subchapter H creates a guaranty fund, amassed from assessments on permit holders,37 to ensure that
purchasers of prepaid-funeral-benefits contracts receive the benefits for which they paid?* The
Commissioner is responsible to maintain the fimd:” and the chapter also creates an advisory council
to supervise the operation and maintenance of the guaranty fund.40
In our opinion, monies in the prepaid-funeral-contract guaranty fund are not public funds and
therefore may not be invested under the act. In particular, these monies are collected only from
entities selling prepaid-funeral-benefits contracts. The funds are not tax revenues. Additionally,
only purchasers of prepaid-funeral-benefits contracts (or rather the survivors of the purchasers) may
benefit from the funds if the seller has gone out ofbusiness. Consequently, we believe a Texas court
would analyze the guaranty fund similarly to the Supreme Court of Nebraska’s analysis of that
state’s Second Injury Fund in Sherard v. Nebraska4’ The Sherard court determined that the Second
Injury Fund is not a public fund for three apparent reasons. First, monies in the Second Injury Fund
are raised by collecting annual assessments the state director of insurance levies on each insurance
company doing business in the state. 42 Thus the fund is not amassed through taxation or by a
general law applicable to the public at large. 43 Second , the funds are used to compensate employees,
hired with a preexisting permanent partial disability, who subsequently suffer another compensable
injury. 44 Thus , it may be drawn upon only to benefit particular individuals.45 Finally, the fund is
held in trust by the state treasurer. Q In our view, the fact that the guaranty fund about which you ask
may or may not be held in trust is not dispositive where the fund is not amassed through general laws
and where the fund benefits so few individuals.
“See Fin. Code 5 154.352.
‘SSeeid. $ 154.351.
‘?See id.
?See id. 9 154.355, .355(a).
4’Sherard, 509 N.W.Zd at 199.
‘2See id.; Neb. Rev. Stat. 5 48-128(2)(a).
43See Sherard, 509 N.W.2d at 199 (in paa citing Allen v. Cily of Omaha, 286 N.W. 916 (1939)).
4’See Neb. Rev. Stat. $48-128(1)(a), (Z)(a).
%‘ee Sherard, 509 N.W.2d at 199.
“See id.; Neb. Rev. Stat. 5 48-128(2)(a).
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Travel-advance fund
Finally, we consider monies appropriated to fund travel advances that the Commissioner
currently has deposited in a checking account at a state depository. Clearly, these are public funds
for purposes of the act. Determining whether travel-advance tkds may be invested under the act
involves at least one additional consideration, however: whether the Commissioner is statutorily
authorized to invest the funds.47
Because we conclude that the Commissioner is not statutorily authorized to invest travel-
advance funds, we must also conclude that travel-advance funds are not funds that may be invested
under the act. We find no statutory authority for the Commissioner to invest the Department’s funds
generallf8 or these funds in particular,@ and you do not cite any. Section 2256.003 ofthe act cannot
itself function to statutorily authorize the Commissioner to invest the funds because it applies only
to funds, which, according to the act’s definition, a governmental entity must be authorized by
statute to invest, Without the requisite statutory authority to invest the Department’s funds, the
Commissioner may not invest them under the act.”
“See Gov’t Code 5 2256,002(3)(B).
Yiee, e.g., Fin. Code ch. 12
“‘Cf: Local Gov’t Code 5 116.112 (authorizing commissioners courts to invest county funds); Letter Opinion
No. 96.074 (1996) at 2.
“As a state agency the Department possesses only those powers expressly delegated to it as well as those
powers necessarily implied. ‘See Tri-City Fresh Water Supply Disf. No. 2 Y. Mann, 142 S.W.2d 945,946 (Tex. 1940);
Harris County Water Control 8s Improvement Dist. No. 58 v. City ofHouston, 357 S.W.2d 189,795 (Tex. Civ. App.--
Houston 1962, writ ref d n.r.e.).
You state that some agencies, which you have apparently polled for guidance in your own situation, have
concluded that their own travel-advance monies are invested as authorized by Government Code section 404.024 and
therefore subject to investment under the act, even though the comptroller does not have custody of the funds. YOU
question these agencies’ interpretation of the act. This issue is irrelevant to resolving your question, so we do not
discuss it.
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Commissioner Catherine A. Ghiglieri - Page 9 (DM-489)
SUMMARY
The Public Funds Investment Act, Government Code chapter 2256,
subchapter A, applies only to certain public funds. Public funds are those
funds belonging to the state or a political subdivision that the state has
collected in accordance with a general law and that will be used to serve the
public interest generally. A governmental entity may invest under the act
only public funds that, among other things, the entity is authorized to invest
by a statute other than the act.
The Commissioner of Banking may not invest under the act funds of a
liquidated, uninsured bank or a trust company in conservatorship because the
funds are not public funds. Likewise, the Commissioner may not invest
under the act funds of a liquidated perpetual-care cemetery. The
Commissioner may not invest under the act seized prepaid-funeral-contract
funds, nor may the Commissioner invest under the act money in the prepaid-
funeral-contract guaranty fund. Finally, the Commissioner may not invest
travel-advance funds under the act because the Commissioner does not have
statutory authority to do so.
DAN MORALES
Attorney General of Texas
JORGE VEGA
First Assistant Attorney General
SARAH J. SHIRLEY
Chair, Opinion Committee
Prepared by Kymberly K. Oltrogge
Assistant Attorney General
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