THE ATTORNEY GENERAL
OF TEXAS
July 1, 1988
Honorable Rene Guerra Opinion No. JM-928
Criminal District Attorney
Hidalgo County Courthouse Re: Selection of a depos-
Edinburg, Texas 70539 itory by a hospital auth-
ority (RQ-1350)
Dear Mr. Guerra:
You ask:
1. If a hospital authority created by a
city under the provision of TEX. REV. CIV.
STAT. ANN. Art. 4437e (1976 and Supp. 1988)
selects a depository different from the city
under the provision of Sec. 15 of said 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
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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 $lOO,OOO.OO and distri-
bute them among other members of the holdino
company families, so that all of the deposits
are fully insured by FDIC insurance, without
requiring each of the depositories to qualify
in the manner provided for in county
depositories?
Article 4413(34c), V.T.C.S., relates to the investment
of public funds in the custody of state agencies and
political subdivisions. Section 51.356 of the Water Code
provides that the river authority shall select a depository
in the same manner provided for the selection of a county
depository. It was concluded in Attorney General Opinion
JM-832 that the river authority may not arrange with a bank
holding company to distribute the authority's deposits among
member banks that have not qualified according to law as
official depositories of the authority.
We conclude that the requirement that a hospital
authority select a depository according to the procedures -.
provided by law for the selection of a city depository set
forth in section 18 of article 4437e mandates the same
result. The hospital authority may not contract with a
depository to transfer part of the authority's funds to
sister banks owned by the same holding company that have not
qualified according to subchapter C of. chapter 105 of the
Local Government Code.
SUMMARY
The provisions of chapter 108 of the Local
Government Code relating to depositories for
~~~~~~~‘Au~~~~~ty."p~~e ~~,,,~~~, f$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