Untitled Texas Attorney General Opinion
KP-0128
| Tex. Att'y Gen. | Jul 2, 2017Background
- San Jacinto River Authority asked whether five contemplated deposit/investment transactions comply with the Public Funds Investment Act (PFIA, Tex. Gov't Code ch. 2256) and the Public Funds Collateral Act (PFCA, Tex. Gov't Code ch. 2257).
- PFIA authorizes certain investments and defines authorized instruments (notably §§2256.009 and 2256.010). PFCA governs collateral requirements for public deposits and defines eligible securities (cross-referencing PFIA-authorized investments).
- Key statutory points: certificates of deposit qualify under §2256.010 only if issued by a depository with a main or branch office in Texas and are FDIC‑insured or secured by PFIA §2256.009(a) obligations; §2256.009(a)(4) includes "other obligations" guaranteed/insured or backed by the full faith and credit of the U.S. or its agencies/instrumentalities.
- Questions involved factual determinations (e.g., whether a Federal Home Loan Bank (FHLB) is a U.S. agency/instrumentality) that lack controlling Texas precedent; Attorney General opinion provides guidance but does not legally bind courts.
- The opinion applies prior AG Opinion GA‑0834 (2011) (demand/time deposit can be an "other obligation") and analyzes federal/state case law to evaluate whether FHLBs or other entities qualify as U.S. agencies/instrumentalities for PFIA purposes.
Issues
| Issue | Authority's Argument | AG Opinion's Argument | Held |
|---|---|---|---|
| 1) Is a FDIC‑insured time deposit (e.g., $200,000) an authorized PFIA investment under §2256.009(a)(4)? | A time deposit should qualify as an "other obligation" insured by FDIC, like a demand deposit. | Time deposits differ only by withdrawal terms; nothing in §2256.009 excludes them. Relies on GA‑0834. | A court could conclude a FDIC‑insured time deposit fits §2256.009(a)(4). |
| 2) Is a $10,000,000 CD issued by a Texas depository secured by an FHLB letter of credit (LOC) authorized? | FHLB LOC should qualify under §2256.010 (CD secured by §2256.009 obligations) because LOCs are listed and an FHLB LOC is an eligible security. | Whether FHLB is a U.S. agency/instrumentality is pivotal; jurisprudence is mixed and FHLBs are privately capitalized/managed. | Cannot opine definitively; a court might find FHLB is not a U.S. agency/instrumentality, so compliance is uncertain. |
| 3) Is a $10,000,000 CD secured by a LOC from another U.S. agency/instrumentality (not FHLB) authorized? | If the LOC issuer is an agency/instrumentality, its LOC secures the CD under §§2256.009/2256.010. | If issuer is indeed a U.S. agency/instrumentality and not statutorily limited from guaranteeing obligations, a court would likely accept the LOC as satisfying §2256.009(a)(1). | May comply if the LOC issuer is truly an agency/instrumentality and not statutorily constrained; more facts required. |
| 4) Is a CD issued by a depository without a main/branch in Texas (even if backed by a U.S. agency LOC) authorized under §2256.010? | Backing by a U.S. agency LOC should suffice despite out‑of‑state bank. | §2256.010(a) requires the issuing depository to have a main or branch office in Texas as a prerequisite; location is a statutory requirement. | Likely not PFIA‑compliant because the CD issuer lacks a Texas main/branch. |
| 5) Is a money market deposit (e.g., $500,000) exceeding FDIC insurance but backed by another §2256.009(a) obligation authorized/collateralized under PFIA/PFCA? | Excess over FDIC can be secured by other eligible securities (e.g., FHLB LOC) to meet PFCA collateral rules. | PFCA allows eligible securities to secure deposits; §2256.009(a)(4) contemplates amounts backed by U.S./agency guaranty. But factual sufficiency and any statutory limits on guaranty matter. | A court would likely allow excess amounts to be secured by other eligible obligations, but compliance depends on the sufficiency and character of the backing; more facts needed. |
Key Cases Cited
- Fahey v. O'Melveny & Myers, 200 F.2d 420 (9th Cir. 1952) (treated FHLB as federal instrumentality in that context)
- Smith v. Reg'l Transit Auth., 827 F.3d 412 (5th Cir. 2016) (applied IRS Rev. Rul. 89‑49 factors to determine instrumentality status)
- Mendrala v. Crown Mortg. Co., 955 F.2d 1132 (7th Cir. 1992) (Fannie Mae not a federal agency under a similar multi‑factor test)
- Dallas/Fort Worth Int'l Airport Bd. v. Funderburk, 188 S.W.3d 233 (Tex. App.—Fort Worth 2006) (definition/analysis of "state instrumentality")
- De Santiago v. W. Tex. Cmty. Supervision & Corrs. Dep't, 203 S.W.3d 387 (Tex. App.—El Paso 2006) (common‑law meaning of "instrumentality")
- Tex. Unemp't Comp. Comm'n v. Metro. Bldg. & Loan Ass'n, 139 S.W.2d 309 (Tex. Civ. App.—Austin 1940) (courts concluded FHLB member banks were not federal instrumentalities in unemployment compensation context)