                            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.




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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




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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.




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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




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        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).




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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




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