                      The Attorney               General of Texas
                                          May 28,   1981
MARK WHITE
Attorney General


                   Honorable 0. H. “Ike” Harris               Opinion No. ~~-343
                   Chairman
                   Economic Development Committee             Re: Whether cities may invest
                   Texas State Senate                         their   funds in United       States
                   Austin, Texas 787ll                        Treasury Bills and Notes instead of
                                                              city depositories

                   Dear Senator Harris:

                          You have asked us several questions concerning the authority of cities,
                   including home rule cities, to invest their funds in United States Treasury
                   Bills and Treasury Notes rather than maintaining them in time deposits in
                   the city depository selected in accordance with article 2559-2566a, V.T.C.S.

                        ,Your first question is as follows:

                                  (1) Are city officials permitted to withdraw funds
                              from the city depository to invest them in United
                              States securities     in situations  other ~than those
                              expressly permitted by statute?

                          Article 2561, V.T.C.S., provides that as soon as the depository has been
                   selected, the city treasurer must transfer to it all funds in hi hands
                   belonging to the city. Attorney General Opinion MW-224 (1980) construed
                   the similar language of article 2549, V.T.C.S., relating to the county
                   depository. The opinion concluded that where a statute provides that all the
                   money be placed in the depository, a more specific statute providing an
                   exception must exist before the political subdivision may withdraw funds to
                   place them in federal debt instruments. See, e.g., V.T.C.S. art. 1182g.

                         You next ask:

                                  (2) If the answer to question (l) above is no, should
                              such    unauthorized   investment    by city officials
                              constitute a breach of the city depository contract?
Honorable 0. H. “Ike” Harris - Page Two (MW-343)




       As we stated in Attorney General Opinion MW-224, the laws existing at the time
of contract formation become part of the contract.      Langever v. Miller, 78 S.W. 2d
1025 (Tex. 1934); Winder Bros. v. Sterling, 12 S.W. 2d 127 (Tex. 19291. We concluded
that if the county withdrew funds from the depository in orders to invest them in
United States securities other than as authorized by statute, it would breach its
 depository contract..   We believe the same reasoning is applicable to the city
depository contract.

     Your third question is as follows:

               (31 Are provisions contained in a city depository contract
           which are inconsistent or conflict with the city depository
           statutes unenforceable?

       A city availing itself of the procedures for selecting a depository set out in
articles 2559-2566a, V.T.C.S., is bound by those provisions. It may not enter into a
depository contract containing inconsistent provisions. See Attorney General Opinion
M-224.    Thus, inconsistent provisions added to the depository contract would be
unenforceable.  City of Dalhart v. Childers, 18 F. Supp. 903,907 (N.D. Tex. 1937).

     You next ask

               (4) Does article 12893-3, Tex. Rev. Civ. Stat. Ann., authorize
           city officials to withdraw at the end of a fiscal year and place
           in federal     obligations  funds which were collected          for
           expenditure in subsequent fiscal years?

      Article 1269j-3, V.T.C.S., reads as follows:

               All polltiaal subdivisions of the State of Texas which have
           balances remaining in their accounts at the end of any fiscal
           year may invest such balances in Defense Bonds or other
           obligations of the United States of America; provided, however,
           that when such funds are needed the obligations of the United
           States in which such balances are invested shall be sold or
           raedeemed and the proceeds of said obligations shall be deposited
           in the accounts from which they were originally &awn.

A city is a political subdivision. City of Corpus Chrlsti v. Gregg, 275 S.W. 2d 547 (Tex.
Civ. App. - San Antonio 1954, no writ); Rx parte Ernest, 136 S.W. 2d 595 (Tex. Crim.
App. 1939). It is therefore subject to article 1269j-3, V.T.C.S.          This provision
authorizes cities to invest only the monies remaining as surplus in the separate
accounts for the preceding fiscal year.      Attorney General Opinion MW-224 (1980).
Money collected to finance public expenditures in the subsequent fiscal year are
attributable to accounts for the new year, not the old one, and article 12891-3 does not
permit their withdrawal until the conclusion of the new fiscal year.




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Honorable 0. H. “Ike” Harris - Page Three          (MW-343)




     Your   final question is 8s follows:

                 (5) Since article 2559, Tex. Rev. Civ. Stat. Ann., expressly
            applies to ‘Home Rule’ cities and in view of the fact that under
            article 11, section 5 of the constitution, a ‘Home Rule’ city does
            not have the power to take action prohibited by or inconsistent
            with the constitution or the statutes of the state of Texas, are
            your conclusions with respect to the city depository statutes
            applicable to ‘Home Rule’ cities as well as other cities, ,towns
            and villages in Texas?

     Article 2559, V.T.C.S., states in pertinent      part:

                The governing body of every city, town and village in the
            State of Texas, incorporated under either the General or Special
            Laws, including those operating under special charter or
            amendments of charter adopted pursuant to the ‘Home Rule’
            provisions of the Constitution,      is authorized   to receive
            aoolications   for the custody of city funds from any.. .
            banker. . . that may desire to- be selected as a depository. . . .
            (Emphasis added).

A city entering into a depository contract must do so according to the provisions of
articles 2559-2566a, V.T.C.S.       The only judicially noted exception is a city
incorporated under special law prior to the enactment of the city depository law. The
deoositorv orovisions in the soecial charter were not renealed by the general law.
divan     ;. kity of Galveston, i7 S.W. 2d 478 (Tex. Civ. App. - Gaivestonl928), aft’d,
34 S.W. 2d 808 (Tex. Comm’n App. 1931, jdgmt adopted).

       A home rule city, on the other hand, may not enact charter provisions
inconsistent with general law. Tex. Const. art. XI, S5. When it places its funds in a
depository, it must comply with the general statute authorizing cities to use
depositories.  The home rule city is limited by article 2559, V.T.C.S., to the same
extent as general law cities. -See V.T.C.S. art. 2529c, gl.
                                       SUMMARY

                When a city uses a depository it must comply with the
            procedures set out in articles 2559-2566a, V.T.C.S.           City
            officials may withdraw funds from the depository to invest
            them in United States securities only as expressly permitted by
            statute.   To withdraw such funds would constitute a breach of
            the depository    contract.      Any provisions contained in the
            depository   contract    inconsistent  with the city depository
            statutes   are unenforceable.         Article   12693-3, V.T.C.S.,
            authorizes cities to invest in federal obligations only the monies
            remaining as surplus from the proceeding fiscal year.




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Honorable 0. H. “Ike” Harris - Page Four   (m-343)




                                        MARK      WHITE
                                        Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY, 111
Executive Assistant Attorney General

Prepared by Susan L. Garrison
Assistant Attorney General

APPROVED:
OPINION COMMl’lTEE

Susan L. Garrison, Chairman
James Allison
Rick Gilpin
Jim Moelinger
Bruce Y oungblood




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