                  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




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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


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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




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