SERVICES OF PUBLIC DEPOSITARIES

OFFICES AND OFFICERS ‑- STATE ‑- TREASURER ‑- FUNDS ‑- SERVICES OF PUBLIC DEPOSITARIES

If a public depositary is unwilling to provide the service of cashing or giving credit for state warrants, the state treasurer's office would be legally justified in excluding that depositary from further participation in the time deposit program provided, of course, the same restriction is imposed for any institution unwilling to agree to such a condition.

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                                                                   May 26, 1976

Honorable Robert S. O'Brien
State Treasurer
Legislative Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1976 No. 36

Dear Sir:

            By recent letter you requested our opinion on the following question relative to time deposits of state funds under chapter 43.86A RCW:

            "If a public depositary is unwilling to provide the service of cashing or giving credit for state warrants, would this office be legally justified in excluding that depositary from further participation in the time deposit program provided, of course, the same restriction is imposed for any institution unwilling to agree to such a condition?"

            We believe that this question may be answered in the affirmative for the reasons set forth below.

                                                                     ANALYSIS

            Chapter 43.86A RCW codifies the provisions of chapter 123, Laws of 1973.  It is notable that the enactment of this legislation followed, and was undoubtedly precipitated by, the decision of our state supreme court in State ex rel. Graham v. Olympia, 80 Wn.2d 672, 497 P.2d 924 (1972), in which the court upheld the constitutionality of so-called "time deposits"; i.e., interest-bearing investment deposits of public funds under such statutes as RCW 39.58.130, which provides that:

            "A treasurer as defined in RCW 39.58.010 is authorized to deposit in investment deposits in a qualified public depositary any public funds available for investment and secured by collateral in accordance with the provisions of this chapter, and receive interest thereon. . . ."1/

             [[Orig. Op. Page 2]]

            Previously, as you know, a constitutional cloud had for some years existed with regard to this form of investment of public funds by reason of an earlier supreme court decision suggesting, in what the court later labeled as dicta,2/ that such deposits were unconstitutional loans under Article VIII, §§ 5 and 7 of the Washington constitution.  See,Aberdeen v. National Surety Co., 151 Wash. 55, 275 Pac. 62 (1929), at page 60.  With the removal of this cloud as a result of the court's decision inGraham, however, the 1973 legislature not only continued in effect its previous statutory authorization for time deposits of public funds (RCW 39.58.130,supra) but, in addition, by chapter 123, supra, it specifically mandated this class of investments with respect to certain funds in the state treasury.

            Section 1 of this 1973 act, now RCW 43.86A.010 sets forth the basic objectives of the act as follows:

            "The legislature finds that a procedure should be established for the management of short term treasury surplus funds by the state treasurer in order to insure a maximum return while they are on deposit in public depositaries.  The objectives of this procedure are to minimize noninterest earning demand depositsand provide fair compensation to banks for services rendered to the state through the investment of state funds in time deposits."  (Emphasis supplied.)

            RCW 43.86A.020, codifying § 2 of chapter 123, supra, then provides that:

             [[Orig. Op. Page 3]]

            "After March 19, 1973, the state treasurer shall limit surplus funds held as demand deposits to an amount necessary for current operating expenses including direct warrant redemption payments, investments and revenue collection.  The state treasurer may hold such additional funds as demand deposits as he deems necessary to insure efficient treasury management."

            Thirdly, RCW 43.86A.030 goes on to require that:

            "Funds held in public depositaries not as demand deposits as provided in RCW 43.86A.020 and 43.86A.030, shall be available for a time certificate of deposit investment program according to the following formula:  The state treasurer shall apportion to all participating depositaries an amount equal to five percent of the three year average mean of general state revenues as certified in accordance with Article VIII, section 1(b) of the state Constitution, or fifty percent of the total surplus treasury investment availability, whichever is less. . . ."

            This same statute then provides that:

            ". . .  These deposits shall be allocated among the participating depositaries on a basis to be determined by the state treasurer.  The formula so devised shall be a matter of public record giving consideration to, but not limited to deposits, assets, loans, capital structure, investments or some combination of these factors."

            RCW 43.86A.040 then disclaims any intent to prohibit the state treasurer from investing additional state funds in time certificates of deposit and, finally, § 5 of chapter 123,supra, now RCW 43.86A.050, says that:

            "The state treasurer shall devise the necessary formulae and methodology to implement the provisions of this chapter.  Periodically, but at least once every six months, the state treasurer shall review all rules and shall adopt, amend or repeal them as may be necessary.  These rules and a list of time certificate of deposit allocations shall be published in the treasurer's monthly financial report as required under the provisions of RCW 43.08.150."

             [[Orig. Op. Page 4]]

            The precise question which you have asked us to consider in the light of this 1973 legislation and the above described background thereto, here repeated for ease of reference, is as follows:

            "If a public depositary is unwilling to provide the service of cashing or giving credit for state warrants, would this office be legally justified in excluding that depositary from further participation in the time deposit program provided, of course, the same restriction is imposed for any institution unwilling to agree to such a condition?"

            In responding to this question we note three key points regarding chapter 43.86A RCW.  First, there is nothing in this law which requires the state treasurer to include, as a "participating depositary" under RCW 43.86A.030, every bank doing business in this state which is eligible to receive public deposits (i.e., every "qualified public depositary" as defined in RCW 39.58.010(2)).  All that is required is that the treasurer shall apportion to all such bankswhich are participating depositaries a designated amount of state funds calculated in accordance with the formula set forth therein.

            Secondly, we further observe that under this same section of the law these deposits are to be allocated among the participating depositaries ". . . on a basis to be determined by the state treasurer . . ."; and in AGLO 1974 No. 57 [[to Robert S. O'Brien, State Treasurer on May 23, 1974]], copy enclosed, we earlier advised you that this allocation may be made in response to other factors than merely the rate of interest payable by a particular depositary.

            And thirdly, we note the underlying purposes and objects of the legislation which, in the words of RCW 43.86A.010, supra, include the provision of ". . . fair compensation to banks for services rendered to the state through the investment of state funds in time deposits."  Thus it appears that the legislature clearly contemplated that a bank, in order to become a participating depositary under RCW 43.86A.030, would be expected in return to render services to the state (in addition, presumably, to paying interest to the state on the funds thus invested with it).

            Based upon these three aspects of the law we believe that the policy which you have outlined in your letter is legally justifiable.  The state treasurer may, as a condition of recognizing a bank as a "participating depositary" under  [[Orig. Op. Page 5]] chapter 43.86A RCW, require the bank to perform services for the state without charge therefor ‑ and to be compensated for those services through the investment of state funds in time deposits.  Thus, in our opinion, the treasurer may correlatively exclude from the program any bank which is unwilling to perform a particular service such as, in the instant case, the cashing of, or allowing credit for, state payroll or other warrants.

            It has, however, been suggested by counsel for one such bank that this is not a serviceto the state but is, instead, merely a service to the state employee or vendor or other recipient of state funds presenting a particular warrant.  We do not agree.  What is here involved, basically, is the disbursement of state funds by your office in the performance of one of its functions under the state budget and accounting act ‑ particularly RCW 43.88.160(2)(b) which provides that:

            "(2) The treasurer shall:

            ". . .

            "(b) Disburse public funds under his supervision or custody by warrant or check;

            ". . ."

            Also involved is the treasurer's function in the redemption of state warrants under chapter 43.08 RCW, and particularly, RCW 43.08.062.  Participating depositaries cashing or giving credit for state warrants presented to them assist the office of the treasurer in performing both of these statutory functions.  Thus, while the service of cashing or allowing credit for a state warrant is undoubtedly also of benefit to the payee or other holder of that warrant it is, nevertheless, a service to the state as well.3/

             We trust that the foregoing will be of some assistance to you.

Very truly yours,

SLADE GORTON
Attorney General