Request By:
Mr. Barry Armstrong
Executive Vice President
The Peoples Bank
Mt. Washington, Kentucky 40047
Opinion
Opinion By: Robert F. Stephens, Attorney General; Robert L. Chenoweth, Acting Deputy Attorney General
You have asked the Office of the Attorney General for an opinion concerning an interlocking relationship between a county school board and a state bank, where the bank has been designated a depository for the school board. You informed us that the school board has a member who is a vice president of the bank designated and is also a stockholder and director of the bank.
We believe we have answered this question in OAG 77-231, copy attached. In that opinion we stated:
"It is the opinion of this office that if the only transaction between a subject bank and the school board is the demand deposit of funds for the drawing of checks or the deposit of school monies in time deposits on which interest is paid by the bank to the school, there is no violation of KRS 160.180 when an officer, director, or stockholder of the subject bank is also a member of the school board. "
We further site for support the persuasive decision of the Kentucky Court of Appeals in McCloud v. City of Cadiz, Ky. App., 548 S.W.2d 158 (1977), copy attached. In that case, the court was considering KRS 61.280 applicable to city officers in fifth or sixth class cities and not KRS 160.180 which is the key section of law regarding local school board members. The issue in the McCloud case was the depositing of a city's money in a bank in which city officials served as directors. The Court of Appeals, after citing and quoting from the case of Commonwealth ex rel Vincent, Attorney General, v. Withers, 266 Ky. 29, 98 S.W.2d 24, stated the case before it fell within that guideline. The court added: "Any benefit that the city officers might have received from the lending the use of such money is too speculative and remote as to suggest a conflict of interest." (Emphasis Supplied) 548 S.W.2d at 162. We reiterate and readopt our conclusion stated in OAG 77-231.
You have also asked two tangentially related questions. The first of these questions is the legality of a school board using a bank for deposit of school board funds when that bank has not been officially designated a depository. The last question is whether three banks may be officially designated as depositories. It is our opinion the answers to these questions rest in the statutes. KRS 160.570 is mandatory and encompassing. Subsection one provides:
"Each board of education shall appoint a bank or trust company to serve as its depository, and it its annual receipts from all sources exceed one hundred thousand dollars ($100,000) it may designate two (2) depositories. The depository may be designated for a period not to exceed two (2) years, and before entering upon its duties shall agree with the board as to the rate of interest to be paid on average daily or monthly balances."
Thus, a local board of education is violating the law if it deposits money in a bank other than its named depository bank. The law envisions no more than two banks being named as a depository for any one school system in the Commonwealth.