Request By:
Mr. Jas S. Sekhon
Executive Director
Bluegrass Area Development
District, Inc.
3220 Nicholasville Road
Southpark Center
Lexington, Kentucky 40503
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter concerning a proposed pooled cash investment program for the general and utility funds of cities and counties. The Bluegrass Area Development District, as part of a management assistance program, would like to pool temporarily idle city and county funds for investment in short-term securities. By pooling funds, the program would be able to invest in larger denomination securities than an individual unit of government could, and thus, participants would obtain a higher yield on their investments. The Bluegrass Area Development District would serve as investment manager for the funds and would be responsible for handling and investing the funds. Under the proposal funds would be physically forwarded to the Area Development District and the funds would be invested in securities in accordance with KRS 66.480. Participating units of government would pay a transaction fee to the Area Development District to cover the cost of the investment services.
Your question to this office is as follows:
"Can the Bluegrass Area Development District establish and operate under the Interlocal Cooperation Act (KRS 65.210 to 65.00), or any other applicable law, an investment pool for the operating funds (general and utility funds) of units of government within the Area Development District?"
KRS 66.480, to which you have referred, and pursuant to which investments under the proposed program would be made, provides in subsection (1) as follows:
"The governing body of a municipality, county, school district (provided that its action is approved by the state board of education), or other local governmental unit or political subdivision, may invest and reinvest money subject to its control and jurisdiction in:
(a) Obligations of the United States and of its agencies and instrumentalities;
(b) Bonds or certificates of indebtedness of this state and of its agencies and instrumentalities;
(c) Shares of any savings and loan association insured by an agency of the government of the United States up to the amount so insured;
(d) Interest bearing deposits in national or state banks chartered in Kentucky and insured by an agency of the government of the United States up to the amount so insured, and in larger amounts providing such bank shall pledge as security obligations of the United States government, its agencies and instrumentalities. "
KRS 66.480(3) states:
"The governing body may delegate the investment authority provided by subsection (1) of this section to the treasurer or other financial officer charged with custody of the funds of the local government, and such officer shall thereafter assume full responsibility for all investment transactions until the delegation of authority terminates or is revoked."
Subsection (4) of KRS 66.480 provides that the state local finance officer is authorized and directed to assist local governments (except school districts) in investing funds that are temporarily in excess of operating needs by explaining investment opportunities to such local governments and by providing technical assistance in investment of idle funds to local governments that request such assistance.
Thus, pursuant to KRS 66.480, cities and counties may invest temporarily idle funds subject to their control and jurisdiction in those securities specifically enumerated within the provisions of that statute. The statute, however, does not authorize cities and counties to relinquish control of investment funds to an entity such as an Area Development District for handling and investment. If the governmental unit does not want to handle the investment responsibility it may authorize its treasurer or other financial officer charged with custody of the funds to assume full responsibility for all investment transactions. The statutory scheme which has been established does not permit governmental units to, in effect, hire an agent to manage their temporarily idle funds for purposes of investment.
While the so-called city home rule provision, KRS 82.082, greatly expands the powers of a city, that statute does state in part that a power or function is in conflict with a statute if it is expressly prohibited by a statute or there is a comprehensive scheme of legislation on the same general subject embodied in the Kentucky Revised Statutes. KRS 66.480 sets forth provisions pursuant to which a governmental unit may invest its funds and a city cannot circumvent those provisions by utilizing home rule to establish a conflicting policy concerning its investments.
KRS 65.210 to 65.300 (the Interlocal Cooperation Act) permits governmental units to exercise certain powers jointly, provided each unit participating in the joint activity has the statutory authority to exercise such powers separately or unilaterally. Thus, governmental units participating in an undertaking under the Interlocal Cooperation Act cannot acquire any powers they did not possess prior to the joint undertaking. While cities and counties could enter into a cooperative agreement under the Interlocal Cooperation Act concerning the investment of their temporarily idle funds pursuant to KRS 66.480, the investment program would have to conform to the statutory requirements of that statute.
In conclusion, it is our opinion that since cities and counties unilaterally have the authority to invest their temporarily idle funds pursuant to KRS 66.480 in those types of securities specifically listed in that statute, cities and counties could enter into an agreement under the Interlocal Cooperation Act providing for a cooperative investment program. Where an investment program depends upon the authority set forth in KRS 66.480, the provisions of that statute must be followed. Cities and counties cannot, either unilaterally or collectively, turn over their funds to an Area Development District to manage for investment purposes as such action is not permitted under the statute. A program such as you have proposed cannot exist without the enactment of necessary legislation by the General Assembly.