Request By:
Mr. Jesse Rodgers Williams
Property Valuation Administrator
Muhlenberg County
P.O. Box 546
Greenville, Kentucky 42345
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You raise various questions about the county treasurer, county judge/executive, and the county's bank accounts.
Question No. 1: Under present law is it a crime on the part of the county treasurer and county judge/executive for permitting the county's bank accounts to draw no interest?
The matter of choosing a county depository is left to the discretion of the fiscal court, as a body. See KRS 67.080 and 67.083. The county treasurer and county judge/executive, individually, have no authority to select the depository. The fiscal court as a body is primarily responsible for the bank accounts. Even if the law required that interest be sought and paid, the matter of such interest would not be a responsibility of the county treasurer and county judge/executive. The county treasurer merely holds such county money subject to the orders of fiscal court, and all checks on the county's bank accounts must be co-signed by the county treasurer and the county judge/executive. KRS 68.020(1).
Now, let us examine the question as to whether the fiscal court has a positive duty to procure interest on county bank deposits. Under KRS 67.080(1)(c), the fiscal court is required to regulate and control the fiscal affairs of the county. Assuming that the county's accounts are deposit accounts, the deposit creates the relation of debtor and creditor. The ordinary deposit, subject to check, is a demand loan which, in the absence of a contract, does not become due, and does not bear interest, nor can an action be maintained for its recovery until payment thereof has been demanded and refused by the bank. Dorman v. Adams, 247 Ky. 678, 57 S.W.2d 534 (1933) 536.
This brings on the ultimate question: Is the fiscal court required to contract with the depository for payment of interest to the county? We can find no statute imposing upon the fiscal court the positive duty of procuring interest on its deposits. However, good business judgment would seem to dictate that they procure a reasonable rate of interest if such interest is available.
Question No. 2: Does the fact that the county treasurer is at the same time the president of a county depository bank create a conflict in interest?
The answer is "no". The county treasurer has no authority under the law to choose a county depository. That is done by the fiscal court, as aforesaid. Cf. H.B. 320 [1980 regular session], presently posted in committee, which amends KRS 68.010 to prohibit bank presidents, vice presidents or cashiers from serving as county treasurer.
Question No. 3: Is there any basis for initiating an action against the treasurer and county judge/executive for misuse of public funds? Based upon their respective statutory roles as outlined above, and upon the facts submitted, we see no basis for civil or criminal action. These two officials only sign checks on these deposits, and that only upon orders of the fiscal court.
Question No. 4: Is it illegal for banks to accept a county's deposit without paying any interest?
Under the present law, there is no statute requiring county depository banks to pay interest. They can do so by contract with the county if they wish, as mentioned above.
Question No. 5: What action is open to the taxpayers to recover what you feel may be $100,000 in lost interest?
For reasons given above, there is no redress against the depository bank, since interest, from their viewpoint, is a freedom of contract matter. They can contract for paying interest or not contract.
Now the fiscal court members are custodians of the county's money, the role of the county treasurer being very limited. And in any event, his writing checks is done only on orders of fiscal court.
At most, in the handling of county money, the members of fiscal court would be bailees under a bailment. A bailee has the duty to exercise the utmost good faith and diligence in the performance of his duties. Commonwealth v. Polk, 256 Ky. 100, 75 S.W.2d 761 (1934) 764. The fiscal court members, as bailees, in looking out for the proper preservation and expenditure of the county's deposits must exercise the utmost good faith and diligence in the performance of their clear statutory fiscal duties. But we are unable to say definitively and positively that this good faith and diligence would equally extend to procuring interest on the money from the depository. Only the courts can settle that point.
The misfeasance, malfeasance and wilful neglect of official duties of a county judge/executive and justice of the peace is dealt with in KRS 61.170. Once again, we find no cases interpreting such language on the question of the failure to invest county monies. Apparently such a question would be a case of first impression for the courts.
Question No. 6: What action may the county attorney take in this situation?
KRS 61.170 contains criminal penalties for its violation. However, because of lack of any case law on the subject, a county attorney would have to make his own judgment as to whether the lack of such investment of monies violates said section.
Another solution would be for the General Assembly to enact a statute explicitly dealing with the interest matter and prescribe express standards to be met on the part of fiscal court members.