Request By:
Mr. Jim Bunning
State Senator
11th District
30 Winston Hill
Fort Thomas, Kentucky 41075
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You have a question relating to the investing of surplus funds of the state treasury by the State Investment Commission.
KRS 41.380(1) and (2) reads:
"(1) There shall be a state investment commission composed of the governor, the state treasurer, the secretary of the development cabinet, and the secretary of the department of finance. The commission shall have authority to and may invest any and all surplus funds of the state in direct obligations of the United States government, or of the Commonwealth of Kentucky. All such investments shall be obligations that will mature within five (5) years from the date of investment.
"(2) The commission shall also have authority and may, whenever in its opinion the cash in the state treasury is in excess of the amount required to meet current expenditures, invest any and all of said excess cash in United States treasury bills or certificates of indebtedness or any other United States government security which will mature within one (1) year from the date of investment."
Your question is whether or not it is legal for the State Investment Commission to invest state funds in Certificates of Deposit issued by a private bank, i.e., not by the United States Government? The answer is "yes", subject to conditions hereinafter stated.
KRS 386.020(1) provides in part that "Any 'fiduciary' holding funds for loan or investment may invest them in: (k) Certificates of Deposit and savings accounts of any state or national bank whose deposits are insured by the Federal Deposit Insurance Corporation and whose main office is in this state, including itself, if such fiduciary is a bank." Such investments shall be insured by the Federal Deposit Insurance Corporation and the amount of the investments shall not exceed the limits of insurance of the Federal Deposit Insurance Corporation. A "fiduciary" is defined in KRS 386.010(1) as meaning any trustee, guardian, executor, administrator, or other individual or corporation holding funds or otherwise acting in a fiduciary capacity. Thus the State Investment Commission, in carrying out its investment function under KRS 41.380, is a fiduciary of the state government. One acts in a fiduciary capacity when the property he handles is not his own or for his own benefit, but for the benefit of another. Black's Law Dictionary (4th ed.) page 753; Bowman v. Commonwealth, Ky., 438 S.W.2d 488 (1969); Reily v. Fleece, 259 Ky. 330, 82 S.W.2d 341 (1935); and 89 C.J.S., Trusts, § 3, page 715.
First, 12 U.S.C. § 1821 (a)(2)(A) provides in part that, in the case of a bank depositor who is an officer or agent of any state of the United States having official custody of public funds and lawfully investing or depositing the same in time and savings deposits in an insured bank in such state, his deposit shall be insured in an amount not to exceed $100,000 per account.
The designation of depositories for state funds is the joint responsibility of the State Treasurer and the Secretary of the Department of Finance. KRS 41.220. The word "banks", as used in KRS 41.220(1), would include state banks organized under KRS Chapter 287 and any national banks whose principal offices are located in Kentucky.
All of the above statutes should be read together, i.e., in pari materia, since they concern the same subject matter. They must be considered, not as isolated fragments of law, but as a whole or as a part of a connected system. Dieruf v. Louisville & Jefferson County Bd. of Health, 304 Ky. 207, 200 S.W.2d 300 (1947); and Economy Optical Co. v. Kentucky Board of Opt. Exam. Ky., 310 S.W.2d 783 (1958) 784.
In considering the above investment statutes, it is our opinion that the State Investment Commission may, pursuant to KRS 41.380(2), invest such surplus in Certificates of Deposit of any state or national bank, as above mentioned, designated as a state depository whose deposits are insured by the Federal Deposit Insurance Corporation and whose main office is in this state, including itself, if such a fiduciary is a bank. Such investments shall observe the $100,000 limitation on insurance coverage.
The literal provision in KRS 41.380(2), that the State Investment Commission may invest state surplus funds in federal obligations, remains unchanged from the original enactment in 1952 (Acts 1952, Ch. 86). However, in 1980 (Acts 1980, Ch. 134, § 1) the General Assembly amended the general statute, KRS 386.020, to expressly provide that any fiduciary holding funds for loan or investment may invest them in Certificates of Deposit of any state or national bank whose deposits are insured by the Federal Deposit Insurance Corporation, etc., as mentioned earlier herein. "It is an elementary rule of statutory interpretation that whenever in the statutes on any particular subject there are apparent conflicts which cannot be reconciled, the later statute controls." (Emphasis added). Butcher v. Adams, 310 Ky. 205, 220 S.W.2d 398 (1949). Thus KRS 386.020 controls. It is obvious that the General Assembly wanted to attune state investments to the modern device of Certificates of Deposit guaranteed by the F.D.I.C.