Request By:
James R. Ramsey, Director
Division of Investment and Debt Management
Office for Policy and Management
Finance and Administration Cabinet
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Senate Bill 243 was enacted in the regular 1982 session, (Ch. 382), and was described as an Act relating to state deposits and investments.
You say that Senate Bill 243 created a definition of "state funds." In that connection, KRS 41.070(1), as amended by Senate Bill 243, provides in part:
(1) Unless otherwise expressly provided by law, no receipts from any source of state money or money for which the state is responsible shall be held, used or deposited in any personal or special bank account, temporarily or otherwise, by any agent or employee of any budget unit, to meet expenditures or for any other purpose. All receipts of any character of any budget unit, all revenue collected for the state, and all public money and dues to the state shall be deposited in state depositories in the most prompt and cost-efficient manner available, except that in the case of state departments or agencies located outside Frankfort, and all state institutions, the finance and administration cabinet may permit temporary deposits to be made to the accounts maintained by the agency, department, or institution in a bank which has been designated as a depository for state funds for a period not to exceed thirty (30) days, and may require that the money be forwarded to the state treasury at the time and in the manner and form prescribed by the department.
Thus state funds are encompassed in this broad expression: "All receipts of any character of any budget unit, all revenue collected for the state, and all public money and dues to the state." [Emphasis Added].
You wrote that the definition includes bond proceeds of the state and its agencies, unless otherwise defined in those agencies' statutes. You also wrote that such state and agency bond proceeds are indeed state funds, regardless of whether they involve: (1) direct or general obligation debts, (2) indirect obligations by way of a revenue bond for which debt service may be paid by state appropriations where project revenues are not wholly sufficient.
In order to provide accountability of state funds, you understand that the following procedure is appropriate:
1. Funds of direct state obligations shall be deposited directly into the Treasury.
2. Funds of indirect state obligations shall be deposited directly into the Treasury.
3. Funds of moral obligation debt (bond proceeds and subsequent receipts that go toward debt service) shall be deposited directly into a state depository, not necessarily the Treasury, but all activity related to those funds shall be reported to the Finance and Administration Cabinet and reflected in the annual state financial statements (as well as the biennial Budget) .
4. Funds of state agency bond issues for which no request of state funds is anticipated shall be deposited in a state depository. That debt shall be reported to the Finance and Administration Cabinet and reflected in the annual state financial statements (as well as the biennial Budget) .
Your general question, in connection with the above suggested accounting procedures, reads:
"Is this procedure, in your opinion, consistent with the requirements of KRS 41.070? Since it appears that several agencies are structuring their operations in the belief that this described procedure is consistent with the statutes, it would be helpful to know your assessment as to whether we are all meeting statutory requirements."
Effective July 1, 1983, the term "fund" is defined in KRS 48.010(13), with various categories of funds, including "Bond debt related fund". Thus KRS 48.010(13)(b) reads:
(13) "Fund" means an independent fiscal and accounting entity with a self-balancing set of accounts recording cash or other resources or both together with all related liabilities, obligations, reserves, and equities which are segregated for the purpose of carrying on specific activities in accordance with legal restrictions or other limitations, to include:
* * *
(b) "Bond debt related fund." This fund shall consist of all outstanding bonded debt liability and related funds of state government, including all revenue bonds issued by or approved by the state property and buildings commission. Accounts necessary to assure integrity of trust indentures shall be maintained. Funds appropriated for debt service shall be allotted to these accounts and any excess of appropriation over net requirements for principal, interest and reserves for any issue shall lapse to the surplus account of the general fund if general funds are a part of the appropriation for that budget unit.
The aforementioned bond proceeds as state funds must be deposited in the State Treasury for state expenditure and state purposes. See KRS 41.070, 41.110, and § 230, Kentucky Constitution. See Ferguson v. Oates, Ky., 314 S.W.2d 518 (1958) 521, involving the concept of legislative consent to the expenditure of state money. Public money of the state received into the State Treasury must be deposited on the day of receipt in one (1) of the state depository banks. KRS 41.210. Pursuant to KRS 41.010(2), as amended in 1982, the words "bank" and "depository" , as used in KRS Chapter 41, include any qualified financial intermediary and savings and loan associations chartered by the State of Kentucky or the United States government. No state money shall be paid out of the State Treasury except by the check of the Treasurer upon a state depository. KRS 41.160. However KRS 41.165 and 41.167, enacted in 1982, permit electronic transfers of funds into and out of the State Treasury. Banks shall be designated as depositories for state funds upon agreement of the State Treasurer and the Secretary of the Executive Department for Finance and Administration. KRS 41.220. The General Depository is the Farmers Bank and Trust Company, of Frankfort, it involving the only active checking account of the state.
Concerning procedure items No. 1 and No. 2, above listed, relating to proceeds of general obligation bonds and revenue bonds, it is our opinion that such bond proceeds should be deposited directly into the State Treasury system, i.e., into state depositories properly established as described above, subject to fund accounting as mentioned in KRS 41.070 (using depositories in the most prompt and cost efficient manner available) and KRS 48.010(13)(b). We gather from your letter that you mean that such proceeds be paid into the State Treasury, i.e., deposited with the Farmers Bank and Trust Company, as the General Depository, which involves the only active state checking account. If you mean that depository, we think that would be correct procedure as relates to bond sale proceeds relating to government obligation and revenue bonds, subject to KRS 41.070 and 48.010(13)(b).
It is further our opinion, as relates to procedural items No. 3 and No. 4, that such bond moneys should be deposited in a state depository as a part of the treasury system. This could be the Farmers Bank and Trust Company, as mentioned above. Thus your procedural analysis as to accounting for such bond moneys or funds by way of state depositories is correct, we think. Bond moneys include bond proceeds (sale of bonds) and project revenues.
The literal and mandatory provisions of KRS 41.070 will be observed under your practice. KRS 41.070 was designed, inter alia, to provide a flow of such state moneys through the State Treasury which would identify on a state level the possibility of non-investment of such funds. Such identification could promote the investment of the funds as authorized by bond documents and state statutes. Secondly, such flow into the State Treasury would expose to affected state officials charged with auditing, budgeting and financial supervisory functions the revenues and expenditures of state universities, unless the state university has elected to perform under the Financial Management Bill. See KRS 164A.560 and 164A.630. See OAG 82-520. And finally, uniformity in accounting, as a legislative object, emerges as being transcendent in this whole context.