Request By:
Mr. Jas S. Sekhon
Executive Director
Bluegrass Area Development District
3220 Nicholasville Road
Lexington, Kentucky 40503
Opinion
Opinion By: Frederic J. Cowan, Attorney General; Nathan Goldman, Assistant Attorney General
In your letter to the Attorney General you ask several questions about local government investments.
"(1) Is KRS 66.480 the only statute governing the investment of public funds by a city, county, or agency thereof?"
KRS 66.480 deals with the investment of public funds by local governments. It states, in applicable part:
"(1) 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. Such investments may be accomplished through repurchase agreements reached with national or state banks chartered in Kentucky;
"(b) Bonds or certificates of indebtedness of this state and of its agencies and instrumentalities;
"(c) Any savings and loan association insured by an agency of the government of the United States up to the amount so insured; and
"(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 as permitted by KRS 41.240(4), having a current quoted market value at least equal to any uninsured deposits. No municipality, county, school district, other unit or local government, political subdivision or county official shall make any investment which would jeopardize the tax-exempt status of any outstanding obligation of such unit of local government. " (emphasis added).
KRS 386.030(2) and KRS 386.050 also apply to investments by local governments. KRS 386.030(2) states:
"This state and any of its political subdivisions, or any agency or instrumentality thereof may invest its funds and the money in its custody or possession, eligible for investment, in notes or bonds described in paragraph (c) of subsection (1) of this section." (emphasis added).
KRS 386.050 states, in applicable part:
"(1) This state and all public officers, cities, political subdivisions and public bodies . . . may legally invest any sinking funds, moneys or other funds belonging to them or within their control in any bonds or other obligations issued by a housing authority . . ." (emphasis added).
In OAG 82-124 we opined that a local government could invest its money pursuant to these statutes and KRS 386.020. KRS 386.020 is a general statute dealing with permitted investments for fiduciaries. It states that any fiduciary holding funds for loan or investment may invest them in certain obligations. KRS 386.010(1) defines fiduciary as "any trustee, guardian, executor, administrator, conservator or other individual or corporation holding funds or otherwise acting in a fiduciary capacity."
In our opinion, OAG 82-124 was incorrect insofar as it permitted public funds as described in KRS 66.480, 386.030(2) and 386.050 to be invested pursuant to KRS 386.020. A principle of statutory construction is that a specific statute will govern over a general statute.
Neighborhood Development Corp. v. City of Louisville, 632 F.2d 21 (6th Cir. 1980);
Land v. Newsome, Ky., 614 S.W.2d 948 (1981). Therefore, KRS 386.020 would have no application to the public funds governed by the specific statutes, KRS 66.480, 386.030(2) and 386.050.
To the extent that OAG 82-124 is inconsistent with this Opinion, it is hereby modified.
"(2) If so, does this statute permit a local government to invest in a portfolio of a registered investment company which invests wholly in short-term U.S. Treasury bills, notes, or other obligations permitted under KRS 66.480?"
KRS 66.480(1)(a) allows local governments to invest in "[o]bligations of the United States and of its agencies and instrumentalities. " We assume that your question refers to a mutual fund that invests solely in U.S. Government securities.
In
Burks v. Lasker, 441 U.S. 471, 480, 99 S. Ct. 1831, 60 L.Ed2d 404 (1979) and
Tannenbaum v. Zeller, 552 F.2d 402, 405 (2d Cir. 1977), a mutual fund was defined as "a mere shell," "a pool of assets, consisting primarily of portfolio securities, and belonging to the individual investors holding shares in the fund."
In
Matz v. Department of Treasury, 401 N.W.2d 62 (Mich. App. 1986) the question was whether investment in a mutual fund which purchased only U.S. Government securities was entitled to the same tax exemption as direct purchasers of U.S. Government securities. The Court held that it was and stated that the "practical reality is that [the investor] owns U.S. Government securities . . ." Accord,
Brown v. Franchise Tax Board, 242 Cal. Rptr. 810 (Cal. App. 1 Dist. 1987) which reached the same conclusion and cited several cases from other states which were in accord. There are no Kentucky cases on point.
It would be our opinion, based on the above-cited cases, that a local government could invest in a mutual fund that itself invested solely in U.S. Government securities.
Based on this conclusion, it is not necessary to answer your final question.