Request By:
Mr. Walker C. Cunningham, Jr.
Assistant County Attorney
400 Burdorf Building
100 North Sixth Street
Louisville, Kentucky 40202
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Elizabeth E. Blackford, Assistant Attorney General
You wrote to ask whether Jefferson County may invest its funds in those banks mentioned in the Farm Credit Act, 12 USCA § 2001 et seq., and in other federal institutions or obligations, such as the Federal Home Loan Banks or Federal National Mortgage Association discount notes and debentures, pursuant to the authority vested in it by KRS 66.480.
KRS 66.480(1)(a) permits a political subdivision to invest in obligations of the United States and its agencies and instrumentalities. Those banks and associations which are participants in the Farm Credit Act are designated as federal instrumentalities within that act. For example, see 12 USCA § 2011 pertaining to Federal Land Banks, 12 USCA § 2031 pertaining to Federal Land Bank Associations and 12 USCA § 2071 pertaining to Federal Intermediate Credit Banks. Therefore, the county could invest its funds in these institutions.
Federal Home Loan Banks are created pursuant to 12 USCA § 1421, et seq. Although the statute does not specifically state that Federal Home Loan Banks are federal institutions, it is clear from the act that they are to be considered as such for they are a federally created instrumentality organized to carry out a public purpose, and their function is wholly governmental.
Federal Home Loan Bank of San Francisco v. O'Melreny & Meyers, 200 F.2d 420, 442 (9 cir., 1952). Therefore, this office is of the opinion that the county could invest in Federal Home Loan Banks pursuant to KRS 66.480.
While this office is of the opinion that only certain limited investments in FMNA notes and debentures are permissible, we must state in advance that this authority is not derived from KRS 66.480 as the status of FNMA discount notes and debentures as obligations of the United States, its agencies or instrumentalities is uncertain.
The uncertainty associated with the status of FMNA notes and debentures is derived from the following:
Originally, FNMA was a single agency of the United States government. However, as of September 1, 1968, the FNMA was divided into two distinct corporate bodies, the Governmental National Association (GNMA) and the Federal National Mortgage Association (FNMA). 12 USCA § 1717. Pursuant to 12 USCA § 1716(b) the FNMA will be a government sponsored private corporation while the GNMA is to remain within the government. This change was made to fulfill the congressional intent which was embodied in 12 USCA § 1718(g) (now repealed) to transfer "to the owners of the outstanding common stock of the association the assets and liabilities of the association in connection with, and the control and management of, the secondary market operations of the association . . . in order that such operations may thereafter be carried out by a privately owned and privately financed corporation." 2 U.S. Cong. § Adm. News, 1968, p. 2943.
The language used in describing the FNMA as a government sponsored private corporation stands distinct from that utilized throughout the Farm Credit Act whereby each of the various banks and associations which participate in that act are specifically designated as federal instrumentalities, particularly when considered in contrast to the GNMA which is specifically maintained as a portion of the government. This distinction creates an ambiguity concerning the status of the FNMA as a federal instrumentality.
The committee report found in U.S. Cong. & Adm. News, 1968, pp. 2943-2944, notes that the new FNMA, though designated a government sponsored corporation, would be "regulated by the secretary and would have a status analagous to that of the Federal Land Banks and the Federal Home Loan Banks." As previously discussed, the aforementioned banks are federal instrumentalities [Missing Page]
Therefore, this office is of the opinion that investment by the county in FNMA discount notes and debentures is not authorized by KRS 66.480. However, KRS 386.040 permits the county to invest its funds in certain types of FNMA notes and debentures. KRS 386.040 reads in part as follows:
"Notes or bonds secured by mortgage or trust deed insured and . . . debentures issued by National Mortgage Associations . . . are eligible securities for the purpose, whereever the statutes of this state require, of: (3) Investment of capital or surplus;. . ."
Pursuant to this statute, this office is of the opinion that the county could invest in any FNMA notes or debentures which fall within the described category.
You have also asked whether the county may invest in the bonds of other counties and municipalities, in school revenue bonds and in the obligations of the Kentucky State Property and Building Commission Board, the Kentucky Turnpike Authority, the Kentucky Pollution Abatement Authority, the Kentucky Housing Corporation and the Kentucky Public School Board.
You may not invest in the general bonds of other counties or municipalities. Such investments are not authorized by KRS 66.480, and we can find no other statute permitting this type of investment.
You may invest in school revenue bonds, either city or county, pursuant to KRS 66.480(b) which authorizes investments in Bonds or certificates of indebtedness of this state and of its agencies and instrumentalities, " for all county and municipal school boards are state agencies. Ky. Const. § 184,
Board of Education of Louisville v. Board of Education of Jefferson County, Ky., 458 S.W.2d 6 (1970). Pursuant to that same authority, the county may invest in the notes or certificates of indebtedness of the Kentucky State Property and Building Commission Board and the Kentucky Housing Corporation as these are statutorially designated state agencies. KRS 175.570 and KRS 224A.150.
Counties are specifically authorized to invest in the bonds and notes of the Kentucky Turnpike Authority and the Pollution Abatement Authority by KRS 175.570 and KRS 224A.150.
We can find nothing in the statutes pertaining to the Kentucky Public School Board, and, therefore, will offer no opinion thereon.
In summary, the county may invest in those banks and associations which are participants in the Farm Credit Act, in the Home Loan Banks and in school revenue bonds of all kinds, in the Kentucky State Property and Building Commission and the Kentucky Housing Corporation by the authority vested in it pursuant to KRS 66.480. It may invest in the Kentucky Turnpike Authority and the Kentucky Pollution Abatement Authority pursuant to KRS 175.570 and 224A.150, and may invest in certain notes and debentures of the FMNA pursuant to KRS 386.040. It may not invest in general county or municipal obligations.