G O V E R N M E N T F I N A N C E O F F I C E R S A S S O C I A T I O N O F M I S S O U R I

S T O N E Y C R E E K H O T E L & C O N F E R E N C E C E N T E R

F A L L 2 0 1 7 S E M I N A R

W E D N E S D A Y , O C T O B E R 1 1 , 2 0 1 7

DEPOSIT AND INVESTMENT OF PUBLIC FUNDS

CUNNINGHAM, VOGEL & ROST, P.C.

legal counselors to local government

333 S. Kirkwood Road, Suite 300

St. Louis, Mo 63122

314.446.0800

kim@municipalfirm.com

www.municipalfirm.comCopyright © 2017 Cunningham, Vogel & Rost, P.C.

But first, a joke.

One day in Contract Law class, the professor asked one of his better students, "Now if you were to give someone an orange, how would you go about it?"

The student replied, "Here's an orange."

The professor was livid. "No! No! Think like a lawyer!"

The punchline.

The student then recited, "Okay, I'd tell him, 'I hereby give and convey to you all and singular, my estate and interests, rights, claim, title, claim and advantages of and in, said orange, together with all its rind, juice, pulp, and seeds, and all rights and advantages with full power to bite, cut, freeze and otherwise eat, the same, or give the same away with and without the pulp, juice, rind and seeds, anything herein before or hereinafter or in any deed, or deeds, instruments of whatever nature or kind whatsoever to the contrary in anywise notwithstanding...“

https://www.lawyersweekly.com.au/folklaw/6045-world-s-best-and-worst-lawyer-jokes

• I N 2 0 1 6 , T H E S T A T E O F M I S S O U R I C O L L E C T E D $ 3 . 7 B I L L I O N L O C A L S A L E S A N D U S E T A X E S O N B E H A L F O F L O C A L T A X I N G J U R I S D I C T I O N S

H T T P : / / D O R . M O . G O V / C A F R / D O C U M E N T S / F I N A N C I A L S T A T R E PO R T 1 6 . P D F

• A S O F 2 0 1 4 , M I S S O U R I H A D T H E 2 N D H I G H E S T N U M B E R O F S A L E S T A X J U R I S D I C T I O N S ( 1 , 2 4 2 ) B E H I N D T E X A S ( 1 , 5 1 5 ) O F T H E 9 , 9 9 8 T O T A L S A L E S T A X J U R I S D I C T I O N S I N T H E E N T I R E C O U N T R Y

H T T P S : / / T A X F O U N D A T I O N . O R G / S T A T E - S A L E S - T A X -J U R I S D I C T I O N S - A P P R O A C H - 1 0 0 0 0 /

Scope of Public Funds in Missouri – Quick Facts

Scope of Public Funds in Missouri – Quick Facts

Geographic

area

Total General purpose governments Special purpose governments

Total County Subcounty governments Total Special districts

Independent

School

Districts

Total MunicipalTown or

township

United

States

90,056 38,910 3,031 35,879 19,519 16,360 51,146 38,266 12,880

Missouri

3,768 1,380 114 1,266 954 312 2,388 1,854 534

https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

Scope of Public Funds in Missouri – Quick Facts

2014-2015

Missouri

State & local State & local State Local Local

government government government government government

amount CV amount amount CV

Cash and Security

Holdings

(in thousands)

111,370,809 0.82 82,276,964 29,093,845 3.14

https://www.census.gov/govs/local/index.html

C O M P L I A N C E C H A L L E N G E S

N O N - C O M P L I A N C E R I S K S

T O P I C S C O V E R E D A N D N O T C O V E R E D

Overview

Compliance Challenges

Lack of single state statutory source of governing laws

State laws are not in one place

Many laws

Laws vary depending on the type of political subdivision

Federal and other laws apply

Interaction with UCC, banking, bankruptcy, and sometimes

tax laws adds complexity to compliance

Compliance ChallengesDifferent Funds = Different Rules

Public Finance Funds

Case by case requirements – need to know

See covenants in financing documents

Bond funds must be deposited and used in accordance with transaction documents and applicable IRS and SEC rules

Bond funds must be kept separate and not commingled with other city funds. Section 108.180, RSMo. Violation of this statute is a misdemeanor, punishable by fine and/or imprisonment. Section 108.190, RSMo.

Sinking fund may be required

Compliance ChallengesDifferent Funds = Different Rules

Special Taxes or Funds

Laws enabling the tax may contain guidelines and restrictions; e.g., parks tax, special district taxes; e.g.,Section 214.020, RSMo – Enables cities that own or acquire any cemetery, to establish a perpetual care cemetery fund; funds may be invested in US or Missouri state bonds, or placed in a cash deposit account if insured by FDIC.

Ordinance may specify use, deposit and investment (if authorized) such as maintaining separate accounts

Funds governed by agreements may have additional guidelines or restrictions

Non-Compliance Risk

Financial Risk of Failure to Comply:

Personal Liability?

Statutory and ordinance obligations are not discretionary

Failure to perform mandatory duties subjects public officials to personal liability; public official immunity does not apply. See Grant v. Fletcher, 564 S.W.2d 944, 945-46 (Mo. App. 1978) (“[A] public officer or employee who negligently performs or refuses to perform a ministerial duty imposed on him by law can be made to respond in damages to one thereby injured.”)

Non-Compliance Risk

Potential Liability for Non-Compliance Members of school district board could be held liable for

failure to furnish a contractor’s bond. Requiring a bond was ministerial and therefore board members were not protected by official immunity. Burton Machinery Co. v. Ruth, 186 S.W. 737 (Mo. App. 1978).

See also cases in section of this presentation on investing public funds holding city treasurers personally liable for failing to follow early statutes regarding custody of public funds.

Laws and Legal Issues Covered

Deposit and investment of public funds Constitutional provisions

Missouri statutory requirements

Missouri Attorney General Opinions

Detailed analysis of authority for cities

Many other types of political subdivisions each have their own authority – analysis is similar to cities

Not Covered in this Seminar

• More stringent guidelines applicable to project funds, bond funds,restricted funds, special tax funds, etc… that may be contained instatutes, charters, or ordinances.

• Handling of project funds, bond funds, restricted funds, special taxfunds, etc… should be assessed on a case-by-case basis with legalcounsel.

• Financial advice. This presentation solely covers laws and legal issuesapplicable to handling public funds. No financial advice is provided.

• Authority of the State of Missouri – principles presented generally donot apply to the State. Constitution and legislation specific for depositand investment authority of the State are not included in thispresentation.

C O N S T I T U T I O N A L P R O V I S I O N S

S T A T U T O R Y R E Q U I R E M E N T S

J U D I C I A L & A D M I N I S T R A T I V E I N T E R P R E T A T I O N

Sources of Law

Constitutional Provisions

Article VI, Section 23: Cities may not own stock in corporation or association

May not invest in mutual funds. MO Att. Gen. Op. 26-88.

Corporate stock donated to a municipality must be disposed of in a reasonable period of time. MO Att. Gen. Op. 51-88.

Article VI, Section 25:

A city is not permitted to “lend its credit or grant public money or property to any private individual, association or corporation” (with certain exceptions)

6

Constitutional Provisions

Article IV, Section 15: Sets forth rules relating to investment by State Treasurer;

Limits investment maturity to a five-year maximum Permitted investments:

Time deposits in Missouri banking institutions U.S. obligations Repurchase agreements (up to 90 days) Commercial paper and banker’s acceptances (up to 180 days)

Requires a written investment policy Note investment authority of state is constitutionally granted –

no similar grant of authority in constitution for cities “Non state,” e.g., political subdivision, taxes and fees collected by

the State Treasurer to be deposited and invested subject to such restrictions and requirements as may be prescribed by law.

7

Statutes are interpreted narrowly

MO Att. Gen. Op. 34-90 Cities, towns and villages. City funds. City parks. - Jan 23 (Missouri Attorney General Opinions (1990)):

“A municipal corporation ... is a creature of the legislature, possessing only those powers expressly granted or those necessarily or fairly implied in or incidental to express grants, or those essential to the declared objects of the municipality. [Citation omitted.] Any reasonable doubt as to whether a power has been delegated to a municipality is resolved in favor of nondelegation.” quoting Anderson v. City of Olivette, 518 S.W.2d 34, 39 (Mo.1975).

9

A U T H O R I T Y

D E P O S I T P O L I C Y

D E P O S I T A R Y C O N T R A C T S

C O L L A T E R A L I Z A T I O N O F D E P O S I T S

C U S T O D I A L C O N T R A C T S

U C C A N D B A N K R U P T C Y I S S U E S

Deposit of Public Funds

History of Deposit Authority

Prior to 1911, cities did not have authority to place public funds in the custody of anyone other than the city treasurer.

City treasurer had an absolute duty to account to the city for public funds.

History of Deposit Authority

City council or boards had no authority to enact legislation to change the duty of the treasurer.

Treasurer still held accountable for loss of city funds even if treasurer were acting on directions of city pursuant to ordinance – such action was at treasurer’s “peril.”

University City vs. Schall, 275 Mo. 667 (1918)

Missouri Supreme Court Case from 1918

Facts:

• In 1910, James Coyle, City Treasurer, deposited $100,000 of City funds at People’s Savings Trust Company.

• In 1911, the Trust Company failed; balance of the deposit – approximately $12,000 – was lost.

• Mr. Coyle passed away, but the City sued his Estate for the funds lost, claiming that Mr. Coyle did not have authority to deposit City funds with a bank.

University City vs. Schall, 275 Mo. 667 (1918)

Facts (continued):

• The Mayor and some aldermen were directors of the Trust Company.

• Evidence was offered at trial that the Mayor and City Council had directed Mr. Coyle to deposit the funds with Trust Company.

• Mr. Coyle’s Estate argued that he was following instructions as an agent of the Mayor and Board, under authority of a general statutory power providing, “The mayor and board of aldermen shall have the care, management and control of the city and its finances.” Section 9371 R.S. 1909

University City vs. Schall, 275 Mo. 667 (1918)

Holding:

• The Supreme Court held that the Board turned over the funds to the Treasurer; he was not acting as their agent; the Treasurer was bound to follow the statute making him account for the funds; Treasurer’s duty to account was absolute.

• Further held the Board had no authority to change the Treasurer’s absolute duty, even if they passed an Ordinance directing him to deposit the funds with a bank.

• Treasurer’s following directions of the Board without statutory authority was at Treasurer’s peril.

What does this mean for finance officers?

University City vs. Schall, 275 Mo. 667 (1918)

Moral of the Story:

o Finance officers who have statutory powers and duties should exercise caution in taking any action that is not within the powers and duties enumerated in the applicable statute.

o Governing bodies cannot relieve statutory obligations of treasurers and finance officers.

o In the absence of statutory powers or obligations, there should be a clear policy, resolution, or ordinance establishing the governing body’s rules for custody of funds.

o Ensure the political subdivision has liability insurance that will cover your defense and loss if there is any claim of wrongdoing (even negligent).

o Thankfully laws now allow deposit of public funds in banks!

N E X T I S A D E T A I L E D A N A L Y S I S O F T H E A U T H O R I T Y A N D O B L I G A T I O N S O F C I T I E S R E L A T I V E T O P U B L I C F U N D S .

S A M E M E T H O D O F A N A L Y S I S W I L L A P P L Y T O O T H E R T Y P E S O F P O L I T I C A L S U B D I V I S I O N S :

1 . W H A T D O E S M I S S O U R I C O N S T I T U T I O N S A Y , I F A N Y T H I N G A B O U T T H E P O L I T I C A L S U B D I V I S I O N A U T H O R I T Y ?

2 . W H A T D O E S S T A T E A U T H O R I Z I N G L E G I S L A T I O N S A Y ?

3 . A R E T H E R E A N Y C A S E S , R E G U L A T I O N S , O R A G O P I N I O N S ?

4 . H A S G O V E R N I N G B O D Y P A S S E D A N Y L E G I S L A T I O N ?

Authority of Cities

Deposit of City Funds – Authority

3rd, 4th, Constitutional or Special

Charter City

3rd Class; See 95.280, RSMo.

Bid each year in July.

Bank to be located in City.**

Collateralization under 110.010 required within 5 days of depositary selection.

4th Class City; See 95.355, RSMo.

Select in regular meetings in January, April, July and Oct.; deposit per

ordinance.

Bank to be located in City.**

Only one bank. MO Att. Gen. Op. 2-75

Collateralization required under 110.010.

Constitutional or Special

Charter City - Not specific; See Charter

Missouri Constitution Art. VI,

Sections 19, 19(a) and 22

Special Charter See 81.010

Constitutional Charter See 82.010

City not within a County –

See 95.530, RSMo.

Town or Village – Not specific;

See 80.010, et. seq.

**Under 110.040, City can select a depositary outside of city if no bank in boundaries is willing or qualified to receive City deposits.

Consider a Deposit Policy

Purpose: to incorporate statutory guidelines for demand and time deposits

Which funds does policy apply to? Different policy for sinking funds?

RFP Guidelines – frequency of RFP Eligibility of depositary institutions

Bank or Savings and Loan Association Location within city boundaries, if possible

Require agreements on terms approved by city Depositary Contract and Bank Board Resolution Collateral Pledge Agreement

Time limit on time deposits Time deposit coincide with need for funds, but not longer than 5 years Only for funds not immediately needed Allow time deposits as provided in Section 67.085, RSMo. (CDAR’s) Savings and loan association time deposits also permitted under

Chapter 369

Depositary Contracts

Section 110.010, RSMo. implies a depositary contract is required regardless of city type.

Section 110.010 applies to 3rd and 4th class cities by virtue of their enabling statutes; likely applies to charter cities as well.

Section 110.010.1(3), RSMo. – “The rights and duties of the several parties to the depositary contract shall be the same as those of the state and the depositary banking institution respectively under section 30.270.”

Depositary Contract Critical Terms

90-day termination right on time deposit contracts;

For time deposits, notice timing for withdrawals, rate of interest paid, term not to exceed five years;

Provisions requiring that the depositary shall:

Safely keep such deposits;

Pay demand deposits on the city’s demand therefor; and

Pay time deposits only in accordance with the contract with the depositary;

That such depositary shall secure city moneys with the amount and character of securities provided for in section 30.270, such securities to be held at the expense of the depositary.

Depositary Contract Critical Terms

Collateralization equal to 100% value of deposit, less amount of FDIC insurance.

That in the event of any breach by bank, the city may without notice, advertisement or demand, and at public or private sale, convert into money the securities deposited, or as many of them as may be necessary to pay the whole amount of the city deposits in such depositary.

State Treasurer Form of Depositary Contract: https://www.treasurer.mo.gov/Banking/DepositoryContract2014.pdf

Collateralization of Deposits –Chapter 110, RSMo.

• 110.010. Deposits of public funds to be secured. — 1. The public funds of every county, township, city, town, village, school district of every character, road district, sewer district, fire protection district, water supply district, drainage or levee district, state hospital, state schools for the mentally deficient, Missouri School for the Deaf, Missouri School for the Blind, Missouri Training School for Boys, training school for girls, Missouri Veterans' Home, Missouri State Chest Hospital, state university, Missouri state teachers' colleges, Lincoln University, which are deposited in any banking institution acting as a legal depositary of the funds under the statutes of Missouri requiring the letting and deposit of the same and the furnishing of security therefor, shall be secured by the deposit of securities of the character prescribed by section 30.270 for the security of funds deposited by the state treasurer.

Collateralization of Deposits –Chapter 110, RSMo.

• Public funds must either be insured or collateralized to at least 100% of their value under Section 110.010, RSMo. Can require higher than 100%.

• 3 Parties: Political subdivision, Depositary Bank, and Trustee (custodian)

• Political Subdivision must have a security interest in the collateral under the Uniform Commercial Code of Missouri (UCC)

• Type of Collateral: securities of the character prescribed by section 30.270 for the security of funds deposited by the state treasurer. Section 110.010.1

• Held by: at the option of the depositary banking institution, the fiscal officer or governing body, or by custodian. Section 110.010.2

• Terms of Custodial Contract: Trustee must surrender all or part of securities upon notice by the political subdivision that depositary has breached the deposit agreement. Section 110.010.3

City

Depositary Bank

Custodian –

Securities

Intermediary

Collateralization – Third Party Custodian

Depositary Agreement

Custodial Contract

Custodial Contract

Custodial Contract Critical Terms

Section 30.270, RSMo:

That no item of security deposited by a depositary under the terms of the contract shall be withdrawn without the written consent of the city;

That the depositary shall, at times specified by the city, render a statement showing the daily activity in the account;

That in the event the depositary shall default in any manner in performing any of the terms and conditions of the contract, or shall fail to keep safely the moneys of the city deposited with it, the city shall be authorized without notice, advertisement or demand, and at public or private sale, to convert into money the securities deposited, or as many of them as may be necessary to pay the whole amount of the city deposits in such depositary.

State Treasurer Form of Custodial Contract: https://www.treasurer.mo.gov/link/SampleCustodialContractRevOct2013.pdf

UCC and Bankruptcy Code Issues

Can have an effect on the security of political subdivision deposits

Define rights in collateral Security interest

Perfection of security interest

In bankruptcy of custodian, third parties have a right to public funds if not properly secured and collateralized

Custodian is a “securities intermediary” under UCC; this prevents rights of third party creditors from attaching to collateral securities

A U T H O R I T Y – N O U N I V E R S A L R U L E

A T T O R N E Y G E N E R A L G U I D E L I N E S

I N V E S T M E N T P O L I C I E S

Investment of Public Funds

Investment of Public Funds – Authority

Limited Statutory Authority

“67.085. Notwithstanding any law to the contrary, any political subdivision of the state and any other public entity in Missouri may invest funds of the public entity not immediately needed for the purpose to which such funds or any of them may be applicable…” in certain insured deposit accounts. (Emphasis added.) This would authorize investment in CDARs.

“369.194. 1. Accounts in insured associations are legal and proper investments or depositaries for fiduciaries of every kind and nature, all political subdivisions or instrumentalities of this state, insurance companies, business and nonprofit corporations, charitable or educational corporations or associations, all financial institutions of every kind and character, all pension, endowment and scholarship funds both public and private, and each and all of them may invest funds in accounts in such associations.” (Emphasis added.) “Associations” refers to savings and loan associations.

Investment of Public Funds – Authority

Limited Statutory Authority

Section 95.530 – Applies to city not within a county/St. Louis City – provides investment authority specific to city not within a county.

Article VI, Section 19(a), Missouri Constitution. Any city which adopts or has adopted a charter for its own government, shall have all powers which the general assembly of the state of Missouri has authority to confer upon any city, provided such powers are consistent with the constitution of this state and are not limited or denied either by the charter so adopted or by statute. Such a city shall, in addition to its home rule powers, have all powers conferred by law.

Investment of Public Funds – Authority

Does the general authority of city boards and councils to manage city finances give them the power to invest public funds?

General authority statutes:

3rd class cities: “ 77.260. Powers and duties of mayor and council generally. — The mayor and council of each city governed by this chapter shall have the care, management and control of the city and its finances, and shall have power to enact and ordain any and all ordinances not repugnant to the constitution and laws of this state, and such as they shall deem expedient for the good government of the city, the preservation of peace and good order, the benefit of trade and commerce, and the health of the inhabitants thereof, and such other ordinances, rules and regulations as may be deemed necessary to carry such powers into effect, and to alter, modify or repeal the same.”

Investment of Public Funds – Authority

General authority statutes:

4th class cities: “79.110. Mayor and board — duties. — The mayor and board of aldermen of each city governed by this chapter shall have the care, management and control of the city and its finances, and shall have power to enact and ordain any and all ordinances not repugnant to the constitution and laws of this state, and such as they shall deem expedient for the good government of the city, the preservation of peace and good order, the benefit of trade and commerce and the health of the inhabitants thereof, and such other ordinances, rules and regulations as may be deemed necessary to carry such powers into effect, and to alter, modify or repeal the same.”

Bragg City Special Road District v. Johnson et al.323 Mo. 990 (1929)

1929 Missouri Supreme Court Case

Facts: On May 1, 1925, Everett Johnson became Treasurer of the

Bragg City Special Road District.

Independent Indemnity Company provided a $25,000 bond securing Johnson’s performance of duties until May 1, 1926.

During his one-year tenure as Treasurer, Johnson deposited the District’s funds in the Bragg City Bank.

Prior to Johnson’s tenure, the District had authorized its President and Secretary to enter into a contract with Bragg City Bank to hold funds of the District, to pay warrants drawn on the District’s account, and to provide an accounting of funds upon request of the Commissioners.

Bragg City Special Road District v. Johnson et al.323 Mo. 990 (1929)

Facts (continued):

On May 1, 1926, Bragg City Bank failed, and the District’s funds totaling $14,760.97 were lost.

A successor Treasurer was appointed on July 22, 1926 and demand was made upon Johnson and the Indemnity Company for the lost funds of the District.

The surety company claimed that there was no liability under the bond because Johnson deposited funds in Bragg City Bank under the direction of the District, in accordance with the District’s authority to prescribe the duties of the Treasurer.

Bragg City Special Road District v. Johnson et al.323 Mo. 990 (1929)

Holding: The Supreme Court identified the issue in the case as whether

the Board of Commissioners had the authority to relieve the Treasurer and his surety from the duty to account for District funds by designating a depositary of District funds.

The Court said there was no precise precedent but identified the University City v. Schall case and an appeals court case, State ex rel. v. Wilson, 151 Mo.App. 723 as offering guidance.

Based on those cases, the Supreme Court concluded that the Board did not have authority to select a depositary of District general funds, notwithstanding that it was authorized by statute to deposit sinking funds.

Investment by Statutory Cities(3rd and 4th class cities)

Third and Fourth Class Cities appear to be limited to deposit of funds in financial institutions in accordance with the following: Section 95.280 (third class) and 95.355 (fourth class)

Section 67.025 FDIC 100% insured accounts OK; e.g., CDARs

Section 369.194. 1 deposit in insured savings and loan accounts OK

Unclear statutory authority. No statutory authority for “investment.”

However, investment not prohibited by statute.

Use Caution: More conservative approach for statutory cities is to use demand and time deposit accounts only.

Deposit Policy is advisable.

Investment by Charter Cities

Home Rule and Special Charter Cities: Investment may be authorized by charter or statute, or both

Investment must be consistent with Missouri Constitution

Investment must not be prohibited by statute

Special Charter: See Section 81.010, RSMo.

Constitutional Charter: See Article VI, Section 19, MO Constitution and Section 82.010, RSMo.

Attorney General Guidance on Investment of Public Funds

MO Att. Gen. Op. 46-88 - Aug 9 (Missouri Attorney General Opinions (1988))

“Pursuant to the standard regarding the investment of public funds, such funds should be invested conservatively. …many investment vehicles available to private citizens are not available to a political subdivision. See, for example, Missouri Attorney General Opinion No. 26-88…holding that an ambulance district may not invest in mutual fund accounts.”

Attorney General Guidance on Investment of Public Funds

Savings and Loans OK – Specific statutory authority granted – MO Att. Gen. Op. 25-85

Time Deposits such as CDs OK – Specific statutory authority granted – MO Att. Gen. Op. 164-75

Mutual Funds and Money Market Funds notauthorized for statutory cities – MO Att. Gen. Op. 64-95 (Not authorized by statute for school district; similarly not authorized for statutory cities).

Ambulance district may not invest in mutual fund accounts. Such accounts violate Article VI, Section 23 of the Missouri Constitution. MO Att. Gen. Op. 26-88.

Investment in Debt of Certain Missouri Entities

Only permitted if the city (“municipal body”) has existing authority to invest in bonds or other obligations of the state of Missouri.

For example: Section 70.377, RSMo. – Allows investment in bi-state development agency bonds, notes or other instruments by “municipal officers and bodies… who are now or who may hereafter be authorized to invest in bonds or other obligations of the state of Missouri.”

Investment in Debt of Certain Missouri Entities

Similar to Section 70.377, RSMo: cities that are authorized to invest in obligations of the state, may invest in the following: 8.545 - tobacco securitization settlement trust fund 67.654 – regional convention and sports complex authority 67.789 –lake authority 68.040.4 – port authority 79.557 – municipal redevelopment authority 99.550 – housing authority 100.500 – industrial development authority 238.050 – Kansas City area transportation authority 238.408 – transit authority 260.070 - state environmental improvement and energy resources authority 349.085 – industrial development corporations 393.750 - joint municipal utility commission

List not exhaustive.

Investment Policy

Section 30.950.2, RSMo.

Applies to: “Every political subdivision of this state which is responsible for the management and investment of public funds and which has existing authority to invest such funds in a manner other than in depositary accounts at financial institutions in this state…”

Example investment policy provided by State Treasurer. https://www.treasurer.mo.gov/link/ModelInvestmentPolicy.pdf

Investment Policy – Statutory Requirements

30.950.2. (1) A commitment to the principles of safety, liquidity and yield, in that

order, when managing public funds; (2) A prohibition on the purchase of derivative securities, either directly or

through a repurchase agreement; (3) A prohibition on the use of leveraging whether through a reverse

repurchase agreement or otherwise; (4) A prohibition on the use of public funds for speculation; (5) A requirement that on a regular basis the investments of the political

subdivision shall be revalued to reflect prevailing market prices; (6) A requirement that investments which are downgraded below the

minimum acceptable rating levels shall be reviewed for possible sale within a reasonable time period; and

(7) A requirement that the current status and performance of the investments of the political subdivision be reported regularly to the governing body of the political subdivision.

30.950.3. Formally adopting the State Treasurer’s model policy = compliance

Is an investment policy required?

30.950.4. – investment policy is not required, HOWEVER,

Without an investment policy, investment is limited to those authorized as of January 1, 1997.

Applies to ALL cities (political subdivisions of the State) that manage and invest public funds, notwithstanding any law to contrary.

Not applicable unless the political subdivision has existing investment authority.

32

What is prohibited?

Equities, for example stocks.

Mutual Funds and Money Market Funds (even if mutual fund is fully insured and invested only in federal bonds); MO Att. Gen. Op. 64-95 Investment of school moneys. Apr 13 (Missouri Attorney General Opinions (1995))

3rd and 4th Class Cities: Any type of deposit or investment not authorized by statute.

4th Class Cities: More than one depositary institution. MO Att. Gen. Op. 134-69 and MO Att. Gen. Op. 2-75.

Special Charter and Home Rule Cities: Any type of deposit or investment that is contrary to or inconsistent with the Missouri Constitution or Missouri statute.

DEPOSITARY CONTRACTS

INVESTMENTS

Requests for Proposals

Requests for Proposals for Deposit and Investment of Public Funds

RFP is required for 3rd and 4th class cities under Sections 95.280-285, RSMo. and 95.355, RSMo., respectively.

RFP for charter cities is per charter or ordinance, provided not contrary to Missouri Constitution nor in violation of applicable statute.

RFP for Depositary Contracts

3rd Class Cities: Annual in July Notice published by the city clerk not less than one nor

more than four weeks before the meeting, in some newspaper published in the city

Sealed proposals to be delivered to the city clerk, on or before the day of the meeting

Proposals to include the rate percent upon daily balances for the year next ensuing the date of the meeting (and such other information as requested in the RFP)

It is a misdemeanor for the city clerk or other person to disclose directly or indirectly the amount of any bid to any person before the selection of the depositary

RFP for Depositary Contracts

4th Class Cities:

Annual in January, April, July or October at regular meetings

RFP process and selection done per ordinance

Boards of aldermen may invest the moneys upon the terms and under the conditions provided by law for the loaning of county and school moneys if there is no bank doing business in the city that can comply with the contract and collateralization requirements under Chapter 110.

Ten Commandments of Deposit and Investment of Public FundsThou shalt:

❖ Determine your political subdivisions deposit and investment authority by reviewing relevant statutes, charter (if applicable), and ordinances

❖ Remember that all political subdivisions are authorized to deposit funds, including in time deposits such as CD’s or CDARs; however, Missouri law grants investment authority selectively: only some political subdivisions have it

❖ IF your political subdivision has investment authority, adopt an investment policy❖ Make sure municipal financial advisors are qualified through the MSRB (Series 50

Qualified – see “Helpful Links” slide)❖ Have a Depositary Agreement with the depositary banks❖ Require collateral as described in Section 30.270, RSMo for 100% of the value of

the deposits in excess of FDIC insurance coverage (currently $250,000 per depositor/per bank)

❖ Have a Custodial Agreement with any custodian holding collateral as security for deposits

❖ Remember that different funds = different rules; consult with your counsel and follow the deposit and investment rules for each type of fund - e.g., general, special tax, bond

❖ NOT commingle bond funds with general funds❖ NOT commit funds to a deposit or investment that exceeds five years

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Helpful Links

Roster of Missouri Cities (starting on page 160): https://www.sos.mo.gov/CMSImages/Publications/2017-2018_Missouri_Roster.pdf

Calculate Your City’s Deposit Account Coverage by FDIC Insurance: www.fdic.gov/EDIE

Missouri Attorney General Opinions (searchable): https://ago.mo.gov/other-resources/ag-opinions

Missouri State Treasurer Guidelines for Local Governments: https://www.treasurer.mo.gov/content/for-local-governments

List of Missouri registered municipal advisor firms (only 9 as of 10/11/2017) http://www.msrb.org/MARegistrants.aspx

Statutes don’t address some of the “real-world” issues facing finance directors.

Multiple depositary banks

Bank outside of jurisdictional boundaries, even when banks within boundaries meet statutory requirements

Investment/Deposit Products offering higher rates of return, but not meeting statutory or policy guidelines

Non-bank/non-FDIC insured accounts

Daily sweep accounts

CUNNINGHAM, VOGEL & ROST, P.C.legal counselors to local government

For More Information

Visit Our Website:

www.municipalfirm.com

or contact us at

333 S. Kirkwood Road, Suite 300

St. Louis, Missouri 63122

314.446.0800

kim@municipalfirm.com

These materials and the related presentation are intended for discussion purposes and to provide thoseattending the meeting with useful ideas and guidance on the topics and issues covered. The materials and thecomments of the presenters do not constitute, and should not be treated as, legal advice regarding the use ofany particular technique, device, or suggestion, or its legal advantages or disadvantages. Although we havemade every effort to ensure the accuracy of these materials and the presentation, neither the attorneyspresenting at this meeting nor Cunningham, Vogel & Rost, P.C. assume any responsibility for any individual’sreliance on the written or oral information presented. These materials and the presentation are subject tocopyright of Cunningham, Vogel & Rost, P.C. and may not be reproduced without permission.

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