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4000 - Advisory Opinions


Insurance Coverage for Deposits of Colorado State Colleges and Universities

FDIC-88-38

May 19, 1988

Roger A. Hood, Assistant General Counsel

This will respond to your letter of January 5, 1988, regarding deposit insurance coverage for deposits of Colorado state colleges and universities. Specifically, you have asked (1) whether each Colorado state college or university would be considered a separate "public unit" or "political subdivision" and thus entitled to separate deposit insurance under the FDIC's insurance regulations (12 C.F.R. Part 330), and (2) whether the Colorado Commission on Higher Education ("CCHE") would similarly be entitled to separate deposit insurance coverage as a separate "public unit" or "political subdivision."

Enclosed with your letter was an opinion letter from Colorado Attorney General Duane Woodard that addressed the first question. As Mr. Woodard correctly noted, the determination of deposit insurance coverage is one of federal law. While provisions of state law are germane in determining whether an entity qualifies as a "political subdivision" or "public unit" under the criteria of 12 C.F.R. § 330.8(c), the ultimate question of qualification is one of federal law, and the opinion of the cognizant State Attorney General, although entitled to respect and careful consideration, is not conclusive.

1.  Colorado State Colleges and Universities

a.  Does the governing board of each Colorado state college or university qualify as a separate "public unit" or "political subdivision"?

As the Colorado Attorney General has noted, the pertinent FDIC regulations governing deposit insurance coverage of deposits in public unit accounts are found at 12 C.F.R. § 330.8. Essentially, funds deposited by the same official custodian of the same public unit in time or savings deposits in the same insured bank in the same state where the public unit is located are insured in the aggregate, up to $100,000. A separate, additional $100,000 limit applies to noninterest-bearing demand deposits of the official custodian in such bank. In the case of an out-of-state bank, there would be no such separate coverage for demand deposits.

If any public unit has autonomous political subdivisions or departments, each such subdivision or department is entitled to separate deposit insurance coverage, whether or not it has the same official custodian as its parent public unit. In this regard, the term "political subdivision" is defined to include a subdivision or principal department of a public unit, if the subdivision or department meets the following tests:

1)  Its creation is expressly authorized by state statute;

2)  Some functions of government are delegated to it by state statute; and

3)  Funds have been allocated to it by statute or ordinance for its exclusive use and control.

Excluded from the term are subordinate or nonautonomous divisions, agencies, or boards within principal departments. 12 C.F.R. § 330.8(c).

Whether Colorado state colleges and universities are entitled to separate FDIC deposit insurance coverage depends upon our determination as to whether each institution meets the above criteria and qualifies as a separate public unit.

In establishing state colleges and universities, the Colorado legislature has provided for governing boards to which general control and supervision of one or more institutions has been committed. Six such governing boards were identified by the State Attorney General.1 It is each of these six governing boards, rather than the institutions that they operate, whose status as a "political subdivision" we shall examine.

The first part of the definition of "political subdivision" is clearly satisfied by all six governing boards since each was expressly created by state statute. Sections 23-20-102, 23-30-101, 23-40-104, 23-41-102, 23-50-101, 23-60-104, C.R.S. (1973 & 1987 Supp.). The second prong is likewise satisfied by all six governing boards since numerous government functions have been delegated to the governing boards by state statute. See e.g., Sections 23-20-111, 23-30-102, 23-40-104, 23-41-104, 23-50-103, 23-60-102, C.R.S. (1973 & 1987 Supp.).

With respect to the third part of the test, all six governing boards seem to meet it. The Colorado constitution vests the governing boards with "the exclusive control and direction of all funds and appropriations to their respective institutions, unless otherwise provided by law." Colorado Const. article VIII, section 5(1). The statutory basis for the exclusive use and control of funds by the governing boards is provided at Section 23-1-104 of the Colorado revised statutes (1987 Supp.):

(a)  The general assembly shall make annual appropriations as a single line item to each governing board for the operation of its campuses. . . .Each governing board shall allocate said appropriations in the manner deemed most appropriate by such governing board. (emphasis added)

Additionally, some of the statutes creating governing boards specifically provide them with the authority to direct and control their appropriate funds. See generally, sections 23-20-111, 23-30-106, 23-50-103, 23-60-202, C.R.S. (1973 & 1987 Supp.). In light of these provisions, it appears that the six governing boards for Colorado state colleges and universities have funds allocated to them by statute for their exclusive use and control. Therefore, the third part of the test is satisfied. Since all three parts of the test appear to be satisfied, the six governing boards will qualify as political subdivisions entitled to separate insurance coverage, unless they are excluded because they are subordinate or nonautonomous divisions, agencies, or boards within principal departments.

A division, agency or board's autonomy or nonautonomy for the purposes of classification as a political subdivision is determined on a case-by-case basis after consideration of relevant criteria. We have traditionally applied the terms as commonly defined. Webster's Third New International Dictionary 148 (4th ed. 1976) defines "autonomy" as "the quality or state of being independent, free, and self-directing . . . the degree of self-determination or political control possessed by a . . . political unit in relations to the state or political community of which it forms a part . . .;" and defines "autonomous" as "undertaken or carried on without outside control . . ." Autonomy has also been defined as "the political independence of a nation; the right (and condition) of power of self-government; the negation of a state of political influence from without or from foreign powers." Black's Law Dictionary 122 (5th ed. 1979). In the context of 12 C.F.R. § 330.8, each division, agency or board is analyzed for indicia of independence from the influence, control, or direction by the superior public unit or principal department. Such indicia include the independent exercise of statutorily delegated functions and the exclusive use and control of allocated funds.

The governing boards of Colorado's state institutions of higher education are allocated to the state's Department of Higher Education. Section 24-1-114(4), C.R.S. (1973 & 1987 Supp.). CCHE was established as a "central policy and coordinating" board, also within the Department of Higher Education. Section 23-1-102, C.R.S. (1987 Supp.). The State Attorney General found that "[a]lthough the governing boards retain substantial autonomy in other matters, the powers recently conferred on CCHE cast [such] grave doubts on their status as autonomous public units"' that he concluded the governing boards were nonautonomous.

On balance, we are of the opinion that these six governing boards continue to be autonomous bodies within the principal department. Despite the express powers and duties delegated to CCHE to further its policy setting and coordinating functions, the legislature "continue[d] to recognize the constitutional and statutory responsibilities of duly constituted governing boards . . . ." Sections 23-1-101 to 102, C.R.S. (1987 Supp.). CCHE apparently did not usurp governmental functions previously delegated to the governing boards, but rather was created to establish policy and coordinate the autonomous operations of the various governing boards. The boards retained their responsibilities and powers to conduct their institutions' daily operations, to hire and fire personnel, to determine the content of courses and to determine the utilization of facilities. CCHE's powers to determine the role and mission of each institution, to approve the establishment of new programs, and to direct the discontinuation of programs are functions of its central coordination and policy-making purpose, and are not inconsistent with the retained autonomy of governing boards to direct the operation of their institutions.

Of particular significance in determining entitlement to separate insurance coverage, CCHE does not control the allocation of funds by the governing boards. That CCHE is authorized to establish the distribution formula of appropriations by the general assembly to each governing board, section 23-1-105(3), C.R.S. (1987 Supp.), does not affect the boards' autonomous use of such funds. The boards receive such appropriations as single line items over which they have authority to determine appropriate allocations. Section 23- 1-104(1)(a) C.R.S. (1987 Supp.). Neither the source of funds nor their intended use affects insurance coverage.

Since each of the six governing boards considered satisfies the criteria for treatment as a "political subdivision" and does not appear to be excluded as a nonautonomous division, agency or board, we are of the opinion that the Board of Regents of the University of Colorado, the State Board of Agriculture, the Board of Trustees of the University of Northern Colorado, the Board of Trustees of the Colorado School of Mines, the Trustees of the Consortium of State Colleges in Colorado, and the State Board for Community Colleges and Occupational Education are "political subdivisions." Therefore, any funds deposited by their respective official custodians would be entitled to separate deposit insurance coverage.

b.  Who is the official custodian of each state college and university?

For insurance purposes, the official custodian of funds belonging to a public unit, rather than the public unit itself, is insured as the depositor. Funds deposited by each official custodian of a public unit are separately insured up to $100,000 for time and saving deposits and up to $100,000 for demand deposits in the same FDIC-insured bank located in the same state as the public unit.

If there is more than one official custodian for the same public unit, the funds deposited by each custodian are separately insured up to $100,000 for time and savings deposits and $100,000 for demand deposits in the same FDIC insured bank. By the same token if one person is official custodian of more than one public unit, he is separately insured up to $100,000 with respect to the funds of each public unit deposited by him in properly designated accounts. Depositing funds belonging to the same public unit in separate accounts solely for budgetary or accounting purposes, however, does not increase insurance coverage. For example, the fact that a state university has multiple campuses (i.e., conducts its operations at more than one location), each with its own accounts in the same insured bank, does not increase the deposit insurance coverage that is available to it.

In order to qualify as an "official custodian," the individual, whether an officer, employee or agent, must have plenary authority, including control, over funds owned by the public unit to which the custodian is appointed or elected to serve. Control of public funds includes possession, as well as the authority to establish accounts for such funds in insured banks and to make deposits, withdrawals, and disbursements. The deposit insurance available to a public unit cannot be increased merely by fragmenting such authority over the unit funds among several putative official custodians. Similarly, if the exercise of authority or control over the funds of public unit requires action by or the consent of two or more putative official custodians, then they will be treated as one official custodian.

The Colorado Attorney General concluded and we would concur that the state treasurer should be deemed to be the official custodian of those state college and university funds received by him and deposited by him in accordance with state statutes and fiscal rules promulgated by the controller. This conclusion was based upon the provision of the Colorado constitution that the state treasurer is the custodian of all "public funds," subject to legislative provision for their safekeeping and management. Colo. Const. art. X, sec. 12.

However, as the Attorney General noted, the governing boards of the state universities and colleges have been given special constitutional powers over their funds, including "the exclusive control and direction of all funds of and appropriations to their respective institutions, unless otherwise provided by law." Colo. Const. art. VIII, sec. 5(2). Moreover, constitutive statutes provide the governing boards for the University of Northern Colorado, the Consortium of State Colleges, and the State board for Community Colleges and Occupational Education with the power to "receive, demand and hold" money, land or property for the use of their respective institutions. Sections 23-40-104, 23-50-107, 23-60-104, C.R.S. (1973 & 1987 Supplement). Other constitutive statutes vest the following powers specifically in a Treasurer of the board for the State School of Mines, the University of Colorado and Colorado State University: to safekeep and faithfully disburse funds which come into his hands as Treasurer, 23-41-110, C.R.S. (1973 & 1987 Supplement); to keep true and faithful accounts of all moneys received and paid out by him, and pay all warrants signed and countersigned by the designated Board member. Sections 23-20-109, 23-30-105, C.R.S. (1973 & 1987 Supplement). Such statutory authority, if supported by relevant by-laws and practices of the governing boards, to establish accounts in insured banks and to make deposits, withdrawals, and disbursements, would lead us to conclude that each of the governing boards of the state universities and colleges, with the exception of the State Board of Agriculture, should be deemed the official custodian of its respective funds.

Only the constitutive statute for the State Board of Agriculture specifically designates the state treasurer as custodian of all funds derived from state and federal appropriations and royalties received. 23-30-105, C.R.S. (1973 & 1987 Supplement). Since custodial power over the university's funds is explicitly vested by statute in the constitutionally designated custodian of public funds, we would be hesitant to find that the State Board of Agriculture is the official custodian. By contrast, the statute for the Board of Regents of the University of Colorado does not remove custodial authority from the board when it provides that any moneys, warrants, bonds or securities received by the state treasurer from the sale of public lands belonging to the state university are to be turned over to the Board of Regents. 23-20-121, C.R.S. (1973 & 1987 Supplement).

2.  Colorado Commission on Higher Education ("CCHE")

CCHE's status as a separate "public unit" for FDIC deposit insurance purposes is determined by the three-prong analysis for a "political subdivision" set forth at 12 C.F.R. § 330.8 and discussed above. The first requirement of the test is clearly satisfied since CCHE was expressly created by statute. Section 23-1-102, C.R.S. (1987 Supp.). Since the statute delegated various functions of government to CCHE, the second part of the test is also satisfied. See, e.g., sections 23-1-105 to 109, C.R.S. (1987 Supp.). However, there is apparently no allocation of funds to CCHE for its exclusive use and control. Compare section 23-1-102(5) C.R.S. (1987 Supp.) (CCHE members "shall receive seventy-five dollars per diem for attendance at official meetings plus actual and necessary expenses incurred in the conduct of official business."). Thus the third prong of the test is not satisfied.

Since all three parts of the test do not appear to be satisfied, we are of the opinion that the Colorado Commission on Higher Education does not qualify as a "political subdivision" and therefore is not entitled to separate FDIC deposit insurance.

1 The following governing boards have been considered in this opinion: the Board of Regents of the University of Colorado, the State Board of Agriculture, the Board of Trustees of the University of Northern Colorado, the Board of Trustees of the Colorado School of Mines, the Trustees of the Consortium of State Colleges in Colorado, and the State Board for Community Colleges and Occupational Education. The board of directors of the Auraria Higher Education Center has not been included in this analysis because it was not established as a governing board of any state institution of higher learning. Rather, the Auraria board was established to coordinate and facilitate cooperation among three "constituent institutions" located in the city and county of Denver. Section 23-70-101, C.R.S. (1973 & 1987 Supp.). Each constituent institution is represented by its own governing board which has been fully analyzed herein.
  In addition to its function as the governing board for the Colorado State University, the Board of Agriculture appears to exercise authority over various other unrelated programs and services. See, e.g., sections 23-30-201 to 208, conservation of the forests; 23-30-301 to 308, state forest service service; 23-30-401 to 405, oversight of Christmas trees and evergreen boughs; C.R.S. (1973 & 1987 Supplement). This opinion pertains exclusively to the public unit status of the State Board of Agriculture in its capacity as the governing board of the Colorado State University; no opinion is rendered as to any other functions of the State Board of Agriculture. The application of 12 C.F.R. § 330.8 might result in a determination that all accounts of the State Board of Agriculture, including those of the University, should be aggregated as belonging to one public unit.
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