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4000 - Advisory Opinions


Deposit Insurance for Deposits of Public Units

FDIC--94--8

February 9, 1994

Adrienne George, Attorney

I am writing in response to your letter to Alan Kaplan, an Assistant General Counsel in our office. In your letter, you request an interpretive letter from us concerning the Washington Metropolitan Area Transit Commission's ("the Commission's") status as a public unit, its Executive Director's status as an official custodian of Commission funds, and the extent of FDIC insurance coverage for Commission funds which have been deposited in insured depository institutions located in the District of Columbia, Maryland and Virginia.

As you note in your letter, the insurance coverage of public unit accounts is governed by 12 U.S.C. §§ 1813(m) and 1821(a) and by 12 C.F.R. § 330.14. In particular, 12 C.F.R. § 330.14, part of the FDIC's insurance regulations, states that, in order for deposits to qualify for public unit account coverage, two requirements must be met. First, the deposits must belong to a valid "public unit" or a "political subdivision" of a public unit, and second, the funds must have been deposited by their "official custodian." (In addition, certain recordkeeping requirements must be met.)

A "public unit" can be the United States, a state, a county, a municipality, or a so-called "political subdivision" of a state, county or municipality. (The regulation also mentions the District of Columbia, Puerto Rico and other U.S. government possessions and territories, and Indian tribes as public units.) A "political subdivision" of a public unit is defined in two ways. First, a "political subdivision" of a state, county or municipality can be a special district created by state statute or by a compact between two or more states; as examples of such special districts, our regulation lists drainage, irrigation, navigation, improvement, levee, sanitary, school or power districts, and bridge or port authorities. Second, a political subdivision can be a subdivision of a state, county, municipality, the District of Columbia, a U.S. government possession or territory, or a political subdivision can be any principal department of such public unit, provided that, in each case, three requirements are met:

(1)  the creation of such a political subdivision or principal department must have been expressly authorized by the legislation of the public unit to which the subdivision belongs;

(2)  the public unit's legislation must have delegated some functions of government to the political subdivision or principal department; and

(3)  the political subdivision or principal department must be empowered to exercise control over funds for its exclusive use.

12 C.F.R. § 330.14(d).

From the facts you have given us, the Commission is arguably a political subdivision because it was created by a compact between two states (Maryland and Virginia) and another public unit (the District of Columbia). The Commission's role--providing public transportation to the Washington Metropolitan Area--is in keeping with the roles of the other special districts in the regulation's list. However, if one insists on a strict reading of the regulation, to the effect that a political subdivision may be created by a compact of two or more states, but not of two or more states and another public unit (here, the District of Columbia), then one must look to the regulation's other definition of political subdivision.

Here, too, there is an apparent problem, in that the regulation speaks of a political subdivision as the subdivision of a single state, county, municipality, the District of Columbia or a U.S. government or territory, or as any principal department of such public unit. In the case of the Commission, however, what we have is a political subdivision comprised of certain portions of two states and all of the District of Columbia. However, if it were impermissible to create a political subdivision by virtue of a compact between two or more states, we would be unable to explain the reference in the regulation to a political subdivision created by "compacts between the states." 12 C.F.R. § 330.14(d). Once one admits that the regulation allows for a subdivision created by compacts between two or more states, it seems only fair to permit a subdivision created by a compact between two states and another public unit.

Further, the Commission fulfills the three requirements of the last part of this definition. First, the creation of the public unit was expressly authorized by the legislation of the public unit to which the subdivision belongs; that is, the Commission was authorized by the Washington Metropolitan Area Transit Regulation Compact (hereinafter "Compact"), Pub. L. No. 101--505, § 1, 104 Stat. 1300 (1990), which, in turn, according to your letter, was codified at D.C. Code Ann. § 1--2411 (1992), Md. Transp. Code Ann. § 10--203 (1993), and Va. Code Ann. §§ 56--529, 530 (Michie 1986 & Supp. 1993). Thus, the creation of the political subdivision (the Commission) was authorized by the legislation of each of the public units to which the subdivision belongs (i.e., the legislation of the District of Columbia, Maryland and Virginia). Next, the appropriate public units' legislation did delegate some functions of government to the political subdivision--in the words of the Compact, "[t]he Commission shall have jurisdiction coextensive with the Metropolitan District for the regulation of passenger transportation within the Metropolitan District on a coordinated basis." Compact, Art. II, § 2. Third, the political subdivision is empowered to exercise control over funds for its exclusive use, or, in the words of the Compact, "[t]he signatories [to the Compact] shall appropriate their proportion of the budget for the expenses of the Commission and shall pay that appropriation to the Commission," and "[t]he Commission shall return to the signatories fees established by it in proportion to the share of the Commission's expenses borne by each signatory in the fiscal year during which the fees were collected." Compact, Art. IV, §§ 2(a) and 4(b). I take this to mean that, between the time the Commission receives its operating funds each year and the time it repays what it has earned in fees to the signatories, the Commission is empowered to exercise exclusive control over its funds.

The second major requirement, in order for the Commission's funds to be insured as a public unit account, is that there must be an "official custodian" for the Commission's funds. In order for a custodian to qualify as "official," the FDIC regulation specifies that he or she must have "plenary authority, including control, over funds owned by the public unit [or political subdivision thereof] which the custodian is appointed or elected to serve." The regulation also states that "[c]ontrol of public funds includes possession, as well as the authority to establish accounts for such funds in insured depository institutions and to make deposits, withdrawals, and disbursements of such funds." 12 C.F.R. § 330.14(b)(1).

The Compact specifies that the Mayor of the District of Columbia and the Governors of Maryland and Virginia each shall appoint one Commissioner. Compact, Art. III, § 1. The Commissioners, in turn, select a Chairman from among themselves. Id., § 3. An Executive Director is chosen to supervise the Commission's staff. In the performance of administrative functions, the Executive Director is responsible to the Chairman of the Commission. In the performance of all other functions, the Executive Director is responsible to the full Commission. Rule 31, Rules of Practice and Procedure of the Washington Metropolitan Area Transit Commission, issued pursuant to Order No. 3600, served January 17, 1991, page 24. Provided that the Executive Director has control of the Commission's public funds, including possession as well as the authority to establish accounts for such funds in insured depository institutions and to make deposits, withdrawals, and disbursements of such funds, the Executive Director will qualify as an "official custodian" of such funds, and the Commission's funds, when deposited by such custodian in an insured depository institution, will qualify for insurance as a public unit account.

We have established that the Commission qualifies as a "political subdivision" and that the Executive Director probably qualifies as the "official custodian" of the Commission's funds. If such is the case, the Commission's funds, when deposited in a given insured institution, will be insured as a public unit account, provided that the proper recordkeeping requirements are met; that is, provided that the deposit account records of the insured financial institution disclose the fact that the funds are held by the depositor as custodian for the Commission. If this is done, the funds will be insured as provided in 12 C.F.R. § 330.14(a)(2):

Each official custodian of funds of any state of the United States, or any county, municipality, or political subdivision thereof, lawfully depositing such funds in an insured depository institution in the state comprising the public unit or wherein the public unit is located (including any insured depository institution having a branch in said state) shall be separately insured in the amount of: (i) Up to $100,000 in the aggregate for all time and savings deposits; and (ii) Up to $100,000 in the aggregate for all demand deposits.

In addition, each such official custodian depositing such funds in an insured depository institution outside of the state comprising the public unit or wherein the public unit is located, shall be insured in the amount of up to $100,000 in the aggregate for all deposits, regardless of whether they are time, savings or demand deposits.

Because we accept that the Commission is a valid political subdivision, and provided that the Executive Director qualifies as an "official custodian" of the Commission's funds, we would insure the Commission's deposits in an insured depository institution in the District of Columbia, Maryland or Virginia for up to $100,000 in the aggregate for all time and savings deposits, and for up to $100,000 in the aggregate for all demand deposits. If any deposits are made in an insured depository institution outside of the District of Columbia, Maryland and Virginia, such deposits will be insured for up to $100,000 in the aggregate for all deposits, regardless of whether they are time, savings or demand deposits.

I hope that this information will prove useful to you. If I can be of any further help, I can be reached at (202) 898-3859.


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