FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Deposit Insurance of Public Unit Accounts
June 13, 1994
Cristeena G. Naser, Attorney
This letter is in reply to your inquiry to Claude Rollin dated March 4, 1994 concerning the deposit insurance coverage of deposit accounts owned by the Illinois Beef Council ("Council"). I apologize for the delay in providing this response. Specifically, you have asked whether the Council qualifies as a public unit for purposes of deposit insurance. Based on my telephone conversations with you and *** of your office, as well as the documents submitted by you, in my opinion the Council's accounts would not qualify as public unit accounts because the Council is not a "political subdivision" as defined in the FDIC's rules governing public unit accounts.
According to the documents provided to me, I understand the facts concerning the Council to be as follows. Pursuant to the Illinois Beef Market Development Act, S.H.A. 505 ILCS 25 (1988), the Council was authorized to be created "to provide the beef cattle production and feeding industry of this State with authority to establish a self-financed, self-governed program to help develop, maintain and expand the State, national and foreign markets for beef and beef products produced, processed or manufactured in this State. S.H.A. 505 ILCS at 25/1.
Its creation depended upon "a favorable vote of beef producers to support an assessment/deduction of not more than $0.50 per head of cattle sold in Illinois to finance the intent and purpose of this Act". Id. at 25/4. Upon petition (not more than once every five years), beef producers in Illinois may vote to terminate the Council. The Council is funded entirely by assessments of up to $0.50/head of cattle sold in Illinois; no state funds are allocated to the Council under this legislation. The Council is incorporated under the General Not For Profit Corporation Act of Illinois and is operated by a Governing Board ("Board") elected from the state's beef producers. All Board positions are unsalaried, and there is no indication from the legislation that Board members or staff are considered to be state employees.
The general rule governing deposit insurance of "public unit" accounts is that funds deposited by the official custodian of any state or political subdivision thereof (i.e., the public unit) in any one insured depository institution in the state in which the public unit is located are insured (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.1 This insurance coverage differs from that available to nongovernmental business entities for whom demand and time deposits are not insured separately, but rather are added together and insured up to a total of $100,000. In order to qualify for this additional insurance coverage, the FDIC's rules governing public unit accounts at 12 C.F.R. § 330.14 must be satisfied.
In the case of the Council, the relevant provision is § 330.14(a)(2) which covers funds of "any state of the United States, or any county, municipality, or political subdivision thereof . . ." The term "political subdivision", which is the only category that could apply to the Council, is further defined at § 330.14(d) to include any subdivision or department of a public unit (i) whose creation is authorized by the law of the public unit; (ii) to which some functions of government have been delegated by such law; and (iii) which is empowered to exercise exclusive control over funds for its exclusive use. The regulation includes as express examples of a "political subdivision", drainage, irrigation, navigation, improvement, levee, sanitary, school or power districts, bridge or port authorities, and other statutorily created special districts. Thus, to be eligible for deposit insurance coverage as a public unit, the Council would have to qualify as a "political subdivision" as defined in § 330.14(d) by satisfying each element of the regulation.
Applying the above criteria to the facts here, I conclude that the Council does not satisfy the definition of "political subdivision" and, therefore, its funds cannot be insured as public unit accounts. First and foremost, the Council clearly is neither a "principal department" or "subdivision" of the State of Illinois. Rather, pursuant to the statute it is a self-financed, self-governed organization of the Illinois beef cattle production and feeding industry, and it is chartered as a nonprofit corporation. With respect to the first element, although the Council was authorized to be created by an Illinois statute, its actual creation was dependent upon a vote by its constituent beef producers, as is its continued existence. S.H.A. 505 ILCS 25/4 and 25/13.
With respect to the second element concerning delegation of government functions, the commercial purpose for which the Council was created is, in my opinion, of an entirely different nature than the examples expressly cited in the regulation, i.e., school or power districts, or bridge or port authorities which clearly involve traditional governmental functions. Moreover, the persons employed by such districts, i.e., teachers or transit workers, are considered to be public employees. By contrast, I have seen no evidence that the Council's Board (or staff, if any) are considered to be state employees. In addition, such political subdivisions are operated with public funds whereas the Council's members provide all of its funding. Absent its statutory grounding, the Council appears to be no different than the ordinary trade association organized to promote the particular interests of its constituent members.
Finally, with respect to the requirement of exclusive control over funds for its exclusive use, this element of the test was intended to measure the independence of one governmental unit from another. In the typical case, as between two governmental units, the question is whether one is sufficiently separate from the other as to warrant separate insurance coverage, and exclusive control over funds is an indicia of independence. For example, in the case of a county government and a road authority, if the road authority had to seek funding from the county each time it needed to pave a road, that would indicate that the road authority was not sufficiently separate from the county to satisfy the criteria for public unit deposit insurance coverage. On its face the Council's authority under the Beef Market Development Act appears to satisfy this criteria for exclusive control of funds. However, given the purpose for which this test was intended, this element seems wholly inapposite when applied to the Council because it is neither a subdivision or department of Illinois, nor is public funding involved.
For the above reasons, in my opinion the Council does not qualify as a political subdivision for purposes of 12 C.F.R. § 330, and its deposit accounts therefore are not eligible for insurance as public unit accounts. As a nonprofit corporation, its accounts would be insured pursuant to the FDIC's regulations at 12 C.F.R. § 330.9(a) which provides that all corporate accounts shall be aggregated and insured up to a total of $100,000.
I hope the foregoing has been responsive to your inquiry. If you have any further questions or if you wish to provide additional information bearing on any of the issues discussed above, please feel free to write or call me.
1More specifically, the deposit insurance flows to accounts established by the "official custodian" of the public unit, a term defined more fully at 12 C.F.R. § 330.14(b). The amount of deposit insurance for eligible public unit accounts is $100,000 for all time and savings deposits and $100,000 for demand deposits in any one insured depository unit within the state (including any insured institution having a branch within the state). In the case of funds deposited by an official custodian in an insured institution outside of the state, the total amount of deposit insurance available is $100,000 regardless of whether the funds are in time, savings or demand deposit accounts. Go back to Text