STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL
August 11, 2008
David Yolk
State Treasurer
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 74-07
Authority to approve securities pledged as collateral for the deposit of state funds.
Dear Mr. Yolk:
You have asked for an opinion as to whether the Board of Finance or the State Investment Officer has the authority to approve securities furnished by South Dakota banks as collateral security in lieu of surety bonds to cover the deposit of state moneys to said banks.
SDCL 4-6-4 which originally provided for supervision by the State Board of Finance provides as follows:
Each primary depository created by this chapter shall qualify by furnishing a surety bond or deposit in lieu thereof bonds or other securities as hereafter provided. Such surety bond shall run to the state or shall be conditioned for the payment of such deposits and interest thereon and shall be approved by the state board of finance as to form and sufficiency. No depository shall be approved by said board for an amount in excess of the surety bond or the par value of the collateral furnished. Such surety bond or collateral may be deposited with a banking institution or trust company under a trust agreement, and the state board of finance is authorized to release such surety bonds or collateral from time to time upon the substitution of other approved surety bonds or collateral.
SDCL 51-22-1 reads as follows:
The word "deposit" or "deposits" shall be construed to include "deposits subject to check"; "dividends unpaid"; "savings deposits"; "special deposits"; "trust deposits"; "certified checks"; "cashier's checks"; "demand certificates of deposit"; "time certificates of deposit"; "collections made but not remitted"; and "due to other banks," except "overdrafts on correspondents"; or other terms of like import. When any bank has borrowed money on its bills payable, pursuant to a contract which grants permission to the loaning bank to appropriate and to apply any credit balance which the books of the loaning bank show to be due or owing to the borrowing bank, to be credited on such bills payable without regard to the date of maturity thereof, the money received on such bills payable by such borrowing banks shall be deemed "deposits."
SDCL 51-22-12(2) reads as follows:
A bank, in order to qualify as a depository of state, county, school district, or municipal funds, may deposit with the state treasurer, or the treasurer of any such subdivision of this state or with such trustee as may be agreed upon, as security only for the amount deposited in excess of the amount insured by the Federal Deposit Insurance Corporation, bonds, notes, or any other obligation issued by or the payment of which is guaranteed by the United States or any agency or subdivision thereof, or bonds or obligations of any territorial or insular possession of the United States, or bonds, obligations, warrants or securities of any kind issued by the state of South Dakota, or by any county, township, school district, or municipal corporation of the state of South Dakota, or first real estate mortgages on farm land within the county where the bank is located, or bonds of any state or territory of the United States.
In 1971 the Legislature passed what is now SDCL 4-5-23:
The state investment officer shall be responsible for the investment of the state public funds as defined in subdivisions (1), (2), (3), (4), (6), and (7) of SDCL 4-4-4. All functions, powers, and duties presently vested by law in any officer, official, employee, agency or commission which relates to the investment of the state public funds and accounts enumerated in this section are hereby transferred to the state investment officer. Provided, however, such functions, powers and duties shall be advisory only with reference to permanent school and other educational funds.
It is my opinion that the selection of depositories for state funds would constitute an investment and come within the provisions of SDCL 4-5-23 and related statutes. It is also my opinion, however, that the pledging of collateral or the furnishing of a surety bond required by SDCL 4-6-4 and related statutes does not constitute an investment and that the approval of such collateral security of surety bond is still a function of the State Board of Finance.
Respectfully submitted,
Kermit A. Sande
Attorney General
