OFFICES AND OFFICERS - COUNTY - TREASURER - INVESTMENT OF MUNICIPAL FUNDS BY COUNTY TREASURERS UNDER § 1, CHAPTER 173, LAWS OF 1967

OFFICES AND OFFICERS - COUNTY - TREASURER - INVESTMENT OF MUNICIPAL FUNDS BY COUNTY TREASURERS UNDER § 1, CHAPTER 173, LAWS OF 1967.

(1) When the governing body of a municipal corporation has directed the investment of less than all of its surplus funds which are in the custody of the county treasurer, and thereafter the treasurer, pursuant to § 1, chapter 173, Laws of 1967, invests all such surplus as part of the county's residual treasury cash balance ". . . to the maximum prudent extent . . . in United States government securities . . ." such investment does not affect the individual fund balances of the respective municipal corporations in his custody, and each municipal corporation retains the power to expend or invest its funds according to the respective fund balances shown in its accounts.

(2) A proposed accounting regulation of the state auditor requiring county treasurers to account uniformly for their investments made under the provisions of chapter 173, Laws of 1967, as investments of residual cash in the county treasury would be consistent with the provisions and intent of the act.

(3) It is the responsibility of the county finance committee, rather than that of the treasurer, to ascertain both the availability of surplus municipal funds for investment under the provisions of chapter 173, Laws of 1967, and the "maximum prudent extent" to which they may be invested, taking into account both the anticipated expenditure and investment requirements of each municipal corporation whose funds are in the custody of the county treasurer.

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                                                                   June 20, 1967

Honorable Robert V. Graham
State Auditor
Legislative Building
Olympia, Washington 98501

                                                                                                                 Cite as:  AGO 1967 No. 23

Dear Sir:

            You have requested the opinion of this office on several questions regarding the investment of municipal funds by county treasurers under § 1, chapter 173, Laws of 1967.

             [[Orig. Op. Page 2]]

            We paraphrase your questions as follows:

            (1) When the governing body of a municipal corporation has directed the investment of less than all of its surplus funds which are in the custody of the county treasurer, and thereafter the county treasurer, pursuant to § 1, chapter 173, Laws of 1967, invests all such surplus or residual cash in the county treasury ". . . to the maximum prudent extent . . . in United States government securities . . ." does the municipal corporation thereby lose any of its power to expend or invest such funds?

            (2) Would an accounting regulation issued by the state auditor requiring county treasurers to account for investments made under § 1, chapter 173, Laws of 1967, uniformly as investments of residual cash in the county treasury be consistent with the provisions and intent of the act?

            (3) Is it the responsibility of the county finance committee, or that of the treasurer, to ascertain the availability of surplus municipal funds for investment under the act and to determine the "maximum prudent extent" to which they may be invested?

            We answer your first question in the negative, your second question in the affirmative, and your third question as set forth in our analysis.

                                                                     ANALYSIS

            Preliminary to a discussion of the pertinent statute in its present form, it will be helpful to study its history and related background matters.

            The first point to be noted is that county treasurers have the custody of municipal funds as ex officio treasurers of certain municipal corporations in their respective counties.  For example, the county treasurer is ex officio treasurer of a public utility district unless the public utility district has appointed its own treasurer.  RCW 54.24.010.  He is ex officio treasurer of port districts (RCW 53.36.010); sewer districts (RCW 56.16.140); water districts (RCW 57.20.140); school districts (RCW 28.48.100); and several other types of municipalities.

            As custodian, a treasurer's powers, duties and liabilities are prescribed by law.  He may deposit or invest municipal funds only pursuant to express statutory authority.  See,Aberdeen v. National Surety Co., 151 Wash. 55, 275 Pac. 62 (1929).

             [[Orig. Op. Page 3]]

            Before 1961, there was no general statute authorizing the investment of municipal funds, other than county funds, by the county treasurer.  To supply such general authority, the legislature enacted § 1, chapter 254, Laws of 1961, amending RCW 36.29.020 as follows (amendatory language underscored):

            "The county treasurer shall keep all moneys belonging to the state, or to any county, in his own possession until disbursed according to law.  He shall not place the same in the possession of any person to be used for any purpose; nor shall he loan or in any manner use or permit any person to use the same; but it shall be lawful for a county treasurer to deposit any such moneys in any regularly designated county depositary.  Any municipal corporation may by action of its governing body authorize any of its funds which are not required for immediate expenditure, and which are in the custody of the county treasurer or other municipal corporation treasurer, to be invested by such treasurer in savings and loan associations in accordance with the provisions of RCW 33.52.010, or in any short term United States government securities: Provided, Five percent of the interest or earnings, with a minimum of ten dollars or maximum of fifty dollars, on any transactions authorized by each resolution of the governing body shall be paid as an investment service fee to the office of county treasurer or other municipal corporation treasurer when such investment is terminated and the interest or earnings become available to the governing body."

            We have previously concluded, under a prior special statute of similar import relating to school district funds, that a county treasurer invests municipal funds as agent of the municipal corporation.  See our opinion to the prosecuting attorney of Pierce county, dated December 3, 1948, a copy of which is enclosed.  Thus, to help defray the cost to the county of the performance of investment services under chapter 254, Laws of 1961, that statute prescribed an "investment service fee" to be paid to the office of county treasurer.

            RCW 36.29.020 was again amended by § 2, chapter 111, Laws of 1965.  It is not necessary to quote the text of that amendment; we need only to observe that it expanded the types of investments in which municipal funds could be placed, and also  [[Orig. Op. Page 4]] increased the investment service fee by making it into an annual charge rather than a total fee for the life of the investment.

            Thus it is observed that from the time RCW 36.29.020 was first amended in 1961, until it was last amended in 1967, county treasurers, as agents of the municipal corporations whose funds were in their custody, were empowered to invest those funds only to the extent specifically authorized by order of the governing body of each municipal corporation.  Consequently, the mechanics were such that municipal funds could only be invested "by fund"; that is, each municipal fund had to be invested separately, and, therefore, the accounts of each fund necessarily reflected the ownership of specific investments by that fund.1/

             You have informed us that, by universal practice among county treasurers, the unexpended and uninvested balance of each municipal fund (although separately identified by fund ownership as required by RCW 43.09.210) has been reflected in the county treasurer's accounts as part of his "residual cash balance"; i.e., an unsegregated, unallocated balance in the county treasury.  During the past several years, a growing concern has been expressed in several quarters regarding the constant sizeable amount of such residual cash in the several county treasuries which have remained idle and uninvested, simply because of inaction on the part of the various municipal governing bodies.  It was that concern which evidently prompted the further amendment of RCW 36.29.020,supra, by § 1, chapter 173, Laws of 1967, adding the following provision:

            "Whenever the funds of any municipal corporation which are not required for immediate expenditure are in the custody or control of the county  [[Orig. Op. Page 5]] treasurer, and the governing body of such municipal corporation has not taken any action pertaining to the investment of any such funds, the county finance committee shall direct the county treasurer to invest, to the maximum prudent extent, such funds in securities constituting the direct and general obligations of the United States government.  The interest or other earnings from such investments shall be deposited in the current expense fund of the county and may be used for general county purposes.  The investment and disposition of the interest or other earnings therefrom authorized by this paragraph shall not apply to such funds as may be prohibited by the state Constitution from being so invested."

            Having the benefit of the foregoing background, supplied by your office, we will proceed to answer your questions pertaining to this recent amendment.

            Question (1):

            Your first question, repeated for ease of reference, is as follows:

            When the governing body of a municipal corporation has directed the investment of less than all of its surplus funds which are in the custody of the county treasurer, and thereafter the county treasurer, pursuant to § 1, chapter 173, Laws of 1967, invests all such surplus or residual cash in the county treasury ". . . to the maximum prudent extent . . . in United States government securities . . ." does the municipal corporation thereby lose any of its power to expend or invest such funds?

            To the extent that the act in question is ambiguous, it is subject to construction, in order to ascertain and give effect to the true intention of the legislature.  Cory v. Nethery, 19 Wn.2d 326, 142 P.2d 488 (1943).  Of course, our first resort must be to the context and subject matter of the legislation because the intention of the lawmakers is to be deduced, if possible, from what they said.  Hatzenbuhler v. Harrison, 49 Wn.2d 691, 306 P.2d 745 (1957).  However, where there is doubt as to the meaning of the statute, it should be construed as a whole in order to ascertain and give effect to the evident legislative purpose.  State v. Lee, 62 Wn.2d 228, 382 P.2d 491 (1963).  Alderwood Water Dist. v. Pope & Talbot, 62 Wn.2d 319, 382 P.2d 639 (1963).  As an aid in determining legislative  [[Orig. Op. Page 6]] intent, resort may be had to the history of the passage of a measure and, of course, legislative journals are an appropriate reference source for that purpose.  See,State ex rel. Griffin v. Superior Court, 70 Wash. 545, 127 Pac. 120 (1912);State ex rel. Bugge v. Martin, 38 Wn.2d 834, 232 P.2d 833 (1951).  Finally, it is recognized that legislative intent may be found from an examination of contemporaneous circumstances which may have prompted the enactment of a statute.  See,State ex rel. P.U.D. Etc. v. Wylie, 28 Wn.2d 113, 182 P.2d 706 (1947);Seattle v. Reed, 6 Wn.2d 186, 107 P.2d 239 (1940); Linn v. Reid, 114 Wash. 609, 196 Pac. 13 (1921).

            Prefacing our reference to the legislative history of chapter 173, Laws of 1967, we note that although its language is presently mandatory, the original bill would have made the investments in question permissive.  A committee amendment changed the act to its present mandatory form.  Significantly, for purposes of this opinion, the legislative record (House Journal, March 1, 1967, not yet published in bound form) contains the following record of debate on this amendment, reflecting the legislature's understanding of the nature of the funds in question:

                        "YIELDING TO QUESTION

            "At the request of Mr. McGavick, Mr. Humiston yielded to question.

            "Mr. McGavick:

            "'Dr. Humiston, when we had this before the committee I checked with the King county treasurer and if the language of this act were permissive, I would have no objection to it, but in King county we had about five hundred eighty-four million dollars already invested and we have a residual of about thirty-nine million dollars a month.  If this act were mandatory, the problem, according to the treasurer, is determining how much of the thirty-nine million dollars he could safely invest.  Where he has over two hundred funds he would have to check with the municipal corporation in order to decide whether or not their cash demands would exceed the cash he had on hand.  It would seem to me that this amendment of yours would place the county treasurer in a situation which was a bit untenable.'

             [[Orig. Op. Page 7]]

            "Mr. Humiston:

            "'In response to your question, Mr. McGavick, if he has thirty-five million dollars and he could invest thirty million dollars in government securities at five percent without writing any rubber checks, this would provide in the course of one year six hundred thousand dollars to go to the county of King.  Now I don't care if he has to call two hundred fifty people every day.  For six hundred thousand dollars I think it would be worth it.'"  (Emphasis supplied.)

            Thus, it appears that the legislature conceived of the funds in question as simply constituting a residual balance in the county treasury.  As further evidence of legislative intent, we find again in the legislative record (House Journal March 1, 1967) the rejection of another amendment which would have required individual municipal corporations to be given notice and an opportunity to specify the investments to be made of their individual fund balances before their county treasurer could proceed under the statute.  We quote this portion of the journal as follows:

            "'Mr. Garrett moved adoption of the following amendment:

            "On page 2, line 11, after 'government' and before the period insert'; PROVIDED, That the foregoing authority shall not be exercised by the county treasurer until after not less than thirty days' notice has been given to the district or agency affected, and said district or agency has either declined to adopt an appropriate resolution for investment of such funds or failed to advise the county treasurer in writing of the need for current use of such funds.'"

            "Debate ensued, Representatives Garrett and Barden speaking in favor of adoption of the amendment, and Representatives Beck, Humiston, Sheridan, Haussler, and Conner speaking against its adoption.

            "Mr. Gorton demanded the previous question and the demand was sustained.

            "The motion was lost and the amendment was not adopted.'"

             [[Orig. Op. Page 8]]

            In our opinion, the foregoing legislative history, considered with the content of the statute itself, negates any thought that the legislature intended to take away from individual municipal corporations any control over their funds.  All that the legislature evidently intended was that such funds, at times when they are not invested by order of the governing body or needed for immediate expenditure, should be invested in the manner prescribed in the amendment.  It should be noted that there is nothing in the amendment which indicates that investments made under its terms must continue in effect for any particular length of time; nor does the new statute direct the county treasurer regarding reinvestment after the maturity or liquidation of initial investments.  The legislature must have realized that there would be a continuing turnover of investments maturing or being liquidated at various times.  Thus, the mechanics of investing prescribed by the legislature, and the absence of any such details, are further indications of a legislative intent to require the investment of surplus municipal funds simply as residual county treasury funds pending demand upon the treasury by the individual municipal corporation owners forany lawful reasons.

            Practical considerations, emphasized by the legislature's rejection of the amendment to provide notice to governing bodies, further support this conclusion.  It must have been the legislative intent, judged by the practical effect of the statute, that investments by county treasurers would not affect individual municipal fund balances, and that any such fund balance not invested by order of a local governing body would continue to be viewed as a cash balance available for immediate use or investment at its option.  In technical terms, by investing under the amendatory act the county treasurer merely converts residual cash into United States government securities which continue to be counted as cash in ascertaining the current fund balances of all participating funds.  See our previous opinions to the prosecuting attorney of Pierce county, May 14, 1948, and to the prosecuting attorney of King county, May 18, 1961 (AGO 61-62 No. 29), copies of which are enclosed; also, Bulletin 13, issued by the state auditor, September 5, 1951, copy enclosed.  Under this interpretation the municipal governing body has a continuing authority under RCW 36.29.020, unaffected by chapter 173, Laws of 1967, supra, to ". . . authorize any of its funds which are not required for immediate expenditure, and which are in the custody of the county treasurer . . . to be invested by such treasurer . . ."

             [[Orig. Op. Page 9]]

            The alternative interpretation2/ would result in absurdities.  For instance, to be able to refuse to release or invest funds at the request of a municipal governing body for any reason, on the ground that the funds of that particular municipal corporation had been already invested, the county treasurer would have to be able to identify the specific amount of each fund of each municipality invested in a given security at a given time.  It is obvious that such a requirement would frustrate the main purpose of the amendatory act -to facilitate the investment of idle municipal funds.  Furthermore, the effect of such an interpretation would be to cause the discretion of each municipal governing body to be limited by the county finance committee's determination as to the current financial needs of the municipal corporation, without any provision for notice or hearing.  Funds of a school district, for instance, which had been prudently invested by the county treasurer without the knowledge of the school district board of directors, would be unavailable until the maturity or sale of the investment by the county treasurer.  In the meantime the school board, in the face of needs unanticipated by the county finance committee or by the board itself, might be precluded from exercising its best judgment in handling such need or emergency.  As we have previously indicated, there is no reason to believe that the legislature had that intent.  In the absence of any such clear indication by the legislature, we find no basis for concluding that the legislature intended to deprive a municipal corporation of all control over its own funds simply because at a given point in time the governing body of any such municipal corporation failed to have its surplus funds invested to the maximum prudent extent as determined by the county finance committee.

            Therefore, in answer to your first question, we conclude that all surplus funds of a municipal corporation in the hands of the county treasurer, which have not been invested pursuant to direction by the governing body of the municipal corporation, remain available for use or investment by the governing body notwithstanding any investment action taken by the county finance committee or the county treasurer pursuant to the amendatory language of § 1, chapter 173, Laws of 1967.

             [[Orig. Op. Page 10]]

            Question (2):

            Repeated for ease of reading, your second question is:

            Would an accounting regulation issued by the state auditor requiring county treasurers to account for investments made under § 1, chapter 173, Laws of 1967, uniformly as investments of residual cash in the county treasury be consistent with the provisions and intent of the act?

            RCW 43.09.200 directs the state auditor to adopt uniform accounting regulations, as follows:

            "The state auditor, through such division, [the division of municipal corporations] shall formulate, prescribe, and install a system of accounting and reporting, which shall be uniform for every public institution, and every public office, and every public account of the same class.

            "The system shall exhibit true accounts and detailed statements of funds collected, received, and expended for account of the public for any purpose whatever, and by all public officers, employees, or other persons.

            "The accounts shall show the receipt, use, and disposition of all public property, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction; all statements and reports made or required to be made, for the internal administration of the office to which they pertain; and all reports published or required to be published, for the information of the people regarding any and all details of the financial administration of public affairs."

            In addition RCW 43.09.240 provides as follows:

            "Every public officer and employee shall keep all accounts of his office in the form prescribed and make all reports required by the  [[Orig. Op. Page 11]] state auditor.  Any public officer or employee who refuses or wilfully neglects to perform such duties shall be subject to removal from office in an appropriate proceeding for that purpose brought by the attorney general or by any prosecuting attorney.

            ". . ."

            See, also, AGO 63-64 No. 28, a copy of which is enclosed.  As we indicated in that opinion, to the extent that an accounting regulation fulfills the general requirements of the statute as to uniformity and accuracy, it is within the auditor's jurisdiction to issue.  We have concluded, in answer to question (1), that the legislature in enacting § 1, chapter 173, Laws of 1967,supra, intended to require the investment of certain treasury balances, for the benefit of county treasuries.  The proposed regulation, as we understand it, would require county treasurers to continue accounting for such residual cash balances in the same manner after investment as before investment.3/

             That your proposed regulation would conform to the provisions and intent of chapter 173, Laws of 1967, is evident from our answer to your first question.  Surplus municipal funds in the hands of the county treasurer have always been considered, for the county treasurer's purposes, as a "residual cash balance."  The funds which were the subject of the first legislative debate quoted above were referred to as "residual," and the text of the debate clearly indicates that what the legislators had in mind was the concept of a residual cash balance. Furthermore, rejection of the proposed amendment which would have provided notice to municipal corporations prior to the placing of any investments is consistent with a legislative intent  [[Orig. Op. Page 12]] merely to direct counties to invest the residual cash balances in their county treasuries, without affecting individual municipal fund balances.

            In our opinion, therefore, it was the intent of the legislature in enacting chapter 173, Laws of 1967, supra, to direct the investment of such funds as residual cash in the county treasury rather than on an individual fund basis, and the proposed accounting regulation in question would conform to the statute.

            Question (3):

            Finally, you have asked:

            Is it the responsibility of the county finance committee, or that of the treasurer, to ascertain the availability of surplus municipal funds for investment under the 1967 amendment and to determine the "maximum prudent extent" to which they may be invested?

            Had the legislature enacted House Bill 223 in its original permissive form, we might have concluded that the legislature intended to place upon the county treasurer the duty to ascertain and call to the attention of the county finance committee the existence of surplus municipal funds in the county treasury.  In other words, we could then have attributed to the legislature an intent to follow exactly the pattern it did in RCW 36.33.180, an earlier statute authorizing the investment of inactive county funds permissibly at the discretion of the finance committee.  RCW 36.33.180 provides as follows:

            "The county treasurer of every county shall call the attention of the county finance committee to any inactive fund or funds in excess of the current needs of the county.  The committee may by order authorize him to invest such inactive or excess funds in bonds of the United States government, if prior to making the order, they have applied for and received from the state finance committee, its approval of such investment."

            Instead, in chapter 173, supra, the legislature made it a mandatory duty of the finance committee, whenever any municipal fund surplus exists, to direct the county treasurer to  [[Orig. Op. Page 13]] invest in a specified manner.  In contrast with RCW 36.33.180, the county treasurer is not authorized by the new statute to take any action toward the investment of such funds until he receives direction from his county finance committee.  Therefore, implicit in the statutory duty of the county finance committee to direct the treasurer to invest is the committee's preliminary duty of ascertaining the existence of eligible funds.

            Similarly, in our opinion, the statute makes it the ultimate responsibility of the county finance committee to determine the maximum prudent extent to which the funds may be invested.  The 1967 amendment, similar in this respect to RCW 36.33.180, supra, requires the finance committee to direct investment by the county treasurer.  In the absence of any legislative expression to the contrary, we believe it is logical to presume that such direction was intended to be complete, and, in this case, to include a determination of the "maximum prudent extent" to which the funds should be invested.

            In determining the meaning of a statute, that construction should be adopted which will further the obvious purpose of the legislature.  See,State v. Rinkes, 49 Wn.2d 664, 306 P.2d 205 (1957).  It would be somewhat illogical to interpret the statute as requiring the county finance committee merely to ascertain the existence of surplus funds and then give to the county treasurer a directive already contained in the statute itself; i.e., to invest those funds "to the maximum prudent extent."  Rather, in our opinion, the statute contemplates that the finance committee's function will be to furnish complete investment direction to the treasurer or at least to be responsible for the ultimate determination of "maximum prudent extent."  Interpreted in this manner, chapter 173,supra, gives both the finance committee and the county treasurer a substantial voice in the decision because the county treasurer, as the legislature is presumed to know, is ex officio chairman of the finance committee.  See RCW 36.48.070.  This interpretation, therefore, is in our opinion the most reasonable and the most consistent with the purposes of the act.

            In summary, therefore, we conclude as follows:

            (1) When the governing body of a municipal corporation has directed the investment of less than all of its surplus funds which are in the custody of the county treasurer, and thereafter the treasurer, pursuant to § 1, chapter 173, Laws of  [[Orig. Op. Page 14]] 1967, invests all such surplus as part of the county's residual treasury cash balance ". . . to the maximum prudent extent . . . in United States government securities . . ." such investment does not affect the individual fund balances of the respective municipal corporations in his custody, and each municipal corporation retains the power to expend or invest its funds according to the respective fund balances shown in its accounts.

            (2) A proposed accounting regulation of the state auditor requiring county treasurers to account uniformly for their investments made under the provisions of chapter 173, Laws of 1967, as investments of residual cash in the county treasury, would be consistent with the provisions and intent of the act.

            (3) It is the responsibility of the county finance committee, rather than that of the treasurer, to ascertain both the availability of surplus municipal funds for investment under the provisions of chapter 173, Laws of 1967, and the "maximum prudent extent" to which they may be invested, taking into account both the anticipated expenditure and investment requirements of each municipal corporation whose funds are in the custody of the county treasurer.