You wanted to know the limitations associated with depositing and investing municipal funds with Connecticut banks. Specifically, you wanted to know if a municipality would be prohibited from depositing public funds with TD Banknorth.

The Office of Legislative Research is not authorized to give legal opinions and this should not be construed as one.

SUMMARY

Connecticut municipal finance laws prescribe the circumstances under which public funds may be deposited or invested, if such action is approved by the municipality. Under these laws, a public official may deposit funds in a “qualified public depository” which includes: (1) a Connecticut or federal bank, (2) a Connecticut or federal credit union, or (3) an out-of-state bank that maintains a branch in Connecticut, which receives or holds public deposits and segregates eligible collateral for public deposits. Funds may also be deposited into an out-of-state bank that is not a qualified public depository, in an amount not exceeding $ 100,000.

Municipal treasurers may invest in interests in a custodial arrangement, pool, investment company, or investment trust with a portfolio of United States obligations if, among other things, the

municipal corporation authority purchases or redeems shares through the use of, or the custodian is a Connecticut or federal bank or an out-of-state bank with a branch in the state.

According to Connecticut Department of Banking materials, TD Banknorth is an out-of-state bank operating a branch in Connecticut. Therefore, it appears as if municipal finance laws would permit a municipality to deposit or invest public funds with the institution.

MUNICIPAL FINANCE LAWS

Deposit of Public Funds

Connecticut's municipal finance laws allow a public official to deposit municipal funds (1) received, held, or controlled by such official or 2) otherwise held by a public official in that capacity or as custodian or trustee on behalf of the municipality, in any qualified public depository. A public official may also deposit the funds in an out-of-state bank which is not a qualified public depository, as long as the deposit amount does not exceed the Federal Deposit Insurance Corporation insurance limit of $ 100,000. There may be additional restrictions on the deposit of public funds imposed by the charter of the municipal corporation (Conn. Gen. Stat. §7-402(a)).

Any person, other than a public official, who receives, has control of, or is the custodian or trustee of public funds must request that the appropriate authority (i. e. first selectman, regional board of education) designate an institution for deposit that is acceptable under §7-402(a) of the statutes. The authority, upon receipt of the request, may designate one or more depositories, and may specify in writing the public funds and maximum amount that may be deposited. Prior to the designation of such depository, the person making the request may deposit public funds in any depository described above.

A qualified public depository is a (1) Connecticut bank, (2) a federal bank, which is a national banking association, federal savings bank, or federal savings and loan association having its principal office in this state), (3) Connecticut or federal credit union, or (4) an out-of-state bank that maintains a branch in Connecticut, which receives or holds public deposits and segregates eligible collateral for public deposits (Conn. Gen. Stat. § 36a-330(5)). An out-of-state bank is technically defined as any institution that engages in the business of banking, except 1) a Connecticut or federal bank and 2) and a Connecticut, federal, or out-of-

state credit union (Conn. Gen. Stat. §36a-2(44)). Foreign banks, defined as companies organized under the laws of a foreign country, are considered out-of-state banks.

A state Department of Banking listing of Connecticut banks, organized by charter type, is included for your use.

Investment of Public Funds

Municipal finance laws also allow the treasurer of any municipality, upon the approval of the appropriate budget-making authority, to invest the proceeds received from the sale of bonds, notes or other obligations, or other funds, in the obligations of any state, or any political subdivision, authority, or agency thereof, if they are rated within one of the top two rating categories of any rating service that is recognized nationally or by the banking commissioner (Conn. Gen. Stat. §7-400(2)). Similarly, treasurers may invest in the obligations of the state of Connecticut, or any regional school district, town, city, borough, or metropolitan district in the state if the obligations are rated within one of the top three rating categories of any rating service that is recognized nationally or by the banking commissioner (Conn. Gen. Stat. §7-400(3)).

Finally, treasurers may invest these funds in the obligations of the United States, including obligations of the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Savings and Loan Insurance Corporation, obligations of the United States Postal Service, all the federal home loan banks, all the federal land banks, all the federal intermediate credit banks, the Central Bank for Cooperatives, The Tennessee Valley Authority, or any other agency of the United States government (Conn. Gen. Stat. §7-400(1)(A)).

They may also invest in shares or other interests in a custodial arrangement, pool, investment company, or investment trust, if (1) the portfolio is limited to the United States obligations described above, (2) the municipal corporation or authority only purchases and redeems shares or other interests in the investment company or investment trust through the use of, or the custodian of the custodial arrangement or pool is, a Connecticut or federal bank or an out-of-state bank with a branch in the state, and (3) other conditions are met regarding delivery of collateral, management of the custodial pool or arrangement, and credit rating of the investment company or investment trust (Conn. Gen. Stat. §7-400(1)(B)).

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