BP BHEAD INT S

AN ACT Relating to public funds; amending RCW 39.58.010, 39.58.020, 39.58.040, 39.58.050, 39.58.060, 39.58.065, 39.58.070, 39.58.080, 39.58.085, 39.58.090, 39.58.100, 39.58.105, 39.58.108, 39.58.130, 39.58.135, 39.58.140, and 39.58.150; adding new sections to chapter 43.09 RCW; adding a new section to chapter 39.58 RCW; recodifying RCW 39.58.160, 39.58.170, 39.58.180, and 39.58.150; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. RCW 39.58.010 and 1994 c 92 s 494 are each amended to read as follows:

In this chapter, unless the context otherwise requires:

(1) "Public funds" means moneys under the control of a treasurer or custodian belonging to, or held for the benefit of, the state or any of its political subdivisions, public corporations, municipal corporations, agencies, courts, boards, commissions, or committees, including moneys held as trustee, agent, or bailee;

(2) ((~~"Qualified public depositary," "public depositary," or "depositary"~~)) "Public depositary" means a financial institution which does not claim exemption from the payment of any sales or compensating use or ad valorem taxes under the laws of this state, which has been approved by the commission to hold public deposits, and which has segregated for the benefit of the commission eligible collateral having a value of not less than its maximum liability. Addition of the word "bank" denotes a bank, trust company, or national banking association and the word "thrift" denotes a savings ((~~and loan~~)) association((~~, mutual savings bank, or stock~~)) or savings bank;

(3) "Loss" means the issuance of an order by a regulatory or supervisory authority or a court of competent jurisdiction (a) restraining a ((~~qualified~~)) public depositary from making payments of deposit liabilities or (b) appointing a receiver for a ((~~qualified~~)) public depositary;

(4) "Commission" means the Washington public deposit protection commission created under RCW 39.58.030;

(5) "Eligible collateral" means securities which are enumerated in RCW 39.58.050 (5) and (6) as eligible collateral for public deposits;

(6) The "maximum liability" of a ((~~qualified~~)) public depositary on any given date means a sum equal to ten percent of (a) all public deposits held by the qualified public depositary on the then most recent commission report date, or (b) the average of the balances of said public deposits on the last four immediately preceding reports required pursuant to RCW 39.58.100, whichever amount is greater, less any assessments paid to the commission pursuant to this chapter since the then most recent commission report date;

(7) "Public funds available for investment" means such public funds as are in excess of the anticipated cash needs throughout the duration of the contemplated investment period;

(8) "Investment deposits" means time deposits, money market deposit accounts, and savings deposits of public funds available for investment;

(9) "Treasurer" shall mean the state treasurer, a county treasurer, a city treasurer, a treasurer of any other municipal corporation, and ((~~the~~)) any other custodian of ((~~any other~~)) public funds;

(10) "Financial institution" means ((~~a branch of a bank engaged in banking in this state in accordance with RCW 30.04.300, and~~)) any national or state chartered commercial bank or trust company, ((~~national banking association, stock savings bank, mutual~~)) savings bank, or savings ((~~and loan~~)) association, or branch or branches thereof, located in this state and lawfully engaged in business;

(11) "Commission report" means a formal accounting rendered by all ((~~qualified~~)) public depositaries to the commission in response to a demand for specific information made ((~~upon all depositaries~~)) by the commission detailing pertinent affairs of each public depositary as of the close of business on a specified date, which is the "commission report date." "Commission report due date" is the last day for the timely filing of a commission report;

(12) "Director of financial institutions" means the Washington state director of the department of financial institutions;

(13) "Net worth" of a public depositary means (a) ((for a bank depositary, the aggregate of capital, surplus, undivided profits and all capital notes and debentures which are subordinate to the interest of depositors, and (b) for a thrift depositary, the aggregate of such capital stock, guaranty fund, general reserves, surplus, undivided profits, and)) the equity capital as reported to its primary regulatory authority on the quarterly report of condition or statement of condition and may include capital notes and debentures which are subordinate to the interests of depositors, ((~~as are eligible for inclusion in otherwise determining the net worth of a mutual savings bank, stock savings bank, or savings and loan association~~)) or (b) equity capital adjusted by rule of the commission;

(14) "Depositary pledge agreement" means a tripartite agreement executed by the commission with a financial institution and its designated trustee. Such agreement shall be approved by the directors or the loan committee of the financial institution and shall continuously be a record of the financial institution. New securities may be pledged under this agreement in substitution of or in addition to securities originally pledged without executing a new agreement;

(15) "Trustee" means a third-party safekeeping agent which has completed a depositary pledge agreement with a public depositary and the commission. Such third-party safekeeping agent may be the federal reserve bank of San Francisco, the federal home loan bank of Seattle, the trust department of the public depositary, or such other third-party safekeeping agent approved by the commission.

Sec. 2. RCW 39.58.020 and 1984 c 177 s 11 are each amended to read as follows:

All public funds deposited in ((~~qualified~~)) public depositaries, including investment deposits and accrued interest thereon, shall be protected against loss, as provided in this chapter.

Sec. 3. RCW 39.58.040 and 1986 c 25 s 2 are each amended to read as follows:

The commission shall have power (1) to make and enforce regulations necessary and proper to the full and complete performance of its functions under this chapter; (2) to require any ((~~qualified~~)) public depositary to furnish such information dealing with public deposits and the exact status of its net worth as the commission shall request. Any public depositary which refuses or neglects to give promptly and accurately or to allow verification of any information so requested shall no longer be a ((~~qualified~~)) public depositary and shall be excluded from the right to receive or hold public deposits until such time as the commission shall acknowledge that such depositary has furnished the information requested; (3) to take such action as it deems best for the protection, collection, compromise or settlement of any claim arising in case of loss; (4) to prescribe regulations, subject to this chapter, fixing the requirements for qualification of financial institutions as public depositaries, and fixing other terms and conditions consistent with this chapter, under which public deposits may be received and held; (5) to make and enforce regulations setting forth criteria establishing minimum standards for the financial condition of bank and thrift depositaries and, if the minimum standards are not met, providing for additional collateral requirements or restrictions regarding a public depositary's right to receive or hold public deposits; (6) to fix the official date on which any loss shall be deemed to have occurred taking into consideration the orders, rules and regulations of supervisory authority as they affect the failure or inability of a ((~~qualified~~)) public depositary to repay public deposits in full; and (7) in case loss occurs in more than one ((~~qualified~~)) public depositary, to determine the allocation and time of payment of any sums due to public depositors under this chapter.

Sec. 4. RCW 39.58.050 and 1989 c 97 s 4 are each amended to read as follows:

(1) Every ((~~qualified~~)) public depositary shall complete a depositary pledge agreement with the commission and a trustee, and shall at all times maintain, segregated from its other assets, eligible collateral in the form of securities enumerated in this section having a value at least equal to its maximum liability and as otherwise prescribed in this chapter. Such collateral ((~~may~~)) shall be segregated by deposit ((~~in the trust department of the depositary or in such other manner as the commission approves~~)) with the depositary's trustee and shall be clearly designated as security for the benefit of public depositors under this chapter.

(2) Securities eligible as collateral shall be valued at market value, and the total market value of securities pledged in accordance with this chapter shall not be reduced by withdrawal or substitution of securities except by prior authorization, in writing, by the commission.

(3) The public depositary shall have the right to make substitutions of an equal or greater amount of such collateral at any time.

(4) The income from the securities which have been segregated as collateral shall belong to the public depositary without restriction.

(5) Each of the following enumerated classes of securities, providing there has been no default in the payment of principal or interest thereon, shall be eligible to qualify as collateral:

(a)(((i) Bonds, notes, or other securities constituting direct and general obligations of the United States or the bonds, notes, or other securities constituting the direct and general obligation of any instrumentality of the United States, the interest and principal of which is unconditionally guaranteed by the United States;

(ii) Securities of, or other interests in, an open-end or closed-end management type investment company or investment trust registered under the federal investment company act of 1940, as now or hereafter amended, if both of the following conditions are met:

(A) The portfolio of the investment company or investment trust is limited to the obligations of the United States as described in (a) of this subsection and to repurchase agreements fully collateralized by such obligations; and

~~(B) The investment company or investment trust takes delivery of the collateral for any repurchase agreement either directly or through an authorized custodian; and~~

~~(iii)~~)) Certificates, notes or bonds of the United States, or other obligations of the United States or its agencies, or of any corporation wholly owned by the government of the United States;

(b) State, county, municipal, or school district bonds or warrants of taxing districts of the state of Washington or any other state of the United States, provided that such bonds and warrants shall be only those found to be within the limit of indebtedness prescribed by law for the taxing district issuing them and to be general obligations;

(c) The obligations of any United States government-sponsored corporation whose obligations are or may become eligible as collateral for advances to member banks as determined by the board of governors of the federal reserve system;

(d) Bonds, notes, letters of credit, or other securities or evidence of indebtedness constituting the direct and general obligation of a federal home loan bank or federal reserve bank;

((~~(b)(i) Direct and general obligation bonds and warrants of the state of Washington or of any other state of the United States;~~

~~(ii)~~)) (e) Revenue bonds of this state or any authority, board, commission, committee, or similar agency thereof, and any municipality or taxing district of this state;

((~~(c)~~)) (f) Direct and general obligation bonds and warrants of any city, town, county, school district, port district, or other political subdivision of any state, having the power to levy general taxes, which are payable from general ad valorem taxes;

((~~(d)~~)) (g) Bonds issued by public utility districts as authorized under the provisions of Title 54 RCW, as now or hereafter amended;

((~~(e)~~)) (h) Bonds of any city of the state of Washington for the payment of which the entire revenues of the city's water system, power and light system, or both, less maintenance and operating costs, are irrevocably pledged, even though such bonds are not general obligations of such city;

(6) In addition to the securities enumerated in ((~~subsections (5)(a) through (e) of~~)) this section, every public depositary may also segregate such bonds, securities, and other obligations as are designated to be authorized security for ((~~all~~)) public deposits ((~~pursuant to RCW 35.58.510, 35.81.110, 35.82.220, 39.60.030, 39.60.040 and 54.24.120, as now or hereafter amended~~)) under the laws of this state.

(7) The commission may at any time or times declare any particular security as ineligible to qualify as collateral when in the commission's judgment it is deemed desirable to do so.

Sec. 5. RCW 39.58.060 and 1983 c 66 s 9 are each amended to read as follows:

When the commission determines that a loss has occurred in a bank public depositary, it shall as soon as possible make payment to the proper public officers of all funds subject to such loss, pursuant to the following procedures:

(1) For the purposes of determining the sums to be paid, the ((~~supervisor~~)) director of financial institutions or the receiver shall, within twenty days after issuance of a restraining order or taking possession of any ((~~qualified~~)) bank public depositary, ascertain the amount of public funds on deposit therein as disclosed by its records and the amount thereof covered by deposit insurance and certify the amounts thereof to the commission and each such public depositor;

(2) Within ten days after receipt of such certification, each such public depositor shall furnish to the commission verified statements of its deposits in such bank public depositary as disclosed by its records;

(3) Upon receipt of such certificate and statements, the commission shall ascertain and fix the amount of such public deposits, net after deduction of any amount received from deposit insurance, and, after determining and declaring the apparent net loss, assess the same against all then ((~~qualified~~)) bank public depositaries, as follows: First, against the public depositary in which the loss occurred, to the extent of the full value of collateral segregated pursuant to this chapter; second, against all other ((~~qualified~~)) bank public depositaries pro rata in proportion to the maximum liability of each such depositary as it existed on the date of loss;

(4) Assessments made by the commission shall be payable on the second business day following demand, and in case of the failure of any ((~~qualified~~)) public depositary so to pay, the commission shall forthwith take possession of the securities segregated as collateral by such depositary pursuant to this chapter and liquidate the same for the purpose of paying such assessment;

(5) Upon receipt of such assessment payments, the commission shall reimburse the public depositors of the public depositary in which the loss occurred to the extent of the depositary's net deposit liability to them.

Sec. 6. RCW 39.58.065 and 1983 c 66 s 10 are each amended to read as follows:

When the commission determines that a loss has occurred in a thrift public depositary, it shall as soon as possible make payment to the proper public officers of all funds subject to such loss, pursuant to the following procedures:

(1) For the purposes of determining the sums to be paid, the ((~~supervisor~~)) director of financial institutions or the receiver shall, within twenty days after issuance of a restraining order or taking possession of any ((~~qualified~~)) thrift public depositary, ascertain the amount of public funds on deposit therein as disclosed by its records and the amount thereof covered by deposit insurance and certify the amounts thereof to the commission and each such public depositor;

(2) Within ten days after receipt of such certification, each such public depositor shall furnish to the commission verified statements of its deposits in such thrift depositary as disclosed by its records;

(3) Upon receipt of such certificate and statements, the commission shall ascertain and fix the amount of such public deposits, net after deduction of any amount received from deposit insurance, and, after determining and declaring the apparent net loss, assess the same against all then ((~~qualified~~)) thrift public depositaries, as follows: First, against the public depositary in which the loss occurred, to the extent of the full value of collateral segregated pursuant to this chapter; second, against all other ((~~qualified~~)) thrift public depositaries pro rata in proportion to the maximum liability of each such depositary as it existed on the date of loss;

Sec. 7. RCW 39.58.070 and 1973 c 126 s 13 are each amended to read as follows:

Upon payment to any public depositor, the commission shall be subrogated to all of such depositor's right, title and interest against the public depositary in which the loss occurred and shall share in any distribution of its assets ratably with other depositors. Any sums received from any distribution shall be paid to the public depositors to the extent of any unpaid net deposit liability and the balance remaining shall be paid to the ((~~qualified~~)) public depositaries against which assessments were made, pro rata in proportion to the assessments actually paid by each such depositary: PROVIDED, That the public depositary in which the loss occurred shall not share in any such distribution of the balance remaining. If the commission incurs expense in enforcing any such claim, the amount thereof shall be paid as a liquidation expense of the public depositary in which the loss occurred.

Sec. 8. RCW 39.58.080 and 1991 sp.s. c 30 s 27 are each amended to read as follows:

Except for funds deposited pursuant to a fiscal agency contract with the state fiscal agent or its correspondent bank, funds deposited pursuant to a custodial bank contract with the state's custodial bank, and funds deposited pursuant to a local government multistate joint self-insurance program as provided in RCW 48.62.081, no public funds shall be deposited in demand or investment deposits except in a ((~~qualified~~)) public depositary located in this state or as otherwise expressly permitted by statute: PROVIDED, That the commission, or the chair upon delegation by the commission, upon good cause shown, may authorize, for such time and upon such terms and conditions as the commission or chair deem appropriate, a treasurer to maintain a demand deposit account with a banking institution located outside the state of Washington solely for the purpose of transmitting money received to ((~~financial institutions~~)) public depositaries in the state of Washington for deposit ((~~for such time and upon such terms and conditions as the commission deems appropriate~~)).

Sec. 9. RCW 39.58.085 and 1987 c 505 s 21 are each amended to read as follows:

((~~With the written approval of~~)) The commission, or the chair upon delegation by the commission, may authorize state and local governmental entities ((~~may~~)) to establish demand accounts in out-of-state and alien banks in an aggregate amount not to exceed one million dollars. No single governmental entity shall be authorized to hold more than fifty thousand dollars in one demand account.

The governmental entities establishing such demand accounts shall be solely responsible for their proper and prudent management and shall bear total responsibility for any losses incurred by such accounts. Accounts established under the provisions of this section shall not be considered insured by the commission.

The state auditor shall annually monitor compliance with this section and the financial status of such demand accounts.

Sec. 10. RCW 39.58.090 and 1984 c 177 s 15 are each amended to read as follows:

All institutions located in this state which are permitted by the statutes of this state to hold and receive public funds shall have power to secure such deposits in accordance with this chapter. Except as provided in this chapter, no bond or other security shall be required of or given by any ((~~qualified~~)) public depositary for any public funds on deposit.

Sec. 11. RCW 39.58.100 and 1984 c 177 s 16 are each amended to read as follows:

On or before each commission report due date, each public depositary shall render to the commission a written report, certified under oath, indicating the total amount of public funds on deposit held by it ((~~on the commission report date~~)), the net worth of the depositary, and the amount and nature of eligible collateral then segregated for the benefit of the commission.

The commission may instruct the ((~~supervisor~~)) director of financial institutions to examine and thereafter certify as to the accuracy of any statement ((~~as to the segregation of securities~~)) to the commission by any public depositary.

Sec. 12. RCW 39.58.105 and 1983 c 66 s 14 are each amended to read as follows:

The commission may require the state auditor or the ((~~supervisor~~)) director of financial institutions to thoroughly investigate and report to it concerning the condition of any financial institution which makes application to become a ((~~qualified~~)) public depositary, and may also as often as it deems necessary require such investigation and report concerning the condition of any financial institution which has been designated as a ((~~qualified~~)) public depositary. The expense of all such investigations or reports shall be borne by the financial institution examined. In lieu of any such investigation or report, the commission may rely upon information made available to it or the ((~~supervisor~~)) director of financial institutions by the office of the comptroller of the currency, the office of thrift supervision, the federal deposit insurance corporation, the federal reserve board, ((~~the federal savings and loan insurance corporation, or the federal home loan bank board~~)) or any state bank or thrift regulatory agency.

The ((~~supervisor~~)) director of financial institutions shall in addition advise the commission of any action ((~~the supervisor~~)) he or she has directed any ((~~qualified~~)) public depositary to take which will result in a reduction of greater than ten percent of the net worth of such depositary as shown on the most recent report it submitted pursuant to RCW 39.58.100.

Sec. 13. RCW 39.58.108 and 1984 c 177 s 17 are each amended to read as follows:

Any financial institution may become a ((~~qualified~~)) depositary upon approval by the commission and segregation of collateral in the manner as set forth in this chapter, and upon compliance with all rules as promulgated by the commission. ((~~Until such time as depositaries have submitted four consecutive reports to the commission as required by RCW 39.58.100, they~~)) For the first twelve-month period following qualification as a public depositary, the depositary shall at all times pledge and segregate eligible securities in an amount equal to not less than ten percent of all public funds on deposit in ((~~said~~)) the depositary.

Sec. 14. RCW 39.58.130 and 1984 c 177 s 18 are each amended to read as follows:

A treasurer ((~~as defined in RCW 39.58.010~~)) is authorized to deposit ((~~in investment deposits~~)) in a ((~~qualified~~)) public depositary any public funds available for investment and secured by collateral in accordance with the provisions of this chapter, and receive interest thereon. The authority provided by this section is additional to any authority now or hereafter provided by law for the investment or deposit of public funds by any such treasurer: PROVIDED, That in no case shall the ((~~deposit or~~)) aggregate of demand and investment deposits of public funds by any such treasurer in any one ((~~qualified~~)) public depositary exceed at any time the net worth of that depositary. If a public depositary's net worth is reduced, a treasurer may allow public funds on deposit in excess of the reduced net worth to remain until maturity upon pledging by the depositary of eligible securities valued at market value in an amount at least equal to the amount of the excess deposits. The collateral shall be segregated as provided in RCW 39.58.050. If the additional securities required by this section are not pledged by the depositary, the depositary shall permit withdrawal prior to maturity by the treasurer of deposits, including accrued interest, in accordance with applicable statutes and governmental regulations.

Sec. 15. RCW 39.58.135 and 1986 c 25 s 1 are each amended to read as follows:

Notwithstanding RCW 39.58.130, (1) aggregate deposits received by a ((~~qualified~~)) public depositary from all public treasurers shall not exceed at any time one hundred fifty percent of the value of the depositary's net worth ((~~as of the close of business of the most recent calendar quarter~~)), nor (2) shall the aggregate deposits received by any ((~~qualified~~)) public depositary exceed thirty percent of the total aggregate deposits of all public treasurers in all depositaries as determined by the public deposit protection commission. However, a ((~~qualified~~)) public depositary may receive deposits in excess of the limits provided in this section if eligible securities, as prescribed in RCW 39.58.050, are pledged as collateral in an amount equal to one hundred percent of the value of deposits received in excess of the limitations prescribed in this section.

Sec. 16. RCW 39.58.140 and 1969 ex.s. c 193 s 29 are each amended to read as follows:

When deposits are made in accordance with this chapter, a treasurer shall not be liable for any loss thereof resulting from the failure or default of any public depositary without fault or neglect on his or her part or on the part of his or her assistants or clerks.

Sec. 17. RCW 39.58.150 and 1981 c 101 s 1 are each amended to read as follows:

Notwithstanding any provision of law to the contrary, the state treasurer or any county, city, or other municipal treasurer or other custodian of public funds may receive, disburse, or transfer public funds under his or her jurisdiction by means of wire or other electronic communication in accordance with accounting standards established by the state auditor under RCW 43.09.200 with regard to municipal treasurers or other custodians or by the office of financial management under RCW 43.88.160 in the case of the state treasurer and other state custodians to safeguard and insure accountability for the funds involved.

NEW SECTION. Sec. 18. (1) RCW 39.58.160, 39.58.170, and 39.58.180 are each recodified as sections in chapter 43.09 RCW under the subchapter heading "municipal corporations."

(2) RCW 39.58.150 is recodified as RCW 39.58.750.

NEW SECTION. Sec. 19. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect immediately.