Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Business & Financial Services Committee

HB 1304

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Description: Allowing a public depository to arrange for reciprocal deposits of public funds.

Sponsors: Representatives Kirby and Vick.

Brief Summary of Bill

  • Creates an exemption to the prohibition against the deposit of public funds in out-of-state institutions, if certain requirements are met.

Hearing Date: 1/20/15

Staff: Linda Merelle (786-7092).

Background:

The Public Deposit Protection Commission (Commission) ensures that public funds deposited in financial institutions are protected. The Commission is made up of the State Treasurer, Lieutenant Governor, and the Governor, and it is administered through the State Treasurer's office. It determines which institutions may hold state and local government deposits and monitors collateral pledged to secure uninsured deposits.

The Commission has the authority to: enforce regulations; require any public depositary to furnish information regarding the status of public deposits; take necessary actions regarding the protection, collection, compromise or settlement of claims arising from loss; set the requirements for initial and continued qualification of financial institutions as public depositaries; make and enforce rules regarding the standards governing matters within its power; require additional or different types and amounts of collateral or to restrict a public depositary's right to receive or hold public deposits if financial standards are not met; and make and enforce sanctions against a public depositary for noncompliance with statute or rules or policies of the Commission.Generally, the deposit of public funds in a public depositary outside of the state is prohibited, but there are several statutory exceptions. These include:

In 2005, an additional exemption for out-of-state deposits was allowed. A demand deposit account may be maintained by a treasurer for the deposit of higher education endowment grants for specified study or research programs being performed outside Washington. The use of such out-of-state accounts must be authorized by the Commission or the Chair, if delegated that authority by the Commission. There must be good cause for the account, and the account may be limited in time, terms, and conditions as the Commission or the Chair deems appropriate.

Demand Accounts in Out-of-State Banks.

The Commission, or the Chair upon delegation by the Commission, may authorize state and local governmental entities to establish demand accounts in out-of-state and alien banks in an aggregate amount up to $1 million. No single governmental entity is authorized to hold more than $50,000 in one demand account. The governmental entities establishing such accounts are solely responsible for their proper management and must bear total responsibility for any losses incurred by those accounts. As part of the exemption allowed for higher education endowment grants in 2005, this limitation does not apply to endowment grants for specified study or research programs being performed outside Washington.

Summary of Bill:

An additional exception to the prohibition of depositing public funds in out-of-state institutions is permitted. Public funds may be deposited in out-of-state institutions if the following conditions are met:

Public funds deposited pursuant to the exemption created in this act are not subject to the limitations regarding deposits in demand accounts in out-of-state institutions.

Appropriation: None.

Fiscal Note: Requested on 1/16/15.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.