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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



Opinion No. 5957

August 13, 1981


Authorized investments of college funds.

A community college district may invest appropriate funds of the district in investments authorized by 1966 PA 331, Sec. 142, but the college may not enter into certain repurchase agreements where the ownership of qualified securities is not transferred to the community college district.

The Honorable John T. Kelsey

State Representative

The Capitol

Lansing, Michigan

You have inquired whether a community college district may enter into certain repurchase agreements with a bank. The materials attached to your opinion request state that:

'. . . Generally, repurchase agreements are contracts with a bank wherein the investor (i.e., college) would 'loan' money to a bank in exchange for an agreement to repay the 'loan' with specified interest at a set time or at will. By contract, the bank secures this loan by pledging specific securities from its portfolio equal in market value to the amount of the contract. Generally, these are United States Treasury or other federal or state obligations, including federal mortgages. Title to these securities are not taken in the name of the investor, i.e., the College, but remain as a part of the bank's own portfolio.

'This type of contract (investment) is not insured by the FDIC, and there is no reserve requirement imposed on the bank for making such contracts. The bank agrees to keep enough securities in each investor's account to repurchase the contract bank from the investor. . . .

'. . . There is some question further whether or not the amount of securities to be kept on hand would include the interest agreed to as well as the initial contract amount.'

As to the aforesaid agreements, the ownership of qualified 'pledged' securities would not be transferred to the community college district.

In 1966 PA 331; MCLA 389.1 et seq; MSA 15.615(101) et seq, Sec. 142, the Legislature has authorized community college districts to make certain types of investments.

'(1) The treasurer of a community college district, if authorized by resolution of the board of trustees, may invest debt retirement funds, building and site funds, building and site sinking funds, or general funds of the district as provided in subsection (3). The investment shall be restricted to the following:

'(a) Bonds, bills, or notes of the United States, or obligations, the principal and interest of which are fully guaranteed by the United States, or obligations of this state.

'(b) Certificates of deposit savings accounts, or open time deposits issued by a state or national bank, savings accounts of a state or federal savings and loan association, or certificates of deposit or share certificates of a state or federal credit union having its principal office in this state. Security in the form of collateral, surety bond, or another form shall not be taken for an investment made pursuant to this subsection.

'(c) Commercial paper of corporations located in this state rated prime or its equivalent at the time of purchase and maturing not more than 270 days after the date of purchase. Not more than 50% of any fund may be invested in commercial paper at any time. . . .'

1966 PA 331, Sec. 142, supra, does not authorize a community college to enter into the agreements described. The agreements in question would constitute impermissible investments by the community college district.

It is, therefore, my opinion that a community college district may not enter into the described agreements with a bank.

Frank J. Kelley

Attorney General

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