B-15543, APRIL 9, 1941, 20 COMP. GEN. 610

B-15543: Apr 9, 1941

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- IS NOT DEFEATED BY THE DIVERSION OF SUCH INCOME BY STATE AUTHORITIES TO EITHER A SINKING FUND OR AN INSURANCE FUND ESTABLISHED BY STATE STATUTES FOR THE PROTECTION OF STATE FUNDS IN VARIOUS DEPOSITORIES. IS AS FOLLOWS: YOUR OPINION IS REQUESTED WITH RESPECT TO A MATTER WHICH HAS BEEN REPORTED TO ME BY THE CHIEF OF THE CHILDREN'S BUREAU OF THIS DEPARTMENT. WERE PLACED ON DEPOSIT IN DEPOSITORIES IN THAT STATE IN ACCORDANCE WITH THE PROVISIONS OF STATE STATUTES KNOWN AS THE STATE DEPOSITORY ACTS OF 1935 AND 1937 ( IND. PROVISION WAS MADE FOR THE CREATION OF A " STATE SINKING FUND FOR PUBLIC DEPOSITS.'. I AM INFORMED THAT THE STATE OFFICIALS HAVE REFUSED TO PAY TO THE FEDERAL GOVERNMENT THE AMOUNT OF SUCH INTEREST AND ASSESSMENTS FOR THE PERIOD JULY 1.

B-15543, APRIL 9, 1941, 20 COMP. GEN. 610

STATES - FEDERAL AID - INTEREST ON GRANTS THE FEDERAL GOVERNMENT'S RIGHT TO INCOME ON FUNDS GRANTED TO THE STATE OF INDIANA UNDER PARTS 1, 2, AND 3, OF TITLE V OF THE SOCIAL SECURITY ACT, PAID BY DEPOSITORIES TO THE STATE--- WHETHER BY WAY OF "INTEREST" OR "ASSESSMENT"--- IS NOT DEFEATED BY THE DIVERSION OF SUCH INCOME BY STATE AUTHORITIES TO EITHER A SINKING FUND OR AN INSURANCE FUND ESTABLISHED BY STATE STATUTES FOR THE PROTECTION OF STATE FUNDS IN VARIOUS DEPOSITORIES.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF LABOR, APRIL 9, 1941:

YOUR LETTER OF MARCH 12, 1941, IS AS FOLLOWS:

YOUR OPINION IS REQUESTED WITH RESPECT TO A MATTER WHICH HAS BEEN REPORTED TO ME BY THE CHIEF OF THE CHILDREN'S BUREAU OF THIS DEPARTMENT.

FUNDS GRANTED TO THE STATE OF INDIANA PURSUANT TO PARTS 1, 2, AND 3 OF TITLE V OF THE SOCIAL SECURITY ACT (49 STAT. 620, 42 U.S.C. 301, ET SEQ.) FOR THE PERIOD BEGINNING JULY 1, 1935, AND ENDING JUNE 30, 1939, WERE PLACED ON DEPOSIT IN DEPOSITORIES IN THAT STATE IN ACCORDANCE WITH THE PROVISIONS OF STATE STATUTES KNOWN AS THE STATE DEPOSITORY ACTS OF 1935 AND 1937 ( IND. ACTS 1935, C. 70, AND IND. ACTS 1937, C. 3).

UNDER THE FIRST ACT, WHICH BECAME EFFECTIVE JULY 1, 1935, PROVISION WAS MADE FOR THE CREATION OF A " STATE SINKING FUND FOR PUBLIC DEPOSITS.' THIS ACT REGULATED THE RATE OF INTEREST WHICH COULD BE CHARGED ON PUBLIC FUNDS PLACED ON DEPOSIT IN DEPOSITORIES IN THE STATE OF INDIANA AND REQUIRED THE DIVERSION INTO THE SINKING FUND OF ALL SUCH INTEREST UNTIL THE SINKING FUND SHOULD AMOUNT TO A REQUIRED MINIMUM FIXED IN THE ACT. PROVIDED ALSO THAT WHEN THAT MINIMUM SUM HAD BEEN ACCUMULATED FURTHER INTEREST EARNINGS SHOULD BE ADDED BY THE DEPOSITORIES TO THE PUBLIC FUNDS PLACED ON DEPOSIT.

THE DEPOSITORY ACT OF 1937, WHICH BECAME EFFECTIVE FEBRUARY 10, 1937, REPEALED THE DEPOSITORY ACT OF 1935, CREATED A NEW FUND KNOWN AS THE "PUBLIC DEPOSITS INSURANCE FUND," AND TRANSFERRED THE SINKING FUND, AUTHORIZED BY THE EARLIER STATUTE, TO THE INSURANCE FUND. THIS ACT PROVIDES FOR THE MAINTENANCE OF THE INSURANCE FUND BY "ASSESSMENTS" CONTRIBUTED BY DEPOSITORIES RECEIVING PUBLIC FUNDS FOR DEPOSITS. PROVIDES ALSO THAT WHEN THE INSURANCE FUND AMOUNTS TO THE REQUIRED MINIMUM FIXED IN THE ACT, PROFITS FROM THE INVESTMENT OF THE FUND SHALL BE DISTRIBUTED AMONG THE DEPOSITORIES ACCORDING TO THE PROPORTION OF THE ASSESSMENTS PAID BY EACH DEPOSITORY. THIS ACT SPECIFICALLY PROHIBITS THE PAYMENT OR RECEIPT OF INTEREST ON DEPOSITS OF PUBLIC FUNDS.

IN ACCORDANCE WITH THE OPINIONS OF YOUR OFFICE (1 COMP. GEN. 652, 3 COMP. GEN. 956, 14 COMP. GEN. 869, AND THE UNPUBLISHED DECISION OF MARCH 10, 1939, A-96738) AND THE POLICY OF THIS DEPARTMENT PREDICATED THEREON, THE CHIEF OF THE CHILDREN'S BUREAU DEMANDED THAT THE STATE OFFICIALS ACCOUNT TO THE FEDERAL GOVERNMENT FOR INTEREST EARNED, AND FOR ASSESSMENTS CHARGED AGAINST DEPOSITORIES, WITH RESPECT TO FUNDS GRANTED TO THE STATE OF INDIANA PURSUANT TO THE PROVISIONS OF PARTS 1, 2, AND 3 OF TITLE V OF THE SOCIAL SECURITY ACT. I AM INFORMED THAT THE STATE OFFICIALS HAVE REFUSED TO PAY TO THE FEDERAL GOVERNMENT THE AMOUNT OF SUCH INTEREST AND ASSESSMENTS FOR THE PERIOD JULY 1, 1935, THROUGH JUNE 30, 1939, CLAIMING THAT SUCH EARNINGS AND ASSESSMENTS ARE NOT TO BE REGARDED AS INTEREST ON THE GROUND THAT THEY BENEFITED ONLY THE STATE INSURANCE SYSTEM FOR THE PROTECTION OF PUBLIC FUNDS.

THE MATTER HAS BEEN REFERRED TO THE SOLICITOR OF THIS DEPARTMENT WHO HAS ADVISED THAT IN HIS OPINION INTEREST EARNED UNDER THE DEPOSITORY ACT OF 1935 ON FUNDS GRANTED TO THE STATE UNDER PARTS 1, 2, AND 3 OF TITLE V OF THE SOCIAL SECURITY ACT SHOULD BE ACCOUNTED FOR BY THE STATE DEPOSITORY ACT OF 1937, THE SOLICITOR OF LABOR ADVISES THAT IN HIS OPINION THERE IS SUCH DOUBT THAT THE MATTER SHOULD BE SUBMITTED TO YOUR OFFICE FOR DECISION.

ACCORDINGLY, IT IS RESPECTFULLY REQUESTED THAT YOU ADVISE ME: (1) WHETHER INTEREST EARNED UNDER THE INDIANA DEPOSITORY ACT OF 1935 ON FUNDS GRANTED TO THE STATE OF INDIANA UNDER PARTS 1, 2, AND 3 OF TITLE V OF THE SOCIAL SECURITY ACT SHOULD BE PAID TO THE UNITED STATES IN ACCORDANCE WITH THE DECISIONS OF YOUR OFFICE RELATING TO INTEREST EARNED ON GRANTS-IN-AID TO THE STATES; AND (2) WHETHER ASSESSMENTS AND PROFITS UNDER THE INDIANA DEPOSITORY ACT OF 1937, WITH RESPECT TO FUNDS GRANTED TO THE STATE PURSUANT TO THOSE PROVISIONS OF THE SOCIAL SECURITY ACT, SHOULD BE PAID TO THE UNITED STATES IN ACCORDANCE WITH THE DECISIONS OF YOUR OFFICE.

THE INDIANA STATE DEPOSITORY ACT OF 1935 ( INDIANA ACTS, 1935, C. 70), REFERRED TO IN YOUR LETTER, PROVIDES IN PART:

SEC. 22. SINKING FUND FOR PUBLIC DEPOSITS. THERE IS HEREBY CREATED A SEPARATE STATE FUND TO BE KNOWN AS THE " STATE SINKING FUND FOR PUBLIC DEPOSITS," THE PURPOSE OF WHICH SHALL BE TO SECURE THE PAYMENT OF ALL PUBLIC FUNDS DEPOSITED IN ANY DEPOSITORY IN THE MANNER REQUIRED BY THIS ACT. THE SINKING FUND SHALL BE COLLECTED AND MAINTAINED BY THE DIVERSION OF INTEREST PAYMENTS ON PUBLIC FUNDS AS PROVIDED HEREIN, AND BY THE COLLECTION AND PAYMENT INTO IT OF ALL CLAIMS CREATED UNDER SECTION 30 HEREOF AND OF ALL INTEREST AND OTHER EARNINGS OF THE SINKING FUND FROM WHATEVER SOURCE. ALL COLLECTIONS AND ALL PAYMENTS MADE FOR THE BENEFIT OF THE SINKING FUND SHALL BE PAID INTO THE STATE TREASURY.

SECTION 24 OF THE SAID ACT PROVIDES THAT THE "BOARD FOR DEPOSITORIES" MAY FIX THE RATE OF INTEREST TO BE PAID ON PUBLIC FUNDS BY DEPOSITORIES WITHIN LIMITS OF ONE-HALF OF 1 PERCENT AND 2 PERCENT PER ANNUM OR, IF NOT FIXED BY THE BOARD, THE RATE SHALL BE THE SAID MINIMUM RATE, AND REQUIRES EVERY DEPOSITORY OF PUBLIC FUNDS TO PAY INTEREST "ON THE MINIMUM BALANCE OF PUBLIC FUNDS ON DEPOSIT FOR EACH ONE-MONTH PERIOD DURING ANY 6 MONTHS' PERIOD AT ANY RATE FIXED BY THE BOARD IN ACCORDANCE WITH THE TERMS OF THIS ACT (MAXIMUM 2 PERCENT; MINIMUM ONE-HALF PERCENT) OR, IF NO RATE HAS BEEN FIXED, AT THE RATE PRESCRIBED HEREIN (ONE-HALF PERCENT).'

SECTION 26 OF THE ACT PROVIDES FOR THE DIVERSION OF ALL INTEREST ON PUBLIC FUNDS INTO THE SAID SINKING FUND UNTIL THE LATTER SHALL AMOUNT TO $3,000,000, WHEREUPON FURTHER INTEREST SHALL BE ADDED TO PUBLIC FUNDS ON DEPOSIT; AND WHENEVER THE SINKING FUND SHALL FALL BELOW $2,500,000, INTEREST AGAIN SHALL BE DIVERTED TO IT UNTIL THE FUND AGAIN REACHES $3,000,000.

WITH RESPECT TO THE PERIOD OF TIME FROM JULY 1, 1935, TO FEBRUARY 10, 1937, WHEN THE SAID INDIANA STATE DEPOSITORY ACT OF 1935 WAS IN FORCE, IT SEEMS CLEAR THAT, IN ACCORDANCE WITH THE UNIFORM DECISIONS OF THE ACCOUNTING OFFICERS OF THE UNITED STATES, SOME OF WHICH ARE CITED IN YOUR LETTER, AND IN PARTICULAR OFFICE DECISION OF MARCH 10, 1939, TO YOU, RELATING TO THE PARTICULAR FUNDS HERE INVOLVED, ALL INTEREST ACCRUING ON FUNDS GRANTED BY THE UNITED STATES TO THE STATE OF INDIANA UNDER PARTS 1, 2, AND 3 OF TITLE V OF THE SOCIAL SECURITY ACT IS INTEREST ACCRUING TO THE UNITED STATES, THE FACT THAT IT WAS DIVERTED BY THE STATE AUTHORITIES TO A SINKING FUND FOR THE PROTECTION OF PUBLIC FUNDS BEING IMMATERIAL, INSOFAR AS THE RIGHTS OF THE FEDERAL GOVERNMENT ARE CONCERNED. ACCORDINGLY, YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE.

THE INDIANA STATE DEPOSITORY LAW OF 1937 ( INDIANA ACTS, 1937, C. 3), REPEALED THE SAID DEPOSITORY LAW OF 1935 AND PROVIDES (SEC. 16 (C) ):

NO BANK OR TRUST COMPANY SHALL, DIRECTLY OR INDIRECTLY, BY ANY DEVICE WHATSOEVER, PAY ANY INTEREST TO ANY PUBLIC OFFICER ON ANY DEPOSIT OF PUBLIC FUNDS AND NO PUBLIC OFFICER SHALL TAKE OR RECEIVE ANY INTEREST WHATSOEVER ON PUBLIC FUNDS.

SECTION 20 OF THE ACT IS AS FOLLOWS:

PUBLIC DEPOSITS INSURANCE FUND. THERE IS HEREBY CREATED A SEPARATE STATE FUND TO BE KNOWN AS THE "PUBLIC DEPOSITS INSURANCE FUND" THE PURPOSE OF WHICH SHALL BE TO INSURE THE SAFEKEEPING AND PROMPT PAYMENT OF ALL PUBLIC FUNDS DEPOSITED IN ANY DEPOSITORY IN THE MANNER REQUIRED BY THIS ACT. EVERY DEPOSITORY SHALL PAY THE INSURANCE FUND THE ASSESSMENTS PROVIDED FOR HEREIN AND CONFORM TO ALL LAWFUL REQUIREMENTS OF THE BOARD FOR DEPOSITORIES AND THE DEPARTMENT OF TREASURY. THE INSURANCE FUND SHALL BE MAINTAINED BY THE ASSESSMENTS PAYABLE BY THE DEPOSITORIES AND BY THE COLLECTION AND PAYMENT INTO IT OF ALL CLAIMS CREATED UNDER SECTION 28 HEREOF AND OF ALL INTEREST AND OTHER EARNINGS OF THE INSURANCE FUND FROM WHATSOEVER SOURCE. ALL COLLECTIONS AND ALL PAYMENTS FOR THE BENEFIT OF THE INSURANCE FUND SHALL BE PAID INTO THE STATE TREASURY. THE MINIMUM RESERVE FOR LOSSES OF THE INSURANCE FUND SHALL BE THREE MILLION DOLLARS AND THE MAXIMUM RESERVE FOR LOSSES SHALL NOT EXCEED TEN PERCENT OF THE AVERAGE MONTHLY DEPOSITS OF PUBLIC FUNDS ON DEPOSIT IN DEPOSITORIES DURING ANY ONE MONTH OF THE CALENDAR YEAR PRECEDING A FIXING OF SUCH MAXIMUM RESERVE.

SECTIONS 23 AND 24 OF THE 1937 ACT PROVIDE THAT THE "BOARD FOR DEPOSITORIES" MAY FIX THE ASSESSMENT RATE TO BE PAID ON PUBLIC FUNDS BY DEPOSITORIES WITHIN LIMITS OF ONE-HALF OF 1 PERCENT AND 2 PERCENT PER ANNUM OR, IF NOT FIXED BY THE BOARD, THE RATE SHALL BE THE SAID MINIMUM RATE, AND REQUIRE EVERY DEPOSITORY OF PUBLIC FUNDS TO PAY MONTHLY ASSESSMENTS BASED ON "THE SUM TOTAL OF ALL THE MINIMUM BALANCES OF PUBLIC FUNDS ON DEPOSIT IN EACH AND ALL ACCOUNTS DURING THE MONTH * * *.' IT IS TO BE NOTED THAT THE PROVISIONS OF SECTIONS 23 AND 24 OF THE 1937 ACT, INCLUDING THE RATE OF PAYMENT, ARE VERY SIMILAR TO THE PROVISIONS OF SECTION 24 OF THE 1935 ACT, THE CHIEF DIFFERENCE BEING THAT THE PAYMENTS BY DEPOSITORIES ARE DESIGNATED IN THE 1937 ACT AS ASSESSMENTS INSTEAD OF AS INTEREST.

IN SECTION 25 (C) OF THE 1937 ACT, IT IS PROVIDED IN PART:

* * * THE PROFITS OF THE (INSURANCE) FUND FOR EACH BIENNIAL PERIOD REMAINING AFTER PROVISION HAS BEEN MADE FOR THE RESERVE FOR LOSSES, AS REQUIRED OR AUTHORIZED HEREIN, SHALL BE DISTRIBUTED TO THE DEPOSITORIES WHICH HAD PUBLIC FUNDS ON DEPOSIT DURING THE BIENNIAL PERIOD IN WHICH SUCH PROFITS WERE EARNED.

UNDER BOTH OF THE SAID INDIANA STATUTES OF 1935 AND 1937, PAYMENTS BY DEPOSITORIES ARE BASED ON THE AMOUNT OF PUBLIC FUNDS--- INCLUDING FUNDS RECEIVED FROM THE UNITED STATES--- ON DEPOSIT THEREIN, SUCH PAYMENTS UNDER THE 1935 STATUTE BEING DESIGNATED AS INTEREST AND THOSE UNDER THE 1937 STATUTE BEING DESIGNATED AS ASSESSMENTS. THE CHIEF DIFFERENCE BETWEEN THE TWO STATUTES APPEARS TO BE THAT UNDER THE 1935 STATUTE ALL SUCH PAYMENTS INTO THE SINKING FUND OR AS ADDITIONS TO PUBLIC FUNDS ON DEPOSIT, WHEREAS UNDER THE 1937 ACT ONLY THE NET PAYMENTS MADE TO THE INSURANCE FUND ARE APPLIED FOR THE DIRECT BENEFIT OF THE STATE, THE EXCESS PAYMENTS, IF ANY, BEING, IN EFFECT, RETURNED TO THE DEPOSITORIES AS "PROFITS.'

THERE IS NOT APPARENT TO THIS OFFICE ANY VALID REASON FOR DISTINGUISHING BETWEEN THE PAYMENTS MADE BY DEPOSITORIES AS INTEREST UNDER THE 1935 STATUTE AND THOSE MADE AS ASSESSMENTS UNDER THE 1937 STATUTE, INASMUCH THEY REPRESENT INCOME OR BENEFITS TO THE STATE RESULTING FROM DELAY IN USING FUNDS RECEIVED FROM THE UNITED STATES FOR THE SPECIFIC PURPOSES FOR WHICH SUCH FUNDS ARE GRANTED. THE EXISTENCE OF SUCH BENEFITS IS THE BASIS OF ALL PRIOR DECISIONS OF THIS OFFICE HOLDING STATES LIABLE FOR INTEREST ON FUNDS GRANTED BY THE UNITED STATES, AND SUCH DECISIONS ARE EQUALLY APPLICABLE TO THE INSTANT MATTER, IN WHICH THE INCOME FROM SUCH FUNDS IS BEING DEVOTED TO PURELY STATE PURPOSES.

THEREFORE, IN SPECIFIC ANSWER TO YOUR SECOND QUESTION, YOU ARE ADVISED THAT THERE SHOULD BE PAID TO THE UNITED STATES, OR DEDUCTED FROM SUBSEQUENT GRANTS TO THE STATE, THE NET AMOUNT OF ASSESSMENTS PAID BY DEPOSITORIES UNDER THE INDIANA STATE DEPOSITORY ACT OF 1937 BASED ON FUNDS GRANTED BY THE UNITED STATES. IN DETERMINING SUCH NET AMOUNT, THERE SHOULD BE DEDUCTED FROM THE TOTAL OF SUCH ASSESSMENTS SUCH PROPORTION OF THE "PROFITS" DISTRIBUTED TO THE DEPOSITORIES AS MAY BE ALLOCABLE TO FUNDS GRANTED BY THE UNITED STATES.