B-171915, MAR 10, 1971, 50 COMP GEN 613

B-171915, MAR 10, 1971, 50 COMP GEN 613

CLAIMS - ASSIGNMENTS - "FINANCING INSTITUTIONS" REQUIREMENT - PENSION FUNDS THE ASSIGNMENT OF MONEYS TO BECOME DUE FROM THE UNITED STATES UNDER A LEASE AGREEMENT MAY BE MADE TO THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE STATE TEACHERS' RETIREMENT SYSTEM OF THE STATE OF CALIFORNIA USING TRUST FUNDS TO FURNISH PERMANENT FINANCING FOR A BUILDING BEING CONSTRUCTED FOR THE GOVERNMENT. THE SYSTEMS QUALIFY AS "FINANCING INSTITUTIONS" WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, AS NOTHING IN THE ACT INDICATES THE EXCLUSION OF PENSION FUNDS, AND THE PRIMARY FUNCTION OF THE TRUST CORPUS, TOGETHER WITH THE TRUSTEES, IS THE INVESTING OF THE ASSETS OF THE TRUST. HOWEVER, THE ACT LIMITS ASSIGNMENT TO ONE PARTY, "EXCEPT THAT ANY SUCH ASSIGNMENT MAY BE MADE TO ONE PARTY AS AGENT OR TRUSTEE FOR TWO OR MORE PARTIES PARTICIPATING IN SUCH FINANCING."

TO LILLICK, MCHOSE, WHEAT, ADAMS & CHARLES, MARCH 10, 1971:

WE REFER TO YOUR LETTER DATED FEBRUARY 5, 1971, WITH ENCLOSURES, ON BEHALF OF RUSSELL & ASSOCIATES-FRESNO, LTD. (RUSSELL), REQUESTING OUR OPINION AS TO WHETHER THE STATE OF CALIFORNIA, PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE STATE OF CALIFORNIA, STATE TEACHERS' RETIREMENT SYSTEM ARE "FINANCING INSTITUTIONS" WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203.

YOU STATE THAT RUSSELL ENTERED INTO A LEASE AGREEMENT ON MAY 28, 1970, WITH THE GENERAL SERVICES ADMINISTRATION, PUBLIC BUILDINGS SERVICE, UNDER WHICH RUSSELL IS CONSTRUCTING AND WILL LEASE TO THE UNITED STATES GOVERNMENT AN INTERNAL REVENUE SERVICE CENTER (CENTER), IN FRESNO, CALIFORNIA. YOU STATE FURTHER THAT THIS CENTER HAS BEEN UNDER CONSTRUCTION FOR SEVERAL MONTHS AND RUSSELL IS NOW IN THE PROCESS OF COMPLETING ITS FINANCING ARRANGEMENTS. IN THIS REGARD, IT IS STATED THAT RUSSELL HAS ENTERED INTO AN AGREEMENT WITH THE STATE OF CALIFORNIA, PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE STATE OF CALIFORNIA, STATE TEACHERS' RETIREMENT SYSTEM (SYSTEMS) WHEREBY THE SYSTEMS WILL FURNISH THE PERMANENT FINANCING FOR THE PROJECT UPON ITS COMPLETION AND ACCEPTANCE BY THE GOVERNMENT. UNDER THIS AGREEMENT, YOU STATE THE SYSTEMS WILL PURCHASE RUSSELL'S PROMISSORY NOTE SECURED BY A FIRST TRUST DEED ON THE FACILITY FROM THE FIRST NATIONAL BANK OF MINNEAPOLIS (BANK), WHICH WILL FURNISH THE INTERIM, OR CONSTRUCTION, FINANCING.

BOTH THE BANK AND THE SYSTEMS REQUIRE ASSIGNMENTS OF MONEYS TO BECOME DUE TO RUSSELL FROM THE GOVERNMENT UNDER THE LEASE AS A CONDITION OF THEIR RESPECTIVE FINANCINGS. AS A CONDITION OF THE INTERIM LOAN, THE BANK REQUIRES A BINDING AGREEMENT BY THE SYSTEMS TO PURCHASE THE INTERIM LOAN LOAN FROM THE BANK WHEN THE GOVERNMENT HAS TAKEN POSSESSION AND ACCEPTED THE FACILITY. BEFORE ISSUING SUCH A COMMITMENT, THE SYSTEMS REQUIRE CONFIRMATION THAT THEY IN FACT QUALIFY AS "FINANCING INSTITUTIONS" WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT OF 1940.

YOU DESCRIBE THE FUNCTION OF THE SYSTEMS AS FOLLOWS:

THE STATE OF CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM IS INSTITUTED UNDER THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT LAW. (CALIF. GOVERNMENT CODE, SECTIONS 20000 ET SEQ.) ITS FUNCTION IS TO COLLECT CONTRIBUTIONS FROM PUBLIC EMPLOYEES OF THE STATE AND AGENCIES WITHIN THE STATE, ADMINISTER AND INVEST THE MONEYS SO COLLECTED, AND PAY RETIREMENT BENEFITS. IN DISCHARGING SAID FUNCTION IT INVESTS IN, AMONG OTHER THINGS, OBLIGATIONS SECURED BY MORTGAGES ON REAL PROPERTY. (37 OPINIONS OF THE CALIFORNIA ATTORNEY GENERAL 92). A COPY OF THE MOST RECENTLY AVAILABLE ANNUAL REPORT OF THE RETIREMENT SYSTEM IS FORWARDED HEREWITH.

THE STATE OF CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM IS INSTITUTED UNDER THE STATE TEACHERS' RETIREMENT LAW. (CALIF. EDUCATION CODE, SECTIONS 13801 ET SEQ.) ITS FUNCTION IS TO COLLECT CONTRIBUTIONS FROM TEACHERS OF PUBLIC SCHOOLS IN THE STATE, ADMINISTER AND INVEST THE MONEYS SO COLLECTED, AND PAY RETIREMENT BENEFITS. IN DISCHARGING SAID FUNCTION IT INVESTS IN, AMONG OTHER THINGS, OBLIGATIONS SECURED BY MORTGAGES ON REAL PROPERTY. A COPY OF THE MOST RECENT AVAILABLE ANNUAL REPORT OF THIS SYSTEM IS FORWARDED HEREWITH.

THE ASSIGNMENT OF CLAIMS ACT PROVIDES THAT MONEYS DUE OR TO BECOME DUE FROM THE UNITED STATES UNDER A CONTRACT PROVIDING FOR PAYMENTS OF $1,000 OR MORE MAY BE ASSIGNED TO A "BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION" IF CERTAIN CONDITIONS NOT AT ISSUE HERE ARE MET.

WE STATED AT 40 COMP. GEN. 174, 175 (1960) AS FOLLOWS:

THE ASSETS OF PENSION TRUSTS, AS WITH INSURANCE COMPANIES, ARE INCREASINGLY BEING INVESTED IN LONG TERM SECURED LOANS. NOTHING APPEARS IN THE LEGISLATIVE HISTORY OF THE ACT INDICATING ANY CONGRESSIONAL INTENT THAT PENSION TRUST FUNDS SHOULD BE EXCLUDED; NOR DOES ANY REASON APPEAR, EITHER FROM THE PURPOSE OF THE ACT OR THE INTERESTS OF ANY OF THE PARTIES TO THE TRANSACTION, FOR EXCLUDING THEM. IN THIS INSTANCE, ARTICLE V OF THE TRUST AGREEMENT SETS OUT AS A PRIMARY DUTY OF THE TRUSTEES THE INVESTMENT AND REINVESTMENT OF PENSION PRINCIPAL AND INCOME IN LOANS, SECURITIES AND PROPERTY. WE HELD IN 36 COMP. GEN. 290 THAT PENSION TRUST FUNDS MAY BE USED FOR LOANS SECURED BY AN ASSIGNMENT PURSUANT TO 31 U.S.C. 203. WE CONCLUDE, THEREFORE, THAT THE ASSIGNMENT MAY NOT BE REGARDED AS INVALID BY REASON OF THE SOURCE OF FUNDS FOR THE LOAN IN CONSIDERATION FOR WHICH THE ASSIGNMENT IS MADE PROVIDING THE ASSIGNEE QUALIFIES AS A "FINANCING INSTITUTION" UNDER THE ACT.

A FINANCING INSTITUTION IS ONE WHICH DEALS IN MONEY AS DISTINGUISHED FROM OTHER COMMODITIES AS THE PRIMARY FUNCTION OF ITS BUSINESS ACTIVITY. COMP. GEN. 44. SUCH INSTITUTION MAY BE AN INDIVIDUAL OR A PARTNERSHIP AS WELL AS A CORPORATE ORGANIZATION. 20 COMP. GEN. 415.

WE STATED FURTHER THAT THE TRUST CORPUS, TOGETHER WITH THE TRUSTEES, WHETHER INDIVIDUAL, CORPORATE OR OTHERWISE, HAVING AS A PRIMARY FUNCTION THE INVESTING OF ASSETS OF THE TRUST, MAY BE REGARDED AS A FINANCING INSTITUTION WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT. WE FIND NO REASON TO DISTINGUISH BETWEEN A PRIVATE CORPORATE PENSION TRUST INVOLVED IN OUR DECISION QUOTED ABOVE AND THOSE FOR EMPLOYEES OF THE STATE OF CALIFORNIA AS PRESENTED IN THE INSTANT CASE.

ACCORDINGLY, WE FIND NO BASIS IN THE FACTS PRESENTED TO CONCLUDE THAT THE SYSTEMS WOULD NOT BE A PROPER ASSIGNEE UNDER 31 U.S.C. 203. HOWEVER, PLEASE NOTE THAT UNDER THE LANGUAGE OF THE STATUTE THE ASSIGNMENT SHALL NOT BE MADE TO MORE THAN ONE PARTY "EXCEPT THAT ANY SUCH ASSIGNMENT MAY BE MADE TO ONE PARTY AS AGENT OR TRUSTEE FOR TWO OR MORE PARTIES PARTICIPATING IN SUCH FINANCING."