2007 Minnesota Statutes

CHAPTER 118A. DEPOSIT AND INVESTMENT OF LOCAL PUBLIC FUNDS

118A.01 DEFINITIONS.
    Subdivision 1. Application. The definitions in this section apply to sections 118A.01 to
118A.06.
    Subd. 2. Government entity. (a) "Government entity" means a county, city, town, school
district, hospital district, public authority, public corporation, public commission, special district,
any other political subdivision, except an entity whose investment authority is specified under
chapter 11A or 356A.
(b) For the purposes of sections 118A.02 and 118A.03 only, the term includes an American
Indian tribal government entity located within a federally recognized American Indian reservation.
    Subd. 3. Financial institution. "Financial institution" means a savings association,
commercial bank, trust company, credit union, or industrial loan and thrift company.
    Subd. 4. Public funds. "Public funds" means all general, special, permanent, trust, and other
funds, regardless of source or purpose, held or administered by a government entity, unless
otherwise restricted.
History: 1996 c 399 art 1 s 2; 1999 c 151 s 39

118A.02 DEPOSITORIES; INVESTING: SALES, PROCEEDS, IMMUNITY.
    Subdivision 1. Designation; delegation. (a) The governing body of each government entity
shall designate, as a depository of its funds, one or more financial institutions.
(b) The governing body may authorize the treasurer or chief financial officer to:
(1) designate depositories of the funds;
(2) make investments of funds under sections 118A.01 to 118A.06 or other applicable law; or
(3) both designate depositories and make investments as provided in this subdivision.
    Subd. 2. Sale; proceeds; immunity, if loss. (a) The treasurer or chief financial officer of a
government entity may at any time sell obligations purchased pursuant to this section and the
money received from such sale, and the interest and profits or loss on such investment shall be
credited or charged, as the case may be, to the fund from which the investment was made.
(b) Neither such official nor government entity, nor any other official responsible for the
custody of such funds, shall be personally liable for any loss sustained from the deposit or
investment of funds in accordance with the provisions of sections 118A.04 and 118A.05.
History: 1996 c 399 art 1 s 3

118A.03 WHEN AND WHAT COLLATERAL REQUIRED.
    Subdivision 1. For deposits beyond insurance. To the extent that funds on deposit at the
close of the financial institution's banking day exceed available federal deposit insurance, the
government entity shall require the financial institution to furnish collateral security or a corporate
surety bond executed by a company authorized to do business in the state. For the purposes of
this section, "banking day" has the meaning given in Federal Reserve Board Regulation CC,
Code of Federal Regulations, title 12, section 229.2(f), and incorporates a financial institution's
cutoff hour established under section 336.4-108.
    Subd. 2. In lieu of surety bond. The following are the allowable forms of collateral in lieu
of a corporate surety bond:
(1) United States government Treasury bills, Treasury notes, Treasury bonds;
(2) issues of United States government agencies and instrumentalities as quoted by a
recognized industry quotation service available to the government entity;
(3) general obligation securities of any state or local government with taxing powers which
is rated "A" or better by a national bond rating service, or revenue obligation securities of any
state or local government with taxing powers which is rated "AA" or better by a national bond
rating service;
(4) general obligation securities of a local government with taxing powers may be pledged as
collateral against funds deposited by that same local government entity;
(5) irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality
accompanied by written evidence that the bank's public debt is rated "AA" or better by Moody's
Investors Service, Inc., or Standard & Poor's Corporation; and
(6) time deposits that are fully insured by any federal agency.
    Subd. 3. Amount. The total amount of the collateral computed at its market value shall be at
least ten percent more than the amount on deposit plus accrued interest at the close of the financial
institution's banking day, except that where the collateral is irrevocable standby letters of credit
issued by Federal Home Loan Banks, the amount of collateral shall be at least equal to the amount
on deposit plus accrued interest at the close of the financial institution's banking day. The financial
institution may furnish both a surety bond and collateral aggregating the required amount.
    Subd. 4. Assignment. Any collateral pledged shall be accompanied by a written assignment
to the government entity from the financial institution. The written assignment shall recite that,
upon default, the financial institution shall release to the government entity on demand, free of
exchange or any other charges, the collateral pledged. Interest earned on assigned collateral will
be remitted to the financial institution so long as it is not in default. The government entity may
sell the collateral to recover the amount due. Any surplus from the sale of the collateral shall be
payable to the financial institution, its assigns, or both.
    Subd. 5. Withdrawal of excess collateral. A financial institution may withdraw excess
collateral or substitute other collateral after giving written notice to the governmental entity
and receiving confirmation. The authority to return any delivered and assigned collateral rests
with the government entity.
    Subd. 6. Default. For purposes of this section, default on the part of the financial institution
includes, but is not limited to, failure to make interest payments when due, failure to promptly
deliver upon demand all money on deposit, less any early withdrawal penalty that may be required
in connection with the withdrawal of a time deposit, or closure of the depository. If a financial
institution closes, all deposits shall be immediately due and payable. It shall not be a default under
this subdivision to require prior notice of withdrawal if such notice is required as a condition of
withdrawal by applicable federal law or regulation.
    Subd. 7. Safekeeping. All collateral shall be placed in safekeeping in a restricted account
at a Federal Reserve bank, or in an account at a trust department of a commercial bank or other
financial institution that is not owned or controlled by the financial institution furnishing the
collateral. The selection shall be approved by the government entity.
History: 1996 c 399 art 1 s 4; 2003 c 51 s 15,16; 2004 c 151 s 1,2; 2004 c 174 s 2; 2007 c
44 s 7; 2007 c 57 art 3 s 39

NOTE: The amendments made to subdivisions 1 and 3 by Laws 2004, chapter 151, sections
1 and 2, are effective retroactively from the beginning of a government entity's fiscal year 2003
and apply to each fiscal year thereafter. Laws 2004, chapter 151, section 3.

118A.04 INVESTMENTS.
    Subdivision 1. What may be invested. Any public funds, not presently needed for other
purposes or restricted for other purposes, may be invested in the manner and subject to the
conditions provided for in this section.
    Subd. 2. United States securities. Public funds may be invested in governmental bonds,
notes, bills, mortgages (excluding high-risk mortgage-backed securities), and other securities,
which are direct obligations or are guaranteed or insured issues of the United States, its agencies,
its instrumentalities, or organizations created by an act of Congress.
    Subd. 3. State and local securities. Funds may be invested in the following:
(1) any security which is a general obligation of any state or local government with taxing
powers which is rated "A" or better by a national bond rating service;
(2) any security which is a revenue obligation of any state or local government with taxing
powers which is rated "AA" or better by a national bond rating service; and
(3) a general obligation of the Minnesota housing finance agency which is a moral obligation
of the state of Minnesota and is rated "A" or better by a national bond rating agency.
    Subd. 4. Commercial papers. Funds may be invested in commercial paper issued by United
States corporations or their Canadian subsidiaries that is rated in the highest quality category by at
least two nationally recognized rating agencies and matures in 270 days or less.
    Subd. 5. Time deposits. Funds may be invested in time deposits that are fully insured by the
Federal Deposit Insurance Corporation or bankers acceptances of United States banks.
    Subd. 6. High-risk mortgage-backed securities. For the purposes of this section and
section 118A.05, "high-risk mortgage-backed securities" are:
(a) interest-only or principal-only mortgage-backed securities; and
(b) any mortgage derivative security that:
(1) has an expected average life greater than ten years;
(2) has an expected average life that:
(i) will extend by more than four years as the result of an immediate and sustained parallel
shift in the yield curve of plus 300 basis points; or
(ii) will shorten by more than six years as the result of an immediate and sustained parallel
shift in the yield curve of minus 300 basis points; or
(3) will have an estimated change in price of more than 17 percent as the result of an
immediate and sustained parallel shift in the yield curve of plus or minus 300 basis points.
    Subd. 7. Temporary general obligation bonds. Funds may be invested in general obligation
temporary bonds of the same governmental entity issued under section 429.091, subdivision 7,
469.178, subdivision 5, or 475.61, subdivision 6.
    Subd. 8. Debt service funds. Funds held in a debt service fund may be used to purchase any
obligation, whether general or special, of an issue which is payable from the fund, at such price,
which may include a premium, as shall be agreed to by the holder, or may be used to redeem
any obligation of such an issue prior to maturity in accordance with its terms. The securities
representing any such investment may be sold by the governmental entity at any time, but the
money so received remains part of the fund until used for the purpose for which the fund was
created. Any obligation held in a debt service fund from which it is payable may be canceled
at any time unless otherwise provided in a resolution or other instrument securing obligations
payable from the fund.
    Subd. 9. Broker; statement and receipt. (a) For the purpose of this section and section
118A.05, the term "broker" means a broker-dealer, broker, or agent of a government entity, who
transfers, purchases, sells, or obtains securities for, or on behalf of, a government entity.
(b) Prior to completing an initial transaction with a broker, a government entity shall
provide annually to the broker a written statement of investment restrictions which shall include
a provision that all future investments are to be made in accordance with Minnesota Statutes
governing the investment of public funds.
(c) A broker must acknowledge annually receipt of the statement of investment restrictions in
writing and agree to handle the government entity's account in accordance with these restrictions.
A government entity may not enter into a transaction with a broker until the broker has provided
this written agreement to the government entity.
(d) The state auditor shall prepare uniform notification forms which shall be used by the
government entities and the brokers to meet the requirements of this subdivision.
History: 1996 c 399 art 1 s 5

118A.05 CONTRACTS AND AGREEMENTS.
    Subdivision 1. May enter into. In addition to other authority granted in sections 118A.01 to
118A.06, government entities may enter into contracts and agreements as follows.
    Subd. 2. Repurchase agreements. Repurchase agreements consisting of collateral allowable
in section 118A.04, and reverse repurchase agreements may be entered into with any of the
following entities:
(1) a financial institution qualified as a "depository" of public funds of the government entity;
(2) any other financial institution which is a member of the Federal Reserve System and
whose combined capital and surplus equals or exceeds $10,000,000;
(3) a primary reporting dealer in United States government securities to the Federal Reserve
Bank of New York; or
(4) a securities broker-dealer licensed pursuant to chapter 80A, or an affiliate of it, regulated
by the Securities and Exchange Commission and maintaining a combined capital and surplus of
$40,000,000 or more, exclusive of subordinated debt.
Reverse agreements may only be entered into for a period of 90 days or less and only to meet
short-term cash flow needs. In no event may reverse repurchase agreements be entered into for the
purpose of generating cash for investments, except as stated in subdivision 3.
    Subd. 3. Securities lending agreements. Securities lending agreements, including custody
agreements, may be entered into with a financial institution meeting the qualifications of
subdivision 2, clause (1) or (2), and having its principal executive office in Minnesota. Securities
lending transactions may be entered into with entities meeting the qualifications of subdivision
2 and the collateral for such transactions shall be restricted to the securities described in this
section and section 118A.04.
    Subd. 4. Minnesota joint powers investment trust. Government entities may enter into
agreements or contracts for:
(1) shares of a Minnesota joint powers investment trust whose investments are restricted to
securities described in this section and section 118A.04;
(2) units of a short-term investment fund established and administered pursuant to regulation
9 of the Office of the Comptroller of the Currency, in which investments are restricted to securities
described in this section and section 118A.04;
(3) shares of an investment company which is registered under the Federal Investment
Company Act of 1940 and which holds itself out as a money market fund meeting the conditions
of rule 2a-7 of the Securities and Exchange Commission and is rated in one of the two highest
rating categories for money market funds by at least one nationally recognized statistical rating
organization; or
(4) shares of an investment company which is registered under the Federal Investment
Company Act of 1940, and whose shares are registered under the Federal Securities Act of
1933, as long as the investment company's fund receives the highest credit rating and is rated
in one of the two highest risk rating categories by at least one nationally recognized statistical
rating organization and is invested in financial instruments with a final maturity no longer than
13 months.
    Subd. 5. Guaranteed investment contracts. Agreements or contracts for guaranteed
investment contracts may be entered into if they are issued or guaranteed by United States
commercial banks, domestic branches of foreign banks, United States insurance companies, or
their Canadian subsidiaries, or the domestic affiliates of any of the foregoing. The credit quality of
the issuer's or guarantor's short- and long-term unsecured debt must be rated in one of the two
highest categories by a nationally recognized rating agency. Should the issuer's or guarantor's
credit quality be downgraded below "A", the government entity must have withdrawal rights.
History: 1996 c 399 art 1 s 6; 1997 c 219 s 1; 2000 c 493 s 1; 2005 c 152 art 1 s 2

118A.06 SAFEKEEPING; ACKNOWLEDGEMENTS.
Investments, contracts, and agreements may be held in safekeeping with:
(1) any Federal Reserve bank;
(2) any bank authorized under the laws of the United States or any state to exercise corporate
trust powers, including, but not limited to, the bank from which the investment is purchased;
(3) a primary reporting dealer in United States government securities to the Federal Reserve
Bank of New York; or
(4) a securities broker-dealer having its principal executive office in Minnesota, licensed
under chapter 80A, or an affiliate of it, and regulated by the Securities and Exchange Commission;
provided that the government entity's ownership of all securities is evidenced by written
acknowledgments identifying the securities by the names of the issuers, maturity dates, interest
rates, CUSIP number, or other distinguishing marks.
History: 1996 c 399 art 1 s 7

118A.07 ADDITIONAL INVESTMENT AUTHORITY.
    Subdivision 1. Authority provided. As used in this section, "governmental entity" means a
city with a population in excess of 200,000 or a county that contains a city of that size. If a
governmental entity meets the requirements of subdivisions 2 and 3, it may exercise additional
investment authority under subdivisions 4, 5, and 6.
    Subd. 2. Written policies and procedures. Prior to exercising any additional authority
under subdivisions 4, 5, and 6, the governmental entity must have written investment policies and
procedures governing the following:
(1) the use of or limitation on mutual bond funds or other securities authorized or permitted
investments under law;
(2) specifications for and limitations on the use of derivatives;
(3) the final maturity of any individual security;
(4) the maximum average weighted life of the portfolio;
(5) the use of and limitations on reverse repurchase agreements;
(6) credit standards for financial institutions with which the government entity deals; and
(7) credit standards for investments made by the government entity.
    Subd. 3. Oversight process. Prior to exercising any authority under subdivisions 4, 5, and
6, the governmental entity must establish an oversight process that provides for review of the
government entity's investment strategy and the composition of the financial portfolio. This
process shall include one or more of the following:
(1) audit reviews;
(2) internal or external investment committee reviews; and
(3) internal management control.
Additionally, the governing body of the governmental entity must, by resolution, authorize its
treasurer to utilize the additional authorities under this section within their prescribed limits, and
in conformance with the written limitations, policies, and procedures of the governmental entity.
If the governing body of a governmental entity exercises the authority provided in this
section, the treasurer of the governmental entity must annually report to the governing body on the
findings of the oversight process required under this subdivision. If the governing body intends
to continue to exercise the authority provided in this section for the following calendar year, it
must adopt a resolution affirming that intention by December 1.
    Subd. 4. Repurchase agreements. A government entity may enter into repurchase
agreements as authorized under section 118A.05, provided that the exclusion of mortgage-backed
securities defined as "high-risk mortgage-backed securities" under section 118A.04, subdivision
6 , shall not apply to repurchase agreements under this authority if the margin requirement is
101 percent or more.
    Subd. 5. Reverse repurchase agreements. Notwithstanding the limitations contained in
section 118A.05, subdivision 2, the county may enter into reverse repurchase agreements to:
(1) meet cash flow needs; or
(2) generate cash for investments, provided that the total securities owned shall be limited to
an amount not to exceed 130 percent of the annual daily average of general investable monies
for the fiscal year as disclosed in the most recently available audited financial report. Excluded
from this limit are:
(i) securities with maturities of one year or less; and
(ii) securities that have been reversed to maturity.
There shall be no limit on the term of a reverse repurchase agreement. Reverse repurchase
agreements shall not be included in computing the net debt of the governmental entity, and may
be made without an election or public sale, and the interest payable thereon shall not be subject to
the limitation in section 475.55. The interest shall not be deducted or excluded from gross income
of the recipient for the purpose of state income, corporate franchise, or bank excise taxes, or if so
provided by federal law, for the purpose of federal income tax.
    Subd. 6. Options and futures. A government entity may enter into futures contracts, options
on futures contracts, and option agreements to buy or sell securities authorized under law as legal
investments for counties, but only with respect to securities owned by the governmental entity,
including securities that are the subject of reverse repurchase agreements under this section that
expire at or before the due date of the option agreement.
History: 1996 c 399 art 1 s 8

118A.08 NO SUPERSEDING EFFECT.
Except as provided in Laws 1996, chapter 399, article 1, section 11, sections 118A.01 to
118A.06 shall not supersede any general or special law relating to the deposit and investment
of public funds.
History: 1996 c 399 art 1 s 9