1.1                          A bill for an act 
  1.2             relating to local government; permitting an 
  1.3             alternative method of protecting deposits of public 
  1.4             funds; changing the required collateral percentage; 
  1.5             amending Minnesota Statutes 2000, sections 118A.01, by 
  1.6             adding a subdivision; 118A.03, subdivisions 1 and 3; 
  1.7             proposing coding for new law in Minnesota Statutes, 
  1.8             chapter 118A; repealing Minnesota Statutes 2000, 
  1.9             section 118A.03, subdivisions 4, 5, 6, and 7. 
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  Minnesota Statutes 2000, section 118A.01, is 
  1.12  amended by adding a subdivision to read: 
  1.13     Subd. 5.  [CUSTODIAL OFFICIAL.] "Custodial official" means 
  1.14  an officer or employee of a government entity who, by law, is 
  1.15  made custodian of, or has control over, public funds. 
  1.16     Sec. 2.  Minnesota Statutes 2000, section 118A.03, 
  1.17  subdivision 1, is amended to read: 
  1.18     Subdivision 1.  To the extent that funds deposited are in 
  1.19  excess of available federal deposit insurance, the government 
  1.20  entity shall require the financial institution to furnish 
  1.21  collateral security or a corporate surety bond executed by a 
  1.22  company authorized to do business in the state.  Collateral 
  1.23  security must comply with subdivisions 2 and 3 and section 
  1.24  118A.031. 
  1.25     Sec. 3.  Minnesota Statutes 2000, section 118A.03, 
  1.26  subdivision 3, is amended to read: 
  1.27     Subd. 3.  [AMOUNT.] The total amount of the collateral 
  2.1   computed at its market value shall be at least ten percent more 
  2.2   than equal to the amount on deposit plus accrued interest at the 
  2.3   close of the business day.  The financial institution may 
  2.4   furnish both a surety bond and collateral aggregating the 
  2.5   required amount. 
  2.6      Sec. 4.  [118A.031] [POOLED COLLATERAL TO SECURE PUBLIC 
  2.7   DEPOSITS.] 
  2.8      Subdivision 1.  [POOLED COLLATERAL.] (a) A financial 
  2.9   institution designated as a public depositary may secure the 
  2.10  deposits of one or more government entities by depositing, 
  2.11  pledging, or granting a security interest in a single pool of 
  2.12  securities to secure the repayment of all public funds deposited 
  2.13  in the financial institution by the government entities and not 
  2.14  otherwise secured under section 118A.03, subdivision 1, if at 
  2.15  all times the aggregate market value of the pool of securities 
  2.16  so deposited, pledged, or in which a security interest is 
  2.17  granted is at least equal to the amount on deposit which is in 
  2.18  excess of the amount covered by available federal deposit 
  2.19  insurance.  The financial institution shall carry on its 
  2.20  accounting records at all times a general ledger or other 
  2.21  appropriate account of the total amount of all public funds to 
  2.22  be secured by the pool of securities, as determined at the 
  2.23  opening of business each day, and the total value of the pool of 
  2.24  securities deposited, pledged, or in which a security interest 
  2.25  is granted to secure the public funds. 
  2.26     (b) Only the securities listed in section 118A.03, 
  2.27  subdivision 2, may be provided and accepted as security for the 
  2.28  deposit of public funds and is eligible as collateral. 
  2.29     (c) A qualified trustee under subdivision 3 shall accept no 
  2.30  security which is not listed in section 118A.03, subdivision 2.  
  2.31     Subd. 2.  [SECURITY INTEREST IN POOLED COLLATERAL.] Each 
  2.32  government entity depositing public funds in a financial 
  2.33  institution has an undivided security interest in the pool of 
  2.34  securities deposited, pledged, or in which a security interest 
  2.35  is granted by a financial institution under subdivision 1 in the 
  2.36  proportion that the total amount of the government entity's 
  3.1   public funds secured by the pool of securities bears to the 
  3.2   total amount of public funds so secured.  Articles 8 and 9 of 
  3.3   the Uniform Commercial Code do not apply to any security 
  3.4   interest arising under this section. 
  3.5      Subd. 3.  [QUALIFIED TRUSTEE.] A financial institution may 
  3.6   designate as a qualified trustee under this section any 
  3.7   financial institution authorized to exercise trust powers in 
  3.8   this state, other than the financial institution making the 
  3.9   designation. 
  3.10     Subd. 4.  [ROLE OF QUALIFIED TRUSTEE.] (a) Any financial 
  3.11  institution in which public funds have been deposited which 
  3.12  satisfied its requirement to secure the deposit of public funds 
  3.13  in excess of the amount covered by available federal deposit 
  3.14  insurance by the deposit, pledge, or granting of a security 
  3.15  interest in a single pool of securities shall designate a 
  3.16  qualified trustee and place with the trustee for holding the 
  3.17  securities so deposited, pledged, or in which a security 
  3.18  interest has been granted under this section.  The financial 
  3.19  institution shall give written notice of the designation of the 
  3.20  qualified trustee to any custodial official depositing public 
  3.21  funds for which such securities are deposited, pledged, or in 
  3.22  which a security interest has been granted, and if an affiliate 
  3.23  of the financial institution is to serve as the qualified 
  3.24  trustee, the notice must disclose the affiliate relationship and 
  3.25  must be given prior to designation of the qualified trustee.  
  3.26  The custodial official shall accept the written receipt of the 
  3.27  trustee describing the pool of securities so deposited, pledged, 
  3.28  or in which a security interest has been granted by the 
  3.29  financial institution, a copy of which must also be delivered to 
  3.30  the financial institution. 
  3.31     (b) Each financial institution which satisfied its 
  3.32  requirement to secure the deposit of public funds in excess of 
  3.33  the amount covered by available federal deposit insurance by 
  3.34  depositing, pledging, or granting a security interest in a 
  3.35  single pool of securities shall, on or before the tenth day of 
  3.36  each month, render to the qualified trustee a statement showing 
  4.1   as of the last business day of the previous month: 
  4.2      (1) the amount of public funds deposited in the financial 
  4.3   institution that is not covered by available federal deposit 
  4.4   insurance (i) by each custodial official separately, and (ii) by 
  4.5   all custodial officials in the aggregate; and 
  4.6      (2) the aggregate market value of the pool of securities 
  4.7   deposited, pledged, or in which a security interest has been 
  4.8   granted under this section. 
  4.9      (c) Within ten days after receiving the statement required 
  4.10  under paragraph (b) from a financial institution, the qualified 
  4.11  trustee shall provide a report to each custodial official listed 
  4.12  in the statement reflecting (1) the amount of public funds 
  4.13  deposited in the financial institution by that custodial 
  4.14  official as of the last business day of the previous month that 
  4.15  is not covered by available federal deposit insurance and that 
  4.16  is secured under this section; and (2) the aggregate market 
  4.17  value of the pool of securities deposited, pledged, or in which 
  4.18  a security interest is granted under this section as of the last 
  4.19  business day of the previous month.  The report must clearly 
  4.20  notify the custodial official if the value of the securities 
  4.21  deposited does not meet the statutory requirement. 
  4.22     (d) Any qualified trustee shall be authorized, acting for 
  4.23  the benefit of custodial officials, to take any and all actions 
  4.24  necessary to take title to or to effect a first perfected 
  4.25  security interest in the securities deposited, pledged, or in 
  4.26  which a security interest is granted. 
  4.27     Subd. 5.  [ADJUSTMENT OF COLLATERAL.] The financial 
  4.28  institution in which public funds are deposited may at any time 
  4.29  substitute, exchange, or release securities deposited with a 
  4.30  qualified trustee if the substitution, exchange, or release does 
  4.31  not reduce the aggregate market value of the pool of securities 
  4.32  to an amount that is less than the total amount of public funds 
  4.33  less the portion of the public funds covered by available 
  4.34  federal deposit insurance. 
  4.35     Subd. 6.  [DEFAULT; PROCEDURE.] (a) If a financial 
  4.36  institution experiences an event of default, the qualified 
  5.1   trustee shall proceed in the following manner: 
  5.2      (1) The qualified trustee shall ascertain the aggregate 
  5.3   amounts of public funds secured under this section and deposited 
  5.4   in the financial institution which has defaulted, as disclosed 
  5.5   by the records of the financial institution.  The qualified 
  5.6   trustee shall determine for each custodial official for whom 
  5.7   public funds are deposited in the defaulting financial 
  5.8   institution the accounts and the amount of federal deposit 
  5.9   insurance that is available for each account.  It shall then 
  5.10  determine for each such custodial official the amount of public 
  5.11  funds not covered by available federal deposit insurance and the 
  5.12  amount of the pool of securities pledged, deposited, or in which 
  5.13  a security interest has been granted to secure the public funds. 
  5.14  Upon completion of this analysis, the qualified trustee shall 
  5.15  provide each custodial official with a statement that reports 
  5.16  the amount of public funds deposited by the custodial official 
  5.17  in the defaulting financial institution, the amount of public 
  5.18  funds that may be covered by available federal deposit 
  5.19  insurance, and the amount of public funds secured by a pool of 
  5.20  securities under this section.  Each custodial official shall 
  5.21  verify this information from the official's records within ten 
  5.22  business days after receiving the report and information from 
  5.23  the qualified trustee; 
  5.24     (2) upon receipt of a verified report from the custodial 
  5.25  official and if the defaulting financial institution is to be 
  5.26  liquidated or if for any other reason the qualified trustee 
  5.27  determines that public funds are not likely to be promptly paid 
  5.28  upon demand, the qualified trustee shall proceed to liquidate 
  5.29  the pool of securities held to secure the deposit of public 
  5.30  funds and shall repay each custodial official for the public 
  5.31  funds not covered by available federal deposit insurance 
  5.32  deposited in the financial institution by the custodial 
  5.33  official.  In the event that the proceeds of the securities held 
  5.34  by the qualified trustee after liquidation are insufficient to 
  5.35  cover all public funds not covered by available federal deposit 
  5.36  insurance for all custodial officials for whom the qualified 
  6.1   trustee serves, the qualified trustee shall pay out to each 
  6.2   custodial official available amounts pro rata in accordance with 
  6.3   the respective public funds not covered by available federal 
  6.4   deposit insurance for each custodial official. 
  6.5      (b) In the event that a federal deposit insurance agency is 
  6.6   appointed and acts as a liquidator or receiver of any financial 
  6.7   institution under state or federal law, those duties under this 
  6.8   section that are specified to be performed by the qualified 
  6.9   trustee in the event of default may be delegated to and 
  6.10  performed by the federal deposit insurance agency. 
  6.11     Subd. 7.  [CHARGES OR COMPENSATION OF QUALIFIED 
  6.12  TRUSTEE.] Any charges or compensation of a qualified trustee for 
  6.13  acting as such under this section shall be paid by the financial 
  6.14  institution and in no event shall be chargeable to any 
  6.15  government entity, to the custodial official, or to any officer 
  6.16  of the government entity.  The charges or compensation shall not 
  6.17  be a lien or charge upon the securities held by the qualified 
  6.18  trustee prior, superior, or equal to the rights to and interests 
  6.19  in the securities of the government entity or of the custodial 
  6.20  official.  
  6.21     Subd. 8.  [PROTECTION OF CUSTODIAL OFFICIAL.] The custodial 
  6.22  official is relieved from any liability to the government entity 
  6.23  or to the financial institution for the loss or destruction of 
  6.24  any securities pledged, deposited, or in which a security has 
  6.25  been granted under this section. 
  6.26     Subd. 9.  [ASSIGNMENT OF SECURITIES.] In lieu of placing 
  6.27  its unqualified endorsement on each security, a financial 
  6.28  institution depositing, pledging, or granting a security 
  6.29  interest in securities under this section that are not 
  6.30  negotiable without its endorsement or assignment may furnish to 
  6.31  the qualified trustee holding the securities an appropriate 
  6.32  resolution and irrevocable power of attorney authorizing the 
  6.33  trustee to assign the securities.  The resolution and power of 
  6.34  attorney must conform to the terms and conditions that the 
  6.35  trustee prescribes. 
  6.36     Subd. 10.  [REPORTS REQUIRED.] (a) Upon request of a 
  7.1   custodial official, a financial institution shall report as of 
  7.2   the date of the request the amount of public funds deposited in 
  7.3   the financial institution that is not covered by available 
  7.4   federal deposit insurance (1) by the custodial official making 
  7.5   the request, and (2) by all other custodial officials and 
  7.6   secured under this section; and the aggregate market value of 
  7.7   the pool of securities deposited, pledged, or in which a 
  7.8   security interest has been granted to secure public funds held 
  7.9   by the financial institution, including those deposited by the 
  7.10  custodial official. 
  7.11     (b) Upon request of a custodial official, a qualified 
  7.12  trustee shall report as of the date of the request the aggregate 
  7.13  market value of the pool of securities deposited, pledged, or in 
  7.14  which a security interest has been granted by the financial 
  7.15  institution and shall provide an itemized list of the securities 
  7.16  in the pool. 
  7.17     (c) The reports shall be made on or before the date the 
  7.18  custodial official specifies. 
  7.19     Sec. 5.  [TRANSITION.] 
  7.20     Notwithstanding sections 2 and 6, a government entity may 
  7.21  continue to use collateral security arrangements permitted under 
  7.22  Minnesota Statutes 2000, section 118A.03, until December 31, 
  7.23  2001. 
  7.24     Sec. 6.  [REPEALER.] 
  7.25     Minnesota Statutes 2000, section 118A.03, subdivisions 4, 
  7.26  5, 6, and 7, are repealed. 
  7.27     Sec. 7.  [EFFECTIVE DATE.] 
  7.28     Sections 1 to 6 are effective the day following final 
  7.29  enactment.