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4000 - Advisory Opinions
Deposit Insurance of Public Unit Accounts
FDIC--94--24
June 13, 1994
Cristeena G. Naser, Attorney
This letter is in reply to your inquiry to Claude Rollin dated
March 4, 1994 concerning the deposit insurance coverage of deposit
accounts owned by the Illinois Beef Council ("Council"). I
apologize for the delay in providing this response. Specifically, you
have asked whether the Council qualifies as a public unit for purposes
of deposit insurance. Based on my telephone conversations with you and
*** of your office, as well as the documents submitted by you, in my
opinion the Council's accounts would not qualify as public unit
accounts because the Council is not a "political subdivision" as
defined in the FDIC's rules governing public unit accounts.
According to the documents provided to me, I understand the facts
concerning the Council to be as follows. Pursuant to the Illinois Beef
Market Development Act, S.H.A. 505 ILCS 25 (1988), the Council was
authorized to be created "to provide the beef cattle production and
feeding industry of this State with authority to establish a
self-financed, self-governed program to help develop, maintain and
expand the State, national and foreign markets for beef and beef
products produced, processed or manufactured in this State. S.H.A. 505
ILCS at 25/1.
Its creation depended upon "a favorable vote of beef producers to
support an assessment/deduction of not more than $0.50 per head of
cattle sold in Illinois to finance the intent and purpose of this
Act". Id. at 25/4. Upon petition (not more than once
every five years), beef producers in Illinois may vote to terminate the
Council. The Council is funded entirely by assessments of up to
$0.50/head of cattle sold in Illinois; no state funds are allocated to
the Council under this legislation. The Council is incorporated under
the General Not For Profit Corporation Act of Illinois and is operated
by a Governing Board ("Board") elected from the state's beef
producers. All Board positions are unsalaried, and there is no
indication from the legislation that Board members or staff are
considered to be state employees.
The general rule governing deposit insurance of "public unit"
accounts is that funds deposited by the official custodian of any state
or political subdivision thereof (i.e., the public unit) in
any one insured depository institution in the state in which the public
unit is located are insured (i) up to $100,000 in the aggregate for all
time and savings deposits, and (ii) up to $100,000 in the aggregate for
all demand deposits. 1
This insurance coverage differs from that available to nongovernmental
business entities for whom demand and time deposits are not insured
separately, but rather are added together and insured up to a total of
$100,000. In order to qualify for this additional insurance coverage,
the FDIC's rules governing public unit accounts at 12 C.F.R. § 330.14
must be satisfied.
In the case of the Council, the relevant provision is
§ 330.14(a)(2) which covers funds of "any state of the United
States, or any county, municipality, or political subdivision thereof .
. ." The term "political subdivision", which is the only
category that could apply to the Council, is further defined at
§ 330.14(d) to include any subdivision or department
of a public unit (i) whose creation is authorized by the law of
the public unit; (ii) to which some functions of government have been
delegated by such law; and (iii) which is empowered to
exercise exclusive control over funds for its exclusive use. The
regulation includes as express examples of a "political
subdivision", drainage, irrigation, navigation, improvement, levee,
sanitary, school or power districts, bridge or port authorities,
and
{{10-31-94 p.4860}}other statutorily created special
districts. Thus, to be eligible for deposit insurance coverage as a
public unit, the Council would have to qualify as a "political
subdivision" as defined in § 330.14(d) by satisfying each element
of the regulation.
Applying the above criteria to the facts here, I conclude that the
Council does not satisfy the definition of "political
subdivision" and, therefore, its funds cannot be insured as public
unit accounts. First and foremost, the Council clearly is neither a
"principal department" or "subdivision" of the State of
Illinois. Rather, pursuant to the statute it is a self-financed,
self-governed organization of the Illinois beef cattle production and
feeding industry, and it is chartered as a nonprofit corporation. With
respect to the first element, although the Council was authorized
to be created by an Illinois statute, its actual creation was
dependent upon a vote by its constituent beef producers, as is its
continued existence. S.H.A. 505 ILCS 25/4 and 25/13.
With respect to the second element concerning delegation of
government functions, the commercial purpose for which the Council was
created is, in my opinion, of an entirely different nature than the
examples expressly cited in the regulation, i.e., school or
power districts, or bridge or port authorities which clearly involve
traditional governmental functions. Moreover, the persons employed by
such districts, i.e., teachers or transit workers, are
considered to be public employees. By contrast, I have seen no evidence
that the Council's Board (or staff, if any) are considered to be state
employees. In addition, such political subdivisions are operated with
public funds whereas the Council's members provide all of its funding.
Absent its statutory grounding, the Council appears to be no different
than the ordinary trade association organized to promote the particular
interests of its constituent members.
Finally, with respect to the requirement of exclusive control over
funds for its exclusive use, this element of the test was intended to
measure the independence of one governmental unit from another. In the
typical case, as between two governmental units, the question is
whether one is sufficiently separate from the other as to warrant
separate insurance coverage, and exclusive control over funds is an
indicia of independence. For example, in the case of a county
government and a road authority, if the road authority had to seek
funding from the county each time it needed to pave a road, that would
indicate that the road authority was not sufficiently separate from the
county to satisfy the criteria for public unit deposit insurance
coverage. On its face the Council's authority under the Beef Market
Development Act appears to satisfy this criteria for exclusive control
of funds. However, given the purpose for which this test was intended,
this element seems wholly inapposite when applied to the Council
because it is neither a subdivision or department of Illinois, nor is
public funding involved.
For the above reasons, in my opinion the Council does not qualify as
a political subdivision for purposes of 12 C.F.R. § 330, and its
deposit accounts therefore are not eligible for insurance as public
unit accounts. As a nonprofit corporation, its accounts would be
insured pursuant to the FDIC's regulations at 12 C.F.R. § 330.9(a)
which provides that all corporate accounts shall be aggregated and
insured up to a total of $100,000.
I hope the foregoing has been responsive to your inquiry. If you
have any further questions or if you wish to provide additional
information bearing on any of the issues discussed above, please feel
free to write or call me.
1More specifically, the deposit insurance flows to accounts
established by the "official custodian" of the public unit, a
term defined more fully at 12 C.F.R. § 330.14(b). The amount of
deposit insurance for eligible public unit accounts is $100,000 for all
time and savings deposits and $100,000 for demand deposits in any one
insured depository unit within the state (including any insured
institution having a branch within the state). In the case of funds
deposited by an official custodian in an insured institution outside of
the state, the total amount of deposit insurance available is $100,000
regardless of whether the funds are in time, savings or demand deposit
accounts. Go Back to Text
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