AGO 1995-95.

• Case Date: September 12, 1995
• Court: Kansas

Kansas Attorney General Opinions 1995. AGO 1995-95. September 12, 1995 ATTORNEY GENERAL OPINION No. 95-95The Honorable Tim ShallenburgerSpeaker of the House State Representative, 1st District 2027 Fairview Baxter Springs, Kansas 66713 Re: Banks and Banking; Trust Companies--Banking Code; Deposit of Public Moneys--Deposit of Active Funds Cities and Municipalities--Miscellaneous Provisions-- Investment of Public Moneys by Governmental Subdivisions State Departments; Public Officers and Employees--State Moneys; Designation of Banks to Receive State Accounts Synopsis: Public fund depository laws precluding the state and its municipalities from placing their funds in branches of national banks that do not have home offices in Kansas do not violate the commerce clause, the supremacy clause or the equal protection clause of the United States constitution. Cited herein: K.S.A. 1994 Supp. 9-1111, as amended by L. 1995, ch. 79, sec. 15; K.S.A. 9-1401, K.S.A. 1994 Supp. 12-1675, 75-4201; 75-4205; 75-4208; 75-4209, as amended by L. 1995, ch. 194, sec. 2; 12 U.S.C. secs. 30, 36, 1831, 1831u, 1842; U.S. Const., art. I, sec. 8; art. VI; 14th amend.* * * Dear Speaker Shallenburger: You request our opinion regarding whether certain statutes that address the deposit of public funds are violative of the commerce clause, the supremacy clause or the equal protection clause of the United States constitution. Specifically, you inquire whether the statutory requirement that public funds be deposited only in state or national banks having a home office in Kansas contravenes any one of the aforementioned constitutional provisions. K.S.A. 9-1401 provides, in relevant part, as follows: "(a) The governing body of any municipal corporation or quasi-municipal corporation shall designate . . . the state and national banks . . . with home offices located in the state of Kansas which shall serve as depositories of its funds. . . . The state and national banks . . . which have offices in the county or counties in which all or part of such municipal corporation or quasi-municipal corporation is located shall be designated as such official depositories if the municipal or quasi-municipal corporation can obtain satisfactory security therefore, and such official depositories have a home office located in the state of Kansas. . . . . "(c) As used in this section . . . 'municipal corporation or quasi-municipal corporation' includes each investing governmental unit under K.S.A. 12-1675. . . ." (Emphasis added). K.S.A. 1994 Supp. 12-1675 provides, in relevant part, as follows: "(a) The governing body of any county, city, township, school district, area vocational-technical school, community college, firemen's relief association, community mental health center, community facility for the mentally retarded or any other governmental entity, unit or subdivision in the state of Kansas having authority to receive, hold and expend public moneys or funds may invest any moneys which are not immediately required for the purposes for which the moneys were collected or received, and the investment of which is not subject to or regulated by any other statute. "(b) Such moneys shall be invested only: . . . . "(2) In time deposit, open accounts or certificates of deposit with maturities of not more than two years: (A) In commercial banks which have offices located in such investing governmental units; or (B) if the office of no commercial bank is located in such investing governmental unit then in commercial banks which have offices in the county or counties in which all or part of such investing governmental unit is located." In Attorney General Opinion No. 95-39 we concluded that K.S.A. 1994 Supp. 12-1675 requires that the municipal and quasi-municipal entities listed in the statute may invest their idle funds only in financial institutions with home offices in the state. Article 42 of chapter 75 of the Kansas statutes annotated similarly requires that state moneys be deposited and invested only in state banks incorporated in Kansas or national banks having home offices in this state. K.S.A. 1994 Supp. 75-4201(d); 75-4205; 75-4209, as amended by L. 1995, ch. 194, sec. 2. Your concern is that these statutes may conflict with the Riegle-Neal interstate banking and branching efficiency act (Riegle-Neal) by discriminating against national banks that have branch offices in Kansas but home offices located outside of this state. If there is a conflict, you question whether the Kansas statutes must fall as a result of the supremacy clause. In addition, you are concerned whether these statutes offend both the commerce clause and the equal protection amendment to the United States constitution. I. SUPREMACY CLAUSE Article 6 provides that the United States constitution and federal law which is enacted according to the constitution is the supreme law of the land, notwithstanding state laws to the contrary. This constitutional provision has spawned the preemption doctrine which provides that a state law is void if it conflicts with federal law. Louisiana Public Service Comm'n. v. F.C.C., 476 U.S. 355, 106 S.Ct. 1890, 90 L.Ed.2d 369 (1986). "Consideration of issues arising under the supremacy clause start with the assumption that the historic police powers of the states are not to be superseded by federal law unless that is the clear and manifest purpose of Congress. (Citations omitted). Accordingly, the purpose of Congress is the ultimate touchstone of preemption analysis. Congress' intent may be explicitly stated in the statute's language or implicitly contained in its structure and purpose. In the absence of an express congressional command, state law is preempted if that law actually conflicts with federal law or if federal law so thoroughly occupies the legislative field as to make reasonable the inference that Congress made no room for states to supplement it. Cipollone v. Liggett Group Inc., 505 U.S. _____, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407 (1992). Our task is to determine whether congress intended to preempt state laws regarding the deposit of public funds when it enacted the Reigle-Neal act. Before we begin this analysis it is helpful to understand some banking law concepts. Banks are formed by obtaining a charter (a license to do business) either from the federal government or from one of the states. If a bank is federally chartered, it is a national bank subject to regulation by the office of the comptroller of the currency (comptroller). If a bank is state chartered, it is a state bank subject to regulation by the state. State banks also choose whether to become members of the federal reserve system. If they do so, they are known as state member banks and the federal reserve becomes their primary federal regulator; if they do not, they are known as state nonmember banks and the federal deposit insurance corporation becomes their primary federal regulator. 112 Banking Law Journal 100, 102 (February, 1995). Prior to 1927, national banks were not allowed to establish branches and, consequently, suffered a competitive disadvantage with state chartered banks that were allowed to establish branch offices to the extent that state law permitted. In order to place national banks on an equal playing field with state banks, congress passed the McFadden act (12 U.S.C. sec. 36) which permits national banks to branch in the cities in which they are located to the same extent that such branching is permitted for state banks under state law. In 1933, congress amended the McFadden act to permit a national bank to branch within the state in which it is located to the same extent as a bank chartered by that state. In Clarke v. Securities Industry Assn., 479 U.S. 388, 107 S. Ct. 750, 93 L.Ed.2d 757 (1987), the Supreme Court concluded that a national bank could only branch in its...