32 SEPTEMBER / OCTOBER 2018 COMPLIANCE CONNECTION Brett J. Ashton Partner Krieg DeVault LLP Submit Compliance Connection questions to Eric J. Augustus, Indiana Bankers Association: eaugustus@indianabankers.org Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Certificates of Deposit And investment restrictions Question: We were recently approached about accepting certificates of deposit from a municipality that is in another part of the state. We know about the territorial restrictions on public deposit accounts, but are there different rules for a certificate of deposit? Answer: No, investment of public funds by approved investment officers of political subdivisions in certificates of deposit are subject to the same restrictions that apply to funds deposited in transaction accounts. However, the issue of whether Indiana banks may accept certificates of deposit from political subdivisions beyond their territorial limits has been the source of considerable confusion in recent years. Public funds are generally required to be deposited within the respective territorial limits of the political subdivision making the investment. Exceptions to this rule exist when there is no, or only one principal office or branch of a financial institution located in the county or political subdivision, or if no financial institution with a principal office or branch in the county or political subdivision will accept public funds.1 While the rules with respect to public fund deposits in transaction accounts within, and on occasion outside, territorial limits have been consistently followed by banks and political subdivisions alike, compliance with territorial restrictions on investment in certificates of deposit has been less consistent. Indiana law allows a public investment officer to deposit, invest or reinvest any funds in a certificate of deposit by obtaining quotes of the specific rates of interest for the term of that certificate of deposit that each designated depository would pay. The public investment officer is required to create a memorandum of all quotes solicited and taken and, if the deposit is not made in the designated depository that quotes the highest rate of interest, the investment officer must place the deposit in the depository with the second- or third-highest rate of interest, and note the reason for doing so in the memorandum. Only if all of the political subdivision’s designated depositories declined to issue or receive the deposit into a certificate of deposit at a rate equal to the highest being offered, could the funds then be invested into any financial institution designated for state deposits as a depository by the state board of finance.2 Until recently, Indiana law allowed the board of county commissioners of each county, and the fiscal body of each political subdivision other than a county to, by ordinance or resolution, authorize its investment officer to invest in certificates of deposit with depositories that were not designated by the local board of finance, but were approved by the state board of finance. This ordinance or resolution was required to be renewed every two years. Some mistakenly believed that the enactment of a resolution provided the political subdivision with blanket authority to disregard the existing limitations with respect to the investment of public funds beyond its territorial limits. The 2018 Indiana General Assembly passed House Enrolled Act 12623 to address this confusion, among other provisions. Effective as of July 1, HEA 1262 amended the Indiana code governing the investment
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