95-5

August 29, 1995

Re: Eligible Collateral to Secure Local Agency Deposits — Municipal Leases

Dear M ________:

This responds to your inquiry to Helen Vaughn, Assistant Administrator of the Local Agency Security, whereby you asked the Administrator of Local Agency Security to approve certain municipal leases of relocatable classrooms as collateral for local agency deposits.

The law governing deposits of local agency funds is found in Article 2, Part 1, Division 2 of Title 5 of the Government Code (commencing at Section 53603) (the “Local Agency Deposit Law”). Government Code Section 53656(a) provides that at the time the treasurer of a local agency enters into a contract to deposit funds with a depository, such as ________, the treasurer shall authorize an agent of the depository to hold securities of the depository to secure the deposit in accordance with the Local Agency Deposit Law. Government Code Section 53651 defines which securities are considered eligible for securing local agency deposits under the Local Agency Deposit Law.

The right to receive payments from municipalities for leases of relocatable classrooms is not included in the Section 53651 list of “eligible securities.” I understand that you believe that the subject municipal leases qualify as eligible collateral based upon your reading of Section 53651, Subdivision (n). Please be advised that Section 53651(n) does not support your contention. Section 53651(n) provides, in pertinent part, that:

“Eligible securities are any of the following:

***

(n) Any bonds, notes, warrants, or other evidences of indebtedness of a nonprofit corporation issued to finance the construction of a school building or school buildings pursuant to a lease or agreement with a school district….”

(Emphasis added.)

To be eligible security under Section 53651(n), the security must be a debt instrument. While it is true that the issuance of the debt instrument must be in conjunction with the construction of school buildings pursuant to a lease with a school district, that does not mean that the lease itself is an eligible security under the Local Agency Deposit Law.

If you have any questions regarding this matter, please do not hesitate to contact me.

Very truly yours,

CONRAD W. HEWITT
Administrator of Local
Agency Security

By

KENNETH SAYRE-PETERSON
Senior Counsel

KSP:lca

cc: Helen Vaughn, Assistant Administrator of Local Agency Security

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