PMWJ H.B. 2270 75(R)BILL ANALYSIS JUDICIAL AFFAIRS H.B. 2270 By: Thompson 4-2-97 Committee Report (Amended) BACKGROUND Legal issues concerning trust funds deposited with county clerks and district clerks more and more commonly arise in litigation. Larger and larger sums are being deposited with the clerks into the registry of the court. Some statutes offer no direction for investment or accounting of the funds while others require limitations that cannot be followed. For example, if the clerk receives $550,000 to be invested for a minor, current law requires investment with a financial institution insured by the FDIC; due to the $100,000 insured limitation, the clerk must divide the money into six FDIC institutions for investment (in a smaller county, this may be an impossible task). There are no clear statutory directives for clerks in handling interplead funds, which may total millions of dollars, other than to deposit the funds into the county depository which may or may not earn interest. The legislative committees of the County and District Clerks Association worked with the legislative committees of the County Judges and Commissioners Associations, the County Auditors Association and the County Treasurers Association to resolve some of these issues and draft legislation to clarify and modernize Chapter 117 of the Local Government Code and other related statutes regarding court trust funds. PURPOSE As proposed, House Bill 2270 changes "trust fund" to "registry fund." It also defines the types of money and accounts deposited in the registry. It allows the registry account to earn interest upon written election by the clerk to the commissioners court. HB 2270 clarifies the method of compensation to the county for accounting and administrative expenses. It defines the types of investments to be used by the clerk. It clarifies that the clerk is the custodian of the funds and not the trustee for a beneficiary. Finally, HB 2270 requires annual continuing education for clerks and minimum hours concerning registry funds. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1 amends Tex. Local Gov't Code ' 117.001, Definitions, to add definitions for "clerk," "registry funds," "separate account," and "special account." SECTION 2 amends Tex. Local Gov't Code ' 117.002, Transfer of Unclaimed Funds to State Treasurer, to add an exception for cash bail bonds. SECTION 3 amends Tex. Local Gov't Code ' 117.021(a) and 117.021(c). Subsec. (a) is amended to provide that banks that apply to or contract with counties for special accounts must be federally insured. New language authorizes the county clerk to include a provision in the contract that special account funds earn interest; notice of the clerk's election that an account earn interest must be made in writing to the commissioners court not later than the 30th day before the county gives notice for applications to be the depository for a special account. Subsec. (c) is amended to clarify that the clerks who hold funds and determine the amount of the application guarantee include both the county clerk and district clerk. "Trust funds" is changed to "registry funds." SECTION 4 amends Tex. Local Gov't Code ' 117.022. The section heading, "Notice Not Required," is changed to "Notice;" "trust funds" is changed to "registry funds." The section is amended to require that the county give notice that the county will accept applications to serve as the depository for registry funds. New language clarifies that the funds are held by the county clerk and the district clerk. SECTION 5 amends Tex. Local Gov't Code ' 117.023(a) to change "trust funds" to "registry funds" and to clarify that the funds are held by the county clerk and the district clerk. SECTION 6 amends Tex. Local Gov't Code ' 117.025. Subsec. (a) is amended to allow a county to select more than one bank as the depository for registry funds. In Subsec. (b), "trust funds" is changed to "registry funds." New Subsec. (c) requires the depository to provide security for registry funds. SECTION 7 amends Tex. Local Gov't Code ' 117.026(a) to allow a county to select more than one bank as the depository for registry funds, to require that the bank be federally insured, and to change "trust funds" to "registry funds." SECTION 8 amends Tex. Local Gov't Code ' 117.027 to clarify that funds are deposited into the "registry of the court" instead of the "clerk's court." SECTION 9 adds Section 117.028, Application of County Depository Law, to the Local Government Code to apply the provisions of Chapter 116, relating to county depositories, to a depository selected under Chapter 117 unless expressly stated otherwise in this chapter. SECTION 10 amends Tex. Local Gov't Code ' 117.052. The heading is amended to change "trust funds" to "registry funds." Subsec. (a) is amended to clarify that money is deposited in the "registry of the court" instead of "in court." For clarification, "a county or district clerk" is changed to "a county clerk or a district clerk." Subsec. (b) is amended to to require funds to be deposited in a depository, if one is selected, as a "special account" instead of a "trust fund account." New Subsec. (c) makes the clerk responsible for funds deposited into the registry fund and lists the sources of registry fund deposits. SECTION 11 adds Section 117.0521, Custodianship, to the Local Government Code, which provides that the district or county clerk acts only as a custodian of registry funds, special accounts or separate accounts and is not a trustee for the beneficial owner. SECTION 12 amends Tex. Local Gov't Code ' 117.053, Withdrawal of Funds. Subsec. (a) is amended to change "trust funds" to "funds in a special account." For clarification, "the county and district clerks" is changed to "the county clerk and the district clerks." Subsec. (b) is amended to change "trust funds" to "special account funds." New language clarifies that the court ordering payment must be "of proper jurisdiction." Additional language is added to clarify that a court order is not necessary to pay an appeal bond or funds deposited under Tex. Probate Code ' 887. Current Subsec. (c), relating to the release of funds in time deposits, is repealed and new Subsec. (c) directs the clerk to transfer any registry funds into a separate account on the order of a court or as directed by Tex. Probate Code ' 887. The separate account may be deposited in interest-bearing deposits in federally-insured financial institutions, US treasury bills, inter-local investment pools, or qualified no-load money market mutual funds. SECTION 13 amends Tex. Local Gov't Code ' 117.054. The heading is changed from "County Expenses Paid from Interest on Time Deposits" to "County Expenses Paid from Interest." Current Sec. 117.054, providing for county administrative expenses to be paid from the interest on accounts, is replaced. New language allows 10% of the interest earned on a special or separate account to be paid the county general fund and 90% of the interest earned on a special or separate account to be credited to the account. SECTION 14 amends Tex. Local Gov't Code ' 117.055, County Expenses Paid from Fees. Subsec. (a) is amended to change "trust funds" to "registry funds." Subsec. (a) currently authorizes the county to collect fees for handling such funds and to set the amount of the fee (up to $50). The amended Subsec. (a) allows the county to collect fees for handling registry funds that are deposited in accounts that do not earn interest and sets the fee at 5% of the amount withdrawn up to $50. Current language providing that the handling fee is in addition to any fees the district clerk collects is deleted. Subsec. (b) is amended to provide that the fee collected under this section shall be deposited in the county general fund instead of directing the county treasurer to deposit the fee. SECTION 15 amends Tex. Local Gov't Code ' 117.057. Subsec. (a) is amended to change "the county and district clerks' trust funds" to "the county clerk's and the district clerks' registry funds." Subsec. (b) is amended to shorten the time a depository has to file a new bond from 15 days to 5 days. SECTION 16 amends Tex. Local Gov't Code ' 117.058. The heading is amended to change "Trust Funds" to "Registry Funds." Subsec. (a) is unchanged. Subsec. (b) is amended to change "trust funds" to "registry funds" and to change "the county or district clerk" to "the county clerk or the district clerk." Subsec. (c) is amended to change "trust fund" to "registry fund" and to require that each check must be signed according to the procedure established by the county auditor instead of the current requirement that each check be submitted to the county auditor for countersignature. Subsec. (d), requiring the county auditor to countersign checks only on evidence of a court order, is deleted. SECTION 17 amends Tex. Local Gov't Code ' 117.081, Liability of County and District Clerks, to change "trust funds" to "registry funds," to change "a county or district clerk" to "a county clerk or a district clerk," and to change "safe" to "secure." SECTION 18 amends Tex. Local Gov't Code ' 117.083 to change "trust funds" to "registry funds" and to change "the county or district clerk" to "the county clerk or the district clerk." SECTION 19 amends Tex. Local Gov't Code ' 117.084. The heading is changed from "Failure of a Depository To Pay Check on Presentment" to "Depository To Pay Check on Presentment." Current language subjecting a depository to a 10% penalty for failure to pay a check is changed to require the depository to pay a check drawn on a special or separate account if the funds are in the possession of the depository. SECTION 20 amends Tex. Local Gov't Code ' 117.121(a) to add an exception for appeal bonds from the requirement that money be paid from the registry fund only on a court's order. SECTION 21 amends Tex. Property Code ' 142.004. The heading is changed from "Investment in Insured Financial Institutions" to "Investment of Funds." Subsec. (a), relating to investments of money recovered on behalf of a minor or incapacitated person, is amended to provide that such funds may be invested by a next friend in an interest-bearing time deposit in a federally insured financial institution or by the court clerk, acting under a court order, in an interest-bearing deposit in a federally insured financial institution, in US treasury bills, in inter-local investment pools, or in qualified no-load money market mutual funds. New Subsec. (d) provides that interest earned on moneys invested by the court clerk shall be paid as directed by Chapter 117. SECTION 22 amends Tex. Gov't Code ' 51.605(c) to provide that the continuing education requirement for clerks is an annual, instead of biennial, requirement and adds that three hours must be devoted to registry funds. SECTION 23 amends Tex. Gov't Code ' 2256.004 to add registry funds to the list of funds to which Chapter 2256 of the Government Code (Public Funds Investment) does not apply. SECTION 24 repeals Sections 117.051 (authorization to deposit trust funds in time deposits) and 117.082 (Offenses Related to Clerk's Performance of Office) of the Local Government Code. SECTION 25. Effective date. Application of act. SECTION 26. Emergency clause. EXPLANATION OF AMENDMENTS Committee Amendment No. 1 adds a new Section 117.003 to the Local Government Code to require the clerk to comply with federal tax law regarding funds deposited into an interest-bearing account. Committee Amendment No. 2 modifies the amended language in Local Gov't Code ' 117.021(a) (in Section 3 of the bill) to change the clerk's election to contract for interest-bearing accounts to the clerk's request and approval by the commissioners' court. Committee Amendment No. 3 changes the amended language in Local Gov't Code ' 117.121(a) from "except that an appeal bond shall be paid without a written order on the receipt of a mandate or a dismissal" to "except that the clerk may make a payment without court order for unpaid court costs from a cash bond deposited in connection with an appeal after the appellate court issues its mandate in such appeal if the costs remain unpaid for 45 days after the mandate is issued."