OFFICE OF THE ATTORNEY GENERAL OF THE STATE OF DELAWARE
Attorney General Opinion No. 13-IB09
November 26, 2013
The Cash Management Policy Board (the “CMPB”) has asked this Office to render a formal opinion with regard to the following questions:
1. As between the Office of the State Treasurer (the “State Treasurer”) and the CMPB, who has the power and legal authority1 to make investment decisions regarding the State’s $2 billion cash management portfolio?2
2. Does the power and authority include decisions regarding asset allocation between short term and intermediate term investments, and decisions regarding asset allocation among fund managers?
In response to the first question, the CMPB has the sole legal authority to make investment decisions with respect to the management of Delaware’s cash portfolio, and the State Treasurer is subject to the CMPB’s directives. As to the second question, the CMPB’s authority extends to decisions regarding asset allocation between short term and intermediate term investments, as well as decisions regarding allocation among fund managers.
Constitutional Power of the State Treasurer
Based upon our review of colonial enactments, statutory and common law as it existed in 1792 (when the State Treasurer first became a constitutional office), and statutory enactments leading up to the adoption of the 1897 Delaware Constitution, we conclude that the express and inherent constitutional powers of the State Treasurer do not include the power to make investment decisions regarding State funds.
Express Constitutional Powers of the State Treasurer Do Not Include the Power to Make Investment Decisions
A review of the treatment of the State Treasurer in our State constitutions makes clear that the office does not have any express constitutional powers regarding investment of State funds. Delaware enacted its first Constitution in 1776, which made no mention of a State Treasurer. The Delaware Constitution of 1792 first mentioned the office and indicated that the State Treasurer was to be “appointed annually by the House of Representatives with the concurrence of the Senate.”3 The 1792 Constitution did not set forth explicit powers or duties for the State Treasurer other than a general obligation to make a “final settlement of his accounts” prior to being “eligible to a seat in either House of the Legislature.”4 Article II of the 1792 Constitution vested the legislative power of the State in the General Assembly and contains a provision that specifically references a “treasury.”5 It provides: “No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published annually.”6
The Delaware Constitution of 1831 included several changes with respect to the State Treasurer. In this iteration of Delaware’s Constitution, the provision appointing the State Treasurer was moved to Article II, dealing with the legislative branch. In addition, the 1831 Constitution provided for the biennial (as opposed to annual) appointment of the State Treasurer.7 No other changes were made with respect to the State Treasurer or the treasury.
Delaware’s current Constitution was ratified in 1897. In the 1897 Constitution, the State Treasurer, like other state offices, was reorganized under the Executive branch and made an elected rather than an appointed office.8 The 1897 Constitution, like all prior Delaware Constitutions, does not expressly grant the State Treasurer any power with respect to the investment of State funds.9 Under Article II, the State Treasurer has no express constitutional powers and just one constitutional duty – namely, to settle accounts annually with the General Assembly.10 The constitutional restriction on the State Treasurer’s ability to withdraw funds and make payments from the treasury only when expressly permitted by the legislature remains in place to this day.11
Any Inherent Constitutional Powers of the State Treasurer Do Not Include the Power to Make Investment Decisions
Though the State Treasurer, as a constitutional officer, has certain inherent constitutional duties and powers, such powers do not include the ability to make decisions with respect to the investment of the State’s $2 billion cash portfolio. That power rests solely with the General Assembly as the appropriating authority under Article VIII of the Delaware Constitution12 and has been subsequently delegated by statute to the CMPB.
While no Delaware court has addressed whether the State Treasurer has inherent constitutional powers,13 the Delaware Supreme Court recently acknowledged that constitutional officers have certain inherent or “core” duties and powers that may not be abrogated without amending the Delaware Constitution.14 In Christopher v. Sussex County, the Delaware Supreme Court examined the “substance” or core functions of the sheriff’s office, a constitutional office, as it developed in Delaware.15 The Court looked to the role of Delaware sheriffs under colonial governance, the common law as it existed in 1776 (when the office of sheriff first became a constitutional one), and statutory enactments leading up to the adoption of the 1897 Delaware Constitution in concluding that sheriffs have no constitutional law enforcement powers.16
Relying upon Christopher v. Sussex County and based upon our review of colonial enactments, statutory, and common law as it existed in 1792 and statutory enactments leading up to the adoption of the 1897 Delaware Constitution, we conclude that the “substance” of the State Treasurer does not include the core duty or power to determine how State funds are invested.17 Rather, the State Treasurer’s inherent constitutional powers are limited to the receipt, care, and disbursement of State funds.
A review of the State’s colonial enactments, statutory and common law supports this conclusion. During colonial times, persons designated as “treasurer” primarily served ministerial functions relating to the receipt, care, and disbursement of funds. Delaware laws from the colonial period do not mention a State Treasurer, as the office did not exist prior to statehood. Instead, early Delaware laws refer to “county treasurers,” whose primary duties and functions related to the receipt and care of certain rents, tolls and taxes. As of 1792, with the exception of the State Treasurer’s constitutional duty to account to the General Assembly, the duties and powers of the State Treasurer were grounded solely in legislative enactments.18 The first reference in Delaware law to the existence of a State Treasurer is found in a 1778 act passed to raise $120,000 through the imposition of a general tax.19 The 1778 act, which provided for the appointment of the first State Treasurer,20 required county treasurers to hand over tax collections to the State Treasurer.21 Most of the early statutory duties of the State Treasurer were concerned with the receipt, care, and disbursement of tax proceeds.22
Statutory enactments leading up to 1897, as well as the terms of the 1897 Delaware Constitution, confirm that the substance of the State Treasurer was limited to the receipt, care, and disbursement of State funds as defined by the General Assembly. Even those statutory duties were limited. For example, in 1819, the General Assembly significantly limited any discretionary authority the State Treasurer may have had with respect to the “receipt” of state funds by requiring the State Treasurer to accept nothing in payment of taxes other than gold or silver coin or bank notes payable in gold or silver on demand.23 In 1823, the General Assembly similarly limited the State Treasurer’s discretionary authority, if any, with respect to the deposit of State funds. At that time, the legislature passed a law requiring the State Treasurer to deposit all State funds only in Farmer’s Bank of the State of Delaware.25 Finally, all ratified Delaware Constitutions have precluded the State Treasurer from drawing on the treasury unless the disbursements were authorized by an appropriation approved by the General Assembly.25
The General Assembly has, from time to time, authorized and directed the State Treasurer to purchase securities with State funds, expressly limiting the specific funds to be used by the State Treasurer to buy U.S. or other bonds bearing a specified rate of return. The General Assembly only granted the State Treasurer discretionary authority with respect to the investment of State funds one time. In 1812, legislation was passed requiring the State Treasurer to invest surplus money in the treasury during that year “in such funds or stock, as in his opinion, will be most advantageous to the State.”26
Whatever inherent constitutional powers the State Treasurer may have relate to the receipt, care, and disbursement of State funds, not the investment of the State’s $2 billion cash portfolio. The State Treasurer’s limited investment powers are and always have been purely statutory, are ancillary to the State Treasurer’s core functions and may be created, modified or eliminated by the General Assembly in the exercise of its plenary power over State funds.27
Delegation of Investment Authority by the Legislature to the CMPB
By enacting Title 29, Chapter 27—creating the CMPB—and including explicit clarifying language in the 2013 epilogue, the General Assembly intended to and did vest in the CMPB the exclusive authority to promulgate investment policies and to establish the terms, conditions and other matters relating to the investment of State funds, including investment allocations. Absent future legislative action, the State Treasurer has no statutory authority to make allocation or other investment decisions.28
The Cash Management Policy Board and Its Broad Investment Authority
In 1981, the Legislature, in order to eliminate the risks of placing all of its cash resources in one institution29 or subject to the control of one elected official, created the CMPB. The CMPB consists of nine members, five of whom are appointed by the Governor and confirmed by the Senate. The remaining four ex officio members are the State Treasurer, the Secretary of Finance, the Secretary of State and the Comptroller General. The State Treasurer is a voting member of the CMPB and as such, has significant input into the investment policy decision making process. The CMPB has one stated purpose: to establish the “policies for the investment of all money belonging to the State . . . and to determine the terms, conditions and other matters relating to those investments[,] including the designation of permissible investments.”30
In 1982, in the effort to discharge its statutory mandate, the CMPB adopted and promulgated a “Statement of Objectives and Guidelines for the Investment of State of Delaware Funds” (the “Guidelines”). Then State Treasurer Thomas Carper, with the consensus of the CMPB, retained the services of Peat, Marwick, Mitchell and Company (“Peat”) to assist in, inter alia, drafting investment policy guidelines in accordance with the CMPB’s statutory directive.31 The Guidelines have been in place since that time, with various modifications as approved by the CMPB. The Guidelines include detailed investment objectives and maturity restrictions for each “investable” account, including the State’s cash and liquidity (short-term) accounts and the State’s reserve cash (intermediate) accounts.
While the Guidelines do not specifically dictate how State funds are to be allocated between short-term, liquid investments and longer-term, intermediate investments,32 the plain meaning of Section 2716(a) vests with the CMPB the authority to determine these basic investment decisions. One of the cannons of statutory construction is if a statute is clear and unambiguous on its face, a court must apply the literal meaning of the words.33 Here, the statute is not ambiguous, and its plain meaning controls. Section 2716(a) states, in pertinent part, that the CMPB shall determine the “terms, conditions and other matters relating to those investments.” By granting the CMPB the authority to promulgate investment guidelines; determine terms, conditions or other matters relating to investments; and to designate permissible investments, the General Assembly has authorized the CMPB to not only determine investment policy but to implement that policy by, among other things, establishing investment allocations as well. Further, an expressed legislative grant of authority to an administrative agency includes actions that are reasonably necessary to execute that authority.34
Section 2716(e)(1) and the 2013 Epilogue Language Expressly Limit the Authority of the State Treasurer
While the General Assembly has explicitly granted expansive authority to the CMPB as the administrative agency empowered to make investment decisions, it has simultaneously expressly limited the authority of the State Treasurer. In 1981, the General Assembly enacted Section 2716(e)(1) of Title 29, which states in relevant part that “[t]he investment of money belonging to the State shall be made by the State Treasurer in accordance with policies established by the Board and subject to the terms, conditions and other matters, including the designation of permissible investments relating to the investment of the money belonging to the State ….” Last year, the General Assembly reiterated this restriction with the insertion of the following epilogue language in the fiscal year 2013 budget bill: “[F]unds under the custody of the State Treasurer shall be invested consistent with [the CMPB] guidelines.”35 As a substantive measure enacted by the General Assembly in an appropriations bill, the epilogue language has the full force and effect of law.36 Section 2716(e)(1) and the 2013 epilogue language explicitly direct the State Treasurer to invest State funds only in accordance with the CMPB investment policies and the Guidelines.
The CMPB has the sole legal authority to make investment decisions with respect to the management of Delaware’s cash portfolio, and the State Treasurer is subject to the CMPB’s directives. Further, the CMPB’s authority extends to decisions regarding asset allocation between short term and intermediate term investments, as well as decisions regarding allocation among fund managers. That being said, nothing in this opinion or in the current law removes or reduces the State Treasurer’s constitutional or statutory mandate to supervise the day-to-day operations of the Office of the State Treasurer with regard to the receipt, care and disbursement of State funds.
Very truly yours,
/s/ Ian R. McConnel
Ian R. McConnel
Chief Deputy Attorney General
cc: Members of the CMPB
1 The words “power” and “authority” are often used interchangeably in Delaware case law, see, e.g., Coyle v. Gray, 30 A. 728, 734 (Del. 1884) (“The Legislature can divest the Council of any and every power and authority it possesses.”), that said, the terms do have slightly different meanings. Generally, “power” refers to the inherent right to perform an act while “authority” means the responsibility to act conferred by statute. Stoltz v.Wilmington Trust Co., 1992 WL 127516, at *5 (Del. Ch. June 9, 1992). This opinion discusses the State Treasurer’s constitutional powers and the CMPB’s and State Treasurer’s statutory authority.
2 The State’s cash management portfolio consists of the short term and intermediate cash reserves managed by the CMPB according to CMPB Guideline Section B. 1.
3 Del. Const. of 1792, art. VIII, § 3.
5 Del. Const. of 1792, art. II, § 15.
7 Del. Const. of 1831, art. II, § 16.
8 Del. Const. of 1897, art. III § 21 (“The terms of the Office of the Attorney General, the Insurance Commissioner, the Auditor of Accounts and the State Treasurer shall be 4 years. These officers shall be chosen by the qualified electors of the State at general elections, and commissioned by the Governor.”).
9 See Del. Const. of 1897, art. II, § 24. (“The State Treasurer shall settle his or her accounts annually with the General Assembly or a joint committee thereof, which shall be appointed at every ninety legislative day session.”).
11 Del. Const. of 1897, art. VIII, § 6(a).
12 See gen. Del. Const. of 1897, art. VIII; Stiftel v. Malarkey, 384 A.2d 9, 27 (Del. 1977) (“Nowhere is legislative power clearer than in the General Assembly’s traditional power to control the purse.”).
13 Opinion of the Justices, 358 A.2d 701, 702 (Del. 1976) (stating that the duties of the State Treasurer are not constitutional).
14 Christopher v. Sussex County, 2013 WL 5517070, at *5, *16-17 (Del. Oct. 7, 2013).
15 Id. at 17.
16 Id. at 17-23.
17 While two courts from other jurisdictions have held that a state treasurer, as a constitutional officer, has inherent constitutional powers related to receiving, safekeeping and disbursing public funds, no court, to our knowledge, has extended those powers to include decision-making authority concerning the investment of public funds. See State ex rel. Mattson v. Kiedrowski, 391 N.W.2d 777, 782 (Minn. 1986) (“Functions relating to the receipt, care and disbursement of state monies define the treasurer position and separate it from the other executive offices of state government established in our constitution.”); People ex rel. Nelson v. West Englewood Trust & Sav. Bank, 187 N.E. 525, 531 (Ill. 1933) (“[T]he power and the duty of receiving and safely keeping the public funds . . . are inherent in [the county treasurer’s] office and in no way depend upon the authority of the General Assembly.”). Further, at least one court has expressly rejected the argument that a state treasurer has inherent constitutional power to manage state funds. See West Virginia Trust Fund, Inc. v. Bailey, 485 S.E.2d 407, 424 (W. Va. 1997) (rejecting argument that West Virginia Trust Fund Act impermissibly interfered with the state treasurer’s duty to manage the state’s pension and workers’ compensation funds).
18 See Debates of the Constitutional Convention of Delaware, 283 (1853) (reflecting the view of former Governor David Hazzard that the State Treasurer is a creature of the General Assembly and should be appointed by that body).
19 2 Del. Laws, ch. XXII, § 2.
20 2 Del. Laws, ch. XXII, § 6.
21 2 Del. Laws, ch. XXII, § 9.
22 See, e.g., 2 Del. Laws, ch. LVI, § 17 (1780); 2 Del. Laws, ch. LXXXV b., § 2 (1781); 2 Del. Laws, ch. CVII, §§ 9, 13 (1784); 2 Del. Laws, ch. CXXXVIII b., § 12 (1786).
23 5 Del. Laws, ch. CCXL.
24 6 Del. Laws, ch. CXCIX.
25 Del. Const. of 1792, art. II, § 15; Del. Const. of 1831, art. II, § 15; Del. Const. of 1897, art. VIII, § 6(a).
26 4 Del. Laws, ch. CXCVIII, § 3.
27 Stiftel v. Malarkey, 384 A.2d 9, 27 (Del. 1977).
28 By statute, the State Treasurer is the custodian of all money belonging to the State and is statutorily required to invest daily all money received, except money deposited in any pension fund of the State. 29 Del. C. § 2705(a). State money must continue to be invested until the State Treasurer requires a disbursement authorized by law. 29 Del. C. § 2705(b). There is no explicit grant of authority to the State Treasurer to make investment decisions. See 29 Del. C. § 2716(e)(1).
29 As previously noted, for several years Farmer’s Bank was the sole depository of state funds. See note 24, infra. During the mid-1970s, the Bank experienced financial difficulties, placing the State in serious financial jeopardy. 63 Del. Laws, ch. 142 § 2.
30 29 Del. C. § 2716(a) (emphasis added).
31 See State of Delaware Cash Management Policy Board Annual Report for the Fiscal Year Ended June 30, 1982 (January 6, 1983).
32 Investment allocations must be reviewed, discussed and approved by the CMPB at its biannual meetings. Investment allocations could not be precisely stated in either the statute or the Guidelines as those allocations necessarily shift depending on economic conditions. See Atlantis I Condominium Assoc. v. Bryson, 403 A.2d 711, 713 (Del. 1979) (“Atlantis I”) (recognizing that the precision of statutory standards varies with both the complexity of the area at which the legislation is directed and the susceptibility to change of the area in question.)
33 See Ross v. State, 990 A.2d 424, 428 (Del. 2010).
34 Atlantis I at 713.
35 78 Del. Laws, ch. 290, § 100.
36 Turnbull v. Fink, 668 A.2d 1370, 1378 (Del. 1995).