Can the Georgia State Financing and Investment Commission (GSFIC) enter into reverse repurchase agreements as part of its short-term cash management?

Plain-English summary

The Director of the Financing and Investment Division asked whether GSFIC, the state's central bond-issuing and treasury-management body, has authority to enter into reverse repurchase agreements. A reverse repo is the mirror image of a repo: in a repo, you sell a security with a commitment to buy it back; in a reverse repo, you buy a security with a commitment to sell it back. The economic effect of a reverse repo (from the buyer's perspective) is a short-term collateralized loan to the seller, secured by the underlying security.

Attorney General Thurbert Baker concluded that O.C.G.A. § 50-17-2(a) authorizes both legs of the transaction. The text gives state agencies authorized to invest in U.S. government obligations the power to do so "by selling and purchasing such obligations under agreements to resell or repurchase the obligations at a date certain in the future at a specific price which reflects a premium over the purchase or selling price equivalent to a stated rate of interest." The AG read the words "selling and purchasing" with "agreements to resell or repurchase" as covering all four permutations: sell-with-buyback (repo) and buy-with-sellback (reverse repo). The opinion treated the reverse repo as a permitted form of investment, not a prohibited form of borrowing.

Because GSFIC is constitutionally and statutorily an "agency and instrumentality" of the State (Ga. Const. Art. VII, Sec. IV, Para. VII; O.C.G.A. §§ 50-17-20 through 50-17-30) and is authorized to invest in direct U.S. obligations or federally guaranteed obligations under § 50-17-27(b), the § 50-17-2(a) authority applies to GSFIC. The opinion notes that this analysis is consistent with 1979 Op. Att'y Gen. 79-62, which preceded the enactment of § 50-17-2 by a year.

Currency note

This opinion was issued in 2003. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What's the difference between a repo and a reverse repo?
A: A repurchase agreement (repo) is when you sell a security and commit to buy it back later at a slightly higher price; the price difference is effectively interest on a short-term loan you received. A reverse repo is the same transaction from the other side: you buy a security and commit to sell it back, earning the price difference as interest on a short-term loan you made. From a state treasury's perspective, repos are a way to borrow short-term cash; reverse repos are a way to invest short-term cash with the security as collateral.

Q: Why did GSFIC need an opinion to confirm reverse-repo authority?
A: Because Georgia law generally takes a narrow view of state agencies' investment powers, the AG opinion gives investment staff and trading counterparties clean legal cover for these transactions. Without a clear authorization, an opposing party in litigation could argue that the agency lacked authority and the contract was ultra vires.

Q: Does this opinion give every state agency reverse-repo authority?
A: It applies to entities that are independently authorized to invest in direct U.S. government obligations or in obligations unconditionally guaranteed by U.S. government agencies. The reverse-repo authority comes "with" the U.S.-securities investment authority. An agency that lacks general U.S.-securities investment authority does not pick it up through § 50-17-2(a).

Q: What about other types of underlying collateral?
A: Section 50-17-2(a) is keyed to "direct obligations of the United States government" or "obligations unconditionally guaranteed by agencies of the United States government." Repos and reverse repos with other collateral (corporate paper, mortgage-backed securities not federally guaranteed) would need separate statutory authority.

Q: Where is the repurchase price defined?
A: The statute requires a "specific price which reflects a premium over the purchase or selling price equivalent to a stated rate of interest." So both the future price and the implied interest rate must be specified up front. This locks in a known yield (or known cost of funds) at execution.

Q: How is delivery handled?
A: The statute permits book-entry delivery: "by deposit through book entry in a safekeeping account maintained by the seller of the securities, in the name of the purchasing state entity or its agent, clearly indicating the interest of the purchasing state entity." That tracks standard market practice for tri-party repo arrangements.

Background and statutory framework

GSFIC is the constitutional body that issues general-obligation bonds for the state and manages the proceeds, and it also runs investment programs. Article VII, Section IV, Paragraph VII of the Georgia Constitution and O.C.G.A. §§ 50-17-20 through 50-17-30 set out its powers. Section 50-17-27(b) gives GSFIC the authority to invest in direct U.S. obligations and federally guaranteed obligations.

O.C.G.A. § 50-17-2(a) sits in a separate part of the same title and addresses a transactional mechanic: how to use those U.S.-securities investments through repo and reverse-repo structures. The General Assembly enacted § 50-17-2 in 1980, building on the analytic framework laid out the year before in 1979 Op. Att'y Gen. 79-62. The opinion therefore treats § 50-17-2(a) as a codification of the AG's prior view that repurchase mechanics are properly within the scope of the underlying investment authority.

The opinion is a clean reading-of-text exercise. The statutory phrase is "selling and purchasing such obligations under agreements to resell or repurchase the obligations." Read literally, that authorizes:

• selling under an agreement to repurchase (a repo);
• selling under an agreement to resell (essentially a sale, not a repo);
• purchasing under an agreement to repurchase (essentially a purchase plus call option, an unusual structure);
• purchasing under an agreement to resell (a reverse repo).

The AG concluded the General Assembly meant to cover both standard market structures, repo and reverse repo, and the language is broad enough to do so.

Citations and references

Statutes:
- O.C.G.A. § 50-17-2(a) (state-agency authority for repos and reverse repos on U.S.-government securities)
- O.C.G.A. §§ 50-17-20 through 50-17-30 (GSFIC powers and duties)
- O.C.G.A. § 50-17-27(b) (GSFIC authority to invest in U.S.-government obligations)
- Ga. Const. Art. VII, Sec. IV, Para. VII (constitutional creation of GSFIC)

Other AG opinions:
- 1979 Op. Att'y Gen. 79-62 (predecessor analysis, predating § 50-17-2)

Source

• Landing page: https://law.georgia.gov/opinions/2003-10
• Original PDF: not linked from landing page

Original opinion text

You have sought my opinion whether O.C.G.A. § 50-17-2 gives the Financing and Investment Division of the Georgia State Financing and Investment Commission ("GSFIC") the authority to enter into reverse repurchase agreements. Subsection (a) of O.C.G.A. § 50-17-2 reads as follows: Agencies, authorities, boards, public corporations, instrumentalities, retirement systems, and other divisions of state government authorized to invest in direct obligations of the United States government or in obligations unconditionally guaranteed by agencies of the United States government may do so by selling and purchasing such obligations under agreements to resell or repurchase the obligations at a date certain in the future at a specific price which reflects a premium over the purchase or selling price equivalent to a stated rate of interest. Delivery of the obligations purchased may be made by deposit through book entry in a safekeeping account maintained by the seller of the securities, in the name of the purchasing state entity or its agent, clearly indicating the interest of the purchasing state entity. O.C.G.A. § 50-17-2(a) (2002) (emphasis added). GSFIC is an agency and instrumentality of the State of Georgia. Ga. Const. Art. VII, Sec. IV, Para. VII; O.C.G.A. §§ 50-17-20 through -30. GSFIC is authorized to invest in direct obligations of the United States government or in obligations unconditionally guaranteed by agencies of the United States government. O.C.G.A. § 50-17-27(b) (2002). Therefore, it is my official opinion that O.C.G.A. § 50-17-2(a) authorizes both selling and purchasing with a commitment to repurchase or resell. When GSFIC is selling the underlying security with a commitment to buy it back from the purchaser at a specified price at a designated future date, that transaction is commonly known as a "repurchase agreement." Conversely, when GSFIC is purchasing the underlying security with a commitment to sell it back to the seller at a specified price at a designated future date, the transaction is commonly known as a "reverse repurchase agreement." Thus, the statutory authorization for purchasing under agreements to resell is, in effect, an authorization to engage in reverse repurchase agreements, as I have described them. This analysis is consistent with 1979 Op. Att'y Gen. 79-62, which was issued the year before O.C.G.A. § 50-17-2 was first enacted. Prepared by: Shirley R. Kinsey Assistant Attorney General