Can Georgia's Office of the State Treasurer enter into repurchase agreements and reverse repurchase agreements when managing state investment and liquidity needs?
Plain-English summary
The Georgia State Treasurer asked whether the Office of the State Treasurer (OST) had statutory authority to enter into repurchase agreements ("repos") and reverse repurchase agreements (the mirror-image transactions) as part of managing the state's investment and liquidity needs. The Attorney General said yes, subject to the limitations in the relevant statutes and the State Depository Board's investment policies.
The opinion walks through three statutes. O.C.G.A. § 50-5A-7 lays out the OST's investment duties and powers, requiring the State Treasurer to invest funds with the prudent-investor degree of judgment and care. O.C.G.A. § 50-17-2 specifically authorizes the State Treasurer to invest in O.C.G.A. § 50-17-63(b)-listed securities "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." That language directly authorizes both repos (selling with a buyback) and reverse repos (buying with a resell). O.C.G.A. § 50-17-63(b) lists the eligible securities: bankers' acceptances, commercial paper, Treasury and agency obligations, qualified corporate obligations meeting capitalization and credit requirements, sovereign debt of industrialized countries, and securities of the IBRD/IFC.
The opinion relies on a 2003 Op. Att'y Gen. 03-10 that addressed the same question for the Georgia State Financing and Investment Commission (GSFIC). That earlier opinion concluded that O.C.G.A. § 50-17-2(a) authorizes both selling and purchasing with a commitment to repurchase or resell, and the 2012-1 opinion applies the same logic to the OST under § 50-17-2(b).
Currency note
This opinion was issued in 2012. 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 is a repurchase agreement?
A: A short-term financing transaction where Party A sells securities to Party B with a binding commitment to buy them back at a specified higher price on a specified date. Economically, it functions like a collateralized loan: Party A gets cash, Party B gets the securities as collateral, and the difference between the sale and repurchase prices is the implicit interest rate. The opinion describes it: "selling the underlying security with a commitment to buy it back from the purchaser at a specified price at a designated future date."
Q: What is a reverse repurchase agreement?
A: The mirror image. Party A buys securities from Party B with a binding commitment to sell them back at a specified price on a specified date. Economically, it functions like Party A making a collateralized loan to Party B. From Party A's perspective, a repo and a reverse repo are different sides of the same trade.
Q: Why do governments use repos?
A: Cash management. Governments hold large amounts of money in custody (tax receipts, debt issuance proceeds, retirement system contributions) that they need to invest safely until disbursement. Repos let them earn yield on overnight or short-term cash without the credit risk of unsecured deposits. Reverse repos go the other direction: when the government temporarily needs cash, it can lend its securities and get cash back.
Q: What securities can OST use in these transactions?
A: The list in O.C.G.A. § 50-17-63(b): bankers' acceptances, commercial paper, U.S. Treasury and agency obligations (including the long list of agencies named in the statute), corporate obligations of issuers with at least $100M market cap rated investment grade, sovereign debt of industrialized countries rated investment grade, and IBRD/IFC obligations rated investment grade. The State Depository Board can permit the State Treasurer to invest in any one or more of these.
Q: What is the prudent-investor standard?
A: O.C.G.A. § 50-5A-7(b) requires the State Treasurer to invest "with the degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering first the probable safety of their capital and then the probable income to be derived." This is the modern prudent investor rule. It creates a fiduciary-style standard for the OST's investment activities.
Q: How does this opinion interact with the 2003 GSFIC opinion?
A: 2003 Op. Att'y Gen. 03-10 had asked the parallel question for GSFIC: does § 50-17-2(a) (the GSFIC subsection) authorize reverse repos? That opinion said yes, reasoning that "the statutory authorization for purchasing under agreements to resell is, in effect, an authorization to engage in reverse repurchase agreements." 2012-1 applies the same logic to OST under § 50-17-2(b). The opinion also cites 1979 Op. Att'y Gen. 79-62, which had earlier concluded that TRS, ERS, and GSFIC could engage in repo transactions even before § 50-17-2 was enacted, as long as the parties' intent was a sale and repurchase, and the underlying securities were otherwise authorized investments.
Q: Are there any limits on how OST uses repos?
A: Yes. The transactions must comply with State Depository Board investment policies (O.C.G.A. § 50-5A-7(b)), the prudent-investor standard, and the requirements of Chapter 17 of Title 50. The underlying securities must come from the § 50-17-63(b) list. The opinion does not specify quantitative limits on repo position size; those are set by Board policy.
Background and statutory framework
The Office of the State Treasurer was created in 2009-2010 as the successor to the Office of Treasury and Fiscal Services. The OST is housed for administrative purposes within the Department of Administrative Services but is independent in its operational authority. The State Treasurer is appointed and removable by the State Depository Board. The State Treasurer manages cash for the state, custodial funds for various state and local entities, and the Local Government Investment Pool (LGIP).
Repos and reverse repos are core tools of modern public-fund treasury management. They allow governments to earn yield on temporary cash positions without taking on unsecured credit risk. The 2012-1 opinion essentially confirms that the OST has the same statutory authority to use these tools that GSFIC and other state pools already had under prior opinions.
The prudent investor standard in § 50-5A-7(b) is the modern version of the older "legal list" approach to government investment. The combination of an enumerated eligible-securities list (§ 50-17-63(b)) with a fiduciary standard (§ 50-5A-7(b)) and Board policy oversight is the standard architecture for state treasury investment authority.
Citations and references
Statutes:
- O.C.G.A. § 50-5A-7(a), OST investment authority over various funds
- O.C.G.A. § 50-5A-7(b), prudent investor standard
- O.C.G.A. § 50-17-2(b), explicit authorization for State Treasurer repo/reverse repo
- O.C.G.A. § 50-17-63(b), eligible securities list
- O.C.G.A. § 50-5A-1, § 50-5A-9, § 50-5A-10: OST creation, administrative attachment, succession from OTFS
Constitutional:
- Ga. Const. art. III, sec. IX, par. VI(b): motor fuel tax revenue restriction (referenced in § 50-17-63(b))
Prior AG opinions:
- 2003 Op. Att'y Gen. 03-10, § 50-17-2(a) authorizes GSFIC reverse repos
- 1979 Op. Att'y Gen. 79-62: repo authority for TRS, ERS, GSFIC pre-statute
Source
- Landing page: https://law.georgia.gov/opinions/2012-1
- Original PDF: not linked from landing page
Original opinion text
This responds to your request for an official opinion regarding the authority of the Office of the State Treasurer to enter into repurchase agreements and reverse repurchase agreements in connection with managing the State's investment and liquidity needs. The Office of the State Treasurer is created by O.C.G.A. § 50-5A-1 which also provides that the state treasurer is to be appointed and removed by the State Depository Board. The treasurer is empowered to "hire the personnel for the office and shall supervise, direct, account for, organize, plan, and execute the functions vested in the office." O.C.G.A. § 50-5A-1. The Office of the State Treasurer is assigned to the Department of Administrative Services for administrative purposes only. O.C.G.A. § 50-5A-9. The Office of the State Treasurer and the state treasurer succeeded to "all the powers and duties of . . . the former Office of Treasury and Fiscal Services and its director." O.C.G.A. § 50-5A-10. O.C.G.A. § 50-5A-7 provides for the duties of the Office of the State Treasurer as follows: (a) It shall be the power and duty of the Office of the State Treasurer: (1) To receive and keep safely all moneys which shall from time to time be paid to the treasury of this state, and to pay all warrants legally drawn on the treasury by the Governor and countersigned by the Comptroller General or, in the Comptroller General's absence, by the deputy comptroller general, and to pay all drafts of the President of the Senate and the Speaker of the House of Representatives for sums lawfully due the members and officers of their respective bodies; (2) To keep good and sufficient accounting records of every sum of money received into, or disbursed from, the state treasury, utilizing an accounting system in conformity with generally accepted accounting principles and approved by the state accounting officer; (3) To keep a true and faithful record of all warrants drawn by the Governor on the treasury and all drafts drawn on the treasury by the President of the Senate and the Speaker of the House of Representatives; (4) To keep a true and faithful record of the accounts with all designated state depositories in which the state's money is deposited, showing the principal amount and the interest earned in each depository; (5) To keep safely certificates of stock, securities, state bonds, and other evidences of debt and to manage and control the same for the purposes to which they are pledged; (6) To invest all state and custodial funds, subject to the limitations of subsection (b) of this Code section and Chapter 17 of this title; (7) To invest all health insurance funds, subject to the limitations of subsection (b) of this Code section and Chapter 17 of this title; (8) To invest all self-insurance, liability, indemnification, tort claims, workers' compensation, or related funds, subject to the limitations of subsection (b) of this Code section and Chapter 17 of this title; (9) To invest all other funds in its possession, subject to the limitations of subsection (b) of this Code section and Chapter 17 of this title; and (10) To lend securities in its possession, subject to the limitations of subsection (b) of this Code section and Chapter 17 of this title. (b) Pursuant to an investment policy adopted by the State Depository Board, the Office of the State Treasurer shall invest funds through the state treasurer. The state treasurer shall invest all funds with the degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering first the probable safety of their capital and then the probable income to be derived. (Emphasis supplied.) Subsection (a) grants to the Office of the State Treasurer the power to invest various funds, but requires that such investments be consistent with Chapter 17 of Title 50. Subsection (b) grants to the Office of the State Treasurer the power to invest funds through the state treasurer "[p]ursuant to an investment policy adopted by the State Depository Board." This grant of authority to the Office of the State Treasurer is conditioned on the treasurer investing funds with the degree of judgment and care described in subsection (b). Specifically related to repurchase and reverse repurchase agreements, O.C.G.A. § 50-17-2 provides: (a) 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. (b) In addition to the authorization in subsection (a) of this Code section, the state treasurer may invest in the securities authorized for direct investment by subsection (b) of Code Section 50-17-63 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 Office of the State Treasurer or its agent, clearly indicating the interest of the Office of the State Treasurer. (Emphasis supplied.) O.C.G.A. § 50-17-63(b) provides as follows: (b) All departments, boards, bureaus, and other agencies of the state shall report to the board, on such forms and at such times as the board may prescribe, such information as the board may reasonably require concerning deposits and withdrawals pursuant to this Code section and shall enable the board to determine compliance with this Code section. Interest earned on state funds withdrawn from the state treasury on approved budgets shall be remitted to the Office of the State Treasurer by each department, board, bureau, or agency and placed in the general fund. The board may permit the state treasurer to invest in any one or more of the following: bankers' acceptances; commercial paper; bonds, bills, certificates of indebtedness, notes, or other obligations of the United States and its subsidiary corporations and instrumentalities or entities sanctioned or authorized by the United States government including, but not limited to, obligations or securities issued or guaranteed by Banks for Cooperatives regulated by the Farm Credit Administration, the Commodity Credit Corporation, Farm Credit Banks regulated by the Farm Credit Administration, Federal Assets Financing Trusts, the Federal Financing Bank, Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financial Assistance Corporation chartered by the Farm Credit Administration, the Government National Mortgage Association, the Import-Export Bank, Production Credit Associations regulated by the Farm Credit Administration, the Resolution Trust Corporation, and the Tennessee Valley Authority; obligations of corporations organized under the laws of this state or any other state but only if the corporation has a market capitalization equivalent to $100 million; provided, however, that such obligation shall be listed as investment grade by a nationally recognized rating agency; bonds, notes, warrants, and other securities not in default which are the direct obligations of the government of any foreign country which the International Monetary Fund lists as an industrialized country and for which the full faith and credit of such government has been pledged for the payment of principal and interest, provided that such securities are listed as investment grade by a nationally recognized rating agency; or obligations issued, assumed, or guaranteed by the International Bank for Reconstruction and Development or the International Financial Corporation, provided that such securities are listed as investment grade by a nationally recognized rating agency; provided, however, that interest earned on the investment of motor fuel tax revenues shall be defined as motor fuel tax revenues and shall be appropriated in conformity with and pursuant to Article III, Section IX, Paragraph VI(b) of the Constitution of Georgia. The board may also permit the state treasurer to lend any of the securities of the type identified in this subsection subject to the limitations of subsection (b) of Code Section 50-5A-7 and this chapter. (Emphasis supplied.) Thus, O.C.G.A. § 50-17-2(b) specifically authorizes the state treasurer to enter into agreements involving the selling and purchasing of any of the investments authorized by O.C.G.A. § 50-17-63(b) "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." Although not addressing the state treasurer's authority, the provisions of O.C.G.A. § 50-17-2 were addressed in a 2003 Opinion of the Attorney General. 2003 Op. Att'y Gen. 03-10 addresses the specific question of "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" and concludes as follows: 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. As support for its conclusion, 2003 Op. Att'y Gen. 03-10 cites 1979 Op. Att'y Gen. 79-62, which addressed the question of whether the Teachers Retirement System, the Employees' Retirement System, and GSFIC could invest in repurchase agreement transactions prior to the enactment of O.C.G.A. § 50-17-2. 1979 Op. Att'y Gen. 79-62 concludes that a repo transaction can be an authorized investment of TRS, ERS and GSFIC so long as the transaction is intended by the parties to be a sale and repurchase of securities on terms under which such securities might normally be sold, and so long as the documents supporting the transaction adequately record that intention of the parties, and so long as the securities involved are those in which the state entity is otherwise authorized to invest. One source of investment authority of the Office of the State Treasurer is set forth in O.C.G.A. § 50-5A-7, which requires that investments be conducted by the state treasurer for the Office of the State Treasurer in accord with Chapter 17 of Title 50 and the investment policy of the State Depository Board. The treasurer is also required to "invest all funds with the degree of judgment and care, under circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering first the probable safety of their capital and then the probable income to be derived." O.C.G.A. § 50-5A-7(b). Further, O.C.G.A. § 50-17-2 specifically authorizes the state treasurer to invest in any of the securities authorized under O.C.G.A. § 50-17-63(b) "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 state rate of interest." Subject to the limitations set forth in the statutes described herein and the policies of the State Depository Board, the Office of the State Treasurer is empowered to enter into repurchase agreements and reverse repurchase agreements in connection with fulfilling its role related to managing the investment and liquidity needs of the State. Based on the foregoing, it is my official opinion that, in compliance with the applicable statutory provisions and the policies of the State Depository Board, the Office of the State Treasurer is empowered to enter into repurchase agreements and reverse repurchase agreements in connection with fulfilling its role related to managing the investment and liquidity needs of the State. Prepared by: W. Wright Banks, Jr. Senior Assistant Attorney General