Could a Louisiana hospital service district invest its general fund in stocks or stock mutual funds?

Plain-English summary

Hospital Service District No. 1 of Terrebonne Parish asked whether it could invest general-fund money, outside any pension or retirement plan, in stocks or stock mutual funds. In this October 2013 opinion, the AG concluded that the Louisiana Constitution barred the district from buying corporate stock with those public funds, directly or through mutual funds.

The Legislature had recently authorized hospital district investments using rules associated with the state retirement system. The AG said that authorization was unconstitutional to the extent it purported to allow stock purchases with public funds. The opinion distinguished the district's general fund from certain retirement-system assets it described as private funds. This is the AG's constitutional conclusion, not a court judgment striking down the statute.

Currency note

This opinion was issued in 2013. 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.

Historical summary

Hospital district commissioners

The AG treated the district as a political subdivision subject to La. Const. art. VII, § 14(A). Because the proposed investments involved public general-fund money, it rejected direct stock purchases and stock exposure through mutual funds under that provision.

Public finance officers

The opinion read the 2013 hospital-district investment statute against the Constitution's stock-purchase prohibition. It did not extend the answer to retirement money or decide every kind of investment available to the district.

Common questions

Could the district buy individual corporate shares with general-fund money?

The AG said no. It concluded that the constitutional bar on stock purchases by political subdivisions applied to the district's public general fund.

Would a mutual fund holding stocks avoid the restriction?

No, according to the opinion. It treated stock purchases through mutual funds the same as direct stock purchases for the question presented.

Didn't the Legislature authorize broader hospital district investments in 2013?

Yes, the opinion discussed that statute, but concluded it was unconstitutional insofar as it purported to allow stock investment of public funds.

Did the opinion address pension assets?

The request expressly excluded pension and retirement-system money. The AG contrasted public general-fund money with certain retirement-system assets characterized in the cited case as private funds.

Background and statutory framework

The opinion considered La. R.S. 33:2957 and La. R.S. 46:1073.1, enacted in 2013 to expand hospital district investment authority. It held that the district's proposed public-fund stock purchases conflicted with La. Const. art. VII, § 14(A). Its analysis relied on earlier Louisiana court decisions about the constitutional ban and the distinction between public funds and certain retirement funds.

Citations

• La. R.S. 33:2957 and La. R.S. 46:1073.1: hospital district investment authority considered by the AG.
• La. Const. art. VII, § 14(A): constitutional stock-purchase restriction applied in the opinion.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/13-0138

Original opinion text

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DEPARTMENT OF JUSTICE
P.O. BOX 94005
BATON ROUGE
70804-9005
JAMES D. "BUDDY" CALDWelL
ATTORNEY GENERAL

October 17, 2013
OPINION 13-0138

90-A-1 PUBLIC FUNDS & CONTRACTS
Mr. Daniel J. Walker
La. Const. art. VII, § 14; La. R.S. 33:2957; La. R.S. 46:1073.1
Watkins, Walker & Eroche
Under La. Const. art. VII, § 14(A), Hospital Service District No.1 of the (A Professional Law Corporation) Parish of Terrebonne, may not purchase, either directly or through mutual
P.O. Box 5095
funds, stocks with public funds. To the extent La. R.S. 46:1073.1 purports
to allow public funds to be invested in stocks, the statute is unconstitutional.
Houma, LA 70361-5095

Dear Mr. Walker:

Your request for an Attorney General's Opinion on behalf of the Hospital Service District No.1 of the Parish of Terrebonne, State of Louisiana (the "District") has been assigned to me for research and reply. You ask whether, assuming the District meets the "prudent-man rule" provisions of La. R.S. 11 :263 and other restrictions applicable to the investment of funds of the Louisiana State Employees' Retirement System, the District may purchase stock, directly or through mutual funds that invest in stocks as a permitted inves1ment, with its general fund monies that are not a part of a pension plan or retirement system.

By Act 264 of the Regular Session of 2013, the Legislature enacted La. R.S. 33:2957 and La. R.S. 46: 1073.1. Under La. R.S. 33:2957, "[a]ny hospital service district may . invest its funds as provided by R.S. 46:1073.1, except as provided therein." Further, La.
46:1073.1 provides as follows:

A. Notwithstanding any provision of law to the contrary, a hospital service district may invest its funds as provided by law for investment of funds of the Louisian~ State Employees Retirement System, including but not limited to R.S. 11 :263; however, any such investment may be made only in compliance with rules and regulations established by the hospital service district commission and in compliance with the provisions of R.S.
11 :263 and any other law which provides for investments in which funds of the Louisiana State Employees Retirement System may be invested.

Page 2

Mr. Daniel J. Walker
Opinion 13-0138
Page -2­

B. This Section shall be applicable to a hospital service district as defined in R.S. 46:1072, other than a hospital owned by the state.

Significantly, under La. R.S. 11 :263(0), retirement systems may invest a certain percentage of their portfolios in equities. The question thus presented, when public funds are involved, is whether La. R.S. 46:1073.1 is in contravention of La. Const. art. VII, § 14(A). That subsection provides, in pertinent part, that "... [n]either the state nor a political subdivision shall subscribe to or purchase the stock of a corporation or association or for any private purpose."

As political subdivisions,1 hospital service districts are subject to La. Const. art. VII, § 14(A).

In 1962, the Louisiana Supreme Court construed Article 4, Section 12 of the 1921 Constitution to prohibit the state or its political subdivisions from engaging in private enterprise by purchasing an insurance policy from a mutual insurance company.2 Article 4, Section 12 of the 1921 Constitution, the predecessor to Article VII, Section 14 of the 1974 Constitution, did not refer to insurance. The pertinent section stated that "... nor shall the State, nor any political corporation, purchase or subscribe to the capital stock of any corporation or association whatever, or for any private enterprise".

The court found that a "mutual insurance company" is a cooperative enterprise and the purchase of a 'Fire and extended coverage policy constituted a subscription to capital by the Housing Authority which contravened the Constitution. 3

More recently, in 1982, the First Circuit Court of Appeals determined that La. Const. art. VII, § 14(A) applies to public funds but not private-funds, such as those belonging to the members of certain retirement systems. 4

As your request qualifies that the funds at issue are general fund monies and are not part of a pension plan or retirement system, it is clear that these are public funds rather than private.

Considering the forgoing constitutional and jurisprudential authority, it is the opinion of this ofFice that, under La. Const. art. VII, § 14(A), the District may not purchase, either directly or through mutual funds, stocks with public funds. To the extent La. R.S. 46:1073.1 purports to allow public funds to be invested in stocks, it is unconstitutional.

La. R.S. 46:1 064(A).
2
Public Housing Admin. v. Housing Auth. of Bogalusa, 137 So.2d 315 (La.1961).
3
Id.
4
Louisiana State Employees' Retirement System v. State, Through Dept. of Justice, 423 So.2d 73 (La.App. 1 Cir. 11/16/1982), writ denied, 427 So.2d 1206 (La. 1983).

Page 3

Mr. Daniel J. Walker
Opinion 13-0138
Page -3­

We trust this adequately responds to your request. However, if our office can be of further assistance, please do not hesitate to contact us.

Yours very truly,

JAMES D. "BUDDY" CALDWELL
Attorney General

By:~A. ~R
BENJAMIN A. HUXEN II
Assistant Attorney General
JOC/BAH II