This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

WATER SUPPLY AND DISTRIBUTION -- Public Water Systems (necessity to pay interest on consumer deposits)
MUNICIPAL FUNDS -- Deposits and Investments (of consumer deposits for municipal water utility)

PUBLIC SERVICE LAW, §§89-1, 117; GENERAL MUNICIPAL LAW, §11: A municipal water utility is not required by Public Service Law, §117 to pay interest on consumer deposits at the rate fixed by the Public Service Commission. If the municipality in its discretion decides to invest these moneys, the interest earned must be credited to the consumers, but the municipality may retain a reasonable administrative fee. Opn Nos. 81-27 and 79-754 are superseded.

We are in receipt of your letter asking whether 1976 Opns St Comp No. 76-1273, unreported, still represents the views of this Office. In that opinion, we concluded that a village operating a water utility was not required by section 117 of the Public Service Law to pay interest on consumer deposits.

Public Service Law, §117 provides, with certain exceptions, that a gas, electric, gas and electric, water, steam, telegraph, or telephone corporation, "or a municipality rendering equivalent utility services", may require consumers to post certain deposits. That section further provides that "such corporation and municipality" shall allow to every such depositor interest at a rate per annum to be prescribed from time to time by the Public Service Commission. In Opn No. 76-1273, supra, however, we concluded, based on the provisions of Public Service Law, §89-l, that section 117 was not applicable to municipal water utilities.

Section 89-l(2) requires municipalities to file with the Public Service Commission a copy of the annual report of its department of water. Subdivision one of section 89-l further provides in pertinent part as follows:

The other provisions of this chapter shall not apply to such a municipality, nor to its said business of owning, maintaining or operating a water system or of selling, furnishing or distributing water, except such provisions as are applied by this section by express reference. The jurisdiction of the public service commission, with respect to such a municipality or its said business, is that, and only that, provided in this section. [Emphasis added]

Because of the above exemption for municipal water utilities and because there is nothing in section 117 which negates that exemption, we concluded in Opn No. 76-1273, supra, that the interest requirement of section 117 was not applicable to village water utilities (see also 16 NYCRR Part 91.1, which relates to consumer deposits on municipal utilities and which is limited in scope to municipalities supplying electricity, gas or steam service). In support of our conclusion, we also stated that the phrase "or a municipality rendering equivalent utility services" contained in section 117 refers only to those municipal utility services within the jurisdiction of the Public Service Commission and to which its rules and regulations apply. The above provision in section 89-1, however, makes it clear that a municipal water system is not such a utility.

There have been no statutory amendments or judicial decisions since 1976 which would cause us to change our opinion. We have also conferred with the Public Service Commission and they still agree with the conclusions expressed in our earlier opinion. Therefore, it remains our opinion that the interest requirement of Public Service Law, §117 is not applicable to consumer deposits required in connection with a village water utility.

Even though there is no requirement that consumer deposits received in connection with a municipal water system be invested, we have stated that a municipality may, in its own discretion, invest security deposits posted by users of municipal facilities or services. Although there is no specific statutory authorization for the investment of moneys of others held by a municipality (cf. General Municipal Law, §11 governing the temporary investment of moneys of municipal corporations), we have concluded that a municipality, as custodian of moneys belonging to third parties, has the requisite authority to invest those moneys absent any contrary specific statute, regulation or judicial decision (see, e.g., 1981 Opns St Comp No. 81-27, p 26; 1979 Opns St Comp No. 79-754, p 154; 24 Opns St Comp, 1968, p 412; Office of the State Comptroller, Financial Management Guide, Cash Management and Investment Policies and Procedures, section 2.0060). To ensure adequate safeguards when investing such third party moneys, we have also stated that municipalities should adhere to the same procedures and policies governing the investment of public moneys.

If a municipality elects to invest security deposits, it is our opinion that the interest must be credited to the depositor (id.). However, we also believe that a municipality may apply a reasonable administrative fee against the interest earned to compensate itself for the cost of services performed in investing moneys of a third party.

Although we previously have concluded in the case of security deposits that a municipality would not be entitled to an administrative fee for its services, we now believe that there is no reason to distinguish between the investment by a municipality of security deposits and other moneys of third parties held in a custodial capacity. In our earlier opinions, we reasoned that to allow retention of a fee for investment of security deposits would be contrary to the purpose of the deposits, namely, to ensure faithful performance of an obligation. As noted, however, the purpose of the administrative fee is to compensate the municipality for the accounting, clerical and disbursement services performed in connection with investing the moneys. Since these services are performed both for the investment of security deposits and other moneys of third parties, there does not appear to be any reason to distinguish between security deposits and other third moneys and we, therefore, now conclude that a reasonable fee should be allowable to the municipality as its compensation for administering the investment in both situations in the absence of a specific statutory provision to the contrary.

Accordingly, Opn Nos. 79-754 and 81-27 are hereby superseded to the extent they conclude that a municipality may not retain a reasonable administrative fee for the investment of security deposits.

June 28, 1990
Scott A. Smith, Village Clerk/Treasurer
Village of Seneca Falls