Judges: MARK PRYOR, Attorney General
Filed Date: 9/10/2001
Status: Precedential
Modified Date: 7/5/2016
Ms. Cathie Matthews, Director Department of Arkansas Heritage 323 East Center Street, Suite 1500 Little Rock, Arkansas 72201
Dear Ms. Matthews:
I am writing in response to your request for an opinion on three questions concerning the relationship of the Department of Arkansas Heritage — Arkansas Territorial Capitol Restoration Commission ("Commission")1 to the Arkansas Territorial Restoration Foundation, Inc. ("Foundation"). Specifically, you note that the findings of a recent audit performed by the Division of Legislative Audit are critical of the Commission's relationship with the Foundation. You have enclosed the proposed audit finding for my review and ask that I incorporate it with your request for the purpose of my opinion. The "Findings and Recommendations" of the auditors include the following:
Commission personnel, equipment and facilities are used to generate Foundation revenues and support Foundation activities.
The Commission was created and charged with the duty of restoring the old Territorial Capitol and other historic buildings and to secure any additional funds in defraying the cost of restoration. Additionally, enabling legislation provides that funds realized from the sale of souvenirs and from other sources connected with the project shall be used for the maintenance of the historic center. The Commission may be circumventing legislation by directing substantially all donations and grants to the Foundation. For the year ended June 30, 2000 the Commission received $142 in contributions and grants. For the year ended December 31, 2001 the foundation received $127,328 in contributions and grants. In addition, the Commission has contracted with the Foundation for the sale of souvenirs. For the year ended December 31, 2000 the foundation collected $13,430 form museum store sales.
The Foundation utilizes Commission trademarks and website for advertising membership in the Foundation. Furthermore, Foundation records are maintained with Commission equipment and six (6) State personnel are used for various duties without reimbursement. The Executive Director and the Chairperson of the Commission are ex-officio members of the Foundation Board of Directors. The Commission and Foundation may appear to be virtually the same entity to the public.
The auditors question the legality of the relationship of the Commission and the Foundation in light of an opinion issued by my predecessor, Op. Att'y Gen.
You place emphasis on the fact that one of the Commission's purposes is to "secure additional funds . . . for the project . . . form private subscriptions to assist in defraying the cost of restoration. . . ." A.C.A. §
You pose the following three questions:
1. Can the Commission maintain its current relationship with the Foundation, given that this relationship furthers a public purpose by providing funds and other benefits to the Commission which are used to operate the museum?
2. Is your answer to the first question affected by the value of the benefits from the Foundation to the Commission? To state this question another way, does the constitutionality of this relationship depend on the value of the benefits from the Foundation equaling or exceeding the value of the assistance from the Commission?
3. Would your answer to the first question be affect if the Commission and Foundation entered into annual agreements that specified the obligations and benefits from each organization to the other?
RESPONSE
There is sparse legal authority on the questions you pose. In addition, what little authority I have found on the topic indicates that each such relationship must be evaluated on its own particular facts. Although you have provided me with certain facts for purposes of this opinion, I cannot, through the issuance of an Attorney General's opinion, conclusively determine such a fact-intensive inquiry. I can, however, outline the applicable law that will be relevant in assessing the pertinent facts. I have attempted to do so below, although there is apparently a variation of opinion on the issue and the applicable limitations attendant such relationships. I can only state, in response to your first question, that the Arkansas Supreme Court has never addressed the constitutionality of an arrangement such as you describe. Reliably predicting what that court would hold on the question is therefore impossible. It is entirely possible that our court would eschew the sharing of public assets with private entities in this manner. My review of the only available authorities, however, indicates that the legality of the relationship may depend upon how it is structured. The current structure of the relationship between the Commission and the Foundation, based upon the facts you have relayed, may be deficient in some respects. In response to your second question, assuming such relationships can be lawful, a mathematical quid-pro-quo is not required, although in most cases some form of consideration may be. In response to your third question, a written agreement is advisable. Due to the fact-intensive nature of such issues, however, agencies such as the Territorial Capitol Restoration Commission must rely on the advice of their appointed counsel in assessing the facts of their particular relationships and in structuring those relationships to comport with law.
Question 1 — Can the Commission maintain its current relationship withthe Foundation, given that this relationship furthers a public purpose byproviding funds and other benefits to the Commission which are used tooperate the museum?
I assume by this question that you mean to inquire about the legality and or constitutionality of the Commission's current relationship with the Foundation. You have not defined the "current relationship" in detail, but have included the audit findings in this regard. I assume, at a minimum, therefore, that the relationship to which you refer includes the sharing of Commission personnel (without reimbursement), equipment (including records maintenance) and facilities with the Foundation; the "directing" of donations and grants to the Foundation by the Commission; the contract between the Commission and the Foundation with reference to selling souvenirs at the museum; use of the Commission's website for Foundation advertising; and the service of the Director and Chairperson of the Commission as ex-officio members of the Foundation's Board of Directors.
Applicable Law
At least two statutes are relevant to your questions. They relate to the powers and duties of the Commission and provide as follows:
A.C.A. §
A.C.A. §(a) Before and after the restoration work on the historic center is completed, the Arkansas Territorial Capitol Restoration Commission may charge an admission fee thereto as it deems appropriate.
(b) The funds realized form admission fees, the sale of souvenirs, and from other sources connected with the project shall be used for the maintenance of the historic center so far as necessary.
(c) Any surplus funds from these sources of income that may be in the hands of the commission at the end of each fiscal year shall be deemed cash funds.
The Arkansas Territorial Capitol Restoration Commission is authorized to accept and receive any and all gifts, grants, donations, and contributions of real and personal property and to manage and use the property and the income therefrom for the construction, reconstruction, restoration, and maintenance of buildings or facilities and for other improvements on Block 32 of the Original City of Little Rock, the Territorial Capitol Restoration Grounds.
In addition to the statutes above, there are several constitutional provisions of potential applicability to your inquiry, including Arkansas Constitution, art.
No principle of constitutional law is more fundamental or more firmly established than the rule that the State cannot, within the limits of due process, appropriate public funds to a private purpose. A century ago the basic doctrine was simply stated in the leading case of Brodhead v. City of Milwaukee,
19 Wis. 624 : "The legislature cannot create a public debt, or levy a tax, or authorize a municipal corporation to do so, in order to raise funds for a mere private purpose. It cannot in the form of a tax take the money of the citizens and give it to an individual, the public interest or welfare being in no way connected with the transaction. The objects for which money is raised by taxation must be public, and such as subserve the common interest and well being of the community required to contribute."
Chandler,
In Chandler, the Arkansas Supreme Court struck down statutes authorizing participation of the employees of the Arkansas Education Association in the Arkansas Teachers' Retirement System. The court conceded that some of the Association's activities furthered the cause of public education within the state. Id. at 259. On the other hand, the court noted, the Association's by-laws provided for a standing Legislative Committee and the members engaged in lobbying activities. In addition, the court noted that a "retirement allowance represents compensation paid to the recipient," and although the cause of public education was furthered by the activities of the AEA employees, there was no indication that they devoted their time to the public service. Id. at 259, 260.
Arkansas cases interpreting whether state expenditures benefiting private entities violate the public purpose doctrine are scarce. Chandler is the only apposite Arkansas case involving the state and a private association.3 In addition, the Arkansas Supreme Court has declined to give a judicial definition to the phrase "public purpose" because "its meaning is not exact, nor is it prone to a static definition." City ofNorth Little Rock v. Pulaski County,
After extensive research, I have found only one reported judicial decision in this country on the legality of a relationship similar to the one you describe. In Slawson v. Alabama Forestry Commission,
Although this is the only judicial decision I have found similar to the facts you present, a number of other Attorneys General, including my predecessor, have had the opportunity to opine on similar facts. At least one Attorney General has distinguished the Slawson decision as applying a much more liberal test for a "public purpose" than applicable in his state. In Idaho Opinion of the Attorney General 95-7 (1995 WL 646503), the Idaho Attorney General was asked to opine upon the applicable limitations on loaning and/or sharing State of Idaho employees or facilities to or with private foundations. In a summary of the conclusion reached, the Idaho Attorney General stated that:
State of Idaho employees or facilities may not be shared with or loaned to private charitable foundations unless such action serves a public purpose and is directly related to a function of government. Moreover, such arrangements will be most likely to withstand a judicial challenge if the foundation involved exists for the benefit of the state agency and performs activities which the state agency can conduct. Additionally, there should be state control, whether contractual or otherwise, to ensure that the activities of the charitable foundation continue to meet the public purpose requirement.
Id. at 1.
The Idaho AG stated that "there is authority concluding that these arrangements can meet the public purpose requirement." He then cites Attorney General opinions from Texas and Utah as authority but distinguishes the Slawson decision as applying a broader "public purpose" definition than employed by the Idaho courts. He also stated that:
[I]t is clear that there is some variation in terms of how the public purpose doctrine is applied when a state provides resources or personnel to a private organization. The Alabama Supreme Court appeared to take a significantly looser approach than did either the Texas or the Utah Attorneys General and to defer significantly to the executive agency's decision. Because of this variation and the limited number of cases available to review, it is difficult to state with absolute certainty what the limitations on facility and personnel sharing are.
Id. at 7.
The Idaho Attorney General went on, however, to make a number of suggestions as to the structuring of the arrangements, including that: "the arrangement must benefit the community, and it must be directly related to the function of government. Moreover, it would be desirable that the foundations' sole or principle purpose is to support the state agency, and the foundation only engages in activities which the state agency is specifically authorized to conduct. Finally, any sharing arrangement affecting personnel or other state resources should be memorialized in writing, and the state should retain some control over the foundation to ensure that the public purpose justifying the sharing arrangement continues to be served." Id. at 7.
Other Attorneys General have stressed similar considerations in addressing analogous issues. See, e.g., La. Op. Att'y Gen. 98-346 (1998 WL 781131) (cooperative endeavor agreement between Department of Wildlife and Fisheries and Louisiana Wildlife and Fisheries Foundations, which entailed sharing of personnel time, office space, goods and services was not an unconstitutional "donation" because the purpose of the Foundations was solely to benefit the Department); Texas Op. Att'y Gen. MW-373 (1981 WL 140058) (relationship between the University of Texas and the University of Texas Law School Foundation not unconstitutional where Foundation existed to serve the educational function of the law school, its charter required it to devote its resources to benefiting the law school, its charter required it to devote its resources to benefiting the law school, and where adequate controls exist to ensure the public purpose is met, but University could not pay Foundation's employees' benefits); Oklahoma Op. Att'y Gen. 82-71 (Oklahoma Wheat Commission could not lawfully provide office space and secretarial and bookkeeping services for the Oklahoma Wheat Growers Association, at least absent a contract where proper governmental controls and safeguards exist to ensure the accomplishment of a public purpose); and North Dakota Op. Att'y Gen. L-62 (2000 WL 33156050) (implied verbal agreement between University and related nonprofit alumni association or foundation, under which foundation receives unreimbursed office space, utilities, telephone, janitorial, payroll or accounting services were not unlawful because they represented an "exchange for value" and the sole function of the foundation was to provide financial assistance to the university, but recommending written operating agreements).
The most relevant Arkansas Attorney General opinion is Op. Att'y Gen.
Application of the Law to the Facts
In my opinion the statutes cited previously (A.C.A. §§
Section
The audit findings state that the "Commission has contracted with the Foundation for the sale of souvenirs." I have not been provided with a copy of any such contract, and thus cannot definitively analyze its legality. I assume from the findings of the auditors that the Foundation is receiving the income under the contract from the sale of souvenirs. The findings state that "[f]or year ended December 31, 2000 the Foundation collected $13,430 from museum store sales." A question arises, therefore, as to whether the contract is contrary to law. Again, I cannot conclusively determine the issue without reference to the contract. It may well be that funds are ultimately spent for the intended purposes, i.e., for "maintenance of the historic center." The designation of surplus funds, however, if any, as "cash funds," indicates that perhaps privatization of this function would require legislative sanction.
An analysis of the public purpose of the contract would require detailed reference to its provisions, including the purposes for which the Foundation could expend the funds and the existence of any adequate controls on their expenditure.
As for the directing of donations and grants to the Foundation, again, I cannot conclusively determine the statutory issue absent reference to all the facts. The relevant statute, A.C.A. §
The finding of the auditors states merely that: "The Commission may be circumventing legislation by directing substantially all donations and grants to the Foundation." It is not indicated whether the Commission is simply informing potential donors to conduct their business with the Foundation, or whether in fact funds accepted by the Commission are being forwarded by it to the Foundation. The latter case would appear markedly more problematic under A.C.A. §
As for the sharing of Commission equipment, facilities and website, the legality of the current relationship turns upon its "public purpose." Again, this will depend upon all the relevant facts. It appears from the information you have provided that the Foundation has expended substantial sums benefiting the programs of the Territorial Restoration. Obviously, there is some public benefit at play in the activities of the Foundation. The question of the legality of the relationship, however, may depend upon the totality of the relationship and how it is structured to ensure the fulfillment of a public purpose.
One of the factors emphasized by the Attorney General opinions cited above is whether the sole purpose of the foundation is to support the state agency. In this regard, the Articles of Incorporation of the Arkansas Territorial Restoration Foundation list its purposes in relevant part as follows:
(a) To receive and administer funds for charitable, scientific, literary and educational purposes and to that end to take and hold . . . property . . . to sell . . . or otherwise dispose of any such property and to invest . . . the income thereof in such manner as, in the judgment of the directors, will best promote the purposes of the Corporation. . . .
(b) Without limiting the generality of the foregoing, one of the principal purposes of the Corporation shall be the fostering of educational opportunities for the public at the Arkansas Territorial Restoration through a museum, museum store, exhibitions, lectures, forums, or other similar activities or programs.
Articles of Incorporation of the Arkansas Territorial Restoration Foundation, Article Three, (a) and (b).
Thus, although "one of the principal purposes" of the Foundation is to foster development of programs connected to the Territorial Restoration, this is not stated as the sole or even the primary purpose of the Foundation.5
Another factor is whether the state agency retains some controls over the actions of the private foundation. The idea behind this requirement is that a public purpose cannot be assured through use of state provided resources, unless the state retains some type of enforceable ability to direct the use of the resources provided. Oklahoma Op. Att'y Gen. 82-71,supra. Although most of the authorities indicate that this control should be exercised through a contract, there is authority for the proposition that it can be provided by having the Foundation's "sole purpose" be to assist the state agency, or through other regulatory mechanisms. See,e.g., Texas Op. Att'y Gen. MW-373 (1981 WL 140058).
An additional and related factor emphasized by the available precedent is whether the relationship or arrangement is memorialized in writing. Although the auditors' report indicates an existing contract between the Commission and the Foundation with regard to the sale of souvenirs at the museum, no general contract governing the use of Commission facilities and equipment by Foundation members is mentioned. It is unclear, therefore, to what extent the Commission has the ability to legally enforce the purposes to which the Foundation applies the use of facilities, equipment, etc., provided by the Commission.
The absence of some or all of these factors in the relationship between the Commission and the Foundation suggest a need for a more carefully structured arrangement in order to render it judicially defensible. Again, the available law on the issue is sparse and I cannot state with certainty whether any particular arrangement will pass constitutional muster. The issues addressed herein should be reviewed by counsel for the Commission and other agencies facing similar issues, in order to ensure compliance with law.
I must emphasize a special point of concern, however, with regard to the sharing of Commission "personnel." This issue was touched upon in Op. Att'y Gen.
One final aspect of the relationship must be addressed. The auditors state that the Executive Director and the Chairperson of the Commission are ex-officio members of the Foundation Board of Directors. Although this set of facts might appear to further the retention of control over the private entity's activities (as suggested above), it may lead to other problems. The Texas Attorney General addressed this issue in Texas Op. Att'y Gen. H-1309 (1978 WL 24565). He raised an ethical problem with the dual service in the event a contract between the two entities was executed. In essence, he concluded, state agency directors would be prohibited from contracting with a private entity in which they also have an interest. The rule is the same in Arkansas, which holds such contracts "voidable," at least where the officer has a pecuniary interest. See,e.g., Warren v. Reed,
Question 2 — Is your answer to the first question affected by the valueof the benefits from the Foundation to the Commission? To state thisquestion another way, does the constitutionality of this relationshipdepend on the value of the benefits from the Foundation equaling orexceeding the value of the assistance from the Commission?
The answer to this question is not entirely clear. The value of the benefits received by the state through the Foundation's activities is, of course, inextricably linked to the public purpose of the arrangement. It appears, however, that quid-pro-quo economic parity is not required in order to support the legality of the relationship.
If the arrangement is memorialized in a contract, consideration must exist to support the contract. It is axiomatic, as a matter of pure contract law, that a contract is not valid unless supported by adequate consideration. Minyard v. Daking Mill, Inc.
The fact that a contract is supported by adequate consideration for purposes of contract law is not tantamount, however, to a determination that the contract necessarily fulfills a public purpose. The existence of consideration supporting a public contract will not validate it where it lacks a public purpose. See, e.g., Needham v. Garner,
The variance in opinion is due in some part to the varying constitutional provisions of each state's law. The Arkansas Constitution does not contain a "no donation" clause applicable to the state, as is the case in some states. See, e.g., North Dakota Op. Att'y Gen. L-62 (2000 WL 33156050), citing Adams County Record v. Greater North Dakota Association,
Question 3 — Would your answer to the first question be affect if theCommission and Foundation entered into annual agreements that specifiedthe obligations and benefits from each organization to the other?
Yes. As noted above, a written agreement is advisable and in some cases is necessary to ensure the fulfillment of the "public purpose."
Senior Assistant Attorney General Elana C. Wills prepared the foregoing opinion, which I hereby approve.
Sincerely,
MARK PRYOR Attorney General
MP:ECW/cyh
Slawson v. Alabama Forestry Com'n , 631 So. 2d 953 ( 1994 )
Chandler v. BOARD OF TRUSTEES OF TEACHER RETIRE. SYS. , 365 S.W.2d 447 ( 1963 )
Needham v. Garner , 233 Ark. 1006 ( 1961 )
Truitt v. Board of Public Works , 243 Md. 375 ( 1966 )
Warren v. Reed , 231 Ark. 714 ( 1960 )
Gipson v. Ingram , 215 Ark. 812 ( 1949 )