December 9, 1985
Mr. Maurice C. Christiansen
Auditor General
Legislative Audit
435 South Chapelle
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 85-47
Donations to School for Visually Handicapped
Dear Auditor General Christiansen:
You have requested my opinion based upon the following situation:
FACTS:
Donations were given to the South Dakota School for Visually Handicapped. These donations were later transferred to the South Dakota Foundation for the Visually Impaired, a private, non-profit corporation. The custodial agreement between the school and the foundation gives the foundation the authority to maintain the funds as custodian. The agreement also allows the school to withdraw the funds from the foundation at any time. The school accounts for the funds held by the foundation in the same manner as other funds of the school.
To date, the foundation has invested the donated funds and annually transfers interest income to the school to be used for the benefit of the school. The foundation has not expended any of the principal given to it by the school.
Based upon those facts, you have asked the following questions:
QUESTIONS:
1. Are donations given to state institutions considered state public funds as defined by SDCL Ch. 4-4?
2. If the answer to questions No. 1 is yes, may state public funds be transferred to private, non-profit corporations (foundation)?
3. If the answer to questions No. 1 and 2 are yes, are the funds held by the foundation for the school considered state public funds?
IN RE QUESTION NO. 1:
SDCL 4-4-2 provides:
'State public funds' shall mean and shall include cash, checks, bills, notes, drafts, stocks, bonds, and all similar mediums of exchange which are received or disbursed under law, including rules or regulations, by a department, institution, commission, or any other agency of state government.
SDCL 13-49-11:
The board of regents is, and it and its successors in office shall continue to be a corporation, or body corporate, with power to sue and be sued, to hold and manage, for the purposes for which they were established, any property belonging to the educational institutions under its control, collectively or severally, of which it shall in any manner become possessed.
SDCL 13-49-19 provides:
It is the intention of § § 13-49-15 to 13-49-18, inclusive, to confer upon the board of regents all powers usually exercised by such boards, and which are necessary to the proper legal management of the educational institutions placed under its control, and the property belonging to the same.
Based upon the above statutes, it would first appear that there is a conflict between the definition of 'public funds' as found in SDCL 4-4-2 and the ordinary powers of the Board of Regents controlling all property belonging to institutions under their control. Additional statutes do not appear to resolve the matter. First, SDCL 4-5-23 provides:
The state investment officer is responsible for the investment of the state public funds as defined in chapter 4-4. All functions, powers, and duties presently vested by law in any officer, official, employee, agency or commission which relates to the investment of the state public funds and accounts enumerated in this section are hereby transferred to the state investment officer. The functions, powers and duties are advisory only with reference to permanent school and other educational funds.
Finally, the last paragraph of SDCL 4-4-4.1 provides:
All endowments, gifts and bequests made directly to any state institution of higher education, and the income therefrom, shall belong to and be used only by that institution. Direct endowments, gifts and bequests, including those received indirectly by foundations affiliated with an institution, may not be used to reduce its state appropriation. Nothing contained in this section may require the continuation of programs or program levels achieved as the result of those endowments, gifts and bequests, nor may it apply to state appropriated funds.
Reading these two statutes together leads to the following conclusion. Endowments, gifts, and bequests made to state institutions of higher education, through the provisions of SDCL 4-4-4.1 set out above, belong directly to the institution of higher education involved and therefore, appear not to be subject to the remaining provisions of SDCL Ch. 4-4. The provisions of that paragraph appear, however, to apply only to state institutions of higher education. Accordingly, given the direct statement in SDCL 4-5-23, I am compelled to conclude that gifts to institutions under the control of the Board of Regents other than institutions of higher education must be maintained under the state public funds structure.
Of course, gifts or bequests given to the South Dakota Foundation for the Visually Impaired, as opposed to gifts given to the South Dakota School for the Visually Handicapped, can be maintained by the Foundation separate and apart from the state public funds structure. In the case of Board of Regents institutions, other than higher education institutions, the answer to question No. 1 is yes.
IN RE QUESTION NO. 2:
In question No. 2 you asked whether the state public funds may be transferred to a private, non-profit foundation. Since you conclude from the agreement that ownership of the funds has remained in the School for the Visually Handicapped, it would not appear that a transfer has occurred. In view of the discussion above, it is my opinion that the funds donated directly to the school must be invested with the state investment officer. It seems incongruous to treat the funds among the institutions under the control under the Board of Regents in such a disparate manner; however, until the Legislature sees fit to include all of the Board's institutions in the statute, I am compelled to conclude that the funds identified are state public funds and must be invested with the state investment officer and may not be transferred to the private foundation. Therefore, the answer to question No. 2, except in the case of higher education institutions, is no. In light of the foregoing answers, question No. 3 need not be answered.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
