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Donations and Local Governments: The Basics of Giving and Receiving


June 2, 2022  by  Eric Lowell
Category:  Financial Reporting Gift of Public Funds

Donations and Local Governments: The Basics of Giving and Receiving

MRSC gets a fair number of questions each year concerning donations to and from local governments. This blog will look at two broad issues: how a local government can receive donations and how a local government can make a donation — without violating the gift of public funds prohibition.

Receiving Donations

Local governments in Washington State are allowed to receive donations. For example, RCW 35.21.100 states:

Every city and town by ordinance may accept any money or property donated, devised, or bequeathed to it and carry out the terms of the donation, devise, or bequest, if within the powers granted by law. If no terms or conditions are attached to the donation, devise, or bequest, the city or town may expend or use it for any municipal purpose.

While there is not a similar statutory provision for counties, counties nonetheless have inherent authority to accept donations.

In general, special purpose districts may also accept gifts (see, for example, RCW 70.44.060(1), which authorizes public hospital districts to accept donations). However, the manner in which special purpose districts can receive these donations may differ (For example, the board of commissioners for ports must approve donations of real and personal property, per RCW 53.08.110).

Receiving gifts raises a host of issues, most commonly policies and procedures, reporting, and how to manage gifts with requirements. Let’s look at each.

Reporting requirements

One common question is whether or not donations to a local government are tax deductible. The IRS Code at 26 U.S.C. §170(c)(1) states that a donation is tax deductible when it is to:

A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

Note that the donation is to be for “public purposes,” so it should not be intended to benefit a particular individual or group.

Additionally, the IRS requires certain documentation of the donation, as explained in Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements. As noted on page four, if a donor wishes to claim a tax deduction for a donation to a local government that exceeds $250, the donor must obtain a written acknowledgment from the local government that contains the following:

  1. the name of organization

  2. the amount of cash contribution

  3. a description (but not the value) of non-cash contribution

  4. a statement that no goods or services were provided by the organization in return for the contribution, if that was the case

  5. a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution

However, it is not necessary to include either the donor’s Social Security number or tax identification number on the written acknowledgement.

Policies and procedures

A best practice is for local governments to develop a donation acceptance policy and include any limitations on donations. The City of Lakewood accepts donations as follows:

The City may accept and use donations only for purposes related to those powers granted to the City by law. Any donation to the City that is accompanied with any contingency, term, or condition on the use by the City of such donation that is inconsistent with this chapter or contrary to law shall be declined by the City. The City may decline to accept any donation that is inconsistent with the policies, plans, goals, or any other ordinance of the City.

What to do when gifts come with restrictions

If the donation has no restrictions attached to the gift, it may be used for any municipal purpose. However, some cash donations, such as a bequest, may come with requirements on how the funds may be spent.

If a local government accepts a donation with requirements on how the funds must be spent, the donation must then be spent for that purpose. If the local government is unable to spend the funds for that purpose, it must reject the donation.

Note: For financial reporting purposes, any unspent donations at year end with restrictions attached to them would be reported in restricted ending fund balance.

That covers the basics of accepting donations. Some local governments seek corporate and community partnerships to sponsor community programs, events, and facilities as part of their business plans for funding. For examples of sponsorship/naming policies adopted by local governments, visit our Corporate Sponsorships and Naming Policies webpage.

Making Donations

In general, local governments are not allowed to make gifts of public funds. Article 8, section 7 of the Washington State Constitution prohibits any local government entity from bestowing a gift or lending money, property, or the entity’s credit to a private party. Section 7 does allow public funds to be used in providing “necessary support for the poor and infirm.” An example would be utility assistance programs that provide payments or reduced rates to low-income customers or individuals with disabilities.

Outside of supporting the poor and infirm, a donation from a local government would need to meet certain criteria. The courts have used a two-step process to determine whether or not a local government has bestowed a gift of public funds. First, they will look to see if the funds were used to carry out a fundamental purpose of government. If the answer is yes, then there has not been a gift of public funds. Second, the courts will determine whether the government had “donative intent” and whether it received an adequate return for any transfer of funds. Visit MRSC’s Gift of Public Funds webpage for a more in-depth analysis of this constitutional prohibition.  

Use of surplus

Many local governments can run into a gift of public funds issue when donating surplus property. Local governments should have surplus procedures and policies in place and ensure adequate consideration is made to avoid gifting the surplus. In some instances, surplus items will have de minimis or no monetary value. The local government could likely justify donating such items if it includes certain steps as part of the surplus process. For example, the governing body should declare such items surplus and include a description which demonstrates the items have little to no value (e.g., outdated, obsolete, broken, etc.)  

In 2014 the City of White Salmon was getting rid of old, obsolete tasers. The resolution for the surplus of these tasers notes that the city will donate the taser batteries and holsters to Skamania County, and it lays out the justification for this: The county still used the same model of taser being surplused, so the city decided to donate the holsters and batteries as spare parts. The city was able to justify donating these parts since the county is another local government and the citizens of the city receive services from the county on occasion. As such, there was no gift of public funds problem.

In Conclusion

Local governments should have policies and procedures in place for receiving and giving donations. The implications of accepting or giving a donation should be considered. Proper procedures for donations should be followed in order to avoid a gift of public funds issue.


MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Eric Lowell

Eric Lowell joined MRSC in December 2020 as a Finance Consultant. He has been involved in local government finance for over 13 years, including working in city government as well as for a special purpose district.

Eric received a B.A. in Secondary Education from Arizona State University and a B.S. in Accounting from Central Washington University.

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