A Refresher on the Gift of Public Funds
October 15, 2020
Category: Gift of Public Funds
The prohibition on gifts of public funds (GOPF) comes up in a myriad of situations. GOPF issues can arise in connection with large public/private projects (such as baseball stadiums) and on a small-scale (such as employee awards and recognition). In addition, GOPF analysis can differ in emergencies compared with more normal times. This blog will provide a summary of how GOPF issues are analyzed and tips for avoiding GOPF violations.
Fundamentals of the GOPF Doctrine
The prohibition on gifts of public funds is set forth in the Washington Constitution:
ARTICLE 8, SECTION 7 CREDIT NOT TO BE LOANED.
No county, city, town or other municipal corporation shall hereafter give any money, or property, or loan its money, or credit to or in aid of any individual, association, company or corporation, except for the necessary support of the poor and infirm…
There are a few important things to remember about this provision:
- A separate provision (Article 8, Section 5) applies to the State of Washington. Even though the language of the two provisions are different, courts interpret them similarly, which means that cases involving the state may be helpful when analyzing GOPF issues under Article 8, Section 7.
- “Poor and infirm” is interpreted as poor or infirm — a recipient need not be both.
- The prohibition on lending of credit is separate and distinct from the GOPF.
- GOPF does not apply when the recipient is another government entity, although both entities are required to properly account for the transaction under RCW 43.09.210(3)
Testing for GOPF
Courts use a two-part analysis to determine if a local government has made a GOPF. The first question is whether the expenditure furthers a fundamental purpose of government. If the answer is “yes,” then there is no GOPF. If the answer is “no,” the next question is whether there is “donative intent” on the part of local government, or — in other words — whether there is a bargained-for exchange where the consideration received by the local government is legally sufficient.
What is a “fundamental purpose of government?” There is not a comprehensive definition or list of functions that fall into that category. The term is more narrowly defined than “public purpose” and it applies to core government functions like providing parks and fire and police protection. So, for example, it is not a GOPF for police to unlock vehicles at the request of motorists who have locked themselves out — doing so is part of the community caretaking function under Hudson v. City of Wenatchee, 94 Wn.App. 990, 974 P.2d 342 (1999). A county did not make a GOPF when it provided relocation assistance to a business for flood control purposes under Citizens Protecting Res. v. Yakima Cty., 152 Wn.App. 914, 219 P.3d 730 (2009). Such expenditures are not GOPFs because they involve functions that constituents generally expect their local governments to provide.
If an expenditure is not for a fundamental purpose of government, then the inquiry shifts to whether there is intent to make a gift or an absence of financial consideration. Courts will look at the specifics of the transaction involved to determine what the local government received in return (i.e., “consideration”) for its expenditure. It is not a question of whether the local government made a good or bad deal. Rather, the court assesses whether the consideration received is “legally sufficient.” The courts do not engage in an in-depth analysis of the adequacy of consideration because doing so interferes with governmental power to contract and would constitute judicial interference with government decision-making.
But a local government needs to be able to document the consideration received for its expenditures. An early example of a failure to do so is Johns v. Wadsworth, 80 Wn. 352, 141 P. 892 (1914), in which a county contribution to an agricultural fair was struck down because the county maintained no direct control over how the money would be spent.
More recent cases have reviewed the sufficiency of the consideration received by local government. For examples, see King County v. King County Taxpayers, 133 Wn.2d 584, 949 P.2d 1260 (1997), finding sufficient consideration for the Seattle Mariners baseball stadium lease, and CLEAN v. City of Spokane, 133 Wn.2d 455, 947 P.2d 1169 (1997), upholding city participation in construction and operation of downtown parking garage.
Tips for Reviewing GOPF Issues
Recent GOPF case law involves large and complex projects but GOPF issues arise in day-to-day circumstances as well. Here are some tips for addressing possible GOPF situations:
- Use contracts to define the scope and purpose of local government expenditures. Johns v. Wadsworth makes clear that local governments cannot make donations, even if it is for a good cause. On the other hand, a local government can contract with nonprofit entities to provide services that the local government would be authorized to provide.
- Make sure to document that restricted funds have been spent appropriately. There are many city and county revenue sources that are limited to specific purposes. Expenditures of such funds must be consistent with statutory restrictions as well as the local government’s plans and policies. Expenditures that do not meet the applicable fund criteria may be deemed a GOPF.
- Context matters. An expenditure that may be a GOPF in “normal times” might be permitted in an emergency. The AGO has provided helpful guidance with respect to providing assistance to low-income individuals and small businesses during the COVID-19 emergency. Such assistance, during a protracted emergency, may be a “fundamental purpose of government” since it is intended to ameliorate the hardships caused by the COVID-19 pandemic. Of course, documenting the nexus between the assistance provided and the benefits to public health and welfare is of critical importance.
For additional information on GOPF issues, take a look at our Gift of Public Fund topic page and our blog article on Municipal Giving and Receiving.
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