Relationship between universities and nonprofit organizations that engage in fund-raising activities for them

COLLEGES AND UNIVERSITIES‑‑CONTRACTS‑‑CORPORATIONS‑‑EMPLOYERS AND EMPLOYEES--SALARIES AND WAGES--GIFTS--INVESTMENTS--Relationship between universities and nonprofit organizations that engage in fund-raising activities for them

1.  Institutions of higher education have the authority to enter into contracts deemed essential to the institution and to accept and solicit gifts.  If there is consideration flowing to the institution, it has the authority to provide goods and services to a private nonprofit organization, including the use of institution employees to solicit gifts, in exchange for fund-raising and other assistance from the organization.

2.  The statute of frauds, RCW 19.36.010, provides that any agreement not to be performed in one year from the making thereof shall be void.  Thus, any agreement between an institution of higher education and a nonprofit organization should be in writing if it is not to be performed in one year.

3.   If employees of an institution of higher education solicit gifts pursuant to an agreement between the institution and a nonprofit organization, the gifts become the property of the nonprofit organization if that is the intent of the donor.

4.  An institution of higher education cannot provide state employee benefits to employees of a private nonprofit organization that is not an agency of the state.  Employees of such institutions who perform services for a nonprofit organization, pursuant to an agreement between the institution and the organization, remain state employees entitled to state employee benefits.

5.  A gift to an institution of higher education, that is not designated for a specific fund, need not be deposited in the state general fund.  The Legislature has given these institutions authority to determine how private donations shall be used so long as that use is consistent with the intent of the donor.

6.  Funds donated to an institution of higher education are subject to the Uniform Management of Institutional Funds Act, chapter 24.44 RCW.  Unless prohibited by the intent of the donor, RCW 24.44.030(3) provides that funds donated to an institution may be pooled with the funds of other investors.  This would include funds donated to a private nonprofit organization.

7.  If a donor makes a gift to an institution of higher education, the ownership of the gift may not be subsequently transferred to a private nonprofit organization.  Such a transfer would be contrary to the intent of the donor.

                                                                  * * * * * * * * * *

                                                                December 9, 1993

Honorable Brian Sonntag
State Auditor
Legislative Building, MS 40021                                                
Olympia, Washington  98504-0021                                         

                                                                                                Cite as:  AGO 1993 No. 18

Dear Auditor Sonntag:

            By letter previously acknowledged your predecessor in office asked a number of questions concerning the relationship between state institutions of higher education and private nonprofit, fund-raising organizations established to benefit the institutions.  We paraphrase these questions, and provide brief answers,[1]as follows:

            Question 1:     Do state institutions of higher education have authority to provide goods and services to private nonprofit organizations, including the use of institution employees to solicit funds, in exchange for fund-raising and other assistance from the organizations?

            Brief Answer:  Yes.

            Question 2:     If the answer to Question 1 is yes, must the agreement between the institution of higher education and the nonprofit organization be in writing?

            Brief Answer:  If the agreement is not to be performed in one year, the answer is yes.

            Question 3:  If the answer to Question 1 is yes, do the donations solicited by employees of the educational institution belong to the institution or the private nonprofit organization?

            Brief Answers:  The intent of the donor determines the ownership of the gift.  The funds belong to the private nonprofit organization if that is the intent of the donor.

            Question 4:

            (a)        To what extent may a state institution of higher education provide state employee benefits to employees of a private nonprofit organization?

            (b)        To what extent may a state institution of higher education provide state employee benefits to its own employees who perform duties for a private nonprofit organization?

            Brief Answers:

            (a)  A state institution of higher education may not provide state employee benefits to employees of private nonprofit organizations.

            (b)  A state institution of higher education may, by contract, provide to a private nonprofit organization services that are related to the institution's functions.  An institutional employee who performs services under such a contract may receive state employee benefits.

            Question 5:  Must a gift to a state institution of higher education that is not designated for a specific program or purpose be deposited into the state general fund?

            Brief Answer:  No.  The governing body of the institution receiving the gift has the authority to determine how the gift shall be used.

            Question 6:  May funds donated to state institutions of higher education be pooled in investment accounts with funds donated to private nonprofit organizations?

            Brief Answer:  Yes.

            Question 7:  May a gift to a state institution of higher education, instead of a private nonprofit organization, nevertheless be transferred to the private nonprofit organization?

            Brief Answer:  No.  However, state institutions of higher education may advise prospective donors that they may donate to private nonprofit organizations.

                                                                BACKGROUND

            The Washington Legislature has established a system of state universities and colleges in Washington to provide higher education in many fields.  RCW 28B.10.016.  Many of these institutions have established relationships with private nonprofit organizations whose purpose is to benefit the institution.  Some nonprofit organizations solicit gifts and manage donated funds and property, periodically distributing the proceeds to the institution.  Sometimes, the institutions furnish goods or services to the nonprofit organizations in exchange for the financial and other benefits they receive from the organizations.

            You have asked about the legal nature of the relationships between state institutions of higher education and private nonprofit organizations established to benefit them, and about the status of donated funds.  In this opinion, we analyze such relationships only generally.  Because the status of a particular relationship between a college or university and a private nonprofit organization may depend on the facts, we express no opinion on whether any particular relationship is consistent with the conclusions reached in this opinion.

                                                                    ANALYSIS

            Question 1:

            Do state institutions of higher education have authority to provide goods and services to private nonprofit organizations, including the use of institution employees to solicit funds, in exchange for fund-raising and other assistance from the organizations?

            The answer to Question 1 turns on two issues:  (1) Do institutions of higher education have the authority to enter into agreements with private nonprofit organizations; and (2) do institutions of higher education have the authority to perform the services contemplated by the agreement including the solicitation of gifts?  In our judgment, the answer to both issues is yes.

            State universities and colleges, having been created by the Legislature, "may only exercise those powers necessarily or fairly implied in or incident to the powers expressly granted or those essential to the declared objects and purposes of the university" or college.  State ex rel. Holcomb v. Armstrong, 39 Wn.2d 860, 865, 239 P.2d 545 (1952).  State institutions of higher education have authority to exchange goods and services with private nonprofit organizations through their authority to enter into contracts.  The governing bodies of state universities and The Evergreen State College have express authority to enter into contracts that they deem essential to the purposes of the institution.  RCW 28B.20.130(8) (University of Washington); RCW 28B.30.150(19) (Washington State University); RCW 28B.35.120(9) (regional universities); RCW 28B.40.120(9) (The Evergreen State College).  Community and technical college trustees have authority to perform activities consistent with the statutes governing those institutions.  RCW 28B.50.140(15).  Such authority may include the authority to enter into contracts.  See RCW 28B.50.528, .530, .533 (authority to enter into inter-jurisdictional agreements).

            State institutions of higher education have express authority to accept gifts from private donors.  The Legislature has stated a policy of fostering partnerships between state institutions of higher education and citizens.  RCW 28B.10.866, .880, 28B.50.835.  The Legislature has authorized the governing bodies of those institutions to accept gifts that will benefit the institutions' programs.  E.g., RCW 28B.20.130(7) (University of Washington); RCW 28B.30.150(24) (Washington State University); RCW 28B.35.120(10) (regional universities); RCW 28B.40.120(10) (The Evergreen State College); RCW 28B.50.140(8) (community and technical colleges).

            State institutions of higher education also have the implied powers to solicit gifts and to facilitate receipt of gifts.  Historically, these institutions have actively solicited donations from private citizens.  See, e.g.,Callvert v. Winsor, 26 Wash. 368, 370-71, 67 P. 91 (1901) (commissioners sought donation of land for territorial university site).  Indeed, many sections of Title 28B RCW direct or authorize state institutions of higher education or the Higher Education Coordinating Board to solicit private donations for particular purposes.  RCW 28B.10.871 (distinguished professorship endowments); RCW 28B.10.885(2) (graduate fellowship endowments); RCW 28B.30.543 (the Washington State University IMPACT center "shall aggressively solicit financial contributions"); RCW 28B.50.841(2) (community and technical college exceptional faculty award endowments); RCW 28B.65.070 (state high-technology coordinating board "may solicit gifts . . . to be directed to institutions of higher education"); RCW 28B.102.030(5) (future teachers conditional scholarship program); RCW 28B.107.020(4) (Pacific Rim language scholarship program); RCW 28B.108.020(6) (American Indian endowed scholarship program); RCW 28B.115.030(5) (health professional conditional scholarship program); RCW 28B.120.030 (Washington fund for excellence in higher education program).

            In light of these statutes which authorize institutions of higher education to solicit and accept gifts and the fact that such institutions have historically sought donations, we conclude that the power to solicit donations to generally benefit an institution's programs is necessarily or fairly implied in or incident to the powers expressly granted, or those essential to the declared objects and purposes of the universities and colleges established by the Washington Legislature.[2]

            Thus, if the governing body of a university or college deems essential to the institution's purposes a contract with a private nonprofit organization to facilitate the solicitation, acceptance, or receipt of gifts, the governing body may enter into such a contract.  Such a contract may include an agreement that the institution will provide goods and services to the nonprofit organization, including the solicitation of donations, in exchange for the organization's fund-raising or other services.

            To be enforceable, any such contract must have "consideration" running to the institution.  See, e.g.,Adams v. University of Washington, 106 Wn.2d 312, 327, 722 P.2d 74 (1986).  The Washington Supreme Court has stated that any act or forbearance that has been bargained for is "consideration" sufficient to support a contractual promise.  Id.  Thus, a nonprofit organization's promise to provide fund-raising services to a state institution of higher education may be "consideration" for the institution's promise to provide goods or services in return.

            Question 2:

            If the answer to Question 1 is yes, must the agreement between the institution of higher education and the nonprofit organization be in writing?

            No statute generally requires that all contracts entered into by state institutions of higher education be in writing.[3]  Although there is no statute that generally requires state institutions of higher education to enter into written contracts, such institutions are subject to the statute of frauds.[4]  The statute of frauds is set forth in RCW 19.36.010 and provides in part:

                        In the following cases, specified in this section, any agreement, contract and promise shall be void, unless such agreement, contract or promise, or some note or memorandum thereof,be in writing, and signed by the party to be charged therewith, or by some person thereunto by him lawfully authorized, that is to say:  (1) Every agreement that by its terms is not to be performed in one year from the making thereof[.]

(Emphasis added.)  Under the statute of frauds, an agreement that by its terms is not to be performed in one year of its making, shall be void.  In general, it is our understanding that the relationship between an institution of higher education and a nonprofit organization is an ongoing relationship that extends beyond one year.  In such a case, a written agreement would be required under the statute of frauds.[5]

            Question 3:

            If the answer to Question 1 is yes, do the donations solicited by employees of the educational institution belong to the institution or the private nonprofit organization?

            Question 3 appears to arise out of a concern that donated funds solicited by employees of an institution of higher education become the property of the institution.  This is not necessarily true.  Donated funds do not become the property of the institution simply because an employee of the institution solicited the donation.

            This is true for two reasons.  First, the employee of the institution may be soliciting funds on behalf of the private nonprofit organization, not the institution.  As we pointed out in our answer to Question 1, an institution of higher education may contract to provide services to a private nonprofit organization, including the solicitation of donations.  Thus, to the extent the employee of the institution is soliciting on behalf of the nonprofit organization, there is no basis to assume the donations belong to the institution.

            Second, and more important, the ownership of the donation is determined by the intent of the donor.  The essential elements of a gift are:  (1) an intention on the part of the donor to make a gift; (2) a subject matter capable of passing by delivery; and (3) an actual delivery.  Henderson v. Tagg, 68 Wn.2d 188, 192, 412 P.2d 112 (1966).

            If a donor intends to make a gift to a nonprofit organization, the donor's intent controls.  The recipient of the gift must demonstrate a clear and unmistakable intention on the part of the donor to make a gift of his or her property.  In re Gallinger Estate, 31 Wn.2d 823, 829, 199 P.2d 575 (1948).  The recipient's subjective understanding is not controlling.  In re Bellanich, 43 Wn. App. 345, 351, 717 P.2d 307 (1986).  Thus, the ownership of the donation is not determined by the identity of the individual soliciting it.  A gift to a nonprofit organization becomes the property of the organization.

            Question 4:

            (a)  To what extent may a state institution of higher education provide state employee benefits to employees of a private nonprofit organization?

            (b)  To what extent may a state institution of higher education provide state employee benefits to its own employees who perform duties for a private nonprofit organization?

            Question 4 involves the contractual relationship between an institution of higher education and a private nonprofit organization.  A state institution of higher education may not provide state employee benefits to employees of a private nonprofit organization if the organization is not an agency of the state.[6]  Only an employee of the state or one of its political subdivisions may receive state employee benefits.  See RCW 41.05.011(6) (definition of "employee" in state health care system); RCW 41.40.010(4) (definition of "employer" in state retirement systems); RCW 41.40.023 (state retirement limited to persons who work for "employers"); WAC 251-01-130 (definition of "employee" in higher education personnel rules).  A person who is employed by a private nonprofit organization and has not received a state appointment is not a state employee and may not be compensated as a state employee or receive state employee benefits.

            With regard to Question 4(b), a person who has received a state appointment is a state employee entitled to state employee benefits when performing his or her job as an employee of the institution of higher education.  A state institution of higher education may employ personnel to perform duties that are within the scope of the institution's authority, and employees performing such duties may receive state employee benefits.

            As discussed above, a state institution of higher education may provide its employees' services to a private organization if the services are related to the institution's functions and there is consideration running to the institution.  If an institution enters into an agreement with a private organization to provide services, the employees of the institution who perform those services are still functioning as employees of the institution.

            For example, inState ex rel. Graham v. Northshore Sch. Dist. 417, 99 Wn.2d 232, 662 P.2d 38 (1983), school districts entered into collective bargaining agreements with their education associations to allow certain district employees leave from their duties with the district to perform functions for the education association, without loss of salary or benefits.  The practice was challenged, but the supreme court sustained it.  The court ruled that the school districts had the authority to enter into such agreements and that the release time did not constitute a gift because there was consideration running to the school districts.[7]  The court said:

                        Accordingly, there is a gift concept inherent in the ordinary meaning of contribution.  We have held that adequate consideration may preclude the finding of a gift and if intent to give a gift is lacking, the elements of a gift are not present.  Scott Paper Co. v. Anacortes, 90 Wn.2d 19, 32-33, 578 P.2d 1292 (1978), and cases cited therein.  No intent to give a gift is apparent.  Release time was negotiated for and the Auditor has never asserted that consideration for said agreements did not flow to the school districts.  Consequently, the school districts' agreeing to afford employees release time to engage in certain association business, while of undoubted benefit to the organization and employees, is not a contribution and thus is not proscribed by RCW 41.59.140(1)(b).

99 Wn.2d at 244 (emphasis added, footnote omitted).  This conclusion was affirmed in Green River Comm'ty College Dist. 10 v. Higher Educ. Personnel Bd., 107 Wn.2d 427, 438, 730 P.2d 653 (1986), in which the court held that a labor contract that allows state employees to receive their normal pay while working on behalf of a union during normal working hours, does not create an unconstitutional gift of the state's credit under article 8, section 5 of the state constitution.

            Similarly, in the situation posed by your question, the employee of the institution of higher education would be performing services for a private nonprofit organization.  However, this would be done pursuant to an agreement between the institution and the organization whereby the institution agrees to provide services in return for consideration.[8]

            Question 5:

            Must a gift to a state institution of higher education that is not designated for a specific program or purpose be deposited into the state general fund?

            The Legislature has given to the regents and trustees of state institutions of higher education the authority to determine how private donations to the institutions shall be used, so long as that use is consistent with the terms of the gift instruments.  RCW 28B.20.130(1), (7) (University of Washington); RCW 28B.30.150(1), (24) (Washington State University); RCW 28B.35.120(1), (10) (regional universities); RCW 28B.40.120(1), (10) (The Evergreen State College); RCW 28B.50.140(8) (community and technical colleges).

            Nothing in those enactments requires that the regents and trustees deposit unrestricted donations into the state general fund.  Indeed, the Legislature has expressly permitted them to deposit unrestricted gifts into certain endowment funds maintained outside the state treasury.  RCW 28B.50.839(3) (community and technical college exceptional faculty award endowment funds); RCW 28B.50.841(2) (same); see RCW 28B.10.871 (distinguished professorship endowment funds); RCW 28B.10.885(2) (graduate fellowship endowment funds).

            Washington courts have long considered college and university income derived from nongovernmental sources as belonging to the institution and to be under its control absent contrary direction by the Legislature.  SeeState ex rel. Johnson v. Clausen, 51 Wash. 548, 99 P. 743 (1909) (under predecessors to RCW 28B.30.095-.150, state college regents had control over college income not derived from general and state governments, and were not required to deposit such income in the state treasury); State ex rel. Davis v. Clausen, 160 Wash. 618, 295 P. 751 (1931).  In addition, courts in other states have concluded that donations to a state institution of higher education are not general revenues available for general state purposes.  State ex rel. West Virginia Bd. of Educ. v. Sims, 101 S.E.2d 190, 193, 143 W. Va. 269 (1957).

            We conclude that donations to a state institution of higher education, whether designated for a specific program or not, are under the control of the regents and trustees and need not be deposited into the state general fund unless the terms of the gifts require that it be so deposited.

            Question 6:

            May funds donated to state institutions of higher education be pooled in investment accounts with funds donated to private nonprofit organizations?

            Unless the terms of a gift dictate otherwise, funds donated to a state institution of higher education may be pooled with those of a nonprofit organization for investment purposes under the Uniform Management of Institutional Funds Act, chapter 24.44 RCW.  This chapter governs investments of "institutional funds".  RCW 24.44.030.  "Institutional funds" are funds held by an "institution" for its exclusive benefit.  RCW 24.44.010(2).  "Institution" means "an incorporated or unincorporated organization organized and operated exclusively for educational, religious, charitable, or other eleemosynary purposes or a governmental organization to the extent that it holds funds exclusively for any of these purposes".  This definition includes institutions of higher education.  See Unif. Management of Institutional Funds Act § 1 comment, 7A U.L.A. 713 (1972):  "e.g., a public school which has an endowment fund."  Thus, donated funds held by a state institution of higher education for educational purposes are "institutional funds" subject to the Uniform Management of Institutional Funds Act.

            The governing bodies of state institutions of higher education have authority to "invest" gifts in a manner consistent with the terms of the gifts.  RCW 28B.20.130(7) (University of Washington); RCW 28B.30.150(24) (Washington State University); RCW 28B.35.120(10) (regional universities); RCW 28B.40.120(10) (The Evergreen State College); RCW 28B.50.140(8) (community and technical colleges); RCW 28B.10.485 (charitable gift annuities).  The Uniform Management of Institutional Funds Act provides that the power to "invest" includes the authority to pool funds with those of other investors.  RCW 24.44.030(3).  Thus, unless the terms of a gift preclude pooled investments, funds donated to state institutions of higher education may be commingled in investment accounts with funds donated to private nonprofit organizations.[9]

            Question 7:

            May a gift to a state institution of higher education, instead of a private nonprofit organization, nevertheless be transferred to the private nonprofit organization?

            As discussed in our answer to Question 3, the intent of the donor, as expressed in the terms of the gift instrument, determines the ownership of the gift.  Question 7 asks whether ownership of a gift the donor intended to make to the institution may subsequently be transferred to a private nonprofit organization that exists to benefit the institution.  In our judgment, the answer is no.  If the gift instrument is a check that the donor has made payable to a particular college or university, depositing it in anyone else's account would be contrary to the donor's express wishes.  Thus, the institution has no authority to take a gift to the institution and relinquish that property to a third party.

            Of course, the governing body of the college or university may obtain permission from the donor or a court to transfer the gift funds to a nonprofit organization whose purpose is to benefit the institution.  RCW 24.44.060.  The governing bodies of state institutions of higher education may also enter into contracts allowing third parties to manage funds that have been donated to the institutions, if they deem such contracts essential to the purposes of the institutions and if such contracts are consistent with donors' wishes.  RCW 28B.20.130(8) (University of Washington); RCW 28B.30.150(19) (Washington State University); RCW 28B.35.120(9) (regional universities); RCW 28B.40.120(9) (The Evergreen State College); see RCW 28B.50.140(15) (community and technical colleges); RCW 24.44.040 (governing bodies may contract with third parties to manage funds donated to public institutions).  Under such an arrangement, the donated funds would remain the property of the institution.  State institutions of higher education may also advise prospective donors that they have the option of donating to a private nonprofit organization instead of to the institution.  Any gifts made to a private nonprofit organization would belong to that organization, not to the institution.

            We trust this opinion will assist you.

                                                            Very truly yours,

                                                            CHRISTINE O. GREGOIRE
                                                            Attorney General

                                                            FRONDA WOODS
                                                           Assistant Attorney General

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