What does gifting of public funds (GOPF) mean?
I’ve been told I can’t purchase an item with state funds because “it violates the State Constitution by gifting of public funds.” What does this mean?
The “Gift of Public Funds Doctrine” refers to a fairly broad set of prohibitions in two separate sections of the Washington State Constitution but are similar in that they both bar state agencies, including public higher education, from conferring benefits on private parties in ways that might disadvantage public interests. The issue of gifting public funds can be found in various contexts and all levels of government.
Article 8; Section 5 Washington State Constitution: Credit is not to be loaned. The credit of the state shall not, in any manner be given or loaned, or in aid of, an individual, association, company, or corporation.
Which funds are considered public?
Western’s public funds are any funds in Chart 1 including self-sustaining and grant funds.
Exception: Federal, local government, and private contract and grant funds in Chart 1 may not be used to purchases/expenses that would otherwise be considered “gifting” when using other Chart 1 funds unless such expenses are specifically authorized in the contract or grant and only to the extent and for the purpose(s) so authorized.
What is permitted?
Government entities may use public funds to carry out a “fundamental purpose of the government.” State and local governments regularly confer benefits on their citizens who are, of course, private parties. However, when the grant of those benefits is part of a “fundamental purpose” of the state, such as protecting the public health, safety, and welfare, no violation occurs.
Click the buttons below for examples of what is permitted or not in regard to use of WWU state funds.
How is GOPF determined?
Courts use a two-part analysis to determine if government has made a GOPF.
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, fire and police protection, and education. 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. Such expenditures are not GOPFs because they involve functions that tax payers generally expect their local governments to provide. In the case of higher education, it is not the expectation by taxpayers that the state pay for the costs of college for an individual. There are other means by which the state (WWU) supports students in need such as through various financial aid services, scholarship programs, and tuition waiver programs mandated by law for certain individuals such as children of fallen police officers. Using University state funds to assist an individual student outside of these types of programs is considered gifting of public funds as well as potentially violating federal financial aid and income tax reporting requirements. An example of using state funds to further a fundamental purpose of higher education is to fund student support programs, such as academic tutoring services, to facilitate student success.
If the answer is yes, the expenditure furthers a fundamental purpose of government, then it is not considered gifting of public funds.
If the answer is no, an expenditure is not for a fundamental purpose of government, then go to Question 2.
University state funds (Chart 1) may be used if a situation involves adequate consideration or exchange of benefit. This means an individual provides the University a benefit or something of value to carry out a fundamental purpose of the University commensurate with the amount of the payment.
Example: The University wishes to create a poster to mass produce and post across campus to promote equity and diversity (the business purpose) and wishes to use the skills and talents of students to create the poster. A contest is set up to provide the winning entry a prize so as to create an incentive to participate and encourage entries. The prize would need to be reasonably valued and commensurate to the product received (e.g., $100 gift card).
Adequate consideration may also include situations that meet the criteria of providing an honoraria.
- See Paying Honoraria or Stipends to Non-Employees Policy (POL-U5348.09)
A government agency 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.
What are tips for reviewing GOPF?
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 government revenue sources that are limited to specific purposes. Expenditures of such funds must be consistent with statutory restrictions as well as the government agency’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 such as in a pandemic. 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.
What happens if a violation occurs?
- If a violation is found by the State Auditor, then the Auditor’s office will issue an audit finding. The exact consequences of such a finding can vary depending on the seriousness of the violation, but in any event, audit findings are best avoided.
- If a lawsuit is filed and the court holds that a violation has occurred, then it is likely the court will void the contested transaction or issue an injunction prohibiting it. Litigating such cases can be very costly and can have political and reputational ramifications.
Who is the authority at Western to make these determinations?
The University Ethics Advisor is responsible for ensuring adequate controls are in place to review expenditures for compliance with the Gift of Public Funds Doctrine.
Sources:
Municipal Research and Services Center of Washington (MRSC)
