Could a state university foundation receive an endowment match when the state bought its donated building?

Plain-English summary

In 2005, Connecticut's public works commissioner asked whether the state could buy a building from the Eastern Connecticut State University Foundation when the original donation might also earn a state endowment matching grant. The AG concluded that the donors' later letter showed the required intent to direct rents or sale proceeds into the endowment. Its timing, more than a year after the gift, did not defeat eligibility.

The opinion did not approve the purchase as a prudent business deal. It said that choice belonged to the department. It also treated a lease extension as legally possible where lease payments reflected market conditions, while leaving the business choice to the department.

Currency note

This opinion was issued in 2005. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Public works officials at the time

The AG found no legal reason to reject the transaction solely because the foundation could receive matching funds as well as a purchase price. He said appraisal concerns were for the department to evaluate and urged a separate appraisal if it doubted the existing one.

University foundation at the time

The donors' written direction that rental income or net sale proceeds support endowed funds satisfied the intent requirement in Conn. Gen. Stat. §10a-99a, according to the opinion. The foundation's eligibility rested on those stated gift terms.

Common questions

Q: Did the later donor letter disqualify the building from the matching program?
A: No. The AG said the letter's timing did not negate the original gift's eligible status because it reflected the donors' endowment intent.

Q: Did the matching grant make a state purchase improper by itself?
A: The AG said no. The grant program was designed to benefit the university, while the decision whether to buy remained a departmental business judgment.

Q: Did the AG decide whether the state should buy or keep leasing the building?
A: No. He expressly left the prudence of those choices to the public works department.

Background and statutory framework

The foundation received the Foster building as a gift, and the state was considering a lease purchase agreement. Conn. Gen. Stat. §10a-99a provided a matching grant for gifts designated for an endowment. The AG focused on the donors' expressed intent and the terms of the program, then distinguished the legal issue from whether the state should enter the particular real estate deal.

Citations and references

Statutes cited in the opinion: Conn. Gen. Stat. §10a-99a; Conn. Gen. Stat. §10a-99a(b)(1).

Source

• Landing page: https://portal.ct.gov/AG/Opinions
• Opinion page: https://portal.ct.gov/ag/opinions/2005-formal-opinions/the-honorable-james-t-fleming-commissioner-2005018-formal-opinion-attorney-general-of-connecticut

Original opinion text

The Honorable James T. Fleming Commissioner, 2005-018 Formal Opinion, Attorney General of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

July 8, 2005

The Honorable Jame T. Fleming, Commissioner

Department of Public Works

165 Capitol Avenue

Hartford, CT 06106- 1606

Dear Commissioner Fleming:

You have asked several questions about the propriety of a possible transaction between the Department of Public Works ("DPW") and the Eastern Connecticut State University Foundation, Inc. ("Foundation") whereby the DPW would agree via a lease/purchase agreement to purchase the "Foster building" in Willimantic, Connecticut, which was donated by the Foster family to the Foundation on or about December 15, 2000. You have inquired principally whether such a purchase would be appropriate in light of the fact that the Foundation may, through the operation of Conn. Gen. Stat. §10-99a, receive another fifty percent (50%) from the state over and above the purchase price on the grounds that the Fosters' gift of the building was an "endowment eligible gift" under this statute. Since the state is the potential purchaser of the building, the state would, in effect, be paying the Foundation 150% of the negotiated price for the building.

Conn. Gen. Stat. §10a-99a contains a detailed statutory scheme whereby gifts to foundations set up for the benefit of one of the four branches of the Connecticut State University system, or for the benefit of the system as a whole, are eligible for a 50% state matching grant if they satisfy the criteria for "endowment fund eligible gifts." To be endowment fund eligible, the gifts must be of cash (or assets that can be reduced to cash, or which have a value that is "ascertainable;" see, Conn. Gen. Stat. §10a-99a(b)(1)), and the donor must specifically designate that the gift be deposited in the endowment fund, or the terms of the gift must reflect such an intent. While the total yearly state commitment under this matching grant does have certain upper limits, the amount available is sizeable. See, Conn. Gen. Stat. §10a-99a(b) and (c). Essentially, all such endowment eligible gifts are reported, and the state matching grants are annually divided among the four campuses of the system and the system as a whole based on the percentages of total endowment eligible gifts each campus or the system received.

In the gift at issue here, the Foster family donated the building to the Foundation on or about December 15, 2000. A quitclaim deed in favor of the Foundation was executed at that time. The record reflects that President David Carter, president of Eastern Connecticut State University, acknowledged in writing receipt of the gift on or about February 2, 2001. On January 11, 2002, the Fosters signed a letter addressed to the Foundation in which they indicated, in pertinent part that

[w]hen we gave the gift …it was our intention that the income from net rents be used to establish an endowed (permanently restricted) fund at Eastern Connecticut State University Foundation, Inc….It was also our intention that if the building were sold, net proceeds would be used to establish or add to these endowed funds. It is our hope that the endowed (permanently restricted) funds would then be eligible for the state match.
The Department of Social Services ("DSS") has for some time leased a portion of the building for offices in Willimantic, and the proposed lease/purchase agreement would extend the lease, with lease payments being credited towards the negotiated purchase price of approximately $900,000. This means that with the state matching grant of fifty percent (50%), the Foundation would ultimately realize approximately $1.35 million in state funds on the transaction. The Foundation has procured an appraisal of the building placing its fair market value at approximately $1.75 million.

Whether Eastern Connecticut State University realizes the benefit of the fifty percent (50%) match under the program turns upon whether the Fosters' gift of the building was an "endowment fund eligible gift." Conn. Gen. Stat. §10a-99a(b)(1) defines an endowment fund eligible gift, and requires, among other things, that the donor must have "specifically designated" the gift of cash (or assets which have a value that is "ascertainable") for deposit into the endowment fund, or that the terms of the gift indicate either "explicitly or implicitly" that the funds realized as the result of the gift should be deposited in the endowment fund. The Fosters' letter of January 11, 2002, quoted above, reflects such intent. The fact that the letter came more than one year after the property was actually quit-claimed to the Foundation does not negate the gift's status as an "endowment eligible gift."

You ask whether the transaction would still be proper in light of the state funding match "[i]f DPW believes it is a proper business decision to purchase the Foster House…." Whether it would be an appropriate or prudent business decision to enter into the lease/purchase agreement is a judgment for your department to make. However, we have uncovered no reason to doubt the Fosters' donative intent that their gift be used to obtain matching state endowment funds as a result of the sale of the building and the language of their letter satisfies the requirement of Conn. Gen. Stat. §10a-99a. While the Foundation would ultimately realize $1.35 million state dollars from the sale of a building that has a negotiated purchase price of $900,000, the fact that a professional appraiser has placed a higher fair market value on the building provides reassurance that the public fisc is not being taken advantage of in the proposed transaction. If DPW harbors any concern that this appraisal is inflated or inaccurate, I would urge it to attain its own appraisal before moving forward with any transaction. Finally, the legislature specifically established the matching funds program to benefit institutions such as ECSU. To the extent the matching funds statute allows an additional payment of state funds to the Foundation, those state funds will specifically benefit a state institution, as the legislature had intended.

You also ask whether it would be proper under the circumstances to simply extend the DSS lease for the building, with the lease payments eligible for the matching grant. The prudence of simply extending the lease without purchasing the building is not a legal issue but is a business judgment that is within your authority to make. However, the fact that the Foundation will be able to obtain state matching funds based on the net proceeds of the lease payments would not render the lease payments improper, provided, in DPW's judgment, the amount of the lease payments does not exceed market conditions.

Please free to contact us if you have further questions.

Very truly yours,

RICHARD BLUMENTHAL

ATTORNEY GENERAL

Ralph E. Urban

Assistant Attorney General

cc: William J. Cibes, Jr., Chancellor, Connecticut State University

David Carter, President, Eastern Connecticut State University