Could a Louisiana state agency create a nonprofit to perform services the agency normally performs?

Plain-English summary

Louisiana's legislative auditor asked whether state agency heads could set up nonprofits to perform work normally done by their agencies. In Opinion 03-0381, the AG said they could if the agency had express or implied authority, subject to LSA-R.S. 12:202.1. That statute required legislative approval before a public-function nonprofit that could issue bonds or other indebtedness was incorporated, covering the entity's purpose and the proposed debt terms.

The auditor also worried that a nonprofit might let an agency do indirectly what public rules barred directly, such as avoiding travel regulations. The opinion answered the formation and debt-authority question; it did not determine how each operational rule would apply to a particular nonprofit.

Currency note

The full issue date is not legible in the available official extract. 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.

What the opinion meant at issuance

Agency leadership

The AG reported finding no law specifically prohibiting an agency or its staff, acting for the agency, from creating or managing a nonprofit to provide agency services. It still required express or implied agency authority and compliance with LSA-R.S. 12:202.1.

Legislative oversight

The opinion read the statute as a check on creating corporations with the purpose or ability to issue debt without specific legislative approval. It did not treat the statute itself as a grant of general power to create nonprofits.

Common questions

Could an agency use any nonprofit it wished for its work?

The AG's answer was conditional: the agency needed express or implied authority, and the incorporation could not violate the debt-approval statute.

Did the nonprofit statute itself authorize agencies to create corporations?

No. The AG expressly said it did not view LSA-R.S. 12:202.1 as the source of that authority.

Did the opinion approve bypassing state travel or accounting rules?

It did not resolve those concerns for a particular entity. They appeared in the auditor's request, while the AG's conclusion concerned legal authority to create and manage the nonprofit.

Background and statutory framework

LSA-R.S. 12:202.1 restricted incorporation of public-function nonprofits whose bonds or indebtedness might be issued until the legislature approved the purpose, debt amount, financing method, and use. The AG distinguished that approval requirement from the separate need for agency authority to form a nonprofit.

Citations and references

• LSA-R.S. 12:202.1: legislative approval condition for certain nonprofit debt.

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/03-0381

Original opinion text

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DEPARTMENT OF JUSTICE
P,O. BOX 94005
BATON ROUGE
70804-9005
CHARLES C. FOTI, JR.
ATTORNEY GENERAL
FEB 0 4 20 4
Opinion Number 03-0381

61- LAWS-General
3 - CORPORATIONS
Mr. Grover C. Austin, CPA
Office of the Legislative Auditor
State agencies can establish non-profit
P. O. Box 94397
corporations to perform sen/ices on behalf of the
agency or the state, as long as the agency has
Baton Rouge, Louisiana 70804-9397
express or implied authority to do so, and as long
as LSA-R.S. 12:202.1 is not violated thereby.
Dear Mr. Austin:

This office is in receipt of your opinion request regarding non-profit organizations established by state agencies. Pertinently, your letter states:

"Over the past year we have come upon several non-profit organizations established by agency heads. The majority of the funding of these new non-profit entities is secured by the agency head through budget appropriation or grants directed to his/her agency. These non-profits appear to be organized to do all of the work of a particular state department. Therefore, our basic question is:

May a state employee, or agency head, or a state agency establish and manage a non-profit organization that provides a service that the agency would ordinarily perform?

Our concern here is with off-balance sheet accounts and the agency doing indirectly (i.e., not following public law: not following travel regulations) what it could not otherwise do directly. We respectfully request that you consider R.S. 12:202.1 in your answer."

LSA-R.S. 12:202.1 provides, in pertinent part:

"A. Notwithstanding any other provisions of this Chapter or of any other law, no state board, commission or department, nor any other persons, acting on behalf of such state board, commission or department, shall incorporate or cause to be incorporated any nonprofit corporation which has for its purpose any public or quasi-public function or any function for the benefit of or in connection with any public agency, purpose or function, if in the exercise of any part of the functions of the corporation any bonds or other evidences of indebtedness of the corporation are or may be issued, unless the purpose for which the corporation is to be created; the

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Page 2

Opinion Number 03-0381
Mr. Grover C. Austin, CPA
Office of the Legislative Auditor
Page -2-

amount of bonds to be issued; the method of financing of said bonds, including but not restricted to the term of the bonds, the interest and other charges to be paid with respect to the bonds, and the purposes for which the bonds are to be issued shall have been first submitted to and approved by the legislature."

Please be advised that it is the opinion of this office that the purpose of LSA-R.S. 12:202.1 is to prevent a state board, commission or department from creating, without specific legislative approval, a non-profit corporation which has the purpose or ability to issue debt. In accord: Attorney General’s Opinion Nos. 97-536; 95-232; 87-701.

Although we do not view LSA-R.S. 12:202.1 as authority for state entities to create non- profit corporations, it is our opinion that LSA-R.S. 12:202.1 recognizes that state boards, commissions and departments can and do create non-profit corporations that have the ability to perform "any public or quasi-public function or any function for the benefit of or in connection with any public agency, purpose or function" of the state entity, other than in connection with the issuance of debt.

In response to your specific question, please be advised that our research did not reveal any provision of law which specifically prohibits a state agency, or a state employee or agency head, on behalf of the state agency, from establishing or managing a non-profit corporation that provides a service that the agency would otherwise perform. It is therefore our opinion that state agencies can establish non-profit corporations to perform services on behalf of the agency or the state, as long as the agency has express or implied authority to do so, and as long as LSA-R.S. 12:202.1 is not violated thereby.

We trust the foregoing to be of assistance. Please do not hesitate to contact this office if we can be of assistance in other areas of the law.

Yours very truly,

CHARLES C. FOTI, JR.
Attorney General

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