MS 2023-07-R-Thomas-July-25-2023-Returning-Donated-Funds July 25, 2023

Can a Mississippi city return private donations made for a specific purpose if the project doesn't happen?

Short answer: Yes, in limited circumstances. A Mississippi municipality that received donations for a specific restricted purpose may return the funds if it cannot or will not carry out that purpose. The AG refers cities to the State Auditor for the actual procedure. Alternatively, a 501(c)(3) nonprofit can hold the donations for the project rather than the city.

Disclaimer: This is an official Mississippi Attorney General opinion. AG opinions are persuasive authority but not binding precedent. This summary is for informational purposes only and is not legal advice. Consult a licensed Mississippi attorney for advice on your specific situation.

Subject

Returning Donated Funds

Recipient

Robert Lee Thomas, Esq., Attorney, City of Philadelphia

Plain-English summary

The City of Philadelphia owns the Booker T. Washington Gymnasium and was planning improvements. A local 501(c)(3), Community in Action Philadelphia/Neshoba County, asked the city to accept community donations to air condition the gym. The city's attorney asked the AG two questions: (1) what counts as a "limited circumstance" allowing the return of donated funds if the project does not happen, and (2) what procedure to follow for any return.

The AG said donations made to a city for a restricted purpose may be returned if the city fails to carry out the purpose, citing the Ginn (June 17, 2016) and Clark (Nov. 8, 2002) opinions. But the AG would not give a specific procedure: that's a State Auditor matter under Section 7-7-211, which assigns the Department of Audit responsibility for prescribing best practices and accounting principles for public offices and political subdivisions.

The AG also noted that during a follow-up conversation, the city said it had been collecting donations specifically for the gym (not specifically for the air conditioning) and had told donors the funds could not be returned. The AG declined to validate or invalidate that past arrangement under Section 7-5-25, which limits opinions to prospective questions of law. Going forward, the AG suggested an alternative structure: have the nonprofit (Community in Action) collect and hold the donations for the project's purpose, then disburse to the city or return to donors as appropriate.

What this means for you

City attorneys

Restricted-purpose donations to a city are a different beast than general donations. If a project does not happen, the law allows return, but the procedure is fact-specific and best handled with the State Auditor's Technical Assistance Division. Get their input before any return, and document the factual finding that the city cannot or will not carry out the restricted purpose.

Mayors and aldermen

If your city is structuring a fundraising campaign for a specific project, talk to the city attorney about whether the donations should flow into the city's treasury or through a 501(c)(3) partner. The nonprofit-as-collector model insulates the city from return-of-funds questions and can be cleaner for donor receipts.

Donors to municipal projects

If you are donating for a specific city project, ask up front: what happens if the project doesn't happen? The answer should be in writing. Mississippi law allows return in limited circumstances when the city fails to carry out the purpose, but you do not want a dispute later about whether your donation was for "air conditioning" specifically or "the gym" generally.

City clerks and finance officers

When you receive a restricted-purpose donation, segregate it on the books and tag the restriction. If the project later changes scope, escalate the question to the city attorney before spending. Mixing restricted and unrestricted funds can create real problems if return becomes necessary.

State Auditor's Technical Assistance Division

The AG's repeated referrals to your office reinforce your role here. Cities need procedural guidance for legitimate return of restricted-purpose donations, and the AG explicitly defers to the Department of Audit's authority under Section 7-7-211.

Common questions

What is a "restricted purpose" donation?
A donation given on the condition that it be used for a specific purpose, like air conditioning a particular gym, rather than for general municipal use.

When can a city return such a donation?
When the city fails to carry out the specific purpose. The Ginn opinion (June 17, 2016) and Clark opinion (Nov. 8, 2002) recognize this as a "limited circumstance."

What if the city kept the money in the general treasury without segregating?
Practically harder. Mixing creates accounting and legal risks. The State Auditor's Technical Assistance Division can advise on cleanup.

Why didn't the AG just give the procedure?
Section 7-5-25 limits the AG to questions of law. The procedural mechanics of returning donated funds (record-keeping, disbursement, donor identification) are operational matters that the State Auditor handles under Section 7-7-211.

Can a 501(c)(3) hold the funds instead?
Yes, that is the cleaner approach. The nonprofit can collect, hold for the project's purpose, and disburse to the city as the project progresses or return to donors if it falls through. The city avoids the public-funds complications.

What about donations the city already accepted with a "no return" understanding?
That is the past-conduct question the AG declined to address. The city should consult counsel about how to characterize those funds and whether donor-by-donor outreach is appropriate.

Background and statutory framework

Mississippi law allows municipalities to accept donations for specific purposes, with the funds held in the municipal treasury and expended as municipal funds. Past AG opinions (Ginn (June 17, 2016); Clark (Nov. 8, 2002)) recognize that restricted-purpose donations may be returned if the municipality fails to carry out the specific purpose.

Section 7-7-211 prescribes the Department of Audit's powers and duties. Subsection (a) directs the Department to "identify and define for all public offices of the state and its subdivisions generally accepted accounting principles." Subsection (b) directs the Department to "provide best practices, for all public offices of regional and local subdivisions of the state, systems of accounting, budgeting and reporting financial facts relating to said offices in conformity with legal requirements and with generally accepted accounting principles." That gives the State Auditor's office authority to prescribe the actual procedure for return of donated funds.

Section 7-5-25 limits AG opinions to prospective questions of state law and prohibits validation or invalidation of past actions.

Citations

Miss. Code Ann. § 7-5-25 (AG opinion authority limited to prospective questions of law)
Miss. Code Ann. § 7-7-211 (Department of Audit powers and duties)
Miss. Code Ann. § 7-7-211(a) (GAAP for public offices)
Miss. Code Ann. § 7-7-211(b) (accounting and reporting best practices)
MS AG Op., Ginn (June 17, 2016) (donations for restricted purpose returnable in limited circumstances)
MS AG Op., Clark (Nov. 8, 2002) (return of restricted-purpose donations)

Source

Original opinion text

July 25, 2023
Robert Lee Thomas, Esq.
Attorney, City of Philadelphia
435 Center Avenue
Philadelphia, Mississippi 39350
Re:

Returning Donated Funds

Dear Mr. Thomas:
The Office of the Attorney General has received your request for an official opinion.

Background
You provide in your request that the city of Philadelphia ("City") is the owner of the Booker T.
Washington Gymnasium and has recently undertaken substantial improvements to the structure
for community purposes. The Community in Action Philadelphia/Neshoba County, a 501(c)(3)
corporation, has approached the Board of Aldermen with a request for the City to accept donations
from the community to air condition the Booker T. Washington Gymnasium. The City is aware
that it may accept donations for a particular purpose, that said funds shall be held in the municipal
treasury, that said funds shall be expended as municipal funds, and that said funds may be returned
in limited circumstances. The City is requesting clarification on what classifies as a "limited
circumstance" and what procedures must be followed to facilitate the return of said funds in the
event the project is not undertaken.
Questions Presented
1. Under what limited circumstances (as specified in MS AG Op., Ginn (June 17, 2016)) may
the City return funds, donated by private individuals or groups for a specific purpose, if the
City fails to carry out said purpose?
2. What, if any, procedures must the City follow to return said funds to said
individuals/groups?

Brief Response
1. Pursuant to prior opinions of this office, a donation made to a municipality for a restricted
purpose and which cannot or will not be used for that specified purpose may be returned
to the donor. We refer you to the Office of the State Auditor for guidance on the return of
any donated funds.
2. In accordance with the authority prescribed in Mississippi Code Annotated Section 7-7-211, we refer you to the Office of the State Auditor for best practices and procedures.

Applicable Law and Discussion
After a subsequent conversation, we understand that the City began accepting donations
specifically for the Booker T. Washington Gymnasium, but not specifically for air conditioning,
and with the understanding that the funds could not be returned to donors. While this office cannot
by opinion validate or invalidate past action pursuant to Section 7-5-25, we can still answer your
prospective question of whether the funds may be returned.
As stated in your request, this office has previously recognized that funds donated for a specific
purpose may be returned in limited circumstances when a municipality fails to carry out the
specific purpose for which the donation was made. See MS AG Op., Ginn at 4 (June 17, 2016)
(internal citations omitted); see also MS AG Op., Clark at 1 (Nov. 8, 2002). We refer you to the
Office of the State Auditor for further guidance. Alternatively, the Community in Action non-profit, rather than the municipality, may collect and hold the donated funds for the intended
purpose and return them if necessary.
In response to your second question, Section 7-7-211 prescribes the powers and duties of the
Mississippi Department of Audit ("Department"). The Department shall "identify and define for
all public offices of the state and its subdivisions generally accepted accounting principles." Miss.
Code Ann. § 7-7-211(a). Further, the Department shall "provide best practices, for all public
offices of regional and local subdivisions of the state, systems of accounting, budgeting and
reporting financial facts relating to said offices in conformity with legal requirements and with
generally accepted accounting principles." Miss. Code Ann. § 7-7-211(b). Accordingly, we
likewise refer you to the Office of the State Auditor regarding best practices and procedures for
any returns of donated funds.
If this office may be of any further assistance to you, please do not hesitate to contact us.
Sincerely,
LYNN FITCH, ATTORNEY GENERAL
By:

/s/ Abigail C. Overby
Abigail C. Overby
Special Assistant Attorney General