Ezel / AG Opinions / NC
NC NC AG Advisory Opinion (1986-11-20) 1986-11-20

Can the board of a state-operated children's hospital spend private donations without Department of Human Resources approval?

Short answer: No. The AG concluded private donations to Lenox Baker Children's Hospital are state funds subject to the Executive Budget Act. The hospital board's authority to 'accept and use' donations under G.S. 131E-56(b) does not override DHR's comprehensive control over all fiscal matters under G.S. 131E-57. Donations must be deposited with the State Treasurer unless the gift terms direct otherwise, and DHR controls disposition consistent with the donor's stated intent.
Currency note: this opinion is from 1986
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.
Disclaimer: This is an official North Carolina Attorney General advisory opinion. AG opinions are persuasive authority but not binding precedent like a court ruling. This summary is for informational purposes only and is not legal advice. Consult a licensed North Carolina attorney for advice on your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official AG opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

Plain-English summary

Lenox Baker Children's Hospital, a component of the Department of Human Resources (DHR), historically received private donations (money, stocks, bonds, equipment) and the Board used them on hospital operations without DHR approval. The Board chairman asked the AG three questions:

  1. Are private donations to Lenox Baker subject to the Executive Budget Act?
    Yes. The AG read the Act's definition of "state funds" (G.S. 143-1) to include "donations appropriative" (donations for a certain use), and G.S. 143-2 explicitly includes donations within the Director of the Budget's jurisdiction. Private donations to a state-operated hospital are state funds.

  2. Can DHR control how the Board spends the donations?
    Yes. G.S. 131E-57 vests DHR with "the general superintendence, management, and control of the hospital, its grounds and buildings, its officers and employees, and its patients and all matters relating to its government, discipline, contracts, and fiscal concerns." That comprehensive grant covers fiscal control. The Board's authority under G.S. 131E-56(b) to "accept and use donations to further the intent of this Article" is much narrower. The word "use" in ordinary meaning is to employ or expend; it does not imply standalone discretion to determine the purpose of use.

The AG read both statutes together. G.S. 131E-57 controls fiscal matters comprehensively; G.S. 131E-56(b) just lets the Board spend donations for hospital benefit, subject to DHR's policies and approval. The opinion was emphatic that exceptions to general statutory authority must be narrowly construed (Nance v. Southern Ry.) and that the Executive Organization Act of 1973 reinforces departmental control: G.S. 143B-3(2) defines a "board" as a body that "assists and advises" the department head, and G.S. 143B-10(e) gives the Secretary pervasive control over all management functions.

The AG also flagged a real-world risk: if DHR refuses to approve a particular use of a donation in a manner consistent with the donor's intent, the gift could fail. Board of Trustees of UNC-CH v. Heirs of Prince, 311 N.C. 644 (1984); Campbell v. Jordan, 274 N.C. at 243.

  1. Must donations be deposited with the State Treasurer?
    Yes, unless the gift's terms direct otherwise (G.S. 147-83 exemption) or unless the gift creates a trust where the State employee-custodian has no duty to invest (in which case G.S. 147-86.11(e)(1)a does not apply). The cash-management policy in Article 6A of Chapter 147 requires deposit of all funds belonging to the state. A written gift instrument with express terms requiring deposit elsewhere overrides that default. G.S. 147-69.3 also allows DHR to choose to deposit non-required funds with the State Treasurer; that discretion sits with DHR consistent with its overall fiscal control.

The opinion extends and is consistent with the earlier 1986 AG opinion to DHR Secretary Phillip J. Kirk, Jr. about the general fiscal treatment of DHR funds. (See [[1986-10-30-state-cash-management-patient-funds-enterprise-funds-student-fees]].)

The bottom line: a state hospital board cannot operate as an independent fund-raising-and-spending operation. The donations are state funds, DHR controls disposition, and the State Treasurer is the default depository.

Currency note

This opinion was issued in 1986. 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.

Lenox Baker Children's Hospital was leased to Duke University Medical Center in 1991 and has not been operated by DHR since. The state hospital governance framework, the Executive Budget Act, and the cash-management policy have all been amended. For current state hospital donations questions, consult the current Chapter 131E provisions, the current DHHS organizational structure, and the State Treasurer's current cash-management policy.

Common questions

Q: I want to donate to a state-operated hospital. Where does my money go?
A: At the time of the opinion, the answer depended on what your gift documents said. By default, donations go into the State Treasury under G.S. 147-77, are tracked as state funds under the Executive Budget Act, and are spent in accordance with DHR (and successor agency) policies consistent with your stated purpose. If you want the funds handled differently, the gift instrument should say so explicitly.

Q: Can a hospital board ignore donor restrictions?
A: No. The AG was careful to say that DHR's failure to approve a use consistent with the donor's intent could cause the gift to fail. Donor restrictions matter. Board of Trustees of UNC-CH v. Heirs of Prince and Campbell v. Jordan reinforce that gifts can lapse if the recipient does not honor the restrictions.

Q: What if the donor wants the gift held outside the State Treasury?
A: The G.S. 147-83 exemption lets a written gift instrument override the State Treasurer deposit requirement. If you want a private trustee or a different depository, the gift document must say so explicitly.

Q: Did the Board really have no independent authority?
A: The AG read G.S. 131E-56(b)'s "accept and use" language narrowly. The Board could accept gifts and spend them within DHR's policies, but could not act as a fully independent decisionmaker on fiscal matters. The Board's role was advisory and operational, not autonomous.

Background and statutory framework

The opinion's analytical work runs along three tracks:

  • State-funds definition (Executive Budget Act). G.S. 143-1 and 143-2 cast a wide net: any money collected by or for the state, including donations, is state funds. The implication is that donations to state agencies do not become private money just because the source is private.
  • Hospital governance (Chapter 131E). G.S. 131E-57 gives DHR comprehensive control of Lenox Baker's "fiscal concerns." G.S. 131E-56(b) lets the Board "accept and use" donations. The AG read these in pari materia, giving "use" its ordinary meaning (employ, expend) and refusing to read it as implying autonomous decision-making power.
  • Cash management (Article 6A of Chapter 147). G.S. 147-77 requires deposit of state funds with the State Treasurer. G.S. 147-83 exempts gifts whose terms direct otherwise. G.S. 147-86.11(e)(1) deposits trust funds only when the custodian has a duty to invest.

The AG also leaned on the Executive Organization Act of 1973 (Chapter 143B) to confirm departmental control. G.S. 143B-3(2) defines a "board" as a body that "assists and advises" the department head. G.S. 143B-10(e) and (j)(3) give the Secretary pervasive control over planning, organizing, staffing, directing, coordinating, reporting, and budgeting, and authority to adopt policies relating to "internal management procedures." G.S. 143B-173 creates the three DHR boards (Lenox Baker, Governor Morehead School, NC Schools for the Deaf) with identical powers, none of which carve out independent fiscal authority.

The opinion is in tension with what the Lenox Baker Board had historically done. It was not unusual for state-operated specialty hospitals to develop active fundraising operations and treat donor support as a kind of private adjunct budget. The AG's reading pulled all of that back under DHR control and the Executive Budget Act framework.

Citations

  • N.C.G.S. § 131E-56(b) (Board authority to accept and use donations)
  • N.C.G.S. § 131E-57 (DHR comprehensive control of Lenox Baker)
  • N.C.G.S. § 143-1 (definition of state funds, including donations)
  • N.C.G.S. § 143-2 (Executive Budget Act coverage)
  • N.C.G.S. § 143-18.1(c) (gifts for capital improvement projects)
  • N.C.G.S. § 143B-3(2) (definition of "board" as advisory)
  • N.C.G.S. § 143B-10(e) (Secretary's pervasive management control)
  • N.C.G.S. § 143B-10(j)(3) (Secretary's internal management policy authority)
  • N.C.G.S. § 143B-173 (DHR boards' identical powers)
  • N.C.G.S. § 147-69.3 (discretionary State Treasurer deposit)
  • N.C.G.S. § 147-77 (daily deposit of state funds with State Treasurer)
  • N.C.G.S. § 147-83 (exemption when gift terms direct otherwise)
  • N.C.G.S. § 147-86.11(e) (cash management deposit policy; duty-to-invest standard)
  • Campbell v. Jordan, 274 N.C. 233, 162 S.E.2d 545 (1968) (donor restrictions on gifts)
  • Lichtenfels v. North Carolina National Bank, 268 N.C. 467, 151 S.E.2d 78 (1966)
  • Board of Trustees of UNC-CH v. Heirs of Prince, 311 N.C. 644, 319 S.E.2d 239 (1984) (gift failure when restrictions ignored)
  • Nance v. Southern Ry., 149 N.C. 366, 63 S.E. 116 (1908) (statutes given natural and most obvious import)

Source

Original opinion text

Requested By: Richard J. Vinegar, Chairman
Board of Directors of Lenox Baker Children's Hospital

Questions:
(1) Are funds donated to Lenox Baker Children's Hospital [Lenox Baker] subject to the provisions of the Executive Budget Act, G.S. 143-1 et seq.?
(2) To what extent, if any, are the expenditure of donated funds and the disposition of other personalty donated to Lenox Baker (i.e., stocks, bonds, etc.) subject to the approval or control of the Department of Human Resources [DHR]?
(3) Are funds donated to Lenox Baker required to be deposited with the State Treasurer pursuant to Chapter 147 of the North Carolina General Statutes?

Conclusions:
(1) Yes.
(2) DHR has the control and management of Lenox Baker, including all matters related to its fiscal operation.
(3) Yes, unless the conditions or terms of the gift provide to the contrary, or unless otherwise provided by law.

[The opinion proceeds through three numbered sections walking through the Executive Budget Act's definition of state funds, the relationship between G.S. 131E-56(b) and G.S. 131E-57 on board authority and DHR control, and the Article 6A cash-management deposit requirements with the G.S. 147-83 exemption. Citations include Campbell v. Jordan, Lichtenfels v. North Carolina National Bank, Board of Trustees of UNC-CH v. Heirs of Prince, and Nance v. Southern Ry. The opinion notes its consistency with and expansion upon the prior 1986 AG opinion to Phillip J. Kirk, Jr.]

LACY H. THORNBURG
Attorney General

Doris J. Holton
Assistant Attorney General