If the State Education Assistance Authority created a new fund to help families save for college, would that fund automatically be an instrumentality of the State, or just a trust fund managed by the Authority?

Plain-English summary

The State Education Assistance Authority was thinking about launching a new program called CollegeVision, designed to help families save for college expenses. The Authority's Executive Director asked the AG whether simply creating the fund by board action would automatically make it an instrumentality of the State of North Carolina, with the legal protections and constraints that status carries (including sovereign immunity).

Chief Deputy AG Andrew A. Vanore, Jr., joined by Special Deputy AG Thomas J. Ziko, said no.

The opinion applied the three-factor test from Guthrie v. State Ports Authority, 56 N.C. App. 68 (1982), aff'd, 307 N.C. 522 (1983), for identifying a State agency or instrumentality: (1) board members appointed by the Governor or other government officials, (2) ultimate funding control with the General Assembly or Advisory Budget Commission, and (3) statutory authorization to conduct specific functions on behalf of the State.

The State Education Assistance Authority itself clearly satisfied the test. The proposed CollegeVision Trust Fund did not. As an internal program of the Authority, it would not have its own separate board of directors. The savings component would be funded entirely by private contributions; the loan component, even if it mixed private and public sources, would not be controlled by the General Assembly or the Advisory Budget Commission. The Authority's enabling statutes (Chapter 116) did not establish the CollegeVision Trust Fund as an instrumentality of the State.

The opinion then explained what the fund would be instead: "institutional trust funds" under N.C.G.S. § 116-36.1. The Authority operates as an administrative unit of the Board of Governors of the University of North Carolina, per G.S. 116-11(1) and 116-209.21. G.S. 116-36.1(g)(3) defines "trust funds" broadly to include money received by an institution pursuant to grants or contracts with private entities, where the institution agrees to conduct programs or provide financial aid to students. Money deposited into the CollegeVision Fund would come from private entities for the purpose of providing future financial assistance to students, fitting the definition.

The practical consequence: under § 116-36.1(b) the State Treasurer would hold all institutional trust funds in separate accounts in trust for the University and each institution, with pooling allowed for investment purposes. The fund would be invested by the Treasurer under § 116-36.1 and § 147-69.2 (the general state investment statutes). But the fund itself would not be a state instrumentality, and contributions plus earnings would remain the property of the program participants, not the State.

The AG had previously addressed this program in a February 3, 1995 letter from Chief Deputy AG Vanore to Dr. Broadway, identifying G.S. 116-209.24 as the statutory authority for the Authority to participate in the CollegeVision Program. This opinion built on that prior advice.

Currency note

This opinion was issued in 1996. 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.

Chapter 116 has been substantially amended since 1996. The State Education Assistance Authority continues to operate, but its program portfolio has evolved (the College Foundation of North Carolina, the NC 529 Plan, etc.). The Guthrie three-factor test remains in NC law as one of the standard frameworks for identifying state agencies and instrumentalities. Anyone analyzing the legal status of a similar program today should pull the current Chapter 116, the current G.S. 116-36.1, and any later cases interpreting Guthrie.

Common questions

Q: Why does it matter whether the fund is a "State instrumentality"?
A: Because instrumentality status triggers consequences: sovereign immunity from suit, applicability of public-records law, applicability of state procurement rules, possible exemption from various taxes, and the constitutional public-purpose constraint on spending. A trust fund managed by the Authority but holding private contributions for private beneficiaries does not need (or deserve) those consequences; the AG's analysis kept the right legal label on the right object.

Q: What are "institutional trust funds" under G.S. 116-36.1?
A: A category of funds defined in subsection (g) of that statute. Subsection (g)(3) covers moneys received by an institution pursuant to grants from or contracts with private entities, when the institution undertakes to provide research, training, public service, or financial aid to students. The State Treasurer holds these funds in trust for the institutions, in separate accounts, and can pool them for investment purposes.

Q: What is the three-factor Guthrie test?
A: (1) Board members appointed by government officials, (2) ultimate funding control with the General Assembly or Advisory Budget Commission, and (3) statutory authorization to act on behalf of the State. All three need to be present (in some weight) to confer state-agency status. The Authority itself passed; the CollegeVision Fund as a sub-program did not.

Q: Why didn't the Authority just make the fund into a state instrumentality?
A: Because doing so would have changed the legal character of the contributions and earnings. Participants paid in expecting their money to remain their own property until used for their students' education. If the fund were a state instrumentality, that money could plausibly become public funds subject to General Assembly appropriation discretion. Keeping the fund as institutional trust funds preserved the private property character of the contributions.

Q: What is G.S. 116-209.24?
A: The statute authorizing the State Education Assistance Authority to engage in programs of financial assistance for parents of students. The earlier 1995 AG letter from Chief Deputy AG Vanore identified this as the operative authority for the CollegeVision program; the 1996 opinion confirmed and built on that.

Background and statutory framework

The State Education Assistance Authority is a North Carolina public corporation created to administer student loan programs, scholarship programs, and parent savings programs for college expenses. It is part of the University of North Carolina system as an administrative unit, but operates with its own board. The North Carolina Student Loan Fund (NCSLF), governed by G.S. 116-209.3, is the Authority's longest-running fund; it is a revolving trust fund used to support the Authority's loan programs but is not itself a separate state instrumentality.

The CollegeVision Program emerged in the mid-1990s as a structured savings vehicle. Parents and grandparents could contribute, with the contributions invested and held until used for the student's college expenses. By 1996 the Authority was working out the legal mechanics, including the fund's relationship to State agencies, the State Treasurer, and federal tax law.

The institutional-trust-funds framework in G.S. 116-36.1 is the work-horse statute for funds that flow through UNC system institutions for non-state purposes. It sits alongside the State Treasurer's general investment authority in G.S. 147-69.2 and is the legal mechanism by which the Treasurer can hold and invest large pools of money that are not in the state general fund.

Citations

• N.C.G.S. § 116-11(1) (Board of Governors as governing body of UNC system)
• N.C.G.S. § 116-36.1 (institutional trust funds)
• N.C.G.S. § 116-36.1(b) (Treasurer holds institutional trust funds in separate accounts)
• N.C.G.S. § 116-36.1(g)(3) (definition of "trust funds" including private-grant moneys for student financial aid)
• N.C.G.S. § 116-201 et seq. (State Education Assistance Authority)
• N.C.G.S. § 116-209.21 (Authority as administrative unit of Board of Governors)
• N.C.G.S. § 116-209.24 (Authority's authority for financial-assistance programs)
• N.C.G.S. § 116-209.3 (NCSLF as revolving trust fund)
• N.C.G.S. § 147-69.2 (Treasurer investment authority)
• Guthrie v. State Ports Authority, 56 N.C. App. 68, 286 S.E.2d 823 (1982), aff'd, 307 N.C. 522, 299 S.E.2d 618 (1983) (three-factor test for state agency status)

Source

• Landing page: https://ncdoj.gov/opinions/proposed-collegevision-fund-nature-of-proposed-fund-as-institutional-trust-funds/

Original opinion text

January 31, 1996

Dr. Stan C. Broadway, Executive Director
State Education Assistance Authority
The University of North Carolina
Post Office Box 2688
Chapel Hill, NC 27515-2688

Re: Advisory Opinion; Proposed CollegeVision Fund; Nature of the Proposed Fund as Institutional Trust Funds; N. C. G. S. §§ 116-36.1 and 116-201 et seq.

Dear Dr. Broadway:

In a letter dated January 11, 1996, you requested an advisory opinion on the following question: Should the Board of Directors of the State Education Assistance Authority elect to authorize a program, such as the CollegeVision Trust Fund, would such an authorization and creation by the Board alone establish the CollegeVision Trust Fund as an instrumentality of the State of North Carolina?

It is our opinion that the act of the Board of Directors in creating and authorizing the CollegeVision Trust Fund alone would not establish the Trust Fund as an instrumentality of the State. However, it is our opinion that the proposed CollegeVision Trust Fund would qualify as "institutional trust funds" under N. C. Gen. Stat. § 116-36.1. The Fund would be a trust fund maintained and administered under the auspices of the State Education Assistance Authority and invested for the Authority by the State Treasurer.

We previously identified N. C. Gen. Stat. § 116-209.24 as the statute under which the Authority is authorized to participate in the CollegeVision Program. See Letter from Andrew A. Vanore, Chief Deputy Attorney General, to Stan C. Broadway dated February 3, 1995. While the State Education Assistance Authority is "created and constituted" a political subdivision of the State, which performs an "essential governmental function," the programs that are administered by the Authority are not instrumentalities of the State of North Carolina. For example, the North Carolina Student Loan Fund (NCSLF) is a revolving trust fund which the Authority is authorized to use to assure the viability of the student loan programs that it administers pursuant to N. C. Gen. Stat. § 116-201 et seq. See N. C. G. S. § 116-209.3 (1994). N. C. Gen. Stat. § 116-209.3 details the purposes of the NCSLF and delineates the sources of valid deposits to that fund, but it does not establish the fund as a separate entity. Its maintenance is entrusted to the expertise and care of the Authority Board.

Our conclusion that the CollegeVision Trust Fund would not be an instrumentality of the State is supported by decisions of the appellate courts in this State which have analyzed the nature of State agencies or instrumentalities. In Guthrie v. State Ports Authority, 56 N. C. App. 68, 286 S.E. 2d 823 (1982), affirmed, 307 N. C. 522, 299 S. E. 2d 618 (1983), the Court of Appeals identified three distinguishing characteristics of an agency of the State of North Carolina: (1) The entity has a board the members of which are appointed by the Governor or other government officials; (2) Ultimate control of the funding of the entity lies with the State, either with the General Assembly or the Advisory Budget Commission; and (3) The entity is statutorily authorized to conduct its specific functions on behalf of the State. Guthrie, 56 N. C. App. at 73-74, 286 S. E. 2d at 826. Although the Authority clearly meets these criteria, the CollegeVision Trust Fund would not. As a program of the Authority, it would lack a separate board of directors. The source of funding for the savings component would be purely private and the source of funding for the loan component may be a blend of private and public sources, depending upon the Board's election. Neither source would be controlled by the General Assembly or the Advisory Budget Commission. As explained in the letter dated February 3, 1995, contributions to the CollegeVision Fund and any earnings thereon will remain the property of the participants in the program. Finally, the Authority's enabling statutes fail to establish the CollegeVision Trust Fund as an instrumentality of the State. This analysis is substantially consistent with analysis employed by courts in other jurisdictions when determining the applicability of sovereign immunity to governmental and quasi-governmental corporations. See 72 Am. Jur. 2d States §§ 105-107 (1974).

Instead of an instrumentality of the State, the proposed CollegeVision Trust Fund would constitute "institutional trust funds." In accordance with N. C. Gen. Stat. § 116-11(1) and § 116-209.21, the Authority operates as an administrative unit of the Board of Governors of the University of North Carolina. The administration and investment of institutional trust funds are governed, in part, by N. C. Gen. Stat. § 116-36.1. For the purposes of G. S. § 116-36.1, "trust funds" include:

[m]oneys received by an institution pursuant to grants from, or contracts with, any State agencies, any political subdivisions of the State, any other states or nations or political subdivisions thereof, or any private entities whereby the institution undertakes, subject to terms and conditions specified by the entity providing the moneys, to conduct research, training or public service programs, or to provide financial aid to students.

N. C. G. S. § 116-36.1 (g)(3) (1994). N. C. Gen. Stat. § 116-36.1(b) requires the State Treasurer to hold all institutional trust funds in separate accounts in trust for the University of North Carolina and each institution, but allows for the pooling of those accounts for investment purposes. Moneys deposited to the Fund would be received by the Authority from private entities in order to provide future financial assistance for students attending institutions of higher education. In our opinion, the CollegeVision Fund would qualify as an institutional trust fund under G. S. § 116-36.1(g)(3), and therefore, could be invested by the State Treasurer as a trust fund of the Authority under G. S. § 116-36.1 and consistent with G. S. § 147-69.2.

In conclusion, while the Authority's power to offer the CollegeVision Program is derived from its powers to engage in programs of financial assistance for parents of students under N. C. Gen. Stat. § 116-209.24, the program itself would not be an instrumentality of the State.

Andrew A. Vanore, Jr.
Chief Deputy Attorney General

Thomas J. Ziko
Special Deputy Attorney General