Could a South Carolina First Steps county partnership buy a building with its grant funds?

Plain-English summary

In 2013, South Carolina's Attorney General concluded that the Richland County First Steps Partnership, a nonprofit corporation, had legal power to purchase a building for its operations. The nonprofit statute expressly allowed property acquisition, and the AG viewed a facility as reasonably connected to the partnership's early-childhood mission. The First Steps provision barring certain grant money from new construction did not, in the opinion's reading, ban the purchase of an existing property.

That corporate power did not mean every proposed funding source could be used. The AG said each state or federal grant's specific purpose and conditions still governed expenditure of those funds; a purchase inconsistent with them would be impermissible. The office declined to answer the broad question of what liability the state or statewide First Steps entity might face from the transaction, because the answer depended on many unspecified circumstances.

Currency note

This opinion was issued in 2013. 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.

Common questions

Q: Did the First Steps ban on new construction also ban buying a building?
A: The AG said no. It read the restriction as addressing specified construction and renovation expenses, not the partnership's general power to purchase property.

Q: Could the partnership use any state or federal grant money for the purchase?
A: No. The opinion said the purchase could not use a grant if it would conflict with that grant's designated purposes or conditions.

Q: Did the AG decide whether the state would be liable for the building purchase?
A: No. It expressly declined the open-ended liability question as too broad and dependent on unspecified facts.

Background and statutory framework

The state First Steps director described a county partnership that rented office space and proposed financing a building purchase with funds that had supported rent. The AG compared the partnership's nonprofit corporate powers with the specific limits in the First Steps law and the requirement that public grant money serve its designated purposes.

Citations and references

• The opinion applied South Carolina Code § 33-31-302(5) on nonprofit property powers and § 59-152-120 on restricted First Steps capital expenses.
• It cited State ex rel. McLeod v. Mcinnis on conditions attached to appropriated public funds.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/may-6-2013/
• Original PDF: https://www.scag.gov/wp-content/uploads/2013/05/devenny-s-os-9591-5-6-13-richland-county-first-steps-proposal-to-purchase-building.pdf

Original opinion text

ALAN WILSON

A TIORNEY GENERAL

May 6, 2013

Susan DeVenny, Director
S.C. First Steps to School Readiness
1300 Sumter Street
Concord Bldg., Suite I 00
Columbia, South Carolina 2920 I
Dear Ms. Devenny,
You have requested an opinion of this Office as to whether the Richland County First Steps Partnership's (the "Richland Partnership") Board has the authority under State law to purchase a building in which to house its operations. By way of background, you provide the following information: South Carolina First Steps to School Readiness ("First Steps") is the state' s comprehensive early childhood education initiative, authorized under Title 59, Chapter 152 of the South Carolina Code of Laws. A network of 46 independent, non-profit First Steps County Partnerships provides service to children and families statewide using grant funding allocated to them, via our state-level entity, by the General Assembly .
.... After 13 years of renting commercial office space in downtown Columbia, Richland County First Steps proposes to purchase a building in which to house its operations. As a grantee of both SCFS [S.C. First Steps to Readiness] and the U.S. Department of Health and Human Services (through which the Partnership operates an Early Head Start program), the Partnership proposes to enter into a loan agreement with a local bank and build equity using the same state and federal funds (1/3 state funds, 2/3 federal) previously utilized to underwrite rental space. At the end of a planned 8-year period, the Partnership would own the building outright, allowing it to invest a greater share of its revenue into direct service to children and families. Section 59- 152- 120 of First Steps' enabling legislation prohibits the use of state funds for new capital construction, but is silent as to the permissible use of state funds for the purchase of property. We also note that the Richland Partnership's Articles of Incorporation indicate it is incorporated in South Carolina as a nonprofit public benefit corporation. The articles go on to state the following with regards to its purpose for incorporation:

REMBERTC.DENN1sBu1w1NG • PosT0FFICEBoxll 549 •COLUMBIA SC?921!-1549. TELEPHONE8037343970 F
•
• ACS!MILE 80 3-253-6283

Ms. DeVenny
Page 2
May 6, 2013
The purposes for which the Corporation is organized are exclusively charitable, educational and/or scientific within the meaning of Section 50l(c)(3) of the Internal Revenue Code .... The Corporation is organized and will operate (i) in accordance with The South Carolina First Steps to School Readiness Act, 1999 Act No. 99; and (ii) as a supporting organization for the benefit of, to perform the functions of, or to carry out the purposes of the South Carolina First Steps to School Readiness Board of Trustees .... With this information in mind, you specifically ask for an opinion "as to the pennissibility of such a purchase under applicable state law." In addition, you ask "what, if any, ownership and/or liability implications arise for S.C. First Steps or the State of South Carolina as a result of using state funds for this purpose?" Law/Analysis

Established in 1999, 1 First Steps is described as "a comprehensive, results-oriented initiative for improving early childhood development by providing, through county partnerships, public and private funds and support for high-quality early childhood development and education services for children by providing support for their families' efforts toward enabling their children to reach school ready to learn." S.C. Code § 59-152-10. The initiative is overseen by the First Steps Board of Trustees. § 59-152-40. As stated in § 59-152-20: The purpose of the First Steps initiative is to develop, promote, and assist efforts of agencies, private providers, and public and private organizations and entities, at the state level and the community level, to collaborate and cooperate in order to focus and intensify services, assure the most efficient use of all available resources, and eliminate duplication of efforts to serve the needs of young children and their families. First Steps funds must not be used to supplant or replace any other funds being spent on services but must be used to expand, extend, improve, or increase access to services or to enable a community to begin to offer new or previously unavailable services in their community. The South Carolina First Steps to School Readiness Board of Trustees, Office of First Steps to School Readiness, and the County First Steps Partnerships shall assure that collaboration, the development of partnerships, and the sharing and maximizing of resources are occurring before funding for the implementation/management grants, as provided for in this chapter, are made available.

§ 59-152-20.
The formation of county first step partnerships is provided for in § 59-152-60. Each county partnership "must be a private nonprofit corporation organized under Section 501 (c)(3) of the Internal Revenue Code" or, at least for the purpose of receiving grants, must "have received a state charter for incorporation ...." § 59-l 52-70(E). As indicated by its Articles of Incorporation, the Richland Partnership is incorporated under State law as a nonprofit, public benefit corporation.

1

See First Steps to School Readiness Act, 1999 Act No. 99 (codified at S.C. Code§§ 59-152-10 et seq.).

Ms. Devenny
Page 3
May 6, 2013
The powers of a nonprofit corporation organized under South Carolina law are generally governed by the South Carolina Nonprofit Corporation Act, §§ 33-31-101 et seq . S.C. Code § 33-31-302 provides that nonprofit corporations have the express power, inter alia, "to purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property or any legal or equitable interest in property .... " § 33-31-302(5). However, the powers granted a corporation under the Nonprofit Corporation Act may be limited by other statutes applicable to the particular corporation or the corporation's articles of incorporation. As stated in § 33-31-301: (a) Every corporation incorporated under this chapter has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the articles of incorporation. (b) A corporation engaging in an activity that is subject to regulation under another statute of this State may incorporate under this chapter only if incorporation under this chapter is not prohibited by the other statute. The corporation is subject to all limitations of the other statute.
§ 33-31-301 (emphasis added). Therefore, the Richland Partnership has the power under the Nonprofit Corporation Act to purchase real property for the purpose of its incorporation unless prohibited by the provisions of§§ 59-152-10 et seq. See 19 C.J.S. Corporations§ 740 ("In the absence of constitutional, statutory, or charter restrictions, a corporation may purchase or contract to purchase prope1ty, real or personal, for the purpose of its incorporation"). As stated in its Articles of Incorporation, the Richland Partnership's purpose is essentially to carry out the purposes of the South Carolina First Steps to School Readiness Act, § § 59-152- 10 et seq. The purpose of First Steps is, generally, to improve early childhood development. See § 59-152-10, supra. We have no doubt that the purchase of real property to be used as a facility for the Richland Partnership's operations is reasonably related to such purpose since, logically, access to some facility is necessary for the corporation to operate and provide services to young children and families. See l 8B Am. Jur. 2d Corporations § 1760 ("The power to acquire property is ordinarily essential to corporations, if the purposes for which they are created are to be accomplished; therefore, and as a general rule, corporations have the power to acquire and hold property as an incident to their existence and operation"). Thus, the pertinent question is whether the Richland Pa1tnership's power to purchase property is statutorily restricted by any provision in §§ 59-152- l 0 et seq. The only provision restricting a county partnership's use of funds which is relevant to the matter at hand is found in § 59-152-120 which provides: Funds received for implementation of a county partnership's implementation/management grant may not be used for capital expenses for new construction. However, funds may be made available for renovating, refurbishing, or upgrading of existing facilities used to support First Steps to School Readiness activities and services for children, families, and providers from funds made available to the partnerships in Section 59-152-150(C) and Section 63-l 1-1750(A). The county paitnership must demonstrate to the satisfaction of the First Steps to School Readiness Board that the capital expenditure is:

Ms. DeVenny
Page4
May 6, 2013

( 1) a priority need for the local initiative and other state or federal funds for such projects are insufficient; and (2) necessary to provide services to under-served children and families.
§ 59-152-120 (emphasis added). The restrictions this section places on the use of certain funds only applies to capital expenses for new construction or renovations to existing facilities; it say s nothing about a county pa11nership's power to purchase real property or a facility to be used for its operations. In light of this omission, we believe the Legislature had no intention of prohibiting county partnerships from exercising their general power as nonprofit corporations to purchase property. With that being said, we caution that any public funds the Richland Partnership has received must be expended in accordance with any specific purposes or conditions associated therewith . See State ex rel. McLeod v. Mcinnis, 278 S.C. 307, 313-14, 295 S.E.2d 633 , 637 (1982) ("The General Assembly has
... the duty and authority to appropriate money as necessary ... and has the right to specify the conditions under which the appropriated monies shall be spent"); Op. S.C. Att'y Gen., 2001 WL 1215450 (Oct. 1, 2001) ("It is well recognized that public funds must be expended only for their designated purpose"). Therefore, the Richland Partnership may not expend funds received pursuant to a federal or state grant to purchase a facility if such a purchase would be inconsistent with the specific purpose for which such funds were granted. You also generally ask about the potent ial liability of the State and/or First Steps if state funds are used by the Richland Partnership to purchase a facility. Such an open-ended question raises a multitude of hypotheticals which could implicate numerous issues in various subject areas of the law. Thus, the potential liability of the State and First Steps is a matter too broad and complex to address in an opinion of this Office. We suggest you consult an attorney regarding any such potential liability issues.

arrison D. Brant
ssistant Attorney General
REVIEWED AND APPROVED BY:

~@,~~

' Robert D. Cook
Deputy Attorney General