Some South Dakota rural water associations are private nonprofit tax-exempt organizations. Can they qualify as 'public or quasi-public agencies' eligible to receive federal surplus property under federal regulations?
Plain-English summary
The General Services Administration ran a federal surplus property program that let states and other public entities acquire used federal equipment at low or no cost. South Dakota's Central Services division within the Bureau of Administration was the state's clearinghouse for these acquisitions. Some rural water associations, organized as private nonprofit tax-exempt entities, wanted to know whether they could access the program.
S. J. Axtman, the Director of Central Services, posed the question to AG Mark Meierhenry. The threshold legal hurdle was the federal regulations governing eligibility, specifically 41 CFR § 101-44.207. That regulation listed the categories of state-level recipients eligible to receive federal surplus property:
- States and their departments, agencies, or instrumentalities
- Political subdivisions of states, including local governments and economic development districts
- Instrumentalities created by interstate compact
- Multijurisdictional substate districts established by or pursuant to state law
- Indian tribes, bands, groups, pueblos, or communities on state reservations
Meierhenry's analysis was direct. Rural water associations organized as private nonprofit tax-exempt corporations are not state instrumentalities. They are private entities that happen to provide a public-interest service (delivering water to rural members). They are not "established by or pursuant to State law" in the sense the regulation required. Even their nonprofit tax-exempt status under federal income tax law did not change their fundamental private character.
Without meeting one of the regulation's listed categories, the rural water associations could not receive federal surplus property. The answer was no.
The opinion is short and tightly scoped. Meierhenry did not address creative workarounds (e.g., whether a county or city could acquire surplus property and then transfer or donate it to a rural water association, which raises separate questions about disposal of public property and county home-rule authority). He addressed only the direct eligibility question.
Currency note
This opinion was issued in 1982 during AG Mark Meierhenry's tenure. Subsequent federal regulatory amendments, court decisions, and AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The federal property management regulations have been substantially restructured since 1982; modern federal surplus property eligibility rules are now codified primarily at 41 CFR chapter 102, and the program structure has changed. Modern questions about rural water association eligibility for federal surplus property should be verified against current federal regulations and any applicable South Dakota law on rural water system organization (now governed primarily by SDCL chapter 46A).
What the opinion meant at the time
For rural water associations in South Dakota, the opinion closed the door on direct access to the federal surplus property program. They could not list themselves as eligible recipients and could not obtain surplus equipment from the state's surplus property warehouse.
For the Bureau of Administration's Central Services division, the opinion provided clear guidance for declining applications from private rural water associations. It also reinforced the broader rule that the state's surplus property program could not be used to channel federal surplus equipment to private entities, even nonprofit ones, by routing it through state agencies as intermediaries.
For rural water systems that wanted equipment, the practical alternative was either to purchase used equipment from surplus auctions open to the general public, or to work with a county or city that was itself eligible and that might lawfully purchase or transfer equipment under state public-property statutes.
Common questions
Q: What is a rural water association?
A: In 1982 South Dakota, rural water associations were typically nonprofit cooperatives organized to provide drinking water to rural members who were too far from municipal water systems. They were governed by their member-elected boards and were funded by user fees and federal/state grants for rural water development.
Q: Why isn't a 501(c)(3) status enough?
A: Federal tax-exempt status is a federal income tax classification. It does not transform a private nonprofit into a state agency or political subdivision. The federal surplus property regulations required a specific public-entity status (state, political subdivision, instrumentality created by compact, etc.), and 501(c)(3) does not qualify.
Q: Could a county acquire surplus property and donate it to a rural water association?
A: The opinion did not address this. As a matter of analysis: counties are political subdivisions and can themselves receive surplus property. Whether a county could lawfully donate that property to a private nonprofit raises separate questions about state public-property disposition law and county home-rule authority. A county's lawyer would need to analyze those statutes; this opinion did not.
Q: What about rural water districts organized under state statute?
A: The opinion was specifically about private nonprofit rural water associations. A water district organized as a political subdivision under specific state statutes might qualify under the regulation's "political subdivision" or "multijurisdictional substate district" categories. The eligibility analysis would depend on the specific statutory basis for the district.
Q: Did the AG analyze whether to encourage a legislative fix?
A: No. The opinion answered the regulatory question and stopped. A legislative fix at the state level would not have been enough; the federal regulation controlled the eligibility categories. A change would have required federal regulatory action.
Q: Could the rural water associations seek federal grants instead?
A: That was outside the opinion's scope. The federal surplus property program is one of many federal pathways for rural water infrastructure support. Programs administered by USDA Rural Development, EPA, and others can fund rural water projects without using the surplus property route.
Background and statutory framework
The federal surplus property program is the General Services Administration's mechanism for redistributing used federal equipment to states, local governments, and qualifying public-interest entities. The eligibility categories at 41 CFR § 101-44.207 (1982 vintage) were narrowly drawn to keep the program within the public sector.
The categories listed in the opinion captured several useful distinctions. "State or any department, agency, or instrumentality" covered the obvious case. "Political subdivision, including any unit of local government or economic development district" extended coverage to counties, cities, and various special-purpose entities created by state law. "Instrumentality created by compact or other agreement between States or political subdivisions" addressed interstate authorities. "Multijudicial substate districts established by or pursuant to State law" caught regional planning districts and similar multi-county entities. The Indian tribe category was its own pathway.
What the regulation conspicuously did not include was nonprofit corporations that happen to provide public-interest services. Hospitals, water associations, electric cooperatives, and similar entities were eligible under different and more specific federal programs (e.g., the donation of surplus property for educational and public health purposes is a separate authority), but not under the general state-government surplus property pathway.
For South Dakota's rural water development context, the 1982 holding meant that water associations needed to use other federal funding tools (USDA loans and grants, EPA programs) and the state's own water development funding, rather than relying on surplus property. The opinion thus drew a clean institutional line that has held in subsequent practice.
Citations and references
Federal regulations:
- 41 CFR § 101-44.207 (1982) (federal surplus property eligibility categories)
Source
Original opinion text
April 6, 1982
Mr. S. J. Axtman
Director
Central Services
Bureau of Administration
State Capitol
Pierre, South Dakota 57501
Rural water associations obtaining federal surplus property
Official Opinion No. 82-20
Dear Mr. Axtman:
You have requested an official opinion from this office based on the following factual situation:
FACTS:
Some rural water associations, organized as private nonprofit tax exempt organizations, wish to obtain federal surplus property.
In view of the foregoing facts, you have asked the following question:
QUESTION:
Under state law, can private nonprofit rural water associations be considered public or quasi-public agencies eligible to obtain federal surplus property?
In Section 101-44.207 of the Federal Property Management Regulations of the General Services Administration, the following entities are eligible to receive surplus federal property:
(i) State or department, agency, or instrumentality thereof;
(ii) Political subdivision of the State, including any writ of local government or economic development district, or any department, agency, or instrumentality thereof;
(iii) Instrumentality created by compact or other agreement between States or political subdivisions;
(iv) Multijudicial substate districts established by or pursuant to State law; and
(v) Indian tribe, band, group, pueblo, or community located on a State reservation.
Section 101-44.207(b)(1). See also Section 101-44.207(b)(2)(V); Section 101-44.207(d).
Insofar as rural water associations, organized as private nonprofit tax exempt organizations, are not state instrumentalities nor established by or pursuant to State law, it is my opinion that they may not obtain federal surplus property.
Respectfully submitted,
Mark V. Meierhenry
Attorney General