Author: Municipal Finance Law Bureau
This month's Ask DLS features frequently asked questions concerning gifts. Please let us know if you have other areas of interest or send a question to cityandtown@dor.state.ma.us. We would like to hear from you.
As a follow up from July’s edition of Ask DLS, concerning moving municipal officials from elected to appointed and combining roles, please note that local officials should be cognizant of charter provisions or special acts that may affect your local government structure and the applicable roles and responsibilities of local finance officials. DLS advises that officials should contact local counsel when considering moving or combining roles in order to properly consider any election, charter or special act implications.
What is a gift and how is it different from other payments made by private parties?
A payment made by a private party to a municipality in connection with a regulated activity, contract or other municipal action is not a gift, donation or grant within the meaning of and for the purposes of G.L. c. 44, § 53A. As such, these payments may not be accounted for in a separate account and spent without appropriation. These payments lack the donative intent that is an essential characteristic of the genuine gift required by that statute. A gift is ordinarily defined as a voluntary payment of money or transfer of property made without consideration. Although a private party’s decision to engage in a regulated activity or contract with a municipality may be one of choice, it is doing so with the expectation of receiving valuable consideration in return, i.e., a privilege or benefit, or some municipal action or authorization.
Further, DLS has consistently taken the position that even if the municipality has a legal obligation to spend the amount paid for the designated purpose, in the absence of a statute permitting the payment to be treated otherwise, it must still be accounted for as general fund revenue and an appropriation is needed to authorize the expenditure.
If a community is offered a gift, what is the process for acceptance?
G.L. c. 44, § 53A, which controls the treatment of gifts and grants, says that a city, town or district officer or department head may accept a gift or grant of money for the purposes or functions the office or department carries out. Many times, a gift will name the specific officer or department or otherwise state a purpose that clearly indicates the same, i.e., a gift of money for the purchase of firefighter helmets is clearly intended to go to the fire department. Although the officer or department head controls the acceptance of a gift, the expenditure of the gift for the intended purpose(s) may not be made until after receipt of the approvals noted below.
However, where a gift is made for the general, unrestricted use of the municipality, the selectboard, mayor or CEO equivalent would traditionally accept the gift. When that occurs, the legislative body should determine through appropriation the purposes for which the funds may be spent. This is because when a gift is not given to a particular department for particular spending purposes, there is no basis under G.L. c. 44, § 53A for any officer or department to spend the funds.
How are gifts accounted for and expended?
Gift funds are credited to a separate gift account that the officer or department may then spend without appropriation for the gift’s intended purposes, but must have the following approval in order to do so: by the school committee for gifts for educational purposes, otherwise, the selectboard, mayor or manager and city council or prudential committee. Additionally, interest belongs to the general fund unless the donor or grantor has expressly specified in writing that it remains with the gift or grant. A separate bank account is not needed for each gift. Cash may be pooled by the treasurer for investment purposes.
Concerning expenditure of the funds, the community must expend the funds in accordance with the intent of the donor. Once the funds are accepted, the community assumes a fiduciary responsibility for the funds and may not incur expenses from the fund outside of the scope of the donor’s intent or make investments of the funds outside the law.
Are there any gift-related public purpose or anti-aid considerations?
As noted above, in the case of gifts and grants, the community is acting in the capacity of a custodian of the money, ensuring that it be spent as intended by the donor or grantor of those funds. This is distinct from the constitutional and statutory obligations imposed under public purpose, anti-aid or pre-emption doctrines when the proposed expenditures are from funds raised by the municipality. As such, money may be spent from a gift or grant account for a purpose which would not otherwise be permissible to spend on if utilizing moneys raised by the municipality. Said another way, when the expenditure is derived from a gift fund comprised of no publicly raised money, it does not seem that public purpose, anti-aid or pre-emption issues would necessarily be a barrier to these expenditures. However, DLS cautions that municipalities should be wary of accepting gifts or grants that are not for public purposes and have advised that a local non-profit may be better situated to receive and expend funds for purposes that may otherwise be questionable if made by the municipality with public funds. A municipality is under no obligation to accept gifts or grants of this nature. A gift or grant to a town department should be designed to enable that department to carry out some aspect of the public mission it was established to pursue. The terms of the gift or grant control the use of the funds in accordance with donor instruction and intent.
Is there a way to ‘pool’ donations?
Donations are treated as gifts under G.L c. 44, §53A, which means they are segregated from the general fund for accounting purposes and can be spent as noted above for the purpose of the donations. In situations where a community may be accepting a significant amount of small donations for a particular project or purpose, the accounting officer could establish a single, consolidated gift account to hold all of the donations. In such cases, we recommend that the town designate a name for the account and have each donor specify the same terms and conditions under which the gifts will be accepted, the specific purposes for which the monies may be spent, whether interest earned stays with the gift and state whether the donations will be returned or allowed for another purpose if the project is not undertaken in a certain number of years. The local accounting team should keep track of the donor’s information as well.
Can a gift be returned or the intent of a gift be changed?
Generally, monies given for a specific purpose must be spent for that purpose. If a donor requests that gift money be returned or otherwise dedicated to another purpose, the community should examine whether or not such actions are within the scope of the gift and consider contacting the Division of Public Charities at the Attorney General’s Office for further guidance. In some circumstances, the purpose of the gift cannot be carried out and money cannot be returned or used for an alternative use. In such circumstances, the community should consult with local counsel to consider whether it is possible to initiate court action for direction from the court under the doctrine of cy pres, which is used when the purpose of a gift cannot be fulfilled to determine another appropriate use for the funds.
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| Date published: | August 3, 2023 |
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