Applicability to Donations to Lenox Baker Children’s Hospital

November 20, 1986 State Departments, Institutions and Agencies; Executive Budget Act, G.S. 143-1 et seq.; Cash Management; G.S. 147-86.10 et seq.; State Treasurer; G.S. 147-77; Applicability to Donations to Lenox Baker Children’s Hospital; Department of Human Resources’ Control over Donations to Lenox Baker Children’s Hospital; G.S. 131E-56; G.S. 131E-57; G.S. 143-10

Subject:

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.
(1): The Executive Budget Act, Article 1 of Chapter 143 of the North Carolina General Statutes, requires that all State funds be expended and reported according to procedures outlined in the Act and the rules promulgated thereunder. "State funds" is defined to mean "any and all moneys appropriated by the General Assembly of North Carolina, or moneys collected by or for the State, or any agency thereof, pursuant to the authority granted in any of its laws." G.S. 143-1. (Emphasis added).

The question has been raised whether donations from private sources solicited by the Board of Lenox Baker are "State funds." It has been suggested that since these funds are in no way comprised of tax revenues, they may not be "State funds." It is clear, however, that "State funds" is not given such a narrow reading. Further clarification of the concept is given in the Act:

The test as to whether an institution, department, agency, board, commission, or corporation or person is included within the purpose and powers and duties of the Director of the Budget [Governor] shall be whether such agency or person receives for use, or expends, any of the funds of the State of North Carolina, including funds appropriated by the General Assembly and funds arising from the collection of fees, taxes, donations appropriative, or otherwise. (Emphasis added).

G.S. 143-2.

The above-cited statutory provision by its express language makes "donations appropriative", or donations for a certain use, subject to the operation of the Act.

Further indication of legislative intent that gifts and donations to the State or its agencies be treated as "State funds" is found in Article 6 of Chapter 147 of the General Statutes [which delineates the responsibilities of the State Treasurer]. Section 147-77 requires that funds belonging to the State of North Carolina be daily deposited in the name of the State Treasurer in a bank or institution designated by the State Treasurer. An express exemption from G.S. 147-77 is found in G.S. 147-83 for certain gifts or donations to the State — where a contrary disposition or handling is required by the instrument evidencing the gift or donation. Such an exemption would obviously be superfluous but for the designation of gifts or donations as "State funds."

Notwithstanding that private donations are State funds, if the donor expresses the intent that funds not be deposited with the State Treasurer, logically, by operation of G.S. 147-83, supra, the funds would not be subject to the provisions of the Act, and rules promulgated thereunder, which govern procedures for making disbursements from the State Treasury. Also, the funds would be exempt from the remaining provisions of the Act, which deal primarily with reporting and budgeting procedures, when the donor expresses a contrary intent. Campbell v. Jordan, 274 N.C. 233, 243, 162 S.E. 2d 545 (1968); Lichtenfels v. North Carolina National Bank, 268 N.C. 467, 477, 151 S.E. 2d 78 (1966).

Additionally, G.S. 143-18.1(c) provides for disposition and handling of grants and gifts earmarked by donors for construction or capital improvement projects not provided for or authorized by the General Assembly. That provision mandates investment in a special reserve account to be held by the State Treasurer either until the end of the biennium in which the account was established or until the project is authorized by the Director of the Budget [Governor], whichever occurs first. Should the project not be approved by the end of that biennium, the funds accumulated (including interest or investment income) revert to the donor/grantor.

(2): Lenox Baker receives donations in the form of money, stocks, bonds, securities and other intangibles from private sources, and oftentimes receives gifts of equipment and other physical apparata. Heretofore, the Board of Lenox Baker has received and used these donations on behalf of the hospital totally independent of DHR approval. The genesis of this unilateral authority to dispose of State funds, if it exists, must be found in G.S. 131E-56(b) which simply states as follows:
(b): The Board of Directors is authorized to accept and use donations to further the intent of this Article.

This statute was enacted in 1983 in the face of the existing statute, G.S. 131E-57, which by its plain language vests DHR with pervasive control over all matters concerning Lenox Baker, including all fiscal matters. G.S. 131E-57 reads as follows:

The Department shall have 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.

(Emphasis added).

The issue here is whether the Legislature intended by enacting G.S. 131E-56(b) to create an exception to the seemingly consummate authority given to DHR by G.S. 131E-57. More specifically, does G.S. 131E-56(b) give the Board absolute discretion to "use" donations independent of DHR approval? Unfortunately, there exists no evidence of the Legislature’s actual intent behind the enactment of G.S. 131E-56(b). Nor is there any statutory guidance in Article 3 of Chapter 131E as to the meaning or import of the word "use." Consequently, it must be given its common and approved usage. Sutherland, Statutory Construction § 46.01, p. 74 (4th ed. 1984). "Use", in its everyday sense, has several established meanings which are applicable here. It is defined to mean "1. employ for or apply to a given purpose. . . 4. to consume, expend or exhaust". Webster’s New World Dictionary, pp. 1563-64 (2d College Ed. 1972). Neither of these definitions remotely suggests any inherent complementary power to control the manner or purpose of the use. In this situation, if "use" is broadly, and inappropriately, interpreted to encompass an unqualified discretion to determine the purpose of the use of donations, a conflict arises between G.S. 131E-56(b) and G.S. 131E-57, which unlike the former is totally free of ambiguity. These two statutes are not incompatible when the literal meanings of their terms are adhered to. G.S. 131E-57, by its literal terms, gives DHR absolute and comprehensive control and supervision over all fiscal matters concerning Lenox Baker while G.S. 131E-56(b) merely allows the Board to spend donations for the benefit of Lenox Baker. There is a preference for literal meanings and any construction which contradicts the letter of a statute should be carefully scrutinized. "Statutes should be read and understood according to the natural and most obvious import of the language without resorting to subtle and forced construction for the purpose of either limiting or extending their operation." Nance v. Southern Ry., 149 N.C. 366, 372, 63 S.E. 116 (1908). Only when adherence to the literal meaning of a statute creates an absurd or unreasonable interpretation should deviation from that literal meaning occur. 73 Am. Jur. § 208 (2d ed. 1974). Nance v. Southern Ry., supra, 149 N.C. at pp. 374-75. Also, any exceptions from the general rule, i.e., G.S. 131E-56(b) as an exception to the comprehensive authority given DHR in G.S. 131E-57, should be narrowly construed. Sutherland, supra, at § 47.11, p. 144 and n. 4; Wallace v. Louisville and Nashville Railroad Co., 332 F. 2d 94, 97 (1964); Korherr v. Bumb, 262 F. 2d 157, 162 (1958). Thus, it cannot be presumed that the Legislature intended to create an exception to G.S. 131E-57 by the inexplicit statement comprising G.S. 131E-56(b).

Other evidence which contradicts special legislative treatment of donations to Lenox Baker can be found in the Executive Organization Act of 1973, G.S. 143B-1, et seq. In G.S. 143B-10(e) and

G.S.: 143B-3(2) defines a "board" as a collective body which "assists and advises" the department head, and G.S. 143B-173, which creates the three boards under the auspices of DHR (the Boards of Lenox Baker, the Governor Morehead School, and the North Carolina Schools for the Deaf), endows each board with identical powers and authority.

Consequently, that the Legislature intended by the vague and general language of G.S. 131E-56 to vest the Board of Lenox Baker with complete independence to dispose of State funds or property is neither supported by the language of G.S. 131E-56(b) and 57, nor that of other pertinent statutory provisions. Indubitably, the disposition of funds and property donated to Lenox Baker is subject to applicable rules and policies originating from DHR. However, failure by DHR to approve of the use of any donation in a manner consistent with the specified intent of the donor could possibly result in failure of that gift. See, Board of Trustees of UNC-CH v. Heirs of Prince, 311 N.C. 644, 648, 319 S.E. 2d 239 (1984); Campbell v. Jordan, 274 N.C. at 243.

(e): The receipt section of the uniform statewide plan promulgated by the Director of the Budget shall provide at a minimum that:
(1): Except as otherwise provided by law, moneys received by employees of State agencies in the normal course of their employment shall be deposited as follows:
a.: Moneys received in trust for specific beneficiaries for which the employee-custodian has a duty to invest shall be deposited with the State Treasurer under the provisions of G.S. 147-69.3. (Emphasis added).

The import of this provision is that despite classification of funds as either State or non-State funds, a State employee-custodian who serves in the capacity of trustee must deposit funds with the State Treasurer if there is a duty to invest them. A duty to invest is imposed by laws governing trust relationships and by the trust agreement. It is a generally accepted principle of the law of trusts that even in the absence of trust language requiring investment, a duty to invest may be implied from the settlor’s intent. The intent of the settlor is seldom expressly stated and consequently must be gleaned from the circumstances and nature of the trust relationship. Bogert, Trusts and Trustees, § 611 at p. 3 (2d Rev. ed. 1978). One clear indication that there is a duty to invest trust funds appears when the terms of the trust direct the trustee to pay income to a beneficiary or class of beneficiaries. Id. at n. 2. Generally speaking, a duty to invest can be implied from the trust relationship when to effectuate the purpose and objective of the trust, it is necessary for the trustee (employee-custodian) to invest the corpus or principal to make it productive. Consequently, if there is no duty to invest, even though the trustee may have the discretion or power to invest, trust funds are not required to be deposited with the State Treasurer under G.S. 147-86.11(e)(1)a.

In conclusion, there are basically two types of funds from private sources benefitting Lenox Baker which are required to be deposited with the State Treasurer — (1) State funds from private donations where the instrument evidencing the donation does not clearly require that funds be deposited other than with the State Treasurer and (2) trust funds for specific beneficiaries where the trustee who is an employee of a State agency has a duty to invest either by law or under the express or implied terms of the trust agreement.

Notwithstanding that there may be no duty to invest funds within the custody and control of a State employee-custodian, G.S. 147-69.3 allows such funds to be invested with the State Treasurer when not otherwise prohibited by law or by the terms of the trust. The decision, however, rests with DHR according to its policies governing discretionary deposits by virtue of its control over all fiscal matters relating to Lenox Baker. (See discussion in Question 2, supra).

The Conclusions in this Opinion are consistent with and, to some extent, constitute expansion upon the Conclusions contained in the prior Opinion of the Attorney General addressed to Phillip

J. Kirk, Jr., dated 31 October 1986. In that former Opinion the Questions pertained only to whether certain types of funds existing through operations within the Department of Human Resources are required to be expended and reported in accordance with the Executive Budget Act and deposited with the State Treasurer pursuant to Article 6A of Chapter 147 of the North Carolina General Statutes. The Questions addressed in this Opinion deal specifically with funds or other personalty donated to Lenox Baker Children’s Hospital (one component of the Department of Human Resources), and the basic applicability of the Executive Budget Act and Chapter 147 thereto.

LACY H. THORNBURG Attorney General

Doris J. Holton Assistant Attorney General