Disposition of Net Proceeds From Rentals of State-owned Real Properties

Subject:

Requested By: Marvin K. Dorman, Jr. Division of Budget and Management

Questions: (1)

Can a State agency which leases out State-owned real property utilize the rentals from one property to pay expenses incurred for the management and development of other rental properties under its jurisdiction?

(2)

Can the Department of Administration retain and utilize rentals received from self-supporting agencies pursuant to Section 15.5, Chapter 802, 1977 Session Laws?

(3)

May hospitals for the mentally disordered under the Department of Human Resources retain and utilize rentals from real estate?

(4)

Can the Governor as Director of the Budget increase an agency’s operating budget from rental receipts above that authorized by the General Assembly?

Conclusions: (1)

No

(2)

Yes

(3)

Yes

(4)

Only when an agency is entitled to retain such rental receipts.

Question No. 1.

This Office has previously ruled that, with certain exceptions, the net proceeds from all dispositions of an interest in State lands must be deposited into the General Fund. See 46

N.C.A.G. 40; 46 N.C.A.G. 51. The term "net proceeds" is defined in G.S. 146-30 as the gross amount received from any sale, lease, rental, or other disposition of any State land, less

"(1) Such expenses incurred incident to that sale, lease, rental, or other disposition as may be allowed under rules and regulations adopted by the Governor and approved by the Council of State; "(2) Amounts paid pursuant to G.S. 105-296.1, if any, and

"(3) A service charge to be paid into the State Land Fund."

A question has been raised to whether departments or agencies may deduct from the gross received for the lease of a particular property their expenses for the management and development of other rental properties under their jurisdiction. We are of the opinion that only those expenses which are incident to the rental of the particular property from which the proceeds are realized may be deducted from the gross amount received in determining "net proceeds." By statute, such deductions are limited to "expenses incurred incident to that . . . lease." (Emphasis supplied.)

Question No. 2.

Section 15.5, Chapter 802, 1977 Session Laws, directs the Department of Administration to assess self-supporting agencies reasonable fees for the use of State-owned office space. It further provides that such fees shall be paid to the Department of Administration.

The assignment of space by the Department of Administration to self-supporting agencies constitutes an allocation with is governed by Chapter 143 of the General Statutes rather than a disposition of an interest in real property governed by Subchapter II, Chapter 146 of the General Statutes, G.S. 143-341(4)g.

By opinion dated March 2, 1977, this Office ruled that G.S. 146-30, which by its terms is limited to dispositions made pursuant to Subchapter II of Chapter 146, has no application to the disposition of funds from an allocation of State lands. In addition, Section 15.5, Chapter 802, 1977 Session Laws, specifically provides that rentals collected from self-supporting agencies shall be paid to the Department of Administration.

Question No. 3.

Under G.S. 146-30 the net proceeds from a disposition of an interest in State lands go into the General Fund only if there is no other act of the General Assembly which provides otherwise.

G.S. 122-19 specifically provides that rentals from real estate under the control of a hospital for the mentally disordered shall remain with the hospital and be used as the Department of Human Resources may determine.

By lettere dated August 24, 1972, from Robert Morgan, Attorney General, to Joe K. Byrd, Chairman, State Board of Mental Health, this Office ruled that G.S. 143-27 places in the Director of the Budget complete authority to make final decisions as to the expenditure of institutional receipts collected in excess of estimated receipts which formed the basis for the biennial appropriations by the General Assembly. A question has now been raised as to whether the Governor or Director of the Budget can increase an agency’s operating budget from rental receipts above that authorized by the General Assembly.

We are of the opinion that the authority vested in the Governor as Director of the Budget by G.S. 143-27 and the Executive Budget Act would have only a limited application with regard to the net proceeds derived from a lease of State-owned real property. The authority of the Governor to control such proceeds would be limited to those instances in which the leasing agency is entitled to retain such proceeds. As pointed out above, such proceeds ordinarily go into the General Fund rather than to the leasing agency. In those instances where an agency is entitled to retain such proceeds, if the total receipts collected by the agency exceed the estimated receipts which formed the basis for the annual or biennial appropriation, G.S. 143-27 would vest in the Governor as Director of the Budget the authority to make the final decision as to whether the agency’s operating budget shall be increased by such excess receipts.

Rufus L. Edmisten Attorney General

Roy A. Giles, Jr. Assistant Attorney General