Research Corner: Considerations for municipal donations to private entities

In past weeks, the uncertainty of funding for the Supplemental Nutrition Assistance Program (SNAP) due to the federal government shutdown has resulted in significant concerns about a large portion of the population having sufficient access to food. In October, Governor Polis asked Coloradans to help fill the gap that would be created when federal SNAP payments stopped on Nov. 1. Shortly thereafter, the State Joint Budget Committee approved $10 million to support Colorado food banks and pantries. Meanwhile, citizens and businesses are stepping in to help, along with local governments. While not a new concept, the widespread nature of the funding needs to feed our neighbors may have some municipalities seeking a refresher on considerations they need to have in mind when making municipal donations to private entities.

Public purpose exception

Article XI, section 2 of the Colorado Constitution states that government entities, including municipalities, may not “make any donation or grant to, or in aid of . . . any corporation or company . . . .” Courts strictly interpreted this provision from the late 1800’s through the 1940s, invalidating various efforts by governments.

Despite this apparent prohibition and prior case law, in 1955 the Colorado Supreme Court established a “public purpose” exception to the constitutional provision, which allows Colorado governments to make donations or grants to private entities so long as it provides a public benefit and furthers a valid “public purpose.” McNichols v. City & Cnty. of Denver, 280 P.2d 1096 (Colo. 1955). More recent opinions from the 1980s and 1990s suggest that the Colorado Supreme Court will go to significant lengths to avoid finding a violation of Article XI, section 2. For example, in City of Aurora v. Public Utils. Comm’n, 785 P.2d 1280, 1289 (Colo. 1990), the Court found that the “public purpose” exception holds true even if a private company “might have been required to undertake the project without such benefit, as long as the expenditure by a municipality furthers a valid public purpose.”

While the Colorado Supreme Court has upheld this public purpose exception several times since 1955, it has done little to delve into the question of what donations are valid and which serve a public purpose. Colorado Attorney General Gale Norton wrote, in a formal 1991 opinion, that it appears “the court has construed these constitutional provisions to allow . . . flexibility to craft solutions for economic problems so long as any indirect benefits to private business are outweighed by the . . . public purpose.” Indeed, it appears that no Colorado case since the 1940s has invalidated a donation or grant by a public entity under Article XI, section 2 of the Colorado Constitution.

Other applicable laws

In addition to the anti-donation provision of the Colorado Constitution and cases creating the public purpose exception, there are other laws that address gift-giving by municipalities. For statutory municipalities, C.R.S. § 31-15-901(1)(c) provides that the governing body of a municipality has the power “to aid and foster, by all lawful measures, associated charity organizations by appropriations . . . .” The statute goes on to provide that money shall not be given to an organization that is wholly or partly under religious control. For home rule municipalities, gifting to private entities likely falls under Article XX of the Colorado Constitution such that they are not bound by statute.

Colorado’s broad statutory prohibition may be based on a notion that public funding of religious entities violates the Establishment Clause of the First Amendment. In recent years, the U.S. Supreme Court has minimized concerns for the establishment of religion through public funding opportunities for secular functions. The Court has highlighted the potential violation of the Free Exercise clause by excluding religious organizations simply because of their religious nature or because some funding may be used for religious purposes. Regardless of whether you serve a statutory or home rule municipality, it is important to consult with your municipal attorney to ensure that you comply with these constitutional provisions around religion, found in the First Amendment of the U.S. Constitution and Article II, section 4 of the Colorado Constitution.

Practical application

Despite the broad grant of authority that the public purpose exception has given to government entities to provide donations and grants to private entities, municipalities should ensure that they have thought through and ideally created some sort of record establishing the public purpose to be served by a given donation or grant. For example, a municipality could include findings about the significant public purpose to be served by a donation in any resolution or ordinance it passes. In the case of donations to food banks or other similar organizations, a public purpose to be served by the donation might include combatting hunger and food insecurity, which provides for public health and well-being of community members.

If a municipality is unable or prefers not to provide a monetary donation to assist with food needs due to the loss of SNAP benefits, municipalities can consider other ways to help. For example, some municipalities have organized and facilitated food drives while others have compiled and shared lists of resources and places where community members can go to get food or other resources on their website and elsewhere. Regardless of what a municipality does to step up, any action helps fill the gap and support residents struggling in the absence of SNAP benefits.

This column is not intended and should not be taken as legal advice. Municipal officials are always encouraged to consult with their own attorneys.