In Arkansas, can a public school district give away (not sell) a former school building to a nonprofit or to a city?

Plain-English summary

Senator Stephanie Flowers asked whether the local school district could donate a former middle school campus to a 501(c)(3) friends group ("Keep Redfield Middle School") or to the City of Redfield. Two earlier opinions from this office had answered similar questions cautiously, treating outright donations as constitutionally suspect.

Act 318 of 2013 changed the landscape. The General Assembly amended A.C.A. § 6-21-108 to broaden who could receive donated school property (now including counties, cities, and nonprofits), to broaden who would benefit (now "citizens," not just "pupils"), and to broaden the purposes the gifted property could serve. AG Dustin McDaniel walked through the new statute and offered a guarded "yes" to Senator Flowers, conditioned on a separate constitutional inquiry the statute itself does not fully resolve.

The constitutional backbone is Article 14, which requires school district resources to serve the K-12 students of the district. The AG said a reviewing court would likely insist that any donation produce some educational benefit to district pupils, even if Act 318's text appears to allow gifts that do not. He concluded that the new statute is "potentially unconstitutional in certain applications," including possibly the Redfield donation. As for the second question, whether outstanding bond debt traceable to the property prevents the donation, the AG said neither the constitution nor the statutes preclude donating encumbered property; the answer depends on the bond contract itself.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: What did Act 318 of 2013 actually change?
A: It rewrote A.C.A. § 6-21-108 to (1) add cities, counties, and "any entity thereof" to the list of authorized donees alongside higher-education institutions, technical institutes, community colleges, and nonprofits; (2) replace "pupils" with "citizens" as the beneficiary group; and (3) broaden the permissible uses of donated property to include classes for non-district students and community programs whose benefits run beyond district pupils.

Q: Did the AG think Act 318 was constitutional on its face?
A: He treated it as presumptively constitutional but flagged "potentially unconstitutional" applications. The core problem: the statute drops the requirement that any donation produce an "educational benefit to the district's students," which Article 14 of the Arkansas Constitution arguably requires. A donation to a city for non-school purposes might survive the statute but fall to the constitution.

Q: Could the Redfield School District donate the old middle school to a nonprofit or the city?
A: The AG said it could, if district counsel concluded the donation would produce an educational benefit to district pupils, including the savings from not having to maintain the unused property. He flagged Article 12, § 5 (no public credit to private entities) as a separate concern for any donation to a 501(c)(3), though prior AG opinions had read that provision as not applying to school districts.

Q: What if the property still has outstanding bonded indebtedness?
A: The AG said neither the constitution nor the Code forecloses donating encumbered property. The question is purely a matter of contract law: what do the bond instruments themselves say? Only counsel familiar with all the bond documents could answer.

Q: Why was selling treated more favorably than donating?
A: Selling, even at fair market value or below, generates revenue that benefits the district's students. Arkansas Supreme Court precedent treats educational "public advantage" as adequate consideration for a sale (City of Blytheville v. Parks, 221 Ark. 734 (1953)). A donation does not generate revenue, so the constitutional benefit must come from elsewhere, typically avoiding ongoing maintenance costs on truly surplus or unmarketable property.

Q: What test would a court apply to a challenged donation?
A: The court would ask whether the donation falls within the school board's "broad discretion" and whether the board acted "arbitrarily or capriciously," meaning without "rational basis." The challenger has the burden by clear and convincing evidence (Springdale Board of Education v. Bowman, 294 Ark. 66 (1987)). Donations of truly surplus, unmarketable property to authorized donees were the most likely to survive.

Background and statutory framework

The opinion is the AG office's third in a series wrestling with school-district donations of real estate. Earlier opinions (Nos. 2008-091, 2008-128, 2012-060) had treated donations as constitutionally precarious, with one going so far as to opine that a district could not "simply donate the property to the city" (Op. No. 2004-056). Act 318 of 2013 was the General Assembly's response.

The constitutional framework starts with Article 14, § 1's command that "the State shall ever maintain a general, suitable and efficient system of free public schools" and § 3's directive that taxes for school maintenance be used exclusively for that purpose. The Arkansas Supreme Court in Gray v. Mitchell, 373 Ark. 560 (2008), read these provisions as letting a school board exercise "broad discretion" in spending, with a court striking the spending only if it lacked "any rational basis" to be "convenient, useful, appropriate, suitable, proper or conducive to the proper maintenance of the schools."

Act 318 amended A.C.A. § 6-21-108(b)(1) to authorize donations "to a publicly supported institution of higher education, a technical institute, a community college, a not-for-profit organization, a county, a city, or any entity thereof." The permissible purposes include preservation or improvement of the donated property; classroom use that may benefit students from outside the district; and "community programs and beneficial educational services, social enrichment programs, or after-school programs." Subsection (b)(2) goes further: it allows donation of fee simple title "without any reservations or restrictions" if the property had been conveyed to the district by the donee at no cost.

The AG read these provisions as creating a tension. The statute's text appears to allow donations that benefit only adults or non-district students. The constitution arguably demands a direct or indirect educational benefit to the district's own pupils. Where the gap is bridgeable (e.g., the district saves maintenance costs on truly surplus property), donations should survive. Where it is not (e.g., the district loses property a court would find still has value to its own students), the donation is vulnerable.

The Article 12, § 5 issue, on donations to private nonprofits, is a separate constitutional layer. Clifton v. School District No. 14 of Russellville, 192 Ark. 140 (1936), applied that section to a school district, but later AG opinions read it as inapplicable on the ground that a school district is not a "county, city, town, or other municipal corporation." The AG noted the conflict without resolving it.

On bonded indebtedness, the AG concluded the question was governed by contract law, not by the constitution or Code. If the bond covenants forbid disposition of the encumbered property without consent of the bondholders or trustee, that is the constraint. The opinion that the AG attached, Op. 2012-060, took the same view.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2013-116
January 28, 2014
STATE OF ARKANSAS
THE ATTORNEY GENERAL
DUSTIN McDANIEL
The Honorable Stephanie Flowers
State Senator
104 Main Street, Suite C
Pine Bluff, Arkansas 71601
Dear Senator Flowers:

I am writing in response to your request for my opinion on the following questions:

1. Can a school district donate real property according to state and federal guidelines and laws?
2. If it is determined that any portion of outstanding bond money is owed that is traced to that property, can the district donate the property?
3. If the answer to question two is "no," and it is possible to donate under question one, what would the district be required to do in order to donate the property?

You report that these questions relate to the proposed donation of a former middle school campus "to either the 501c3 group Keep Redfield Middle School or possibly to the City of Redfield." Based upon this report, I assume that the school district has determined that this property is "surplus" inasmuch as it is not currently serving the educational interests of the district's pupils.

RESPONSE

In my opinion, the answer to your first question is "yes," subject to certain significant constitutional and statutory restrictions. In summary, I question that a school district could simply give away surplus property without first determining that no more advantageous use of the property exists, even if that "use" is simply to realize financial benefits in the form of sales revenues. Assuming the property is reasonably deemed surplus and, possibly, unmarketable, a donation of the property pursuant to A.C.A. § 6-21-108, as recently amended, might withstand scrutiny as constitutional. Recent legislation purports to grant relatively broad, although not unrestricted, donative authority to school districts, including the power to donate realty to nonprofit corporations and cities. This legislation might be read as authorizing donations that exclusively serve interests other than those of the district's pupils. Notwithstanding this fact, in my opinion, a reviewing court might well review any donation of district property to ensure that the gift, in accordance with constitutional mandates, indeed serves the educational interests of the district's students. In conducting any such review, a court would nevertheless accord substantial deference to the district board's discretion in determining what will benefit the district.

With respect to your second and third questions, only a finder of fact acquainted with all the attendant circumstances, including the terms of pertinent bond instruments, could determine whether a school district is precluded from donating property due to the existence of a bonded indebtedness that might be "traced to" the property. In my opinion, these questions implicate only contract law, which in no way qualifies the principles of constitutional law addressed in my response to your first question. Neither the Arkansas Constitution nor the Arkansas Code forecloses the donation of property that secures a bonded indebtedness.

Question 1: Can a school district donate real property according to state and federal guidelines and laws?

In my opinion, although the answer to this question as phrased is "yes," both the Arkansas Constitution and the Arkansas Code restrict the circumstances under which a school district may donate its property. The permissibility of a school district's donating property is not addressed directly by federal law.

Circumscribing any inquiry regarding a disposition of school district assets is the constitutional mandate that school district resources invariably be devoted to benefiting K-12 district students. In this regard, the Arkansas Constitution directs that "the State shall ever maintain a general, suitable and efficient system of free public schools" and that taxes levied for maintenance and operation of the schools will be used exclusively for that purpose. Also bearing on any such inquiry are the various statutory directives discussed below, including the mandate restricting a school board's actions to ones "necessary and lawful for the conduct of efficient free public schools in the district."

This office has opined on various occasions that a school district would in all likelihood be deemed barred, whether by statute or by constitutional directive, from simply donating property under circumstances not designed to benefit the students of the school district. The statutory provisions in effect today, however, are not the same as those in effect on the previous occasions this office has opined on this issue. I will accordingly review below the current pertinent statutes, discussing in the process their application in light of controlling constitutional principles.

School-district donations as addressed by Act 318 of 2013: In Act 318 of 2013, the General Assembly expressly authorized school districts to donate real property under specified circumstances. Section 3 of Act 318, dealing generally with the power of school districts to donate real property, amended A.C.A. § 6-21-108 in ways that clearly broaden the range of authorized donees, the range of intended beneficiaries, and the range of permissible uses. Pursuant to this amendment, a district may now donate its surplus real property to counties and cities, among other previously designated donees such as "a not-for-profit organization." The amendment further authorizes donations that merely "serve a beneficial educational service" for the district's "citizens," as distinct from the "pupils" designated prior to the amendment. A broadening of authorized "beneficial educational services" is further reflected in the amended subsection's catalog of "limited purposes" to which donated property might be put.

Application: Your constituents' underlying concern is apparently whether, pursuant to this statutory broadening, a district might donate a former middle school campus either to a nonprofit corporation or to the municipality in which the realty is located. It is unclear to what purpose either of these proposed recipients would put the donated property.

Subsection (b)(1), which deals with donation of surplus properties, conditions donations both with respect to recipients and authorized uses of the property. It is questionable, in my estimation, that all of those potential uses might be deemed to benefit the district's students, as Article 14, § 3 of the constitution requires. As previously noted, for instance, the catalog of permitted uses would not foreclose, say, a recipient city from using the property for purposes other than K-12 public education. A finder of fact might consequently conduct an intensive inquiry into how a recipient intended to use the donation contemplated in your question.

Subsection (b)(1) further does not appear to require a district contemplating a donation to conduct any preliminary inquiry into whether the property might not alternatively be sold and thereby benefit the district at least to the extent of generating income. The Code generally authorizes the "[b]uying, selling, renting, and leasing" of realty by a school district, presumably subject to a school board's broad discretion to pursue the educational interests of its students. The Code further authorizes a consolidated district to sell surplus realty at fair market value, apparently to any buyer for any purpose. Significantly, there appears to be no case law even challenging selling such property to any buyer for any purpose, so long as the proceeds are properly used to advance the education of district pupils.

In terms of constitutional propriety, it is difficult to distinguish between selling surplus property to anyone for any reason in order to realize revenues for education, a practice that is statutorily sanctioned and that does not appear to have triggered any constitutional challenge, and donating at least unmarketable surplus property in order to avoid an ongoing drain of school-district revenues. At least with respect to unmarketable surplus property, then, subsection (b)(1)'s authorization of donations to a limited range of donees might well pass constitutional muster.

Specifically with respect to the circumstances giving rise to your request, I suspect but do not know that the former Redfield Middle School is indeed surplus property. Even assuming that this property is "surplus," however, the underlying constitutional question remains whether saving a district the expense of maintaining such property would in itself warrant giving it away without further inquiry regarding such alternatives as selling it to realize income for the district or donating it subject to the condition that the district directly benefit from the donation. I question, in other words, that a district could simply give surplus property away without conditions without first determining that no more advantageous alternative exists.

Notwithstanding what might appear to be a categorical authorization to make donations to nonprofit corporations and cities under subsection (b)(1), a reviewing court, even displaying due deference to district board authority, might consequently feel compelled to consider the factual circumstances in order to determine whether a donation indeed benefits the district's students. Although subsection (b)(1) arguably authorizes donating property for a use that benefits the district in no way whatsoever, I question that a court would approve any such disposition as complying with constitutional imperatives.

With respect to donations in general, what is problematic in the statute as amended is that, except in its caption, it fails to require as the sine qua non of any donation that it provide the district's students an educational benefit. On the contrary, each of the subsections discussed above authorizes gifts to such entities as counties, cities and nonprofit corporations without any triggering need to dispose of the property, even though it is deemed surplus, and without requiring that the gift benefit district pupils by advancing an adequate K-12 education. It follows from the foregoing that I consider the statute as amended potentially unconstitutional in certain applications, possibly including the donation contemplated in your request.

Again, in order to pass constitutional muster, in my opinion, any donation of school-district property must have the practical effect of providing educational benefits to the district's public-school pupils. Avoiding established future costs by donating surplus property, at least when sale thereof is infeasible, would presumably pass this constitutional test inasmuch as the savings would benefit the district's pupils. Act 318, however, does not authorize donations solely to avoid financial distress that might threaten the public education of district pupils; rather, it further sanctions such donations as a means of pursuing other ends. To this extent, its application in particular instances might invite constitutional objection.

Specifically with respect to the possible donation of this property to a nonprofit corporation, I should further note the possible application of Ark. Const. art. 12, § 5, which provides that no county, city, town or other municipal corporation shall obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual. Although the Arkansas Supreme Court has long ago applied this constitutional provision to a school district, this office has more recently opined that a school district does not fall under this constitutional provision, not being a "county, city, town or other municipal corporation." In the event this provision indeed applies, it would appear to call into question the propriety of a school district donating property to a nonprofit corporation.

Question 2: If it is determined that any portion of outstanding bond money is owed that is traced to that property, can the district donate the property?

This question is materially indistinguishable from one answered in the attached Opinion 2012-060, to which I continue to subscribe. As I indicated in my previous opinion, the effect of a bonded indebtedness on the donation of district property "is purely a matter of contract law." Possible restrictions on donations, if any, would presumably be contained in the bond instruments, whose terms could only be reviewed in each instance by counsel fully acquainted with all the attendant circumstances. Neither the constitution nor the pertinent statutes discussed above independently foreclose the donation of property that secures a bonded indebtedness.

Question 3: This question is moot in light of my response to your previous question. Only a finder of fact acquainted with all attendant circumstances, including the terms of any bond instruments, could determine whether a donation is allowed if, as you phrase it, "outstanding bond money is owed that is traced to that property."

Assistant Attorney General Jack Druff prepared the foregoing opinion, which I hereby approve.

Sincerely,
DUSTIN McDANIEL
Attorney General
DM/JHD:cyh