Some South Dakota rural water associations are private nonprofit tax-exempt organizations. Can they qualify as 'public or quasi-public agencies' eligible to receive federal surplus property under federal regulations?

Plain-English summary

The General Services Administration ran a federal surplus property program that let states and other public entities acquire used federal equipment at low or no cost. South Dakota's Central Services division within the Bureau of Administration was the state's clearinghouse for these acquisitions. Some rural water associations, organized as private nonprofit tax-exempt entities, wanted to know whether they could access the program.

S. J. Axtman, the Director of Central Services, posed the question to AG Mark Meierhenry. The threshold legal hurdle was the federal regulations governing eligibility, specifically 41 CFR § 101-44.207. That regulation listed the categories of state-level recipients eligible to receive federal surplus property:

• States and their departments, agencies, or instrumentalities
• Political subdivisions of states, including local governments and economic development districts
• Instrumentalities created by interstate compact
• Multijurisdictional substate districts established by or pursuant to state law
• Indian tribes, bands, groups, pueblos, or communities on state reservations

Meierhenry's analysis was direct. Rural water associations organized as private nonprofit tax-exempt corporations are not state instrumentalities. They are private entities that happen to provide a public-interest service (delivering water to rural members). They are not "established by or pursuant to State law" in the sense the regulation required. Even their nonprofit tax-exempt status under federal income tax law did not change their fundamental private character.

Without meeting one of the regulation's listed categories, the rural water associations could not receive federal surplus property. The answer was no.

The opinion is short and tightly scoped. Meierhenry did not address creative workarounds (e.g., whether a county or city could acquire surplus property and then transfer or donate it to a rural water association, which raises separate questions about disposal of public property and county home-rule authority). He addressed only the direct eligibility question.

Currency note

This opinion was issued in 1982. Subsequent federal regulatory amendments, court decisions, and AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The federal property management regulations cited here (the 1982 Federal Property Management Regulations at 41 CFR § 101-44.207) may have been restructured or recodified since 1982, and South Dakota's law on rural water system organization may have changed as well. Verify the current federal regulations and state law before relying on this opinion.

What the opinion meant at the time

For rural water associations in South Dakota, the opinion closed the door on direct access to the federal surplus property program. They could not list themselves as eligible recipients and could not obtain surplus equipment from the state's surplus property warehouse.

For the Bureau of Administration's Central Services division, the opinion provided clear guidance for declining applications from private rural water associations: they do not fit any of the eligible categories in 41 CFR § 101-44.207.

Common questions

Q: What is a rural water association?
A: In 1982 South Dakota, rural water associations were typically nonprofit cooperatives organized to provide drinking water to rural members who were too far from municipal water systems. They were governed by their member-elected boards and were funded by user fees and federal/state grants for rural water development.

Q: Why isn't a 501(c)(3) status enough?
A: Federal tax-exempt status is a federal income tax classification. It does not transform a private nonprofit into a state agency or political subdivision. The federal surplus property regulations required a specific public-entity status (state, political subdivision, instrumentality created by compact, etc.), and 501(c)(3) does not qualify.

Q: Could a county acquire surplus property and donate it to a rural water association?
A: The opinion did not address this. As a matter of analysis: counties are political subdivisions and can themselves receive surplus property. Whether a county could lawfully donate that property to a private nonprofit raises separate questions about state public-property disposition law and county home-rule authority. A county's lawyer would need to analyze those statutes; this opinion did not.

Q: What about rural water districts organized under state statute?
A: The opinion was specifically about private nonprofit rural water associations. A water district organized as a political subdivision under specific state statutes might qualify under the regulation's "political subdivision" or "multijurisdictional substate district" categories. The eligibility analysis would depend on the specific statutory basis for the district.

Q: Did the AG analyze whether to encourage a legislative fix?
A: No. The opinion answered the regulatory question and stopped. A legislative fix at the state level would not have been enough; the federal regulation controlled the eligibility categories. A change would have required federal regulatory action.

Q: Could the rural water associations seek other federal help instead?
A: That was outside the opinion's scope. The opinion answered only the surplus property eligibility question; it did not catalog the other federal or state funding pathways that might be available to rural water systems.

Background and statutory framework

The federal surplus property program is the General Services Administration's mechanism for redistributing used federal equipment to states, local governments, and qualifying public-interest entities. The eligibility categories at 41 CFR § 101-44.207 (1982 vintage) were narrowly drawn to keep the program within the public sector.

The categories listed in the opinion captured several useful distinctions. "State or any department, agency, or instrumentality" covered the obvious case. "Political subdivision, including any unit of local government or economic development district" extended coverage to counties, cities, and various special-purpose entities created by state law. "Instrumentality created by compact or other agreement between States or political subdivisions" addressed interstate authorities. "Multijudicial substate districts established by or pursuant to State law" caught regional planning districts and similar multi-county entities. The Indian tribe category was its own pathway.

What the regulation did not include was private nonprofit corporations that happen to provide public-interest services. As the AG read it, a rural water association organized as a private nonprofit tax-exempt corporation is neither a state instrumentality nor "established by or pursuant to State law," so it falls outside every listed category, and its federal tax-exempt status does not change that. That was the whole of the holding.

Citations and references

Federal regulations:

• 41 CFR § 101-44.207 (1982) (federal surplus property eligibility categories)

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=825

Original opinion text

April 6, 1982

Mr. S. J. Axtman

Director

Central Services

Bureau of Administration

State Capitol

Pierre, South Dakota 57501

Rural water associations obtaining federal surplus property

Official Opinion No. 82-20

Dear Mr. Axtman:

You have requested an official opinion from this office based on the following factual situation:

FACTS:

Some rural water associations, organized as private nonprofit tax exempt organizations, wish to obtain federal surplus property.

In view of the foregoing facts, you have asked the following question:

QUESTION:

Under state law, can private nonprofit rural water associations be considered public or quasi-public agencies eligible to obtain federal surplus property?

In Section 101-44.207 of the Federal Property Management Regulations of the General Services Administration, the following entities are eligible to receive surplus federal property:

(i) State or department, agency, or instrumentality thereof;

(ii) Political subdivision of the State, including any writ of local government or economic development district, or any department, agency, or instrumentality thereof;

(iii) Instrumentality created by compact or other agreement between States or political subdivisions;

(iv) Multijudicial substate districts established by or pursuant to State law; and

(v) Indian tribe, band, group, pueblo, or community located on a State reservation.

Section 101-44.207(b)(1). See also Section 101-44.207(b)(2)(V); Section 101-44.207(d).

Insofar as rural water associations, organized as private nonprofit tax exempt organizations, are not state instrumentalities nor established by or pursuant to State law, it is my opinion that they may not obtain federal surplus property.

Respectfully submitted,

Mark V. Meierhenry

Attorney General