Can a Tennessee state legislator lease a building to a nonprofit that pays the rent with state grant funds?

Plain-English summary

A Tennessee state legislator asked whether he could lease a building to a nonprofit corporation that ran four federally funded programs administered through state agencies, when the nonprofit intended to use those state grant funds to pay the rent. AG Robert E. Cooper, Jr. concluded that the arrangement did not violate Tennessee's general conflict of interest statute (Tenn. Code Ann. § 12-4-101) so long as the legislator's only role in the contract was voting on the general appropriations act that funded the grant.

The opinion drew a careful line between "directly interested" and "indirectly interested" contracts. A legislator who simply votes on a budget that funds a grant program is treated as superintending the grant, but the statute carves out an exception that allows that vote so long as it's not on a specific line-item amendment. Because the rent flowed through a nonprofit (not directly from the state to the legislator), the legislator's interest in the grant agreement itself was indirect, which triggers a public disclosure obligation but no prohibition.

Currency note

This opinion was issued in 2010. 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 was the actual arrangement at issue?
A: A nonprofit ran four federal programs that were funded through Tennessee state departments. The nonprofit wanted to lease a building owned by a sitting state legislator and pay the rent out of the state grant money it received.

Q: Why didn't the lease violate Tenn. Code Ann. § 12-4-101?
A: Because the legislator's only "duty" with respect to the grants was to vote on the general appropriations act. The statute's final sentence specifically allows officers other than members of local governing bodies to vote on a budget or appropriation resolution, so long as the vote is not on a specific amendment in which the official is directly interested.

Q: What's the difference between "directly" and "indirectly" interested?
A: Directly interested means the contract is with the official personally or with a business in which the official is the sole proprietor, a partner, or has the controlling interest. Indirectly interested covers everything else where the official has a financial stake. The lease itself was direct (legislator to nonprofit), but the legislator's interest in the underlying state grants was indirect.

Q: What did the legislator have to do?
A: Two disclosures. First, publicly acknowledge the indirect interest in the grant agreements under Tenn. Code Ann. § 12-4-101(b). Second, disclose the lease itself under Tenn. Code Ann. § 8-50-502(1) if the rental income exceeded $1,000.

Q: Did the standard state grant contract block this?
A: No. The contracts contained a provision barring grant funds from being paid to a state employee or official "as wages, compensation, or gifts in exchange for acting as an officer, agent, employee, subcontractor, or consultant" relative to the grant. The AG read this as targeting payments for services on the grant, not lease payments to a landlord who happens to be a legislator.

Q: Were there limits the AG didn't address?
A: Yes. The opinion expressly declined to address whether the arrangement would violate the rules of the legislative chamber the legislator served in. House and Senate ethics rules can be stricter than the general conflict of interest statute, and the AG sent that question back to the legislative ethics committee.

Background and statutory framework

Tenn. Code Ann. § 12-4-101 is Tennessee's umbrella conflict of interest statute. Subsection (a)(1) prohibits an officer from being directly interested in any contract the officer has a duty to "vote for, let out, overlook, or superintend." A 2003 AG opinion (Op. Tenn. Att'y Gen. 03-034) had previously read "superintend" broadly enough to capture a legislator's vote on the budget that funds a contract.

That broad reading would have swept in nearly every state contract paid out of the general fund. The Legislature softened it with the proviso at the end of (a)(1): voting on a budget, appropriation resolution, or tax rate resolution is allowed unless the vote is on a specific amendment singling out the directly-interested contract. Subsection (b) then requires public disclosure of any indirect interest, and Title 8 imposes a separate income-disclosure obligation for legislators with outside business income above $1,000.

The AG had visited the same nonprofit and the same grant programs in Op. Tenn. Att'y Gen. 09-44 (March 27, 2009), but in that earlier opinion the request had stipulated that grant funds would not be used for the lease. Opinion 10-02 supplied the second half of the analysis: even when grant funds did pay the rent, the lease did not become prohibited.

Citations and references

Statutes:

• Tenn. Code Ann. § 12-4-101
• Tenn. Code Ann. § 8-50-502(1) (legislator income disclosure)

Prior opinions referenced:

• Op. Tenn. Att'y Gen. 09-44 (March 27, 2009) (same nonprofit, lease without grant funds)
• Op. Tenn. Att'y Gen. 03-034 (April 1, 2003) (superintendence by budget vote)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2010/op10-002.pdf

Original opinion text

January 14, 2010

Opinion No. 10-02

State Legislator Contracting with Non-Profit State Grant Recipient: Use of State Grant Funds

QUESTION

A non-profit corporation (the "corporation") operates at least four federal programs funded through state departments. The corporation wishes to lease a building from a state legislator. The corporation intends to use grant funds it receives through the state departments to pay the lease. Does this arrangement violate any state law or state grant agreement?

OPINION

No. Under Tenn. Code Ann. § 12-4-101(a)(1), a state legislator may be directly interested in a contract funded from state funds, so long as the legislator's only duty with regard to the contract is to vote on the general appropriation act that includes the grant funds. The legislator must disclose his or her interest. The current grant agreements that we have reviewed do not prohibit the corporation from using grant funds to rent property from a state legislator. The corporation should comply with all applicable federal regulations in awarding and implementing the lease.

This opinion does not address whether the agreement would violate any rules of the House of which the legislator is a member. That issue should be addressed to the legislative committee charged with interpreting those rules.

ANALYSIS

This opinion concerns whether any state law or state grant agreement would prohibit a member of the General Assembly from renting a building to a non-profit corporation (the "corporation") that receives federal grant funding administered through two different state executive departments. The corporation intends to use state grant funds to pay for the lease from the legislator. We addressed a similar issue last year. Op. Tenn. Atty Gen. 09-44 (March 27, 2009). In that opinion, however, the request stated that state grant funds would not be used to pay for the lease from the legislator. This opinion concerns the same corporation and grant programs, except that state grant funds will be used to pay for the lease from the legislator.

The general conflict of interest law appears at Tenn. Code Ann. § 12-4-101. Subsection (a)(1) addresses prohibited conflicts of interest. Under this provision, an officer may not be directly interested in any agreement he or she has the duty to vote for, let out, overlook, or superintend. Our Office has stated in the past that a legislator superintends a contract if he or she votes on the budget that funds the contract. Op. Tenn. Att'y Gen. 03-034 (April 1, 2003). Therefore, a state legislator superintends any grant agreement between the corporation and a state executive department within the meaning of Tenn. Code Ann. § 12-4-101(a)(1) and, potentially, any contract funded by the grant. The term "directly interested" means any contract with the official personally or with any business in which the official is the sole proprietor, a partner, or the person having the controlling interest. A state legislator would be directly interested in a lease between himself and a state grantee. But Tenn. Code Ann. § 12-4-101(a)(1) does not prohibit the lease, even if it is funded from state grant funds. Under this statute, a legislator may vote on a budget funding a contract in which he or she is directly interested. The final sentence of Tenn. Code Ann. § 12-4-101(a)(1) provides:

The provisions of this subdivision (a)(1) shall not be construed to prohibit any officer, committeeperson, director, or any person, other than a member of a local governing body of a county or municipality, from voting on the budget, appropriation resolution, or tax rate resolution, or amendments thereto, unless the vote is on a specific amendment to the budget or a specific appropriation or resolution in which such person is directly interested.

Thus, under this provision, a state legislator may be directly interested in a contract funded by state moneys, so long as the legislator's only duty with regard to the contract is to vote on the general appropriations act that includes the grant funds. Under Tenn. Code Ann. § 12-4-101(b), a public officer must publicly acknowledge any contract in which he or she is indirectly interested. "Indirectly interested" means any contract in which the officer is interested, but not directly so. If the corporation uses state grant funds to pay rent to the legislator, it appears that the legislator is indirectly interested in the grant agreements between the State and the corporation. For this reason, the legislator should disclose the interest. The lease must also be disclosed under Tenn. Code Ann. § 8-50-502(1) if it brings in an income of more than one thousand dollars.

The earlier request regarding a similar issue included four grant agreements and currently effective amendments between a state executive department and the corporation. Some of these agreements have since been replaced with new documents. To the best of our knowledge, six contracts are in place between the corporation and a department of state government under which the corporation administers a program. Our Office has reviewed these contracts. Under each, the corporation agrees to administer a program with grant funds. All of these programs appear to be funded primarily with federal funds administered through a state executive department. Each contract contains the following standard provision:

The Grantee warrants that no part of the total Grant Amount shall be paid directly or indirectly to an employee or official of the State of Tennessee as wages, compensation, or gifts in exchange for acting as an officer, agent, employee, subcontractor, or consultant to the grantee in connection with any work contemplated or performed relative to this grant contract.

(Emphasis added). This contract provision prohibits funds from being used to pay a state employee or official for services performed relative to the grant agreement. It does not prohibit the corporation from leasing a building from a state legislator. For these reasons, neither state law nor the available state contracts prohibit the corporation from renting property from a state legislator. The corporation should comply with all applicable federal regulations in awarding and implementing the lease.

This opinion does not address whether the agreement would violate any rules of the House of which the legislator is a member. That issue should be addressed to the legislative committee charged with interpreting those rules.

ROBERT E. COOPER, JR.
Attorney General and Reporter

GORDON W. SMITH
Associate Solicitor General

ANN LOUISE VIX
Senior Counsel

Requested by:
Honorable Dennis Ferguson
State Representative
17 Legislative Plaza
Nashville, Tennessee 37243-0132