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Official Opinion 96-8

Official Opinion 96-8

May 9, 1996
To: 

State Auditor

Re: 

An RDC lacks authority to abrogate its duty to be accountable for the nonprofit corporations it is authorized to create.

This opinion is in response to your request for advice concerning the nature of the relationship between a regional development center ("RDC") and its related nonprofit corporation. Your request arises out of recent disclosures by the Coastal Georgia Regional Development Center that it has "no financial accountability or oversight responsibility" over the nonprofit corporation it created, the Coastal Area District Development Authority ("CADDA"), and that "[t]he two entities are completely segregated with no accountability to one another."

We understand that CADDA was created in 1976 by the Coastal Georgia Regional Development Center (formerly known as "the Coastal Area Planning and Development Commission") to act as its agent in managing and administering an Economic Development Administration revolving loan fund. You indicated that from its inception until recently, CADDA's activities were closely controlled by the Coastal Georgia RDC; however, in preparation for and following litigation over the Department of Community

Affairs' ("DCA") right to audit CADDA, Coastal Georgia RDC and CADDA acted to sever the ties between the two entities.

Our analysis of this question is controlled by the settled rule that an RDC "has only such powers as the legislature has expressly, or by necessary implication, conferred upon it." Bentley v. State Bd. of Medical Examiners, 152 Ga. 836, 838 (1922). An RDC's authority to create a nonprofit corporation is found at O.C.G.A. § 50-8-35(f)(1)(A). Pursuant to this Code Section:

In order to accomplish the intent of subsection (e) of this Code section, each center is authorized to create nonprofit corporations to administer federal or state revolving loan programs or loan packaging programs, and to administer federal or state housing and development programs and funds available only to nonprofit corporations. Each such nonprofit corporation must be authorized by the center's board and each unit of local government affected.

O.C.G.A. § 50-8-35(f)(1)(A) (emphasis added).

An RDC expressly is prohibited "from either creating or controlling or causing to be created any nonprofit corporation" except as authorized in the above Code Section. O.C.G.A. § 50-8-35(h).

Therefore, under the General Assembly's limited grant of authority, it is only "[i]n order to accomplish the intent of subsection (e) of this Code section" that an RDC is authorized to create a nonprofit corporation as provided in O.C.G.A. § 50-8-35(f)(1)(A). Subsection (e) authorizes an RDC, among other things, to "administer federal or state government programs upon designation by the federal or state government." O.C.G.A. § 50-8-35(e). Accordingly, an RDC has the power to create a nonprofit corporation for one purpose only, i.e., to enable an RDC to carry out its duties under subsection (e) in "administer[ing] federal or state government programs." O.C.G.A. § 50-8-35(e).

An RDC does not have the power to divest itself of control and, in effect, spin off the nonprofit corporation created to act as its agent. Significantly, such authority is found nowhere among the RDC's enumerated powers, O.C.G.A. § 50-8-35, and would be contrary to the statutory scheme. The nonprofit corporation authorized to be created exists for no other

purpose than to enable an RDC to "administer federal or state government programs" pursuant to O.C.G.A. § 50-8-35(e). As such, it is inextricably bound to the RDC.

Indeed, a review of the statutory scheme suggests that, by necessary implication, the General Assembly intended a regional development center to be accountable for the nonprofit corporation it creates. A nonprofit corporation's service area may not extend beyond the boundaries of its related RDC's region. O.C.G.A. § 50-8-35(a)(2). The Department of Community Affairs is required to "conduct at least biennially a performance audit of each nonprofit corporation." O.C.G.A. § 50-8-35(f)(3). It is the RDC which is sanctioned should its related nonprofit corporation fail to "fully cooperat[e] with a performance audit conducted by the department." See O.C.G.A. § 50-8-35(j). If the General Assembly had not intended for an RDC to be accountable for the nonprofit corporation it creates, it would not have made the RDC accountable for any failure on the part of the nonprofit corporation to cooperate with a DCA audit.

Moreover, certain reporting requirements, included in the statutory scheme, are designed to inform the RDC or its member governments of the performance and financial condition of its related nonprofit corporation. DCA is required to provide copies of the DCA performance audit of the nonprofit corporation "to the respective chief elected official of each county and municipality within the center's region." O.C.G.A. § 50-8-35(f)(3). "A copy of the [annual audit] report and of any comments made by the state auditor . . . [is to] be maintained as a public record for public inspection . . . at the . . . related center." O.C.G.A. § 50-8-35(f)(6). Should an RDC-created nonprofit corporation fail or refuse to file with the State Auditor an annual audit report, the State Auditor is required to notify "the center related to the nonprofit corporation" and local governments within the center's region. O.C.G.A. § 50-8-35(f)(5)(C). The fact that the General Assembly enacted measures to ensure that the RDC and its member governments would be apprised of its related nonprofit corporation's performance and financial condition provides further evidence that an RDC's duty to be accountable for the RDC-created nonprofit corporation is necessarily implied from its express grant of authority to create such a corporation.

In summary, pursuant to O.C.G.A. § 50-8-35(f)(1)(A), the General Assembly has authorized an RDC to administer certain

state or federal government programs through a nonprofit corporation. No statute authorizes an RDC to divest itself of control over any nonprofit corporation so created. To the contrary, implicit in the statutory scheme is the RDC's duty to be accountable for any nonprofit corporation it creates to act on its behalf. Therefore, it is my official opinion that an RDC lacks authority to abrogate its duty to be accountable for the nonprofit corporations it is authorized to create. Actions taken by the Coastal Georgia RDC Board to divest itself of control over CADDA are without authority and ultra vires.

The nature of the relationship between an RDC and its related nonprofit corporation must be such that the nonprofit corporation is accountable or responsible to its RDC. Accordingly, an RDC must exercise that degree of control over its nonprofit corporation which will ensure that the nonprofit corporation is accountable or responsible to the RDC. This duty to exercise control falls upon the Board of the RDC, as the RDC's governing body. See O.C.G.A. § 50-8-34(a).

The standards established by the Governmental Accounting Standards Board ("GASB") are instructive in determining whether accountability exists. Under these standards, accountability exists if, among other things, the primary government appoints a voting majority of the nonprofit corporation's governing body and "it is able to impose its will on that organization." Statement No. l4 of the Governmental Accounting Standards Board, para. 21(a)(emphasis in the original). "A primary government has the ability to impose its will on an organization if it can significantly influence the programs, projects, activities, or level of services performed or provided by the organization." Id. at para. 26 (emphasis in the original). Generally accepted governmental accounting standards provide that:

The existence of any one of the following conditions clearly indicates that a primary government has the ability to impose its will on an organization:

a. The ability to remove appointed members of the organization's governing board at will. b. The ability to modify or approve the budget of the organization. c. The ability to modify or approve rate or fee changes affecting revenues, such as water usage rate increases. d. The ability to veto, overrule, or modify the decisions (other than those in b and c) of the organization's governing body.

e. The ability to appoint, hire, reassign, or dismiss those persons responsible for the day-to-day operations (management) of the organization.

Id. at para. 26 (emphasis in the original).

Therefore, it would appear that the requisite degree of control would be satisfied through provisions in the by-laws of both entities granting the RDC Board authority to appoint a voting majority of the nonprofit corporation's governing body. In addition, the by-laws of both entities should contain one or more of the above conditions relating to the RDC's ability to impose its will on its related nonprofit corporation. It is not necessary for the RDC Board or RDC management to participate in the actual day-to-day operations of the RDC's nonprofit corporation. However, management of the nonprofit corporation should make regular periodic reports to the RDC Board to keep it apprised of the affairs of the nonprofit corporation. See 1995 Op. Att'y Gen. 95-40.

Prepared by:

GRACE EVANS LEWIS
Senior Assistant Attorney General