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VIRGINIA FREEDOM OF INFORMATION ADVISORY COUNCIL
COMMONWEALTH
OF VIRGINIA |
AO-05-17
June
9, 2017
Cathy
Lowe
Virginia Highlands Small Business Incubator
Abingdon, Virginia
Vernon
Smith
Washington County Board of Supervisors
Abingdon, Virginia
The
staff of the Freedom of Information Advisory Council
is authorized to issue advisory opinions. The ensuing
staff advisory opinion is based solely upon the information
presented in electronic mail and attachments from
Ms. Lowe dated April 19 and April 21, 2017; electronic
mail and attachments from Mr. Smith dated May 9, 2017;
and various telephone conversations with Ms. Lowe
on April 21, 2017 and May 9, 2017. Please note that
as both parties requested an opinion on the same topic
within a short time period, this office will issue
a single advisory opinion based on the facts presented
by both parties, making note of any instances where
the facts presented and conclusions reached may differ.
Dear
Ms. Lowe and Mr. Smith:
You have both asked whether the Virginia Highlands
Small Business Incubator, Inc. (VHSBI) is a public
body subject to the Virginia Freedom of Information
Act (FOIA). As background, Ms. Lowe stated that a
building was built in 2002-2004 with government funds
from various sources. After the building was built,
VHSBI was created as a nonprofit corporation and the
building was deeded to VHSBI, and a memorandum of
agreement (MOA) was entered into by VHSBI, Washington
County, and the Town of Abingdon1. Under the MOA, the
County and the Town each appoint four members to the
VHSBI Board of Directors, and those eight board members
choose an additional member-at-large. VHSBI receives
rent from tenants of the building as part of its support,
in addition to receiving funding from the County and
the Town. Ms. Lowe initially indicated that in the
past two years, respectively, VHSBI has received 54.62
percent and 48.03 percent of its support from public
funds from the County and the Town, and 45.38 percent
and 51.97 percent of its support from rent money.
Ms. Lowe subsequently provided ten years of audit
reports for VHSBI, and a profit & loss statement
for July 1, 2016 through April 21, 2017. Ms. Lowe
indicated that based on updated actual revenue information
for the fiscal year July 1, 2016 through June 30,
2017, the total public support for this fiscal year
will be 53.38 percent rather than 54.62 percent. Mr.
Smith provided additional information, including copies
of the agreement between VHSBI, the County, and the
Town dated April 6, 2006; the Bylaws of VHSBI; a letter
opinion from an attorney to the VHSBI Board of Directors
dated March 31, 2017 stating that VHSBI is not a public
body subject to FOIA; Freedom of Information Advisory
Opinion 03 (2004); the "Washington County / Abingdon
Incubator Revenue Report" covering July 1, 1998
through June 30, 2016; email messages concerning VHSBI's
finances; a list and cover letter showing the name,
position, and current salary/rate of pay for full-time
employees of the Town dated August 17, 2016; a Town
"Budget/Revenue Preparation Worksheet" dated
June 29, 2015; various financial documents concerning
VHSBI dated from 2004 through 2011; and copies of
IRS Form 990 tax returns for VHSBI dated 2012 through
2015. Mr. Smith stated in the email accompanying these
documents that he had concluded that VHSBI's "total
support is 74 percent from government entities"
based on a total of approximately eight million dollars
in funding since the founding of VHSBI, approximately
six million of which came from "local governments,
grants, and the state of Virginia." Additional
background information will be provided as appropriate
below.
As
stated in the most recent opinion issued by this office2,
the general policy of FOIA set forth in subsection
B of § 2.2-3700 is to ensure "the people
of the Commonwealth ready access to public records
in the custody of a public body or its officers and
employees, and free entry to meetings of public bodies
wherein the business of the people is being conducted."
The policy statement goes on to direct that the provisions
of FOIA "shall be liberally construed to promote
an increased awareness by all persons of governmental
activities and afford every opportunity to citizens
to witness the operations of government." The
definition of "public body" in § 2.2-3701
includes various government entities as well as "other
organizations, corporations or agencies in the Commonwealth
supported wholly or principally by public funds."
In construing what is meant by "supported...principally
by public funds," this office has previously
opined that
an
entity that was supported principally by public
funds would receive its main source of money for
its operating budget from government sources. Construing
this in a liberal fashion, as directed by the policy
of FOIA, this means something less than 100 percent,
yet more than a simple majority of the money in
the budget. As a general rule, one could construe
that an entity that received at least two-thirds,
or 66.6 percent, of its operating budget from government
sources would be supported principally by public
funds3.
That
opinion went on to state that "the question of
whether an entity is supported principally by public
funds remains a question of fact, and an entity that
receives less than two-thirds of its funding from
government sources could still be considered a public
body." This office has applied the two-thirds
rule of thumb along with a case-by-case factual analysis
in subsequent opinions4. In considering various factual
scenarios, this office has further opined that "whether
an entity is considered a public body at any given
time depends on the status of the entity (e.g., whether
it is wholly or principally supported by public funds)
at the time a request for records is made under FOIA."5
This office also opined that measures that are variable,
such as the proceeds of procurement transactions that
may vary monthly, should not be used to determine
an entity's level of public funding. The use of such
variable measures may lead to the untenable result
that the entity may be subject to FOIA one month then
exempt from FOIA the next.6 Additionally, this office
has excluded money derived from arm's-length contracts
and competitive grants when considering the source
of money that would be considered "public funds"
for FOIA purposes.7 If money from such arm's-length
transactions were considered public funds, it would
have a chilling effect on the willingness of private
companies to contract with government, as it would
require private companies to open their records to
public scrutiny solely because they entered into a
contract with government.8 Research did not reveal
any controlling opinions from the Supreme Court of
Virginia addressing these issues, but at least two
circuit court opinions have cited the two-thirds rule
of thumb offered by this office.9 As expressed by the
Circuit Court of Buchanan County, "whether an
organization is 'supported . . . principally by public
funds' depends on the total contribution from public
funds as measured against the number and magnitude
of individual private contributions."10 As stated
previously, the two-thirds rule of thumb
is
merely a guideline, and that ultimately the question
of whether an entity is supported principally by
public funds is a question of fact that must be
decided on a case-by-case basis. [Freedom of Information
Advisory Opinion 36 (2001)] also postulated that
if 55 percent of the budget came from public funds
and 45 percent from another single source, then
the public funds would not be the principal source.
However, if the 45 percent came from a number of
sources, each representing a relatively small fraction
of the overall budget, then the 55 percent from
public funds would be the principal source.
This
principle was applied by the Circuit Court of Buchanan
County when it found that an organization was a public
body subject to FOIA because it received at least
54.94 percent of its funds from a county in the form
of three checks, and the rest of its support came
from "a number of smaller payments from a variety
of private sources."11
In
analyzing the facts presented by both parties, note
that there are some items of income marked as "grants,"
but it is not clear whether they are competitive grants,
and so it cannot be determined with certainty whether
that money should be included as public funds. Further,
it is my understanding that the public funds being
considered come from multiple sources at different
times, including the County, the Town, and other government
sources.12 As of this writing, my understanding is that
the County and the Town are VHSBI's only sources of
public funding. Additionally, note that both Ms. Lowe
and Mr. Smith appear to agree that VHSBI's funding
has fluctuated over time, and there have been years
during which VHSBI did receive more than two-thirds
of its support from public funds.
Turning
to the Profit & Loss statement provided by Ms.
Lowe as a specific example, it appears that from July
1, 2016 through April 21, 2017 the Town provided $82,122.75
to VHSBI and the County provided $80,069.25, for a
total appropriation of $162,192.00. The Earned Revenues
for the same time period are stated as $159,269.70.
The total income listed is $344,885.03, which includes
these sources as well as $6,719.38 from "Reembursable
Utilities" [sic] and $16,132.95 from "Tenant
and Other Reimbursements." Doing the math based
on these numbers, it appears that the Town provided
approximately 23.8 percent of VHSBI's support during
this time period, the County provided approximately
23.2 percent, and 46.2 percent was Earned Revenue,
and the remaining 6.8 percent came from sources other
than public funds. If those numbers are correct and
reflect accurate totals for the fiscal year, then
approximately 47 percent of VHSBI's support came from
public funds provided by the County and the Town,
and the remaining 53 percent came from other sources,
which would make the private sources the principal
support for VHSBI. Looking to each income source separately,
the 46.2 percent from Earned Revenue would appear
to be the principal source of support, as it is nearly
double the amount provided by either the Town or the
County, and far above the other private sources. Following
this analysis, VHSBI would not be considered a public
body because it is not principally supported by public
funds.
However,
Mr. Smith stated his conclusion based on the facts
he presented that 74 percent of VHSBI's support has
come from public funds. If that conclusion is correct,
then following the two-thirds rule of thumb, VHSBI
clearly would be a public body supported principally
by public funds. It appears Mr. Smith's conclusion
may be based on an aggregate total of funds over the
entire time period that VHSBI has been in existence,
rather than looking at the most recent yearly data
as Ms. Lowe's numbers indicate. As stated above, prior
opinions have posited that whether an entity is considered
a public body at any given time depends on the status
of the entity at the time a request for records is
made under FOIA. Thus we generally would not use aggregate
totals over the entire existence of an entity in determining
whether that entity was publicly funded at any specific
time. However, note that at least one court has considered
an entity's financial support over a span of years
in determining that it was a public body supported
principally by public funds.13 FOIA itself is silent
regarding what time period should be used to measure
whether an entity is supported by public funds. Given
the silence of FOIA, the circuit court precedent,
and the fact that this office is not a trier of fact,
we can only opined that if Mr. Smith's factual conclusions
are correct, then VHSBI is a public body subject to
FOIA.
As
stated previously, in examining whether an entity
is supported principally by public funds, this office
has opined that measures that vary over time should
not be used to determine an entity's level of public
funding because the use of such variable measures
may lead to the untenable result that the entity may
be subject to FOIA one month then exempt from FOIA
the next. Using a monthly time period for example,
consider a hypothetical entity that is considered
a public body in January, but not in February, then
is again a public body in March. If a requester asked
for records in January, the entity would have to provide
them under FOIA unless the records were exempt. If
the requester asked for the same records in February,
then entity might respond that it is not subject to
FOIA, effectively preventing public access to the
January records that had been publicly available the
prior month. If the requester asked for public records
in March, the entity would again be required to respond
as a public body subject to FOIA. Consider also the
definition of "public record" in §
2.2-3701: records that are "prepared or owned
by, or in the possession of a public body or its officers,
employees or agents in the transaction of public business."
Records created by the entity in February, when it
is not a public body, would not be "public records"
under this definition, as they would not be "prepared
or owned by, or in the possession of a public body."
This would be true even if the records were the exact
same type of records as those created in January or
March that were public records. But further complicating
the matter, when the entity again becomes a public
body in March, the February records that were not
public records initially would then be in the possession
of a public body (because the status of the entity
changed) and therefore would become public records
in March, even though there were no actual changes
to the records themselves. If the entity's funding
levels continue to fluctuate, especially if they fluctuate
in some unpredictable, irregular way, then the ability
to access public records from such an entity becomes
dependent on the requester's timing in making the
request, rather than on the actual nature of the entity
itself or the nature of the records it holds. These
problems are only exacerbated when one considers an
entity with a deliberative body such as a board of
directors whose meetings would be subject to FOIA
one month, then private the next, etc. As previously
stated, as a practical matter this type of fluctuation
is untenable as it will only result in confusion for
both requesters and publicly funded entities without
serving the fundamental policy purpose of FOIA to
ensure "ready access to public records ... and
free entry to meetings of public bodies."
In
this instance, the facts presented are based on annual
data that makes it appear that VHSBI probably was
supported principally by public funds during some
prior years, but not necessarily during others. These
facts present fluctuation in VHSBI's funding that
could lead to it being considered a public body during
one time period, but not during another. This is the
type of fluctuation that we would generally seek to
avoid, as stated above, but there is a significant
factual difference in that the fluctuation here is
on a yearly basis rather than monthly (or some shorter
time period). This situation thus raises issues of
competing policy values. On one hand, there is value
in stability and predictability. Citizens and public
bodies should be able to know whether an entity is
a public body subject to FOIA without having to look
at financial records and calculate percentages every
time a records request is made. On the other hand,
the law should be flexible enough to recognize that
sometimes an entity's status may change, for example
as we have seen when a private rescue squad became
a department of a town.14 As stated above, FOIA itself
does not specify what time period is to be used when
measuring an entity's funding levels to determine
whether it is a public body supported by public funds.
As this office is limited to considering the facts
presented, and is not a trier of fact, in the past
we have considered this issue based on whatever data
was presented, whether it was monthly, yearly, or
otherwise. As a general rule of thumb, until further
guidance is provided by the General Assembly, we would
suggest using data for the current or most recent
fiscal year in determining whether an entity is supported
principally by public funds. Using a fiscal year as
the basis for determination will avoid rapid fluctuations
that could occur if shorter time periods were used,
thus allowing for some amount of predictability and
stability, while still providing flexibility in recognizing
changes in an entity's status that correspond to changes
in its funding. Additionally, on a practical level
it is my general understanding that the fiscal year
is commonly used for accounting and budget purposes,
making it more likely that the relevant data already
exists for most entities.
Unfortunately,
in this situation we have been presented with extensive
financial documentation from which you both have derived
significantly different conclusions regarding VHSBI's
funding. As this office is not a trier of fact, and
lacks the financial expertise and the statutory authority
to determine which factual analysis is correct, we
can only offer alternative conclusions. If Ms. Lowe
is correct and VHSBI's principal support comes from
private sources, then VHSBI is not principally supported
by public funds and is not subject to FOIA. However,
if Mr. Smith is correct and 74 percent of VHSBI's
support is public funds, then VHSBI is a public body
subject to FOIA.
Thank you for contacting this office. I hope that
I have been of assistance.
Sincerely,
Maria
J.K. Everett
Executive Director
1Note
that it appears that other entities were originally
involved in this project, including the City of Bristol,
an economic development authority, and the Tobacco
Region Revitalization Commission, but based on the
facts presented only the County and Town remain involved
as sources of public funds providing support to VHSBI.
2Freedom of Information Advisory Opinion
05 (2017).
3Id.
4See Freedom of Information Advisory
Opinions 01 (2015), 07 (2012), 10 (2008), 07 (2007),
07 (2006), 09 (2005), 28 (2004), 03 (2004), and 09
(2003).
5Freedom of Information Advisory Opinions
09 (2005) and 22 (2004).
6Freedom
of Information Advisory Opinion 09 (2005) and 28 (2004).
7See, e.g., Freedom of Information Advisory
Opinions 01 (2015), 10 (2008), 06 (2004), and 28 (2004).
8Freedom
of Information Advisory Opinion 10 (2008).
9Voice v. Appalachian Regional Community
Services, Inc., 89 Va. Cir. 284 (Buchanan County
2014) (finding that an organization that received
54.94 percent of its support from public funds was
a public body); Wigand v. Wilkes, 65 Va.
Cir. 437 (City of Norfolk 2004) (finding that a corporation
that received approximately 25 percent of its support
from public funds was not a public body).
10Voice, 89 Va. Cir. at 287.
11Id.
12See n. 1, supra.
13Voice,
89 Va. Cir. at 288 ("ARCS's financial records,
filed with the Court under seal, demonstrate that
in 2006 and 2007, when ARCS was an infant organization,
private funds comprised nearly its entire yearly budget.
Then, from October 2007 through October 2010, funds
obtained from the Buchanan County General Fund were
the sole source of support for ARCS; it appears no
private contributions were made. From November 2010
through March 20123 [sic] ARCS was supported
by a mix of public and private funds; the private
funds comprised a number of small donors as well as
one larger donation of approximately $37 thousand.
From April 2012 until it closed in March 2013, ARCS
appears to have been funded entirely by private funds.").
14Freedom of Information Advisory Opinion
05 (2011). Note that the facts in that opinion did
not present the same problematic issues as this set
of facts, however, because the rescue squad became
a town department subject to FOIA and remained so,
thus ensuring continued access under FOIA. From a
policy standpoint, greater problems arise if an entity
is a public body at one time, then changes to a private
status not subject to FOIA, because that presents
a situation where public access exists for some period
of time then is cut off.
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