FOI Advisory Council Opinion AO-05-17
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
1. Note 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.
2. Freedom of Information Advisory Opinion 05 (2017).
3. Id.
4. See Freedom of Information Advisory Opinions 01 (2015), 07 (2012), 10 (2008), 07 (2007), 07 (2006), 09 (2005), 28 (2004), 03 (2004), and 09 (2003).
5. Freedom of Information Advisory Opinions 09 (2005) and 22 (2004).
6. Freedom of Information Advisory Opinion 09 (2005) and 28 (2004).
7. See, e.g., Freedom of Information Advisory Opinions 01 (2015), 10 (2008), 06 (2004), and 28 (2004).
8. Freedom of Information Advisory Opinion 10 (2008).
9. Voice 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).
10. Voice, 89 Va. Cir. at 287.
11. Id.
12. See n. 1, supra.
13. Voice, 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.").
14. Freedom 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.
