North Dakota Attorney General's Opinion and the North Dakota University System

LETTER OPINION
2010-L-11
June 28, 2010
The Honorable Robert R. Peterson
State Auditor
600 East Boulevard Avenue, Dept. 117
Bismarck, ND 58505
Dear Mr. Peterson:
Thank you for your letter asking several questions regarding the performance audit of
capital projects of the North Dakota University System (University System).1 Your
questions specifically involve North Dakota State University’s College of Business building,
Richard H. Barry Hall (Barry Hall),2 and whether the University System complied with the
requirements of 2007 N.D. Sess. Laws ch. 3, § 22. For the reasons stated below, it is my
opinion that since the 2007 Session Law did not contain any requirements but rather was
discretionary, and because the State Board of Higher Education (SBHE) has separate
constitutional authority to allow North Dakota State University (NDSU) to lease a building
from the NDSU Development Foundation (Foundation), there could be no violation of the
Session Law.
ANALYSIS
In 2001, NDSU received legislative authorization and an appropriation of $20 million to
spend non-state general funds, or what are termed “Other Funds,” from the Legislature to
construct a College of Business Administration building and classrooms.3 The SBHE has
statutory authority to approve certain construction projects, but legislative authorization is
1 “The institutions of higher education under the control of the state board of higher
education are a unified system of higher education, as established by the board, and
are designated as the North Dakota university system.” N.D.C.C. § 15-10-01.2.
2 In 2007, the SBHE authorized North Dakota State University to rename the College of
Business building to Richard H. Barry Hall. Minutes, N.D. State Bd. of Higher Educ., Sept.
20, 2007, p. 8.
3 Hearing on S.B. 2003 Before the Senate Comm. on Appropriations, 2001 N.D. Leg. (Jan.
2, 4) (on file with NDUS office).
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June 28, 2010
Page 2
required when the cost of a construction project exceeds $385,000.4 In 2005, the
Legislature authorized the SBHE to enter into an agreement with the Foundation for the
construction of the College of Business building on the NDSU campus.5 In 2006, NDSU
officials decided to relocate the College of Business off campus to a building in downtown
Fargo that was owned by the Foundation instead of entering into an agreement for the
construction of a building on campus.6 The Foundation agreed to renovate the Pioneer
Building and lease it to NDSU for the College of Business.7
The SBHE approved NDSU’s request for authorization to proceed with plans to relocate
the College of Business to downtown Fargo indicating that, “gifts, donations, and other
funds currently designated for the proposed College of Business building will be used to
renovate and expand the Pioneer Building for its purposes.”8 During the 2007 legislative
session, NDSU officials discussed the change of plans for the College of Business in
committee presentations, but did not initially request legislative approval because they did
not believe legislative approval was required since NDSU was no longer constructing a
building. 9 In order to respond to legislators’ questions about the relocation of the College
of Business, NDSU officials decided to request language be added to the University
4 N.D.C.C. § 15-10-12.1 (“The state board of higher education may authorize campus
improvements and building maintenance on land under the control of the board which
are financed by donations, gifts, grants, and bequests if the cost of the improvement or
building maintenance is not more than three hundred eighty-five thousand dollars. The
consent of the legislative assembly is required for construction of any building financed
by donations, gifts, grants, and bequests and for campus improvements or building
maintenance financed by donations, gifts, grants, and bequests if the cost of the
improvements or maintenance is more than three hundred eighty-five thousand
dollars.”).
5 2005 N.D. Sess. Laws ch. 31, § 15 (“The state board of higher education may enter into
an agreement or agreements with the North Dakota state university foundation or other
private entity and do all things necessary and proper to authorize construction by the
foundation or other private entity of a college of business building on the North Dakota
state university campus, using donations, gifts, or other private funds.”).
6 The Foundation purchased the Pioneer Mutual Life Insurance Company building and the
Lincoln Mutual Life & Casualty Insurance Company building, both located in downtown
Fargo. Facilities, Section 902.3 Attachment to Information Packet and Agenda for N.D.
State Bd. of Higher Educ. Meeting (Nov. 9, 2006) (on file with NDUS office).
7 Facilities, Section 902.3 Attachment to Information Packet and Agenda for N.D. State Bd.
of Higher Educ. Meeting (Nov. 9, 2006) (on file with NDUS office).
8 Minutes, N.D. State Bd. of Higher Educ., Nov. 8-9, 2006, p. 10.
9 E-mail from Pat Seaworth, Gen. Counsel, NDUS, to Matthew A. Sagsveen, Assistant
Attorney Gen. (Feb. 23, 2010, 11:56 AM) (on file with author of e-mail).
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June 28, 2010
Page 3
System appropriations bill (H.B. 1003) to locate the College of Business off campus.10
The Legislature authorized the relocation of the College of Business building off the NDSU
campus:
The state board of higher education may enter an agreement or agreements with
the North Dakota state university foundation or other private entity and do all things
necessary and proper to authorize construction by the foundation or other private
entity of a college of business building off the North Dakota state university
campus, using donations, gifts, or other private funds.11
Even though the 2007 Session Law refers to “construction” of an off-campus building, the
legislative history indicates the Legislature was aware that a new College of Business
building was not being constructed and that NDSU was going to rent a building in
downtown Fargo that was owned and renovated by the Foundation.12 Based on
10 Id.
11 2007 N.D. Sess. Laws ch. 3, § 22.
12 The legislative history for H.B. 1003 indicates the Legislature was aware of the change
in plans for the College of Business location and structure and provides evidence of an
intent to ratify (albeit reluctantly) what the SBHE and NDSU had already done. The
chairman of the Senate Appropriations Committee noted that “[l]ast session NDSU asked
for authority to construct a college of business building on the campus of NDSU. They
were able to purchase through generous folks, a used building off campus and we had to
change the law so they were not illegal when they cut the ribbon.” Hearing on H.B. 1003
Before the Senate Comm. on Appropriations, 2007 N.D. Leg. (Mar. 23) (Statement of Sen.
Holmberg).
In a later conference committee, the following exchange took place:
Rep. Monson: Are there any other campuses that built off campus? Do we
have specific language in other bills regarding purchasing buildings off
campus?
Laura Glatt, Vice Chancellor of the University System: Not that I am aware
of. The Foundation bought the buildings and NDSU pays rent to the
foundation.
Hearing on H.B. 1003 Before Conference Comm., 2007 N.D. Leg. (Apr. 13) (Statements of
Rep. Monson and Vice Chancellor Laura Glatt).
LETTER OPINION 2010-L-11
June 28, 2010
Page 4
discussions that occurred during committee hearings, the Legislature arguably approved
NDSU’s plan to utilize the Foundation’s downtown Fargo building.13
Your questions involve whether the SBHE and NDSU complied with the requirements of
the 2007 Session Law. There are not actually any “requirements” in the 2007 Session
Law. Rather, the Legislature only indicated that the SBHE “may enter an agreement” to
authorize construction by the Foundation of a college of business building off the NDSU
campus.14 The use of the word “may” is permissive and indicates it is a matter of
discretion.15
After the Foundation purchased two buildings in downtown Fargo in 2006, NDSU made
the decision to lease one of those buildings rather than proceed with constructing a new
building on campus.16 The scope of the project fundamentally changed when the SBHE
approved NDSU’s request to lease a building off campus for the College of Business
rather than constructing a new building. The Legislature’s grant of authority to the SBHE
to enter into an agreement with the Foundation to construct a building was not mandatory
and thus, the SBHE could proceed in another manner if allowed by its powers. The
13 In discussing an amendment to H.B. 1003 that would have required legislative approval
for any future off-campus university building, the following exchange took place:
Senator Holmberg: Does this amendment leave on the language that we
put in that allowed NDSU to go off campus?
Representative Monson: Yes, it wouldn’t change that. I guess we are
going to have to bite the bullet because it’s gone too far and we’re not going
[to] reverse it. This language would stop any other ones from happening
without full disclosure and blessing of the full legislative body or at least the
budget section so we don’t end up with this dispute again. This would make
it very clear that they tell us about anything that is going to be renovated,
rented or whatever off campus by any institution.
Hearing on H.B. 1003 Before Conference Comm., 2007 N.D. Leg. (Apr. 20) (Statements of
Sen. Holmberg and Rep. Monson).
14 2007 N.D. Sess. Laws ch. 3, § 22 (emphasis added).
15 Bernhardt v. Bernhardt, 561 N.W.2d 656, 658 (N.D. 1997). See also Solen Pub. Sch.
Dist. No. 3 v. Heisler, 381 N.W.2d 201, 203 (N.D. 1986) (ordinarily “shall” is mandatory).
16 Facilities, Section 902.3 Attachment to Information Packet and Agenda for N.D. State
Bd. of Higher Educ. Meeting (Nov. 9, 2006) (on file with NDUS office). NDSU entered into
a lease agreement for the lease of Barry Hall to NDSU by the Foundation. Lease
Agreement Barry Hall between NDSU Dev. Found. and NDSU (Nov. 1, 2007).
LETTER OPINION 2010-L-11
June 28, 2010
Page 5
manner and means by which a governmental entity exercises its authority where not
prescribed by the Legislature is not subject to the rule of strict construction, but is left to
the discretion of the agency.17 The issue is whether the SBHE had the authority to allow
NDSU to enter into a lease agreement and make the lease payments for Barry Hall.
The SBHE was created in the North Dakota Constitution and approved and ratified by the
people on June 30, 1938.18 The SBHE was created for the “control and administration” of
the state’s institutions of higher education known as the North Dakota University System.19
The SBHE was given full authority over the institutions under its control to ensure that
politics did not play a role in the administration of those institutions.20
The North Dakota Constitution provides:
The said state board of higher education shall have full authority over the
institutions under its control with the right, among its other powers, to
prescribe, limit, or modify the courses offered at the several institutions. In
furtherance of its powers, the state board of higher education shall have the
power to delegate to its employees details of the administration of the
institutions under its control. The said state board of higher education shall
have full authority to organize or reorganize within constitutional and
statutory limitations, the work of each institution under its control, and do
each and everything necessary and proper for the efficient and economic
administration of said state educational institutions.21
The provisions in N.D. Const. art. VIII, § 6 are self-executing.22
17 See Haugland v. City of Bismarck, 429 N.W.2d 449, 453-54 (N.D. 1988) (the general
statutory powers of a city to borrow money by issuing general obligation bonds did not
provide the exclusive method of borrowing but rather only specified one method of
exercising a city’s general borrowing authority).
18 See Posin v. State Bd. of Higher Educ., 86 N.W.2d 31, 34 (N.D. 1957). The alumni
association started a petition for a constitutional amendment to remove control of the
colleges from the Board of Administration and place it in the hands of a nonpolitical board
of higher education in response to Governor Langer’s attempt, in 1937, to fire Higher
Education employees and gain control of their payroll at NDSU. N.D.A.G. Letter to Hagen
(Feb. 12, 1992).
19 N.D. Const. art. VIII, § 6; Peterson v. N.D. Univ. Sys., 678 N.W.2d 163, 167 (N.D. 2004).
20 N.D.A.G. 86-16.
21 N.D. Const. art. VIII, § 6(6)(b) (emphasis added).
22 N.D. Const. art. VIII, § 6(8).
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June 28, 2010
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As a body established by the constitution, the SBHE is entitled to a degree of autonomy in
its administration of the state’s institutions of higher education.23 The North Dakota
Supreme Court determined that the powers vested in the SBHE are administrative in
nature and that the constitutional provision does not vest the SBHE with legislative
powers, i.e., the power to create laws.24 In general terms this means the SBHE “manages
and supervises” the institutions.25
State agencies and departments are allowed to lease or rent buildings when additional
space is needed provided that the lease is reviewed by the director of the Office of
Management and Budget.26 Institutions under the SBHE are exempt from the
requirements of this law.27 Article VIII, § 6 of the North Dakota Constitution specifies the
primary missions and cities in which the institutions of higher education are located, but
does not restrict the authority of the SBHE to decide on the locations of the various
departments of each university.28 It is my opinion that the language in the constitution
which allows the SBHE to “do each and everything necessary and proper for the efficient
and economic administration of said state educational institutions” provides the SBHE the
power to enter into lease agreements for real property, i.e., that leasing classroom space
is part of the SBHE’s power to “manage and supervise” its institutions.29 The SBHE can
exercise its powers directly or it can delegate to its employees details of the administration
of the institutions under its control.30
The SBHE delegates the authority to negotiate and execute real property leases and
rental agreements to the institutions.31 A lease of real property must be limited to the
current biennium or include a non-appropriation clause.32 A non-appropriation clause
allows the agency to terminate the lease if insufficient funds are appropriated by the
Legislature for rent. 33 The lease agreement for Barry Hall contains a non-appropriation
clause and also contains a provision that the obligation to pay rent “shall constitute a
current expense of NDSU for such term and shall not constitute an indebtedness of
23 N.D.A.G. 91-18; N.D.A.G. 86-16.
24 Nord v. Guy, 141 N.W.2d 395, 402 (N.D. 1966).
25 Id.
26 N.D.C.C. § 54-21-24.1.
27 Id.
28 N.D. Const. art. VIII, § 6(1).
29 N.D. Const. art. VIII, § 6(6)(b).
30 Ellis v. N.D. State Univ., 764 N.W.2d 192, 199 (N.D. 2009).
31 SBHE Policy 909.
32 Id.
33 Red River Human Servs. Found. v. Dep’t of Human Servs., 477 N.W.2d 225 (N.D.
1991).
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June 28, 2010
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NDSU, the Board or the State within the meaning of the Constitution and laws of the
State.”34 Such clauses are necessary to ensure that a debt of the state is not created in
violation of the constitution and ultimately give the Legislature the option to disallow the
continued lease of real property by a state institution by electing to not appropriate funds
for the lease.35
In consideration of the above analysis, it is my opinion that the SBHE has the power to
enter into a lease agreement for additional building space for classrooms off the NDSU
campus.
The next question is whether the SBHE and NDSU have the authority to pay the rent for
the lease of Barry Hall. As stated above, the SBHE has very broad powers including that
the “state board of higher education shall have control of the expenditure of the funds
belonging to, and allocated to such institutions and also those appropriated by the
legislature, for the institutions of higher education in this state.”36 In a previous opinion,
this office offered this interpretation of this language in N.D. Const. art VIII, § 6:
The Legislature may appropriate any sum deemed necessary for the
maintenance of the several state institutions, but it would appear that the
Legislature has no control over other institutional funds. Or, stating it
differently, the Legislature, of course, has control over all funds raised by
any method of taxation, but the board of higher education has the control of
other funds such as institutional collections, income and interest which
under the constitution belong to and are allocated to the several state
institutions.37
Section 15-10-12, N.D.C.C., creates a special revenue fund for each institution under the
control of the SBHE.38 “All other funds, unless restricted by the terms of a grant, donation,
or bequest, received by the institutions from federal, state, and local grants and contracts,
indirect cost recoveries, tuition, special student fees, room and board fees and other
34 Lease Agreement Barry Hall between NDSU Dev. Found. and NDSU (Nov. 1, 2007).
35 N.D. Const. art X, § 13; N.D.A.G. 97-L-96.
36 N.D. Const. art. VIII § 6(6)(e); see also N.D.C.C. § 15-10-16 (“The state board of higher
education has the control of the expenditure of the funds belonging and allocated to the
institutions under its control and also of those appropriated by the legislative assembly
for such institutions, but funds appropriated by the legislative assembly and specifically
designated for any one or more of such institutions may not be used for any other
institution.”).
37 N.D.A.G. 46-89.
38 N.D.A.G. 79-6.
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June 28, 2010
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auxiliary enterprise fees, student activity fees, continuing education program fees, internal
service fund revenues, and all other revenues must be deposited in the institution special
revenue funds.”39 The funds in these accounts are appropriated on a continuing basis to
the SBHE.40
Each biennium the Legislature grants authority to the SBHE to spend the funds under its
control.41 The control of how to spend these funds rests with the SBHE.42 According to
information provided to my office by counsel for the University System, general fund
moneys are not being used to make the lease payments.43 The lease payments are made
using “local funds” which revenues derive from indirect cost recoveries, interest income,
soft drink commissions and transfers from auxiliary fund accounts, including parking
revenues and other auxiliary funds.44 Therefore, the SBHE has authority from several
sources to spend the necessary funds. It has constitutional authority under article VIII, § 6,
statutory authority under N.D.C.C. § 15-10-12, and authority granted by the Legislature to
spend other funds received on a biennial basis.
Because the SBHE and NDSU elected not to proceed with the construction of a building
pursuant to the authority granted by the Legislature in the 2007 Session Law, I need not
address your individual questions relating to whether the University System was in strict
compliance with the letter of the 2007 Session Law. NDSU had authority to proceed with
the lease agreement for Barry Hall; however, NDSU and the SBHE might have kept the
Legislature better informed about the plans for Barry Hall because the decision to lease
changed a construction plan approved separately during two legislative sessions. A
clearer course of action would have been for NDSU and the SBHE to immediately notify
the Legislature of the new plans for Barry Hall when the decision was made in November
2006 to lease an existing building rather than construct a new building.
For the foregoing reasons, it is my opinion that since the 2007 Session Law did not contain
any requirements and because the SBHE had separate powers that allowed NDSU to
39 N.D.C.C. § 15-10-12.
40 Id.
41 See, e.g., 2007 N.D. Sess. Laws ch. 3, § 11 (“[a]ll funds, in addition to those
appropriated in section 3 of this Act, from federal, private, and other sources, received
by the institutions and entities under the control of the state board of higher education
are appropriated to those institutions and entities, for the biennium beginning July 1,
2007, and ending June 30, 2009.”).
42 N.D.A.G. Letter to Stenehjem (Mar. 6, 1987).
43 E-mail from Pat Seaworth, Gen. Counsel, NDUS, to Matthew A. Sagsveen, Assistant
Attorney Gen. (Feb. 23, 2010, 11:56 AM) (on file with author of e-mail).
44Id.
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lease a building to house the NDSU College of Business, there could be no violation of the
Session Law.
Sincerely,
Wayne Stenehjem
Attorney General
lsm
This opinion is issued pursuant to N.D.C.C. § 54-12-01. It governs the actions of public
officials until such time as the question presented is decided by the courts.45
45 See