New Mexico’s Anti-Donation Clause
The Anti-Donation Clause, Article IX, Section 14, was included in New Mexico’s constitution (1912) to protect against fraud and misuse of state funds or assets. In addition, Article IV, Section 31 does not allow state funds to be given to any entity not under the absolute control of the state.
Together, these laws complicate nonprofits’ ability to work with state and local governments.
1. Burdens Local Governments
The Anti-Donation Clause is frequently cited to prohibit state and local governments from funding the infrastructure needed by nonprofits to improve and expand their services to community members. Because Article IV, Section 31 does not allow state funds to go to any entity outside of its control, any assets purchased with state funds must be owned by local governments. This forces local governments to act as fiscal agents and property managers and adds layers of bureaucratic and administrative complexity. Many local governments do not have the capacity to act as fiscal agents. The result is that the process, if it works at all, is complicated, costly, slow and inequitable.
2. Limits and Constrains Nonprofits
These laws also inhibit the development of infrastructure needed by nonprofits to better serve community members. For example, nonprofits may request capital outlay funds, but a local government must act as fiscal agent and own the asset. If a nonprofit owns a building, it cannot request funds for repairs or expansion unless it signs over the ownership of the building and property to a local government.
3. Finding Ways to Work Within the Limits of the Anti-Donation Clause
Nonprofits are trusted by their communities. As experts in their fields, nonprofits are often called on to carry out the work of government through contracts. This is work the government cannot do as effectively or economically.
Services provided by nonprofits may fall under existing exceptions to the Anti-Donation Clause, such as care and maintenance of sick and indigent persons. Under the Affordable Housing Act, nonprofits are qualified grantees if their purpose includes “significant activities related to providing housing or services to low- or moderate-income persons or household” (Affordable Housing Act and Rules).
Contracts are not subject to the Anti-Donation Clause because there is an exchange of value, typically services for funds.
Considerations When Contracting with the State
Document the actual cost of providing services. If the amount in the contract does not cover the full cost, document the difference as in-kind contributions by the nonprofit.
Document any other in-kind contributions, e.g., value of volunteer time, value of maintenance of property or asset.
If property or assets are purchased with state funds, ascertain if the local government will retain ownership or if there is a mechanism to transfer ownership to the nonprofit.
Most contracts are reimbursable, meaning that the nonprofit is expected to provide services first and be reimbursed after submitting invoices. Ask questions to establish the typical waiting period between submission of invoices and payment.