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Original Author: Pullen, Mark
Date of Material: 03/08/1994

Non-profit organizations
Solicitations--Charitable organizations

Can the City Make Appropriations to Nonprofit Organizations?

Reviewed Date: 07/27/2021
MTAS was asked whether the city can make appropriations to nonprofit organizations and, if so, what is the proper procedure.

March 8, 1994

Recently there has been some question as whether the city can make appropriations to nonprofit organizations and, if so, what is the proper procedure. The facts concerning this question, as I understand them, are as follows. Each year your City Civic Club sponsors the "Funfest" and for the last several years the city has appropriated the Club funds to help defray the cost of the event. The Civic Club is duly registered with the IRS as a nonprofit civic organization under Section 501(c)(4) of the Internal Revenue Code.

T.C.A. 6-54-111 specifically allows municipalities to appropriate funds to nonprofit organizations. Subsection (a)(2)(B) includes nonprofit civic organizations organized pursuant to Section 501(c)(4) as organizations to which municipal funds may be given thus it clear that the city may give funds to the Civic Club. The procedure for doing this is not quite so clear.

6-54-111(b) calls for the comptroller of the treasury to advise standard procedures to assist municipalities in the donation of funds pursuant to the statute. A glance at this policy reveals a somewhat disconcerting ambiguity. Found at Rules of the Comptroller Chapter 0380-3-7, it is styled as Standard Procedures for Appropriating and Disbursing Municipal Funds to Non-Profit Charitable Organizations (emphasis added). The problem arises from the use of the term non-profit charitable organizations. These are chartered under Section 501(c)(3) of the IRS Code and clearly delineated from non-profit civic organizations founded under 501(c)(4).

The policy calls for the municipal governing body to adopt a special resolution for each non-profit charitable organizations money is donated to and specify for what purpose the money is being donated. It then requires the budget document of the municipality to name each non-profit charitable organization and the amount given.

It also calls for each non-profit organization (no delineation between non-profit charitable or civic) requesting municipal funds to file an annual report of its business affairs and proposed use of the funds. The statute, in subsection (c), also requires any nonprofit organization to file an annual report including an annual audit which must then be on file for public inspection in the city clerk's office. I think this clearly applies to both nonprofit civic and charitable organizations.

Additionally subsection (d) calls for donations to nonprofit civic organizations to be made only after notice is published in a local paper of general circulation specifying the amount and the purposes for which it will be used and that such appropriation be approved at two regular meetings of the municipal governing body.

In short I believe the best course the city can follow in donating funds to the Civic Club is to use the comptroller's guidelines laid out in the policy for making disbursements to nonprofit charitable organizations. I believe that not including nonprofit civic organizations in the procedures was simply an oversight in its drafting.

If the city decides to donate funds to either nonprofit civic and/or charitable organizations it should take the following steps:

1. Adopt a special resolution for the organization stating the purpose for which the donation is being made.

2. Amend the municipal budget to reflect the appropriation.

3. Require the organization to file an annual report, including an audit, with the city.

The city must also additionally, in cases of nonprofit civic organizations:

4. Publish a notice in a newspaper of general circulation specifying the intent to make a donation to a nonprofit civic, but not charitable, organization, name the organization and specify the amount of the donation.

5. Approve the donation at two regular committee meetings.

I have included the materials cited herein. Please feel free to contact me if I may be of any further assistance on this or any other matter.

Very truly yours,


Mark Pullen
Legal Consultant