OFFICIAL OPINION NO. 06-06, Payment in Lieu of Tax Pursuant to SDCL 11-7-73

  
OFFICIAL OPINION NO. 06-06, Payment in Lieu of Tax Pursuant to SDCL 11-7-73

December 13, 2006

Michael R. Moore
Beadle County State’s Attorney
P.O. Box 116
HuronSD 57350-0116

OFFICIAL OPINION NO. 06-06

Payment in Lieu of Tax Pursuant to SDCL 11-7-73

Dear Mr. Moore:  

You have requested an official opinion regarding the following factual situation:

FACTS:  

The Huron Housing and Redevelopment Authority (the Authority) was created pursuant to SDCL ch. 11-7.  The Authority owns more than a half dozen properties in Huron, with each property falling under one of the project categories of SDCL ch. 11-7.  

Beadle County is of the opinion that the Authority must make payment in lieu of tax (PILOT) payments on the properties it owns when the Authority has outstanding bonds, as required by SDCL 11-7-73.  The Authority has not made all of the PILOT payments over the last few years, and is now more than $125,000.00 in arrears.  The Authority has cited both a lack of cash flow and its belief that PILOT payments are optional as reasons for not making the payments.  

The Authority is of the opinion that some of the projects are "housing development projects" as defined by SDCL 11-7-1(7A), and are therefore not subject to PILOT payments under SDCL 11-7-73, which requires PILOT payments for any "housing project."  A housing project is defined in SDCL 11-7-4.  

The Authority is also of the opinion that if a project is low income housing or the project receives a federal subsidy, then the PILOT payment is required.  The Authority refers to SDCL 11-7-26, which grants the Authority the power to make such payments.  The Authority’s position appears to be that SDCL 11-7-26 also grants the Authority the power not to make PILOT payments.  This interpretation leaves to the discretion of the Authority whether or not to make the PILOT payments.  

Finally, the Authority points out that South Dakota Constitution Article XI, § 5, states that the real property of the state, county, and municipal corporations cannot be subject to property taxation.  That raises the question of whether a PILOT payment is considered a tax.    

It is Beadle County’s view that the Authority’s properties are subject to property tax, and that the purpose behind SDCL 11-7-72 and 73 was to provide an incentive or abatement to housing authorities so they could make lower payments, when they have outstanding bonds, than they would be required to pay if they were subject to property taxes.  

Based upon these facts, you ask the following question:  

QUESTION:

Whether the Huron Housing and Redevelopment Authority is required to make payment in lieu of tax payments on all of its properties while they have outstanding bonds?  

IN RE QUESTION:

The question you ask turns on the interpretation of the statutes found in SDCL ch. 11-7, County and Municipal Housing and Redevelopment.  SDCL 11-7-7 creates in each county and each municipality a housing and redevelopment commission.  Before a housing and redevelopment commission can function, however, the governing body of the county or municipality must, by resolution, make certain findings concerning the housing situation in the county or municipality, including declaring the need for the commission.  SDCL 11-7-7.  

There are three categories of projects that a housing and redevelopment authority may undertake.  A housing and development authority may undertake a "housing project" as defined by SDCL 11-7-4.  See also SDCL 11-7-1(13), 7.2, 21.1, 33, 36, 49, 49.1, 53, 56, 58, 59, 60, 64, 65, 68, 71, 72, 73, 81, 90, 91, 93, and 94.  A housing and development authority may undertake a "redevelopment project" as defined by SDCL 11-7-5.  See also SDCL 11-7-1(6), 1(13), 6, 71, 72, 75, 76, 78, 81, 82, 83, 84, 87, 89, 90, 91, and 93.  Finally, a housing and development authority may also undertake a "housing development project" as defined by SDCL 11-7-1(7A).  See also SDCL 11-7-1(13), 53.1, 53.2, 53.3, and 72.      

A number of statutes within SDCL ch. 11-7 apply to payment in lieu of taxes (PILOT) payments:  

SDCL 11-7-26.  A commission shall further have power to make such payments in lieu of taxes to the first or second class municipality or the county, the state or any political subdivision thereof, as it finds consistent with this chapter.   

SDCL 11-7-58.  Each commission shall manage and operate its housing projects in an efficient manner to enable it to fix the rentals or payments for dwelling accommodations at rates consistent with its providing decent, safe, and sanitary dwelling accommodations for persons of low income, and no commission shall construct or operate any housing project for profit, or as source of revenue to the municipality or the county. To this end a commission shall fix the rentals or payments for dwellings in its projects at no higher rates than it shall find to be necessary in order to produce revenues which (together with all other available moneys, revenues, income, and receipts of the commission from whatever sources derived) will be sufficient:

(1)  To pay, as the same become due, the principal and interest on the bonds of the commission issued for housing projects;

(2)  To create and maintain such reserves as may be required to assure the payment of principal and interest as they become due on such bonds;

(3)  To meet the cost of and to provide for, maintaining and operating the housing projects (including necessary reserves therefore and the cost of any insurance) and the administrative expenses of the commission; and

(4) To make payments in lieu of taxes consistent with maintaining the low-rent character of the projects.

SDCL 11-7-72. The properties of a commission are declared to be public properties used for essential public and governmental purposes, and the properties and the commission are exempt from all taxes and special assessments of the first or second class municipality, the county, the state, or any political subdivision of the state, and the exemption shall continue so long as there is outstanding:

(1)  Any bond or other obligation issued by a commission which is secured by such properties or revenues therefrom; or

(2) Any agreement for payment of contributions by the federal government to the commission with respect to such properties.

For any property in the redevelopment project area, the tax exemption terminates if the commission sells, leases, or otherwise disposes of the property to a private individual or corporation for development or redevelopment. The low-rent public housing project properties, redevelopment project properties, and housing development project properties shall be separately categorized for exemption or nonexemption under the foregoing provisions. The commission shall in good faith proceed to discharge obligations outstanding against its properties. This section does not relieve a commission from payment of proper charges measured by the service rendered for utilities and special services such as charges for heat, water, electricity, gas, sewage disposal, or garbage removal.

SDCL 11-7-73. Notwithstanding the provisions of § 11-7-72 with respect to any housing project of the commission, the commission shall, after that project has become occupied, either in whole or in part, file with the proper director of equalization, on or before May first of each year, a statement of the aggregate shelter rentals of that project collected during the preceding calendar year; and, unless a greater amount is permitted pursuant to federal legislation and has been agreed upon between the commission and the municipality or the county as the case may be in and for which the commission was created, ten percent of such aggregate shelter rentals shall be charged to the commission and collected from it as payments in lieu of taxes for the services and facilities to be furnished with respect to that project, in the manner provided by law for the assessment and collection of taxes, and the amount so collected shall be distributed to all of the appropriate governmental units in the area of operation in such proportions that each will receive therefrom the same proportion as it would of actual taxes, were such project not exempt from taxation; provided, however, that no such payments in lieu of taxes shall exceed the amounts which would be payable in taxes on the project if it were not exempt from taxation. Shelter rental means the total rentals of a housing project exclusive of any charge for utilities and special services such as heat, water, electricity, gas, cooking fuel, and other necessary services or facilities. The records of each housing project shall be open to inspection by the proper assessing officers. 

(Emphasis added.)  These statutes provide the answer to the question you have asked.  

SDCL 11-7-26 grants a commission the power to make PILOT payments "as it finds consistent with this chapter."  While SDCL 11-7-26 gives a commission authority to make PILOT payments, the payments can only be made pursuant to other provisions within SDCL ch. 11-7 – the "consistent with this chapter" requirement.  One must, therefore, look to other provisions within SDCL ch. 11-7 to determine when a commission must make PILOT payments.  

SDCL 11-7-58 states that a commission shall not operate any "housing project" for profit.  The statute goes on to state that the commission shall, however, fix the rentals for the project at an amount high enough to pay for certain things, including "payments in lieu of taxes consistent with maintaining the low-rent character of the projects."  While this statute acknowledges that the rental rate for "housing projects" is to be set high enough to make PILOT payments, it is not the statute that mandates PILOT payments.  

SDCL 11-7-72 states that the "properties of a commission . . . are exempt from all taxes and special assessments. . . ."  Simply put, if a commission owns property, the property is exempt from real property taxation and from the imposition of special assessments.  This exemption continues for commission property under two conditions.  First, the exemption continues as long as there is outstanding "[a]ny bond or other obligation issued by a commission which is secured by such properties or revenues therefrom."  SDCL 11-7-72(1).  Second, the exemption continues as long as there is outstanding "[a]ny agreement for payment of contributions by the federal government to the commission with respect to such properties."  SDCL 11-7-72(2).  As long as either of these conditions continues, commission property is exempt from property taxation and special assessments.  Once both of these conditions are no longer present, the statute states that the exemption is lifted and commission property is subject to property taxation and special assessments.  

SDCL 11-7-72 continues, stating that "[t]he low-rent public housing project properties, redevelopment project properties, and housing development project properties shall be separately categorized for exemption or nonexemption under the foregoing provisions."  Thus, when applying the exemption from taxation and special assessment provision and the outstanding conditions provision, as discussed above, the statute requires an application on a category by category basis.  This category by category separation shows the Legislature’s intent to keep the different types of projects separate.  See SDCL 11-7-71, 81, 90, 91, and 93(3).  This separation is evident in SDCL 11‑7-90, which does not permit redevelopment project bond proceeds to be used for housing projects, and vice versa.  See also SDCL 11-7-93(3)("housing projects and redevelopment projects of a commission shall be separately financed").     

Finally, SDCL 11-7-73 is the statute that actually imposes the requirement to make PILOT payments.  SDCL 11-7-73 states that "[n]otwithstanding the provisions of § 11-7-72 with respect to any housing project of the commission . . .  ten percent of such aggregate shelter rentals shall be charged to the commission and collected from it as payments in lieu of taxes for the services and facilities to be furnished with respect to that project. . . ."  Key here is the use of the category "housing project."  SDCL 11-7-73 mandates the payment of PILOT payments for "housing projects" only.  This point is driven home in the last two sentences of the statute, where "housing project" is referred to when discussing how to determine the "shelter rentals" upon which the PILOT payments are based.  See also SDCL 11-7-58(4)("housing project" rent to be high enough "[t]o make payments in lieu of taxes. . . .").  

The PILOT payments of SDCL 11-7-73 are restricted to "housing projects."  If the Legislature intended to include "redevelopment projects" and "housing development projects" within the requirement to make PILOT payments, it easily could have done so.  When the Legislature added the "housing development project" statutes in 1995 to SDCL ch. 11-7, it could have amended SDCL 11-7-73 to require PILOT payments for that project category, but did not.  1995 S.D. Sess. Laws ch. 80.  The Legislature made a policy decision to exclude "redevelopment projects" and "housing development projects" from the PILOT payments requirement of SDCL 11-7-73.  

In summary, I am of the opinion that SDCL 11-7-73 requires the Authority to make payment in lieu of tax payments pursuant to SDCL 11-7-73 only for "housing project" properties.  I am also of the opinion that each of the three categories of projects that are authorized under SDCL ch. 11-7 must be separately analyzed to determine if the project must pay property taxes pursuant to SDCL 11-7-72.  The PILOT payments of SDCL 11-7-73 apply only to "housing projects."  However, all three categories of projects will have to pay property taxes and special assessments if the conditions of SDCL 11-7-72 have expired.    

I decline to respond to the constitutional issue raised by the Authority.  

Sincerely,

Lawrence Long
Attorney General

LL/DDW/kak