OFFICIAL OPINION NO. 08-06, Ability of Home Rule Municipalities to Enact Video Lottery Regulation

  
OFFICIAL OPINION NO. 08-06, Ability of Home Rule Municipalities to Enact Video Lottery Regulation

STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

July 21, 2008

Norman Lingle
Executive Director 
South Dakota Lottery
P.O. Box 7107
PierreSD  57501-7107

OFFICIAL OPINION NO. 08-06

Ability of Home Rule Municipalities to Enact Video Lottery Regulation

Dear Mr. Lingle:

You have requested an opinion from this office regarding the following factual situation:

Facts:

For the past twenty years, the State of South Dakota has operated a video lottery system.  The video lottery system was enacted pursuant to Article III, § 25, of the South Dakota Constitution.   Article III, § 25 declares in part that it is lawful for the Legislature to authorize by law a state lottery or video games of chance which are regulated, owned and operated by the State of South Dakota, and other authorized entities.   Video lottery is extensively regulated through the Legislature’s enactment of SDCL ch. 42-7A and through administrative rules promulgated under ARSD Article 48:02.

Municipalities have some regulatory authority with respect to gambling.   SDCL 9-29-5, however, states that authority “do[es] not apply to any lottery owned and operated by the state.”  The only exception to this rule is SDCL 42‑7A‑64, under which the Legislature permits municipalities to “consider” certain “criteria for authorizing video lottery machine placement in establishments issued an on-sale alcoholic beverage license pursuant to subdivisions 35‑4‑2(12) and (16).”  SDCL 35‑4‑2(12) is an on-sale wine license for Sunday sales only, and SDCL 35‑4‑2(16) is a combination on-sale and off-sale malt beverage license.  SDCL 42‑7A‑64 does not include the SDCL 35‑4‑2(4) license which permits the sale of alcohol, commonly referred to as the on-sale liquor license.

The city of Sioux Falls recently enacted Ordinance Number 60-08.  Section 6 of the Ordinance adds subsection 15.59.306 to “Section 15.59 of Appendix B for Zoning On Ordinance of the Revised Ordinance of Sioux Falls.”  New subsection 15.59.306 reads, in full, as follows:

          15.59.306. On-sale alcoholic beverage establishment:

          An on-sale alcoholic beverage establishment may be permitted provided it is found that the location:

(1)              Will not create an undue concentration of similar uses.

(2)              It is not in an area where unattended children could be expected to frequent, patronize, or recreate.

(3)              It is compatible with characteristics of surrounding uses, and not injurious to surrounding properties.

(4)              Video lottery machine placement is not within 2,000 feet of any city park, other video lottery machine placement, or any elementary or secondary school within the city as measured from the closest point of the outside wall of either of such buildings or tenant space or the boundary of any park.  The provisions of this section shall apply to any new video lottery machine placement authorized after June 1, 2008, unless a valid application for a conditional use permit, including video lottery terminals, shall have been filed with the City prior to that date for an alcoholic beverage license authorized pursuant to SDCL 35‑4‑2(4) for which the applicant received notice of eligibility in 2008.

Subdivision 4 of the new subsection proposes to regulate video lottery machine placement.  The subsection encompasses all on-sale alcoholic beverage license types.  A municipality has the discretion to approve or disapprove alcoholic beverage license applications depending whether the city deems the applicant a suitable person to hold such license and whether it considers the proposed location suitable.  SDCL 35‑2‑1.2.  Rather than craft the ordinance to regulate the placement of all on-sale alcoholic beverage establishments “within 2,000 feet of any city park . . . or any elementary or secondary school within the city,” the new subdivision specifically targets video lottery for regulation.

The city of Sioux Falls purports that it may regulate video lottery under its home rule charter pursuant to South Dakota Constitution Article XI, § 2.

Based upon the above facts, you have asked the following questions:

QUESTIONS:

1.                 Whether municipalities have the power and authority to regulate video lottery for all on-sale alcoholic beverage establishments?

2.                 Whether a home rule municipality has the power and authority to regulate video lottery for all on-sale alcoholic beverage establishments based upon its home rule municipality status?

3.                 Whether subsection 15.59.306 enacted by the city of Sioux Falls is contrary to the South Dakota Constitution and South Dakota statutes regarding the regulation of video lottery?

In re Question 1:

I assume your first question addresses municipalities that are not operating under home rule charters.  Based upon my assumption, the answer to your question is no, except to the extent authorized in SDCL  42-7A-64.   The constitutional language prohibits a municipality from otherwise regulating video lottery.

The South Dakota Supreme Court has noted on numerous occasions that under Article IX, § 1 of the South Dakota Constitution, the Legislature is vested with plenary power over municipal corporations.  As such, a municipality possesses only those powers expressly granted to it by the Legislature, and those powers that are fairly implied or incidental thereto that are necessary to enable the municipally to perform designated and authorized functions.  See e.g., Olesen v. Town of Hurley, 2004 S.D. 136 ¶15, 691 N.W.2d 324, 328; Donovan v. City of Deadwood, 538 N.W.2d 790, 792 (S.D. 1995).

As amended in 1994, the relevant portion of Article III, § 25, provides:

However, it shall be lawful for the Legislature to authorize by law a state lottery or video games of chance, or both, which are regulated by the state of South Dakota, either separately by the state or jointly with one or more states, and which are owned and operated by the state of South Dakota, either separately by the state or jointly with one or more persons . . . .

(emphasis added).  The aforementioned constitutional provision requires that the state regulate the statewide lotteries and video games of chance that are authorized by the Legislature.   Accordingly, the Legislature allows municipalities only limited power in this area.  Nowhere does the Legislature provide municipalities with a generic grant of authority with regard to the video lottery.  SDCL 42-7A-64, in particular, only allows municipalities to consider certain specified criteria for video lottery placement in establishments involving the issuance of specified on-sale alcoholic beverage licenses.   SDCL 9-25-5 specifically provides that, while a municipality may generally suppress gambling, the provisions of the section “do not apply to any lottery owned and operated by the state.”  Therefore, the conclusion is clear:  municipalities may not suppress or regulate video lottery absent a grant of specific authority from the Legislature.

I note that the above opinion is consistent with AGO No. 89-37, wherein my predecessor likewise determined that municipalities may not use their general police powers to suppress or regulate video lottery.  

In re Question 2:

The answer to your second question is no, except to the extent authorized in SDCL 42-7A-64.

The city of Sioux Falls is a home rule chartered entity.  Under the South Dakota Constitution, a city may adopt a home rule charter.  Article IX, § 2 provides in pertinent part:

A chartered governmental unit may exercise any legislative power or perform any function not denied by its charter, the Constitution or general laws of the state.  The charter may provide for any form of executive, legislative, and administrative structure which shall be of superior authority to statute, provided that the legislative body so established be chosen by popular election and that administrative proceedings be subject to judicial review.

Powers and functions of home rule units shall be construed liberally.

The South Dakota Supreme Court makes clear that:  “Although the power granted to home rule cities may be great, it is not absolute.”  Bozied v. City of Brookings, 2001 S.D. 150, ¶ 11, 638 N.W.2d 264, 269.   In Bozied, the Court declared invalid a less stringent ordinance that contradicts state law.  In Rantapaa v. Black Hills Chair Lift Co., 2001 S.D. 111, ¶¶ 21-23, 633 N.W.2d 196, 203, the Court provided a detailed analysis of a local government’s authority under a home rule charter and the state’s power to nullify or preempt local action.  Although this decision concerns a county’s authority under the constitutional home rule provision, the Court’s analysis of the constitutional provision applies equally to a city.

The Rantapaa Court stated:

Under [SD Const art IX, § 2], counties have the authority to “exercise any legislative power or perform any function not denied by its charter, the Constitution or the general laws of the state.”  The concept of home rule is that state and local governments may regulate in the same area if the local rule does not conflict with state law.  However, “[a] county in this state is a creature of statute and has no inherent authority[,] . . . [but] only such powers as are expressly conferred upon it by statute and such as may be reasonably implied from those expressly granted.”

SDCL 7‑18A‑2 specifically authorizes a county to adopt ordinances “as may be proper and necessary to carry into effect the powers granted to it by law . . . .”  Aside from the statutory grant of legislative power, a county may not pass an ordinance which conflicts with state law.  SD Const art IX, § 2.

There are several ways in which a local ordinance may conflict with state law.  In that event, state law preempts or abrogates the conflicting local law.  First, an ordinance may prohibit an act which is forbidden by state law, and, in that event, the ordinance is void to the extent it duplicates state law.  Second, a conflict may exist between state law and an ordinance because one prohibits what the other allows.  And, third, state law may occupy a particular field to the exclusion of all local regulation.

(citations omitted).

As set forth in the answer to the previous question, the Legislature only authorizes a municipality to regulate the placement of video lottery as set forth in SDCL 42‑7A‑64, which exclusively applies to the placement of video lottery machines in establishments where the alcoholic beverage license was issued pursuant to subdivisions 35‑4‑2(12) and (16).  There is no other statutory authority for municipalities to regulate video lottery.

Because South Dakota Constitution Article III, § 25 requires video lottery to be “regulated by the state,” similar regulatory authority cannot co-exist in local government entities.  Furthermore, state law occupies the regulatory field through the enactment of South Dakota Constitution, Article III, § 25, SDCL §42-7A, and rules promulgated by the State Lottery Commission, which prohibit all local regulation except as specifically authorized by the Legislature.  Finally, regulation of video lottery by a home rule chartered municipality is in direct conflict with the statutory prohibition under SDCL 9‑29‑5, that excludes municipalities from suppressing or regulating the state lottery.  In my opinion, no valid argument can be made that a home rule chartered municipality can regulate video lottery beyond the limits specifically authorized by the Legislature.

In re Question 3:

In answer to your third question, it is my opinion that subdivision 4 of subsection 15.59.306 enacted by the city of Sioux Falls conflicts with the South Dakota Constitution and state law.  It is therefore invalid except to the extent that such ordinance is consistent with the specific provisions of SDCL 42‑7A‑64.  The city of Sioux Falls’ home rule authority carries no additional regulatory authority over video lottery beyond that specifically authorized by the Legislature.   To the extent not specifically authorized, the ordinance conflicts with the constitution and laws of this state.  It is clear that the state occupies the field and is tasked with video lottery regulation to the exclusion of local regulation.  In order for the city of Sioux Falls (or any other municipality) to regulate the placement of video lottery machines beyond existing state law, the Constitution needs to be amended or additional authority, consistent with the Constitution, needs to be obtained from the Legislature.

Respectfully submitted, 

LaWRENCE E. Long
Attorney General

ll/JPH/jkp