June 28, 1979

Mr. Warren R. Neufeld, Secretary 
Department of Natural Resource 
  Development 
Joe Foss Building 
Pierre, South Dakota 57501

Official Opinion No. 79-19

The reinvestment of interim funds and the need for auditing water projects under House Bill 1173 as passed by the 1979 Legislature

Dear Secretary Neufeld:

You have requested an official opinion from this office in regard to the following questions:

QUESTIONS: 

1.  Must the proceeds of interim notes issued under House Bill 1173 be deposited into the state treasury? 

2.  In cases where a project seeking interim financing under House Bill 1173 has no financial history, is the audit requirement of section II a precondition to the issuance of interim financing notes by the South Dakota Conservancy District?

IN RE QUESTION NO. 1:

The answer to this question is yes.  The proceeds of the interim notes are “public funds” as defined in SDCL 4-5-5.  Because they are not “state public funds” pursuant to SDCL 4-4-2, the proceeds of the notes are not automatically maintained by the State Treasurer or invested by the State Investment Officer.  Instead, their disposition is controlled by SDCL 46- 17A.

SDCL 46-17A provides for two different funds managed in different manners.  SDCL 46-17A-16 says that:

[M]oneys derived from the sale of bonds issued under the provisions of this chapter, or pledged or assigned to or in trust for the benefit of the holder or holders thereof, shall be required to be paid into the state treasury and credited to a fund designated as the state water resources management fund. The fund shall be invested by the state investment council in accordance with chapter 4-5.

SDCL 46-17A-53, however, establishes a Water Facilities Construction Fund consisting of “all moneys, including legislative appropriations, received by the district that are available for water facilities as provided by this chapter.”

In my opinion, the Legislature intended that the proceeds from interim notes be placed in the Water Facilities Construction Fund established by SDCL 46- 17A-53.  Both SDCL 46-17A and House Bill 1173 clearly distinguish notes from bonds.  Section 9 of House Bill 1173 made specific statutes in SDCL 46-17A relating to bonds applicable to notes.  The omission of SDCL 46-17A-46 and SDCL 46-17A-47 from the list of bond statutes applicable to notes indicates that the proceeds from interim notes should be disposed of in a manner distinct from the moneys derived from bond sales.

Accordingly, the proceeds of the interim notes must be placed in the state treasury in the Water Facilities Construction Fund.  This fund, by virtue of SDCL 46-17A-54, is “appropriated continuously to the district to be used and administered by it for the purpose of managing the state's water resources.” SDCL 46-17A-53 and SDCL 46-17A-54 allow the withdrawal of the interim note proceeds from the state treasury; section 5 of House Bill 1173 and SDCL 46-17A-37 allow the district to enter financing agreements allowing a trustee to reinvest note proceeds during the construction period.

IN RE QUESTION NO. 2:

In my opinion the audit requirement is not a precondition to the issuance of notes if the project has no financial history.  The preconditions to issuing notes are listed in section 12 of House Bill 1173; if these conditions are met, interim notes may be issued.  The audit is then necessary after the project has a financial history.

Respectfully submitted,

Mark V. Meierhenry
Attorney General

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