August 20, 1992
Robert Miller, Executive Director
South Dakota Municipal League
214 E. Capitol
Pierre, SD 57501
OFFICIAL OPINION NO. 92-08
Joint powers agreement to establish Public Funds Investment Trust
Dear Mr. Miller:
You have requested an official opinion from this office in regard to the following:
FACTS:
Three cities have entered into a joint powers agreement and declaration of trust establishing the South Dakota Public Funds Investment Trust. The trust is a common law trust (also known as a business trust) established under the laws of South Dakota. The purpose of the agreement is to permit joint exercise of the power to invest public funds not needed for current operating expenses. The agreement allows participation by any county, municipality, or school district of the state of South Dakota. Participants must be in good standing as members of their respective associations, i.e. the South Dakota Association of County Commissioners, Associated School Boards of South Dakota, or the South Dakota Municipal League. Each association selects three trustees to govern the trust. Participation by an individual unit of local government is determined by resolution of its governing body. Withdrawal is permitted in a like manner. Investments of the trust are limited to those authorized investments described in SDCL 4-5-6, and to collateralized certificates of deposit pursuant to SDCL ch. 4-6A issued by designated South Dakota depositories.
Based upon the foregoing facts, you have asked the following questions:
QUESTIONS:
1. Is the agreement and trust, described in the statement of facts, one which may be legally created under SDCL ch. 1-24?
2. May counties which elect to participate in the joint powers agreement also participate in deposits made by the trust in South Dakota banks and savings and loan institutions located outside of the county or adjacent county as required under SDCL 7-20-1 and 7-20-1.1?
IN RE QUESTION NO. 1:
In 1972, a constitutional amendment was approved that authorized intergovernmental cooperation agreements. Article IX, 3 of the South Dakota Constitution states:
Every local government may exercise, perform or transfer any of its powers or functions, including financing the same, jointly or in co-operation with any other governmental entities, either within or without the state, except as the Legislature shall provide otherwise by law.
In accord therewith, the Legislature has authorized such joint exercise of powers in SDCL ch. 1-24. The relevant provisions of that chapter for purposes of this opinion include SDCL 1-24-1, which provides in pertinent part:
Terms used in this chapter mean:
(1) "Public agency," any county, municipality, township, school district, consumers power district or drainage district of the state of South Dakota; any agency of South Dakota state government or of the United States; any political subdivision of this state; any political subdivision of another adjacent state; and any Indian tribe;
SDCL 1-24-2 provides:
Any power or powers, privileges or authority exercised or capable of exercise by a public agency of this state may be exercised and enjoyed jointly with any other public agency of this state and jointly with any public agency of any other state or the United States to the extent that the laws of such other state or the United States permit such joint exercise or enjoyment. Any agency of South Dakota state government when acting jointly with any public agency may exercise and enjoy all of the powers, privileges, and authority conferred by 1-24-2 to 1-24-9, inclusive, upon a public agency. The provisions of this section do not apply to the power to tax or police powers, unless jointly held or otherwise authorized by law.
SDCL 1-24-3 provides:
Any two or more public agencies may enter into agreements with one another for joint or cooperative action pursuant to the provisions of 1-24-2 to 1-24-9, inclusive. Appropriate action by ordinance, resolution or otherwise pursuant to law of the governing bodies of the participating public agencies shall be necessary before any such agreement may enter into force.
SDCL 1-24-4 provides:
Any such agreement shall specify the following:
(1) Its duration;
(2) The precise organization, composition, and nature of any separate legal or administrative entity created thereby together with the powers delegated thereto, provided such entity may be legally created;
(3) Its purpose or purposes;
(4) The manner of financing the joint or cooperative undertaking and of establishing and maintaining a budget therefor;
(5) The permissible method or methods to be employed in accomplishing the partial or complete termination of the agreement and for disposing of property upon such partial or complete termination; and
(6) Any other necessary and proper matters.
SDCL 1-24-7 provides:
Any public agency entering into an agreement pursuant to 1-24-2 to 1-24-9, inclusive, may appropriate funds and may sell, lease, give or otherwise supply the administrative joint board or other legal or administrative entity created to operate the joint or cooperative undertaking by providing such personnel or services therefor as may be within its legal power to furnish.
SDCL 1-24-9 provides:
No agreement made pursuant to 1-24-2 to 1-24-8, inclusive, shall relieve any public agency of any obligation or responsibility imposed upon it by law except that to the extent of actual and timely performance thereof by a joint board or other legal or administrative entity created by an agreement made hereunder, which performance may be offered in satisfaction of the obligation or responsibility.
In addition to the above cited statutes, SDCL ch. 4-5 confers upon a political subdivision the ability to invest public funds which are not needed for current operating expenses in qualified securities and authorizes the depositing of those securities for safekeeping with a trust company. Finally, SDCL ch. 47-14 generally authorizes the establishment of common law trusts or business trusts within the state.
The answer to your first question will be limited to the legality of a joint powers agreement and declaration of trust establishing the South Dakota Public Funds Investment Trust, but will not address specific provisions of this joint powers agreement, declaration of trust or the legality of their various provisions. With those limitations, it is my opinion that municipalities, as well as other local governmental subdivisions, may enter into a joint powers agreement and declaration of trust establishing a common law or business trust (for the purpose of investing public funds of the various participants not necessary for current operating expenses) in accordance with the provisions of SDCL 4-5-6 to 4-5-11, inclusive.
Based upon my review of the provisions in SDCL chs. 1-24, 4-5 and 47-14, it is clear that municipalities, school districts and counties, through the joint exercise of powers, may agree to jointly invest public funds. The provisions of SDCL ch. 1-24 regarding joint powers agreements for investment of public monies with the South Dakota Health and Education Facilities Authority were not intended by the Legislature to represent the sole method by which joint powers agreements for the pooling and investment of public monies may be accomplished. See SDCL 1-24-11 through 1-24-17.
There is no doubt that investment of public funds is a governmental function which all government subdivisions are authorized to perform. See SDCL 4-5-6 to 4-5-11. It is also a government function that can be performed with other entities to create economies of scale and investment efficiencies.
It is further my opinion that the common law trust or business trust as a joint investment vehicle is a legal entity that may be created through a joint powers agreement, as stated in SDCL 1-24-4(2). See, e.g., Groseclose v. Bloom, 368 N.W.2d 572 (S.D. 1985). Trusts have been created separately by local governments for bonding purposes and are authorized by statute. See SDCL ch. 6-8B. Given this ability to create trusts to carry out the financial needs of local governments, it is my opinion a joint powers trust may be utilized to carry out pooled investment activities.
This office has on several occasions expressed the opinion that SDCL ch. 1-24 is not authority for public agencies to create separate legal entities, and that such power must arise from other sources. AGRs 78-54; 89-30; 91-11. I am not at this point departing from those opinions, because these prior opinions are distinguishable. Here, public bodies have specific statutory authority to create trusts for bonding purposes, and chapter 1-24 need not be relied on for that power. Because joint powers arrangements are to be liberally construed pursuant to constitutional mandate, I am of the opinion that the trust device may be utilized in other financial areas, like investment, as well. Therefore, the answer to your first question is "yes."
IN RE QUESTION NO. 2:
In addition to the above statutes, the following provisions must be considered to answer your second question. SDCL 7-20-1 provides:
The county treasurer shall deposit and at all times keep on deposit the money in his possession as county treasurer in state or national banks within the county. In the event that such deposits exceed the limit prescribed in 7-20-10 or if there is but one bank located within the county then such deposits may be made in other banks or branch banks within an adjacent county of this state having an approved and responsible financial standing. Any such bank may apply for the privilege of keeping such funds upon the conditions herein prescribed and shall state in the application the amount of money desired. If bond or securities are segregated as provided in 4-6A-3, it shall be the duty of the board of county commissioners to approve such application.
SDCL 7-20-1.1 provides:
Domestic savings and loan associations whether chartered by this state or by the United States are official depositories for county funds; provided such funds are invested only in the accounts of such associations which are insured by the federal savings and loan insurance corporation. The amount so invested in any one association may not exceed the amount which is covered by such insurance unless such association qualifies as a savings and loan depository as provided by chapter 4-6A. Such funds shall only be deposited with savings and loan associations located within the county where the funds originate. If there is but one such association located within the county, then such deposit may be made in other savings and loan depositories within an adjacent county.
Unlike municipalities and school districts, counties are restricted to selecting depositories, banks, and savings and loans that are located within or adjacent to the county. See SDCL 9-22-6 and 9-22-6.1; SDCL 13-16-15 and 13-16-15.1.
The crux of your second question is whether, through formation of a joint powers agreement, the geographic county depository restrictions for bank and savings and loan selection may be eliminated. In my opinion, the answer to that question is "no." My predecessors have interpreted SDCL 1-24-2 as prohibiting joint powers agreements by agencies that do not have common powers and duties. See, e.g., AGR 76-89. Through amendments in 1986 and 1990, however, the Legislature amended SDCL 1-24-2 by deleting "having such power or powers, privilege or authority" (which followed "may be exercised and enjoyed jointly with any other public agency of this state") and by adding the final sentence, "The provisions of this section do not apply to the power to tax or police powers, unless jointly held or otherwise authorized by law." Though these amendments expanded the ability of government entities to enter into joint powers agreements outside of the power to tax and police powers, the amendments nonetheless do not make that which is impermissible for a government entity separately permissible through a joint powers agreement. Consequently, the statutory restrictions for eligible depositories created by the Legislature in SDCL 7-20-1 and 7-20-1.1 cannot be circumvented through a joint powers agreement. Therefore, although a county may be able to invest its excess funds through the joint powers agreement, it still cannot obtain certificates of deposit from banks or savings and loans located outside the county or, where applicable, adjacent counties.
My opinion is supported by the provisions of SDCL 1-24-9, which provide that a joint powers agreement does not relieve a county of its affirmative obligations. This opinion is consistent with the rule of statutory construction that in the case of conflict, a general statutory provision must give way to more specific statutory language. Thomas v. McNeill, 448 N.W.2d 231 (S.D. 1989). Here, the law pertaining to county depositories is more specific and definitive than that governing joint powers agreements.
Thus, although under the 1986 and 1990 amendments to SDCL 1-24-2 the jurisdiction, authority or duties of a government entity may be expanded through a joint powers agreement, such joint powers agreement cannot accomplish what the Legislature has prohibited in separate legislation. The answer to your second question, therefore, is "no."
Respectfully submitted,
MARK BARNETT
ATTORNEY GENERAL
MB/JPH/db
