December 22, 1997

Maurice C. Christiansen
Auditor General
427 South Chapelle
Pierre, SD 57501-5070

OFFICIAL OPINION 97-07

Municipalities-interfund borrowing

Dear Mr. Christiansen: 

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

FACTS:

A municipality has transferred $240,000 from its general fund to the golf course fund. The golf course is owned by the municipality and is operated as an enterprise fund; it has no receivables. The municipality intends to return the $240,000 to the general fund over an eight-year term.

Based on these facts, you have the following questions:

QUESTIONS: 

1. Are the promissory note laws found in SDCL 9-25-12 through 9-25-16 applicable to transfers between funds of a municipality? 

2. Is the transfer of money between the funds of a municipality legal? 

3. Would the answer to Question No. 2 be different if the transfer originated from a fund that is legally restricted, such as a bond redemption fund or sales tax fund (second or third cent)? 

IN RE QUESTION NO. 1: 

SDCL 9-25-12 provides: 

A municipality may borrow money from any source willing to lend the money by issuing a promissory note subject to the limitations set forth in §§ 9-25-13 to 9-25-16, inclusive. Notes issued pursuant to this section are payable solely from the sources provided in § 9-25-13 and do not constitute an indebtedness of the municipality within the meaning of any constitutional or statutory provisions or limitations, any provisions in the notes set forth or set forth in the resolution authorizing the notes to the contrary notwithstanding. The note shall recite the authority under which they are issued and shall state that they are issued in conformity with the provisions, restrictions, and limitations of §§ 9-25-13 to 9-25-16, inclusive, and that the notes and the interest thereon are payable from the sources therein provided. The notes shall be authorized, issued, and sold in accordance with ch. 6-8B. No election is required and the notes may not be issued for a term in excess of five years. However, notes issued forloans authorized by the Consolidated Farm and Rural Development Act of 1993 may be issued for a term of not more than ten years. 

In my opinion, SDCL ch. 9-25 anticipates a loan to municipality from an outside entity and is not applicable to monetary transfers between funds of a municipality. My answer to your first question is, therefore, "No." 

IN RE QUESTION NO 2: 

SDCL 9-21-26.1 provides: 

The governing body may by a two-thirds vote transfer the surplus money in any of the several funds to any other fund or funds or may appropriate such surplus money to the payment of any outstanding indebtedness of the municipality. No money in any fund may be transferred unless a sufficient amount is left to pay all outstanding warrants drawn against the fund, together with any other indebtedness or contemplated expenditures from the fund for the current fiscal year. No money may be transferred from any sinking or interest fund unless sufficient money is left to pay all interest which may accrue on and the principal of all outstanding bonds. If there remains in the treasury of any municipality an unexpended balance of any special fund, and all claims against such fund have been fully paid, and the purpose for which it was created has been fully served, and there remains no further use for such balance for the purpose for which it was created, the governing board of the municipality may transfer such balance to any other fund of the municipality or subdivision to which such balance belongs. Enterprise funds are not construed to be special funds for purposes of this section. 

Similar provisions, granting counties and school districts authority to transfer surplus monies, can be found in §§ 7-21-48 and 13-16-26 of the South Dakota Code. 

Under the plain language of SDCL 9-21-26.1, a municipality may transfer surplus monies from any of its several funds to another of its funds. See Nilson v. Clay County, 534 NW2d 598, 601 (SD 1995) (stating statutes must be given their plain meaning and effect). As only limited facts were contained in your opinion request, I am unable to opine on whether the restrictions on such fund transfers, found in § 9-21-26.1, have been complied with or would bar the transfer at issue. It should be noted that while the municipality's present intention is to reimburse its general fund over an eight-year term, such intention is not binding in future years unless such expenditure is included on the municipality's annual appropriation ordinance. See SDCL 9-21-9. However, if the Golf Course Fund is not supported or subsidized by revenue derived from the annual appropriated tax levy, it is not necessary to appropriate revenue to be expended from the fund. See SDCL 9-21-2. My answer to your second question is therefore, "Yes" provided the transfer complies with SDCL ch. 9-21. 

IN RE QUESTION NO. 3: 

The specific provision in the South Dakota Code dealing with the transfer of bond redemption funds is SDCL 9-21-27. It states: 

No balance remaining at the end of any fiscal year in any fund raised for the purpose of paying the principal or interest upon the bonded indebtedness of a municipality may be transferred to any other fund unless enough money is retained in the fund to retire all outstanding bonds and to pay any interest which will accrue on the bonds. 

It is, therefore, permissible to transfer the balance remaining at the end of a fiscal year from a bond redemption fund, so long as sufficient sums are retained to ensure compliance with § 9-21-27. 

In the same manner, transfers from the sales tax fund would be subject to certain limitations, including, but not limited to, those found in Article XI, Section 8 of the South Dakota Constitution. As there is no indication that the monies herein at issue were accumulated via a second- or third-cent sales tax, I decline to opine, at this time, on the legality and possible limitations concerning a transfer of sales tax funds. 

I note in issuing the opinion that the statutory interpretations rendered above may be inconsistent with the advice your office has rendered in the past. As such, some municipalities, relying on that advice, have taken a course of action contrary to my legal interpretations. To sanction such past conduct at this date, in my opinion, is unwarranted. Also, nothing in this opinion would prohibit the Legislature from specifically authorizing interim borrowing by municipalities of its public monies. Such legislation already exists for the state and counties. See e.g., SDCL 4-8-14 and 7-21-34. 

Sincerely,

MARK BARNETT
ATTORNEY GENERAL