April 20, 1994

Dr. Carleton R. Holt, Superintendent
Jefferson School District #61-6
P.O. Box 309
Jefferson, SD 57038

OFFICIAL OPINION NO. 94-04

Capital Outlay Certificates

Dear Dr. Holt:

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

FACTS:

In the Spring of 1993, the Jefferson School District issued capital outlay certificates pursuant to SDCL 13-6-6.2 which did not obligate the District for future payments in excess of 1.5% of the taxable valuation of taxable property within the District. SDCL 13-16-6.3. In November, 1993, a plan of reorganization was adopted by the voters of the Elk Point School District whereby, effective July 1, 1994, a portion of the property then located within the Jefferson School District would become part of the new Elk Point-Jefferson School District and the remaining property would be known as the Dakota Valley School District.

Based upon these facts, you have asked the following question:

QUESTION:

Whether property which is subject to a levy for the repayment of capital outlay certificates properly issued by the School Board of the District in which the property is located remains liable for repayment of said certificates if such property is subsequently transferred to another school district as a result of reorganization?

The answer to your question depends on whether capital outlay certificates issued pursuant to SDCL 13-16-6.2 constitute "bonded indebtedness" within the contemplation of SDCL 13-6-82. In my opinion, outstanding outlay certificates are bonded indebtedness. Therefore, my answer to your question is, "Yes."

SDCL 13-6-82 provides in relevant part:

Nothing in this chapter shall be construed to authorize the transfer of the liabilities of existing bonded indebtedness from the district or territory against which it was originally incurred. Should there be any existing bonded indebtedness against a district, the county auditor shall continue the annual tax levy that was provided for the redemption of such bond issue.

This statute applies when there has been a "reorganization" of school districts (as defined in SDCL 13-6-1(4)), as there has been here. This Office has on several occasions interpreted this statute to mean that such reorganization does not relieve district lands of liability for bonded indebtedness existing at the time of reorganization. See 1967-68 AGR 407; 1967-68 AGR 258. The lands which were part of the "old" district remain liable for outstanding bonded indebtedness, even though those lands are now a part of a "new" district.

The issue, then, is whether capital outlay certificates were intended by the Legislature to fall within the phrase "bonded indebtedness." Resolution of the issue becomes a matter of statutory construction; the goal is to determine the intent of the Legislature. As a base principle of statutory construction, it is appropriate to look not only to the words used in the statute at issue, but also to examine other statutes on the subject as well. South Dakota Board of Regents v. Hegge, 428 N.W.2d 535, 541 (S.D. 1988). Further, words used in a statute are to be given their plain, ordinary and popular meaning, unless the context clearly requires otherwise. SDCL 2-14-1; American Rim and Brake Inc. v. Zoellner, 382 N.W.2d 421 (S.D. 1986); Border States Paving v. Department of Revenue, 437 N.W.2d 872, 874 (S.D. 1989); Whalen v. Whalen, 490 N.W.2d 276 (S.D. 1992). Finally, legislative history, title and the total content of the legislation are all important in ascertaining the meaning of a statute. LaBore v. Muth, 473 N.W.2d 485 (S.D. 1991).

A review of the pertinent statutes and their legislative history convinces me that capital outlay certificates are intended to be treated as bonded indebtedness. First, the touchstone of bonded indebtedness--at least in this context--has been the existence of an irrepealable tax to pay the indebtedness. S.D. Const., Art XIII, <185> 5. The South Dakota Supreme Court addressed the issue in Schull Construction Co. v. Webster Independent School District, 198 N.W.2d 512 (S.D. 1972). There, the court considered what is now the first sentence of SDCL 13-16-7 and concluded that the language authorizing a school board to do an annual levy for the capital outlay fund "at its discretion" did not amount to an irrepealable tax levy that would bind future boards. Rather, the court held that the installment payments authorized by SDCL 13-16-6 were dependent each year on that exercise of discretion to levy taxes. Further, the court ruled that installment contracts payable through the capital outlay fund could not be used to construct buildings in any event. The Legislature's response came the next Legislative Session.

The 1973 Legislature responded to Schull Construction by amending SDCL 13-16-6. The amendment provided that the school district "shall" make a sufficient annual levy to meet installment payments, and made it clear that the capital outlay fund could be used to construct buildings. S.L. 1973, ch. 91, <185> 1. Other amendments addressed several other items cited by the court in Schull Construction, and were clearly intended to overturn the court's conclusions that installment payments could not be used to construct school buildings.

In 1978, the Legislature authorized the issuance of capital outlay certificates. S.L. 1978, ch. 109. These certificates also could be used for any of the purposes set forth in SDCL 13-16-6, including the construction of buildings. More importantly, the Legislature clarified the irrepealable tax issue. The Legislature amended SDCL 13-16-7 to provide that taxes collected pursuant to the annual levy for the capital outlay fund could be "irrevocably pledged" to the payment of capital outlay certificates. S.L. 1978, ch. 109, <185> 5.

The amendment went on to provide that the school district could be compelled to levy the annual tax:

[S]o long as any capital outlay certificates are outstanding . . ., the school board of any district may be compelled by mandamus or other appropriate remedy to levy an annual tax sufficient to pay principal and interest thereon, but not to exceed the five mills in any year authorized to be levied hereby.

S.L. 1978, ch. 109, 5. Thus, although a school district had the discretion to levy the tax as set forth in Schull Construction, the Legislature also gave the school district the power to make the tax irrepealable. The Legislature authorized school districts to back their capital outlay certificates by an irrevocable pledge of capital outlay fund taxes; installment payments and capital outlay certificates would no longer be dependent on an annual exercise of school board discretion, if such a pledge was made. If a board, having made such a pledge of taxes, fails to make an annual levy to pay the certificates, it may be forced to do so through a mandamus action.

In practical and legal effect, the result is the same as application of SDCL 13-16-10, which provides for an irrepealable tax for capital outlay bonds. The primary distinction between the certificates and the bonds is that the former may be issued without an election, assuming of course that the statutory limits are not violated and the constitutional debt limit likewise is not violated. See, Meierhenry v. City of Huron, 354 N.W.2d 171 (S.D. 1984).

Finally, when capital outlay certificates were first authorized by the Legislature in 1978, what was to become the current SDCL 13-16-6.2 was amended to provide that the certificates would "be executed and registered as provided in <185> 13-19-19 and shall be subject to the provisions of <185><185> 13-19-21 to 13-19-26, inclusive." S.L. 1978, ch. 109, <185> 2. Those sections dealt with the registration, replacement and payment of bonds issued by school districts. Although that language was deleted during the 1984 legislative effort to standardize the procedures for issuing local bonds and replaced with the current reference to SDCL ch. 6-8B, it reflects a legislative intent that capital outlay certificates be handled as bonds.

In light of these changes, it is my opinion that capital outlay certificates constitute "bonded indebtedness" for purposes of SDCL 13-6-82. This assumes of course that the school district made an irrevocable pledge of the capital outlay fund taxes at the time it issued the certificates. Therefore, those lands from the old Jefferson School District which were transferred to the Elk Point-Jefferson School District remain liable for their proportionate share of the capital outlay certificates issued prior to the reorganization. Again, my answer to your question is, "Yes."

MB:HHD:nan