South Dakota Attorney General

Additional Resources

Official Opinion No. 83-38, South Dakota Conservancy District Interim Notes

October 31, 1983

Mr. Warren R. Neufeld
Secretary
Department of Water & Natural Resources
Joe Foss Building
Pierre, South Dakota 57501-3181

Official Opinion No. 83-38

South Dakota Conservancy District Interim Notes

Dear Secretary Neufeld:

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

FACTS:

The South Dakota Conservancy District plans to issue $15,585,000 in aggregate principal amount of its Multi-Project Loan Anticipation Notes, 1983 Series pursuant to Chapters 46-17 and 46-17A of the Codified Laws of South Dakota as amended. SDCL 46-17A-24 provides that 'any resolution authorizing the issuance of such notes shall specify the principal amount, rate of interest and maturity date, but not to exceed 5 years from date of issue, and such other terms as may be specified in such resolution; however, time of payment of any such notes may be extended to a period of not exceeding 3 years from the maturity date thereof.'

SDCL 46-17A-26 further provides that 'the District, in order to further secure the payment of the interim notes, is, in addition to the foregoing, authorized and empowered to make any other or additional covenants, terms and conditions not inconsistent with the provisions of this chapter, and do any and all acts and things as may be necessary or convenient or desirable in order to secure payment of its interim notes, or in the discretion of the District, as will tend to make the interim notes more acceptable to lenders, notwithstanding that the covenants, acts or things may not be enumerated herein.'

The Conservancy District's resolution to issue the notes will provide that the interim notes mature on September 1, 1986. The resolution will also expressly state that the District will not utilize the time extension provision contained in SDCL 49‑17A‑24.

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

QUESTIONS:

1. Does SDCL 46-17A-24 invest the South Dakota Conservancy District Board with the discretion to extend the time for payment or does SDCL 46- 17A-24 impose a non-discretionary duty on the Board to extend the time for payment?

2. If the Board possesses the discretionary power to extend or not extend the time for payment under SDCL 46-17A-24, may the Board exercise that discretion at the time it issues the notes by including a provision in the issuing resolution and a covenant in the indenture of trust for the benefit of the noteholders to the effect that the District will not extend the time for payment beyond the maturity date?

3. If Question No. 2 is answered in the affirmative, would such a covenant in the indenture of trust bind the Board or could the Board nevertheless change its mind and grant a time extension at a later date for any or all of the notes if it felt circumstances so required?

IN RE QUESTION NO. 1:

The South Dakota Conservancy District has been granted the authority, 'pursuant to appropriate resolution,' to issue interim notes and to loan the proceeds thereof to sponsors of certain water resources projects as interim financing. SDCL 46-17A-23; SDCL 46-17A-23.1. The resolution authorizing the issuance of the interim notes must, at a minimum, state the principal amount of the notes, the rate of interest thereon, and the maturity date of the notes, which cannot exceed five years from the date of issuance. SDCL 46- 17A-24. That statute goes on to provide that the 'time of payment of any such notes may be extended for a period of not exceeding three years from the maturity date thereof.' (Emphasis added.)

The first question posed is whether the statutory language quoted above gives the District the discretion to extend the time of payment, or whether the statute should be read to say the time of payment 'must be' extended. While the pertinent statutory language is written in permissive terms (may be), similar language has been construed to mean 'must be.' See A.G.Rep. 1937-38, page 556. The question is one of legislative intent. See State v. O’Neill, 254 N.W. 265 (S.D. 1934); 2A Sutherland, Statutes and Statutory Construction, § 57.03, pp. 415-16 (4th Ed. 1973).

When the legislative scheme of interim financing as set forth in SDCL Ch. 46-17A is viewed as a whole, it is clear that SDCL 46-17A-24 invests the Conservancy District with the discretionary power to extend the time of payment of interim notes up to three years beyond the maturity date. The District is empowered to make such covenants, terms and conditions which, in the District's discretion, will tend to make the interim notes more acceptable to lenders, and which tend to make the notes more marketable. SDCL 46-17A-26; SDCL 46- 17A-38. Obviously, an interim note without a fixed maturity date is less marketable than a note payable at a fixed time. However, in some cases it may be advisable to sacrifice a certain degree of marketability in light of particular facts which may be unique, and which may indicate a valid reason to provide for an extension of time for payment of the notes. The Legislature has left that choice to the District.

Furthermore, it does not appear that any valid legislative purpose is served by mandating that all maturity dates set for interim notes must be extended. To ascribe that intent to the Legislature is to say that the Legislature meant to adversely affect the marketability of all interim notes. That interpretation of legislative intent is not in my opinion a reasonable one. It may not be presumed that the Legislature was blind to the realities of the financial world; indeed the presumption is to the contrary. Therefore, it is my opinion that SDCL 46-17A-24 invests the District with the discretion to extend the time of payment of interim notes.

IN RE QUESTION NO. 2:

The second question is whether the District can exercise its discretion by indicating in its resolution and in its agreement with the noteholders that it will not extend the time for payment beyond the stated maturity date of the interim notes. It is my opinion that when the interim financing statutes are considered as a whole, the District does have the authority to exercise its discretion by agreeing in effect not to exercise it.

SDCL 46-17A-26 provides:

The district, in order further to secure the payment of the interim notes, is, in addition to the foregoing, authorized and empowered to make any other or additional covenants, terms and conditions not inconsistent with the provisions of this chapter, and do any and all acts and things as may be necessary or convenient or desirable in order to secure payment of its interim notes, or in the discretion of the district, as will tend to make the interim notes more acceptable to lenders, notwithstanding that the covenants, acts or things may not be enumerated herein.

SDCL 46-17A-38 (applicable by virtue of SDCL 46-17A-28.1) similarly provides:

The district shall have power to covenant to perform any and all acts and to do any and all such things as may be necessary or convenient or desirable in order to secure its bonds, or as may in the judgment of the district tend to make the bonds more marketable, notwithstanding that such acts or things may not be enumerated herein, it being the intention hereof to give the district issuing bonds pursuant to this chapter power to make all covenants, to perform all acts and to do all things not inconsistent with the Constitution of the state of South Dakota.