August 18, 1981

Mr. Gordon K. Milbrandt 
Auditor General 
Department of Legislative Audit 
State Capitol 
Pierre, South Dakota 57501

Official Opinion No. 81-29

Contingency Funding in School District Budgets

Dear General Milbrandt:

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

FACTS: 

Certain schools are budgeting a line item for contingency by fund and showing a separate line item within each fund's budget (e.g. five percent of the total General Fund budget, five percent of the total Special Education Fund appropriation is included as a line item in the Special Education Fund budget).  Others are budgeting five percent of the total school budget and including it as a line item of the General Fund only.

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

QUESTIONS: 

1.  May a school district budget the contingency line item by fund or must the five percent contingency be budgeted only in the General Fund? 

2.  Does the five percent of the total school district budget, for contingency, include the appropriation for principal and interest on long-term debt or only the operating fund's appropriations? 

3.  If a school district may budget by fund (Question 1) can they budget contingency for the Capital Outlay Fund?

IN RE QUESTION NO. 1:

SDCL 13-11.2.1 provides: 

In preparing the school district budget, the school board may include a line item for contingencies.  The line item shall be included in the annual budget and shall not exceed five percent of the total school district budget.  The school boards may be resolution transfer contingency funds to any budget category except capital outlay.

The second sentence of the statute set out above indicates that a single line item for contingencies not exceeding five percent of the total school district budget may be included in a district's budget.  Accordingly, I conclude that since the statute consistently speaks of 'line item' in the singular a district may provide for a contingency line item only in the General Fund.  This reasoning is supported by the final sentence of the statute that empowers districts to transfer contingency funds to any budget category except for capital outlay.  If a contingency line item could be placed in each budget category there would be no need to grant the transfer authority.

IN RE QUESTION NO. 2:

Reviewing SDCL 13-11-2.1 reveals that the district may provide for  contingency funds 'not to exceed five percent of the total school budget.'  A plain reading of the statutory provision leads to the inescapable conclusion that the limitation of line item for contingency fund is based upon the total school budget.  It is my opinion, however, that the words 'total school budget' do not include funds for bond redemption.  SDCL 13-16-10 and 11 provide: 

13-16-10.  At or before the issuing of any bonds the school board shall provide for the collection of an annual tax sufficient to pay the interest and principal thereof when due, for the entire term of years for which said bonds are to run, by proper resolution, copy of which shall be filed with the county auditor.  All such levies when legally made shall be irrepealable until such debt shall be paid or sufficient moneys have been accumulated to pay such debt, and shall be exclusive of the maximum levy provided for other school district funds. 

13-16-11.  The county auditor shall have the power and the duty to levy a tax from year to year against the property of the district in accordance with such resolution to meet said bond redemption fund payments when due without further notice or demand from such school district, provided, however, that if a surplus in the bond redemption fund exceeds the principal and interest requirements for one year in addition to such requirements for the current year, the school board may by resolution, determine the amount of such surplus and certify said amount to the county  auditor on or before September first and the county auditor shall thereupon be authorized to reduce the required levy for the bond redemption fund to be spread upon the tax list for collection in the following year by the amount so certified.

SDCL 13-16-10 authorizes school districts to adopt irrepealable levies for the retirement of bonds issued by the district.  SDCL 13-16-11 imposes a ministerial duty on the county auditor to levy the tax against school district property from year to year when due 'without further notice or demand from such school district.'  Since no notice or demand is required of the school district for collection of the bond redemption tax, payment of bonds when due need not be included in the annual 'total school district budget.' Accordingly, the phrase 'total school district budget' does not include levies made for the bond redemption fund; however, all other funds except trust and agency funds (SDCL 13-11-2) should be included in this figure.  This would also include annual levies made under SDCL 13-16-7.  The effect and apparent intention of including the capital outlay budget amount in the contingency fund and not allowing transfers of contingency funds to capital outlay is to increase the total amount of contingency funds available to the district.

IN RE QUESTION NO. 3:

In view of the answers given to Questions 1 and 2 above, no answer is required for this question.

Respectfully submitted,

Mark V. Meierhenry
Attorney General