STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

September 13, 1966

Paul J. Kern
State’s Attorney, Charles Mix County
Lake Andes, South Dakota 57356

OFFICIAL OPINION NO. 67-68 pg. 37

Municipalities. Municipality may construct an auditorium and finance its construction through revenue bonds. The proposal to construct cannot provide that a portion of the premises will be set aside for the exclusive use of a private patriotic organization.

You have requested an official opinion based upon the following factual situation:

"Municipality 'X' desires to build a one story auditorium. It is contemplated that such will be partitioned off and portions of the structure used as follows: A portion of the premises will be rented to the American Legion for its exclusive use as club rooms; a portion will be rented to the municipal liquor store; a portion will be used as a teenage or youth meeting and recreation hall; the remainder will be the auditorium for the conduct of public meetings and the like. The governing body desires to finance such construction and equipment of structure through the issuance of revenue bonds."

In such situation you have asked the following questions:

"1. In the event the electorate approve the issuance of revenue bonds for the construction and equipment of the proposed auditorium for the multiple uses as above described, would the revenue bonds, if issued in compliance with statute, be legal?

"2. In case the answer to question I is "yes", which statute governs the procedure to be followed issuing such revenue bonds: SDC 45.24, and acts amendatory thereof, SDC 1960 Supp. 43.24B or Chapter 148 of the Session Laws of 1964?"

You seem to have some concern as to whether the proposed multiple use of structure can qualify as an "auditorium." it is my opinion that the case of City and County of Denver v. Hallett, 34 Colo 393, 83 P 1066 is controlling. The court was presented with the legality of constructing a multiple-use building. Said the Court:

"If the primary object of a building is to provide a place for public meetings, the building itself may properly be designated an auditorium, although other portions of it are devoted to other uses than that of an auditorium in the strict sense of the term."

If the proposed auditorium portion of such proposed structure is its dominant feature—the reason that such building is being constructed, then it is my opinion it can qualify as an auditorium, even though certain portions of such structure will house other meeting rooms, and the city liquor store.

Our Constitution (Art. XI, Sec. 2) provides that taxes shall be levied and collected for public purposes only. Is the proposed construction for a public purpose? It might be argued that inasmuch as this structure is to be financed from the revenue it produces, and as such bonds are not within the constitutional debt limits (see GROSS v CITY OF BOWDLE, 44 SD 132, 182 NW 629, STATE COLLEGE DEVELOPMENT ASSOCIATION v. NISSEN, 66 SD 287, 281 NW 907; MATTET v. CITY OF YANKTON, 71 SD 435, 25 NW 2d 460, and BOE v. FOSS, 76 SD 295, 77 NW2d(1) that such moneys do not represent taxation or public moneys, and this constitutional provision does not apply. In STATE EX REL BECK v. CITY OF YORK 164 Neb. 223, 82 NW 2d 267 it was definitely held that rentals collected' upon a facility constructed by the issuance of revenue bonds is public moneys, although placed into a special fund and pledged to be used for a special purpose. Likewise in HALLBRUEGER v. CITY OF ST. LOUIS, 302 MO 573, 262 SW 379 it was held that this limitation upon the use of public moneys raised by taxes is a principle inherent in the nature of a free government, it is my opinion that the limitation applies. However, the weight of authority is that the construction of an auditorium is for public purposes, and is constitutionally proper. See CITY OF BOSTON v THE MERCHANTS NAT. BANK OF BOSTON (Mass 1958) 154 NE 2d 702 and the cases cited therein.)

There can be no question that a municipality may lawfully erect a building which is larger than its present municipal needs, and in view of the future, and when so constructed the portions not needed for the present may be rented or offered for the gratuitous use of private persons and organizations. Likewise, it is well settled that a city cannot erect a building when the primary purpose of its erection is to rent such to a private person. However, after a building is constructed for a lawful, public purpose, a portion of it may be rented and an income gained, and so long as such does not interfere with the building's use for the public purpose such rental, even to a private business is not illegal. It is also settled that while primarily the determination that such construction was dominated by a public purpose, such question in reality is a legal question and subject to review by the courts. It is also settled that if after a municipal building is constructed for a legal purpose such is used for an unlawful purpose, the courts are open for proper proceedings to prevent such illegal use. Cases supporting these rules are:

CITY OF BOSTON v. THE MERCHANTS NATIONAL BANK OF BOSTON, supra.

HALLBRUEGER v. CITY OF ST. LOUIS, supra

SMITH v. CITY OF RATON, 18 NM 613, 140 P 109

CALDWELL v. crry OF GREAT FALLS (Mont 1945) 157 P 2d 1013.

In applying such principles to the proposed use of the proposed structures, it is my opinion that no one could successfully contend that the usage as an auditorium or the usage of a portion of the building for a teenage or youth meeting hall, as long it is open to all of the youth of the community, does not constitute a public purpose.

This office has previously held (1937-38 AGR 342, and 1943-44 AGR 327) that a city may purchase a building for the municipal liquor store. In 1947-48 AGR 256 this office held that the municipal liquor store could be located in a portion of the city hall. Its inclusion in the proposed auditorium would be legal and constitute a public purpose.

The only proposed usage, and that which presents the most serious problem, is the proposal that a portion of the proposed auditorium be rented to or placed under the exclusive control of the local American Legion Post.

My predecessor in office in an opinion reported in 1953-54 AGR 48 held that a municipality could not donate city owned land to the American Legion for the construction thereon of a post home. In two recent opinions dealing with the leasing of city owned property I have outlined the law relative to the lease of such property to private individuals and entities. See my opinion of March 7, 1966 to Lyle P. Sage, State's Attorney of Miner County, and the opinion of April 6, 1966 to Rolland G. Jones, State's Attorney of Moody County. It is apparent that the law requires that before such leases can be considered legal, such leases must not interfere with the right of the general public to use. such premises.

While there is conflict, there is substantial authority to the effect that it is improper to grant an exclusive use or control of either the whole or a portion of a public building to a strictly private group of citizens.

KINGMAN v. CITY OF BROCKTON, 153 Mass. 259, 26 NE 998, 11 LRA 123 (1891). (Setting aside a portion of a city constructed memorial hall for the use of a GAR Post so long as it existed as an organization is unconstitutional.)

POWELL v. THOMAS (SC 1949) 52 2d 782. (Granting second floor of a public building to the exclusive use of the American Legion post was unconstitutional.)

DARBY v. OTTERMAN, 122 Kan 603, 262 P 903 (Leasing portion of a public building to Veterans of Foreign Wars for a twenty year term is unconstitutional.)

ELECTRIC THEATRE CO. v. DARBY, 123 Kan 225, 254 P 1035,

STATE EX REL GRIFFITH v. CITY OF INDEPENDENCE, 123 Kan 766, 256 P 799.

POWELL v. THOMAS (SC 1949), supra is an interesting case illustrative of this principle. It also added an interesting feature that the American Legion Post donated some $50,000 for the construction of the public building in question, and the contention was made that it in fact had paid for the construction of the space it was to occupy. Said the court in its opinion, that such usage was unconstitutional, as it authorized the expenditure of public moneys for a private organization:

"We do not discount the high ideals and principles fostered by this organization (the American Legion) or the worthy objectives sought to be attained, but the fact remains that it is not a public body which may be supported or aided by the levy of county taxes…

"If the arrangement contemplates that the American Legion, by reason of its contribution shall have vested interest in the building in the nature of the ownership of the second floor, or an exclusive right to its use, we would then have a joint venture between a governmental agency and a private organization. In this connection see SMITH v ROBERTSON, supra (210 SC 99, 41 SE 2d 631.)"

The cases above quoted applied the rule in cases where the public building was funded by general obligation bonds. Does the same rule apply in those cases where revenue bonds are used? It is my opinion that the rule is the same. See the following decisions:

STATE EX REL BECK v. CITY OF YORK, 164 Neb. 223, 82 NW 2d 267;

VILLAGE' OF MOYLE SPRINGS v. AURORA MFG. CO., 82 Ida 337, 353

P 2d 767;

McCLELLAND v. MAYOR ETC. OF WILMINGTON (Del 1960) 159

A 2d 596;

CITY OF WEST PALM BEACH v. STATE (Fla 1959) 113 so 2d 374; OPINION TO THE GOVERNOR, 76 RI 365, 70 A 2d 817.

It is interesting to note that in BORMAN v. BD. of EDUCATION, 360 Ill 535, 196 NE 464, 99 ALR 1029 the court held that the legislature cannot confer upon a municipality the power to issue bonds for an illegal purpose, or for the purpose of paying a debt not incurred by the exercise of some authorized corporate function or purpose.

In view of these decisions it is my opinion that the inclusion of an exclusive right or a long term rental of a portion of the proposed auditorium to the American Legion is an unconstitutional usage of such building. I would suggest that this feature be omitted from the proposed building.

1 should caution you, however, that there would be nothing wrong in constructing an extra room in such building with the view that such be reserved for future needs of the city, in which case, such room could be rented by the governing body of either the facility itself or the city to any worthwhile group or organization of the community. Such rental should be open to all, on a short time basis, and at all times subject to the rules, regulations and control of the governing body.

Question No. 2 asks what statutes furnish the proper procedure for the issuance of such revenue bonds?

It seems apparent after reading Chapter 148 of the Session Laws of 1964 and SDC 45.24, and acts amendatory thereof, that the factual situation you have outlined does not comply with the purposes and intent of such statutes. However, SDC 1960 Supp. 45.24B, which originated in Chapter 246 of the Session Laws of 1951, provides for the issuance of revenue bonds for auditorium. It is, in my opinion the controlling statute and should furnish the procedure for such revenue bond issuance.

Your attention is called to the provisions of SDC 1960 Supp. 65.0719 through 65.0721. These statutes authorize a surcharge on the admission charged for the use of such auditorium for the purpose of creating an Auditorium Building Fund. You will notice that the moneys accumulated in such funds cannot be used to retire the revenue bonds issued for the construction and furnishing of such auditorium, but such may be used for remodeling or furnishing equipment in the future for such auditorium.