October 21, 1986
Mr. Sheldon Cotton
Commissioner
Department of School and Public Lands
State Capitol
Pierre, South Dakota 57501
OFFICIAL OPINION NO. 86-42
Exchange of mineral interests
Dear Commissioner Cotton:
You have asked for an official opinion from this office regarding the following factual situation:
FACTS
The State of South Dakota has mineral interests within the boundaries of the national parks in South Dakota. The federal laws, policies and regulations relating to national parks and their mineral or petroleum development all but eliminate any potential for the State to develop its minerals. Therefore, the State mineral interests within these confines are worthless. The federal government is interested in exchanging mineral interests outside these parks for the State's mineral interests within the parks. Such an exchange would allow the State to develop the exchanged mineral interests and thereby provide income to the School and Public Lands trust fund.
Based upon these facts, you have asked the following questions:
QUESTIONS:
1. Can the State of South Dakota exchange mineral interests with the United States Government?
2. Can the State of South Dakota exchange mineral interests with an individual?
3. Who makes the determination that the minerals are of like value?
Before specifically addressing your questions, it is helpful to review the nature of the involved property interests. The Enabling Act of February 22, 1889, Chapter 180, 25 Stat. 676, established the provisions under which the State of South Dakota gained its statehood. The Enabling Act has been characterized as a solemn agreement between the United States and the involved states (Andrus v. Utah, 446 U.S. 500, 507 (1980)) and its provisions must therefore be strictly construed. This Act provided the State with land (Sections 16 and 36 of every township) for the support of the public schools. See Section 10 of the Enabling Act. Provision was made for the selection of indemnity land in place of those sections 16 and 36 which the federal government had previously appropriated.
The Enabling Act, in Section 11, addressed the exchange of school lands:
. . . Any of the said lands may be exchanged for other lands, public or private of equal value and as near as may be of equal area, but if any of said lands are exchanged with the United States, such exchange shall be limited to surveyed non-mineral unreserved public lands of the United States within the state.
. . .
and
. . . provided, however, that none of such lands, nor any estate or interest therein, shall ever by disposed of except in pursuance of general laws providing for such disposition, nor unless the full market value of the estate or interest disposed of, to be ascertained in such manner as may be provided by law, has been paid or safely secured to the state.
Emphasis added.
The South Dakota Constitution, which implements the Enabling Act, also contains several provisions applicable to an exchange of school lands. Article VIII of the Constitution deals with school lands; Section 2 thereof requires that all property acquired for the support of the public schools remain a perpetual fund for the maintenance of those schools. Section 7 of the Constitution reiterates the trust nature of the school land holdings: all the land received from the United States as school land shall be placed in a perpetual trust fund. The principal of this fund may be increased but shall never be diminished.
Section 19 of the South Dakota Constitution is also at issue:
All gas, coal, oil and mineral rights, and any other rights, as specified by law, to or in public lands, are reserved for the state. Leases may be executed by the state for the exploration, extraction and sale of such minerals in the manner and with such conditions as are provided by law.
It should be noted that SDCL 5-2-12 contains a similar pre-Section 19, mineral reservation:
All sales, leases and conveyances of lands belonging to the state of South Dakota or to which it may now or hereafter be entitled, including all common school, public buildings, and endowment lands, shall be subject to and contain a reservation to the state of South Dakota of all deposits of coal, ores, metals, and other minerals, asphaltum, oil, gas geothermal resources, and other like substances in such lands, together with the right to prospect for, mine, and remove the same upon rendering compensation to the owner or lessee for all damages that may by caused by such prospecting or removal. The reserved deposits shall be disposed of only in the manner expressly provided by law.
The South Dakota Supreme Court interpreted this statutory mineral reservation in Argo Oil Corporation v. Lanthrop, 82 N.W.2d 504 (S.D. 1957), and concluded that this mineral reservation
. . . contains a general restraint upon the power of the executive branch of the government to alienate the mineral rights in any real property belonging to the state. Standing alone, this general provision of the statute reserves to the State the mineral rights in all land belonging to it at the time of enactment, or thereafter acquired.
In addition, SDCL 5-2-14 is also applicable to your question; it states:
When any board, commission or department of the state having control of any lands belonging to the state, shall in its judgment be satisfied that it is meet and proper to convey to or exchange with the United States of America or any of its departments any mineral rights now held by it or heretofore reserved to it, they shall so declare by proper resolution and direct the necessary instrument of conveyance to be executed upon the payment of the consideration to be determined by a board of appraisers comprised of the commissioner of school and public lands, the state geologist and the state auditor. Said conveyance shall be executed by the Governor and attested by the secretary of state.
This particular statute was enacted in 1957, prior to Article VIII, Section 19 of the Constitution (the mineral reservation).
Therefore, with the trust nature of this school land firmly in mind, we turn to your questions:
IN RE QUESTION NO. 1:
As is discussed above, the Enabling Act specifically gives the State the right to exchange state land subject only to the requirements that such an exchange be authorized by statute and that the exchanged lands be of equal value and, as near as possible, of equal area. In addition, the South Dakota Constitution requires all property acquired for public schools remain in a perpetual trust fund, which may never be diminished. Article VIII, Section 19 of the Constitution reserves all minerals to the State.
The exchange of a mineral estate in the situation you describe, where the State's minerals are worthless unless they are developed and such development cannot occur unless the minerals are outside the boundaries of a national park, does not result in an alienation of a mineral estate. Rather, such an exchange is similar in nature to the in lieu land selections made by the State for various trust lands granted in general to the State in the Enabling Act, but which had been previously appropriated by other persons. Further, the mineral exchange you describe does not diminish the principal of the trust fund; rather, it enhances that fund by making the mineral estate open for development. Therefore, so long as the exchange involves mineral estates with equal value, the provisions of the Enabling Act and the Constitution are not violated.
SDCL 5-3-14 specifically allows the State to exchange mineral estates with the United States. This statute was not repealed when the South Dakota Constitution was amended to provide for a mineral reservation. Although its 'conveyance' provisions may be at odds with the constitutional mineral reservation, especially in light of Argo Oil, supra, its 'exchange' provisions actually implement similar provisions of the Enabling Act and the Constitution. Indeed, the Enabling Act requires such a statute in order for school land to be exchanged at all.
However, any contemplated exchange must ensure that the principal of the school trust is not diminished by the exchange. This should be done by ensuring that:
(1) The mineral estates exchanged are of equal value; and,
(2) The total value of the sum of all mineral estates presently owned by the State is not diminished by the exchange.
Therefore, it is my opinion that the State may, after compliance with the above premises, exchange mineral estates with the United States government pursuant to the provisions of SDCL 5-3-14.
IN RE QUESTION NO. 2:
Unlike the situation where an exchange is occurring with the federal government, there is no statute similar to SDCL 5-3-14 giving the Department the authority to exchange mineral estates with a private individual. Therefore, in my opinion the answer to your question is no.
IN RE QUESTION NO. 3:
SDCL 5-2-14 requires the consideration to be paid for a conveyance of a mineral estate to the federal government, to be determined by a board of appraisers comprised of the Commissioner of School and Public Lands, the State Geologist and the State Auditor. It would be logical to assume that the Legislature contemplated this same board of appraisers to ensure that, in an exchange of mineral estates, the value of the mineral estates exchanged is equal.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
