July 3, 1986

Mr. Thomas E. Carr 
Carr & Pluimer, P.C. 
Attorneys at Law 
Post Office Box 580 
Belle Fourche, South Dakota 57717-0580

Official Opinion No. 86-24

Interest on school bond issues

Dear Mr. Carr:

On behalf of the Belle Fourche School District you have requested an official opinion from this Office based upon the following factual situation:

FACTS: 

In the past, the district has had several bond issues.  There is presently in existence a 1979 bond issue that is still unpaid and outstanding.  Prior to the 1979 bond issue, there was a 1963 bond issued and other bond issues prior to 1963.  In 1983, the 1963 bond issue was paid in full.  Since 1983 the district has been transferring interest accumulations from the bond redemption fund to the general fund, however, there is the sum of One Hundred Fifty Four Thousand Six Hundred Seven Dollars and seventy-seven cents ($154,607.77) that can be attributed to accrued interest on the 1963 and prior bond issues, which have all been paid. 

Prior to 1978, SDCL 13-16-18 required that any interest accruing on the investment of bond redemption funds must be credited to the bond redemption fund.  In 1978, the legislature amended SDCL 13-16-18 by providing, among other things, that the interest accruing on the investment of school district funds could be credited to the respective fund or to the general fund. 

SDCL 13-16-14 further provides: 

Money in this fund (bond redemption fund) cannot be transferred to any other fund unless enough is retained in this fund to retire all outstanding bonds together with such interest as will accrue on such bonds.

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

QUESTION NO. 1: 

May the Board of Education, by proper resolution, transfer the $154,607.77, representing interest accruals on the 1963 bond issue and prior bonds issues, to the district general fund?

QUESTION NO. 2: 

If the answer to the first question is no, may the Board of Education transfer the interest accumulations from 1978, when SDCL 13-16-18 was amended, to 1983, when the Board of Education began transferring the annual interest accumulations on the bond redemption fund to the general fund?

SDCL § 13-16-14 provides: 

Money in this fund cannot be transferred to any other fund unless enough is retained in this fund to retire all outstanding bonds together with such interest as will accrue on such bonds.

SDCL § 13-16-18 provides: 

All accumulations in all school district funds shall be deposited in lawful depositories in checking accounts, savings accounts or time deposits, or  invested, except as hereinafter limited, in bonds, registered warrants or promissory notes of the school district making such investment, or securities issued and guaranteed by the United States government.  The interest accruing on such investment or deposit shall be credited to the respective fund or the general fund. 

Moneys in any bond redemption fund may be invested only in such of the above listed types of securities as will become due and payable on or before the date when the bonds for the payment of which such bond redemption fund was created become due and payable, except bonds of the United States redeemable at par. 

In carrying out the provisions of this section, all transactions shall be by resolutions of the board, which resolutions shall be regularly filed and recorded with the business manager as a public record.

IN RE QUESTION NO. 1:

In view of SDCL § 13-16-18, it is, first of all, my opinion that interest earned on invested or deposited funds (including the bond redemption fund) may be credited, at the option of the investor, to either the respective fund or the general fund.  This means that prior to crediting the interest to the respective funds or general fund, the accumulated interest is not yet a part of  a particular fund (such as the bond redemption fund) and, therefore, the crediting of interest (attributable to bond redemption fund moneys) to the general fund is not a 'transfer' in violation of SDCL § 13-16-14.

The $154,607.77 which is the subject of your question, however, is apparently interest which has already been credited to the district's bond redemption fund.  Once the crediting of interest to the respective funds or the general fund has occurred, SDCL 13-16-18 is no longer relevant to the transfer of that money from one fund to another.  If the interest has already been credited to the bond redemption fund, § 13-16-14 comes into play and is determinative as to whether 'transfers' can be made from the bond redemption fund.

In your stated facts, you say that the $154,607.77 is bond redemption fund money which is interest accrued on 1963 and earlier bond issues.  You further stated that the 1963 and earlier bond issues have been fully retired and, therefore, the $154,607.77 is excess money unnecessary for the retirement of the 1963 and earlier bonds.

Your question that asks whether this excess money (the $154,607.77) can be transferred out of the bond redemption fund and into the general fund, to be used for other district purposes.

In my opinion, the answer to your question is no.  The $154,607.77 may not be transferred out of the bond redemption fund and into the general fund until all bonds in the bond redemption fund have been retired.  SDCL § 13-16-14.  In  the instant case, the district owes on a 1979 bond issue and until the 1979 bond issue is retired, the district may not transfer moneys out of the bond redemption fund.

IN RE QUESTION NO. 2:

In view of my opinion that SDCL § 13-16-18 is only relevant to crediting of interest and not 'transfers' from one fund to another, the answer to your second question is also no.

Respectfully submitted,

Mark V. Meierhenry
Attorney General