February 6, 1985
Mr. Warren R. Neufeld, Secretary
Department of Water and Natural Resources
Joe Foss Building
523 East Capitol
Pierre, South Dakota 57501-3181
OFFICIAL OPINION NO. 85-07
Personal Property replacement funds/conservancy sub district dissolution
Dear Secretary Neufeld:
You have requested an official opinion from this office in regard to the following factual situation:
FACTS:
The South Dakota Legislature, during the 1984 Special Session, enacted an Act to establish water development districts (districts) and dissolve conservancy sub districts (sub districts). The Board of Water and Natural Resources (Board) was given the responsibility to settle the remaining sub district obligations and transfer assets and taxes to the appropriate water development districts and counties after January 1, 1985. The procedure for collecting and distributing both assets and taxes is described in Chapter 1, Sections 3-5, inclusive, of the 1984 Special Session Laws. The sub districts were dissolved effective December 31, 1984.
Sub district obligations can be divided into two categories: administrative, which cover the day-to-day expenses of operating an office (e.g. rent, utilities and publishing costs), and contractual, which meet the financial obligations agreed to in long-term contracts between sub districts and project sponsors (e.g. Web Rural Water System and James River Watershed contracts). Sub districts rely on real property taxes and personal property replacement funds to satisfy administrative and contractual obligations. Each sub district submitted a tax resolution for Fiscal Year 1985, levying property taxes and requesting its proportional share of the personal property replacement funds. This tax resolution was submitted to the appropriate county auditors.
It is expected that not all of the 1985 real property taxes and personal property replacement funds will be needed to settle remaining sub district obligations, except in the case of the Oahe Sub district. The Board will, therefore, according to the formula established by legislation, be distributing sub district taxes and remaining assets as soon as it is feasible.
Personal property replacement funds are remitted to each county twice a year and distributed by each county to the various subdivisions by the formula established under SDCL Chapter 10-13A. This apportionment is based upon previous years' real property taxes and its ratio of personal property replacement funds to real property taxes from 1972 to 1976 and payable from 1973 to 1977.
Based upon these facts, you have asked the following questions.
QUESTIONS:
1. Are sub districts entitled to receive personal property replacement funds in 1985? Further, are sub districts entitled to receive personal property replacement funds in 1986 since each sub district is levying a real property tax in 1985 and an apportionment of funds is based on the previous year's tax?
2. Is the Board of Water and Natural Resources, as the entity which assumes the responsibility to satisfy sub district obligations, entitled to receive personal property replacement funds in 1985 or 1986 in the stead of the sub districts? In the case of the Oahe Sub district, is the Board of Water and Natural Resources entitled to receive personal property replacement funds until all Oahe Sub district contractual obligations have been satisfied? If yes, when will the entitlement stop?
3. Is a water development district a successor entity entitled to receive personal property replacement funds pursuant to SDCL 10-13A-7 considering that they are not included in a list established pursuant to SDCL 10-13A-8 as an eligible entity?
4. If your answer is 'yes' to questions 1 and 2, after the Board has satisfied all outstanding obligations, is the Board required to distribute the remaining personal property replacement funds pursuant to the formula established in Chapter 1, Section 5 of the 1984 Special Session Laws or is the Board to distribute according to the ratio of personal property replacement funds received from each county?
5. The Board is required to satisfy all outstanding obligations of the sub districts before distributing remaining assets and taxes as directed by Chapter 1, Section 5 of the 1984 Special Session Laws. In the case of the Oahe Sub district, obligations will continue to exist until 1990; however, there should be sufficient taxes, personal property replacement funds, cash and interest in the Oahe administrative and contracting funds to satisfy the scheduled contractual payments for 1985. Administrative and contracting funds are distinguished from each other because the authority for each is respectively defined by SDCL 46A-3-42 and SDCL 46A-3-45. Does the Board have the discretion to use administrative funds to satisfy contractual obligations and then distribute the Oahe Sub district administrative funds if they are not needed to satisfy contractual obligations in 1985?
6. The Board is directed to distribute sub district assets and taxes to the county in those cases where the county was within a sub district but will not be within a water development district. For what purposes may the county use these funds and are there any restrictions on the county's use of those funds?
7. The South Dakota Legislature enacted SDCL 46A-3-13.1 during the 1984 regular session to provide to a new sub district that portion of the unobligated cash reserves of the old sub district equal to the proportion that the new subdistrict's total assessed valuation bears to the old subdistrict's total assessed valuation. Lawrence, Meade, and CENDAK sub districts withdrew from old sub districts and created new sub districts in 1983. Does section SDCL 46A-3-13.1 entitle these sub districts to the unobligated cash of the appropriate sub district as of the date of withdrawal or the end of the old subdistrict's fiscal year? If the answer is yes, will the Board of Water and Natural Resources be responsible for settling these entitlements and may 1985 sub district taxes be used to settle this debt if there are insufficient cash balances?
IN RE QUESTION NO. 1:
Personal property consisting of personal effects, household furnishings and pets, home appliances, sporting and hobby goods, grain and seed, honey and sugar beets was exempted from ad valorem taxation effective on an emergency basis in 1978. SL 1978, Ch. 72, § § 1, 45; SL 1978, Ch. 73 § § 1, 3; SL 1979, Ch. 84, § 14. The statutes directed that such property was not to be assessed in 1978. Other personal property (except that centrally assessed) as defined in SDCL 10-4-6 was exempted effective January 1, 1979. This repeal of the personal property tax obviously resulted in a loss of revenues for the counties and other units of local government.
To off-set the loss of the personal property tax, the Legislature established the tax allocation fund from which disbursements were made to the counties for the purpose of replacing personal property taxes. SL 1978, Ch. 72, § 32. In 1981 that fund was repealed and subsequent replacement funds were appropriated out of the general fund. SL 1981, Ch. 88, § 1. Statutory formulas were enacted to compute both the amount of distribution to each county from the state and the amount of distribution from the county to other local subdivisions. See, e.g. SDCL 10-13A-3.2; SDCL 10-13A-5.
The key provisions of the property tax replacement plan, at least as relate to your inquiry, were enacted in 1979. SL 1979, Ch. 68. Those provisions, as amended in 1981 and 1982, are now found at SDCL 10-13A-6 through SDCL 10- 13A-8, inclusive. SDCL 10-13A-7 provides:
If any taxing entity entitled to receive personal property tax replacement funds goes out of existence, then any personal property tax replacement funds which would have been allocated to that taxing entity shall be credited to the county general fund to be distributed to the successor taxing entities by the board of county commissioners in proportion to the percentage of the tax base assumed by each successor entity.
Several of the sub districts dissolved effective December 31, 1984 were taxing entities 'entitled to receive personal property tax replacement funds.' Those sub districts adopted budgets for their fiscal year 1985 and presumably the levy was extended pursuant to the respective tax resolutions. See AGR 84-25. SL 1984 (SS), Ch. 1, § 1 specifically contemplates that those tax levies should remain in effect and be paid over to the Board of Water and Natural Resources. Your inquiry is whether that levy entitles the sub districts to replacement funds which will be distributed in 1985 or 1986 because the allocation formula (SDCL 10-13A-5) is based on the real property taxes levied the previous year.
Implicit in that question is the issue of whether the replacement fund operates in the same manner that the old personal property tax did. Prior to repeal, assessments for personal property taxes were made during the first six months of the year. SDCL 10-6-2. Assessments were equalized (SDCL Ch. 10- 11) and a levy was made and extended. The personal property tax due became a lien on personal property on January 1 following assessment. SDCL 10-19-3. The taxes were due on January 1, SDCL 10-21-4, but were not delinquent if paid in accordance with SDCL 10-21-24.
Personal property was assessed in 1977, with the tax payable in 1978. Those taxes were presumably paid. With the partial repeal of the personal property tax effective 1978, there was a shortfall of such tax receipts in 1979. There was an appropriation of $6,000,000 in 1978 (SL 1978, Ch. 72, § 16; see also SL 1979, Ch. 70, § 2) to make up that shortfall. Section 17 of the 1978 Act provided:
The state treasurer shall, by May 1, 1979, pay to each county an amount equal to the personal property tax payable in 1978 on personal effects, household furnishings, home appliances, sporting and hobby goods, plus the taxes payable in 1978 upon dogs under § 10-12-25, grain and seed under chapter 10-14, and honey and sugar beets under chapter 10-15 and the net reduction in poll taxes under § 10-12-24 between 1978 and 1979. The county treasurer shall, upon receipt of funds remitted under this Act, distribute the funds to the taxing subdivisions in the same manner as other property taxes and special taxes and in the same amounts as were payable to those subdivisions in 1978.
SL 1978, Ch. 73, § 2.
That appropriation was supplemented with an additional $1,040,700 in 1979. SL 1979, Ch. 61, § 1.
No assessment was made in 1979, or in any subsequent year. Appropriations were made for replacement purposes as follows:
a. $9,000,000 to be paid not later than April 30, 1980 (SL 1978, Ch. 72, § 16, as amended by SL 1979, Ch. 70, § 2);
b. $11,372,084 to be paid not later than April 30, 1980 (SL 1979, Ch. 70, § 1);
c. $10,000,000 to be paid not later than October 31, 1980 (SL 1979, Ch. 70, § 3);
d. $10,000,000 'for the purpose of replacing the personal property tax in fiscal year 1981' (SL 1979, Ch. 69, § 1);
e. $21,156,000 with a reversion of any funds not expended or obligated by June 30, 1981 (SL 1980, Ch. 80, § 1);
f. $40,332,226 with a reversion of any funds not expended or obligated by June 30, 1982 (SL 1981, Ch. 87, § 1);
g. $40,744,104 annually in 1982, 1983, and 1984, with a reversion of any funds not obligated or expended by June 30 of 1983, 1984, and 1985, respectively (SL 1982, Ch. 93, § 1) (SL 1983, Ch. 74, § 1) (SL 1984, Ch. 69, § 1).
Following through on the logic reflected by those appropriations, the latest appropriation (SL 1984, Ch. 69, § 1) was partially to replace the last-half personal property taxes which would have been assessed in 1983 and payable in 1984, and to replace the first-half taxes which would have been assessed in 1984 and payable before May 1, 1985.
In addition, the allocation formula set forth in SDCL 10-13A-5 does indeed utilize the previous year's tax levy to compute the amount of the distribution to be made to a particular subdivision. However, to imply from the scheme of appropriations, or from the formula for distribution of funds, that either the appropriation or the levy in one year entitles a subdivision to funds the following year strains the plain language of SDCL 10-13A-7. Nothing in either the appropriation scheme or the allocation formula vests the rights to receive funds in a subdivision.
Had the conservancy sub districts not been dissolved, they would have been entitled to replacement funds in 1985. Those sub districts have now gone 'out of existence.' The replacement funds 'which would have been allocated to that taxing entity shall be credited to the county general fund . . .' SDCL 10-13A-7. Those funds were not a presently vested asset of the sub districts at the time of dissolution. Therefore, my answer to your first question is NO; the sub districts are not entitled to replacement distributions in 1985 or 1986.
IN RE QUESTION NO. 2:
In SL 1984(SS), Ch. 1, § 1, the Legislature provided that sub district tax levies for 1985 remained valid and were to be paid over to the Board of Water and Natural Resources for distribution. Section 3 further provides:
The board of water and natural resources shall exercise the necessary power and authority, including the power to collect taxes necessary to satisfy existing financial obligations, of the directors of the sub districts dissolved in section 2 of this Act until such time as all financial responsibilities, obligations and other contractual commitments of the dissolved sub districts have been satisfied.
SL 1984(SS), Ch. 1, § 3.
Clearly, the Board is to step into the shoes of the various sub districts for the purpose of settling their financial affairs. That includes the power to levy a tax to satisfy outstanding obligations, a power which the Board did not possess prior to August 2, 1984. However, it is not the power to levy a tax that determines entitlement to replacement funds.
The Legislature contemplated in 1979 that some taxing entities would cease to exist and others would be newly formed. In SL 1979, Ch. 68, the Legislature addressed the effect that those eventualities would have an entitlement to replacement funds. First it provided that if a taxing entity ceased to exist, the replacement funds went to the county general fund and then to 'successor taxing entities.' (SDCL 10-13A-7.) The Legislature then provided that the county could determine the entitlement for a 'new taxing entity' formed after January 1, 1979. In 1982, existing entities which did not levy taxes in the base year or years, but which subsequently did levy a tax, were added. SL 1982, Ch. 92, § 3. (SDCL 10-13A-6.) However, the Legislature included a restriction which is now found at SDCL 10-13A-8:
No taxing entity, other than counties, townships, municipalities, and school districts, may receive a replacement entitlement larger than an entitlement in proportion to its tax base on July 1, 1979. No taxing entity, other than counties, townships, municipalities, and school districts, may receive any replacement entitlement if such entity is formed after July 1, 1979.
It is my opinion that SDCL 10-13A-8 must be read as a limitation on both SDCL 10-13A-6 and SDCL 10-13A-7. Accordingly, unless the 'new' taxing entity or the 'successor' taxing entity is a county, township, municipality, or school district, it is not entitled to replacement funds. The Board of Water and Natural Resources treated either as an existing entity levying a tax for the first time pursuant to SDCL 10-13A-6 or as a successor taxing entity under SDCL 10-13A-7 simply does not meet the SDCL 10-13A-8 requirements. My answer to your second question is NO.
IN RE QUESTION NO. 3:
For the same reasons discussed above with reference to the Board of Water and Natural Resources, I am of the opinion that based upon SDCL 10- 13A-8, water development districts are not entitled to personal property tax replacement funds. My answer to your third question is NO.
IN RE QUESTION NO. 4:
In light of the negative response to questions No. 1 and No. 2, I am not certain a response to this question is required. Those personal property tax replacement funds received by the sub districts in 1984, however, should have been allocated by the sub districts pursuant to SDCL 10-13A-9. See AGR 87- 7. To the extent that any such funds would be available for distribution by the Board after sub district obligations are satisfied, SL 1984(SS), Ch. 1, § 5 would control that distribution.
IN RE QUESTION NO. 5:
SL 1984(SS), Ch. 1, § 3 makes it the responsibility of the Board of Water and Natural Resources to settle the outstanding financial obligations of the dissolved sub districts. Toward that end the Board is given the power to 'exercise the necessary power and authority . . . of the directors of the sub districts dissolved . . . until such time as all financial responsibilities . . . have been satisfied.' Section 5 of that Act describes what disposition the Board should make of the remaining assets and taxes after settling outstanding obligations:
Following the dissolution of the conservancy sub districts and the settling of all their outstanding financial obligations which must be paid in 1984, any remaining assets and taxes levied pursuant to the tax resolution adopted in 1984 of each of the sub districts shall be distributed by the board. Each area of a sub district that is not included in the CENDAK, East Dakota, James River, Southern Missouri, West Dakota or West River water development district established pursuant to § § 46A-3A-2 to 46A-3A-7, inclusive, shall receive, in proportion to the area's share of the assessed valuation for the year 1984 of the sub district within which the area was included, an amount of the remaining assets of the sub district. This amount shall be distributed to the counties having jurisdiction over such area in proportion to each county's share of the assessed valuation of real property in the area.
Each sub district area that will be included within the CENDAK, East Dakota, James River, Southern Missouri, West Dakota or West River water development district shall be allocated an amount of the remaining assets of the sub district in proportion to the area's share of the assessed valuation for the year 1984 of the sub district within which the area was included. This amount shall be disbursed to the water development district within which the area is included. If an area will be included in more than one water development district, the board of water and natural resources shall determine the distribution of that area's share of remaining sub district assets in a manner equitable to both districts.
The financial obligations left outstanding which must be satisfied prior to distribution fall basically within two categories: administrative and contractual. You have indicated that not all administrative funds in the Oahe Conservancy Sub district will be required to satisfy outstanding administrative obligations. You ask whether those funds are available to satisfy outstanding contractual obligations.
Sub districts had the power to levy taxes within the limits prescribed by SDCL 46A-3-42 and SDCL 46A-3-64, for those purposes described in SDCL 46A-3-43 and SDCL 46A-3-44. AGR 78-19. The South Dakota Constitution provides in Article XI, Section 8 that '[n]o tax shall be levied except in pursuance of the law, which shall distinctly state the object of the same, to which the tax only shall be applied. . . .' There is, however, an exception to the general rule that a tax cannot be diverted from the purpose for which it was levied. In those instances where the purpose for which the tax was levied has been accomplished, and a balance remains, it does not violate the Constitution to apply the remaining balance to any legitimate purpose. AGR 1967-68, p. 200.
This is not inconsistent with the position taken by this office in AGR 78- 19. To utilize funds levied for contractual purposes to meet unrelated administrative obligations could create an effective tax rate in excess of the limits specified in SDCL 46A-3-42. No such statutory limitation is imposed on utilizing surplus administrative funds to meet outstanding contractual obligations. Because the Board of Water and Natural Resources has been granted the necessary power and authority of a sub district board of directors, the Board would have the discretion to utilize surplus administrative funds to meet outstanding contractual obligations. My answer to your fifth question is YES.
IN RE QUESTION NO. 6:
Section 5, SL 1984(SS), Ch. 1 specifies how the remaining sub district assets and taxes are to be distributed by the Board of Water and Natural Resources. That section provides that a portion of the distributions go to those counties which were in a sub district but are not in a water development district. You inquire what use the counties may make of those distributions; the legislation passed at the special session does not specify what happens to those assets or taxes after they are distributed.
As was discussed above, the South Dakota Constitution provides that tax money cannot be diverted from the purpose for which it was levied. S.D. Const., Art. XI, § 8. Our Court has given that provision a 'reasonable' interpretation, and has held that in those instances where the purpose for which the tax was levied will have been accomplished, the remaining balance can be applied to any legitimate purpose without violating the Constitution. See Howard v. City of Huron, 60 N.W. 803 (S.D. 1894). Pursuant to Section 5, SL 1984(SS), Ch. 1, there is only to be a distribution of assets and taxes after sub district obligations are satisfied; the purpose for which the taxes were levied will have been accomplished. Accordingly there is no constitutional problem involved in utilizing those surplus moneys for such other legitimate public purposes as the Legislature may direct. See Douglas Independent School District No. 3 v. Bell, 272 N.W.2d 825 (S.D. 1978).
Here there is no specific legislative direction concerning the use to which a county may put such a distribution. Accordingly, the general statutes on county financial matters govern the appropriate utilization of the distributions. County governments are constrained to follow the county budget law, SDCL Ch. 7-21, which applies to all county revenues except special improvement funds, AGR 1933-34, p. 199, or except as otherwise provided by statute. See, e.g., SDCL 7-21-20.1 on expenditure of state and federal grants outside the strictures of the budget.
The county budget law requires an annual budget of all expenditures and revenues, except for the making or maintenance of special improvements. SDCL 7-21-2. Adoption of the final budget imposes a trust on the various accounts. SDCL 7-21-14. Appropriations and expenditures are confined to that budget with limited exceptions. Obviously, at this point the counties have not had the opportunity to budget for the receipt and expenditure of the sub district distributions. This limits the use of those distributions by the counties.
If a county can meet the standards for a supplemental budget, it would be able to utilize the sub district distributions prior to the next budget year. SDCL 7-21-21; SDCL 7-21-22. To the extent that transfers have been made pursuant to SDCL 7-21-32.2, sub district distributions would be available for utilization. Finally, it is my opinion that the county could treat the funds as 'surplus' within the confines of SDCL 7-21-48. See AGR 1927-28, p. 120.
It seems likely to me that the end result in most instances will be that the sub district distributions will simply be in the county treasury at the end of the fiscal year and will be taken into account in preparing next year's budget. See, e.g. SDCL 7-21-44. While the Legislature has the authority to designate a disposition of those distributions it has not done so here. Therefore, it is my opinion that county use of those funds is limited by the county budget law.
IN RE QUESTION NO. 7:
SDCL 46A-3-13.1 was enacted by the Legislature during the 1984 regular session. SL 1984, Ch. 290. It became effective July 1, 1984. SDCL 2-14-16. SL 1984(SS), Ch. 1, § 1 became effective August 2, 1984; that section repealed SDCL 46A-3-1 to 46A-3-68, inclusive, effective December 31, 1984. Accordingly I believe your question raises two issues for resolution:
1. Did SDCL 46A-3-13.1 survive the repealer found in SL 1984(SS), Ch. 1, § 1?
2. If the statute did survive, or if it created a right to a share of unobligated cash reserves while it was in effect, does SDCL 46A-3-13.1 apply to withdrawals from sub districts which occurred prior to the effective date of the Act?
SDCL 2-16-16 compels the conclusion that SDCL 46A-3-13.1 survived the special session repealer. The last sentence of SDCL 2-16-16 provides that any 1984 enactments which cite SDCL for the purpose of repeal shall be construed as referring to the code enacted by SDCL 2-16-13. So defined the repealer in SL 1984(SS), Ch. 1, § 1 would repeal those code sections specified, but would not include amendments or additions enacted during the 1984 regular session. Thus even though at the time the repeal of SDCL 46A-3-1 to 46A- 3-68 became effective, SL 1984, Ch. 290 had been assigned a code citation within the parameters of the repealer (SDCL 46A-3-13.1), the 1984 pocket supplement was not yet part of the code. The Legislature may well have intended to repeal all sub district statutes except three statutes dealing with the conservancy sub district revolving fund. The language of SDCL 2-16-16, however, prevents that result from being ascribed to the special session legislation. Accordingly, in my opinion SDCL 46A-3-13.1 has not yet been repealed.
SDCL 46A-3-13.1 provides as follows:
If an area of existing sub district withdraws to form a new sub district pursuant to the provisions of § 46A-3-13, the new sub district is entitled to a portion of the unobligated cash reserves of the old sub district. The portion of the unobligated cash reserves accruing to the new sub district shall be a percentage of the unobligated cash reserves of the old sub district, based on the total assessed valuation of the new sub district divided by the total assessed valuation of the old sub district. Any transfer of unobligated cash reserves from an old sub district to a new sub district shall take place within two years after the election under which the new sub district withdrew and was formed.
The Lawrence County Conservancy Sub district and the Meade County Conservancy Sub district withdrew from the Black Hills Conservancy Sub district pursuant to elections held August 30, 1983. The CENDAK Conservancy Sub district withdrew from the Oahe Conservancy Sub district pursuant to an election held December 13, 1983.
In AGR 83-36 my conclusion was that absent legislative action, Lawrence County Sub district and Meade County Sub district were not entitled to any part of the assets of the parent sub district upon withdrawal. The Legislature acted with reference to that subject matter during the 1984 regular session. SL 1984, Ch. 290.
It is a fundamental rule of statutory construction that statutes are to be construed as having prospective operation only, unless the legislative intent to give them retrospective effect clearly appears. In Re Scott's Estate, 133 N.W.2d 1 (S.D. 1965). Retroactivity will not be inferred, and in case of doubt, the doubt must be resolved against retroactivity and in favor of prospective construction only. State v. Wrestling, 130 N.W.2d 109 (S.D. 1964).
There is no retroactive intent expressed in SDCL 46A-3-13.1. While the language of the last sentence can arguably be interpreted to refer to sub district withdrawals occurring prior to the effective date of the Act, I am of the opinion that the reasoning used in American Investment Co. v. Thayer, 63 N.W. 233, 234 (S.D. 1985) applies here:
As a question of grammar, the phraseology of this law may include tax sales made prior to its passage; but the language used is entirely consistent with an intention that it should only be prospective in its operation, and a law will not be so construed as to give it a retroactive effect when it is capable of any other construction.
Accord, Federal Farm Mortgage Corp. v. Noel, 285 N.W. 871 (S.D. 1939); In Scott's Estate, 133 N.W.2d 1 (S.D. 1965).
Therefore it is my opinion that Lawrence, Meade and CENDAK sub districts are not entitled to any portion of the unobligated cash reserves of the sub districts from which they withdrew in 1983, because SDCL 46A-3-13.1 has only prospective application. My answer to your seventh question is NO.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
