STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

November 3, 1972

Mr. C. P. Moore, Chairman
State Investment Council

OFFICIAL OPINION NO. 72-58

State Agency must comply with Administrative Procedures Act if its rules affect persons outside the agency.

Dear Mr. Moore:

You have requested an official opinion on the following question:

Will the State Investment Council be required to operate under the rules promulgated according to the Administrative Procedures Act (SDCL Ch. 1-26)?

An administrative agency may not put a policy into effect by enacting a "rule" unless that power was delegated to it by the Legislature. Livestock State Bank v. State Banking Commission (1964) 80 S.D. 491, 127 N.W. 2d 139.

SDCL 4-5-28 does give the Investment Council the authority to enact certain "regulations":

The state investment council shall formulate investment policy REGULATIONS pertaining to the kind or nature of investment of any of the moneys, and any restrictions upon the methods for investment, which shall govern the state investment officer. (Emphasis added)

The Administrative Procedures Act does not define the word "regulation," but rather sets forth conditions under which "rules" shall be promulgated and enforced. While the words "rule" and "regulation" are frequently used as synonyms, they do not always mean the same thing and are not interchangeable at will. In determining their exact meaning when used in a statute, much depends upon the context. Atlantic Coast Line R. Co. v. State (1917) 73 Fla. 609, 74 So. 595, 601.

As used in the APA (Administration Procedures Act), the word "rule" means:

. . . each agency statement of general applicability that implements, interprets, or prescribes law, policy, procedure, Or practice requirements of any agency. The term includes the amendment or repeal of a prior rule, but does not include:

(a) statements concerning only the internal management of any agency and not affecting private rights or procedure available to the public, or

(b) declaratory rules issued pursuant to §1-26-15 (SDCL 1-26-1(7) ).

Whether or not the "regulations" which the Investment Council is authorized to pass are "rules" covered by the AP A depends on their scope. A policy which affects persons outside the agency must be passed in accordance with the APA whether it is denoted a "rule," "regulation," "procedure," or by any other nomenclature. However, a policy which affects only the internal management of an agency need not be passed in accordance with the AP A even if such policy is called a "rule" or "regulation." CAVEAT: an agency, in exercising its powers, must always comply with due process of law and with the equal protection of laws even when it does not have to comply with the Administrative Procedures Act. These constitutional rights can never be suspended.

A regulation does not fall within the definition of "internal management" if it is "of such a nature that knowledge of it is needed to keep the outside interests informed of the agency's requirements in respect to any subject within its competence, as a guide in the conduct of their day-to-day affairs, and to instruct them in regard to the presentation to the agency of any such subject for impartial consideration or action thereon." United States v. Hayes, (4th Cir. 1963) 325 F. 2d 307.

In this case, the regulations which the Investment Council is authorized to make by SDCL 4-5-28, must be passed by following the APA, because they do affect persons outside the agency. The regulations will be restrictions on the state investment officer, which would normally be internal management, but because they will also affect every person who wishes to sell securities to the State of South Dakota, the "regulations" will also qualify as a "rule" as defined by the Administrative Procedures Act.

The Investment Council may, if it wishes, pass additional internal regulations governing the general course and methods of its own operations. Prior to July 1 of this year, 1-26-2 as enacted by SL 1966, Ch. 159, §2 REQUIRED each agency to enact these types of rules under the APA, however these requirements were deleted when the section was amended by the 1972 Legislature.

Respectfully submitted,

Gordon Mydland
Attorney General