STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

February 10, 1971

Eldon Stoehr
Auditor General
Pierre, South Dakota

OFFICIAL OPINION NO. 71-4

Construction of new municipal liquor store may be financed from profits of such liquor store, and without assent of electorate. Construction of such building upon borrowing moneys beyond current fiscal period would be illegal. Such construction on borrowed money could only be authorized by the assent of 60% of electors voting for the issuance of bonds for such purpose.

Dear Mr. Stoehr:

You have requested my opinion in answer to these questions:

1. Is it necessary to submit any issue requiring the borrowing of money beyond the current fiscal period by a municipality to the voters?

2. If such a question must be referred to the voters of a municipality, will a simple majority permit approval or must it pass with a sixty-percent approval as in the case of a bond issue?

As a factual basis for these questions, you advise that a South Dakota municipality, operating a municipal liquor store, nets approximately fifty thousand ($50,000) dollars per annum from such operation, but such profits have been used for other municipal purposes, and no surplus has been retained for improvements of such liquor store. It is anticipated that the cost of construction of a new liquor store will amount to $35,000.

May I advise that in a well-reasoned opinion of this office appearing in 1937-38 AGR 342, it was pointed out that because of the statute, (now SDCL 35-3-17 providing:

Any municipality obtaining a license or licenses as authorized by this chapter, is here by authorized to expend such money as is necessary to establish and maintain such business, and such expenditures shall not be in violation of any laws of this state.

that the profits from a municipal liquor store may be expended for the purchase of a building for the municipal liquor store, even though such expenditure has not been provided for in the annual appropriation ordinance. The statute, now SDCL 9-12-1(2), in providing that every municipality shall have power to acquire any lease, purchase, gift, condemnation or other lawful means and hold in its corporate name, or use and control as provided by law both real and personal property ... for all purposes authorized by law or necessary to the exercise of any power granted was also considered in said opinion. It was held that this statute authorizes the purchase of a suitable building for a liquor store, when the electors authorize the city to engage in such business (as the operation of such liquor store would be a lawful exercise ·of a power granted such municipality) without first submitting the question of such purchase to the electors. This opinion was affirmed in 1943-44 AGR 327.

I am in accord with these earlier opinions and would further advise that the governing body of such city could construct such liquor store building from the moneys earned by the liquor store without approval of the electors of the city.

In an opinion reported in 1945-46 AGR 146, this office ruled that unappropriated funds from the general funds of the city could be used to establish and maintain such municipal liquor store.

I have mentioned these former opinions, not in answer to your question, but with the hope that such may be useful to the city involved. There is a possibility that the problem presented may be overcome by a finding by the city that it does in fact have sufficient funds for such construction.

In answer to specific question No.1, presented, it is my opinion that our statutes require, under ordinary circumstances, a municipality cannot incur a debt, which to pay, would require borrowing of money beyond the current fiscal year_ This is emphasized by Section 2 of Article X of our Constitution which prohibits a municipal corporation to contract any debts except in pursuance to law. The legal method of incurring a municipal debt, that cannot be currently paid, is by the issuance of bonds.

Question No.1 must be answered YES.

Having reached the answer to Question No.1, that in order to borrow money in the circumstances outlined, the only authorized method is by the issuance of bonds.

Our present statutes require sixty per cent of the legal voters voting on a proposition to issue bonds to be in favor of the same. While in other jurisdictions, attacks have been made upon such requirements, the Supreme Court of South Dakota has not ruled upon such proposition. Question No.2 must be answered, such bond election, if held, must carry by the 60% requirements of the statutes.

Respectfully submitted,

Gordon Mydland
Attorney General