STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

May 5, 1970

Ramon A. Roubideaux
State's Attorney, Stanley County
Fort Pierre, South Dakota 57532

OFFICIAL OPINION NO. 70-19

County Courthouse Building Bonds. Specification of interest on bonds in resolution at a "legal rate of interest" is not fatal to bond election, but limits such to the legal rate of interest in effect at time of bond election. SDCL 7-24-3 and 7-24-13

Dear Mr. Roubideaux:

You have requested my official opinion in regard to the following factual situation:

On August 5, 1969, the Board of County Commissioners of Stanley County passed a resolution for the issuance of $325,000.00 of bonds at a legal rate of interest in order to construct a new county courthouse.

On September 23, 1969, at an election for such purpose, the electorate of Stanley County approved the issuance of such bonds.

With this factual situation you have submitted these questions:

1. In view of the provisions of SDCL 7-24-3, which among other things specifies that the "maximum rate of interest which they are to draw" (referring to such bonds proposed to be issued) is such resolution, above mentioned, sufficient under the law, so that such election, assuming the proper procedures were followed, may be said to be a valid election?

2. On the assumption the resolution and the approval of such bond issuance by the electors is valid, may the bonds, when issued, draw 8% interest in view of the 1970 Act of the Legislature raising the maximum rate of interest on certain public bonds from 6 to 8 percent?

3. In view of the fact that the 1970 Legislature did not pass a curative or validating act for procedural defects in bond elections, if the August 5, 1969 Resolution is held defective, would such require another bond election in order to issue such bonds for the construction of a new courthouse in Stanley County?

I must assume from the brief factual situ3tion given, that in the submission of the proposition for approval of the courthouse bonds in question, that the ballot stated in the terms of the Resolution, that such bonds would be issued to draw "a legal rate of interest."

A review of our adjudicated cases seems to settle the problem that the electorate when presented with a bond question must decide whether or not to issue bonds, not to exceed a stipulated amount of money, for a specific denominated purpose. Such purpose, of course, must be one authorized by the Legislature by grants of authority to the County Commissioners. See: Julson v. City of Sioux Falls (1925) 48 SD 452, 205 NW 43: (this case overruled certain language relative to dual propositions being valid in a bond election appearing in Beers v. City of Watertown, 43 SD 14, 177 NW 502.)

Grave v. Lamro Ind. Cons. School Distr. (1928) 53 SD 579, 221 NW 697; Le Fevre v. Bd, of City Commrs. (1936) 65 SD 64, 270 NW 604; Rehearing (1937) 65 SD 190, 272 NW 795.

It is also well settled that bond election procedures must follow the statutory proposals. In Borner v. City of Prescott (1912) 150 Wis 197, 136 NW 552, the court pointed out the obvious, that is that while statutory language, limiting the amount of interest public bonds are to draw, sets the "outside" limit of such interest, if the city officials submit a proposition to the electorate, that calls for interest at less than the maximum statutory interest, that such is not violative of the statute.

It is well known that all citizens and electors are presumed to be familiar with the statutes of South Dakota. At the time the resolution in question was executed and the bond election was called. SDCL 7-24-13 governed the denomination and terms of county bonds, including bonds such as in question. This statute provided, among other things that such bonds "shall bear interest at the rate of not exceeding six per cent per annum, payable semiannually." The electors voting on this bond proposition, as I have said, are presumed to have known this limitation of the statutes. The bond resolution, when calling for the issuance of the bonds "at a legal rate of interest" encompassed this six per cent per annum, payable semi-annually, within such resolution, and subsequent bond election. I might add that the general interest and usury statute of South Dakota, SDCL 54-3-4 provided that under an obligation to pay interest, no rate being specified, interest is payable at the rate of six per cent per annum. This general statute is presumed to have been known by the electorate.

It is my opinion Question No.1 must be answered in the affirmative. The Resolution in question is valid and supported a valid bond election thereafter held.

Question No.2 raises a somewhat different question. Vole can all appreciate that in the issuance of bonds for public purposes, county officials are spending taxpayers funds. This undoubtedly is the motivating force that prompted the Legislature to require the submission of bond propositions to the electorate for their approval, prior to the lawful issuance of bonds.

As a part of such monetary obligation on the part of the citizens, resulting from the issuance of bonds, there is no question that the amount of interest such bonds will draw bears a direct relationship to the financial obligation cast upon the taxpayers of Stanley County. At the time of the issuance of the bonds in question, the top limit of interest that such bonds could draw was 6% compounded semi-annually. There seems little question that the statement of the court in State v. Marsh, 104 Neb. 159, 176 NW 92 that public bonds must be issued in conformity with the statutes in existence at the time of such issuance is correct. While I can appreciate that the bonds in question have not been issued at this time and subsequent to the Legislature providing that public bonds, or designated public bonds, could bear interest at 8% per annum, we must remember that this statutory authorization for enhanced interest was adopted subsequent to the resolution and bond election in question.

If the resolution of August 5, 1969, had called for the bonds to bear interest at 8% per annum, there might be some question as to the legality of such bond issue, even if the electors were to have approved of such issue, as such would have exceeded the legislative authorization. This, of course, is a speculative question that need not and should not be answered. In the factual situation you have given, at the time the electorate approved the issuance of such bonds, the maximum interest that could be provided that such bonds should bear was six per cent per annum, payable semi-annually, on bonds that would mature in not less than five nor more than twenty years (SDCL 7-24-13).

It is my opinion that as the electors approved bonds that would bear not to exceed six per cent per annum, the fact that between the time of such approval and the issuance of such bonds, the Legislature authorized such public bonds to bear interest not to exceed eight per cent per annum, has no effect and cannot authorize the raising of such interest to be paid on such bonds. There is a possibility that the electors would not have approved the issuance of the bonds at a higher rate of interest than allowable at the time of the election. Any other interpretation of the effect of the 1970 legislation, in my opinion, would work naught but a hardship upon and to the prejudice of the electors who must pay, by way of taxation, for the principal and interest of such bond issue.

Question No.2 must be answered in the NEGATIVE. The bonds issued in pursuance to such resolution and subsequent bond election cannot be issued to bear interest in excess of six per cent per annum, payable semi-annually. Question No.3 is academic and need not be answered.

Respectfully submitted,

Gordon Mydland
Attorney General