STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

August 1, 1969

Robert H. Marlin
Director, South Dakota I.D.E.A.
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 69-69

Municipal industrial revenue bonds, propriety of appointing trustee for bond issue located outside South Dakota. Ch. 148, Laws of 1954 (SDCL 1967 Ch. 9-54)

Dear Mr. Marlin:

You have requested my official opinion in regard to the above captioned legislative enactment. The question you have submitted is as follows:

"Can a trustee for the Industrial Revenue Bond Issue be a person, firm, or corporation located outside the State of South Dakota?"

It is my opinion that if the governing body of such municipal corporation issuing industrial revenue bonds in pursuance to the statute (SDCL 1967 Chapter 9-54, Chapter 148 South Dakota Session Laws of 1964) determines that such municipal corporation will not designate its own treasurer as trustee for such bond issue, it may appoint a trustee who may be a person, firm or corporation located outside the State of South Dakota.

Industrial revenue bonds issued in pursuance to such statute involve three separate entities:

1. The municipality which is issuing such revenue bonds;

2. The purchaser of such bonds (which will include any "underwriter" in the issuance of such bond).

3. The lessee of such industrial facility constructed, renovated or remodeled from the proceeds of such bonds, who by virtue of the "lease-purchase" agreement must make periodic payments to retire such bonds with interest.

As I have intimated, the city treasurer could be appointed a trustee to manage the periodic rental payments and he himself provide for the payment of interest upon and the retirement of such bonds as issued. However, I am of the opinion that such appointment of the city treasurer to so act is not exclusive in nature, and the governing body of any municipality, so desiring may, in pursuance to the general practice in the bond industry, appoint a third party-which can be an individual, partnership, firm or corporation-to act as trustee to see that the principal and interest of such bonds as issued are paid.

The final sentence of Section 4 of the Act, as originally enacted (SDCL 1967 Sec. 9-54-4) provides:

"All details pertaining to the issuance of such bonds and the terms and conditions thereof shall be determined by ordinance of the municipality."

There is nothing in the Act itself, other than the provision that net earnings of the industrial facility is set apart as a sinking fund for the purpose of paying for the bonds and interest thereon, that controls the details of the procedure of such payment. It is my opinion that as an incident to the powers of the governing body, as previously quoted, and the purpose of such enactment, that the governing body, by such ordinance, may not only appoint a trustee to retire such bonds and pay the proper interest thereon, but also may appoint a nonresident of the state to act as such trustee.

The principal attacks made on out-of-state trustees in the absence of statutory language prohibiting the same, have been these:

1. Such provides for payment of bonds from without the state, which is contrary to public policy; and

2. Such a provision is violative of the state depository laws which require the deposit of public funds in a qualified, instate, banking institution.

Both of these contentions have been found untenable. The first because in the absence of a restrictive statute, there is nothing in the requirement that bonds be paid elsewhere than the place of issue which is illegal. The second, because under the peculiar circumstances, the money received as periodic rental from the industrial facility, and usable only to pay interest and retire the bonds, is not in a strict sense public moneys.

The following authorities are cited:

Kalman v. Treasure County (1929) 84 Mont. 285, 275 F 743; Myers & Stucken v. City of Muscantine (U.S) 1 Wall 384; 17 L Ed 564; Re Lovelock Irrigation District (1929) 51 Nev. 215, 273 P 983; Town of Lancaster v. Bank, 80 S.C. 547, 61 SE 1025; City of Casper v. Joyce (1939) 54 Wyo. 198, 88 P 2d 467; Gregory v. City of Lewisport (Ky. 1963) 369 SW 2d 133; Green v. City of Mt. Pleasant (1964) 256 Iowa 1184; 313 NW 2d 5, and see 1967-68 AGR 175.

Respectfully submitted,

Gordon Mydland
Attorney General