November 3, 1981
Senator Leland Kleinsasser
Chairman
Interim Natural Resources Committee
Legislative Research Council
State Capitol
Pierre, South Dakota 57501
Official Opinion No. 81-41
Water development financing alternatives
Dear Senator Kleinsasser:
You have stated that the Interim Committee on Natural Resources is investigating various water development financing alternatives for South Dakota. Two of the alternatives the Committee is considering are bonds and loans.
On behalf of the Committee, you have requested an opinion on the following:
QUESTIONS:
1. Can unrelated revenues, such as cement plant revenue or state park revenue, be pledged as the basis for revenue bonds to finance water development?
2. May state property, such as cement plant property or state park land be used as collateral for loans or bonds in order to finance water development?
IN RE QUESTION NO. 1:
According to Boe v. Foss, 77 N.W.2d 1 (1956) pledging revenues from state properties to retire bonds used to construct an unrelated project creates a debt of the State. The State may incur indebtedness for works of internal improvement, but such debts are subject to the constitutional debt limitations of Article XIII, § § 1 and 16. Those limitations require that such a debt be approved by a two-thirds vote to both branches of the Legislature. In addition, the total debt for such purposes may not exceed one half of one percent of the assessed valuation of the property of the State.
SDCL 5-17-24 and SDCL 41-17-6 authorize the issuance of revenue bonds for expansion of the cement plant and to reconstruct, re-equip, and refurnish the state park system, respectively. To the extent those revenues have been pledged for existing bonds, they are unavailable for financing additional bonds. Also, SDCL 5-17-24 and SDCL 41-17-6 would have to be amended to grant to a water development financing agency, authority to pledge those revenues for water development bonds, such as the South Dakota Conservancy District created by SDCL 46-17-1. In addition, the use of revenues from the state parks and cement plant for water development financing would require a revision of current statutes. State park revenues presently are required to be used for state park operation, maintenance and development. SDCL 41‑17-14 to 15. Cement plant revenues are currently paid into a cement plant fund. SDCL 5-17-27. These statutes would have to be amended to allow use of those revenues for water development financing.
The answer to your Question No. 1 is NO, unless appropriate statutory revisions are passed subject to the limitations of Article XIII, § § 1 and 16.
IN RE QUESTION NO. 2:
Although nothing in the state constitution specifically grants the State authority to mortgage its property for a public purpose, such as works of internal improvement, it is my opinion that the State has that authority. In Clem v. City of Yankton, 160 N.W.2d 125 (S.D. 1968), the Court was considering the scope the scope of Article XIII, § 1 when it quoted the following from Kramar v. Bon Homme County, South Dakota, 155 N.W.2d 777 (1968):
The Constitution is not a grant but a limitation upon the law making power of the State Legislature and it may enact any law not expressly or inferentially prohibited by state and federal constitutions.
The Court went on to say that in determining the scope of the Legislature's power, it would search the state and federal constitutions for provisions which limit the Legislature's authority rather than for grants of such power.
Nothing of which I am aware in the state and federal constitutions prohibits the State from mortgaging its cement plant property or state parks. Generally, a state has the same rights over its property as an individual, absent a specific constitutional limitation. 81 A. C.J.S. States § 145. Although Article III, § 11 of the South Dakota Constitution allows the State to mortgage the cement plant for cement plant purposes, it appears that section was merely intended to remove debts for the cement plant from the state constitutional debt limitations. In In Re Opinion of the Judges, 177 N.W. 812 (S.D. 1920), the Court held that the intent of the nearly identical section of the Constitution relating to electrical power plants was to remove the constitutional debt limitations. The fact that cement plant property may be mortgaged for cement plant purposes without regard to constitutional debt limitations does not limit the power of the State to mortgage that same property for other purposes within those constitutional debt limitations.
The use of state property as collateral for loans or bonds to construct unrelated projects is treated the same as the use of unrelated revenues. In Boe v. Foss, supra, the Court cited with approval Wilder v. Murphy, 218 N.W. 156 (N.D. 1928), which involved the issuance of revenue bonds to build dormitories. The state board proposed to mortgage the building sites as collateral for the bonds. The North Dakota court held that such an arrangement constituted a debt of the state because mortgaging property constitutes an obligation to pay on the part of the state. Because the use of state property as collateral for loans or bonds creates a state debt, such a financing arrangement would be subject to the debt limitations of South Dakota Constitution Article XIII, § § 1 and 16 described in the answer to Question No. 1.
Furthermore, mortgaging state property would require legislation authorizing a water development financing agency to mortgage those properties, such as the South Dakota Conservancy District created by SDCL 46-17-1.
The answer to your Question No. 2 is NO, unless appropriate legislation is passed and also subject to the limitations of Article XIII, § § 1 of the South Dakota Constitution.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
