November 3, 1981
Mr. Gordon K. Milbrandt
Auditor General
Department of Legislative Audit
435 South Chapelle
Pierre, South Dakota57501
Official Opinion No. 81-42
Apportionment of Investment Income
Dear Mr. Milbrandt:
You have requested an official opinion from this office in regard to the following factual situation:
FACTS:
Some counties and municipalities are apportioning interest earned on investments and deposits to the respective funds, while others are apportioning all interest earned to the general fund.
Based on the above facts, you have asked the following question:
QUESTION:
What is the proper method of apportioning interest in view of the specific statutes that require that the interest earned be credited to a specific fund?
A review of the statutes dealing with apportionment of income earned on investment or deposit shows that the method of apportionment to be used in each situation must be determined by applying the specific factual situation to the appropriate statute.
SDCL 4-5-9 provides that:
All investments made pursuant to § § 4-5-5 to 4-5-8, inclusive, may be deposited for safekeeping with any bank or trust company. The interest earned shall be credited to the respective fund or the general fund.
The investments allowed under SDCL 4-5-6 are limited to 'securities of the United States and securities guaranteed by the United States government either directly or indirectly and redeemable within eighteen months from the date of purchase.' The public funds affected by SDCL 4-5-9 are defined in SDCL 4‑5‑5 as 'all general, special and other funds . . . administered by any political subdivision of this state.'
Accordingly, the interest earned on the investments of 'public funds,' made pursuant to SDCL 4-5, may be credited to either the fund from which the money for the investment originated or to the general fund. This section allows for a choice of which fund the interest income is to be placed. A choice is also found in the apportionment of income derived from the investment of school district funds. SDCL 13-16-18 was amended in 1978 to provide for the credit of investment income 'to the respective fund or the general fund.' Prior to that amendment, investment income was credited to only the funds from which the money invested originally came. If a legislative intent to create a uniform method for the apportionment of investment income exists, one must read both SDCL 4-5-9 and SDCL 13-16-18 to allow a choice in the apportionment of investment income to either the respective fund or the general fund.
The provisions of SDCL 7-20-9, which deals with the deposit of county funds in banks, at first glance, appear to contradict the rule found in SDCL 4-5-9. SDCL 7-20-9, in part, provides that:
All moneys shall be deposited in such banks in demand accounts, savings accounts, or on time deposit, and any interest accrued from such deposits shall be credited to the respective funds so deposited.
A closer reading shows that SDCL 7-20-9 deals with the deposit of money in 'demand accounts, savings accounts, or on time deposit.' These types of deposit are quite different from the investments in 'securities of the United States, etc.' found in SDCL 4-5-6, which apply to the provisions of SDCL 4-5-9. Because of the difference between the deposits of SDCL 7-20-9 and the investments of SDCL 4-5-9, the crediting of interest income only to the respective funds in SDCL 7-20-9 is consistent with the choice of the respective fund or general fund in SDCL 4-5-9. SDCL 7-24-19, which also deals with county funds, provides that the interest earned on the investment of county sinking fund money must be credited to the county sinking fund.
SDCL 9-22 deals with municipal funds. At one time, SDCL 9-22-11 had a provision similar to that found in SDCL 7-20-9, which required the crediting of income derived from the deposit of municipal funds to the fund from which the money so deposited originated. The 1981 Legislature eliminated this requirement. Because of the elimination of this specific provision, it is my opinion that the choice of apportioning interest income to the respective fund or to the general fund is now generally available to a municipality in the investment and deposit of its funds.
Exceptions to the general rule allowing for a choice in the fund to which interest income is to be credited are found in three specific sections dealing with the investment of specific municipal funds. In SDCL 9-21-14, the income derived from the investment of a municipality's depreciation reserve fund must be paid into the depreciation reserve fund. SDCL 9-21-16.1 provides that interest earned on the investment of moneys from a municipality's casualty reserve fund are to be placed in the municipality's general fund. Finally, SDCL 9-22-12 provides that the interest earned on the investment of municipal sinking fund money must be credited to the municipal sinking fund rather than to either the sinking fund or to the general fund.
No general rule can be applied to the apportionment of investment income. The provisions of general application found in SDCL 4-5-9 allow for a choice between apportioning investment income to the respective fund or the general fund. On the other hand, income earned on county funds deposited in certain types of bank accounts must be apportioned to the fund from which the deposit originated. Interest earned on the deposit of municipal funds once had the same restrictions as are placed on the interest earned on county funds. The elimination of this specific restriction gave to municipalities the option of crediting income earned on deposits of its money to the respective fund from which the funds originated or to the general fund. Additionally, some statutes dealing with specific county and municipal funds require the interest earned on deposits and the income earned on investments to be apportioned to specific funds. It is clear that there is no absolute answer to your question. Each factual situation must be reviewed in light of the applicable statute.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
