Can the South Dakota Commissioner of School and Public Lands sell a tract of state-owned school or endowment land to a city or a local economic development corporation, knowing the city or EDC plans to lease the land to a private company for a business project? And does 'economic development' count as a 'public purpose' under the statutes that govern these sales?

Plain-English summary

In 2008 the Office of School and Public Lands had a question. The Governor's Office of Economic Development was working with a private company that wanted to acquire and develop a tract of state-owned land. Could a city or a local economic development corporation buy that tract from the state under SDCL 5-9-34 and 5-9-35, and then lease it to the private company that actually wanted to build? Or did the state have to sell directly to the private company (which the statutes did not authorize), or was the whole transaction blocked because "economic development" might not count as a "public purpose"?

Commissioner Jarrod Johnson asked AG Lawrence Long. The answer was yes, the structure worked.

The two statutes set up a narrow but flexible vehicle. SDCL 5-9-34 lets a "civil, state, religious, or public organization" apply to buy up to 160 acres of common school or endowment land, file a plat and a statement of the intended public purpose, and receive an appraisal from the Commissioner. SDCL 5-9-35 lets the Governor (with the Commissioner attesting) execute the conveyance once the appraised price has been paid in full, on condition that the title reverts to the state if the land sits unused for the stated purpose for two consecutive years.

The argumentative work in the opinion was about that phrase "public purposes." The Office of Economic Development was effectively asking the AG to confirm that economic development counted. The AG worked through it methodically.

First, the U.S. Supreme Court's distinction in Kelo v. City of New London (2005) between "public use" and "public purpose." "Public use" is the narrower concept and requires use by the public or some defined slice of the public. "Public purpose" is broader and does not require actual public occupation, only that the broader public is benefited. The South Dakota Supreme Court had recognized this same distinction as far back as Illinois Central Railroad Co. v. East Sioux Falls Quarry Co. (1913) and reaffirmed it in Benson v. State (2006). The Legislature chose the broader term in SDCL 5-9-34. It could have written "public use" if it had wanted to limit sales to direct-public-occupation projects. It did not.

Second, the AG pointed to a chain of South Dakota Supreme Court cases that had specifically held economic development to be a public purpose. Meierhenry v. City of Huron (1984) upheld tax-increment financing as constitutional precisely because urban redevelopment was a public purpose, even though TIF often benefits private developers substantially. In re Request for Advisory Opinion Concerning HB 1255 (1990) approved the state owning and conducting an agricultural processing facility because promoting the state's economic welfare was a proper state aim. In re Master Contract Between the Oahe Conservancy Subdistrict and the United States (1971) approved the South Dakota Conservancy District because part of its purpose was the future economic welfare and prosperity of the people. Clem v. City of Yankton (1968) approved municipal revenue bonds used to acquire and rent facilities to private companies because economic welfare and prosperity were valid public purposes, and "whether particular action is a valid public purpose is largely within the discretion of the legislature."

Third, the AG noted that the statute allowed not only public bodies but also "civil" and "religious" organizations to purchase. If the Legislature had wanted to require strict public-use occupation, it would not have opened the door to private nongovernmental organizations as eligible purchasers. The eligibility list itself signals that the "public purpose" test is the broader one.

The conclusion: yes, a city or local economic development organization could acquire up to 160 acres of common school or endowment land under SDCL 5-9-34 and 5-9-35, and could then lease the land to a private company for economic development, because economic development is a public purpose within the meaning of the statute. The reversion clause in SDCL 5-9-35 was the principal protection for the school trust: if the land stopped being used for the stated economic development purpose for two consecutive years, title would revert to the state.

Currency note

This opinion was issued in 2008. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. SDCL 5-9-34 and 5-9-35 have been on the books for a long time, but the public-purpose doctrine continues to evolve, and trust-land sales for economic development have drawn scrutiny in other states since 2008. Anyone considering a transaction along these lines should confirm both the current statutory text and the current scope of acceptable "public purposes" under South Dakota Supreme Court doctrine.

What the opinion meant at the time

For the Commissioner of School and Public Lands, the opinion provided a legal foundation to entertain applications from cities, counties, and local economic development corporations seeking small tracts for industrial parks, business incubators, and similar projects. Before the opinion, the office had been operating with some uncertainty about whether such sales could be defended as "public purpose" transactions. After it, the office had AG cover to proceed if the statutory procedure was followed.

For cities considering land acquisitions to attract or retain employers, the opinion opened up state school and endowment lands as a possible source of suitable parcels, subject to the 160-acre cap and the application/appraisal procedure. A city could buy the land and immediately lease it to a private developer or operator without worrying that the lease arrangement defeated the "public purpose" requirement.

For local economic development organizations, the opinion confirmed that the statute treated them as eligible purchasers on equal footing with cities. An EDC could be the named buyer, hold the title, and structure the lease to the private operator. The reversion clause meant the EDC had to keep the land actually devoted to the economic development purpose, but two consecutive years of nonuse was the trigger, which was a fairly forgiving standard.

For private companies negotiating to locate a project on what was originally state school or endowment land, the opinion clarified that the structure of city or EDC purchaser, with a lease-back to the company, was a clean way to proceed. The company would not be on title (it could not be, the statutes did not let the state sell directly to a private for-profit), but a lease was workable.

For the school trust beneficiaries (ultimately the public schools that benefit from the trust's earnings), the protections were that the land had to be appraised at fair market value, the full appraised price had to be paid in cash, and the reversion would protect against the land sitting idle. The trust would get the cash proceeds and could reinvest. If the economic development project failed and the land sat unused for two consecutive years, title returned to the state.

For municipal finance officers and real estate attorneys structuring these deals, the opinion provided the framework. The 160-acre cap meant the structure was unsuitable for very large projects (industrial mega-sites would need a different statutory vehicle), but for typical small-to-medium development tracts it was a workable channel.

Common questions

Q: Who could buy under SDCL 5-9-34?
A: A "civil, state, religious, or public organization." That meant cities, counties, school districts, state agencies, churches, nonprofit organizations, and local economic development corporations. Not a private for-profit company directly.

Q: How much land could be purchased at a time?
A: Up to 160 acres in a single application under SDCL 5-9-34.

Q: Did "public purpose" really cover economic development?
A: Yes, per this opinion. The AG cited Kelo (federal), Illinois Central R.R. (1913 S.D.), Benson v. State (2006 S.D.), and a chain of South Dakota Supreme Court cases including Meierhenry v. City of Huron (1984), the HB 1255 advisory opinion (1990), Oahe Conservancy (1971), and Clem v. City of Yankton (1968).

Q: Did the price have to be fair market value?
A: The Commissioner appraised the tract "in the manner provided by law for the appraisement of school and public lands." The purchaser paid the full appraised amount in cash before the conveyance was executed.

Q: What was the reversion clause?
A: SDCL 5-9-35 required that the conveyance include a reversion if the lands ceased to be used for the stated purpose for two successive years. If the city stopped using the land for economic development, the land returned to the state.

Q: Could the city lease to a private company?
A: Yes. The opinion approved a structure where the city or EDC purchased and then leased to a private operator. The lease did not defeat the "public purpose" character of the city's use, so long as economic development was actually the purpose.

Q: What if the development project failed?
A: If two consecutive years passed without the land being used for the stated economic development purpose, the title reverted to the state under SDCL 5-9-35.

Q: Were there other statutory authorities for state land sales for economic development?
A: Yes, several. The opinion focused on SDCL 5-9-34 and 5-9-35 because that was what the Commissioner asked about. Other vehicles existed and may still exist for larger tracts or different transaction structures.

Background and statutory framework

The Office of School and Public Lands manages South Dakota's school trust lands, the federal land grant the state received at admission for the support of common schools and other public institutions. Sales from the trust have to satisfy fiduciary obligations to the trust beneficiaries (the schools) while remaining within the statutory authorities the Legislature has granted to the Commissioner and the Governor.

SDCL 5-9-34 and 5-9-35 carve out one such authority: small tracts (up to 160 acres) may be sold to eligible "civil, state, religious, or public organizations" if the organization files a plat and a statement of the intended public purpose, the Commissioner appraises the tract, and the organization pays the full appraised price.

The mechanics:
- The eligible organization files an application with the Commissioner.
- The application identifies the tract (with a plat) and states the public purpose for which the land will be used.
- The Commissioner appraises the tract.
- The organization pays the full appraised amount in cash.
- The Governor executes the conveyance, attested by the Commissioner with the seal affixed.
- The conveyance contains a reversion: if the lands cease to be used for the stated purpose for two successive years, title reverts to the state.

The bottleneck the AG was asked to clarify was the definition of "public purposes." The economic development context was new enough that the Commissioner wanted a written opinion before processing applications that featured a lease-back to a private operator.

The AG's analysis followed standard SD statutory-construction principles per U.S. West Communications (1993) and successors: read the language plainly, use the legislature's chosen terms, give effect to the breadth or narrowness of those terms, and presume the legislature did not intend absurd results. The legislature had chosen "public purposes," a term with a settled judicial meaning broader than "public use." The Supreme Court had repeatedly held economic development to be a public purpose. The eligibility list (civil, state, religious, or public organizations) signaled that the legislature contemplated non-governmental purchasers, which would not have made sense if the purpose test were narrow public-use occupation.

The opinion did not address every possible scenario. It did not, for example, address what level of public benefit was required to qualify the project as "economic development" (jobs created, capital invested, geographic impact), nor did it specify how the Commissioner should evaluate competing applications, nor how the reversion would be enforced in practice if a development project failed mid-construction or struggled but did not entirely cease. Those operational questions were left to the Commissioner.

Citations and references

Statutes:
- SDCL 5-9-34 (sale of up to 160 acres for public purposes)
- SDCL 5-9-35 (conveyance procedure and reversion)

Cases:
- U.S. West Communications, Inc. v. Public Utilities Commission, 505 N.W.2d 115 (S.D. 1993)
- Unruh v. Davison County, 2008 S.D. 9, 744 N.W.2d 839
- Fair v. Nash Finch Company, 2007 S.D. 16, 728 N.W.2d 623
- McKittrick v. McKittrick, 2007 S.D. 44, 732 N.W.2d 404
- Sioux Falls Argus Leader v. Hagen, 2007 S.D. 96, 739 N.W.2d 475
- Benson v. State, 2006 S.D. 8, 710 N.W.2d 131
- Martinmaas v. Engelmann, 2000 S.D. 85, 612 N.W.2d 600
- Loesch v. City of Huron, 2006 S.D. 93, 723 N.W.2d 694
- Dahn v. Trownsell, 1998 S.D. 36, 576 N.W.2d 535
- Moss v. Guttormson, 1996 S.D. 76, 551 N.W.2d 14
- Kelo v. City of New London, 545 U.S. 469 (2005)
- Illinois Central Railroad Co. v. East Sioux Falls Quarry Co., 33 S.D. 63, 144 N.W. 724 (1913)
- Meierhenry v. City of Huron, 354 N.W.2d 171 (S.D. 1984)
- In re Request for Advisory Opinion Concerning HB 1255, 456 N.W.2d 546 (S.D. 1990)
- In re Master Contract Between the Oahe Conservancy Subdistrict and the United States, 85 S.D. 443, 185 N.W.2d 682 (1971)
- Clem v. City of Yankton, 83 S.D. 386, 160 N.W.2d 125 (1968)

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1563
• Original PDF: https://atg.sd.gov/OfficialOpinions/Official%20Opinion%2008-02.pdf

Original opinion text

STATE OF SOUTH DAKOTA
OFFICE OF THE ATTORNEY GENERAL

April 28, 2008

The Honorable Jarrod R. Johnson
Commissioner School & Public Lands
500 E. Capitol Avenue
Pierre, SD 57501-5070

OFFICIAL OPINION NO. 08-02

Sale of State land for economic development

Dear Commissioner Johnson:

You have requested an official opinion of this Office based upon the following facts:

FACTS:

Recently your office was approached by the Governor's Office of Economic Development, which is working with a private company that wishes to acquire and develop a tract of State owned land managed by your Office. The Governor's Office of Economic Development wishes to know whether a city or local economic development organization can obtain the land in question pursuant to South Dakota Codified Laws 5-9-34 and 5-9-35 for the purpose of economic development, and then rent the land to the private company that wishes to develop it. It also wishes to know whether, under these statutes, economic development constitutes a "public purpose."

Based on the foregoing facts you have asked the following question:

QUESTION:

May the Office of School & Public Lands, acting pursuant to SDCL 5-9-34 and 5-9-35, sell small tracts of land to a city or a local economic development organization so that the land can be leased to a private company for economic development?

IN RE QUESTION:

SDCL 5-9-34 and 5-9-35 provide as follows:

5-9-34.

Whenever a civil, state, religious, or public organization makes an application for the purchase of any common school or endowment land to be used for public purposes, not exceeding one hundred sixty acres, and files a plat and a statement of the purpose for which the land is to be used in the Office of the Commissioner of School and Public Lands, the commissioner may appraise the tract in the manner provided by law for the appraisement of school and public lands.

5-9-35.

Upon the payment of the full amount of the appraised price of such tract, a conveyance may be executed by the Governor, attested by the commissioner of school and public lands, with the seal affixed, conditioned that should such lands cease to be used for two successive years for the purpose stated in the application, the title shall revert to the state.

These statues allow civil, state, religious, and public organizations to apply for purchase of common school or endowment lands 160 acres in size or less, to be used for "public purposes." A plat must be filed with the Office of School & Public Lands and an appraisal must be performed by the Commissioner. The organization then pays the full amount of the appraisal in cash. The Governor and Commissioner then execute an appropriate conveyance, which must contain a reversion if the lands cease to be used for the stated purpose for two years.

Your question involves interpretation of these two statutes. When interpreting a statute, I follow the applicable case law from the Supreme Court of South Dakota. The Court stated the following in 1993:

The purpose of statutory construction is to discover the true intention of law which is to be ascertained primarily from the language they expressed in the statute. The intent of a statute is determined from what the legislature said, rather than what the courts think it should have said, and the court must confine itself to the language used. Words and phrases in a statute must be given their plain meaning and effect. When the language in a statute is clear, certain, and unambiguous, there is no reason for construction, and the court's only function is to declare the meaning of the statute as clearly expressed. Since statutes must be construed according to their intent, the intent must be determined from the statute as a whole, as well as enactments relating to the same subject. But, in construing statutes together it is presumed that the legislature did not intend an absurd or unreasonable result. When the question is which of two enactments the legislature intended to apply to a particular situation, terms of a statute relating to a particular subject will prevail over the general terms of another statute.

U.S. West Communications, Inc. v. Public Utilities Commission, 505 N.W.2d 115, 122-23 (S.D. 1993) and cases cited. The Court has repeatedly reaffirmed this method of statutory construction. See Unruh v. Davison County, 2008 S.D. 9, 744 N.W.2d 839; Fair v. Nash Finch Company, 2007 S.D. 16, ¶ 7, 728 N.W.2d 623 at 628; McKittrick v. McKittrick, 2007 S.D. 44, ¶ 8, 732 N.W.2d 404, 407; Sioux Falls Argus Leader v. Hagen, 2007 S.D. 96, ¶ 13, 739 N.W.2d 475, 480; Benson v. State, 2006 S.D. 8, ¶ 71, 710 N.W.2d 131, 158; Martinmaas v. Engelmann, 2000 S.D. 85, ¶ 49, 612 N.W.2d 600, 611; Loesch v. City of Huron, 2006 S.D. 93, ¶ 8, 723 N.W.2d 694, 697; Dahn v. Trownsell, 1998 S.D. 36, ¶ 14, 576 N.W.2d 535, 539; Moss v. Guttormson, 1996 S.D. 76, ¶ 10, 551 N.W.2d 14, 17.

The United States Supreme Court has, in condemnation cases, differentiated between a "public purpose" and "public use." Kelo v. City of New London, 545 U.S. 469, 488-89, 125 S.Ct. 2655, 2668, 162 L.Ed.2d 439, 456-57 (2005). In that case, the Court held that "public purpose" is broader, and its more natural interpretation is that "public purpose" does not require an actual use by the public. The term "public use" on the other hand, would require use by the public or some limited portion of it. Id. at 2668. The South Dakota Supreme Court has also recognized the difference between "public purpose" and "public use." Illinois Central Railroad Company v. East Sioux Falls Quary Company, 33 S.D. 63, 77, 144 N.W.2d 724, 728 (1913); quoted and explained, Benson v. State, 2006 S.D. 8, ¶ 42, 710 N.W.2d at 146. Both the United States Supreme Court and the South Dakota Supreme Court have, therefore, contrasted public use with public purpose. The statute in this instance uses the broader term "public purpose," and the legislature's use of this judicially defined term suggests that the broader interpretation applies to SDCL 5-9-34. The statute therefore includes economic development in its purposes.

This is confirmed by a number of cases from the South Dakota Supreme Court that have explicitly found that economic development is a public purpose. Meierhenry v. City of Huron, 354 N.W.2d 171, 176 (1984) (use of tax increment financing, although it may provide a substantial benefit to a private developer, is constitutional because urban redevelopment is a public purpose); In the Matter of the Request for an Advisory Opinion Concerning HB 1255, 456 N.W.2d 546, 458 (1990) (State may own and conduct agricultural processing facility because it is proper for State to promote, stimulate, and develop general economic welfare and prosperity of the State); In the Matter of the Master Contract Between the Oahe Conservancy Subdistrict and the United States, 85 S.D. 443, 459, 185 N.W.2d 682, 691 (1971) (State has had power to create South Dakota Conservancy District for, among other purposes, providing for the future economic welfare and prosperity of the people); Clem v. City of Yankton, 83 S.D. 386, 401-402, 160 N.W.2d 125, 133 (1968) (under proper legislative grant, cities may issue revenue bonds to acquire, equip and rent facilities to promote economic welfare of the State, since economic welfare and prosperity of the State are valid public purposes. Whether particular action is a valid public purpose is largely within the discretion of the legislature.)

According to the cases setting out the rules of statutory construction, I am to give the words of the statute their plain meaning and effect. In this instance, the plain meaning and effect of "public purposes" is broad, in line with the South Dakota Supreme Court cases that have defined this concept. The legislature could have used more limited language by restricting the Commissioner's power to sell land under these statutes to circumstances involving a public use. The legislature did not, however, enact the statute in that fashion. Rather, it allowed purchase of land for "public purposes."

It is also enlightening that the legislature allowed organizations other than strictly public or governmental bodies to purchase public lands under this statute. Had it sought to restrict the statute to "public use," it very likely would have restricted the purchasers to public or governmental organizations. It appears to me that the legislature recognized that organizations other than governmental bodies may promote "public purposes" by purchasing land. This argues strongly that the legislature did not intend to restrict uses under the statute by any test other than the broad "public purpose" test that has been repeatedly explained in the South Dakota Supreme Court cases.

Therefore, the answer to your question is as follows: yes, a city or local economic development organization may obtain land under SDCL 5-9-34 and 5-9-35 for the purpose of economic development.

Respectfully submitted,

Lawrence E. Long
Attorney General

LL/CME/kak