When a SD school district receives money from a will or estate that names the school district but doesn't say what the money should be used for, can the school district turn around and give that money to a community foundation or to its city government to set up a college scholarship program for graduating students?
Plain-English summary
A donor died and left a will that named the Montrose School District as a beneficiary, but did not designate what the money was for. The district received the funds. The district's leadership wanted to use the remainder to establish a post-secondary scholarship program for graduating Montrose students.
The district proposed two implementation paths:
- Transfer the funds to the South Dakota Community Foundation (a private nonprofit foundation), which would operate the scholarship program.
- Transfer the funds to the city of Montrose under SDCL 9-12-11, the statute that lets a municipality appropriate from its general fund to "promote itself."
Both paths got the same answer: no.
The fundamental problem is that SD school districts are not freestanding governmental units with general police-power authority. They are statutory creations with only the powers the Legislature has granted them. The leading SD case on this point is Tschetter v. Doland Board of Education (1981), reaffirmed in Olson v. Guindon (2009). Other supporting decisions include Edgemont School District 23-1 v. SD Department of Revenue (1999) and the Writ of Certiorari case about wrongful payments of attorney fees (2003).
A district can do only what statute authorizes, expressly or by necessary implication. So the question becomes: where in the SDCL does a school district get authority to transfer general funds to a nonprofit foundation or to a municipality for the purpose of running a scholarship program?
The AG looked at SDCL 13-14-5, the school-district bequest-acceptance statute. That statute authorizes a district to accept a gift, devise, or bequest with a designated purpose. In that situation, the district acts as a trustee for the designated purpose. The Montrose bequest, however, was undesignated. SDCL 13-14-5 does not address what happens after a district accepts an undesignated bequest, and it certainly does not authorize a pass-through transfer to a third party.
The AG looked at SDCL 9-12-11, which authorizes a municipality to "appropriate money from its general fund to promote itself." Past AG opinions had read "promote" broadly to cover activities that encourage the growth, enlargement, or prosperity of a city (sports events, malls, trade centers, AGO 84-46; AGO 92-06). But that authority belongs to the municipality, not to the school district. The proposed transfer was from the district to the municipality. Nothing in SDCL 9-12-11 (or in any companion statute) authorizes a school district to make that kind of transfer. The district could not invoke the municipality's promotion authority to justify its own use of funds.
The AG also distinguished the situation from a designated bequest. If the donor had said "to the Montrose School District for the purpose of post-secondary scholarships for graduating students," SDCL 13-14-5 might have authorized the district to accept the bequest and act as trustee. The district might have been able to fulfill the trust by partnering with a nonprofit foundation to administer the scholarship. The opinion expressly said it was not deciding that case (footnote 2). The current case was different: an undesignated bequest already accepted into the district's funds, with the district now trying to send it out to a third party for a purpose the district itself was not statutorily authorized to fund.
The footnote also flagged a separate question that the AG did not answer: whether the district itself could run a post-secondary scholarship program. SD school districts' authority typically runs to K-12 education. Post-secondary scholarships might or might not fall within that authority. The AG didn't reach the question because the proposed transfer to a third party failed at an earlier step.
The practical effect: the Montrose District had to find another way to use the undesignated bequest. Acceptable uses are those within the district's statutory authority. Examples might include K-12 educational programs, supplies, facilities, or other district-budgeted activities consistent with statutory powers. The funds could not be paid out to set up a post-secondary scholarship through a nonprofit or city.
Currency note
This opinion was issued in 2011. 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 13-14-5 and SDCL 9-12-11 should be checked directly. The Legislature has occasionally expanded school-district authority over time. Donors planning bequests to SD school districts should designate the purpose explicitly if they want the district to use the funds for a specific program. Districts receiving undesignated bequests should obtain current legal advice.
What the opinion meant at the time
For the Montrose School District in 2011, the opinion blocked the proposed transfer. The district had to retain the bequest funds and use them within its own statutory authority. Setting up a scholarship through the SD Community Foundation or the city of Montrose was not an option.
For SD school district attorneys generally, the opinion crystallized the Tschetter/Olson framework as applied to bequest funds. A district's power to act on its own funds is the same statutory-authority question as its power to act on any other matter. Money does not change the analysis. If the district lacks statutory authority for the proposed expenditure, the lack of authority is fatal regardless of where the money came from.
For estate-planning attorneys advising clients who want to support a SD school district, the opinion was a drafting lesson. Designate the purpose in the will. If the donor wants a post-secondary scholarship, name the donor's intended beneficiary class (graduating Montrose seniors), the type of program (post-secondary scholarship), and ideally the administering entity (the SD Community Foundation, the Montrose Educational Foundation, etc.). A designated bequest can flow more readily through the district to the administering entity under SDCL 13-14-5's trustee framework.
For community foundations like the SD Community Foundation that receive scholarship gifts, the opinion was a caution. Accepting funds from a public school district that lacks authority to make the transfer would have created complications. The cleaner path is for the donor to designate the foundation directly, or for the donor to make the bequest to the foundation rather than to the district.
For municipalities considering accepting funds from school districts under SDCL 9-12-11, the opinion was a clear no. The municipality's promotion authority does not authorize the school district to make the transfer in the first place. Even if the municipality could accept the funds, the district could not give them.
For SD school board members handling undesignated bequests in the future, the opinion meant due diligence at acceptance. If the bequest is undesignated, the district has discretion as to use only within the district's statutory powers. The board should think through likely uses (consistent with statute) before accepting.
Common questions
Q: Can a SD school district run a college scholarship program for graduating students?
A: The 2011 opinion did not directly answer this. It assumed the district could not without statutory authority, but expressly noted (in footnote 2) that the opinion did not address whether the district could run such a program itself. K-12 versus post-secondary authority is typically the dividing line.
Q: Can a SD school district accept a bequest for college scholarships if the will says so?
A: SDCL 13-14-5 authorizes acceptance of a bequest with a designated purpose. The district acts as trustee. The opinion did not resolve whether a designated bequest for post-secondary scholarships would create authority the district otherwise lacks, but it implied the analysis would be different.
Q: What is SDCL 9-12-11's "promote itself" authority?
A: A municipality may appropriate from its general fund to promote the municipality. SD AG opinions had read "promote" broadly to cover growth-and-prosperity activities (sports, trade centers, malls, business financing). The authority belongs to the municipality, not to school districts.
Q: Can the municipality fund a scholarship program for high school graduates under SDCL 9-12-11?
A: That is a separate question this opinion does not fully answer. The opinion notes that AG opinions have read "promote" broadly but also that the most recent earlier opinion makes clear the discretion is limited. A scholarship that arguably promotes the city's growth and prosperity might or might not fit.
Q: What can the district do with an undesignated bequest if it cannot run a scholarship?
A: Use the funds within the district's statutory authority. Typical options include K-12 educational programs, classroom supplies, facilities, technology, or general district operations. Specific uses depend on the district's circumstances and policies.
Q: How should donors draft a will to support a specific school district program?
A: Designate the purpose explicitly. If the program is one the district has authority to run, the bequest can be accepted as a designated gift under SDCL 13-14-5 and used for that purpose. If the program is one a community foundation can run more effectively, consider making the bequest to the foundation directly with the school district named as the beneficiary class.
Q: What is the SD Community Foundation?
A: A private nonprofit foundation that operates donor-advised funds and other charitable programs across SD. Many SD scholarship programs are administered through the SD Community Foundation. The 2011 opinion does not block such programs; it blocks a school district from being the conduit when the underlying gift was undesignated.
Q: Could the district instead receive a designated bequest and then ask the SD Community Foundation to administer it?
A: The opinion expressly does not decide. Footnote 2 leaves open the possibility that SDCL 13-14-5 might authorize the district's proposed transfer if the bequest had been designated for post-secondary scholarships, on the theory that the district was acting as trustee fulfilling the trust purpose.
Background and statutory framework
SD school districts are statutory creations under SD Constitution Article VIII and Title 13 of the SDCL. Districts have a board of education, taxing authority within statutory limits, and the power to operate public K-12 schools. Beyond that, district authority is what the Legislature has provided.
Tschetter v. Doland Board of Education (1981) established the controlling framework for school-district authority: districts can exercise only those powers expressly granted or necessarily implied by statute. Olson v. Guindon (2009) reaffirmed Tschetter. Edgemont School District (1999) and the Writ of Certiorari case (2003) further developed the rule in different contexts.
This Dillon's-Rule-style framework matters for fund use. A school district cannot spend public funds (whether tax revenue or accepted gifts) on activities outside its statutory authority. The fact that the money came from a private gift rather than from taxes does not expand the district's authority to spend.
SDCL 13-14-5 is the bequest-acceptance statute. It authorizes the district to accept gifts, devises, and bequests with designated purposes, and effectively makes the district trustee of the funds for the designated purpose. The statute is silent on undesignated bequests, but the AG's reasoning is that undesignated funds simply become district general funds, subject to the same statutory-authority limits as any other district funds.
SDCL 9-12-11 is the municipal promotion authority. It allows a municipality to appropriate from its general fund "to promote itself." AG opinions have read this broadly (AGO 92-06, 88-07, 84-46, 70-41), holding that "promotion" is not limited to advertising and includes activities that contribute to the growth, enlargement, or prosperity of the city. AGO 84-46 listed examples: building a mall or trade expo center, financing new businesses, putting on sporting events and plays. But the most recent earlier opinion (the AG does not cite by year) had clarified that the discretion is limited.
The Montrose proposal asked the AG to authorize a chain of two transfers: school district to municipality (or to nonprofit foundation), and then municipality (or foundation) to scholarship-receiving students. The AG's answer focused on the first transfer. The school district lacks statutory authority for the transfer to the foundation or the municipality. The second-step transfer never occurred in the analysis.
The opinion does not attempt to revise Tschetter or expand district authority by reading statutes broadly. The opposite: it reads the available statutes (SDCL 13-14-5, SDCL 9-12-11) narrowly because that is the AG's standard approach to statutes defining the scope of subordinate-local-government authority.
The footnote about designated bequests is important. It signals that the AG might reach a different conclusion if the bequest had been designated for the scholarship purpose. In that case, the district would be acting as trustee under SDCL 13-14-5, fulfilling the trust purpose by partnering with a foundation that could administer the scholarship. The trustee framework provides authority that the bare power to accept undesignated gifts does not.
The opinion fits typical AG-craft in school-district cases. Read statutory authority strictly. Distinguish between designated and undesignated gifts. Defer to the Legislature for broader changes. Leave open questions the actual facts do not require answering.
Citations and references
Statutes:
- SDCL 13-14-5 (school district bequest acceptance with designated purpose)
- SDCL 9-12-11 (municipal promotion authority)
Cases:
- Olson v. Guindon, 2009 S.D. 63, 771 N.W.2d 318
- Tschetter v. Doland Board of Education, 302 N.W.2d 43 (S.D. 1981)
- In re Writ of Certiorari as to the Wrongful Payments of Attorney Fees, 2003 S.D. 101, 668 N.W.2d 538
- Edgemont School District 23-1 v. S.D. Department of Revenue, 1999 S.D. 48, 593 N.W.2d 36
Prior AG opinions:
- AGO 92-06, 88-07, 84-46, 70-41 (broad reading of SDCL 9-12-11 "promote itself")
Source
Original opinion text
STATE OF SOUTH DAKOTA
OFFICE OF THE ATTORNEY GENERAL
March 2, 2011
Gerald L. Kaufman, Jr.
Attorney for Montrose School District
P.O. Box 173
Huron, SD 57350
OFFICIAL OPINION NO. 11-02
Ability of School District to Establish Scholarship Program with Funds from an Unrestricted Testamentary Bequest
Dear Mr. Kaufman:
You have requested an official opinion from this Office regarding the following question:
QUESTION: Can a public school district transfer funds from an undesignated testamentary bequest to a private nonprofit foundation or a municipality to establish a post secondary scholarship program for the district's students?
ANSWER AND OPINION SUMMARY: No.
FACTS:
The Montrose School District received an undesignated testamentary bequest, has paid out certain estate-related expenses, and has a remainder. The District would like to use the remainder to establish a post secondary scholarship program for students in the District. The District proposes to do this either by transferring the remainder of the bequest from the special revenue fund to a private nonprofit foundation (the South Dakota Community Foundation) who will operate the scholarship program, or by transferring the funds to a municipality under SDCL 9-12-11.
IN RE QUESTION:
School districts are creatures of the Constitution and Legislature. Olson v. Guindon, 2009 S.D. 63, ¶¶ 8, 16, 771 N.W.2d 318, 320, 323; Tschetter v. Doland Board of Education, 302 N.W.2d 43, 45 (S.D. 1981). A school district can exercise only those powers expressly granted or necessarily implied by statute. In re Writ of Certiorari as to the Wrongful Payments of Attorney Fees, 2003 S.D. 101, ¶ 10, 668 N.W.2d 538, 542; Edgemont School District 23-1 v. S.D. Department of Revenue, 1999 S.D. 48, ¶ 15, 593 N.W.2d 36, 40.
SDCL 9-12-11 provides in part, "A municipality may appropriate money from its general fund to promote itself." My predecessors have interpreted this statute on several occasions. See AGO 92-06, 88-07, 84-46, 70-41. This Office has previously opined that the term "promotion" in the statute is not limited to advertising and that cities are given broad discretion in determining what falls within the statute. AGO 92-06, 84-46. For example, activities that contribute to or encourage the growth, enlargement, or prosperity of a city, such as building a mall or trade expo center, financing new businesses, and putting on sporting events and plays, fall within the authority granted by SDCL 9-12-11. AGO 84-46. However, the most recent Opinion from this Office makes it clear that the discretion granted by SDCL 9-12-11 is limited.
The proposed transfer here is from the school district to the municipality (or to the private foundation), not the other way around. SDCL 9-12-11 grants authority to the municipality, not to the school district. The school district cannot invoke the municipality's promotion authority to justify the district's own use of funds. SDCL 13-14-5 authorizes a district to accept a gift, devise, or bequest with a designated purpose, and in that case the district acts as a trustee for the designated purpose. The bequest at issue here is undesignated. SDCL 13-14-5 does not authorize the district to take an undesignated bequest and transfer it to a third party for a purpose the district itself is not statutorily authorized to fund.
Accordingly, it is my opinion that the Montrose School District may not transfer funds from an undesignated testamentary bequest to a private nonprofit foundation or to a municipality to establish a post secondary scholarship program for the district's students.
[Footnotes:]
[1] This Office takes no position on the accuracy of this statement.
[2] The District's authority under SDCL 13-14-5 to accept and dispose of a bequest with a designated purpose is not addressed in this Opinion. Had the bequest specified expenditure for a post secondary scholarship program, SDCL 13-14-5 may authorize the District's proposed transfer to a nonprofit foundation for implementation. In that case, however, a trust relationship is created and the District, by accepting the bequest, is volunteering to act as a trustee of the funds for the District's students. This is distinct from the situation here, where the District has accepted funds from a bequest without any designations on their use and no trust relationship was created.
Respectfully submitted,
Marty J. Jackley
Attorney General