When a SD school district receives money from a will that names the district but does not bindingly direct how the money is used, can the district give that money to a community foundation or to its city to set up a college scholarship program for graduating students?

Plain-English summary

The Montrose School District received a bequest from a will (set up through a trust in another state). The distribution came to the District outright, "with the wish that the recipient use the funds for the purchase of equipment for the physics and chemistry laboratories which the school might otherwise not be able to acquire." The District advised that, under the other state's law, that language was a request, not a binding requirement.

The District accepted the bequest, placed it in a special revenue fund, and used a portion for the science department. It then wanted to use the remainder to set up a post-secondary scholarship program for District students, in one of two ways: transfer the money to a private nonprofit foundation (the South Dakota Community Foundation) to run the program, or transfer it to a municipality under SDCL 9-12-11.

The 2011 AG said no to both.

The starting point is that SD school districts are creatures of the Constitution and the Legislature, with only the powers expressly granted or necessarily implied by statute (Olson v. Guindon, Tschetter v. Doland Board of Education, In re Wrongful Payments of Attorney Fees, Edgemont School District). Their powers are more limited than those of municipal corporations because districts are created and given limited powers only to carry out their stated public purpose (Beals v. Pickerel Lake Sanitary District). That public purpose, set in Article VIII, § 1 of the SD Constitution and in SDCL 13-5-1, is to operate a kindergarten-through-grade-12 program "equally open to all" children "without charge."

SDCL 13-14-5 gives districts authority to accept, own, manage, and dispose of gifts and bequests, but it does not state a purpose for which the district may use the money, and it cannot be read to expand a district's authority. So, absent a binding directive from the donor, money accepted under SDCL 13-14-5 may be used only for the K-12 purpose the Constitution and SDCL 13-5-1 set.

A post-secondary scholarship for students who have already graduated grade 12 falls outside that purpose. No statute authorizes a school district to spend its funds on scholarships. The AG read this as consistent with SDCL 13-14-13, which lists the authorized uses of gifts from benevolent organizations (curricula, interscholastic activities, extracurricular programs, school trips) and does not include scholarships. The District's other cited statutes did not help: SDCL 13-8-39 (board control of district property) does not change the district's public purpose, and SDCL 6-14-1 and 6-14-2 (endowment funds, interest spendable for "any legal purpose") do not expand the purposes for which a district may use its money. Running a scholarship program is also not an activity "necessarily implied" as needed to provide K-12 services.

Routing the money through the South Dakota Community Foundation did not change the result, because a school district cannot do indirectly what it cannot do directly (Wrongful Payments, n.6). Transferring the money out does not lift the limits on how the district's funds may be used.

The municipal route also failed. SDCL 6-5-5 lets a school district convey money to the state or a public corporation "to be used by such grantee for an authorized public purpose," so the District could convey the funds to the City, but only for the City's own authorized public purpose. The District pointed to SDCL 9-12-11, which lets a municipality "appropriate money from its general fund to promote itself." Earlier AG opinions read "promotion" broadly (growth, enlargement, or prosperity of a city, such as a mall, trade expo center, financing new businesses, sporting events and plays). But the most recent of those opinions made clear the discretion is limited: a possible positive economic impact is not, by itself, "promotion," especially for a project outside the city's jurisdictional confines (AGO 92-06, City of Spearfish could not use hospitality tax to support an archeological site in Wyoming). A scholarship for District students, who may or may not live in the municipality, was too attenuated and speculative an economic benefit to count as "promotion" under SDCL 9-12-11.

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, 13-5-1, 6-5-5, and 9-12-11 should be checked directly. Donors planning bequests to SD school districts should obtain current advice on how to designate purpose; districts receiving bequests should do the same before spending the funds.

What the opinion meant at the time

For the Montrose School District in 2011, the opinion blocked both proposed paths. The District could not transfer the remaining bequest funds to the South Dakota Community Foundation or to the City of Montrose to set up a post-secondary scholarship. It had to keep the funds and use them within its own K-12 statutory purpose.

For SD school district attorneys generally, the opinion applied the Tschetter/Olson/Beals framework to gift funds: a district's power to spend money, including gift money, is limited to its K-12 public purpose. Where the money came from does not expand that authority, and the district cannot escape the limit by handing the money to a third party.

For estate-planning attorneys advising clients who want to support a SD school district, the opinion showed why the use-purpose matters. The opinion turned in part on the fact that the donor's "wish" for science-lab equipment was treated as non-binding. The opinion expressly did not decide (footnote 2) whether a bequest bindingly designated for a post-secondary scholarship might, through SDCL 13-14-5's trustee framework, authorize the district's proposed transfer to a foundation.

For community foundations that receive scholarship gifts, the opinion was a caution about accepting funds routed from a public school district that lacks authority to make the transfer. The opinion did not block foundation-run scholarships generally; it blocked the district from being the conduit for undesignated district funds.

For municipalities, the opinion clarified that SDCL 6-5-5 allows a district to convey money to a city only for the city's own authorized public purpose, and that a student scholarship was too attenuated to qualify as "promotion" under SDCL 9-12-11.

Common questions

Q: Can a SD school district spend its own funds on college scholarships?
A: Per this opinion, no. A district's public purpose is K-12 education (S.D. Const. art. VIII, § 1; SDCL 13-5-1), and no statute authorizes a district to spend its funds on post-secondary scholarships. A scholarship for graduated students is outside that purpose and is not "necessarily implied" as needed to run a K-12 program.

Q: Does it matter that the money came from a private bequest rather than from taxes?
A: No. SDCL 13-14-5 lets a district accept and manage gifts, but it does not state a use purpose and cannot expand the district's authority. Absent a binding directive from the donor, gift money is limited to the same K-12 purpose as any other district funds.

Q: Could the district just give the money to a foundation to run the scholarship?
A: No. A school district cannot do indirectly what it cannot do directly (Wrongful Payments, n.6). Transferring the funds out does not change the limits on how district funds may be used.

Q: Could the district give the money to the city instead?
A: SDCL 6-5-5 lets a district convey money to a public corporation for the grantee's "authorized public purpose." But the city could use it only for an authorized city purpose, and the AG concluded a student scholarship was too attenuated and speculative to be "promotion" of the city under SDCL 9-12-11.

Q: What does SDCL 9-12-11's "promote itself" authority cover?
A: A municipality may appropriate from its general fund to promote the city. AG opinions read "promotion" broadly (growth, enlargement, or prosperity of the city), but the discretion is limited; a possible economic impact is not enough on its own, especially outside the city's jurisdiction (AGO 92-06).

Q: What if the donor had specifically directed the money to a scholarship?
A: The opinion expressly did not decide that (footnote 2). It noted that if a bequest had specified expenditure for a post-secondary scholarship program, SDCL 13-14-5 might authorize the district's proposed transfer, because the district would be acting as a trustee fulfilling the trust purpose. That is different from the undesignated funds at issue.

Q: How should donors draft a will to support a specific school program?
A: State the purpose in binding terms. The Montrose "wish" was treated as a non-binding request, which is why the funds were treated as undesignated. Donors who want a particular use, or who want a foundation to administer a scholarship, should consider directing the gift accordingly and getting current legal advice.

Background and statutory framework

SD school districts exist under Article VIII of the SD Constitution and Title 13 of the SDCL. Their public purpose, set by Article VIII, § 1 and SDCL 13-5-1, is to operate a kindergarten-through-grade-12 program that is equally open to all children without charge. The Legislature has enacted numerous statutes to let districts carry out that purpose.

The controlling authority principle comes from a line of SD Supreme Court cases. Tschetter v. Doland Board of Education (1981) and Olson v. Guindon (2009) hold that districts are creatures of the Constitution and Legislature and may exercise only powers expressly granted or necessarily implied by statute. In re Writ of Certiorari as to the Wrongful Payments of Attorney Fees (2003) and Edgemont School District (1999) apply the same rule. Beals v. Pickerel Lake Sanitary District (1998) adds that districts have more limited powers than municipal corporations because they are given limited powers only to carry out their stated public purpose.

SDCL 13-14-5 empowers a district to "accept, own, manage, and dispose of any grant, gift, devise, or bequest." The statute is about acceptance and management, not about expanding what the district may spend money on. The AG read it that way: it does not state a use purpose, so accepted funds remain limited to the district's K-12 purpose absent a binding donor directive.

The opinion drew support from SDCL 13-14-13, which authorizes benevolent organizations to give gifts to a district for specified uses (curricula, interscholastic activities, extracurricular programs, school trips). Scholarships are not among the authorized uses, which is consistent with reading district authority as not reaching post-secondary scholarships.

The District's fallback statutes did not change the analysis. SDCL 13-8-39 gives the board "control and care of all property belonging to it" and authorizes specific actions (levying taxes, purchasing equipment), but does not alter the district's public purpose or authorize benefiting persons who have graduated grade 12. SDCL 6-14-1 lets political subdivisions create endowment funds, and SDCL 6-14-2 allows interest to be spent "for any legal purpose," but these do not expand the purposes for which a district may use its money.

On the municipal route, SDCL 6-5-5 authorizes a district to convey money to the state or a public corporation "to be used by such grantee for an authorized public purpose." The conveyance to the City was permitted, but the City's use was limited to its authorized public purpose. SDCL 9-12-11 ("appropriate money from its general fund to promote itself") was the City's claimed authority. AG opinions (92-06, 88-07, 84-46, 70-41) read "promotion" broadly, but AGO 92-06 made clear the discretion is limited, holding the City of Spearfish could not use hospitality tax revenue to support an archeological site in Wyoming because the impact was outside the city's jurisdiction. The AG concluded a scholarship for District students was too attenuated and speculative to amount to "promotion."

Citations and references

Constitutional provision:
- S.D. Const. art. VIII, § 1 (public school system)

Statutes:
- SDCL 13-5-1 (school district public purpose: K-12 education)
- SDCL 13-14-5 (power to accept, own, manage, and dispose of gifts and bequests)
- SDCL 13-14-13 (gifts from benevolent organizations; authorized uses)
- SDCL 13-8-39 (board control and care of district property)
- SDCL 6-14-1 (endowment funds)
- SDCL 6-14-2 (endowment interest for any legal purpose)
- SDCL 6-5-5 (conveyance to public corporation for an authorized public 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
- Beals v. Pickerel Lake Sanitary District, 1998 S.D. 42, 578 N.W.2d 134

Prior AG opinions:
- AGO 92-06, 88-07, 84-46, 70-41 (reading of SDCL 9-12-11 "promote itself")

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1667

Original opinion text

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. A public school district lacks the power or authority to transfer funds received from an undesignated testamentary bequest to either a private nonprofit foundation or a municipality for the purpose of establishing a post secondary scholarship program for the district's students.

FACTS:

The Montrose School District 43-2, Montrose, South Dakota, received a bequest from a will provision in a trust established in another state. The bequest distribution was made outright to the District "with the wish that the recipient use the funds for the purchase of equipment for the physics and chemistry laboratories which the school might otherwise not be able to acquire." The District advises that, under the laws of the other state, this language constitutes a request and not a binding requirement on the recipient of the funds.[1]

The District accepted the bequest and placed the money in a District special revenue fund. A portion of the bequest was used for the science department. 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. The powers of districts, such as school districts, are more limited than municipal corporations since districts are created, organized and given certain limited powers only to carry out their stated public purpose. Beals v. Pickerel Lake Sanitary District, 1998 S.D. 42, ¶ 14, 578 N.W.2d 134, 136-137.

The public purpose of a school district is established in Article VIII, Sec. 1 of the South Dakota Constitution and in SDCL 13-5-1: to operate a kindergarten through grade 12 educational program that is "equally open to all" children "without charge". The Legislature enacted numerous statutes to allow the school districts to carry out this purpose.

The Legislature has given school districts specific statutory authority to accept and dispose of gifts and bequests. SDCL 13-14-5 states:

Every school district in this state is hereby empowered to accept, own, manage, and dispose of any grant, gift, devise, or bequest of money, or real or personal property; and the school board of such school district shall have power to enter into such agreement for the receipt thereof upon such terms as shall be to the best interest of all parties and to make such rules and regulations as it may deem best for the ownership, management, and control of such property.

This statute does not express the purpose for which a school district may use the money it accepts. SDCL 13‑14‑5 cannot be construed to expand a school district's authority in this area. As a result, absent a binding directive from the bequestor, the use of money accepted under SDCL 13-14-5 for the benefit of the school district is limited to the purpose of school districts established by the Constitution and SDCL 13-5-1: providing kindergarten through grade 12 educational services.[2]

The scholarship program contemplated by the District is to provide financial assistance for post-secondary education to students who have graduated from grade 12. The Legislature has not enacted a statute authorizing expenditure of school district funds for scholarships. Further, this activity is outside the stated purpose of providing kindergarten through grade 12 educational services. This interpretation is consistent with SDCL 13-14-13. This statute authorizes benevolent organizations to obtain gifts which, when given to a school district, are required to be used for specified purposes such as curricula, interscholastic activities, extracurricular programs, and school trips. The authorized uses of gifts under SDCL 13-14-13 do not include scholarships.

The District suggests that SDCL 13-8-39 and 6-14-2 establish authority for a school district scholarship program. SDCL 13-8-39 provides in part, "As provided and limited by law, the school board has ... control and care of all property belonging to it." The statute then goes on to authorize specific actions by the board, including such things as levying taxes and purchasing necessary equipment. Nothing in this statute, however, changes a school district's public purpose, or gives a school board the authority to take actions to benefit persons who have graduated from grade 12 and are no longer being served by the school district. SDCL 6-14-1 authorizes political subdivisions to create endowment funds. Interest on such a fund is authorized to be spent by the political subdivision "for any legal purpose". SDCL 6-14-2. Again, these statutes do not expand the purposes for which a district may legally use the money it generates through an endowment fund.

It is clear that a scholarship program, beneficial as it may be to District students attending college, provides a service outside of the express statutory authority of a school district associated with the operation of a kindergarten through grade 12 school program. While a district also has those powers "necessarily implied" by its statutes (Wrongful Payments, 2003 S.D. 101 ¶ 10), the establishment of a scholarship program is not an activity necessary for a district to provide kindergarten through grade 12 educational services.

The District's proposal to transfer the remainder of the bequest to a private nonprofit foundation, the South Dakota Community Foundation, who will manage the funds and operate the scholarship program for the District's students does not alter the conclusion. As explained above, the District does not have the authority to use the bequest for the purpose of a scholarship fund. Transferring the funds to another entity does not alter the limitations on the District's use of district funds. A school district cannot do indirectly what it does not have the power to do directly. Wrongful Payments, 2003 S.D. 101, at n.6.

Alternatively, the District proposes transferring the remainder of the bequest to a municipality within the school district under SDCL 6-5-5 to be used by the municipality as a scholarship program for the District's students. SDCL 6-5-5 authorizes school districts to convey money "to the state or any public corporation thereof, to be used by such grantee for an authorized public purpose". While this statute authorizes the District to covey the remainder of the bequest to the City, the City's acceptance and use of the bequest is limited to the City's "authorized public purpose."

The District suggests that SDCL 9-12-11 provides authority for the municipality to establish a scholarship fund. 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 fact that there may be some positive economic impact on the city is not in and of itself enough to amount to "promotion" when the proposed project is outside the city's jurisdictional confines. AGO 92-06 (City of Spearfish could not use hospitality tax revenue to directly support the development of an archeological site in Wyoming).

A scholarship program for students within the District, who may or may not live within the municipality, does not clearly provide some positive economic impact to the city. While it is possible students receiving scholarships will return to the municipality to work or start businesses, in my opinion this potential impact is too attenuated and speculative to amount to "promotion" within the meaning of SDCL 9-12-11.

Respectfully Submitted,

Marty J. Jackley

Attorney General

MJJ/RG/rar

[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.