Can a South Dakota city create a second business improvement district that overlaps an existing one, does the new overlay need its own separate board, and can hotels within the new BID pass the special assessment through to their guests as a separate line item on the bill?

Plain-English summary

The City of Box Elder was considering a $20 million bond to build an event center, with the financing structured through a second business improvement district. The same hotel owners who already paid into an existing BID (collecting a $2-per-occupied-room fee) wanted to overlay a new BID on top of the existing one, covering the same four hotels plus some noncontiguous undeveloped land owned by a sister entity. The second BID would impose a special assessment on the hotel real property, payable semi-annually or annually, secured by a lien.

Three questions went to the 2017 AG. Can the second district overlay the first? Does the new district need its own separate board, or can the existing BID board serve both? And can the hotels add a separate line item to guest bills, equal to a percentage of the room rate, to recover the assessment cost?

On question one, the AG said yes. SDCL 9-55-5 talks about "plan or plans for improvements" and "more than one business improvement district as part of the same development plan." SDCL 9-55-7 talks about creating "one or more business improvement districts" by adopting a resolution of intent "to establish a district or districts." The plural language is purposeful. While the chapter does not say "overlay" explicitly, the implied power follows from the express grants. Olesen v. Town of Hurley says implied powers exist where they are necessary to perform the express function. The City can overlay.

On question two, the AG declined to give a yes-or-no answer because it depends on facts the request did not specify. SDCL 9-55-5 requires the BID board to consist of "property owners, residents, business operators, or users of space within the business area to be improved." If the existing BID #1 board already includes someone who qualifies under that test for the new BID #2 area (which is critical because BID #2 added noncontiguous undeveloped land owned by a sister entity that may not be represented on the BID #1 board), the existing board can be reused. If not, BID #2 needs its own appointment. The decision hinges on the current board's actual membership in relation to the new district's footprint.

On question three, the AG declined to opine. AG opinions are limited to questions about the official duties of the requesting entity, here the City. How a private hotel chooses to recover an obligation it owes the City (by raising room rates, adding a line item, absorbing it into operating costs) is the hotel's business decision, not the City's official duty. The opinion notes that SDCL 9-55-13 lets the City levy and collect the assessment from the property owner under the BID ordinance; the hotel-to-guest billing is downstream of that.

Currency note

This opinion was issued in 2017. 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 chapter 9-55 has been amended since 2017, and the BID board composition rule in current SDCL 9-55-5 should be checked directly before relying on the analysis here. The Box Elder event center proposal was a 2017 transaction; its disposition is part of the City's historical record and unrelated to whether the legal framework still reads the same way today.

What the opinion meant at the time

For the Box Elder City Council in 2017, the opinion cleared the way to proceed with the overlay BID structure. The question that remained was practical: did the existing BID #1 board cover the noncontiguous parcel that would be added in BID #2? If not, the Council needed to make new appointments before the second BID could function. The financing structure itself (overlay BID + special assessment on hotels + bond to build the event center) was not blocked by the statute.

For the hotel owners pushing the project, the opinion left the pass-through question unresolved by the AG. They could still add a line item to guest receipts if they chose, subject to whatever consumer-protection, tax, and contract rules might apply outside the BID statute. The opinion's silence was not approval; it was a jurisdictional decline.

For other SD cities watching this question, the opinion established that overlay BIDs are within municipal authority under SDCL chapter 9-55, even though the statute does not use the word "overlay." That answer matters whenever a city has a small downtown BID and wants to layer a project-specific BID on the same footprint without dissolving the first one.

For the Department of Revenue and any consumer-protection authorities that might field complaints about hotel surcharges, the opinion did not address whether labeling such a line item a "tax" or "special assessment" on a guest receipt would create regulatory problems. Hotels considering a pass-through structure had to evaluate those issues independently.

Common questions

Q: What is a BID overlay?
A: A second business improvement district that covers some or all of the same geographic footprint as an existing BID. Property within the overlap sits in both districts and is subject to the assessments of both.

Q: Did the 2017 AG say overlay BIDs are explicitly authorized?
A: Not explicitly. The opinion relied on the plural language in SDCL 9-55-5 ("plan or plans," "more than one business improvement district") and SDCL 9-55-7 ("one or more business improvement districts," "district or districts"), plus the implied-powers doctrine from Olesen v. Town of Hurley. Overlay is an implied power flowing from the express grants.

Q: Can the existing BID board serve a new overlay BID?
A: Only if its current membership satisfies SDCL 9-55-5 as applied to the new BID's area. The new BID may have a different geographic footprint (here, added noncontiguous undeveloped land owned by a sister entity), and the existing board may not include any owner, resident, operator, or user of that added space.

Q: What if the membership does not cover the new area?
A: A new board must be appointed by the mayor with the governing body's approval, satisfying SDCL 9-55-5 for the new BID's footprint.

Q: Can a single board oversee two separate BIDs at once?
A: The opinion treats it as a question of fit. If one board's membership satisfies the statutory composition rule for both districts, one board can do both. If not, separate boards are required.

Q: Why did the AG refuse to answer the hotel pass-through question?
A: AG opinions are limited by SD practice to questions about the official duties of the requesting entity, in this case the City of Box Elder. How a private hotel structures its guest invoices is a private business decision outside the City's official duties. The AG declined on jurisdictional grounds.

Q: Can hotels add a line item to guest bills to recover a BID special assessment?
A: The opinion does not answer. That issue depends on consumer-protection rules, tax-treatment rules, and contract law that the AG did not analyze. A hotel considering the pass-through should consult counsel.

Q: Is a BID special assessment a property tax?
A: No. It is a special assessment on real property, levied under SDCL 9-55-13 and made a lien on the property. Its purpose is to fund BID improvements that specifically benefit the assessed property. It is collected from the property owner, not from the property's customers.

Q: How is the special assessment collected?
A: SDCL 9-55-13 lets the municipality determine the collection method in the ordinance creating the BID. The 2017 Box Elder structure contemplated semi-annual or annual payments.

Background and statutory framework

SDCL chapter 9-55 is SD's BID enabling statute. Cities use it to organize and fund shared improvements within a defined commercial area, typically streetscape upgrades, marketing, security, parking, and downtown events. The mechanism is well-suited to projects that benefit a specific commercial corridor more than they benefit the city as a whole, so the financing burden goes to the benefited owners.

By 2017 Box Elder already had BID #1, a hotel-focused district that collected a $2-per-occupied-room fee. The proposed BID #2 was a project-specific overlay structured to back $20 million in bonds for an event center. Special assessments on the hotel real property within BID #2 would secure the bonds. The same hotel owners were the petitioners; the same hotel parcels were within both districts.

The legal question the AG had to answer was whether the BID chapter authorized that overlay structure. The chapter does not use the word "overlay." That created the implied-powers question. Olesen v. Town of Hurley and City of Rapid City v. Rensch both stand for the proposition that municipal grants of authority include the incidental or implied powers needed to make the express grant work. The plural language in SDCL 9-55-5 and 9-55-7 (multiple plans, multiple districts) made the overlay reading easy: if the statute lets a city create more than one district as part of the same development plan, and lets it adopt resolutions for "districts" in the plural, then a second district can sit on top of a first.

The board-composition issue (SDCL 9-55-5) was the more delicate part. The chapter requires the BID board to be made up of property owners, residents, business operators, or users of the space within the business area to be improved. Each BID's board exists for the area improved by that BID. If the area changes (the BID #2 footprint added noncontiguous undeveloped land owned by a sister entity), the board composition has to track the new area. The AG could not tell the City whether the BID #1 board automatically worked for BID #2 without knowing whether the BID #1 members included anyone from the added space. The AG left the answer in fact-sensitive form: the City has to apply the statutory composition test to the existing board against the new area, and the answer follows from that.

The pass-through question was the most interesting one and the AG declined it on jurisdictional grounds. SD practice limits AG opinions to questions about the official duties of the requesting entity. A private business's decision about how to invoice its customers is not the City's official duty. The opinion notes the chain: the City levies and collects the assessment from the property owner under SDCL 9-55-13; what the property owner does to fund that obligation is downstream. The opinion does not bless or block a per-room surcharge; it just declines to opine.

Citations and references

Statutes:
- SDCL chapter 9-55 (business improvement districts)
- SDCL 9-55-2 (revenue uses)
- SDCL 9-55-5 (board composition)
- SDCL 9-55-7 (resolution of intent)
- SDCL 9-55-13 (special assessment as lien)

Cases:
- Olesen v. Town of Hurley, 2004 S.D. 136, 691 N.W.2d 324
- City of Rapid City v. Rensch, 90 N.W.2d 380 (S.D. 1958)
- Fall River County v. South Dakota Dept. of Revenue, 1996 S.D. 106, 552 N.W.2d 620
- In re Taliaferro, 2014 S.D. 82, 856 N.W.2d 805
- In re Estate of Ricard, 2014 S.D. 54, 851 N.W.2d 753

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1691
• Original PDF: https://atg.sd.gov/OfficialOpinions/Official%20Opinion%20No.%2017-05.pdf

Original opinion text

QUESTIONS:

1. Whether a second Business Improvement District may overlay an existing District when the second district includes a combination of property from the first business improvement district and property not currently included in the existing district?

2. If an overlay is allowed, whether each district requires a separate board, or can the existing board for the first business improvement district be retained and used as the board for the second district?

3. May the hotel properties to be included in both the first business improvement district, as well as the second newly created district, charge their guests an amount (appearing as a separate line item on the guest receipt) based on a percentage of the room rate to pay for the real property "special assessment" assessed against the hotel properties under the second business improvement district?

ANSWERS:

1. Yes, a second Business Improvement District may overlay a pre-existing Business Improvement District.

2. The answer to your question turns on whether the composition of the already appointed board continues to meet the requirements of state law.

3. Your third question falls outside the official duties of the City of Box Elder and as such, I am unable to offer an opinion. Attorney General Opinions are limited to those questions related to the official duties of the entity requesting the opinion.

FACTS:

The City of Box Elder is considering a proposal for the bonding and building of an event center in Box Elder. The proposal seeks to finance the event center through the creation of a second business improvement district (BID), and the levy of special assessments against four hotel properties and some non-contiguous undeveloped property. All of the hotel properties share the same owner. The non-contiguous undeveloped property is owned by a sister-entity. The owner of the hotels has petitioned the City to approve a second BID. The proposal is for a $20 million dollar bond, and includes both construction of the event center as well as some infrastructure development to the non-contiguous property, all of which would be within the boundaries of BID #2.

All of the hotels are currently in an existing BID and are collecting an occupancy tax of $2 per occupied room. The same hotel owners are requesting to overlay BID #1 with the second BID. The proposal for BID #2 includes a special assessment and lien on the hotel properties. The special assessment will be payable by the hotel owners on a semi-annual or annual basis. The hotel owners have advised the City that they would intend to a add a line item charge on guest receipts to raise some or all of the revenue necessary to pay their respective special assessments.

IN RE QUESTION 1:

"[M]unicipalities possess only those powers conferred upon them by the Legislature . . . [but] a grant of authority includes those incidental or implied powers that are necessary to enable a municipality to perform the function authorized." Olesen v. Town of Hurley, 2004 S.D. 136, ¶ 15, 691 N.W.2d 324, 328 (quoting City of Rapid City v. Rensch, 90 N.W.2d 380, 383 (S.D. 1958)). To determine what statutory power the municipality is granted by the Legislature, one looks to the "plain, ordinary and popular meaning of statutory language." Fall River County v. South Dakota Dept. of Revenue, 1996 S.D. 106, ¶ 13, 552 N.W.2d 620, 624. "Words and phrases in a statute must be given their plain meaning and effect.'" In re Taliaferro, 2014 S.D. 82, ¶ 6, 856 N.W.2d 805, 806-07 (citations omitted).

SDCL 9-55-5 authorizes municipal governments to create business improvement districts and states as follows:

The mayor shall, with the approval of the governing body, appoint a business improvement board consisting of property owners, residents, business operators or users of space within the business area to be improved. The governing body shall, by resolution, designate the boundaries of the business area prior to the time of the appointment of the board. The board shall make recommendations to the governing body for the establishment of a plan or plans for improvements in the business area. If the improvements to be included in one business area offer benefits that cannot be equitably assessed together under this chapter, more than one business improvement district as part of the same development plan for that business area may be proposed. The board may make recommendations to the municipality as to the use of any revenue collected pursuant to § 9-55-2.

The statute specifically states that the business improvement board is authorized to make recommendations for the establishment of a "plan or plans for improvements in the business area." SDCL 9-55-5. Further, in enacting this statute, the Legislature has specifically allowed for the creation of "more than one business improvement district as part of the same development plan" when the improvements to be included in one business area offer benefits that cannot be equitably assessed together. Id. (emphasis added). Moreover, in SDCL 9-55-7 the Legislature has also stated that "the governing body may create one or more business improvement districts by adopting a resolution of intent to establish a district or districts." SDCL 9-55-7 (emphasis added).

You have asked whether a second BID may be overlaid on top of an existing BID. The governing body of a municipality is expressly authorized to create multiple BID's. While no specific statute expressly authorizes the a municipality to overlay a second BID on top of the first, I conclude that the language of the statutes implies that a municipality may overlay districts.

The plain language of the statues clearly contemplates the creation of more than one BID by a municipality. As noted, SDCL 9-55-5 specifically allows for the creation of multiple BID's where the improvements to be included cannot be equitably assessed together. It is reasonable to assume that a single entity can benefit from two different business improvement plans, and thereby could be included within the boundaries of two different districts. I conclude the municipality is by implication allowed to include an entity within the boundaries of two different BID's.

The answer to your first question is yes, a second BID may overlay a pre-existing district.

IN RE QUESTION 2:

SDCL 9-55-5 requires that "a business improvement board consisting of property owners, residents, business operators, or users of the space within the business area to be improved" be appointed by the mayor of a municipality with approval by the municipality's governing body. This board is to make recommendations to the municipality regarding plans for improvements in the business area the board is appointed for. Id. These plans for improvements may include the creation of one or more BID in the business area.

The purpose of statutory construction is to discover a statute's intent through an analysis of its language. In re Estate of Ricard, 2014 S.D. 54, ¶ 8, 851 N.W.2d 753, 755-56 (citations omitted). As stated above, "[w]ords and phrases in a statute must be given their plain meaning and effect." Taliaferro, 2014 S.D. 82, ¶ 6 (citations omitted). A statute that has clear, certain, and unambiguous language does not need interpretation; rather, a court need only declare the Legislature's clearly expressed intentions. Id.

According to the plain language of the statute, if the board established for BID #1 includes owners, residents, operators, or users of the space within BID #2 then the existing Board may be used. In that instance, the requirements of SDCL 9-55-5 would be met. If the board appointed for BID #1, however, does not meet these terms then a new board will need to be appointed. For example, if the current board for BID #1 does not include a property owner, resident, business operator, or user of the non-contiguous space that would be developed in BID #2, the board would not meet the requirements of SDCL 9-55-5.

I conclude that whether a new board needs to be appointed for BID #2 is determined by the membership of the current board. If the membership of the current board does not meet the requirements of SDCL 9-55-5, as applied to BID #2, a new board must be appointed.

IN RE QUESTION 3:

Your third question has essentially asked whether the hotel properties to be included in BID #2 may add a line item charge to their guests' bills (based on a percentage of the room rate) to pay for the special assessment levied against the hotel property by the municipality for BID #2. I decline to issue an opinion as to your third question.

SDCL 9-55-13 authorizes a municipality to levy a special assessment "against real property located in a [BID] . . . ." The amount of the special assessment is to be determined by the municipality, and must be levied according to the method proposed in the ordinance creating the BID. Id. "All special assessments levied under [SDCL ch. 9-55] constitute liens on the property and shall be . . . collected in such manner as the governing body determines in the ordinance." Id. You have indicated in your request that the special assessment will be payable by the hotel property owners on a semi-annual or annual basis.

The levy and collection of the special assessment under SDCL 9-55-13 creates an obligation owed to the municipality by each property owner within the BID. In this instance, how that obligation is to be collected by the municipality from hotel properties within BID #2 is to be determined by the ordinance that creates the BID. Outside of this obligation exists the relationship between the hotel properties and their guests. How a hotel property chooses to pay for the obligation owed to the municipality, and what impact that choice has on how each hotel property bills its guests, is an issue that, in my opinion, falls outside the official duties of the City. Official Opinions of the Attorney General are limited to those issues directly related to the official duties of the entity requesting the opinion. For this reason I am unable to issue an opinion on the legality of a hotel property adding a line item to their bills to pay for the special assessment levied against them.

CONCLUSION

Based on the above analysis, it is my opinion that a second BID may overlay an already existing BID. I also conclude that the membership of the current board appointed for BID #1 is determinative as to whether that board meets the requirements of state law as applied to BID #2. Finally, I am unable to issue an opinion as to your third question.

Sincerely,

Marty J. Jackley

ATTORNEY GENERAL

MJJ/SRB/ZAM/lde