Can a South Dakota county invest its courthouse building fund and other accumulated county funds in Farmers Home Administration (FmHA) insured loans?
Plain-English summary
A South Dakota county had idle cash sitting in its courthouse building fund and in other accumulated funds and wanted to put the money to work. The Farmers Home Administration (FmHA) had an investment program for its government-insured loans, and county officials asked the AG whether they could invest county funds in that program.
The AG said yes, within the limits of SDC 1960 Supp. 48.0507, as amended by Chapter 258 of the 1961 Session Laws. That statute was the public-funds investment statute. It authorized counties, municipalities, townships, school districts, and state agencies to invest public funds not needed during the current fiscal year for operating expenses. The investment vehicles permitted were "securities of the United States redeemable within eighteen months from the date of purchase," with a key exception for "permanent, trust, retirement and building funds," which could be invested in securities with redemption dates beyond eighteen months.
The interpretive move the AG made was on the phrase "securities of the United States." The FmHA loans were not literally Treasury securities. They were loans made by FmHA to farmers and rural homeowners, with the loan repayment fully insured by the federal government. The AG read "securities of the United States" broadly enough to cover any fully government-insured loan instrument, citing 38 Words and Phrases 469 for the proposition that "securities" generally meant "written assurances for return or payment of money or evidence of indebtedness." A fully insured FmHA loan met that definition.
The procedural requirement was that the governing body (the county commission, in this case) had to adopt a proper resolution authorizing the investment, specifying the amount and kind of securities to be purchased. The State Board of Finance had a parallel role for state funds. The resolution also had to address (either at the time of purchase or later) the timing and manner of redemption.
The AG also pointed out the building-funds exception. Operating funds had to be in eighteen-month-or-shorter securities so they would be available for current operating needs. Building funds, by their nature, were saving up for capital projects in the future, so longer-term investments were sensible. The AG also flagged SDC 1960 Supp. 12.2303 as amended by Chapter 49 of the 1963 Session Laws, the courthouse mill levy that fed the building fund, as a related statute the official should consult.
Currency note
This opinion was issued in 1968. 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. South Dakota's public funds investment statutes have been substantially restructured since 1968. The modern framework is in SDCL chapter 4-5 (state investment), chapter 6-5 (county investment), and chapter 7-25 (public depositories). The Farmers Home Administration was reorganized in 1994 into the Rural Housing Service, Rural Business-Cooperative Service, and Farm Service Agency. Modern county investment officers should consult the current SDCL framework and the State Investment Council's rules for current investment authority.
What the opinion meant at the time
For county treasurers in 1968, the opinion broadened the menu of available investments. Beyond traditional U.S. Treasury bills, notes, and bonds, the treasurer could now consider FmHA loan participations and similar government-insured loan instruments. The yield on FmHA loans was generally higher than on Treasury bills of comparable maturity, so the broader authority let counties earn more interest on idle funds.
For county commissioners, the opinion confirmed the procedural framework. Investment decisions required a formal resolution naming the security and the amount. The treasurer could not unilaterally invest; the commission's collective action was needed.
For state-level financial officials, the opinion provided a useful interpretive precedent for the term "securities of the United States." Other federally insured loan instruments (FHA-insured mortgages, VA-guaranteed loans, etc.) would presumably qualify under the same reasoning, although each would need analysis of its specific insurance and assurance structure.
For building-fund administrators specifically, the opinion confirmed that they had broader investment latitude than operating-fund administrators. A courthouse building fund accumulating for a future construction project could hold longer-term investments. Locking up money in long-dated securities was acceptable because the fund did not need to be liquid for day-to-day operations.
For the rural-economic-development side of the FmHA program, the opinion was indirectly supportive. County investments in FmHA loans put more capital into the rural lending pool, supporting farmers and rural homeowners. The AG was not asked to and did not consider that policy angle, but the practical effect was real.
Common questions
Q: What kinds of FmHA loans qualified?
A: The opinion did not list specific FmHA loan programs. The key requirement was that the loan be "fully insured" by the federal government. FmHA loans typically were, but a county should verify the insurance status of any specific loan instrument before investing.
Q: Did the eighteen-month limit apply to FmHA investments?
A: For operating funds, yes. For building, permanent, trust, or retirement funds, no. The statute's longer-term-investment exception applied to those four categories.
Q: Could the county invest in FmHA loans through a commercial broker, or did it have to deal directly with FmHA?
A: The opinion did not address brokerage. The statute permitted investments to be "deposited for safekeeping with any bank or trust company," suggesting the legislature contemplated traditional brokerage channels. Direct dealing with FmHA was also presumably acceptable.
Q: What if the FmHA insurance turned out to be partial or conditional?
A: The opinion's reasoning hinged on the loans being "fully insured." Partial or conditional insurance would not meet the "securities of the United States" definition the AG used. A county would need to verify the insurance was full and unconditional before treating the loan as a qualifying investment.
Q: What was the commissioners' resolution required to contain?
A: The statute required the resolution to "authorize the investment and shall specify the amount and kind of bonds to be purchased." It also had to direct the time and manner of redemption, either at the time of purchase or later.
Q: Could the county invest accumulated school district funds the same way?
A: SDC 48.0507 expressly applied to school district funds, with the school district's governing body (the school board) adopting the resolution. The same FmHA logic would apply.
Background and statutory framework
Public-funds investment statutes were a familiar twentieth-century structure. The default rule was that public money sat in bank accounts, earning little or no interest. Active investment in government securities was authorized as an alternative, but with restrictions: investments had to be in safe instruments (typically U.S. government securities or fully insured equivalents), and the governing body had to formally authorize each investment.
The 1961 amendment to SDC 48.0507 (Chapter 258) reflected legislative intent to expand the available investment vehicles, with the eighteen-month redemption limit serving as a safety brake for operating funds. The longer-term exception for permanent, trust, retirement, and building funds was designed for funds that accumulated for future use and could tolerate longer lock-ups in exchange for higher yields.
The Farmers Home Administration in 1968 was a key federal lender for rural America. It made loans for farm operations, farm ownership, rural housing, water and waste disposal, and rural business development. Many of those loans were insured by the federal government, meaning that if a borrower defaulted, the federal guarantee would make the lender (or investor in a participation) whole. That federal backing made FmHA loans an attractive investment for governmental investors with safety-focused investment standards.
The AG's broad reading of "securities of the United States" was consistent with the policy goal of the 1961 amendment: give counties and other public investors more options while maintaining the safety floor of federal backing. A narrower reading limited to literal Treasury securities would have shut counties out of the broader market for federally-backed paper.
The opinion did not address: how to value FmHA investments for accounting purposes, what disclosures or reports counties needed to make about their investments, or whether the State Board of Finance had to approve county investments (it did not under the statute, but the Board did have a parallel role for state funds).
Citations and references
Statutes:
- SDC 1960 Supp. 48.0507, as amended by Chapter 258 of the 1961 Session Laws (investment of public funds)
- SDC 1960 Supp. 12.2303, as amended by Chapter 49 of the 1963 Session Laws (courthouse building fund)
Treatises:
- 38 Words and Phrases 469, "Securities" (definition supporting broad reading)
Source
Original opinion text
Investments. Investment of County Funds.
You have asked whether or not county funds, such as the Courthouse Building Fund and other accumulated funds, could be invested in government insured loans, specifically the Farmers Home Administration Investment Program. It is my opinion that such funds may be invested in such programs within the limits of SDC 1960 Supp. 48.0507 as amended by Ch. 258, Session Laws of 1961. Said statute reads as follows:
"Investment of public funds. Any public funds which will not be needed during the current fiscal year to defray operating expenses, may be invested in securities of the United States redeemable within eighteen months from the date of purchase. 'Public funds' in this section shall include all general, special and other funds, regardless of source or purpose that may now or hereafter be owned, held or administered by this state or any political subdivision thereof, including counties, municipalities, townships and school districts, or by any officer, commission, board, bureau or agency of the state or political subdivision. Such investment shall be made as to state funds or the funds of any commission, board, bureau or agency thereof, only after the adoption of a proper resolution by the State Board of Finance, and as to the funds of counties, municipalities, townships, and school districts only after the adoption of a proper resolution by the governing body of such county, municipality, township or school district. Such resolution shall authorize the investment and shall specify the amount and kind of bonds to be purchased. The said State Board of Finance and the governing bodies of such counties, municipalities, townships and school districts shall, either at the time of purchase or at any other time, direct the time and manner of making application for redemption of such bonds. Provided, however, that permanent, trust, retirement and building funds may be invested in securities have a redeemable date beyond eighteen months. This section is supplemental to any other laws relating to the investment, deposit or administration of the public funds herein specified and shall supersede the provisions thereof only to the extent that such other laws "may restrict or prohibit investments in accordance with the provisions thereof. All investments made pursuant to this section may be deposited for safekeeping with any bank or trust company."
It is my opinion that "securities of the United States" as used in the first sentence of the above statute refers to any governmental loan which is fully insured, as the Farmers Home Administration Loan Program is. It is well known that "securities" are generally defined as written assurances for return or payment of money or evidence of indebtedness and as such the Farmers Home Administration Loan Program comes within the meaning of "securities of the United States". (38 Words and Phrases 469, Securities)
It is of special interest redeemable to note that date "building funds may be invested in securities having a redeemable date beyond eighteen months", under the above statute. Also see SDC 1960 Supp. 12.2303 as amended by Ch. 49, Session Laws of 1963.