When a South Dakota official saw that an Iowa municipality had financed a library building through a lease-purchase agreement, could a South Dakota municipality also enter into a lease-purchase agreement to build a library building?
Plain-English summary
A South Dakota official forwarded information about an Iowa municipality that was building a library through a lease-purchase agreement and asked whether a South Dakota municipality could do the same. The AG's answer was short and clean: no.
The reasoning rested on the basic rule of municipal authority in South Dakota:
"It is basic in South Dakota that municipalities only have those powers that are expressly granted by statute or fairly implied, or incident to the powers expressly granted."
This is Dillon's Rule, the classic statement of municipal corporate authority. Municipalities are creatures of the state. They have only those powers the state has given them, with reasonable implications. A power the legislature has not granted is not available.
The AG identified the relevant statutes. South Dakota had granted lease-purchase authority in several specific contexts:
- SDC 1960 Supp. 15.2203 (state lease-purchase authority)
- SDC 55.2803, as amended by Chapter 159, Session Laws of 1964 (lease-purchase authority)
- Chapter 286, Session Laws of 1963, as amended by Chapter 187, Session Laws of 1968 (revenue bonds, with the 1968 amendment specifically authorizing municipal lease-purchase agreements for "nursing homes, hospitals, retirement homes or related institutions for the care of the aged")
But the AG could not find any statute authorizing a municipality to enter a lease-purchase agreement for a library. Without that express authorization, the lease-purchase mechanism was not available for library construction.
The opinion did not address whether other financing methods (general obligation bonds approved by voters, library construction from accumulated municipal funds, partnership with a county or library district, or private fundraising followed by donation to the city) might be available. Those would each turn on their own statutory authorities and were not the subject of the question.
Currency note
This opinion was issued in 1968 (approximate, based on the Chapter 187, Session Laws of 1968 reference). 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 modern municipal code is in SDCL Title 9, and library construction authorities are in SDCL Title 14; the legislature may have expanded municipal lease-purchase authority in subsequent decades. Any current question about financing a library should be checked against the current SDCL provisions and modern bond counsel practice.
What the opinion meant at the time
For the city considering an Iowa-style lease-purchase library, the opinion was a clear stop sign. The city could not use that mechanism in South Dakota under 1968 law.
For South Dakota library boards and city councils generally, the opinion meant that library construction financing had to go through other channels: general obligation bonds (which required voter approval and counted against the municipality's debt limit), accumulated cash reserves, federal Library Services and Construction Act grants, private donations followed by gift to the city, or partnerships with counties or special library districts that might have separate funding authority.
For the legislature, the opinion was an implicit invitation. The 1968 session had just added municipal lease-purchase authority for nursing homes, hospitals, retirement homes, and similar facilities; the AG was implicitly noting that the legislature could have added libraries but had not. If the legislature wanted to give municipalities the option, it could do so by statute.
For other municipal projects, the opinion's reasoning had a broader cautionary message. Iowa or other neighboring-state municipal authorities were not authoritative in South Dakota. If a South Dakota municipal lawyer wanted to use a financing technique he had seen in Iowa or Minnesota, the first question was whether the South Dakota Legislature had authorized that technique. If not, the technique was not available, no matter how common it was in Iowa.
For Dillon's Rule purposes generally, the opinion is a small but clean example of the rule in action: the absence of a statute is fatal in South Dakota. The AG did not engage in any analysis of implied powers, public purpose, or analogous statutes. He simply asked whether there was a statute, found none for libraries, and stopped.
Common questions
Q: Is this opinion still good law?
A: Potentially. The fundamental rule (municipalities have only statutorily granted powers) is still South Dakota law. But the legislature may have added lease-purchase authority for libraries in subsequent decades. Any current question should be checked against the current SDCL provisions, particularly SDCL Title 9 (municipalities) and Title 14 (libraries).
Q: What is a lease-purchase agreement?
A: A financing structure in which a public entity leases a facility from a private builder or finance corporation, with the lease payments structured so that at the end of the lease term, title transfers to the public entity. The structure historically allowed municipalities to acquire facilities without triggering general-obligation debt limits or voter-approval requirements, because the obligation was lease rent, not debt.
Q: Why did the legislature single out nursing homes, hospitals, and retirement homes for municipal lease-purchase authority?
A: The opinion does not explain. In context (1968), municipal involvement in nursing-home, hospital, and retirement-home construction was a significant policy initiative because of Medicare/Medicaid implementation and growing senior populations. The legislature presumably saw lease-purchase as a useful financing tool for those facilities and granted express authority. Other municipal facility types (libraries, parks, city halls) were left to their existing financing channels.
Q: Could the city use general obligation bonds instead?
A: Possibly, but with significant constraints. General obligation bonds in 1968 South Dakota required voter approval and counted against the municipality's constitutional debt limit. They were also subject to specific statutory authority depending on the purpose. The opinion does not address general obligation bond financing for libraries; that question would have been a separate analysis.
Q: Could the city receive a private donation to build a library?
A: Yes, in principle. Cities have always been able to accept gifts for municipal purposes. A donor or charitable foundation could finance construction and gift the building to the city. The opinion does not address this path; the question was specifically about lease-purchase financing.
Background and statutory framework
The opinion reflects two underlying South Dakota doctrines:
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Dillon's Rule: South Dakota follows Dillon's Rule, named for Iowa Judge John Forrest Dillon's 19th-century treatise. The rule holds that municipal corporations have only the powers expressly granted by the state, those fairly implied from express powers, and those incidental to express powers. Anything else is not within municipal authority.
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Statutory specificity: The South Dakota Legislature historically granted municipal authorities in narrow, project-specific terms. Lease-purchase authority for nursing homes did not imply lease-purchase authority for libraries. Revenue-bond authority for one facility type did not extend to other facility types. The legislature wrote precisely what it authorized.
Together those doctrines produced a system in which a South Dakota municipal lawyer's first job was to find the statute. If no statute granted the authority, the answer was no, regardless of practical or policy considerations.
The AG's opinion is a clean illustration. He did not analyze whether libraries were a public purpose (clearly yes), whether the lease-purchase mechanism was a reasonable financing tool (yes), or whether other states had used it (Iowa had). He asked only whether a South Dakota statute authorized the use, found none for libraries, and concluded the municipality could not proceed.
The list of statutes the AG cited shows how piecemeal the South Dakota lease-purchase authority was in 1968:
- SDC 1960 Supp. 15.2203 (state, not municipal)
- SDC 55.2803 (separate context)
- Chapter 286, Session Laws of 1963 (revenue bonds, with 1968 amendment for senior-care municipal facilities)
None of those reached library construction by municipalities.
Citations and references
Statutes (as cited in the opinion):
- SDC 1960 Supp. 15.2203 (state lease-purchase)
- SDC 55.2803, as amended by Ch. 159, S.L. 1964
- Chapter 286, Session Laws of 1963 (revenue bonds)
- Chapter 187, Session Laws of 1968 (municipal lease-purchase for nursing homes, hospitals, retirement homes, related care institutions)
Cases: None cited.
Source
Original opinion text
Municipalities. Municipalities not authorized to enter into Lease Purchase Agreement to build a library building.
You have submitted information whereby a municipality in the State of Iowa proposes to build a library building under a lease purchase agreement and you have inquired whether a municipality in South Dakota may also build a library building under similar lease purchase agreement.
It is basic in South Dakota that municipalities only have those powers that are expressly granted by statute or fairly implied, or incident to the powers expressly granted.
There are several statutes that do grant the State and political subdivisions the power and authority to enter into lease purchase agreements, such as SDC 1960 Supp. 15.2203, SDC 55.2803, as amended by Chapter 159, Session Laws of 1964 and Chapter 286, Session Laws of 1963, as amended by Chapter 187, Session Laws of 1968.
Chapter 187, Session Laws of 1968 specifically authorizes the governing body of each municipality to enter into lease purchase agreements for constructing nursing homes, hospitals, retirement homes or related institutions for the care of the aged.
I find no specific statute that authorizes a municipality to enter into a lease purchase agreement for a library, therefore, it is my opinion that a municipality does not have the power or authority to enter into a lease purchase agreement to build a library building.