The 1972 Legislature appropriated $50,000 to the Legislative Research Council for a tax study. Governor Kneip signed the appropriations bill but then ordered the State Budget Officer to 'encumber' the $50,000 until he received a written justification from LRC about how the money would be used. Did the Governor have authority to block release of an appropriation pending his approval of the spending plan?

Plain-English summary

In February 1972, the South Dakota Legislature delivered the 1972 General Appropriations Bill (SB 278) to Governor Richard F. Kneip. The Governor signed the bill on February 19, 1972 but vetoed certain portions not relevant to this question. The bill included, in Section 2(2), a $50,000 appropriation from general funds to the Legislative Research Council (LRC) for a "Tax Study." That item was not vetoed.

But the same day he signed the bill, Governor Kneip sent a letter to the State Budget Officer directing him to "encumber" the $50,000 appropriation "until formal justification and explanation on how the money is to be used is received in my office." The Governor cited SDCL 4-7-3 as his authority.

The legislator Gunderson asked the AG whether the Governor had any authority for this move, either under SDCL 4-7-3 specifically or under any other source.

The AG ruled the Governor had no such authority. The analysis ran through the separation of powers:

Constitutional structure. Article II divided state government into three departments. Article XII, sections 1 and 2 made appropriation of moneys a legislative function. The only constitutional power the Governor had over appropriations was the veto (Article IV, sections 9 and 10), which the Governor had not used here.

Statutory powers. Beyond the constitutional veto, the Legislature had given the Governor a few statutory roles in budget administration:

• SDCL 4-7-2 made him ex officio director of the budget.
• SDCL 4-7-9 directed him to prepare a budget report for legislative submission.
• SDCL 4-8-23 allowed him to reduce expenditures across all budget units, but only when the State Budget Officer reported that state revenues were substantially less than legislative estimates.

None of these provisions gave the Governor authority to block release of a specific appropriation pending his approval of the spending plan.

SDCL 4-7-3 analysis. The Governor had cited this provision as his authority. It read: "The Governor, through the office of the budget, shall have such supervision of every public department, agency, commission, institution and other governmental unit as shall be necessary to secure a uniform and standard classification of accounts and financial reports . . . He may inquire into the methods of conducting the affairs of any public body; HE MAY PRESCRIBE AND DIRECT THE USE OF STANDARD forms and uniform records of accounts and standard forms and uniform financial reports, including, if deemed advisable, AN ENCUMBRANCE SYSTEM and an allotment system."

The AG noted that "encumbrance system" is a governmental accounting term, defined in Kohler's Dictionary for Accountants as a procedure for deducting an anticipated expenditure (evidenced by contract or purchase order, or determined by administrative action) from an agency's appropriation prior to the time the actual warrant is issued. SDCL 4-8-19 confirmed this reading by referring to "encumbered amounts" in the context of contractual obligations approved by the secretary of finance and the state budget officer.

So "encumbrance system" in SDCL 4-7-3 was an accounting tool for tracking anticipated expenditures, not a discretionary hold-and-release tool for blocking appropriations. The Legislature had not authorized the Governor to use the encumbrance system as a way to override its appropriation decisions.

Outside states' authority. The AG cited cases from Arizona (Board of Health v. Frohmiller, Carr v. Frohmiller, Hutchison v. Swinton), Florida (Green v. Rawls), and Ohio (State ex rel Preston v. Ferguson) for the principle that an agency receiving an appropriation may, within its discretion, determine the uses for which the money will be expended, so long as it follows the broad legislative purpose.

The bottom line: once the Legislature appropriated $50,000 to LRC for a tax study, LRC could decide how to spend it within that legislative purpose. The AG said the Governor lacked authority for the proposed hold. He did not decide what the State Budget Officer was obligated to do with the Governor's letter.

Currency note

This opinion was issued in 1972. 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 budget and appropriations code (SDCL Title 4) and the constitutional provisions on the Governor's budget role and the line-item veto may have been amended or further interpreted since 1972. Modern questions on executive-versus-legislative budget authority should be addressed under current law rather than this 1972 opinion.

What the opinion meant at the time

For the Legislative Research Council, the AG said an agency with a lawful appropriation could determine its spending within the Legislature's stated purpose. He did not describe whether or when the Budget Officer released the funds.

For the Governor's office, the AG said SDCL 4-7-3's encumbrance system accounted for anticipated expenditures; it did not authorize withholding a specific appropriation pending justification. He also noted the veto and the revenue-shortfall authority in SDCL 4-8-23.

For the Legislature, the opinion reinforced the legislative monopoly on appropriations. The Governor could veto, but if he chose not to veto, he could not impose his own conditions on how appropriated money was spent.

For the State Budget Officer, the opinion answered the legal question of the Governor's authority to give the hold direction. It did not issue a separate directive to the officer or define the officer's duty in responding.

For state agencies and commissions more broadly, the opinion confirmed broad agency discretion to spend appropriated funds within the broad legislative purpose. The Legislature had specified a "Tax Study" for the LRC appropriation. As long as LRC was conducting a tax study, the Governor could not require a more detailed showing of how the money would be spent.

The opinion cited decisions from Arizona, Florida, and Ohio for an agency's discretion to spend within the legislative purpose of an appropriation.

Common questions

Q: What if the Governor had vetoed the LRC tax-study appropriation instead of trying to encumber it?
A: The AG identified the Governor's constitutional veto power over appropriations and noted that he had not vetoed this item. The opinion did not analyze a hypothetical veto or override.

Q: Could the Legislature have responded by amending SDCL 4-7-3 to clarify that "encumbrance system" did not include gubernatorial holds?
A: The opinion did not consider an amendment to SDCL 4-7-3. It read the existing text as authorizing an accounting system for anticipated expenditures, not the Governor's proposed hold.

Q: What if the Governor had legitimate concerns that the LRC tax study would be wasteful or duplicative?
A: Under the opinion, his constitutional tool was the line-item veto, which he had not used on this item. Once the money was appropriated and not vetoed, the AG concluded the Governor could not unilaterally block its release pending his approval of the spending plan.

Q: Did the opinion mean the Governor could not require any reporting from LRC on how the money was spent?
A: The opinion did not address whether the Governor could require reports after an expenditure. It quoted SDCL 4-7-3's language about uniform financial reports, but held only that the Governor could not prohibit lawful spending from this appropriation pending justification to his office.

Q: What if revenues actually fell substantially short of estimates after signing?
A: The AG said SDCL 4-8-23 allowed the Governor to reduce expenditures of any state budget units when the State Budget Officer reported that revenues were substantially below legislative estimates. He did not say reductions had to be across the board.

Q: Did the Governor's encumbrance order have any practical effect during the time it was in place?
A: The opinion did not say whether the Budget Officer complied with the letter or whether it delayed the tax study. It answered the Governor-authority question.

Background and statutory framework

The South Dakota Constitution allocated governmental powers among three departments under Article II. The Legislature held the power of appropriation under Article XII; the Governor held the executive power under Article IV, including the veto. These were classical separation-of-powers provisions.

The AG cited SDCL 4-7-2 and 4-7-9 for the Governor's budget roles, SDCL 4-7-3 for the disputed encumbrance authority, and SDCL 4-8-23 for revenue-shortfall reductions.

SDCL 4-7-3 authorized supervision of accounts and reports and, if deemed advisable, "an encumbrance system and an allotment system." The AG defined an encumbrance system as accounting for anticipated expenditures, including those evidenced by contract or purchase order. He did not define an allotment system.

The AG concluded that the encumbrance language did not empower the Governor to block spending from this appropriation.

SDCL 4-8-19 reinforced the encumbrance reading: "All unexpended annual appropriations at the end of the fiscal year covered by the general appropriations act which have not been contractually obligated in writing and approved by the secretary of finance and the state budget officer prior to the end of the fiscal year, shall lapse and cease to be available, and shall revert to the fund from which appropriated." This treated encumbrances as contractual commitments that, if in place by fiscal year end, kept the appropriation alive for two more fiscal years. That was the use case for the encumbrance system, not gubernatorial discretion.

The AG described SDCL 4-8-23 as allowing expenditure reductions of any budget units when the State Budget Officer reported revenues substantially below legislative estimates.

The appropriation gave LRC $50,000 for a "Tax Study." The AG said LRC could decide how to spend within that broad legislative purpose.

Out-of-state authorities cited by the AG reinforced the same principle. Arizona, Florida, and Ohio courts had held that an agency receiving an appropriation has discretion to determine the uses within the legislative purpose, without executive sign-off.

Citations and references

Constitution:

• S.D. Const. Art. II (separation of powers)
• S.D. Const. Art. XII, §§ 1, 2 (appropriation as legislative function)
• S.D. Const. Art. IV, §§ 9, 10 (Governor's veto power)

Statutes:

• SDCL 4-7-2 (Governor as ex officio director of the budget)
• SDCL 4-7-3 (general budgetary powers; encumbrance system)
• SDCL 4-7-9 (budget report duty)
• SDCL 4-8-19 (reversion of unencumbered appropriations)
• SDCL 4-8-23 (revenue-shortfall reduction authority)

Cases (out-of-state, on agency discretion within appropriation):

• State ex rel Board of Health v. Frohmiller, 42 Ariz. 231, 23 P.2d 941 (1933)
• Carr v. Frohmiller, 47 Ariz. 430, 56 P.2d 644 (1936)
• Hutchison v. Swinton, 56 Ariz. 451, 108 P.2d 580 (1940)
• Green v. Rawls, 112 S.E.2d 10 (Fla. 1960)
• State ex rel Preston v. Ferguson, 166 N.E.2d 365 (Ohio 1960)

Other:

• Kohler, Dictionary for Accountants, Third Edition (Prentice Hall) (definition of "encumbrance system")

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1642

Original opinion text

Governor has no authority to encumber an appropriation

Dear Honorable Gunderson:

You have asked for an official opinion on the following factual situation:

On February 11, 1972, the 1972 General Appropriations Bill (SB 278) was delivered to Governor Richard F. Kneip for his consideration. On February 19, 1972, the Governor signed the General Appropriations Bill, but vetoed certain portions not pertinent here.

On page two (subdivision (2) of Section 2) of the Act as signed by the Governor is found an appropriation of $50,000 from the general funds to the Legislative Research Council which is listed as being for a "Tax Study." Although this item was not vetoed by the Governor, the Governor did in a letter dated February 19, 1972, to the State Budget Officer, direct that official to "encumber" the $50,000 mentioned above "until formal justification and explanation on how the money is to be used is received in my office (Governor's office)." The Governor cites as authority for his action SDCL 4-7-3.

In connection with that opinion you have asked the following questions:

1. Does the Governor of this state have the authority under SDCL 4-7-3 to direct the State Budget Officer to "encumber" the $50,000 appropriation made to the Legislative Research Council?

2. Does the Governor of this state have authority, based upon any source, to "encumber" a specific appropriation of funds provided for in the General Appropriations Act?

The powers of the government of the State of South Dakota are divided into three distinct departments, the legislative, executive and judicial; and the powers and duties of each are prescribed by the State Constitution. South Dakota Constitution, Article II. The Governor may not perform a legislative function. The appropriations of moneys is a legislative function. South Dakota Constitution, Article XII, Sections 1 and 2.

The only power regarding appropriations given to the Governor by the Constitution is the veto power. South Dakota Constitution, Article IV, Sections 9 and 10. In addition to the constitutional power, the Legislature has made the Governor the ex officio director of the budget, SDCL 4-7-2, and has delegated to him the authority to prepare a budget report for submission to the Legislature, SDCL 4-7-9. The Legislature has also permitted the Governor to reduce expenditures of any of the State's budget units, but only when it is reported to him by the State Budget Officer that revenues of the State are substantially less than the legislative estimates in making appropriations for expenditures, SDCL 4-8-23. I can find no other constitutional or statutory provisions which would be applicable to your question.

For the purposes of this opinion, I will assume that there is no impropriety of including the appropriation in question in the General Appropriations Act.

Based upon the foregoing constitutional and statutory provisions, I am of the opinion that the Governor does not have any power to prohibit an agency from expending money for lawful purposes, once that money has been legally appropriated, except and unless the revenues of the State are substantially less than legislative estimates, as provided by SDCL 4-8-23, supra, and the answer to both of your questions would therefore be NO.

I do not believe that SDCL 4-7-3 grants the Governor the power to prevent an appropriation from being spent. This statute provides:

GENERAL BUDGETARY POWERS OF GOVERNOR - The Governor, through the office of the budget, shall have such supervision of every public department, agency, commission, institution and other governmental unit as shall be necessary to secure a uniform and standard classification of accounts and financial reports that will promote the efficient and accurate financial information necessary to conduct the fiscal affairs of state government. He may inquire into the methods of conducting the affairs of any public body; HE MAY PRESCRIBE AND DIRECT THE USE OF STANDARD forms and uniform records of accounts and standard forms and uniform financial reports, including, if deemed advisable, AN ENCUMBRANCE SYSTEM and an allotment system. (emphasis added)

An "encumbrance system" as used in the above state is a governmental accounting procedure whereby "an anticipated expenditure, evidenced by a contract or purchase order, or determined by administrative action," is deducted from an agency's appropriation prior to the time the actual warrant is issued, Dictionary for Accountants, Kohler, Third Edition, Prentice Hall. That this is the definition of "encumbrance system" the Legislature had in mind when passing the statute, is substantiated by the wording of SDCL 4-8-19:

REVERSION OF UNENCUMBERED APPROPRIATIONS AT END OF YEAR - PERIOD OF AVAILABILITY OF ENCUMBERED AMOUNTS. - All unexpended annual appropriations at the end of the fiscal year covered by the general appropriations act which have not been contractually obligated in writing and approved by the secretary of finance and the state budget officer prior to the end of the fiscal year, shall lapse and cease to be available, and shall revert to the fund from which appropriated. Such encumbered amounts shall be only available for such expenditure for a period of not to exceed two fiscal years as determined by the state budget officer.

This statute makes it clear that the Legislature was thinking of encumbering in the sense of accounting for anticipated expenditures, rather than in the sense of allowing someone outside of the budget unit to prevent money from being spent.

The Legislature has the right of control over appropriations of money from the state treasury. It may place general restrictions upon all appropriations or specific restrictions upon specific appropriations, or it may delegate powers over appropriations to an executive officer. In this particular instance, the Legislature has appropriated $50,000 to the Legislative Research Council with the restriction only that it be used for a tax study. The effect of such an appropriation is that the agency to which such moneys are appropriated, may, within its discretion, determine the uses for which such money will be expended, so long as it follows the broad legislative purpose for which the money was appropriated. See State ex rel Board of Health v. Frohmiller, (1933) 42 Ariz. 231, 23 P 2d 941; Carr v. Frohmiller (1936) 47 Ariz. 430, 56 P 2d 644; Hutchison v. Swinton (1940) 56 Ariz. 451, 108 P 2d 580; Green v. Rawls (Fla. 1960) 112 S.E. 2d 10; and State ex rel Preston v. Ferguson (Ohio 1960) 166 N.E. 2d 365.

Respectfully submitted,

Gordon Mydland
Attorney General