When a South Dakota city retains an attorney on a $30-per-hour basis to act as city attorney, can the city contract with that same attorney for a separate, percentage-of-project fee to handle the legal and fiscal work on a municipal bond issuance?
Plain-English summary
The City of Brandon, South Dakota appointed John Abbott as its city attorney by city council resolution in May 1976. Abbott's compensation arrangement was simple: $30 per hour for legal services rendered when the council or mayor assigned him work. No retainer, no salary. The arrangement worked for routine matters.
In 1976 the city was getting ready to issue municipal bonds under SDCL 9-4-3 and needed legal counsel for the bond work, which is specialized and time-consuming. Abbott asked AG Bill Janklow whether he could contract with the city for a separate fee, based on a percentage of the project cost, for the bond-issuance legal and fiscal work. The concern was whether the existing $30-per-hour arrangement locked in Abbott's compensation for everything the city asked him to do, including bond work, or whether bond services were on a different track.
Janklow's answer was that bond services were on a different track. SDCL 9-14-22 sets out the city attorney's general duties: provide opinions, prosecute ordinance violations, and perform "such other professional services incident to his office as may be required by ordinance or directed by the governing body." Those general duties are covered by the general compensation (here, $30 per hour).
SDCL 9-14-23 is the carve-out. It authorizes additional compensation, separately negotiated between the governing body and the city attorney, for: (1) assistance with ordinance revisions, (2) issuance of municipal bonds of any kind, and (3) representation in any state court, federal court, federal administrative board, or commission. The bond-services clause was specifically added by Chapter 219 of the 1967 Session Laws, signaling that the Legislature meant to put bond work outside the routine compensation arrangement.
So Brandon could negotiate a separate fee with Abbott for the bond work. The $30 hourly rate was not the ceiling. The fee could be hourly, flat, or percentage-based, as the governing body and Abbott agreed.
Janklow's opinion did not opine on whether a percentage-of-project fee structure was the best approach (that's a policy and ethics question), only that it was legally permissible under SDCL 9-14-23. Bond counsel fees are often percentage-based in municipal finance practice, although ethics opinions in other jurisdictions sometimes look askance at percentage fees for non-contingent work. The opinion simply confirms the statutory authorization.
Currency note
This opinion was issued in 1976. 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 chapters 9-14 and 9-4 have been amended over the decades. Modern municipal bond practice involves multiple specialized parties (bond counsel, financial advisor, underwriter's counsel) whose roles and fees are typically defined separately. The rules of professional conduct (SCR 16.1, Rules 1.5 and 1.7) governing attorney fees and conflicts of interest have also evolved.
What this means for you
City attorneys serving small and mid-size SD cities
If your retainer or hourly arrangement does not specifically cover bond work, you can negotiate a separate fee structure for bond services. Get the additional fee approved by formal city council action (the same way the regular compensation was approved). Document the agreement clearly so future councils, auditors, or bond counsel reviewers can see the basis for the separate fee.
City councils and city managers
When a bond issue is on the horizon, plan the legal-fee budget in two pieces: routine city attorney services (under the existing arrangement) and bond services (under a separate negotiated arrangement). Both need formal action. Many cities choose specialized outside bond counsel rather than relying on the city attorney for this work, both for efficiency and to manage cost.
Municipal finance officers
Identify all legal costs of a bond issue as a single line in the financing budget so the total cost of bond legal services is visible. If the city attorney is doing the bond work, the separate fee should be itemized; if outside bond counsel is doing it, the same itemization applies.
Attorneys negotiating with municipal clients
The statutory authorization in SDCL 9-14-23 is permissive: the city and the attorney "may" agree. Both sides should approach the negotiation as a separate engagement, with a clear engagement letter, a defined scope, and a documented fee. Conflicts of interest (between general city representation and bond work) should be addressed under the rules of professional conduct.
Common questions
Q: Does this rule apply when the city attorney is a city employee on salary rather than an outside lawyer on hourly fees?
A: SDCL 9-14-23 says additional compensation is "in addition to his salary," so the statute contemplates both fee-based and salary arrangements. Either way, the city can authorize extra compensation for bond services.
Q: Can the percentage-of-project fee be calculated on the par amount of the bonds or on something else?
A: The opinion doesn't specify a calculation method. Common practices include percentage of par, percentage of project cost, and tiered fees. The negotiated agreement should specify the method.
Q: Does the additional compensation count toward the city attorney's regular hourly cap or budget?
A: No, it's separate. The general-duties compensation under SDCL 9-14-22 and the bond-services compensation under SDCL 9-14-23 are two different lines.
Q: What about the resolution-versus-ordinance question for city attorney appointment?
A: Janklow's earlier opinion (id=1250, Vermillion fire chief) noted that creating new officer positions requires ordinance, not resolution. The Brandon arrangement involved appointment to the city attorney position. Whether the appointment itself complied with the ordinance requirement was not the question in 1025, but cities should make sure underlying officer positions are properly established.
Q: Does the additional compensation rule apply to other special services like litigation?
A: Yes. SDCL 9-14-23 also reaches representation in courts and before federal administrative bodies. So if the city attorney has to litigate, that can also support a separate fee arrangement.
Background and statutory framework
The South Dakota first-class city framework in SDCL chapter 9-14 dates from the early twentieth century. It evolved out of the consolidation of municipal governance into a uniform statutory scheme replacing earlier town-charter arrangements. The city attorney's role is defined broadly, and the compensation scheme allows the governing body discretion within the statutory limits.
The 1967 amendment adding bond services to SDCL 9-14-23 reflects the post-war municipal finance environment. Cities were issuing more bonds (for water and sewer projects, street improvements, school construction) and the work was becoming more specialized. The Legislature recognized that paying the city attorney a regular salary or hourly rate for ordinary work, and then expecting the same coverage to handle complex bond issuance, was unfair to the attorney and inefficient for the city. Adding bond services to the carve-out gave cities flexibility to negotiate appropriate fees.
The general rule in municipal-finance practice is that bond counsel fees are paid out of bond proceeds, not city general funds. This means the city's voters and taxpayers see the bond legal fees as a cost of the project rather than as a separate budget item. The opinion does not address that question, but the cost-of-issuance allocation is the practical mechanism through which most bond legal fees actually get paid.
Citations
- SDCL 9-14-22 (city attorney general duties)
- SDCL 9-14-23 (additional compensation for ordinance revision, bond services, court representation)
- SDCL 9-4-3 (municipal bond issuance)
- Chapter 219, Laws of 1967
Source
Original opinion text
Compensation of city attorney
Dear Mr. Abbott:
You have requested an opinion based on the following factual situation:
FACTS:
On May 10, 1976, the City Council of the City of Brandon, South Dakota, appointed John P. Abbott to the position of City Attorney. The appointment was made by Resolution of the City Council. As City Attorney, John P. Abbott is to perform those assignments given to him by the City Council or Mayor. All assignments are at the discretion of the City Council or Mayor. For compensation, the City Attorney receives $30 per hour for legal services rendered. There is no retainer or salary paid or payable to John P. Abbott other than the hourly rate paid whenever legal services are rendered.
The City of Brandon is presently considering the issuance of bonds pursuant to SDCL 9-4-3 and will need legal counsel to assist in the procedure.
Based on the above factual situation you ask the following question:
QUESTION:
Can the City Attorney contract with the City of Brandon to perform all legal and fiscal services necessary in connection with the issuance by the City of Brandon of negotiable bonds pursuant to SDCL 9-43 for a fee of the entire cost of the project (based on a percentage)?
The relevant statutes provide as follows:
9-14-22. When required by the governing body or any officer of the city, the city attorney shall furnish an opinion upon any matter relating to the affairs of the city or the official duties of such officer; conduct the prosecution of all actions or proceedings arising out of the violation of any ordinance; and perform such other professional services incident to his office as may be required by ordinance or directed by the governing body.
9-14-23. If the governing body shall require the city attorney to render assistance or perform services in connection with any revision of the ordinances, or the issuance of municipal bonds of any kind, or if the city attorney shall represent the city in any action or proceeding in the county, circuit or Supreme Court, or in any federal court, or before any federal administrative board or commission he shall receive such compensation in addition to his salary as may be agreed upon between the governing body and him.
In my opinion SDCL 9-14-23 authorizes the governing body of a municipality to contract with the city attorney for payment of additional compensation for "extraordinary" services. Services performed in connection with "the issuance of municipal bonds of any kind" were specifically added by Chapter 219 of the 1967 Session Laws. Therefore, it must be concluded that such services are an exception to the general duties of a city attorney as stated in SDCL 9-14-22.
If I correctly understand the contract between yourself and the City of Brandon, a fee of $30 per hour is established therein as the compensation for legal services rendered to the city. However, specific assignments are made by formal action of the governing body as the need arises. SDCL 9-13-23 specifically provides for negotiation of fees in addition to the regular compensation when the services requested involve municipal bond issues.
Therefore, the $30 per hour fee is not conclusively binding for such services and another method of compensation would be permissible. The answer to your question is yes.
Respectfully submitted,
William J. Janklow
Attorney General
WJJ:LLV:rw