When a South Dakota city specially assesses state-owned property for a local improvement, three things are unclear: is the state property assessable at all, does the state owe interest and penalty when it pays the assessment in installments, and does SDCL 5-14-20 give the Bureau of Administration authority to approve interest payments?
Plain-English summary
Commissioner Engelhart of the Bureau of Administration asked AG Meierhenry to clarify how special assessments work when a city assesses state-owned property. Before 1970, the state paid each special assessment through a specific legislative appropriation, one at a time. In 1970 the legislature passed a $35,000 annual continuing appropriation (SDCL 5-14-19) to handle special assessments without each one needing its own bill. The 1970 system worked for a while but ran into a structural problem: some assessments exceeded the $35,000 annual cap, which forced the state into installment payments. Cities charged interest on installments, just like they did with private property owners. The Bureau wanted to know whether the state owed that interest.
Meierhenry walked through three questions.
First, is state property subject to special assessments at all? Yes. Special assessments are not taxes in the constitutional sense, so the constitutional protection of state property from taxation does not block them. Prior AG opinions going back to 1921, 1935, and 1947 had all reached the same conclusion. The 1909 Whittaker v. City of Deadwood and 1979 City of Brookings v. Associated Developers cases supported the analysis. State property is assessable.
Second, does the state owe interest and penalty on installments? No. The legislature has authority to set the rules on whether the state pays interest, and it has done so for cities, counties, towns, and school districts in SDCL 9-43-37 ("payable in like installments and with like interest and penalty"). But the legislature has not extended that rule to the state itself. Without that legislative consent, the state's sovereign immunity from interest applies. The 1930 Chicago, Milwaukee, St. Paul M & O Railway v. Mundt case had recognized that the state, when it submits to suit, should normally be subject to interest like any other party. But that holding required the state to have submitted to a forum where the assessment could be collected. The legislature had not done that for special assessments.
Third, does SDCL 5-14-20 authorize the Bureau, the Board of Finance, and the State Auditor to approve interest payments? Meierhenry did not need to reach this question separately because his answer to question two foreclosed it. There was no interest obligation to approve.
The practical bottom line: the $35,000 annual cap is what the state can pay each year on special assessments, and that figure does not bend to accommodate interest or penalties on accumulated installments. If a particular assessment is going to exceed the cap, the state's options are to seek a special appropriation from the legislature or to wait years before the assessment is fully paid.
Currency note
This opinion was issued circa 1981 during AG Mark Meierhenry's tenure (1979-1987) and relied on prior AG opinions back to 1921. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The $35,000 annual cap in SDCL 5-14-19 has been amended multiple times since 1981, and modern special-assessment treatment of state property should be verified against current SDCL chapter 5-14 and SDCL chapter 9-43 before reliance. The doctrine that sovereign immunity from interest requires legislative consent has been further refined by later cases.
What the opinion meant at the time
For the Bureau of Administration and the State Auditor, the immediate operational answer was: pay assessments up to the $35,000 annual cap, do not add interest or penalty payments, and tell cities seeking interest that the state's statutory authority does not extend that far.
For municipalities specially assessing state property, the opinion confirmed they could assess, but flagged that recovery would be slow and limited. If the city wanted faster payment or wanted interest, it would need to lobby the legislature for either a higher cap or an explicit interest-consent provision.
For state agencies considering whether to oppose special assessments on their property, the opinion confirmed the underlying assessability. Substantive arguments about whether a particular assessment was lawful (does the improvement actually benefit the state property?) remained available, but the threshold attack on assessability of state property as such was not viable.
Common questions
Q: Why isn't a special assessment a tax?
A: Special assessments are charges for specific improvements that benefit specific properties (paving a street, putting in a sidewalk). They are tied to a measurable benefit conferred. Taxes are general revenue measures not tied to specific benefits. Because of that distinction, constitutional protections against taxing state property do not block special assessments. The 1909 Whittaker case established this distinction in South Dakota.
Q: What's the difference between an assessment and a lien?
A: An assessment is the dollar amount the city has determined the property owner owes. A lien is the legal claim against the property that secures the assessment. SDCL 9-43-28 creates the lien but expressly excludes the United States and the State of South Dakota. So while state property can be assessed, the city has no lien-enforcement remedy against the property itself. Collection depends on the state voluntarily paying through the appropriation process.
Q: Why couldn't the state just pay interest like any other property owner?
A: Sovereign immunity. The state generally is not subject to interest unless the legislature has consented. The legislature has consented for various other categories (counties, cities, towns, school districts under SDCL 9-43-37), but it has not done so for state agencies funded by general fund appropriations.
Q: What about the Mundt case where the railroad got interest from a political subdivision?
A: That case dealt with whether interest could be charged on a judgment when the sovereign had submitted to suit. The opinion distinguished it: the state had not submitted to suit on special assessments in any forum, so the Mundt reasoning did not apply.
Q: What happens if the assessment is more than $35,000 in one year?
A: The state pays $35,000 that year and the remainder gets pushed to future years. The city does not collect interest on the unpaid balance. As a practical matter, the assessment can stretch over multiple years if no special appropriation comes through.
Q: Could the state agency holding the property opt to pay the assessment from its own appropriation?
A: The opinion did not directly answer this. The structure of SDCL 5-14-19 centralizes the payment authority in the special assessment fund. State agencies generally cannot use their general fund appropriations to pay obligations that the legislature has channeled through a dedicated fund. The Board of Finance and the State Auditor would have had to approve any deviation.
Q: Were prior AGs unanimous on this?
A: Yes. The 1921-22, 1935-36, and 1947-48 AG opinions all reached the same conclusion: state property is subject to assessment in principle, but enforcement and interest require legislative consent that has not been given. Meierhenry concurred with those prior opinions.
Background and statutory framework
South Dakota's pre-1970 special-assessment regime relied on the legislature to make a separate appropriation each time a city assessed state property. That was administratively unwieldy and could create timing mismatches between when the city needed payment and when the next legislative session could act. The 1970 enactment of SDCL 5-14-19 with its $35,000 continuing appropriation was designed to smooth the process.
What the 1970 fix did not do was solve the interest problem. The legislature provided a payment mechanism but did not address whether the state would pay interest when installment terms applied. The statutory text was silent, and the silence had to be interpreted against the background of sovereign immunity doctrine.
Meierhenry's reading was that legislative silence equals no consent, which means no interest obligation. That kept the state's exposure within the appropriation cap, but it also meant cities bore the time-value-of-money cost when assessments exceeded the cap and ran across multiple fiscal years.
The 1979 Brookings v. Associated Developers case had reaffirmed prior holdings on special assessments without changing the rules at issue. The 1930 Mundt case had recognized state liability for interest in a different context (the state having voluntarily submitted to suit) that did not extend to the special assessment context.
The downstream consequence of this opinion was that the $35,000 cap in SDCL 5-14-19 was the operative limit on what the state could pay in any year on special assessments, full stop. Cities that wanted faster payment or interest needed to seek legislative changes. State agencies could not unilaterally exceed the cap, and the Bureau of Administration could not approve interest payments.
Citations and references
Statutes:
- SDCL 5-14-19 (annual special assessment appropriation, $35,000 cap)
- SDCL 5-14-20 (Bureau, Board of Finance, Auditor approval)
- SDCL 9-14-31 and 9-14-44 (interest on special assessments generally)
- SDCL 9-43-28 (lien rule excludes state and U.S.)
- SDCL 9-43-37 (other governments pay with interest and penalty)
Cases:
- Whittaker v. City of Deadwood, 23 S.D. 538, 122 N.W. 590 (1909)
- City of Rapid City v. Rensch, 77 S.D. 242, 90 N.W.2d 380 (1958)
- Chicago, Milwaukee, St. Paul M & O Railway Co. v. Mundt, 56 S.D. 530, 229 N.W. 394 (1930)
- City of Brookings v. Associated Developers, 280 N.W.2d 97 (S.D. 1979)
Prior AG opinions:
- 1921-22 A.G.R. 328, 360, 365
- 1935-36 A.G.R. 497
- 1947-48 A.G.R. 123
- Official Opinion 80-26
Source
Original opinion text
Special Assessments by Municipalities Against State-Owned Property
Dear Commissioner Engelhart:
You have requested an official opinion from this office in regard to the following factual situation:
FACTS:
A special assessment fund, established under the provisions of SDCL 5-14-19 and 5-14-20, is used to pay special assessments by local governments for improvements against all state-owned property except property of the Department of Game, Fish and Parks and the Department of Transportation.
Such assessments will frequently be broken down to annual installments. Interest is then charged on the unpaid balance at a rate set by the governing body but not to exceed 12 percent per annum. SDCL 9-14-31, -44. The assessed property owner has the option of making full payment in advance without interest charges.
Because such assessments against state property frequently exceed the thirty-five thousand dollar annual appropriation, multiple year payments are necessary in many cases and interest charges are then incurred.
Based on the above facts, you have asked the following questions:
QUESTIONS:
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Is the state-owned property assessable property under Chapter 9-43 of the South Dakota Codified Laws or any other statutes?
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If state property is assessable property, is the State subject to the interest and penalty charges on installment payments?
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If state property is assessable and subject to interest and penalty charges, does SDCL 5-14-20 provide sufficient authority for the Bureau of Administration, the State Board of Finance, and the State Auditor's Office to approve such interest payments?
IN RE QUESTION NO. 1:
Prior to the enactment of SDCL 5-14-19 to 5-14-21, all special assessments against state-owned property were paid by special appropriations on the part of the Legislature. In 1970, in an effort to reduce the number of private bills introduced, Chapter 34 was enacted which made a limited continual special appropriation of $35,000 for the fiscal year. Apparently at that time the amount was deemed sufficient to cover contemplated special assessments.
Special assessments are one of the methods by which the Legislature has authorized the financing of improvements by local units of government. This grant of power to municipalities is necessarily strictly limited to the terms of the statute since municipal corporations possess only those powers which are conferred upon them by the Legislature and incidental or implied powers necessary to enable the municipality to perform the function authorized. City of Rapid City v. Rensch, 77 S.D. 242, 90 N.W.2d 380 (1958).
A special assessment, of course, is not a tax in the sense of the constitutional limitation against the taxing of certain property belonging to the United States, the state, counties and municipal corporations. Whittaker v. City of Deadwood, 23 S.D. 538, 122 N.W. 590 (1909). This office has previously held that the property of the state is not exempt from special assessments (1935-36 A.G.R. 497). A similar result was reached in 1947-48 A.G.R. 123. In this connection see also 1921-22 A.G.R. 328, 360, 365.
In the 1935 opinion, while holding that state property is not exempt from special assessments, the Attorney General pointed out that he could not see how the Board of Charities and Corrections could pay these claims out of current appropriations since they should be paid by special appropriation made at the next legislative session.
In 1947 the Attorney General held that the provisions of 9-43-28 (then SDC 45.2108) stating:
All special assessments lawfully levied upon real property in any municipality are a perpetual lien thereon as against all persons except the United States and this State from the date of the filing of the certified copy of the assessment roll in the office of the Municipal Treasurer.
do not authorize a lien against state property. That opinion stated at page 124:
If property belonging to the State is subject to special assessment liens for public improvement, there has been no method provided for, for the enforcement of that lien as there has been no provision made for the service of any notice upon the State in the event proceedings are had to take special assessment deeds as no person or officer has been designated upon whom any service of notice may be made.
The opinion continues:
The fact that the title is in the State and that proceedings can not be taken against it without its consent, is a protection against the enforcement of the lien, but that immunity would not be predicated upon the invalidity of the lien.
The Attorney General finally notes,
It has been the practice in the past for the Legislature to make specific appropriations for the purpose of paying special assessment; in fact this is the only way in which these special assessment liens can be paid and when the question comes up as to benefits to the State, that matter will be taken into consideration by the Legislature in making such appropriations.
I concur in the prior official opinions of this office.
A recently decided case, City of Brookings v. Associated Developers, et al., ---- S.D. ---- 280 N.W.2d 97 (1979), goes into the matter of special assessments. Nothing in that case, however, reverses prior decisions. Rather the court continues to affirm prior holdings referred to herein.
It is my opinion that state-owned property is subject to special assessment procedures the same as any other property in the state.
IN RE QUESTION NO. 2:
The matter of interest and penalty on special assessments is a legislative determination and SDCL 9-43-37 has provided that:
The amount owing by any county, city, town or school district on account of assessments under Plan One against property of such municipality shall be payable by the treasurer of the governmental subdivision affected and shall be paid in like installments and with like interest and penalty as provided by law for other assessable real property.
The Legislature clearly has no directed that amounts to be paid by the State are subject to interest. The language in that section does not lend itself to inclusion of state agencies supported by general funding appropriations. See Official Opinion 80-26.
It is my opinion, therefore, that in the absence of a legislative declaration with respect to interest, the State would not be subject to such a charge.
I am not unmindful of the decision of our Supreme Court in the case of Chicago, Milwaukee, St. Paul M & O Railway Co. v. Mundt, 56 S.D. 530, 229 N.W. 394 (1930) which has to do with the charges of interest as a result of a judgment by a taxpayer against a political subdivision. The Court there stated:
It seems to us the fair, just and reasonable rule that, when the sovereign submits itself to suit, unless the statute expressly provides to the contrary, it should come into court on the same basis as to liability for interest and costs in the event of adverse decision, as any other suitor.
56 S.D. at 533.
That ruling would, however, only be applicable if the Legislature provided a forum or means for the collection of the special assessment against the state.
IN RE QUESTION NO. 3:
In view of my answer to Question No. 2 there is no need to address Question No. 3.
The $35,000 limitation in SDCL 5-14-19 is the only payment that can be made on special assessments against state property. It does not authorize payments of penalties and interest. Only the Legislature could increase the $35,000 limit either through amendment of SDCL 5-14-19 or by additional special appropriations acts.
Respectfully submitted,
Mark V. Meierhenry
Attorney General