Can a South Dakota township borrow money from a bank to buy a road maintainer (grader), spread payments over 10 years, and issue warrants to the bank for each annual payment?

Plain-English summary

A South Dakota township wanted to buy a road maintainer (a grader for maintaining township roads) but did not have the cash in its general fund. The township proposed to borrow 75% to 80% of the purchase price from a bank, repay over 10 years at the maximum legal interest rate, and issue annual township warrants to the bank as each installment came due. Mr. Bogue asked AG Mark V. Meierhenry whether this structure was legal.

Meierhenry's answer was no. Townships in South Dakota are creatures of statute. Under SDCL 8-2-10 and the longstanding Aldrich v. Collins line of cases, a township has only the powers expressly conferred by the Legislature plus those reasonably necessary to exercise those powers. The Legislature has spelled out exactly how townships pay for road equipment, and a multi-year bank installment loan is not among the authorized methods.

Three statutes mattered. SDCL 8-9-3 said a township board of supervisors could not enter into any contract for a road grader (or any machine costing over $100) without first submitting the question to the voters. SDCL 8-10-8 said no township could contract debts or make expenditures in any one year exceeding that year's assessed taxes without majority voter approval. SDCL 8-10-7 was the kicker: a township officer cannot create any debt that requires a future-year tax levy above the maximum statutory rate, and any contract violating this rule is "null and void." More importantly, the same statute says the officers who sign such an illegal contract are personally liable.

Two pre-existing case-law principles closed the door. F. C. Austin Mfg. Co. v. Twin Brooks Township and Van Antwerp v. Dell Rapids Township held that contracts entered by township officers without voter approval are void. Forsting v. Hoilien held that a township's debt-incurring power reaches only the current year's levy and the immediately following year's levy. Anything stretching debt service across longer periods exceeds the township's debt authority and is unenforceable.

Layered on top is Article XIII Section 4 of the South Dakota Constitution. Even with voter approval, township debt cannot exceed 5% of assessed valuation, with an additional 10% available for specified purposes like water and sewer (road equipment is not on that enhanced list).

Meierhenry concluded that the only legal paths to a township road maintainer were (1) a voter-approved bond issue under SDCL 8-11, with strict compliance with all bonding procedures, or (2) cash payment that the township could absorb within its current and next-year tax levies. The 10-year bank installment plan was simply outside the township's powers.

Currency note

This opinion was issued in 1981. 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 township provisions in SDCL chapter 8, the bonding procedure under SDCL 8-11, and the constitutional debt limit in Article XIII Section 4 may have been amended since 1981. Verify the current dollar amounts, voter-approval thresholds, and available financing methods before relying on anything here.

What the opinion meant at the time

For township boards, the opinion shut the door on creative financing arrangements with banks. If voters had not approved a bond, and the price tag exceeded what the current year's levy could absorb, the township could not buy the equipment. Period.

For bank loan officers, the opinion was a warning: townships are not corporations or municipalities with broader implied powers. A loan to a township for capital equipment requires either a voter-approved bond issue or payment in full within two budget years. Anything else is unenforceable, and the officers who signed personally remain on the hook.

For township residents, the opinion preserved the voter-approval safeguard. A road grader costs serious money in a small township. The Legislature wanted voters to decide whether the equipment was worth the tax burden, not just three or five supervisors meeting in a town hall.

For state legislators, the opinion is a clear illustration of how narrow the township financing toolkit was under the statutes as they then stood: bond under SDCL 8-11 with voter approval, or pay within the current and next year's levy, and nothing else.

Common questions

Q: Why is a township so limited compared to a city or county?
A: As the opinion explains, townships "are only vested with the powers conferred expressly upon them by statute or are necessary to the exercise of enumerated powers" (citing Aldrich v. Collins and SDCL 8-2-10). Long-term equipment financing is not among the powers the Legislature gave them.

Q: What does "void" actually mean for a township contract?
A: A void contract is unenforceable from the start. A bank that loaned money on a void township contract cannot sue the township for the unpaid balance, and the township cannot use tax revenues to pay it. The bank's remedy is against the township officers personally, who under SDCL 8-10-7 are individually liable for contracts they made without authority.

Q: What if the voters had approved the 10-year bank loan?
A: Voter approval is necessary but not sufficient. Even with voter approval, the township still has to use one of the statutorily-authorized debt mechanisms. SDCL 8-11 is the bond procedure. A bank installment loan is not a bond. The voters cannot authorize a debt structure the Legislature did not allow.

Q: Did the opinion address leasing the road maintainer instead?
A: No. The question put to the AG was about borrowing from a bank and issuing warrants over ten years, and that is what the opinion answered. It did not analyze leasing. The opinion's core limit, that a township cannot create an obligation requiring tax levies beyond the current and next year (SDCL 8-10-7), is what any alternative arrangement would have to be measured against.

Q: What is SDCL 8-11 bonding actually like for a township?
A: It requires a formal resolution, voter approval at an election, compliance with publication and notice rules, and adherence to the constitutional 5% debt cap. Townships rarely use it because the procedure is cumbersome relative to the typical township budget; most small townships either save for capital equipment or partner with the county.

Background and statutory framework

Civil townships are the basic local-government unit for many rural areas of South Dakota. The opinion relied on a line of early state cases (Aldrich v. Collins (1892), F. C. Austin Mfg. Co. v. Twin Brooks Township (1902), Van Antwerp v. Dell Rapids Township (1894)) holding that township officers' contracts without voter approval are void, and on Forsting v. Hoilien (1937) for the rule that a township's debt power reaches only the current and immediately following year's levy.

The township-debt rules sit in SDCL Title 8. SDCL 8-9-3 requires voter approval for any road grader or machine purchase over one hundred dollars; SDCL 8-10-7 and 8-10-8 bar debts or expenditures beyond the year's assessed taxes without voter approval and void any contract that would require a future levy above the maximum rate.

The constitutional 5% debt cap in Article XIII Section 4 is the outer ceiling. Even if the Legislature authorized a township to borrow more, the Constitution would not allow it. The 10% additional debt for water and sewer (added by later amendment) reflects the special public-health concerns those projects raised.

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1010

Original opinion text

Township's authority to contract for long-term payment of funds for special equipment purchases

Dear Mr. Bogue:

You have requested an official opinion from this office in regard to the following factual situation:

FACTS:

A township wishes to purchase a road maintainer, the cost of which they do not have in their general fund. The township therefore wishes to borrow three fourths to 80 percent of the total cost of the township purchase of the maintainer and to finance it over a period of 10 years with equal payments and interest at maximum rates allowable.

Based on these facts you have asked the following question:

QUESTION:

May the township enter into an arrangement with a financial institution, such as a bank or lending institution, to borrow money at the maximum allowable interest rate over a period of 10 years, purchase a road maintainer and then issue warrants to the bank for the payment of each specific payment for the next 10 years?

Townships are governmental bodies organized under state law and are only vested with the powers conferred expressly upon them by statute or are necessary to the exercise of enumerated powers. Aldrich v. Collins, 52 N.W. 854 (S.D. 1892); SDCL 8-2-10. In this situation it would appear the only expressly authorized procedure for raising such funds would be the issuance of bonds by the township pursuant to SDCL 8-11.

Your facts do not indicate if the voters of the township have approved such an arrangement, or whether the action is being considered by the officers of the township. The statutes on this matter clearly indicate that such a debt may only be incurred with the approval of a majority of the voters in the township. SDCL 8-9-3 specifically applies to these facts; it reads:

No township board of supervisors shall enter into any contract for the purchase of any road grader or any other machine or tool whatsoever, the purchase price of which exceeds one hundred dollars, without submitting the same to, and securing the approval of, the electors of such township in the manner provided by law for submitting questions to such electors.

Even more limiting are the provisions of SDCL 8-10-8 requiring approval of a majority of all the voters in the township:

No township has power to contract debts or make expenditures for any one year in excess of the amount of taxes assessed for such year, without having been authorized by a majority of the voters of such township.

Any contract entered into by the officers of the township without approval by these methods is void. F. C. Austin Mfg. Co. v. Twin Brooks TP., 91 N.W. 470 (S.D. 1902); Van Antwerp v. Dell Rapids Township (S.D. 1892), rehearing 59 N.W. 209 (S.D. 1894).

Even with the approval of the voters in the township, the indebtedness is limited by section 4 of article XIII of the South Dakota Constitution, which reads:

The debt of any county, city, town or civil township shall never exceed five per centum upon the assessed valuation of the taxable property therein, for the year preceding that in which said indebtedness is incurred. . . .

Provided, that any county, municipal corporation, civil township, district, or other subdivision may incur an additional indebtedness, not exceeding ten per centum upon the assessed valuation of the taxable property therein, for the year preceding that in which said indebtedness is incurred, for the purpose of providing water and sewerage, for irrigation, domestic uses, sewerage and other purposes; and . . .

. . . no such debt shall ever be incurred for any of the purposes in this section provided, unless authorized by a vote in favor thereof by a majority of the electors of such county, municipal corporation, civil township, district or subdivision incurring the same.

and SDCL 8-10-7:

It shall be unlawful for the officers of any civil township, unless specially and expressly authorized by law, to contract any debt or incur any pecuniary liability for the payment of either the principal or interest for which, during the current year or any subsequent year, it will be necessary to levy on the taxable property of such township, a higher rate of tax than the maximum rate prescribed by law; and every contract made in contravention of the provisions of this section shall be null and void in regard to any obligation imposed on the corporation on behalf of which such contract purports to be made; but every such officer, who makes or participates in making or authorizes the making of any such contract, shall be held individually liable for its performance; and every such officer present when any such unlawful contract was made or authorized to be made, shall be deemed to have made or to have participated in making, or to have authorized the making of the same, as the case may be, unless he dissented therefrom and entered or caused to be entered such dissent on the records of such township.

Under this statute the governmental body may only anticipate the levy to be made in the next or subsequent year only. Forsting v. Hoilien, 274 N.W. 654 (S.D. 1937); 1951 A.G.R. 66; 1967 A.G.R. 207. Therefore, unless the contract can be paid off by funds received from the maximum mill levy made during the current fiscal year and the next year, it is illegal and unenforceable against the township. Forsting, supra at 657.

Accordingly, any such purchase must be made with funds received in a two-year period or by the bonding procedure set forth in SDCL 8-11.

All other methods are excluded. 1947 A.G.R. 66; 1951 A.G.R. 201; 1967 A.G.R. 207. Under the facts presented the only feasible method for this purchase would appear to be a bond issue. It should be noted that the requirements for such bond issue must strictly comply with the requirements of SDCL 8-11.

Respectfully submitted,

Mark V. Meierhenry

Attorney General

MVM:DRH:esp