John Hult/South Dakota Searchlight
PIERRE — The South Dakota Supreme Court might soon offer clarity on what it means for a lawmaker to have a conflict of interest on state contracts.
Or it won’t.
On Tuesday in Pierre, the justices spent much of a hearing on the matter peppering Attorney General Marty Jackley and lawyers for the governor and Legislature on how they might offer that clarity without a specific conflict to consider.
The hearing came after Gov. Kristi Noem requested an advisory opinion on conflicts last fall. That request followed revelations that former Sen. Jessica Castleberry, R-Rapid City, had accepted more than $600,000 in COVID relief funds for her preschool after voting on a bill to authorize the distribution of that money.
Castleberry resigned, and is now paying back nearly $500,000 of that money – the portion that did not directly benefit parents – in monthly installments. Hers is one of two seats that sit vacant as the South Dakota Legislature begins its 99th session this week.
Noem can appoint lawmakers to fill those seats, but has said she won’t do that without guidance from the Supreme Court on conflicts. Noem has the power to request an advisory opinion from the court, but the court isn’t legally bound to return one.
In this case, each question is tied to a provision in the South Dakota Constitution barring lawmakers from having any interest, “directly or indirectly,” in a contract with the state “authorized by any law” passed within a year of their service.
The questions have picked up since Noem revealed Castleberry’s situation in a press release over the summer. In November, State Auditor Rich Sattgast told the Legislature’s Executive Board that he’s fielded questions about at least 20 lawmakers with potential conflicts.
Noem’s request presented the justices with nine questions about potential conflict situations. Each was posed as a hypothetical. No names of current lawmakers are attached to her legal brief, and no facts about specific, current contracts are presented.
On Monday at the Capitol, Noem’s general counsel, Katie Hruska, told the justices that those questions are “the ones they most often receive” about conflicts.
But Chief Justice Steven Jensen signaled uncertainty on how the court could possibly create guidance broad enough to address all nine at once.
“We’re presented nine questions of different scenarios, but there could be facts that might impact those scenarios,” Jensen said. “Which gets to the ultimate question of, can we dig into these questions that could be pretty detailed or could be very fact-bound?”
Hruska replied by pointing to another advisory opinion, one Noem requested about the use of COVID relief funds. That opinion involved “a question of the governor’s executive power, and did indeed answer that.”
Hruska, Jackley and Ron Parsons, the former U.S. attorney for South Dakota who represents lawmakers in this matter, all urged the justices to take up the questions, even if the court is forced to “reformulate” them to narrow the scope of its advice.
As about a dozen current lawmakers looked on, Parsons called the moment of agreement – on the importance of the question, at least – a “historic occasion.”
“If it is not the first time, it is certainly one of the very rare times in which each of the three co-equal branches of our state government are represented here in their official capacities in this grand courtroom on the second floor of our state Capitol building,” to ask for constitutional clarity, Parsons said. “… the overriding question here today is one that solicits wise guidance from this court.”
Lawmakers: Funding alone not enough
For Parsons, that question was “what does the plain meaning of the text of the contracts clause (of the constitution) actually prohibit?”
The key word in that clause for the Legislature, Parsons argued, is “authorized.”
If a lawmaker votes to fund government operations as a whole, does that “authorize” any contract a state agency might sign using that money?
It takes more than a funding vote to create a conflict, he argued. Agencies sign and “authorize” contracts, he said. By passing the general appropriations bill that sets annual agency budgets, he said, lawmakers are merely opening the door to the authorization of contracts.
“A payment fulfills the contract,” Parsons said. “It does not authorize the contract.”
The situation is different with a “special appropriation,” which authorizes funding for a specific purpose. One of the votes that ultimately snagged Castleberry in the conflict net was a special appropriation.
The justices challenged that idea several times during Monday’s hearing.
Only a handful of prior Supreme Court cases address conflicts of interest for lawmakers, and most square with the notion that a vote to fund the government is a vote to authorize the spending that follows.
One case involved a South Dakota State University professor and lawmaker who lost her wages after voting on the general appropriations bill that paid her salary. Her contract for employment was signed by the Board of Regents, but the high court ruled that her vote was enough to justify the state auditor’s refusal to release her paychecks.
At one point, Justice Janine Kern asked, “Can the state enter into a binding contract if the Legislature has not appropriated the necessary funds?”
Justice Mark Salter pointed to South Dakota history, noting that the framers of the state Constitution took care to address conflicts. Only five states have similar clauses.
“There was a strong anti-corruption sentiment,” Salter said.
Jensen pushed Parsons on the lawmakers’ supposed lack of information or authority on the ultimate destination of the money they vote to spend.
Agencies appear before lawmakers every year with a funding request and a list of projects they’d like to undertake.
“Legislators know, theoretically, what they’re funding these various agencies for,” Jensen said.
Parsons, however, argued that the previous rulings were either wrong or didn’t address the matter of what the word “authorized” actually means.
Voting to possibly fund something isn’t enough to “authorize” a contract, Parsons said.
“You can enter into a contract that’s never funded, and you could never be paid.”
Jackley: Funding votes create conflict
Attorney General Marty Jackley disagrees. The official position from his place in the executive branch is that a vote to fund operations is a vote to authorize contracts.
“The language of the constitution is plain,” Jackley said, pointing to prior cases and a series of written opinions from previous attorneys general in South Dakota. “It is intended to remove any suspicion which might otherwise attach to the motives of the members who advocate the creation of new offices, or the expenditure of public funds.”
Jackley’s office has proposed a test to determine if a conflict rises to the level of a constitutional problem. It would distinguish between a lawmaker’s “substantial” interest in a contract and a “nominal” one.
He pointed to several of Noem’s questions as ones easily dispatched by such a test. Lawmakers could, for example, be employed by a business accepting Medicaid payments, buy hunting licenses from the state, accept payments to care for foster children, be a part of the state’s retirement system or own a small number of shares in a company that ultimately gets a state contract.
Those situations put lawmakers on equal footing with members of the public, rather than offering “substantial” benefit, Jackley said. When applied to spouses who might contract with the state – “indirect” interests – Jackley said the same standard can be applied to determine how enriched a lawmaker might be through a contract.
Substantial conflicts, pulled from real examples in other states for use in Jackley’s legal brief in the case, could involve a lawmaker whose spouse owns a company that enters into a contract with the state Department of Corrections, or whose spouse owns a printing company that contracts to produce materials for a state agency.
“It’s a very simple standard,” Jackley said. “And that is whether the interest has any tendency to affect the judgment of the legislator. If it does, it’s a conflict and off limits.”
Why now?
The justices zeroed in on whether it’s appropriate for them to issue broad standards without clear facts.
Some lines of inquiry aimed to offer solutions that wouldn’t require a legal analysis of hypotheticals about hunting licenses or foster care reimbursement.
Justice Patricia DeVaney asked Hruska if the Governor’s Office would object to the court reformulating her questions to allow for broader guidance.
Hruksa, and later Parsons and Jackley, each endorsed that approach as preferable to no opinion. But when DeVaney asked Hruska what those reworked questions might look like, she said “it’s not a question that I had thought of.”
But even a synthesis of previous decisions would be helpful, she said.
During Jackley’s argument, Justice Salter pointed out that each of the previous Supreme Court cases on conflicts involved real questions about real lawmakers. The opinions from previous attorneys general also arose from real situations.
“Is this the right process?” Salter asked.
The Legislature could more clearly define the words in the contracts clause to spell out what might constitute a “direct or indirect” conflict, as lawmakers in Mississippi have done to clear up questions about that state constitution’s contracts clause. Jensen asked Jackley if the state Legislature could do that in Pierre, and Jackley said “yes.”
But Jackley also said “yes” to the question of whether 2024 is the right time to ask for the advisory opinion. The attorney general, the governor and the Legislature have all said “this is the appropriate time,” he said.
“Once and for all, tell us what the standard is,” he said.
Parsons, for his part, told the justices that the idea of a citizen legislature doesn’t work if potential lawmakers are too worried about conflicts to pursue leadership.
“We want regular people to serve in Pierre,” Parsons said.