State Supreme Court clarifies conflicts of interest; Noem pledges to fill legislative seats

The Supreme Court at the South Dakota Capitol in Pierre. (Getty Images)

John Hult and Seth Tupper, South Dakota Searchlight

Legislators can have contracts with state government if the money comes from the annual budget bill, but not if the money comes from any other bill.

That’s the gist of a state Supreme Court opinion issued Friday. Immediately after the opinion’s release, Gov. Kristi Noem said it will free her up to make appointments for two empty seats in the Legislature, both from districts in the Rapid City area.

“My team is reviewing this decision and will be announcing legislative appointments very soon,” Noem said in a written statement.

Noem had been waiting to make the appointments until the court offered clarity on conflict of interest language in the state constitution. The language has been a subject of debate since last year, when Noem revealed that a state senator’s business received federal pandemic relief funds through a state contract.

That senator, Jessica Castleberry, ultimately resigned and agreed to repay approximately $500,000 to the state. The other legislative vacancy was created when Rep. Jess Olson resigned, citing health reasons.

Noem requested an advisory opinion from the Supreme Court to clear up questions raised in the wake of the Castleberry situation. The Legislature has already finished 21 days of its 38-day annual session in Pierre.

The court’s opinion

The court’s Friday opinion followed the filing of briefs by the governor, the Legislature and the attorney general, and oral arguments last month.

The governor asked nine questions, but the court condensed them to just one: Does Article 3, Section 12 of the state constitution prohibit all contracts between legislators and the state?

The opinion says the answer is no.

Instead, according to the court, the constitution prohibits legislators — during their term or for one year after it — from entering into contracts with the state that are authorized by laws passed while they serve.

And the court says the annual budget legislation known as the general appropriations bill is not a “law” in the traditional sense. It only makes money available for the various departments of state government to spend. When lawmakers dictate spending to create a specific program or fund a specific project, they do that through separate legislation.

“The purpose and effect of general appropriation legislation is restricted to simply allocating money to fund state government; it does not, itself, authorize specific contracts relating to ordinary or current expenses,” Justice Mark Salter wrote for the court.

The court’s assertion that the general appropriations bill doesn’t authorize specific contracts is important, because the constitutional language hinges on the word “contract.” It says legislators cannot have an interest, “directly or indirectly, in any contract with the state or any county thereof, authorized by any law passed during the term for which he shall have been elected.”

As part of its opinion, the court overruled two of its own prior decisions with different interpretations of the constitution and the nature of the general appropriations bill. The court called its reasoning in one of those earlier cases “not particularly satisfying,” and its decision in one of the cases “acutely unworkable.”

The Supreme Court opinion does not mention Castleberry by name, but it alludes to her situation.

The court referenced an October 2020 special session, when the Legislature amended the general appropriations law to account for recently enacted federal pandemic aid. The Legislature also passed a resolution authorizing and establishing a grant program to be administered by the executive branch.

Castleberry’s business, Little Nest Preschool, ultimately collected some of the grant funding that arose from those actions. So, even though Castleberry’s grant flowed from a general appropriations law, it also flowed from additional legislation. Not mentioning Castleberry specifically, the court nevertheless said those circumstances were “much different” than situations involving a routine appropriations bill.

Attorney general, lawmakers react

Attorney General Marty Jackley worked with Castleberry and her lawyer to reach her repayment settlement. Friday, Jackley issued a written statement describing the Supreme Court’s opinion as “a very thorough decision clarifying and detailing the scope” of the constitutional language.

Yet Jackley also offered his own definition of a conflict of interest, which he said was established by a former attorney general and former governor, the late Bill Janklow.

South Dakota Attorney General Marty Jackley testifies before the House Judiciary Committee on Feb. 22, 2023, at the Capitol in Pierre. (Courtesy of Attorney General's Office)South Dakota Attorney General Marty Jackley testifies before the House Judiciary Committee on Feb. 22, 2023, at the Capitol in Pierre. (Courtesy of Attorney General’s Office)

“To the extent questions remain concerning the application of the Supreme Court’s decision,” Jackley said, “the Attorney General will continue to be guided by the principle formulated by then-Attorney General Bill Janklow that an actual conflict of interest will exist if a public servant’s financial interest in a public contract influences or affects his or her decision-making in carrying out public duties.”

Legislative leaders hailed the ruling as a victory, because it aligns in many ways with the arguments presented in the Legislature’s brief, said Senate Majority Leader Casey Crabtree, R-Madison.

“This is the result that gives us the strongest body into the future,” Crabtree said. “Having that clarified takes those questions out, not only for the legislators, but for the public as a whole.”

It was generally understood that a complete prohibition on business with the state would’ve upended decades of standard practice in the halls of the Capitol, he added.

“If you have a situation like that, it narrows the numbers that could actually serve for sure,” Crabtree said. “It may even force you into a position where you need to have a full-time legislature.”

Before and during the current session, said House Majority Leader Will Mortenson, R-Fort Pierre, lawmakers “focused on what we could control” while awaiting a ruling.

“The facet we focused on was disclosure by our members,” Mortenson said. “We made sure that nobody has anything to hide, and we don’t. So had we had a ruling come down that would have made our driver’s licenses illegal or some of these other things, we would’ve thought about where to go from there. But we’ve frankly had 500 other bills that have been occupying our attention.”

Rep. Will Mortenson, R-Fort Pierre. (Makenzie Huber, South Dakota Searchlight)
Rep. Will Mortenson, R-Fort Pierre, left, and Sen. Casey Crabtree, R-Madison, during the 2023 legislative session. (Makenzie Huber/South Dakota Searchlight) 

Dissenting opinion

Chief Justice Steven Jensen and Justices Patricia Devaney and Scott Myren concurred with Justice Salter’s opinion.

In a lone dissenting opinion, Justice Janine Kern wrote that the majority opinion “overrules decades of established precedent” regarding the nature of the general appropriations bill. She also wrote that the new approach “disregards the constitutional text and may ultimately prove difficult to interpret,” because it prevents legislators from having any interest whatsoever — no matter how indirect — in contracts authorized by bills other than the general appropriations bill.

Rep. Jon Hansen, R-Dell Rapids, told South Dakota Searchlight he agrees with Kern’s dissent. Hansen was among the lawmakers who submitted a letter of disagreement to the court prior to oral arguments. It argued that the Legislature’s brief and its assertion that the general appropriations bill alone can’t create conflicts of interest ignored the constitutional framers’ intent.

“I think there’s no doubt that as a result of this opinion, new laws will need to be created to protect taxpayers against conflicts of interest,” Hansen said.