South Dakota legislator’s conflict of interest puts meaning of ‘indirect’ under microscope

What does “indirect” mean?

The question has been at the forefront of political discourse in South Dakota for weeks after former Sen. Jessica Castleberry, R-Rapid City, was found to have accepted over $500,000 in allegedly illegal indirect benefits from state government while serving as a state legislator.

The state constitution prohibits legislators from being interested “directly or indirectly” in contracts with the state or counties. In the handful of state Supreme Court cases and opinions dealing with the matter over the last 135 years, none has explicitly defined “indirect,” said Michael Card, associate professor emeritus of political science at the University of South Dakota.

Castleberry has said she consulted with an attorney and believed her company – a preschool – was eligible for federal pandemic relief funds distributed by the state. Attorney General Marty Jackley explained to the press in a news conference in August that although the funds did not go straight to Castleberry and were therefore not a “direct” benefit, they were an “indirect” benefit since they went to her business.

Since the matter was settled in mid-August with Castleberry agreeing to a repayment plan and resigning, it’s caused lawmakers and the public to question legislators’ personal and professional relationships.

Sens. Helene Duhamel and Randy Deibert are directly paid by counties — Duhamel as the public information officer for the Pennington County Sheriff’s Office, and Deibert as a Lawrence County commissioner. Duhamel’s employment and Deibert’s latest commission term began before they were elected to the Legislature.

At least a half-dozen legislators or their businesses, as highlighted in a Dakota Scout story, are listed as vendors in state finance documents. Some legislators’ spouses are employed by the state, including House Majority Leader Will Mortenson, R-Pierre; Sen. Jim Mehlhaff, R-Pierre; and Rep. Chris Kassin, R-Vermillion.

Such situations could violate the constitution, said Rich Helsper, an attorney at Helsper, McCarty and Rasmussen Law Firm in Brookings.

“The two words,” Helsper said, referencing “direct” and “indirect,” can “cover virtually anything which may have been appropriate 135 years ago but not now,” he said. Women, for example, are more independent than they were when the state was formed and the constitution was written, and are more likely to have their own job or business that could indirectly benefit a spouse who’s a legislator. The government has thousands more employees today and is far more involved in business contracts, Helsper said.

Helsper represented Carol Pitts in a conflict of interest lawsuit in front of the state Supreme Court in 2001. Pitts, who was a legislator from Brookings, was also a state employee through South Dakota State University Extension. The court decided in a 3-2 opinion that her SDSU employment contract, which was renewed on a yearly basis and therefore renewed when she was a legislator, was an indirect benefit that violated the constitution and was therefore null and void. The court also found that the state properly refused to pay her for the SDSU job while she was a legislator.

As that case showed, the state Supreme Court could further define “direct” or “indirect” benefits if it hears more cases on the subject or is asked to issue an advisory opinion.

Voters could also tackle the issue through a ballot question, and legislators could address the matter with rules or legislation.

Senate President Pro Tempore Lee Schoenbeck, R-Watertown, hopes to proceed with rule changes.

“I hope this is an objective, nonpartisan effort to help interpret the constitution so legislative candidates and current legislators can comply with it,” Schoenbeck told South Dakota Searchlight.

History of conflict of interest: ‘It’s exactly what our constitutional framers wanted’

In 2001, Helsper argued the constitutional provision didn’t apply to Pitts’ job at SDSU because she was probably “ten levels removed from any authority position,” Helsper told South Dakota Searchlight. Therefore, her role as a legislator and votes cast wouldn’t affect her SDSU contract, he contended.

Yet the language of the constitution is plain and its meaning “cannot be mistaken,” the Supreme Court wrote in its majority opinion.

“Specifically, this broad prohibition extends to any contract entered into with the State,” the Supreme Court decided.

In a 2020 advisory opinion, the Supreme Court said the law is “unambiguous” and “must be applied as it reads.”

The provision is intended to prevent any possibility of a legislator monetarily benefiting from their position, Card explained.

“This is a wide net,” Card said. “But I think it’s also to prevent the appearance that people elected to government positions are in it for themselves. It’s exactly what our constitutional framers wanted to prevent from happening.”

Helsper believes the provision should be repealed or changed so the Legislature could readdress and redefine conflicts of interest. There should be some restrictions focused on governmental employees in authoritative positions, he said.

“In Carol’s case, the Supreme Court said at least a couple of times that all parties were dealing in good faith and there were no improper motives,” Helsper said. “That is why I say that thousands of state and county employees should not be shut out of the legislative process.”

Repealing the constitutional provision won’t be an easy task, he said.

There have been four attempts to revise the constitutional language in the last 53 years. None of them came close to passing, Card said.

“Eliminating this provision would truly stand a snowball’s chance in Maui,” Card said. “I don’t think the public would vote for it.”

The decision to add the conflict of interest provision was made in the aftermath of territorial government corruption, Card said. Territorial Indian Agent Walter Burleigh, for example, hired his wife and two children to teach English to tribal members at the rate of what would today be $70,000 each, he said. And John Albyne Burbank, the fourth governor of Dakota Territory, used his authority to improve his own financial well being.

“This is all about public acceptance of governance,” Card said. “We have to have the trust of the people to make a republic work.”

Legislators have limited options when they have a conflict involving legislation. They can be absent or excused from a vote, but they can’t abstain from a vote that’s called while they’re on the floor of the state House or Senate. And an option to abstain wouldn’t keep legislators from violating the constitution anyway, Attorney General Marty Jackley said. The constitution strictly prohibits a legislator from contracts with the state, even if they didn’t vote on a bill that concerned such contracts.

Ethical complaints against legislators can go to an ad-hoc legislative ethics committee made up of the Legislature’s own members, though it is at the discretion of the Legislature to take on a complaint and form a committee. The State Government Accountability Board doesn’t have jurisdiction over the state Legislature.

Legislative conflict of interest Supreme Court decisions:

• Pitts v. Larson (2001): A legislator’s contract to work for a state university was ruled null and void as a violation of the state constitution’s prohibition against conflicts of interest.

• Asphalt Surfacing Co. v. SDDOT (1986): Company couldn’t be awarded a highway repair contract because the president of the company was a legislator.

• Norbeck & Nicholson Co. v. State (1913): Company couldn’t contract with the South Dakota Board of Regents because a legislator was a stockholder in the company.

• Palmer v. State (1898): Legislator couldn’t be paid for his employment on the state railroad commission.

Legislature plans to tackle definition: ‘Indirect doesn’t stretch into infinity’

In Schoenbeck’s 14-year tenure in the Legislature, he can recall instances when potential candidates or appointed legislators chose not to run for office because they were major shareholders or officers of companies. Their political aspirations interfered with potential business dealings.

But after the Castleberry situation, Schoenbeck said he’s heard concerns about potential candidates second guessing political careers because of more minor business associations or dealings.

Gov. Kristi Noem issued an executive order on the matter in the wake of the Castleberry situation. It requires state offices under her control to include language in contracts requiring signers to acknowledge they’re aware of the law Castleberry allegedly violated.

State Auditor Rich Sattgast’s office is also reevaluating how to monitor payments and is writing conflict of interest guidelines for legislators.

“I’ve been looking at all kinds of different hypotheticals that we could run into with kind of a broad view of how these funds — how any of the state funds — are working with legislators,” Sattgast told South Dakota Searchlight.

Sattgast suggested any transaction between a legislator’s business and the state could be illegal, using a hypothetical situation where a legislator owns a hotel unknowingly booked by a state employee while on official business.

The Bureau of Finance and Management is implementing a new accounting system in a few years that will automatically cross-check financial interests and disclosures from legislators to avoid any such payments, Sattgast said. The upgrade is part of a $70 million investment with one-time funding.

Schoenbeck is working with the Legislative Research Council to draft and introduce policies that could be adopted by the Executive Board later this year, including a disclaimer saying the South Dakota Supreme Court interprets the constitution.

“Indirect doesn’t stretch into infinity,” Schoenbeck said. “It has to mean something realistically.”

Clearly defining indirect benefits in a policy could help the public, legislators and potential candidates, he added.

“This isn’t about any individual person. This isn’t an executive session matter,” Schoenbeck said. “This is a discussion the public needs to have. It’s all going to be in the public because they need to understand it.”

But Card said rule changes could be insufficient, and other efforts could be difficult. If the Legislature were to change the definition of “contract” in state law, for example, Card said that could have unintended consequences. Such a vote could be subjected to a public referendum, he added. Amendments to the state constitution would require not only a majority vote from each legislative chamber but also a majority vote of the public.

“Unless the Supreme Court limits ‘indirect’ or says ‘indirect’ doesn’t apply to less than a controlling interest in an entity,” Card said, “then we’re just going to have trouble.”

— South Dakota Searchlight’s John Hult contributed to this report.

EDITOR’S NOTE: This article has been updated with a correction to accurately state the process for amending the state constitution.

This article originally appeared on Sioux Falls Argus Leader: Legislator’s conflict of interest puts meaning of ‘indirect’ under microscope