source: Caselaw Access Project

author: SABERS, Justice. ZINTER, Justice

license: Public Domain

text:
    2004 SD 10
    Ervin MULDER, Appellant, v. SOUTH DAKOTA DEPARTMENT OF SOCIAL SERVICES, Appellee.
    No. 22731.
    Supreme Court of South Dakota.
    Considered on Briefs Oct. 6, 2003.
    Decided Jan. 28, 2004.
    Rehearing Denied March 5, 2004.

      Kathlene M. Groth, Sioux Falls, SD, for appellant.
    Lawrence E. Long, Attorney General, Kirsten Jasper, Assistant Attorney General, Pierre, SD, for appellee.
   SABERS, Justice.

[¶ 1.] The Department of Social Services (DSS) issued a final decision upholding its calculation of Ervin Mulder’s “available” income for determining his long term care benefits under Medicaid. The circuit court affirmed and Mulder appeals, arguing that his available income should not include the amount he pays for alimony and that the determination is an arbitrary and capricious interpretation of Medicaid. We reverse.

FACTS

[¶ 2.] Mulder entered a long term care facility in August 2001. He applied to DSS for long term care assistance through Medicaid. Mulder’s monthly income is the $701.00 he receives in Social Security benefits. From the $701.00, $50.00 is automatically withheld by Social Security to pay his Medicare premium. Thereafter, $651.00 is direct-deposited into his account each month. Apparently, the Department reimburses Mulder for the $50 taken out to pay his premium. Pursuant to a 1995 final judgment and decree of divorce, $180.00 is simultaneously withdrawn from his account and electronically transferred to his ex-wife’s account. Mulder is entitled to a deduction from his counted income of $30 per month to cover his personal needs. ARSD 67:46:06:05. This leaves Mulder with $521 actually available to him each month. Taking his allowed deduction of $30 into account, Mulder has $491 actually available to him to pay to his long term care provider. In December 2001, DSS informed Mulder that he was eligible for assistance in the amount of $322.00 per month. This amount left Mulder responsible for paying his care facility $671.00 per month; $150 more per month than Mulder actually has available to him.

[¶ 3.] Mulder’s son and daughter testified that their parents agreed that their mother would receive $180.00 per month out of his Social Security income when they divorced because their mother had qualified for less Social Security income. Mulder and his ex-wife considered the payments to be part of the marital property division. However, the amount was denominated “alimony” in the divorce decree.

[¶ 4.] The Medicaid long term care program requires that the recipient use all of his or her “available income” to pay toward their care. The Medicaid program then covers whatever the recipient cannot pay. In determining how much a recipient must contribute, DSS considers the amount deducted or paid for alimony to be “available income.” Therefore, taking all of the deductions into account, Mulder was found responsible for $671.00 per month. Because this amount is more than Mulder actually has available to him every month, his daughter, acting on his behalf, requested a fair hearing. DSS upheld its initial determination of income and Mulder appealed to the circuit court. The circuit court affirmed DSS and Mulder appeals:

Whether the Department was arbitrary and capricious in determining that the alimony deducted from Mulder’s Social Security retirement benefit was available income.

STANDARD OF REVIEW

[¶ 5.] SDCL 1-26-36 provides our standard of review for administrative appeals. We review agency decisions in the same manner as the circuit court and the decision of the agency will be upheld unless it is clearly erroneous in light of the entire record. Sopko v. C.R. Transfer Co., Inc., 1998 SD 8, ¶ 6, 575 N.W.2d 225, 228 (additional citations omitted). When faced with an agency’s interpretation of a statute that it administers, “so long as the agency’s interpretation is a reasonable one, it must be upheld.” Emerson v. Steffen, 959 F.2d 119, 121 (8th Cir.1992) (citing Chevron USA Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984)). The Supreme Court has held that the Court must inquire first, whether Congress has spoken on the issue at hand and second, whether the agency’s interpretation is “based on a permissible construction of the statute.” Chevron, 467 U.S. at 843, 104 S.Ct. at 2782, 81 L.Ed.2d at 703. The federal statute in question delegates the power to determine the availability standards to the Secretary of the United States Department of Health and Human Services. Therefore, to the extent that this Court interprets the federal Medicaid statute, the federal agency’s determination will not be disturbed unless it is “arbitrary, capricious, or an abuse of discretion.” Id.

[¶ 6.] 1. Whether the Department was arbitrary and capricious in determining that the alimony deducted from Mulder’s Social Security retirement benefit was available income.

[¶ 7.] The United States Congress enacted Title XIX (Medicaid) of the Social Security Act in 1965. See 42 USCA § 1396a. Medicaid is a cooperative State and Federal program designed to provide health care to needy individuals. States are not required to take part in the Medicaid program, but if they do, they must develop a State plan that complies with the Federal Medicaid act and its regulations. South Dakota chose to participate in the Medicaid program through SDCL 28-6-1. The Medicaid act allows the State the option of developing its own methodology for determining income eligibility, but requires that the methodology be “no more restrictive than the methodology ... under the Supplemental Security Income [SSI] program under title XVI.” 42 USCA § 1396a(r)(2)(A) and (B). Our Legislature has charged the Secretary of the Department of Social Services (Secretary) with the responsibility of promulgating rules to determine eligibility and the extent of benefits available to applicants. SDCL 28-6-1 and 28-6-3.1. In accordance with these statutory charges, the Secretary has created rules to determine Medicaid eligibility in ARSD Title 67, Article 46.

[¶ 8.] It is undisputed that Mulder is eligible to receive Medicaid long term care benefits. The only question in this ease is how much Mulder is entitled to receive. The relevant portions of the federal Medicaid statute provide in part that a state plan for medical assistance must: “include reasonable standards [ ] for determining eligibility for and the extent of medical assistance under this plan which [] provide for taking into account only such income and resources as are [ ] available to the applicant or recipient[.]” 42 USC 1396a (a)(17). The provisions also require that the State “provide for reasonable evaluation of any such income or resources[.]” 42 USC 1396a (a)(17).

[¶ 9.] Since neither our state statutes nor the Department’s Medicaid regulations define “available income” and since alimony is not specifically excluded from income in the regulations, the Department relied on ARSD 67:46:03:24 and turned to the federal statute and regulations to determine whether alimony was includable as income for purposes of determining the extent of benefits. ARSD 67:46:03:24 provides:

In the absence of specific regulations on income and resource requirements for long-term care assistance not otherwise defined in chapters 67:16:01 to 67:16:16, inclusive, eligibility decisions shall be based on the SSI requirements in 42 U.S.C. 1382 to 1383[.]

The federal regulations indicate that alimony is considered income available to the payer under the federal SSI statute in determining eligibility. Relying on ARSD 67:46:03:24, the Department used the federal Medicaid regulations as a basis to deny benefits. However, the Department misreads ARSD 67:46:03:24. First, the regulation refers specifically to the eligibility determination and does not refer to the benefit determination. Second, the regulation is labeled, “Absence of Regulations Regarding Conditions of Eligibility.” (Emphasis supplied.) Finally, this rule is placed under the chapter of the rules entitled, “Long Term Care Eligibility.” (Emphasis supplied.) Despite the plain language of this regulation, the Department argues that the same determinations made for purposes of eligibility also apply in determining benefits. The regulations taken as a whole make a clear distinction between these two determinations.

[¶ 10.] ARSD 67:46:06:01 provides:
Rules contained in this chapter are applied after financial eligibility is established according to chapter 67:46:04 and are used to determine the amount of long-term care assistance an individual is eligible to receive from the department.

(Emphasis Supplied). This rule, coupled the clear reference to eligibility in ARSD 67:46:03:24 makes clear that there is a distinction between the Department’s determination of income and the extent of benefits. ARSD 67:46:06:03 goes further and provides the specific rules the Department is required to follow in determining benefits:

For purpose of determining the amount of long term care assistance, income is considered according to subdivisions 67:46:04:03(1) to (5), inclusive; §§ 67:46:04:04 to 67:46:04:06, inclusive; and §§ 67:46:04:08 to 67:46:04:10, inclusive.

It is significant that ARSD 67:46:03:24 (the use of federal law to determine income for purpose of eligibility) is not included. In short, there is no authority within the regulations for the Departments reference to the SSI requirements of 42 USC 1382 to 1383.

[¶ 11.] To the extent the Department insists it must use the same calculations to determine benefits as it does to determine eligibility, its interpretation is unreasonable and cannot be upheld. The Department is bound by its own rules and the State Legislature’s implementing statutes for determination of recipient’s benefits. Therefore, the Department acted arbitrarily and capriciously in referring to the federal statutes and regulations for its determination of the extent of Mulder’s benefits.

[¶ 12.] Mulder argues that DSS’ interpretation is arbitrary, capricious and unreasonable because it defers to the SSI program which is a cash assistance program. Mulder points out the differences between the programs. Specifically, SSI is a federally funded and administered cash assistance program which is intended to pay for daily living requirements. He argues that although it may be reasonable to include support payments in determining eligibility for SSI, it is not reasonable for determining the amount a patient must pay under the state long term care provisions. We agree. Use of the federal SSI regulations in this case prevented DSS from making a reasonable determination of the recipient’s income as required by our state guidelines. The purpose of the long term care benefit is to cover the costs a recipient cannot afford so that the recipient will not be denied long term care. By referring to the SSI regulations, DSS did not recognize that Mulder was effectively denied access to long term care by its income determination. This result is unreasonable in light of the state regulations DSS is required to follow.

[¶ 13.] The state Medicaid administrative rules require the Department to pay the long term care facility “for amounts not covered by an individual’s own income or other state or federal assistance programs.” ARSD 67:46:06:04. Income is “any money or in-kind payment before deductions” unless the money or in-kind payment is specifically excluded. ARSD 67:46:04:02(2). The only listed exclusions from income for the purpose of determining benefits are:

(1)Third-party payments to medical providers;
(2)County welfare payments to medical providers;
(3) Money paid by a school district for educational purposes;
(4) Income tax or sales tax refunds;
(5) Unearned irregular income from all sources which totals $20 or less per month[.]

ARSD 67:46:04:03; ARSD 67:46:06:03. The federal Medicaid statute requires that the state plans take into account only “available income” and that the state provide for “reasonable evaluation of any such income[.]” 42 USCA 1396a(17)(B) and (C). SDCL 28-6-18 provides in part:

The department shall adopt reasonable and necessary rules, pursuant to chapter 1-26, relating to:
(1) The determination of exempt and nonexempt income in long-term care;
(2) The treatment of income in long-term care;
(6)Such other standards and requirements as may be necessary for federal financial participation in accordance with Title XIX of the federal Social Security Act, as amended on January 1,1989.

[¶ 14.] These statutes and administrative rules clearly indicate that Mulder was entitled to a reasonable evaluation of his income. The Department is required to provide benefits to the extent Mulder cannot afford to pay. Mulder will never be able to pay the alimony and pay his share of his medical expenses. Therefore, the Department’s determination that Mulder’s alimony payments constitute “available income” was not reasonable.

[¶ 15.] Evidence of the unreasonableness of the Department’s determination is found in the Department’s own arguments. The Department points out that SSI payments are unearned income “at the earliest point when they are received or credited to the applicant’s account.” 20 CFR 416.1121, 1123. The Department therefore concludes that his available income is the $701 which is deposited by the SSA. The Department then reasons that since “alimony is not taken out before it is deposited into his account” it must be included in his available income. In other words, if Mulder could arrange it so that the alimony is taken out of his social security check before it hits his account, according to the Department, it would not be considered income. This distinction ignores that under either scenario, the money belongs to his ex-wife and is in no way available to him for the payment of his own support.

[¶ 16.]The results of the Department’s interpretation of the statute through these rules are inconsistent with common sense and reasonable evaluation of Mulder’s available income. Further, they fail to give due deference to the judgment and decree of divorce and the right of Mulder’s ex-wife to effective judicial review before modification of her alimony award.

[¶ 17.] We cannot accept the Department’s determination that the $180 per month Mulder pays in alimony is “available” to him. The result of the Department’s decision is to make Medicaid unavailable to Mulder despite the fact that he is eligible for benefits under the program. Obviously, his long term care facility cannot continue to room, board and care for him if it is not receiving full payment. The Department is bound by its own regulation requiring it to pay the long term care facility for “amounts not covered by an individual’s own income.” ARSD 67:46:06:04. Regardless of how the Department defines “income,” it has failed to pay the facility for amounts not covered by Mulder.

[¶ 18.] The benefits the Department purports to grant Mulder are of little value to him if he cannot pay his share of the cost of care. By taking away with one hand what it professes to give him with the other, the Department falls short of the statutory mandate that it “provide for reasonable evaluation of [Mulder’s] income.” 42 USC 1396a(17)(C). This case is distinguishable from those wherein couples attempted to protect themselves from falling into one of the “Medicaid Gaps” by divorcing and giving the vast majority of the assets to the non-institutionalized spouse. See e.g., Ussery v. Kansas Dept. of Social and Rehabilitation Services, 258 Kan. 187, 899 P.2d 461 (1995); Clark v. Iowa Dept. of Human Services, 513 N.W.2d 710 (Iowa 1994). Therefore, the Department’s concern for protecting Medicaid funds is less persuasive. The Department can protect Medicaid resources from those who attempt to improperly divert assets which could be used to pay for their care and still reasonably evaluate available income.

[¶ 19.] We reverse.

[¶ 20.] GILBERTSON, Chief Justice, and MEIERHENRY, Justice, concur.

[¶ 21.] KONENKAMP and ZINTER, Justices, dissent.

ZINTER, Justice

(dissenting).

[¶ 22.] I concur that, as drafted, the state administrative regulations determining the extent of benefits failed to incorporate ARSD 67:46:03:24 (which further incorporated the federal SSI regulations that explicitly include alimony payments as “available income”). Consequently, DSS erred as a matter of law in using ARSD 6746:03:21 to include Mulder’s alimony as “available income.” See supra ¶¶ 9-10.

[¶ 23.] However, in determining Mulder’s support benefit, DSS’s other rules include the entire Social Security benefit as available income without deduction. As the Court points out, ARSD 67:46:06:01 provides that the rules in ARSD chapter 67:46:06 are used to determine the amount of assistance. Supra ¶ 10. One of those rules, ARSD 67:46:06:02, provides that the terms used in that chapter have the same meaning as those defined in ARSD 67:46:04:02. That later regulation broadly captures all sources of income “before deductions.” ARSD 67:46:04:02. Moreover, alimony payments are not on the list of exclusions. See ARSD 67:46:04:03. Finally, DSS was under no obligation to adopt a specific regulation granting a deduction for court-ordered support payments. Similar inclusions of support have been affirmed simply upon a state administrative official’s determination after consultation with federal authorities. Peura v. Mala, 977 F.2d 484, 486 (9thCir.1992) (affirming inclusion and noting that the “state administrators so concluded after consulting with the United States Department of Health and Human Services. Under this determination, Medicaid now pays significantly less to the Island View Manor nursing home, the institution where Peura resides”). Therefore, DSS properly determined. that Mulder’s Social Security benefit was a source of income and was available to him before he made his electronic deduction to pay his alimony. For this reason, DSS could consider Mulder’s entire $671 Social Security benefit as “available income.”

[¶ 24.] Mulder, however, argues that DSS’s failure to grant a support deduction violates 42 USC § 1396a(17), which requires that state medical assistance plans include “reasonable” standards for determining eligibility and the extent of benefits. This Court also contends that DSS’s refusal to grant an alimony deduction was arbitrary, capricious, and unreasonable. I disagree.

[¶ 25.] It is now uniformly established that states may include spousal and child support payments as “available income” even though the inclusion adversely affects a recipient’s entitlement. As this Court itself notes, the “federal courts and the Federal Social Security Administration have come to the conclusion that alimony may be considered available income to the payer under the SSI statute.” Supra n. 5. See also Emerson, 959 F.2d at 124; Cervantes v. Sullivan, 963 F.2d 229, 234 (9thCir.1992).

[¶ 26.] The courts that have considered the question agree that it is reasonable because a state is only prohibited from adopting rules that are more restrictive than the federal guidelines. 42 USC § 1396a(r)(2)(A). Therefore, because federal regulations permit inclusion of court-ordered support as available income, the state may also include it as “available income.” “[T]he Secretary’s policy of including [analytically identical] child-support payments when determining available income is based on a permissible construction of the statute.” Emerson, 959 F.2d at 122. Therefore, it is “reasonable.” Id. In justifying its conclusion, the Eighth Circuit noted, “income which has been paid out in ... support cannot later be ‘used’ or ‘availed of to pay another bill, but neither can income which has been paid out for groceries. Although maybe different in kind, the two are both obligations of the person making the payments.” Id. at 121-22.

[¶ 27.] The Eighth Circuit Court of Appeals is not alone in concluding that money used for support payments may be counted as “available income” of the payer. See, e.g., Tarin v. Comm’r of the Div. of Med. Assistance, 424 Mass. 743, 678 N.E.2d 146 (1997) (money used to pay child support is “available” to Medicaid recipient); Ussery, 258 Kan. 187, 899 P.2d 461 (1995) (upholding inclusion oí court ordered spousal support payments in Medicaid recipient’s “available income”); Himes v. Shalala, 999 F.2d 684, 689 (2dCir.1993) (interpretation that money used to pay child support is available was reasonable and should be accorded deference); Peura, 977 F.2d at 491 (9thCir.1992); Cervantez, 963 F.2d 229 (decision to include garnished amounts for child support as unearned income is a reasonable interpretation of the SSI statutory language).

[¶ 28.] Mulder, however, argues that his case is distinguishable because some of the foregoing cases “involve eligibility for Medicaid assistance in general, as opposed to Medicaid assistance for long term care.” However, Mulder’s position has been rejected:

[T]he United States Court of Appeals for the Ninth Circuit concluded that it was “of little import” that the Secretary’s determination regarding [that recipient’s] child support obligations came “in the context of a post-eligibility determination.” ... [T]he court in Peura noted that 42 USC § 1396a(a)(17) concerns both applicants for and recipients of Medicaid and “its restrictions apply to both eligibility determinations and post-eligibility determinations regarding the extent of assistance.”

Tarin, 678 N.E.2d at 153 & n. 17 (citing Peura, 977 F.2d at 487 n. 4; Ussery, 899 P.2d at 461, 465 (upholding the inclusion of court-ordered spousal support payments in a Medicaid recipient’s “available” income when establishing benefit levels)).

These cases primarily relate to Medicaid eligibility, rather than to determining the level of benefits or the amount of patient liability. That distinction is irrelevant for our purposes. A state could adopt one income methodology for determining eligibility and another for determining the extent of benefits (as long as both methodologies were within the overall limits of the federal scheme if the state wanted to receive full federal participation).

Ussery, 899 P.2d at 465. Thus, the uniform case law on this question makes the distinction between eligibility and the extent of benefits irrelevant.

[¶ 29.] The Court and Mulder also believe that inclusion of support payments as available income is unreasonable “because Mulder [would be] effectively denied access to long-term care by its income determination.” Supra ¶ 12 (emphasis added); see also supra ¶¶ 13-18. I disagree.

[¶ 30.] First, it is at best speculative to surmise that Mulder would be effectively denied access to long-term care simply because DSS has agreed that Mulder is eligible to receive all but the $180 at issue. It must be remembered that the maximum payment for assisted-living is $993 per month. Therefore, under the Court’s “denial of access” logic, other recipients, whose actual long-term care costs exceed this maximum benefit by $180, would also be “denied access” to long-term care. So also, any eligible recipients whose monthly income is $180 less than their actual long-term care costs, would also be “effectively denied access” to care. This logic suggests the untenable result that DSS may never limit long-term care benefits by $180 more than the recipient can afford. Such a result is in contravention of the federal law that expressly permits the inclusion of support payments as available income.

[¶ 31.] More importantly, the Court’s “denial of access” rationale wholly fails to consider that Mulder’s daughter, guardian and petitioner herein, has the legal obligation to provide the $180 for his support if he is unable. In this jurisdiction, “[a]ny adult child, having the financial ability to do so, shall provide necessary food, clothing, shelter, or medical attendance for a parent who is unable to provide for oneself. ...” SDCL 25-7-27. Because Mulder’s daughter has not claimed financial inability, she has the legal obligation to pay the nursing home for the $180 in long-term care medical assistance not provided by Medicare. Americana Healthcare Ctr., a Div. of Manor Healthcare Corp. v. Randall, 513 N.W.2d 566 (S.D.1994).

[¶ 32.] The Court’s “denial of access” rationale also ignores the fact that spousal support is based upon ability to pay. See Dejong v. Dejong, 2003 SD 77, ¶ 7, 666 N.W.2d 464, 467. If Mulder is unable to pay for his own basic care and his court ordered spousal support, his remedy is to reduce his alimony obligation. See, e.g., Peura, 977 F.2d at 490 n. 7 (noting that Peura had available to him the option of returning to state court to seek a reduction of his support obligation).

[¶ 33.] Finally, it must be remembered that even though Mulder may not exclude the $180, the requirement is reasonable because he receives a financial benefit “from the discharge of the indebtedness.” Cervantez, 963 F.2d at 234; Emerson, 959 F.2d at 123 n. 3. As the federal courts have noted, inclusion of support payments is reasonable because of the competing needs of the destitute and the preservation of fiscal solvency of programs attempting to protect their coffers from payment of a recipient’s other legal obligations. Cervantez, 963 F.2d at 235.

[¶ 34.] In conclusion, we have not been cited to any authority holding the inclusion of support payments arbitrary, capricious or unreasonable. On the contrary, all relevant authority holds that absent an express state deduction, spousal and child support obligations are “available income.” Consequently, DSS’s decision was reasonable and comported with federal law. I would affirm the hearing examiner and the circuit court.

[¶ 35.] KONENKAMP, Justice, joins this dissent.

      . If the $30 personal care deduction is included, he is short $180 and he is effectively denied his personal care deduction as it must be used to pay the cost of care.

      . There was no option but to denominate the attempted equalization "alimony.” 42 USC § 407(a) of the Social Security Act provides:

        The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.
      This provision has been interpreted to indicate that a settlement agreement dividing social security benefits as marital property is void. See e.g., Marriage of Hulstrom, 342 Ill.App.3d 262, 276 IU.Dec. 730, 794 N.E.2d 980, 985 (2003); Gentry v. Gentry, 327 Ark. 266, 938 S.W.2d 231 (1997); Boulter v. Boulter, 113 Nev. 74, 930 P.2d 112 (1997). However, in 42 USC 659(a), Congress created an exception to the anti-alienation provision:
      Notwithstanding any other provision of law (including section 407 of this title[ ]), [ ] moneys (the entitlement to which is based upon remuneration for employment) due from, or payable by, the United States [] (including any agency, subdivision, or instrumentality thereof), to any individual, [ ] shall be subject [ ]to any other legal process brought[] by a State agency administering a program under a State plan approved under this part or by an individual obligee, to enforce the legal obligation of the individual to provide [ ] alimony.
      Therefore, social security benefits may be taken for payment of alimony but may not be part of a marital property division.

      . The state regulations provide general criteria for determining income for purposes of calculating the extent of benefits. Those regulations are discussed below.

      . In the administrative code, the first number signifies the title, the second number signifies the article, and the third number signifies the chapter. By referring to “this chapter,” this administrative rule refers to ARSD 67:46:06: 01 through 67:46:06:11.

      . We acknowledge that federal courts and the Federal Social Security Administration have come to the conclusion that alimony may be considered available income to the payer under the SSI statute. We are not bound by those decisions. First, the Department chose to promulgate its own rules regarding the extent of benefits rather than adopting the SSI requirements as it did under the eligibility determination. Therefore, we interpret our state regulations and statutes rather than the federal regulations and statutes. Second, the Medicaid statute merely provides that the State program be no more restrictive in its requirements than the SSI program. There is nothing in the statute to preclude a less restrictive state program.

      . Also disturbing is the fact that if Mulder is somehow able to keep his long term care and pay the alimony, DSS will count the alimony as income to the former Mrs. Mulder should she apply for Medicaid benefits. In other words, it is charged as income to both the payor and the payee.

      . " 'Income,' unless specifically excluded in § 67:46:04:03, [includes] any money or in-kind payments before deductions [.] ARSD 67:46:04:02(2) (emphasis added).

      .ARSD 67:46:04:03 provides:
      The following are not considered income when determining eligibility for long-term care or medical assistance:
      (1) Third-party payments to medical providers;
      (2) County welfare payments to medical providers;
      (3) Money paid by a school district for educational purposes;
      (4) Income tax or sales tax refunds;
      (5) Unearned irregular income from all sources which totals $20 or less per month;
      (6) Veteran’s aid and attendance benefits;
      (7) Life insurance dividends;
      (8) Any benefits received under the provisions of the Older Americans Act of 1965, except wages or salary; and
      (9) Payments to volunteers under the Domestic Volunteer Service Act of 1973, such as from SCORE, VISTA, or the foster grandparent program.

      . This is Mulder's "available income” from his Social Security benefit after undisputed adjustments, but without a deduction for his $180 alimony payment.

      . 42 USC § 1396a(17) states in relevant part:
      (a) Contents. A State plan for medical assistance must—
      (17) ... include reasonable standards ... for determining eligibility for and the extent of medical assistance under the plan which

      (B) provide for taking into account only such income and resources as are, as determined in accordance with standards prescribed by the Secretary, available to the applicant or recipient and ... as would not be disregarded ... in determining his eligibility for such aid, assistance, or benefits!.]

      . Under the relevant SSI requirements, court-ordered alimony is also included as available income. 20 CFR § 416.1123(b)(2). "It has been longstanding SSI policy that amounts withheld from earned and unearned income for payment of a debt or other legal obligation are included in income for purposes of determining eligibility and payment amount under the SSI program.” Supplementary Security Income for the Aged, Blind, and Disabled; How We Count Earned and Unearned Income; Funds Used to Pay Indebtedness, 56 Fed. Reg. 3209, 3211 (Jan. 29, 1991) (to be codified at 20 CFR pt. 416). In response to a comment which drew a distinction between court-ordered support obligations and other legal debts, the agency remarked:
      While we do not disagree that there are distinctions between a debtor/creditor relationship and the obligation to pay alimony, the overall result, we believe, is basically the same; i.e., the payer benefits financially from the satisfaction of the debt/obligation. It is not the purpose of the SSI program to subsidize any types of indebtedness whether that indebtedness results from a debt- or/creditor relationship or from an obligation imposed by public policy.

      . The federal SSI regulations have their origin in Title XIX of the Social Security Act. That Act clearly provides that, when determining the amount of assistance ("the extent of ... assistance”) a State plan may take into account only such income “as [is] determined in accordance with standards prescribed by the Secretary [Secretary of the Department of Health and Human Services]” that: (1) is "available to the applicant” and that (2) "would not be disregarded ... in determining ... eligibility." 42 U.S.C. § 1396a(17) (emphasis added). Therefore, it is not per se unreasonable to determine the extent of benefits, by use of federal law on eligibility.

      . It is also significant that daughter's payment of the $180 would not render Mulder ineligible for assistance. ARSD 67:46:04:03(1) provides that third-party payments to medical providers are not considered income when determining eligibility for long-term care.


author: ZINTER, Justice.

text:
    2004 SD 11
    In the Matter of the Petition of West River Electric Association, Inc., for a Declaratory Ruling Regarding Service Territory Rights Concerning Black Hills Power, Inc., and WEST RIVER ELECTRIC ASSOCIATION, INC.
    Nos. 22827, 22834.
    Supreme Court of South Dakota.
    Argued Nov. 19, 2003.
    Decided Jan. 28, 2004.

      Gregory J. Erlandson, Allen G. Nelson of Bangs, McCullen, Butler, Foye and Simmons, Rapid City, South Dakota, Attorneys for appellant West River Electric.
    Lawrence E. Long, Attorney General, John J. Smith, Assistant Attorney General, Public Utilities Commission, Pierre, South Dakota, Attorneys for appellant SD Public Utilities Commission.
    Steven J. Helmers, General Counsel, Linden R. Evans, Associate Counsel, Black Hills Corporation, Rapid City, South Dakota, Attorneys for appellee Black Hills Power.
   ZINTER, Justice.

[¶ 1.] Rapid City intends to expand its waste water treatment plant. West River Electric Association, Inc. (WREA) and Black Hills Power, Inc. (BHP) are in a dispute over the right to provide the increased electric service necessary for the expansion. WREA contends that it has the right to provide the new service because the plant is located within its service territory. BHP contends that it has the right to provide new service as the plant grows because it has provided the past service at that “location.” The Public Utilities Commission (PUC) ruled that BHP’s statutory right to continue to serve a “location” did not include the right to increase the electricity provided because the new load required changes in BHP’s distribution system. The circuit court reversed, concluding that the right to continue to serve a “location” meant the right to serve a geographical location. Therefore, the court held that BHP was entitled to provide the increased load at the plant. We affirm the circuit court.

FACTS AND PROCEDURAL HISTORY

[¶ 2.] In 1975, the Legislature enacted the “Territory Act,” SDCL ch. 49-34A, which completely revised the electric utilities’ territories in which they provide electrical service. This Act was adopted to reduce wasteful spending and the duplication of services in the industry. The Act gave the PUC the power to assign specific service areas to each utility. These areas were geographically defined and provided boundaries in which each utility enjoyed the right to provide exclusive service.

[¶ 3.] However, the Act also authorized utilities to continue to serve existing “locations” where they were serving “a customer.” It provided, “[e]ach electric utility has the exclusive right to provide electric service at retail at each and every location where it is serving a customer as of March 21, 1975,” even if that location was in another utility’s territory. SDCL 49-34A-42 (emphasis added). Customers that continued to be serviced by an out of territory utility under this provision are referred to as “frozen customers” in the industry.

[¶ 4.] The Rapid City waste water treatment plant is one such frozen customer. The land on which the plant is situated is within the territory that was assigned to WREA. However, BHP was providing service to that location on March 21, 1975. Therefore, BHP had the “exclusive right” to continue to provide service at that “location.” This dispute developed because the plant’s need for electricity has increased, and the parties are unable to agree whether providing the increased load is within this statutory right to provide service at a “location.”

[¶ 5.] The origin of this dispute actually began to develop in the 1960s. In 1965, the city purchased forty acres of land for the waste water treatment plant. Because WREA was already providing electric service to that area, it constructed a 3-phase primary voltage distribution line to construct the plant. WREA also began providing electric service to the plant.

[¶ 6.] However, in 1967, pursuant to the territory law in effect at that time, voters in Rapid City approved a city council proposal to change service providers and “accept service from Black Hills Power & Light for furnishing power to the new waste water treatment plant [then] under construction.” Consequently, in 1967, BHP also built a primary distribution line to the plant, and BHP became the exclusive provider of electricity at the plant through one service point (Service Number One).

[¶ 7.] In 1973, Rapid City purchased an additional eighty acres of land. This land is adjacent to the original forty acres on which the plant is located. The new land was important to the City because it provided access to Rapid Creek: “because that’s where after they’ve treated the water where it goes and they planned to grow as the city did.... [T]hey bought extensive land so that they’d have that taken care of as they then grew into the future.”

[¶ 8.] BHP continued to service the plant via Service Number One from 1967 until 1987. In 1987, BHP installed a second service point at the plant (Service Number Two). BHP did not consult with WREA when this installation occurred. Although WREA subsequently learned of Service Number Two, it took no action at that time to contest BHP’s right to provide that new service.

[¶ 9.] Now, Rapid City is in the process of expanding the plant further. Consequently, four new electric service points will be installed. These are referred to as Service Numbers Three, Four, Five, and Six. This expansion will require new transformers and the extension of primary voltage wires. The new service points will, however, be located at the same plant on the original forty acre site.

[¶ 10.] BHP claims the right to provide all needed service at all six service points. However, WREA also claims the right to provide the new service added, or to be added, including the 1987 addition of Service Number Two. WREA contends that BHP’s provision of service to Service Numbers Two through Six violates a second provision of the Territory Act. That provision generally prohibits one utility from rendering or extending service into the assigned service area of another utility. SDCL 49-34A-42. WREA specifically argues that the provision of Service to- anything other than the original Service Number One would be an illegal “extension of service” into WREA’s assigned service area in violation of this second provision.

[¶ 11.] On a petition for declaratory ruling, the PUC agreed with WREA, determining that WREA had, the right to provide the new service at Service Numbers Two through Six. It concluded that “the [statutorily protected] ‘location’ served by Black Hills at the Plant as of March 21,1975, was [only] such service as could be provided by means of the primary distribution line and transformer installed at such time to serve Service Number One without the necessity for extending primary voltage lines.” (Emphasis added.) Because the PUC' ruled that the right to serve a “location” was restricted to that level of service available under the distribution system that existed in 1975, it concluded that “[t]he Plant is within West River’s assigned service territory and West River has the right to provide all electric service at retail to the Plant with the exception of the service provided by Black Hills to Service Number One, which Black Hills was providing as of March 21, 1975.”

[¶ 12.] The circuit court reversed the PUC’s interpretation of the term “location”: an interpretation that limited the right to serve a “location” to the level of service that was available under the distribution system existing in 1975. Instead, the circuit court reasoned that the term “location” inherently implied a “geographically-described” parcel of property. The court concluded that the PUC erred in construing the word location “so as to preclude the extension of ‘primary wires’ or ‘primary voltage lines,’ which construction erroneously equate[d] the term ‘location’ to the extension of an ‘electric line....’” The court also ruled that:

The 120 Acres is an undivided parcel of real property, that is not divided by a public road, a body of water, or other natural geographic features, and has never been legally platted or subdivided by Rapid City, and, as such, comprises a uniform “location” where Black Hills has served a customer since 1967.

The court ultimately declared that BHP had the right to provide the new service at the Rapid City waste water treatment plant because it was within the contiguous 120 acre tract.

[¶ 13.] WREA and the PUC appeal the circuit court’s decision and raise the following questions: (1) whether BHP is rendering or has extended service within WREA’s territory in violation of the second sentence of SDCL 49-34A-42; and (2) whether the circuit court erred in determining that the right to serve a “location,” as provided in the first sentence of SDCL 49-34A-42, means the entirety of a contiguous tract of real property. We believe both questions are resolved by the following issue:

Whether the legislature intended the word “location” to be a geographically based concept, or whether it intended that the right to serve a “location” was limited to the level of service that was provided by means of the distribution system existing on March 21, 1975.

ANALYSIS AND DECISION

[¶ 14.] The Territorial Act, found in SDCL ch. 49-34A, “evidences a legislative intent for [the] PUC to have broad inherent authority in matters involving utilities in this state.” In re Northern States Power Co., 489 N.W.2d 365, 370 (S.D.1992). However, a resolution of the issue in this case requires statutory construction. Questions of law concerning statutory construction are reviewed de novo. Goetz v. State, 2001 SD 138, ¶ 8, 636 N.W.2d 675, 678 (citing State v. Karlen, 1999 SD 12, ¶ 6, 589 N.W.2d 594, 597). Therefore, this determination is “fully reviewable without deference to legal conclusions drawn by either the PUC or the circuit court.” In re Northwestern Public Serv. Co., 1997 SD 35, ¶ 13, 560 N.W.2d 925, 927 (citing Egemo v. Flores, 470 N.W.2d 817 (S.D.1991); Permann v. Dept. of Labor, 411 N.W.2d 113 (S.D.1987)).

[¶ 15.] Statutory construction is an exercise to determine legislative intent. In analyzing statutory language:

[W]e adhere to two primary rules of statutory construction. The first rule is that the language expressed in the statute is the paramount consideration. The second rule is that if the words and phrases in the statute have plain meaning and effect, we should simply declare their meaning and not resort to statutory construction.

Goetz, 2001 SD 138, ¶ 15, 636 N.W.2d at 681. When we must, however, resort to statutory construction, “[t]he intent of the legislature is ‘derived from the plain, ordinary and popular meaning of statutory language.’ ” Northwestern Public Serv. Co., 1997 SD 35, ¶ 14, 560 N.W.2d at 927 (citing Whalen v. Whalen, 490 N.W.2d 276, 280 (S.D.1992)).

[¶ 16.] SDCL 49-34A-42 is the dispositive statute. It provides:

Each electric utility has the exclusive right to provide electric service at retail at each and every location where it is serving a customer as of March 21,1975, and to each and every present and future customer in its assigned service area. No electric utility shall render or extend electric service at retail within the assigned service area of another electric utility unless such other electric utility consents thereto in writing and the agreement is approved by the commission consistent with § 49-34A-55. However, any electric utility may extend its facilities through the assigned service area of another electric utility if the extension is necessary to facilitate the electric utility connecting its facilities or customers within its own assigned service area[.]

(Emphasis added.)

[¶ 17.] The first sentence of this statute grants two rights. First, it grants the exclusive right to continue to serve each and every location where a utility was serving a customer on March 21, 1975. Second, it grants the right to serve each and every present and future customer in the utility’s assigned service area. In a previous ease involving this language we observed that:

By the terms of this statute, the Legislature provided two specific types of protection. First, it assured that each utility would be granted all future service rights within its designated service area; and second, it protected individual service existing at the time the franchise was granted.

In re Clay-Union Elec. Corp., 300 N.W.2d 58, 61-62 (S.D.1980). This dispute focuses on the nature and extent of that “protected individual service” that exists after the franchise was granted.

[¶ 18.] WREA and the PUC support their position by emphasizing our foregoing reference to the phrase “individual service.” They also rely on the legislative prohibition on the “extension of service ” in the second sentence of SDCL 49-34A-42. Focusing on the word “service” in both phrases, they contend that the right to serve a “location” is limited to the level of service (Service Number One) that BHP had in place on March 21, 1975. According to WREA and the PUC, this level of protected service is further circumscribed by the distribution system (the electrical lines, transformer, and single meter) that was used by BHP to serve the plant on March 21, 1975. WREA and the PUC finally support their position by arguing that the protected right to serve pre-exist-ing “locations” should be viewed as a “narrow exception” to a “general rule” prohibiting the extension of service. As they view it, in order to advance this “broader” prohibition on the extension of service in the second sentence, BHP’s service rights under the first sentence must be narrowly limited to those levels provided by the distribution system that existed in 1975. However, we fail to see any of these elaborate restrictions in the simple and plain meaning of the word “location.”

[¶ 19.] The PUC concedes that the dictionary definition of a “location” is “[a] place where something is or could be located; a site.” Nevertheless, it insists that its limiting construction is reasonable and consistent with the Territorial Act’s objectives. According to the PUC, its “narrow construction of the term ‘location’ [is] appropriate .... Application of the term in a given case should be centered on the electric distribution system ” since the original territory assignments were “based on the electric distribution system and not on customer property boundaries or customer choice.” However, we observe that there were five criteria for establishing the original service territories, and three of the other criteria arguably favor a broader view of the service that BHP may provide at this location. Those other criteria include: the prevention of duplication of distribution lines and facilities, the willingness and good-faith intent of the electric utility to provide adequate service, and that a reasonable opportunity be given “for future growth ivithin the contested area. ...” SDCL 49-34A-44 (emphasis added). Thus, we do not believe that on balance, the criteria for establishing the original service territories is dispositive.

[¶ 20.] The PUC and WREA also argue that “the term ‘location’ should be ... construed in pari materia both with the term ‘extended electric service’ in the second sentence of SDCL 49-34A-42 and with the [above] criteria for service area assignment contained in SDCL 49-34A-43 and 49-34A-44.” However, as was previously mentioned, some of those criteria favor a broader interpretation of “location.” More importantly, if the Legislature had intended the word “location” to be synonymous with some “level of electric service,” it would have used the latter language instead of the word “location.” By using the words “location where it is serving a customer ” at one place in the statute and the words “electric service” in other places in the same statute, the inescapable conclusion is that the Legislature’s use of the word “location” meant something other than “a level of electric service” being provided on March 21, 1975.

[¶ 21.] We also believe that the PUC’s and WREA’s interpretation of “location” fails to give due regard to the plain meaning and effect of the phrase “exclusive right to provide service at each and every location where it is serving a customer.As we have previously stated:

The intent of a statute is determined from what the legislature said, rather than what the courts think it should have said, and the court must confine itself to the language used.
Words and phrases in a statute must be given their plain meaning and effect. When the language in a statute is clear, certain and unambiguous, there is no reason for construction, and the Court’s only function is to declare the meaning of the statute as clearly expressed.

Martinmaas v. Engelmann, 2000 SD 85, ¶ 49, 612 N.W.2d 600, 611 (further citations omitted) (emphasis added). Moreover, “[i]n arriving at the intention of the Legislature, it is presumed that the words of the statute have been used to convey their ordinary, popular meaning.” Oahe Conservancy Subdistrict v. Janklow, 308 N.W.2d 559, 561 (S.D.1981) (citing Wood v. Waggoner, 67 S.D. 365, 293 N.W. 188 (1940)). “SDCL 2-14-1 requires that words in a statute are to be understood in their ordinary sense.” Id. We finally note that a “judicial interpretation of a statute that faile[s] to acknowledge its plain language would amount to judicial supervision of the legislature.” State v. Galati, 365 N.W.2d 575, 577 (S.D.1985).

[¶ 22.] In this case, the ordinary meaning of the word “location” is a geographical area. Black’s Law Dictionary defines “location” as: “1. The specific place or position of a person or thing.... 3. Real Estate. The designation of the boundaries or a particular piece of land, either on the record or on the land itself....” Black’s Law Dictionary 951 (7th ed. 1999). ■ The ordinary dictionary definition also defines “location” as: “... 2. A place where something is or could be located; a site.... 4. A tract of land that has been surveyed and marked off.” The American Heritage College Dictionary 795 (3rd ed. 1997). Although the Legislature did not specifically define “location” in SDCL 49-34A-42, it did, however, define “assigned service area,” as a geographical concept: “the geographical area in which the boundaries are established as provided in §§ 49-34A-42 to 49-34A-44, inclusive, and §§ 49-34A-48 to 49-34A-59, inclusive.” SDCL 49-34A-l(l) (emphasis added). We therefore believe that the phrase “location where it is serving a customer,” when used in its ordinary sense, requires this ordinary geographical meaning. There is certainly nothing in the plain text of the statute that restricts the right to serve a “location” to some “level of service” that is measured by some after-the-fact PUC described distribution system.

[¶ 23.] We have previously recognized this geographically centered basis for the Act. In Clay-Union, 300 N.W.2d 58, we recognized that “the legislative intent in enacting SDCL ch. 49-34A was to prevent this very type of service dispute by allocating each utility an exclusive franchise within specific boundaries.” Id. at 61 (emphasis added). We have also noted that SDCL 49-34A includes “no provision for change of provider where there’s been a change of ownership or the customer changes its preference, or there’s a load reduction.” Northwestern Public Serv. Co., 1997 SD 35, ¶ 25, 560 N.W.2d at 929 (emphasis added). If therefore, the Act does not contemplate a change in provider for a load reduction, the Legislature could not have intended a change in provider where there is a load increase caused by an increase in the needs of an existing customer. As then Chief Justice Wollman observed in another case in 1979, SDCL 49-34A-42 includes “no express or implied exceptions based upon the nature of the customer or the extent or duration of the service provided prior to March 21, 1975.” In re Certain Territorial Elec. Boundaries (Aberdeen), 281 N.W.2d 72, 78 (S.D.1979) (Wollman, C.J., concurring in part and dissenting in part) (emphasis added).

[¶ 24.] We also note that shortly after the Territory Act was passed, the PUC itself declined to limit “location” service rights to some level of service or some distribution system that was in existence in 1975. Instead, the PUC utilized the geographically-based definition, concluding that the right to provide service to a new manufacturing plant, built partially on the site of what had previously been a farmhouse and trailer, “constituted the same location” within the meaning of SDCL 49-34A-42. Clay-Union, 300 N.W.2d at 60. Significantly, the PUC applied the geographically-based definition, even though the new manufacturing plant’s electrical needs required the extension of a new three-phase distribution line 3200 ft. into the other utilities territory. Moreover, the vast majority of the new plant’s square footage existed apart from the service locations, outlets, and farm structures that were previously serviced.

[¶ 25.] We acknowledge the PUC’s argument that because it is an administrative agency, it is not bound by stare decisis, and therefore it can redefine its views to reflect its current view of public policy regarding the utility industry. We also acknowledge that “[t]his [C]ourt has previously stated that the PUC is deemed to be an administrative tribunal with expertise,” Northern States Power Co., 489 N.W.2d at 370 (citing In re Jack Rabbit Lines, Inc., 283 N.W.2d 402 (S.D.1979)), and that we give “appropriate deference to PUC’s expertise and special knowledge in the field of electric utilities.” Id. at 372. However, “[w]hile the expertise of the administrative agency is recognized, the agency must lend credence to the guidelines established in the statutes.” Northwestern Public Serv. Co., 1997 SD 35, ¶ 29, 560 N.W.2d at 929-30 (further citations omitted). “The PUC is not a court, and cannot exercise purely judicial functions.” Id. ¶ 30 (citing In re Dakota Transportation, Inc., 67 S.D. 221, 291 N.W. 589, 594 (1940)). “Defining and interpreting the law is a judicial function. ...” Bandy v. Mickelson, 73 S.D. 485, 488, 44 N.W.2d 341, 342 (1950). Therefore, even if the PUC has changed its view of public utility policy, it cannot read into a statute a new definition of “location” that never previously existed. If the wording of SDCL 49-34A-42 is in need of revision to accommodate public policy changes in the utility industry, it is the responsibility of the Legislature, rather than the PUC, to change the statute.

[¶ 26.] We conclude that the plain meaning of the phrase “the exclusive right to provide electric service at retail at each and every location where it is serving a customer” contains no restriction that limits that right to only provide a level of electric service under some type of distribution system that the PUC identifies today. Rather, “location” denotes a place where something is or could be located; a site. Therefore, SDCL 49-34A-42 does not restrict BHP’s exclusive right to provide all necessary electric service at the City’s plant. It gives BHP the right to provide service to Service Numbers One through Six, as well as any future service at that location. BHP’s continued provision of electric service to the plant is precisely what was protected by the first sentence of SDCL 49-34A-42, and therefore, it is not an extension of service into the territory assigned to WREA.

[¶ 27.] Affirmed.

[¶ 28.] GILBERTSON, Chief Justice, and SABERS, KONENKAMP, and MEIERHENRY, Justices, concur.

      . SDCL 2-14-1 states: “Words used are to be understood in their ordinary sense except also that words defined or explained in § 2-14-2 are to be understood as thus defined or explained.” The Legislature defined thirty-six terms in SDCL 2-14-2. “Location” was not defined in this statute.

      . Although we reversed on other grounds, the PUC's view of the statute shortly after it passed is instructive.

      . In the judicial setting, previously decided questions of law involving similar fact situations often provide precedential value, embodying the concept of stare decisis. Both federal and state courts have repeatedly noted, however, that administrative agencies are not bound by stare decisis as it applies to previous agency decisions. “The U.S. Supreme Court has stated that, 'An agency's view of what is in the public interest may change, either with or without a change in circumstances’ ". Yellow Robe v. Bd. of Trustees of SD Ret. Sys., 2003 SD 67, ¶ 14, 664 N.W.2d 517, 520 (quoting Interstate Telephone Coop., Inc. v. Public Utilities Com'n of the State of SD, 518 N.W.2d 749, 752-53 (SD 1994) (citing Motor Vehicle Mfrs. Assn. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57, 103 S.Ct. 2856, 2874, 77 L.Ed.2d 443, 446 (1983) (citation omitted))).

      . The PUC indicates that utility policy has changed since the 1975 Act. In a conclusion of law, the PUC attempts to justify its new interpretation, reasoning:
      In the Commission’s opinion, [today's] construction is bolstered by the elapse of twenty-seven years since passage of the 1975 Territory Act. Early in the territorial consolidation process, there may have been greater justification to weigh decisions in favor of an expansive definition of "location” to enable the serving utility to avoid a stranding and wasting of an investment undertaken in good faith without knowledge of the potential stranding effect of territory assignments. As time passes, however, investments in facilities made prior to 1975 have undergone normal depreciation, and less justification eventually remains to apply an expansive reading of “location” and increase the scope of anomalous services to recover fully depreciated or almost fully depreciated costs.

      . BHP asks this Court adopt the reasoning of the circuit court and an Illinois appellate court, which held that:
      In order to constitute a separate location, there must be some feature of the area in question which would set it apart from the surrounding parcels. A public road, a body of water, or a legal division (such as platting or subdividing the land) all could serve to distinguish one location from the surrounding area.

        Coles-Moultrie Elec. Coop. v. Illinois Commerce Com'n, 76 Ill.App.3d 165, 31 Ill.Dec. 750, 394 N.E.2d 1068, 1069 (Ill.App.4th 1979). We need not address the circuit court's adoption of the Coles-Moultrie decision in this case. The petition for declaratory relief that commenced this action only sought the answer to two questions: (1) "[w]hether Black Hills is rendering or has extended service within West River’s territory in violation of SDCL § 49-34A-42,” and (2) "[w]hether West River has the right to provide future electrical services to the Sewer Plant within West River's assigned service area.” Because we have addressed the specific issues presented by the petition and decided by the PUC, we need not address other reasoning of the circuit court.


author: KONENKAMP, Justice. SABERS, Justice

text:
    2004 SD 13
    Rex HINES, Petitioner and Appellant, v. BOARD OF ADJUSTMENT OF the CITY OF MILLER, (the Common Council acting thereas), Respondent and Appellee.
    No. 22730.
    Supreme Court of South Dakota.
    Considered on Briefs Nov. 17, 2003.
    Decided Jan. 28, 2004.

      Eric D. Slaathaug, Pierre, South Dakota, Attorney for petitioner and appellant.
    Gregory G. Rediger, Miller, South Dakota, Attorney for respondent and appellee.
   KONENKAMP, Justice.

[¶ 1.] Rex Hines requested a variance for one of his lots from a city ordinance restricting the placement of mobile homes. Following a hearing, the Board of Adjustment for the City of Miller denied the request. Hines filed a Petition for a Writ of Certiorari with the circuit court under SDCL 11^4-26. The circuit court ruled that the board was within its authority and jurisdiction when it denied the variance. Because the record of the hearing before the board clearly indicates that the board merely acceded to neighbor objections and failed to follow the city ordinance in considering the variance request, we reverse.

Background

[¶ 2.] Rex Hines owns four lots on the southwest outskirts of Miller. On the property to the north lies a solitary outbuilding, to the south, an overgrown lot with abandoned cars, and to the east, a sheep pasture. Two houses sit on adjoining lots to the west, one owned by Elma Thorson and the other by Don Joy. Other houses are located in the vicinity, one directly north of the Joy house and another directly south of the Thorson house.

[¶ 3.] Elaine Lingscheit, Rex’s mother, deeded the lots to Rex in May 2001. The lots were once part of a larger property that originally included the lots along with the house and lots owned by Thorson. The Hines family owned this house and lots until the late 1960s or early 1970s. The family then divided the property, selling the front lots to Thorson. In the transfer, Lingscheit reserved easements for utilities and access across the Thorson property.

[¶ 4.] One or more mobile homes occupied the lots during the 1970s. Testimony suggested that the homes were most likely gone by 1982 when the City of Miller’s new zoning ordinance came into effect. However, evidence showed that two mobile homes occupied the lots as late as 1976. In any event, the mobile homes were no longer located on the lots by 1984. In 1997, Lingscheit went to the city’s zoning board to request a variance to place 'a mobile home on the lot. After a hearing, the board denied the request.

[¶ 5.] On July 2, 2001, Brian Hines and Attorney Michelle Hines requested a building permit to have a mobile home moved onto the lot. After some initial confusion on how to proceed, the board determined that a variance would be required. Eventually, a hearing on the variance was scheduled for August 6, 2001.

[¶ 6.] The board arranged the hearing so that the opponents of the request would testify first, followed by the proponents. Local residents with property adjoining or near the Hines property had put together a list of reasons why the variance should not be granted. The list was presented to the board during the hearing by Don Joy, the neighbors’ spokesperson. After Joy’s presentation, several board members questioned Joy about the significance of the list of concerns. Joy admitted to the board that while the list contained concerns such as sewer hookups and snow removal, the neighbors would have no such concerns with sewer hookups and snow removal if a house were placed on the lot instead of a mobile home.

[¶ 7.] Following Joy, attorney Michelle Hines spoke. First, she noted that because the neighbors would not have the same concerns if the issue were whether a house would be placed on the lot, the neighbors concerns were not legitimate. Second, she fully explained the analysis required of the board by city ordinance and state statute. Third, she attempted to show how the request met the required variance test. However, the board continually reverted to the opinions of the neighbors that they did not want a mobile home in the lot. In response to these inquiries, Michelle Hines responded that lacking any legitimate concerns from the neighbors and lacking any response from other residents of the city, the board should find that placing a mobile home on the lot would not be against the public interest.

[¶ 8.] The board unanimously denied the variance. The transcript of the hearing reveals unequivocally that the board members decided to deny the request solely because the neighbors did not want a mobile home on the lot. As various board members commented: “[T]he real issue is: do the residence [sic] of that area desire a trailer not to be there?” “There are other areas within the community that trailers will be allowed only with a variance. In other words, with the approval of the people in that area....” “And I think that, that is why most of this information needs to be not even taken into consideration, about the water, sewer and that sort of thing.” When the board unanimously voted to deny the variance request, the following colloquy occurred:

Michelle Hines: Excuse me, may I ask what the rational is for tonight for denial of the variance?
Tom McGough: If I understood the question that was addressed to the opponents of the variance, it was the placement of a mobile home on those lots. Brian Hines: So it’s because of the neighbors then?
Tom McGough: It is because of their wishes of a mobile home not being placed on those lots.

Thus, the board reasoned that because the neighbors opposed a mobile home on the lot, the request was contrary to the public interest.

[¶ 9.] Hines sought a Writ of Certiorari with the circuit court under SDCL 11-4-26. The circuit court concluded that the board of adjustment did not err in denying the variance. On appeal, Hines asserts the following issues: (1) “Miller’s board of adjustment exceeded its jurisdiction when it replaced the statutory variance test with its own variance test.” (2) “Does § 17.28.020(F) grant relief in the form of a special exception, variance, or hybrid.” (3) “Miller’s board was grossly negligent in how it managed the Hines request.” Because we conclude that the board exceeded its authority in not fulfilling its obligation under the city ordinance in considering the variance request, we reverse and remand on Issue 1 and decline to reach Issues 2 and 3.

Analysis and Decision

[¶ 10.] We interpret zoning ordinances in accord with the rules of statutory construction supplemented by any rules of construction within the ordinances themselves. Cole v. Bd. of Adjustment of City of Huron, 1999 SD 54, ¶ 4, 592 N.W.2d 175, 176 (citing Cordell v. Codington County, 526 N.W.2d 115, 117 (S.D.1994)). Our consideration of a matter presented on certiorari is limited to whether the board of adjustment had jurisdiction over the matter and whether it pursued in a regular manner the authority conferred upon it. Id. (quoting Peters v. Spearfish ETJ Planning Comm’n, 1997 SD 105, ¶¶ 5-6, 567 N.W.2d 880, 883). A board’s actions will be sustained unless it ‘“did some act forbidden by law or neglected to do some act required by law.’ ” Id.‘[Cjertiorari cannot be used to examine evidence for the purpose of determining the correctness of a finding....’” Id. ¶ 11 (citing Willard v. Civil Serv. Bd. of Sioux Falls, 75 S.D. 297, 298, 63 N.W.2d 801, 801 (1954).

[¶ 11.] Hines contends that the board exceeded its authority by substituting the variance test prescribed in the city ordinance with a test that consisted of nothing more than allowing the opinions of neighbors to control whether a variance would be permitted. MCO § 17.16.040(C) provides that the board of adjustment shall have the power:

To authorize upon appeal in specific cases such variance from terms of this title as will not be contrary to the public interest, where, owing to special conditions, a literal enforcement of the provisions of this title will result in unnecessary hardship and so that the spirit of the ordinance shall be observed and substantial justice done.

[¶ 12.] SDCL 11-2-53(2) presents similar requirements for the issuance of a variance. It states that a board of adjustment may:

Authorize upon appeal in specific cases such variance from terms of the ordinance as will not be contrary to the public interest, if, owing to special conditions, a literal enforcement of the provisions of the ordinance will result in unnecessary hardship and so that the spirit of the ordinance is observed and substantial justice done[.]

Both the ordinance and the statute require first that a grant of a variance must not be “contrary to the public interest.” Second, an applicant for a variance must show that “special conditions” exist under which “a literal enforcement” of the ordinance would cause “unnecessary hardship,” which would not impair the spirit of the ordinance and substantial justice. Importantly, for a board to grant a variance, both the public interest prong and the special conditions prong must be met.

[¶ 13.] There is no question that the Board of Adjustment was bound to follow this test. Logically then, its failure to follow the test mandates the conclusion that the board exceeded the scope of authority granted to it by MCO § 17.16.040(C). The Board’s failure to follow the prescribed test was manifested in its apparent lack of comprehension of the obligation to decide what was “contrary to the public interest.” In denying the variance, the Board simply relinquished its decision to a vote of the neighbors.

[¶ 14.] The Board argues that its decision was “[a]s a result” of a list of concerns presented by the neighbors. This is not reflected in the transcript of the August 6, 2001 hearing. It is true that initially the neighbors presented a list of concerns to the board. However, the board quickly disregarded the list of concerns as irrelevant. Don Joy, the neighbors’ spokesperson, stated, “I don’t want a mobile home, I don’t object to a house back there.” As to the list of concerns presented by the neighbors, board member Dick Palmer stated, “And I think that, that is why most of this information needs to be not even taken into consideration, about the water, sewer and that sort of thing.” Board member Tom McGough clearly expressed his basis for denying the request when he stated:

And going on and the time that I have, and I am going to say the privilege and opportunity to sit on as a council member and presently as the Mayor, we have taken notice again, we sent out notices to the people in that area and we have taken into consideration their concerns with regard to a mobile home coming into that area. And based on their approval or disapproval has been the common ground on which this council has taken action on that. Having said that, that’s basically where we are right now with regard to that.

Attorney Michelle Hines responded:

And my comment to that would be, I’m not saying that you do not have to take into consideration the comments from the neighbors, you do and I think you should. You would not be acting as an appropriate council if you didn’t, but I also think that because there’s objection, does not mean that a variance should be denied. That’s what this commission is supposed to look at. This commission is supposed to look at its ordinances, the commission is supposed to look at what the law says 11-4-17 subpart 3, which gives you the factors you should look at and decide whether or not the variance should be allowed. Not because there is objection, because 9 times out of 10, somebody’s going to object to whatever you’re going to do in an area.

Despite Attorney Hines’s attempts to explain the legal implications of the ordinance and statute, when asked to give the board’s rationale for denial of the request, McGough responded, “It is because of [the neighbors’] wishes of a mobile home not being placed on those lots.” Having dismissed the list of concerns, the board was left with only the opinion of a few neighbors whose stated reason for opposing the request was “I don’t want a mobile home [on Hines’s lot].... ”

[¶ 15.] We have condemned this type of arbitrary decision-making in the past. In Cary v. City of Rapid City, 1997 SD 18, 559 N.W.2d 891, we struck down a statute that rested “the ultimate determination of the public’s best interest” with a group of neighbors. Id. ¶ 23. There we reasoned, “The ultimate determination of the public’s best interest is for the legislative body, not a minority of neighboring property owners.” Id. Because the Constitution protects a landowner’s right to use land for any legitimate purpose, we are wary of decisions that are based on “whims of neighboring landowners.” Id. ¶ 22. This is so because their decisions may be lacking “any standards or guidelines,” leading to decisions that may be arbitrary or capricious. Id. Worse, their opinions may be wholly self-serving.

[¶ 16.] Understanding the need for standards and guidelines in the variance procedure, our Legislature requires that boards of adjustment determine whether requests are contrary to the public interest. See SDCL 11-2-53(2). The discretion of a board to decide such matters however is not limitless. To base a decision solely on the opinion of neighbors was arbitrary and beyond its jurisdiction. The Board argues that

The neighbors did not make the decision nor did the board delegate the power and authority to make that decision to the neighbors. The board made its decision based on the board’s concerns and the legitimate concerns of the neighbors which could adversely affect the City of Miller if the board were to approve Hines’ variance request and thereby, repudiate the legitimate concerns' of the neighbors.

We find no showing in the record of any independent thought on the part of the board. Because the board did not fulfill its duty to follow the guidelines of the city ordinance and make a public interest determination on behalf of the entire city, this case must be remanded to the board for a proper determination. We need not reach the remaining questions.

[¶ 17.] Reversed and remanded.

[¶ 18.] ZINTER and MEIERHENRY, Justices, concur.

[¶ 19.] GILBERTSON, Chief Justice' and SABERS, Justice, dissent.

SABERS, Justice

(dissenting).

[¶ 20.] SDCL 11-4-17 provides in part:
The board of adjustment may:'
(2) Authorize upon appeal in' specific cases such variance from terms of the ordinance not contrary to the public interest, if, owing to special conditions, a literal enforcement of the provisions of the ordinance will result in ■ unnecessary hardship and so that the spirit of the ordinance is observed and substantial justice done.

[¶ 21.] These powers are permissive, not mandatory. In other words, the board of adjustment may, in its discretion, but is not required to:

1. authorize upon appeal in specific cases such variance from terms of the ordinance not contrary to the public interest,
2. if, owing to special conditions, literal enforcement of the provisions of the ordinance will result in unnecessary hardship,
3.so that the spirit of the ordinance is observed and substantial justice is done.

[¶ 22.] Hines failed to establish any of these three criteria and he was required to establish all three to be successful.

[¶ 23.] First, Hines was requesting a variance to move a mobile home from a legally designated trailer park in the City of Miller to an area in Miller which requires a variance. It is easy to see that this was contrary to the public interest. Hines did not show otherwise.

[¶ 24.] Second, Hines made no showing whatsoever that denial of a variance in this instance would result in unnecessary hardship to anyone.

[¶ 25.] Third, Hines made no showing that the spirit of the ordinance was not observed or that a substantial injustice was done.

[¶ 26.] Hines was requesting a variance from an ordinance approved by the City, therefore, he had the responsibility of establishing that the Board should override the ordinance by variance. He failed to do so and that failure does not properly lead to a finding that the Board exceeded its authority. Furthermore, the Board found that allowing a variance in this case would not be in the public interest. As the majority opinion correctly notes, “certiora-ri cannot be used to examine evidence for the purpose of determining the correctness of a finding!.]” Majority opinion, ¶ 10 (quoting Willard, 75 S.D. at 298, 63 N.W.2d at 801). It is not for this Court to second-guess the findings of the Board on certiorari. It was within the authority of the Board to deny the variance if:

1) allowing it would not be in the public interest;
2) there were no special conditions such that disallowing it would result in unnecessary hardship; and
3) if the spirit of the ordinance is observed and substantial justice is done.

The Board did not exceed that authority. Under our standard of review on a writ of certiorari, our inquiry should have ended there.

[¶ 27.] For all of these reasons, we should affirm the circuit court’s determination.

[IT 28.] GILBERTSON, Chief Justice, joins this dissent.

       While this appeal was pending, the city amended its ordinance to prohibit altogether any mobile homes in the area in question. Appellants sought a stay from this Court, but the matter is not properly before us and thus it must be dealt with on remand.