Rapid City senator resigns after she violated constitution for accepting COVID-19 funds

A Rapid City senator has announced her resignation after an investigation by the Attorney General’s Office found Thursday she had violated the South Dakota State Constitution by accepting federal funds for her small business.

Republican Jessica Castleberry will be required to repay the state $499,129 with interest after she accepted COVID-19 stimulus funds for her daycare, Little Nest Preschool, between 2020 and 2023. Initially, Castleberry had been on the hook for $603,219.76 in federal funds.

Gov. Kristi Noem sent a letter to Attorney General Marty Jackley in late July requesting an investigation into the second term senator after the Department of Social Services fiscal staff recognized Castleberry’s name on a recent grant application and flagged it as a possible constitutional violation.

More: SD AG requests Sen. Jessica Castleberry return $600K in COVID funds from small business

According to a 2020 South Dakota Supreme Court advisory opinion, sitting lawmakers are banned from using such payments and that the contract is considered "wholly illegal, void and against public policy and cannot be enforced in whole or in part on any theory of any kind."

“The Attorney General’s office conducted a thorough investigation into this matter and I am glad speculation from other state departments and the executive branch regarding my ethics and intentions can be laid to rest,” Castleberry said in an email Thursday. “Today, I formally resign from my position in the South Dakota Senate. I was humbled to be appointed and honored to be elected. Thank you for the opportunity to serve the people of the state of South Dakota.”

Jackley said Thursday during a news conference that Castleberry had been extremely cooperative during the investigation, allowing the AG’s Office to examine her financial records and working to establish a comprehensive payment plan for the next 20 to 30 years.

The $2,400 a month repayment plan will have the federal interest rate, currently sitting around 4.03%, applied.

More: Gov. Noem orders state contracts to include new 'conflict of interest' clause

“To the credit of Sen. Castleberry, she cooperated with the investigation and she was able to work with us, with her financials to put together a plan that is achievable and does respect and pay back taxpayer dollars,” Jackley said.

None of the money was spent inappropriately and went toward DSS-approved expenditures, Jackley added.

He did not say why it took three years for someone to notice the expenditures.

“This wasn’t anything that appeared to be hidden,” Jackley said. “I’ve personally reviewed the contract and Senator Castleberry signed it. So she wasn’t hiding that she was a senator and I think it’s public record she was a senator. Everybody generally knows that.”

Advisory opinion and Constitution clear

The South Dakota Constitution bans state lawmakers from having either a direct or indirect interest in a state contract made during their term in office as well as a year after their term.

And in 2020, the South Dakota Supreme court issued a “rare” advisory opinion regarding if state lawmakers could receive federal COVID-19 stimulus funds. In the opinion, the court found lawmakers could not accept the funds.

“With respect to this matter, we have a constitutional provision that is straightforward,” Jackley said. “We have existing case law and we have a Governor’s Advisory opinion.”

He cited the 2001 South Dakota Supreme Court case between then-Rep. Carol Pitts, R-Brookings, who was seeking payment for her employment at South Dakota State University while she was in office. The court found Pitts had no legal right to payment because of her role as a lawmaker created a conflict of interest, according to the constitutional provision.

“A sitting lawmaker cannot receive either a direct or an indirect benefit from state contracts, and so it’s a balance.” he said. “When there is a violation of the Constitution, it voids a contract. It’s not a criminal matter. And again, there are no penalities.”

Jackley encouraged lawmakers going forward to consult with private attorneys about whether accepting state contracts and monies violates the Constitution.

Little Nest families not on the hook

Jackley explained the remaining funds, $104,100, was targeted toward “qualified financially needy families.” Because the money went directly to families and children, it would not be considered in the repayment plan.

“We knew what it was used for. We can show where the targeted money had gone to children and we could show that a payment plan was appropriate and viable,” Jackley said, calling the funding a “pass through,” meaning the money went from DSS to Castleberry to the families.

More: Senator accused of illegally pocketing COVID funds cooperating with state

“These needy families qualified, they met the standards and they shouldn’t be penalized for what has occurred,” Jackley said. “Furthermore, the way those dollars went through is exactly what Congress wanted.”

What happens next?

Noem will appoint Castleberry's replacement. Request for comment from Noem on who might be appointed were not returned.

Noem also issued an executive order Friday requesting that contracts issued by the state include a clause to guard against conflict of interest if a state lawmaker is about to enter into a contract that would violate the Constitution.

This article originally appeared on Sioux Falls Argus Leader: Jessica Castleberry resigns from SD Senate after AG investigation