Gov. promised businesses $5 million before voters rejected program
PIERRE -- Commitments made behind the scenes by Gov. Dennis Daugaard to two business projects are on the line following voter rejection of a proposed grant program.
The problem facing the governor is that a majority of South Dakota voters last month rejected the new business-grants program that he hoped would provide the money to pay for his promises.
Now his solution is to ask the Legislature for $5 million instead.
The money would assist France-based Bel Brands for a 400-employee cheese plant at Brookings and Baldwin Filters for further expansion of its Yankton manufacturing operations.
State Commissioner of Economic Development Pat Costello said Monday the final amount might be higher because of the size of the cheese project.
Both Bel and Baldwin are receiving a variety of state and local financial assistance.
A combination of politics and timing snagged Daugaard as he worked to convince the companies to put jobs in South Dakota rather than elsewhere in the nation or Mexico.
The chain of events reaches back to 2010, when the Legislature decided to repeal South Dakota's construction-tax refund program for large business projects, after the previously confidential amounts of refunds started to be publicly known.
Then-Gov. Mike Rounds signed the repeal without a replacement. To allow time for a transition, the Legislature decided the refunds would end this year on Dec. 31.
That allowed Daugaard upon taking office in 2011 to propose a different type of subsidy program.
Daugaard wanted business grants that would be controlled by a state board appointed by the governor and funded through 22 percent of contractor excise tax revenues.
The Legislature's Republican majorities last year approved the business-grants program so that it would take effect Jan. 1, 2013, upon expiration of the refund program.
But South Dakota Democratic Party Chairman Ben Nesselhuf successfully circulated petitions to refer the grants legislation to a statewide vote.
Nesselhuf took out the referendum petition on April 6, 2011. The state agreements were completed with Bel on June 3, 2011, and with Baldwin on July 12, 2011. Nesselhuf's petitions were accepted by the secretary of state on July 18, 2011.
Last month, 57.6 percent of South Dakota voters said no to Daugaard's business-grants program, leaving the governor and his commitments in no-man's land.
Spokesman Tony Venhuizen said Monday the governor was committed throughout the process to using money from state government's Future Fund instead if necessary.
The Future Fund, created in 1987, siphons a small amount from employers into an economic development grant program that the governor controls.
Venhuizen said the Future Fund would be "pretty limited in its availability as a tool in the near term" if the Legislature doesn't appropriate the $5 million.
Future Fund grants totaled more than $12.8 million in 2010 and exceeded $13 million in 2011.
The governor wants the additional $5 million put into the Future Fund within the existing 2013 general state budget, so that he can tap it without setting up another program.
As a budget amendment, the Legislature's rules would allow the money to be transferred to the Future Fund on a simple majority, rather than the two-thirds majority vote needed for special appropriations.
To estimate the amounts for Bel and Baldwin, state officials used the now-expiring formula under the state's construction-tax refund program.
The formula relied on a sliding scale, linking the size of the project to the percentage of taxes refundable.
Commissioner Costello said Baldwin's amount was calculated at about $236,000 while Bel's would be about $4.5 million.
Costello said the state's liability to Bel "can be significantly more depending on their final construction and equipment cost."