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Bob Mercer

MERCER: Sun shines brighter as business tax breaks to be open in SD

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opinion Mitchell, 57301
The Daily Republic
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Mitchell South Dakota 120 South Lawler 57301

PIERRE -- The Legislature shorted the public by rushing the new Building South Dakota plan to approval in just one week. The Legislature also shorted itself because many of the innovations never received any thorough public explanations.

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For example, four legislators will be appointed to serve as non-voting members of the state Board of Economic Development. They can monitor the actions of a panel whose 25 years of existence might be described as reclusive.

The board will decide which businesses qualify for what will be known as reinvestment payments.

That is the new term for what essentially are tax refunds that will be available for new projects costing at least $20 million and for existing businesses that put at least $2 million into new equipment.

A key provision is that the board must determine whether the business wouldn't have located in South Dakota without a package of local and state incentives.

It's doubtful that many people in South Dakota know about the new roles for the four legislators or that they will be include two Democrats and two Republicans, with one apiece from each party in each chamber.

It's also doubtful that many people know the state Senate will now hold confirmation power over the 13 voting members that the governor appoints to the state board.

And it's likewise doubtful that many people know about the giant and positive change in government transparency contained in the legislation regarding these reinvestment payments.

As recently as the winter of 2008-2009, the Rounds administration resisted revealing the names of the business projects that received permits under South Dakota's construction-tax refund system.

It took a legal challenge by a newspaper reporter and an appeal to a state hearing officer to get the state Revenue Department to provide the identities of the permit recipients.

That victory in turn led the Legislature to require the refund amounts to also be made publicly available.

Now the Legislature is taking a much bigger step forward in regard to open government on these matters.

Under Building South Dakota, the Governor's Office of Economic Development will be required to reveal much more information about the recipients of the new reinvestment payments.

The reinvestment payments can begin April 1. To qualify a project application is necessary.

The form must contain the owner's name and contact information, the general description of the project, the construction date and the expected completion date, the estimated costs, the location, a list of the anticipated contractors and subcontractors, and any other information GOED might require.

The state board will review each application. The legislation requires that the board "shall consider the likelihood that the project would have occurred without the reinvestment payment." The maximum amount of the payment can be at most what the project paid in South Dakota sales and use taxes.

The above two points, by the way, are a major change from the large-project grants program that South Dakota voters rejected in November.

That 2011 plan from Gov. Dennis Daugaard, and which carried approval only from majorities of Republicans in the Legislature, didn't have an upper limit on the amount that could be rewarded to a project. It didn't set much for criteria, either.

The new program goes much farther in defining what the state board must consider in determining whether to approve a reinvestment payment.

Those criteria include:

*Has the city or county established a property-tax reduction plan to assist the project for five years?

*Has the city or county established a tax incremental district where the project will be?

*Has the city approved a municipal sales tax refund?

*What are the economic activities that may occur in the community, county and state as a result of the project?

*And has the project followed the rules set for the reinvestment program?

In turn, the legislation specifically declares the name of any person who receives a reinvestment payment, and the amount of the payment, to be public information and shall be open to public inspection.

The legislation further requires GOED to place on its website as public information five sets of data about each project receiving a reinvestment payment.

That information includes the estimated number of full-time jobs that will be created and an estimated average wage of the full-time jobs.

It also includes a list of all the local government tax mechanisms and state government tools, loans and grants provided for the project.

This, by the way, was a point that House Democratic leader Bernie Hunhoff of Yankton insisted upon from state Economic Development Commissioner Pat Costello in the final conference committee meeting.

And the Republican leaders on the committee and the bill's Republican sponsor, Sen. Corey Brown of Gettysburg, stayed silent, letting Hunhoff make this point when Costello seemed reluctant.

The information that must be put on the GOED website also must include an estimate of the taxes that will be paid by the project.

And the fifth major point that must be told the public is a statement why the project wouldn't have occurred in South Dakota without the reinvestment payment.

The legislation straightens out two past difficulties under the Rounds-era refunds program. Legislators were frustrated they couldn't find out who was receiving refunds. Legislators also had to hold millions of dollars back in state tax proceeds each year, because projects might come seeking a refund.

The need to withhold tax receipts was a headache too for the state Bureau of Finance and Management in its budgeting work.

Under the new program, a project will need to get a special state permit before construction begins. The permit puts state government on notice that the project might apply for a reinvestment payment upon completion.

The permit filing lets state officials know that the money paid in sales and use taxes on the project should be placed in a special fund from the Board of Economic Development can draw for making the reinvestment payment.

Much has been written from the 2013 legislative session about lawmakers rejected many attempts to advance open government in small ways.

What hasn't been acknowledged publicly, however, is the revolutionary change in the Legislature's attitude about the need and the value of showing the public the details of projects that receive tax breaks.

The Legislature has made a giant stride from five years ago in transparency. Millions of dollars of tax breaks that once were secret no longer are and, under Building South Dakota, citizens will be able to know much, much more.

Unfortunately the many pieces of Building South Dakota were brought together behind closed doors for the most part, so we don't know for certain who pushed for the openness.

We know there were many more legislators involved in significant ways than just those whose names appear as co-sponsors on Brown's bill.

But in the end it is Brown whom all have acknowledged as the master behind the scenes on this. And in the end every legislator who voted for SB 235 can take responsibility for helping achieve what might become a landmark piece of legislation.

The sun shines brighter this spring on government in South Dakota.

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