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Scott Munsterman

New SD economic development program taking shape

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PIERRE -- The Legislature's Republican and Democratic leaders want to go back to the future with their support for a new package of tax incentives for economic development projects in South Dakota.

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The plan from Rep. Scott Munsterman, R-Brookings, would combine concepts from South Dakota's tax-refund program, which ended Dec. 31, and the governor's proposed business-grants program, which voters rejected in the November election.

Munsterman's bill, HB 1161, was officially introduced Wednesday in the state House of Representatives.

His five co-sponsors are a who's who of political power in the Legislature.

In the House are Republican leader David Lust, of Rapid City, and Democratic leader Bernie Hunhoff, of Yankton. On the Senate side, there are Republican leader Russ Olson, of Wentworth, and Democratic leader Jason Frerichs, of Wilmot, along with the chamber's president pro tem, Republican Corey Brown, of Gettysburg.

Lust said lawmakers are getting close to a unified approach. Hunhoff said the plan passes a critical test because it would treat all businesses alike. The unresolved point is a source of funding for the grants.

The only types of development that wouldn't qualify are residential housing and nonprofit health care services.

Munsterman's plan calls for a combination of city, county and state incentives:

• The city government would be allowed to rebate the municipal sales and use tax paid by the project;

• A state grant in the same amount as the rebate would be made available to the project if it were within the city;

• For a project built outside a city, a state grant would be made available in an amount up to one-half of the state sales and use taxes paid by the project; and

• The city or county government would reduce property taxes for five years under the discretionary formula already in state law.

A project's developer would be required to submit a plan to local officials showing the economic impact and jobs expected. The plan also could be provided to the state Board of Economic Development, whose members would oversee the grants.

The legislation sets a 10-category scoring system for the project's impact and a six-category system for judging the likelihood of success.

Munsterman is the former mayor of Brookings. He wrote a book explaining his vision for South Dakota and placed second of five candidates for the Republican nomination for governor in 2010, behind then-Lt. Gov. Dennis Daugaard. Munsterman later won election to the House that fall after a legislative ballot slot opened up.

The Legislature greatly expanded the tax-refund program for large businesses in the past decade during the Rounds administration but decided it should end Dec. 31, 2012, and be replaced by Gov. Daugaard's business-grant program.

The Daugaard plan called for shifting 22 percent of contractor excise tax revenues -- roughly $15 million or more annually -- into a special fund for grants to be made to large business projects by the Board of Economic Development.

But that approach was forced to a public vote through a petition drive led by South Dakota Democratic Party Chairman Ben Nesselhuf. Voters rejected it 57.6 percent to 42.4 percent statewide and in 65 of 66 counties.

The governor won in only Shannon County.

Daugaard and legislative leaders agreed after the defeat that they need to jointly develop another approach.

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