Big-project grants debated

• RF 14 debate

David Owen, left, and Ben Nesselhuf debate Referred Law 14 on Thursday at the Ramada in Mitchell. (Ross Dolan/Republic)

Talk about it

A supporter of a proposed grant program for large development projects called it a needed incentive Thursday, while an opponent derided the grants as unnecessary giveaways vulnerable to political influence.

The Rotary Club-sponsored luncheon debate at the Ramada in Mitchell pitted Referred Law 14 proponent David Owen, president of the South Dakota Chamber of Commerce and Industry, against state Democratic Party Chairman Ben Nesselhuf.

Referred Law 14, which is on the Nov. 6 general election ballot, would provide grants to development projects costing more than $5 million.

Owen believes the law would provide needed incentives to draw business to South Dakota and ensure future growth.

“Referred Law 14 is about economic development; it’s about having quality jobs and expanding our tax base so we can fund schools and community services; and it’s about strengthening South Dakota’s economy and making it more recession-proof,” Owen said.

Nesselhuf believes South Dakota already has an attractive business climate and more incentives aren’t required. He said the proposed program lacks transparency and oversight, and could be abused by political appointees.

“The Democratic party took on the challenge to put this on the ballot because someone needed to,” Nesselhuf said.

He said the petition drive to refer the law to voters, which collected 23,000 signatures, had bipartisan support.

The ballot asks voters to cast a “yes” vote to create the Large Project Development Fund or a “no” vote against the referred law.

The referred law began life as House Bill 1230 and was passed during the 2011 legislative session. It would create the Large Project Development Fund by using 22 percent of the state’s contractor excise tax revenues to provide grants for the construction of large economic development projects in South Dakota with a cost of $5 million or more. The South Dakota Board of Economic Development would decide who gets the grants. Wind, ethanol and other local business projects would be eligible for the grants; residential housing, health care and animal feeding operations would not be eligible.

Nesselhuf asked, referring to 2011 state government cuts of $52 million to education and $30 million to Medicaid, “Is it appropriate, on a philosophical level, to come up with another $18 million to put into a corporate incentive program? I would say that it’s not.”

Owen said the $18 million cut from education probably wouldn’t have been there to cut if it weren’t for state incentive programs.

“The crux of this is if you truly believe these incentives make a difference in the marketplace,” Owen said. “I can tell you they matter and they mattered to Graphic Packaging.”

Graphic Packaging has a plant in Mitchell that received a tax refund under a related existing program, which doles out refunds, rather than grants, based on a schedule of project costs.

Referred Law 14 will allow the state to be more flexible and targeted with its incentive cash than it is under the existing program, Owen said.

He also said ethanol programs helped by state incentives annually write checks in excess of $1 billion to farmers statewide in the form of payments for corn.

The new grant program fund would be self-funded, Owen said, and no company would receive help that hasn’t paid into the program.

Nesselhuf said the effort is misguided.

“The issue is that if the contractor’s excise tax is bad and a disincentive to development, then you deal with that by addressing the tax, not by coming up with a convoluted system that forces all of us to pay in to a program that only goes to large, out-of-state corporations.

“There is a proper way to create a program that works, but it’s not by creating a tax that we’re going to kick over to somebody else.”

Nesselhuf said his objections are not to development, but rather to unneeded incentive programs.

“If you talk to economists from the Federal Reserve in Minneapolis, they will tell you incentive programs are foolish and wasteful and have a zero return,” he said. “(Large projects) will come to the state anyway, and these incentives are more about giving them a little bit extra.”

Owen said Referred Law 14 would be an improvement over the current incentive system, which would be replaced by Referred Law 14.

Under the current law, taxes on large projects go into a holding account, and from that account applicable refunds go back to the company. The remainder of the money goes into the general fund.

Under Referred Law 14, contractor’s excise taxes would go straight to the general fund and there would be an amount dedicated for incentives.

Owen brushed off arguments that the Board of Economic Development would use the new program to curry political advantage with favored companies, but he also acknowledged the realities of political and commercial life.

“You can’t tell people you’ve invited to South Dakota that they can’t make political contributions,” Owen said, “but you can hold those contributions open to the world so people can see and wonder. We have all the safeguards we need, and I don’t see any evidence in South Dakota that we have slipped into a ‘pay-to-play system.’ ”

Nesselhuf disagreed.

Over the last 10 years, Nesselhuf said, companies that received money from the state Revolving Economic Development and Initiative Fund and from the Future Fund gave $330,000 in contributions to Republican candidates.

“I am not accusing anyone of anything, but I think the facts back up the idea that we need to make certain there are strict accountabilities,” Nesselhuf said.

South Dakota already has powerful business incentives, he said, such as no corporate income tax, low wages and unions that are not as powerful as elsewhere.

The Large Project Development Fund will go into effect Jan. 1, 2013, unless South Dakotans reject it Nov. 6. The related existing law is scheduled to sunset, which would mean no such program will be in place if Referred Law 14 is rejected.

Tags: election 2012, economic development, news, updates, state, business