MERCER: Jumping over the moon for SD dairy expansion?PIERRE — Peaceful milk cows could lead the Legislature into some big arguments this winter over the future of dairy production and processing in South Dakota.
By: Bob Mercer, Republic Capitol Bureau
PIERRE — Peaceful milk cows could lead the Legislature into some big arguments this winter over the future of dairy production and processing in South Dakota.
There is the $4 million-plus in tax rebates that Gov. Dennis Daugaard promised to Bel Brands for the proposed processing plant at Brookings.
And there is the broader effort by his administration to help double the milk cows in South Dakota from the present 92,000.
More dairy is an economic development priority for Gov. Daugaard and state Agriculture Secretary Walt Bones, himself a dairyman. They are recruiting outside South Dakota. They need talent to move here.
The second piece is public acceptance from local citizens and environmental activists over adding modern-sized dairy farms to the landscape.
That won’t be easy. Adding 90,000 more dairy cows into South Dakota’s rural economy is bound to spark local arguments about environmental protection.
As a commercial activity, dairy tends to be very concentrated. Dairy cows don’t come with on/off switches. They need to be milked several times a day, every day.
We also don’t have the dairymen in South Dakota to do that kind of constant work for twice as many as cows. For a solid living, a modern commercial producer needs many hundreds or even thousands of cows. Cows mean manure.
We don’t mind much when livestock are on range and pasture, because manure is spread far and wide. The concern comes when livestock are concentrated into small areas. This is why environmental regulations in our state laws and rules call for manure handling systems at concentrated feeding operations. Even though a producer owns the land, above is public air and beneath is public water.
There was the recent withdrawal by backers of the Hanson County Dairy. That fight saw state Rep. Stace Nelson, R-Fulton, help lead the opponents in blocking the dairy’s water permit; an example of the possible disputes ahead.
But the expansion strategy proceeds. A “dairy drive” was held for members of the Legislature on Sept. 26.
Among stops were the cheese plants at Milbank and Lake Norden, where Valley Queen Cheese and Davisco Foods International, respectively, process 3.2 million and nearly 4 milllion pounds of milk daily.
The bus tour for the 25 legislators was intended to drive home the message that milk production needs to be increased.
With Bel moving into the Big Sioux River valley — Brookings officials say their goal is to make their city and South Dakota State University the dairy center of South Dakota — there will be increased competition for milk, unless there are more cows, too.
Already a new business that would produce better feed for dairy is taking shape at Brookings. It would further refine the distilled grain byproducts from ethanol plants.
Bel needs thousands of cows to produce milk for its proposed plant at Brookings. The workforce at the plant would be 200 to possibly 400.
That’s not counting the many related jobs at the dairy farms and for the feed producers and feed processors.
To get Bel’s commitment, Brookings city officials delivered millions of dollars in incentives. The governor helped seal the deal with the promise of a tax rebate on the construction and equipment.
The governor, to his credit, told the truth to the Legislature during his budget speech in early December that he doesn’t have the money to make good on his promise. He asked the Legislature for it.
His fallback is to take money from the Future Fund, which originally was intended for research and science infrastructure when it was created 25 years. It has since evolved into a job-training fund to help employers.
The Future Fund’s money comes from an extra tax that nearly all employers pay.
The third debate the Legislature will face is what South Dakota should offer businesses that want to expand or move into the state.
Economic development is a battle of one state against other states and other nations. Businesses routinely ask what they can get in return.
Daugaard and many of the Legislature’s Republicans wanted to make grants available and pay them by taking 22 percent of the contractor excise tax proceeds on an ongoing basis. The voters rejected that plan in November.
One of the flaws some voters saw was fairness. Daugaard’s plan favored big businesses but relied on taxes that South Dakotans are subjected to on construction projects, including small businesses ineligible for grants.
A long-standing complaint is starting a business in South Dakota costs a lot in taxes, especially if the business project involves construction and buying equipment.
This is what the old construction-tax refund program, which expires Dec. 31, attempted to partially alleviate.
It was expanded by the Legislature during the Rounds administration. But lawmakers ultimately sent it into the sunset after they saw how much it cost and who was or wasn’t benefiting.
Daugaard’s grants plan would have put the aid at the discretion of the state Board of Economic Development. Its members are appointed by the governor. Some opponents saw the potential for favoritism by the board.
The Rounds-era rebates didn’t involve favorites. They were available to any business that met the legal requirements, whether that business was popular or not. But small businesses didn’t qualify, and the bigger the project, the bigger the rebate — which again raised the fairness question.
What then can be done — if anything should be done — that would make South Dakota competitive?
Perhaps a tax credit or a temporary break on unemployment tax for each job created, regardless of business size?
Perhaps a temporary break on the Future Fund tax for the new job?
Perhaps more time to pay sales tax and contractor tax, through direct payments to the state treasury, on expansions and new construction?
If incentives are available to all employers to add jobs in South Dakota, they likely have a better chance of acceptance.
And by the way, who doesn’t really like cows?