Mitchell Paper Endorses Referred Law 14 on Wishful Thinking

The Mitchell Daily Republic editorial board is really bad at political arguments. They have endorsed Referred Law 14, Governor Dennis Daugaard's "Large Project Development Fund, based entirely on hopes and wishes.

The Mitchell editors acknowledge the very clear problem of the lack of accountability in corporate welfare program: the bill hands over 22% of the contractors' excise tax to an unelected board under the Governor's thumb to redistribute to wealthy corporate donors however they please. That's strange: the lack of Legislative oversight is a big reason the Mitchell editorial board has come out against Referred Law 15, the extra-penny sales tax for K-12 education and Medicaid.

Apparently the Mitchell paper is much less eager to invest tax dollars in schools and hospitals than it is to give handouts to private businesses. They say all of the potential benefits outweigh the risks:

...we feel that attracting big business to South Dakota is imperative to our state's future. We acknowledge that often, it takes money to make money.

Could the Large Project Development Fund be the key to bringing the next great employer to Mitchell? Perhaps, and with that hopeful view through such optimistic glasses we therefore give our approval to Referred Law 14 [editorial, "14's Potential Outweighs Concern of Future Trouble," Mitchell Daily Republic, October 25, 2012].

The Mitchell paper offers hopes and wishes, but no proof that we need Referred Law 14's handouts to attract businesses to South Dakota. Consider this evidence (evidence, Mitchell editors!) from Massachusetts:

States don't do much better when they use tax breaks to try to lure specific companies. In the wake of the Evergreen fiasco, Massachusetts officials formed a Tax Expenditure Commission to review the Bay State's web of tax breaks, also known as "tax expenditures."

The commission pegged overall foregone state revenue from tax breaks (not just those for businesses and economic development) at an estimated $26 billion this year, more than the total amount of tax revenue the commonwealth expects to collect during the fiscal year. And a 2011 analysis by the state auditor of 91 business tax breaks offered that year found that only a few came with mechanisms for reviewing their effectiveness or recovering lost revenue if the breaks failed to produce the hoped-for economic benefits [Charles Chieppo, "Rolling the Dice with Taxpayer Money," Governing, October 25, 2012].

South Dakota is in the same boat, needlessly sacrificing tax revenue to draw businesses that likely would have come here anyway. The best example is TransCanada. It was going to build the Keystone 1 pipeline through eastern South Dakota no matter what our tax policies were. Yet we've surrendered to them $6.9 million in contractors' excise tax refunds. We get no net gain from that refund; it's pure Christmas gift to a foreign corporation.

The Mitchell editors also fail to consider that Referred Law 14 is a huge increase in corporate welfare. RL 14 diverts 22% of the excise tax to this corporate welfare slush fund. In fiscal year 2012, South Dakota took in $83 million in excise tax. RL 14 would thus redistribute $18.3 million to deep private pockets. The program RL 14 replaces has given out $92.8 million over 16 years, or about $5.8 million per year. Maybe we've accelerated our handouts recently, but on average, Referred Law 14 would more than triple the amount we pour into these economic development grants.

Now the Mitchell editors can argue that Referred Law 14 would thus do three times as much good as the current excise tax refund program. But three times zero is still zero. Corporate welfare is the worst kind of trickle-up redistribution of wealth. Vote No on Referred Law 14, and keep your tax dollars going toward schools, hospitals, and other proper public functions.