The Build Dakota Scholarship program created by Governor Dennis Daugaard and billionaire T. Denny Sanford promises 300 vo-tech students a year a free two-year education in return for three years of work in South Dakota.

KELO says vo-tech programs in South Dakota run between $12,000 and $15,000. The top end of that range puts the up-front dollar value of the Build Dakota scholarship on par with the Critical Teaching Needs Scholarship, created in 2013, which pays the last two years of tuition and fees for willing teacher candidates. However, the vo-tech students are getting a better deal: the teachers must promise to work in South Dakota for five years.

As we know, students accepting the Critical Needs Teaching Scholarship are trading $15K in tuition costs for $65K in sacrificed purchasing power available for working outside of South Dakota. Will Build Dakota Scholarship takers come out any better financially?

That math is uncertain: Governor Dennis Daugaard has not announced yet which job fields he will target with the new scholarship, so we don't know which wage data to compare. But let's take some guesses.

We'll focus on wages in South Dakota and the six adjoining states. Let's look first at median wages, the halfway point for wages in various fields. Here are the median wages for all occupations:

All Occupations
State Annual Median Salary Per-capita state taxation Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $32,380 $3,740 $28,640 92.8 $30,862 $4,884
MN $37,390 $4,858 $32,532 101.2 $32,146 $6,168
MT $30,770 $3,137 $27,633 102.1 $27,065 $1,086
ND $35,640 $4,057 $31,583 101.7 $31,055 $5,077
NE $31,840 $3,991 $27,849 97.7 $28,505 $2,526
SD $29,420 $3,052 $26,368 101.5 $25,978 $0
WY $36,990 $3,500 $33,490 94.4 $35,477 $9,498

South Dakota has the lowest median wage in the region. We have the lowest state and local tax burden, but our cost of living (by the most recent available data, 2014 Q3) is higher than the national average and even three ticks higher than Minnesota's. Our median adjusted post-tax purchasing power is four digits less than our neighbors'—4% less than Montana's, 24% less than Minnesota's, and 37% less than Wyoming's.

But hold on: that's all jobs, from bailiff and dishwasher up to nurse anaesthetist and CEO. Our vo-tech grads are aiming for a specific subset of jobs.

Let's look at the general category BLS calls "Production Occupations," where we should find a higher proportion of vo-tech grads:

Production Occupations
State Annual Median Salary Per-capita state taxation Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $31,550 $3,740 $27,810 92.8 $29,968 $4,186
MN $33,730 $4,858 $28,872 101.2 $28,530 $2,748
MT $30,970 $3,137 $27,833 102.1 $27,261 $1,479
ND $33,830 $4,057 $29,773 101.7 $29,275 $3,494
NE $30,230 $3,991 $26,239 97.7 $26,857 $1,075
SD $29,220 $3,052 $26,168 101.5 $25,781 $0
WY $44,270 $3,500 $40,770 94.4 $43,189 $17,407

Oops! Median pay is actually a little worse in this field, except in Wyoming, where median pay and post-tax adjusted purchasing power jumps to a $17K advantage over South Dakota'

Let's get specific. Within "Production Occupations," our governor talks a lot about welders:

Welders, Cutters, Solderers, and Brazers
State Annual Median Salary Per-capita state taxation Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $34,570 $3,740 $30,830 92.8 $33,222 $4,820
MN $38,760 $4,858 $33,902 101.2 $33,500 $5,098
MT $33,750 $3,137 $30,613 102.1 $29,983 $1,581
ND $43,010 $4,057 $38,953 101.7 $38,302 $9,900
NE $34,340 $3,991 $30,349 97.7 $31,063 $2,661
SD $31,880 $3,052 $28,828 101.5 $28,402 $0
WY $46,120 $3,500 $42,620 94.4 $45,148 $16,746
Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders
State Annual Median Salary Per-capita state taxation Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $36,890 $3,740 $33,150 92.8 $35,722 $4,729
MN $36,000 $4,858 $31,142 101.2 $30,773 -$220
MT $36,140 $3,137 $33,003 102.1 $32,324 $1,331
ND $37,760 $4,057 $33,703 101.7 $33,140 $2,147
NE $37,960 $3,991 $33,969 97.7 $34,769 $3,776
SD $34,510 $3,052 $31,458 101.5 $30,993 $0
WY $50,360 $3,500 $46,860 94.4 $49,640 $18,647

In these two job areas, the only place South Dakota beats on post-tax purchasing power is Minnesota, for welding, soldering, and brazing machine setters, operators, and tenders, and there our advantage is just $220, about 0.7%, or the cost of gas and a motel room to go see the Vikings play. Welders, cutters, solderers, and brazers come out over $5K better a year in Minnesota than in South Dakota.

But hold on again: these figures are median figures, the 50th-percential salary. Half the welders make more, half make less. We're trying to calculate the outlook for fresh-faced vo-tech grads. Welders probably need to work a while before they can prove they deserve more pay than half of their colleagues. We should thus look at salaries in the lower end of each field.

The Bureau of Labor Statistics has data on the certain percentile salaries in each occupation and each state (and you think your daily math is hard?). So let's try this: assume a new vo-tech grad jumps into a new job and, for a starting wage, gets the 10th-percentile salary (10% of workers make less, 90% make more). This kid's from South Dakota, and she would have qualified for a Build Dakota free-ride, so she's smart and good at her job. Second year, the boss raises her pay to the 25th-percentile. Third year, she gets another raise, to the median salary. On that pay trajectory, how do things look for our prospective welders?

Welders, Cutters, Solderers, and Brazers
State Annual 10th-percentile salary Annual 25th-percentile salary Annual 50th-percentile (median) salary Sum
IA $25,670 $29,460 $34,570 $89,700
MN $26,970 $32,410 $38,760 $98,140
MT $23,350 $27,510 $33,750 $84,610
ND $30,820 $35,240 $43,010 $109,070
NE $25,110 $28,870 $34,340 $88,320
SD $25,290 $27,750 $31,880 $84,920
WY $30,720 $37,530 $46,120 $114,370
Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders
State Annual 10th-percentile salary Annual 25th-percentile salary Annual 50th-percentile (median) salary Sum
IA $27,400 $32,370 $36,890 $96,660
MN $25,290 $29,260 $36,000 $90,550
MT $24,790 $31,460 $36,140 $92,390
ND $26,830 $31,910 $37,760 $96,500
NE $24,050 $31,280 $37,960 $93,290
SD $27,220 $31,240 $34,510 $92,970
WY $33,990 $41,400 $50,360 $125,750

With that fourth column, adding a year at the 10th percentile, a year at the 25th, and a year at the 50th (the median), we're getting closer to the real picture our vo-tech prospects face as they try to figure out whether taking the Build Dakota Scholarship is worth committing to work in South Dakota for three years. Let's plug those three-year income sums into our spreadsheet, subtract three years' tax burden, factor in cost of living, and see what happens:

Welders, Cutters, Solderers, and Brazers
State 3-yr income 10th-25th-50th 3-yr state/local tax burden Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $89,700 $11,220 $78,480 92.8 $84,569 $9,925
MN $98,140 $14,574 $83,566 101.2 $82,575 $7,931
MT $84,610 $9,411 $75,199 102.1 $73,652 -$992
ND $109,070 $12,171 $96,899 101.7 $95,279 $20,635
NE $88,320 $11,973 $76,347 97.7 $78,144 $3,500
SD $84,920 $9,156 $75,764 101.5 $74,644 $0
WY $114,370 $10,500 $103,870 94.4 $110,032 $35,387
Welding, Soldering, and Brazing Machine Setters, Operators, and Tenders
State 3-yr income 10th-25th-50th 3-yr state/local tax burden Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $96,660 $11,220 $85,440 92.8 $92,069 $9,494
MN $90,550 $14,574 $75,976 101.2 $75,075 -$7,500
MT $92,390 $9,411 $82,979 102.1 $81,272 -$1,303
ND $96,500 $12,171 $84,329 101.7 $82,919 $344
NE $93,290 $11,973 $81,317 97.7 $83,231 $656
SD $92,970 $9,156 $83,814 101.5 $82,575 $0
WY $125,750 $10,500 $115,250 94.4 $122,087 $39,511

Clearly, Wyoming beats us all for welding wages. A welder who stays in South Dakota instead of moving to Wyoming gives up over $35,000 in purchasing power over three years. A welding machine operator making the same choice gives up over $39,000. Choose South Dakota over Minnesota, and the welder loses over $7,900, but the welding machine operator gains $7,500.

But where the rubber hits the road—or where the vo-tech student doesn't!—is the scholarship question. Denny D. and Denny S. are offering you sharp welders (come on, after all this talk, you're going to include welders in the scholarship, right, guys?) $15,000 in tuition savings. If those welders don't take the scholarship because they want to work out of state, they have to earn back the $15,000 they spent on school.

Only the Wyoming and North Dakota welders and the Wyoming welding machine operators make more than $15,000 above the typical wages in South Dakota. The Build Dakota Scholarship will be worth it for a lot of welding candidates.

Let's try another job field. Our benefactor Mr. Sanford is all about health care, so let's assume we'll promote some health tech jobs. How will radiologic technologists do?

Radiologic Technologists
State 3-yr income 10th-25th-50th 3-yr state/local tax burden Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $116,610 $11,220 $105,390 92.8 $113,567 $14,184
MN $143,620 $14,574 $129,046 101.2 $127,516 $28,133
MT $121,360 $9,411 $111,949 102.1 $109,646 $10,263
ND $112,720 $12,171 $100,549 101.7 $98,868 -$515
NE $118,630 $11,973 $106,657 97.7 $109,168 $9,785
SD $110,030 $9,156 $100,874 101.5 $99,383 $0
WY $132,090 $10,500 $121,590 94.4 $128,803 $29,420

Again, assuming a $15,000 scholarship value, the potential Build Dakota Scholarship recipient thinking about leaving South Dakota to work in radiology for Montana, North Dakota, or Nebraska will want to think again. Future radiologists eying Minnesota or Wyoming will tell Dennis, "No deal!" Radiological aspirants looking at Iowa will have a tougher choice: for them, Build South Dakota and three years locked into South Dakota offers them less than a thousand-dollar net advantage.

How about bus and truck mechanics and diesel engine specialists?

Bus and Truck Mechanics and Diesel Engine Specialists
State 3-yr income 10th-25th-50th 3-yr state/local tax burden Salary in pocket after state tax Cost of living (2014 Q3) Adjusted post-tax salary power Additional purchasing power from working here instead of SD
IA $87,200 $11,220 $75,980 92.8 $81,875 -$5,311
MN $106,830 $14,574 $92,256 101.2 $91,162 $3,976
MT $90,440 $9,411 $81,029 102.1 $79,362 -$7,824
ND $110,530 $12,171 $98,359 101.7 $96,715 $9,529
NE $83,210 $11,973 $71,237 97.7 $72,914 -$14,272
SD $97,650 $9,156 $88,494 101.5 $87,186 $0
WY $120,030 $10,500 $109,530 94.4 $116,028 $28,841

Even without Build Dakota, if you're into diesel engines, you lose money leaving South Dakota for Iowa, Montana, or Nebraska. The four-figure puchasing-power gains promised by Minnesota and North Dakota don't beat the $15,000 value of our new vo-tech scholarship. But once again, Wyoming is the land of opportunity. Skip the scholarship, head for Sheridan, and in three years, you'll have earned back your tuition and cleared another nearly $14,000 over what you would have made back in Aberdeen.

I'd compare wind turbine service technicians, but South Dakota apparently doesn't have enough jobs in that field for BLS to count. (Hmm.... Governor Daugaard, you and the PUC could do something about that, couldn't you?) Job opportunities in that field are numerous enough to count in Wyoming, Iowa, Minnesota, and North Dakota, where the median annual salary for fixing wind turbines is $55,550.

Whatever the exact numbers above, the Build Dakota Scholarship makes working in South Dakota for the first three years of one's technical career more appealing. Possible future earnings in welding or radiology or diesel mechanicry in another state don't matter to the young person who can't get those jobs because she doesn't have the cash right now to go to vo-tech. Plus, with their "stay in South Dakota" requirements, our scholarship plans "get our hooks" into young workers early: in those first three years, they'll accumulate connections and obligations that will incline some fraction of them to stay, despite the greater earning potential available in many fields in most other states.

And therein lies the sneaky and arguably irresponsible part of these scholarship plans. The state is not investing in a long-term plan to raise wages (which would raise economic activity, which would raise tax revenues, which would raise the amount and quality of public goods...). The state is using its resources and Denny Sanford's resources to rope young people into working for less competitive wages. The state and Sanford are going to great lengths (and putting up real money is the greatest length our state government can go to) to keep their business pals from solving their own workforce shortages with the obvious free-market solution of offering bigger paychecks.

Vo-tech students, do your own math for your own field, and tell us whether the Build Dakota Scholarship will sway your decision to stay and work in South Dakota. Fellow South Dakotans, let's ask ourselves whether we do more to address a workforce shortage by lowering workers' entry costs or raising workers' ongoing wages.

Main data sources:

  1. Cost of living: 2014 Q3 C2ER data from MERIC: http://www.missourieconomy.org/indicators/cost_of_living/index.stm
  2. State + local tax burden: SD GOED: http://sdreadytowork.com/Site-Selection-Data/50-State-Comparison.aspx
  3. Wages: Bureau of Labor Statistics State Occupational Employment and Wage Estimates, May 2013: http://www.bls.gov/oes/current/oessrcst.htm

Final Thought: The state has an obligation to educate citizens. Business has an obligation to train workers. Would Adam Smith agree?

Update 2014.12.23 16:07 CST: Rasmussen College, a for-profit business school based in Minnesota, mashes average salaries and cost of living together to produce this fun interactive bar chart comparing adjusted purchasing power for BLS job categories in all 50 states. Whatever you do, don't take up welding in New York or California!