If EB-5 were just a scandal involving deliberately poor government oversight, get-rich-quick schemers, and a dead former state official made fall guy, it would still be reason enough to question the Senate-worthiness of the governor who sunk South Dakota into it, GOP candidate Marion Michael Rounds.

But the EB-5 visa investment program is also bad policy, a point Democratic U.S. Senate candidate Rick Weiland continues to stress. At last night's South Dakota Democratic Party convention banquet, Weiland said that EB-5 corrupts our immigration process and our economic development efforts by doing favors for wealthy foreigners:

To sell residency to rich foreigners, as my opponent aggressively advocated throughout his tenure as Governor, and in a debate just this spring, is not economic development, it is government enabled extortion, and it is wrong.

I am well aware that some in the business community view government enabling the trade of legal American residency to foreigners at $500,000 a pop to be a vitally important economic development tool. As Governor my opponent created and led the fight for this kind of government sponsored sale of residency in South Dakota, and he strongly supports it to this day. It epitomizes his view that enabling private profit is government's number one job.

I fundamentally disagree with that view. I think government's number one job is guaranteeing equal opportunity for all businesses to compete on a level playing field and to win their successes the old fashioned way, by earning them.

I believe South Dakotans can compete without this kind of morally offensive government help. We always have.

If a person is willing to sell legal residency in his own country for private profit, what won't he sell? Where is the line? As has been testified to Congress in great detail, EB-5 is a breeding ground for greed and corruption.

If elected I will vote to abolish the EB-5 enabled sale of legal residency nationwide. My opponent will vote to extend it. The window on our two different philosophies, and on the kind of Senator we each hope to be, could not be clearer [Rick Weiland, speech to South Dakota Democratic Party convention, Yankton, SD, 2014.06.27].

Voters deserve an honest investigation and discussion of the secrecylegality, and suspicious financing associated with South Dakota's EB-5 program. But whether that investigation brings anyone to court or prison, voters also deserve a thorough discussion of whether it is wise or just to keep selling green cards through EB-5. Rick Weiland has a winning issue here that fits with his central campaign theme, that Mike Rounds is all about profit over people, about favors for rich friends over fair and effective policy.

32 comments

Civilization took a big leap forward when we moved from hunting to gardening. So can economic development.

Consider Littleton, Colorado. In 1987, rocket maker Martin Marietta left town, laying off 7,800 workers.

“As good a citizen as Martin Marietta was, they were headquartered out east,” says Chris Gibbons, Littleton’s business director at the time. “Our future was being determined by people far, far away. They didn’t have to see the people in the grocery store on Saturday that they laid off” [Liz Farmer, "Economic Gardening Is Growing, But What Is It?" Governing, 2014.06.27].

Instead of going hunting for another big corporate employer, Littleton chose to focus on developing local businesses, specifically "Stage 2" businesses—10 to 100 employees, doing at least $1 million in business a year.

Gibbons called it economic gardening and began trying it out in Littleton in the late 1980s by identifying local Stage 2 companies and offering them more resources to help expand their business. Over the next 25 years, Littleton’s population increased by one-quarter but the number of jobs tripled and the city’s sales tax revenue went from $6 million to $21 million. “When Martin Marietta was there, we were a rocket town,” says Gibbons. “Now that economy is so diverse, there is no one industry that could fail and bring down Littleton like it could 25 years ago” [Farmer, 2014.06.27].

Tripling jobs and sales tax revenue, diversifying the economy, and increasing the number of locally invested entrepreneurs—can you beat that?

Oh yeah, and it costs less. Maryland is doing a similar economic gardening program. The state spends about $5,000 per business. The going rate in South Dakota is more like $4 million ($4.3M for Northern Beef Packers, $4.5M for French Bel Brands...).

Andrew Ratner, public relations manager for the Maryland Department of Business & Economic Development, says the idea is appealing in part because it takes the focus away from competing with other states. “That’s economic hunting -- everybody’s trying to land that enormous auto plant to move halfway across the country,” Ratner says. “And the amount of incentives that often have to be given to lure those kind of things, there’s often a lot of debate if that’s even worth it” [Farmer, 2014.06.27].

Not to overload you with metaphors, but how long have I been saying this about the Toyota lottery?

Governor Daugaard has seen the hunting fail and inkled that he might pursue an economic gardening policy. The evidence from Littleton and Maryland show that moving from hunting to gardening makes sense.

10 comments

CNBC takes away South Dakota's #1 ranking for business, and KELO-AM's Greg Belfrage, who inclines Daugaard-ward more than I, says our drop from #1 to #11 may say "less about South Dakota than it does about the accuracy and reliability of these endless media rankings."

Given that GOP-soothing grain of salt, let's look at CNBC's business rankings for our neighborhood in detail:

State NE MN ND SD IA WY MT
Overall 4 6 10 11 12 21 33
Cost of Doing Business 10 38 22 6 7 18 12
Economy 11 5 7 20 18 41 38
Infrastructure & Transportation 18 5 10 31 25 12 25
Workforce 16 30 8 6 37 18 46
Quality of Life 8 4 5 10 20 16 11
Technology and Innovation 40 11 49 50 29 46 45
Business Friendliness 3 15 7 2 9 8 42
Education 19 12 22 30 22 12 21
Cost of Living 21 28 12 16 12 33 25
Access to Capital 35 11 45 26 49 35 27

South Dakota's in a competitive neighborhood. Three of our neighbors are top-ten states. All but Wyoming are in the top half on the overall ranking.

Yeah, it looked better with just one 1. How're we gonna fix that?

Yeah, it looked better with just one 1.
How're we gonna fix that?

As I noted this morning in response to a Republican spokesman, South Dakota's weak points on this scorecard, three areas where every neighboring state outperforms us, are education, infrastructure, and technology and innovation. Hmmm... when we see happy rankings, we gloat, buy a banner in the Minneapolis airport, and tell businesses those rankings indicate good reasons to move to South Dakota. When we see grim rankings, do we pout? Do we ignore them? Or do we tell ourselves those rankings indicate good reason to fix South Dakota?

Why might we be lagging in those three categories? Consider that education, infrastructure, and technology and innovation are the three areas in CNBC's methodology where improving a state's score hinges most on doing something, on spending money. We can't deregulate our way to good schools and roads and inventors. Investing real money helps all of those things happen. And investing real money gives South Dakota lawmakers the willies.

Zooming back out the nationwide dataset, CNBC's rankings provide a chance to look for relationships. Which of the above factors go hand in hand, and which run appear to run opposite?

  • Rankings for business friendliness and the economy seem to have the least to do (mathematically, the lowest average correlations) with the other factors on CNBC's business scorecard.
  • The cost of living and the cost of doing business are, predictably, closely associated (on a scale of 0 for no relationship to 1 for perfect relationship, the two factors correlate at 0.88).
  • The next strongest correlation is between tech/innovation and access to capital (0.66). Again, we'd expect that: folks starting more high-tech businesses and pumping out more patentable inventions probably have more venture capitalists around to support their efforts, along with the state resources that CNBC considers.
  • Rankings for quality of life and cost of living have a notable relationship, but it's negative (–0.62). Read this carefully: states ranking higher for quality of life tend to have lower rankings for cost of living. For instance, Hawaii is #1 for quality of life but 49th (as in worse, more expensive) for cost of living. Kentucky is #1 (as in best, cheapest) cost of living but 42nd for quality of life. Hmm... does money buy at least a little happiness?
  • None of the other correlations on the grid crack 0.60 (which is an arbitrary cut-off, but hey, a blogger has to take a break somewhere, right?), but education shows two mild correlations of interest. Seven of the top ten states for education (New York, Connecticut, Massachusetts, Maryland, New Jersey, Pennsylvania, and Vermont) are among the ten states with the highest business costs (taxes, utilities, commercial rent, etc.). Six of the states with the lowest business costs (Oklahoma, Louisiana, Mississippi, Idaho, and South Carolina) are in the bottom ten for education. A similar pattern arises from the rankings of education and cost of living: states where folks pay more to get by tend to have better-ranked education systems.

CNBC's state business rankings may be just one more arbitrary set of numbers, to ignore or embrace as fits the narrative of our choice. But if we embrace those numbers as signs that South Dakota is doing well, we should consider giving them equal consideration when they point to things we can fix. And the things CNBC says we need to fix—our schools, roads, and research and development—won't fix themselves. Just as in business, if we want to grow, if we want to get back to #1, we have to invest.

3 comments

My teetotaling heart raps double-quick at Jane Utecht's report that Madison will soon have one less place to get alcohol. (And Gaia be praised, it's not being replaced with a smut shop). Main Street's new addiction: chocolate!

...the Trojan Tap is being revamped into a sweet shop.

Vicki and Ricky Johns bought the building last month and plan on serving homemade chocolate, and they will have an old-fashioned ice cream parlor. They will also have espresso coffee and smoothies [Jane Utecht, "Face of Downtown Changes; 3 New Business Coming to S. Egan," Madison Daily Leader, 2014.06.24].

The only faint downside here: we never got to see the Trojan Tap fight off a copyright infringement suit from Church & Dwight.

Vicki and Ricky will start selling yummy, melty chocolate later in July. Bring a cooler.

But that's not all! Across the street, Madison über-Kapitalist Darin Namken and cronies Scott Delzer and Todd Knodel are gutting Rumors, a long-time anchor of Madison's fabled Four Corners. There will still be beer, but it will be snazzy beer:

The Pub House will serve craft beer, cocktails and full-service food options. It should be ready to open sometime this fall, but "it won't be Rumors anymore," Namken said.

They have opened the front areas of the 6,500-square-foot building so that it will now seat about 120 people. There will be a banquet room in the back for 50-60 people, Namken said.

The new establishment will be casual and fun, he said. "It will be a pretty neat atmosphere."

The kitchen will be mostly new, and they plan on putting in another walk-in cooler "strictly for tap beers," Namken said. They will carry microbrewed beer, but will not be making their own at this time [Utecht, 2014.06.24].

Casual, fun, with food worth showing off to visitors? That's plenty for me! And my wife tells me good beer is very Lutheran.

But wait! Won't such a great eatery and drinker cut into other Madison restaurants' market share? Heavens forfend, cries Namken:

He emphasizes that the purpose of the Pub House is not to compete with other establishments in town, but to provide a "new option" [Utecht, 2014.06.24].

Maybe an über-capitalist can explain how The Pub House offering casual dining and beer doesn't compete with the Stadium Sports Grill or Nicky's, which offer casual dining and beer.

Not that I mind—I hear competition is good for consumers and the economy. (Maybe a little competition will get Nicky's to pave its parking lot.) And hey, a decent place to eat and drink with a big meeting room downtown will boost Main Street... and it could even help make the business case for building a nice downtown hotel and convention center. (Heck of an idea, don't you think, Darin?)

5 comments

Bob Mercer brings us a surprise from Pierre: the Legislature's Government Operations and Audit Committee decided to talk about the GOED/EB-5/Benda scandal after all. The agenda GOAC issued last week made no mention of the Governor's Office of Economic Development or the EB-5 program, which the Legislature charged GOAC to investigate last winter. Mercer thus went off to cover the state Railroad Board meeting.

With the press away, someone somehow added EB-5 to the GOAC agenda. Rep. Susan Wismer tweeted that the committee decided to defer to the U.S. Attorney rather than issue subpoenas to get its own answers about SDRC Inc., the shady private for-profit corporation to which the state ceded its authority over EB-5 in 2009.

Mercer expresses clear disgruntlement at GOAC's failure to alert the public to this discussion:

Had news organizations received some advance notice that there would be an attempt to seek the subpoena, the matter likely would have been covered by a news reporter. I haven’t seen any indication yet this afternoon that a reporter was present or at least listening via the Internet live-stream from the meeting. I’ll see what more I can find either later today or Thursday.

There are several patterns developing on this matter in the committee that deserve a deeper, closer look [Bob Mercer, "Some Days There Aren't Reporters," Pure Pierre Politics, 2014.06.18].

Mercer does learn from GOAC chair Senator Larry Tidemann (R-7/Brookings) that Tidemann plans to speak with the attorney general about GOAC's subpoena power and have GOAC follow up on both the Governor's Office of Economic Development and the Governor's Future Fund. But hey, we were promised GOAC action on GOED and EB-5 back in February, and it still hasn't happened. We'll believe it when we see it.

6 comments

Billings, Montana, wants to be better. It wants to be like Sioux Falls. Billings economic development boss Steve Arveschoug and other interested Billingsians visited our eastern Queen City last month to divine our "secret sauce". What do they think makes Sioux Falls grow?

“You take a bucket of the energy and vision of their mayor (Mike Huether); a bushel of private service leadership; three shovelsful of expertise from city planning, the chamber and economic development — and sprinkle it with a sales tax,” Arveschoug said [Mike Ferguson, "Business Leaders Look to Cook up Billings Version of Sioux Falls' Success," Billings Gazette, 2014.06.15].

What?! Taxes are a useful ingredient for economic growth?

Over and over during their presentations, Sioux Falls leaders emphasized the importance of the city’s share of state sales tax revenue — 2 cents on every dollar spent — in building and updating infrastructure. In many examples, private investment has followed public spending. The two-cent local share of sales tax revenue adds about $100 million to city coffers each year, half of which is typically spent on infrastructure to help support growth [Ferguson, 2014.06.15].

Montana does not have a general sales tax, but it does tax certain items. It does have resort and local option sales taxes, but only for towns with population under 5,500. The largest sources of state revenue are income and severance taxes. Large local governments like Billings thus don't have the same revenue-generating power as Sioux Falls.

But notice that Billings's economic development chief thinks Sioux Falls invests its money most wisely not in handouts to specific businesses, but in infrastructure that directly benefits everyone:

“It is very clear to me that communities have to provide infrastructure if they want to attract new businesses and help existing businesses grow,” [Arveschoug] said. It’s important that the investments are made strategically, he said — such areas as convention centers, recreational facilities, trails, civic plazas and downtown redevelopment. “Sioux Falls has 1,350 acres of commercial space infrastructure ready to go. If you want to consider coming to Sioux Falls, they had somewhere to take you,” he said. “That’s a strong platform for them, and I’d like to see us develop that concept, that ability to develop.” In Wyoming, he said, the legislature can appropriate $25 million or more to communities to help build infrastructure to attract and retain businesses [Ferguson, 2014.06.15].

Give one company a big grant or tax kickback, and when they go belly up, that money's gone, and you have to come up with a new incentive package for the next big fish. Build a good park or downtown plaza that makes Company X say, "Oooo! We want to move to your town!" and if Company X doesn't make it, that same park or plaza will be there to incentivize Companies Y, Z, A, and B.

I'm not sure I'm all that thrilled about a regressive tax to make Billings more like Sioux Falls. And the first infrastructure Billings needs is not a park but a big scrubber to get rid of the refinery smell we get every time we zoom by on I-90. But we should note with pride that our neighbors will come to Sioux Falls to figure out how to do economic development right.

13 comments

One of the talking points Democratic nominee Susan Wismer needs to adopt from her vanquished primary opponent Joe Lowe is his talk of the "culture of corruption" fostered by the Rounds-Daugaard administration. Why?

  1. It's true!
  2. Fighting a "Culture of Corruption" will synergize with the "Take It Back!" populist message of Sue's new best buddy on the prairie, Rick Weiland.
  3. South Dakota's higher-than-normal corruption has policy impacts, like an over-emphasis on economic development based on bribe-prone corporate handouts and less funding for education and health care:

...Economic development projects are ripe for corruption, the study published this spring in the Public Administration Review, found.

Using data from the Department of Justice that encompassed more than 25,000 public corruption-related convictions nationwide between 1976 and 2008 of elected officials, judges and local employees, the study concluded that higher instances of corruption correlate with more spending in certain areas. Among the most corrupt states were Mississippi, Louisiana, Alabama, Florida, Tennessee, Kentucky, Pennsylvania, Illinois, South Dakota and Alaska.

The study found that high levels of corruption in a state can shape its budget allocation. More corrupt states tended to spend money on construction, highways, and police protection programs, which provide more opportunity for corrupt officials to use public money for their own gain. These states spend less on health, education, and welfare, which provide less opportunity for officials to collect bribes... [Liz Farmer and Kevin Tidmarsh, "What Corrupt States Spend Their Money On," Governing, 2014.06.06].

Wismer can also point out that the culture of corruption ends up hamstringing the economic development that Daugaard and pals say they are promoting:

The shakedown culture can also be a deterrent to economic development, with developers who are attempting to play fair getting disenchanted by pay-to-play politics, he added. After all, there's little incentive to spend time and money on a bid when the winning bidder has already bought political favor [Farmer and Tidmarsh, 2014.06.06].

Corruption could even have something to do with lower voter turnout:

Public confidence in government is also a hidden – and immeasurable – cost of corruption, added Sergio Acosta, a corporate attorney who was the former federal prosecutor for the Northern District of Illinois [Farmer and Tidmarsh, 2014.06.06].

The culture of corruption that Joe Lowe identifies hinders public welfare, economic development, and civic life in South Dakota. Sue, that's your message, in one sentence. Get on it!

25 comments

In the Democratic gubernatorial candidates' forum on SDPB last Thursday, candidate Joe Lowe recommended that the Governor's Office of Economic Development redirect some of its grants from big corporations to South Dakota's small towns to help them revitalize their downtowns. Lowe pointed to Main Street Square in Rapid City, where regular events create a shopping and tourism destination that's boosting business.

Regular readers know that I'm all about big-thinking economic development policy that looks past the traditional, unreliable corporate-welfare model. So, apparently, is Fargo, where downtown development is drawing youth, creativity, and entrepreneurial spirit. The Minneapolis Star Tribune's profile of Fargo's downtown success discusses young Fargo entrepreneur Greg Tehven's passion for his stereotype-busting hometown:

Tehven’s Fargo is the five-block radius of downtown; a vibrant community of artists, tech entrepreneurs, college kids and possibilities. Once hollowed out, the downtown is now crowded with coffee shops, restaurants and quirky shops that draw in crowds of strolling pedestrians and cyclists.

Tehven’s Fargo is one of the nation’s fastest-growing cities [Jennifer Brooks, "Fargo Reinvents Itself as a Magnet for Creative Types and Entrepreneurs," Minneapolis Star Tribune, 2014.06.01].

We discussed that population growth last week, when we noted that Fargo ranks seventh for population growth among the nation's cities, ahead of booming #11 Sioux Falls.

What's it feel like to be in charge of economic development in Fargo?

“You feel like you died and went to heaven, ” said James Gartin, president of the Greater Fargo Moorhead Economic Development Corp. — the man in charge of encouraging economic growth in a place now ranked as the best place in America to find a job, the country’s third-safest community and its fourth-fastest growing metro region.

“It’s electric,” Gartin said. “It’s just an incredible time to be in this market. Not only with the business growth, but we have this incredible entrepreneurial ecosystem” [Brooks, 2014.06.01].

Fargo's good fortune spills across the Red River to Moorhead, which is growing even faster. Moorhead has hamstrung its downtown development but enjoys other advantages from which South Dakota might learn:

Rather than focusing on downtown revitalization — a difficult proposition, since a large swath of downtown Moorhead was razed to make way for a mall — Moorhead cultivates the image of a politically progressive, family-friendly college town. It touts its schools, its close-knit neighborhoods, its public funding for the arts, its parks and green spaces — in short, its Minnesota-ness [Brooks, 2014.06.01].

Economic development is much, much more than handing money to big corporations. Fargo and Moorhead get that. Joe Lowe gets that. Why don't Dennis Daugaard and Mike Rounds get that?

39 comments

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