Remember how they nailed Al Capone?

One of the trickiest parts the EB-5/Northern Beef Packers/Governor's Office of Economic Development scandal is figuring out whether anyone broke the law. We've gotten mixed signals from the Governor and the Attorney General about Richard Benda's culpability, but since Benda is dead, we'll never get a verdict on whether he committed any outright crimes. Who's left to perp walk, and for what?

How about Joop Bollen, for tax evasion?

Joop Bollen's private company, SDRC Inc., makes loans and mortgages through subsidiary paper corporations. SDRC Inc. took $550,000 from Northern Beef Packers to pay Richard Benda monitor SDRC Inc's loans to Northern Beef Packers. As I reported last November, one would think this activity would make SDRC Inc. a bank.

SDRC Inc's lawyer Jeff Sveen thinks so. In a May 11, 2011 letter pertaining to litigation in California, Sveen says pretty much what I'm saying, that SDRC Inc., like a bank, lends money:

SDIBI is primarily involved in export promotions and facilitating direct investment for the State of South Dakota. It involves many components, including seminars and workshops, export finance, international trade resources, assisting companies with the South Dakota Foreign Trade Zone, Trade Lead Generators, and South Dakota Exporter's Directory.... It promotes economic development in South Dakota. EB-5 is just one component of the foreign direct investment activities offered by SDIBI. Under that EB-5 component, only equity projects are promoted. In contrast, SDRC, Inc. is completely different in its functions. It is not a facilitator in any equity programs. SDRC, Inc. does not promote economic development, but simply obtains funding through EB-5 and functions similar to a bank by lending those same funds to projects in South Dakota" [Jeffrey T. Sveen, letter to Jennifer S. Elkayam, 2011.05.11].

SDRC Inc. lends money, like a bank, says SDRC Inc's lawyer.

Why does this matter? Because South Dakota imposes an income tax on banks. We call it the bank franchise tax. If you make money lending money—and SDRC Inc. did—then you pay taxes on that money to South Dakota—and SDRC Inc. did not.

Look at the list of money lender licenses issued by the South Dakota Banking Commission. The economic development corporations in Aberdeen, Huron, Webster, and Eureka have had to get lending licenses. The Lutheran Church Missouri Synod had to get one for who knows what. But SDRC Inc. doesn't have a money lender license.

Now lending money without a license is only a misdemeanor. But not paying bank franchise tax to the state... that will hit players in the pocketbook. If SDRC has avoided getting a lender license, it has likely avoided paying the 6% on its net income required by the bank franchise tax. It's hard to know how much Bollen, Sveen, Benda, and friends have skimmed from the millions in EB-5 investment, but if they're loans, they owe South Dakota some bank franchise tax, plus penalties and interest.

So if Bollen and Sveen and Mike Rounds and Dennis Daugaard will appear before the Legislature's Government Operations and Audit Committee on September 24, or heck, maybe at Friday's State Fair debates, we should open with these questions:

  1. Was Joop Bollen running a bank?
  2. Did Joop Bollen license his bank?
  3. Did Joop Bollen pay bank franchise taxes?
  4. On #3, if not, why not, and when will we?

Richard Benda is dead. Saying we would have arrested him or fired him is unprovable hindsight fall-guyism. We have Joop Bollen right there, sitting in his nice house in Aberdeen, quite possibly still collecting interest on loans floated to EB-5-backed enterprises and sitting on money that lawfully belongsto the State of South Dakota.

Attorney General Jackley, Governor Daugaard, are going to collect that bank franchise tax? Or are we o.k. with tax evasion?

Update 09:32 CDT:P&R says he'd get rid of EB-5 even if there were no illegal or unethical activities in South Dakota's exploitation of that program. But the point here is that there may well be illegal activities. That's what makes the EB-5/Northern Beef Packers/GOED/Benda/Bollen story so complicated: we have at least two levels of critique, with bad actors abusing bad policy.

22 comments

When Charlie Hoffman and I got done riding four-wheeler around the prairie (and have I mentioned how big I smile when I say that phrase?), we went inside to talk politics. And oh, did we talk.

Charlie Hoffman has served three terms as a Republican Representative from District 23. He sat out this year's election, leaving incumbent Rep. Justin Cronin and new-Pierre-comer Michele (one L, just like Bachmann) Harrison to win the GOP primary and ascend without challenge to the State House.

Hoffman is yielding the House floor this year for a handful of personal reasons. He'd like to travel more with his wife, Survivor survivor and motivational speaker Holly Hoffman. Some business matters require his attention back at the ranch. And he has a new hunting dog that he wants to train and bond with properly.

But Hoffman makes his stepback sound like a break, not retirement. He's already looked ahead and seen 2016 as a good opportunity to get back into the House. Rep. Cronin will be termed out, leaving an open seat Charlie can seek without challenging a fellow Republican incumbent.

Hoffman's break appears to have some political motivation right alongside the personal. Hoffman expresses a notable disgust for several aspects of how things are running in Pierre right now. And he said these things to me, a liberal blogger, without the influence of scotch. "I'm a haystacker at heart," said Hoffman, "not a statesman, not a diplomat."

I should check that: did he say haystacker or haymaker? Here they come:

Self-Servers and Legislative Autonomy

Hoffman sees coming a tussle for majority leader in which he does not want to partake. He cites a Janklovian aphorism: "In every class of twenty-some new legislators, fifteen know they'll be governor someday." Hoffman says lots of legislators are serving their political ambitions and trying to put their names (Hoffman offers none) on the marquee. Hoffman would prefer to serve with and be one of the legislators who come to Pierre to serve their districts.

Hoffman says those marquee-seeking legislators create a major problem for the legislative branch. As majority whip, Hoffman says he has seen the Governor happily exploit those self-servers to encroach on the Legislature's proper autonomy. The night before each Legislative workweek begins, Hoffman says the Governor hosts a meeting for all of the GOP House and Senate leaders at the Governor's mansion (read: homefield advantage). The Governor's entire staff attends. The "conversation," says Hoffman, flows mostly one way, as the Governor informs the "leaders" of his plans and priorities for the week. The Governor does not inquire, says Hoffman, about the legislators' plans and priorities. And the GOP leaders, mostly concerned about their place in line, generally accept their weekly marching orders.

Hoffman says this one-way relationship is not how the balance of powers is supposed to work. The Legislature should act independently to bring forth different ideas and allow the best policies to rise via competition. One branch dictating the policy agenda means poorer policy. (What was that Charlie said about pastures with only one kind of grass?) Hoffman wants the climbers to quit climbing and recapture their autonomy and vision. Short of that, Hoffman wishes he could have the opportunity to serve under a Democratic Governor who would rekindle his comrades' commitment to the separation of powers.

(The weird subtext here: we could encourage Republican Charlie Hoffman to run for Legislature in 2016 by electing his Democratic House-mate Susan Wismer Governor this year. Charlie, want to help?)

Harmful Partisanship

Hoffman also expresses annoyance with partisan politics. He says the South Dakota GOP has damaged itself and its candidates by allowing Tea Party agitators to pull the party further right. Local radicals may have gotten a kick out of the SDGOP's impeach-Obama resolution, but recall that such absurd radicalism has boosted Democratic fundraising. Hoffman looks beyond our borders to add that such honyockerism may damage the chances of the national party choosing John Thune for Vice-President in 2016.

Partisanship can damage policy along with party. Hoffman says that, without Medicaid expansion, county governments face higher indigent-care costs, and hospitals either eat losses or pass them on to the rest of us. Expanding Medicaid under the Affordable Care Act would erase those costs, says Hoffman. Permit me to remind you that, as Rep. Wismer said Wednesday, the only reason Governor Daugaard seems to have for not expanding Medicaid is partisan ideology.

Future Plans: Raise Teacher Pay!

If circumstances draw Hoffman back to the House, he says he may spend his entire term working on one project: raising teacher pay. He suggests starting by diverting 10% of all gambling revenue (that cut would be over $10 million) to a teacher-pay trust fund. When the fund accrues enough interest, start writing checks, once a year, to every public K-12 teacher in South Dakota.

Our quick calculations suggest this plan might initially place just $500 extra in each teacher's pocket, only a small step toward beating lowly Mississippi, but one must start somewhere. And Hoffman agrees that raising pay will boost the labor pool and ease the teacher shortage.

But wait: gambling revenues currently support property tax relief. Would Hoffman really support taking away that relief? Yes. Instead of handing out pennies per acre, the state could hand that 10% of gambling revenues to the state Investment Council to generate a far larger return.

Production Tax

If landowners feel harmed by the reduction of gambling-revenue tax relief, Hoffman will make it up to them by getting rid of the agriculture productivity tax. Hoffman says this bastardization of the property tax is even worse than a straight income tax. This tax, which based on the predicted agricultural production value of land instead of its actual productivity or sale price, deters farmers from raising prairie grass and drives hyper-production of only a few high-priced crops. Farmers who switch from corn and beans to grass this year will still pay tax based on what they could have made raising corn for the next eight years. Even farmers who stick with corn will suffer as corn prices drop: they'll makes three to four dollars per bushel this year, but the county will tax them for the next couple years as if their land were seven- or eight-dollar-a-bushel corn. Hoffman says the Legislature needs to change the productivity tax to something fairer.

*   *   *

I asked Hoffman if he worried that my reporting the above comments might harm his chances of returning to the House. He paused to think, but pretty quickly said nope. If I'm reading him right (and stop me if you think I'm letting my hopes and the joy of riding four-wheeler all afternoon confound my judgment), Hoffman is professing a commitment to a less partisan, more pragmatic, and more independent Legislature. Let's see if Charlie and District 23 share that commitment in 2016.

Bonus "Did You Know?": One of the photos in Hoffman's home office shows a man riding down Main Street (I forgot to ask where) atop the backseat of a red convertible with a placard on the door reading "Hoffman for Governor."Charlie said that's his dad Leroy Hoffman, who ran against Bill Janklow in the GOP gubernatorial primary in 1978.

Leroy Hoffman also sang opera. He built the house in which Charlie and Holly have raised their family with a beautiful vaulted ceiling for his singing. In the 1960's Hoffman sang well enough to tour Europe professionally. Charlie lived in Europe with his dad for two years during that portion of Leroy's career.

But if you're looking for records, you have to search George Hoffman, not Leroy.

"What," I asked. "Leroy not operatic enough?"

"Yup," said Charlie.

31 comments

Facing a Republican Party committed to character assassination and a majority of voters who appear to tolerate it, the South Dakota Democratic Party has made the sensible tactical move of emphasizing initiative and referendum to win policy battles. Ballot issues are harder to personalize and thus harder to defeat by assassinating one candidate's character. Less distracted by personal attacks, voters can better see the good sense of the policy proposed.

That's why the SDDP's Initiated Measure 18 to raise the minimum wage may have a better chance of winning a majority vote than any Democratic candidate in the state. Raising the minimum wage has 61% support in South Dakota. IM18 has majority support in every age group and income group. It even wins 48% of South Dakota Republicans. The current $7.25 minimum has a third less purchasing power than the $1.60 minimum had in 1968. It will be hard for the Republicans to overcome that support that that glaring economic inequity by calling SDDP exec Zach Crago names.

In the policy-over-personal-attacks spirit of the initiative, I suppose I shouldn't try to support the minimum-wage increase by calling Governor Dennis Daugaard a hypocrite. But  Republican blogger John Tsitrian connects the dots to reveal an inconsistency in our Governor's policy thinking on the minimum wage and the gasoline tax.

Recall that Governor Daugaard opposes the minimum wage increase:

Gov. Dennis Daugaard, a Republican, also responded negatively to the proposal.

"This issue should be based on economics, not politics," Daugaard said in a statement. "There needs to be an analysis of how many jobs would be lost" [David Montgomery, "Dems Planning Initiated Measure to Raise Minimum Wage," Political Smokeout, 2013.07.17].

Economics provide a pretty good basis for raising the minimum wage. Governor Daugaard so far seems unconvinced. But he sounds like an economist when justifying his just-about-face on raising the gasoline tax:

“When I ran for governor four years ago, I promised that I would not support tax increases, and I have kept that promise. I want to participate in a discussion about future transportation needs, however, without taking any options off the table, including proposals to restore the purchasing power of the gas tax,” he said [Bob Mercer, "Daugaard: Willing to Consider Increasing State Highway Taxes," Aberdeen American News, 2014.05.21].

Governor Daugaard wants to restore his purchasing power for building and fixing roads. So why, asks Tsitrian, doesn't our good and gracious Governor want to restore the purchasing power of minimum-wage workers?

My beef about all this isn't the gas tax, per se. I'm just dismayed by the notion that cost-of-living increases need to be considered when pencilling in the price of government services but are to be ignored when it comes considering raises in the minimum wage. If Daugaard believes that jacking up gas taxes doesn't amount to a tax increase, just a restoration of buying power, then shouldn't that same principle be applied to minimum wages? Applying the Governor's own reasoning, raising minimum wages isn't the same as increasing them, it's just a matter of restoring their buying power. Yet Daugaard has effectively ignored this logic and withheld his support for the cost-of-living increase (with its built-in adjustment for inflation) that will appear on November's ballot.

It all looks to me like Daugaard believes state government should consider getting a cost-of-living increase but working people shouldn't. I don't like this. It's illogical. It's inconsistent—and it comes across as institutionalized cognitive dissonance [John Tsitrian, "Sure, Governor Daugaard...," The Constant Commoner, 2014.07.09].

Institutionalized cognitive dissonance—that's still a gentler attack than any of the personal slime Dick Wadhams will throw on behalf of South Dakota Republicans against Democratic candidates. Truer, too.

But Democrats don't need to go there. We don't need to campaign against Dennis Daugaard (or for any particular Democrat, for that matter) to convince a majority of voters to do what they already think is right: raise the minimum wage and index it to inflation so that even the lowest-paid workers can get a fair shake.

23 comments
Who needs highways when I've got a horse!

Who needs highways when I've got a horse!

What?! Kristi Noem still hasn't fixed the Highway Trust Fund? What do we pay our Congresswoman for?

While Kristi's colleagues fiddle with short-term stopgaps to fill our potholes, a new study funded by the Soybean Transportation Coalition suggests that a long-term fix may rely on some tax judo: ease drivers into a long-term gasoline-tax increase with an immediate tax break.

The federal gasoline tax has hung at 18.4 cents per gallon since 1993. Back then, that would have been about an 18% tax on gasoline. Today, 18.4 cents per $3.75 gallon is about 5%.

The soybean lobby suggests knocking a penny off the gasoline tax as a political palliative but then indexing the gasoline tax to inflation to keep up with the cost of concrete, steel, and everything else we need to build and maintain roads. Their study, conducted by the Indiana University School of Public and Environmental Affairs, says that inflation-indexing would make up for the lost revenue of the penny drop within four or five years. The study finds that South Dakota would take a $6.7-million hit in the first year, but we'd recoup the loss by 2019. By 2025, we'd accumulate $119 million in extra revenue ($25.9 million in 2025 alone) while paying 3.4 cents more per gallon.

Governor Daugaard will tell you that raising more money through the gasoline tax by indexing it to inflation is not a new tax or a tax increase; it's just restoring the purchasing power of the gas tax. Alas, the cut-then-index plan would extend the road budget bind for another couple years before road-building states would see any progress. Is additional fiscal pain (and rump pain, as you bounce over those potholes) really the only way we can coax Kristi and Congress into fixing the Highway Trust Fund?

74 comments

Last month, Minneapolis-based Medtronic acquired a big Irish corporation so it could create a new headquarters on paper in Dublin and pay Ireland's lower corporate tax rate.

The financerazzi call the Medtronic move inversion. Democratic candidate for Senate Rick Weiland calls it flat-out wrong:

What happens in Inversion is a company moves its headquarters to another country - such as Ireland - to avoid paying taxes. Meanwhile, they continue to receive all the other benefits of being an American company. They, in-effect, renounce their citizenship, which is really odd since the Supreme Court keeps telling us that corporations are people!

It's flat out wrong these companies are fleeing the country to avoid paying taxes but expect to face no consequences.

...I say no more. No more to Inversions. No more to corporations masquerading as people. No more payouts to big money special interests [Rick Weiland, press release, 2014.07.08].

Did I just hear Weiland say he rejects the idea of corporate personhood, just like his friend Elizabeth Warren? Wow! That's one more reason for Lawrence Lessig and the MaydayPAC to use South Dakota's Senate race as a testing ground for their challenge to big corporate money in politics.

As Weiland spends his morning on Minnesota Avenue, I hope he's jawboning voters about the ills of inversion and the absurdity of corporate personhood.

8 comments

Our friends from Billings gaze lovingly on Sioux Falls and conclude that the Minnesota-esque policies of adding a tax and building infrastructure are good for economic development. But even if you think South Dakota's low-taxes philosophy still gives us an advantage over Minnesota, we still can't compete with Ireland. Rather than uproot, Medtronic is staying in the beautiful Twin Cities, paying $42.9 billion to acquire Irish surgical-device maker Covidien, and simply moving its headquarters on paper to Dublin to get a lower corporate income tax rate.

But wait: the boss says taxes aren't the prime mover here:

While the deal will allow Medtronic to reduce its overall global tax burden, the Minneapolis-based company said it was driven by a complementary strategy with Covidien on medical technology rather than tax considerations

"The real purpose of this, in the end, is strategic, both in the intermediate term and the long term," Medtronic Chief Executive Omar Ishrak said in an interview after the deal was announced. "It is good for the U.S. in that we will make more investment in U.S. technologies, which previously we could not."

Medtronic's corporate tax rate, now at around 18 percent, won't change much, Ishrak said [Susan Kelly and Greg Roumeliotis, "Medtronic to Buy Covidien for $42.9 Billion, Rebase in Ireland," Reuters, 2014.06.16].

Maybe Medtronic's CEO is just trying to downplay the the unpatriotic business of trying to dodge taxes. But he and his 8,000 employees will stay in Minnesota and keep paying Minnesota state income taxes, as will the 1,000 new workers Ishrak says Medtronic will add in the next five years.

9 comments

Governor Dennis Daugaard just spotted his opponents five points. Maybe ten.

In 2010, candidate Dennis Daugaard promised no new taxes:

A recession is not the time to raise taxes. I will not raise taxes as governor. I will not support any new taxes or any increases in existing taxes. I would only consider a tax increase in response to an emergency, such as the temporary gas tax increase to pay for snow removal after the blizzards of 1997 ["Dennis Daugaard on Tax Reform," OnTheIssues.org, downloaded 2014.05.22, citing 2010 Gubernatorial campaign website daugaardforgovernor.com, 2010.11.02].

In 2013, the GOP spin machine cheered Governor Daugaard promised no new taxes and meant it. Governor Daugaard's staff reaffirmed that promise:

Daugaard made a commitment during his 2010 election campaign that he wouldn’t raise taxes except for an emergency.

Transportation Secretary Darin Bergquist said that hasn’t changed.

...“The governor is willing to discuss the state’s transportation infrastructure needs, but he intends to keep the promise he made to the voters in 2010 that he would not raise taxes,” [spokesman Tony] Venhuizen said.

“He hasn’t even announced that he’s running for a second term. He’s been pretty firm on controlling taxes and spending and that’s unlikely to change,” Venhuizen added.

There was a final statement that perhaps summed it all up. “The governor has never said that he would change his position on taxes,” Venhuizen said [Bob Mercer, "SD Governor to Keep Fuel Tax Vow," Prairie Business Magazine, 2013.04.26].

In 2014, Governor Daugaard says he will support raising some taxes:

“South Dakota’s highway system is currently in good condition. However, the state has seen the purchasing power of the gas tax go down over time, because we tax gasoline per gallon rather than per dollar. That means that, unlike the sales tax, gas tax revenue does not go up with inflation,” Daugaard said. “I also know that many county and township officials believe that local road funding is also an issue.

“When I ran for governor four years ago, I promised that I would not support tax increases, and I have kept that promise. I want to participate in a discussion about future transportation needs, however, without taking any options off the table, including proposals to restore the purchasing power of the gas tax,” he said [Bob Mercer, "Daugaard: Willing to Consider Increasing State Highway Taxes," Aberdeen American News, 2014.05.21].

Restore the purchasing power of the gas tax—who writes this stuff? I guess that's how we Democrats need to sell our plans on Capitol Hill: We need to restore the purchasing power federal income tax among higher-income earners. Wow! That really does sound better than saying, We need to raise taxes.

Permit me an analogy. 26 years ago there was a tall, gangly Republican who had promised "No new taxes" to get elected. But then he changed his mind and said he was o.k. with some new taxes. When he ran for re-election 22 years ago, he weathered a noisy but mostly ineffective challenge from a radical conservative in the primary. But breaking the "no new taxes" pledge weakened that President politically. A cranky old Independent peeled some votes away from him, and he lost to a fiery Democrat.

Joe, Susan, have a beer. Have two. On Dennis.

48 comments

We've all heard GOP Senate candidate Mike Rounds's risible vow to eliminate the Department of Education. Rounds repeated that empty promise in last week's candidates' debate. Pish posh: he won't fight for that Republican talking point any more than he'll repeal the Affordable Care Act.

But suppose he weren't kidding. Suppose Mike Rounds actually planned to turn the words wheezing through his plastic smile into action. What would happen?

As Bob Mercer points out, a tax-pocalypse for South Dakotans:

One of the candidates for federal office said last night he wants to eliminate the U.S. Department of Education. For the coming school year, that would be a loss of $191.9 million to the state Department of Education; the money for the most part gets passed down to local schools and cooperatives. Replacing that sliver of federal aid alone would require approximately 1.5 cents of additional state sales tax [Bob Mercer, "How About a Really, Really Big Tax Increase?" Pure Pierre Politics, 2014.05.16].

$191.9 million—recouping that loss would require a 15% increase in our general fund revenues. So when Mike Rounds says he wants to eliminate the Department of Education, he's saying he wants to increase our state taxes 15%.

Stace Nelson and Larry Rhoden probably can't make much hay out of that point, but we Democrats sure can. Whoo-hoo!

62 comments

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