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Economic Development Incentives Don’t Boost Wages or Workforce

Mr. Chairman, members of the House State Affairs committee, you have before you Senate Bill 235, which is being hoghoused to carry an omnibus bill addressing economic development, education funding, and affordable housing. This hoghouse appears to be a result of brilliant bipartisan compromise. Republicans and Democrats have worked together to identify common interests and craft legislation that addresses the concerns of voters who rejected a less accountable, less targeted, and less fair economic development plan last November.

However, the SB 235 hoghouse still revolves around one fundamental assumption: that economic development incentives work. Unfortunately, a wealth of evidence says they do not.

...[T]here is virtually no association between economic development incentives and any measure of economic performance. We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate [Richard Florida, "The Uselessness of Economic Development Incentives," The Atlantic: Cities, 2012.12.07].

The SB 235 hoghouse refunds sales and use tax incurred on qualified projects worth over two million dollars in equipment replacement costs or over twenty million in new construction costs. As Mr. Florida points out, and as I have noted in past public testimony, we will get less out of those tax dollars by handing them to big corporations than we will investing them in genuine public works or in smaller local businesses.

The SB 235 hoghouse proposes accountability in requiring grant recipients to report the number of jobs their projects will create. But the actual job-creating capacity of businesses receiving incentives may be less than that of businesses expanding without government incentives:

A detailed 2002 study, published in the Journal of Regional Science [PDF] of more than 350 companies that received incentives, found incentives had a negative effect on these companies's ability to create jobs. Using detailed statistical models to control for a wide variety of factors, the study found that companies that received incentives expanded more slowly than others, and worse yet that overall effect of incentives was a reduction of 10.5 jobs per establishment. Incentives had their biggest effect by far not on actual jobs, but on "announced growth," finding that the average business receiving incentives overestimated its future employment by 28.5 jobs [Florida, 2012.12.07].

The Legislature has expressed its commitment this session to passing bills based on solid evidence of their effectiveness. I urge the House State Affairs committee to consider the lack of evidence of the effectiveness of economic development incentives before it hoghouses and passes and Senate Bill 235.


  1. larry kurtz 2013.03.03

    Delusion: or, Denny and his donors desperately doing DEW-line diligence duly displaying dense dullardry?

  2. Douglas Wiken 2013.03.03

    Duck, an alliteration bomb just exploded.

  3. larry kurtz 2013.03.03

    Doug dost defines Dakota's deft definitions deftly.

  4. larry kurtz 2013.03.03

    Denny's development deafness doth doom Dakota.

  5. larry kurtz 2013.03.03

    Denny's daft decisions denote dumb declarative demagoguery.

  6. larry kurtz 2013.03.03

    Daugaard drafts donation demands damning drifting Dems.

  7. larry kurtz 2013.03.03

    Denny Daugaard diphthong dips developing dichotomies dividing Dakota Dumbos.

  8. larry kurtz 2013.03.03

    Daugaard dynamics dynamite discussions.

  9. Jana 2013.03.03

    As an abrupt abeyance to Larry's arrangement of alliteration...

    Would it be possible to have the GOED and the Legislature give us:

    1. The most successful expenditures of state money for economic development in the form of a peer reviewed cased study.

    2. Examples of successful ED ventures from around the country with a regression analysis as to why they were successful.

    3. An audit of SD economic development expenditures cross tabbed with political contributions.

    4. An audit from companies who have chosen other states and their reasons why.

    Carry on Larry...I adore appropriate ample and artistic alliteration.

  10. larry kurtz 2013.03.03

    Jana: apparently, an Alan Aker alliteration adequately adds allusitory accessibility albeit alacritous.

  11. Jana 2013.03.03

    Larry loves liberal literary license!

  12. Jana 2013.03.03

    Me too!

  13. caheidelberger Post author | 2013.03.03

    Jana, you are asking for the same sort of accountability for GOED expenditures as Governor Daugaard demands for K-12 expenditures.

  14. Jana 2013.03.04

    Gander meet goose.

    Sadly there seems to be a double standard for the Governor's boys and the legislature.

    Seriously boys, put your politics back in your pants and get around to good governance.

  15. Roger Elgersma 2013.03.04

    This state is spending taxpayer money to an employment agency to try to attract weilders to come to a low wage state. They are screening them to keep union people out so that the wages will stay low here in perpetuity. So the worker has the option, stay where you are if the economy is bad there and wait for the economy to change and get a good paying job, although they might have to flip burgers for a while at a lower wage or come to South Dakota and always have a low paying job. So the only weilders that would come here for all the millions that the employment company is making are those who never want a good paying job and are scared of high paying oil jobs in North Dakota.
    So if you can not attract outstate good workers, and out Republican legislators tell us that our own farm kids do not want to milk cows anymore so we should be illegal immigrant friendly, where are businesses going to get good labor if they come to South Dakota.
    South Dakotans have this innate intuition that if you advertize it does not matter how bad your situation is, you will get rich. Well it worked for Wall Drug, didn't it.
    If you can continue underfunding the schools for your own kids, wondering why you have a growing prison population, and keep a positive attitude advertizing how good you are, and imagining that it will get better, then YOU ARE A SOUTH DAKOTAN.

  16. Michael Black 2013.03.04

    I am not going to waste time on trying to be cute with language.

    You never know what will grow out of a single investment. To say that economic development never works is wrong. We need more jobs to raise salaries and families.

  17. Steve Sibson 2013.03.04

    Still haven't seen the bill, but there was a parade of proponents who obviously understood what was going on this morning in the House State Affairs. In general it looks like the SDGOP coporatists threw a bone to the Democratic Educrats and and focused the corporate welfare on Obama's green energy agenda. In other words, we have an application of Hegelian dialectis that results in communtarianism. Noticed how much of that word is spelled like communism. We should now understand why this country has over $16 trillion in debt. Be sure to thank you children and grandchildren for funding your jobs...they may not have any themselves. When the New World Order is complete, we all will be third world countries.

  18. caheidelberger Post author | 2013.03.04

    But Michael, that's like saying lightning doesn't kill everyone it strikes. I'd still rather not go golfing during a thunderstorm. On the whole, these economic development incentives are a worse bet than other direct investments in public goods.

    Steve, no one other than you will listen to the argument you just offered. Retool for the real world, please.

  19. larry kurtz 2013.03.04

    Sibby: cease saying socialism-sullying pseudo-syllogisms.

  20. Steve Sibson 2013.03.04

    "Steve, no one other than you will listen to the argument you just offered. Retool for the real world, please."

    Not my fault. I am not repeating lies and falsehoods just to become popular. That is the way of the "world", I have chosen to follow truth. Sorry it makes you all feel guilty and have to resort to ostrich-like behavior.

  21. Frank Kloucek 2013.03.06

    SB 235 Letter to the editor March 7 2013

    Some food for thought..........SB 235 went against the process of open public input on legislation when it was introduced as a shell bill and passed through the South Dakota Senate in a form that was only what is called a "place holder bill or shell bill". This type of legislation happens far to often in our legislature and hurts the credibility of the process. SB 235 circumvents the legislative process and creates even more public mistrust of the legislature. Rep Nelson is 100 per cent correct on that point. Why would Reporter Bob Mercer leave the debate of the biggest bill of the session, the only house with amendment power on the bill since it passed the senate committee and floor as a "shell bill or place holder bill"? Reporter Bob Mercer is part of the story and history of the legislative process for SB 235 and the 2013 session. Why would Rep Nelson publicly pander to Mercer stating his name on the floor multiple times which was always against the rules of proper decorum and finally why would the speaker not rule on dividing the question {dividing the bill into separate stand alone parts and having the body vote on each section} as was always stated in rules and instead made the house members vote on dividing the question [bill sb235]? This bill is like sausage but the recipe seems to be wrong. There are to many unrelated issues addressed in SB235, kind of like pork barrel and earmarking in Congress. On the lighter side maybe this bill is the ear notching bill of the 2013 session........................... Do we move forward with economic development using money that should go to the general fund and be used for education and medicare. Do we move forward taking between 1 and 2 million of that money and use for teaching of English to under achievers? { immigration education section} when we are back to 2006 – 2007 levels of funding for the state K 12 funding formula..............? We put wind power development, large scale livestock production and education of immigrants all in the same bill and say they are related as economic development. SB235 is the bill of the session and it is not over yet. It still has to go to the senate for concurrence and then if not concurred in go to conference committee. I called this one before the floor debate and am still correct that this so far is the biggest bill of the session. Where is the governor in all this as well...... I do not think we have seen the final version of SB 235 yet. Also why is not the bankers franchise tax in this mix. The bankers have [in most cases] the most to gain or lose on economic development in our great state yet they have no skin in the game? Finally Rep Nelson was 100 percent right that SB 235 would probably not stand a challenge as being constitutional yet an unnamed but very respected constitutional scholar living in Pierre has said repeatedly that between 50 and 60 percent of laws passed in South Dakota every year probably would not pass constitutional muster. Did not the voters speak overwhelmingly opposing the use of monies that should go to the general fund and be used for the greater good of the state-in most cases funding education and medicaid? One thing is for sure an exciting finish to the 2013 session is in store. Frank Kloucek 29966 423rd ave Scotland South Dakota 57059 605 583 4468

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