Democrats Lead Bi-Partisan Effort to Restore Monies to Schools & Fight Corporate Welfare

Should education and healthcare dollars be shifted to corporate welfare?

That was one of the biggest controversies of the 2011 session, and it’s not going away.

Governor Dennis Daugaard’s bill (HB 1230) to start another corporate welfare fund passed the legislature on party-line votes (Democratic lawmakers supported the schools, while Republicans supported the governor.)  The governor’s proposal skims 22% of the contractor’s excise tax each year from the general fund to his new Large Project Development Fund.

More than $15 million a year would likely go to the governor’s new fund — possibly as much as $250 million over the next decade as the economy improves.

Today, the South Dakota Democratic Party said the fight isn’t over. Party leaders intend to block the governor’s money-grab by referring it to a vote of the people in the 2012 general election. They called on concerned South Dakotans who support education and health care to join in collecting the required 16,000 signatures to block the law and refer it to a vote.

The Daugaard administration argues that the Large Projects Fund is just an extension of another corporate welfare program that is being phased out. “That’s saying that two wrongs make a right,” argued Quinten Burg of Wessington Springs, one of the leaders of the petition drive.

“After much criticism from Democratic lawmakers over the other failed program — especially the fact that much of the money was wasted on projects like the TransCanada pipeline, which created few permanent jobs and would have crossed South Dakota without the tax rebate — the legislature finally repealed it,” Burg said. “Now the governor tries to justify another corporate give-away on the argument that he’ll waste less than the previous program.”

HB 1230 is set up as a replacement for a tax rebate fund that did not work, said Marc Feinstein (D-Sioux Falls). “We tried this experiment for the past 5 years and saw that most of the money was going to the TransCanada pipeline and other projects that were not creating jobs that wouldn’t have been created without the tax rebate. We support economic development, but we support economic development that works.”

Democratic leaders told the Daugaard administration during the legislative session that they would support his efforts to build a fund if he thought it was necessary. “But we steadfastly opposed the idea of using general fund dollars,” said Feinstein. “We told the governor’s staff that if they found an appropriate funding source, they’d have our support. But if they grabbed general fund dollars that would otherwise be spent on schools and health care then we would fight the idea.”

Democrats have supported the governor in numerous other economic development initiatives — including an expansion of the REDI fund, broadening the scope of TIFDs, removing liability on aviation manufacturers and other such efforts.

Matt Parker, a businessman in Sioux Falls, recognized those efforts but stressed the importance of education. “I understand that economic development is very important.  The best way to do that long term is to have an educated workforce.  Taking money out of the general fund, money that could otherwise go to schools, in order to create a fund for corporate handouts is not the best way to ensure long term economic growth. “

Ann Tornberg, a former educator from Beresford, could not understand why the governor would take funds from education to create a corporate development fund. “Education is the best form of economic development,” added Tornberg. “As school districts around the state are slashing their budgets to deal with the Governor’s cuts, it sends a terrible message that we are taking money out of their pockets to give to corporations

Schools weren’t the only losers to the governor’s development fund, Sandy Jerstad said. “I was very disappointed that Governor Daugaard cut Medicaid by so much after he promised it was off the table during the campaign.  Not only did nursing homes in SD lose $30 million in state dollars but they lost an additional $45 million in federal dollars.”

Burg further noted that when other governors wanted to create economic development funds, they didn’t take it from the general fund. Two years ago, Gov. Rounds and the legislature passed a new half-cent lodging tax to support visitor promotion rather than use general funds. In the 1980s, Gov. George Mickelson created the REDI fund by instituting a special sales tax for one year.

“Gov. Mickelson had the guts to travel the state and sell his idea to the people,” said Burg. “He didn’t rob the general fund to do it. If Gov. Daugaard thinks his Large Project Development Fund is a good idea, then come up with the funding source and sell it to the legislature and the public. Don’t take it from under-funded schools and health care programs.”

The Democratic leaders urged South Dakotans of all political persuasions to help them in the referral. Call 605-271-5405 to get petitions for circulation in your town.

If you would like more information, please contact Chairman Ben Nesselhuf at 605-271-5405 or ben@sddp.org.

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REFERRED LAW HB 1230: FAQs

ENTITLED, An Act to establish the large project development fund, to provide for its administration and to make an appropriation therefore. HB 1230 was passed by the House of Representatives on February 17, 2011 and was passed by the Senate March 3, 2011. The Governor signed HB 1230 on March 10, 2011. The effective date of HB 1230 is January 01, 2013.

What is HB 1230?

HB 1230 is a measure allowing the governor to take 22% of the contractor’s excise tax, which normally goes to fund education, health care, and other essential government programs, and use it to pay for a subsidy program to attract new large corporate projects.

How much money does HB 1230 take from the general fund?

This year, 22% of the contractor’s excise tax would take nearly $16 million dollars from the general funds budget. In periods of stronger economic growth, this amount could rise above $20 million a year or up to $300 million over 15 years.

HB 1230 replaces the current tax rebate program, which has cost taxpayers just under $69 million over 15 years. That means the large project development fund created by HB 1230 may cost up to 4 times more than the current tax rebate program over 15 years.

Why is HB 1230 bad for SD?

HB 1230 takes money away from funds for education and healthcare when we are struggling to keep teachers in our classrooms and trying to keep nursing homes from closing because of the governor’s budget mistakes.

  • Case in point: State funding for our public universities has already declined 15.6% in three years. The legislature completely froze state aid for our k-12 public schools last year and limited state aid to three percent or less per year while total spending under the Rounds/Daugaard administration grew by more than 5.5% annually.

Taking money from the general find forces schools, local communities and children to shoulder the burden of budget cuts.

  • Case in point: The Yankton School Board has already passed a resolution to pursue a $4.175 million per year opt-out of local property tax limits for the Yankton School district. The Rapid City school district plans to reduce staff, freeze pay, and increase class sizes for our children. The Irene-Wakonda school district decided to adopt a four-day school week. And Chancellor Elementary school in the Lennox School District will close entirely.

Education is the best form of economic development. Businesses that come to South Dakota require a system of education that equips workers with the skills businesses need in order to succeed in the 21st century economy. Cutting funding for education in order to bankroll the governor’s slush fund will neither train our workers nor attract new businesses to South Dakota.

Do South Dakotans support HB 1230?

This bill is deeply unpopular with voters in South Dakota: Public Policy Polling found that 62% of South Dakotans oppose the corporate give-away, while only 19% liked the idea. 18% were undecided. The poll questioned 1,667 voters between Feb. 25-27, 2011, and has a margin of error of +/- 2.4%.

Will South Dakotans be able to decide how Governor Daugaard will use the economic development funds?

NO. The governor’s state Board of Economic Development will have complete discretionary authority over the use of taxpayer funds.

South Dakota has weak transparency and pay-to-play laws concerning economic development funds. Not until five newspapers made an open-records request in 2010 did the public find out who had received tax rebates in the existing program and how much money they received. At that time, $59 million had left the treasury – most since the Rounds/Daugaard administration made it easier for companies to receive rebates in 2005. As a result of the program’s wastefulness, the Legislature decided to sunset the program in 2012.

  • Case in point: TransCanada, a foreign oil company, has received millions of dollars in subsidies for a transcontinental pipeline that created very few permanent jobs in South Dakota, and would have gone through our state anyway. Because South Dakota lacks open transparency laws, South Dakotans may never know how much money TransCanada will eventually receive or how they have used it.

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