How Being Business Friendly Benefits South Dakota

October 23, 2013 9:40 am Last Updated: October 23, 2013 9:40 am

Why do established companies move? How do foreign companies determine where to locate their U.S. operations? Where do new startups decide to get going? They go where circumstances are good for business. And South Dakota demonstrates this environment by promoting thriving communities and a high standard of living. 

Belle Fourche, South Dakota is in the geographical center of the United States. There is plenty of land and a business friendly environment, which starts with the government.

There is a mandate that stipulates business is not only welcome but free enterprise is also respected and making money is an honorable pursuit.

“The U.S. Chamber of Commerce and CNBC named us number one for business in the nation. As governor I’m trying to sell business climate in South Dakota. … It is almost guaranteed the cost of doing business is lower in South Dakota than any other place in the nation,” Republican Gov. Dennis Daugaard said at a gathering with business leaders at the 49th annual Buffalo roundup in Custer State Park in September.

Low Tax, Low Cost

“There is no corporate income tax. We have low utility costs. Three out of our four electric generating plants in South Dakota have hydroelectric power. They were built in the ’50s and ’60s so the cost was low. The cost of real estate and raw land is low. We are a right-to-work state,” Daugaard said.

He then addressed a question regarding the relatively low wages paid in the state: “Some [say] we don’t pay well in South Dakota or that wages are lower. The fact is that dollars go further. Last summer the U.S. Department of Commerce compared the fifty states. South Dakota had the lowest cost of living than any place else. You can buy more here,” he said.

The secret of low prices and low unemployment lies with little government interference in private industry. “As governor I want to maintain a climate for business. We reduce taxes. We reduce regulations to those that are necessary to protect our people and our environment. Most businesses want to comply. They want to be good neighbors.”

Unwinding Regulation

He also claimed South Dakota was working on reducing laws and regulations and not increasing them. “It seems to be the nature of government to grow the regulatory framework of state laws. Our legislators and state employees look for ways to improve. We have to look at laws and unwind them. We re-examine old laws and regulations to see if we can subtract unnecessary laws and regulations. … We try to simplify the breadth of regulations to which businesses and citizens can comply.”

According to some official statistics, the state has much to show for this attitude. The unemployment rate is at 3.8 percent, second in the nation, after North Dakota, which gets an extra boost from natural resources. In addition, the state’s trust fund for unemployment insurance will be overfunded by 2015, which will likely result in another decrease in taxes for state unemployment insurance.

Business Pleased

Low taxes, low regulation, and low power costs are a boon for responsible businessmen like Karim Merali who watch out for the community they operate in.

“In big cities there is so much money that growth comes at the expense of one community over another. Projects come in big scales. Here growth is manageable. It really makes sense to invest in the long term. In Dallas, where I came from, they will build 5,000-6,000 hotel room units per year as opposed to a hundred here. People buy those properties, make their money and sell out. Somebody is left holding the bag at the end of the day. Here long-term investment is predictable.”

He came from Texas in 1995 to buy a dilapidated hotel out of bankruptcy in downtown Rapid City and made it into one of the most prestigious, eco-friendly hotels in the country. He also appreciates that the state has a low crime rate and a very good health care infrastructure.

Another company just opened an office in Brookings, S.D. Matthew Lazarewicz, president and co-founder of Helix Power Corporation decided to build an operation in South Dakota, because of the scientific prospects. 

“There is more receptivity here for our business models. The government was helpful and made connections for us. We will work with professors and students at the University. We loved the idea of being in the middle of an innovation center,” Lazarewicz said. Helix’s business involves energy storage and consistency of power for industrial applications.

No Debt, No Estate Tax

“Our state constitution does not allow general obligations debt. The state cannot borrow. … We are now in good shape. There is no unfunded pension liability in South Dakota. We have one unified plan for all state employees. By failing to put away money to fund their pension plans some states have a large liability to state employees. South Dakota is 100 percent funded. I’m very pleased about that,” Daugaard said.

A well-funded government doesn’t need to levy heavy taxes on its citizens, an arrangement that benefits small communities in South Dakota. The state doesn’t charge an estate tax, which prevents forced sales of farms when they are handed over to the next generation. Often times, families have to sell the farm to raise cash to cover the estate tax. 

“Rural towns are dying across America. That’s why we don’t have estate taxes in South Dakota. [We] do not want to make it impossible to pass the ranch down to the family. Ranchers bought land here for $75 an acre. Now it is worth $1,200 an acre. That can quickly add up to being land rich and cash poor. How does a family pay an enormous estate tax without selling the family ranch,” said Ted Hustead, a Harvard economist and member of the Governor’s Economic Development Board.

John Christopher Fine is a marine biologist with two doctoral degrees and the author of 24 books.