Why do established companies move? How do foreign companies determine where to locate their U.S. operations? Where do new start-ups decide on setting up operations? The answers are obvious yet so many populous states and cities on the east and west coasts don’t get it. They don’t want to get it. There is an entrenched system of corrupt politicians supported by payoffs from organized crime that control trade unions, waste hauling, service industries, and vice. Racketeers are protected by officials they corrupt. Companies are shaken down, their employees intimidated, bribes have to be paid, municipal inspectors have their hand out and businesses are ambushed every step along the way to derail profits.
Belle Fourche, South Dakota is in the geographical center of the United States. Likely reason they call the area the mid-west. There are wide-open spaces, abundant land and an atmosphere that is business friendly. Government attitude that is right for business development starts at the top. There has to be a mandate that sets out the rule that business is not only welcome, free enterprise is respected and making money is an honorable pursuit.
South Dakota is a work ethic state. Agriculture still predominates the economy followed by tourism. It is magnificent country with U.S. and state parks. Recreation areas make living there a pleasure. The tax structure is amenable to citizens and businesses and there is a capable and willing work force.
“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. In their determination they looked at the cost of doing business. It is almost guaranteed that the cost of doing business is lower in South Dakota than any other place in the nation,” Governor Dennis Daugaard said.
He was sitting at a wooden picnic table along a gurgling creek in Custer State Park. The 74,000 acre park is maintained by the state’s Game, Fish and Parks Department and is considered one of the most beautiful game parks in the world. Governor Daugaard invited business leaders from around the world for a weekend of fun to watch and enjoy the park’s annual buffalo roundup.
The weather was perfect. Cool but clear. Cowboys on horseback and park officials in trucks would push a herd of some 1,200 bison into corrals where they would be sorted, branded, inoculated and given veterinary care if needed. Excess animals would be sold at auction, the rest released back into the park for another year to graze and raise youngsters.
The weekend would culminate with a dinner at Mt. Rushmore National Memorial. Business prospects would have fun and meet business leaders from the state. They would socialize, have one-on-one meetings with the governor and other state officials and hopefully choose South Dakota for their businesses.
“There is no corporate income tax. We have low utility costs. Three out of our four electric generating plants in South Dakota have hydro-electric 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,” Governor Daugaard said.
He immediately countered the skeptics question, “Some answer that by saying we don’t pay well in South Dakota or that wages are lower. The fact is 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.
Governor Daugaard was adamant, “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. We don’t play ‘gotcha.’ 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 reexamine old laws and regulations to see if we can subtract unnecessary laws and regulations. State officials suggest repealing laws and regulations if they are no longer used. We try to simplify the breath of regulations to which businesses and citizens can comply.”
Refreshing outlook coming from the state’s highest elected official. Most politicians seem to beat the drum of excuses blaming business, the ‘rich’ and everyone else for the dilemma of deficits, scandals and incompetence in governmental administration. Every so often federal grand juries return indictments in large metropolitan areas against officials taking bribes and racketeers extorting businesses. Fraud and abuse in every department of larger cities in America seems rampant. The quality of life has been allowed to decline in many populous urban areas with high crime, failing and often dangerous schools.
South Dakota is one of the few states where it is to the department head’s credit that they return unspent money to the state treasury. Too often the rule, in state and federal bureaucracies, with unspent money at the end of a fiscal year, is to spend it. Some agencies even waste excess funds so it looks like the money was needed and they can apply for yet more in the next legislative or Congressional term.
“We need to learn from business. We need to have an understanding about their requirements and how they go about their work. We have public hearings about new laws. Hearings should be used as opportunities to learn and appreciate the point of view of people subject to these laws. I encourage state employees and legislators to go to hearings and learn. The world is too complicated to think we can know everything,” the Governor stated.
From the standpoint of established South Dakota businessmen the Governor’s initiatives are working. Karim Merali bought a dilapidated hotel out of bankruptcy in downtown Rapid City and made it into one of the most prestigious, eco-friendly hotels in the state. He came from Texas to establish his business in South Dakota in 1995.
“South Dakota has natural anchors. Mt. Rushmore, Custer State Park, Crazy Horse Memorial. We are in the heart of the main hub, which is Rapid City. The second point is that 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 5-6,000 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.”
Karim Merali also appreciates the fact that “From a business point of view there is no state income tax, no state franchise tax for corporations. You still have the feel of the old west. The Black Hills offer a good quality of life. There is very little crime and very little government interference. When you have little interference then you have the natural law of the market. It works efficiently, the law of supply and demand. All the banks in the nation have made South Dakota their headquarters. All banks have an office in Sioux Falls. There are favorable state tax laws for banking,” Merali said. Then he echoed what every business person considers important, “Government always helps by not interfering.”
In terms of what corporate executives deem important for their families and employees, Karim Merali summed it up: “It isn’t so much that industry red tape is waived and tax breaks given; the quality of life in the years I’ve been here has tripled. The quality of medical care has improved.” Karim was recovering from a hernia operation performed at a Rapid City hospital. Good schools and medical facilities are imperative to attracting businesses since family welfare is a direct concern for employers and their employees.
“One of my friends required a heart operation. He scheduled it at the Mayo Clinic but cancelled to have it done here. He wanted the sense of warmth. One medical specialist that settled here, by example, brought in ten more specialists.”
Ted Hustead, grandson of the founder of the famous Wall Drug Store in Wall, SD, was appointed to the Governor’s Economic Development Board. He is a third generation business man in the state. His grandfather came in the Great Depression and opened a pharmacy with a soda fountain. When Ted’s grandmother suggested a sign on the highways that passed Wall, offering free ice water, the trail led right to his business and it began to thrive. Today Wall Drug is one of the foremost roadside attractions in the world.
“Governor Daugaard ran his campaign on jobs. In that context he is committed to get companies to move to South Dakota and entice South Dakota companies to enlarge. We offer incentives. Based on the number of full time employees and what a company pays them, the Economic Development Board can make loans at 2% and give grants. Governor Daugaard attends all the Economic Development conferences and is involved in a hands-on way. He keeps a tally on who goes to meetings and who doesn’t. He expects you to participate. He is wonderful to work with.”
This insider’s personal insights are telling. In a nation where politicians seem to shun work for their own indulgences and the attributes and perks of office, it is refreshing to learn that South Dakota government works and works hard doing what it is supposed to do.
“The governor has a talented economic development bureaucracy. It is kind of like being in the loan business. We are going to be held accountable. We just got Bell Brands Company in South Dakota. South Dakota has a sales use tax. If a company comes here and buys $60 million worth of equipment they are going to pay a sales use tax on that. A bill was passed last year in the legislature that if we have a company that is going to pay a sales use tax, we can offset that tax in the form of a grant. We have been judged to be the best run state in the nation,” Ted Hustead asserted.
“Rural towns are dying across America. That’s why we don’t have estate taxes in South Dakota. Our U.S. Congressional delegation, on a federal level, is working with national estate tax laws. They 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?” Ted Hustead asked. He is a Harvard University trained economist. He knows his numbers and runs a business that serves the community and seasonal tourist industry. In summer some 20,000 visitors come into Wall Drug where they can find everything from high end fashionable boots to imperatives at the drug store.
Matthew Lazarewicz is a prospect. Matt is the President and Co-Founder of Helix Power Corporation. Their business involves energy storage and consistency of power for industrial applications.
“There is more receptivity here for our business models. The government was helpful and made connections for us. We just opened an office here in Brookings, South Dakota. We will work with professors and students at the University. We loved the idea of being in the middle of an innovation center,” Matt related.
“We are a Delaware corporation spread over the country. To consolidate we need funding. We need seed funding. This technology exists. We are taking it to the next stage. In three months we will literally have a new company. At the end of three years we will have 40 employees. The best reception for our business has been from South Dakota. The utilities have been very receptive to us. Funding has dried up in the industry. We are one of the few companies that has found funds. We created a different business model. To get it to the next stage that is where we have to take risk, to get it commercialized. We have to prove and demonstrate our effectiveness,” Matt said.
“We are dealing with a utility’s power grid. These are not fifty-dollar parts. We have been dealing with people that are used to old technology. They don’t want change. In our previous company location it took us seven years to get the idea accepted, three years just to get the paper work through. That took 20% of our capital loan guarantee. It should have taken three months. Loan guarantees are a political football. We tried California. South Dakota is different. We can make technology function better. Think of it this way: you have a computer. There are things in the computer like a RAM hard drive then there are thumb drives, DVD player, external hard drive. All of them can do the job but if you put them together in one system it will work more efficiently,” Matt explained the gist of his company’s process.
Helix Power Corporation’s technology is cutting edge. The place where they found the most receptive business environment was not Silicon Valley nor on Wall Street. It is in South Dakota where innovation is respected and entrepreneurs are welcomed.
Melvin Prenovitz is CEO of EndoSphere Surgical, Inc. from Newton, MA. The company is looking for funding to design new products.
“We make and design medical devices and surgical instruments. This is my second trip to South Dakota. They are incredibly cordial. There are opportunities here for business development and technology. We can put everything in place without getting tied up with red tape and bureaucracy. We have new instruments to do laproscopic surgery inside the torso. It is a new way to make it easier on the patient and the surgeon,” Mel said. He is clearly enthused about what he found to be a healthy business climate and funding possibilities.
“We do 400 retention and expansion visits in state every year,” Steve Watson said. Steve is South Dakota’s Business and Community Development Director in the Governor’s Office of Economic Development. Their webside is appropriately www.sdreadytowork.com.
“We ask how’s the business going? Is there a barrier to your growth? Sometimes it is a simple matter sometimes it is a matter of capital and we can help. At those in state meetings we ask if we can recruit the company’s suppliers. We ask our state companies if that would be of help to them to have their suppliers in South Dakota. They say of course, it would cut down transportation costs. We ask them if they'd make an introduction for us. We call those warm leads and we follow up,” Steve Watson explained.
“We meet with larger employers more frequently. We go to trade shows a lot of times with our in state companies. There are receptions at these shows and our companies invite their suppliers. We are a predictable state to do business in. We have recently attracted a French cheese plant and a Canadian energy company as examples. There is a tremendous opportunity for us to educate business entities outside South Dakota. We have had great success attracting international companies looking for a U.S. presence,” Steve said.
A recent South Dakota government report stated that a panel will recommend reductions in state unemployment insurance tax rates. A balance in South Dakota’s trust fund for unemployment insurance is $63.5 million as of August 31 and projected to be $76 million by the end of 2014. The state predicts that in 2015 the fund balance to reach $89.3 million. South Dakota’s Secretary of Labor, Pam Roberts, said the system would be over-funded thus recommended reductions in unemployment insurance tax rates for businesses. Extraordinary in a nation where other state governments have squandered excesses in pension and insurance funds, diverted them or borrowed against them. Reduced cost for unemployment insurance is another business friendly proposal.
“Our state constitution does not allow general obligations debt. The state cannot borrow. It is popular in some states for politicians to spend money to build things then not be under obligation to pay back. The elected official is gone by the time consequences are felt and obligations come due. When I became governor we had a debt because of the recession. Revenue had fallen. 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% funded. I’m very pleased about that,” Governor Daugaard said.
“I think it is a very good opportunity for companies to find support here. We are highest in banking assets. Citi Bank came here in the 80s with their credit card operations. Citi had been restricted elsewhere by statute and they couldn’t raise their interest rates. South Dakota is the state where Wells Fargo, Capitol 1, Great Western Bank, U.S. Bank and many other national banking companies have a presence. They employ thousands of people. South Dakota has a $100 million loan fund. Our unemployment rate is 3.8% the lowest in the nation only topped by North Dakota because recent oil development,” Governor Daugaard added.
“Employment rates are measured by employer copayment forms. We lost jobs in the recession for 19 months. About September 2012 we recovered the jobs we lost and now we are 2% above. When employers ask how they can get employees we show them the figures, more people move into South Dakota than are leaving.” On that positive accomplishment this energetic and dynamic governor, the son of deaf parents of humble means, who worked his way through college and law school, is justly proud.
“The big thing with Denny Daugaard, he is a very humble guy. He didn’t grow up in a wealthy family. His heart is in the right place. Jobs are pretty important. Families in South Dakota are raising wonderful children. They will want to visit their grandchildren in South Dakota,” Wall Drug’s Ted Hustead said. Ted is proud of the place his grandfather built in 1931. Proud of the town of Wall, South Dakota where he has raised his own family and continued the family business. The Hustead success story serves as an example of grit and determination in a state where success is applauded and free enterprise acclaimed.
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