George S. Mickelson
Published October 1, 1991 | October 1991 issue
The extent of a state's involvement in the area of economic development, especially when it comes to investing taxpayer dollars to help companies create jobs, has long been a topic of discussion. In today's highly competitive economy, a state's participation becomes not only a matter of opinion, but a matter of survival.
In South Dakota, we look at the money we spend on economic development the same way a business views its marketing efforts: as an initial investment that will pay substantial dividends later. In our case, the profits have come even quicker than we planned. South Dakota has a very marketable business climate and, as we continue to promote it, the return on investment will get even higher.
The fact South Dakota is well ahead of the nation in job growth is no accident. When I set my economic development strategies in 1987, I proposed a $40 million low-interest revolving loan fund. The South Dakota State Legislature approved that proposal and established the REDI (Revolving Economic Development and Initiative) Fund, which set a precedent for the state to play an active finance role in the area of economic development.
From 1989 to 1990, the nation showed a 1.9 percent loss in manufacturing jobs. During that same time period, South Dakota showed a 5.3 percent increase. The reason is simple. While many states were forced to devote a great deal of time reacting to layoffs by major manufacturers, South Dakota was able to continue to use its economic development programs to assist existing South Dakota companies while actively pursuing companies which would further diversify the economy.
The creation of new jobs through diversification efforts results in additional economic gains of which one is new wealth. This new wealth translates into a boon for retailers which, in turn, benefits the state in increased sales tax revenues.
South Dakota's economic development efforts helped steer the state from the national trend of declining in taxable sales during the most recent reporting periods. In January and February, South Dakota gained 4.6 percent, while the nation's retail sales decreased 0.6 percent. In March and April, the nation increased only 1.4 percent, while South Dakota showed a 4.9 percent increase.
South Dakota's economic development effort has also been a contributing factor in the state becoming less dependent on its major employers. In 1986, 32 percent of all manufacturing jobs could be found in the state's 10 largest firms. In 1990, that number was down to 22 percent.
Diversifying an economy, however, is not just attracting a variety of jobs. Prior to launching an all-out economic development campaign, a state must analyze its strengths and weaknesses and determine which type of industry will best help the state and its businesses gain optimum economic benefits.
Once the sate knows which industries will most benefit its people, the state can aggressively pursue opportunities to help companies relocate to the state or, more importantly, to help in-state companies expand. This in-state expansion accounts for 56.9 percent of all REDI Fund loans approved.
When a state invests taxpayers' dollars in a business, it is not only investing in that business, but it is also investing in the future of the state. The return on that investment is primary jobs and capital investment in South Dakota communities.
South Dakota's investment of taxpayers' dollars in the creation of jobs has paid off for this state. The record of the REDI Fund speaks for itself. Since the inception of the REDI Fund, 108 loans have been approved to companies relocating, starting up or expanding in South Dakota. The 70 companies which have loans closed for more than a year have created 3,617 jobs, which is 11 percent of the state's total manufacturing workforce.
Overall, companies with REDI Funds loans have borrowed more than $33 million and project to create 7,547 jobs by 1994. The capital investment from those companies will exceed $91 million.
Numbers like these tell the story when considering whether or not a state should use taxpayer dollars to assist companies in creating job opportunities for the people of the state. Like any business, a state must be prudent with its money, but, like a good investor, a state must be willing to take some risks to ensure economic stability in the future.
Our economic development efforts result in a classic win-win situation; the business wins because it has a place where it can make a profit without being strangled by governmental interference, and the citizens of South Dakota win because they are provided with job opportunities which allow them the opportunity to improve their standard of living. Success like that is hard to argue with.