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March 2008

State Roundups
South Dakota

We're Mars; everyone else is Venus

In a wobbly national economy, South Dakota has managed to stand tall. Sioux Falls is leading the charge, according to the Argus Leader and other news reports. For the first time, the value of annual construction projects exceeded a half-billion dollars, and the city had a record number of property annexations, at 33.

Not that everything is hunky-dory; permits for single-family housing in Sioux Falls have dropped for three years running. But numerous counterbalances appear to be making up for it. Just in the housing sector, for example, permits for multifamily units in 2007 rose by about three-fourths over the preceding year.

The state's economy also had other major bright spots to keep it chugging outside of Sioux Falls. For example, state tourism spending increased by almost 9 percent in 2007 compared to a year earlier and is approaching $1 billion, and regions across the state saw growth.

Robust prices and good yields for major commodities in the state were expected to produce strong farm incomes despite rising input costs. According to the South Dakota Manufacturers Register, the state added about 850 manufacturing jobs—or about 1.6 percent growth—from November 2006 to November 2007. That's despite the fact that the state is sitting on an unemployment rate of about 3 percent. Many appear to be sharing in the wealth: Third-quarter personal income was almost 8 percent higher than the preceding year.

Last call for liquor licenses

The state recently experienced what an economist might call the ill effects of rationing—in this case, liquor licenses.

State law caps the number of liquor licenses issued by a city or county based on population. Several state lawmakers recently attempted to undo the license cap, which they argued hindered local economic development, particularly in tourism areas.

The bill was shot down in a legislative committee because lawmakers could not deal with an unintended consequence. The cap on liquor licenses effectively created spiraling demand for them: Some restaurant owners reported paying in the low six figures for their liquor licenses. Uncapping liquor licenses would have seriously undercut the value of existing ones, which was deemed unfair to license holders.

—Ronald A. Wirtz