Governor Vetoes Corporate Welfare for Broadband Projects

Among the five vetoes Governor Dennis Daugaard issued yesterday was one seemingly admirable rebuff to corporate welfare. The Governor said no to Senate Bill 100, a measure that would have favored broadband projects in the Reinvestment Payment Program of the Governor’s Office of Economic Development. The program currently gives grants to new industrial projects costing more than $20 million and industrial expansion projects costing more than $2 million. These grants are capped at the total amount of state sales and use taxes paid on the project by the developer.

(Note: The Legislature and Governor are willing to give rich corporations millions back on their sales tax, but they can’t pass an exemption on the food tax for those corporations’ employees. Priorities, priorities….)

SB 100 made broadband projects eligible for these tax refunds. AT&T, Verizon, CenturyLink, the Chamber of Commerce, and Heartland Consumer Power District (run by the Governor’s old pal Russell Olson) all lined up to say you betcha to SB 100. Remarkably, this broadband refund was one corporate handout too far for Governor Daugaard. In his veto letter, the Governor says the telecommunications industry already has enough public incentives and market reasons to build broadband projects in South Dakota. He says we reformed our economic development grants in 2013 to get rid of automatic tax refunds and that SB 100 would take us back to that bad practice:

The changes in Senate Bill 100 would be a step back to the system of automatic tax refunds that the Reinvestment Payment Program was designed to replace. Specifically, the bill makes qualification automatic for a segment of broadband projects receiving federal grant funds. Clearly, companies receiving a federal grant have already committed to their project regardless of any state incentive. In addition, the bill creates internal inconsistencies in the law that will make it confusing for the Board of Economic Development to administer, and for prospective applicants to understand. The Board of Economic Development must have the authority to direct our state’s incentives to projects that will not happen without an incentive [Governor Dennis Daugaard, veto letter to SB 100, 2016.03.25].

I commend the Governor’s logic: government should meddle in the free market only to make good things happen that the free market won’t make happen on its own. Of course, if we’re talking about broadband projects already supported by federal grants, we have to convolute the logic a bit: Uncle Sam is already propping up the project, so it’s no longer a truly free market project, but it’s going to happen without our adding a few percentage points to the developer’s subsidized profit margin.

Far be it from me to stand in the Governor’s way when he wants to check corporate welfare, but as I review the text of SB 100, I’m not convinced it would have undermined the authority of the Board of Economic Development as much as the Governor’s veto letter says. SB 100 does contain the problematic provision that an attestation that the project has satisfied the conditions of an awarded federal grant shall “satisfy any requirement by GOED that the project would not have been undertaken but for the reinvestment payment.” But consider these two clauses added by Rep. G. Mark Mickelson’s amendment on March 7:

(6) For all broadband applications the award of a reinvestment payment shall be subject to the board determination that the reinvestment payment increases the scope of the project on terms and conditions satisfactory to the board; and

(7) Notwithstanding all of the above, the board shall have the discretion to award or deny a reinvestment payment based on its determination on whether the reinvestment payment will have a positive effect on economic development and job growth [SB 100, as amended in the House, 2016.03.07].

SB 100 allows the Board of Economic Development to retain its discretion in refunding taxes on broadband projects. The Board could still look at the potential effect of its handout and say, “Our refund won’t add one hire or one fiber-optic hookup, so we’re not giving the money.” But I can understand the Governor’s contention that the language is a little confusing: if satisfaction of federal grant conditions establishes that the project wouldn’t happen without our help, can the Board still deny the grant on the assertion that the grant wouldn’t make an economic difference?

SB 100 passed unanimously in the Senate and 61–5 in the House with minimal discussion and no dissenting speeches in either chamber. The only opponent testimony in committee came from the executive branch. SB 100 may not have roused the passions necessary to override a veto… and since we’re talking corporate welfare, that’s fine with me. Let’s keep these multi-million-dollar corporations kicking in their fair share toward increased teacher pay, just like the rest of us.