Joshua Haiar, South Dakota Searchlight
Lawmakers grilled a representative of the Governor’s Office about a fund controlled by the governor, but a legislative committee rejected a bill Thursday at the Capitol in Pierre that would have reduced the money flowing to the fund.
The topic was the Future Fund, which draws revenue from a tax on employers.
Sen. Brent Hoffman, R-Hartford, spoke in favor of the bill.
“It’s not the role of government to be Santa Claus in these economic development projects,” Hoffman said.
But the Senate Commerce and Energy Committee voted 5-4 to reject the legislation.
South Dakota employers pay into the Future fund when they submit payroll taxes for unemployment benefits. The unemployment tax is calculated with a complex set of formulas that includes a percentage of the first $15,000 of some employees’ annual earnings. The Future Fund receives a fraction of an additional percent on top of that, which the state describes as an “investment fee.”
State law says the Future Fund must be used “for purposes related to research and economic development for the state.” Unlike other funds administered by the Governor’s Office of Economic Development, Future Fund expenses don’t go through a board of citizen appointees for vetting or approval.
Rodeo contract questioned
South Dakota Searchlight recently reported that the Governor’s Office used the fund last year for a three-year contract worth up to $2.5 million with rodeo announcer Rorey Lemmel’s Dean Entertainment Group. The contract is for the promotion and conduct of the Cinch Playoffs Governor’s Cup rodeo in Sioux Falls. The contract said Sioux Falls would contribute additional matching funds.
Gov. Kristi Noem played a starring role in the rodeo in September, carrying the American flag into the arena on horseback and posing for photos with the event winners.
The commissioner of the Governor’s Office of Economic Development, Chris Schilken, testified against the bill to reduce the investment fee. Sen. Lee Schoenbeck, R-Watertown, referenced the Searchlight story and asked Schilken, “Why would your office approve spending $2.5 million on a rodeo?”
Schilken said “tourism is economic development” and went on to mount a defense of the spending, including citing the rodeo’s economic impact to Sioux Falls and the state.
Schoenbeck leveled further criticism of the expense and asked, “How many more of these tourism events are you going to expend our economic development dollars on like that one?”
Schilken replied that rodeo is the state sport and said the event advertises the state well.
Schoenbeck responded, “My question is, how many more times are you going to do this with our money?”
“Senator, I don’t have an answer specifically to that question,” Schilken said. “The fund has been set up at the governor’s discretion to use, such as past governors have had and for future governors to use.”
Schoenbeck also asked why the rodeo contract was initially not available on the state’s financial disclosure website, Open.SD.gov, when South Dakota Searchlight went looking for it.
Schilken said the department eventually put the contract on the website. That happened after South Dakota Searchlight asked the office where it was.
Future Fund amounts
The prime sponsor of the bill to reduce the investment fee was Sen. Ryan Maher, R-Isabel.
“This would result in savings to the businesses of this state,” Maher said.
According to the state Department of Labor and Regulation, 28,261 employers paid $23 million into the Future Fund in 2022, which equated to an average of $814 per employer. Maher said his bill would have resulted in a reduction of about $5 million, or about $175 in savings per employer.
Rep. Chris Karr, R-Sioux Falls, was one of the bill’s two sponsors in the House of Representatives, along with Rep. Scott Odenbach, R-Spearfish. Karr said the fund was created by former Governor George Mickelson in the 1980s “because there weren’t a lot of dollars to spend” on research and infrastructure.
“Fast forward to where we are today,” and the Legislature funds many such projects, Karr said, pointing to “hundreds of millions of dollars” spent on housing and water infrastructure and new research in recent years.
“It’s not as necessary as it was when it was created,” Karr said of the Future Fund.
Opponents testify
Economic development organizations, chambers of commerce, and some educational institutions that have received grants from the fund disagreed with Karr.
Schilken said the Future Fund has done a lot for the state “by providing support to many entities over time.”
Julie Johnson was the state secretary of labor when the Future Fund was created and helped write the legislation putting it into law.
“I’m very proud of what the Future Fund has done for the state of South Dakota,” she said while encouraging the committee to reject the bill.
Maher said he was not surprised by “the parade of opponents” who came forward. He said the crux of their argument was, “Don’t take our pork away from us.”
Maher said his goal is to “keep the money on Main Street.” He said from 2020 to 2023, the fund went from taking in $17 million to $24 million annually.
“A fund that the Legislature doesn’t have any oversight on,” he added.
Schoenbeck said that even with less money in the fund, “The good projects will still all get funded.”
Sen. Casey Crabtree, R-Madison, voted to defeat the bill as written, but said he would have supported a bill that called for further oversight of the fund.
Senators Steve Kolbeck, R-Brandon, and Arch Beal, R-Sioux Falls, made and seconded the motion to defeat the bill.
“I think the Future Fund is working,” Kolbeck said. He said Noem’s use of the fund “really isn’t an abuse,” given that “this governor has spent about $100 million less than the previous administration.”
Noem has been in office a little more than five years and has spent $57 million from the fund. Former Governor Dennis Daugaard served eight years and used the fund for everything from railroad improvements to scholarships, spending a total of $163 million.