SD Searchlight-Josh Haiar
Economic developers in South Dakota say they’ve been under “attack,” and while they failed in their efforts to incentivize data centers this legislative session, they mounted a counter-campaign that warded off many other efforts to restrain government aid for business and industry.
Their campaign included public messaging about the state’s business incentive “toolbox,” in response to a bruising stretch of controversies.
“Over the past year or so, an attack on economic development has caused turbulence in South Dakota’s business community,” reads the “Building Better SD” campaign website, published by the South Dakota Chamber of Commerce and Industry.
During the legislative session that ended last week at the state Capitol in Pierre, there were numerous bills introduced by lawmakers seeking to change various aspects of the government’s economic development role. Some of that legislation was from state Sen. Taffy Howard, R-Rapid City, who said the bills were motivated by legitimate complaints.
“The sentiment is coming from the average citizen seeing what’s been done in the name of economic development,” Howard said. “It’s the abuse of these tools that has to stop.”
Howard said the conflict began several years ago when, as she describes it, development advocates framed opponents of Iowa-based Summit Carbon Solution’s five-state pipeline as a vocal minority with illegitimate concerns. The pipeline would capture carbon dioxide from ethanol plants, transport it to an underground sequestration site in North Dakota, and capitalize on federal tax credits that incentivize the prevention of heat-trapping gases from entering the atmosphere.
The company tried to exercise eminent domain, the legal process for acquiring access to private property for a public use.
“And that kind of woke people up,” Howard said.
Subsequently, a property rights revolt helped oust 14 incumbent Republican legislators in favor of Republican challengers in 2024, and those new lawmakers helped adopt a law last year banning eminent domain for carbon pipelines. The Summit proposal stalled, and other economic development fights ensued.
Complaints, controversies pile up
During Republican former Gov. Kristi Noem’s six years in office, she incited a backlash against her controversial uses of the state’s Future Fund for economic development, including for a fireworks show at Mount Rushmore, a Rapid City-area shooting range that legislators refused to fund, a Sioux Falls rodeo, and a workforce recruitment campaign that Noem starred in.
The workforce ad campaign was especially controversial across the political spectrum.
“When you see the Future Fund can be used to run a personal public relations campaign, there is something wrong,” Howard said.
The fund was created in 1987 at the request of then-Gov. George Mickelson, a Republican. It was placed under the governor’s exclusive control, enabling quick action when economic opportunities arise. South Dakota employers contribute fees to the Future Fund when they remit payroll taxes for unemployment benefits.
In a more recent controversy, South Dakota Searchlight reported on the close connections between state government and CJ Schwan’s, a company that has benefited from $69 million worth of tax rebates, grants and loans from the state — including the Future Fund — to help build a $550 million, 650-employee food production plant in northern Sioux Falls.
Noem’s former economic development commissioner, Steve Westra, signed the first pledge of state aid before ultimately leaving and going to work for the company after waiting the legally mandated one year. Jeff Erickson, the chairman of the state Board of Economic Development, is on the CJ Schwan’s corporate board and is involved with a corporation renting space to CJ Schwan’s in downtown Sioux Falls. Erickson abstained from state board decisions involving the company.
In another economic development flashpoint, Howard helped lead a voter revolt to reject a $125 million tax increment financing district in Rapid City in January.
TIF districts have traditionally been used to provide upfront financing for development projects, such as streets and connections to water and sewer lines. The new, higher property taxes generated by the development are then used to pay off the financing.
The Rapid City TIF included $46.5 million of discretionary money for developers of a proposed Libertyland residential and entertainment district. About 70% of voters in Rapid City rejected the TIF after the city council had approved it.
This legislative session, lawmakers and the governor enacted a law that will prevent properties within a TIF district from receiving a tax break known as the discretionary formula; restrict the maximum value of TIFs for the state’s largest cities to 7.5% of the total assessed value in the city, rather than 10%; raise the “blight” threshold in a district from 25% to 50% for TIFs that use blight as a legal justification for their creation; and require a third-party review of projects.
Data center incentives blocked
The latest front in the economic development fight played out in the Legislature, where lawmakers rejected proposed sales tax exemptions and rebates for data centers — the massive warehouses full of computer servers for artificial intelligence, cryptocurrency and other data-intensive processes. Without those incentives, developers have said some proposed data centers in South Dakota will not be built.
A bill to exempt data centers’ backup electrical power generation from state permitting also failed. The only major data center bill to make it through the Legislature — pending the governor’s consideration — is one that would impose new regulations on data centers’ demands for electrical power and water for cooling, while also preventing the state from overriding local data center ordinances.
Tim Hanigan, the CEO of Aberdeen Development Corporation, was discouraged by legislators’ rejection of data center incentives.
“When we’re looking at ways to reduce property tax or it’s a tight budget year, just saying no outright to an entire industry, with no conversation, just seems too far,” he said.
Economic developers in the state, including Hanigan, argue that large data centers bring jobs, expand local property tax bases, and generate millions of dollars in sales tax revenue from the massive amounts of electricity they consume.
Hanigan and other developers see the pushback against data centers as part of a growing “anti-growth” mood in Pierre.
The issue has also emerged as a key factor in this year’s race for governor. House Speaker Jon Hansen of Dell Rapids and Aberdeen businessman Toby Doeden are seeking the Republican nomination for governor in the June primary. Hansen has criticized the state’s economic development approach as “corporate welfare,” and Doeden has alleged the state focuses too much on recruiting out-of-state businesses at the expense of local entrepreneurs.
Another Republican candidate, U.S. Rep. Dusty Johnson, has described attacks on economic development as bad for the state and has promised to be a “builder.” On Friday, he pledged to invest $2 million from the Future Fund into an initiative to help more South Dakotans turn their ideas into businesses.
Republican Gov. Larry Rhoden has been handing out economic development awards as he seeks to retain his job, but has also made some concessions, including signing legislation that defines the purposes for which he can make grants and loans from the Future Fund, along with other guardrails.
Economic developers and their allies, meanwhile, have recently gotten more organized.
Economic developers fight back
The “Building Better SD” campaign pushes back against criticism by promoting the role and value of the state’s economic development programs. The campaign’s website argues that South Dakota’s economy hasn’t “happened by chance.”
The campaign spotlights the economy-growing role of government programs, including the governor-controlled Future Fund, the state Revolving Economic Development and Initiative (REDI) Fund, local tax increment financing districts (TIFs), loans and grants from the South Dakota Housing Development Authority, and the Build Dakota Scholarship Fund.
“Without these programs, tools in our toolbox, South Dakota would not have such a strong and well-diversified economy,” said First Premier Bank Chairman and CEO Dana Dykhouse in an ad. “That’s why it’s vital that we all understand the importance of these economic development tools.”
Dykhouse received the Excellence in Economic Development Award at the 2026 Governor’s Conference on Economic Development in Pierre for his leadership in workforce development.
He told South Dakota Searchlight that development incentives are not “anti-free-market” as some critics have claimed, but rather tools that governments use to encourage growth that benefits the broader public.
Dykhouse said development incentives built South Dakota, citing the federal government’s Homestead Act (which granted free land to homesteaders), mortgage interest tax deductions, and government programs supporting low-interest loans for first-time homebuyers.
Multiple economic development leaders at the conference said South Dakota is short on economic development incentives, so making TIFs, low-interest loans, grants or sales tax relief programs harder to use would make it tougher to grow the state’s economy.
The Building Better SD campaign included distributing red boxes, designed to look like toolboxes, to legislators in Pierre that contained information on the economic development programs advocates are defending. The effort also includes a broader media campaign, including television ads and online messaging.
The toolbox campaign was led by the South Dakota Economic Development Professionals Association and the South Dakota Chamber of Commerce and Industry. Ryan Budmayr is the chamber’s president and CEO. He said business leaders worry they are losing the broader narrative that economic development supports schools, infrastructure and basic services, especially in rural counties facing decline.
“I think there is a skepticism that is warranted in some ways,” he said. “And then I think there is a skepticism that may not see the big picture of what these programs are doing across the state, and is instead zeroing in on ones that didn’t work.”
Budmayr said much of the skepticism also stems from anger over inflation and a broader distrust of government and big business.
“But if we don’t continue to look for ways to grow our economy, the basic services we want to improve and tax relief we want to deliver will never happen,” Budmayr said.
Mike Bockorny, CEO of the South Dakota Economic Development Professionals Association, doesn’t deny that recent controversies helped fuel criticism.
“The pipeline was a case study for exactly how not to do business,” he said, referencing the Summit project.
Yet Bockorny said the public conversation about economic development has focused on a handful of high-profile disputes. He said that ignores quieter work that most local development offices engage in: helping South Dakota businesses expand and entrepreneurs launch new ventures.
Similarly, at the state level, the Governor’s Office of Economic Development told South Dakota Searchlight that 1,691 awards have been made from the Future Fund since its inception in 1987. They include projects across the state and 318 awards allocated to entities or projects serving the entire state, according to the office.
Through the office’s loan programs, 18 loans were approved last year, totaling $45.8 million. Those loans are expected to help generate 981 jobs.
Howard said she’s not trying to take tools out of the toolbox. She said her goal is accountability and transparency when government is involved in economic development.
Joe Fiala, the deputy commissioner of the Governor’s Office of Economic Development, spoke this week with the state Board of Economic Development about this year’s legislative session. He said the office had to spend more time than usual explaining to lawmakers what the office does and how proposed bills could affect economic development.
“We are going to spend a significant amount of time over the next several months just visiting with legislators, other economic development stakeholders, city and county officials, to make sure they understand: What is economic development? What does GOED do? How does our board function?” he told the board.
Fiala noted most of this year’s bills seeking to restrain economic development tools were either withdrawn or failed, which he described as a good outcome for the state.
Bills affecting economic development in the 2026 legislative session
Most efforts to restrain the state’s role in economic development failed during this year’s South Dakota legislative session, although there was success in placing new guardrails on the governor-controlled Future Fund and local tax increment financing districts, and in imposing new regulations on data centers rather than offering them tax incentives.
Senate Bill 1 would have required governor-controlled Future Fund grants to be approved by a majority vote of the Board of Economic Development, rather than by the governor alone. The bill was rejected 5-4 after its initial committee hearing.
House Bill 1230 would have created an opt-in process for the employer fee that funds the Future Fund, rather than the current automatic system. It would have required the Department of Labor and Regulation to distribute an opt-in form quarterly and deem employers opted out unless they opt in. The bill failed in the House 31-36.
House Bill 1286 makes numerous reforms to the governor-controlled Future Fund for economic development, including the addition of definitions for acceptable uses of the fund, requiring more reporting to legislators about the fund’s awards, stipulating information required of applicants, directing the Governor’s Office of Economic Development to develop rules governing the fund’s use, and requiring the office to make recommendations to the governor about potential awards. The governor signed the bill into law.
House Bill 1222 would have prohibited a Board of Economic Development member from owning an interest in, or serving on, the board of any entity approved by the Board of Economic Development to receive public funds. It failed 29-36 in the House.
Senate Bill 93 would have amended a law that requires state officers and employees involved in awarding or overseeing a contract with a company to wait one year after leaving government service before taking a job with the company. The bill aimed to extend the waiting period to two years for contracts exceeding $5 million. It was amended against the prime sponsor’s will and was then tabled by the House.
Senate Bill 109 would have tightened requirements for creating a tax increment financing district. It would have limited the portion of a local government’s property value that can be tied up in a tax increment financing district, reducing the cap from 10% of a community’s total assessed value to 2.5%. It was defeated on a 4-0 vote in a committee.
Senate Bill 192 would have doubled the “blight” threshold and tightened the legal findings that local officials must adopt to approve a TIF district. The bill would have allowed a TIF only in areas where at least 50% of the area is “blighted,” rather than 25%. It was defeated by a 4-0 committee vote.
Senate Bill 228 will prevent properties within a TIF district from receiving a tax break known as the discretionary formula; restrict the maximum value of TIFs for the state’s largest cities to 7.5% of the total assessed value in the city, rather than 10%; raise the “blight” threshold from 25% to 50% for TIFs that use blight as a legal justification; and require a third-party review of the project. It was signed into law by the governor.
House Bill 1173 would have required environmental impact studies for carbon dioxide pipelines. A Senate committee defeated the bill on a 5-3 vote.
House Joint Resolution 5001 would have asked voters to narrow the use of eminent domain. Increases in the tax base, tax revenues, employment, or general economic health would no longer justify its use, and the need for a project would need to be publicly declared before any condemnation proceedings could commence. It failed in the Senate on a 14-19 vote.
Senate Bill 88 will limit the ways developers can use eminent domain to enter private land when a landowner says no. It was signed into law by the governor.
Senate Bill 135 would require data center companies to ensure that a facility’s water use will not overburden local resources and to pay for the electricity costs incurred by the facility. It also prohibits the state from overriding local governments’ authority regarding data center ordinances. The bill awaits the governor’s consideration.
Senate Bill 193 would have exempted large backup generators that are not connected to the grid — such as those used by large data centers — from regulatory and siting review by the state Public Utilities Commission. It failed in the Senate on a 17-17 vote.
House Bill 1246, which would have banned government bodies from entering into nondisclosure agreements for data center projects, failed in a 30-37 vote in the House.
Senate Bill 293 would have expanded the state’s Reinvestment Payment Program to incentivize data centers. It failed in the Senate on a 16-17 vote.
House Bill 1005, which would have granted data centers 50-year exemptions from sales taxes on their equipment and software purchases, was rejected by a committee 9-3.