South Dakota

Tax incentive evaluation ratings

Fact Sheet May 3, 2017 Read time:

Projects: Economic Development

Rating: Trailing

Key points:

South Dakota is trailing other states because it has not adopted a plan for regular evaluation of tax incentives.
Evaluations would help legislators make decisions about incentives such as determining funding for the Building South Dakota program.
The state relies more on grants and loans than tax incentives, so an evaluation process could include analyzing the results of these cash programs.

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In 2013, South Dakota created a suite of economic development and housing programs—including tax incentives, grants, and loans—collectively known as Building South Dakota. A year later, lawmakers committed $30 million to these programs through 2016.^a With those three years of funding ending, policymakers began in late 2016 to discuss how much money should be committed to Building South Dakota going forward.^b

While state agencies are required to report some information on Building South Dakota’s programs, the initiative has not been formally evaluated. Nor does South Dakota have a regular evaluation process in place. As a result, lawmakers are forced to make decisions about incentives without high-quality analysis of how well the programs are working.

Tax incentives are a less significant part of South Dakota’s economic development portfolio than for other states. Instead, South Dakota has relied more heavily on grants and loans. One of the state’s largest incentives is the Revolving Economic Development and Initiative (REDI) Fund, which offers low-interest loans to businesses and local economic development organizations. In 2015, South Dakota provided $20 million in loans from the REDI Fund.^c Likewise, South Dakota’s most conspicuous economic development setback in recent years—the 2013 bankruptcy of a $115 million beef processing plant only months after it opened—involved cash incentives, rather than tax incentives.^d (The plant later reopened under new owners.)

Given South Dakota’s emphasis on cash incentives, lawmakers could follow the example of other states, such as Florida, Minnesota, and Oklahoma.^eThose states evaluate tax and cash incentives alike, an approach that ensures that policymakers have information on the results of the full range of state economic development programs.