Economic Development in South Dakota, Part 2

This is Part II of a two-part series that examines economic development in South Dakota. Part I covered the Future Fund, crony capitalism vs. free markets, out-of-state and foreign beneficiaries, and tax increment financing. This part covers data centers, reserve funds, the pro-development counter argument, and legislative reform efforts.

DATA CENTERS

Critics argue that data center development produces higher water and electricity rates, electromagnetic field concerns, and a small number of jobs — while lining the pockets of a few “special people” in South Dakota and investors in California and Texas.

This is a real infrastructure tradeoff that constitutional conservatives should take seriously. Existing ratepayers — residential families, farms, small businesses — absorb rate increases driven by data center load. The beneficiaries are primarily the data center operators and their investors, who are largely out-of-state. The “jobs” argument is weak: a large data center may employ dozens, not hundreds, and those positions often require specialized skills not readily available in rural South Dakota communities.

The infrastructure burden extends beyond utilities. Roads, water systems, emergency services, and local government administrative capacity all face increased demand from rapid large-scale development that the existing property tax base (partially exempted through TIF) may not adequately support. When the governor or economic development organizations point to new investment figures, they rarely account for the public cost of infrastructure capacity expansion that precedes or accompanies that investment.

RESERVE FUNDS

South Dakota’s reserve funds — approaching half a billion dollars — represent a genuine achievement of conservative fiscal management. But the existence of reserves creates its own governance challenge: large uncommitted balances attract political pressure to spend. Are the reserve funds good stewardship or just slush funds, primarily for the governor to disburse for political reasons?

The Future Fund itself is partly capitalized through what amounts to a tax on employment — an unemployment insurance adjacent levy on businesses with employees. Critics note that businesses must increase prices to cover this tax, meaning South Dakota consumers ultimately bear the cost of the grants disbursed to “special businesses.”

A constitutional conservative must ask whether reserve funds represent a tax collection problem: if the state is accumulating large surpluses while families face rising property taxes and cost-of-living pressure, the state may be overtaxing its citizens. The proper constitutional response to surplus is tax relief or debt reduction — not a larger pool of discretionary executive spending power.

The timing concern is also legitimate: after a major prison-siting decision that critics viewed as benefiting connected interests, the governor’s campaign coffers reportedly grew and he began “touring the state handing out Future Fund grants” — a sequence that, whatever its technical legality, raises serious questions about the use of public monies for political purposes.

THE PRO-DEVELOPMENT COUNTER-ARGUMENT

Intellectual honesty requires engaging with the strongest version of the opposing view. There is some inherent merit to development, after all. Economic development organizations like the Greater Sioux Falls Chamber of Commerce and the Sioux Falls Development Foundation argue that they create opportunities for companies already in the region and those wanting to establish a presence — acquiring land, building infrastructure, preparing industrial sites, and providing pro-business advocacy so that when companies are ready to invest, the community is ready to compete.

The Sioux Metro Growth Alliance has argued that people cannot simultaneously demand tax relief and block the very growth that makes it possible — that expanding the tax base through new development is ultimately how property tax pressure on existing residents gets relieved.

This argument has real force in theory. An expanding tax base does, over time, reduce per-capita burden. But it depends critically on whether the new development actually pays its fair share from the beginning — which TIF exemptions and GOED subsidies structurally prevent. You cannot expand a tax base while exempting large portions of it from taxation.

The better version of the pro-growth argument is one constitutional conservatives can largely accept: reduce regulatory burden, maintain low taxes across the board, ensure infrastructure is reliable and well-maintained, and let the market determine which businesses locate in South Dakota. This is organic growth — and at full employment, South Dakota arguably has the conditions for it without discretionary subsidy.

LEGISLATIVE REFORM EFFORTS

The 2026 legislative session saw genuine conflict over these issues, and the outcome was mixed. What does it all mean?

The first volley aimed at South Dakota’s long-standing approach to government-led economic development missed its mark in the opening days of the 101st Legislative Session, producing gridlock that spotlighted a deepening divide between lawmakers, the governor’s office, and the state’s business establishment.

Legislators who pushed for reform were predictably labeled “anti-business” — a charge that Senator Voita directly rejects. “Those of us in the Legislature who are demanding government operate within its limited structure of power are not anti-economic development,” she wrote. “When did it become the government’s role to meddle in what should be private-sector responsibility?”

The business establishment’s lobbying power in Pierre is substantial, and much of it is financed by interests that benefit directly from the current system. A constitutional conservative should be clear-eyed about this: calls to preserve existing economic development programs, when they come from chambers of commerce and development foundations, are not neutral pro-market advocacy. They are advocacy for the continuation of a system from which those organizations derive influence, funding, and relevance.

From packed town halls in the Black Hills to county commission chambers on the prairie and the marbled hallways of the Capitol, a once-settled consensus about how the state should grow is being tested — and a new wave of lawmakers challenges a decades-old model of government-backed economic development.

Will that voting block expand or contract in the 102^nd legislative session? Will the next governor support the status quo or improve oversight of public expenditures for growth? The 2 June primary will determine which way it goes.

CONCLUDING THOUGHTS

The core constitutional problem is the concentration of economic development authority in the executive branch without adequate legislative oversight. The appropriations process, separation of powers, and public accountability all argue for structural reform regardless of how any particular grant is awarded.

The free-market problem is that selective subsidies — whether through the Future Fund, GOED, or TIF — are incompatible with genuine market competition. They reward political access over productive efficiency, disadvantage existing local businesses, and distort the price signals that allocate capital in a functioning market economy.

The fiscal problem is that the full cost of development is rarely accounted for: infrastructure expansion, service delivery to new populations, wage depression effects, and the tax-equivalent value of long-term TIF exemptions are treated as invisible in the accounting presented to the public.

The sovereignty problem is that a significant share of the benefits flow to out-of-state and foreign-owned enterprises, while the costs are borne by South Dakota residents and businesses — an inversion of the state’s obligation to its own citizens.

The legitimate tradeoff is that some communities, particularly smaller and more rural ones, may genuinely lack the organic development capacity to attract quality employers without some initial public investment in infrastructure and site preparation. A constitutionally defensible version of economic development would limit public participation to genuine public goods — roads, water systems, industrial-site infrastructure — while leaving direct business subsidies to the private sector.

The path forward from a constitutional conservative standpoint is not hostility to growth but insistence on the conditions under which growth is constitutionally legitimate: legislative appropriations oversight, transparent criteria for any grants or abatements, prohibition on subsidies to businesses that compete with existing South Dakota enterprises, preference for organic growth through broad tax relief over selective incentives, and honest accounting of infrastructure costs imposed by new development on existing taxpayers.

South Dakota’s motto is “Under God, The People Rule.” The current economic development apparatus — executive-controlled, opaque in its criteria, and largely accountable to the business lobby rather than the electorate — poorly reflects that principle. Reform is not anti-growth. It is a precondition for growth that actually serves South Dakotans.

Candidate forums around the state are querying those running for the state legislature (and other statewide offices) this year about the above issues and more. More, please!

The end.

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This article originally appeared in Stu Cvrk’s Substack. Reprinted here with permission

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