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Wednesday, March 11, 2009

Knudson, State Affairs Cave to Big Energy, Continue $143M in Corporate Welfare

You know that state budget deficit South Dakota has been fretting about since Governor Rounds's first FY2010 budget address back in December? What if I could wave a magic wand that would put $143 million back in the budget? That would be enough to wipe out this year's and next year's combined budget shortfalls of $135 million and leave a down payment to cover 2011's projected $91 million deficit.

$143 million is the amount of potential sales- and excise-tax refunds the state may gave back to big industry projects that qualify for what Bob Mercer calls "special treatment." And that doesn't count the potential taxes we could receive when TransCanada starts plowing Keystone XL through West River.

Senator David Knudson (R-14/Sioux Falls) waved magic wand that could have brought a substantial portion of that $143 million back on budget last week, when he successfully hoghoused HB 1276 to exempt pipelines, railroads, power transmission lines, and any other "linear conveyance or transmission facility" from the refund program. Senator Bob Gray (R-24/Pierre) jumped in to add a provision that would make those refunds matters of public record. The bill passed Senate State Affairs, though good friend of TransCanada and other big energy corporations Senator Russell Olson (R-8/Madison) voted to keep handing money back to the wealthiest among us.

Alas, as Bob Mercer reports, the utilities lobbyists raised holy heck, and Knudson actually called the bill back to committee, where it was put to sleep. (See Bob Mercer, "State Has Paid $46 Million in Tax Refunds for Big Projects," Aberdeen American News, 2009.03.09.)

Now the argument for continuing these tax refunds, as stated by Rep. Val Rausch (R-4/Big Stone City, home of another really big energy project), is that these big energy companies are big investors in our state and thus promote economic development.

But consider Iberdrola Renewables, the company that got HB 1276 started. Iberdrola built the Buffalo Ridge I wind project in Brookings County. They fouled up their paperwork and missed out on the tax refund. They wanted the original version of HB 1276 to let them retroactively qualify for the refund. (Typical big corporate philosophy: if you can't follow the rules, change them!) Iberdrola sent Pierre energy lawyer Brett Koenecke (who also shills for TransCanada) to lobby for the bill... but then, even after State Affairs tucked its tail between its legs and restored the bill to the special treatment Iberdrola wanted, Iberdrola abruptly told Koenecke to tell Knudson et al. to let HB 1276 die. "We don't think going farther would be productive at this point," Koenecke told the committee. "We appreciate the consideration given to the bill."

In other words, that big tax refund wasn't essential for Iberdrola to complete Buffalo Ridge I or continue its operations. It sounds to me like that tax refund wasn't worth even this little bit of attention, not to mention the possibility that the exact numbers behind this corporate welfare would become public.

$143 million would go a long way toward balancing the state budget. Big corporations don't need that welfare to survive. Education, the arts, Birth to 3, and other valuable state programs do. Senator Knudson, toughen up, and tell the utilities they can pay their fair share for the privilege of doing business in South Dakota.

Update 12:15 CDT: My lovely wife and I just bought into a mutual fund this morning, Calvert Global Alternative Energy Fund (CGAEX). The second largest holding in that portfolio? Iberdrola. Hey! About that tax refund... ;-)


  1. Cory, I'm confused. I thought you liked welfare.

  2. Wiseguy.

    I can see some justification for government assistance for folks who need help. I have a harder time justifying government handouts for wealthy corporations that are doing perfectly fine without the handout.

  3. It makes sense to allow some form of tax relief for those firms who need to be lured to South Dakota to provide needed jobs for our neighbors. It doesn't make sense to toss out tax relief to utilities or large banking corporations who are here to take advantage of our lax banking and franchise tax laws. TransCanada pipeline, Northwestern Energy, Excel Energy, Citibank, Wells Fargo and others should be providing more tax revenue to the state. At one time, the state auditor said Citibank alone may have shorted the State by $30 Million a year in taxes, but that was swept away during Janklow's leadership. Let's use incentives to lure, not to create a source of future campaign contributors.

  4. Has anyone ever figured out what TransCanada would have to pay in South Dakota fuel taxes if they had to truck all that crude across South Dakota to its refineries?

    That might be an interesting figure and might open our legislator's eyes to the potential black gold mine that will soon pass under our feet. They're willing to pay if we're willing to ask.

  5. Alrighty then, you call this corporate welfare. I suppose a case could be made for that. However, what would you then call the 410 Billion dollar stimulus package, signed behind closed doors by President Obama? Heres how I see it. First, how do you know the forementioned are doing perfectly fine? Up until the past couple of years I thought Citi was doing perfectly fine. Why not give a tax break now, give the company a better chance for success at this point. Promote the infrastructure now, bring the work force to build it and then operate. Receive the wheel tax when they bring product to the state to operate the infrastructure and then when the finished product leaves the state. Gain all of the secondary income associated with the project and then new tax base. This is my question. But no! You say let them pay their fair share and if they don't make it, we will have the federal government step in with a huge stimulus package to build the infrastruture. But no! you say give somebody a house that they can't afford now and then we will let the federal government come in and bail them out. Whats the difference? I don't think spending money that you don't have is a good idea for anybody. I don't think it is a good idea for Democrats or Republicans. I tell you this. I'm a small business owner, successful I might add. I'm looking for any kind of business decision that is legal and makes since. If that means taking advantage of a tax relief proposal I'm for it. My company stands a better chance of surving by making good decisions. I ask you did Gehl get a sweet package (tax relief) deal? I don't know, but I do know there are now unemployed people wondering what went wrong. I'm guessing if Gehl would have received tax relief and people still had jobs, it would have been a brilliant decision. Go figure.

  6. [Funny you should mention that $410B. Madison just got $190K of that for the industrial park -- LAIC should be thrilled. And that wasn't stimulus; that was just regular budget appropriations, with our Congressional delegation fighting for a slice of the piue for South Dakota, just as we expect them to. But more on that tomorrow.]

    Iberdrola is saying they don't need the money. Big oil companies like TransCanada certainly don't. Not granting them tex refunds is just a matter of asking them to pay their fair share for the privilege of doing business here (not to mention cluttering up the state with pipelines, access roads, and potential pollution).

    Say, I could be mistaken about this, but didn't Gehl get money from the LAIC as incentive to hire up some of the folks who got laid off from other places?


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