In this combination of images, carbon dioxide pipeline opponents attend a rally Jan. 13, 2025, at the Capitol in Pierre, and South Dakota congressional delegates and other speakers and attendees cut a ribbon to celebrate Madison’s connection to the Lewis and Clark Regional Water System on Aug. 21, 2024. (South Dakota Searchlight photos by Joshua Haiar and Makenzie Huber; photo illustration by Joshua Haiar/South Dakota Searchlight)
Something “perplexing” is happening in South Dakota Republican politics, according to Pat Costello.
He has decades of experience in business and government, having worked as an accountant, a restaurateur, a Sioux Falls city councilman and as commissioner of the Governor’s Office of Economic Development from 2011 to 2016.
Throughout his experience, the approach to business by Republican political leaders has been consistent.
“I can’t remember a governor who wasn’t pro-economic development,” he said.
Costello thinks that could change after next year’s election. Two of the three declared Republican candidates for governor are critical of how the state has involved itself in economic development for the past four decades under Republican control.
One of those candidates is state Speaker of the House Jon Hansen.
“You’re using tax dollars to bring in companies that compete with current South Dakota businesses,” Hansen said. “You’re using their tax dollars to fund their competition.”
He has pledged to put an end to what he describes as “corporate welfare.” That would be a reversal of Republican policy and philosophy that has guided economic development in South Dakota since the 1980s.
Mickelson creates the modern GOED
The late former Gov. George Mickelson combined several separate state offices in 1987 to create the Governor’s Office of Economic Development. Gov. Dennis Daugaard made the office a Cabinet-level agency in 2011.
Julie Johnson was the state secretary of labor when Mickelson created the office, and she helped write the legislation putting its initial programs into law. She said South Dakota’s incentives for businesses grew out of necessity in the 1980s. Back then, she said, the state had few tools to compete with other states for jobs and business investments.
The Mickelson administration used a temporary sales tax increase to create a revolving fund offering low-interest loans to businesses for startup or expansion — the Revolving Economic Development and Initiative (REDI) Fund. Mickelson also used a new, permanent fee on employer-paid unemployment insurance taxes to create a governor-controlled grant program supporting research and economic development, the Future Fund.
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Mickelson pitched his ideas to legislators during his 1987 State of the State speech. Referencing the Future Fund, he said South Dakota needed to make “long-term investments.”
“Too often, politicians are attracted to short-term programs so that by the next election they might be able to point back and look at benefits or look at results,” Mickelson said. “The courageous politicians are people who are willing to look at the long term and make a long-term investment in what we believe is right.”
He said the money would be used for purposes including libraries, scholarships, vocational education, tourism development and scientific research. Johnson said those kinds of projects were needed.
“Investments in science, research, and tech were seen as ways to build opportunities and keep young people here,” Johnson said. “Without tools like the Future Fund, we didn’t stand a chance.”
Both funds still exist. The REDI Fund awarded a total of $15.9 million in loans for eight projects in 2024, retaining or creating a projected 447 jobs. The Future Fund awarded four grants totaling $28.6 million last year.
The office has created other programs since the 1980s. Last year, the office and its various boards approved $988 million in aid for businesses. Although some of that is direct spending in the form of state-funded grants, much of it consists of loans, sales tax refunds, federal funds, and bonds that leverage the state’s tax-exempt status.
The office’s 2024 annual report says its efforts helped create 1,085 jobs and spark $916 million in total capital investment projects.
Those numbers haven’t spared the office from criticism. For example, a legislative committee endorsed a bill last winter to abolish the employer fee that supports the Future Fund. It failed 32-38 in the state House of Representatives. The representative who sponsored that bill, Liz May, a Republican from Kyle, told South Dakota Searchlight she plans to reintroduce it.
Republican lawmakers grill office’s new leader
During a recent meeting of the Legislature’s Government Operations and Audit Committee, the governor’s new commissioner of economic development, Bill Even, introduced himself to lawmakers. Even and his staff were peppered with critical questions from some Republicans on the committee.
“Are you making dollars available to just as many small business owners as you are to large, outside-of-South Dakota corporations?” asked Rep. Julie Auch, R-Yankton.
Even said roughly three-quarters of projects involve existing South Dakota businesses, mostly with fewer than 500 employees.
Assistant House Majority Leader Marty Overweg, R-New Holland, said some state assistance is used to prop up “bad deals.” He pointed to a shrimp-farming project that has yet to break ground after receiving a $6.5 million low-interest loan in 2018 from Madison’s regional economic development group. Of that amount, $5.5 million was a state Future Fund grant to the development group, and $1 million came from the development group itself.
Then-Gov. Daugaard awarded the Future Fund grant to the Lake Area Improvement Corporation in Madison, which loaned the money to Minnesota-based trū Shrimp, Even told the committee. The improvement corporation did not reply to an interview request.
The company planned to break ground by the end of 2019 and create more than 100 jobs, but construction never started. In May 2023, Michael Ziebell, president and CEO of the company, told South Dakota Public Broadcasting he hoped to break ground in 2024, offering over 60 jobs. The company did not respond to South Dakota Searchlight’s requests for an interview.
Even acknowledged the project’s long delays and told lawmakers the state is reviewing legal and financial options to recover the grant.
“My active engagement here is indicative of the fact that both myself and the governor are interested in understanding how you ensure that projects move forward,” Even said.
Overweg was not satisfied.
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“It’s not what government ‘can’ do, it’s what government ‘should’ do,” Overweg told South Dakota Searchlight after the meeting. “We are built on a free-market society. When government becomes the driver of economic development, it distorts the market.”
Overweg said he might support incentive programs if they came with stronger accountability. Right now, he said, companies “can get taxpayer money, pay low wages, and their workers still qualify for Medicaid. That’s a double cost to taxpayers.”
Johnson, who helped create some of the programs, thinks the criticism of economic development policy from some Republicans stems from frustrations over a controversial pipeline proposal. Summit Carbon Solutions, of Iowa, wants to capture carbon dioxide from dozens of ethanol plants and transport it via a five-state pipeline, including South Dakota, to a sequestration site in North Dakota. Supporters, including some Republicans, describe the project as economic development, but a coalition of opponents — including a wing of the Republican Party — oppose it because of concerns about the rights of landowners along the route.
Fourteen incumbent Republican legislators lost their primary elections in 2024, partly due to a split in the party over the pipeline. The Legislature and Republican Gov. Larry Rhoden went on to ban carbon pipelines from using a legal avenue called eminent domain to obtain land access from landowners.
“There’s been a philosophical shift, yes,” Johnson said. “But it feels like guilt by association — especially after the backlash against the carbon pipeline project. People learned the wrong lessons from that fight and are now vilifying economic development writ large.”
A 2026 Republican primary issue
Economic development policy is already an issue in the 2026 race for the Republican nomination for governor. So far, the party’s declared candidates are Hansen, Aberdeen businessman Toby Doeden and U.S. Rep. Dusty Johnson. Republican Gov. Larry Rhoden, who’s filling out the term of former Gov. Kristi Noem after she accepted a Trump Cabinet position, has not announced whether he’ll run but is expected to join the race.
Doeden told South Dakota Searchlight he hopes to change the focus of the Governor’s Office of Economic Development. He said the state should shift its focus away from job creation, pointing to South Dakota’s 1.9% unemployment rate. He said the office should focus on helping existing businesses thrive, rather than recruiting new ones.
“We should be helping them be more efficient, more profitable — so they can reinvest in their people and communities,” Doeden said.
Doeden would also establish a small business task force and have the Governor’s Office of Economic Development allocate more of its efforts toward in-state entrepreneurs.
“There are two distinct paths,” he said. “Congressman Johnson wants to subsidize billion-dollar companies from out of state. I want to help South Dakotans build better futures for themselves.”
South Dakota regulators deny carbon pipeline permit again, but company vows to reapply
Johnson rejected that claim, saying, “As governor, my top economic development focus will always be homegrown businesses.”
Johnson previously served in the Rounds and Daugaard administrations, and as an elected member of the state Public Utilities Commission. South Dakota Searchlight asked Johnson for his vision for economic development, and his office sent a statement.
“We will grow the economy with new small businesses, new energy production, expanded dairy, and bringing high-tech jobs home to South Dakota. We will keep tax rates low by growing the tax base,” the statement said. “This is growth with a purpose — not growth for its own sake, but growth that creates opportunity for the next generation.”
Without mentioning the carbon pipeline fight specifically, Johnson said during a recent public forum that he is “befuddled” by blanket opposition to economic development, including data centers and other large projects. He said South Dakota leaders need to be “visionary” and bring new industries to the state “or we are saying that our children will have diminished opportunities.” That, Johnson said, is “absolutely unacceptable.”
“It’s un-American and it’s not at all capitalist,” he said.
Hansen responded on social media, writing that South Dakotans like him aren’t “anti-development,” but against “Washington-style giveaways that shovel OUR money into projects that benefit coastal billionaires while our families and businesses foot the bill.”
Hansen said in a statement to Searchlight that his priority is “freedom and the free market. Making sure our kids get a good education. Stewarding the land our grandparents homesteaded. Putting food on the table for our families. NOT cutting sweetheart deals for big politically connected corporations.”
Although Rhoden signed the ban on eminent domain for carbon pipelines, the rest of his approach to economic development has largely been a continuation of past practices. That includes the appointment of Even, whose service in several prior state government positions included a previous stint as commissioner of economic development.
Rhoden hasn’t announced that he’s running, but he does have a campaign website that alludes to economic development and says “he’s committed to keeping the doors of opportunity wide open for everyone, from farmers and ranchers to small-town entrepreneurs and big-city business owners.”
Traditional approach works, defenders say
Nathan Sanderson, a Republican, executive director of the South Dakota Retailers Association and former director of policy and operations in the Daugaard administration, said one of the state’s greatest economic development successes is the dairy industry.
He said because of the state recruiting out-of-state operations and supporting local expansions through loans, bonds, grants and tax relief from 2011 to 2023, South Dakota’s dairy cow population more than doubled from 90,000 to 187,000 as North Dakota’s collapsed from 20,000 to 14,000, according to data from the National Agriculture Statistics Service.
“That is a direct result of government engagement,” Sanderson said. “If the state didn’t get involved, that growth wouldn’t have happened. This isn’t about picking winners and losers — it’s about building partnerships to improve quality of life.”
Costello said incentives are often the only meaningful tool South Dakota can offer to compete nationally.
“If every state dropped its business incentives, we could, too,” he said. “But they haven’t, and we can’t afford to sit on the sidelines.”
But he also said criticisms of former Gov. Kristi Noem’s use of the Future Fund in recent years were valid.
Examples included her use of the fund for a $2.5 million contract to promote and conduct the Cinch Playoffs Governor’s Cup rodeo in Sioux Falls. Noem played a starring role in the rodeo, carrying the American flag into the arena on horseback and posing for photos with the event winners.
Noem also used $13.5 million to help construct a Rapid City-area shooting range lawmakers declined to fund, and approved a contract for up to $9 million, mostly from the Future Fund, for the Freedom Works Here workforce recruitment campaign starring herself.
Costello said state economic development tools are intended to be used with everyday South Dakotans in mind.
“We’ve always said we work through the business community, but we work for the citizens,” he said. “It’s about encouraging better jobs, higher wages and a better quality of life.”
While acknowledging that not every deal succeeds, Costello said the overall record is positive. South Dakota’s median household income trailed the national average throughout the 1980s and ’90s but caught up and even surpassed it several times since 2008.
“Any economic development strategy will have wins and losses,” Costello said. “The real question is whether we’ve improved life for South Dakotans. The answer is yes.”
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