By: Seth Tupper
PIERRE, S.D. (South Dakota Searchlight) — The divide in South Dakota’s Republican Party over the government’s role in economic development spilled into public view Thursday at the state Capitol as two of the party’s top leaders argued in front of reporters.
The back-and-forth happened during the Republican legislative leadership team’s weekly press conference. Senate Majority Leader Jim Mehlhaff, R-Pierre, was answering a question about proposals for a moratorium on construction or expansion of large data centers.
Backers of a moratorium worry that utilities may have to build new power generation sources to satisfy the electrical demand from data centers, and those costs could get passed on to other customers. There’s also concern about the amount of water needed to cool data centers.
Mehlhaff said a moratorium would be an “artificial barrier to development” that he would not support.
“You don’t want to fear-monger on stuff, and I think we’ve seen an awful lot of that about just about every economic development idea that’s come along in the last few years,” Mehlhaff said, “and I think that’s creating a very chilling atmosphere in South Dakota for developers.”
Argument ensues
House Speaker Jon Hansen, R-Dell Rapids, who’s seeking the party’s nomination for governor, spoke next.
“I would say in response to that, characterizing the citizens’ concerns as fear —” Hansen began, apparently intending to disagree with Mehlhaff’s characterization of a moratorium as fear-mongering.
Before Hansen could finish the thought, Mehlhaff cut him off.
“Mr. Speaker, I hope we don’t have to have a debate on every issue,” Mehlhaff said. “You’ve had your say on a lot of stuff, now I’ve made one, so I guess if these press conferences are going to be debates between the House and the Senate, that’s what they’ll be, but I don’t think that’s necessary.”
“No,” Hansen responded, “I’m simply stating that we’ve seen how these things have played out over the years” — a reference to other divisive economic development issues, including the proposed Summit Carbon Solutions carbon sequestration pipeline. Hansen referenced allegations by rural Aberdeen farmer Jared Bossly that pipeline land agents entered Bossly’s house without permission.
Those and other allegedly aggressive actions by Summit resulted in extensive litigation between landowners and the company, including attempts by the company to use a court process known as eminent domain to gain land access.
While Hansen was discussing that, Mehlhaff interrupted again.
“Mr. Speaker, was there ever an arrest for that home invasion?” Mehlhaff said. “I’ve heard that over and over again. I was wondering if there was ever an arrest for an alleged home invasion?”
“Yeah, no, thanks for allowing me to speak,” Hansen said. “I appreciate it. So, in that case, the people went into Jared’s house, into his shop, onto his property. In that case, you had hundreds of South Dakota landowners who were sued. And now in this case, we’re hearing concerns about rate increases of upwards to 200-plus percent for people’s electric bills as a result of these data centers.
“So we’re hearing real concerns from people,” Hansen continued, “and that’s the concerns that we’re bringing to this legislative process.”
The argument ended with several moments of silence, and the press conference proceeded to other topics.
Earlier in the week, Hansen cast one of the nine committee votes to reject a proposed sales tax exemption for data center equipment and software purchases. The bill, from Rep. Kent Roe, R-Hayti, is intended to incentivize the construction of data centers in the state.
South Dakota’s biggest data center consumes 30 megawatts of electricity, and the state has none of the vastly larger data centers that have proliferated elsewhere. Some of those bigger centers, often for cryptocurrency and artificial intelligence, need up to 1,000 megawatts of energy, which is equivalent to the demand from 800,000 residential customers.
Governor chimes in
Republican Gov. Larry Rhoden had his weekly legislative press conference separately on Thursday, and his comments further reflected the divide in the party.
When asked for his view on incentives for data centers, he said it’s “hard to deny that data centers represent a big opportunity for South Dakota” and “in a lot of ways, it’s pretty justifiable to provide some incentives.
“I think there’s a lot of misinterpretation, as far as some of these incentives, when they call them ‘corporate welfare,’” Rhoden said.
Hansen has pledged to end “corporate welfare,” which is his description of the tax breaks and state-funded grants and loans given to large corporations.
Hansen is one of three people challenging Rhoden for the Republican nomination for governor in the June primary election. The others are U.S. Rep. Dusty Johnson, who has said he favors incentives for data centers with guardrails to protect other electrical ratepayers and water users, and businessman Toby Doeden, who has said data centers “have to come here on our terms” and has pledged to grow the economy to an extent that the state won’t need to subsidize them.
A broader fight
Data centers are the latest front in an economic development fight among Republicans that has roots back to 2021, when Iowa-based Summit Carbon Solutions proposed its five-state pipeline to capture carbon dioxide from ethanol plants and transport it to North Dakota for underground storage. The multibillion-dollar project would capitalize on federal tax credits incentivizing the prevention of heat-trapping gases into the atmosphere.
Some Republicans have been supportive or neutral about the pipeline, while others have resisted it. Last year, pipeline opponents built enough support within the party to pass a law — signed by Rhoden — banning carbon pipeline projects from using eminent domain. The Summit project has been stalled ever since.
Republicans have also been split over the extent to which the Governor’s Office of Economic Development should disburse state aid to private businesses, and the use of tax increment financing districts — known as TIFs — to aid local development.
A TIF district captures the higher property taxes generated by new development to pay off the debt incurred at a project’s outset. Last month in Rapid City, a TIF district that had been approved by the city council was rejected nearly 3-to-1 by voters in a referendum election, with state Sen. Taffy Howard, R-Rapid City, helping to lead the effort to reject the plan.
Along with data center bills and legislation to restrain government aid for businesses, there are also bills to reform the use of TIF districts this legislative session, including from Howard. The session began in January and continues until next month.
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