March 25, 2016

The Honorable Matt Michels

President of the Senate

500 East Capitol Avenue

Pierre, SD 57501

Dear Mr. President and Members of the Senate,

I respectfully return to you Senate Bill 100, with my VETO.

Senate Bill 100 is an Act to enhance South Dakota economic development through broadband infrastructure improvements.

This bill makes fundamental changes to the Reinvestment Payment Program, part of the Building South Dakota legislation passed by the Legislature in 2013. Under the current program, businesses may apply to the Board of Economic Development for a sales and use tax refund on projects in excess of $20 million or $2 million in equipment costs. Refunds are not automatic; applications are reviewed to determine whether the incentive is necessary to secure the project for South Dakota. The Board of Economic Development's evaluation process lies at the heart of our state's economic development incentives and ensures that our state's taxpayers are not asked to pay for projects that would occur without a state incentive.

The changes in Senate Bill 100 would be a step back to the system of automatic tax refunds that the Reinvestment Payment Program was designed to replace. Specifically, the bill makes qualification automatic for a segment of broadband projects receiving federal grant funds. Clearly, companies receiving a federal grant have already committed to their project regardless of any state incentive. In addition, the bill creates internal inconsistencies in the law that will make it confusing for the Board of Economic Development to administer, and for prospective applicants to understand. The Board of Economic Development must have the authority to direct our state's incentives to projects that will not happen without an incentive.

The telecommunications industry has already invested heavily in South Dakota, based not only on market factors, but on changing technologies, federal regulatory requirements and incentives, and internal strategy. I do not believe Senate Bill 100 is necessary for these investments to continue.

For these reasons, I oppose this bill and ask that you sustain my veto.

Respectfully submitted,

Dennis Daugaard

Governor