South Dakota loans $224M to hundreds of projects

Thursday, October 23, 2014

Article by: Rapid City Journal   |   Chris Mueller
Information from: The Daily Republic, http://www.mitchellrepublic.com

MITCHELL, S.D. (AP) — Bruce Yakley stood inside the Trail King plant in Mitchell and watched the sparks fly off welding torches held by workers fusing together huge beams of metal.

Yakley, the company's president, wasn't with Trail King when the plant was built in 1987. And he wasn't there when the plant was expanded for the first time in 1992, and then again in 1994. But he knows without the help of a few low-interest loans from the state, the truck trailer manufacturer may not be where it is today.

"I guarantee it helped Trail King grow," Yakley said in a recent interview with The Daily Republic (http://bit.ly/1tua0TO ).

The loans, which helped Trail King build and expand its plant in Mitchell, came from a program known as the Revolving Economic Development and Initiative Fund. The program, which is run by the South Dakota Governor's Office of Economic Development, provides low-interest loans to start-up firms, businesses that are expanding or relocating and local economic development corporations.

Trail King now has locations in Mitchell and West Fargo, North Dakota, and employs a total of about 800 people, including about 550 in Mitchell, according to Yakley. It has long since paid off the loans it received from the state.

The REDI Fund program was created in 1987 under then-Gov. George Mickelson and was funded initially by a temporary, 1-cent sales tax that lasted 10 months and generated $40 million.

The loans can fund up to 45 percent of a project's total cost. It offers loans at a fixed rate, currently 2 percent, and may be paid off for up to 20 years on land and buildings and up to 10 years on equipment, with a balloon payment due after five years. The loans can only be used to purchase land, buildings, machinery and equipment.

Bryan Hisel, executive director of the Mitchell Area Chamber of Commerce and the Mitchell Area Development Corporation, recalled the economic turmoil of the time that led Mickelson to urge for the creation of the program.

"His philosophy was we can either manage misery -- we had high inflation and high interest rates -- or we can create opportunity," Hisel said.

From September 1987 to June 2014, the REDI Fund program provided more than $224 million in loans to hundreds of projects in the state, with 31,114 jobs projected to be created as a result, according to statistics kept by the Governor's Office of Economic Development. Those loans supported more than $1.1 billion in projects in South Dakota.

In The Daily Republic's 17-county print circulation area, the REDI Fund program loaned a total of more than $18.1 million to projects in 12 counties, with 2,390 jobs expected to be created.

There were four counties -- Brookings, Codington, Minnehaha and Pennington -- that have received more money for projects from the program than all 17 counties in The Daily Republic's print circulation area combined.

Once a loan is awarded, the Governor's Office of Economic Development tracks whether the number of jobs created lives up to the projections, at least while the loan is being paid back. While the projections are included in the state's annual reports on the REDI Fund, the number of actual jobs created is not.

The Daily Republic obtained actual employment numbers for active loans -- those that have not yet been paid back -- this week from the Governor's Office of Economic Development.

According to those numbers, there were 39 active loans in the state as of June 30. Those loans totaled more than $51.7 million and the businesses that received them, when taken as a whole, created nearly twice as many jobs as projected. A total of 6,049.75 full-time equivalent jobs have been created as a result of those active loans, though only 3,396 were expected.

But despite the overall success of those active loans, only two out of three met or exceeded their job projections when looked at on a case-by-case basis. In total, 26 of those 39 active loans led to the creation of at least as many jobs as was projected.

"We're pleased with the performance of the portfolio overall," said Aaron Scheibe, deputy commissioner of the Governor's Office of Economic Development, in an email reply to The Daily Republic. "The REDI Fund program supports deals that have big community effect, but that might not have ready access to financing from traditional sources."

In April, the South Dakota Board of Economic Development began to require businesses that get loans from the REDI Fund but don't reach the targeted number of new jobs to pay back the remainder of the loan at the prime interest rate plus 2 percent.

In many cases, Hisel said there are explanations for why businesses fail to create jobs, even with the support of the REDI Fund program.

"Business is a dynamic, changing system," Hisel said. "It's not static."

That's why job creation, and economic development in general, often requires patience, Hisel said.

"If they're not creating the jobs, we call them, we talk to them," he said.

In Mitchell, at least two companies that used loans from the REDI Fund program no longer have a presence in the city.

Dakota Pork was bought by American Foods Group, of Green Bay, Wis., in 1987 but closed its plant in Mitchell in 2006 and 295 people lost their jobs as result.

A few years before the plant closed, the company used two loans from the REDI Fund program to help pay for a $4.5 million expansion of the facility. The loans totaled $470,000 and were expected to help create at least 107 jobs.

The plant was empty for nearly two years before Performance Pet Products, which makes dog and cat food, moved into the vacant facility.

Verifications Inc., a human-resources services company, closed its facility in Mitchell in 2012 and 79 people lost their jobs. The Mitchell Area Development Corporation used a combination of funds, including a $700,000 loan from the REDI Fund program, to pay for construction of the building that housed Verifications Inc.

Avera later agreed to lease half of the former Verifications Inc. building for a new payment center the health care company opened in Mitchell.

In both cases, Dakota Pork and Verifications Inc., the jobs were lost but the loans were repaid.

"You'd rather have had the jobs, but as long as the funds are recovered you move on and create the next opportunity," Hisel said.

There are outright successes, too. Vantage Point Solutions, a telecommunications company, Twin City Fan, a fan manufacturer, and Boyd's Gunstock Industries, an aftermarket gunstock manufacturer, all have taken advantage of the REDI Fund program and each still has a presence in the area.

In total, the REDI Fund program has loaned nearly $6.2 million to support projects in Davison County, where Mitchell is the county seat. Those loans were projected to help create 953.5 full-time equivalent jobs.

Without those jobs and the businesses that provide them, Mitchell would be a poorer community, Hisel said.

"The economy has benefited by diversifying our base," he said.

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