As South Dakota Says ‘No,’ Business Answers With ‘Yes’ : Economy: Rural values--and no taxes, no traffic, no crime--pay off. Firms make the leap to the Plains.

When companies looking for a change of scene come calling, South Dakota has an appealing way of saying “no”:

No corporate income tax, no personal income tax, no personal property tax, no pollution, no traffic tie-ups, no crime.

All this naysaying makes South Dakota sound like a low-cost Promised Land to major U.S. corporations, led by Citibank, that have brought jobs and fresh vigor to this thinly populated pocket of the Great Plains.

With a focused, business-friendly strategy mapped out years ago, South Dakota has turned isolation to its advantage by exploiting the virtues of old-fashioned rural values. In the process, it has led the way for other prairie states and shed its reputation as an economic backwater.

As many states have watched jobs evaporate in the 1990s, South Dakota has added employment and population while negotiating a slow but crucial shift away from a near-total dependency on agriculture and natural resources.

“South Dakota is really one of the bright spots in the country,” said Philip M. Burgess, president of the Center for the New West, a Denver think tank. “There is tremendous economic diversification going on.”

South Dakota now boasts cutting-edge high-tech manufacturers and a bevy of home-grown and transplanted entrepreneurs. The jobs they offer are helping South Dakota keep its young people, who used to flee to Minneapolis, Omaha or Des Moines.

South Dakota even has a dash of Hollywood glitterati. Actor/director Kevin Costner and his brother, Dan, hope to build a $65-million-plus resort in Deadwood, the Black Hills gambling town near where Costner filmed the thundering buffalo herds of his Oscar-winning 1990 film “Dances With Wolves.”

The absence of corporate and personal incomes taxes has proved a magnet for companies looking to expand.

“It’s an attempt to attract business through the use of incentives and make a more attractive business climate--a variation on Reaganomics,” said Alvin Rabushka, a senior fellow at the Hoover Institution of Stanford University, a conservative think tank.

South Dakota’s success can even provide some lessons for an industrial behemoth like California, economists say. The state has something that goes way beyond a favorable business climate and has eluded California: A cohesive network of state and local leadership that heeded economic warning signs and pulled together in an unprecedented way.

“I think we’ve been very successful, for a state of only 700,000 people, given where we were 15 years ago--basically last in everything in an economic sense,” said William Janklow, a crusty Sioux Falls lawyer who as governor in the early 1980s helped pave the way for revitalization.

South Dakota’s effort to remake itself was dealt a tragic blow on April 19, when a small-plane crash killed the state’s charismatic governor, George S. Mickelson; its economic development commissioner, Roland Dolly, and four other top officials. They were returning from a trip aimed at helping a troubled Sioux Falls meat-packing plant.

Yet, in true Dakotan stiff-upper-lip fashion, the state is carrying on.

“Our mission and our goals are not going to change,” Gov. Walter Dale Miller, a lanky, conservative rancher who succeeded Mickelson, said over a breakfast of eggs and hash browns at a Best Western motel in Pierre, the capital. “A lot fewer people are doing farming. We’ve got to find jobs for those people.”

Although the state still ranks a weak 38th in per-capita income, it has excelled in attracting or creating jobs in manufacturing and higher-paying services such as health care and finance. From 1988 to 1990, 40% of the state’s 5,200 new jobs were in manufacturing.

Stiff competition for workers has forced wages higher in recent years, but--at $16,558 in 1992 vs. $19,841 nationwide--they continue low enough to bolster the state’s appeal for employers. And the money buys far more than in Los Angeles, Chicago or Minneapolis. Unemployment, lately at 3% to 4%, is well under the nation’s, and less than half that of California.

Many prestigious companies--and some that lead their industries but aren’t household names--have discovered South Dakota. Some examples:

* Mileage Plus, which manages United Airlines’ frequent flier program, relocated a processing center to Rapid City from Carson, Calif., in 1989. It will soon add 25 workers, for a total of 340.

* Spiegel, the suburban Chicago catalogue company, opened a customer service center in Rapid City two years ago, now at 355 employees.

* Gateway 2000, a leading direct seller of personal computers, migrated to North Sioux City from across the border in Iowa. Started by two brothers in their farm home, it has grown to nearly 2,300 employees. Reflecting its bucolic roots, Gateway ships its products in boxes with black-and-white Holstein markings.

South Dakota’s success is not another tale of fed-up Californians fueling a resurgence in a landlocked state where the living is easier, bone-chilling winters aside. Higher tax-neighbors such as Minnesota and Iowa provide good pickings for South Dakota, which benefits when companies scamper over the border to expand.

But California does contribute.

Nine years ago, Mark Heiberger was spirited away from South Dakota by the glamour of Northern California’s Silicon Valley. After what he termed “seven long, painful years,” he and his wife, Clare, both in their 30s, left fast-track jobs as engineer-managers and bought a 640-acre ranch outside Rapid City.

A graduate of the South Dakota School of Mines and Technology, Heiberger took a job at Cynetics Corp., a young Rapid City company that develops satellite communications systems.

“People back here live a little simpler,” said Heiberger, a long-legged Westerner in jeans, boots, T-shirt and big silver belt buckle. “If you drink beer, you don’t have to drink Beck’s. A Miller Genuine Draft is considered socially acceptable.”

Cynetics’ founder, Don K. Lefevre, credits Rapid City’s economic development team with helping him find potential customers, and he praises South Dakota for nurturing homebred businesses with grants and funding. Cynetics got $28,000 from South Dakota’s Future Fund, which finances research.

The state’s REDI (Revolving Economic Development and Initiative) Fund, established by the late Gov. Mickelson in 1987, provides low-interest loans to needy start-ups and firms that want to expand or relocate from other states. It has aided 135 companies and helped boost South Dakota’s manufacturing jobs by one-third, to more than 37,000.

In this heavily Republican state, where 92% of the population is white, residents have long distrusted big government, even as they have depended on U.S. crop subsidies for survival.

South Dakotans have for generations yanked on their own bootstraps to survive droughts, tornadoes, floods and sour economic times. They scoff at cholesterol warnings and pack away a steady diet of steak and potatoes. A tony Deadwood restaurant serves potatoes with its pasta.

Fiercely independent, South Dakota has yet to pass a seat belt or motorcycle-helmet law. The constitution requires a balanced budget with a 5% surplus. More than half the state’s revenues come from sales and use taxes, with other big portions from video lottery and a bank franchise tax.

The state gets by with lower taxes because it has been spared expensive urban problems. American Indians--7% of the population--have gained little from the economic revival and still suffer astronomical unemployment.

Slashed roughly in two from north to south by the Missouri River--explored by Lewis and Clark in the early 1800s--South Dakota has distinct geographies.

East River, as the eastern half is known, consists of gently rolling farmland and Sioux Falls. West River, where the elevation climbs to 3,000 feet in the semiarid High Plains, comprises grassland and ranchland, the dramatic Black Hills, Mt. Rushmore and a bunch of colorful mining towns. More or less dead-center sits Pierre (pronounced Peer).

War broke out here in the 1870s when the Sioux refused to sell mineral rights to the gold-laden Black Hills. In 1876, the Indians defeated Gen. George A. Custer at the Battle of the Little Bighorn in what is now Montana, but soon after they gave up the hills.

Deadwood, one of the most famous mining towns, is where Wild Bill Hickok was shot to death in Saloon No. 10 while holding two pairs--aces and eights, or “dead man’s hand.”

The town still has its wild and woolly aspects. Small-stakes gambling arrived in 1989 and has stirred controversy--and raised bundles for the state and Deadwood.

It also brought Kevin Costner and his brother, Dan, who opened the Midnight Star gaming parlor (named for the saloon in the movie “Silverado”) and Jake’s restaurant (named for Costner’s character in that Western).

The Costner brothers have been lobbying to build a destination resort, tentatively called the Dunbar (after Costner’s Army lieutenant in “Dances With Wolves”). To accommodate them and help South Dakota compete with other gambling states, the Legislature voted to raise stakes to $100 from $5 and increase the number of gaming machines for each establishment.

The Costners’ chief opponent is an East River grandmother who contends that gambling has damaged the quality of life. But Dan Costner says the resort would provide much needed jobs, property taxes for schools and a boost for a region that “was blowing away in the wind.”

For years, South Dakota’s farms and ranches have been supporting fewer and fewer people, and a steady urban migration has created a sore need for jobs--and woes for the towns left behind.

The transition from prime cuts to prime rates and stockyards to stockbrokers is well along in the one-time cow town of Sioux Falls in the state’s southeastern corner--where a radio station’s bull-naming contest elicits “Clinton” as the first suggestion.

The town--South Dakota’s largest, with 123,000 people--is still aglow from having been chosen last fall by Money magazine as the nation’s most livable place. Money’s editors were impressed by Sioux Falls’ robust economy and down-home feel. The biggest problem is a chronic shortage of housing for the influx of workers.

Much of the vitality derives from Citibank, which in the early 1980s brought a Visa and MasterCard center from New York after Bill Janklow, then governor, persuaded legislators to encourage out-of-state banks to set up shop.

Another draw was South Dakota’s lack of a ceiling on credit card interest rates. Citibank was losing $100,000 a day because of New York’s 12% usury limit.

At the time, indebted South Dakota farmers were in crisis, pummeled by torrid inflation and double-digit interest rates. Now, farm wives and offspring supplement family incomes with jobs at Citibank’s sprawling complex on the north side of town. There, 2,800 employees in ergonomic computer modules solicit new card members by phone, field complaints, mail bills, collect payments and prod the tardy.

By day, Deb Schaefer, 29, supervises multimillion-dollar corporate credit-card accounts at Citibank, where she has worked for 12 years. By night, she feeds cows and bales hay at her family’s 650-acre farm 32 miles away in Chester.

The bacon she brings home--a salary in the mid-$20,000s--takes the pressure off her farmer husband, Alan. “I pay the bills with my salary,” she said. “Without my job, we would have to do things a lot differently.”

Some Dakotans fear that the state’s small-town character could be doomed. Yet the suggestion by two Rutgers University academics--first floated in 1987--that the lonesome Plains might best be turned back to prairie grass and buffalo herds sounds ridiculous here.

“We’re in the job-creation business,” noted David M. O’Hara, acting commissioner of the state Office of Economic Development. “Our economy over the last five years has been great. There’s no reason to change it.”