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SOUTH DAROTA C PREFACE Quite possibly the most solvent state government in mid-America, South Dakota, has emerged relatively unscathed during the past recession. South Dakota, the home of the Sioux Indian nation, is more western than mid-western. With legends such as "Wild Bill Hickock" and the exploits of General George Armstrong Custer, South Dakota's origins harken back to the,days of the "Wild West." Many of the original settlers came from the westward treks of Minnesota, Wisconsin and Illinois settlers. South Dakota's population is relatively unchanged since the turn of the century. South Dakota has become extraordinarily Republican and interestingly atypical to its neighbors to the north and east. South Dakota never had much use for the Farm and Labor Party of Minnesota nor did it ever accept the socialism exhibited in North Dakota. Although strongly Republican, South Dakota has elected some of the most liberal officials in the country, not the least of whom was Senator George McGovern. South Dakota has a population of 680,000 people and a market share of less than three-tenths of one percent. Its Governor, George Mickelson, is Republican and both legislative houses are overwhelmingly Republican. For the past several years, outgoing Governor Janklow emphasized a program of attracting business to the state of South Dakota by means of public sector "incentives." Incentives such as no state income tax, property tax amnesties and statutory changes giving business enterprises added incentive to come to South Dakota are all hallmarks of his administration. Janklow could not run again for reelection in 1986 due to constitutional prohibition. South Dakota is a state of many inconsistencies. It has a legislature controlled by Republicans, a Republican governor and extremely conservative fiscal policies, but it is the same state that continually reelects liberal Tom Daschle, former Congressman, now newly elected U. S. Senator. STATE OVERVIEW Economic Conditions and Outlook South Dakota's economy is not typical of its neighbor states. South Dakota realized its dilemma several years ago: an image of a "do nothing" state that was "50th in everything."

South Dakota, page 2 With the emergence of Governor Bill Janklow, many of these problems were brought to the forefront. A relatively famous flap ensued between Janklow and the equally excitable Minnesota Governor Rudy Perpich when Janklow, a•ttempting to lure business to South Dakota, began a concerted effort to romance Minnesota businesses to his state. Governor Perpich, although initially amused, became irritated to the point of calling South Dakota "our nation's 50th state...50th in education, 50th in industry, 50th in farming, etc." Janklow, spotting an opening for publicity, went out to prove that South Dakota was not only a good place to live, but a good place for business to flourish. Janklow immediately embarked on a program of economic development using public sector "pump priming" as the catalyst for change. Tax considerations were dangled before multinational corporations, South Dakota's lack of a state income tax was highlighted and Janklow's effusive demeanor and behavior pleased big business executives who were flattered that a state governor would show up at their doorsteps asking for business. Janklow's gamble paid off and big business did come to South Dakota. CitiCorp, the major new industry, was successful in leading the way for dozens of other smaller industries to South Dakota. South Dakota's unemployment rate ranks among the lowest in the country with major city Sioux Falls boasting of "full employment." The outlook at this time continues to be rosy and the businesses just keep on coming. South Dakota's absence of a state income tax is enough to attract those executives in the $100,000 to $200,000 a year salary range._ Its "liberal" interpretations of state banking statutes make it a haven for interstate banking and venture capital groups. Its overall focus can be termed "information age" rather than "industrial age." Political Situation: Current and Outlook The race for Governor, although considered initially to be a Republican runaway, was relatively close. Republican candidate George Mickelson garnered 52 per cent of the vote to Democratic challenger House Minority Leader Lars Herseth. It is important to note that both Mickelson's and Herseth's fathers were South Dakota governors in years past. With regard to the House of Representatives, the Republicans enjoy a 48-21 vote margin. In the Senate, the Republicans enjoy a lop-sided 24-11 majority. It is interesting to note some of the changes in the 1987 South Dakota legislature: anti-tobacco activists Senators Gary Hanson and Randy Austad, son of the state's most vocal anti-tobacco spokesman, were both victorious. ( c (23

South Dakota, page 3 ( To make matters worse, several "friends of the tobacco industry" were defeated in their bids for reelection. Senator Don Peterson, Chairman of the Taxation Committee, Senator Tom Krueger, Representative George Dunn, and Representative Dean E. Wieczorek were all defeated. As the legislature is overwhelmingly Republican, the new Governor George Mickelson will enjoy an essentially veto-proof legislature. In the U. S. Senate and House races, Congressman Tom Daschle (D-SD) upset incumbent Senator James Abdnor (R-SD) by a margin of 52-48 per cent. The race for the U. S. House seat was won by Democrat Tim Johnson by a margin of 62-38 per cent. Significant State Problems The most glaring problem facing the state of South Dakota is the quality of its public education system. That system, considered by most to be one of the worst in the country, has come under fire from education leaders and legislators. The second most significant problem facing South Dakota is the constant wrangling over nuclear waste dumps in that state. This has been a major issue during the past two legislative sessions and will continue to be an issue during 1987. . RESOURCES: STRENGTHS AND WEAKNESSES Tobacco Segments There is no tobacco farming in the state, therefore, the tobacco industry is represented through the wholesaler and retailer segments. Wholesaler support during the past several years has been erratic. As in other states, when threatened with a lowering of the discount rate or a total abolition of the minimum mark-up law, the South Dakota wholesalers became parochial in their view of the tobacco industry. Their inability to work closely with tobacco industry operatives forced the industry to temporarily withdraw financial contributions to that state's association. There have been new and recent overtures for a rectification of this situation. Business The South Dakota business community is unique. The low population in that state means that chambers of commerce and business associations tend to be loose confederations emanating primarily from Sioux Falls, Pierre and Rapid City.

South Dakota, page 4 The industry's business contacts have been good and it is hoped that they will continue during the 1987 legislative session. Labor Labor is a minimal force in South Dakota politics. Institute Resources The Tobacco Institute will continue its legislative efforts in South Dakota by securing the best possible lobbyists to represent our interests. ANTI-TOBACCO FORCES Although defeated for the past four legislative sessions, a Clean Indoor Air Act will again be introduced during the 1987 legislative session. The anti-tobacco movement in South Dakota is considerably more subdued than in surrounding states. It is no secret that Governor Janklow was no friend of tobacco. It is unclear as to the disposition of newly-elected Governor Mickelson. TOBACCO INDUSTRY Success and Problems - History With the passage of an 8-cent cigarette tax increase during the 1985 session, the tobacco industry took some lumps. However, in consideration of the better-than-average economic situation in that state, a tax increase proposal would be less difficult to deal with in 1987. On the other hand, a problem does exist with the tobacco segments of our industry in South Dakota. Efforts will be undertaken to reopen lines of communication with the South Dakota wholesalers in our grassroots program for 1987. Major Issues - State and Local The following issues will confront the industry in South Dakota during 1987: Smoking Restrictions. Efforts to pass a restriction bill will be intensified during 1987. Tax Increase. Unlikely, although always a possibility.