The MacNeil/Lehrer Report; The War Between the States

ROBERT MacNEIL: Good evening. This program has featured many debates over the years, but none has been more eagerly awaited, at least in one part of the country, than the debate we'll be featuring tonight. We'll be hearing from the governors of two neighboring states, Minnesota and South Dakota, who for the past four months have been firing rhetorical salvos at each other. Urged on by local media reporting, the governors have been alternately touting their own states while hurling insults at their neighbor. Minnesota's Governor called South Dakota "50th in everything" while South Dakota's Governor has ridiculed everything from Minnesota sports teams to what he called its Byzantine tax structure. Despite the humor in these exchanges, the tensions between these two states are real, as are the tensions between many other states competing today for jobs and industry. Deep recession has forced governors to scramble to attract jobs while trying to hold on to those they have. So tonight we explore the unneighborly battle between two neighboring states. Jim Lehrer is off; Charlayne Hunter-Gault is in Washington. Charlayne?

CHARLAYNE HUNTER-GAULT: Robin, we'll get to that debate in a couple of minutes, but first some background on the two warring states and their battle over jobs. Of the two states, Minnesota is the more heavily populated, with some four million residents. The state's liberal political tradition is personified by Hubert Humphrey, who although born in South Dakota, rose to the national limelight as governor and then U.S. senator from Minnesota. The state's liberal political tradition has translated into a high level of social, educational and health services that are financed by one of the highest tax rates among the 50 states. In contrast to its neighbor, South Dakota is one of the nation's least populated states, with less than 700,000 residents. The state is best known for its mountainside tribute to four American presidents. Former presidential contender George McGovern is South Dakota's best known politician, which is surprising, given the state's extremely conservative political tradition.That tradition has meant much lower taxes for residents, but also fewer services. It's the low tax rates, along with a much less unionized work force, that has helped South Dakota lure numerous Minnesota businesses over the state line. The border city of Sioux Falls, South Dakota, has been the beneficiary of many of these business moves. To find out why Minnesota businesses were moving there, a reporter from a Minneapolis TV station, KMSP, went to Sioux Falls. Here is part of his report.

REPORTER [voice-over]: Part of Sioux Falls' success has been its ability to attract those small companies from other states. This year the city's development foundation is spending $26,000 on advertising in Minnesota and Illinois, hoping to woo businesses here. The message is simple: "Come to Sioux Falls, home of a productive work force where there is no corporate or personal income tax."

[on camera] In the past 10 years, 60 Minnesota companies have packed up their bags and moved to South Dakota. Fifteen to 20 of them have settled here in Sioux Falls, creating thousands of new jobs.

[voice-over] When this cabinet manufacturing plant opened three years ago, it provided another 80 jobs, jobs that could have been in Minnesota, but the company's investors, all Minnesota natives, decided to build the plant here.

EXECUTIVE, cabinet plant: First of all, there is no personal or corporate income tax. We enjoy a much lower workman's compensation rate. If we were in Minnesota we would pay at least three times as much. It's an excellent labor market, and it's a very, very good city to do business in. The city and the state are doing everything that they can to encourage business to come and locate here. And once you're here they make you feel at home.

REPORTER [voice-over]: The small tax biteimpresses a lot of businesses. If this firm made a million-dollar profit in Minnesota it'd pay $120,000 in taxes to the state; here it pays nothing at all. Workers come out ahead, too. The average salary of a Sioux Falls worker is about $26,000 compared to about $28,000 in the Twin Cities, but South Dakotans only pay sales and property taxes, so in a year the average tax payment to the state and local government is $364, while in Minnesota the average is $3,600. On top of it all, South Dakota has managed to build a surplus of several million dollars in its budget, in part because of budget cutting, but also because the state doesn't pay out the kind of welfare and unemployment benefits Minnesota does. But can a Sioux Falls offer the same kind of quality of life as a Minneapolis or St. Paul, especially in the areas of education, the arts and recreation? Well, nationally, Sioux Falls is ranked in the top 10 for cities of its size as a good place to live. And so its leaders are hoping to attract more out-of-state businesses for that reason as well as the economic ones.

MacNEIL: First we hear the case from South Dakota, whose Republican governor, William Janklow, is with us tonight in Chicago. Governor Janklow, besides low taxes, what does South Dakota offer businesses that Minnesota doesn't?

Gov. WILLIAM JANKLOW: Well, it isn't just Minnesota. I think the key thing that all too often we now get the opportunity to talk about, just like I'm doing on this show this evening, is we get to tell the great message that's been before a secret in America about my state. One, we have no personal income tax. We have no corporate income tax. We have no business inventory tax. We have no personal property tax. We haven't even invented the taxes yet that all these other states are willing to give people a break on in order to get them to come to live in their area. I happen to be the Governor of a state that's the safest state in the Union. We're last in the Union in motor-vehicle thefts. We're last in the Union in murders. We're second last in robbery and forcible rape and burglary, and these types of offenses. I'm also the Governor of a state that has the highest literacy rate in the nation -- 99.5% of all the people in South Dakota can read and write. South Dakotans in their productivity as employees are 74% more productive than the national average. So the great thing that Rudy has done for us by badmouthing my state several months ago --

MacNEIL: That's Governor Perpich, whom we're going to hear from in a moment.

Gov. JANKLOW: -- was he gave us the opportunity to tell all the people in America what a great place South Dakota is. It's a good place for workers; it's a good place for business; it's a place where workers and management and government get along together.

MacNEIL: Well, you've had a few things to say over the last few months about Minnesota. Just so we get those right, what Minnesota policies do you think hurt business?

Gov. JANKLOW: Well, what I've said about Minnesota over the last several months is that they have great people. They have a great heritage.They have a great culture. They have great educational background. I think that their people are among the best in America. The problem in Minnesota is their government. They have a Byzantine tax structure. They believe that the best way to get results on things is to impose governmental regulations, governmental control, governmental taxes. And what they've really done is given the opportunity to a lot of other places in America to develop from the businesses that are being driven from Minnesota. We in South Dakota don't want any businesses to leave Minnesota. I said that in a speech up in Minneapolis to several thousand people a couple months ago. I want every business to stay there.

MacNEIL: You are not trying to lure business to South Dakota from Minnesota?

Gov. JANKLOW: But when they can find that they can no longer adequately stay in Minnesota because they're driven from there by these types of governmental policies that they have in Minnesota, we welcome them with open arms, just like America has always welcomed immigrants. You know, in South Dakota we've had three great immigrant waves. We had the Scandinavians back before the turn of the century; we had the Germanic people coming right after the turn of the century; and we've had the Minnesota business community in the '70s and the '80s.

MacNEIL: In addition to the various benefits you mentioned a moment ago, or perhaps in spite of them, South Dakota, as I understand, has the lowest per capita income of any of the 50 states. How can such a poor state compete with a relatively rich state like Minnesota?

Gov. JANKLOW: Well, see, those figures are skewered. We do have the lowest per capita income, but you also probably don't know that South Dakota also has the lowest unemployment in the nation. Last year, in 1982, we averaged 5.5% unemployment. Now, one of the reasons for that is the national statistics on per capita income are taken from total income and wages paid to individuals subject to unemployment compensation. We in South Dakota have a people that would rather be underemployed than unemployed. And therefore we have a tremendous number of our people who are part-time employees, thus holding down our unemployment base, but at the same time -- because of the Carter agricultural policies, frankly, that brought the embargo on that caused a disaster in the farm belt that the likes of which this state has -- this country has never recovered from, being the most agriculturally dependent state in the Union, like my state -- we pay a heavier penalty than most do because of those kinds of policies.

MacNEIL: Well, thank you, Governor. Charlayne?

HUNTER-GAULT: Now we hear the case from Minnesota. It is made by the state's Democratic Governor, Rudy Perpich, also with us from Chicago. Governor, what is the main reason that Minnesota is so much better for business than South Dakota?

Gov. RUDY PERPICH: Well, Minnesota has a quality of life that's one of the best in the nation. Secondly, you talk about 70 businesses leaving Minnesota to go to South Dakota. What one must remember is that in Minnesota we have between 87,000 and 90,000 businesses. In fact, when I was Governor -- in fact, the 10 years of the '70s -- the decade of the '70s we produced more new businesses and commercial and manufacturing new jobs than all of our neighboring states combined. In fact, from 1975 to '81, Minnesota accounts for 43% of all the new jobs in the area, and South Dakota only 5%. And what we're doing in Minnesota is that we're going after the brain industries, the industries of the future. Many of the states are putting their eggs in this basket of, you know, undercutting other states, attempting to underbid by lowering their taxes -- all kinds of gimmicks -- and we're putting our eggs in the educational basket.

HUNTER-GAULT: Is South Dakota doing that?

Gov. PERPICH: We're putting -- well, as an example --

HUNTER-GAULT: The gimmicks that you just mentioned and undercutting?

Gov. PERPICH: Well, yes, sure. They're in our state, advertising, and I don't believe that that's the wave of the future. I was in international marketing for three years, 3 1/2 years. And if there's anything I learned, it is that we're not competing with Wisconsin and South Dakota or Iowa or North Dakota. We're competing in the world markets, and as a result we're losing out. We're losing out to Japan. We're losing out in the Middle East where they're taking our energy.

HUNTER-GAULT: Well, what about --

Gov. PERPICH: We should be cooperating as states. And the first thing I did when I was elected, I went to Ohio, asked Governor Celeste to join the Council of Great Lakes States. I've worked very, very closely with Governor Earl of Wisconsin so we could talk about trucking permits and education and natural resources. And in fact in April Governor Earl and I are getting together in Milwaukee, and we're calling in government, labor and industry from our states to see what we can do as a region to work as a region.

HUNTER-GAULT: Well, what do you say to Governor Janklow's point a moment ago that what your Byzantine tax structure and other policies of your state have actually driven business from Minnesota?

Gov. PERPICH: Well, it's not true. I mean, again, 70 -- 60, 70 companies -- I don't care how many you say. You can say 100. Out of 87,000 to 90,000. And our tax structure really has two facets to it. If a company is producing and manufacturing and processing in Minnesota and selling most of their products outside the state of Minnesota, selling international markets, we're competitive with any state in the Union. And furthermore, you know, you talk about income tax, you talk about sales tax, and you also have to talk about property taxes. And we've sent a lot of money back into the communities. And what happens is that if -- and we have federal deductibility for our income tax. As a result we're 16th in the nation and not number one. You can take number one in some categories of the personal income tax, but we have federal deductibility, and so in effect the federal government is helping us to finance the many good programs we have.

HUNTER-GAULT: Well, what about -- you heard the cabinet maker in the tape a few moments ago say that the reason he was in South Dakota was because it would cost him three times as much to live and do business in Minnesota. I mean, how do you counter that?

Gov. PERPICH: Well, most of the businesses that leave, if you really talk to them, the fact is that the labor is paid so much -- it's paid less in South Dakota than it is in Minnesota. And that's where the impact is much more than in taxes, because you have to take the taxes in its total. See, what South Dakota is doing is they're advertising -- and I remember when during the campaign they were on the radio station with their ads, and they weren't telling the truth as it really is. You know, talking about our tax structure, you have to -- you just can't take one little piece out of that structure; you have to talk about the entire taxing structure that we have in our state.

HUNTER-GAULT: So you're saying that South Dakota is misrepresenting the case of Minnesota in its campaign to woo business to your state?

Gov. PERPICH: Yeah. We've had more new jobs in the city of St. Paul in the last six years than they had in all of South Dakota.Take a look at our growth rate as far as the population. It's more than double of what South Dakota has been doing. In fact, in the last two years, we've increased I think it's almost 2%, 1 1/2%. South Dakota hasn't had a gain at all.

HUNTER-GAULT: Well, Governor, very briefly, because we have to move on, is a part of your strategy to combat what South Dakota is doing -- bad-mouthing, as the Governor has accused you? Bad-mouthing South Dakota?

Gov. PERPICH: Well, I haven't bad-mouthed South Dakota. They're in our state -- they were in our state saying that it's a bad place to do business, which isn't true. We're putting our eggs into the support of the K-through-12; we're increasing our funding; they're at 12 1/2%. We're putting $100 million into the high-tech industries in the University of Minnesota, both in buildings and programs. We're building a new institute of technology. We're going -- in fact -- and then we're also interested in the cultural part of it. We have a new school of music, a new building for the school of music -- $15 million. So in Minnesota we're interested in all facets of what makes government and what makes Minnesota a good place to live.

HUNTER-GAULT: Thank you, Governor. Robin?

MacNEIL: Governor Janklow, Governor Perpich says that South Dakota ads in his state are not telling the truth. They're misrepresenting the situation.

Gov. JANKLOW: You know, I've just -- I'm sitting here shocked. I've been trying to get this guy on a platform like we're on tonight since he started shooting off his mouth the week before the election. And let me tell you something, if you go back and look at the stories, what, Rudy, you really said was South Dakota is last in fire protection, last in police protection, last in health protection, last in education, last in everything. As a matter of fact, I bought ads -- I bought a full-page ad in the Minneapolis Tribune to tell the South Dakota story. In fire protection we're number two nationally, Rudy, in per capita fire protection. In the protection of our people -- police protection -- as I told you, we're number one in the nation. We're the best. In education our state's more literate than yours, and yours is good. Your's is outstanding. You have more students from your state coming to South Dakota to go to college than they do from South Dakota to go to Minnesota, and that's the reason you have publicly talked in Minnesota about abolishing this tuition equalization program we have because it's costing your state money.

MacNEIL: Let's --

Gov. JANKLOW: In addition to that --

MacNEIL: Governor Janklow, let's give Governor Perpich a chance to answer those charges that you're not 50th in everything. Governor Perpich?

Gov. PERPICH: Well, Robin, what happened is that they were in our state -- and again, it's a symbolic thing.

Gov. JANKLOW: Now he's backing down.

Gov. PERPICH: We're saying it's more -- that it's more important to think about the quality of life along with everything else. Now, as far as who has the best climate, I'm saying is that we've had more growth in jobs, in new jobs in Minnesota, than we've had in South Dakota. Much, much more. Our population is growing. You're back to one congressman. Again, I want South Dakota to do well.

Gov. JANKLOW: Well, you can have the whole Congress, Rudy.

Gov. JANKLOW: Let me finish.

Gov. JANKLOW: You can have them all.

Gov. JANKLOW: I believe that South Dakota, there are certain jobs that'll go to South Dakota. South Dakota is -- has a lower wage rate, and there are certain industries that'll be attracted to that. We are building for high-tech industries, the brain industries of the future.We don't believe it's going to be the muscle industries that will be the future industries. We want to attract industries to Minnesota in the high tech, and we're putting all our eggs in that basket.

MacNEIL: Governor Janklow --

Gov. PERPICH: South Dakota is putting their eggs --

Gov. JANKLOW: Yeah, I think that's great.

MacNEIL: Governor Janklow, Governor Janklow --

Gov. JANKLOW: I'm glad he's putting all --

MacNEIL: Governor Perpich says that despite the attractions of your state that there is much bigger growth in jobs and everything in Minnesota and a higher rate than there is in your state.

Gov. JANKLOW: The best thing I have going for me to sell South Dakota is Rudy Perpich. The more he keeps shooting off his mouth, the better my state is going to develop. He says that he has a good tax climate. Our corporate income tax is zero. His goes to 16%, businessmen of America.His personal income tax goes to 16%. Ours is zero. So this great quality --

Gov. PERPICH: Robin --

Gov. JANKLOW: Forty percent of all our out-of-state fishing licenses are sold to Minnesotans. They come to South Dakota to get the walleyes. They get fishing licenses to pay into his funds over in Minnesota.

MacNEIL: Governor -- Governor Perpich?

Gov. PERPICH: Robin, I am not going to get into this. This is his style. You know, he's in trouble with other governors in selling of the waters and a number of other things. I don't want to get into that part. I really don't. He's saying our corporate income tax is 16%. That's not true. It's 12% and we have a number of ways that it's reduced. And, again, if we're 16th in the United States when all taxes are included, and you have to also -- what income is left over after all the taxes are paid, we're far better off than they are in South Dakota. I'm not going to get into that. I came here to put that to rest and just let the people of the United States know that we are becoming very competitive, and that we are going to cooperate with out neighboring states. We're in competition with the world and not with South Dakota. We have to work together in the area of energy, instead of sending these dollars into the Middle East. We're having problems in the agriculture community. We should be cooperating together. We're cooperating with other states. Governor Janklow, I want to put this thing away to rest. You can advertise all you want in Minnesota; it doesn't bother me.I've decided that we have set a course that is going to attract high industry -- high-tech industries to Minnesota, and we're preparing for the future.

MacNEIL: Gentlemen --

Gov. JANKLOW: He's going to get the brain industries there --

MacNEIL: Gentlemen, excuse me. We'd like to --

Gov. JANKLOW: -- however, Minnesota Mining and Manufacturing has --

MacNEIL: Governor Janklow --

Gov. JANKLOW: -- three plants in my state. Control Data has three plants -- two plants in South Dakota. We're doing very well, Rudy --

MacNEIL: Governor Janklow --

Gov. JANKLOW: -- so you just keep it up.

MacNEIL: -- we'd like to --

Gov. JANKLOW: Why aren't you growing as fast as we are?

MacNEIL: We'd like to imterrupt here a moment and bring in another element, and then we'll be back. Charlayne?

HUNTER-GAULT: A more disinterested view now from a North Dakota native who has spent a lot of time observing the behavior of states. He is Jerry Hagstrom, co-author of The Book of America, a new collection of profiles of the 50 states. Mr. Hagstrom is also contributing editor of The National Journal. Mr. Hagstrom, is this debate going on like this all over the country, or is this unique?

JERRY HAGSTROM: Well, it's not as colorful as this in most other places, partly because very few of these competitive states share common borders, such as Minnesota and South Dakota. More often it will go on, say, between Michigan and Texas, where the governors don't have quite such similar contact. But it is going on all over the country between the high-tax, high-wage, high-service states, and the low-tax, low-service, low-wage states.

HUNTER-GAULT: Is it strictly economic or are there other factors?

Mr. HAGSTROM: Not totally. The politicians between the two states generally differ, and therefore they are trying to promote their ideology. Politicians such as Governor Janklow generally favor a higher level of power by people who own businesses and landowners, while Governor Perpich and the traditions in his state and those like them generally favor the worker somewhat more.

HUNTER-GAULT: Is this a Republican-Democrat schism too?

Mr. HAGSTROM: Yes, to some degree, but it's more liberal-conservative than exactly Republican-Democrat.

HUNTER-GAULT: Who gets hurt from these kinds of fights?

Mr. HAGSTROM: Well, the people -- there are really two sides to that. You really can't blame Governor Janklow for wanting to create jobs in his state because agriculture has mechanized over the years, and if people want to stay near their parents where they've grown up, they need -- they need jobs. But the people who are potentially hurt are the workers who have lived in the states where they've built up middle-class standards of hospital care and wages, and they won't have those things if they go to a state that has low workman's compensation laws and all kinds of other low-scale services.

HUNTER-GAULT: Is there any way to avoid this?

Mr. HAGSTROM: Well, the easiest way is if you have a growing economy because then no one cares whether one state is losing jobs to another. The other thing that could happen is that these governors could decide to face their internal problems -- the problems of agricultural prices. Governor Janklow could organize other governors on that basis. I think that Governor Perpich could look at the tax structure of Minnesota and see what kinds of problems there are there.

HUNTER-GAULT: Otherwise you're going to have what here?

Mr. HAGSTROM: Well, otherwise you're just going to have all kinds of warfare, and it's really a kind of counterproductive fight. They are getting their names on the map, but they could also be doing something for their citizens by focusing on more positive policies.

HUNTER-GAULT: All right. Robin?

MacNEIL: Governor Janklow, is that what this is, really, a battle over political ideology?

Gov. JANKLOW: Not at all. This battle was going on long before I became Governor. Our Governor was a liberal Democrat governor who was my predecessor. He got more jobs from Minnesota than I've gotten. Their tax structure -- you know, Rudy says it's only 12%. It happens to be the highest corporate tax rate in the nation.

MacNEIL: Governor Perpich --

Gov. JANKLOW: Twelve percent is the highest in the nation.

MacNEIL: Let's get Governor Perpich's view. Is this a battle over political ideology basically?

Gov. PERPICH: No. It's just -- you know, I just had -- being unfortunate to have Janklow as a neighbor. I've always gotten along well with neighboring governors. I am convinced, now more than ever, that there has to be that cooperation among the states. You know, I was in Chicago today -- 10 computer companies have -- are forming a corporation and looking for a home. And I was one of a number ofgovernors that was here. It's a microelectronics and computer technology corporation -- to find a home, and of course we're trying to convince them that Minneapolis-St. Paul is the area. These are the kind of things the Governor should be doing. And so we're preparing for the future. We have 87,000 businesses in Minnesota. If a few go to South Dakota, some come to Minnesota.We're looking for the long haul.

MacNEIL: Governor Janklow, we have about a minute left. I want to ask each of you: what's the effect of all this bickering between the two of you, do you think?

Gov. JANKLOW: Well, I think the best thing that's happened is Rudy Perpich has helped tell the South Dakota story. He says tonight he wants to get along.I've always gotten along with our neighbors. I'll tell you what the key thing is. Rudy Perpich was shooting off his mouth a week before the election trying to sound like a tough Tarzan up on the hill, and he got caught on it. He said we were 50th in everything when in fact we have the highest literacy rate in the nation, we have the best educated population in America. That's not low service. We lead the nation in what we do with the mentally retarded -- de-institutionalization of the mentally ill --

MacNEIL: Governor Perpich --

Gov. JANKLOW: -- and those types of things.

MacNEIL: Governor Perpich, what's your view of the effect of this bickering? We have half a minute.

Gov. PERPICH: Okay, Robin. I'm not bickering. I'm really not. I am working hard. We have a workman's comp bill in the legislature. We have a number of bills that relate to taxation. We're becoming very competitive. We're sixteenth in the nation. This is where it becomes damaging, when you have someone running around saying the things that Governor Janklow has --

MacNEIL: We have to leave it there, gentlemen.

Gov. PERPICH: Okay.

MacNEIL: I'm sorry to interrupt you. I thank both of you for joining us this evening, very much.

Gov. JANKLOW: Thank you, and Rudy, don't you change one of your taxes.

MacNEIL: Good night, and thank you, Mr. Hagstrom, in Washington. Good might, Charlayne.

HUNTER-GAULT: Good night, Robin.

MacNEIL: That's all for tonight. We will be back on Monday night. I'm Robert MacNeil. Good night.