Lawmakers blame governor’s team for complicating program
By: John Hult - South Dakota Searchlight
A $200 million pool of housing infrastructure funding will likely go unspent for another construction season, despite efforts by lawmakers to push the money out in 2023.
The interim director of the South Dakota Housing Development Authority broke that news to the Legislature’s Executive Board Thursday during its first meeting since the end of the 2023 session last month.
“I imagine our September board meeting will be the first time we’ll be able to review applications for funding,” Interim Director Chas Olson said.
The new delay is just the latest in a saga that began in 2021, when lawmakers spent the summer looking for ways to address a shortage of workforce housing; the most recent twist, prior to Thursday, was the resignation of the housing authority’s executive director last month.
The money is meant to help speed development in communities with more jobs than homes, but squabbles over spending authority and program structure have continued to delay its delivery to developers.
Olson’s comments on Thursday came amid a flurry of pointed questioning from Executive Board members, most of whom had signed off on a bill in January they’d hoped would finally get the money out the door.
“It looks to me like we’re going to miss most of this construction season in 2023 before any of this money goes out,” said Sen. Jim Bolin, R-Canton. “For people in small town economic development, that’s the question they’re concerned about.”
The authority is working as quickly as it can, Olson said.
Staffers finalized the language of administrative rules for the infrastructure program this week. The rules now need approval from the Governor’s Office of Economic Development (GOED), Olson said. Time will then be needed for a public comment period and approval from the authority board and the Legislature’s Rules Review Committee before another 20-day waiting period and an official filing with the Secretary of State’s Office.
The objective, Olson said, is to complete every step in the process by late summer.
“As of yesterday, the rules that have been created have been passed along (to GOED),” Olson said.
Two years of delay
The involvement of GOED sparked some of Thursday’s most pointed questions.
For two legislative sessions, lawmakers acted explicitly to cut that office out of the infrastructure funding picture.
The package of state and federal funding initially gained support from the South Dakota Legislature in 2022. The passage of the 2022 version of the infrastructure bill came after a back-and-forth with Gov. Noem, who’d aimed to place the money with GOED.
Lawmakers balked at that framework and rewrote the bill to give the money to the Housing Development Authority, citing concerns about oversight.
“The Legislature specifically considered, several times, whether to send this money to GOED or to the Housing Development Authority,” House Majority Leader Will Mortenson, R-Pierre said during Thursday’s hearing. “And the Legislature answered that question by saying that they wanted the Housing Development Authority to ride herd on this project.”
Noem signed that first bill in March of 2022, but said she saw potential legal issues. The authority chose not to disburse the funds last year, citing a mismatch between its authority and legislative intent.
Some lawmakers have publicly questioned whether those concerns were legitimate. In May of 2022, months before the board tabled any action on the infrastructure program, the Executive Board signed off on a rule meant to clarify the authority’s power to dispense the funding.
Nevertheless, lawmakers returned to Pierre in January and swiftly passed a bill meant to clarify that the authority, the board to which the 2022 Legislature had granted the responsibility to award the funds, was fully authorized to disburse the funds to help speed the construction of workforce housing projects across the state.
On Thursday, Mortenson and his fellow Executive Board members were told that a piece of boilerplate language in the 2023 version of the bill placed oversight back into the hands of GOED.
Administrative rules
The clause in question directs the authority to “promulgate rules, pursuant to chapter 1-26” of South Dakota law.
That law sets forth the process for administrative rules. One step involves the review of any board-generated rules by that board’s overseeing administrative authority.
The housing authority, while generally independent in operational matters, “is attached to the Governor’s Office of Economic Development for reporting purposes.”
The authority typically doesn’t promulgate rules, its attorney Dixie Hieb told the Executive Board, so it typically doesn’t need to report to GOED.
“We have never had to go through the administrative rules process,” Hieb said.
Lawmakers, Executive Board Chair Lee Schoenbeck said, wouldn’t have known that in January. Nearly every other agency and state board follows the same rules, and lawmakers include language on the promulgation of administrative rules in several bills every session.
“It’s a weird anomaly that the Housing Development Authority doesn’t do most of their stuff under the rules of administrative procedure,” Schoenbeck said following Thursday’s meeting.
Schoenbeck himself said he only learned that GOED served as administrative overseer for the authority after the former director resigned unexpectedly at the end of March.
Olson ascended to the position of interim director eight days before Thursday’s hearing. Until then, he’d been director of rental housing.
Lorraine Polak has not commented on her resignation. Schoenbeck has alleged Polak was fired; the Governor’s Office has not commented on that allegation. Authority board members publicly bemoaned the loss of a 25-year veteran who Board President Bill Hansen described as “exemplary,” particularly with such a large pool of funding to manage.
The Rules Review Committee met earlier this month, but had no rules for the infrastructure program to consider.
On Thursday, Olson said Polak’s departure didn’t slow down the rulemaking process.
Instead, according to Olson and Tim Engel, the attorney for GOED, it was a matter of addressing comments from GOED and adjusting language to conform to the style and form of administrative rules.
Engel said GOED got a copy of the housing authority’s proposed rules in mid-March and went over its comments with Hieb, the HDA attorney, on March 28 – just days before Polak’s resignation.
Now, Engel said, the rules are ready to move through the process.
“The latest version addressed the vast majority, if not all of our concerns,” Engel said.
Lawmakers question explanation
Steve Westra, who heads the Governor’s Office of Economic Development, deferred most Executive Board questions to Olson and Engel.
Mortenson was among the lawmakers to ask why Westra’s office was involved.
After the hearing, Schoenbeck told South Dakota Searchlight that he’s “puzzled” about the delay. Even accounting for the authority’s inexperience with formal rulemaking, he said, the involvement of GOED and the number of weeks it had to write the rules should have been sufficient.
“All of state government operates under the administrative procedures act,” he said. “It doesn’t slow anybody else down,”
Rep. Chris Karr, R-Sioux Falls, was not impressed with the housing authority or GOED on Thursday. Karr was among the elected officials who questioned the reasoning behind the 2022 delay. He believes the executive branch pushed the narrative that the money couldn’t be spent, and said he suspects that Polak, the former director of the authority, was asked to resign in March by someone on Gov. Noem’s team.
Polak’s resignation and the news from Thursday’s meeting, Karr said, suggest that the executive branch is still working to exert its authority over the funding in spite of legislative efforts to place it in the coffers of a more neutral state board.
“Here we are a year later, and the governor and the executive branch are still pulling the strings,” Karr said.
Lawmakers were clear about the importance of getting money out the door during this year’s construction season. Their bill had an emergency clause, which was meant to move the money faster than usual.
Olson told the Executive Board that some housing developers may choose to start work this year with the expectation that the funds will be available in early fall.
Karr doubts many developers will take that risk.
“If I were a developer, I wouldn’t,” Karr said.
Schoenbeck, by contrast, believes at least a few developers will take their chances. The housing authority has been a reliable partner for the private sector for years, he said.
Yet he also suspects the two-year saga of infrastructure funding may call that reputation into question.
As much faith as developers may have in the staff at the housing authority, he said, the messy process of writing guidelines for this particular program could make them wary.
“I would guess, in light of what’s happened for the last two years, you wouldn’t find a developer to say ‘Oh, hell yeah, I bet you this won’t have a glitch in it,’” he said.
