Give South Dakota Credit for Its Savvy

SIOUX FALLS, S.D. —  The news had many in the business world scratching their heads. Financial giant Citicorp was opening an operation in this northern plains state where many folks think of common stock as ordinary cattle.

That was in the winter of 1981. Now Citibank South Dakota has 3,750 workers at its credit-card operations in Sioux Falls, making it one of the state’s largest employers.

Of equal importance, observers say, Citibank’s arrival spawned similar credit card operations in the city and put Sioux Falls, home to the world’s busiest stockyards, on the financial services map.

“It was a big shock at that time--for the Eastern banks in particular,” said Ron Williamson, president of Citibank South Dakota from 1990 to 1996. “They hadn’t located anywhere west of the Allegheny Mountains. So for a New York bank such as Citibank to look to South Dakota was completely unheard of.”

Why South Dakota? A big part of the reason was the state Legislature’s decision to lift a cap on credit-card interest rates, said Williamson, then chief of staff for Gov. Bill Janklow and a participant in early talks with the company.

Congress allowed banks to charge credit-card customers the rates permitted by the state where the bank was chartered. By not having any interest-rate limit, South Dakota emerged as a more lucrative place for banks to handle credit cards than states that still had limits.

“It put South Dakota very visibly on the horizon as being a state were you could do business,” said Williamson. “And from that, a number of other financial service companies have looked at South Dakota and found it to be the same.”

Ken Stork, president and chief executive officer at Citibank South Dakota since November 1999, agrees South Dakota welcomed the company with open arms.

“The Legislature supported us and continues to support us, and the people of South Dakota have just been terrific,” he said. “We are committed to be here.”

As proof of that commitment, the company recently signed 20-year leases on its buildings in the city, he said.

Citibank has paid hundreds of millions of dollars in bank franchise taxes, and has paid good wages to its employees and contributed to local charities, Janklow said. In addition, it has spread the word that South Dakota workers are productive.

“The payoff to South Dakota has been phenomenal,” Janklow said. “It’s been a big deal for South Dakota.”

Roughly 9,000 people work at the two dozen or so financial services firms in this city of 125,000, said Dan Scott, president of the Sioux Falls Development Foundation.

“Obviously it was Citibank that led the way and got the attention of all the other credit card people,” Scott said.

The result has been what analysts call a “clustering effect,” said David Owen, president of the South Dakota Chamber of Commerce and Industry.

“Similar industries kind of all end up together,” he said. “They have employees they can exchange, a development of expertise, a certain business environment.”

Bankfirst Corp. opened a credit card operation in the late 1980s in Sioux Falls and now employs about 900 people in the state, according to David Leedom, Bankfirst executive vice president.

In the 1970s, Bankfirst was a tiny state-chartered institution with $4 million in assets and a single office in Toronto, S.D., population 200. It now has more than a million credit-card holders across the country, and Leedom credits Citibank’s presence for helping it grow.

“Citibank coming here has both attracted credit-card management people from other places as well as providing a training grounds for people who were employed in Citibank when they got here,” said Leedom, who worked at Citibank South Dakota for 11 years before joining Bankfirst. “Now Sioux Falls has a number of very qualified management people.”

A similar financial services cluster has built up in Delaware, particularly in Wilmington--like Sioux Falls, the largest city in a state with permissive interest-rate rules.

“Delaware itself has, I would say, very attractive business laws and regulations that are similar to South Dakota,” Williamson said. “I would say that state is probably our biggest competitor when it comes to free enterprise and attracting businesses.”