The U.S. Bureau of Economic Analysis (BEA) recently released the 2013 Regional Price Parities (RPP) and South Dakota has the 3rd lowest RPP in the nation (an improvement over 2012 data where we were 5th lowest). RPPs are a cost of living index that measures how much you can buy with your after tax dollars.
Shortly after the BEA’s release, the Tax Foundation utilized RPP to calculate the relative value of $100 and released the following map to illustrate:
The map uses RPP to demonstrate the purchasing power differential in separate states. South Dakota has the third lowest RPP and only in two states (Mississippi and Arkansas) does a $100 go further. The District of Columbia has the highest RPP and $100 there has the lowest purchasing power.
RPPs are computed by gathering millions of price points on goods and services in every city and state. The cost of rent, utilities, food, clothing, medical costs, apparel, transportation and other costs are all surveyed and compiled by region. These costs include property tax, sales, and excise taxes but they do not include income taxes and FICA/Social Security taxes. Finally the cost categories (rent, food, etc) are weighted based on people’s typical spending patterns; for example rent costs make up approximately 30% of the overall index, food 10%, and apparel less than 5%.
South Dakota’s low RPP means it costs less to live in South Dakota; it also means that businesses have lower operating costs in South Dakota than most every other state. The fact that South Dakota has a low regional price parity is a both a workforce and business recruiting tool.