So they still leave the local HS programs and instead of going to Sioux Falls and elsewhere they move to Fargo. On top of that, now that you have a Tier 1 program in Fargo it becomes a great local option for kids in the Fargo and Grand Forks areas who might not ever thought about moving away from home for Tier 1. They weren't going to do it but since you gave them easy access, why not pursue it? In the end ND HS hockey will suffer, possibly even more than it currently is and this won't solve your problems with talent level in ND HS Hockey.
Also, I don't think you should stick with the status quo either. I think Team North Dakota needs to really be pushed and elevated. In Wisconsin, a lot of players, if they don't make TW they don't even bother with the Capitols or the Admirals or going to Chicago for AAA. They figure if they are not good enough to make TW then why spend 10's of thousands of dollars chasing? They play WEHL (Wisconsin Elite League) instead.
Really, all this does is weaken the Power by stemming the flow of players leaving NoDak for Sioux Falls and force them to find their players elsewhere because they'll be cut off from NoDak and Manitoba players who have a closer option in Fargo. In fact, I should be all for this, being from South Dakota and having my youngest coming up through the system now. More spots available in Sioux Falls, a Team Midwest option building, Omaha still being an option (it's where my oldest played). This could be great for me, but not for ND HS Hockey.
If the problem is losing players to Juniors, either the USHL or NAHL, this Tier 1 program won't stop that. Kids with those options are already past having to play U16/U18.