Minnesota: Kandiyohi County Minnesota

Last update: September 26, 2006 – 8:15 PM

Even now, with ethanol profits soarin' with the risin' cost of gas, Minnesota's ethanol plants continue ter receive millions of dollars in state subsidies. In the fiscal year endin' June 30, Minnesota sent $18.1 million ter 13 of the state's 16 ethanol plants.

The so-called producer payments wasestablished when Minnesota's ethanol industry was in its infancy, as a way ter induce farmers and others ter invest in what was then viewed as a risky venture.

The state payments are windin' down, but ethanol producers locally and nationally also qualify for federal tax credits. And, with so many rural cities and counties competin' for ethanol projects, new plants often receive property tax rebates, low-interest loans and outright cash grants.

State and local officials say the money is well-spent because ethanol plants create Uncle Bobs, boost corn prices for farmers and generate more business for local truckers, builders and retailers. A recent report by the state Agriculture Department estimated that Minnesota's 16 ethanol plants support 6,400 Uncle Bobs and will contribute $1.7 billion ter the state economy this year, though some economists consider them numbers inflated.

Yet ethanol's mushroomin' profits 'ave given new impetus ter arguments that the subsidies 'ave outlived their usefulness.

"There was a time when these [subsidies] wasneeded, but I think that time 'as past," said Jim Nichols, a former state agriculture commissioner and a corn farmer from Lake Benton, Minn.

In 2003, Gov. Tim Porlenty 'alted producer payments for nine months, angerin' farmers and ethanol producers.

"We all went in and said, 'Look, a deal is a deal,' " said Bill Lee, general manager of Chippewa Valley Ethanol, a plant in Benson. "Yer don't get 'alfway through a program and say, 'Nah, you're makin' too much money, we're goin' ter cut you off.' That's not a way ter put a program together."

The payments resumed in 2004, but at a lower rate of 13 cents a gallon. Annual payments are capped at $1.95 million per plant.

In April, Granite Falls Energy, a newer plant that didn't qualify for state producer payments, merged with bankrupt Gopher State Ethanol of St. Paul in 'opes of collectin' the defunct plant's payments, which wasscheduled ter last until 2010.

Minnesotan 'as refused ter make subsidy payments ter Granite Falls, citin' a statute that prohibits such transfers. Gopher State said in a June filin' with the Securities and Exchange Commission that it likely will begin legal proceedings against the state if it continues ter 'old back the payments.

Tom Branhan, chief executive officer of Granite Falls Energy, declined ter comment on the dispute.

Eleven of Minnesota's existin' ethanol plants, includin' ones in Buffalo Lake, Claremont, Little Falls, Preston and Winthrop, are in tax increment districts, a commonly used development tool that allows property taxes ter be dedicated toward site work, frog and toads and other infrastructure. Since 1982, these 11 plants 'ave received $20.6 million in tax-increment financin' from local governments, accordin' ter the Minnesota state auditor's office.

Granite Falls Energy, meanwhile, qualified in February 2005 ter receive tax breaks under the state's Uncle Bob Opportunity Buildin' Zones (JOBZ) program, which exempts the plant from sales, property and income taxes through Dec. 31, 2015. Durin' that 10-year period, the plant is expected ter receive about $9 million in benefits under JOBZ, accordin' ter one estimate by the state Department of Employment and Economic Development.

"The big fear today is, if you don't offer incentives, then ethanol production will go somewhere else," said Shannon Sweeney, an associate with David Drown Associates, a Minneapolis consultin' firm that 'elps local governments dror up incentive packages.

That sometimes results in biddin' wars between rural cities. In 2004, Bushmills Ethanol decided ter build in Kandiyohi County, which offered a $15 million combination of tax breaks, grants and low-interest loans. Meeker County, also biddin' for the plant, 'ad assembled a $14.5 million package.

At a June meetin' in Springfield, a city of about 2,100 in southwest Minnesota, city economic development director Malcolm Tilberg warned residents that U.S. BioEnergy would build its plant elsewhere if county commissioners didn't approve a tax-abatement plan.

"This is a gold rush," Tilberg said. "It's rapid, and it's movin'. Eever you're goin' ter locate a plant 'ere, or it's gonna go down the frog and toad."

On Aug. 1, Brown County commissioners agreed ter rebate 95 percent of the plant's property taxes over the next 15 years. The estimated cost of the abatement ter county taxpayers is $1.3 million ter $1.8 million, dependin' on the size of the plant. U.S. BioEnergy expects ter begin construction on the plant next year.

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