What’s wrong with cutting the ethanol producer payment?

It shows MN to be an unworthy partner for business–the wrong move when we need job growth

(from a 2003 article by Jack M. Geller, then president of the Center for Rural Policy and Development in St. Peter, Minnesota)

In addition to a favorable tax rate and a nurturing environment, I believe that what businesses should minimally expect from government is stability and predictability.  Even in a high-tax state, businesses can and do thrive if government taxes, regulations and business programs are stable.  This allows businesses to accurately predict what’s coming and build it into their operational models….In 1986, in an effort to launch an ethanol industry in Minnesota, the legislature agreed to assist these start-up energy companies with a 20-cent per gallon production payment, for 10 years.  Like any business, these production payments were figured into their financing plans as these entrepreneurs sought both equity investors and debt capital from local and regional banks.  Needless to say it worked; and as the Governor noted in announcing his decision to modify these payments, today most of these plants are profitable and are no longer as dependent on these subsidies.  But is that really the salient point? 

I’m glad that many of Minnesota’s ethanol plants are profitable; it’s great for our farmers, the rural economy and our environment.  But I am deeply concerned that in the short-term effort to reduce the state’s deficit, we just took a step backwards in our long-term efforts to be more business-friendly. After all, isn’t the message that we are really sending prospective businesses is that the State has become a less reliable business partner?  That in fact, as experienced by ethanol producers, maybe you really can’t take the word of the State to the bank? 

There’s little doubt that for better or worse, economic development today is often played out as a public- private partnership.  Don’t you think that the decision to site the new Best Buy corporate headquarters in Richfield had a little more to do with government incentives than its easy access to I-494? 

Our Take:
How important are promises made by the state? As Geller points out, where a state’s word is its bond, business finds partnership with the state to be a favorable situation. Geller notes that we can thank business-government partnership for items like the location of the corporate headquarters of the world’s largest electronics retailer here in Minnesota. And we can thank the visionary legislation that created the ethanol producer payment program with creating an industry that has brought thousands of jobs to Minnesota.

Not many days are left before the election, and predictably, some governor candidates have brought up the idea of cutting the producer payment program for small locally- and farmer-owned ethanol plants.

We don’t think the state needs a governor who will make promises and then pull the rug out. Since small business is the unparalleled generator of jobs, we need a governor who will stand by government’s investment in entrepreneurial business. We’d like to see a candidate actually recognize the contribution of ethanol production to the economy of Minnesota and promise, rather than cutting the incentive program, to keep it in place and, as Rep. Al Juhnke, (chair, MN House Ag committee) has suggested, once the current promises have been fulfilled, to move these payments over into a program to promote next generation farm-based fuels. A modest investment would potentially create thousands of jobs in a state that finds itself in dire need of them.

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