A report by the legislative auditor saysThe program has paid 20 ethanol plants a total of $314 million since the subsidy began in the late 1980s. The money is widely credited with helping get the state's ethanol industry started on firm financial footing.
John Yunker with the Legislative Auditor's Office said the subsidy may have outlived its original goal. He told a legislative hearing this morning at the Capitol that in recent years, the ethanol industry has made substantial profits.
"We are recommending that the Legislature consider ending the producer payment program," said Yunker. "If you look at the last five years the companies have made profits of $619 million while receiving $93 million in subsidies from the state."
Yunker said with the state battling a budget deficit, it may be time to reconsider the ethanol subsidy. He said the state faces a substantial bill if it's continued.
"The program will cost about $44 million over the next three fiscal years," he said.
Yunker said since a plant can only get the subsidy for 10 years, several have dropped out of the program, leaving 11 ethanol facilities right now that still get the state money. For some state lawmakers, that's still too much subsidy for too many plants.
"In this day and age it just doesn't make sense," said Rep. Michael Paymar, DFL-St. Paul.
Paymar said the last few years' profits prove that ethanol plants can get along just fine without state money.
The Legislative Auditor's report shows just how profitable the industry has been. In three years, 2005 to 2007, some ethanol companies made enough money to pay for their production plants.
Rep. Paymar introduced legislation this year to end the ethanol subsidy, but it failed in committee. He said he intends to bring it up again.
"I was told I didn't have one vote on the Ag committee, both Democrats and Republicans, so I guess we will have an amendment on the house floor to take the producer payments out of the Ag bill," said Paymar.
The state's ethanol producers are certain to oppose that effort. Rick Mummert is general manager of the POET ethanol plant in the southern Minnesota town of Glenville.
"It's a challenging time for the ethanol industry today, absolutely," said Mummert.
Mummert said high corn prices and low ethanol prices mean at best a plant like his will break even. He said the subsidy is needed now to help ethanol plants through the tough times. Mummert said the state should keep its commitment to the subsidy which lawmakers increased in the late 1990's.
"How do you renege on something ten years later?", said Mummert.
That question came up in St. Paul when John Yunker of the Legislative Auditor's office presented his findings. Yunker was asked if the state can retreat from its promise to pay the subsidy.
"I don't believe that there is a contract," said Yunker. "A legislature cannot bind a future legislature. I mean you I think are able, if you so choose, to end that program at anytime."
There have been efforts to end the subsidy program in the past, but none came close to success. Legislators opposing the payments believe that could change this year as lawmakers scramble to save every penny they can.