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February 5, 2002

South Dakota ethanol assistance may increase

By JOE KAFKA, Associated Press Writer
PIERRE, S.D.

South Dakota's ethanol industry won a strategic, first-round legislative skirmish Friday with oil companies and road builders.

A bill that would ante up an extra $7 million a year for ethanol subsidies passed the Senate Taxation Committee 6-2.

Ethanol makers get a state subsidy of 20 cents a gallon, but full payments are not provided because not enough money is available from the existing revenue source.

SB133, which now goes to the full Senate, would earmark additional funds from a state fee tacked onto all gasoline, kerosene, diesel, aviation and other fuels brought into South Dakota. The pipeline fee, as it is sometimes called, is 2 cents a gallon.

Ethanol funding of $1.5 million to $1.8 million comes from a portion of the fee. The rest goes for water development and clean up of soils contaminated by petroleum products.

However, an existing law will reduce the fee to a penny a gallon on Jan. 1, 2003, because much of the petroleum cleanup effort is finished.

SB133 would instead continue the pipeline fee at 2 cents a gallon, adding $7 million a year for ethanol subsidies. Any subsidy money remaining at the end of the fiscal year would be shifted into a state account used for road building.

Four ethanol plants are operating, and four others are under construction in South Dakota, said Jeff Fox, lobbyist for the South Dakota Ethanol Producers Association. Additional revenue is needed for the subsidy, he said.

Legislators should let the pipeline fee fall to a penny gallon on Jan. 1, countered Steve Willard, lobbyist for the American Petroleum Institute. The ethanol industry has already received enough support from state government, he said.

Motorists pay the pipeline fee since it is passed along in the cost of fuel, Willard said. Keeping it at 2 cents a gallon is akin to raising their taxes, he argued.

"This is a tax that's going to be paid by individuals who buy gasoline in South Dakota," Willard said. "By my definition, it's a tax increase."

Opposition to the bill also came from a road-builders' lobbyist, Jim Keyes, executive vice president of Associated General Contractors. Ethanol has become an established industry and no longer needs a subsidy, he said.

"We think it can stand on its own, and it's time to wean ourselves in South Dakota from subsidies for the ethanol industry," Keyes said.

The ethanol industry should get more help because it is spurring major agricultural development in South Dakota, said Ron Olinger, lobbyist for the state Corn Growers Association. He said a byproduct of the ethanol process, distiller's grain, is an excellent livestock feed.

If more cattle are fed in South Dakota, it may be possible to attract a large beef-packing plant, Olinger said. The pipeline fee should remain at 2 cents to ensure that ethanol plants get off to a solid start, he said.

The ethanol subsidy was first provided in 1986, and legislators have been repeatedly told by the industry that it cannot stay afloat without the assistance, Willard said.

He reminded the committee that state government also provides a 2-cent break on the fuel tax for ethanol, which amounts to a $5 million annual subsidy. Fuel-tax revenues are supposed to be used for road-building purposes, Willard said.

If the $5 million went into the road fund, it could be used as a state match that would attract another $20 million in federal highway funds, he said. The extra money would be especially useful during the current budget crunch, which has forced the state to delay some road projects, Willard said.

"You can't afford to give up that federal leverage money," he said, urging defeat of SB133. "Gasoline should pay for roads."
 

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