Des Moines Register, IA
04-29-08
Does the industry still need financial assistance?
And should the money go to out-of-state investors?
By PAULA LAVIGNE
REGISTER STAFF WRITER
Companies controlled by investors outside the state are the top recipients of
state economic development aid for biofuels projects, a Des Moines Sunday
Register analysis shows.
State agencies say the incentives bring even more money into Iowa from out-ofstate investors. Gov. Chet Culver’s proposed $100 million Iowa Power Fund is
designed to attract industry leaders regardless of their location.
More than 47 percent of the economic development incentives awarded by Iowa
have gone to companies that are primarily owned by non-Iowans. About 44
percent has gone to companies in which at least a majority is owned by Iowans.
The remaining money was distributed to Broin Companies, now known as Poet.
That company has refused to identify who owns the plants they built and operate.
Processing the crop, exporting the profit?
Some believe the state’s incentives should favor Iowans.
“We’re processing the crop, but we’re still exporting the profit,” said Gregg Heide
of the Iowa Farmers Union.
Smaller plants need the seed money to get off the ground, he said. Larger
companies will come regardless of whether Iowa sweetens the pot.
Iowa remains the most competitive state for luring biofuels projects, said Bob
Dinneen, president of the Renewable Fuels Association, a national industry
group based in Washington, D.C.
The state’s bounty of corn, rail lines, workforce and a state government that
welcomes the industry still make it a top choice for ethanol, he said.
As long as the state remains a leader in soybeans, a key ingredient in biodiesel,
Iowa will remain attractive for those plants as well, he said.
At least 23 states offer incentives relating to ethanol production. State incentives
can be one factor, but are not the determining factor, Dinneen said. Making it
easier for plants to get permits would be just as helpful, he said.
Brad Davis, general manager of an ethanol plant in Goldfield, said five years ago,
the state should have done whatever was necessary to attract any investment
into biofuels.
Davis’ plant, Corn, L.P., received $7.9 million in tax credits and $400,000 in direct
funds in 2004 from Iowa’s Department of Economic Development.
“Today, however, we are limited in the capacity, the amount of grain we have
available (for) ethanol,” Davis said. “We ought to do what we can to make sure
(plants) are locally owned with people from Iowa.”
The top four aid recipients — Hawkeye Renewables, VeraSun, Alpha Holdings
and Tate & Lyle — received a combined $92.4 million from IDED over the last
31/2 years.
Hawkeye Renewables is headquartered in Iowa Falls but controlled by the
Boston private equity firm Thomas H. Lee Partners. Tate & Lyle is a British
company, VeraSun is a publicly traded company located in Brookings, S.D., and
the majority shareholder of Alpha Holdings lives near Carson City, Nev.
Iowa’s financial incentives were one reason Tate & Lyle decided to build its plant
in Fort Dodge, said company spokesman Chris Olsen.
Tate & Lyle has corn processing facilities in Indiana, Illinois and Tennessee. Its
plant in Tennessee has made ethanol since 1982, and soon will expand to 100
million gallons. It did not seek incentives for the expansion, Olsen said.
Iowa’s Department of Economic Development granted $340 million in tax
incentives and direct funding to ethanol plants, as well as $56 million for biodiesel
plants, from July 2003 through February of this year. Some of those plants,
mainly biodiesel, exist only on paper because construction hasn’t started.
Of that $340 million, $222 million went to plants either operating or under
construction as of January.
About 43 percent of that has gone to plants primarily owned by Iowans.
State treats all investment equally
“To add value to Iowa’s commodities and create good-paying jobs, it is important
to sustain and grow Iowa’s position as the nation’s renewable energy leader,”
said Shawn Rolland, an IDED spokesman. “State incentives treat investment
equally from in-state or out-of-state.”
IDED offers assistance through several different programs with varying
requirements, including the promise of new high-wage jobs, investment in a
depressed area or innovative agricultural methods.
About 58 percent of all tax credits and financial awards from IDED have gone to
biofuels businesses over the last four years.
Raymond Defenbaugh, CEO of Big River Resources, favors local ownership, but
he doesn’t support financial incentives that give priority to plants owned primarily
by Iowans.
Big River Resources runs a plant owned primarily by Iowa investors in West
Burlington. It’s teaming up with U.S. BioEnergy, a publicly traded company out of
St. Paul, Minn., to build a plant in Grinnell. Big River Resources and U.S.
BioEnergy will each own 50 percent.
“If somebody is doing better than you, you don’t want to pull them back to your
level, you want to push them forward,” he said, saying that incentives should be
available to help anyone.
In 2006, the West Burlington plant received $2.5 million in tax credits for an
expansion project; the Grinnell plant received tax credits worth $11.3 million.
Assistance comes from many government sources, not just IDED, though the
department has been a large single source and a filter for federal dollars.
The Iowa Capital Investment Board has a tax credit program that tends to favors
Iowans. It provides a reduction in state income tax for people who invest in
renewable fuels plants approved by the board. In 2005 and 2006, Iowans
invested $16.5 million, which totals $3.3 million in tax credits. About $2.9 million
of that was for three existing plants, all of which were majority owned by Iowans.
States are unlikely to create incentive programs that favor local ownership
because they could violate federal interstate commerce laws, said Todd Sneller,
administrator of the Nebraska Ethanol Board.
David Swenson, a research scientist at Iowa State University who has
studied the state’s renewable fuels industry, said governments are subsidizing
businesses that would have located in the state regardless of the incentives. If
subsidizing Iowa investors is a goal, then the state should shift its focus, he said.
“But if, as everyone associated with biofuels seems to claim, the sky is the limit in
terms of profits and potential — and if Iowa is literally the biofuels capital — then
why would we want to subsidize the ostensible boom?” he asked.