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By Mark Steil
July 7, 2000
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A water company in southwest Minnesota is planning to expand its distribution system; at the same time critics say there are unanswered environmental and financial questions leftover from a previous expansion. The Lincoln Pipestone Rural Water System provides water to almost 3,000 farms and rural homeowners and some two-dozen small towns and cities. Critics say the company has over-pumped environmentally sensitive areas and they criticize the federal agency that funded much of the project for ignoring their own rules about who should get water. The publicly funded water service is now doing business with a large corn-processing plant in the region. Critics call it corporate welfare at its worst.
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WATER IS A PRECIOUS COMMODITY along Minnesota's western flank, where - too often - wells produce a mineral-laden, pipe-corroding mixture, which leaves an orange stain in showers and sinks. While most of Minnesota has easy access to high quality drinking water, along the western border, rural water systems bore wells and send treated water through hundreds of miles of pipe to their customers.
In the small town of Minneota, Mayor Joanne Myrvik calls herself a satisfied customer of the state's largest rural water company, Lincoln Pipestone. "There's always an ample supply of water and we have nothing but good to say about it," she says. "It took quite a bit to get it here but it was worth the wait."
Ten miles up the road from Minneota is Marshall - population about 12,000 - home to the Minnesota Corn Processors Plant, Lincoln Pipestone's biggest customer. While Minneota residents use Lincoln Pipestone water for everyday household chores, at the corn processing plant the water is a vital ingredient in the corporate money-making machine. The Marshall plant began as a farmer-owned corn cooperative, but after a financial downturn, the giant agribusiness company Archer Daniels Midland bought 30 percent of the company.
A good share of the plant's water comes from a Lincoln Pipestone facility near the South Dakota border known as the Burr well field, a project financed mostly by federal government rural-development money. The facility has been a sore spot for years because area residents say the extensive pumping threatens to lower wetland and lake levels in the region.
Shirly Holt lives a mile away from the water plant, on South Dakota's Lake Cochrane. She says not only is Burr an environmental threat, the water service is violating federal law by selling water to the city of Marshall for use by a large agri-business customer.
"It's illegal to supply a city the size of Marshall and the corn plant, in a project that's financed by rural development," Holt maintains. "But the laws seem to mean nothing, it's just, 'Forget it, it's done.'"
The regulations governing how federal water money is spent support Holt's position. Facilities built with government money must serve rural areas and rural is defined as communities under 10,000. Since Marshall exceeds that figure, the city - and any business located there - does not qualify for federal help. The regulations, however, do contain an exemption allowing cities like Marshall to tap into federal water projects, if they pay a fair share of the construction cost; something critics say hasn't happened with the Lincoln Pipestone project.
So the water continues to flow, a frustrating situation for Shirly Holt.
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Critics say since the corn plant uses about half Burr's water, it should pay for a good share of its $12 million cost. But that hasn't happened. Under the original contract between the city of Marshall and Lincoln Pipestone, the corn plant paid for the cost of a connecting pipe.
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The federal agency in charge has a different view. Jim Maras is program director for the Minnesota office of the USDA's Rural Utilities Service. He says it's perfectly legal for Lincoln Pipestone to sell water to Marshall. "Our program doesn't prohibit us from financing a system that could serve Marshall," says Maras.
That's true, but only if the customer pays the costs for its portion of the project. Critics say since the corn plant uses about half Burr's water, it should pay for a good share of its $12 million cost. But that hasn't happened. Under the original contract between the city of Marshall and Lincoln Pipestone, the corn plant paid for the cost of a connecting pipe.
Even Maras admits the corn plant hasn't come close to paying a share proportionate to the water it uses. "The contract that Lincoln Pipestone and Marshall signed provided for some capitol investment there, which - without looking at the exact amount - I don't know, but it was pretty minimal."
Maras says more dollars will be recouped in the future since Marshall has agreed to pay part of Lincoln Pipestone's proposed expansion, but he says it's unlikely that money will come close to paying for the portion of the Burr facility that serves the corn plant. Officials at Minnesota Corn Processors have not responded to interview requests.
On a rainy day in Lake Benton, home to Lincoln Pipestone Rural Water's main office, there's a delicate balance between rain and the underground aquifers, which Lincoln Pipestone draws from. Even with sufficient rainfall, over-pumping can permanently damage an aquifer. This is an especially important question for the Burr well field, since one of the aquifers the company taps also provides water to wetlands in the area.
The Minnesota Department of Natural Resources was so concerned that pumping would damage a rare wetland area, that earlier this year it reduced the amount of water Lincoln Pipestone can take from the shallowest aquifer. Company officials question the reduction; they say there is no definitive proof their pumping hurts nearby wetlands.
Critics say the entire project is too big for the intended service area, pointing out that Lincoln Pipestone has never operated its water treatment plant at anywhere near capacity. Data for 1999, show the plant ran at about 60-percent capacity, with half the water going to Marshall, half to true "rural" customers.
A federal investigation found that officials erred by okaying a water facility that was too big for the region's water demand. Still, the Minnesota program director Jim Maras stands by his agency's approval of the project's size. "They showed us what numbers they had, they seemed like reasonable numbers at the time, we allowed them to build in some growth. Now in hindsight it's very apparent there's a lot of capacity there."
Lincoln Pipestone officials plan to use some of that extra capacity by expanding its service area, sending water to previously unserved farms and small towns. While Maras says the original numbers made sense, that wasn't the case at the Minnesota Department of Natural Resources that issued permits for the Burr project's wells.
The DNR's John Stine says he never got a satisfactory answer to a simple question: Why was Lincoln Pipestone building so big? "The information we got back always seemed to lead us back to the same conclusion: that it was approximately double the capacity of the service area and the demand needs of the customers," Stine says.
Stine says after Lincoln Pipestone signed a water contract in 1997 with Minnesota Corn Processors, he came to believe that was the reason for building so large; that the federally-funded rural water service planned all along to sell to the corn processing plant in Marshall.
Lincoln Pipestone officials say while it was public knowledge they were interested in signing up the corn plant, those discussion had no impact on the size of the Burr facility. That's a critical issue because if Lincoln Pipestone's original building plans were based in part on anticipated sales to Marshall, federal program director Jim Maras says it would have reworked the project's entire financial equation.
Maras says his agency would have required Marshall to pay for a fair share of the project. "If they did say at that time that they were interested in connecting and would have been part of the project, obviously we couldn't finance that part."
But critics say there is ample evidence Lincoln Pipestone officials planned for the Marshall connection while designing the Burr project. Public files at USDA offices in Marshall and at Lincoln Pipestone show the two sides discussed a water sale from the start and those talks coincide with a dramatic increase in the size of the project.
A 1991 document from Lincoln Pipestone's attorney describes the purpose of a recent meeting with corn plant officials as "development of a water source for the processing plant".
Later that month, in a water permit application, Lincoln Pipestone indicates the corn plant will become a customer. While the two sides talked, Lincoln Pipestone was reassessing the size of its water-treatment plant. By April of 1992, Lincoln Pipestone decided to more than double its capacity. Critics say it strains credibility that Lincoln Pipestone would discuss a a major water contract with the corn plant and not factor those numbers into the facility's design. However Lincoln Pipestone operations director Don Evers says that's what happened.
"We were not figuring on Marshall," he contends. "The corn plant had asked about getting on the system, and a price was quoted to them and they backed out. They said it was too high priced."
So Marshall and the corn plant were dropped at that time. They never were figured in the plant capacity.
According to some, who are critical of the project, the timeline of events tells a different story. Records indicate the corn plant dropped out of the project five months after capacity was doubled. Even more damning is a statement by a Lincoln Pipestone engineer two years ago that a planned Marshall connection was built into the size of the system.
If it's true and if that information had been known in the early '90s, federal financing of the project might have been jeopardized. Minnesota DNR employees say they heard the statement, which the engineer now denies making. As it turns out, the corn plant's interest in Lincoln Pipestone water was quickly renewed, leading to five years of on-and-off negotiations. A contract was signed in 1997. Rural Utilities Service Program Director Jim Maras says there is nothing the government can do now to force the corn plant to pay its share of the project.
Critics like Shirly Holt say it's not surprising that the water continues to flow to Marshall, even though she maintains its clearly illegal. She says federal regulation was lax throughout the project. Holt says this became clear when initial environmental assessments were done. Federal officials said there were no wetlands adjacent to the project, even though numerous wetlands and lakes can clearly be seen from the Burr site.
Even the agency's own employees were critical of the process. One called the environmental work a "very superficial" assessment done by "loan officers." Gary DeCramer, USDA Rural Development state director since 1997, says mistakes were made in the Burr project but insists there was nothing illegal. He says an internal investigation by the agency backs that up.
"It was not a good situation when I got here, a lot of things had happened which were questionable," DeCramer says. "Were they illegal? We asked for the investigation, they was not any determination there was illegal. There were findings however that said there was really poor quality communication, and if we're going to do anything in the future, we've got to do it a lot better."
Shirly Holt says she's been called an irritant and run out of meetings for her unwavering criticism of Lincoln Pipestone's Burr water project. She says the effort has cost her family thousands of dollars and precious retirement time. Holt is bitter about spending years tracking down the very facts that federal regulators should have known about in the first place. But she says the fight is worth it if helps to protect the water resources which surround her home.
"This is beautiful unique area. People are just shocked when they see it. It's pelicans, eagles, osprey, the big south slough is huge and that's spring fed from the aquifer. Full of wetlands, fens lakes: Lake Cochrane, Lake Oliver, Lake Culver, the big south slough, all in this small area. And here they built right in the middle of this."
The Minnesota Corn Processors plant is a major factor in Lincoln Pipestone's next planned expansion in the area northeast of Marshall. The water company would like to sign the city of Marshall to a 10- or 20-year deal, to supply the plant. In a move that indicates just how important the corn processing plant continues to be in the business of water, Lincoln Pipestone officials say if Minnesota Corn Processors decides against buying more water from them, expansion plans may have to be scrapped.
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