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Lawmakers resist Pawlenty's proposal to cut ethanol subsidies

St. Paul, Minn. — (AP) - In a sign of trying times to come, key lawmakers on Thursday resisted the first major attempt to solve the state's budget problems, denouncing Gov. Tim Pawlenty's proposal to eliminate $26.8 million in ethanol subsidies this year.

More than 200 farmers swarmed the Capitol with less than 24 hours notice to voice their opposition to the proposal, which many say blindsided them on Tuesday. The cut would be the largest to any state subsidy program. By Thursday afternoon, a Senate agriculture budget panel had restored all but $2.2 million of the funding. A sympathetic House Agriculture Finance Committee filled with rural legislators harshly criticized the proposal but took no action.

Lawmakers said the ethanol producers were being asked to take on more than their fair share of the state's $356 million budget deficit through mid-2003. Farmers touted figures saying the ethanol program makes up one-fifth of 1 percent of the state budget but is being asked to account for 7.5 percent of the short-term deficit.

"We're willing to be part of the deal, but it feels like the state is picking on us," said John Steele, a farmer with the Al-Corn plant in Claremont.

Pawlenty defended the cuts Thursday, saying that most ethanol plants would continue to be profitable even without the subsidies. "We appreciate, respect and support the ethanol industry. We want them to expand, and to grow and to thrive," he said.

A 1996 law requires a 10 percent blend of ethanol in most gasoline sold in Minnesota and provides subsidies for 10 years to ethanol-producing plants. Under the law, the state's 13 plants would receive up to $3 million a year through 2006, thanks to a 20-cent-per-gallon incentive.

More than 9,000 corn producers, farmers and others invested money in the locally owned co-operatives because of the promised subsidies.

"We did our part," Steele said. "How can the state say they won't live up to their end of the deal? In other words, we have to fight with the state to honor its commitment."

Even House Speaker Steve Sviggum, a Republican and one of Pawlenty's strongest allies, said the governor's proposal would not pass the House unless it was "reduced dramatically." Sviggum and other lawmakers suggested a smaller, short-term cut be coupled with an extension of the program in order to keep the state's promise.

Pawlenty's plan to balance the budget through the end of this fiscal year calls for $77 million in cuts to state agency grants and programs. The ethanol subsidies, which account for a third of that total, were one of the few areas where 2003 money hadn't yet been fully paid out.

"The only pots of money were those not spent ... and this was the biggest," said Agriculture Commissioner Gene Hugoson.

A plan to restore the subsidies passed unanimously in a Senate agriculture budget panel. Only St. Paul's Gopher State Ethanol plant, a source of irritation to neighbors for odor problems, did not get its $2.2 million subsidy approved.

The idea was criticized by members of both parties.

Sen. Steve Dille, R-Dassel, said the subsidies are a matter of trust between the state and ethanol producers, who invested money into plants believing the funds were coming.

"To pull the rug out from under them at this time decreases our trustworthiness," he said. "I don't think we've got good character if we go back on our word on that."

Sen. Ellen Anderson, DFL-St. Paul, said Pawlenty's plan to cut the ethanol subsidies is contrary to his campaign pledge to even out the disparities between sagging rural economies and a prosperous metropolitan area.

"I don't think the budget reflects that spirit," she said.

Sen. Steve Murphy, DFL-Red Wing, who works as a fuels technician with Xcel Energy, said he expects the House to follow the Senate's lead. He said the subsidy should be increased, not cut, because it's an investment.

Farmers agreed, touting a study that showed for every dollar the state put into the ethanol program, it receives $16 in tax revenue.

"This is the shining star in economic development in rural Minnesota," said Doug Peterson, president of the Minnesota Farmers Union. "This commitment should be upheld."

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