STATE OF THE STATE

U.S. Rep. Bill Archer, a Republican from Texas who chairs the House Ways and Means Committee, wants to end retailers' tax credits on gasohol — a mixture composed of 90 percent gasoline and 10 percent ethanol. When retailers load their tanks with fuel at supply sites and haul it to gas stations, they usually pay a little more than 18 cents a gallon in federal taxes. When they load up with the ethanol blend, though, they get a 5.4-cent-per-gallon credit on those taxes.

Archer argues this credit costs the U.S. Treasury $770 million a year in lost revenue. He contends huge ethanol producers like Decatur-based Archer Daniels Midland are the true beneficiaries, and labels the credit "corporate welfare" for a deep-pocket political contributor.

Illinois farm groups and their advocates see the situation differently. Illinois Congressman J. Dennis Hastert, a Republican from Yorkville who is a senior whip in the U.S. House, says farmers also benefit from the tax credit, which is an incentive for ethanol producers.

"We've always made the point that between one in five and one in six rows of corn winds up in the production of ethanol in Illinois," he says. "This eventually helps in the market potential and the export potential for farmers here."

Ethanol is made by distilling corn into alcohol. In the process, the corn-starch is used, but corn oil and protein from the corn kernels are retained and can be sold.

Hastert's fight to retain the credit looked successful at press time, in large part due to support from House Speaker Newt Gingrich. Senate Republican Leader Bob Dole of Kansas also is a longtime ethanol supporter; in fact, he introduced the late-1970s legislation that gave ethanol favored tax status.

"It's an extremely major market in Illinois for corn," says John Hawkins of the Illinois Farm Bureau. In 1994, he points out, 274 million of the 500 million bushels of corn used nationwide to produce ethanol came from Illinois. "Outside of livestock feed and exports, ethanol is probably the largest market [Illinois farmers] have got for corn. A better price for ethanol, thanks to the credits, could mean more is produced, and they get a better price for corn."

More important, he says, is the fact that ethanol comes from a renewable resource, unlike petroleum-derived fuels. "You can't grow another barrel of oil every year," Hawkins says. "The real question is whether you want to rely on a resource you can get more of or on the continued use of fossil fuels."

Even so, are these reasons to subsidize ethanol at a time when so many Americans wish to move toward a balanced federal budget?

Rodney Weinzieri, executive director of the Illinois Corn Growers Association, argues, unsurprisingly, that they are. Especially since the tax credit is set to expire anyway at the end of 1999.

"Today we import 53 percent of our oil," he says. "We're talking about a domestic product with ethanol. It's a market that farmers have come to rely on, and it's important to maintain it."

Weinzieri estimates farmers selling corn for ethanol production probably add 25 cents per bushel to their profits. He says nearly 60 percent of the gas sold in Illinois includes some ethanol — a higher percentage than in any other state. In large part that's due to heavy sales of ethanol fuel blends in the metropolitan Chicago area, where efforts to reduce ozone-depleting emissions are in place. Downstate, only about 30 percent of the gasoline sold contains ethanol.

At most major ethanol-producing plants, such as ADM and Pekin Energy, it takes four days to produce ethanol from corn, Weinzieri explains, With research going on now, the timetable is being cut to 24 hours.

"So ethanol plants could be built three-quarters smaller in the future — or built to function four times as fast, based on this research," he says. "With asking for the tax credit to be kept on until it expires in a few years, we're

6 * February 1996 Illinois Issues

asking for the time to do this. The oil industry has been around since around 1915. We're saying, 'Give us until 2000 to do this.'"

It's an argument that sounds good to people who want to see Illinois products like ethanol compete in the fuel marketplace. And to people who want to see Americans become more reliant on sustainable fuels. Still, the question remains whether it is government's place to provide incentives for producers like ADM to research faster ways of producing ethanol, rather than expect private industry to fund such research themselves.

Yet Weinzieri notes that those who were pushing for an end to the ethanol tax credit probably weren't coming at the issue strictly from a "save-money-for-taxpayers" angle. Archer, after all, is from Houston, and has long had ties to the oil industry, which sees ethanol as competition.

Critics might wonder whether he's looking as carefully for "corporate welfare" in his own backyard. *

The governor is unlikely to get much of what he wants in this spring's legislative session After Gov. Jim Edgar delivered his State of the State address in early January, many Capitol observers commented that our chief executive served up a more ambitious and varied legislative agenda than expected. Yet, while lawmakers rushed to approve one of his suggestions and others may make it out of the General Assemby before the end of May, a few of the items on the governor's wish list were pronounced hopeless the minute they fell on legislative leaders' ears. The day after the speech, the General Assembly voted — as Edgar had requested — to repeal the Retail Rate Law. Passed in 1988, the law provides taxpayer subsidies for garbage incinerators that generate electricity, and forces utility companies to buy electricity generated by such facilities. While it's dangerous to make predictions when it comes to the legislature, here's the likely scorecard on a few of Edgar's other ideas: Probable * The governor proposed returning the speed limit on county and township roads to 55 miles per hour. Limits on these roads automatically returned to 65 miles per hour when President Bill Clinton signed a law late last year abolishing federal speed limits. Lawmakers sent Edgar a measure. As we went to press, he was expected to sign it. * Last year's successful business agenda makes Edgar's proposal to reduce unemployment insurance taxes look promising. He said the unemployment insurance trust fund has a healthy surplus, and the $200 million extra that employers would have available if the tax is decreased could be put to better use. * The governor proposed tightening the eavesdropping law he recently signed, which originally was intended to allow telephone solicitors to monitor employees' phone calls. Edgar said the law went too far. Indeed, labor groups argued it would empower all employers to monitor their workers' calls. Edgar recommended limiting electronic monitoring use to telephone solicitations involving the actual sale of goods or services and requiring employees' written consent. * Edgar wants to expand the PreStart parole counseling and training program by opening three centers in the Chicago area. Inmates enter PreStart three months before their release, during which they are counseled on avoiding substance abuse and improving job search skills. Possible Edgar wants to combine seven state agencies under one Department of Human Services, eliminating administrative staff and consolidating programs. While some have questioned whether such a structural change would amount to any substantive improvements, several human service groups have given a preliminary nod to the idea. Forget it * Senate President James '"Pate" Philip voiced what many were thinking after the speech when he said the governor's continued push to rework Illinois' riverboat gaming tax will go nowhere. Last year, the governor proposed changing the tax (currently 20 percent of adjusted gross receipts) to a graduated rate. The new tax would start at 15 percent on the first $25 million of adjusted gross receipts per year and move gradually to 35 percent on receipts over $100 million. Many Republicans won't want to enact a tax increase on riverboat license-holders, some of whom have ties to the GOP, in an election year. * The push to establish charter schools has become a perennial move around the Statehouse. Charter schools are free from most state regulations, including curriculum and hiring requirements, and can be started by local groups such as parents' associations. So far, teachers' unions have been able to quash widespread establishment of these schools, and there's no reason to believe the effort will get any further this year. * Edgar said he wants to see the state's formula for funding schools changed. He said there's too much reliance on local property taxes. But, because such a change would likely require an increase in state taxes, the issue is unlikely to be resolved during an election year. We may see an advisory referendum on the November ballot relating to funding reform, but not much more. Jennifer Halperin

Illinois Issues February 1996 * 7