As Louisiana grubs for money in what seems to be an approaching difficult budgetary year, a past mistake continues to haunt taxpayers and may be become worse next year, providing a harsh lesson.
As part of his multi-decade reign of error, former Agriculture Commissioner Bob Odom conned the state into fronting $45 million for a processing plant in Lacassine to take sugar cane and extract it into syrup, arguing against the evidence that it would provide a needed service to farmers that would enable the state to pay for it. To make matters worse, he backed it by taking money intended to go for boll weevil protection (and also apportioned it to other capital projects) and then on top of all that brokered an $11 million unsecured loan for facility equipment.
Naturally, the wrong economics ensured the facility never has produced this syrup that would cover costs, and currently produces none because of that. In addition, Odom tried to get an ethanol plant built next to it to take cane refuse instead of paying to deal with it and offered a tremendous sweetheart deal to a company with no expertise in the field, Andino Energy, majority owner of the enterprise known as Louisiana Green Fuels, to own the existing facility and to build the other plant, after a deal to see to the Lake Charles Cane Cooperative fell through although the farming group has stayed in as a 20-percent owner. The Colombian-based majority owner has had to make minimal payments in the early years to the state, which for its part must take up the slack if the company can’t make full payments as the racetrack-generated revenue stream does not back the loan.
Last year, as the payments began to accelerate on the bonds with the addition of principal in them, the company began to fall behind on its schedule of payments for the loan – after having spent money to acquire two other troubled sugar mills in St. James and Iberia Parishes as well as land for cane production. The deal now is for the company to start paying the principal on the bonds next year. If it doesn’t, the state has to make up for that as well. It also, through the state agency that legally sold the bonds and administers the site, waived over $300,000 of payments to the state from the company.
Meanwhile, construction on the ethanol part never has been completed. In the interim, this and the other projects sucked out resources that could have gone to the statutory purpose of fighting off boll weevils forcing the state to have to kick in extra money to do that. All because Odom wanted to build a kingdom around the functions of his office and build political support from the few beneficiaries of the project.
Thus, the state is on the hook for potentially a few million dollars a year in paying for the idle buildings that are not economical to run, appearing to attract no buyers to run them, and the operator supposed to run them is having revenues that should be going to the state waived – and Louisiana may have to find extra money to eradicate pests because of this for years to come. Current Commissioner Mike Strain, who inherited this mess upon his defeat of Odom, remains optimistic that it all will work out.
That seems unlikely, but if the state takes possession, what little revenue coming from the company goes to zero, pretty much trapping the state into hoping against hope. All in all, considering the budget chasm facing the state this does not comprise a lot of money, but it serves as a huge object lesson going forward as to what happens when politics skews the process of making reasonable priorities in spending, and the consequences thereof. This lesson appropriately resonates as the upcoming year makes for the most challenging exercise in setting priorities for the state in perhaps two decades.
Posted by Jeff Sadow at 00:00