Search This Blog


Nothing new with sugar mill deal; still bad for taxpayers

Old wine in a new bottle isn’t going to do the trick. The proposed sugar mill at Bunkie is still a bad deal no matter how it gets rewrapped, and the State Bond Commission must reject it tomorrow.

The Commission must give approval because half of the deal involves the state issuing the bonds to build the facility. That is a new aspect of the deal, as private investors are anticipated to put up money for the other half and supporters tout that this improves the risk to the state regarding the deal. In fact, it and other changes to the dynamics surrounding the deal have done nothing to make it an enterprise for which taxpayers should bear responsibility.

Beginning with the financing issue, the private sector will touch the deal only if at least half of the risk is borne by the state. Translation: it’s going to fail to pay back construction costs, and it’s worth only half of the $135 million (up $50 million in estimated costs over the past couple of years) cost to build, so when it goes into default, the private financial backers essentially will repossess all of it despite backing just half of it. Meaning: at best taxpayers must subsidize a money-losing operation for the foreseeable future; at worst, they throw away $67.5 million for nothing.

Proponents also claim that a new study (disputing conclusions made by two previous ones) shows that this default won’t happen. The study, performed by an engineering, not accounting or auditing, firm in consultation with one of the two farming entities expected to profit off the mill’s presence, and using parameters established by the Department of Agriculture and Forestry whose commissioner Bob Odom long has fought for the mill’s building, in using them leaves out pertinent information and makes other unsustainable claims:
  • It assumes no inflation of costs, unrealistically arguing that management and production efficiencies forever will keep costs the same
  • It assumes ancillary activities will spring up as a result of the mill’s operation such as ethanol production, which would happen any time soon only with chicanery on the part of government to the detriment of petroleum consumers
  • It also assumes these ancillary activities will produce over a million dollars a year in electricity sales, with no demonstration that it would be marketable competitively
  • It factors in no taxes on the mill, but there exists no current policy that would exempt it from federal income taxes which, if it processed all $50 million worth of sugar cane in the area, could cost millions of dollars a year onto the estimated $15 million a year in operating and debt costs
  • It considers the mill would not have to pay for transportation costs of the liquefied product to processors (the point being to take 45,000 loads of raw cane that normally would have to be shipped all the way from farmer to processor and in between convert that into 10,500 loads at the mill to save of transport costs) meaning farmers or finishers would, a saving of only $6 million a year – thus, farmers or finishers would be willing to pay no more than this to the mill as opposed to continuing with the current system
  • It factors in no management fees or annual dues to the American Sugar Cane League
    Perhaps most crucially, it assumes that the federal government will continue to subsidize prices of sugar despite world trade trends and enforcement of free trade headed in the opposite direction (as the U.S. found out a few years ago in the case of steel); reduction or elimination of price supports would cause significant retrenchment in sugar production making it harder still for the mill to meet its debt payments

    Even in the unlikely event that these supports continue for an extended period of time, in order to meet payments the mill may muscle into the controlled allotments that private mills currently follow (because of federal payments to restrict production to keep prices up), thereby driving private sector entities out of business in favor of the state-backed mill and reducing economic activity and government revenues thereof (which is why most mills except for those directly involved in the planned one oppose the deal).

    Simply, no expert, reasonable economic projection shows that the mill makes good fiscal sense for the state or even cane farmers. State Treasurer John Kennedy has remained properly suspicious of this deal from the beginning, but his critical stance will go ignored unless Gov. Kathleen Blanco puts principle before politics and stands up to Odom and his ally Senate President Don Hines by instructing her votes on the commission to go against the funding – regrettably, something she often demonstrates little fortitude in doing.
  • No comments: