Ethanol and ethanol subsidies are often found as a subject of debate in political and agricultural circles. Those who support ethanol subsidies have historically looked at them as a means of gaining “energy independence” and reducing “greenhouse gas emissions”. Those opposed see them as a “continuing attempt to manage what is already a broken ethanol market”– as one author expressed in a recent article.
One of the interim studies being considered by the Government Finance Committee of the North Dakota Legislature is the “Study of Funding Mechanisms and Options Available to the Department of Transportation, Political Subdivisions, and Public Transportation Providers for Transportation”. A review of the committee’s meeting minutes from August 2, 2017 tipped off what may be a fairly significant constitutional issue.
It stems from this entry:
First, some context and background information…
To clarify, the committee member spoken of is Senator Gary A. Lee (R – District 22). The reference to “Mr. Sauer” is Shannon Sauer– who is the Financial Management Director for the Department of Transportation.
The Highway Tax Distribution Fund is best explained by the following graphic, which illustrates the various sources of revenue that the fund is comprised of and how it is distributed throughout the state: You may also wonder what the “ethanol incentive fund” is. This fund originated from the administration of former Governor – and now U.S. Senator – John Hoeven. It’s best summed up by an official state website:
“In November of 2002, Governor John Hoeven announced a proposal to provide incentive funding for new ethanol plants built in the state. Subsequently, the 58th Legislative Assembly approved Senate Bill 2222 which set forth the ethanol production incentive program in the North Dakota Century Code. This bill was signed into law and has received revisions in subsequent legislative sessions. The currently applicable chapter of the Century Code is 17-02.”
If we read North Dakota Century Code Section 17-02-05 , it says this:
As you can see, we are now referred to Section 39-04-39 which reads:
With the context and background information in place, let’s get to the problem…
As mentioned by Mr. Sauer, about $4.7 million a biennium is deducted from the Highway Tax Distribution Fund for ethanol subsidies– they call them “incentives”. Call it what they will, but even Ethanol Producer Magazine called it for what it is — a subsidy. But the State Constitution is very clear about where dollars from that fund are supposed to go. It’s found in Article X, Section 11:
You’ll notice that there is absolutely no mention of funneling dollars into the Ethanol Production Incentive Fund. In fact, there’s no mention of ethanol at all.
One of the members of the interim Government Finance Committee is Rep. Rick C. Becker (R – District 7). Rep. Becker submitted a request to Legislative Council for their thoughts on the matter. And their response is quite telling:
“This email is in response to your question regarding the constitutionality of transfers from the highway tax distribution fund to the ethanol production incentive fund.
“The Legislative Council staff conducted research, which included a review of various Attorney General opinions related to Article X, Section 11 of the Constitution and a review of the legislative history of Section 39‑04‑39. It could be argued the transfer of funding from the highway tax distribution fund to the ethanol production incentive fund under Section 39‑04‑39 is not included within the uses of gasoline and other motor fuel revenues authorized in Article X, Section 11 of the Constitution. However, statutes approved by the Legislative Assembly are presumed to be constitutional until declared otherwise by a court. Therefore, the State Treasurer is required to complete transfers from the highway tax distribution fund to the ethanol production incentive fund as directed in Section 39‑04‑39.” (Emphasis Added)
The response from Legislative Council is clear. There is most definitely a legal argument questioning the constitutionality of the ethanol subsidies, but that argument will need to be settled by the courts.
Perhaps the next step is to seek an Attorney General’s opinion on the matter.
Aside from the constitutional implications regarding these ethanol subsidies in North Dakota, there stands the question whether the state should be subsidizing the ethanol industry at all? To me, that answer is no.
Not only does it appear that these subsidies are not authorized by the State Constitution, but ethanol companies should not be given “incentives” at the expense of the taxpayer in the first place. If these companies are to stand, they should do so on their own.
For now, it appears we wait and see whether this results in an Attorney General’s opinion and/or litigation to stop what appears to be an unconstitutional distribution of taxpayer dollars from the Highway Tax Distribution Fund. And in the meantime, our Legislative Assembly needs to learn to stop engaging in crony capitalism.
2. https://www.communityservices.nd.gov/renewableenergyprograms/EthanolProductionIncentive/ 3. http://www.legis.nd.gov/cencode/t17c02.pdf?20140307140401
6. E-mail from Legislative Council to Rep. Rick C. Becker:
7. https://www.theminutemanblog.com/single-post/2017/10/25/Will-North-Dakota-Republicans-Raise-the-Motor-Fuel-Tax-in-2019 8. http://ethanolproducer.com/articles/3475/north-dakota-offers-ethanol-subsidies
9. http://www.governing.com/gov-institute/voices/col-renewable-fuel-standard-ethanol-mandate.html 10. https://www.dot.nd.gov/divisions/exec/docs/transportation-hdbk.pdf