By DERRICK GINGERY, Greater Fort Wayne Business Weekly
The Wells County Council soon faces a decision of whether to risk $58 million of taxpayer money to build the county’s largest-ever industrial project, a $134 million ethanol plant.
While some community members have expressed uneasiness about the deal’s unusual financial structure, the proposal is garnering serious consideration since it could help spark the area’s economy.
Several local officials investing in the project have added to the controversy.
David Dale, president of the company proposing the project, Indiana Bio-Energy LLC, said the community or the state should take on some of the project’s risk because both will receive its benefits.
“They’re lending their credit standing, their name, to the project,” said Dale, a Bluffton attorney and Indiana Bio-Energy investor.
Financial information about the project has been hard to obtain because federal law prevents the public release of a lot of investor information, according to Garry Jones, CEO of the Wells County Chamber of Commerce and an investor in the project.
What is known is Indiana Bio-Energy wants to spend $134 million building a plant in Wells County that can produce 100 million gallons of ethanol a year.
Financial consultants for the Wells County Council and Indiana Bio-Energy are looking at the proposal, and the deadline for everyone to have all necessary information is Dec. 1. A county council decision could come soon afterwards.
A loan would cover part of the project cost and function as the primary debt. Wells County was asked to guarantee another $58 million of subordinated debt.
If those are in place, equity investors would be solicited to put up the rest. So far, local investors have committed $1.32 million.
Dale described the county’s participation as similar to a father co-signing a loan for his son.
The county ultimately could be liable for bond payments if Indiana Bio-Energy defaults on the loan and there are not enough assets that could be sold to cover all the outstanding debt. But Dale said there is no expectation the county would be making those payments.
“There is no way to issue the bonds without a government guarantee,” Dale said.
Wells County Council member Larry Brown said he is keeping an open mind and waiting for more information. Brown said the idea could be great for the county, but as a taxpayer he has doubts about whether the county should be so involved in the financing.
“I’m not sure that’s the county or local government’s job to guarantee bonds,” Brown said. “As far as this specific project, I don’t think Wells County can afford the exposure to this risk, that’s my personal opinion.”
Indiana Bio-Energy met with Indiana Economic Development Corp. officials in May to talk about raising $20 million to $25 million for the project. But IEDC spokesman Weston Sedgwick said the state generally does not get involved in a project by issuing bonds.
Sedgwick said tax credits, training grants and infrastructure assistance worth about $3.8 million have been offered. Most of that funding will apply once the plant is under construction or operating.
Ethanol is made from corn and soy products and is becoming more popular to blend with gasoline to reduce petroleum usage and carbon monoxide emissions. That is driving an increase in ethanol production capacity.
The IEDC has given incentive packages to two ethanol plants that were announced last month. One was a $140 million, 110-million gallon plant planned in Clymers, which is near Logansport.
The Andersons Inc., which proposed the Clymers plant, received state tax credits and training and infrastructure grants together worth more than $5 million.
Central Indiana Ethanol LLC, which is backing a plant in Marion that broke ground Oct. 12, could receive up to $3 million in state income tax credits when production begins, according to General Manager Mitch Miller. He said that is based on several goals outlined in the company’s business plan.
Miller also said the city of Marion is working with the company to create a tax increment financing district that could raise $3 million to $4 million to build infrastructure such as roads and utilities leading into the plant site.
But the project remains largely privately financed, Miller said.
“We’re a private organization owned by mostly Indiana residents,” he said.
An $80 million ethanol plant proposal in Lima, Ohio, received $40 million in tax-exempt bonds from the Ohio Department of Development, as well as another $15 million in incentives.
Edgar Seward, an Iowa ethanol plant investor and former ethanol plant manager, said traditionally ethanol plants are financed by investors who have an equity stake. He said Iowa and Nebraska also have state-wide incentives to encourage construction of ethanol plants.
Since those specific programs are not available in Indiana, Seward said companies will seek other state or local financing.
“Ethanol plants take support to be successful,” Seward said last week during a public forum on ethanol in Bluffton. “I don’t know that (a local bond issue is) unusual for this part of the country.”
But local officials said they are not aware of any examples of local financing for an ethanol plant.
“This is blazing a new trail,” Brown said. “Should the county and local government be involved in a private venture? That’s one aspect of the question. If the answer to that is ‘Yes,’ can the Wells County taxpayers afford that kind of exposure?”
Statistics show that ethanol plants can be a positive influence on the local economy. A 40 million gallon plant, which is less than half the size of the operation proposed in Wells County, can create 694 permanent new jobs throughout the local economy and generate $19.6 million in household income, said Seward, citing an industry report.
It also can force up the local price for corn 5 to 10 cents per bushel, he added.
“The (ethanol) industry is growing at an annualized rate of 25 percent,” Seward said.
There are 92 ethanol plants running in the United States. One is in Indiana: New Energy Corp. in South Bend. The Marion facility along with a 40 million gallon plant in Rensselaer proposed by Iroquois Bio-Energy Co. are under construction.
Fagen Inc., a ethanol plant builder based in Granite Falls, Minn., has sent a letter of agreement to build a plant in Wells County if the financing is in order.
Fagen has at least 57 plants on its roster that have not broken ground. They could delay the Wells County project if there is no action, Dale said.
“If they don’t see evidence that we’re moving forward by the end of the year, they’re going to go on to something else,” he said.
Ethanol demand is not likely to diminish with federal energy and environmental policy supporting it. Miller said there is a lot of market in Indiana that remains untapped and a significant amount of corn being grown that is available for ethanol production. He said there is no danger of reaching a market saturation point in the next three to five years.
Jones said there are no guarantees the project will move forward if the county waits.
“I call it a horse race — the first kids on the block win,” he said.
Jones also is an Indiana Bio-Energy investor, but would not speak in that capacity.
“Either we’re going to do it soon or they won’t do it in Wells County, period,” Jones said.