Conflict keeps ethanol plant from incentives

JEFFERSON CITY, Mo. -- A potential conflict of interest involving a congressman's wife, the governor's brother and a state legislator has kept a new $82 million ethanol plant from receiving a valuable state financing incentive.

If the politicians, or their relatives, don't sell their shares soon, the hundreds of other investors in Show Me Ethanol LLC could be forced to shoulder millions of dollars of additional interest to pay off the plant's loan.

Show Me Ethanol, which is on track to open this spring, received conditional approval 15 months ago from State Treasurer Sarah Steelman to benefit from a program in which banks offer below-market interest rates.

But that condition required Show Me Ethanol to comply with Steelman's strict conflict-of-interest policy for its investors. No incentives can be given if the company has even a single investor who is a lawmaker, statewide elected official, state department director or a parent, sibling, spouse or child of any of those officials.

So far, Show Me Ethanol has been unable to comply.

U.S. Rep. Sam Graves, R-Mo., talks to reporters during a news conference in this Aug. 16, 2007 file photo, at the State Fairgrounds in Sedalia, Mo. Graves' wife, Lesley Graves, plans to sell her shares of Show Me Ethanol LLC, an ethanol plant set to open this spring. The investors conditionally qualified for a special low-interest BIG Missouri loan but strict conflict-of-interest laws do not allow the incentive to be given if even a single owner is a lawmaker, statewide elected official, state department director or a parent, sibling, spouse or child of any of those officials. The policy does not specifically include federal lawmakers but the current state treasurer is interpreting it that way.(AP Photo/Kelley McCall)

That's because its investors include state Rep. John Quinn, R-Chillicothe; his wife, Mary; and Andy Blunt, the brother of Republican Gov. Matt Blunt. Also invested in the plant is Lesley Graves, the wife of U.S. Rep. Sam Graves, R-Mo.

The treasurer's policy doesn't specifically list Missouri's federal lawmakers as prohibited investors, but Steelman has interpreted her policy so that it does.

The Graves family was unaware its investment could pose a potentially costly conflict for Show Me Ethanol until contacted last month by The Associated Press, said the congressman's spokesman, Jason Klindt. As a result, Lesley Graves now plans to sell her investment, Klindt said.

"She didn't want Show Me to be held to some sort of different standards just because she was an investor," Klindt said.

The Quinns and Andy Blunt are still holding on to their shares, though they said they would consider selling if Steelman remains steadfast and the company needs them to do so.

Steelman insists no exceptions to her policy will be made.

"This is the taxpayers' money, and I don't think it's right for legislators or elected officials to be able to access that benefit, which helps them directly profit," said Steelman, a Republican.

The treasurer's BIG Missouri program deposits state money in Missouri banks at interest rates up to 3 percentage points lower than the typical deposit rate. That reduced rate then must be passed on to the entity receiving the loan. With Steelman's backing, legislators expanded the list of qualifying borrowers in 2005 to include ethanol plants and other value-added agriculture facilities.

So far, no ethanol plant has benefited. Show Me Ethanol is the only one to even apply.

Construction continued Saturday on the Show Me Ethanol plant, which is on track to open this spring in Carrollton, Mo. The plant was conditionally approved for a special low-interest BIG Missouri loan but must comply with a strict conflict-of-interest policy that does not allow the incentive to be given if even a single investor is a lawmaker, statewide elected official, state department director or a parent, sibling, spouse or child of any of those officials. (Orlin Wagner ~ Associated Press)

Other companies have been scared away from the state program by Steelman's strict policy, said Gary Clark, the senior market development director for the Missouri Corn Growers Association, who works with groups seeking to open new ethanol plants.

If its politically connected investors sold their shares, Show Me Ethanol could save about $6 million in interest over 10 years by participating in the treasurer's program, said Dave Durham, a northern Missouri farmer who is chairman of Show Me Ethanol's board of directors.

But Durham is frustrated that Steelman has neither budged nor explicitly assured Show Me Ethanol it will get the cheap bank loan if the Quinns and Blunt sell their shares.

"The reality of the matter is there are not a lot of farmers," Durham said, "and a lot of legislators are farmers, and they're big supporters of [the ethanol] business and they want to be a part of it."

Quinn believes the treasurer's office should relax its policy, perhaps allowing up to 5 percent of investors to have political connections. Because Show Me Ethanol has more than 700 investors, Quinn would not have to sell his shares under such a standard.

"I think she has basically carried it to the extreme," Quinn said.

The treasurer's program is just one of several Missouri incentives for ethanol. The state also offers an income tax credit for farmers who invest in ethanol plants and provides the facilities up to $15.6 million in production-based subsidies over their first five years of operation.

Andy Blunt, left, posed with his brother, Gov. Matt Blunt, after they joined a Revolutionary War history group Jan. 9 at the governor's office in Jefferson City, Mo. Andy Blunt is an investor in Show Me Ethanol LLC, an $82 million ethanol plant set to open this spring. The plant was conditionally approved for a special low-interest BIG Missouri loan but must comply with a strict conflict-of-interest policy. (Kelley McCall ~ Associated Press)

The Department of Agriculture has no conflict-of-interest policy for the production subsidies. Its conflict-of-interest prohibition for the tax credits applies only if a lawmaker, statewide official, department director or an immediate family member owns more than 10 percent of the company.

"We haven't even come close to anyone being at that 10 percent level," said Tony Stafford, executive director of the Missouri Agricultural and Small Business Development Authority, which administers the tax credits.

Farmers who invested in Show Me Ethanol received their individual tax credits last July, Stafford said.

The Corn Growers group contends there is no difference between legislator-farmers receiving ethanol incentives and legislator-doctors getting paid under the state's Medicaid program.

But Steelman believes the wrong message would be sent if even one public official were to benefit from her ethanol incentive program.

"We need to make it clear to the taxpayers of this state that their money is being invested wisely and we're not investing it in elected officials," Steelman said.