Montana lost 417 good paying jobs this week. 4% of Missoula’s economic base will simply vanish December 31st when Smurfit-Stone shuts the doors at its Frenchtown mill. No doubt, the primary responsibility for this should lie with the company executives. Enjoy cashing those $47 million in bonus checks fellas, I am sure you earned it.
Of course, Montana’s two Senators are saying all the right things, that they will work to get Trade Adjustment Assistance for the laid off workers. Nice sentiment, too bad Senator Baucus has been the lead advocate for stripping the only profitable side to the Frenchtown mill for nearly a year.
Tucked into the 2005 SAFETEA-LU Highway bill was an alternative fuels tax credit for non-transportation industries. Simply put, all one had to do to qualify was mix alternative energy sources (including biomass) and fossil fuels.
Certain enterprising paper and wood product mills soon realized they qualified for this $.50/gallon tax credit. At the Frenchtown mill, for example, 2/3 of all the energy needs of the plant are met on site by burning what is called black liquor. A natural by-product of the pulping process. In order to receive their handy government aid all they do is add diesel fuel to assist in the firing process. Presto, you now have your blended fuel.
Some out there (See: Baucus, Max) consider this to be a slight bastardization of what Congress intended.
It’s an unintended adverse consequence. It’s very expensive and it should be closed
Those adverse consequences include keeping paper mills open. According to United Steel President Leo Garrard,
It is not an overstatement to say that this credit, in a number of cases, is the most compelling factor in decisions relating to the continuing operation of a number of pulp and paper mills. Two of the industry’s key players, Smurfit-Stone and AbitibiBowater, are in bankruptcy, while others are cash starved and struggling to restructure debt to stave off bankruptcy. To be sure, many companies are depending on this tax credit to survive, and keep mills running and our members working.
Moreover, when did Senator Baucus finally find religion on fiscal issues? $700 billion bailout for people who donated over a million to his campaign last year, no problem. $787 billion in phony stimulus projects, no problem. $6 billion to help an industry with a large imprint in Montana, no way.
His proposed solution to the ‘black liquor’ problem is to specifically carve out the paper industry from the blended fuels tax credit. Off the Finance Committee website, the Baucus proposal would,
For purposes of the excise tax credit and payment provisions, the proposal modifies the definition of alternative fuel to exclude any fuel (including lignin, wood residues, or spent pulping liquors) derived from the production of paper or pulp. Thus such fuel would no longer qualify for the alternative fuel credit, alternative fuel mixture credit, and related payment provisions.
I have heard of carveouts to help local industries, but this might be the first time a Member of Congress has included a narrow provision designed to punish a local industry.
Finally, in November, House Democrats took the Baucus proposal and tacked it onto their version of health care reform. What biofuels have to do with healthcare, I have no idea.
The stunning lack of concern for jobs in this state makes even less sense when you put the black liquor proposal side by side with the supposed benefits of the stimulus.
The blended fuel tax credit pays out $40-$50 million annually to the Frenchtown mill. Average that out to $45 million and you get a cost of $107,913 per job at the mill. Not terribly efficient, but not horrible considering the average salary was $70,000. The stimulus by contrast has awarded $126,873,602 in contracts to save or create 456 jobs in Montana. An average of $278,231 per contract job.
I am not arguing for making the black liquor a permanent part of the blended fuels tax credit, but shouldn’t Senator Baucus have held off on his crusade? Now is not the time to cut off the lifeline to these mills. Rather than talk about creating another “jobs bill” costing in the hundreds of billions, why doesn’t Congress act to extend tax programs such as this for another 2-3 years.
Senator Baucus was way off base in going after the paper companies on this one and now 417 Montanans are out of work. Happy Holidays everyone.
As a parting note, file this one under example number two in the last 7 days of environmentalists killings union jobs. 25 Western environmental groups, including the WildWest Institute in Missoula (hooray for a united community), applied pressure on Senator Baucus to disallow ‘black liquor’ from qualifying for the tax credit. Once again it looks like the radical environmental movement will win out within the Democratic Party and former union employees can go to the unemployment line.
Mead: Please explain to us why US taxpayers should hand over $10 billion in taxpayer money to the US Pulp and Paper Industry so they can burn through an extra 20 billion gallons of diesel by exploiting a loophole in the 2005 transportation bill? Thanks.
See:
http://cleangreensustainable.wordpress.com/2009/06/02/pulp-paper-industrys-boondoggle-could-cost-taxpayers-10-billion
and
http://cleangreensustainable.wordpress.com/2009/07/08/more-on-pulp-industrys-billion-dollar-taxpayer-boondoggle/
Matthew: To reiterate what I wrote, the blended fuel tax credit is a major factor in keeping the pulp and paper industry alive. I see no compelling reason to cut out the paper companies. They are too large a part of the local communities. Taxes on the Smurfit-Stone mill provided Frenchtown schools with $800,000 of their total $3.8 million budget and 20% of the local fire district budget. That is a huge hole that now needs to be filled quickly.
With that in mind, what I would like to see is a 2-3 extension of the tax credit, and clarify the language to state ‘black liquor’ type by-products qualify. I would be fine with if as a condition of the extension, it puts a restriction on the amount of diesel able to be used, if it allows any at all.
Of course, such a compromise would be rejected, because many of the environmental groups do not want a chemical pulp and paper industry at all. By killing this tax credit they can have their wish.