The Black Liquor Subsidy – Tying Up Loose Ends, Part One

There is an expression, one of those “They say” pearls of wisdom, “you don’t want to know how laws and sausage are made.” But whether we wanted it or not, the events relating to the black liquor subsidy forced us to become more familiar with our legislative process. At the start of the black liquor issue, my confidence in the capabilities of governments in general, and this congress/president specifically, was at the bottom of my personal 1-10 scale. I expected so little, how could I be disappointed? It has now become clear, however, how naïve I was. I had no idea that corruption, mendacity, and selfish indifference to the well being of the country could be so pervasive and so in-your-face.

The U.S. Treasury Burns Cash While Baucus Fiddles….Around: Senator Baucus, what have you been doing all year? Baucus promised to introduce legislation to close the black liquor loophole for pulp companies in March and again in October, but nothing happened. It is too late now, an introduction at this time would only make him look worse – that is, if anyone in the media really cared that Senator Snowe traded her in-committee health care vote for $9 billion. It appears not.

The Republicans, meanwhile, don’t seem to care about the black liquor improprieties either. They ignore the primary corruption, but have called for an ethics probe of Baucus for nominating his staff-member girl friend, Melodee Hanes, as a U.S. attorney. It seems that all the ladies in Baucus’ life are rewarded in one manner or another.

Moving from the Senate to the House, HR2967 (introduced in June by Arizona Congresspeople Ann Kirkpatrick (D) and Jeff Flake (R)), was intended to close the black liquor loophole. It has gone nowhere.

The Black Liquor Tax Credit Will Save Jobs”: That was Senator Snowe’s claim (and others who have supported the continuation of these subsidies) but that is simply not true. For one thing, jobs gained by companies benefiting from the subsidy were often lost by others. Fraser Paper in Maine was seriously harmed. The work that Boise DeRidder gained was lost by Snowflake. A comprehensive list of damaged companies would be a long one.

Then, there is that supply/demand thing that just won’t go away. If demand declines, supply must eventually be removed. (I am thinking of making this an official “absolute truth”, but it might be a little too basic). In order to keep pace with falling demand, IP announced in late October that it was permanently eliminating 2.1 million tons of various grades at four different mill locations. This will mean a loss of 1600 direct jobs, and a multiple of that number in supporting job functions. These closures occurred in spite of the fact that IP will receive over $2 billion in black liquor subsidies for 2008-2009 production. It is also important to consider that roughly $200 million of this black liquor subsidy money (out of the $2+ billion IP total) will be received by IP in 2009 for operating the four plants that it will now close in 2010.

This is not a criticism of IP for taking steps needed to keep supply and demand in balance. If it were possible, the company certainly would have continued operating this capacity. The point is simply that no IP jobs were saved as a result of that $2 billion government gift.

Media Culpability – Major media is no solution. With few exceptions, they contribute to the problem. They are no longer watchdogs for the public; they are now complicit in the deceit.

Climategate is a perfect example. On November 20th, we heard from impartial media that hackers had broken into computers in the Climate Research Unit at the prestigious University of East Anglia in Great Britain. These illegally obtained emails allowed us inside climate central and gave us access to what billions of dollars of taxpayer funds were actually paying for. Just to summarize, we learned that some of the most influential climate “scientists” in the world had destroyed raw data inconsistent with the warming of the planet, conspired with each other to distort the “adjusted” data, conspired to withhold other damaging information, and worked diligently and unethically to prevent evidence in opposition to global warming from being published in scientific journals. How did our trusted major TV networks respond to this bombshell? They pretended it did not happen. The Media Research Center reported on December the 2nd that, “An examination of the morning and evening news programs on ABC, CBS, and NBC since November the 20th yielded zero mentions of the scandal…” but during that same period of time, the misadventures of Tiger Woods had been reported on 37 occasions. There was also a touching story of an orphan moose, and coverage of the foods selected for the president’s state dinner.

The network biases are just as obvious when covering health care and climate legislation. The corruption of major networks is complete.

I mentioned previously that a correspondent for CNN, Drew Griffin, had become interested in the black liquor subsidy. His producer, Kathleen Johnston, had read one of my black liquor stories, and arranged for me to be interviewed by Mr. Griffin. It seems that Drew has a point of view on this story similar to that being reported in Reel Time. Based on CNN’s liberal bias, I was pleasantly surprised. The story was delayed for weeks, but finally scheduled to run on November 30th. Unfortunately, it was preempted by the Tiger Woods fender bender that had occurred that week-end. It has not yet been re-scheduled. Although it is not his final decision, I know Drew really wants the story to run. He and Kathleen have worked hard on it, and CNN has spent a lot of money on the report, sending film crews to several locations around the U.S. It is a powerful story of government corruption. So why isn’t it running?

If the CNN story does run, I will post a notice in this Blog. If you are interested in being notified, but have not yet signed up on this Blog, be sure to do so. I will probably have less than a full day notice.

There are several other stories related to the black liquor subsidy that we will cover in a post next week.


4 responses to this post.

  1. Dear Verle,

    Having just traveled (twice) to Asia recently, I can tell you that this Black Liquor subsidy is huge news with all the Mills; many Asian Mills wonder what has happened to America and free and fair trade, never mind that we Americans are becoming known as a “subsidy nation”.
    This current government (all three branches) does not have a clue about the damage that is being done to our nation, and to our industry.
    I would not hold my breath that CNN will broadcast anything about this matter. Maybe you should take it to Kim Strassel at the WSJ or to FOX, where you will at least have their ear.
    Kind Regards,
    John McGann
    Japan Pulp & Paper (USA)


  2. Posted by PulpMillGuy on December 13, 2009 at 4:53 am

    Something I have seen very little about is the legitimacy of how this credit is applied. I don’t believe it is a “loophole”. A foundational knowledge of Black Liquor and a detailed reading of the tax code show this clearly should not apply the way, or in the very least, the magnitude, it is being applied. A dogged IRS auditor could recover billions in taxpayer money, if they were allowed to fully investigate it. This goes far deeper than not having the political will to “close a loophole” in the name of “stimulus”, it is an unwillingness to investigate potential tax fraud.

    What’s worse, as you’ve pointed out, is that it likely is saving very few jobs. Many in the rank-and-file of the mills are being convinced that it is, but it is all ending up saving corporate jobs rather than mill jobs. It is also keeping some companies/mills afloat that should be allowed to “fail” and be bought by stronger hands. It is generating “artificial success” and “executive bonuses” for failed organizations. Except unlike TARP, GM, Chrysler, etc, the government has no say and is attaching no strings to assure accountability on these businesses.


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