By Eric Pianin
Washington Post Staff Writer
Thursday, May 7, 1998; Page A04

Wary of angering midwestern corn growers in an election year, House Speaker Newt Gingrich (R-Ga.) yesterday squelched a drive by Ways and Means Committee Chairman Bill Archer (R-Tex.) to eliminate a $600 million-a-year subsidy on the production of ethanol-based fuel.

The move was an extraordinary rebuke to a powerful chairman and loyal ally as well as a reversal of a recent decision by the House to allow the subsidy to expire in two years. Gingrich sided with the Senate and farm-state interests in continuing the tax break for the gasoline additive well into the next century.

"Archer exercised his prerogatives as chairman and I exercised my prerogatives as speaker," Gingrich told reporters. "As leader of the overall party in the House . . . one of my jobs is to try to balance regional interests. . . . It was a very difficult discussion."

The controversial but resilient program -- a relic of the international oil crisis of the late 1970s -- has been touted by its farm-state champions as crucial to reducing U.S. dependence on foreign oil and stimulating the farm economy. But Archer and scores of House critics have attacked the subsidy -- which has cost the Treasury more than $7 billion over the past 16 years -- as the "poster child" for corporate welfare.

Ethanol has been a financial boon to corn farmers, the Archer Daniels Midland Co. food conglomerate that produces half of it, and the companies that produce gasohol that competes with gasoline in the Midwest. A General Accounting Office study last year concluded that ethanol has done little to reduce the flow of oil imports or diminish air pollution.

While the Senate voted earlier this year to extend the 5.4 cents per gallon tax credit through 2007, the House, at the behest of Archer and the Ways and Means Committee, voted last month to phase out the subsidy as part of its version of the highway and mass transit reauthorization bill.

Archer, one of the most influential politicians from a major oil-producing state, had planned to carry on his fight as a member of the House-Senate conference committee that is negotiating a compromise highway bill. While seniority dictated that Archer participate in the conference, Gingrich put off appointing him for nearly two weeks. Yesterday Gingrich said he was willing to allow Archer his seat -- but would stack the conference with two other pro-ethanol members who would side with the Senate.

A perturbed Archer said he'll boycott the conference and oppose the final version of the highway bill. "At a time when we should eliminate inappropriate subsidies and reduce the size of government, I regret that Congress will now extend a $600 million a year subsidy," Archer said. "Politics will triumph over policy."

The ethanol dispute is a small aspect of the overall $214 billion to $217 billion highway bill, but one with important political ramifications in upcoming congressional races and the presidential campaign beyond. Fifty-four House Republicans and Democrats have signed a letter in support of continuing the subsidy. Reps. Kenny Hulshof (Mo.), John Thune (S.D.) and other GOP freshmen have deemed approval of an extension of the subsidy important to their reelection prospects.

"There are a number of members from corn districts who are very concerned about ethanol, and the speaker is sensitive to their concerns," said Arne L. Christenson, Gingrich's chief of staff. Gingrich yesterday appointed Hulshof and Rep. Jim Nussle (R-Iowa) to the highway conference.

Moreover, politicians with an eye on the 2000 presidential campaign are reluctant to do anything to displease voters in corn-rich Iowa, a presidential bellwether state. Gingrich, Senate Majority Leader Trent Lott (R-Miss.), House Minority Leader Richard A. Gephardt (D-Mo.) and Vice President Gore all have enthusiastically endorsed an extension of the ethanol subsidy.

Earlier yesterday Gephardt denounced Archer as "a threat to the economic well-being of the heartland" and urged Gingrich to "rein in Archer and get this program back in gear." Sen. Tom Harkin (D-Iowa) praised Gingrich and added, "Backers of big oil have stood too long in the way of giving ethanol a fair opportunity in the marketplace."

Rep. Bud Shuster (R-Pa.), the chairman of the Transportation Committee who is presiding over the conference, said that while he agrees with critics that "the ethanol approach is dead wrong, it's unfair," he understands "the political realities. . . . We ought to stop wasting time on the issue, swallow hard, accept it and get on to other issues."

On the overall bill, House and Senate leaders met to thrash out critical funding issues -- including Shuster's demand for moving the highway trust fund "off budget" and hence off-limits for government spending other than new highway construction.

Senate Environment and Public Works Committee Chairman John H. Chafee (R-R.I.) has floated a proposal designed to satisfy Shuster's demand but without technically moving the trust fund off-budget. Shuster described the plan as a "reasonable compromise that I would seriously consider." White House officials also expressed interest, said a Senate GOP source.