When the Reagan administration was scoring one victory after another in Congress last spring, the budget office decided to knock out funding for a huge synthetic fuels plant planned for Kentucky. It was the kind of deal Ronald Reagan had criticized on the campaign trail. Two corporations were building the $4.5 billion project and taxpayers would have to pay 98 percent of the cost.
"This project will saddle the taxpayer with an enormous financial burden," Office of Management and Budget Director David A. Stockman wrote to Congress last fall, "yet will yield little returns to anyone other than the project sponsors."
Within days, Wisconsin Sen. William Proxmire, ranking Democrat on the Senate Appropriations Committee, was denouncing the project on the Senate floor. "At a time when Congress is forced to make several cuts in many worthwhile programs, there is no excuse to continue to fund a loser like" this, he said. "I think it is unfair to ask the taxpayers to support such obvious subsidies to private corporations when the money is needed elsewhere."
With a popular Republican president, his tight-fisted budget director and a key Democratic leader all dead set against it, the synfuels plant seemed like a tailor-made candidate for the budget ax.
Yet it survived. And the way in which it survived helps explain why, in a time of fiscal austerity, many senators continue to support large public subsidies for private energy projects in their states.
While slicing more than $35 billion from such domestic programs as fuel assistance for the poor, the senators have managed to spare billions of dollars for the Kentucky synfuels plant, a massive nuclear complex in Tennessee and a variety of lucrative subsidies that benefit businessmen back home.
These are not the traditional pork barrel projects built by government agencies, such as highways, dams and buildings; instead, they are a far more expensive form of public assistance to private corporations.
Few companies, for example, are inclined to put up the capital needed to get into the high-risk synfuels business. So Congress, trying to spur the development of alternative energy sources in a time of shortage, set up the Synthetic Fuels Corp. to help them out.
By handing out $14 billion in loan guarantees and price supports, the agency is absorbing most of the financial risk that surrounds a new and untested technology. If a company defaults, the government will pay off its loan; if a company cannot sell its product, the government will buy it at a predetermined price.
To qualify for funding, each applicant must put up at least 40 percent of the project's cost. That, however, was far more than the two firms building the Newman, Ky., synfuels plant wanted to pay.
Both companies are profitable. Wheelabrator-Frye Inc. has assets of $1.9 billion and is ranked 255th on the list of Fortune 500 companies. Its partner, Air Products and Chemicals Inc., is 242nd with assets of $1.7 billion.
Their project is the only survivor among the five synfuels ventures that were promised direct subsidies by the Energy Department in the late 1970s. But when Reagan threatened to cut off their funding as well, the two firms took their case to Capitol Hill, where legislators frequently win support for home-state energy projects through a bit of old-fashioned logrolling.
Kentucky's two Democratic senators, Wendell H. Ford and Walter D. Huddleston, lobbied hard to bring the synfuels plant into their state. The project could provide jobs for constituents and a potential market for Kentucky's abundant coal reserves.
The two senators found a crucial ally in James A. McClure (R-Idaho), chairman of the Senate Energy Committee. McClure, an ardent advocate of nuclear power, often has to enlist the support of Ford and other committee Democrats for nuclear laboratories in Idaho and other states.
There is no money earmarked in this year's budget for the project. But McClure, who also chairs the Senate Appropriations subcommittee on interior, amended the budget report to allow DOE to spend $135 million in leftover funds from 1981 on designing the Kentucky plant.
As the controversial project headed for a showdown on the Senate floor, each side marshalled arguments. McClure said the synfuels plant "may turn out to be one of the best investments this country ever made."
His press spokesman, Todd Neunschwander, said McClure "firmly believes that we have to develop alternative energy sources because private industry just won't take the risk. While taking into account the budget constraints, he thinks the government has a role to play in demonstrating these new technologies."
Norman Ridder, a spokesman for Wheelabrator-Frye, said the companies would not qualify for a federal loan guarantee because they will be using experimental technology to convert 6,000 tons of coal a day to solid and liquid boiler fuel and metallurgic coke.
Ridder said the government is financing most of the project "because of the great risk involved. There's a very adequate provision in the contract for the government to participate in the profits. We're accepting a large share of the risk for a company our size. We're not one of the giants."
But Proxmire and other opponents objected to the fact that Congress is allowing the companies to delay paying their $90 million share of the project until 1985. If the process pays off, however, they will get half the profits.
Although it was expected to cost less than $500 million in 1977, the Kentucky plant has been rocked by huge construction cost overruns that have pushed the latest estimate to $4.5 billion. And Proxmire said it has grown to a commercial-sized plant that is 10 times the size needed to demonstrate the new technology.
Ridder maintains the plant will cut the net cost to less than $2 billion by selling boiler fuel. Some DOE officials say they are skeptical of these revenue projections, which have jumped 300 percent in recent years, and that the fuel would have to be sold at the equivalent of oil priced at $76 a barrel.
In the end, the vote came down to a question of political muscle. Wheelabrator hired former representative Walter Flowers (D-Ala.) to lobby his old House colleagues on the project, while Kentucky's Ford and Huddleston tried to convince the Senate that this could be a partial solution to the energy crisis.
"I didn't have to twist any arms because I had the chairman of the Energy Committee and strong Republican support," Ford said. An aide to the senator added, "This wasn't nearly as hard to sell as tobacco subsidies."
Wheelabrator, based in New Hampshire, also got key support from Sen. Warren Rudman (R-N.H.), who said he wanted to prevent the big oil companies from dominating the synfuels market. He said Wheelabrator "did an excellent job of lobbying this" and that it would be "horribly unfair" to make the firm apply for a loan guarantee.
Ford and Huddleston managed to turn the vote into a litmus-test issue for senators from coal-producing states, who rallied behind the project. When Proxmire offered his amendment in late October to knock out the $135 million for the project this year, it was voted down, 57 to 40.
The following week, the Senate fought another major energy battle where the lobbying was every bit as intense: the $3.2 billion Clinch River breeder reactor, the massive Tennessee project that has come to symbolize the national debate over nuclear power.
McClure again took the lead in speaking for the project. But it was Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) who put his prestige on the line, working the floor to round up votes.
The costly reactor was launched during the Nixon years and survived several attempts by former president Carter to shut it down. More than $1 billion has been spent on the project, even though construction has not begun.
Most of this money has gone to Westinghouse Electric Corp. to develop a technology that will produce more nuclear fuel than it burns, which congressional opponents say will be obsolete before it is finished. A recent House Commerce subcommittee report blamed poor management for the project's explosive cost, which has soared more than 450 percent from the original estimate of $669 million.
"Baker thinks we have to explore this breeder technology as a way to generate energy for the future," Baker spokesman Tom Griscom said. "Part of the reason for these cost overruns is that the thing was put on the back burner for four years. We also feel it's important for the Oak Ridge Tenn. area to keep them at the forefront of technology."
Clinch River was another of Stockman's prime targets, but Baker appealed to the president to include money for the reactor in this year's budget.
"It just wasn't worth fighting," Stockman said in an interview in The Atlantic magazine. "This 1981 budget package will go nowhere without Baker, and Clinch River is just life or death to Baker. A very poor reason, I know."
The vote was considered a toss-up in November when Sen. Paul E. Tsongas (D-Mass.) moved to require the nuclear industry to share half the $180 million cost this year. But Baker had voted for the Kentucky synfuels plant and now Ford and Huddleston lent their support for Clinch River.
Baker also brought along 14 of the 16 Republican freshmen elected in 1980 on anti-spending platforms.
The majority leader eked out a 48-to-46 victory, and by the time the issue was reconsidered the next day, he had persuaded Roger W. Jepsen (R-Iowa) and Richard G. Lugar (R-Ind.) to switch votes.
Clinch River was not the only nuclear project to survive the budget-cutting. The Senate also voted more than $1.5 billion for research and development of nuclear fission and fusion technology.
Most of this money will be distributed to such corporations as Union Carbide ($360 million), Western Electric ($565 million), Exxon ($240 million), Westinghouse ($307 million), General Electric ($65 million), Rockwell International ($32 million) and DuPont ($80 million).
Many of the senators were not as generous with other energy programs, however. They cut $30 million from a program to help low-income families weatherize homes, while voting, 61 to 37, against restoring $400 million to help the poor pay heating bills.
Many other corporations and businesses won federal subsidies from Congress last year. These costly subsidies, while not part of the bricks-and-mortar tradition of pork barrel politics, generally are shepherded through the legislative process by the senators whose states would benefit the most. For example:
* When a group of oil companies sought legislation to allow them to bill consumers in advance for the $40 billion Alaska natural gas pipeline, Alaska's two Republican senators, Ted Stevens and Frank H. Murkowski, led the fight on the Senate floor. Along with McClure, they argued that the bill was needed to save the project from collapse and to encourage continued oil and gas exploration in their state. After heated debate, the Senate approved the bill, 75 to 19.
* When Reagan tried to cut $752 million from the direct loans to private companies from the Export-Import Bank, Sen. Nancy Landon Kassebaum (R-Kan.) was able to restore $250 million for this year. Nearly half the Export-Import loans help finance aircraft sales abroad, and more than 40 percent of that money benefits Boeing Co., which builds many airplanes in Kassebaum's state. "It made economic sense for our constituency in Kansas, where Boeing is such a large employer," Kassebaum aide Guy Clough said.
* When the Senate began debating federal price supports for sugar, which had been abolished three years ago, two GOP freshmen were in the forefront. Mark Andrews (R-N.D.) and Paula Hawkins (R-Fla.) helped convince colleagues to restore the sugar subsidies, which could cost consumers $2 billion this year and $5 billion by 1985. Andrews is one of many North Dakotans who grows sugar beets on his farm, while sugar cane growers and processors in Hawkins' state would reap the greatest benefits.
Even Proxmire, who mounted the losing crusade against the synfuels plant and a host of other federal projects, has a sacred cow: the milk price supports that are so crucial to Wisconsin dairy farmers. While Proxmire and the milk lobby were forced to accept a partial budget cut this year, the dairy payments still will cost about $3 billion by 1985.
"This is a program that has worked for 33 years," Proxmire declared. "It has held down the price of milk and costs only 1/2,000th of the budget. And it has helped the dairy farmers, many of whom work 150 hours a week for extremely low pay. The case is so clear."
In a small anteroom off the Senate floor, as his colleagues took a break from adopting a $213 billion defense bill before adjourning for the Christmas holidays, Proxmire took a rueful glance back at the year's budget battles.
"Pork is so popular on the Hill that there's no way you can stop it," he said. "The president would really have to twist arms to kill some of these projects, and he hasn't done that. So we've mostly cut programs for the handicapped and things like that.
"The hardest thing in politics is to get people who have been taking a free ride to pay their own way. They're entrenched, powerful, articulate and well-financed, and they'll resist it as hard as they can."