Sneller said developers usually requested financing assistance from communities that need good-paying jobs and want to boost the local market for corn.

Ethanol, or ethyl alcohol, is made mainly from corn and is mixed with gasoline to help it burn cleaner. The fuel additive can also be made from other agricultural products or waste.

Ethanol plant developers have obtained or are seeking tax-free financing in Illinois, New Jersey, Indiana and Ohio, to name a few states.

According to the Renewable Fuels Association, a trade group for the US ethanol industry, there were 101 ethanol plants in the United States and 34 under construction as of June 23.

The plants' high cost makes them ineligible under Internal Revenue Service capital expenditure rules for industrial development private-activity bonds. So, developers are trying to obtain tax increment financing bonds, which tap incremental increases in property or sales taxes in an area.

They are also trying to get their plants qualified under IRS rules for issuing tax-free debt to finance solid-waste disposal systems at the facilities.

But obtaining tax-exempt financing may be tough, according to Curtis Christensen, a bond attorney at the Kutak Rock law firm in Omaha, Nebraska.

"It's fair to say these are really hard because of their nature. Under the tax code, it's hard to qualify these facilities," he said, referring to IRS rules and covenants governing solid-waste disposal bonds.

This kind of bond also falls under a requirement -- called private activity volume cap -- in which the federal government allocates to each state a limit on financing private projects with tax-exempt bonds.

Even tax increment financing (TIF) bonds can pose problems, Christensen said. He said laws regulating TIF bonds vary from state to state, with some restricting the use of proceeds to general infrastructure improvements like roads.

BOND DEALS IN THE PIPELINE

A company called Center Ethanol plans to use up to US$30 million in TIF bonds given initial approval last month to build a plant in Sauget, Illinois, across the Mississippi River from St. Louis, Missouri, according to officials.

The bonds will tap incremental increases in Sauget area property taxes and will be exempt from both state and federal taxes, said Michael Lundy, executive director of the Southwestern Illinois Finance Authority, which approved the financing.

Center Ethanol President Barry Frazier said the bond financing was important given how close the project is to the St. Louis metropolitan area, where labor and land costs are higher than if the plant were built "out in the middle of nowhere."

A final decision on the plant, which would employ about 35 people, was expected within the next two months, he said.

In New Jersey, the state's Economic Development Authority has given preliminary approval to US$84 million in tax-exempt, solid-waste bonds for a waste-to-ethanol facility in Dover Township, according to agency spokesman Glenn Phillips. The state has enough private-activity volume cap to cover the issue.

Fuel Frontiers, a subsidiary of Nuclear Solutions Inc. , plans to produce 55 million gallons of ethanol a year from old tires at the plant, said company spokesman Fred Frisco. He said final approval for the bonds would be sought in about a month.

In central Ohio's Coshocton, Los Angeles-based Altra Inc. broke ground on Tuesday on a US$100 million ethanol plant that will be partly financed with up to US$85 million of air quality bonds approved by the Ohio Air Quality Development Authority.