North Dakota's Wheat Commission violated state law by running up $2.8 million in legal bills that the agency couldn't pay within two years, Attorney General Wayne Stenehjem said.

In a legal opinion, Stenehjem said the law restricts how much the commission may pay for legal expenses, which were run up during a trade dispute over Canadian wheat imports.

The case resulted in tariffs on Canadian hard red spring wheat, which have been credited for boosting prices for North Dakota farmers. Neal Fisher, the commission's administrator, said the agency will ask the Legislature for help in resolving its budget problem.

"I think there have been tremendous benefits from the case, but it has been a big investment," Fisher said.

The Wheat Commission is financed by a penny-per-bushel assessment on wheat sales, which is called a checkoff. It is approved by the Legislature, and one-fifth of checkoff income may be spent on trade matters.

That share, which varies according to the size of the wheat harvest, has been well short of the commission's legal costs. This year, the Wheat Commission's checkoff share for trade issues is likely to be about $600,000.

The U.S. Agriculture Department has forecast a North Dakota wheat harvest of 310 million bushels this year, including 246 million bushels of hard red spring wheat. North Dakota's five-year average wheat production is 277 million bushels, USDA statistics say.

North Dakota agencies run on two-year budgets. Stenehjem said without the Legislature's permission, the Wheat Commission cannot obligate itself to spend more than two years' worth of checkoff income that was earmarked for the trade case.

Harlan Klein, an Elgin wheat farmer who is chairman of the commission, requested the opinion after an audit raised questions about the agency's spending on the trade case.

The commission was $2 million in the red when its most recent budget year ended last June, and the agency did not report the shortfall to the state budget office, the audit said. The examination was done by the Brady, Martz & Associates accounting firm.

"We recognize the Wheat Commission has continuing appropriation authority, but it is clear they have overspent their available resources, by not having available funds to pay their legal fees, and significant deficit fund balances," the audit said. "We question whether the Wheat Commission has legal authority to overspend their resources."

Fisher said the commission will ask the 2005 Legislature to raise the checkoff from a penny to 1.5 cents a bushel, to allow more rapid payment of the legal debt.

The money has been well spent, because it led to tariffs on Canadian hard red spring wheat and higher prices for North Dakota farmers, Fisher said. He estimated the benefit to wheat producers at $50 million annually, and said it raised North Dakota wheat prices from 20 cents to 50 cents a bushel. The tariffs are scheduled to run until 2008.

As a result of the trade case, the flow of Canadian hard red spring wheat across the U.S. border has been reduced from more than 50 million bushels annually to 1.1 million bushels in the most recent marketing year, Fisher said.

"I think the case has been remarkable, quite frankly," Fisher said. "While it has been expensive, it has paid big dividends."

The commission's law firm, Robins, Kaplan, Miller & Ciresi LLP, has billed $6.4 million, and the agency still owes $2.8 million, Fisher said.

The firm has billed $1.1 million worth of work this year alone. The Canadian Wheat Board is pursuing two appeals of the tariff decision, which means more legal expenses, Fisher said.

The Wheat Commission will have to discuss the opinion's implications with the firm, Fisher said.