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October 1, 2014

Cutler criticizes LePage over Cate Street support

The LePage administration’s role in assisting the New Hampshire-based investment firm Cate Street Capital in reopening the now-shuttered Great Northern Paper Co. mill in East Millinocket and the still-pending Thermogen wood pellet project in Millinocket is being characterized by independent gubernatorial candidate Eliot Cutler as a “massive scandal — a story of corporate welfare and crony capitalism at its worst.”

The GNP mill, which had been managed by Cate Street and has recently filed for Chapter 7 bankruptcy citing more than 1,000 creditors and at least $50 million in debt, closed in January, putting roughly 256 people out of work. The $140 million Thermogen project, which originally was proposed as a torrefied wood pellet (i.e. bio-coal) plant but is now intended to make traditional wood pellets, has been on hold for months while Cate Street Capital seeks financing.

George Gervais, commissioner of Maine’s Department of Economic and Community Development and a board member of the Finance Authority of Maine, countered Cutler by telling Mainebiz this morning, “All of the accusations are purely for political gain. The accusation of a failure of due diligence couldn’t be further from the truth, as are the accusations of any special deals. What [Cate Street] took advantage of, anyone could take advantage of … As Eliot Cutler himself said in his speech, we can’t guarantee the success of any business. Business is a risk, but it doesn’t mean we give up on our efforts.”

Cutler’s accusations in a Tuesday afternoon press conference at his campaign’s Portland headquarters were accompanied by a detailed timeline that he said illustrated a pattern of “special tax breaks, legislation and loan guarantees promoted by Gov. LePage” in support of Cate Street’s Katahdin region investments that could leave Maine taxpayers on the hook to pay $15.9 million over the next five years in tax credit payments under the state’s New Markets Capital Investment Program.

“$40 million was raised using almost $16 million in refundable state tax credits that will go largely or exclusively to out-of-state investors who invested $10 million,” Cutler said, referring to the December 2012 approval by FAME of tax credit certificates to GNP investors Enhanced Community Development LLC of New Orleans and Stonehenge Community Development LLC of Baton Rouge, La. “This New Markets Capital Investment Program that spawns the refundable tax credits was intended to induce and to support job-creating capital investments — but no new jobs have been created, all previously existing jobs appear to have been lost, and the money is gone.”

Cutler cited three instances in which Maine’s laws and regulations governing the new markets tax credits were changed “at the behest of the governor to benefit Cate Street Capital” and alleged that the LePage administration failed to ask “the hard questions” and exercise due diligence when the Portsmouth, N.H., investment firm purchased closed paper mills in Millinocket and East Millinocket from the state for $1 in September 2011. The Millinocket mill never reopened and is now being torn down; the East Millinocket mill reopened under its longtime former name of Great Northern Paper and ran for about two years before closing this January for what was initially described as a “retooling” of its business plan.

Gervais strongly disputed Cutler’s characterizations, saying the LePage administration spent “months” working with lawmakers, leaders in the Millinocket region and FAME to improve a very bleak local economy resulting from the previous owner’s decision to close the two paper mills. Following Cate Street’s purchase and reopening of GNP, he said, the mill paid $40 million in payroll over a two-year period, resulting in a total economic impact of roughly $200 million for the Katahdin region.

“I really don’t think it was a bad deal for Maine,” he said, adding that former owner Brookfield Asset Management was poised to demolish both mills after several years of unsuccessful efforts to sell them. “That mill [in East Millinocket] would not be there as an asset today.”

Chris Roney, general counsel for FAME, told Mainebiz on Wednesday that while it’s accurate to say Maine taxpayers are ultimately liable to pay $15.9 million in tax credits under the state’s New Markets Capital Investment Program, those payments are contingent on the investment dollars “staying in the qualified business for seven years.”

“If the bankruptcy resulted in any funds being returned to investors, they would be obligated to reinvest those monies in another qualified Maine business to avoid a possible recapture of the tax credits,” he said. “The mill does not have to be sold and reopened for the credits to remain valid — the only obligation is that the investors leave their investment at risk in the business for seven years, and if they do get all or some of it back in that period, they must re-deploy that money in another qualified Maine business for the remaining portion of the seven-year period.”

Roney acknowledged GNP’s Chapter 7 bankruptcy filing poses many complications for the Katahdin region’s economy and residents.

“It’s not good news for anybody,” he says. “It’s not good news for the investors, the people who worked there, the people who live there … Nobody is benefiting from the bankruptcy filing.”

The article was updated to clarify how we reported Roney's explanation of the state's New Markets Capital Investment Program in relation to Great Northern Paper's closure and bankruptcy filing.

Read more

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Maine AG seeks relocation of GNP case

Second GNP company files bankruptcy

Report: Most of GNP's $40M investment a 'mirage'

Lawmakers seek changes to tax-credits program

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