Last Updated: Friday, November 17, 2006 2:10 PM CST
Forest Source, NEWEDC ask county for $2.5 million loan
Representatives of the group of investors seeking to start a wood pellet manufacturing plant near Monico, Forest Source, LLC, want Forest County to invest $2.5 million in their project.
The investment would be made as a loan to the non-profit organization, Northeast Wisconsin Economic Development Corporation (NEWEDC) and used to construct a building to be leased to Forest Source.
"This is a very significant decision you have to make on your part," said Jim Kumbera representing NEWEDC at a well-attended Thursday Forest County Economic Development Meeting. "What we are providing is a significant advantage to that business to try to ensure its health."
According to Kumbera money would return to Forest County coffers through increased tax dollars and the eventual sale of the building to Forest Source. The lease would have an option in year five for the pellet producers to buy the building for $2.5 million. If they chose not to buy the building at that time, the group would be charged more on the lease and again have an option to buy in year seven.
If they chose not to buy at that point, Kumbera says, the lease would then go significantly higher, most likely to a point that would not be in Forest Source's financial interest to continue.
The deal, if everything goes accordingly, would also garner roughly $400,000 for a NEWEDC revolving loan fund, which would be used to help businesses in Forest and Oneida counties, says Kumbera.
Revolving loan funds are paid back at more advantageous rates than other lending institutions and money returned to the fund would then further be used in other business projects.
The loan is being asked for now so that Forest County can obtain the full $2.5 million from the Wisconsin Board of Commissioners of Public Lands in a timely manner. Because the maximum that can be barrowed is $2 million in a year, two loans would be made. One loan for $2 million would be requested in the remaining year of 2006, with an additional loan of $500,000 in 2007.
Forest County would be able to barrow at a 5.5 percent interest rate fixed for 20 years; a deal Forest Source couldn't obtain on the open market, according to Kumbera.
"Is there risk? I am the first one to say your dog gone right there is risk" says Kumbera. "You want to become involved in economic development. It is not for the weak at heart. It is risk taking."
The proposal, which was presented for informational purposes, was questioned for hours by committee members and attending County Supervisors, who were leery about the consequence if Forest Source failed.
"I tell you what if that should defunct and if we had to put the burden of $2.5 million on the taxpayers of Forest County, boy you couldn't run far enough," says Supervisor Terry Lukas. "This would be ugly."
According to an initial draft of the resolution presented last night "should Forest Source default on their lease agreement with NEWEDC and payment on the loan cannot be made to Forest County, Forest County would hold NEWEDC harmless and the assets held by NEWEDC would be assigned to Forest County for resolution and Forest County would file a satisfaction of mortgage."
"The county has the first right to collateral on the land. We will have 9 million in the land and facilities and equipment and whatnot," says Warren Vollmar, a representative of Forest Source. "Yes the banks will be using that as collateral too, but there is more than enough to go around... There is virtually no prospect if we go under, which we won't, but if we should, you are going to get your money out of it."
Vollmar gave a PowerPoint presentation detailing the group's business plan. He said Forest Source would breathe life into a dying logging industry by creating a new market.
In addition to creating 20 jobs for Forest County Vollmar says the 50 truckloads of wood Forest Source will need daily for production will help support local loggers and the businesses that they support.
"We are going to create a domino effect to help push the economy," Vollmar says.
The market place for wood pellets, which supply pellet stoves used for heating, has been exploding due in part to the sharp increases in energy costs. Right now supply for the product cannot keep up with the demand.
Made from dried and compressed sawmill waste and low value pulpwood, the tiny pellets are increasingly becoming financially attractive to homeowners and businesses. A 40-pound bag of pellets costs $2 to $5; with a typical home needing about 5 tons to heat each season.
Stoves range from $2,000 to $3,000 with installation.
According to Vollmar, Forest Source expects to have their first profitable month in the third quarter, achieve overall profitability in year two and become a stable, steady and profitable entity in year three and beyond.
A resolution on the proposal appeared before the council Tuesday night. The results of that meeting occurred too late for this week's publication. A report on the county board of supervisors meeting will be filed next week.
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