The saga of the failed effort to spend public money saving jobs at the Rough & Ready sawmill has plenty of possible culprits, from the lawmakers who set up the rules to the mill owners who may have gotten more out of the deal than they should. It’s not possible to apportion blame with any precision. What’s certain is that the project should never have won approval, and government officials must ensure nothing like it happens again.
The Oregonian newspaper’s investigation of the deal, published in Friday’s Mail Tribune, describes a well-intentioned effort to reopen the mill, which had closed in 2013, by retooling its small-log operation with an infusion of state and federal dollars. Ultimately, the deal provided $12 million, $8 million from the federal government and $4 million from the state, to purchase the land and buildings and invest in new equipment.
Qualifying for the maximum state tax credits involved in the deal required spending at least $8 million upgrading the Rough & Ready sawmill. Ecotrust, a Portland nonprofit company, prepared the application, which said half the $8 million would be spent to buy land and construct a building, but the building and land already existed, and were still owned by Rough & Ready operators Link and Jennifer Phillippi. In effect, the deal involved a company 99 percent owned by the Phillippis using taxpayers’ money to buy the land and building from another company, also owned by the Phillippis.
The mill reopened to great fanfare in 2014, but shut down again, this time for good, less than 20 months later. The Phillippis said they could not acquire enough logs to keep going.
In hindsight, it seems clear there were enough red flags early in the process to scuttle the deal before it got off the ground, but state rules at the time left it up to Ecotrust and the Phillippis to decide whether the financing would save the mill. In fact, Business Oregon, which was responsible for awarding the state dollars, was not allowed to look beneath the surface of the deal under rules established by the Legislature. As long as the project met general federal criteria — in a low-income area, arranged by a federally approve entity, backed by enough money — it was to be approved. Such rules are at least an incentive to cut corners on due diligence, at worst an invitation to commit fraud.
The deal went through, but it did not last.
Of the $12.3 million in tax incentives spent on the project, only $5 million was left after the mill equipment was auctioned off and the property sold, Ecotrust’s chief financial officer reported last August.
Ecotrust has agreed to pay half of the $500,000 in fees it received for arranging the deal, and Business Oregon told the company last month it will take back more than $1 million of the incentives because of misspending, but Ecotrust can avoid that penalty if it spends $2.9 million on other projects in rural Oregon.
Apparently no further action will be taken against Ecotrust, after the state Justice Department looked into the deal but decided against a civil or criminal investigation.
State lawmakers ended the new market tax credit program in 2016, but the federal program has continued.
Saving jobs in struggling industries is a worthwhile goal, but only if strict safeguards are in place to prevent debacles such as the Rough & Ready deal. Legislators should not consider any new state efforts without requiring a far greater degree of scrutiny before deals are closed.