Millinocket, GNP tax proposal gets little support

MILLINOCKET – A proposal to give Great Northern Paper Inc., a tax break on its $172 million modernization project received little support on Tuesday. Some residents suggested the proposal be renegotiated.

The proposed tax agreement lays the groundwork for resolving a tax dispute. The town would give Great Northern a tax break by creating a tax increment financing (TIF) program for new investments the company makes to modernize the Millinocket paper mill. The company would drop its pending tax abatements of $4.7 million.

For the first time, Great Northern officials publicly told the small group of about 35 people why the company needed the TIF.

GNP President Eldon Doody said the company had a history of making money in years when markets were really great and losing money in years when markets were marginal or poor. “We must be in a position where we can be profitable in all market scenarios,” he said.

“We are a stand-alone, Maine-based company. There is no other place to go to rob the coffers so to speak,” said Doody. He said investments were needed to convert production from nonprofitable grades of paper such as newsprint, to more profitable grades of specialty papers.

Doody said there had been no meaningful investments made in the Millinocket paper mill for the past three decades, putting it at a competitive disadvantage. He said the paper industry was extremely capital intensive and required large sums of money, tens and hundreds of millions, for capital projects.

“An investment is needed to have a future for the company and its employees,” said Doody. “We do not have the equipment today in the Millinocket mill that has long-term viability. One of our real challenges is the cyclical nature of the paper industry and the sales prices.”

Doody said there has been no sustained increase in the sales price of paper since the mid-1980s, yet customers’ demands for quality has constantly increased. To remain competitive, paper companies have had to control manufacturing costs in the areas of raw materials, labor and benefits, energy and other fixed costs, such as taxes. He said the company needed to modernize to produce the grades of paper the world markets require.

Sandy Perkins, GNP’s manager of business processes, said the town would benefit from the TIF. She said the town would see increased tax revenues. The TIF establishes a base value of $133 million for the mill, which would not drop below that level during the 17-year TIF. “The TIF does bring stability to the town,” said Perkins. She said the company would drop its pending tax abatements of $4.7 million, which would save the town the additional expense of between $500,000 and $700,000 to argue the case before state officials. “A strong Great Northern means a strong Millinocket and a strong Katahdin region.”

About 35 people attended Tuesday’s hearing, but only four residents spoke about the proposed TIF for Great Northern.

Gerald Morrison, a resident and the public relations director for the Katahdin Retiree Association, said a true TIF in any community should reduce the tax rate. “We would like to see the full value of that mill come on line … for one year and let’s see what that can do for our tax rate,” he said.

Morrision said unless the Town Council agreed to freeze spending, it would mean an increase in the tax rate. “You give with one hand and take with another,” he said.

“You have nickled and dimed small businesses to death, but today you are giving away millions of dollars in tax revenues,” said Morrison. He said cutting the tax rate would benefit everyone in the community.

Jim Mingo, a resident, said the state values the Millinocket paper mill at $146 million. “I would have assumed through the negotiations that we would have at least come out of the negotiations with that value we would live with for 17 years,” he said.

Mingo said he wondered what the town got out of the negotiations. “I wonder what the homeowner and the small business is going to realize out of this. All I can see is increased taxes,” he said.

Mingo said 700 of the 2,100 households were occupied by people age 65 and older, many who are living on fixed incomes. “There is nothing in this agreement that protects those people,” he said. Mingo said the company needed some sort of help, but the council was responsible to protect all of the citizens. He suggested the two parties go back to the negotiating table.

Herbert Clark, representing the Katahdin Labor Council, asked town officials to consider adding language to the proposal that would limit the transfer of the TIF to a new mill owner.

Under the agreement, the town will receive 15 percent of the tax revenues from the company’s new investments. GNP will retain 85 percent of the new tax revenues from its investments for 12 years, but only if it continues to employ 650 full-time people. If employment levels drop below 650, the percentage of GNP’s TIF would drop by 2 percent for every 10 jobs that are lost, down to 50 percent.

During an interview, Conlogue estimated the tax break for the company to be between $16 million and $18 million.

GNP officials said the TIF has been part of the company’s business plan from the start and described it as an important component for the financing of the investments at the mill.

A second public hearing on the tax agreement proposal will be held at 6 p.m. Tuesday, Oct. 16, in the high school auditorium. The Town Council will consider the proposal on Oct. 18.