GNP closure could cost 5,000 jobs Shutdown causes ripple effect

loading...

BANGOR – A prolonged shutdown of Great Northern Paper Inc. could claim almost 5,000 jobs and eliminate $115 million in annual wages from the state and national economies.

“This is a devastating body blow,” said Craig Holland, a labor market analyst with the Maine Department of Labor. “It’s a very significant and catastrophic event for the region.”

On Wednesday, Holland completed an economic analysis of just what kind of financial impact a prolonged closure of Great Northern’s two mills in Millinocket and East Millinocket could have on the economy.

The analysis will be incorporated into a labor department request being mailed this week for federal funds to help paperworkers and other individuals and businesses affected by the shutdown with job retraining, unemployment and financial advice or assistance.

The economic fallout already has rippled from the mill towns to Wall Street since Great Northern shut down its machines on Dec. 27 and filed for bankruptcy protection on Jan. 9.

Pittsfield-based Northeastern Environmental Services and Northeastern Insulation, which together employ between 45 and 90 people during the year, have eliminated 12 positions because they are losing “a substantial amount” of money while the mills remain closed.

“It hurts some,” said Mike Vigue, president of both companies. “We were in the middle of a project up there.”

Today, Minerals Technologies of New York, parent company of Specialty Minerals of Dallas, which is owed $3.4 million from Great Northern, will reduce its fourth-quarter 2002 earnings estimate by up to 18 cents, to 56 cents.

“While the outcome of the bankruptcy proceeding and the long-term future of the Millinocket and East Millinocket mills are uncertain, the company has taken the precaution of increasing its bad debt reserve by approximately $3 million,” according to a statement.

Minerals Technologies owns a precipitated calcium carbonate plant in Millinocket that supplies filler-grade material to the two mills, and “will continue to evaluate the prospects of its Millinocket PCC facility,” according to the statement.

Last week, Montreal, Maine and Atlantic Railway announced that it expected to lose $800,000 a month while the mills are shut down. The railway cut wages by up to 40 percent for its 300 employees and vice presidents, and is planning job reductions.

According to Holland’s analysis and another review conducted by the State Planning Office:

. For each job lost at the mills, another 3.4 jobs, or 3,842 total positions, could be cut by other companies. Great Northern employs 1,130 people, one-fourth of the 4,470 people working in the Katahdin region.

. Great Northern employees could lose $47.84 million annually in wages. That number would increase 1.4 times, or another $66.98 million, for wages lost to workers laid off at companies that rely on Great Northern’s employees or the company itself for business.

. The state could lose up to $5 million in personal income tax revenue and $3 million in sales tax revenue annually if Great Northern workers and others go without $115 million in yearly wages.

“This would be toward the high end [of the estimated impact],” said Galen Rose, an economist with the State Planning Office.

He said the calculations conducted by Holland, who used standard formulas for pulp and paper industries that were supplied by the U.S. Department of Commerce, are “in the ballpark.”

“I wouldn’t dare argue with them, frankly,” Rose said.

In its bankruptcy filing earlier this month, Great Northern said it had more than 1,000 creditors and owed more than $100 million. It also reported annual sales last year of $260 million, with net losses of $50 million.

Great Northern has been granted up to $5 million in emergency funding to keep its two mills heated through Feb. 4, and is employing 80 people to maintain the facilities while it says it is looking for a buyer. But the company has informed a federal bankruptcy court judge that it has no plans to reopen the facilities.

John Simpson, president of H.E. Sargent in Stillwater, which is owed $407,000 from Great Northern, said he believed the economic fallout from Great Northern’s prolonged shutdown could be in “upwards of a billion dollars.”

“The big concern I have right now is for our people, and for the 1,100 people up there,” said Simpson, whose company employs 600 workers, with about 50 of them serving Great Northern Paper.

This week, H.E. Sargent workers have been on-site at the Millinocket mill to fix an effluent line that burst and is leaking, Simpson said. Payment arrangements are being handled separately from GNP, he said, but he didn’t provide details.

Richard Carrier, owner of Richard Carrier Trucking in Skowhegan, said he is losing about $75,000 a week because of the shutdowns. The trucking company, which hauls wood chips and bark, is owed $511,000 from Great Northern and is trying to find new business elsewhere to maintain current operational levels.

“We should be able to carry it,” Carrier said.

But Maine has a limited base of customers, said Ray Lynch, president of Central Maine Transport in Bangor, which is owed $375,000 from Great Northern. Central Maine Transport, like Richard Carrier Trucking, is lining up new business to fill the void left by the paper company.

“Our potential loss of revenue is one issue, but our loss of future business is another,” Lynch said. “Every day they’re not open, their customers have the opportunity to look elsewhere.”

At Bangor Mall, manager Bruce Soper said he expects “a small negative impact” on annual sales from the loss of buying power Great Northern’s employees and others are experiencing.

Layoff notices are being sent out to Great Northern’s nearly 1,130 workers this week. According to a spokesman from the labor department, many of the former employees need the termination notices so they can close their 401(k) accounts and use the money to pay bills and other expenses.

Employees earned an average of $18 an hour or $720 each week before taxes, and now they are collecting up to $288 a week in unemployment benefits. From that, they need to send Great Northern about $180 a week to maintain their share of health care premiums.

Charles Colgan, a professor of economics and public policy at the University of Southern Maine, said, “the biggest problem right now is uncertainty.”

“The company that emerges will be different than the company that went into bankruptcy,” Colgan said. “How different? It’s hard to say.”

And if the mills do reopen, Colgan said, “What Great Northern needs most of all is a speedy recovery of the national economy and a growth in demand for its products. Unfortunately the prospects of that happening soon aren’t good.”

In bankruptcy court last week, Great Northern submitted a substantial list of creditors that, when printed from the court’s computer, totaled 255 pages. The company, however, on Wednesday asked for an extension of its deadline to file a list of how much it owes each of them. It is asking to submit the list by Feb. 18.

Also on Wednesday, Great Northern notified five of its utility providers that it will pay for services while it is under bankruptcy protection. But Great Northern is asking a federal bankruptcy court judge to tell the utilities not to dip into security deposits to pay for bills the paper company accrued before it filed for bankruptcy, or to not ask for any security deposits in the future.

In court documents, Great Northern stated: “Pursuant to bankruptcy code, a utility may alter, refuse or discontinue service if not offered adequate assurance of payment within 20 days. Great Northern has sufficient funds to pay promptly all of its obligations to the utility companies for post-petition utility services on an ongoing basis. Thus it is unnecessary and would be an improvident use of available cash for GNP to make additional cash security deposits with each of the utility companies.”

In Augusta, Gov. John E. Baldacci continued closed-door conversations with Great Northern’s creditors and its management, including president Lambert Bedard, on Wednesday. According to Lee Umphrey, the governor’s communications director, those talks are scheduled to continue today.

Baldacci was scheduled to attend a rural development conference at the University of Maine at Presque Isle today, but cancelled to continue discussions pertaining to Great Northern, Umphrey said.