CALAIS – Four years after it opened, the $6 million Downeast Heritage Museum has filed for bankruptcy, the board of trustees announced Tuesday.

The trustees made the decision last week after assuring that all bills were paid except the $600,000 mortgage that USDA Rural Development holds and a $1 million second mortgage with the Department of Commerce.

The Chapter 7 bankruptcy, filed in U.S. Bankruptcy Court in Bangor on Monday, comes on the heels of a troubled history for the museum. Under Chapter 7, assets are liquidated in order to pay off debts.

The museum, which focuses on the cultural heritage of the area, was built without city taxpayer money.

Shortly before it opened in June 2004, the museum’s struggles began. A federal agency’s budget was cut and a $1 million grant for operating funds was withdrawn.

That same month the museum was forced to open because financing agreements dictated that the museum be open for the St. Croix Island celebration, which experts had forecast would bring 400,000 people to the area over the summer. But only a trickle of tourists attended the 400th anniversary celebration of St. Croix Island, where the French established a settlement in 1604.

The museum’s director eventually was replaced.

In late 2006, the museum filed for protection under Chapter 11 with the federal bankruptcy court. The action culminated in a reduction in debt from $3.2 million to the $600,000 owed Rural Development.

To help mitigate the museum’s unhealthy balance sheet, tenants were allowed to move in. One of the tenants, Maine Indian Education, which oversees the education needs of students on the two Passamaquoddy reservations, entered into a 10-year lease with the museum. MIE agreed to pay the museum around $3,000 a month, which covered the museum’s monthly mortgage payment to Rural Development.

Other tenants moved in including the St. Croix Valley Chamber of Commerce and the Maine Office of Tourism, but they did not pay rent. It was hoped that the Tourist Information Center would attract visitors to the museum, but that didn’t happen.

The museum continued to bleed money.

In July, the trustees notified all interested parties that it intended to file under Chapter 7.

“Future use of the building is subject to decisions by the U.S. Bankruptcy Trustee and USDA Rural Development,” stated a press release issued Tuesday by the trustees. The tenants are expected to remain in the building. Rural Development officials did not return a telephone call Tuesday.

Papers filed with the court show just how dire the situation is. It cost the trustees about $5,000 a month to operate the facility, but the museum has only $1,294 in its checking account.

The museum has $13,500 in personal property including office furnishings, remaining gift shop inventory and the St. Croix Island Exhibit as well as other artifacts.

The museum owes the U.S. Department of Commerce’s Economic Development Administration $1 million.

“They hold a second mortgage on the building,” the museum’s attorney, Dan Lacasse of Calais, said Tuesday. “The condition of that grant was that we remain a museum or a philanthropic organization,” he said. The $1 million owed the federal government is included in the bankruptcy filings.

While the museum goes through bankruptcy, it continues to operate. Maine Indian Education is now paying for utilities with money it receives from the Bureau of Indian Affairs.

“They are managing the building while Rural Development … decides what it is going to do,” Lacasse said.

A disclosure hearing is scheduled for later this month at the bankruptcy court in Bangor.

“Presumably somebody will make some kind of decision as to what happens with the building whether it is foreclosed or sold, whatever,” Lacasse said. “It is up to Rural Development. If they make out some kind of arrangement with the Bureau of Indian [Affairs] to refinance it or have them assume the obligation, then the building could stay as it is. But if they can’t and Maine Indian Education elects to go somewhere else – because this is a very expensive building to maintain because of the utilities – then Rural Development will put it on the market and try to sell it.”

City Manager Diane Barnes, who was not in Calais when the museum was built, said Tuesday it was unfortunate that the museum got into trouble. “It is really too bad,” she said. “The end result is the filing of Chapter 7 through the bankruptcy court, and nobody wants to see that happen not in anyone’s personal life and certainly not in this situation.”

She noted that the museum is a prime piece of waterfront real estate. “Hopefully, whatever happens down there, it is in the best interest of the city of Calais,” she said.

Jim Porter, who is the chairman of the board of trustees, said he regretted they had to file for bankruptcy. “I am sorry to see this happen,” he said Tuesday. Porter said a lot of people worked very hard to keep the museum going.

“It’s nobody’s fault,” Jim Thompson, the museum’s executive director, echoed Tuesday.

Last year, Thompson wrote a vision paper recommending that the museum be turned into a Native American education culture center. He presented the paper to the Bureau of Indian Affairs, but he has not heard back. “The wheels grind slowly,” he said.

bdncalais@verizon.net

454-8228