Three years after a controversial tax break program failed to prevent a paper mill in Northern Maine from closing, another paper company is using the program to lure investment for mill improvements projected to create and sustain jobs in Oxford County.

Catalyst Paper has lined up $12.7 million in state tax credits to leverage a $31 million investment to add a new tissue paper machine at its Rumford mill through a subsidiary called Pacific Falcon Corp. Catalyst also is seeking a $25 million loan that would bring the total investment in the mill to at least $56 million.

The Finance Authority of Maine approved the tax credits last week through the Maine New Markets Capital Investment program.

A 2015 Portland Press Herald investigation found abuses of that program, especially in an expected $40 million upgrade to the Great Northern Paper mill in East Millinocket. Investors received $16 million from Maine taxpayers, but none of the leveraged money was used to modernize the plant. Instead, it was used to pay off the mill’s debt and repay investors using a device called a one-day loan. The mill closed 14 months after the deal, and more than 200 workers were laid off. The New Markets program has since been revised.

Catalyst is seeking the $25 million loan through the finance authority’s Major Business Expansion Program.

“The bottom line is, Catalyst is always looking (for) opportunities to improve business,” said spokeswoman Eduarda Hodgins. “It is really going to help contribute to the economic vitality and prosperity of the region.”

The Rumford mill has seen a significant decline in the demand for its primary products, coated printing paper and pulp. The shrinking market for those items has been felt throughout Maine, where five paper mills have been shuttered since 2014. Managers of the Rumford mill want to avoid a similar fate.

“Tissue is still one of those product segments that is growing in North America,” Hodgins said. “It is very important to us to diversify our product line, outside of printing and writing.”

The company plans an upgrade of the entire mill by substituting high-value tissue production for low-value pulp production, according to an economic impact report by Maine economist Charles Lawton. Catalyst says it will have a multiyear agreement with a partner to sell and distribute tissue made at the mill. It wants to start production in 2020.

Catalyst expects tissue production will support 62 jobs at the mill, bringing the total workforce to 658 with a $79 million payroll. The entire mill will support almost 1,900 jobs directly and indirectly, according to Lawton, who is also a columnist for the Maine Sunday Telegram.

The project still needs approval from the Catalyst board of directors, Hodgins said.

PROMISING SHIFT FOR CATALYST

If market trends hold, Catalyst is making a good bet by shifting some production to tissue paper. In his report, Lawton estimated that demand for tissue in North America is growing 1.4 percent annually. While that seems modest, it is a welcome indicator for an industry dealing with falling demand for other kinds of paper.

“Sanitary paper products are really the bright spot in the sector right now,” said Devin McGinley, an industry analyst with the market research firm IBISWorld. “Overall demand for these products is going to be steady (through 2022). Steady is good.”

The investment is good news for the Oxford County town, where entrepreneur Hugh Chisholm founded the mill on the Androscoggin River as Oxford Paper in 1901. Today, most of the people who live in the town of about 6,000 work at the mill or are connected to it in some way. In 2016, the county’s unemployment rate was 4.8 percent, higher than the state average of 3.9 percent but well below other areas of the state where mills have closed.

In the wake of declining demand for the coated paper that has been Maine’s mainstay in the market, several of the state’s remaining paper mills have shifted to niche products or cut production. Last week the Verso Corp. announced a paper machine at its Jay mill would be permanently shut down, eliminating 120 jobs. Catalyst and other companies have made major investments to mills in Rumford, Baileyville and Skowhegan to make tissue, specialty paper and packaging material.

“This is what the pulp and paper industry has to look at,” said Rosaire Pelletier, Gov. Paul LePage’s liaison to the paper industry and a finance authority board member.

MOVING ON FROM ‘DYING’ PRODUCTS

Printing and writing paper production capacity decreased 4.8 percent annually from 2007 to 2016 and is projected to decline another 2.6 percent this year, according to the American Forest and Paper Association. Tissue capacity increased 0.5 percent a year over the same period, and is expected to grow 1.3 percent in 2017.

“We have to move on to other products, you can’t stay doing the same old same old if your product is dying on you,” Pelletier said.

Lloyd Irland, president of the Irland Group and a longtime observer of Maine’s paper industry, said Catalyst’s plan is good news.

“It certainly has to be encouraging that people are formulating new plans to repurpose capacity at mills like the Catalyst one,” Irland said. Unforeseen issues in the supply chain or competition from other producers moving into tissue make long-term projections uncertain, Irland cautioned.

“If we couldn’t foresee what happened in the last 15 years, we might not be very credible to predict what will happen in the next 15,” he said.

TAX CREDITS UNDER SCRUTINY

The New Markets program was created in 2011 to stimulate investment in low-income areas, but has been criticized for lack of transparency, accountability and effectiveness. Investors that buy into the program can get 39 percent of their investment back in the form of tax credits, paid out over seven years. Maine’s tax credits are refundable, meaning that if an investor doesn’t pay taxes in Maine, it can take cash payments from the state instead.

The Androscoggin River flows past the Catalyst Paper mill, which employs about 600 and has a $79 million payroll. Today, most of the 6,000 residents of Rumford work at the mill or are connected to it in some way. Staff photo by Shawn Patrick Ouellette

In a March report, the Office for Program Evaluation and Government Accountability said investors had put $194.2 million into 10 economic development projects since 2012, in return for $75.8 million in tax credits. Overall, the program has succeeded in creating or retaining hundreds of jobs, but it lacks ways to measure its cost-effectiveness, the OPEGA report said.

The finance authority made rules in 2015 that closed loopholes in the tax credits program. One-day loans are not allowed, and the finance authority prohibits the issuance of tax credits if more than 5 percent of the money is used to refinance debt, make equity distributions or pay transaction fees.

“If you make the investment as you describe it and fulfill the conditions, you will get a tax credit,” said Chris Roney, the finance authority’s general counsel.

COMPLEX DEAL, MORE ACCOUNTABILITY

State Sen. Shenna Bellows, D-Manchester, said closing loopholes is a good start and that lawmakers can take more steps to prevent abuse. She would like legislators to consider a claw-back provision allowing the state to reclaim tax credits if projected benefits aren’t realized, and address refundable credits so investors have a disincentive to take money out of the state.

“We need to make sure we get our return on investment in terms of job creation,” Bellows said.

The credits for Pacific Falcon Corp. will be distributed through seven Community Development Entities that received allotments of $4.5 million each. Those companies connect tax credits to investors for a fee. In this case, Missouri-based U.S. Bancorp Community Development Corp. is financing the project, according to an organizational chart from the finance authority describing the complex deal.

State Treasurer Terry Hayes, an independent who has entered the 2018 gubernatorial race, was the only finance authority board member to abstain from voting on the tax credits. She didn’t think she understood the proposal well enough to vote comfortably, Hayes said.

“I couldn’t explain the math,” Hayes said. “I understand what the board did, but I as an individual board member felt like I needed to understand the process better.”

The approval was an intermediate step in the overall financial deal, which includes the proposed $25 million loan to Catalyst, Hayes said.

“At the end of the day it was clear to us that ultimately if the deal went through, the tax credits are an essential part of it,” she said.

Peter McGuire can be contacted at 791-6325 or at:

[email protected]

Twitter: PeteL_McGuire

Augusta and Waterville news

Get news and events from your towns in your inbox every Friday.


  • This field is for validation purposes and should be left unchanged.