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State takes $23 million bath on mills
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| By Keith M. Phaneuf, Journal Inquirer |
September 29, 2004 |
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| Despite investing more than $23 million to convert the former American Thread Co. mills in Windham into a technology center, the state will see the project -- which has created barely one-tenth of the jobs anticipated -- to fall into private hands before the year's end. |
Independence Bank, which was granted first collateral rights by the state even though the East Greenwich, R.I., institution has invested just $4.9 million, has announced it will hold a Dec. 15 public auction as part of foreclosure proceedings.
Meanwhile, officials in Windham -- who had hoped the project would create more than 1,200 jobs and become an economic linchpin for eastern Connecticut -- are holding their collective breath, hoping the next owner continues the goal of developing a technology and industrial center.
And concern over the December sale mirrors a warning issued more than three years ago by state auditors, who cautioned former Gov. John G.
Rowland's administration about yielding collateral rights on projects that had received major state funding.
"I'm still optimistic that the mills have a good future, but the sooner this is resolved the better," Windham First Selectman Michael T. Paulhus said this week. "The community has a lot at stake here."
"What's going to happen to the mills? That's a good question," Jeffrey L. Vose, president and chief executive officer of the nonprofit Windham Mills Development Corp., said. "We're still working with the bank, talking to some good investors we hope are looking to participate. But we don't know for sure who will buy it. Somebody could buy the site and make it all self-storage units."
Grand plans now a question
The mill buildings along Main Street near the Willimantic River certainly weren't envisioned as glorified warehouses in the early 1990s, when Windham and other municipal leaders from northeastern Connecticut convinced then-Gov. Lowell P. Weicker Jr.'s administration that the abandoned complex again could become the industrial hub of the region.
Built in 1854 with granite quarried from the Willimantic River, the complex was the state's largest employer by the 1890s, putting close to 3,200 people to work on thousands of thread projects.
The mills operated until 1985, when American Thread moved its operations to North Carolina. Two subsequent private owners couldn't get plans to redevelop the property off the ground.
In 1993, the Weicker administration was sold on a proposal to invest $12 million to create 1,200 jobs -- an expectation that quickly would prove unattainable.
Windham would take the property by eminent domain and create the nonprofit WMDC to own and manage it. The state would invest $5.7 million in the complex before Weicker left office in January 1995.
But a fire later that year would destroy one building, two more buildings would be demolished, and a host of pollution problems would be uncovered, far worse than anticipated.
"We are like the poster child for brownfield remediation," said Vose, who joined the WMDC in 1998. Environmental work on the site has included removing lead, fuel oil, asbestos, and polychlorinated biphenyls, cancer-causing hydrocarbon commonly referred to as PCBs.
Still, those problems didn't stop the state money from flowing, at least not right away.
75 jobs for $21.6 million
After Rowland took office in January 1995, the project became a favorite of one of his top aides, Peter N. Ellef, who served first as Department of Economic and Community Development commissioner and later as Rowland's co-chief of staff.
Ellef was indicted by federal authorities last week and reportedly is at the center of an ongoing investigation into allegations of bid-rigging within the administration. Ellef plead not guilty this week in federal court.
About $8.5 million in grants and a $7.3 million loan would follow under Rowland's tenure between July 1996 and January 1998.
Still, when state auditors began reviewing the project five years ago for a July 2001 report, only 75 jobs had been created out of a $21.6 million investment.
State Auditors Kevin P. Johnston and Robert G. Jaekle threw up a red flag when they questioned why the state had granted first collateral rights to private investors, who were just being brought in by that time.
"The result is that the state has limited its ability to recoup some of its investments if the project fails," they wrote.
Even today, the complex employs about 130 to 140 private-sector workers, though it also includes a regional office of the state Department of Children and Families -- a far cry from 1,200 jobs, despite close to double the anticipated investment.
To make matters worse, the mill project never has made money.
Windham tried to revitalize the project in 2000 when voters authorized the town to invest $2.25 million in municipal funds in the mills.
And between 2000 and early 2003, the state would begin providing funding to help the WMDC cover its operating costs, spending close to another $1 million.
But as the economy slowed and cost projections to make the mills work continued to rise, state funding dried up and local officials were urged to go to the private sector.
Knockin' on the bank's door
The WMDC borrowed $1.7 million from a local bank, the Savings Institute of Willimantic, and then $4.9 million from Enterprise Capital, which has since become Independence Bank. The WMDB still owes $1.4 million and $4.7 million on those loans, respectively, Vose said.
The problem was that private investors wanted first rights to the property in the event the mills went under, even though the state had the most dollars at stake.
"There's no developer in his right mind who would have stepped in and taken on that project" without collateral rights, said Vose, who added he believes it will take about $40 million, including past investments, to make the Windham mills a money-making venture.
So if the state already had spent $23 million with just 140 private sector jobs in place, why risk losing all control?
"You're going to have to ask them that," Vose said, adding he thinks the state had too much invested to bail out. "Circumstances change and political climates change."
Department of Economic and Community Development officials said the challenge of economic development isn't that simple.
The goal in most state development ventures is to bring in private investment, Peter Lent, assistant executive director of the DECD's office of business and industrial development, said. He added that "in order to do that, at some point, you are going to have to subordinate."
Department spokesman James Watson noted that while the mills haven't been self-sustaining, they have created more than 100 jobs, given the community a reason to be optimistic about an unused site important to its economic and cultural past, and abated a major pollution problem.
Hoping for a clean slate
Seven mill buildings with about 240,000 square feet remain on the property. Of that, about 86,000 square feet has been renovated and enhanced with utilities and other amenities needed to support businesses, Vose said. Of that 86,000 square feet, about 74,000 is leased, supporting a data services center, a plastics firm, and an electrical components company among 14 tenants.
Watson added that the state couldn't continue to increase investments well beyond its original target. "At some point you have to look and say, "The state has done its share,'" he said."
The problem, Vose responded, is there's no guarantee the state's $23 million vision of an industrial and technology center will come to fruition.
Further complicating matters is that federal authorities have taken an interest in the property. That's because in the mid-1990s the state had hired Downes Construction and Tunxis Management to oversee construction and property management at Windham Mills.
Both contracts were awarded without competitive bidding and both firms were affiliated with the Tomasso Group, a New Britain construction company indicted last week, along with Ellef, in the bid-rigging scandal.
"We just hope now that the next owner has a clean slate and enough capital for the project to continue," said Rheo Brouillard, president and chief executive officer of the Savings Institute of Willimantic.
Messages placed this week with Independence Bank President Robert A. Catanzaro were not returned. |
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