For months, the Harbor Paper mill has been eerily quiet.
No smoke has come from the chimneys, few people have passed through its gates. In early December, assets from the facility appeared on Los Angeles-based auction site biditup.com after Harbor Paper management failed to secure funding for a mill restart. The auction will take place in February, almost a year to the day since it ceased operations.
But, still, relative silence has continued to surround the mill. Nearly a year after Harbor Paper went dark, details of the mill’s demise are finally coming to the surface.
After months of minimal contact with the public, Elliott Rust Companies, Harbor Paper’s owner, sent a letter to the mill’s vendors and creditors on Dec. 18 outlining the company’s plight.
“The bottom line is that the mill was not profitable, incurring more than $11 million in operating losses and $21 million in debt,” the letter reads.
The letter describes several attempts to restart Harbor Paper. First, mill ownership said it tried to negotiate new prices with existing pulp and paper brokers to create a larger profit margin. The two sides couldn’t reach an agreement and Harbor Paper spent about $1.7 million maintaining the mill for a quick restart.
In June, the mill’s ownership said it gave up on the plan and decided to sell Harbor Paper instead. Ownership engaged an investment banker to market the company to potential buyers, the letter reads. In August, Harbor Paper received a proposal to reopen the mill, which included $10 million in new investments.
Harbor Paper’s secured lender, Craft3, didn’t approve of a loan refinance that may have made the plan possible, the company told its vendors and creditors.
“Our hope was that our secured creditor would approve the proposal for refinancing and that the mill would reopen. … Sadly, the secured creditor rejected the proposal,” the letter reads.
Craft3, a nonprofit lender specializing in community development, could not be reached for comment. However, state Department of Commerce Spokeswoman Penny Thomas offered a different account of the events leading to Harbor Paper’s appearance on biditup.com.
According to Thomas, Craft3 and Harbor Paper reached an agreement soon after the mill closed to facilitate an easier restart. Craft3 allowed Harbor Paper to stop making payments on its $5 million loan while ownership worked to reposition the company, she explained.
Harbor Paper ownership ultimately decided against this option and tried to sell the mill to another operator, but they were unable to find a buyer. Thomas said that Harbor Paper then decided to liquidate the company, but was not required to do so by Craft3.
According to Grays Harbor County Auditor’s Office records, Craft3 transferred ownership of all improvements, structures and buildings on the Harbor Paper site to Industrial Asset Corporation in California on Dec. 5.
“After the Mill closure in February 2013, the original intent was to strategically re-position the company (Harbor Paper) and re-open. Craft3 allowed the company to cease loan payments while it attempted to re-position. (Harbor Paper) ownership ultimately decided against this option and proceeded to try to sell the company to another operator. No such operator was found. Ownership then decided to close and liquidate the company. Craft3 did not require a liquidation. Part of the liquidation is a contract with Bid-It-Up to auction off certain business assets. Craft3 expects to recover its investment in Harbor Paper and make these resources available to other borrowers in Grays Harbor County and throughout Washington,” Thomas said in an emailed statement to The Daily World.
Craft3 and the Department of Commerce became involved with Harbor Paper in 2012 when the company purchased the mill from former owners, Grays Harbor Paper LP. Craft3 loaned Harbor Paper $5 million to purchase and operate the mill. According to Department of Commerce records, the state provided Craft3 with $4 million of that funding through the Washington Small Business Credit Initiative.
The mill started operating in October of 2012 with a grand opening ceremony attended by then-governor Chris Gregoire, former Congressman Norm Dicks, Gov. Jay Inslee during his gubernatorial campaign, state Sen. Jim Hargrove, Hoquiam Mayor Jack Durney, former Harbor Paper CFO John Begley and Elliott Rust Holdings owner Cesar Scolari, among many others.
“Cesar, thank you for your faith in Grays Harbor,” Gregoire said at the 2012 event. “You know, this is a family you can count on, and now you’re part of their family. Thank you for your investment in Grays Harbor.”
But the investment didn’t last long. Within months, Harbor Paper ran out of money and ceased operations.
Harbor Paper stopped operating Feb. 25 of the following year, and a press release from Elliott Rust Companies stated that the closure would be temporary. A management restructure was cited as the cause.
A few weeks later, Elliott Rust Companies announced that the mill would resume full operations with Cesar Scolari’s son, Joe Scolari, as president. However, Harbor Paper still wasn’t running a month later.
On April 14, 2013, Elliot Rust Companies issued a statement delaying a scheduled mill restart, but stating that the company hadn’t given up on finding a way to get Harbor Paper running again.
“We have been working diligently to identify a strategy that will provide the long-term success of Harbor Paper. Our priority is for Harbor Paper to provide secure employment and economic opportunity for families in the City of Hoquiam and the county of Grays Harbor,” the statement read.
In mid-May, the company erected a chain link fence around the mill, prompting more curiosity from the community. Lisa Tener, a spokeswoman for Elliott Rust Holdings, said the fence was installed to increase security and didn’t signify any changes in mill operations.
Meanwhile, most Harbor Paper employees remained jobless, unsure whether to find new jobs or wait for the mill to resume operations. At a July 16 meeting, WorkSource Grays Harbor Manager Ron Schmidt advised the mill workers to treat no news as bad news and find new jobs.
“There’s been no communication from the mill, so we are going on the premise that the mill is closed,” Schmidt said in July. “We can’t wait any longer with what we do.”
A mountain of debts
Harbor Paper’s closure didn’t just leave the employees cash-strapped. Without one of its biggest sources of revenue, the City of Hoquiam had to adjust its biennial budget. Hoquiam Finance Director Mike Folkers said the city had planned to receive $500,000 in business and occupation taxes from the mill over the course of 2013 and 2014. But Harbor Paper only paid about $100,000.
“Obviously we’ve lost our biggest employer,” Folkers said at a November city council meeting. “So obviously that’s my problem today, trying to figure out how we’ll make up $400,000 in 13 months.”
But the city wasn’t the only agency missing out on Harbor Paper funds. In September of 2013, the company was about $94,000 behind on personal property taxes. Grays Harbor County Treasurer Ron Strabbing said he wasn’t sure if the company would pay the money willingly, or if more drastic measures would be taken.
“We’re constantly calling them right now to figure out what’s up, but we haven’t heard much,” Strabbing said in September. “I’m sure we aren’t the only ones they owe money to, so we’ll have to call around and see what’s happening.”
The company eventually paid their past-due taxes, making payments for both 2013 and 2014 on Nov. 27.
“We got that much, anyway,” Strabbing said. “I’m not sure if there’s more out there that they owe or not.”
Harbor Paper faced additional challenges in September when the City of Hoquiam and Grays Harbor PUD shut off water and power to the mill. The city had provided water for the mill’s bathrooms and sinks, but industrial water came from the City of Aberdeen. At the time, Harbor Paper owed Hoquiam about $80,000 in past-due bills.
The company owes the PUD about $480,000 in past-due bills, according to PUD Manager Dave Ward. During a December meeting, PUD commissioners voted to take action against the company to attempt to retrieve the money.
But the PUD’s losses to Harbor Paper don’t end with the unpaid bills. The utility must also pay for a large-scale cleanup of a large ash pile and part of the mill’s wastewater treatment facility before the site is usable. These responsibilities are the result of an agreement between the PUD and former mill owners.
The Legislature provided the PUD with $7.5 million in grants and loans for construction of a biomass turbine system, which was owned by the utility and leased to Grays Harbor Paper. The turbine sat on land owned by Rayonier, but was leased to the PUD. As a result, the PUD became responsible for a portion of the mill cleanup.
The PUD later sold the turbine itself to Harbor Paper for $540,000 — about half of the amount owed on a loan the PUD took out for the turbine.
Next month, the next chapter in the future of the mill may become more clear, but the effects of its difficulties are already rippling through the community.