Hoquiam eyes budget hole from mill shutdown

With Harbor Paper closed indefinitely, the City of Hoquiam is losing out on about $400,000 per year in taxes. And while city reserves have covered expenses so far, city officials will need to find new revenue or make cuts to balance the budget next year.

Mike Folkers, the city’s finance director, explained that Harbor Paper’s contribution to city funds is made up of three components: property taxes, utility taxes and business and operations taxes — commonly referred to as B&O taxes.

Property taxes are collected by the county and based on the land, equipment and buildings a company owns. Utility taxes are collected by the Grays Harbor PUD and are based on the amount of electricity a company uses. B&O taxes are collected by the city and based on the amount of revenue the company generates. The city collects $2 for every $1,000 of revenue.

“Back in the old days, (Grays Harbor Paper) would bring in about $200,000 a year in B&O taxes,” Folkers said. “And they paid about $40,000 in property taxes, and the other big one was utility taxes on electricity. The use a lot of electricity, so that was around $160,000 a year in utility taxes. So, on a good year, they were a solid $400,000 per year.”

When Harbor Paper took over for its predecessor, things looked promising, Folkers said. The mill brought in about $21,118,000 between October and December of 2012, generating about $42,000 in B&O taxes for the city.

But sales dropped off at the beginning of this year, and Harbor Paper brought in about $15,173,800 between Jan. 1 and March 31, giving the city about $30,000 in B&O taxes. The mill stopped operating Feb. 25, but continued to take in revenue. The company earned about $809,800 in revenue between April 1 and June 30, giving the city about $1,600 in taxes.

In all, the city received $31,968 in B&O taxes from Harbor Paper this year. And without a restart, it won’t likely receive more than that, Folkers said.

“I’d love to see some steam coming out of this paper mill again, but I don’t think so,” Folkers said. “It’s sad to see it in the state it is, but I don’t know if the paper mill is somewhere people want to be.”

Folkers said he hasn’t heard from Harbor Paper recently — even when the city shut off water service Sept. 17 because company officials didn’t pay their bills.

“(City Administrator) Brian Shay had to pin their shut-off notice to the fence because he couldn’t find anyone to let him in,” Folkers said.

But with some prior planning, the city staved off some of the impacts of the mill closure. Folkers said that when drafting budgets for 2013 and 2014, city officials planned for less money from Harbor Paper.

“The new mill opened up and we thought, ‘It’s a new mill, we’ll wait and see how they’re doing,’ ” Folkers said. “But we did budget $250,000 per year for the 2013 and 2014 budgets. So that’s a grand total of half a million dollars. But we’re not even close.”

Folkers said the city learned from its mistakes last time the mill shut down, when it was operated by Grays Harbor Paper. At that time, the city relied on $400,000 per year from the mill.

And when the company went out of business, the city had to trim that much from its budget.

This time around, the missing revenue has been covered by reserves, but Folkers said that resource is quickly depleting. The city had about $3 million in the reserve account at the beginning of the year, but now it only has $1 million. Folkers said he’s not comfortable with depleting reserves further, so the city will need to look at cost-saving measures.

“Opportunities we can find to save money again, we’ll take them,” Folkers said. “We got some good news on our medical insurance, we’re not going to see a cost increase in that again. And we have a new plan for the police and fire retirees. Some of the old guys were under a system where we would pay their medical until the day they die, which is very expensive. And we were able to get them on a new plan that saves us $10,000 a month.”

And in the long-term, Folkers said city officials hope to bring new industry to town to fill the revenue hole.

“We do have some new revenues that have come in, and we’re hoping that some of these projects come to fruition with oil,” Folkers said. “That would be nice.”

“You know, oil would be wonderful,” he added. “I hear that’s the end-all, be-all.”