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Commissioners propose to back bankrupt company

By John Hammond
Posted Monday, November 21, 2005

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Should the Chatham County Board of Commisioners be venture capitalists?

Pittsboro, NC - This is my presentation to the Commissioners on Monday Nov. 21st.

Tonight I want to speak in opposition to the proposed American Moulding and Millwork Company (AM) Community Development Block Grant (CDBG) application with the county assuming all the risk for three quarters of a millions dollars claw back provision if the company fails to produced the 75 jobs or is liquidated by the bankruptcy court.

I have titled the presentation: The pork barrel project that just won’t die!

I have looked at all the possible rationales for the American Moulding and Millwork Company/Goldston sewer project and find that the only rationale that makes sense is that it is being pushed by someone holding elective office to cement their political base in southwestern Chatham by demonstrating he can bring home the bacon, i.e., sewer to Goldston’s three hundred and fifty-one inhabitants before the 2006 election, regardless of the financial risk to county taxpayers. Given the significant limits on sewer capacity of this line to Goldston and the high probability that AM will be liquidated it cannot be described as either economic development of infrastructure and/or job creation but appears to be best characterized as political pork masquerading as such.

As you know Chatham County has many major infrastructure problems relating to water and sewer. The major problem that has stymied the improvement of both of these systems is no strategic planning, lack of political leadership and the population’s aversion to paying for infrastructure collectively through taxes. The anti-planning lobby has been very successful so that what sewer and water infrastructure there is has not been properly maintained and there are no plans for expansion. Pittsboro is in a sewer capacity crisis and the county’s water plant is in shambles because of lack of maintenance and strategic planning in part due to the prevailing anti-tax attitude coupled with a major lack of vision by the political leadership. Further this lack of infrastructure directly affects the county’s ability to do 21st century economic development. In fact our economic development organization is clearly rooted in the mentality of the 1950’s and should the 1950’s come again we will be strategically place for it.

What we desperately need at this moment is a strategic plan for economic development that has been created in the sunshine with all stakeholders present, where the issues can be debated and consensus reached and the implementation of a real economic development plan for the county can begin. A major component of the strategic plan would be how to fund and maintain and expand infrastructure.

Otherwise you will continue to get ad hoc (that’s Latin for seat of the pants) projects like this proposed sewer line for Goldston masquerading as economic development. These ad hoc projects amazingly may be funded but sadly they will not further economic development in this county but actually delay putting dollars where they might do the most good.

Let’s look at this sewer project. The Board of Commissioners has earmarked $450,000.00 for this Goldston sewer project in the county budget but that’s only part of the $1.2M cost of the project. What to do? Find a company, any company that could be used for seeking a state community development block grant under the guise of bringing “jobs” to Chatham County.

Enter.AM company. It did not matter that the industry being used as the vehicle to get the grant was dying from effects of globalization and bad management. Advocates for this approach never did the due diligence to establish the viability of company because all they wanted was the state’s money for the sewer line and cared little whether the jobs were good jobs for the citizens of Chatham or not. They only cared that the company produce 75 jobs in two years to fulfill the requirements of the community development block grant. If it then closed or left town the day after meeting the state’s requirements under the grant it did not matter one wit because the sewer line would have been built and the pork would have been delivered.

If those advocating this approach had done their homework they would have learned that American Molding was in severe financial trouble from globalization of the furniture industry, its revenues were rapidly declining and their CEO was known as a better salesman than a business man. They picked this company as the horse to ride for the community block grant they needed to pull sewer to Goldston.

They got Sanford to provide sewer treatment services but Sanford wisely limited it to 100,000 gallons per day with no agreement for expansion of this daily wastewater volume. Further the minutes of Sanford city council show no interest in expanding this service in fact they question why it is 100,000 gallon per day when American Moulding only needs 5,000 per day. Mr. Tucker at the meeting allowed that the 100,000 gallons per day was an estimate and it could be reduced to 50,000 gallons per day. The city council realizes every gallon from Chatham is one less gallon for a Sanford’s businesses and developers.

Having failed to investigate the company that was going to be the horse that pulled sewer into Goldston those advocating it found themselves with a dead horse when American Moulding entered into bankruptcy under Chapter 11. Chapter 11 allows the company to keep operating while attempting to restructure its debts and emerge from bankruptcy at a later date.

Never underestimate these advocates tenacity when it comes to delivery of political bacon even when the horse dead. The NC Department of Commerce has never given a community block grant to a bankrupt company in its 25 years of funding such grants. Basically a commitment to pay back the grant if the jobs required where not produced by a company in bankruptcy is meaningless. The NC Department of Commerce said no to any community development grant with AM. So these advocates go to Rep. Joe Hackney with a proposal that the county would assume all the risk for back the claw back provision of the community development block grant for American Moulding. Amazingly, the Dept. of Commerce agreed to go along with this fiscally irresponsible scheme by Chatham’s officials.

In order to do this the Board of Commissioners has to hold a public hearing and here we are tonight.

At the November EDC meeting Mr. Tucker and Mr. Morgan assured the members of the board that American Moulding will emerge from bankruptcy this spring. Further they state that American Moulding owned 50 acres in Stockton California and it was going to be turned into a residential development and that would yield enough revenue to get the company out of bankruptcy and the county would not really be at risk for the $750,000.00 claw back provision of the CDBG. They should have known that these statements were highly misleading had they done their homework.

The land in question is 50 acres in an industrial area of Stockton Ca. It has been used as a wood products manufacturing site for the last 60-80 years. Earlier pressure treated wood was produced on this site before American Moulding purchased it around 1982. The site had been investigated for toxic chemical problems many times by the California Department of Toxic Substance Control (DTSC). Currently American Moulding and American Forest Products, the former landowner, are doing a voluntary cleanup of the site and are being supervised DTSC. I had a conference call with four of their staff on November 16th and discussed the status of the site and the cleanup effort.

Let me tell you a little about the 50-acre site. The Union Pacific RR is on side of the site and on the other side of the RR is the city cemetery. On the opposite side of the property is West Lane, said to be a six-lane road. The property has a second RR running across it. East Alpine Ave. bounds the top of the property. You can look at the property by going to Google’s satellite mapping system.

Here is a list of the chemicals for which they are testing: volatile organic compounds such as gasoline and other short length hydrocarbons; semi-volatile organics compounds like kerosene and heavier hydrocarbons; penta-chloro-phenol or PCP used in preserving wood probably from the days of American Forest Products operation; in burn pits they are looking for furan and dioxins; at former transformer sites they are looking for poly chlorinated biphenyls (PCB); diesel and motor oil; metals including lead, mercury and copper; and other organics formaldehyde and phenol. Testing is not complete at this time.

In terms of surface contamination they are carefully examining ten sites. There were 15 underground storage sites on the property including: metal tanks, concrete tanks and old fashion cesspools but in this case used for liquid chemicals and not human waste; six septic tanks sites; five wash down areas where the waste water ran on the ground; steam cleaning areas; three storm water basins; two burn pits; one teepee structure for burning wood wastes (you have all seen these at sawmills); a pit where ground asphalt was dumped; and they are testing random areas for the presence of volatile compounds and formaldehyde in soil gases.

They have just begun ground water testing. There are wells on the property that they will be testing and then they will do point source testing in other areas.

Although I can not imagine, knowing about the roads around the site and the 37 freight trains per day that cross the Union Pacific RR, that this site would be a very desirable for residential development. If the site is to be used for residential development it must meet the highest standard for site clean up. Other industrial uses would have a much lower clean up bar to pass and of course would be less profitable.

Given the extent of the work to be done it is highly unlikely that this cleanup effort will be complete so that the property could be sold in the spring of 2006 in time to help this company emerge from bankruptcy. It is unclear at this time if the property will ever reach the standard for residential use.

In discussions with bankruptcy attorneys on both sides there is little hope that this company will emerge from bankruptcy. The creditor’s attorney expects the Sanford facility to be liquidated within 60-90 days. She was surprised to learn of the proposal to move to Goldston and was investigating if the move has any detrimental effects for the creditors or if it was an attempt by the CEO to escape from bankruptcy supervision.

Thus, based on this and other information, it would seem that chairman Bunkey Morgan’s and EDC director Tony Tucker’s assertion that this company will emerge from bankruptcy was not based on due diligence but, at best, wishful thinking.

In my view if you vote to put Chatham County at risk to repay the claw back provision of this economic development grant you should budget next year additional taxpayer money to repay the State Department of Commerce $750,000.00.

Is this really a good deal for Chatham County? Let’s assume that some company eventually goes in and the sewer is built. Let’s also assume that Goldston installs a sewer collections system and all 150 homes connect. Goldston will produce about 100 gallons of wastewater per day per person or about 35,000 gallons per day. AM’s replacement will likely produce 5,000 gallons per day making total volumes from Goldston about 40,000 gallons per day. This leaves 60,000 gallons per day for other uses. This is enough residential sewer capacity for only 600 homes and less if high water use businesses like restaurants are connected. If EDC Director Tucker accepts a 50,000 gallons per day capacity, as he hinted he might at the January 2005, Sanford City Council meeting, it then allows for only 100 home to be added, or less depending on commercial businesses water use. Just for the sewer access point in Goldston the cost to county taxpayers is at $8,000 per home connected and this does not include the cost of the sewer collection system in the town. This just does not make economic sense.

Further there is little support in Sanford for ever increasing this service. In fact there was discussion at their January 2005 meeting about reducing it. They know full well how finite sewer services are and how expensive new plants will be to meet new nutrient discharge standards. . Such a crippled sewer service is not good for Goldston in the long term and is of no use to Gulf.

Finally, let me say this politically driven ad hoc approach to infrastructure expansion makes a sham out of economic development. Further, the North Carolina Department of Commerce is not stupid. We are risking Chatham County’s credibility and ability to get future CBDS’s after this fiasco. It is clear given the crippled infrastructure that this proposal would create that those advocating this project are wasting valuable economic development funds from local, state and federal taxpayers on an isolated politically expedient project that does not advance the logical development of infrastructure to support real economic development in Chatham County.

Further, there is the issue of fairness. The county did not fund Pittsboro sewers or Siler City’s sewer or mine. Is a politically motivated project promised by Morgan a valid reason for wasting precious economic development funds with so little return and at such a great risk to the county’s taxpayers? Is it fair to the other taxpayers who need water and sewer infrastructure to essentially have a 2 cent increase in their tax liability for this ill-conceived project? Is it fair to our children to be such poor stewards of our limited economic development resources?

I say no to this pork barrel sewer project masquerading as economic development and hope you vote it down.

If you are serious about real economic development in all the county the Board of Commissioners should immediately begin the long over due economic development strategic planning process and convene a citizens taskforce with professional economic development consultants, all the stakeholders and open to the public and seeking public input and support to address the infrastructure needs of the entire county. This plan would include how to fund the infrastructure and how to stage or time the implementation of infrastructure foundation for the best return on the investment and not on an ad hoc politically motivated basis that we have before us today. The ad hoc approach to economic development must go before more money is wasted on projects that do not advance economic development in Chatham County like this Goldston proposal

Further its time to rethink the county’s approach to economic development. This project clearly shows that the present Chatham County Economic Development Corporation can be politically manipulated and has clearly failed the people of Chatham County. The EDC has had eight years to prove its worth and has failed miserably.

It is time to start over.

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Commissioners propose to back bankrupt company