Duluth could seek $1M forgivable loan for paper mill upgrade

Councilors will take up a resolution that would authorize city staff to seek a $1 million forgivable loan from the Minnesota Department of Employment and Economic Development to help the Verso Duluth Paper Mill upgrade its plant.

Verso Corp. is considering a plan to invest a total of about $21 million in its Duluth plant, converting to a recycle mill so it can process packaging-grade scrap paper into a type of pulp that can be used to manufacture brown paper grocery bags, corrugated cardboard and other products.

Mill Manager John Bastian noted that the average price for the paper products currently manufactured in Duluth has declined by 30 percent in the past four years.

In a letter to Duluth Mayor Emily Larson, Bastian said, "These price declines have resulted in the Duluth Verso mill becoming unprofitable. In the last 15 years, 50 percent of all mills in the United States have closed — four of them in just the last two years. Without a conversion to allow the mill to make new profitable paper grades, the mill will be a likely candidate for permanent closure."

If the city council authorizes the loan application and it is approved, Heather Rand, Duluth's business development director, said the $1 million debt could be forgiven if the papermaker maintains the equivalent at least 150 full-time jobs for the next five years. She explained that the upgraded plant is expected to employ fewer people in the future, due to improved efficiencies gained through automation. Yet, she said, the company remains confident those staffing reductions can be achieved through retirements and natural attrition.

"The paper plant has had different names from time to time. It has been bought and sold, but they celebrated their 30th anniversary last year, and to think that they've made it this long. ... In fact, now they've got a big group of employees who started with them and will be retiring in pretty big doses," Rand said.

In addition to the forgivable loan, the company also is seeking another $1 million seven-year loan at zero-percent interest from DEED's Agriculture and Economic Development Board.

For its part, the city proposes to commit $242,000 from its grants and awards fund, and the Duluth 1200 Fund would be asked to chip in $100,000, also in the form of a forgivable loan.

"We're hopeful that will be enough for their board of directors then to greenlight this $21 million expenditure in new equipment," Rand said, noting that Verso's management, based in Miamisburg, Ohio, is expected to make a decision about the Duluth mill's future in the next 60 days.

"What they've let us know is, without city and state support, it's highly unlikely that their board of directors would feel like they're receiving enough support that they would want to make this investment. So these dollars do truly leverage that larger level of support," she said.

Rand noted that full-time employees of the Duluth Verso plant make an average annual salary of $63,000, plus benefits. She also pointed to all the loggers, truckers and suppliers who rely on the mill for business.

"The economic impacts are huge to Duluth, and also it has a regional impact," Rand said.

The city has been in close contact with officials from Verso, Gov. Mark Dayton's office and DEED for about the past 45 days, and Rand said she feels "optimistic" the proposed aid package will win the support it needs.

Though consumption of many paper products has waned, Rand said demand for products made from brown paper pulp — like what would be produced by the revamped recycle mill proposed in Duluth — has been growing at an annual rate of 5 percent in recent years.

Bastian said the strategic shift being contemplated at the Duluth mill is expensive but could put the Verso operation on a much firmer financial footing. In his letter to Mayor Larson, he observed, "Projected project financials after this conversion are very favorable."