County Board Rejects Marinette Marine Loan Issue Date: March 29, 2018
After nearly two hours of intense discussion on Tuesday, March 27, Marinette County Board declined to support an initial resolution that could have led to loaning $50 million to Fincantieri Marinette Marine. The resolution would have authorized a closer look at the possibility of helping finance $100 million of improvements at the shipyard to enhance its chances of obtaining at least one, and probably two, long-term shipbuilding contracts.
If the local shipbuilder gets the contracts they expect to add approximately 400 new jobs to the area's employment base, while retaining the the existing 1,500 jobs there.
Failure of the loan proposal does not mean that the shipyard will not get the contracts they are seeking, but according to comments made by Fincantieri Marinette Marine President/CEO Jan Allman at Tuesday's meeting and at previous County Board and committee meetings, approval of the loan or other tangible expressions of strong community support would greatly enhance their chances of being selected to build the new, larger breed of ships that the Navy intends to buy from someone.
The resolution stated, "BE IT RESOLVED by the County Board of Supervisors of Marinette County, Wisconsin (the "County"), that there shall be issued, pursuant to Section 67.12(12), Wisconsin Statutes, general obligation promissory notes in an amount not to exceed $50,000,000 for the public purpose of economic development related to the upgrade and reconfiguration of Fincantieri Marinette Marine shipyard, and there shall be levied on all the taxable property of the County a direct, annual, irrepealable tax sufficient to pay the interest on said notes as it becomes due, and also to pay and discharge the principal thereof within ten years of the date of issuance of the notes."
Numerous times during the board discussion County Administrator John LeFebvre, County Board Chair Mark Anderson and others stressed that the actual loan would require Marinette Marine to fully repay the principal and all related interest and costs, and the loan would only go through if the shipyard is the successful bidder.
The tally was 19 supervisors voting in favor and 10 opposed, four votes short of the super majority of 23 votes needed for the measure to pass.
Approval by three quarters of the board would not have actually approved the loan, but would have allowed county officials and financial advisors to continue in that direction, with terms to be worked out and financial information analyzed before vote on an actual bond issue, which would require only a simple majority approval.
A related motion that would have approved a "Scope of Engagement" Letter with financial advisor Jeff Belongia and the financial firm of Hutchinson, Shockey, Erley & Co. to work on the possible bond issue was removed from the agenda after the Initial Resolution of Intent failed to pass. There would have been no cost for the firm's work unless and until there were actually bonds issued.
Both Anderson and LeFebvre had argued strongly in favor of adopting the resolution and providing the financing Marinette Marine had requested.
Proposed terms were that there would be no loan unless Fincantieri Marinette Marine was the successful bidder on a contract to build a number of ships for the Saudi Arabia Navy over a seven-year period through a contract with the United States Navy. Deadline for bidding on that contract is expected before the end of April.
As explained by LeFebvre and by Financial Advisor Jeff Belongia at a special board meeting on Tuesday, Jan. 22, had the loan gone forward, Fincantieri Marinette Marine would have been obligated to repay the amount borrowed plus all interest and all associated costs before the end of the seven-year Saudi contract, and the loan would have hinged on them getting that contract.
It had been described as a "bridge loan," to provide operating capital and funds for improvements to the shipyard facilities, the river channel into which the ships are launched and the harbor through which the ships enter and leave the Bay of Green Bay and Lake Michigan.
Those improvements, including larger new launch equipment, would greatly enhance the firm's chances of being the successful bidder on a longer term contract to build the new FREM class of frigates that the United States Navy is planning to acquire in the coming decade or two.
All members of the board were present for Tuesday's meeting. The north versus south considerations that so often seem to affect County Board decisions were notably absent.
Voting in favor of the initial lending resolution were supervisors Joshua Anderson, Porterfield; Mike Behnke, Peshtigo; Penny Chaikowski, Middle Inlet/Lake; Ginger Deschane, Crivitz; Tricia Grebin, Dunbar; George Kloppenburg, Amberg; Vilas Schroeder, Peshtigo; Tom Mandli, Grover/Peshtigo, Cheryl Wruk, Crivitz; Joe Policello, Wausaukee; Bill Stankevich, Goodman; Clancy Whiting, Pembine; David Zahn, Grover/Pound; Paul Gustafson, Shirley Kaufman, Tom Mailand, Don Phillips, and Rick Polzin, all of Marinette, and Board Chair Mark Anderson, Porterfield.
Votes against were cast by Joe Banaszak, Crivitz; Glenn Broderick, Coleman/Pound; Gilbert Engel, Niagara; Robert Holley, Beaver/Pound; Fred Meintz, Peshtigo; Al Sauld, Niagara/Pembine, and Ken Keller, Al Mans and Ted Sauve, all of Marinette. The 30th County Board seat has has remained vacant since the death of Supervisor Russ Bauer in January. It will be filled after the elections on Tuesday, April 3.
In response to questions after the meeting, Anderson and LeFebvre agreed, "there is no Plan B." But both also agreed they will try to work one out.
Anderson commented that the vote was a huge decision for the board, and admitted that he is "kind of disappointed" that the Initial resolution failed to pass, which means they may never get the information they would need to know if a loan would or should be made.
Asked if the door is shut now on the possibility of any loan or other show of county support for Marinette Marine's quest for the contracts, they agreed it is not, and expressed hope they can find another way to help.
"If $50 million was too much, maybe there's something else we can do to make it happen," LeFebvre suggested. If we're not able to loan them the money, maybe we can grow the community, to help meet their housing and employee needs."
"We will have to regroup... sit down with Marinette Marine people and find out what we can do to help that County Board would be likely to approve," Anderson said. He felt with the bidding deadline fast approaching any new proposal would need to be ready for a vote at the April 17 board meeting.
They would need to start making improvements and do advance long-term purchasing now so they are ready to start when the contract is awarded in July.
LeFebvre said for all the industries in Marinette County, County Board needs to develop the community, grow the economy. "We thought we'd found a way," he said returning to the loan proposal. "Unfortunately, we needed four more votes."
Tuesday's meeting began with a public hearing on participation in a quest for a Rural Economic Area Development Initiative (READI) Grant, in which Marinette County is working with NewCap as the lead county in a partnership with Oconto and Florence counties for funds from the Wisconsin Department of Administration for entrepreneurial development, job training and housing activities within the three counties.
Jamie Johnson of Newcap was in the audience, as were Robert Pontius, the new Marinette County Association for Business and Industry (MCABI) Executive Director, and his predecessor Ann Hartnell, but no one spoke for or against the proposed grant application.
According to application documents, Marinette County's current Community Development Bloc Grant (CDBG) Business Loan program has provided over $972,282 in business loans to just over 66 businesses in the community since it began, with a success rate of about 80 percent. The document outlines other grant and loan programs for housing and economic development operated by the county and the City of Marinette.
After the brief hearing adjourned LeFebvre summarized the proposed grant application. He said there is no limit on the number of projects for which they can seek funding, "and hopefully this is the first of many." Money from the grants is loaned out, and remains in the group to be "recycled" for other business loans. County Board then quickly and without dissent approved the grant resolution.
Next came time for public comment on regular business of the meeting, namely the Marinette Marine loan resolution. The six who addressed the board, all Marinette Marine employees, Boiler Maker Union members and company officials, all spoke strongly in favor of the proposal. There were no public comments against the proposed loan. Hartnell and Pontius were not among those who spoke.
First speaker was Tyler Brown, Executive Director of the United Brotherhood of Boilermakers, who had come from Kansas City, Kansas to speak on behalf of the more than 800 fellow union members who work at Marinette Marine and are known throughout the shipbuilding industry for their workmanship and craftsmanship. He said his union represents workers at shipyards all across the county and in many areas their companies receive much support from their local communities, including considerable amounts of financial support.
A member of the local union bargaining committee, said he met his wife 14 years ago at Porterfield Country Fest and was able to move to Marinette because of the good job he was able to get at Marinette Marine. Her hometown is Marinette and she is in PTO at Garfield School. Were it not for Marinette Marine they probably would not be able to live here, he said.
Bill Stag, also a Boilermaker representative, said the union has a pretty good working relationship with management at Fincantieri Marinette Marine, and he expects that to continue.
Larry Alber, local Boilermakers president, declared it would help the entire Marinette and Menominee county community if the company is able to add another 400 good paying jobs.
Bethany Skorik, another Marinette Marine employee, said she grew up in Marinette, graduated from Marinette Catholic Central High School and then went off to St. Norbert's College in 2005. In her senior year, 2009, she was looking for a job everywhere and never even considered her home town. Then one of her mentors at college suggested she should take a look at Marinette Marine.
"I was surprised," she declared. She said when she left in 2005 the shipyard facilities were old and unimpressive, and had very few employees.
She was not aware that Fincantieri had purchased the shipyard and improvements were underway.
She toured the shipyard, liked what she saw, and "knew I wanted to be part of this transformation." She has been there ever since. "People don't know there's so much opportunity in a small community," Skorik declared. She said everyone in her immediate family now works there, including her father, a semi-retired former police chief.
She said Marinette Marine is now on the brink of another expansion and more members of other families can come home to live and work in Marinette. She said if were not for Marinette Marine, most of her co-workers would not be able to live in Marinette.
Allman, President and CEO of Marinette Marine, told the board she too is part of the community. Her children attended school in Peshtigo. One still does, and the other is in college now, studying to return when she becomes a doctor.
She said some major investments are required for the shipyard to pursue the new contracts. She described the proposed financing as "a bridge loan," to pay for improvements and supplies until money from the new contract starts coming in.
See told the board the LCS program is winding down, and being able to build the the frigate is critical to continue with steady long term employment here.
She repeated what had been said before - this request is for a loan, that will be fully paid back along with interest and expenses, "it is not a grant."
She said the U. S. Navy and other government entities see community investment in their business as a sign of long-term loyalty in both directions - loyalty of the business to the community, and of the community to the business.
Nathan Velazquez said he had traveled all over the country before moving to Porterfield and settling down as a Boilermaker with Marinette Marine, which he is glad he was able to do. "I am confident this County Board will do whatever is best for this community," he declared.
As the public hearing closed, Anderson said both he and Vice Chair Vilas Schroeder wanted to engage in the debate before calling for a vote on the initial resolution. It was agreed that case neither he nor Schroeder should then be acting as chair, so County Clerk Kathy Brandt took over the chair position when the discussion started.
LeFebvre reviewed steps taken so far, starting in January when Allman had come to the board with a request for a local grant of $15 to $20 million. He said the county does not have the finances to provide any kind of grant, "the best we can do is a loan, with principal, interest and fees to be paid back," and the loan tied to them actually getting the contract.
He showed a video relating back to an economic development session the board had held with advisor Bill Fruth, showing how wealth comes into a community through basic industries, gets "mixed and churned" when employees spend throughout the area, and then finally leaves when it is spent on big ticket items like cars, that are manufactured outside the area, then comes back in the form of income for the basic industries, adding multiple industries brings that wealth back in faster.
He noted Fruth had declared the growth in quality of the local economy depends on the quality of wages paid to their employees by primary industries, and there are a number of quality employers in Marinette County.
Polzin said he would support the resolution because he wants to see a specific proposal package to be voted on, and the only way to get that is to pass the initial resolution.
Anderson said his concern was the risk for the area if this proposal was not moved forward. He said he and LeFebvre had a conversation with a representative of a major local bank, which has a "shock" computer program that shows the impact when employee incomes of an industry that is facing layoffs are removed from the picture. "If Marinette Marine were not there tomorrow, what would happen?" he asked.
He said the banker offered to set up a panel to do a separate review of any proposed loan package, so the county would have unbiased expert advice.
Anderson noted Marinette County has had dismal economic growth. The county gave zero percent raises for employees two years in a row because there was no money. This year's county budget looks good, "but John eliminated five positions to get a balanced budget."
Pazynski argued strongly against the loan. He said there is no crisis or emergency of any kind, and a "no" vote will not force Fincantieri Marinette Marine to close down or move, and will not cause them to lose out on the forthcoming Navy bid. He believed it would have no effect on whether or not the firm is selected to build the ships for Saudi Arabia.
Stating the parent company is a multinational corporation worth billions, Pazynski declared, "To proceed with this loan would be an unneeded, careless and financially irresponsible allocation of County resources - all in the name of economic development." He said to make the loan without a master plan outlining goals and means of accomplishing them is "shooting from the hip, responding, not planning."
He cautioned there could be a change in administration in Washington, and said if the Navy reduces its contract with Fincantieri they would have no hesitation to reduce their workforce or even end production. "With their army of attorneys they could delay payments on this $50 million dollar loan and easily stall it in litigation for years, forcing us to make payments with money we do not have."
Pazynski said in the last 50 years Marinette County has accomplished much - constructed and maintained the 2-year UW college campus, added an annex to the courthouse, built a state of the art law enforcement center, maintained over 340 miles of paved roads, a large county park system and a county forest of over 240,000 acres, all while providing needed services to taxpayers to make the county a good place to live and work, which is another form of economic development.
He said the Navy will look at performance and quality, not community support, and the loan would be "an unneeded and irresponsible use of county resources."
He said the county already has $35 million of debt, and "Now you want to add another $50 million?"
"Corporate welfare is not our purpose," Pazynski concluded. "Borrowing $50 million to loan to a local corporation is irresponsible....Fincantieri has access to funds elsewhere...We can support economic development in other ways...I cannot in good conscience vote in favor of this and I urge this board to vote "no' as well!"
Anderson said Marinette Marine is a business, and will make business decisions, but its business is doing business with government, and in a government atmosphere. He was sure the Navy did not really want to have two varieties of LCS manufactured at two different shipyards, but had done so because the Representatives and Senators who represented the two locations backed it.
"The reality is, we're in politics, and the Navy is in politics, so community support is huge!" Anderson declared. He said support from elected Senators, Representatives and others had helped bring the LCS contracts to Marinette and will help bring the Frigate contracts as well.
He repeated the resolution they were being asked to approve is not for borrowing the money, "it's about allowing our administrator to get the information we need."
Deschane said she would vote yes, since she wants the information that cannot be obtained without passing the resolution of intent.
Schroeder, a board member for 12 years, several of them as chair, declared, "I think we need to approve this.... to step forward and say we support economic growth and we want to be part of it!"
Stankevich, who represents the Goodman area and is Goodman Town Chair, said the resolution really will not have much effect on the far northern part of Marinette County, "...but it does affect the lives of 1,500 people (who work there) and I don't want to have to face them if things go wrong!"
Whiting, whose district also is in the far north, said he supports the loan and feels it is needed to move Marinette county ahead. "The message to state and federal governments is that we are interested in bringing development to our community," he declared.
"Show me!" challenged Phillips. "Approve this...get the facts and figures and then come back for a vote."
"Why are we the only dog in the fight?" asked Sauld. He asked if the shipyard had made other funding requests.
LeFebvre talked about last week's meeting, when the board heard from the Fond du Lac County executive in regard to their $50 million loan to Mercury Marine, with incentives that will end with only about $25 million being paid back. He said Marinette county does not have the ability to do that, so they talked about an outright full payback loan. The City of Marinette has no more TIFs to create, he said. Menominee felt the property is not in their county or state, but there is a possibility of assistance from the City and County of Menominee and the State of Michigan as well as the State of Wisconsin to get some help for harbor improvements.
LeFebvre said Marinette Marine is talking about $100 million of improvements, so the $50 million would only pay half.
Sauld said LeFebvre had said the county cannot give grants, and asked why they had in the past talked about a $1 million grant to the City of Marinette.
LeFebvre said they cannot give grants to a private entity, but can give grants to support infrastructure for a municipality within the county.
"We're not a bank," declared Holley. "We're not a financial entity...We're not in the business of loaning money."
The resolution was sent to County Board from the Finance Committee without a recommendation for or against. Grebin, who serves on that committee, said she now supports the proposed loan. "The federal government is going to spend the money," she said. "I'd like to see it come back to our community." She added, "Look at what the state has done for Foxconn... We have companies that are already here...Why can't we support them while they're here?"
Engel felt they had not looked enough at options, and commented, "Borrowing $50 million for this, when our total annual budget is $50 million seems to me to be unwise."
Sauve said what Pazynski and others said bears consideration, and advised, "Keep in mind what's good for the people who put us in office."
Pazynski described the Saudi contract as "a slam dunk," regardless of what Marinette County does, but asked why Fincantieri had started a lawsuit against Lockheed-Martin last year, and wondered if Marinette County was about to get caught in the middle of a dispute between the partners.
Whiting noted the money will go for upgrading the shipyard and improving the slip and launch facilities. He said the loan will be paid back in seven years, and the Saudi contract will be over by then too, "but the improvements that make it possible for the shipyard to produce larger ships will be there for many years."
Schroeder mentioned the "ripple effect," and said the loan will cost the county nothing, and will help not only Marinette Marine but also other businesses and the county as a whole for the long term.
Pazynski said there is not enough housing in the area, and wondered if the new employees would need to be bussed in from Green Bay and Iron Mountain. He said the county can help industries by making the county a good place to live and work.
Kaufman asked what would happen if the county were to get the loan, and then get hit by some sort of disaster, perhaps to a county building. "Would this affect our ability to get a future large dollar loan if we need it?"
"It would not prevent us from getting anything we need,' LeFebvre assured her."
"Without affecting our hospital money?" Kaufman asked, and again LeFebvre said that would not be affected.
She then asked if they then would try to bring back the proposed sales tax increase.
LeFebvre said that will come back in any case, "...but it has absolutely nothing to do with what we do today!"
There has been, and apparently will be again, a proposal for the county to ask the Wisconsin legislature to allow counties to levy an additional half a percent sales tax to finance economic development efforts.
LeFebvre repeated that approving the initial resolution would not authorize borrowing any money, it would give them the ability to get the information needed to decide whether or not the county should actually make the loan.
"Housing, workforce and community development needs to happen anyway," Anderson said. He said constituents who were totally opposed to borrowing the county had done in the past to improve roads and other infrastructure had come him to express support for the Marinette Marine loan proposal. As to housing and other infrastructure needs, he asked, "Isn't it great to hear that we need more housing for people to fill the jobs we have?" and concluded, "...it gives me goose bumps to think that we can grow this community."
After the Initial resolution failed to get the three quarters majority vote it needed, a follow up resolution that would have approved a "Scope of Engagement" letter with Belongia's employers, Hutchinson, Shockey, Erley & Co regarding the loan request was removed from consideration. That document had been recommended for approval by the Finance committee, with Pazynski casting the sole "no" vote.
Terms of that agreement, included that they would work with Quarles & Brady to get accurate financial information, and that there would be no charge unless the loan actually did go through. It was signed on behalf of the financiers by Jeff Belongia, a senior vice president of the firm. Belongia and his firm have served as financial advisor and bond consultant to Marinette County for many years.
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