Rough & Ready Lumber was the last operating sawmill in Josephine County when it was shuttered in 2013, ending a 90-year legacy and eliminating 85 much-needed jobs.
So it's understandable that folks were thrilled by a proposal to provide millions through a tax-credit deal to reopen the lumberyard - folks who lived in the mill's hometown of Cave Junction, officials at Business Oregon who oversaw the tax credits, even then-Gov. John Kitzhaber.
Some were too thrilled, it seems, to see glaring problems with the plan and complete the due diligence to be sure it was sound. As The Oregonian/OregonLive's Gordon Friedman has reported, it wasn't. The proposal was trumped up, included a curious "one-day loan" and taxpayers lost about $7 million in forgone tax revenue.
Oregonians are familiar with how tax-credit programs can go wrong. And when they go bad, such deals sully the programs' aim to pour investment into struggling communities or emerging industries. Not to mention, they waste tax income that other legitimate programs greatly need.
Such red flags in a similar program prompted Attorney General Ellen Rosenblum to act in the past. She launched successful criminal probes and prosecutions into the state's Business Energy Tax Credit program after reporting by The Oregonian/OregonLive's Ted Sickinger.
Yet so far, Rosenblum has fallen short on the deal by a corporate subsidiary of Portland-based Ecotrust.
Justice department spokeswoman Kristina Edmunson told The Oregonian/OregonLive in March that Rosenblum's prosecutors considered launching a civil or criminal investigation into the sawmill deal, but later decided against either one. That was a bad call.
Rosenblum should investigate Ecotrust's use of the New Markets Tax Credit program to determine whether its practices rise beyond sloppiness to criminal malfeasance.
Rosenblum knows more now, considering that Business Oregon officials have spent the past six months scrutinizing Ecotrust CDE's deal. In mid-August, officials reported their findings to the Oregon Department of Revenue. Among numerous accusations, the memo claimed that Ecotrust "omitted material information," ''failed to accurately describe the sources and uses of proceeds" and "failed to disclose the intentions" of the one-day loan.
The memo relates that Ecotrust had to show the project had $8 million in qualifying expenses to land $3.1 million in tax credits. To reach that threshold, the memo asserts, Ecotrust inflated the project's expenses using a "one-day" loan. Mill owners Jennifer and Link Phillippi used a $4.8 million from Chase Bank to essentially buy the mill from themselves and then paid off the loan the next day. Yes, you read that right.
As The Oregonian/OregonLive's Friedman and Hillary Borrud have reported, there were other red flags. One was a hand-written budget that was incomplete and listed costs that were ineligible under the program. It also turned out to be wildly off.
Friedman and Borrud's reporting also show the problems weren't only with Ecotrust.
Administrative rules allowed Business Oregon to request more documentation and require solid answers before approving the deal: "The applicant will submit any information requested by the department for purposes of evaluating the application."
Business Oregon officials told The Oregonian/OregonLive that they didn't have enough information to detect these problems. Yet it appears they could have. Hopefully, the agency and other state officials will make such requests in the future.
Business Oregon officials gave Ecotrust a "second chance," allowing it to wipe the slate clean by investing $3.5 million in another deal to create jobs in a low-income community. Yet Ecotrust missed the deadline to qualify.
To use a tired phrase on this increasingly exhausting problem, the state shouldn't throw good money after bad.
Taxpayers are the only people in this deal who haven't benefited. Ecotrust earned about $500,000 from managing the failed deal and has continued to broker other tax credit programs worth millions. Chase Bank also got a great deal, paying 60 cents on the dollar for the tax credits. It's unclear how much — or whether — the Phillippis gained after the mill, equipment and property were sold.
It's time to stop the bleed.
Business Oregon shouldn't continue to extend the deadline that would provide Ecotrust a second chance. Instead, the state should seek to recoup the tax credits that this deal never should have received. And, Rosenblum should aggressively investigate what went wrong and who was responsible.
Across the state, Oregonians could use the help that sound economic investment can provide. But the investment needs to be real and long-lasting, with money going reliably home in their paychecks — not out the mill door through management fees.