Story of Hoquiam paper mill’s demise comes into focus
Yearlong death throes of a paper mill in Hoquiam leave workers without jobs, the city with lost tax revenue and a utility company with unpaid bills.
The Daily World
For months, the Harbor Paper mill has been eerily quiet.
No smoke has come from the chimneys, few people have passed through its gates. In early December, assets from the facility appeared on Los Angeles-based auction site biditup.com after Harbor Paper management failed to secure funding for a mill restart. The auction will take place in February, almost a year to the day since the mill ceased operations.
After months of minimal contact with the public, Elliott Rust Companies, Harbor Paper’s owner, sent a letter to the mill’s vendors and creditors on Dec. 18 outlining the company’s plight.
“The bottom line is that the mill was not profitable, incurring more than $11 million in operating losses and $21 million in debt,” the letter reads.
The letter describes several attempts to restart Harbor Paper. First, mill ownership said it tried to negotiate new prices with existing pulp and paper brokers to create a larger profit margin. The two sides couldn’t reach an agreement, and Harbor Paper spent about $1.7 million maintaining the mill for a quick restart.
In June, the mill’s ownership said it gave up on the plan and decided to sell Harbor Paper instead. Ownership engaged an investment banker to market the company to potential buyers, the letter reads. In August, Harbor Paper received a proposal to reopen the mill, which included $10 million in new investments.
Harbor Paper’s secured lender, Craft3, didn’t approve of a loan refinance that might have made the plan possible, the company told its vendors and creditors.
“Our hope was that our secured creditor would approve the proposal for refinancing and that the mill would reopen. ... Sadly, the secured creditor rejected the proposal,” the letter reads.
Craft3, a nonprofit lender specializing in community development, could not be reached for comment. However, state Department of Commerce spokeswoman Penny Thomas offered a different account of the events leading to Harbor Paper’s appearance on biditup.com.
According to Thomas, Craft3 and Harbor Paper reached an agreement soon after the mill closed to facilitate an easier restart. Craft3 allowed Harbor Paper to stop making payments on its $5 million loan while ownership worked to reposition the company, she explained.
Harbor Paper ownership ultimately decided against this option and tried to sell the mill to another operator but was unable to find a buyer. Thomas said that Harbor Paper then decided to liquidate the company but was not required to do so by Craft3.
According to Grays Harbor County Auditor’s Office records, Craft3 transferred ownership of all improvements, structures and buildings on the Harbor Paper site to Industrial Asset Corp. in California on Dec. 5.
“After the Mill closure in February 2013, the original intent was to strategically reposition the company (Harbor Paper) and reopen. Craft3 allowed the company to cease loan payments while it attempted to reposition. (Harbor Paper) ownership ultimately decided against this option and proceeded to try to sell the company to another operator. No such operator was found. Ownership then decided to close and liquidate the company. Craft3 did not require a liquidation. Part of the liquidation is a contract with Bid-It-Up to auction off certain business assets,” Thomas said in an emailed statement to The Daily World.
Craft3 and the Department of Commerce became involved with Harbor Paper in 2012 when the company purchased the mill from former owners Grays Harbor Paper LP. Craft3 loaned Harbor Paper $5 million to purchase and operate the mill. According to Department of Commerce records, the state provided Craft3 with $4 million of that funding through the Washington Small Business Credit Initiative.
The mill started operating in October 2012 with a grand opening attended by then-Gov. Chris Gregoire, former U.S. Rep. Norm Dicks, Gov. Jay Inslee during his gubernatorial campaign, state Sen. Jim Hargrove, Hoquiam Mayor Jack Durney, former Harbor Paper CFO John Begley, and Elliott Rust Holdings owner Cesar Scolari, among many others.
“Cesar, thank you for your faith in Grays Harbor,” Gregoire said at the 2012 event. “You know, this is a family you can count on, and now you’re part of their family. Thank you for your investment in Grays Harbor.”
But the investment didn’t last long. Within months, Harbor Paper ran out of money and ceased operations.
Harbor Paper stopped operating Feb. 25 of the following year, and a news release from Elliott Rust Companies stated that the closure would be temporary. A management restructure was cited as the cause.
A few weeks later, Elliott Rust Companies announced the mill would resume full operations with Cesar Scolari’s son, Joe Scolari, as president. However, Harbor Paper still wasn’t running a month later.
On April 14, 2013, Elliot Rust Companies issued a statement delaying a scheduled mill restart.
In mid-May, the company erected a chain-link fence around the mill, prompting more curiosity from the community. Lisa Tener, a spokeswoman for Elliott Rust Holdings, said the fence was installed to increase security and didn’t signify any changes in mill operations.
Meanwhile, most Harbor Paper employees remained jobless, unsure whether to find new jobs or wait for the mill to restart. At a July 16 meeting, WorkSource Grays Harbor Manager Ron Schmidt advised the mill workers to treat no news as bad news and find new jobs.
Without one of its biggest sources of revenue, the city of Hoquiam had to adjust its biennial budget. Hoquiam Finance Director Mike Folkers said the city had planned to receive $500,000 in business-and-occupation taxes from the mill over the course of 2013 and 2014. But Harbor Paper only paid about $100,000.
Harbor Paper faced additional challenges in September when the city of Hoquiam and Grays Harbor Public Utility District (PUD) shut off water and power to the mill. The city had provided water for the mill’s bathrooms and sinks, but industrial water came from the city of Aberdeen. At the time, Harbor Paper owed Hoquiam about $80,000 in past-due bills.
The company owes the PUD about $480,000 in past-due bills, according to PUD Manager Dave Ward. During a December meeting, PUD commissioners voted to take action against the company to retrieve the money.
But the PUD’s losses to Harbor Paper don’t end with the unpaid bills. The utility must also pay for a large-scale cleanup of a large ash pile and part of the mill’s wastewater-treatment facility before the site is usable. These responsibilities are the result of an agreement between the PUD and former mill owners.