Paper mill loan bill heads to governor’s desk despite disagreement over whether federal funds can be used

Published: Jul. 1, 2021 at 7:08 PM CDT
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MADISON, Wis. (WSAW) - The “Mill Bill” is headed to Gov. Tony Evers to sign after passing the Senate this week. The bill would use federal COVID-19 relief dollars to provide loans for a timber collective to purchase two pulp mills in Wisconsin that have closed over the last year.

The bill passed 63-35 in the Assembly and 20-12 in the Senate. It would allow the Wisconsin Economic Development Corporation to provide a timber cooperative, which is made up of people throughout the timber industry in the state, a $50 million loan to purchase the Verso Mill in Wisconsin Rapids and a $15 million loan to purchase the Flambeau River Papers Mill in Park Falls.

The loans would use American Rescue Plan Act dollars that would have to be repaid to the state in two years. The nonpartisan Legislative Fiscal Bureau, however, had concerns about whether those funds could be used in this way.

“The question in this scenario is not whether or not it’s a business that’s impacted, it’s whether or not we can use the dollars to submit it as a loan and that they’d have to pay it back in two years or we’d owe federal money,” Rep. Katrina Shankland (D-Stevens Point) explained.

If the loan was not repaid on time or if the ARPA dollars are not allowed to be used in this way, the state would have to repay the federal government $65 million.

Rep. Shankland said local legislators, the Wisconsin Rapids mayor, the mill union, WEDC, LFB, and the governor talked about this concern and the governor’s office offered an amendment to the bill. The amendment would use state dollars through WEDC to provide the loan and make it a forgivable loan. The bill passed both houses without the amendment.

Rep. Shankland said she voted in favor of the bill without the amendment, but hopes they can work together to ensure the federal funds are able to be allocated to the loan so Wisconsin will not have to pay the money back.

Rep. Scott Krug (R-Nekoosa) and Sen. Patrick Testin (R-Stevens Point) argue the language about how the money can be used is clear.

“The federal government is not going to spell out directly exactly, OK you have a paper mill in central Wisconsin that needs some help, we’re going to let you use these funds for that,” Rep. Krug said. “The way this program was designed, the American recovery act, is meant exactly for what’s going on in central Wisconsin and up in Park Falls to make sure that these mills and these employees can get back to work.”

“What I find disingenuous by the governor’s approach and some of the rhetoric that we heard on the Senate floor yesterday is that while he won’t approve ARPA money for a loan he has no problem, a day after the Assembly voted on the Mill Bill, he sent out a press release saying he was going to release $140 million in ARPA funds for grant dollars for the tourism industry,” Sen. Testin said. “So, on the one hand, the governor will use ARPA fund which is a grant, that’s money that will never be returned back to the state and on the other hand, a loan that would be paid back to the state that then could be used as a revolving loan fund for the paper industry, the governor said no.”

Gov. Tony Evers said Thursday morning he had not seen the approved bill yet. He said he supports getting the mills open and have the high-paying jobs back in those communities, but he wants to make sure the money funding it, whether from state or federal funds, is done responsibly.

The LFB’s memo reads as follows.

This memorandum provides information on the use of State Fiscal Recovery Fund (SFRF) monies under the American Rescue Plan Act of 2021 (ARPA). Specifically, you asked if such funding could be used to award a loan of up to $50,000,000 to the Consolidated Cooperative for the purchase of the Verso Paper Mill in the City of Wisconsin Rapids, as proposed in 2021 Assembly Bill 367 (AB 367), as introduced.

The federal Department of the Treasury issued an Interim Final Rule implementing the SFRF and guidance as to its allowable uses. Treasury’s Interim Final Rule and guidance lists one of the allowable uses as “assistance to small businesses,” described as: “[a]ssistance to small businesses, including loans, grants, in-kind assistance, technical assistance or other services, that responds to the negative economic impacts of the COVID-19 public health emergency.” Thus, a loan or a grant to directly support a small business impacted by COVID-19 would qualify as an allowable use. However, in order to be considered an eligible use of the funds under this category, a program must be designed to directly respond to economic harm caused by the public health emergency. Treasury’s Interim Final Rule states that, in order to be considered an eligible use of the funds, the use...

“must be designed to address an economic harm resulting from or exacerbated by the public health emergency. In considering whether a program or service would be eligible under this category, the recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID-19 public health emergency and whether, and the extent to which, the use would respond or address this harm.”

Treasury would have the final word on whether a loan to the Consolidated Cooperative for the purchase of the Verso Paper Mill, as introduced under AB 367, would be considered an eligible use of the funds. If such a loan were determined to be an ineligible use of the funds, Wisconsin would be required to repay to Treasury the amount expended on the ineligible use.

It should also be noted that a loan or a grant to a third party, such as the Consolidated Cooperative, to purchase another company’s distressed assets is not directly discussed in the rule or guidance. For this reason, it is unclear whether the proposed loan would be an allowable use of SFRF funding. Under AB 367 as introduced, WEDC would effectively be in charge of determining whether a loan could be made in accordance with federal law. AB 367 could be further amended to specifically require WEDC to make a determination whether the loan is a permissible use of funding under federal law. Further, the bill could be amended to require WEDC to account for the assets purchased with the loan and to require Consolidated Cooperative to pledge those assets as collateral in order to reduce the risk to the state of repaying SFRF funds.

Assuming that a loan to the Consolidated Cooperative were a qualifying use of SFRF monies, the timing given to the state to expend SFRF under federal law may complicate matters. Funds received from the SFRF must be expended or obligated by December 31, 2024. Thus, amounts repaid to the state would be available to be re-spent until that date. Likewise, payments received after that date could not be expended during the covered period and thus would need to be repaid. Therefore, to the extent the terms of the loan issued under AB 367 would call for the recipient organization to repay the loan after 2024, the Treasury guidance would likely consider the outstanding principal due and owing to be unexpended for purposes of repayment. Because the state would recover such payments only after 2024, it may be the case that the state would be responsible for repaying all unexpended amounts back to Treasury at that time.

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