Sam Beebe, Ecotrust [CC BY 2.0], via Wikimedia Commons

February 5, 2019; The Oregonian

As readers of NPQ know, community economic development is hard work and often involves layering multiple sources of funding to make a project “pencil out.” A few years ago, an Oregon nonprofit named Ecotrust sought to save a small town’s sawmill.  But to do so, it may have skirted the rules to secure new markets tax credit support.

As people familiar with new market tax credits realize, these deals often have high legal and accounting costs, so the deal needs to be large enough to make those expenses worthwhile. In this case, Ecotrust was seeking to reopen a sawmill called Rough & Ready Lumber, located in Cave Junction, Oregon (population 1,883), near the California border. Rough & Ready was the county’s last large sawmill and, with 85 employees, the town’s single largest employer. Ecotrust is a Portland-based nonprofit that bills itself as a “catalyst for radical, practical change.”

As it happens, in this case, the relaunch did not work out. Reopened in 2014 with a total of $5 million in public support, in 2016 it had to close again. Less than 20 months after Ecotrust received the investment from the state agency known as Business Oregon, the business was gone, and the promised well-paying jobs were gone with it.

So far, well…not so good. But these projects, almost by definition, carry risk. After all, the nonprofit only stepped in because there was a market failure and a rural sawmill had closed. Whatever Ecotrust’s failings may have been, it can’t be held responsible for the business having closed before it came onto the scene.

But in seeking to relaunch the business, Ecotrust may have cut some corners. In particular, it appears the nonprofit inflated the value of the project by $5 million, as the Oregonian details. Effectively, the owners of the sawmill sold the property to themselves (well, a corporation in which they were 99-percent owners) using a $4.9 million one-day loan from Chase Bank. This “sale” was then counted as an investment in the property, helping make the project large enough to justify the new market tax credits investment.

Of course, had the sawmill revived and the jobs were saved, the folks at Business Oregon might not have worried about the creative financing. But that didn’t happen.

And, so, an investigation was launched. In August 2018, Business Oregon issued a memorandum outlining some ways in which Ecotrust had misrepresented the deal and called for $1.3 million to either be reinvested in another qualified project or returned to the state. For a time, the Oregon Department of Justice considered filing criminal charges. Instead, it is pursuing a civil case, which, if Ecotrust loses, could lead to fines.

Last week, Ecotrust agreed to reinvest the money it was originally provided for the sawmill to another qualified project involving the purchase of a warehouse in a low-income area of Portland. This new investment seems to have a lot lower potential upside—but surely less risk too—than the sawmill did. The investment of $1.3 million is expected to only create five jobs, each paying about $15 per hour.

Ecotrust, for its part, has defended its sawmill investment and its use of new market tax credits. A page on its website describes the closure of the mill as “regrettable” but worth the try. The financials were such that there was no way to even try to revitalize that industry without using something like new market tax credits. Another page on the website heralds how Ecotrust has leveraged more than $277 million in new market tax credits to help industry and the ecology in that state.—Rob Meiksins and Steve Dubb