Judge- Failed chip mill must pay $393,000

Scott County Circuit Judge David Dolan has ordered Canal Wood Corp. to pay to the Missouri Department of Economic Development $393,000 for reneging on its agreement to provide 20 jobs in the Scott City area for an agreed-upon five-year period.

Canal Wood Corp. opened a wood chip mill in Scott County at the Southeast Missouri Regional Port Authority in 1997, hoping to add an industry and create jobs. The company's own misfortune, however, paved the way for another company to take over using its own assets. The new company is under no obligation to fulfill any state-mandated quotas.

At the request of Attorney General Jay Nixon, Dolan ordered Canal Wood Corp. this week to repay the original grant of $193,588 plus an additional $200,000 for not fulfilling the employment agreement.

The block grant of $193,588 for infrastructure was not awarded directly to Canal Wood, but to Scott City, said Dan Overbey, director of the port authority. The city used the money to provide a street and a water well that Canal Wood benefited from as part of the economic development agreement.

In exchange for the street and improved water supply, Canal Wood agreed to create at least 20 full-time jobs at its wood-chipping plant with at least 51 percent of the jobs coming from people classified as low or moderate income and employing them for at least five years.

The agreement stipulated, according to Nixon, that if Canal Wood breached the contract, it was obligated to pay the contract price plus $10,000 for every employee not hired and employed for five years.

In February 2001, Canal Wood ceased all operations. Nixon sued in May 2002, asking that the state be reimbursed for the amount of the contract and the penalty for not hiring the employees. Last March, he filed a motion for a summary judgment, asking that the court issue a ruling based on the evidence presented to that point. Dolan held a hearing on the motion last September and granted the motion through his recent order.

"Economic development grants and loans from the state are a two-way street," Nixon said in a prepared statement. "The benefits of these grants must be matched with job creation and retention. If not, these companies are failing in their obligation to the taxpayers and must repay the money."

In October 2001, Canal Wood merged with CWC Holdings and was later bought by Missouri Fibre Corp., which currently operates the mill that chips hardwood to be used as either mulch or for paper production.

When Canal Wood began its production in 1997, Overbey said, it invested between $12 million and $13 million of its own assets in addition to the economic development block grant. For the first two years of operation, he said, the company had had two steady customers -- Japanese paper companies that were minority holders in the company.

"After two years the world market changed and the companies they were selling to started buying paper from other world markets," Overbey said.

At about the same time, the America economy went into a recession and the demand for wood chips on the domestic market tapered off. Canal Wood was forced to shut down its operation in Scott City, and it stayed dormant, Overbey said.

Missouri Fibre, a Missouri-based company, bought the mill at a greatly reduced price in 2003 when the economy began picking up.

"They worked very hard, put money in it and ramped it back up," Overbey said. "I think it's going to be a real success story."

Missouri Fibre was able to come in and reopen the plant by investing its own capital. The infrastructure that Canal Wood provided through the block grant is already in place. Because it has no government-backed grants or loans, Missouri Fibre also is under no obligation to create a given number of jobs. It is operating, Overbey said, with five or six employees.

Even though the company is not obligated to provide 20 jobs for five years, as Canal Wood was, Overbey said keeping the chip mill operating has created other jobs that has benefited the community and beyond: independent contractors, log cutters and haulers.

"One hundred-plus truckloads a week are coming in there," he said. "From that perspective, the five here are the backbone for a lot of other people. And when stuff goes out there are additional benefits to the barge and towing companies."

Canal Wood is based in South Carolina. Overbey said it is a privately-held, family-owned company that recently sold some of its holdings when its president and board of directors died. It is now responsible for paying the judgment Nixon sought.

"I don't know what is left of the company," Overbey said. "It's a legal and political decision that had to be made."

lredeffer@semissourian.com

335-6611, extension 160