An incentive package designed to help jumpstart Verso Corp.'s idled Duluth paper mill is headed to the City Council Monday night.
ST Paper has been negotiating to purchase the mill and convert it to tissue paper production at an anticipated cost of about $54 million. If councilors approve, the city is prepared to abate up to $600,000 in future property taxes to be paid by ST Paper and offer the company a $242,000 forgivable loan, so long as it creates and continues to employ the equivalent of at least 80 full-time staff members on an ongoing basis.
Should the Council sign off on the subsidies, ST Paper will be required to sign a project labor agreement, mandating that tradespeople hired for the mill conversion will be paid at prevailing wages, according to Chris Fleege, Duluth's director of planning and economic development.
Likewise, ST Paper will commit to paying its own employees a living wage. But Fleege said the actual compensation the company provides actually is significantly higher than the base pay required by the state Minnesota Investment Fund.
"For the hourly (workers), I think it was in excess of $33 an hour, plus benefits, and for the managerial salaried staff, I think it was closer to $44. And then, the benefits they estimated are about $9.18 of additional compensation. And all 80 positions will have full benefits," Fleege told city councilors when asked about the rate of pay at a Thursday agenda session meeting.
He estimated the mill's annual payroll will be around $10 million.
The proposed $600,000 tax abatement package would be spread over 10 years, and St. Louis County also will be asked to offer an equal amount of tax relief. Fleege said the city currently is slated to collect about $215,000 a year in property taxes from the mill operation. So, the proposed $60,000 per year Duluth would forgo represents about 28% of its anticipated tax collections.
"So it is not full abatement," Fleege said.
Councilor Joel Sipress asked: "If the mill was not put back into use and became an abandoned property, would we anticipate that the property tax revenue that it would generate would decrease?"
Fleege responded, "Yes. It would leave quite a hole."
"The reason I'm asking that is I want to make sure the public fully understands why we're giving a tax break and why this actually, in dollars and cents, something that's beneficial, even to taxpayers. That if we don't do this, we would almost certainly lose more annually than the $60,000 we're abating by doing this," Sipress explained.
Fleege agreed, saying, "It's almost an instant payback."
He noted that the city also stands to benefit from having the mill back in operation, as it is a major water and sewage customer, that helps keep rates in check for residents.
Verso ceased production at its Duluth mill last summer. At the time it employed about 220 people manufacturing supercalendered paper — the kind of stock often used in newspaper advertising circulars. But when the market for that type of paper waned, Verso shut down its Duluth mill and another in Wisconsin Rapids.
ST Paper proposes to convert the mill's production to a tissue-grade paper, and company officials say the market for that material remains strong. But the converted mill won't require nearly the number of workers Verso did.
ST Paper already has successfully completed a couple of other similar mill conversions — one in Oconto Falls, Wisconsin, and another in Franklin, Virginia.