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Management Side
Negotiations to sell Verso Duluth paper mill hindered by financial obstacles
DULUTH, Minn. (From news reports) -- Judging from a message sent to at large City Councilor Derek Medved Monday, ST Paper's efforts to purchase Verso Corp.'s shuttered Duluth mill aren't going very well.

In a letter penned by Bill Broydrick, who referred to ST Paper as "my client," he explained the company would like to purchase the Duluth mill and convert it to manufacture tissue paper, a product for which he said, "there will always be a market." He noted that ST Paper already has successfully converted two existing mills to tissue: one in Oconto Falls, Wisconsin, and another in Franklin, Virginia.

But Broydrick wrote that ST Paper has "encountered various headwinds" in Duluth, namely "a utility that insists on long contracts and take-or-pay provisions; a sewerage district that saddles us to capital charges from previous owners for 15 years, a property tax bill that is triple the current value and stiff resistance to any tax abatement by the city."

The mill has an assessed value of $24.2 million, far more than the actual market value of the property, according to Broydrick. The current annual taxes on the mill amount to $913,882.

But St. Louis County reports the valuation was based on a physical inspection of the property in 2019, followed by a review by the county assessor's supervisory team in 2020. That valuation was delivered to Verso in April of this year, and the company did not file an appeal.

Kate Van Daele, a public information officer for the city of Duluth, declined to comment on the status of the paper mill negotiations, but issued the following statement: "All parties have signed an nondisclosure agreement. While some may not choose to honor that, the city of Duluth will."

Regarding the prospect of a tax abatement package for the mill, St. Louis County Communications Manager Dana Kazel said: "We are anticipating a tax abatement will be part of the financial package offered to a potential buyer. That request would come from the city."

New Market Tax credits are another tool that could be used to offer financial support for a mill conversion, but the next round of those won't be available until later this year, said Chris Fleege, Duluth's director of planning and economic development, in an interview a couple of weeks ago.

Meanwhile, Minnesota House and Senate bills have been introduced that would provide up to a $3 million forgivable loan to support "the conversion of the existing paper mill for the manufacture of new paper grades," so long as the plant would continue to employ at least 80 people on a full-time basis for the next five years.

Verso previously employed more than 220 people in Duluth, producing graphic supercalendered paper -- a type of material frequently used in catalogs and advertising circulars -- prior to the mill's closure over the summer.

Amy Rutledge, corporate communications manager for Minnesota Power, said the company "is eager to see the mill operating again and creating good jobs and positive economic impact for the region."

She, too, cited nondisclosure agreements, saying: "Because we are under NDAs, we are not at liberty to discuss this matter. However, Minnesota Power has been invested in economic development for many decades and we offer rates and programs for large commercial and industrial customers to save energy and operating costs -- including a recently approved business expansion incentive rate to support eligible new and growing businesses."

Marianne Bohren, executive director of the Western Lake Superior Sanitary District, did not respond to the News Tribune's request Tuesday morning for an update on negotiations with ST Paper.

Medved said the city is right to explore all its options.

"I don't want to speak for everybody, but for me as an individual, opening the mill is a huge priority. The question is: How can we do it in the best fiscally responsible manner possible?" he asked, noting that any offer of large subsidies could shift tax burdens to others.

"Of course, having that operational and not sitting there as a dysfunctional, blighted building would be a good thing, but at what cost to the community can we do that?" Medved asked.

In his note to Medved, Broydrick asked the councilor, as a fellow businessman, for an opportunity "to discuss these headwinds and what, if anything, we can do to resolve them."

Unless some of the barriers to a deal can be overcome soon, Broydrick indicated the prospects for a sale are quickly fading.

"We are almost ready to give up," he told Medved.

While he has not been involved directly in any of the negotiations, Medved said, "From the outside looking in, I think city administration is taking a responsible approach and looking at every angle and understanding what impact it will have on the taxpayers of Duluth."

"I'm for finding common ground, where it works for us and it works for them," Medved said. "I'm cautiously optimistic that we'll get something positive out of this."

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