A $300,000 grant from Magnolia’s economic development fund to Texas CLT was all but finalized Tuesday after the city council voted unanimously to approve two contracts involved in a deal that was last month stated to bring up to 140 jobs to the community but is now estimated at 70.
The vote was taken after extensive discussions with City Attorney Mike Boyd, City Economic Director Cammie Hambrice, and among the council members themselves at a specially called meeting. The two contracts approved were a grant agreement between the company and the city and a subordination agreement with the Arkansas Economic Development Commission’s (AEDC) lending arm, the Arkansas Development Finance Authority (ADFA).
A resolution to move forward with the grant was passed Dec. 17 by the council, but the measure was made pending the results of a feasibility study result and barring a review of any contracts associated with the deal.
The Texas-based laminated beam and wood products manufacturing company, located at the former Arkansas Laminating and Unit Structures mill complex at 1012 Shanhouse Street in Magnolia, is now expected to begin with around 60 jobs in its first year, then add another 10 jobs by year two. The mill will at first produce cross-laminated, interlocking mat boards then hopes to open more product lines in the coming years. The company is expected to host three shifts and the hiring process is already underway.
On Tuesday, open discussions at the council’s meeting stated that after the new business delved deeper into the Shanhouse Street mill site, the original ceiling of approximately 140 jobs in a ramp up over the next two years was no longer deemed a realistic possibility. The job figure was also said by Magnolia Economic Development Director Cammie Hambrice to be part of the city’s “clawback” contract agreement, that has now been revised to accommodate the lower employment threshold.
“Now that they are in the plant and they’ve cleaned up a lot of it and they are seeing how the equipment is laying out, as we looked at the clawback, it just wasn’t going to be feasible to get up to that number within two years,” said Hambrice.
A clawback agreement typically designates that if certain expectations or job figures are not met within a certain period, the city could be entitled to certain assets back in compensation. In the Texas CLT-Magnolia case, if the enforcement of the agreement were necessary, it would likely be cash assets owed.
The contract, according to City Attorney Mike Boyd, specifically says the company must have 32 employees on staff within two years of the contract’s signing, then Texas CLT must gradually get to a total of 70 workers and maintain that figure over the length of the 10-year contract.
The local economic developer also said the larger, December-stated employment figures could still be attainable over time.
“I think we will eventually get to that 140 employees, we just wouldn’t’ have done it within the first two years,” Hambrice added. “It just was not going to be possible.”
The revised figures were also taken into account for an economic impact study performed by the Austin, Texas-based economic development consulting and analytical firm Impact DataSource LLC. The independent firm, which claims to have an unbiased determination of the impact of business to a community and of which Hambrice said came “highly recommended” by her Jonesboro contacts, estimated the city’s economic impact from the addition of Texas CLT over a 10-year period.
The total impact model used to figure the end result combined project specific attributes with community data, tax rates, and assumptions to estimate the economic impact of the project and the physical impact on local taxing districts for a 10-year period. They are also based on regional models and specific to communities similar to Magnolia.
Hambrice said that when taking into account Columbia County as a whole, the city would see its $300,000 grant investment recouped by direct and indirect economic impact within three years. When looking at Magnolia only, the time period was estimated at six years.
“Our study is over a 10-year period and our clawback provision is over a 10-year period,” she said.
The decision to approve both the grant-clawback contract with Texas CLT as well as a subordination agreement ADFA were each passed unanimously by the city council. But the motions were not done so without discussion and a caveat that the city receives quarterly reports from the new business.
The agreements — especially the subordination contract — are also noted to have some risk.
In an initial ADFA proposal, the city’s clawback agreement would have essentially been null and void, if the business failed, since the state lending agency had itself loaned a seven-figure sum to the business and was first in line to collect. But Boyd stated this week the city and ADFA had discussions and came to a better agreement.
“They’re the ones who were putting out over a million dollars, and they wanted us to sign a rather onerous document … which basically meant our clawbacks meant nothing,” he said. “But we pushed back against them, and said ‘we can’t have clawbacks that mean nothing because these are tax dollars’ and the city council -- if you are going to approve the use of tax dollars — you have to get something for it.”
The new agreement, Boyd said, states that the city is still behind ADFA in a worst case scenario, but the city now has the right to enforce its clawbacks if the business is short by employee number thresholds.
“If that occurs, we have the right — not the obligation — to enforce our clawbacks up to a specific dollar amount,” the attorney added.
According to Boyd, if the company is short on employee mandates, “the city can collect up to $4,285.75 per employee” and up to a maximum of $30,000 per year.
The primary concern from ADFA’s standpoint came due to the lending agency’s fear that an over imposition of clawbacks by the city could, in theory, harm the business, thus endangering the lender’s loan and collateral. The revised agreement is a compromise between the city and the state lender, according to Boyd.
“They allow us to clawback so much money per year, in the event that the employer is short,” he said, “but not so much that anyone feels like it could put the company at risk by doing so.”
Once ADFA’s loan is paid in full, which was stated to be either a six- or eight-year payback, the subordination agreement with the lender is no longer valid.
The city council, especially members with current or former banking experience, expressed the concern over the deal and asked the most question, but also explained that they knew the risk, and that, in the end, the manufacturing jobs to the community are worth it.
“If the company doesn’t make it, we’re not going to get anything back guys; we’ve just got to be realistic,” said Alderman Jeff White, who also serves as a vice president at Bodcaw Bank. “This subordination agreement is not where we want to be, but I understand that’s the only way it’s going to happen. And if I’m ADFA, I’m doing the same thing.”
ADFA is also the property owner and leaseholder, at least for the first year of production, for the Magnolia mill property where Texas CLT will operate.
The $300,000 grant from the city economic development fund will go toward the purchase of equipment over time. When a purchase is necessary, the company will invoice the city for grant fund reimbursement.
The plant is now hiring through Arkansas Workforce Services and Manpower in Magnolia.