2/25/2013 by Scott Stein

In 2006, the Park Falls paper mill then owned by Smart Papers shut its doors and laid off more than 300 workers. For sale signs popped up around town and residents, lawmakers, and…pretty much everyone wondered what would happen not only to the city but to the surrounding region.

Butch Johnson’s company, Johnson Timber, was the mill’s sole pulp wood supplier. He too worried that, even with state incentives, no buyer would step forward. When no one did…he did.

He renamed the company Flambeau River Papers, hired back his childhood friends and neighbors (Johnson once lived in Park Falls) and put the town back to work.

People called him a hero, and while everyone enjoyed the lights for a while, they soon realized the magnitude of their problems.

“The mill is an important part of Park Falls, and has a $300 million per year positive economic impact to Wisconsin and especially this region,” said Randy Stoeckel, Flambeau’s president and general manager. “But there had been years of neglect. In order to make it profitable, in order to survive, we needed to make some heavy investments.”

Those investments came with a price tag of around $25 million. Johnson said he hasn’t taken a dividend yet. Flambeau bet that new technology and efficiencies could make the mill profitable, and they made some large wagers in that direction.

Johnson created a separate entity with a similar name – Flambeau River Biofuels. The plan was to create a bio-refinery adjacent to the mill that would produce renewable biodiesel fuel and help power the mill. They received approval for a $30 million U.S. Department of Energy grant and on the merits of the project and an additional $80 million DOE grant was committed to construct the 6 million gallon per year plant. It looked like Park Falls was going to create a new model for paper mill innovation.

No one foresaw the financial meltdown that began in 2008, however. Before then, oil prices and natural gas prices were high, capital was available and people were ready to invest in renewable resources. Then the economy tanked, natural gas costs came way down and money became tight.

“The banking industry has changed,” said Stoeckel. “We have operated almost like a cash business, and when you have cyclical markets like the paper industry, that makes it very difficult to pay your bills and continue to make the necessary improvements to keep 300 jobs.”

Even the federal government began changing grant criteria, and as prices for more traditional fuels, particularly natural gas, continued to fall, the Department of Energy withdrew the second $80 million grant. The biodiesel plant ran out of legs.

“The technology worked but the economics didn’t,” said Park Falls Mayor Thomas Ratzlaff. “We’re always looking for ways to make things more efficient, but it takes time and investment.”

While disappointing, scrapping that plan might not have been so bad had news not surfaced in late 2012 that Flambeau was late in loan payments to the state. Unfortunately for Flambeau, they were the lead company in a story about trouble at the Wisconsin Economic Development Corp. (WEDC).

WEDC was created by Gov. Scott Walker after the Department of Commerce was dissolved. For whatever reason, and there is still plenty of investigating occurring, WEDC “lost track” of up to $12.2 million in loans that were in default to the state.

Flambeau owed the largest amount – $4.5 million between the paper mill and the biorefinery – and as headlines splashed around newspapers and websites, it looked like Flambeau was in bad shape. In hindsight, having the biofuel and the paper mill with the same name was not a good idea.

“It was an anxious time in town,” Ratzlaff said.

The reality was that Flambeau was behind in payments. In fact, they hadn’t made a payment to the state since March 2012. In February, Johnson had initiated negotiations on extending the loan and paying on the backend. He told reporters he intended to pay money Flambeau Paper owes the state ($2 million) if they would give him more time, which they have. What’s less clear is how, or if, the biofuels business will handle its $3 million debt. The business has few assets.

State Sen. Bob Jauch (D-Poplar) was quick to come to Flambeau’s defense, noting the mill has already repaid 75 percent of one loan and 50 percent of the other. He also said keeping the mill open has more than repaid the state for any taxpayer investment.

“They have every intention of meeting their obligations,” Jauch said in an interview with the Ashland Daily Press. “This is a case where the state’s loans saved 350 jobs and prevented the economic destruction of Northern Wisconsin.”

That may be true, but the bigger question is for how long. Flambeau’s rescue by a successful local entrepreneur makes a great story, but it remains to be seen whether that trumps global economic trends.

The odds are against them. Since 2006, Wisconsin mills producing publishing-grade paper are closing at the rate of one per year. Paper loses a bit of ground each day to laptops and tablets, and mills are increasingly not controlled by local investors like in Park Falls but by Wall Street investors looking to squeeze out a bit more profit. Flambeau’s story may be inspiring, but more than inspiration, they might need global scale.

Then there’s China, which is investing heavily in the industry and could flood the market with cheap paper. It seems that there are competitors on all sides.

Still, Flambeau and Park Falls have proved resilient before. Many thought they were finished in 2006, and since then the mill has increased employment to 325 over the 285 at the time of the shutdown. They’ve paid more than $90 million in wages, pursued a new national model for paper mills, and, for the time being, saved Park Falls’ economy from starvation. That’s no small thing.

The next six years will tell whether Park Falls can be a shining example of hometown heroism or will fall to a larger economic wave that could finally hit home. The mill and Park Falls grew up together. They are linked, which explains why everyone is fighting so hard to save it and why it’s so difficult to put a price tag on what that should cost.

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