The state’s arrangement with Cate Street Capital to float the troubled company $40 million for the ailing East Millinocket paper mill is the latest example of Maine learning a hard lesson: Deals for economic development and job growth often are risks without reward.
There’s another lesson, as well: Those who don’t learn from history are doomed to repeat it. The Cate Street disaster has an echo from the past, almost 45 years ago, when the state tried and utterly failed to get Maine’s farmers into the sugar beet game.
This sugar beet story begins in 1964, after the U.S. Department of Agriculture allotted Maine 33,000 acres for sugar beet production as part of its calculations of how many tons of sugar would be needed to meet consumer demand. As part of this effort, Maine farmers were expected to yield about 50,000 tons of sugar each year.
Democratic Sen. Edmund Muskie of Maine lobbied hard to secure the sugar beet allotment. He and others across the state lauded the USDA’s decision as key for bolstering a depressed northern Maine economy heavily reliant on potatoes.
Sugar beets would boost the Aroostook economy by providing farmers “an additional cash crop,” one observer told The New York Times in 1964. The Maine Sugar Beet Association also proclaimed 766 Aroostook farmers were ready to cultivate up to 61,000 acres of beets.
That same year, Colorado-based Great Western Sugar Co., a leading sugar beet producer, announced it would build a $17 million refinery in Caribou with loan guarantees from the U.S. Economic Development Administration and the Maine Industrial Building Authority, the entity that several years later would become the Finance Authority of Maine and prop up the Cate Street deals.
Studies conducted by the University of Maine Cooperative Extension and the Economic Development Administration concluded sugar beet production in Maine was feasible.
But an early clue that the project was troubled came when Great Western Sugar pulled the plug on the Caribou refinery in August 1964, citing “agronomic problems.” Great Western Sugar realized the rocky and acidic soil of northern Maine was not ideal for sugar beets.
Still, Great Western’s exit did little to discourage investments in the crop. In February 1965, Maine Sugar Industries, under Texas industrialist Fred Vahlsing Jr., who already operated a potato processing plant in Easton, revived the refinery plan but moved it to Easton.
Vahlsing maintained close ties with prominent Maine politicians, such as Muskie, who persuaded the state Legislature to downgrade pollution standards for Prestile Stream near Vahlsing’s proposed refinery site, allowing the plant a place to dispose of its sewage.
To get the refinery built, the Economic Development Administration and Maine Industrial Building Authority backed $12.3 million and $8 million in loans (about $120 million today), respectively, starting in 1965. The Maine Sunday Telegram reported this was the first time the Maine Industrial Building Authority reached its investment cap for a single project.
A growing problem
In 1966, the U.S. Small Business Administration concluded the Easton refinery “will succeed economically to a higher percentage of profit than any operating plant now in existence.”
Against this backdrop, the refinery began processing sugar beets in January 1967. But right out of the gate, it ran into trouble.
Despite an allotment of 33,000 acres to grow sugar beets, farmers harvested only 3,382 acres in 1966, yielding 5.3 tons of sugar beets per acre, according to a 1972 report by the U.S. comptroller general. Yield peaked at 9.6 tons per acre in 1967. Nationally, the per-acre yield for sugar beets during this period was 17 tons.
In 1968, the Maine Industrial Building Authority guaranteed another loan, for $2.25 million, to Maine Sugar Industries to purchase farm equipment to harvest sugar beets.
But by January 1970, Maine Sugar Industries defaulted on the state and federally guaranteed loans and the authority started foreclosure proceedings.
The refinery shut down and never resumed.
Troubled industry
When the refinery closed, state officials leapt into action to save the business, turning an economic issue into a political one — just like with Cate Street.
According to BDN archives, Democratic Gov. Kenneth Curtis spearheaded efforts to save the stalled refinery. He launched a “sugar beet task force” and persuaded a legislative subcommittee that started to investigate the “financially troubled sugar beet industry” to pause its investigation while he tried to broker a deal between Maine Sugar Industries and its creditors.
But it wasn’t just financial problems that troubled the refinery. Aroostook County farmlands proved too rocky and acidic for “ successful sugar beet production,” something Great Western Sugar realized nearly six years and millions of dollars before.
Potato prices during this period also were rising, making farmers hesitant to devote acreage to sugar beets, according to the federal Agricultural Stabilization and Conservation Service.
Plus, a prospectus filed with the Securities and Exchange Commission in 1970 revealed Maine Sugar Industries still owed farmers in Maine, New Jersey, New York and Pennsylvania $2.2 million for the 1969 crop, making them more reluctant to plant sugar beets.
Maine was left paying $67,000 per month in interest on the loans it guaranteed to Maine Sugar Industries. Political fights over how to pay off this debt nearly brought the state to the point of default and a credit rating downgrade in April 1971.
In the end, the venture, including principal and interest on the state-backed defaulted loans, maintenance costs for the Easton refinery, legal costs and the cleanup of Prestile Stream, cost state and federal taxpayers nearly $30 million, according to BDN archives. In today’s dollars, that figure would approach $180 million.
A tangled web
Unlike with Cate Street so far, the failure of the Easton refinery prompted a swift call to action by federal and state lawmakers, resulting in reviews at the federal level by the General Accounting Office and U.S. comptroller general and at the state level by a nine-member subcommittee of the Legislative Research Committee.
But if the federal or state government intended to hold Vahlsing or, for that matter, anyone accountable for the loan guarantees cost taxpayers millions, they flopped.
Numerous federal reviews of Maine Sugar Industries found the company’s financial situation was “top-heavy with debt,” and the refinery would have to process 540,000 tons of sugar beets annually to break even — a likely impossible number, given the “agronomic problems” of growing sugar beets in Aroostook soil.
Further, the federal reviews found poor management practices and a lack of expertise compounded the financial crisis.
A 1970 report commissioned by the Economic Development Administration concluded the refinery still could become profitable by 1975 if Maine Sugar Industries obtained debt deferrals and “substantially more capital.”
Despite the problems and “poor financial condition” of the Easton refinery, the U.S. comptroller general determined “we could not conclude, from the information we had developed, that the [f]ederal government should not have participated.”
The Maine subcommittee subpoenaed the financial records of Maine Sugar Industries and Vahlsing Inc., the parent company. Neither company complied, and the subcommittee found no records were kept at the Easton office other than purchase orders and invoices.
The subcommittee by its own admission “suspend[ed] examination of those records” and never fully untangled the web of the “complex Vahlsing corporate empire.”
The U.S. comptroller general found Vahlsing “had no direct stock ownership” in Maine Sugar Industries but did “hold an indirect financial interest” through stockholdings in Vahlsing Christina Corp., which owned about 40 percent of the stock of Vahlsing Inc., which owned 19 percent — the largest single share — of Maine Sugar Industries.
(Again, echoes of Cate Street, as four decades later its similar network of shell corporations was unveiled when its plans to reopen the Katahdin-region paper mills fell through.)
Who’s fault?
The subcommittee determined “it would be patently wrong to lay the blame for the failure of the sugar beet industry solely at [Vahlsing’s] door.”
Instead, the $21,000 report said blame lay with “politicians of both parties at local, state and federal levels” who sought to save Aroostook’s ailing agricultural economy, as well as farmers who were “accustomed to thinking only in terms of potatoes.”
The subcommittee didn’t call for anyone to resign or for any action against Vahlsing, nor did it uncover the systemic failure to recognize the agronomic and financial problems with growing sugar beets in Maine.
Before the release of the subcommittee’s final report, the Legislature made crucial changes to the Maine Industrial Building Authority to mitigate the risk of losing taxpayer dollars on poor business investments, including reducing its investment cap to $4 million per project.
At the end, the subcommittee concluded that “the state has gone too far in its financial involvement with private business” and that “the people of Maine have a right to expect that decisions involving their tax money will be made on an enlightened, impartial and businesslike basis — nothing less.”
Forty-five years later, those words continue to ring true.