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Katahdin Region First To Benefit From Partnership’s Focus on Natural Resource-Based Enterprises

Federal tax incentives to leverage $31.5 million

investment in sustainable forests supplying mills

AUGUSTA —Maine’s forest economy is among the first to benefit from a new federal economic development program designed to funnel private capital into low-income, capital-starved areas. In the Katahdin Region, federal tax credits will support an investment in long-term sustainable forest management, where the timber is a critical input to major mills. The transaction was announced today by Coastal Enterprises, Inc. (CEI) of Wiscasset, Maine and The Nature Conservancy. In what is believed to be the first example of its kind, a $31.5 million long-term investment of private capital made possible by the federal New Markets Tax Credit (NMTC) program, has replaced interim financing which had been provided by The Nature Conservancy through its Katahdin Forest Project.

The capital was provided in the form of a long-term loan supported by federal tax credits under the New Markets Tax Credit (NMTC) program. In order to close this financing, Coastal Enterprises, Inc designated it a NMTC transaction eligible for federal tax credits, using part of a larger $65 million allocation of private investment authority secured by CEI last year, from the U.S. Treasury Department. The actual investment process is complex: GE Commercial Finance made an equity investment in a financing entity managed by a subsidiary of CEI, which in turn made a loan to Katahdin Forest Management, which owns timberlands supplying Katahdin Paper Company and other area mills.  The Nature Conservancy, which had provided interim financing in 2002, made additional non-monetary commitments to facilitate the new loan.

Bringing the program to Maine was a major goal of the state’s congressional delegation.

“I am proud to report that the hours of work shared by my staff, Coastal Enterprises, Inc. and The Nature Conservancy have gained Maine’s forest products industry a new tool in meeting market challenges,” said Senator Olympia Snowe. “This financing should be a key ingredient in the comeback of one of northern Maine’s largest and most important employers.”

The New Markets Tax Credit program provides incentives, in the form of federal tax credits, to banks and other investors willing to invest capital in low income communities. The federal government identifies economic development companies, like CEI, which in turn qualify prospective investors and award tax credits to them.  In a NMTC financing, the investors receive a total 39% federal income tax credit spread out over a seven-year period. In order to distribute credits, CEI was chosen by the U.S. Treasury Department to award the credits through a highly competitive proposal process.

“Encouraging investment in forestland used to supply mills is critical to maintain one of Maine’s leading industries,” said Senator Susan Collins. “I am pleased to play a role in bringing this critically needed capital made possible through the New Markets Tax Credit Program to Maine.”

Ron Phillips, President of CEI added, “This is a remarkable outcome to a multi-year cooperative effort among our Congressional delegation, Governor’s office, The Nature Conservancy, Millinocket area banks and development interests, and the U.S. Treasury Department (Community Development Financial Institutions Fund) to bring investment dollars to capital starved areas.  It is a great example of what can be done to serve the needs of low-income areas in Maine, our region, and nationally.” 

Using the tax credits for investment in forestland reflects a strategic initiative of Coastal Enterprises, Inc. and The Nature Conservancy to support long-term sustainable forest management, wood supply and jobs in the Katahdin region and other forested parts of the United States.

“The economic challenges facing the forest products industry are significant,” said Congressman Mike Michaud. “Providing rewards for forestland investment in the Millinocket area will help ensure jobs and protect a way of life.”

Congress enacted the New Markets Tax Credit program in 2000, with strong bi-partisan support, which has carried forward, with the goal of generating $15 billion of new, private-sector investments in low-income communities.  In spring 2003, CEI received a $65 million allocation of investment authority for Round One of the NMTC program. CEI was one of only sixty-six (66) award winners nationally.  Aside from the Katahdin financing, CEI has additional investment capacity for other projects in especially distressed areas in Maine, New Hampshire, Vermont, and northern New York, in partnership with other community development entities.

“The NMTC Program was designed to spur private-sector investment into rural and urban economically challenged communities across the nation,” said Owen M. Jones, Acting Director of the CDFI Fund.   “We believe that this investment marks the first time the program has been used anywhere in the Nation to invest in sustainable forest management, and the industries that depend on a reliable supply of timber. It is important to have a powerful incentive like the NMTC Program that can draw capital to traditionally underserved, rural areas.”

CEI applied for a $160 million allocation in Round Two back in September 2003, to build on the initiatives launched in Round One. Round Two awards have not been made yet. 

“The potential for the program here in Maine and across the country cannot be overstated,” said Congressman Tom Allen. “Providing a shot in the arm for economically challenged communities by encouraging investment opens doors to opportunities that have been closed for generations.”

“The extraordinary partnership between CEI, one of Maine’s leading economic development organizations and The Nature Conservancy, one of its leading conservation organizations, is precisely the model I have championed in our Maine North Woods Legacy Vision,” said Governor John Baldacci. “Outstanding innovation like this needs to be the guiding principle as we chart a prosperous future for Maine’s natural resource-based industries.”

The interim loan was part of The Nature Conservancy’s Katahdin Forest Project, announced in August of 2002 as a partnership designed to protect forestland around Baxter State Park.  Under the initiative, the Conservancy provided financial assistance to the former Great Northern Paper. In return, Great Northern transferred 41,000 acres in the fabled Debsconeag Lakes wilderness area to the Conservancy and placed a conservation easement on 200,000 acres of forestland along the western and southern boundary of Baxter State Park, ensuring public access, traditional recreational uses, sustainable forestry, and no future development.

“This program brings conservation and economic development together and helps to make long-term sustainable forestry competitive in the market place,” said Tom Rumpf, Acting Executive Director of The Nature Conservancy in Maine. “It is clear that our ability to protect biodiversity depends on a healthy economic environment. Our hope is that these incentives serve as a model to communities throughout Maine.”

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