January 17, 2012

Tax plan trumps Maine's bid for Kestrel

Plane-maker taking new plant and 600 jobs to Wisconsin.

By Ann S. Kim akim@mainetoday.com
Staff Writer

and David Hench dhench@pressherald.com
Staff Writer

Wisconsin lured Kestrel Aircraft away from Maine with a stronger plan to provide federal tax credits for the $100 million manufacturing plant originally planned at the former Brunswick Naval Air Station.

Kestrel Aircraft Corp.

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click image to enlarge

A Kestrel airplane.

2011 Press Herald file

WHAT EACH STATE OFFERED KESTREL

WISCONSIN

$30 million in tax credit allocations immediately through the Wisconsin Housing and Economic Development Authority

$30 million in tax credit allocations by the end of 2012 through the Wisconsin development authority

$30 million in 2013, if the Wisconsin development authority has it available

MAINE

$20 million in tax credit allocations through Coastal Enterprises Inc.

A possible $4.75 million loan guarantee through the Finance Authority of Maine and a $3 million guarantee or letter of credit from the Midcoast Regional Redevelopment Authority

The company and Wisconsin officials announced Monday that the plant will be built in Superior, Wis., near a Kestrel office in Duluth, Minn.

Kestrel had announced in 2010 that Brunswick Landing would be the site for the plant, which will make a new type of six- to eight-passenger turboprop plane and could employ as many as 600 workers.

But the project ran into problems with financing, and Kestrel decided in September to seriously consider other locations.

Kestrel plans to keep 25 engineering support and aircraft modification jobs in Brunswick and then add functions, which could include a "completion center" to handle the last manufacturing phase for the new turboprops, said Alan Klapmeier, the company's chairman and chief executive officer.

Wisconsin and Maine raced to put together the winning financing plan for the plant, which Klapmeier said is a year behind schedule.

On Friday, Maine Gov. Paul LePage announced a total of $7.75 million in possible loan guarantees to bridge a financing gap.

Over the weekend, Wisconsin made a proposal with crucial commitments involving the federal New Markets Tax Credit Program. The Wisconsin Housing and Economic Development Authority will provide $30 million in tax credit allocations immediately, a second allocation of $30 million by the end of this year, and a commitment for a third allocation of $30 million in 2013 if the authority has it available, Klapmeier said.

By comparison, the company received a $20 million tax credit allocation in Maine and the status of future allocations was unclear.

"In the end, that's the really big difference. We couldn't keep going down the path we were on with that level of uncertainty," Klapmeier said.

"If Wisconsin hadn't gotten it done and Maine had continued to reduce that uncertainty – which is what the governor and (Economic and Community Development Commissioner George Gervais) were trying to do – then we'd have gotten to the point where we would have selected Maine."

The New Markets Tax Credit Program is designed to encourage investment in low-income areas.

The tax credit allocations are distributed by entities approved by the federal government.

When a business spends the amount of the allocation, it gets the tax credit.

In Maine, Kestrel received a $20 million tax credit allocation through Coastal Enterprises Inc., a private nonprofit community development company based in Wiscasset.

Kestrel spent $13 million of its own money and $7 million from an insurance company with which it has a relationship, which yielded about $7.8 million in tax credits. Kestrel netted a little less than $5 million, after fees and expenses, Klapmeier said.

The origin of the problem with future tax credit allocations in Maine was not clear Monday.

In July 2010, a group of economic development entities outside state government proposed a $100 million plan that involved the New Markets Tax Credit Program, Klapmeier said.

But ultimately, the company was not able to get what it had expected from the plan.

He described the $20 million tax credit allocation in Maine as only getting the project over a "minimum hurdle."

LePage said last week that Kestrel's expectations for financing from Coastal Enterprises were not met.

Charlie Spies, chief executive officer of CEI Capital Management, the organization's financing arm, could not be reached for comment Monday.

Spies has said that his group never mentioned anything other than the $20 million in its discussions with Kestrel.

Brunswick Town Councilor Benet Pols said Monday that Kestrel's decision to go to Wisconsin was a blow, but not an overwhelming one.

(Continued on page 2)

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Kestrel Aircraft Corp.

Do you think Maine officials did enough to try to get Kestrel Aircraft Corp. to expand here rather than going to Wisconsin?

Yes

No

View Results