City and county leaders in northern Wisconsin hold out little hope they’ll recover most of the money they awarded to a now-bankrupt aircraft company as part of plans to build a plane manufacturing facility in Superior.
Kestrel Aircraft Co. and its parent company, ONE Aviation Corp., filed for bankruptcy in October 2018 along with 10 other subsidiaries. At the time of filing, the New Mexico-based business listed a total debt of more than $198 million. Of that, the company owes $53 million in loans to state and local governments, including around $3.4 million to the Wisconsin Economic Development Corp.
In 2012, Kestrel pledged to create 600 jobs in Superior in what was billed as the city’s largest job creation project since World War II. The city’s redevelopment authority loaned Kestrel $2.6 million and Douglas County provided a $500,000 loan through its revolving loan fund. As of last fall, the company owed the city $1.7 million and Douglas County $479, 421, according to court documents filed in Delaware.
"We gave them money in the hopes that they would (create jobs). They used that money. They invested in some things. I’m sure they intended to build airplanes, but (it) didn’t work out," Superior Mayor Jim Paine said. "Now, we don’t take risks like that anymore."
The Wisconsin Housing and Economic Development Authority also planned to help Kestrel obtain $90 million in tax credits. The economic development deal was awarded $4 million in state and federal loans through WEDC. The project was among those funded without proper review in the early years of the public-private job creation agency implemented by former republican Gov. Scott Walker, according to a state audit.
Paine said he calls Kestrel the grandfather of the state's controversial deal with Foxconn Technology Group.
"It was all the same actors and the structure of the deal is exactly the same except for the scale," Paine said. "It was this idea of the government taking out massive amounts of debt to award massive amounts of upfront cash to a big corporation on the promise that they would build something."
Foxconn signed a deal two years ago with the state to spend up to $10 billion on a manufacturing facility in southeast Wisconsin and create as many as 13,000 jobs in exchange for around $3 billion in economic incentives. The Milwaukee Journal Sentinel reported the company recently reaffirmed its commitment to create thousands of jobs as part of its plans.
Yet, Wisconsin Gov. Tony Evers told CNBC in early July that the company will likely fall short of its hiring goals for next year. Evers said earlier this spring that the state's contract with Foxconn would likely need to be renegotiated after the company changed the type of factory being built in Mount Pleasant. But, Mark Hogan, chief executive officer of WEDC, defended the state's agreement with the Taiwanese company.
A review by the nonpartisan Legislative Audit Bureau in May showed ongoing concerns with the state's public-private job creation agency. An LAB audit said companies that received tax credits and loans during the fiscal year ending in June 2018 only created about 35 percent of required jobs.
With Kestrel, the state signed off on the deal despite the risks. Although, as WPR has previously reported, documents show WHEDA was concerned about the company’s financial status and its failure to meet reporting requirements with another development project in Maine.
"We always knew there (were) risks," said Mark Liebaert, chairman of the Douglas County Board. "But, if this thing would’ve succeeded, it was too good not to have tried."
Wisconsin Public Radio can be heard in the Twin Ports at 91.3 FM or online at wpr.org/news.