Flakeboard Failure Disappoints And Challenges City – February 22, 2012
WEST END ROAD – The recent closure of the former Humboldt Flakeboard manufacturing plant leaves the City of Arcata with two challenges – recovering money it loaned and preventing the plant from falling into prolonged disuse.
“It would be a complete shame if we had a large vacant industrial facility – it would quickly become a hazard,” said Larry Oetker, community development director.
Humboldt Flakeboard began manufacturing particle board in 2002 and five years later, the City loaned it $2.5 million in Community Development Block Grant (CDBG) funds to keep it open so 69 jobs could be retained.
The money was invested in a $5 million biofiltration system that allowed the plant to comply with environmental regulations and avert a shutdown.
But an ongoing recession and increasing importation of furniture from places like China would soon trigger a drastic reduction in particle board demand.
By November 2010, the plant’s manufacturing ceased. Jobs were lost but the plant was still active, finishing particle board produced at a Crescent City plant owned by its parent company, Hambro Group. That stopped late last year and now all three of Hambro’s particle board plants are closed.
Two of them – including the one in Arcata – are for sale. Wes White, Hambro’s CEO, said the company is trying to sell it for particle board production first and if that doesn’t happen, its equipment will be auctioned off and the property will be sold.
Hambro has defaulted on its loan payments to the City and a balance of almost $2.2 million remains. White said the company has also defaulted on bank loan payments.
Oetker said the City is a first position creditor and personal and corporate repayment guarantees have been pledged.
“The big picture is we’ve had an outstanding partnership with Humboldt Flakeboard – they did everything they said they were going to do,” he continued. “The problem is, the economy tanked and it was totally beyond their control.”
Oetker said the plant property’s land value alone is enough to cover the loan payback and the biofiltration system is still viable and can be used by another company for a variety of manufacturing processes.
White said that since numerous particle board plants have closed, an uptick in the economy could lead to increased demand for new ones.
But Oetker acknowledged that the timber industry is “a shell of what it once was” and his assumption is that the plant will be used for something than other particle board manufacturing if it’s bought.
The City will lose CDBG funding because the grant that provided the loan funding had requirements that weren’t met. Humboldt Flakeboard was obligated to retain 69 jobs and Oetker said the City believes 54 were kept.
He said that when the $2.2 million is repaid, about $400,000 of it will have to be returned to the state. The rest of it can be retained by the City for further community development, however, and Oetker wants to use it to loan to more businesses.
He said he doesn’t regret administering the loan because it retained jobs and reduced the plant’s emissions in the years prior to its closure. “Those goals were met for several years,” Oetker continued. “We will get our money back and people had jobs for several years longer than they would have had otherwise.”
Asked about the loan balance, White said Hambro will pay back “as much as we can.” Referring to liquidation of assets, he added that debt repayment is “all dependent on the field price.” He said his company does not want to resort to filing bankruptcy.