This isn’t a recent case, nor the worst we’ve seen from the Obama administration’s green-tech stimulus bubble. However, it may be one of the most instructive about how governments don’t pick winners and losers in markets, but just losers. Genesis Poly of Mankato, Minnesota received subsidies from almost every level of government — city, state, and federal — to open its recycling center that transformed agricultural plastic waste into pellets used to create plastic goods. Both the city and state spent hundreds of thousands of dollars each, part of which got backstopped by $500,000 in Obama stimulus money. Meanwhile the federal Department of Agriculture guaranteed 70% of a $7.44 million loan to Genesis Poly issued in the fall of 2009.
By the spring of 2010, however, Genesis Poly had closed its doors, swallowed by bankruptcy. For the second time. KEYC in Mankato reported on the case of Genesis Poly’s collapse in October of last year:
In the spring of 2010, Genesis Poly went belly up. And with it went Mankato’s money. Along with a $100,000 loan from the Minnesota Pollution Control Agency, and another $7.44 million through a loan with U.S. Bank… 70% of which was backed by the Department of Agriculture.
Genesis Poly was in talks with the Minnesota USDA well before they went to U.S. Bank, and small government advocates are saying the USDA’s involvement could have played a role in U.S. Bank’s willingness to throw money at Genesis Poly.
David Strom, a policy fellow at the Minnesota Free Market Institute says, “There’s an implicit sense of Too Big To Fail. If the government is in, they’re going to keep throwing money at it. It looks like a less risky way to spend your money. You don’t even have to look at the books, ’cause it doesn’t matter. Government is going to back you up.”
But perhaps the most disappointing aspect of this whole story: this isn’t the first time Genesis Poly has gone bankrupt.
Back in 2008, with the same idea and the same investors, AGSI Recycling, as it was called, out of Savage, disintegrated as well, costing another $57,000 for the MPCA, and taking the 8 million pounds of plastic they had collected for production and dumping it all in a landfill.
Strom says, “This company in particular had already gone out of business once. The business model didn’t work. Yes they could produce something that was useful, but not at a price that anyone was willing to pay. If government has to shove money in, you’re burning up that kind of green to create another kind of green coming out the other side. And it just doesn’t make sense.”
Hey, it’s not like Genesis Poly’s first bankruptcy was a big secret. In January 2010, the Minneapolis Star Tribune wrote glowingly of the second chance the firm formerly known as AGSI would get, courtesy of taxpayer intervention, and they weren’t the only ones singing hosannas, either:
The USDA liked the idea of ag waste recycling so much it guaranteed 70 percent of Genesis’ U.S. Bank loan. The MPCA kicked in a $100,000 loan, while the city of Mankato’s economic development team worked hard to secure the old Spartech plastics plant for Genesis. On Nov. 30, the City Council voted to let the city buy the entire building so it could lease its 97,000 square feet to Hauschild and Schmitz and get production going.
For jobs and the environment
It’s all about “jobs, jobs, jobs,” said Mankato Community Development Director Paul Vogel.
The Mankato City Council voted Monday night to endorse Genesis for millions in state JOBZ tax credits and $500,000 in state economic development loans.
“It’s a wonderful project,” said Mankato Mayor John Brady. “It’s great for the environment.”
Vogel agreed. “What really sold Mankato on this was the potential for job retention. They are looking to start out with 42 jobs and grow in two years to 115 jobs. These are jobs that pay livable wages.”
That’s just what former Spartech workers Clem Hall and Greg Westphal want to hear. They’ve been nagging City Council members for weeks about the Genesis deal.
“We’ve been calling them left and right and coming to the meetings. There were 80 to 90 people like us who lost their jobs,” when Spartech closed in August 2008, said Hall, who is still collecting unemployment. “So a lot of these guys are praying like me that they may have a chance of getting in the door at Genesis. Many of them have 10 to 30 years of plastics experience.”
U.S. Bank’s Sowers said it’s a win-win for the community and the environment.
“We believe in this. That’s why we did the loan,” he said. “The buy-in that we have seen from farm producers and the collection network is impressive.”
Many farmers don’t know what to do with silage and crop wraps so they burn them. Now that there’s an environmentally friendly alternative, farmers are “signing on the dotted line for [Genesis] to come in and collect their plastic and ship it away for free,” Sowers said.
How long did all of these fabulous opportunities exist? We’ll let a Mankato city councilman explain their facepalm moment:
Mankato City Councilman Mike Laven says, “I don’t think anyone of us saw a 2-month window and that closing. That wasn’t our process.”
Maybe that should teach the Mankato city council to stick with delivering city services and get out of the green-tech speculation business, especially when they’re using (and losing) taxpayer money.
Note: David Strom is a good friend of mine, and the MnFMI does great work on policy in a state that very clearly needs to learn some object lessons from this fiasco.