Todd Bachelder will have to recalibrate his family’s vision for a new future — one closer to Springfield, Mass., than Newport, Vt.
The CEO of Menck Windows said he and his wife were looking forward to moving from Maine to the shores of “beautiful Lake Memphremagog” in the Northeast Kingdom. Bachelder had been working with Jay Peak co-owners Bill Stenger and Ariel Quiros to establish the German window manufacturing company’s North American headquarters in Newport.
Stenger announced Sept. 13 that plans to bring Menck to Newport had fallen through because the parent company’s new equipment requirements would cut into the plant’s job creation projections. It turns out slow sales projections and facility constraints also played a role.
Menck still is moving forward to establish itself in North America: but not in Vermont, and not with EB-5 immigrant funding.
The EB-5 Immigrant Investor program, championed in Congress by Sen. Patrick Leahy, provides a two-year conditional visa to would-be immigrants who invest between $500,000 and $1 million in an American business. As long as 10 jobs are created directly or indirectly by that investment within two years — or, as long as 10 jobs’ worth of economic activity can be attributed to the investment — the visa turns into a green card.
Job creation and generally boosting economic activity is the program’s stated goal — and also, in Menck’s case, the hitch.
The Menck vision in Newport
Announced in September 2012, Menck was but one part of a roughly $500 million immigrant-funded development plan Stenger and Quiros concocted for the Northeast Kingdom.
It was a perfect match: manufacturing high-quality, energy-efficient windows on a windy hill practically hugging the Canadian border, in an area with chronic socio-economic challenges, in a facility long vacant after a skiwear and sporting goods maker headed west.
Applying capital raised through the federal EB-5 Immigrant Investor program, the two still intend to build out accommodations and year-round recreation attractions at Burke Mountain Ski Resort, redevelop a city block and waterfront park in downtown Newport, bring a Korean biotech firm to the city, and continue expansions at Jay Peak.
But since announcing the so-called Northeast Kingdom Economic Development Initiative, plans have morphed. Expansions at the Newport State Airport in Coventry are underway, Stenger says, along with progress bringing a light plane manufacturer to the site. The airport development is no longer funded through EB-5 investment, however. Likewise, EB-5 turned out to be an bad fit for Menck.
For about $20 million, the plan for Menck was to introduce about 125 new manufacturing jobs in Newport and open a doorway to the North American window market for the European firm. The Northeast Kingdom has a long tradition of wood manufacturing — the area hosted two Ethan Allen furniture plants at one point — and so the Menck proposal seemed like a natural economic development project for Newport.
The plan was to begin renovating half of the Bogner facility off Lake Road — the half that wasn’t to be torn down and rebuilt to house the Korean biotech firm AnC Bio — this fall. Menck would lease from AnC Bio the part of the building left standing, start basic operations and expand with new construction by spring 2014, and ramp up to full capacity by fall.
Stenger said in August the total job creation likely would register between 500 to 650 direct and indirect positions, during development and as part of ongoing operations, both within Vermont and outside the state.
EB-5 mismatch
As of August, a memorandum of understanding between the Jay Peak owners and Vermont’s state-run EB-5 Regional Center still had not been signed. In fact, it hadn’t even been requested.
The regional center is approved by the U.S. Citizenship and Immigration Services to administer the program, and the MOU is a signal that the regional center is officially engaged with a project. Until that time, the entire affair is purely theoretical. Nonetheless, state officials keep in close touch with Stenger about his team’s plans, which represent the majority of the state’s approved EB-5 projects.
But Menck’s new site still was being planned.
Brent Raymond, who heads up the regional center, said he was told around mid-August that “the numbers weren’t looking as positive because of clarifications.”
Bachelder had traveled to Hamburg in May, Stenger said, and returned to New England with more specifics about the sophisticated equipment Menck had used to retool its facility there. They intended to utilize the same technology in the Newport plant, but the advantage for production undermined job creation. The equipment was highly automated.
“You punch in the data and the key core components of the windows are produced by robotic means,” Stenger said. Which equates to fewer workers on the manufacturing floor. Stenger estimated that only 50 people, as opposed to 120 or 130, would be needed on-site.
Applying plain math to the EB-5 requirement that a $20 million project produce 400 jobs (10 jobs per $500,000 investment), the lowered projections would appear to leave plenty of buffer to still cross the EB-5 finish line. Even the conservative estimate of 500 total jobs, minus 70 or 80, leaves 20 positions to spare.
But the econometric modeling on which EB-5 job creation numbers are determined is anything but straightforward.
Raymond explained that a highly paid CEO pulling in a six-figure salary, for example, would be counted for not only her own position, but also indirect job creation attributed to that CEO’s personal spending.
“They really get down to proven, micro levels of analysis based on salaries and everything else,” Raymond said. “So if there were only going to be 40 people on the manufacturing line, but they were highly skilled jobs making $80,000 a year, the indirect job creation would be quite significant.” In addition to the production jobs, other positions such as sales, administration and customer service also build the job creation projections, he said.
The loss of 70 direct, on-site jobs, therefore, amounts to a greater reduction in the grand scheme. To boot, the EB-5 modeling was hampered by the source of the equipment: Germany.
“We’re producing a window and door line that is very much German window technology,” Bachelder said, “so most equipment is coming from Germany.” He said that’s always been the plan. Stenger pegged the cost of equipment at approximately $6 million.
An official from U.S. Citizenship and Immigration Services confirmed that, even if imported goods are purchased through American distributors, the money spent cannot be used as an input to determine domestic job creation.
But simple job creation projections are not all that stood in Menck’s way, and the reduced job expectations cannot be blamed solely on automated equipment.
Bachelder said the long lead time for the sales cycle also factored into the decision.
“You don’t flip a switch and get a business like this up and running quickly,” he said. First the sales representatives have to bid on jobs. “You’re a year or two or three into it before you’re reaping the benefit of initial sales work.”
And then there’s the physical space.
“We got into plans for equipping the plant and got a better sense for space requirements, and very little of that Bogner facility had sufficient ceiling height,” Bachelder said. The one section that was tall enough was the smallest.
“We started looking at the cost of building a new building out there, and obviously that’s much more expensive than making use of the existing building,” he said.
More construction can be partly good, said Lawrence Miller, secretary of Vermont’s Agency of Commerce and Community Development, in which the regional center is housed. But the added expense also spikes the investment capital that must be raised, which itself changes the job creation equation.
“So essentially you wound up with too few jobs in the model,” Miller said.
Bachelder said the combination of factors, including employment levels, “had everyone coming to same conclusion this summer.”
“Everybody had every anticipation we would be in Vermont,” Bachelder said. Instead, Menck is looking into industrial development bond financing in the greater Springfield, Mass., area.
The fact that the Menck plans had not gotten to the stage of seeking an MOU from the state reflects well on the system and the parties, Miller said. “It gives me comfort they’re doing due diligence and not advancing projects that don’t meet the requirement,” he said. “I appreciate that in a partner.”
Stenger, meanwhile, said he’s found some promise in the sciences and aeronautics industries. He intends to find another project to locate at the same site that fell through for Menck.
