Hoiseth, Epitome founder Dennis Egan say that breaking ground in 2020 now appears unlikely.

In unanimously approving a motion a couple weeks ago, the CHEDA Board of Directors recommended that the Crookston City Council follow their lead by approving a $1.25 million interest-free loan from the City of Crookston to Epitome Energy and its founder, Dennis Egan, a loan that would be paid back in full within a year. The loan funds would come from City reserves, which Finance Director Angel Weasner said total approximately $3 million currently.

With the loan proceeds in hand, CHEDA Executive Director Craig Hoiseth said at the time, Egan could accelerate his construction timeline on 100 acres of land on Crookston’s southern edge for his soybean crush and biodiesel facility by as much as a year, meaning ground could be broken in 2020.

Fast forward to Monday evening, and the Crookston City Council’s Ways & Means Committee did as the CHEDA Board, Hoiseth and Egan hoped by unanimously approving moving forward with the $1.25 million loan. But City Attorney Charles “Corky” Reynolds, asked by City staff to look into the legalities of the matter, reported to the council Monday evening that, whether the City is looking to lend Egan money or enter into a land option agreement with him giving him exclusive negotiating rights with the City on the 100 acres of City-owned land, a business subsidy agreement must be finalized beforehand. Although no official business subsidy for Egan and Epitome Energy has been identified, Reynolds said the fact that the loan would be interest-free would alone exceed the statutory threshold on what qualifies as a business subsidy. (Reynolds noted in his recommendations that he’d consulted with a law firm specializing in economic development issues, and they concurred with him.)

Whether it involves the loan or the proposed land option agreement with Egan, Reynolds said the statute includes eight factors relating to a business subsidy agreement that must be addressed on both matters before anything can be finalized. Reynolds recommended, and City Administrator Shannon Stassen and Weasner concur, that a working group be formed. In Stassen’s memo to the council committee regarding Monday’s meeting, he indicates the working group would include himself, Mayor Guy Martin, two council members, two CHEDA Board members, Weasner, Hoiseth, two representatives of the City’s municipal financial advisors, Springsted, Inc., special legal counsel James Strommen and Martha Ingram, and bond counsel Dick Heide. Reynolds would lead the group.

While he said he’d like to be able to say the work group would wrap up its work within 30 days, Reynolds acknowledged that even if the group met weekly, it would likely take three to four months to complete its tasks.

Asked by the Times after the meeting how that would impact Epitome Energy’s timeline, Egan said it would more than likely mean no dirt would move until 2021. He said the $1.25 million City loan would leverage dollars committed by the State, and that he has a team ready to get started in July on clearing all of the necessary regulatory hurdles, with the final hurdle involving securing the necessary air permits. He also said he had just secured funds to build a small soybean crush facility sooner rather than later, which would be partnered with State dollars committed for infrastructure and equipment. (In addition, the Soy Innovation Campus that’s part of the overall initiative received $5 million in the Minnesota Legislature’s 2019 Capital Investment Bill, and a state grant totaling approximately $500,000 was previously approved to add the necessary railroad infrastructure.) 

With the City loan secured, Egan said, he estimated all of that due diligence could be completed in time to break ground in the summer of 2020. But, he added, if three to four months is added to the timeline, that would mean the final permits wouldn’t be secured until October or November of 2020, when the construction season here is basically over. 

“So we’d lose a year,” Egan said. “That’s one more year our soybean growers in this region wouldn’t benefit from having a place to bring their product.”

 

Complicated motion language

Ward 1 Council Member Jake Fee made the motion to authorize the City to move ahead on the $1.25 million loan to Epitome Energy. But, with Reynolds and Hoiseth alternating their time at the podium in the council chambers to add their thoughts and recommendations on the language in the motion, Fee ended up, multiple times, modifying and clarifying the wording of his motion, which was seconded by Ward 4 Council Member Don Cavalier. The approved motion essentially authorizes that the City proceed with plans to lend Epitome Energy the money, as long as the work group is formed and does what it needs to do in accordance with state statute and all other due diligence is completed first. 

When Fee voiced concerns about the fees for legal counsel the City would face after the work group, with so many attorneys among its members, Reynolds acknowledged that the legal bill the City would face would likely be substantial. “Outside expertise makes a lot of sense, it’s valuable, another set of eyes,” Reynolds said. “We just want to make sure that with something of this enormity, with a huge benefit to the community, that we follow the steps and do it right, so a year down the round there’s no second-guessing. …This is a big, big project by everyone’s estimates. And CHEDA, your economic development people, have recommended it.”

Asked by Fee for his thoughts on the wording of the motion he was trying to arrive at, Hoiseth said the cart was being put “way before the horse.” Although he said he agreed with every word Reynolds had said, he added that all the council was being asked to do Monday was show interest in providing the loan to Egan, contingent on all of the necessary due diligence being completed first, which Hoiseth said would be an assumed requirement before any actual dollars involved with any loan would change hands. “All we need is the council to say, yes, we will certainly recommend the loan if all due diligence falls into place,” he said. “Just last week the (Minnesota Department of Agriculture) told Epitome that the project was a permit-able allocation of funds. We know the security will be in place for the loan, which is a big deal. 

“So what does (the MDA) want from us? They want the City to be in favor of moving forward with providing the loan. Then we can deal with all that’s been talked about tonight as part of due diligence,” Hoiseth continued. 

When Mayor Martin asked Reynolds if he was OK with a motion that reflected Hoiseth’s request, Reynolds recommended that the motion’s wording also include wording indicating the loan is contingent on the appropriate business subsidy agreement being formed and agreed to.

“I didn’t hear that (in the motion). Is that what you meant?” Martin asked Fee.

“I’m basically saying we support CHEDA’s recommendation on moving ahead with the loan, but not approving the loan at this point until the proper securities are in place,” Fee responded. 

He then asked Hoiseth is that was the wording he was hoping for. Returning to the podium, Hoiseth said he was looking for a motion that approved the CHEDA Board’s recommendation to continue to move forward on the loan, dependent on the necessary due diligence, “Of which (the business subsidy agreement) is a part of,” Hoiseth added.

Returning at that point to the podium, Reynolds suggested that wording relating to “all statutory requirements” related to the due diligence be added, and it was.

 

Reaction

The Times followed up with Hoiseth Tuesday for additional comment on the motion approved by the council committee Monday evening. He said work on the next steps must commence immediately, but that it’s going to be an uphill battle to avoid a one-year delay on construction commencing on Epitome Energy’s estimated $160 million facility here.

“Losing a full building cycle would be most unfortunate indeed, as inflationary construction costs have been running 5 to 6% each year. Add that up on $160 million and we would likely incur an additional $10 million for the overall project,” Hoiseth explained. “Epitome has a window for 2020 with some key suppliers. That window will undoubtedly close.”

The next critical step, he continued, is to make sure the exact wording of the motion approved by the council committee Monday satisfies State interests in St. Paul when it comes to providing the necessary security and collateral for the loan. Second, Hoiseth said, he and CHEDA Board President Kurt Heldstab have been working “on the exact make-up of the team needed to move the project efficiently forward.” Now, knowing the council agrees with the CHEDA Board recommendation on the loan, Hoiseth said the group would be formalized.

Overall, he said he’s pleased with what the council agreed to Monday. “It allows us to diligently and methodically continue forward progress,” Hoiseth said.