Public loans struggled amid recession

The Great Recession was a major blow to banks across the country, and public records show Wisconsin's local economic development groups felt the impact starting in 2009.

Data provided by more than 40 municipalities showed few economic development loan write-offs through 2008 — one from 2004 through 2006, six in 2007 and one in 2008, according to records from central and eastern Wisconsin economic development groups examined by the Gannett Wisconsin Media Investigative Team.

But the business loan write-offs jumped to 12 in 2009 as the recession took hold, and continued to average a dozen per year through the end of 2013.

They included a Green Bay start-up, Plastic Composites, that received a $125,000 loan to convert milk jugs into plastic lumber. Officials say management and competition issues were exacerbated by the plunging demand for construction materials in the recession, and the remaining $104,000 of the loan was written off by Brown County in 2011.

Chad Pelishek, Sheboygan's director of planning and development, said Sheboygan tried to limit the number of write-offs by working with businesses to refinance or push payments off to "make it through the tough times." Sheboygan has written off six loans totaling $794,000 since the recession, second-most among the entities surveyed.

It's difficult to tie the failed loans directly to the recession, because loans can be officially written off years after payments stop in some cases. And other business conditions such as overseas competition can also cause loan recipients to default.

The groups surveyed combined to issue an average of 67 loans annually from 2004 to 2013, but only 47 were issued as in 2008 as the recession began, the lowest in the 10-year span. The number rebounded to 80 loans in 2009. There were 52 in 2013.

Some of those loans left Wisconsin taxpayers holding the bag, but others helped salvage key employers.

$50M loan kept Mercury Marine in Fond du Lac

Among the nearly 1,000 economic development loans examined by Gannett Wisconsin Media, more than one-fourth of the money loaned in the last 10 years came in a single transaction from Fond du Lac County in the heart of the recession.

In 2009, boating manufacturer Mercury Marine had to shutter operations in either Fond du Lac or Stillwater, Okla., amid an industry downturn. About 75 percent of boating jobs were lost nationwide and the Fond du Lac workforce had shrunk from 3,000 to 1,500.

Revenue fell 50 percent from 2007 to 2009.

"We were losing a lot of money and we were facing some very tough decisions," said Stephen Cramer, Mercury Marine's chief financial officer.

Allen Buechel, Fond du Lac County executive, said losing Mercury Marine would have been a devastating blow to related businesses and area retailers. One study said the county would lose 5,900 jobs in all if Mercury Marine closed.

The company elected to stay after reaching a new labor agreement with the local union and receiving a $50 million loan from Fond du Lac County. The loan requires a $5 million payment each year from 2011 to 2021, but up to $2.1 million of that is forgiven each year if job targets are met — which they have been so far, Buechel said.

The county borrowed the money at about 3 percent interest and loaned it to Mercury Marine at 2 percent, funding the difference with a half-cent sales tax.

In exchange, Mercury Marine agreed to keep its world headquarters in Fond du Lac, launch new engines and continue doing local research, development and capital improvements. Cramer said those investments have totaled $500 million since 2009.

Since September 2009, Mercury Marine has grown back to 3,000 employees in the Fond du Lac area, Cramer said. The company has also moved other operations here, such as from a facility that closed in South Carolina.

"They've lived up to everything they said they would do and have done much more than we expected," Buechel said.

The loan worked so well that the county used it as a template for a $6 million loan to Alliance Laundry Systems in January. The company is expected to add 125 employees as a result of a $47 million expansion that the loan helped fund, Buechel said. As with Mercury Marine, the loan financing is covered by the county sales tax.

Recession slammed New Holstein manufacturer

The Calumet County village of New Holstein lost a community cornerstone in 2007 when Tecumseh Products Co. shut down.

The company had operated in the village since 1956 and employed 1,500 people as recently as 2000.

Hoping to reclaim some of those jobs, the county and state approved an $850,000 economic development loan for Heus Manufacturing in late 2007. The business from neighboring Marytown had been in operation since the late 1800s and wanted to take over part of the vacant plant to expand production of its parts, which were mostly used by Caterpillar Inc.

When Heus bought the plant, the company had recently expanded from 60 to 100 employees and hoped to hire 100 more workers as it pursued several major new contracts. Federal loan funds were routed through the state and county to make it happen.

Then the recession hit, killing demand from companies like Caterpillar. By the end of 2009, Heus was out of business.

The county wrote off the entirety of the loan in July 2009. It was the largest locally-approved loan written off among the entities surveyed by Gannett Wisconsin Media during the past decade.

Promise of 2,000 jobs doomed by recession

Morgan Aircraft had a big idea — a hybrid with jet engines like an airplane but rotors in the wings that allowed helicopter-like vertical takeoffs and landings.

The Oostburg-based company planned to build a 600,000-square-foot manufacturing plant at the Sheboygan County airport and eventually employ 2,000 people. In 2009, the state compiled a $30 million incentive package and County Administrator Adam Payne said the company "has the potential to be the next Kohler Co. in Sheboygan County," referencing the worldwide brand that employs thousands locally.

The county also made $1.3 million in improvements at the airport and approved a 50-year lease on initial space there.

But the firm struggled to obtain private financing as the recession dragged on. After treading water for a couple years, Morgan Aircraft announced $8 million in financing in 2011 — spurring the county to approve a $686,000 loan — but it wasn't enough.

The county terminated the airport lease in November 2013 after the company failed to come up with $30,000 in past due rent. Morgan Aircraft is now confined to a small office near Janesville and is expected to default on the loan, said county Finance Director Terry Hanson.

— Eric Litke: 920-453-5119 or elitke@gannett.com; on Twitter: @ericlitke. Sarah Kloepping of HTR Media contributed to this report.