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November 20, 2005Graceland, blueberries - and an orange creekCEO: Tax shield has nothing to do with pollutionFRANKFORT -- Christmas came a month early for Donald Nugent in 2002, wrapped as an "agriculture renaissance zone" for his Benzie County-based Graceland Fruit Inc.The gift came courtesy of the state of Michigan: A tax shield worth millions to his growing fruit processing business. Around the same time, a farmer in nearby Benzonia Township(*) noticed a strong odor and strange orange tint in a creek on his property near the Platte River. Tests later showed the stream was polluted with industrial blueberry waste, a sludge generated by Graceland's fruit processing plant in Frankfort. A hauler illegally dumped thousands of gallons of the waste in a gravel pit near the farmer's land and it seeped into the creek, where its effects still can be seen today. The dumping spurred state environmental investigators to seek felony charges against Graceland and a local hauler and prompted a civil lawsuit -- as well as scrutiny over the company's lucrative state tax break. Nugent said his plant's renaissance zone designation has "nothing to do with" the blueberry sludge incident. The waste was generated at Graceland's Frankfort fruit processing plant, and not at its tax-free plant in Gilmore Township. Nugent said tax breaks helped Graceland improve operations to reduce wastewater discharge by millions of gallons a year for a company that processes a million pounds a week of frozen fruit for world-wide distribution. "We've done a lot of things as far as process improvements to reduce the wastewater," Nugent said. "We're a very, very proactive and innovative company." Critics, however, pan such state tax breaks, especially when recipient companies are embroiled in environmental problems. "It's a double assault on the public," said Lana Pollock, president of the Michigan Environmental Council. The state should roll back tax perks for companies that pollute, she said, and force repayment of waived taxes for serious violations. Pollock argued the state's tax breaks hurt the ability of agencies like the Department of Environmental Quality to investigate polluters. "There's a big huge link between the loss of revenue to the state and the lack of enforcement," Pollock said. "The state doesn't have the kind of money it needs to do the oversight." "At some point you lose the capacity to protect what we all love," she said. Tax-free zone Graceland's operation on Forrester Road in Gilmore Township is among five agriculture renaissance zone designations the state approved in late 2002, in the waning days of former Gov. John Engler's administration. Engler and Nugent were Republican party allies and the then-governor named Nugent to the state Agriculture Commission in the early 1990s. The renaissance zone created a virtually property tax-free district around the plant for 15 years and aided a planned $20 million-plus expansion that officials said would create dozens of jobs. The Michigan Economic Development Corp. administers the state's agricultural processing renaissance zone program and oversees 15 such tax-free districts. Under its agreement with MEDC, Graceland is supposed to invest at least $15 million in the facility by 2017 and create at least 45 jobs. At least $2.5 million of that investment and nine new positions are required by the end of this year. Other deadlines include six more jobs through 2008, another dozen positions through 2011, eight more jobs through 2014 and 10 others by the end of the agreement. But the pact is mum on adherence to environmental regulations. "The reason we got the agriculture renaissance zone is because we were a company that wanted to expand and provide more jobs," Nugent said. The company's workforce grew in the past 15 years from a handful of workers to about 180 employees. Wages average more than $16 an hour, Nugent said, and employees have health care and other benefits. Nugent said the company is ahead of schedule in adding new equipment and will meet employment requirements. The renaissance zone designation saves the company about $250,000 a year, he estimates -- a figure that will escalate as plant value and production increases. Most savings come from the waived state Single Business Tax and in local school taxes reimbursed by the state. Nugent continues to pay Benzie County and township tax levies on the Graceland plant. That's not typically required in renaissance zones but was negotiated by township officials in exchange for supporting Graceland's application. Local taxes on the plant top $15,000 a year. "We were real concerned about losing taxes," township treasurer Laura Manville said. "With the Headlee rollback and everything, we're losing revenue all the time." State tightens rules The state didn't attach environmental rules to agriculture zones when it approved Graceland's application in 2002. That's changed. "We probably should have had it in the very beginning," said MEDC's John Czarnecki. The state added an "environmental compliance clause" to two agriculture zones awarded this year, after the DEQ encountered environmental problems at another tax-exempt fruit processing plant. Czarnecki said the renaissance zone program began as a tax incentive to revive abandoned and decaying properties -- projects like Building 50 at the old state hospital in Traverse City. When lawmakers expanded it to help agricultural interests like food processing and ethanol plants, Czarnecki said program administrators saw they had to respond with tighter environmental rules. "If the state is going to create tax-free zones, we felt the company should be prepared to comply with all environmental regulations," Czarnecki said. That wasn't in the fine print when Graceland received its renaissance zone designation. But Czarnecki said that wouldn't prevent MEDC from reviewing Graceland's eligibility because of the blueberry waste incident. The agency makes those recommendations to the board of the Michigan Strategic Fund. "I guess we could technically do that," Czarnecki said. "Would it hold up in a court of law? I don't know." Czarnecki said the agency reviewed Graceland's blueberry pollution problems after inquires by the Record-Eagle and discussed the situation with the state attorney general's office. The MEDC likely wouldn't challenge Graceland's renaissance zone designation unless it was recommended by the attorney general or the DEQ. "These are tough issues -- tough questions," Czarnecki said. They could get tougher. The Michigan Environmental Council, also responding to the newspaper's questions, said it's starting to research some state tax breaks and other economic development initiatives to determine whether those incentives produce the desired results -- and at what cost to the public and environment. "(The Graceland incident) highlights the need to take a look at that," said Brad Garmon, land programs director for the environmental council. "We can improve these programs by taking another look at them." Township watches Locals had plenty to say in mid-2002 about Graceland and their concerns over water quality as Nugent pursued the tax-free zone. But the farmer's creek hadn't yet turned orange, and pollution there wasn't investigated until early 2003. Instead, neighbors around Graceland's plant on Forrester Road wanted assurances the expanded operations wouldn't create groundwater problems that could hurt their drinking water. "When we looked at that, we were interested in Gilmore Township," township trustee and plant neighbor Ronald Beyette said. "If (blueberry dumping) would've been brought up, we probably would have dealt with that, too." The township approved a resolution of support for the renaissance zone in August 2002, and said "all necessary permits" for water use, including discharges from the plant, had to be in compliance with state and county environmental regulations. It also said violations of those permits jeopardizing public health "should result in the loss of the designation." The plant didn't have a discharge permit when the renaissance zone was approved -- that wasn't resolved until 2004, when DEQ and Graceland inked a consent order. The company faces possible civil penalties from the state and must fight a civil lawsuit stemming from the blueberry waste dumping in Benzonia Township(*), but Gilmore Township officials don't see Graceland skirting any environmental regulations. "They've had to jump through a lot of hoops with the DEQ," township clerk Sharyn Bower said. "The DEQ is keeping a closer eye ... they're monitoring Graceland a lot closer than they had in the past." Bower said she considered the blueberry sludge-dumping an isolated incident unrelated to the company's tax-free designation. "I personally feel that doesn't enter into the equation in Gilmore Township," she said. "We're worried about the groundwater. That is our primary concern." See Related Stories: Clearing the Record
Because of a reporter’s error, the township where a blueberry waste-dumping incident involving Graceland Fruit Inc. took place was originally misidentified in this story. The contamination took place in Benzonia Township, not Homestead Township.
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