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Monday, April 21, 2014

EB-5 program scrutinized in plant closing

by Traci Eatherton, WLJ Managing Editor

The once defunct Northern Beef Packers plant, in Aberdeen, SD, has new owners, and a new name, no doubt with hopes of the past controversies being laid to rest. The plant was recently purchased by San Francisco-based White Oak Financial Advisors and is now New Angus, LLC. The new owners cleared up the $1,090,859 in back taxes owed, according to Aberdeen County Treasurer Sheila Enderson.

But while White Oak is forging a new path for the plant, investors in what has turned out to be the “Northern Beef scandal,” are still hoping to get money back. The meat of the controversy centers around the EB-5 immigration program that pulled in a number of foreign investors, who probably shouldn’t be counting on any return of funds.

EB-5 is a federal program, run by state governments, allowing foreigners to invest in the local economy in trade for green cards. Overseen by the U.S. Citizens and Immigration Service (USCIS), the program was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under the program, investors must put their money into new commercial enterprises to be eligible. The one caveat: the investment must create at least 10 fulltime American jobs per investor.

The investors themselves (and their family members who often immigrate with them) do not count toward this number.

South Dakota’s EB-5 program is getting extra attention following the suicide last fall of Richard Benda, a former state official who played a large role in the state program. Estimates that the state lost between $2 million and $3 million on Northern Beef have followed Benda’s death, along with discussions of stolen or misplaced documents. New estimates from the state are now at $4.3 million.

According to the Associated Press, South Dakota U.S. Senate candidates attending a Republican primary candidate forum April 12 shared estimated figures for taxpayer losses on the plant ranging from nothing to $80 million.

During the forum hosted by the South Dakota Newspaper Association, former South Dakota Governor Mike Rounds said, “We have not lost any taxpayer money.”

Yankton attorney Jason Ravnsborg, said, “We lost approximately $80 million. I don’t think that’s good, responsible government to lose that much money.”

Figures from the South Dakota governor’s office show that about $3.5 million in state Future Fund Grants supported the Northern Beef Packers project. The Aberdeen plant also received nearly $845,000 in state construction tax refunds, according to the South Dakota Department of Revenue.

Northern Beef bankruptcy records from the court

records show that 50 Chinese nationals invested $500,000 each, along with a number of immigration program applicants who paid $45,000 each. Where the money went is still unclear, but most of the investors have yet to see a visa, according to reports.

The initials round of investors were from South Korea. The second were also from China. Last spring, Gov. Dennis Daugaard blocked a request for a fourth round of EB-5 financing. Under EB-5 regulations, funding for projects is supposed to be kept in escrow until the visas are released.

EB-5 scrutinized

The entire Northern Beef scandal has put the EB-5 program under a microscope, causing USCIS to look at some changes.

While the program has its controversies, the positives are hard to ignore. In a case study by economist Dr. Scott Barnhart published in EB5 Investors Magazine, Barnhart examined the total economic impact of a single EB 5 investor, considering the investor’s capital contribution, as well as his or her household expenditures. Barnhart used a hypothetical economic model to project that if 6,000 visas were issued through the EB-5 program, 46,124 jobs would be created, $3.8 billion would be contributed to GDP, $532 million would be paid in federal taxes, and $371 million would be paid in state and local taxes.

To date, there are three pieces of proposed immigration legislation that could change how EB-5 works, but all seem to be stalled along the political highway. • Sen. Patrick Leahy (D-VT), S 744 “Border Security, Economic Opportunity, and Immigration Mobilization Act,” which passed in the Senate and stalled in the House, according to Gov- Track.us, has a 43 percent chance of enactment. • Rep. Jared Polis (D-CO) and co-sponsors Rep. Matt Salmon (R-AZ), Rep. Joe Garcia (D-FL), and Rep. Mark E. Amodei (R-NV), HR 4178, “American Entrepreneurship and Investment Act of 2014” which was referred to committee and, according to GovTrack.us, has a 1 percent chance of enactment. • Rep. Darrell Issa (R-CA), HR 2131, “Supplying Knowledge-Based Immigrants and Lifting Levels of STEM Visas Act” (also known as the “Skills Visa Act”), which was voted to be amended, according to Gov- Track.us, has a 20 percent chance of enactment.

Plant’s future

After the financial downfall of Northern Beef, the company was forced to lay off close to 370 employees in 2013. Bankruptcy was the next step, which included the auctioning of the plant.

White Oak Global Advisors, LLC (White Oak) has announced the purchase, removing the plant from the Chapter 11 bankruptcy.

Speculations are running rampant, but the new company is still hush-hush on the final plan details for the plant. “White Oak is currently evaluating its strategic options and remains confident in the facility’s future as an operating plant. The facility has the potential to be a success for both the community and its stakeholders. White Oak views the purchase as an investment in both South Dakota and its surrounding communities,” the company wrote in a press release.

White Oak will be operating the Aberdeen beef packing plant under the new name of New Angus LLC.

According to reports, White Oak Global Advisors was the top bidder on the plant, having submitted a cash and credit bid of $44.35 million at a bankruptcy auction Dec. 5 in Sioux Falls. Of the bid, $39.5 million was credit based on White Oak lending Northern Beef $35 million in 2012. The remaining $4.85 million is cash.

While the plant’s future still has some unknowns, there is optimism.

Todd Wilkinson, Vice President of the South Dakota Cattlemen’s Association, said the number of cattle in the state is holding strong.

“The cow-calf sector is looking for some really good years in the next four, five years,” he said. According to reports, the new owners are talking to cattle feeders, and weighing their options.

Former Gov. Rounds said he expects that the plant will eventually be processing cattle.

“In essence, the taxpayers of South Dakota did not lose any taxpayer money on the bankruptcy of the Northern Beef plant,” Rounds said. “And we still have the plant. It has been built, and it will be operational.” — Traci Eatherton, WLJ Editor

 
 


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