County puts financial muscle behind Blue Hen

Having recently approved a conditional use for property near Frankford that is in the process of becoming a yard-waste recycling business, Sussex County Council members on Tuesday, June 2, put some of the county’s financial muscle behind the project in voting 4-0 to issue up to $4.5 million in industrial revenue bonds to help the business get off to a solid start.

The bond issuance was recommended to the council by the county’s Industrial Revenue Bond Committee and would permit the issuance of tax-exempt bonds to benefit Blue Hen Organics’ solid waste facility near Frankford as it seeks to get off the ground running with its yard waste recycling business and sales of the resulting materials.

Rob Tunnell III, representing Blue Hen Organics, told council members on Tuesday that the issuance of the bonds would allow the company “to construct the compost facility in its entirety.”

Originally, in the project’s design and permitting stages, the company had planned for a five-stage phasing of the construction of the facility’s buildings and composting pads. The funding provided under the bonds would allow them to construct those facilities on a much shorter timeframe than originally thought, Tunnell said.

That is also expected to provide a boost to the business’ ability to employ local workers, which had been expected to offer four to five employees jobs right off the bat and ramp up to having 15 to 20 employees at full service. Instead, Tunnell said, the quicker construction of the full facility is expected to employ 10 people at the facility within just a year.

“The industrial revenue bonds and building all at once would allow us to employ more people sooner,” he said. “We could take in more material and add a bagging facility to also sell bagged material,” he explained, adding another venue for the sale of the completed compost beyond simply selling loose material in bulk.

The bonds will enable Blue Hen Organics to immediately purchase specialized composting equipment, such as a turner, a grinder and a shredder – in this case, a slow-speed high-torque shredder that would be less noisy than the one originally proposed. The additional funding would allow Blue Hen Organics to buy the more specialized equipment sooner, enhancing operations, while at the same time providing for quieter operations, he said.

Emilie Ninan of Ballard Spahr Andrews & Ingersoll LLP, the county’s bond attorney, emphasized to the council that the industrial revenue bonds are different from general-obligation bonds the county regularly uses to finance the construction of county infrastructure, such as sewer.

“The tax code allows government entities to issue bonds as a conduit for certain borrowers who are qualified,” she noted. “It’s not county money. It’s not an obligation of the county. And since bond holders don’t have to pay tax on the interest earned on the bond, they’re willing to lend the money at a reduced rate.”

When the county issues such bonds, they’re sold at a variable rate with a letter of credit in which the underwriting bank promises to pay the bondholder every month. In this case, it means the bank, not the county, takes on any risk that Blue Hen wouldn’t pay the money back from its incoming revenue.

“We’re lending our name so they get tax-exempt status,” explained county Finance Director Susan Webb.

“You will get a fee for your role,” Ninan added. “But after that, you kind of step out of it. The money doesn’t flow through [the county].” Even Ninan’s fees are paid for outside of county coffers – by Blue Hen Organics.

County Administrator David Baker pointed out, “This used to be much more common when the federal tax law was looser over what [the bonds] could pay for.”

Ninan explained that those rules changed in 1986, limiting eligibility for the industrial revenue bonds to select non-profit groups and businesses such as solid-waste operators – under which the Blue Hen Organics facility qualifies.

“We’re hopeful, with the stimulus, you will get an allocation of recovery zone bonds,” Ninan added, saying such an allocation would permit the county to issue bonds for projects allowed to be funded before 1986 but not allowed since, such as commercial buildings.

Council members appeared keen on helping out a business that expects to offer jobs to Sussex County residents. In fact, noted Tunnell, it already does so.

“We’ve already started the construction of the facility,” he said, noting that construction crews were working on the DelDOT-approved entrance to the facility that very day. Some of those working on the construction, Tunnell noted, were already being retrained in the composting process.

“Instead of laying them off, we’re trying to get them a job at the facility,” he added, pointing out that one of the three workers being retrained now lives in Long Neck and two others live in Dagsboro.

The council voted 4-0 to approve the issuance of the bonds for Blue Hen Organics, with Council President Vance Phillips absent.