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Matanuska Creamery finances under investigation by FBI?

Andrew Halcro
Stephen Nowers photo

The Palin-era dairy bailout seemed like such a bad idea back in 2007. Bailing out an industry that couldn't stand on its own two feet. Appointing unqualified cronies to key positions and then allowing them to give away state agriculture loans without guarantees or proper collateral. But today, rumors abound that the FBI has come knocking.

Several of my longtime confidential sources stated last week that the Federal Bureau of Investigation is knee-deep in trying to unwind some of the financial activity surrounding the use of federal government grants awarded to the Matanuska Creamery.

"Something is going on with an FBI investigation regarding the federal grant funds. The FBI has been contacting folks about checks they were given with cash back," read an email I received from one long time dairy source.

"It appears the FBI Investigation is focused on one of the major shareholders," a follow-up email read from yet another agriculture insider.

In a phone interview with andrewhalcro.com, Anchorage FBI Special Agent Eric Gonzalez refused to admit or deny that the Bureau was investigating the Matanuska Creamery. Saying it was agency's policy not to publicly comment, Gonzalez offered nothing by way of confirmation.

But given the number of unconnected individuals who have been reportedly approached by the FBI concerning possible kickbacks from Creamery disbursements, law enforcement's attention appears leveled at the way the fledgling Creamery put their initial grants to use.

While this normally might be surprising, after five years of following the bizarre dairy debacle, not even the FBI's shadow fazes me.

From the beginning

For the last five years, I have chronicled the unfortunate story of Alaska's dairy industry and the state's descent into cow powered crony capitalism. This mess didn't begin well, and by all accounts it ain't ending well either.

In 2007, faced with strong local competition and rising costs, Alaska's iconic dairy Matanuska Maid (Mat-Maid) faced insurmountable financial losses and inevitable bankruptcy. And while Mat-Maid had been a ward of the state for the previous two decades, it never received one dime of taxpayer money.

"The bottom line is the troubles at Matanuska Maid are not management's fault. In fact they should be commended for keeping the dairy afloat when it should have been privatized years ago. The demise is attributable to global economics where price is king and where although 85 percent of Alaskans say they support Mat-Maid, 62 percent of all milk consumed in Alaska is less expensive brands," I wrote in a blog on June 24, 2007.

After Mat-Maid's overseer the Creamery Board had recommended shutting down the state owned dairy to prevent major financial losses to taxpayers, then-Gov. Sarah Palin began a public assault on the board and Mat-Maid executives. She falsely accused them of being dishonest and mismanaging the dairy. The Valley milk farmers, who stood to lose if a state bailout didn't happen, were Palin's neighbors and friends.

Over the next six months Palin fired Mat-Maid's management. Fired the Creamery Board. Installed her friends and neighbors to run the daily operations of Mat Maid and the state agency that grants agriculture loans. Accumulated record financial losses, after the transition, by keeping Mat-Maid open. And then allowed her appointed friends to loan themselves hundreds of thousands from the agriculture revolving loan fund to start a new dairy.

Today the end is near, and the story line continues to highlight how Palin's populist bailout has grown into a financial and possibly criminal disaster.

In 2008 and on the heels of the liquidation of Mat-Maid, a new dairy called the Matanuska Creamery emerged with state financial backing even though it was obvious that they were never going to make money.

The new dairy was loaned Mat-Maid's old dairy equipment that they were supposed to pay off. They were given a $600,000 federal government grant. And they were loaned $1,000,000 from the state's agricultural loan fund. All without requiring any personal guarantees or equitable collateral from the dairy owners or the dairy farmers.

In fact, when the issue of collateral came up during loan hearings, the Creamery was consistently successful in convincing the state that personal collateral wasn't necessary and would sink the farmers if required.

Imagine going into a bank and informing the loan officer that you shouldn't have to put up collateral to secure a hefty loan because it would create a financial hardship on you. We have lift off in 3, 2, 1 ... and you're ushered out the front door.

This was never going to end well

Over the last four years, the Creamery has had more loan modifications and extensions than they've made principal payments. They've run up more debt than equity. And they've left a wake of more unpaid bills than they've paid.

Finally, this past spring the state acknowledged what had been evident from the beginning: The Matanuska Creamery was never going to pay back taxpayers. As a result their loans were turned over to the Attorney General's office for collection.

In a Nov. 17 interview with KTVA-TV, Matanuska Creamery President Karen Olson confirmed what some of us predicted five years ago. "We hit rock bottom a couple of months ago," she said. "We are struggling to keep our current dairy farmers ... they made it clear they need more money," Olson added.

And while that should have been the end to the notion that the state could jump start an unsustainable industry, it wasn't.

Just as the state began to accept that the Creamery was never going to turn the corner financially, they rushed back into the collapsing industry by fronting yet another small Valley farmer who had dairy desires of their own.

The Alaska Board of Agriculture, obviously not having learned their lesson after writing off a cool million dollars in cash for their first dairy dance with the Matanuska Creamery, loaned even more money to another Valley farmer to start up yet another dairy.

The Havemeister farm, which had been supplying the Creamery with raw milk, was fronted more than $600,000 in public funds to begin their own milk production facility, with no personal guarantees required.

Let's stop and consider history

Mat-Maid failed because of high cost and low volume. The Matanuska Creamery has failed because of high cost and low volume. But today, the state believes the Havemeister dairy, producing just one-third of the milk the Creamery does with the same cost structure, will somehow reset the economics of Alaska's dairy industry.

If that wasn't highly troubling enough, why would the state loan money to the Havemeister dairy when the milk they'd produce would come at the direct financial expense of the struggling Creamery, which already owes them $1 million?  

The State, DNR-Division of Agriculture and the Board of Agriculture have irresponsibly thrown the public's money at the Southcentral dairy industry with absolutely no viable plan. No business plan, no financial plan, no market plan -- no plan whatsoever except to keep throwing the public's money into a milky hole without any accountability. 

Matanuska Creamery’s $1 million state debt will end up charged off and the Havemeister dairy will not be able to meet the market or generate positive cash to pay off their debt. After all, if the Matanuska Creamery couldn't cash flow with $600,000 plus federal grants and $1 million in, plus state equipment, how is a mom-and-pop operation going to do any better at paying back taxpayers?

The turmoil extends beyond the state loans that will be defaulted.

Vendors, including farmers who supply the Creamery with milk, are not getting paid on a regular basis and by one account Wells Fargo has ceased cashing their checks.

"What the teller at Wells Fargo told me was that their balance is in the negative and they can't accept their checks until that changes. (Wells Fargo Bank is the Creamery's banker).  We were told that our check would be cashed at the Palmer Wells Fargo by the Creamery but this was not true either. The teller at Wells Fargo also stated that this was a common problem with the Creamery but it seems to have stepped up the pace in recent weeks," read the email last week from a Creamery vendor.

"The main reason I would like others to know about the waste of money and mismanagement that has taken place is because they have hurt others and need to be held accountable for creating a fraudulent business plan and wasted taxpayer money," the email continued.

But that's not how Karen Olson, President of the Creamery sees it.

In an August letter to the state, Olson wrote the Creamery would not pay another dime on their outstanding million-dollar loan obligation until the state helped them move to another location. And then in a completely delusional tone, Olson accused the state of failing to support the dairy industry.

Over the last four years, Olson and her crew have poured through state cash like it was skim milk. There was never a time when she wasn't asking the state for either more money, or more time to pay off the cash she'd already borrowed. Her accusation that the state was abandoning the dairy industry, when in fact the state has been the only thing keeping her dairy doors open with loans and extensions, proves hubris of the worst kind.

Meanwhile, at a recent meeting, the Board of Agriculture seriously seemed to be considering allowing Olson and the Creamery to sell off some of the old Mat-Maid equipment to pay down their debts. Even the fact that the Creamery hasn't paid for that equipment didn't seem to be a factor in the board's discussion.

Imagine being able to sell off equipment the state owns, to pay off the debts you owe the state.

On Dec. 5 the Board of Agriculture will hear a reconsideration request from Olson to reverse their decision to cease any additional loans or current loan modifications.

Time won't erase the good reputations sullied

Over the last five years of writing about the dairy fiasco, my interest in this topic has been fueled by a white-hot anger over the way good, honest and hard-working people were treated so outrageously by a governor who possessed no class and even less intelligence. 

Good people like former Mat-Maid CEO Joe Van Treeck, who spent decades keeping the dairy afloat without so much as a dime from state taxpayers. Instead, he relied on hard work and penny pinching to introduce new product lines and keep the state-owned dairy from the financial abyss as long as humanly possible.

Good people who after decades of hard work were pilloried in the news media by a lazy former governor who not once -- not once -- picked up the phone to call Van Treeck, the 20-year CEO of Mat-Maid, to ask for a thorough briefing.

Good people who endured nightly installments on the evening news where their governor accused them of gross mismanagement without any evidence, all while waving signs with Valley farmers protesting Mat-Maid's closure. 

Yes, the same Valley farmers who were the root cause of Mat-Maid's money woes, by the unrealistically high milk prices they were demanding at a time when Fred Meyer and Wal-Mart were selling milk priced at least a dollar less per gallon.

In 1998, a Legislative Audit concluded, "Since the State has not provided funding for Matanuska Maid in almost a decade, the premium paid to local farmers has become an untouchable subsidy that the dairy must pay from its own earnings. On one hand, Mat-Maid is charged with minimizing costs and perpetuating the existence of a once-bankrupt business which must compete in the private sector. On the other hand, Mat-Maid is directed to maximize its purchases of local milk, which is the highest priced milk available."

If the 1980s band the Buggles were right and video killed the radio star, then it stands to reason that unrealistic Valley farmers helped kill Mat-Maid in 2007.

However, putting the blatant mismanagement, the brutal cronyism, and the major financial losses aside, there are strong signals from insiders that the FBI still has much to say.

At the end of the day, the Palin-era dairy bailout will stand the test of time as a very costly and ill conceived attempt at government subsidized cow capital cronyism.

Andrew Halcro is the publisher of AndrewHalcro.com, a blog devoted to Alaska issues and politics, where this commentary first appeared. He is president of Halcro Strategies and Avis/Alaska Rent-A-Car, his family business. Halcro served in the Alaska House of Representatives from 1999 to 2003, and he ran for governor in 2006 as an Independent.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.