John D. Correnti, the businessman Arkansas is counting on to deliver “the largest economic development project in the state’s history,” a proposed $1.1-billion steel mill in Mississippi County in Northeast Arkansas, has recently failed to deliver on promises for big projects in Mississippi.
Recently, Arkansas Gov. Mike Beebe announced that Correnti’s Big River Steel, LLC, Blytheville, plans to build a steel mill near Osceola that would employ 525 people. Bebee has asked the legislature for $125 million in incentives for the project, with $50 million for a loan and the rest a gift.
Last week, the lead front-page article in the Arkansas Democrat Gazette is that the Arkansas Teachers Retirement System wants to invest $60 million in the project. The head of the retirement system said it expects a 20 to 30 percent annual return on the investment in the steel mill.
Public officials in Northeast Mississippi have said Correnti’s failure to deliver on big projects promised there has left a bad taste in their mouths.
The Mississippi Legislature approved Correnti for $75 million in incentives for a Silicor Materials plant in Lowndes County. Correnti promised he would partner with international investors on a $200-million project to bring an innovative silicon-purification process and high-paying jobs to Mississippi. But the company missed a Dec. 31 deadline to put $150,000 in an escrow account to keep it eligible for tax incentives from Lowndes County.
A Columbus Commercial Dispatch headlined Jan. 5 was: “Jilted!: Collapse of Silicor project is latest of Correnti’s empty promises.”
Lowndes County Board of Supervisors president Harry Sanders said taxpayers are out about $230,000 on the Silicor project Correnti promised that never came to fruition. Sanders predicts the big steel mill in Arkansas will never happen.
“It makes no sense to me at all,” Sanders said. “John Correnti and this group have a history of speaking of great big, huge projects that never end up happening. Nucor has two steel mills within 30 miles of where the new plant is planned. You have a huge new steel mill in South Alabama that is up for sale, and two or three other steel mills that have closed and are out of business. If the Arkansas Legislature does their due diligence, they will never pass a bond issue to give them the money because the numbers don’t work.”
Correnti was involved with the successful startup of a steel company in Columbus now owned by Severstal. But Sanders said Correnti was fired from there, and then later fired as CEO of Nucor Corporation, one of the largest steel companies in the U.S.
“After he was fired by Nucor, he went to Bethlehem Steel,” Sanders said. “After Bethlehem Steel got bought out by Nucor, Nucor fired him again. Correnti has a vendetta against Nucor.”
Correnti was quoted in a Forbes article “Iron Wills” as saying the firing by Nucor was “an ego-driven power play.” The lead sentence in the story asked: “Who’s responsible for the mess at minimill operator Birmingham Steel Corp?”
“Severstal here in Columbus is the only project he has ever completed,” Sanders said. “He was supposed to build a rebar business in Amory near here that never got off the ground. His silica purification plant never got off the ground. He tried to build a steel mill in Puerto Rico. So, I don’t know. His track record is just not very good. But he is a hell of a salesman.”
Sanders said he believes that Correnti uses states like Mississippi and Arkansas to put up huge amounts of startup money, and then tries to attract investors.
“They go around and say, ‘If the Arkansas Legislature says it is a good deal, why don’t you put some of your money in?’” Sanders said. “In this environment we have in the economy right now, it is real hard to come up with the equity they need. Who are their investors? They leak names here and there, but don’t say. Do they have any customers lined up to buy their products?”
Sanders said the Silicor plant (originally named Calisolar) was previously planned for Ohio, where it had been offered a $275-million loan from the U.S Department of Energy for the project that was to create 1,100 permanent jobs. Then Correnti announced the plant would be built in Lowndes County.
Sanders said after the third delay on meeting requirements for incentives for Silicor, the county required Correnti to put up $150,000 in good faith money for $19 million in Lowndes County incentives. The money would have been refunded if the proposed $200-million project went through.
After failing to meet the deadline of Jan. 31, Silicor announced that it still wants to build the plant in Mississippi — but not in Lowndes County.
“We are out about $230,000 in legal and engineering fees on this project they promised that never come through,” Sanders said. “They moved the Silicor plant site three times here in Lowndes County, and each time we had to do the environmental and engineering work on it. It ran up a lot of bills, and then all of the sudden they packed up and ran.”
Taxpayers in Amory are also out money after a proposed Correnti rebar plant there that broke ground in October 2008 was never finished due to a lack of funding. Amory aldermen terminated the lease for the project.
Charles Bradford of Bradford Research Inc. in New York said he didn’t know enough about what markets the proposed plant in Arkansas would be going after.
“It could be a niche business where there is not enough capacity, or it could be aiming at a market that is saturated,” Bradford said. “I have no information. But the person sponsoring it, John Correnti, is well respected in the industry.”
Bradford said there is clearly too much capacity in the steel industry. “There are other plants for sale,” he said. “There are plants that are closed that could be reopened, but they wouldn’t be terribly efficient plants. I do understand he had a rebar mill he wanted to build in Amory, Miss., where the timing was really bad with the recession. The financial backers, I gather, backed out. The mill in Columbus, which is now Severstal Columbus, I think has done pretty well.”
Bradford said competition is good; it is what makes inefficient plants close down. And he said the time to build a plant like this is when the economy is down.
“You definitively don’t wait for the economy to heat up because by the time it was built, you would be in a recession,” Bradford said. “It takes a couple years to build and perhaps longer for permits, and then you would be bringing new capacity online likely during a new recession. The best thing is to build a new mill during weak economic periods when you can get the best pricing for equipment, and come on line later when business is better.”
The proposed new steel mill might compete with Severstal Columbus for customers, and for supplies of scrap metal. Sanders said if the plant is built in Arkansas, the prices for scrap metal — the raw material used for the mills — might go up considerably making it harder for either operation to be successful.
The head of the Arkansas Teachers Retirement System, George Hopkins, was quoted in the Arkansas Democrat Gazette as saying he has already been warned other steel companies may spend thousands trying to halt the project because they are scared of competition.
“When you see all these attacks and you will see more coming about this mill, it just shows this mill scares the people who will have to compete with them,” Hopkins said.
Greg LeRoy, executive director of Good Jobs First based in Washington, D.C., said the most important question is whether the proposed new steel mill will serve some niche in the marketplace not currently being served.
“Whoever is vetting it needs to know a lot about the customers they are serving, and why it is plausible to think there is additional supply needed in those niches,” LeRoy said. “I can’t tell what niche the new mill is going to serve that isn’t being served by existing mills, whether in Mississippi or Pittsburgh. Somebody vetting this deal in Arkansas really needs to know the answers to those questions. Those are tough issues in terms of the viability of the facility.”
Good Jobs First is a watchdog organization that looks at the issue of whether large taxpayer subsidized investments in one state come at the expense of jobs and industrial vitality in other states. LeRoy said that during the recession, some states have gotten sloppy about vetting deals. Currently there are criminal investigations into former Boston Red Sox pitcher Curt Schilling and his 38 Studios deal in Rhode Island, a video game company that went out of business shortly after received a $75 million loan from the state.
“It looks like the state of Rhode Island didn’t do a very good job vetting that deal,” LeRoy said. “Sympathetically, public officials are under pressure because of high unemployment. The number of deals states can compete for is under stress. That is a double whammy with more officials competing for fewer deals. We think that explains why in some cases the vetting is not as good as it should be. I would caution any public official looking at any deal to fight the tendency to be sloppy on vetting.”