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Eurekans spent $700,000 to expand Lost Coast Brewery — what will they get in return?

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photo by Grant Scott-Goforth

Humboldt County's most famous beer maker is a gleaming icon of the modern age of the craft industry. Lost Coast Brewery, the little homebrew-turned-café operation in Podunk Eureka, is putting the finishing touches on a state-of-the-art, $27 million mega-brewery, which will allow the company to expand its worldwide distribution.

The company's new facility is built on a foundation of hard work, a lot of malt and hops, and a lot of public money: The city spent nearly $700,000 in site-specific improvements at the company's new south Eureka site. It was a community investment, said city officials who approved the spending, but it came at a time when Eureka raised taxes to cover basic services, and when questions are being raised around the nation about the billions of dollars that small communities gift to large companies every year.

Lost Coast Brewery is one of Humboldt's darlings, a bootstrap, follow-your-dreams success story referenced constantly by the county's politicians, organizations and titans of commerce.

The brewery was founded in 1990 by Barbara Groom and Wendy Pound, who had been researching beer and converted Eureka's Pythian Castle on Fourth Street into a café and tasting room. The city, apparently, did not make it easy for Groom and Pound to start their business, but the pair eventually gained the council's support.

The brewery cultivated a local following and before long, thanks in part to marketing and distinctive labels by Humboldt illustrator-precious Duane Flatmo, its flagship beers gained popularity outside of the county.

The brewery eventually outgrew the downtown restaurant, moving to a west Eureka site where it grew steadily to become the 33rd largest craft brewer in the nation, pumping out 50,000 barrels in 2009. With other medium-size breweries, like Healdsburg's Bear Republic, hot on its tail, Lost Coast has floated around the mid-30s rankings in craft brewery size. By the late 2000s, Groom was ready to expand again, and began looking for sites that could accommodate a large, state-of the-art brewing facility.

The brewery had faced challenges before: a less than welcoming council at its inception, growing pains and a to-do over the label for its flagship Indica Pale Ale. In 2004, a Bay Area man sued the brewery, claiming the image of Hindu deity Ganesh slamming a brewski on the Flatmo-designed label was offensive. Despite winning on the grounds of free speech, the brewery changed the label. But apparently the original found its way onto the brewery's website again in 2009, sparking outrage from Indian newspapers and bomb threats against the company.

But none of these would be quite as drawn out and contentious as when Groom set her eyes on a south Eureka piece of property, a 9-acre pastoral parcel owned by the Santa Rosa Roman Catholic Diocese that butted up against the county border behind the Flamingo Motel on South Broadway. In the three years it took to gain approval and construct the massive facility, Groom would deal with city planners, wildlife advocates, Native American tribes, angry neighbors and a plumbers union boycott.

On a tour of Lost Coast's new brewing facility with Congressman Jared Huffman in October, Groom clearly still chafed at the hurdles it took to get the plant built. She said it took three years to get final city approval because of a wildflower study and "two cultural studies because of politics with the Indians.

"Most people would have walked away, but I didn't have anything else to do," Groom said, getting a laugh from attendees of the tour.

Whether joking or not about walking away from the project, the attitude doesn't really jibe with Groom's actions, or her ambitions. She said she wants Lost Coast Brewery in the top 20 craft breweries in the nation, and took on a $27 million debt, which she said won't be paid off in her lifetime, to complete the brewery's impressive new bottling facility. The company will be able to produce 300,000 barrels — 99 million bottles of beer — per year once it's running at full capacity. Hardly the kind of project someone would have a take-it-or-leave-it mindset about.

Plus Groom was hardly a victim of a foot-dragging bureaucracy. During negotiations, she threatened to move the facility outside of Eureka. This scared a business-friendly city council: After all, Lost Coast Brewery, with its 30 or so production jobs, was the oft-touted crown jewel of Eureka's commerce community.

So the city fell all over itself to accommodate Groom, amending the general plan to reclassify the property from public to commercial and, eventually, giving Lost Coast Brewery a nearly $700,000 gift.

The new Lost Coast Brewery is located just east of U.S. Highway 101 on Sunset Road; its new peaked roof can barely be seen as you zip north into Eureka. A year ago, Sunset Road was a small gravel roadway that connected to a small subdivision overlooking Humboldt Bay. Those homes lie east and southeast of the new brewery on Weiler Road. To the south of the building is the Sunset Memorial Park graveyard; to the west, the Flamingo Motel and Patriot gas station; and to the north sits a pasture.

As the brewery went through the city's planning process, a small number of neighbors began to voice concerns about the project. It would be stinky, they said, and would increase traffic along Sunset Road. It would diminish their views and create a new source of industrial noise and light. Their opposition, Groom implied, put a kibosh on the idea of having a restaurant at the facility.

Despite this, Groom had the upper hand, which was made clear by the city council's unanimous approval in November 2012 to commit up to $825,000 in city funds to water, sewer and road improvements to aid the brewery's construction. Initial cost estimates, which came in at $534,000, more than $100,000 under the final price of the improvements, showed funding amounts from the following sources: $96,000 from the water fund; $87,000 from the sewer fund; $285,000 from the street improvements fund; and $65,000 from the city's general fund, which pays for most essential day-to-day services like the police and fire departments.

That spending decision came a year after the council voted to increase water rates for city residents to compensate for higher costs from the Humboldt County Water District as well as to fund infrastructure projects. At the end of five years of incremental hikes, Eureka customers were expected to pay about $20 more per month for water.

Lost Coast Brewery also has what the city refers to as "high-strength discharge," meaning its wastewater requires heavier treatment than average residential users. Public Works Director Bruce Young said the brewery is billed accordingly, and that the new facility appears as though it may be discharging lower strength discharge than the previous site (though it will continue to be charged as a high-strength wastewater producer).

Young also said the city is working on pretreatment options with the brewery — and other high-strength dischargers — to keep remnants from the beer making process from entering the sewer system. "There is value to reducing these elements at the source," he wrote in an email.

At the 2012 meeting, then-City Manager David Tyson pitched the idea:

"We've fought very hard to keep Barbara with her business here. ... The city is partnering with Lost Coast Brewery by providing some of the required public improvements for the project — roads and streets, curb and gutter, water and sewer lines — to service this project, to service the community and to provide a location that Barbara can expand into. ... This certainly would go a long ways in helping this project and the neighborhood as well in developing this area of our community."

It's unclear if, beyond the paving of Sunset Road, the Weiler Road neighbors, who live just outside of the city limits in county jurisdiction, will see any benefit from the sewer and water line improvements.

Councilwoman Marian Brady pointed out that Arcata invested in similar infrastructure improvements to develop its Aldergrove Industrial Park in the 1980s. Since then, dozens of manufacturing and food businesses have settled in the area in the north part of the city. But unlike Arcata's investments, Eureka's Sunset Road improvements seem to only benefit one business: Lost Coast Brewery. In addition, Aldergrove was designed, in part, to help fledgling businesses get off the ground, rather than to help an already profitable company expand.

In total, the city, through contractor Mercer-Fraser, spent $686,156 on the project: $212,446 on water system improvements, $143,169 on wastewater improvements and $330,541 installing and paving sidewalks, driveways and roads on Sunset Road and the outlet onto Broadway.

(To put that into perspective, Eureka could have paid the entry-level salaries of 16 firefighters or 14 police officers for a year for the same cost.) The work was completed last summer.

Tyson told the council in 2012 that these types of city investments are "not that unusual."

"In the 1990s we did quite extensive road improvements, water and sewage improvements, and drainage improvements in the west side using redevelopment bond financing," Tyson said. But redevelopment funds, handed down from the state, were specifically targeted to promote businesses and infrastructure, while general fund spending — like that $65,000 spent on the Lost Coast Brewery infrastructure — takes directly away from other city services.

While there are typically negotiations between cities and developers about who foots the bill for infrastructure costs, it has become quite common for cities, large and small, to entice businesses to set up — or expand — shop with taxpayer money.

In a 2012 investigation, the New York Times tallied thousands of state, county and city incentives around the nation: cash grants and loans; sales, income and property tax credits; and infrastructure improvements that total more than $80 billion a year.

"For local governments, incentives have become the cost of doing business with almost every business. The Times found that the awards go to companies big and small, those gushing in profits and those sinking in losses, American companies and foreign companies, and every industry imaginable.

"A full accounting," The Times article says, "is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid."

Much of the practice began with officials' fears that companies would move jobs overseas, the article reported.

"Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors."

Whether public officials, tasked with deciding what's best for the city at large, were motivated by fear or hope, they largely supported the brewery's expansion.

City Engineer Charles Roecklein recently defended the spending, saying the "city council and city management felt it was a very good investment in our city infrastructure to support that business out there."

In approving the project in 2012, Councilwoman Brady said, "I think it's going to get paid back in a lot faster fashion than what we are anticipating."

In its 2012 staff report, the city projected that the investment in Lost Coast's new facility would be returned in seven years. Equipment purchases alone would yield $150,000 in sales tax the year the brewery was built, the report said.

Beer, retail and ice cream sales at the new facility will bring additional tax revenue, but it's unclear how much the city anticipated will be sold there. Instead, the staff report somewhat disingenuously factored sales tax collected at the existing restaurant — money the city would be collecting, expansion or not — into the seven year plan.

The report also anticipated the city would collect $32,000 a year in property taxes, but, by the Journal's calculations, it would take 323 years for the city to recoup the costs of infrastructure development it incurred with the Lost Coast project with property tax alone. According to the Humboldt County Tax Collector's Office, the company is scheduled to pay $84,000 in property taxes this year, only 2.5 percent of which — just over $2,100 — will go back to the city of Eureka.

At the 2012 meeting, Councilwoman Melinda Ciarabellini praised Groom for creating job opportunities. "It's a great project," she said. "Really what jumped off the page here is you're already providing 30 jobs — I've forgotten how many more jobs this will increase — and it is going to be a great boon to the community."

In a 2012 re-election campaign op-ed in the Times-Standard, Councilwoman Linda Atkins wrote, "this expansion will provide more living-wage jobs and attract more tourists."

Atkins did not return a call seeking comment for this story. Councilwoman Natalie Arroyo, elected after the city approved funding, declined to comment.

It appears that jobs have increased — Groom did not respond to requests for comment for this story, but told reporters during a tour in October that 40 to 50 people were working on the bottling line, up from 30 at the old plant. But it appears her goal was to actually reduce the number of workers at the new facility, as she also told reporters that she "was hoping to cut down on people but we need more people on this bottling line than the old one" because kinks were still being worked out. She estimated things would be running efficiently by spring.

Groom's expansion also stirred controversy at the end of 2013, when it was discovered by a local plumber's union that she hired out-of-town contractors to complete construction work on the facility. The United Association Local 290, Plumber and Steamfitters promoted a boycott of Lost Coast Brewery products, and association spokesman Craig Spjut wrote in an op-ed in the Times-Standard, "living wages for local workers make for strong community economies, which is why we are disappointed in Lost Coast Brewery's choice to outsource local work opportunities."

Groom, in response (she did not return Journal calls seeking comment at the time), wrote in the Times-Standard that she had gone to "extraordinary lengths" to hire local plumbers, and offered this slightly damning evidence of her commitment to the local community: "With a national product it makes no sense to invest in Eureka. It's located at the edge of the earth, transportation is difficult and expensive, unpolluted industrial land is nonexistent, utility infrastructure is poor, and the place isn't getting better."

Whether the city spent the money wisely — and we may never know, due to the hazy metrics of city subsidies — the deal's done. The facility is massive, modern and running at full operation, with some efficiencies still in progress, according to customer service representative Jaqueline Martin. The company is expanding its line of beers and will be canning beer sometime in the future. While the downtown restaurant thrives, the south Eureka site will offer tours, a tasting room, retail shop and ice cream parlor; Martin said the company hopes to have it open by summertime.

Then, Eurekans will have a chance to see what their tax dollars helped build.

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About The Author

Grant Scott-Goforth

Bio:
Grant Scott-Goforth has been an assistant editor and staff writer for The Journal since 2013.

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