on the cover / By Ryan Burns

Spending Headwaters

We need the economic development fund now more than ever. Who’s getting the money?

(Jan. 15, 2009)  Think of it as a duffel bag full of money — more than $20 million at our disposal to spend as we see fit. It’s actually a modest sum compared to the vast revenues Humboldt County lost in 1999 when the state and federal governments bought the Headwaters Forest from Pacific Lumber Co. There are 3,000 acres of old-growth redwoods in that forest. Setting aside, for a moment, the considerable aesthetic and ecological value of these towering marvels, the preserve represents roughly a billion board feet of merchantable timber, which was valued a decade ago at somewhere between $500 million and $850 million.

We might have gotten more for it. The City of Eureka and County of Humboldt, along with the Harbor District, Northwestern Pacific Railroad and Humboldt Bay Municipal Water District, aimed for more than $118 million, but they didn’t want to push too hard and risk a Congressional rejection. So, then again, we might have gotten nothing. When the government agreed to pay Humboldt County $22 million ($12 million from the state and $10 million from the feds) to make up for the loss of timber yield taxes and other revenue, it presented us with a rare opportunity: Here was a big bag of money just for us — money that the Board of Supervisors agreed, following the recommendation of members Bonnie Neely and John Woolley, should be used to grow the economy, enhance our quality of life and protect our natural environment. Mostly that first one, though.

GALLERY >

Long before the world realized just how unstable its economic construction was — before the seemingly sturdy pillars of capitalism began to crack and crumble, before our government started throwing hundreds of billions of dollars into the accumulating rubble, hoping to prevent total collapse — Humboldt County was issued its own economic stimulus package.

The Headwater Fund (HWF) has been up and running for more than five years now. Following the tenets of the Fund’s 2002 charter, the money has been deployed using a tri-pronged approach — a Revolving Loan Fund (RLF); a Community Investment Fund (CIF); and a Grant Fund. Each prong offers a different attempt to create jobs and improve the overall business climate. Business owners (or aspiring business owners) who are unable to get conventional financing can apply for a loan through the RLF. Those loans, which are issued and paired with matching funds through either the Arcata Economic Development Corporation (AEDC) or the Redwood Region Economic Development Committee (RREDC), generate interest payments, which, along with interest on the principal, rejuvenates the Fund’s balance. In other words, our duffel bag has been rigged to remain full indefinitely. (In fact, so far it has gotten more full. The Fund started at $18 million, following a timber yield tax payment to the County, and it now stands at roughly $21 million.)

The CIF has been used for infrastructure projects including the expansion and renovation of the airport and its services (Delta’s twice-daily trips to Salt Lake City and Horizon’s direct flights to L.A.), improvements to Highways 101 and 299, the Eureka Fisherman’s Terminal, water and sewer projects and a variety of approaches to making the most of Humboldt Bay. (More on that later.) Like the RLF, CIF loans and grants have leveraged private and public matching funds — close to $2.7 million so far — supporting the old adage that it takes money to make money.

The Grant Fund’s a different animal. By Charter decree, HWF grants can only be issued to nonprofits and government agencies, which begs the question, how are nonprofits supposed to assist for-profit endeavors? The HWF has tried a variety of approaches, with grants going to schools, the Harbor District, the North Coast Small Business Development Center, the Convention and Visitors Bureau and even the county itself, to name just a few.

The only employee paid through the Fund is part-time Coordinator Dawn Elsbree. An affable woman with sandy blond hair and an easy smile, Elsbree works behind a flat-screen computer monitor in a maroon-colored cubicle that’s adorned with her kids’ photos and drawings at the county’s economic development building in Eureka. “I’m sort of the first point of contact for the community,” Elsbree explains. There’s also a county secretary who spends about eight hours per week working on Headwaters business. The HWF’s volunteer board of directors is appointed by, and makes funding recommendations to, the county Board of Supervisors. “The Board of Supervisors cannot unilaterally spend any Headwaters funds,” said Headwaters Board Chair Patrick Cleary, who has been a board member since its formation in 2003. “All they can do is accept or reject recommendations from the Headwaters board.”

That’s the system in place for allocating the Fund. Of course, this being public money, not everyone is happy with that system. Just like in the movies, when a group of people comes across a duffel bag full of money, you know that, soon enough, they’ll start arguing over how to spend it. So it is with the Headwaters Fund. Debating and criticism have accompanied the HWF since before its inception. “It’s a precious amount with no real rules tied to it,” said former Board Chair John Woolley. During the development of the charter, Woolley recalled, the Board went through a lengthy public challenge process. “Some wanted one fund for infrastructure; others wanted little investments for this or that. It took us almost three years [to come up with the charter].”

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