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When Sweet Water Organics Inc. asked the City of Milwaukee for a $250,000 loan a year ago, the company said it needed to hire more workers to meet demand from local restaurants for fish and vegetables raised at its urban farm.

But Sweet Water President Josh Fraundorf didn't tell Common Council members that five of the company's nine employees had quit over the previous several months because they didn't get paid and were concerned about his management.

The city's forgivable loan, approved in May, financed an expansion to eight full-time employees and four part-timers at the end of 2011. Those numbers met job targets, which allowed Sweet Water to skip its annual loan payment. But they included Sweet Water's two founders, who hadn't drawn salaries until the job creation numbers needed to be certified by city officials.

The wages paid by Sweet Water for the last three months of 2011 also fell far short of what the company had projected when it sought the city loan.

Those newly disclosed facts are reviving questions about whether city tax dollars should have been given to Sweet Water, a start-up firm that has drawn national praise as part of the sustainable farming movement. The company got the loan without having to first raise cash from private investors, which city officials usually require to reduce the risk to taxpayers.

Those circumstances are a concern to Ald. Terry Witkowski, a member of the council committee that recommended the loan. He wants Department of City Development officials to appear at a committee meeting to explain the situation.

Sweet Water deserves city financing because of its role in growing Milwaukee's urban agriculture industry, which means more jobs, environmental benefits and a more secure food supply, said Ald. Tony Zielinski, who sponsored the legislation to provide the loan.

Zielinski said he hadn't known about the employees who had left the company last year because of unpaid wages. But even if he had known, Zielinski said, he still would have supported the loan request.

"I have the highest regard for Sweet Water. They are a pioneering company," said Zielinski, whose Bay View district includes the com pany. "Obviously, with pioneers, there are going to be bumps on the road."

Sweet Water used the loan to build outdoor greenhouses at its facility at 2151 S. Robinson Ave., and for other expenses, according to the Department of City Development, which opposed the Common Council's decision to approve the loan. The loan agreement allows Sweet Water to skip annual payments of $62,500 over the four-year term if the company meets job targets at the end of each year.

For 2011, Sweet Water had to have at least 10 employees to skip that year's payment. But the loan agreement doesn't say whether the jobs must be full-time. Nor does it set minimum wage floors.

Documents submitted by Sweet Water to the Department of City Development show a fourth-quarter payroll of $26,062 for 10 employees, not counting about $4,400 paid in back wages to three of the five employees who left Sweet Water early in 2011. That payroll figure also didn't include salaries paid to the company's co-founders during the final week of the year.

That payroll amounted to an average of $2,606 per employee for the quarter, or $217 a week for each worker. Over a 40-hour work week, that averages less than $5.50 an hour. At a council meeting last year, Zielinski said the positions would pay $10 to $25 an hour.

To avoid making three more annual loan payments, Sweet Water must have 21 employees at the end of this year, 35 at the end of 2013 and 45 at the end of 2014, according to its agreement with the city.

The loan agreement also requires Sweet Water's owners to raise $125,000 in private funds by 2014. That provision was added by aldermen in response to the development department's concerns.

Over half of that amount will be raised by the end of April, Fraundorf told the Journal Sentinel, "and we are confident that we will meet the loan requirements within the time designated."

Sweet Water's former employees said in interviews that the company was poorly managed. Among other things, they cite the time it took for Sweet Water to pay their back wages, which didn't occur until after they had left the company.

The former employees who spoke to the Journal Sentinel were Jesse Hull, horticulture director, who left the company on April 1, 2011; Molly Stanek, assistant horticulture director, who left in March 2011; Kata Young, director of soil systems, who also left that month; Tom Knoll, replication planning director, who left in February 2011, and Ryan Bourbon, biologist, who left in January 2011.

They all left Sweet Water in part because they got tired of working while the company owed them back wages.

Records submitted to the city by Sweet Water show that Stanek, Young and Knoll received back wage payments at the end of 2011. Hull filed a complaint with the state Department of Workforce Development seeking back pay, and received a settlement payment from Sweet Water earlier this year. Bourbon said he settled for a portion of his back pay within a few weeks after leaving.

City planners balk at loan

The company, founded by Fraundorf and Jim Godsil, who also operate Community Roofing Inc., uses a system known as aquaponics. It uses fish waste to help fertilize produce, with the produce helping to filter the water used to raise the fish.

Sweet Water has been the subject of complimentary media coverage, including articles in the Wall Street Journal and New York Times, since it began operations in 2009. In February 2010, the company's first batch of perch was being sold, just in time for Lenten fish fries.

But the Department of City Development, which helped promote the company, didn't support Sweet Water's loan request, which was first publicly reviewed at the April 4, 2011, meeting of the Common Council's Community and Economic Development Committee.

Fraundorf told committee members the loan was needed to add outdoor greenhouses and hire more workers to meet demand for the company's products. The city cash, he said, could help Sweet Water turn a profit as soon as that summer.

However, Yves LaPierre, a development department analyst, asked the committee to postpone voting on Zielinski's resolution. LaPierre said department officials had received details about the proposal just a few days earlier.

LaPierre also said Sweet Water was proposing to spend most of the funds on its operations. He said similar city development loans usually financed capital investments, such as new buildings. The committee postponed action.

At its next meeting, on April 26, Fraundorf said the company had four employees, and would have 10 employees by the end of 2011 with the city-funded expansion.

However, Martha Brown, city deputy development commissioner, said Sweet Water's plans for the loan were "a moving target," shifting from mainly covering salaries to instead paying for the greenhouses.

She also said Sweet Water wasn't putting any of its own money into the expansion. Most city development loans are made to companies that provide a substantial portion of their own funds for expansions, Brown said.

Finally, Brown said city loans usually amount to $1,500 to $2,500 for each job created. If Sweet Water reached its 2014 goal of 45 jobs, that would be just over $5,500 in loan proceeds for each job.

In response, Fraundorf said he and Godsil started Sweet Water with $40,000, and later added another $153,000 of their own money. He said Sweet Water also raised close to $800,000 from other private investors.

Zielinski, a committee member, urged his fellow aldermen to support the loan.

"This is a slam dunk," Zielinski said then. "These people are visionaries. They're coming to the city for help, and I think we should help them. I just don't understand anybody who could disagree with that."

The committee unanimously recommended approval for the loan after Ald. Joe Davis proposed an amendment requiring Sweet Water to raise $125,000 during the loan's term.

On May 3, the full council approved the loan on a 14-1 vote, with Ald. Joe Dudzik the sole opponent. Mayor Tom Barrett then signed the resolution.

Payroll falls short

Sweet Water has so far used $191,000 of the loan proceeds, said Jeff Fleming, Department of City Development spokesman. Department officials are "hopeful Sweet Water will succeed as an ongoing business," Fleming said.

To prove it had at least 10 employees by the end of 2011, Sweet Water submitted to the department an internal payroll report and the quarterly wage report companies provide state officials to calculate the amount they pay in Wisconsin unemployment insurance taxes.

The internal payroll report, covering Dec. 26 through Jan. 1, shows eight full-time employees, including Fraundorf and Godsil, and four part-time employees.

Fraundorf said he and Godsil began drawing salaries from Sweet Water on Dec. 26. It was the first time they were paid by the company, he said.

The quarterly wage report doesn't include Fraundorf and Godsil, but shows payments to 13 people - including back pay for former employees Stanek, Young and Knoll.

Sweet Water's quarterly payroll of $26,062, not including the back wages, is about 30% of the $85,500 payroll the company projected for the fourth quarter of 2011 when it applied for the city loan.