Portland nonprofit Ecotrust, found last year to have broken the rules when it secured $1.3 million of state tax credits for a questionable sawmill deal, has requalified for all that money with a new deal to create five warehouse jobs in Tualatin.

Meanwhile, Oregon Department of Justice officials continue what a spokeswoman described Friday as a “very active” investigation into the original sawmill deal.

Officials at the Oregon Department of Revenue and state economic development agency Business Oregon concluded last year that Ecotrust had not legitimately qualified for the tax credits because it “failed to accurately characterize and disclose the intended use of proceeds,” among other failings, documents show.

Regulators gave the eco-centric nonprofit 90 days to make an above-board transaction to keep the credits.

Ecotrust subsequently proposed giving a local office supplies distributor $3.6 million to buy a Tualatin warehouse, a deal the nonprofit says will create five jobs paying about $15 an hour. Regulators at Business Oregon and the Oregon Department of Revenue approved that redo nearly two weeks ago.

In a statement Friday, Ecotrust spokeswoman Doe Hatfield said, “We are pleased to have arrived at a mutually agreed-upon qualifying investment with Business Oregon … We are proud of our Ecotrust team for identifying and completing a transaction that met all the state’s requirements.”

NEW DEAL, 5 JOBS

Ecotrust originally obtained the tax credits under a state program called the Oregon Low Income Community Jobs Initiative, a state initiative that piggybacked on a federal tax credits program. Its central purpose, according to Business Oregon’s website, is to help “finance investments and create jobs in low-income communities.”

Officials approved Ecotrust’s new plans to invest in privately owned Portland-based office products distributor Office Products Nationwide because the Tualatin warehouse it wants to buy is located in a low-income census tract.

It’s true that the manufacturing part of town where the warehouse is located is low-income. That’s because while Tualatin as a whole has a median household income of $73,000, well above the state average, that particular tract has fewer than 4,000 residents, 20 percent of whom live below the poverty line. If the warehouse, located on Southwest Herman Road, were located on the other side of the street, it would not qualify for the tax credits, as that area is not considered low-income.

Ecotrust told regulators its financing of the warehouse purchase will lead to the creation of five jobs paying about $31,000 a year.

During 2018, Ecotrust was in serious jeopardy of losing $1.3 million of its $3.1 million in state tax credits after its executives were found to have misled state officials about its plans for a sawmill project in southern Oregon, actions that were the subject of a story in The Oregonian/OregonLive called “Destined to fail.”

Even with the credits, the deal didn’t pan out. The 70 jobs Ecotrust promised for the Rough & Ready sawmill, situated in southern Oregon’s severely economically distressed Illinois Valley, existed only briefly and were wiped out when the project went belly-up. Taxpayers lost millions along the way.

But regulators told Ecotrust it could keep the $1.3 million in credits if it made a legitimate investment in a low-income community business. So Ecotrust came up with is plan to fund the purchase of the 21,000-square-foot Tualatin warehouse.

Office Products Nationwide, owned by Lake Oswego resident Paul Zimmerman, used to be a regional company, but has expanded into a national distributor with locations in Portland, Seattle and San Diego. Yet in paperwork supplied to regulators to justify the warehouse investment, Ecotrust said Office Products Nationwide has had trouble growing.

“In a raising interest rate environment and a real estate market with record-high pricing,” Ecotrust wrote, “it’s difficult for businesses to finance expansions,” adding the taxpayer investment in the warehouse will “enable this business to grow significantly over the next five years.”

Zimmerman did not return voice messages left Friday. It’s unclear why his business needs an injection of taxpayer-backed cash. Zimmerman is owner or partial-owner of several successful companies based or operating in Oregon, public records show, and lives in a Lake Oswego home valued at $1.4 million.

When approving tax credit transactions under the program which Ecotrust applied, officials aren’t empowered to factor in the existing success of the benefiting business or the number or quality of the jobs created, said John Saris, business services manager at Business Oregon.

“There isn't a ‘good use’ test in the statute or rules for this program,” Saris said.

Business Oregon spokesman Nathan Buehler said officials have no choice but to turn on the taxpayer spigot if a group seeking tax credits meets minimum federal qualifications, which include being approved by the U.S. Treasury to handle credits, as Ecotrust is, and helping a business located in a low-income census tract.

The federal tax credit program remains in operation. But the Oregon version, under which these tax credits were issued, expired and state lawmakers did not renew it.

State officials did extra due diligence on the warehouse deal to ensure Ecotrust was engaging in a genuine arm’s-length transaction, Saris said.

INVESTIGATION ONGOING

Ecotrust, even as they expressed gratification about arranging the warehouse deal and getting the state’s blessing for it, maintain they complied with all the rules and requirements on the sawmill deal.

“We remain confident that the Rough & Ready project met all requirements of state and federal law,” their statement said.

They acknowledged, however, that investigators at the state justice department aren’t so sure.

“We look forward to cooperating with the state’s investigation and believed at the time and still believe our conduct was consistent with the law and the norms applicable to (community development) investments.”

Attorneys with the Oregon Department of Justice are still investigating the tax credit deal, said spokeswoman Kristina Edmunson. The state could claw back the tax credits and levy hefty fines if wrongdoing is found.

“This is an ongoing civil investigation and we are still actively gathering information,” Edmunson said.

Civil investigations center on actions that could result in financial penalties, as opposed to criminal investigations that could lead to imprisonment. It’s unclear what potential civil violation Oregon Department of Justice investigators are exploring.

Elements of the investigation include a review of the tax credit application and “receipt of tax credits administered by Ecotrust,” Edmunson said. Prosecutors’ work has focused on taking testimony, issuing subpoena-like demands for cooperation and gathering documents, she said.

The lead attorneys are Tim Nord and Brian de Haan, veteran prosecutors who last year paved the way for the state to recoup $13 million in tax credits issued to SolarCity. In that case the attorneys found SolarCity gave state officials inflated accounts of the actual costs to build commercial-scale solar arrays.

Investigators’ probe of the SolarCity projects also resulted in criminal convictions for a private energy consultant and a state employee. Attorney General Ellen Rosenblum’s Oregon Department of Justice declined to open a criminal investigation of the Ecotrust affair and has not explained why.

-- Gordon R. Friedman

GFriedman@Oregonian.com