EXHIBIT Economic Impact Report The Economic Impact on the State of Maine of a Proposed Expansion of the Catalyst Paper Operations in Rumford, Maine For: Catalyst Pap er Operations 35 Hartford Street Rumford, Maine 04276 From: Charles Lawton, Consulting Economist 11 Glenn Lane York, Maine 03909 May 9, 2017 A. Project Description1 The Rumford Pulp and Paper Mill has long been one of the pillars of Maine?s paper industry. It currently employs approximately 640 workers who produce both pulp and paper. Traditionally, the Rumford mill has made enough slush pulp for its paper machines.2 Any excess slush pulp it has dried and sold on the open market, often at a loss. The Rumford mill needs to maintain its on-site pulp drying process in order to maintain the cost advantage that portion of its pulp production provides for its paper operations. The purpose of this project is to build a new tissue production facility on existing vacant land on the current mill site and redirect the excess slush pulp production not required for on-site paper production to the higher value and more rapidly growing market for tissue paper. Successful completion of the project will both create a new valueradded product and preserve the existing integrated pulp and paper operations. Reasons for con?dence that the new tissue plant (called Project Falcon) will be successful are: 1. The machinery to be purchased is state-of-the-art technology from the world leader in tissue production with over 70 successful installations; 2. The machinery will be installed by a leading engineering, procurement and construction company and backed by vendor performance guarantees and equipment warranties; 3. The combination of new production operations and the cost saving synergies associated with location on an integrated pulp and paper production site assures that Catalyst tissue will have a significant cost advantage compared to competitors; 4. Catalyst will have a multi-year agreement with a large, well-capitalized sales and distribution partner; Project information is based on a business plan document provided by Catalyst Paper Operations and conversations with company staff. 2 Pulp production involves two steps. Slush (sometimes called wet or virgin) pulp is produced from logs brought to the mill. This pulp is then dried and either used as an input to the paper (or other product) operation or sold as dry, market pulp. 5. Demand for tissue in North America is growing at an annual rate of approximately higher than the rates for pulp and paper. Project Falcon will involve an investment of approximately_ and will take place over a period of 21 months. . a .224: B. The Economic Impact of the Proposed Project The purpose of Project Falcon is to transform the entire Rumiord Mill into an integrated, three-pronged production operation involving pulp, paper and tissue. While the essential reason for co-locating the three operations is cost savings? ?shared utilities and overhead and reduced transportation costs? ?they must, for purposes of economic impact analysis, be treated as three separate businesses, each with its own technology and input requirements. At the same time, it is important not to double count the output of pulp from one operation that becomes input to both the paper and tissue operations. Table 1 lists projections for the separation of baseline direct mill operations into the three relevant sectors for 2020, the first full year of tissue production. Table 1 Estimated Direct Impact of Rumford Mill Operations, 2020 - . Laboi' Description; . Gutput?i? FTE Jobs Compensatiort Pulp 32 Paper 564 Total Direct $395,585,839 658 $78,863,143 Source: analysis of data from Project Falcon business plan; tissue jobs include 25 new jobs and 37 jobs allocated as indirect support; jobs in pulp are estimated based on the assumption that dry pulp production drops from ?ons per year in 2016 to -tons per year in 2020; jobs are listed as full-time equivalents ecause portions of individual people are often charged to different products; labor compensation includes full benefits, including medical, dental, 401k contributions, FICA, other benefits and workers? compensation. Table 1 represents the direct economic impact of the Falcon Tissue Project on the overall operation of the Rumiord Mill in 2020. The output cost of pulp and its associated 32 jobs represent pulp sold into the market. The output costs and associated jobs in the paper and tissue sectors represent the direct impact in Maine of those operations. The pulp consumed in those sectors is counted as indirect impacts and thus not double counted both as an on-site sale and an on- site vendor purchase. In addition, the project will create more impacts as this direct spending ?ows out into the surrounding community.More generally, the indirect impacts of the project are those related to all of the supply chain of vendors providing the materials and services required by pulp, paper and tissue plant operations. A second set of effects results when Catalyst employees as well as the employees of all their supply-chain vendors use their wages to spend for their own households, for rent, food, clothing, health care and all other household consumption items they may buy. These are called the induced impacts of both the direct and indirect Spending. They constitute the economic impact of the project on local grocery stores, hardware stores, hospitals, schools, local governments and myriad other local consumer businesses. Finally, all these direct, indirect and induced impacts generate ?scal impacts for Maine state and local governments as both business enterprises and affected households pay property, sales, income, excise, fuel and other taxes and fees that are im @ptt?err various activrtiebWW is? ?Li We Me .- avail 'le'stahs such as DepartIn to LabOr employment data measure such inter-industry relationships at the local level. Short of exhaustive business surveys, there is no direct way to obtain an accurate measurement of these indirect economic ?multiplier? effects. The only way to estimate a project? 5 total impact is to use an input-output model explicitly designed to capture these interconnections. This report is based on the IMPLAN3 model of the State of Maine to estimate these effects. Because state regulations concerning the State New Markets Tax Credit program consider only indirect (supply-chain) impacts, this report will not include reference to the induced (plant and vendor employee spending) impacts generated by the mill as a whole. It must be noted, however, that these induced impacts are often the ones most obvious in the local economy because they represent the consumer spending on local goods and services that support the 3 IMPLAN (lMpact Analysis for is a computer based input-output modeling program. It contains a mathematical representation of the purchasing patterns that take place between sectors of an economy. Built into the IMPLAN data ?les are all of the industry sales, employment and income data for each of 536 sector of the Maine economy. IMPLAN uses these data along with national purchasing and shipping data to create regional models. See for details. local retail and service business establishments. In addition, since state regulations also do not consider the impacts of construction (direct, indirect or induced), this report does not consider any of the impacts of building, equipping and making operational the new tissue plant. Table 2 summarizes the projected results for Maine of the direct and indirect impacts that the state does consider in evaluating New Market Tax Credit projects, the direct and indirect impacts of operating the new integrated pulp, paper and tissue plant proposed by Catalyst for its Rumford mill. Table 2 Projected Direct Indirect Impacts of Integrated Catalyst Operation, 2020 . Labor Description Output Cost Jobs Compensation Pulp 32 Paper 564 5 Tissue 62 Direct Impact $395,585,839 658 $78,863,143 Indirect Impact $178,540 ,000 1,284 $59,127,000 Total Impact $574,125,839 1,942 $137,990,143 Source: IMPLAN and calculations made by author; indirect labor compensation re?ects only payroll, not bene?ts. The direct impact of the project is operational spending of nearly $396 million. This spending supports 658 new and preserved jobs whose total compensation amounts to nearly $79 million. The indirect (supply chain) operational impact of this spending will be additional sales for Maine businesses of more than $178 million. This spending dispersed through the three supply chains for pulp, paper and tissue supports the equivalent of an additional 1,284 FTE jobs earning an income of over $59 million.4 The direct plus indirect impacts of the proposed Catalyst project, therefore amount to annual sales for Maine businesses of more than $574 million supporting the full-time-equivalent of nearly 2,000 jobs, earning a total annual 4 The IMPLAN model considers only payroll, thus these compensation ?gures (in contrast to the direct impact labor compensation ?gures) do not include any bene?ts that may be offered. income of nearly $138 million (plus any bene?ts that indirect vendors may provide. The central rationale for the Catalyst project is to upgrade the entire mill complex by substituting high value tissue production for low value pulp production. It is interesting to note, therefore, that the same rationale applies to the upstream indirect jobs supported by the Catalyst investment. Table 3 Projected Indirect Jobs Compensation Generated by the Integrated Catalyst Operation, by S__ector, 2020 r' ??1343 #1025 . . . .. . .- ?\ug?4.x .-., . . - r, . ?swan at av- 531Pulp Paper 1,123 $51,699,500 $46,000 . Tissue 87 $4,393,500 $50,500 1.4 Total 1,284 $59,127,000 $46,049 2.0 Source: IMPLAN and calculations made by author As noted in Table 2 above, the full operational impact of the fully integrated, three-product operation of the Catalyst project in 2020 will support 1,284 indirect jobs earning just over $59 million. This yields an average pay per indirect job of approximately $46,000. However, when broken down by the indirect jobs associated with each product flow, an interesting pattern emerges. For pulp production alone, there are approximately 2.3 indirect jobs per direct job and the average pay per job is $41,000?lower that the average for all indirect jobs. For paper production, the number of indirect jobs per direct job drops to 2.0, but the average pay for those indirect jobs rises to $46,000. Finally, for tissue production, the number of indirect jobs per direct job falls to 1.4, but the average pay for those indirect jobs jumps to $50,500. The reason for this pattern is that the bulk of the indirect jobs serving dry pulp production are in wholesale services, logging and transportation These same jobs are also required for paper and tissue production, but other jobs are also required?more engineering, maintenance and repair, specialized management, ?nance and professional services. For dry pulp produch'on, the largest indirect components are wholesale trade, commercial logging, business support services, sawmills and trucking and rail transportation. For paper production, the largest indirect components are much the same, but with much higher levels of architectural and engineering services, more electricity, more maintenance and repair, waste management and professional services (legal, aocormiing, banking). For tissue production, management, engineering, maintenance and repair services become more prominent indirect suppliers. Similarly, professional and financial services, warehousing, insurance and postal services all become larger requirements in tissue production. In short, just as the addition of tissue production adds value to the overall mill operation, so it also has the same effect up the various supply chains serving the milL The simple conclusion is riff" 2.5: y: plexity and value of the final pl'OdIlCtS SOld from the 033?? 27:. et Pulp, more tissue) also upgrades the complexity I: g. . those products. This, in iewaverage pay received by the employees of these Lip-stream vendors. In short, the Catalyst project does more than simply support indirect jobs in Maine and the Rumford region, it also upgrades the quality of the state and regional labor force. Finally, while not required by New Market Tax Credit regulations, it is important to note that some portion of the commercial activity generated by this project ?ows to Maine?s state and local governments. Catalyst employees, and those of all the businesses indirectly linked to Catalyst, pay income taxes, sales taxes, property taxes, fuel and excise taxes. Similarly, Catalyst and all the businesses commercially linked to Catalyst pay the income, property, fuel, licensing and other taxes and fees to which they are subject. The total state and local tax and fee revenues traceable to the direct and indirect impacts of Catalyst initiated economic activity projected for 2020 amounts to approximately $18.3 million. Table 4 summarizes these revenues by category. Table 4 State Local Tax and Fee Revenue Generated by Operahon of the Catalyst 8: Corporate Income TaXes 700, 000 Sales Taxes $5,900,000 Property Taxes $7,300,000 Other Taxes Fees (including fuel tax) $1,400,000 Total State Local Tax Revenue $18,300,000 Source: IMPLAN and calculations made by the author.