Sweet Water on course for $250,000 in city support
May 1, 2011
By Michael Timm
If its proponents deliver on their promise, Milwaukee will become a world leader in the emerging 21st-century industry of urban agriculture—and leading the way are “green” entrepreneurs who two years ago repurposed an old Bay View crane factory into an aquaponic fish and vegetable farm.
Local politicians gave that promise a healthy vote of confidence April 26 when the city’s Community & Economic Development Committee voted 5-0 to provide a $250,000 forgivable loan to Sweet Water Organics, 2151 S. Robinson Ave.
Fourteenth District Alderman Tony Zielinski initially sponsored the resolution that taps the city’s Development Fund, which is funded by the property tax, to support Sweet Water at what the nascent business argues is a critical time.
Sweet Water says it needs public investment now to increase its capacity to meet local and regional demand for its fish and produce, and to develop the infrastructure to demonstrate the sustainability of its emerging urban agriculture model—based on aquaponic aquaculture where water and nutrients circulate through a system that benefits both fish and plants.
Its president and cofounder, Josh Fraundorf, said Sweet Water currently employs four people. The terms of the loan mandate that Sweet Water employ 10 people by 2012, 21 by 2013, 35 by 2014, and 45 by 2015. If it meets these job creation targets, the loan will be forgiven. Otherwise, it must be repaid with 5-percent interest.
The committee also amended the proposal to require that Sweet Water come up with a 50-percent match from private-sector investment. Fraundorf said they “absolutely” could achieve this match. He said he and Sweet Water vice president James Godsil had already invested almost $200,000 of their own capital in the business and raised another $800,000 from local investors. He did not specify which investors would provide the $125,000 match.
Funding an Expansion
If approved by the full Common Council May 3, the Development Fund loan comes just a month before IBM consultants are set to descend on Sweet Water June 6 to provide “data-driven systems analysis” to optimize its operations. IBM selected the city of Milwaukee and Sweet Water for one of its 24 global Smarter Cities Challenge Grants, which will provide $400,000 worth of services to “promote sustainable systems innovation.”
Fraundorf said the city’s support will enable Sweet Water to put its best foot forward for the IBMers.
The $250,000 breaks down as follows, according to Sweet Water’s most recent proposal: $40,600 for water filtration and clarification costs, $45,000 for one outdoor triple fish tank, $18,900 to acquire 50,000 new fish seedlings, $37,500 to complete seven outdoor greenhouses, $38,500 to construct a 1,200-square-foot climate-controlled vegetable sprout production room, $28,600 to construct an underground concrete slab for compost production, and $40,900 for compost tractors and a truck and trailer to transport local vegetable waste for composting.
Sweet Water says its expansion would quadruple its organic vegetable production, allow for another 12,000 fish, and enable production of eight tons of compost per month. The compost would be sold to retailers.
Sweet Water can currently produce 4,000 plants and 80,000 perch per year. Expansion would enable not only production of lettuce, sprouts, wheatgrass, and watercress grown inside, but also tomatoes, green peppers, and cucumbers grown outside in greenhouses.
Sweet Water estimates its current demand is 100,000 fish and 50,000 pounds of vegetables per year.
“Our goal is to continue to expand because we can’t produce enough,” Fraundorf said. “We get a premium for our produce. Our demand is such we need to expand our capacity.”
Development Fund Concern
An earlier version of the proposal, submitted to the committee April 4, directed $49,000 to infrastructure costs and $201,000 for operating costs like employee salaries and wages.
Fraundorf then told the committee that Sweet Water was “really close to in the black” but was currently operating with what he called a skeleton crew. He said he needed more people and that expansion would mean new jobs.
Use of the Development Fund directly for salaries would have been incompatible with precedent.
According to Department of City Development spokesperson Jeff Fleming, five activities qualify for Development Fund investment: grants or loans to redevelop taxable property; infrastructure work to facilitate private investment (for example, the Riverwalk or streetscaping); environmental testing and brownfield remediation to facilitate private investment; land acquisition, demolition, or landscaping to improve the local business environment; or “grants or loans to offset employee training costs for projects involving capital investment that result in retention or expansion of permanent private employment.”
The committee April 4 postponed a decision on the request until April 26, awaiting further analysis by DCD, which had only been informed of the proposal the previous Friday, March 29.
Sweet Water and DCD met in the interval. “We were told essentially [the loan] has to be just for capital investment,” said Fraundorf, who said Alderman Zielinski initially made him aware of the Development Fund. An amended proposal was attached to the committee file April 21.
Even the revised proposal made DCD Deputy Commissioner Martha Brown uncomfortable about what precedent was being set. She stressed that DCD has supported Sweet Water, including its IBM Smarter Cities grant, but said she was “troubled” by this loan request.
Brown told the committee that Sweet Water’s itemized expenditures were “kind of a moving target” and felt some would not qualify. But mainly, she was concerned that 100-percent of the investment risk would be the taxpayer’s. She asked where the private investment was.
Brown also cited a recent $195,000 forgivable Development Fund loan provided to Bentley World Packaging for physical improvements at 5211 S. Third St. that met DCD’s first criterion, but which she said also leveraged $1.7 million in private investment. That Development Fund investment is intended to create 126 jobs—or about $1,550 in city funds per job created. Sweet Water’s proposal would conservatively create 41 jobs—at close to $7,000 in city funds per job.
Creating an Industry
Michael Mervis, vice president and assistant to the chairman at Zilber Ltd. and Towne Realty spokesperson, testified in support of Sweet Water. Mervis said he was a volunteer helping Sweet Water to take control of its real estate. Sweet Water is currently a tenant of a property that is behind in its taxes.
Mervis said Brown’s concern about private investment was a fair question, but he appealed to the bigger picture. He said this loan was a critical opportunity to advance Sweet Water from the incubator stage onto the road of rapid expansion. “This is a classic example where the city of Milwaukee is in a position to create jobs in a local industry,” he said.
Dean Amhaus, executive director of Milwaukee’s Water Council, also testified in support.
“Aquaponics is going to happen. It is going to happen somewhere in the world because it is catching on,” Amhaus said, adding that students at MIT were now working on a similar system. Chicagoans have also expressed interest in adopting Sweet Water’s model. “[With Sweet Water] We no longer want to be—we are a world water hub,” Amhaus said.
Fraundorf said Milwaukee was on the verge of creating something that does not exist anywhere else in the world, and Sweet Water’s final proposal anticipates “substantial” private investment within a year of expansion.
Zielinski called supporting the public loan a “slam dunk” case. “These people are visionaries. They’re coming to the city for help. I think we should help them.”
When asked by the Compass if Sweet Water would shut down if it does not receive the Development Fund loan, Fraundorf said no. “If we wanted to be profitable on a small scale, we could already be profitable, but we want to create an industry.”
The Milwaukee Grow Zone?
The April 4 version of Sweet Water’s proposed “Milwaukee Grow Zone” expansion referenced a second phase creating a “green industry park” in Bay View, possibly on the vacant six-acre former Army Reserve base site at Lincoln Avenue and Bay Street.
This “Sweet Water Village” concept, which would attract and develop green business partnerships, was removed from the revised request for the Development Fund loan.
But Sweet Water has been attracting interest from area businesses and organizations.
Among the potential educational partners are MATC, MSOE, and the Milwaukee Teacher Education Center (MTEC).
One interested business is Waukesha-based Front Porch Pets. David Baldus, its founder and president, testified before the committee April 4 that he hopes to move his business to Bay View and work in concert with Sweet Water.
Front Porch Pets, which produces vegetable-based dog treats, would set up operations adjacent to Sweet Water to the south. Baldus envisioned waste heat from his dehydrating process being used to warm Sweet Water’s fish tanks, cutting down on their heating bill. Baldus said his distribution network could benefit Sweet Water and he hopes to incorporate their greens into his product lines.
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