Eight years after the former Farmland Industries plant was shut down and seven years after its parent company filed for bankruptcy, the site along Kansas Highway 10 is still vacant and still widely considered to be an eyesore at the entrance to the city.

At the southeast corner of the city, the 467-acre former Farmland Industries site has been called lots of things.

An environmental mess.

A reminder of lost Lawrence jobs.

Lawrence’s best hope for a new industrial and business park.

But eight years after the former fertilizer plant was shut down and seven years after its parent company filed for bankruptcy, the site along Kansas Highway 10 is still vacant and still widely considered to be an eyesore at the entrance to the city.

“I understand why this is really frustrating to the general public,” said Lawrence Mayor Rob Chestnut.

A look at the circumstances that surround the site add to the frustration, but also make it clearer what type of place this property has become.

It is the place that got left behind.

Bankruptcy success

When it comes to bankruptcies, the former Kansas City-based Farmland Industries had a real nice one. Well, it was terrible for Farmland Industries itself. It was liquidated and the company no longer exists.

But for creditors who often get left holding the bag in a total bankruptcy, the process went well.

Consider this: Once Farmland sold its assets, it was able to pay $918.6 million to creditors. Unsecured creditors — the type that often are near the bottom of the list of getting paid in bankruptcy proceedings — received 100 percent of what they were owed. Not only that, they received 4.5 percent interest on what they were owed.

“It was a fairly unusual result for a bankruptcy,” said Larry Frazen, one of the key attorneys representing various Farmland Industries trusts during the bankruptcy.

But there was a limit to the bankruptcy’s success. It stopped when it got to the door of the Kansas Department of Health and Environment.

Underestimated

Topeka-based KDHE is the state agency responsible for ensuring that the environmental messes at the former Farmland property are cleaned up. The soil and groundwater have significant amounts of nitrogen and ammonia contamination related to the site’s use as a fertilizer plant for about 50 years.

Early on in the bankruptcy process, KDHE regulators successfully asked for $7,003,684 to be put into a trust fund to clean the property. There also was an administrative trust fund for the Lawrence property and several other Farmland properties around the state. Exact figures for how much was placed in that trust were not immediately available, but the amount was upward of $10 million.

At that point, it looked like KDHE was in the cat-bird’s seat. It was getting money set aside for cleanup early in the process. The cleanup was being placed before the interests of the other creditors that wanted a piece of the Farmland pie.

Come to find out, there was one problem.

“At this point, we wish it had been twice that much,” Gary Blackburn, KDHE’s director of the bureau of environmental remediation, said last week about the $7 million trust fund. “But none of us can see the future.”

A shortfall

The future is now, and it has left regulators scratching their heads and sharpening their pencils over how to make cleanup of the property work financially.

Here’s the situation: The trust funds set up to clean and administer the property have shrunk over the last several years as a company hired by the trust has done some work on the site to clean up the property. At the same time, the price tag to clean up the property has increased as KDHE regulators have learned more about the site’s environmental condition.

About a year ago, KDHE revised upward its estimates for cleaning the property by about $7 million. The estimated costs are now $12 million to $15 million over 30 years. Currently, the two trusts have about $10.4 million in them. That’s a shortfall of at least $1.6 million.

But the shortfall may be actually much more than that. The $10.4 million is in two different trust funds. There is only $4.3 million in the remediation fund, which is money set aside to address the most serious environmental issues on the property. The remaining $6.1 million is in an administrative trust fund. Some of that administrative money — but not all — can be used to for cleanup-type purposes at the property.

How much isn’t exactly known at the moment.

“That is the big question,” said Chestnut, who monitors the situation because the city has long expressed a desire to take over the property and convert it into a large business park. “If we can’t use the administrative funds for remediation, it will make it difficult for us to take this on.”

The situation got more complicated early this year when an Overland Park-based investment group purchased a legal interest in the administrative trust fund. In simple terms, the group — Capitana Redevelopment Group — paid the creditors of Farmland for their interest in the trust fund. That means whatever money is left in the trust fund at the end of the project goes to Capitana.

That new development has made it more likely that less of the $6 million in the administrative trust fund can be used for cleanup purposes than once thought, which would create a larger shortfall than was once envisioned.

“There is some concern there,” Blackburn said. “What I can tell you is that we are trying to work with all the involved parties to leverage the value of the property. In the long term, this property has substantial value, if it can be redeveloped.”

City interest

KDHE basically sees two potential scenarios for the property, Blackburn said. One is for a partnership to be formed with somebody who is interested in redeveloping the site. Some of the ground is clean enough that redevelopment could begin. Income from the redeveloped portion of the site could help cover some of the cleanup costs.

The second scenario is that KDHE gets by with what it has. Blackburn said the $4.3 million in the remediation trust is enough to ensure that the contamination on the property can be contained. That’s far different, though, from saying the site is cleaned. He said under that scenario there would be significant limitations on how the land could be used.

It likely would be difficult for the city to build the type of business park it envisions. Some fear the property would end up looking much as it does today.

“That is my biggest concern,” Chestnut said. “It is an ideal spot for a business park. It is a gateway to the city. To have it sit fallow for 15 to 20 years would be really unfortunate.”

That’s why the city is still interested in taking over ownership of the ground. But city leaders do concede there are financial scenarios out there that would make it infeasible for the city to take a chance on the property. City Manager David Corliss said his staff is putting together a new purchase proposal to possibly present to the Farmland trust that has title to the property.

“We’re trying to determine whether it will work for us,” Corliss said.

Regulator regret

Back at KDHE, regulators are second-guessing themselves over how they approached the Farmland bankruptcy.

“We’re pretty good at doing cleanups, but I admit we’re not financial people,” Blackburn said.

An area bankruptcy expert tends to agree that KDHE could have done more to ensure a better result.

“It sounds like they are being pretty honest about what happened,” said Stephen Ware, a Kansas University professor of law who specializes in bankruptcy cases. “But I don’t know that you can blame anyone else. Is it the bankruptcy court’s job to look over KDHE’s shoulder to say that you are missing some risk here? Is it the creditors’ job? No. It is not.”

Perhaps it was KDHE’s job, but, in their defense, regulators said it was a darn tough job made tougher by the bankruptcy process. They said they were given very little time to come up with a cleanup amount to present to the court. To do a thorough analysis of a nearly 500-acre site takes time. And a thorough analysis is the only way to come up with a solid cleanup cost, regulators said.

Blackburn also argues that the poor economy has damaged the cleanup efforts. Part of KDHE’s proposal to the court assumed that the trust would earn significant interest. But in reality, the poor economy has treated the trust funds much as it has treated everyone’s 401(k) funds.

Ware agrees that the bankruptcy process may put an agency like KDHE in a tough position. Figuring out the cleanup costs for a large piece of property is undoubtedly tougher than, say for example, a supplier figuring out the size of Farmland’s unpaid bill.

But Ware still wonders about the approach KDHE took.

“I don’t want to be too hard on them because I think they are being honest about what happened, but I guess the question I would ask is: ‘Why weren’t they greedier?'” Ware said. “Why didn’t they ask for the moon because that is what so often happens in these cases.”