Foam Panels, '02 Change In Product

NATIVE VILLAGE OF KOTZEBUE

/ KOTZEBUE IRA

PLANNING AND MARKETING FOR NUNAVIK, LLC A FOAM PANEL MANUFACTURING PLANT

Introduction This grant proposal is for a project designed to assist Nunavik LLC, a business based in Kotzebue, Alaska, which manufactures Thermasteel panels for civil and commercial construction uses. In order to understand the need for this company and the benefits it can provide, it is necessary to know a little bit more about the company’s product. Manufactured housing built with Expanded Polystyrene (EPS) panels is already popular in Northern Alaska due to the following advantages over traditional wood-frame construction: • Panels provide the structural framing, insulation, and vapor barrier all in one step. • Faster framing in allows work to continue indoors even in inclement weather. • Lower materials cost allows for a lower overall cost/sq. ft. and makes it feasible to have larger commercial buildings or more residential units. • Foam panel buildings are more weatherproof and energyefficient, helping to reduce the high cost of utilities during the arctic winter. • Building with foam panels takes only 3 to 5 days of training to learn and means that workers do not need to be members of the Carpenter’s Union, allowing for more local hire. • Because panels are produced in the exact sizes and shapes needed ahead of time in the manufacturing plant, there is less waste associated with building projects. The advantages listed above are available with several kinds of foam panels, some of which are already available in Alaska. However, Thermasteel panels have additional advantages over the other types of panels that have been used in the state. •

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The panels are lighter weight. The most common type of foam panel used for construction in Alaska is foam sandwiched between two panels of oriented strand board (OSB), a Thermasteel panel of the same size weighs approximately half as much as an OSB panel, making Thermasteel easier and faster to work with. Because OSB panels still use wood in the structure, they are still susceptible to moisture damage from external causes such as high humidity or internal causes such as leaking pipes. This can cause the OSB to start pulling away from the foam, compromising the overall structure. This is not a danger with Thermasteel.

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Thermasteel panels use a shiplap joint, providing an even more weather tight seal than that of other types of panels.

The license to sell Thermasteel products in Alaska is held jointly by Nunavik, LLC of Kotzebue and WardCo of Fairbanks, and the two companies have worked closely together since Nunavik’s inception. This removes the threat of competition from large West Coast cities such as Seattle. In addition, Nunavik can provide this product to rural Alaska at a lower cost than urban centers due to a dramatic reduction in shipping costs. The polystyrene foam used in this product is composed of compressed foam beads, which are expanded with air, then heated in a mold to bond the beads together in the desired shape. Because so few villages are on the road system, shipping costs are a large percent of the expense for any project in rural Alaska, and in the case of EPS panels, a large percent of the shipping expense goes to “shipping air.” By purchasing the beads in their compressed form and making the panels in rural Alaska, Nunavik is removing this additional expense. Local air is, in a sense, the renewable natural resource, which helps to make this project feasible. PROJECT PLAN/READINESS Description of the proposed project Nunavik, LLC opened for business in Kotzebue, Alaska on June 27, 2001. The company is a partnership between three Kotzebue-based organizations: the Native Village of Kotzebue (NVOK); Kikiktagruk Inupiat Corporation, which is the ANCSA for-profit representing the Village of Kotzebue; and Maniilaq Association, a non-profit health organization serving Kotzebue and eleven other communities in Northwest Alaska. Nunavik is operated as a forprofit subsidiary of the tribe. It is intended to provide employment for low income tribal members and revenues which will help to cover the costs of NVOK’s social services to tribal members. Nunavik is now just past the one-year mark, a tricky time for many new businesses. In our case the primary challenge is a general slowdown in the economy of our region. This slowdown in the region has meant that a number of large-scale construction projects we had expected to bid on are now proceeding more slowly or not at all. So far, the plant has generated approximately $70,000 in revenues, but this has been achieved only by reducing our operating costs to such an extent that we are no longer fulfilling the employment goals which were part of the original mission for the plant. Nunavik’s original business plan, written over two years ago, called for steady growth taking the plant from an initial year-round staff of seven to a staff of twelve by the third year of operations. So far, we have had to reduce our labor force from seven to four in response to the economic situation in our region, and have had to shut down the plant during the winter months. Our original plan also called for gradually expanding our outreach to markets in Northern and Western Alaska over the course of the first five years of operations. Now, we need to take steps to diversify our client base as widely and as rapidly as possible.

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Details of the proposed activities In order to stabilize the company and begin growing again, we need to develop a new business plan. Nunavik’s primary product is expanded polystyrene foam panels for use in building residential and commercial properties as well as in insulating pipes and roadways from the potentially damaging effects of permafrost. However, the company originally intended to produce foam panels sandwiched between oriented strand board (OSB) for structural stability. During the planning process, we learned that some Alaskan builders and homeowners have experienced problems with the wood-based OSB pulling away from the foam panel if it is used in high-moisture areas. We have since changed our product to a foam panel with steel reinforcement. A new business plan is necessary to fully understand how this change affects our market and our break-even points. The new plan will answer a variety of internal questions, and will also make it easier to pursue both grant funds and investment sources that will put our company firmly on the path to long-term financial sustainability. However, the need for a diversified client base is immediate, and we cannot wait for the new business plan to be complete before we step up our efforts to spread the word about the many advantages of building with Thermasteel panels made in Alaska. Funded Activities and Persons Responsible The proposed activities involve hiring Roger Nettlow to work on the business plan. Mr. Nettlow was the overall manager for Nunavik during the development stages. He has since moved from Kotzebue to Anchorage, but he is extremely familiar with the opportunities and challenges for Nunavik and with the construction markets Nunavik needs to reach. Further information about some of the business decisions Mr. Nettlow will address in the plan is provided in this narrative. Charles Katasse will assist with financial planning for the organization during the project period. Specifically, he will help NVOK analyze the financial data from Nunavik’s first year of operations to identify strengths and weaknesses. He will work with the Nunavik staff on developing the terms of a partnership with Wardco, the other company in the state which holds a license for Thermasteel products. He will also meet with the staff of all three partners in Nunavik, LLC to discuss ways that further investments by the partners could help to stabilize the plant and to help analyze the long-term financial arrangements that will make such investments profitable and equitable for all concerned. Another consultant , Sativa Quinn, will develop a grant proposal to the Administration for Native Americans (ANA) seeking funding for Nunavik’s ongoing marketing and outreach needs. The grant will also seek funds to establish a training program on how to build with Thermasteel products so that individuals from our client communities can learn to work with Thermasteel quickly and easily. The availability of a construction training program will become an important part of Nunavik’s marketing strategy during the 2004 construction season. Ms. Quinn worked on Nunavik’s first successful proposal to ANA in 2000, and staff at ANA have stated that they are pleased with Nunavik’s progress and would welcome another proposal.

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At the same time, Chuck Schaeffer, Nunavik’s Director, will work on developing marketing materials and conducting outreach activities. Mr. Schaeffer is a tribal member residing in Kotzebue, who served as Plant Manager in training from the start of operations at Nunavik, training for over a year with Mr. Don Dickens, who had several years of experience managing a similar facility in Guam. Mr. Schaeffer has now assumed the Plant Manager position, but is currently laid off for the winter. Maija Johnson has worked as Office Manager for Nunavik since February of 2001, beginning to keep the company organized several months before the plant opened, and helping to keep it organized throughout the startup process. Her experience with Total Quality Management, grants management, accounting, and website design have been invaluable to the company. Ms. Johnson is currently working towards a BA at the University of Alaska’s FairbanksChukchi campus. Ms. Johnson’s design skills will be an important part of developing the marketing materials for this project. Marketing materials will include a tri-fold brochure, a display assembly for use at conferences and shows, and a CD-Rom with information about Nunavik, images of our facility and our products, a calculator which helps potential clients determine the number and types of panels needed for a project and the approximate cost for that quantity of materials, and images of at least two completed housing designs with a fixed price for the materials to produce that design. Outreach activities will include a week long visit to Anchorage, where many of the government agencies and private firms that make decisions about construction products in rural Alaska are located. The majority of meetings during this visit will be with engineering and architectural firms, as well as with non-profit and governmental entities involved in construction funding such as RurAL CAP and the Denali Commission. Mr. Schaeffer will also make 2 day visits to Bethel and Barrow, where he will meet with the local Tribally Designated Housing authority and with the Health corporations, which have an ongoing need for housing for their employees. Additional resources available to the project Pete Schaeffer is the Director of the Native Village of Kotzebue and also Chairman of the Board for Nunavik LLC. Mr. Schaeffer will participate in business decisions for Nunavik and will help with marketing efforts as needed. Mr. Schaeffer has had oversight for many Federally funded projects during his term with KIRA, including a BIA Home Improvement Program, an Indian Child Welfare Act Block Grant and an EPA Environmental Assistance grant. Mr. Schaeffer served as a member of the Board for KIRA from 1986 through 1989 and as Chairman from 1989 through 1997, giving him a long-term familiarity with the organization, its staff, and the importance of project management. Walter Porter is the Executive Director of Tupiq Services, Inc., a subsidiary of the tribe dedicated to providing housing and homeownership programs in Kotzebue. Mr. Porter will serve the project in an advisory capacity, and will work to obtain housing development contracts for the tribe so that Nunavik products can be used locally. Mr. Porter is responsible

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for the administration of the Tribe's existing NAHASDA funds, for negotiating home and land acquisitions by the tribe and for reporting progress to the Council. Mr. Porter served on the Board of Yakutat Village Corporation for 25 years and has served on the Board of Tlingit & Haida Regional Housing Authority since 1991. He has worked as a laborer and foreman for numerous construction companies and ran his own construction company, Fairweather Construction, from 1982 to 1983. Timeframes Dates 2/03 – 3/03 2/03 – 4/03 4/03 – 5/03

4/03 – 5/03

2/03 – 6/03

Persons Responsible Activity (in order of importance to task) Schaeffer, Johnson, • Develop marketing materials and refine marketing strategies Nettlow, Porter • Revise Nunavik Business Plan Nettlow, Schaeffer, Porter, Katasse Nettlow, Schaeffer, • Negotiate and ratify Porter, Katasse agreements for the future business relationship between Nunavik and Wardco Quinn, Schaeffer • Develop ANA proposal for further marketing assistance and an EPS construction training program. • Outreach activities to contract Schaeffer, Nettlow, more bidding opportunities for Porter the 2003 and 2004 construction seasons • Distribute marketing materials • Develop and distribute radio PSA about Nunavik

COMMUNITY SUPPORT The Nunavik plant serves as an answer to goals set forth in two planning documents produced during 1998: Kotzebue’s Native American Housing and Self-Determination Act proposal, which included a five year Indian Housing Plan; and the Northwest Arctic Borough’s Economic Development Commission report, which was based on input from all 11 communities in the Borough. Goals Included under Kotzebue IRA’s NAHASDA Grant In 1998, Kotzebue IRA formed subsidiary Tupiq Services, Inc. (TSI) as a Tribally Designated Housing Entity for the purpose of pursuing an Indian Housing Block Grant from the U.S.

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Department of Housing and Urban Development. The idea for the Nunavik Manufacturing Plant grew out of planning activities funded by this grant. Goals from the plan that Nunavik will address include the following: Goal VI: Improve infrastructure to enhance tribal self-sufficiency and provide for local economic development. (italics in original) Objectives for promoting local economic development included undertaking several feasibility studies, and a feasibility study for a foam-core panel manufacturing plant in Kotzebue was first on the list. NVOK received the block grant and commissioned NANA/DOWL Engineers to perform this feasibility study in 1998. The study was completed in November of 1999, indicating a strong potential for profitable operations based on known and anticipated construction projects in the region. Other Goals from this plan which relate directly to the proposed project include: Goal II: Increase housing stock to alleviate overcrowding and provide housing opportunities to low and middle-income tribal members in need of new housing. Goal V: Build tribal technical and supervisory capacity to participate in the construction and maintenance of affordable housing projects and other community infrastructure projects. Goals determined by the communities of the Northwest Arctic Borough In 1998, the Northwest Arctic Borough Economic Development Commission, an organization composed of all region-wide institutions, prepared an application to receive Federal Empowerment Zone status from the Department of Agriculture. In order to prepare the application, Borough staff visited all 11 communities in the Borough and held public meetings designed to identify local and regional priorities as determined by each community. Nunavik will provide training opportunities, create jobs and be an important part of civil and residential development. Therefore, it will support all four broad regional goals developed through this process: Develop Modern Infrastructure, Create Economic Opportunity, Improve Quality of Life, and Pursue Training and Technology. In addition, it will support the following specific projects proposed under the strategic plan. Text in italics has been added to the original. Develop Modern Infrastructure • Water and Sewer Improvements - construction work needed in 10 villages (this work will rely on pipes that require insulation against permafrost – an application for Nunavik products) • Affordable Housing - build a total of 270 new houses over a 10 year period

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Transportation Improvements - all communities, 17 action items including upgrades and new roads

Improve Quality of Life • Health Clinics Replacement - new clinics needed in 9 villages • Regional Swimming Pool - construct a pool in Kotzebue to promote water safety lessons and healthy lifestyles Pursue Training and Technology • Work/Life Skills Training - increase number of residents going from welfare to work Other Public Involvement This project has been discussed at public meetings of the Tribal Council for Kotzebue IRA each year since 1998. In 1998, Pete Schaeffer, Executive Director of NVOK presented the general idea to the Council. In 1999, Mr. Schaeffer reported that NVOK had begun work on a feasibility study for the project. In 2000, Mr. Schaeffer shared information about the completion of the Business Plan and the pursuit of grant funds for the project. In 2001 and 2002, he has presented information on the progress of the plant at regular intervals. Staff from Tupiq Services have discussed the project numerous times on KOTZ, a Kotzebuebased public radio station which serves the entire Northwest Arctic Borough. The greatest proof of public support for this project is the fact that three local organizations have contributed financially in order to be partners in the project. Both Maniilaq and Kikitagruk Inupiat Corporation have provided letters of support for this proposal, which can be found in the appendix. PROJECT IMPACT This project serves multiple beneficiary groups and the reasons why the project is needed are slightly different in each case. •

In Kotzebue, the project is needed because the community is suffering a gradual population decline which relates to the lack of affordable housing at least as much as it relates to a lack of employment opportunities. This project will save four jobs and create eight more within Kotzebue, but it will also help to meet the demand for homes that a young, middle-income family can afford. This will allow more middle-income families to remain in Kotzebue or return to Kotzebue, which in turn will increase the market for a variety of local goods and services, ranging from groceries to medical care.

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In the Northwest Arctic Borough and other potential rural markets such as the North Slope Borough and the Yukon-Kuskokwim area, this project will allow communities to choose a more affordable, more weatherproof construction technique. It will also

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make it possible to create a greater number of local jobs in connection with each construction project in the community, because building with steel insulated panels does not require the sort of specialized training needed to participate in stick-built projects. The following are the primary reasons why The Native Village of Kotzebue needs to assist Nunavik in conducting marketing, outreach, planning and fundraising activities to stabilize the business at this point in time. 1. Nunavik’s product has changed. Originally, the plant intended to manufacture panels using OSB for structural stability. When staff learned that OSB had acquired a bad reputation with some prominent Alaskan architectural and engineering firms, they switched to Thermasteel. This changes Nunavik’s break-even points and some aspects of the marketing strategy. Many potential clients are aware of Nunavik, but unaware of this change in the company’s product. 2. Several major industries in Kotzebue and the Northwest Arctic Borough have suffered business setbacks within the past two years. The region is heading into a general economic slowdown. Nunavik will have to expand their client base faster than anticipated in order to obtain enough contracts to provide full-time year round employment for their staff and still generate revenues for the tribe as well. 3. This geographic expansion means that the company will also have to examine various options for shipping the product to other rural Alaskan communities. Possibilities under consideration include working with existing barge companies, purchasing a barge for use by the company, or purchasing a DC-3 aircraft. The company needs to carefully examine how each of these options would affect Nunavik’s overall expenses, potential market areas, and the eventual price per panel for the consumer. 4. Nunavik needs to have intensive marketing, outreach and construction training efforts over the next few years. Seeking additional funding from the Administration for Native Americans will make it possible for the plant to take this approach without passing this expense along to the consumer. The plant had to shut down operations and stop paying salaries for part of the winter of 2001, and has now shut down for the entire period from September through April for the winter of 2002 unless grant funds make it possible to focus some of the staff on outreach and marketing during this time. Our goal is to build Nunavik’s reputation to the point where the plant can easily obtain enough work to provide employment year-round. We expect to reach this goal by the 2004 construction season, and at that point we will reset our goal to focus on earning profits and returning dividends to our investors. Benefits This project will help to address unemployment in our region in the following ways: •

In Kotzebue, Nunavik will save 4 existing jobs, transforming them from seasonal to year-round positions, and will create 8 new permanent year-round jobs by January of 2004.

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When ANA grant funds are in place, Nunavik will provide paid training in the use of Thermasteel products for construction to Alaska Natives in Kotzebue as well as to Natives from any other villages where Nunavik products will be used. Nunavik will be a source of both local materials and local labor, creating several seasonal jobs each year and helping to keep more of the money spent on housing and infrastructure in the region. Nunavik will make it possible for the Kotzebue IRA to create more middle income and low income housing in Kotzebue. This housing will make it possible for Inupiat from the surrounding villages who wish to find employment reasonably close to home to take some of the available jobs in Kotzebue.

In addition, Nunavik will help residents of the region stretch their incomes further by minimizing some of the factors that give the Northwest Arctic Borough an exceptionally high cost of living, such as: •

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Shipping: Shipping costs greatly increase the cost of a new home in the arctic. In the case of stick-built homes, all materials must be imported since Kotzebue has no trees. In the case of existing EPS structures, builders had to pay for “shipping air” because the polystyrene was expanded before it was sent to Kotzebue. By importing condensed polystyrene beads and expanding them in Kotzebue, the plant will reduce shipping costs, and ultimately, reduce the costs of a new home by as much as 20 percent. Fuel: Most homes in the region rely on oil for heating, which currently costs $3.00/gallon. EPS homes are more fuel efficient than stick-built homes by a minimum of 15 percent, and using EPS to weatherize existing homes can improve their fuel efficiency by as much as 50 percent, saving families as much as $200/month. Outside labor: Working on stick-built homes typically requires years of training as an apprentice. The training process to participate in SIP construction projects will take 3 weeks and will be available in Kotzebue. This means that the ultimate cost to the homebuyer will not include the costs of transporting workers from elsewhere. Training costs for local workers will be supported through grant funds or contributions by local organizations. Rental rates: The housing shortage has led to exorbitantly high rental rates in Kotzebue. The creation of more new housing will also bring rental costs down over time, reducing one of the largest areas of expense for lower-income residents.

While the exact cost of utilities varies from village to village, all of these benefits will also be available to other rural Alaskan communities that use Nunavik products, with the exception of the twelve jobs saved or created at the manufacturing plant itself. PROJECT FOLLOW-THROUGH

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Because this request is intended to help a business which already exists, long term project follow through will consist of normal business activities. Nunavik will grow and change over time. Within the next 10 years, the plant may acquire a general contractor’s license in order to take full responsibility for civil and commercial construction projects from start to finish, subcontracting tasks as needed. Another long-term growth idea is to become a retailer for household built-ins such as cabinets and flooring, so that first-time home buyers in rural Alaska will have a range of choices for the design of their new home similar to that experienced by first-time homebuyers in urban areas. First, though, Nunavik will need to continue building on the marketing, outreach, and planning efforts which will help to stabilize the plant’s primary current business manufacturing structural insulated panels. The Administration for Native Americans (ANA) grant which we will apply for as part of our DCED-funded activities will help us follow-up on the specific activities described in this proposal. In addition, the grant will fund training for individuals from market areas such as Bethel and Barrow to learn how to build with Thermasteel products. The availability of such training for little or no cost will be an important part of Nunavik’s marketing strategy during the ANA project period. Nunavik received a three-year ANA grant to help plan for and open the plant during the years 2000 – 2002. ANA staff have visited the plant and have indicated that they are impressed with our success in achieving the goals set forth in our initial proposal. They have also stated that they would welcome another proposal to continue building on that success. Follow-up Activities Using ANA Funds: Dates 10/03 – 9/04

10/03 – 9/04

4/04 – 6/04

Persons Responsible Activity (in order of importance to task) Schaeffer, Nettlow, • Increased marketing and outreach activities using ANA Porter, Pete Schaeffer (Director, Native Village funds of Kotzebue) Nettlow, Schaeffer, • Further revise business plan Katasse based on proof of expanded markets • Seek additional investment Schaeffer, Porter, Pete partners to fund roof Schaeffer renovation and an enlarged storage facility for the plant Schaeffer, Chuck Ward • Provide training on how to of Wardco build with Nunavik products

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ADMINISTRATIVE CAPABILITIES The Native Village of Kotzebue is a not-for-profit organization, whose primary function is to meet the various needs of its' tribal members, located in Kotzebue, within the Northwest Arctic Borough of the State of Alaska. In 1998, NVK accepted the challenge of providing affordable housing opportunities to our low income tribal families using NAHASDA funds. We have vast experience in the operating and reporting responsibilities of various federal grant programs. These include BIA's Home Improvement Program, which is very similar to HUD's CIAP/CGP programs, Indian Child Welfare Act (ICWA), General Assistance, Tribal Operations, Realty, Contract Support, and also EPA's Environmental Assistance program. Nunavik, LLC has experience in managing grant funds from HUD’s Rural Housing and Economic Development program, the Administration for Native Americans, and the Alaska Job Center Network. The NVOK staff who will have primary responsibility for the adminstration of this grant have the following qualifications: Pete Schaeffer, Director, Native Village of Kotzebue: Mr. Schaeffer serves as Chairman of the Board for Nunavik, LLC. Mr. Schaeffer has had oversight for many federally funded projects during his term with the Native Village of Kotzebue, including a BIA Home Improvement Program, an Indian Child Welfare Act Block Grant and an EPA Environmental Assistance grant. Mr. Schaeffer served as a member of the Board for NVOK from 1986 through 1989 and as Chairman from 1989 through 1997, giving him a long-term familiarity with the organization, its staff, and the importance of project management. Mr. Schaeffer will also serve as an important part of the outreach efforts for this project, particularly towards the end of the project when Nunavik will begin to seek investment partners. Leonora Atienza is a Certified Public Accountant and holds a BS in Business Administration with an emphasis in Accounting from The Phillipine Women's University. Ms. Atienza serves as Accountant for NVOK and will be involved with the preparation of all financial and narrative reports. She has worked as a Grants Accountant for the City of Kotzebue, and as Assistant Controller for Kikiktagruk Inupiat Corporation, Kotzebue's Village Corporation.

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APPENDICES APPENDIX A –

Kotzebue IRA Supporting Resolution Letters of Support, Nunavik Partners Additional community letters of support

APPENDIX B –

Resumes

APPENDIX C –

Documentation of Matching Contributions

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APPENDIX A Kotzebue IRA Supporting Resolution Letters of Support, Nunavik Partners Additional community letters of support

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APPENDIX B

Resumes (in alphabetical order)

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APPENDIX C Documentation of Matching Contributions

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