Today, the Minnesota Office of the Legislative Auditor released its report exploring the organization, authority, effectiveness and transparency of the Iron Range Resources and Rehabilitation Board (IRRRB).
The OLA found that the IRRRB “has not adequately overseen the loans and grants it awards for economic development.” The report also dings the agency for its operation of Giants Ridge Resort, which is owned by the IRRRB and has continued to lose millions of dollars for many years. The legislative auditor also found that “the law establishing the composition and powers of the IRRRB Board is vulnerable to a constitutional challenge.”
In essence, that last finding indicates that the OLA thinks a successful legal case could be made citing the service of legislators on the IRRRB board as a violation of separation of powers.
The Legislative Auditor concluded the report with recommendations to improve IRRRB economic development efforts and details options to reduce the risk of a constitutional challenge to the IRRRB Board structure.
One of the biggest problems highlighted by the auditor was with the structure of IRRRB loans. The report analyzes several specific loans spanning from 2004 under Commissioner Sandy Layman, through the 2010-2014 Commissionership of Tony Sertich, to last year under current Commissioner Mark Phillips. No matter the party in office, the report finds serious problems with the reporting and outcomes of several loans.
“It was unclear whether IRRRB provided loans to certain applicants that may not have expressly needed agency funding to complete their projects,” read one highlight. “IRRRB should explicitly analyze to what extent loan applicants can complete projects without IRRRB funding.”
Tracking job creation was also a problem.
“Most of the IRRRB loan contracts we reviewed did not adequately specify project objectives, such as for job growth, as state law requires,” read the report.
In addition: “Many loan files we reviewed contained no evidence that businesses met job-growth objectives listed in their loan applications or contracts.”
The report included several controversial loans from the Layman and Sertich years, including Excelsior Energy’s failed Mesaba Energy Project, the political telemarking firm Meyers and Associates, Silicon Energy, and PolyMet.
These findings cast a dim light on management of the IRRRB over the last decade and a half. If you recall my extensive writing about the Excelsior Energy debacle 8-10 years ago (and that’s getting to be a while ago) you might remember me pointing this out in real time. Those loan agreements were written in such a way that even I, not trained in banking or law, could see holes in the repayment and reporting requirements.
That wasn’t a one-time thing; it was endemic.
The OLA report also has few kind words for the agency’s relationship with the Giant’s Ridge Ski Area and Resort, which it has operated an increasing losses in recent years.
Giants Ridge revenues for operations have not kept pace with its expenses since 2006 (in inflation-adjusted dollars). IRRRB has subsidized Giants Ridge operations by $17.4 million from 2006 through 2014—an average of $1.9 million annually. Over this period, IRRRB also paid $6.7 million for Giants Ridge capital investments and $19.8 million to retire bond debt.
IRRRB set four goals for Giants Ridge when it first purchased the resort in 1984: create economic development, attract private-sector development, provide recreational facilities to enhance quality of life for people of the Iron Range, and create a year-round recreation destination. However, IRRRB has not established sufficient targets to judge how well Giants Ridge is meeting its stated goals. The agency has looked at different performance measures, such as attendance and customer satisfaction, but by themselves, the measures cannot show progress toward Giants Ridge’s goals. IRRRB should measure Giants Ridge’s performance against its stated goals and determine whether the resort remains consistent with the agency’s mission.
The report also touched on a issue I’ve come to see as a central problem with the IRRRB: the strange relationship between the executive and legislative branches of government.
Says the OLA:
IRRRB is an agency in the executive branch led by a commissioner appointed by the governor. Yet, state law requires members of the agency’s board to be legislators and grants the board substantial power over the agency’s spending decisions. This arrangement is vulnerable to a challenge under the Minnesota Constitution’s separation of powers clause and its prohibition against legislators holding another public office. We base our conclusion on our review of the plain language of the Minnesota Constitution, historical context from the state constitutional conventions, and opinions from the Minnesota Supreme Court and Attorney General.
Legislators are beholden to their constituents, which has turned the IRRRB into a de facto mini-legislature. Which would be fine if the agency didn’t hold an executive branch function. The way that board members interact with staff and the commissioner is, let’s just say, not a shining example of constitutional balance. It’s very difficult for the agency to use a truly regional strategy when political forces so often pull the mission down rabbit holes dug by influential board members.
Nevertheless, the recommendations here are less clear. It’s unlikely that the existing board would take up the matter, as IRRRB funding is a key part of what they deliver to their constituents. I’m not sure if there is political will to make changes at higher levels.
But if someone were to sue the IRRRB on constitutional grounds, the OLA is saying “watch out.”
By its very nature, the OLA report could not be overly specific about each deal, but the general tone is clear: the IRRRB must reform its process of distributing money, and improve transparency and accountability in its decisions.
From a political science standpoint, the IRRRB is one conservative wave election away from being gutted. For that matter, change could even come from within the DFL. The Iron Range is losing political clout, population and influence at a rapid pace. That’s why, in my opinion, responding in good faith to fair criticism now is vital to the future of the Iron Range.