Report details serious problems at IRRRB

olaToday, 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.

Former Gov. Harold Stassen, a Republican, signed the IRRRB into existence in 1941, shortly before leaving office to serve in WWII.

Former Minnesota Gov. Harold Stassen, a Republican, signed the IRRRB into existence in 1941, shortly before leaving office to serve in WWII.

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.

Then-Gov Wendall Anderson with former Gov. Elmer L. Andersen in 1971. Wendell Anderson (DFL) presided over a time of expansion of the IRRRB mission, while Elmer L. Anderson served during the run-up to the crucial Taconite Amendment. (MN Historical Society)

Then-Gov Wendall Anderson with former Gov. Elmer L. Andersen in 1971. Wendell Anderson (DFL) presided over a time of expansion of the IRRRB mission, while Elmer L. Anderson served during the run-up to the crucial Taconite Amendment. In its first three decades, the IRRRB was supported on a bipartisan basis. (MN Historical Society)

“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.

Then Gov. Elmer L. Anderson (right) fishes with former Gov. C. Elmer Anderson, the Republican who signed the IRRRB into existence in the 1940s.

Then Gov. Elmer L. Anderson (right) fishes with former Gov. C. Elmer Anderson, another Republican involved in the early years of the IRRRB. And yes, there are a lot of Andersons in Minnesota state political history. (MN Historical Society)

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.

Gov. Rudy Perpich, a Hibbing DFLer, was the only Mesabi Iron Range native to serve as governor in the late 1970s and again through the 1980s. He was instrumental both as a State Senator and Governor in using the IRRRB as a tool to save communities during economic crisis. However he correctly predicted in 1982 that the Iron Range would "never, never, never be the same" after the collapse of the taconite boom. (Wikimedia)

Gov. Rudy Perpich, a Hibbing DFLer, was the only Mesabi Iron Range native to ever serve as governor, once in the late 1970s and again through the mid- and late-1980s. He was instrumental both as a State Senator and Governor in expanding the function of the IRRRB to fund communities during economic crisis. However he correctly predicted in 1982 that the Iron Range would “never, never, never be the same” after the collapse of the taconite boom. (Wikimedia)

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.

You can read the full report here, or a summary here. There is simply too much to process in one post, so I’ll come back with additional analysis in coming days.

Comments

  1. Bill Hansen says:

    I feel like Commissioner Phillips has already started down the road to reform with the public process he’s initiated. All three Commissioners you mention are good people with a sincere desire to diversify the economy and improve communities.

    The point that the LA didn’t address is the electoral impunity that the IRRRB bestows on the legislators that control the board. It is a virtual lock on incumbency which, in turn, has helped to enable more than 50 years of outsized Iron Range power in the legislature. That, in my opinion, is the prime driver of the many bad decisions over the years. It is also responsible for considerable disfunction in the legislature.

    That said, the IRRRB has done a tremendous amount of good in the region and deserves credit and our gratitude. In many ways it is the “Godfather” of northeastern Minnesota, feared, demanding respect, vindictive, fun and glamorous if you are a “made” member of the inner circle, but able to get things done when needed.

    I met a California legislator once and when she learned where I was from she said, “Oh, you have that crazy unconstitutional IRRRB that is corrupt but everyone loves. In California we refer to it as the largest public re-election campaign fund in America.” It was telling that she even knew about it.

    It’s been obvious for some time that if it’s to exist at all, it should by governed by a citizen board.

    • Interesting points, Bill. And piling on the ex-commissioners is not the real reason I wrote this. I know Layman and Sertich better than I do Phillips. Despite their political differences, both knew well that pleasing the board, managing the staff and appeasing their respective governor bosses was a huge challenge. I do not, however, absolve them (or the board) for their role in putting together and maintaining terrible deals like Excelsior Energy. Someone has to own the scope of that disaster, especially since IRRRB funding was used to pump up a much larger federal grift at the same time.

      A citizen board is a good idea, but I can’t fathom how one would be implemented without a political war. The point I’m making is that there are many in the bases of both parties that might welcome such a war. Here the Iron Range “our way or the highway” approach would be particularly unhelpful, should liberals and conservatives team up to reform the agency.

  2. Ranger47 says:

    We’d all love to see the Range DFL get their well-deserved comeuppance but it’ll inherently never happen. Most of those who stole the people’s money over the years for their pet projects are gone. The incompetent who remain will never be prosecuted. Only the hard-working people have and will continue to suffer…Sad it’s gone on this long.

  3. Gray Camp says:

    My thoughts from reading the document:
    1. The IRRRB is going to need to become a much larger organization to implement many of the things this plan is calling for. Monitoring, tracking, and assigning (potentially bogus) quantitative metrics to loans and grants are going to take a large amount of effort, and many new hires. I guess you could argue, they are creating jobs within IRRRB. You could also potentially argue that these actions will bring more accountability to the loans and grants related to growing jobs. Its just a little sad that more of the IRRRB money will be going to making the IRRRB organization larger and not to directly growing and diversifying the regional economy.
    2. It is pretty evident that Giants Ridge blows through way too much of the IRRRB budget. While I understand there is some value to providing seasonal jobs for young people, recreational opportunities, and coincidental economic impact from bringing tourists to the area, you need to apply a realistic dollar figure to these values, and still expect that more value is being created than spent. It hasn’t been happening. Maybe it is time to give up on the “high-end resort” model, and scale it back to a “very nice resort” model. Losing over a million dollars in food and beverages is not acceptable. Having maintenance budgets that dwarf what other golf courses spend is not right. It only provides value to the people of the region if they can afford to go there and use the facility.
    3. Authors make a good point about separation of government branches.

  4. They have been rehabilitating us since 1941 and I still see a largely one industry economy. Why do we have to bribe employers to locate here? How does building new sewer plants and other public works projects every 20 years help the economy in the long run? Public works projects tend not to provide long term job growth the way private sector investments do, as proven in the Depression.

    There are about five people I call “Fixers” that serve as consultants to grease the ways for IRRRB funding. Without hiring one of them the project doesn’t happen. With them. even projects like Endotronics, the chopsticks plant, and Excelsior Energy seem to take on a life of their own way beyond what is obvious to even an intelligent layman. The latest ones are the bio-engineering company near Mountain Iron and the new high school for MIB.

    This has all the hallmarks of being a politically driven slush fund whose sole aim is to reelect the board members and buy votes. Chicago’s politics have nothing on us.

Leave a Reply to Gray Camp Cancel reply

*