Serving Northern St. Louis County, Minnesota

IRRRB rapped in state investigation

Legislative auditor cites little accountability for projects, serious issues of constitutionality

Tom Klein
Posted 3/23/16

REGIONAL – Iron Range Resources and Rehabilitation Board officials said they plan to take steps to address the state agency’s shortcomings outlined in a legislative audit released Friday. …

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IRRRB rapped in state investigation

Legislative auditor cites little accountability for projects, serious issues of constitutionality

Posted

REGIONAL – Iron Range Resources and Rehabilitation Board officials said they plan to take steps to address the state agency’s shortcomings outlined in a legislative audit released Friday.

Commissioner Mark Phillips told lawmakers that steps are already being taken to deal with the concerns raised by the audit.

State Rep. Tom Anzelc, DFL-Balsam Township, who currently chairs the board, said the issues raised by the audit are serious and need to be addressed, but he also defended the agency.

“I would argue that economic development must be done on a regional basis,” he said, adding that the state agency is funded with taconite production dollars which the Range collects in-lieu of property taxes. “That’s our money and I will defend until my last breath our right to use it.”

He suggested the audit may be used by some as a political wedge to justify eliminating the IRRRB and redistributing taconite production taxes across the state.

Critical audit

The legislative audit criticized the agency’s oversight of the loans it provides and questioned the constitutionality of allowing state lawmakers to serve on the board.

The report, requested by state lawmakers last year, served up its harshest criticism for the agency’s failure to monitor the results of the loans it distributes for community and economic development projects, calling its oversight and evaluation of its loans and grants “inadequate.”

Auditors noted the IRRRB failed to require companies that received funds to document job creation and relied on companies to self-report jobs.

“Whether the IRRRB provided loans to certain applicants that might not have needed them was unclear,” the report states, adding that the agency “does not require most companies to report the number of jobs they create using IRRRB subsidies.”

In 15 cases surveyed, only two showed job growth that matched promised job creation when loans or grants were awarded. And of the 16 loans examined by auditors, only 10 companies had job creation required as part of their contract with the IRRRB.

In addition, the audit found that the database the IRRRB staff uses to maintain information on loans is “inaccurate and outdated” and that guidelines and policies for monitoring projects, reviewing applications and issuing payments were not consistent.

The audit was especially critical of the agency’s management of the Giants Ridge Recreation Area, which has been heavily subsidized by the IRRRB.

According to the report, the IRRRB has pumped $17.4 million in operating money into Giants Ridge since 2006 and spent an additional $26.5 million to retire debt and make capital improvements.

The agency “has not established sufficient targets to judge how well Giants Ridge is meeting its stated goals” of job creation, attracting private development and providing recreation for local residents, the report concludes.

Phillps said the agency already is re-evaluating how it handles Giants Ridge, noting that it is upgrading facilities and looking at spending more on marketing to meet industry standards for ski and golf destinations.

Anzelc observed that most of the problems detailed in the audit reflect the actions of past management.

“Commissioner Phillips has only been there about a year or so, so most of this is really aimed at things that happened under the previous two administrations run by Tony Sertich and Sandy Layman,” Anzelc said.

Anzelc said he was surprised that the audit did not focus on the IRRRB’s loan of more than $9 million to the defunct Excelsior Energy project. “That was one of the agency’s biggest blunders and it happened during Layman’s watch,” said Anzelc.

Even so, Anzelc said the management of staff at the IRRRB does appear to be a shortcoming that needs to be addressed.

Board’s makeup an issue

Anzelc also said the board’s makeup could face changes as a result of the audit.

“There’s no doubt that it’s something of an unusual hybrid,” he acknowledged.

The current board, which is composed of state legislators, is vulnerable to a challenge under the Minnesota Constitution’s separation of powers clause and its prohibition against legislators holding another public office, the legislative audit observes.

Legislative Auditor Jim Nobles laid out four possible options for removing state lawmakers from the board, including:

•Eliminating the board and handing power back to the state agency under the governor’s purview.

•Returning the board of lawmakers to an advisory-only status to agency staff, as it was before 1995.

•Retaining a governing board for the state agency, but having the governor appoint non-legislators to serve.

•Establish the IRRRB as a regional development board and have Iron Range residents vote for its members.

Nobles said the best option if Range lawmakers want ongoing input would be to return to an advisory-only role.

Whether the report will result in any action this session is doubtful.

Although the Republican-controlled House is more likely to seek changes, the Senate, under Senate Majority Leader Tom Bakk, DFL-Cook, is less apt to move on the issue.

In addition, the abbreviated session may simply run out of time before the issue can be brought to the floor in either chamber.

But the controversy over the IRRRB’ s role and its effectiveness is unlikely to vanish.

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