TOWER— Members of the council and the public, Monday, received their most comprehensive look, to date, at the city of Tower’s financial circumstances as a result of chronic mismanagement by the former clerk-treasurer, Linda Keith.
Interim clerk-treasurer Ann Lamppa, using an old-fashioned flip chart because her city computer has not functioned properly in more than a week, delivered an assessment devoid of sugar-coating.
“The city is in dire straits,” said Lamppa, noting that it was the first time in more than 30 years that the city has had to resort to short-term borrowing to cover its bills. She noted that the city has been forced to borrow $750,000 in just the past month and a half and is still facing a significant cash flow problem.
Lamppa recited a long list of examples where poor management had cost the city funds or substantially delayed reimbursements for grant-funded city projects. She noted that when she took over the clerk-treasurer duties back in June, the city had seven major projects, some dating back years, that were still in limbo due to unfinished paperwork. Lamppa said the city’s new grant manager, Nancy Larson, has since completed reporting for those grants, and the city has now received reimbursements on six of the seven, which has helped, but not solved,the city’s cash crunch.
The mismanagement of the city’s latest walkway and lighting project around the harbor has proven to be the city’s biggest financial headache. Lamppa noted that the city spent $802,284 on the project, without receiving any reimbursement to date. “This is the biggest reason the city is in so much trouble,” she said. “The work was great. The harbor looks great, but as far as the work in the office, nothing was done since 2016.”
The harbor project was supposed to have received 100-percent reimbursement from the Legislative-Citizens Commission on Minnesota Resources, or LCCMR, through a $679,000 grant. But the former clerk-treasurer failed to include $123,000 in engineering costs, which were eligible to be covered by the grant. Instead, Keith and SEH engineers made significant changes to the project, which added to the costs and consumed the entire grant amount just for construction. And Keith never sought the required LCCMR approval for an amendment to the project; given the significant changes, Lamppa said the city may now only receive partial reimbursement. She noted that staff from the LCCMR and the Department of Natural Resources had conducted a recent site visit to better understand what happened with the project. “They told us we stand to lose $250,000 because of the way the project was handled,” Lamppa said. If so, the project— which was supposed to have been entirely grant-funded— will end up costing the city nearly $375,000.
Larson noted that the second phase of the project, for which the LCCMR had previously approved $600,000, was now at risk of cancellation. The LCCMR board won’t decide on how to proceed with the reimbursement for the first phase, and whether to offer an extension for completion of the second phase, until they meet this December.
Meanwhile, the Timberjay has learned that Keith’s mismanagement of the LCCMR project included false reporting to the state. In project updates provided by Keith in 2016 and 2017, the former clerk-treasurer wrote that the city was actively working with the Tower-Soudan Historical Society and the Vermilion Lake Association on the development of a kayak route that was supposed to be designed and built as part of the project. The Timberjay has confirmed that Keith, in fact, had never spoken to either organization about the project, much less engaged their input in any capacity related to the project during her tenure as clerk-treasurer.
Keith’s mismanagement has forced the city to delay payments on some checks when possible, as well as temporarily borrow funds to pay those that can’t be delayed. At a council meeting last month, Lamppa said the city had $70,000 in available cash, while the council approved more than $140,000 in bills.
She said the city borrowed $500,000 from Frandsen Bank and $250,000 from the League of Minnesota Cities to cover the city’s bills. She said the city is set to receive the second half of their property tax payments and Local Government Aid in December, which normally keep the city operating until the following June. This year, however, much of it will have to go toward paying off the loans. While the 2020 city budget is balanced, Lamppa said the city will be going into next year “with a lot of baggage.”

New issues arise daily
Lamppa said city staff continue to discover new issues and examples of mismanagement almost daily, most often as a result of contacts by other public agencies or contractors who call to alert them to long unpaid bills or potential reimbursements for which Keith had failed to apply. She said that the Minnesota Department of Transportation recently notified them that the city had failed to submit paperwork for final reimbursement on two airport related projects. The city was still owed $100,511 on a project dating back to 2016 and $23,175 from a project from 2018. Keith had also failed to apply for operating and maintenance funds for the airport in recent years, leaving another $11,000 on the table. Lamppa said the city has since applied for reimbursement for all those funds and that they expect to receive the revenue shortly.
Lamppa said management of the Lamppa Manufacturing construction project has faced a number of issues, including Keith’s failure to segregate costs that were covered by the project’s $1.8 million loan and those that were covered by a separate grant for site work and infrastructure. She said Chris Ismil, of the IRRRB, is “having a nightmare,” trying to sort it all out. “Nothing was divided out based on whether it was grant money or loan money. Chris Ismil has spent two days sorting out vouchers and payments trying to decide which one came from which fund. They’re quite upset that it wasn’t done properly from day one.”
Larson, who ended up handling the project after Keith’s suspension, called the project “a real mess in the books,” noting that Keith had submitted the same invoices for payment in some cases as many as three times. “It was not handled cleanly at all,” she said.
Some of the issues involve employees as well. Lamppa said she discovered that Keith had never submitted premium payments for life insurance policies that are guaranteed to city maintenance staff and the deputy clerk by their union contract. In addition, she said mandatory annual reports to the Public Employees Retirement Association, or PERA, for city workers, have not been submitted since 2014. Lamppa said the reports are somewhat time-consuming and she was frustrated when she learned that she would now have to complete five years of reporting because of Keith’s failure. “I just wanted to scream when I got that call,” she said.
Lamppa also cited examples of needless waste and overspending. She noted that the city had reams of unused and expensive letterhead, with an older city logo, that had been tossed in a storage room. She noted that the city’s telecommunications bill still included data charges for a number of computer tablets that were out of service, in some cases for several years. “These are the kinds of issues we’re dealing with day after day,” she said.

Finding funds
Lamppa also reviewed the veritable shell game that Keith engaged in as she sought to juggle payments by constantly moving money between various city accounts, leaving many of them almost entirely drained. That includes the city’s funds for police car replacement and streets, both of which should have had $25,000 available. Instead, both had been drained to under $1,000. The fire department fund, which should hold $31,540, according to Lamppa, was now at just $1,667. The general fund account, which should hold $52,423 was left with just $5,787, according to a chart presented by Lamppa.
Meanwhile, Lamppa said all of the transfers require city council authorization, but Keith never obtained the council’s consent. And while money has since been restored to the ambulance subsidy account, which currently totals $118,765, Lamppa said even that fund had been drained almost entirely at various points. She said that fund is considered a special fund from which even the council could not authorize transfers for anything other than the dedicated purpose of ambulance and equipment replacement.
Mayor Orlyn Kringstad praised Lamppa’s efforts to get the city’s finances and management processes back on track. “You’ve done tremendous work for us, Ann,” he said. He noted that since Keith’s suspension in June, Lamppa, Larson, and other financial professionals who have volunteered their services have worked to identify problems and have, to date, recovered more than one million dollars in grant funds for which the city had previously failed to apply or had mismanaged.
Kringstad said he and others on the council felt it was important to get the information out to the public to ensure better transparency about city finances than was offered in the past. “We didn’t want to be accused of sugar-coating things,” he said.