Governance in the Dismal Swamp

In recent months, controversy has swirled around the Iron Range Resources and Rehabilitation Board (the “IRRRB”) and the people who populate and control it: Iron Range legislators. There was another story by investigative reporter Jennifer Bjorhus in the Star Tribune on Sunday, June 14^th – another eyebrow raiser – involving IRRRB loans to a Mountain Iron company, Silicon Energy, that also rather mysteriously (or not, when you think about it) got a leg-up from the Legislature in solar rebates, pushing it to the front of its competition in available-rebate amount.

NOT coincidentally, the same people who made the loans to Silicon Energy championed the rebates in the Legislature, including Sen. David Tomassoni, a DFLer from Chisholm. This is a curious tale involving a lobbyist, previously convicted of financial shenanigans, who touted an earlier wind energy company that the IRRRB loaned money to and failed, and who was able to persuade the IRRRB to loan even more money to Silicon Energy when it was on the brink of bankruptcy. THEN he persuaded the Rangers to push for the bigger rebates.

Did I mention that Silicon Energy apparently employs eleven people? Down from fifteen?

Obviously, this fellow has a silver tongue. And some really good friends. And the lobbyist, Gary Cerkvenik, is now an executive with the company (maybe he’s one of the eleven), so all’s well that ends well, right?

It’s a good story well told by Jennifer Bjorhus, so don’t rely on my brief recital here. The story is just the latest in a string of proofs that the IRRRB is the Dismal Swamp of governance. I’ll get into some of these proofs more in later stories, but for now I want to concentrate on how the IRRRB got this way.

Be sure to read Aaron Brown’s heart warming story about the lobbyist circle of life on the Range.

– o O o –

The IRRRB was created in 1941 by an act of the Legislature that is now found in Minn. Stat. § 298.22 (2014). The composition of the Board has varied over the years; presently, it is made up of the senators and house reps elected from districts “in which one-third or more of the residents reside in a taconite assistance area.”  One additional senator is appointed to the Board by my favorite Gilbert and Sullivan legislative institution, the Senate’s Subcommittee on Committees of the Committee on Rules and Administration. (Currently, that means Majority Leader Tom Bakk gets to pick somebody.) Subd. 1a. You can see the current roster of Board members here.

The Board membership has always been mostly, almost exclusively, Range legislators.

The IRRRB is clearly a state agency in the executive branch of government. It says so right in the statute. It has a commissioner who sits in the governor’s cabinet. But it gets weird after that, and therein hangs a tale.

Before that can be explained, though, a little more history of the IRRRB is required. The IRRRB itself has its own little history – self laudatory, as you would expect – here. (Well, I would be, too, so that’s no blot on its escutcheon.)

The IRRRB was established under the leadership of Governor Harold Stassen, just before he went off to war. Quoting from the IRRRB website:

IRRRB was founded in 1941 by the Minnesota Legislature with support from Governor Harold Stassen to rehabilitate the economy of northeastern Minnesota, a region dependent on natural iron ore mining. Since the Iron Range was viewed as a collection of communities facing common economic and social challenges, the Minnesota Legislature and Stassen determined the development of new natural resource-based industries would lessen the region’s dependence on mining.

You would have expected it to be rehabilitated by now, wouldn’t you?

– o O o –

The real mud fight over the IRRRB, though, began with the adoption of the revered Taconite Amendment. (You can tell it’s revered because they capitalized it, like God or Horace Rumpole’s She Who Must Be Obeyed.) Again, from the IRRRB’s history:

By the 1960s, business development and increased diversification of the northeastern Minnesota economy became a key IRRRB mission. Passage of the Taconite Amendment in 1964 helped establish a stable form of taxation for Iron Range mining companies, creating the way for the construction of taconite plants across the region and creating thousands of new mining jobs. With IRRRB funding previously based on the occupation tax, which decreased as natural iron ores were depleted, the Minnesota Legislature in 1971 appropriated one-cent-per-ton from the taconite production tax to the IRRRB. That year, the tax generated $170,000 in revenue to the agency. Today, a portion of the taconite production tax, paid by mining companies in lieu of property taxes, remains the funding source for IRRRB programs and operations.

As a brief aside, the operating mining companies pay two special taxes in lieu of the regular taxes that ordinary mortals and their companies pay. The first is the occupation tax, paid instead of the corporate income tax, and the production tax, instead of property taxes. The rates for both are set by the Legislature. The occupation tax, paid into the general fund of the state, and for schools and the University of Minnesota, continues to not raise much money. The production tax is the mother lode. There isn’t anything in the Minnesota Constitution, though, that says we have to completely beggar the occupation tax in favor of the production tax.

But the last paragraph tells you about everything you need to know about why Rangers, like the retired and now-lobbyist Senator Doug Johnson, love to sit on the tax committees.

Since they are in lieu of property taxes, a lot of the production tax revenue does go to pay the things that property taxes elsewhere do: funding counties and cities, school districts, etc. And it should, no argument there. But there is a lot left over, apparently. We’ll get into actual numbers in later stories. Deciding where it goes, though, is a source of enormous political power.

Throughout most of its history, the IRRRB functioned as a more-or-less advisory board or legislative commission, providing advice to the executive branch.

– o O o –

That changed in 1995, and you will never guess how it happened. Go on, guess.

If you guessed that it happened in the dead of night in a conference committee at the end of a special legislative session, go get yourself a cookie.

First, let’s set the chessboard. The governor is the just re-elected Arne Carlson. The Speaker of the House is Irv Anderson, from International Falls, and the Senate Majority Leader is Roger Moe, from Erskine; both are DFLers. They are undoubtedly communicating with their conference committee members, just as Tom Bakk was at the end of the session this year, when he, or his confidant, Tom Kukielka, urged Sandy Pappas and Jim Carlson to stick a shiv in Rebecca Otto.

The amendments to the IRRRB enabling statute, in neither chamber’s version of the bills that went to conference, and that got added at the last minute, created a tectonic shift in decision making at the IRRRB, at least with respect to the power of the Board over what is known as the Board account and the Environmental Protection Fund, too. This is all chronicled very well in law professor Neil Hamilton’s article that you can read at 25 Wm. Mitchell Law Rev. 1203 (1999). Actually, you probably can’t read it, since it isn’t available online unless you have access to Westlaw or Lexis.

The legislator members of the IRRRB asserted, according to Professor Hamilton, both operational and policy control over the (executive) agency; he cited a memorandum from Jim Gustafson, then IRRRB Commissioner, to Doug Gregor, an Assistant Attorney General, dated October 28, 1997. (I am working on obtaining a copy of that memo.)

I wrote earlier that control of an executive agency by a group of legislators, performing executive tasks, is, or ought to be, a constitutional non-starter under the Separation of Powers Clause in Article III of the Minnesota Constitution. Professor Hamilton agrees with me, or rather I agree with him, since the law review article predated my LeftMN article by a mere fifteen years or so (and I appreciate having it called to my attention by a sharp-eyed reader of the LeftMN article).

There are really good reasons why this control of a state agency by a small group of legislators is terrible policy, on top of being unconstitutional. As I have also written before, membership on the IRRRB makes one a virtual Emir of Northern Minnesota. One can imagine the ring-kissing that must go on by minor functionaries across the Range to obtain the blessing of the Emirs, and well, get some cash, too.

You have to wonder how many fundraisers for the Emirs are hosted by the ring kissers.

The IRRRB publishes splashy reports on how many houses and derelict garages it paid to tear down in Hibbing, but much less about the real money it controls. You need not believe me about this; the Legislative Auditor thinks that the IRRRB reporting is a bit sketchy, too.

Among the things that the IRRRB likes to do is rebate production taxes to the mining companies.

It also likes to lend money to Gary Cerkvenik’s wind energy client, and then not exactly publish the fact to the public when it comes a cropper. I tell you what, friends, I challenge you to find evidence that the IRRRB publicly wrote off the loan to Gary’s client.

I wrote to the IRRRB some months ago, and I asked if it published financial statements, and it responded, “Sure, look here.” It gave me a link to agency fund accounting for the whole state. Gary’s wind client wasn’t in it. Really, it probably was, but not in a way that anyone could see. At all events, it didn’t say something like, “We loaned Gary’s client x million dollars, and we lost it all.”

(Update: And when I followed up with MMB, it said, “Gosh, we don’t have it down to that level of detail.”)

I’m sure they think this is funny, but I don’t.

I don’t care what your political persuasion is, after twenty years of this Dismal Swamp, you ought to be demanding better. Especially if you live on the Range.