The Iron Range Resources and Rehabilitation Board gets some well-deserved criticism in a new legislative auditor’s report for its failure to properly oversee and evaluate the millions of dollars in loans and grants that pass through its hands every year. Many of the issues the auditor points out are such basic practices of sound management that it’s difficult to understand how they arose or persisted.
The board employs 74 staff members, yet the auditor found no one charged with verifying the number of jobs created by the loans and grants handed out — one of the basic reasons for the board’s existence. A fifth of the companies didn’t even respond to annual e-mails asking about their job-creation numbers. State law requires loans or grants of more than $150,000 to have measurable and specific objectives, including the number of jobs created, but the auditor found loan contracts that didn’t list job creation as a requirement. The board had a $41 million budget in fiscal 2015, but that belies its reach. Off-budget supplemental sources allowed it to more than double its spending to $85 million. That kind of money, wisely spent, can be a powerful force for badly needed economic regeneration.
IRRRB Commissioner Mark Phillips has indicated that his agency intends to get better information on job creation, upgrade its loan database and use improved software for managing grant awards. The Iron Range legislative delegation issued its own response on Friday, saying it takes seriously the auditor’s criticisms.
That’s a good first step, but the flaws noted in the report seem to speak to a culture of lax oversight that has done far too little to ensure that taxpayers’ money is used wisely, sparingly and with full accountability aimed at the best outcomes. The board, for instance, continues to pour millions into propping up Giants Ridge, the ski and golf resort that has never turned a profit and consistently has lost money since 2006. That may, after closer examination, prove to be worthwhile for the jobs and economic activity it provides, but the board has not subjected the Ridge to such scrutiny and has not established the measurable goals that make up any good cost-benefit analysis.
The board should undertake a scrupulous internal review of all of its procedures, with an eye toward greater accountability and strict adherence to state requirements and good fiscal practice. It should ensure that applicants have first attempted to secure funding from other sources. Job creation should be a priority, along with the viability and sustainability of proposed projects. Databases should be accurate, up-to-date and contain information needed to evaluate a loan’s impact on economic development.
The report may have put its finger on the chief problem plaguing the board: Its structure. A board made up of legislators exclusively from the region, who depend on votes from that region and who are the primary decisionmakers on funds distributed across that region provides a great deal of power and too little scrutiny. And it’s not just regional taconite revenue the board controls. Since 2001, it also has gotten a small share of general fund revenue — more than $8 million in 2015.
Legislative Auditor Jim Nobles contends that because the board gives final approval to some — although not all — spending decisions, it’s performing an executive function that could be a breach of the state Constitution’s separation of powers. The board began as an advisory body in the 1940s. But its powers were greatly expanded in 1995, when board members were required to approve or disapprove of all expenditures.
Nobles proposes several options that are worth a look. Among those: the board could resume its advisory function, operating in a manner similar to the Lessard-Sams Outdoor Heritage Council, with budget recommendations submitted to the Legislature for final approval. Another option: eliminating the board and transforming it into an executive agency.
The Iron Range needs help now more than ever. Its population is aging and shrinking. Incomes are lower than the state average and unemployment higher. Despite years of effort, it remains overly dependent on an ever-dwindling number of mining operations. Whatever form it takes, the IRRRB must become more tough-minded in its decisions for the region and become a better steward of the funds entrusted to its care.