Like an eager car buyer willing to pay extra for floor mats and undercoating, the state of Minnesota has sweetened several offers as it tries to persuade U.S. Steel to sell it 3,000 acres on Lake Vermilion for a new state park in northern Minnesota.
While the state is limited by the Legislature on how much cash it can offer -- up to $20 million -- Department of Natural Resource (DNR) negotiators have floated a range of offers tied to other U.S. Steel business dealings, according to internal department documents.
Despite public assurances from department officials that no side deals with U.S. Steel were being worked on, the documents show what DNR negotiators have offered, or at least considered, during the negotiations:
• Agreeing to recommend approval of 25-year taconite leases to U.S. Steel on 240 acres of land, a deal worth an estimated $10 million.
• Providing the steel giant $5.4 million in free biomass fuels such as wood chips, and offering to have DNR workers assigned to help manage U.S. Steel's interests in converting from coal.
• Turning over 3,000 acres of wetlands to U.S. Steel anywhere in the state and ensuring that DNR and Pollution Control Agency staff put a priority on U.S. Steel's needs.
But U.S. Steel has so far rejected the state's offer for the Vermilion land, and the St. Louis County Board recently approved a plan allowing the company to develop the property.
Asked about the DNR's dealings with U.S. Steel, Commissioner Mark Holsten said last week that the department made its last and best cash offer and that other options were considered within the scope of state rules and regulations. The DNR staff dealt with the company's permit requests and other issues as separate and unrelated projects, he said. "The company has not been given preferential treatment in our review of their permit request," he said.
Despite the recent action in St. Louis County, the deal is far from dead.
"While no negotiations are occurring now, we remain hopeful that there could be additional negotiations in the future," said Brian McClung, a spokesman for Gov. Tim Pawlenty, who has championed the proposal.
What's the land worth?
The sticking point has always been what the property is worth. With its undulating ridges and spines of bedrock overlooking the lake, it is regarded as some of the most picturesque land in the state.
Two state-commissioned appraisals put the value far below what U.S. Steel contends it is worth. Although appraisals are confidential under state law, the state has offered $14.7 million for the land, according to documents. The state has been authorized to pay 12 percent more than the property's appraised worth, which would make the state appraisal slightly under $13 million by that calculation.
U.S. Steel suggests in documents that the state appraisals were too conservative and do not take into account the value the land would have when divided into as many as 67 "exceptional lake front lots" selling for $500,000 apiece. A 2007 assessment puts the value of the property at $13.3 million, while the value if the land is subdivided has been estimated at as much as $36.3 million. State documents put an estimated purchase price at the midpoint range of about $25 million.
U.S. Steel declined several requests to answer questions about the negotiations for Vermilion and its other business interests in the state or the value of its appraisal. A spokesman, Chuck Rice, said: "We're sorry negotiations didn't pan out, and we intend to develop the property."
The records show that one impediment to negotiations has been criticism that U.S. Steel's appraisal failed to meet professional standards. One independent reviewer said it relied on "over-generalizations" and characterized it as "misleading," particularly in its optimism about how many lots could be created on the property.
Nevertheless, anxious to seal the deal and unable to reach agreement on the other incentives, the DNR sought to help U.S. Steel get its higher appraisal certified. In a Feb. 16 e-mail to U.S. Steel, the DNR's director of lands and minerals, Marty Vadis, suggested hiring a new reviewer.
Two weeks later, in a letter to DNR Commissioner Holsten, U.S. Steel executive George Manos said the battle over the land's value had gone on for too long and threatened to proceed with development if the state did not accept the higher appraisal. "We need to refrain from going over the same ground repeatedly, as this is not moving the process forward," Manos wrote.
Asked about the appraisal, Holsten said the DNR did not seek to certify the higher one from U.S. Steel but provided the company with information needed to make its appraisal certifiable. He said that U.S. Steel never acted on the suggestions, however.
Holsten acknowledges that the Pawlenty administration remains eager to purchase the property. The governor's keen interest has played at least some part in the negotiations, according to documents reviewed by the Star Tribune through the state's data practices laws.
In one case, a Minneapolis appraiser hired to review the disparate reports said in a 2008 e-mail to the DNR that Pawlenty made public statements that he wanted the state to pay the higher price that U.S. Steel was asking.
"This is absurd that a Republican cost-cutting governor is willing to pay an additional [redacted] based on a substandard appraisal report," wrote Wendy Walker, who reviewed the appraisals, in an e-mail to Cindy Nathan, the department's review coordinator for appraisal management.
Nathan wrote back: "Wendy, I can appreciate your passion in relation to standing behind the value of your assessment. However, as the appraiser, we need to step away from the politics."
Asked last week about whether Pawlenty would be interested in paying the higher price for the land, Pawlenty spokesman McClung said: "State law limits the amount that can be spent to the appraised value plus a maximum 12 percent, and we think that's reasonable."
During a legislative hearing earlier this year, Rep. Jean Wagenius, DFL-Minneapolis, peppered Assistant Commissioner Bob Meier with questions about whether there were any quid pro quo issues coupling the Vermilion negotiations with other U.S. Steel dealings.
"We need to make sure it's a transparent negotiation and that's what we're doing," Meier told her.
Shown the documents provided to the Star Tribune from the DNR, Wagenius said she had more suspicions than ever about the negotiations and U.S. Steel's intentions. "It appears they were offering additional benefits, and that skirts the law and that's wrong," she said.
Mark Brunswick • 651-222-1636