The new head of the Iron Range Resources and Rehabilitation Board faces a potential fight over who controls as much as $100 million the state agency wants to squirrel away in a nonprofit.
Mark Phillips, whom Gov. Mark Dayton appointed IRRRB commissioner on Wednesday, described the nonprofit spinoff as a "a very serious maneuver" he will address carefully.
The agency voted in December to put most of its $139 million trust fund in a nonprofit corporation called the Range Trust to protect it from being raided by the Legislature for other uses, a move that provoked concerns among lawmakers and some members of the public. The governor gave his approval on the nonprofit move Dec. 29.
"We're not going to do something knee-jerk with $100 million," Phillips said.
At the same time, he said, "I don't think it should be used for balancing the state budget."
"I assume the charter for this nonprofit will be tight enough that the money is spent appropriately," he said.
Sen. Julianne Ortman, R-Chanhassen, said she is investigating the legality of this kind of shift.
"They are public funds and I don't believe the board has the authority to make the changes that it's made," Ortman said. "I question Governor Dayton's signoff here."
Dayton's office responded by citing state statutes supporting the board's authority to create a nonprofit. The state attorney general's office said it wasn't asked for a legal opinion, and didn't give one.
The Eveleth-based IRRRB has been a force in northeastern Minnesota since it was created in 1941 to lessen the area's dependence on iron ore. The DFL-dominated organization has extraordinary autonomy for a state agency. It's funded by taconite production taxes that mining companies pay in lieu of property taxes. Its board is made of Range lawmakers whose districts at least partly lie within the Taconite Assistance Area.
The IRRRB's mission is to diversify and improve the Range economy. With an annual budget of about $42 million, it doles out grants and loans to communities, schools, nonprofits and businesses. By law it can only spend the money in the Taconite Assistance Area.
Mining companies paid a production tax of $2.56 per ton of taconite and other products in 2013, raising $109.9 million. Of that, $32.5 million went to the IRRRB. About 16 percent of the $32.5 million, or about $5 million, went into the Douglas J. Johnson Economic Protection Fund.
The fund was created in 1977 amid forecasts that the taconite industry would die out around 2002. It's grown to $139 million that is invested by the State Board of Investment.
The new Range Trust authorized by the board last month would finance private sector projects, leaving the IRRRB focused on schools and public works, former IRRRB Commissioner Tony Sertich has said.
The move is a direct response to 2011 when state GOP lawmakers tried to take $60 million from the trust fund to balance the state budget. The raid sparked an uproar. Dayton vetoed the legislation.
IRRRB board members called the nonprofit plan a work in progress.
"I don't know that we have explored that close enough yet," said board chair Sen. David Tomassoni, DFL-Chisholm.
Tomassoni called the move legal and said the board "did a good year or year and half of due diligence to see if it's doable."
The decision was a final win for Sertich, who left at the end of 2014 to head the Northland Foundation in Duluth.
A native Iron Ranger, Phillips is currently director of business development at construction company Kraus-Anderson Construction Co. in Minneapolis and has a long resume in economic development that includes running Dayton's Department of Employment and Economic Development in 2011 and 2012.
Phillips served as the IRRRB's director of economic development from 1983-1988.
Born in Eveleth, Phillips lived in Virginia, Minn., for 30 years. He has a home near Tower on Lake Vermilion.
Phillips was one of about a dozen applicants for the job, which was paying $105,464 when Sertich left.
He beat out two leading candidates: former legislator Ron Dicklich, a lobbyist and former director of the Range Association of Municipalities & Schools, and Steve Peterson, the IRRRB's executive director of development and a former mayor of Virginia.
The governor "was getting pressure from the Dicklich camp and the Peterson camp" and went a different route, said IRRRB board member and state Rep. Tom Anzelc, DFL-Balsam Township.
Anzelc called the nonprofit Range Trust "a very large and momentous move" that needs to be developed "before I will feel comfortable in moving forward with it."