Gov. Mark Dayton and the Legislature moved the State Historic Preservation Office (SHPO) from the independent Minnesota Historical Society to the state’s executive branch because it has regulatory authority that could add to development project costs, the legislative auditor has concluded.

In a report issued Wednesday, Legislative Auditor James Nobles didn’t evaluate the overall performance of SHPO, nor did he comment directly on the controversial move last year preceded by the governor’s staff criticizing the historical society’s work in overseeing the preservation office.

But the auditor’s office agreed that the agency “should be directly accountable to officials in the executive branch” because it can make decisions affecting development.

The report added that the agency’s move to the state Department of Administration was triggered by what some saw as SHPO’s foot dragging on the PolyMet mine project and expansion of the Chik-Wauk Museum & Nature Center, both in northern Minnesota, while under the historical society’s control.

“While we gathered information and opinions from both sides — PolyMet and SHPO — we are not able to render a definitive judgment on which side is ‘right.’ Moreover, we think the conflict between PolyMet and SHPO … reflects the organizations’ conflicting objectives and responsibilities,” the report says.

The report notes that in both public testimony and interviews, people “often expressed frustration with SHPO’s lack of transparency and slowness in responding to information requests.”

Stephen Elliott, the historical society’s CEO, objected to the move and disagreed with accusations of inefficiency in SHPO’s operations. The preservation office had been under the auspices of the historical society since it was formed in 1969.

Elliott: ‘We are disappointed’

SHPO works with federal agencies to enforce the 1966 National Historic Preservation Act and administers federal grant programs.

The Legislature voted to move SHPO at the request of Dayton, who believed it would reduce “inefficiency and improve accountability.”

The report backs that analysis, saying that SHPO should be tied to state government rather than nestled within the historical society, a nonprofit that’s aligned with the state but independent of its reach.

“SHPO has assumed de facto decision-making authority in a federal regulatory process that can add costs to certain development projects,” the report states.

According to the report, Elliott said the preservation office reviewed more than 3,000 development and infrastructure projects in 2016 to ensure that historic and cultural sites were identified and protected. It found issues requiring mitigation or additional planning in fewer than 1 percent of the cases, he said.

In a letter to Nobles dated Wednesday, Elliott wrote: “Since there have been very few complaints or issues about the work of [SHPO] in the nearly 50 years that it has been housed at [the historical society], we are disappointed that a detailed and thorough policy analysis was not completed before the legislation was passed to transfer” SHPO.

The dust-up occurred just months after the historical society had taken a stand against Dayton over the return of Civil War paintings to the newly renovated State Capitol. Dayton’s staffers said that did not play a role in the decision.

The Minnesota Historical Society is a nonprofit that, while independent of the state, relies on it for nearly 60 percent of its $60 million-plus annual budget. About $275,000 of that went toward the $1.3 million annual cost to run the preservation office; the rest was funded with federal money and historic preservation tax credit fees.