City officials in Ramsey recently found themselves scrambling to solve an unusual problem: how to pay $1.1 million to relocate a fellow council member's liquor store to city-owned property without violating a just-discovered state law preventing such deals.

The solution -- to route the money through a different city agency -- unraveled when one of their colleagues, mindful of Ramsey's troubled recent history, worried about angering residents.

"Enough is enough! At some point, you have to stay stop!" council member Sarah Strommen said after leading the vote Oct. 9 that postponed the deal.

It's the latest conflict to engulf this northern suburb in the three years since the city paid $6.75 million to buy 150 acres of vacant land after the original developers went bankrupt.

Since then, the city-owned development site has been the source of tension and acrimony between elected officials and city staff, replete with accusations of self-dealing and other conflicts of interest. Last month, former City Council member David Jeffrey formally asked the state to investigate, saying that the city has shelled out millions to private companies in what he calls questionable deals to try to develop the land.

State Auditor Rebecca Otto declined to comment on whether her office is looking into the allegations.

Mayor Bob Ramsey and other council members defend their actions to develop the land, which include paying $15,000 a month to a private firm to market the site to prospective tenants and providing an apartment developer with an $8 million subsidy.

But past and current council members, developers and key Ramsey staff who left the city in recent months say the council has little to show for decisions that have cost taxpayers millions.

"I think there's a perception among many in the development community that this city is dysfunctional," said Kelly Doran, a Bloomington developer who said he briefly negotiated with Ramsey officials.

Haunting remains

At $1.3 billion, Ramsey Town Center was supposed to transform acres of soybean fields and vacant land along Hwy. 10 in Anoka County into a bustling suburb with a downtown, small shops and parks and 2,800 nearby homes. But the project collapsed after developer Bruce Nedegaard went bankrupt and died in 2006, and three bank executives involved in the project were eventually convicted of federal fraud charges.

The haunting remnants of the failed Town Center project, now called COR, could not be easily buried: 322 acres of mostly vacant land and a massive parking structure dubbed "the ramp to nowhere."

"If foreclosure went through, we'd be looking at 30 years of dandelions and dirt," Council Member Colin McGlone said recently, defending the decision to purchase the land in 2009.

For Jeffrey, that's where the city's problems went from bad to worse. The City Council, he said in a letter he sent last month to Otto, "transformed itself from a governmental body to that of a private developer," placing a substantial economic burden on Ramsey residents through transactions that he said appear to be improper.

Jeffrey noted that a developer who received a city loan later hired McGlone's wife. A former council member shares ownership of a plane with a developer hired by the city to market the land. The mayor, who lost his small business and home to the recession, lives in McGlone's house.

Explaining why he asked for an investigation, Jeffrey, who is battling pancreatic cancer and resigned from the council last year, said, "It needed to be said. This is my way of finishing out my two years on the council."

Mayor Ramsey said the city had already invested more than $17 million in infrastructure toward Ramsey Town Center when it failed. In buying the land, he said, the city acted legally and responsibly and "made the right decision."

Two deals, lots of questions

The city council also split over the decision of how to pay Landform, a Minneapolis consulting company that it hired to recruit developers and businesses for the site. Some believed those duties should fall to Ramsey's full-time staff, which included a development director.

Instead, the city agreed to pay Landform a monthly retainer of $15,000, plus commissions for any deals it arranges. Among those voting to hire Landform was former city council member Matt Look, who is now an Anoka County commissioner. Look shares ownership of a plane with Landform's president, Darren Lazan. Both say they met shortly before the Landform negotiations began but insist they are not close friends and that the plane is the result of separate business dealings.

Mark Stenglein, a former Hennepin County commissioner who is now president of Minneapolis' Downtown Council, said it's highly unusual for a city to hire an outside development manager. Cities in Hennepin County usually seek the help of the county's Housing and Redevelopment Authority, he said.

Through August, the city had paid Landform about $1.2 million, including reimbursements.

"We don't have [staff] people with this expertise," Mayor Ramsey said, defending the hiring of Landform. "If we hired somebody, we'd have paid $2 million."

Meanwhile, six key city staff members -- including the economic development director and city engineer -- have resigned since March, some telling the Star Tribune that dealing with Landform was difficult.

Council member David Elvig and former council member Jeffrey complained that only select council members seemed privy to the details of deals that Landform is working on.

"Landform was never straightforward with information for all council members," Jeffrey said, a charge Lazan denied.

Few dispute that Lazan had his hands full when Landform was asked to step in after the Town Center collapsed. "There were pieces of land that nobody knew who the owners were," he said.

Landform has negotiated deals for a 230-unit luxury apartment complex and is expected to bring a Super America, McDonald's and $20 million senior housing development to the COR.

Controversial connections

But the apartment deal left critics scratching their heads because it included a nearly $8 million subsidy to an Indianapolis-based developer, Flaherty & Collins, that had two development projects go bankrupt in 2010. The city issued tax-exempt bonds for the project after PNC Bank declined to cover the entire amount requested by the developer.

"If the bank didn't think it was a good deal, that they didn't want to loan them as much as the developer needed, why would we step in?" asked Council Member Randy Backous, who voted against the subsidy request.

After the deal was approved, Flaherty & Collins hired Emily McGlone to act as its local representative. She is the wife of council member Colin McGlone, who voted for the loan.

CEO David Flaherty says he's never met Emily McGlone, but said she's well qualified for the job. The League of Minnesota Cities later determined the hiring did not pose a conflict. The council went a step further, asking the state auditor to look into the matter. The state has not issued a ruling.

Controversy is nothing new to Ramsey City Hall. Elvig owes the state $648,928 in unpaid sales tax, according to the state's Department of Revenue, and has been charged with 24 felony counts for allegedly embezzling nearly $20,000 from his former employees' 401(k) and health plans. Elvig said he has pleaded not guilty to the charges and said the state's figures on the sales tax are wrong.

Another council member, Jeff Wise, spent a month in jail last year after his assault conviction for punching a woman in the head. Wise, who failed to advance in the August primary, owns a liquor store in the city that has to move because of road construction. The city had been prepared to pay $1.1 million to move his business to the COR until the city discovered a statute that would bar such payments.

The City Council ended up rejecting a plan to route the $1.1 million through its Housing and Redevelopment Authority, which is composed of council members.

Strommen, who is running for mayor against Ramsey, said the strife at City Hall has taken a toll on the city and its image.

"When you say, 'I'm from Ramsey,'" she said, "what kind of reaction do you get?"

Paul Levy • 612-673-4419