Lopsided grants on Iron Range spark questions of favoritism

A state economic development program intended to foster economic growth on northern Minnesota's Iron Range has given more money per capita in the past five years for projects in influential state Senate Minority Leader Tom Bakk's district than any other — by about one-third, according to a Star Tribune review of public records.

The pattern of grants distributed by the Iron Range Resources and Rehabilitation Board, known as the IRRRB, has opened the agency to new allegations of political favoritism, three years after a state audit questioned its governance structure and oversight of grants and loans.

"It doesn't seem right. I'm just going to put it like that. It does not seem right. Or equitable," said Rep. Julie Sandstede, DFL-Hibbing.

Rep. Sandy Layman, R-Cohasset, a former IRRRB commissioner, called the split in per capita spending "extraordinary."

IRRRB Commissioner Mark Phillips said the decisions on which projects to fund come from a rigorous scoring system and not from personal or political considerations.

Phillips — who was appointed under Gov. Mark Dayton in early 2015 and reappointed under Gov. Tim Walz — is facing renewed scrutiny over longstanding perceptions of mismanagement and cronyism at the agency, which is funded with mining proceeds.

He came under fire after the fast-track hiring and subsequent resignation of former state Rep. Joe Radinovich — a DFL political operative — to a civil service job that paid $100,000. Last week, the Star Tribune reported that the agency gave a buyout worth $166,000 to a senior employee for early retirement and then hired him back.

Bakk is widely credited with having helped save Phillips' job after the Radinovich controversy erupted in April. Bakk drafted a letter of support for Phillips and got a bipartisan group of lawmakers to sign on.

Phillips, who has known Bakk since the 1980s, acknowledged a professional relationship. He has a house on Lake Vermilion near Bakk's, but they don't see each other socially, Phillips said.

"Senator Bakk doesn't even call me about any of these projects," he said.

The Eveleth-based economic development agency was formed in 1941 with a goal of helping the Range economy diversify from mining. It is funded by a production tax that taconite companies pay in lieu of property taxes and has an annual budget of about $40 million.

A 2016 legislative audit found inadequate oversight and evaluation of IRRRB loans and grants, confirming Star Tribune reports showing that the agency blew through $40 million in losses at Giants Ridge, a public golf and ski resort in Biwabik.

Since the audit, the IRRRB has instituted an electronic grants management system, helping agency staff measure whether the applicants meet criteria of job creation, economic impact, "shovel readiness," community benefits and access to other state and federal dollars. The changes have also helped IRRRB track the effectiveness of the spending once it's handed out, including annual reports on whether the grants are meeting goals.

"I think we've made tremendous progress, and our employees are proud of where we are," Phillips said.

The grants are scored independently by three IRRRB staff; Phillips chooses the projects and then presents them to the board of nine lawmakers from the region who serve in an advisory role only.

The Star Tribune reviewed several years of grants. Just this year, Bakk's district successfully won more than $2.7 million, including $300,000 for a Two Harbors Performing Arts Center, $250,000 for water and sewer improvements in Silver Bay, and $600,000 for infrastructure needed to rebuild a grocery store that burned down in Bakk's hometown of Cook, population 574.

Bakk represents a sprawling northeastern Minnesota district, which includes the entire Arrowhead region, parts of the Iron Range, and such disparate cities as Ely, Grand Marais and International Falls.

The district of state Sen. David Tomassoni, DFL-Chisholm, pulls in the most total dollars. It is home to the most mining activity and has the largest population living in the IRRRB service area. Bakk and Tomassoni are frequent legislative partners in St. Paul.

The district of state Sen. Justin Eichorn, R-Grand Rapids, received $517,000 this year, or about one-fifth the money granted to Bakk's district, even though they represent roughly the same number of constituents who live in the area of northeastern Minnesota eligible for grants.

Bakk's Iron Range constituents have received nearly $73 per person per year in IRRRB grants since 2015; the next highest is Tomassoni's district at $55. Eichorn's constituents have received about $31 per person.

"This area does feel kind of cheated by that," said Eichorn. He did not sign the Bakk letter in support of Phillips.

Tom Pagel, the Grand Rapids city administrator, said he has no complaints: "Of all the agencies we work with, they are the easiest and most efficient to deal with," he said of the IRRRB.

Bakk said the projects are scored fairly, and that the best projects win the grants.

"It's not divided up by House or Senate district. Communities with good, sound projects and that leverage other money will be successful" in their grant applications, Bakk said.

Sandstede, like other legislators interviewed, declined to speculate on whether the close relationship between Bakk and Phillips influences the grant distribution. But she said she remains frustrated by a lack of transparency about spending and what she sees as a boys' club atmosphere at the agency.

"I think [Phillips] listens equally, but he's definitely got closer relationships with the guys," she said.

Phillips acknowledged that good old boy politics may have been the practice at the agency in the 1970s, but said the culture has changed.

"It's a pretty transparent, strict process," he said.

J. Patrick Coolican • 651-925-5042