MnDOT chief's apparent conflict of interest posed challenges for department

Minnesota's top transportation official has asked for a review of steps he took to distance himself from his former bus company after the state paid the business $64,000 for work on a contract that had expired.

"As a leader of the agency, I'm not comfortable if it even looks like a conflict," said Charlie Zelle, commissioner of the Minnesota Department of Transportation (MnDOT).

A Star Tribune review of more than 5,000 e-mails it obtained shows that Zelle's former company, Jefferson Lines, got paid for work from a lapsed contract after he took over as head of MnDOT. The messages reveal sometimes deep disagreement over the Jefferson Lines payment and highlight the potential conflicts that Dayton faced in selecting a transportation chief with close ties to a company that still does business with the agency.

Zelle resigned as CEO of Jefferson Lines when Dayton appointed him in 2012 to run MnDOT, which has a budget of $3.1 billion. He has recused himself from any decisions involving the company, but remains chairman of the board of the family-owned bus company. He also serves on the board of Land to Air Express, an airport shuttle service.

Jefferson and Land to Air are two of a small handful of bus companies that serve rural areas around Minnesota, routes that would likely go away without taxpayer subsidies. Both companies received nearly all of available state and federal grants, or $2.3 million, in 2013, according to a MnDOT report. Those funds accounted for nearly 60 percent of the companies' budget to operate the subsidized routes that year.

Zelle said he was not aware that his former company ever sought payment from the state, either before or after he was named transportation commissioner.

The first request for reimbursement came in late 2011, when Jefferson Lines came to the state seeking a $64,000 payment as part of expired contracts to retrofit buses that serve rural Minnesota.

Two officials from MnDOT reviewed the request and rejected it, saying the claim was for work beyond the scope of two contracts that stretched from 2007 to 2011.

Just a few weeks after Zelle took over as commissioner, Jefferson again asked the state to be paid for the old contract.

This time, they got it, but with it came staff criticism of the unusual payment.

"You are putting this Dept. in an uncomfortable situation," audit director Daniel Kahnke wrote in a March 2013 e-mail to nine staffers, including an assistant commissioner. "None of this passes the smell test."

Zelle, who reviewed some of the e-mails last week, has a different take.

"I take … the concern very seriously," he said, adding that "from what I've seen … I don't see any evidence of impropriety."

To quash any lingering questions about potential conflict of interest, Zelle said he will abide by any additional recommendations by the chief legal counsel to avoid future conflict-of-interest issues.

When asked about the issue, Dayton issued a brief statement, saying: "Commissioner Zelle is an outstanding commissioner and a man of high integrity."

Jeremy Schroeder, executive director of Common Cause, a government transparency and accountability nonprofit, said he doesn't see legal violations, but the appearance of a too-cozy relationship between the agency and the bus company clearly shows the ethical challenges for government officials.

"When there is a conflict of interest that is so obvious for some people, there needs to be some kind of counter," he said. "Some people are going to look at this situation and say, 'How can there not be preferred treatment?' "

Steve Woelfel, who took over as chief executive of Jefferson Lines after Zelle joined MnDOT, said the $64,000 reimbursement was proper. He said he first alerted MnDOT about it in 2012, before Zelle became commissioner, but he couldn't recall a specific date.

"It was an honest administrative mistake that we discovered and we were on that process well before Mr. Zelle became Commissioner Zelle," Woelfel said.

Mike Schadauer, MnDOT's Office of Transit director, said the situation was the result of an error that should have been caught sooner.

"We had a little discrepancy with Jefferson — a mutual mistake is a better way to say it," Schadauer said, noting that neither MnDOT nor Jefferson Lines had paid attention to when the contracts expired. "We should have done things a little differently, in retrospect."

But it took some unusual steps to pay Jefferson.

After much internal debate, MnDOT managers created an entirely new contract to resolve Jefferson's claim, drawing further apprehension from transportation staff.

"My goal is to have this damn thing processed, paid, audited, closed out, and buried forever, with as few hitches as possible from here on out," wrote Shaun Morrell, program coordinator for MnDOT's intercity bus and urban transit program, once the final contract was drafted in March 2013. Efforts to reach Morrell were not successful.

After the Jefferson payment, the department created a policy requiring written approval from a division director before amending contracts more than 30 days past their expiration.

Under the new policy, a request like Jefferson's in 2013 would have received even more scrutiny, Schadauer said.

"With today's policy … it would be harder to achieve this," Schadauer said. "But we would still try to and see if we can get it approved."

Ricardo Lopez • 651-925-5044