State-subsidized Giants Ridge ski resort leaves trail of red ink

BIWABIK, Minn. – The granite crag that gives the Giants Ridge resort its name rises almost 2,000 feet above Superior National Forest, offering visitors panoramic views of the millions of dollars spent by the state of Minnesota to transform a local ski hill into a year-round resort.

But the downhill ski runs, trails and golf courses carved out of the woods and granite of the Mesabi Range have not helped Giants Ridge turn a profit. During the 30 years it's been owned by a state economic development agency created to diversify northeast Minnesota's economy, Giants Ridge has never made money. In the past decade alone, those losses have totaled almost $40 million.

Continued losses and a weak real estate market have forced Giants Ridge's owner, the Iron Range Resources and Rehabilitation Board (IRRRB), to shelve plans for a vacation village. In just a few weeks, though, the agency will break ground on a new $12 million event center and ski chalet.

One former member of IRRRB's board questions the wisdom of continuing to invest state money in Giants Ridge.

"I just question whether government should be in the resort business," said Carolyn McElfatrick, a former state representative and a retired registered nurse from Deer River. "It just seems like it's been an albatross."

IRRRB Commissioner Mark Phillips said his agency is examining how to run Giants Ridge more efficiently, but he said annual losses are not the best measure of the resort's importance to the region's economy.

Phillips pointed to a 2012 economic impact study by the University of Minnesota Duluth that concluded that the $3.8 million in annual sales at Giants Ridge pumps nearly $6.3 million into the area's economy in wages and other spinoffs. That impact rises to $8 million if you include business generated by the hotel and Villas, the IRRRB said, and all the property taxes paid.

"So much of our tourism infrastructure is dependent on the golf course and ski hill," Phillips said.

Matt Swenson, a spokesman for Gov. Mark Dayton, also defended the IRRRB's ownership of Giants Ridge.

"The IRRRB's explicit purpose is to create jobs and economic opportunity on the Iron Range," Swenson said in a statement. "The agency's investments in, and operation of Giants Ridge fall squarely within that mission."

The potential of Giants Ridge has tantalized Minnesotans for decades.

In the 1950s, a group of local families searching for a place to ski fired up chain saws and hacked runs out of the wilderness. When the ski hill opened in 1959, the engine of a 3-ton Mack truck powered a rope tow hauling skiers to the top; a converted Plymouth powered a beginners' tow. It cost $1 to ski.

The founders operated the hill for years, before local towns took over. The IRRRB rescued Giants Ridge in 1984, at the request of local communities, and spent $6 million adding ski runs, snowmaking gear, chairlifts, a chalet and a professional cross-country ski training facility.

Giants Ridge hosts one of the nation's largest nordic ski meets each January, and the state high school championships in downhill and nordic skiing every February. But total ski visits dropped 20 percent from 2006 through 2014.

The IRRRB, which is based in Eveleth, was created by the Legislature in 1941 to help diversify the economy of Minnesota's Iron Range. Funded by production taxes that mining companies pay in lieu of property taxes, the agency has dispensed more than $300 million in loans and grants during the last decade.

State-owned ski resorts aren't that common. But Heywood Sanders, a public administration professor at the University of Texas at San Antonio, and author of "Convention Center Follies," said he's seen many such large, public sector investments sold as great economic opportunities and then not do well.

"The dilemma is when the investment is done for these larger grand purposes — creating jobs, turning around an impoverished area — it becomes very difficult to assess them and even more difficult to walk away from them. So what you do is you end up spending more," Sanders said.

The IRRRB continued expanding Giants Ridge, aiming to create a year-round destination to attract visitors from the Twin Cities, 200 miles to the south. It helped build a hotel, the Lodge, that it later sold. It also built two championship golf courses — the Legend, which opened in 1997, and the Quarry, which opened in 2004.

Eager to attract private investment, the IRRRB collaborated with real estate developers, promoting a vision of privately developed vacation homes ringing the compound and its two natural lakes.

A 2007 master plan showed a "mountaintop village" with 300 units of housing, a base village with another 300 units, a water park and ice rink. There was talk of attracting up to $1 billion of development.

The recession and plunging real estate values killed those plans.

Across the lake at Voyageurs Retreat, a privately developed community, about 50 houses were built on the 250 lots, many of which went back to the bank. Even after the recovery, property values in the Giants Ridge area remain down 30 to 50 percent, owners say.

On the bright side, prices are low enough that locals are buying at Giants Ridge now, said Biwabik city administrator Jeff Jacobson.

Biwabik annexed most of the 11,000-acre Giants Ridge Recreation Area in 2004. The 1,817 acres that the IRRRB owns are tax exempt, but the influx of property taxes from private owners was a boon for Biwabik, enabling it to lower its tax rate, Jacobson said.

The IRRRB still owns a tract planned for a shared-membership community called the Residence Club. Stan Dobrin, an Edina developer trying to resurrect the stalled development, blames the recession and poor marketing of Giants Ridge.

"Nobody knows this place even exists," Dobrin said. "I would say that better than half the people we approach said, 'What is it? Where is it?' "

Golf pros rave about the Legend and Quarry, which Golf Digest ranks among the top 100 public courses in the country. The IRRRB pays Troon Golf, an Arizona company that manages golf courses around the world, $2.3 million to $3.7 million a year to run both courses.

Nationally, the golf industry is deep in the rough. Rounds played at Giants Ridge are down nearly 30 percent, from 35,032 in fiscal 2006 to 25,209 in fiscal 2014, even though peak-season greens fees of $90 are in line with other high-end courses in the region.

Employment has remained steady at around 250 — 99 of the jobs full-time. Only about 15 of the full-timers are state employees directly employed by the IRRRB.

That there are losses doesn't surprise Debby Bocnuk, on the volunteer ski patrol team. When it's 30 degrees below zero, there aren't too many skiers, she said.

Bocnuk said she grew up with Giants Ridge. She fondly recalled camping in the parking lot in her grandparents' pickup as a girl. As she sees it, a subsidy of a few million a year is money well spent — particularly compared to what she sees as government waste elsewhere.

David Markwardt, another volunteer ski patroller, said that he thinks the resort is losing customers because it's poorly managed and strayed into golf and real estate.

The chairlifts break down too frequently, said Markwardt, who works for a mining company. There have been repairs, he said, but just a few weekends ago two central chairlifts were down at once, he said: "They were shuttling people with snowmobiles to the other lifts."

"I think it should be privatized so there's more focus on the hill trying to make money than on relying on the state to fund it," Markwardt said.

Homeowners at Giants Ridge, with a vested interest in the resort's success, also express frustration.

Kurt Bergquist, a Twin Cities medical device professional who formed a company to help run the Lodge, said many homeowners feel Giants Ridge is poorly run. "But I have not heard people say the solution is to turn it over to private management," he said.

Such talk has come up in the past. John Swift, IRRRB commissioner under Gov. Jesse Ventura, wanted to sell the resort. So did McElfatrick, the former agency board member, who said she suggested it to Commissioner Tony Sertich in about 2012.

"I said to him at that time 'Can't we divest ourselves of this property? It's never been what it's supposed to be. We're just feeding this thing,' " she said.

Phillips said he doesn't think selling is an option.

"I don't think we'd sell it unless there was some assurance it wouldn't close at some future date," he said. "It would be irresponsible of us to just hand it off to someone and walk away."

Instead, the IRRRB is focusing on improving how the resort is run. The golf management contracts with Troon are coming up for renewal, creating an opportunity to rethink how Giants Ridge as a whole is managed, he said:

"It could range all the way from total contract with somebody to run the whole thing, to piecemeal like we have now, to take it all back internal and hire our own employees."

Jennifer Bjorhus • 612-673-4683