- Associated Press - Friday, March 18, 2016

ST. PAUL, Minn. (AP) - A state body that invests in the Iron Range poured $17 million into a money-losing ski resort, gave financial assistance to businesses that may not have needed it and failed to require job creation in return for many of the loans it doled out, according to an audit of its activities released Friday.

The Office of the Legislative Auditor made those conclusions in its examination of the Iron Range Resources and Rehabilitation board, just the latest bad news surrounding the state development agency’s performance. Dubbed the IRRRB, the board doles out grants and loans meant to spur economic development and diversify an Iron Range economy largely reliant on a volatile iron ore industry.

That mission has become more important since an unprecedented downturn in the domestic steel industry that has resulted in thousands of steelworkers and mine employees being laid off in the last year .

The report found several issues that call into question whether the board has lived up to that goal. Commissioner Mark Phillips conceded his agency needs to improve in tracking its performance but defended, citing proposals that helped bring 1,200 jobs from companies like Blue Cross Blue Shield and Delta Airlines.

“It’s hard to imagine what the Iron Range would look like without these critical employers,” he said.

Of the 15 loans in the review - totaling millions of dollars - the agency granted to companies who promised to create a certain amount of jobs, just two followed through. Seven companies fell short while the remainders are still too early to grade. The report also found many loans and grants that didn’t require some job creation metric and suggested the board had granted some financial assistance to businesses that may not have needed public support in order to relocate or expand on the Iron Range.

The report also found the IRRRB has plowed more than $17 million into the ski and golf resort Giants Ridge, which it owns, to subsidize increasing financial losses since 2006. Legislative auditors said the IRRRB needs to get a better handle on the resort’s financial performance. The continued losses raised eyebrows among legislators.

“The subsidies should be going down, not up,” said Sen. Mary Kiffmeyer, R-Big Lake. “That’s money that couldn’t go to something else.”

The agency is largely funded through a tax on production of taconite, a low-grade iron ore used to make steel. In response to the audit released to lawmakers on Friday, Phillips said he plans to make several changes, including better monitoring of its grants and loans and a new strategic plan for Giants Ridge. But he also said “rigid contracts” for loans with firm job creation metrics may not ultimately help.

“We will take the report’s key recommendations to heart,” he said.

But a larger issue is lurking behind those problems: The agency’s governance structure may be unconstitutional. Nine lawmakers comprise the IRRRB with final approval on spending decisions - an arrangement normally reserved for the executive branch. The audit suggested eliminating the board or having members be appointed by the governor.

“This arrangement is vulnerable to a challenge under the Minnesota Constitution’s separation of powers clause and its prohibition against legislators holding another public office,” the audit concluded.

In a joint statement released Friday following the report, eight of the nine legislators said there is no “magic wand” to achieve economic development goals, but that the agency’s work has proved successful.

“We will review the OLA’s findings and hope the IRRRB, and if necessary, the Legislature can take action on the recommendations to ensure that the IRRRB is operating at the highest standards we expect of all our state agencies,” the lawmakers said.”

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This version of the story corrects the second paragraph from the bottom to say that eight of the nine legislators released the statement.

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