Tuesday, June 2, 2015

Raw Politics and the Office of State Auditor

Most of the media has concluded that this last legislative session was a failure largely due to the usual Republican – Democrat refusal to compromise. But that is not quite accurate. After all, the Senate is controlled by the Democrats and they passed the same provisions as the Republican House that a Democrat Governor finds offensive. That would seem to suggest poor legislative management on the part of the Governor or a host of significant policy differences between the Governor and his own party in the Legislature.

One example of this not-to-subtle intra-party war is the provision in the State Departments Omnibus bill that effectively renders the office of State Auditor an empty shell. Its powers of auditing local governments is essentially eliminated and its staff unemployed.

This major policy was contained in a House bill that received a public hearing and was ultimately passed. However, in the Senate there were no comparable public hearings or a vote. Instead, it emerged from a late night conference committee in the closing hours with Democrat leaders in support.

Now, why would Senate Democrat leadership accept a Republican proposal to virtually eliminate the office of the State Auditor which is held by a Democrat incumbent?

The answer likely has little to do with the issue of privatizing the office by permitting local government to contract out their audits and all to do with the incumbent’s stance on mining leases and, particularly, the proposed copper mine located in the Iron Range of northern Minnesota. It should be remembered that in addition to an audit responsibility which charges the State Auditor with oversight of the more than 20 billion dollars spent by local governments, the State Auditor also serves as a constitutional officer elected by the people of Minnesota. As such, she serves on the State Executive Council, the State Board of Investment (pension investments), Land Exchange Board, and a variety of other state boards. One major issue that regularly arises is the management of state lands including the issuances of mining leases.

For the past several years, there has been a heated controversy involving Polymet Mining Corporation of Canada’s proposal to open pit mine near Babbitt on the eastern edge of Minnesota’s Iron Range.  There is believed to be a large copper, nickel, and other valuable mineral deposits beneath a wide stretch of forests and lakes in the area.

Understandably, it pits jobs (around 350) against the protection of the environment including the flow of harmful mining residue into the waters that flow into Lake Superior.

Rebecca Otto, as State Auditor and as a member of the Executive Council publicly announced her opposition to the project and instantly became a political target for the Iron Range legislators.

She was challenged in the Democratic Party primary and mining was a dominant issue. Otto won an easy victory and that should have been the end of this matter.

However, it appears that it resurfaced in the fading hours of this legislative session when the Republican House bill was accepted by the Democratic leadership in the Senate. All indicators are that this was largely the handiwork of two Iron Range legislators with power and long memories; Senate Majority leader, Tom Bakk of Cook County and Senator Tom Sauxhaug of Grand Rapids.

This episode represents a most dangerous threat to our state’s constitution in that it constitutes an effort to intimidate an elected official. What’s next? If the Attorney General disagrees on a policy matter with a segment of the legislature is it acceptable for the legislature then to privatize her office and render her powerless?

We, the people, created these offices and we fully expect them to be treated with respect and fairness by our other elected branches of government. There is no reason in a democratic society for such a gross abuse of power.  In this matter, the people have spoken via an election and the legislature has the obligation to honor the will of the people.

May I add that the same goes for the House Republicans and their continuing battle to privatize the office of State Auditor. In this case, the Republican candidate for State Auditor had the full opportunity to make the case for privatizing the office and changing the responsibilities of the office. Discussing policy differences is what elections should be about.    At the polls, the people spoke and spoke loudly in support of the incumbent and the preservation of the powers and responsibilities of that office.

Now, if the legislature wants to study the office and review concerns about the management, costs, competition, timeliness, etc. that is entirely proper. Apparently, that is what both houses of the legislature intended until the raw power play occurred in the closing moments of the session.

As a former State Auditor, I am deeply upset by this flippant and mean-spirited approach to an office that belongs to the people. The value of the office lies in the fact that it provides not just a financial audit but also a strong compliance review as well.  This means matching financial transactions against the law. That is a real strength of that office. It is designed to prevent financial scandals.

Private firms do an excellent job on the financial and management review front. But compliance work is where the office of State Auditor excels and that is where the taxpayers’ interests are protected.

Overall, Minnesota has a well-respected system of local government. I doubt that there is any better in our nation. Part of the reason for this success is that we take the oversight function seriously. We want it to be independent and professional. The office of State Auditor was designed with that goal in mind. And overall, it has worked well.

If the legislature has concerns about the office, then a study and public hearings are entirely appropriate. But what the legislature did is wholly unacceptable and the Governor should flatly refuse to close the special session until this matter is properly resolved.


It may also be well for the legislature to take a hard look at itself. They may find some room for improvement.

Thursday, May 28, 2015

LEADERSHIP: A Choice – You Decide


The Star Tribune (May 17) recently ran a review of a book by Fred Kiel with the headline:
FRED KIEL HAS TAPPED STATISTICAL RESEARCH TO SHOW THAT COMPANIES LED BY CEOS OF HIGH INTEGRITY GENERATE SUPERIOR FINANCIAL RETURNS.

This same theme was the central message delivered by David Brooks, the lead columnist for the New York Times, when he gave a superb talk at the Westminster Presbyterian Church forum in mid-May.  He noted how we have moved from a society more focused on values of character to one that celebrates what he terms “resume building”.  We are all too focused on personal achievement and recognition as opposed to the more productive leadership of character rooted in a value system that truly understands the greater good.

To this point, a friend sent me an email after my op-ed was published this past April calling for the dismissal of President Eric Kaler and others (see Arne Carlson Star Tribune Commentary).

He took note of a tragedy that occurred at Fairview Hospital while the late Carl Platou was in charge. By way of background, Carl Platou was a World War II hero who went on to distinguish himself as one of the nation’s foremost leaders in hospital administration and the improvement of medicine. Walter Mondale referred to him as a “genius”. Simply put, Carl Platou transformed medicine not only in Minnesota but nationally as well.

His final project was the creation of the biomedical research park that appropriately bears his name and that of Win Wallin, another Minnesota great. They formed a Board of Visitors with a mission to raise some $300 million from state and private gifts to make that park a reality.

However, by all standards, Carl Platou’s resume, particularly in the academic area, was most unimpressive. His was achievement by doing and working extraordinarily well with others toward a very pragmatic vision. He mastered team building.

Getting back to the tragedy, a child died after being given an overdose of anesthesia due to an incorrect reading. The attorney for Fairview advised Platou to stay away and allow them to handle it in court.

According to my friend’s account:  Instead, Carl sought out the parents, told them exactly what happened, and then, we all cried together.

All the Fairview upper management went to the funeral including the individual who made the mistake. The parents never sued. I am sure Carl worked out an appropriate settlement. As my friend noted:  He clearly accepted responsibility.

Now let’s go to May of 2004 when Dan Markingson ended his life in a most gruesome suicide. At the time, he was in a drug trial financed by a large pharmaceutical company at the University.  His mother, Mary Weiss, made every effort to get him out because she noted that his behavior was increasingly erratic. In one message she pleaded for her son’s release and declared:  Do we have to wait until he kills himself or someone else before anyone does anything.   Her plea was rebuffed and within a month Markingson violently ended his life.

The efforts by Ms. Weiss and her friend, Mike Howard, to find out the how and why of her son’s death were met with administrative stonewalling. At one point, they were escorted by security out of President Brunick’s office.  Finally, Ms. Weiss sued only to have the District Court rule that the University’s Review Board was “statutorily immune from liability”. Due to the technical nature of the dismissal, the Court did not hear or rule on the full substance of the case.

The President and his attorneys then turned around and sued Mary Weiss for legal fees.

As more people including members of the faculty and scientists around the globe joined the chorus calling for a truly independent investigation, the Bruinicks’ and later the Kaler administrations continued to stonewall requests for data and kept repeating a fiction of numerous investigations that were “exhaustive” and found no fault.

Now Eric Kaler, the new President, who has a most impressive academic resume, did not create the stonewalling or the untruths of multiple investigations that were “exhaustive” and “found no fault”.  However, he had a choice when he arrived in 2011.  He could meet with the Professors who were waving the red flags and who had fully informed him as to what was transpiring in drug testing which brought millions of dollars to the University and its researchers but was also rift with financial conflicts of interests, false claims about investigations, and abuse of enrollees. Or he could take the road of least resistance and continue the cover-up. He knowingly chose the latter.

Currently, President Kaler is under siege from some of his faculty and others for his lack of truthfulness and participation in a cover-up that protected serious misconduct.  Their claims are fully supported by a recent report by the Legislative Auditor. Yet, there is no acceptance of responsibility.

And then in a Star Tribune (May 17) opinion column entitled “WHAT DID THEY DO TO MY U?” the University’s former chief of clinical cardiology, Robert F. Wilson, wrote: The administration is plagued by cronyism and conflicts of interest. There are legitimate questions about the transparency and truthfulness of its leaders. Poor leadership is how we got where we are, not lack of money.

And it shows on the bottom line.  In the national rankings of medical schools, we continue to drop.

This has been a story of leadership. Both men were clearly talented but they did not bring the same vision of leadership nor the same elements of character. Nor did they bring about the same results.

Who would you follow?

Wednesday, January 7, 2015

David Koch – A Legacy Worth Passing On


Yesterday’s (January 5, 2015) Star Tribune (Koch Article ) carried a story on the passing of David Koch. Now that may not mean much to a lot of people. (No, he was not in anyway related to the Koch brothers.) But the reality is that he affected us all, as he was an early pioneer in defining corporate responsibility. Here is what the Star Tribune said:

He believed that if you made a good product, treated your workers fairly and were generous in the community, the business would prosper. And he railed against executive and Wall Street excesses of the last generation, as he and his wife, Barbara, quietly donated much of their wealth to charitable educational causes.

Although these words sound more like Senator Elizabeth Warren, the fact is that David Koch was an old fashioned traditional Republican. Deeply religious, he understood that Christianity was about love and service and he lived his life accordingly. And contrary to the greed merchants of today, he knew that good business practices lead to profit and more opportunity for employees, shareholders and community alike. He took Grayco from a small manufacturer with sales of $33 million and turned it into a publicly-owned giant that today employs some 2,700 people around the world and has revenues in excess of $1 billion.

On a personal level, David was always welcoming, kind, generous, and humble. Simply put, he was truly a “nice guy” in the best sense.

We in Minnesota have been blessed with an endless array of giants in business who were committed to the service of community while successfully growing their companies. I wonder what Minnesota would be like without the Dayton brothers, Elmer Andersen, Edson Spencer, the Pillsbury’s, Curt Carlson, Win Wallin, Carl Platou, and others now gone who truly built our community.

Perhaps it would be appropriate for the Carlson School of Management to do two things:

1 – Establish a Business Hall of Fame to honor those who have advanced the values of business success and community well being. It will serve as a beacon for the future leaders coming through our excellent business school.

2  - Seek advice from those largely retired who have and continue to excel in this area. The goal would be to integrate values of service with excellence in business. Perhaps the best phrase would be “stewardship”, the title of John Taft’s superb book on this subject.

The Star Tribune cited comments by such likely outstanding participants, Dick McFarland and Chuck Denny. However, there are others who would be honored to be considered and their input would be invaluable.

Perhaps the finest gift we can give to honor those who have provided outstanding business-community leadership is to have their legacy passed on as an integral part of the future.

I think David Koch would be honored.  And we all would be better off.


Monday, August 4, 2014

It’s A Question of Priorities

A longtime friend and a retired legislator has an expression that forms the basis of this blog:  “Minnesota does not have a money problem, it has a priorities problem”.  How true.

For instance, tonight some 2,000 young people in the metro area will search for shelter. Statewide that figure is nearly double. Some will find bed space with friends and acquaintances. Most will sleep in their lean-tos, tents, or cardboard boxes.  Those with minimum wage jobs will use the bus system, walk, or bike to work.   Their hot meal will come at night when various shelters provide food, Internet service, a hot bath and some donated clothes.

Janet Entzel, another former legislative colleague, recently gave me a tour of Hope 4 Youth in Anoka.  This homeless shelter is just off of downtown Anoka near transportation lines. Various churches in the area provide funding and an endless stream of volunteers who represent the finest of our religious tradition of service to others. The staff is professional, dedicated and truly know how to work with children and young adults.

The building owner is State Representative Jim Abeler who is also a candidate for the Republican nomination for the Unites State Senate.  He is described in glowing terms with words like generous, always helpful, caring, etc.

The overall visit left me with a sense of gratitude that so many committed and competent people are serving homeless children. On the other hand, there is a deep sense of sadness that these alert and resourceful children will still sleep the night in a tent, lean-to or whatever.

As a state, we are blessed with the presence of many facilities comparable to Hope 4 Youth and served by countless volunteers who give so much of themselves. Further, I know that state and local governments are helping both in terms of leadership and funding.

In spite of all of this human goodness, the fact remains that next February when it is 10 degrees below zero these children will still be sleeping outside and then be expected to attend school and keep up with their studies.

I remember bivouac in the Army during the winter and I can attest to the total discomfort of sleeping in a tent, compelled to dry shave and eat cold rations.  And we were far better prepared to handle the cold in terms of clothing and transportation.

Clearly progress from a governmental viewpoint is being made.  However, I would term it a modest priority.

But then what constitutes a major priority?  Certainly, it is the usual:  education, transportation, social services, public safety, etc.   As part of our overall quality of life we also enjoy sports and entertainment and our symphony, theater, and sports teams are essential to a vital and successful community.  In recent years, one of our major priorities has been what is generally referred to as the “stadium issue”.  However, the relationship between private enterprise and taxpayer financial participation has always been tenuous and properly so.  In the case of building a new Vikings stadium, it was always understood to be roughly 50-50 with the Vikings owners and taxpayers sharing the financial load.  Currently, it appears to be closer to a ratio of 90 percent taxpayer and 10 percent owner.

I think it is fair to say that at every turn, Vikings owner Zygi Wilf, and his team of attorneys, accountants and lobbyists have run circles around the negotiators representing the state and city of Minneapolis.  The tragic result is that today, we, the taxpayers do not know the full extent of our financial exposure because embarrassed public officials are keeping their distance from any meaningful stadium discussion and, all too often, are delaying legitimate requests for information. It should be noted that no public official has taken responsibility for the financial package.

Let’s consider the following:

1 – Top state leaders publicly expressed surprise when notified of a 20-year old lawsuit that was in the New Jersey courts. Mr. Wilf was ultimately found liable for   civil “organized-crime activities” with fines and legal fees exceeding $100 million.

2 – Top state leaders again expressed surprise when Mr. Wilf decided to impose a seat tax on season ticket holders. Overall, this was expected to bring in over $100 million on the Wilf side of the ledger.

3 – To this day, we do not know the full details of how the funding of bonds, costs, etc. will be handled.  We have been promised that no general fund monies would be used but that may not be true.  Consider the observations of Doug Grow, a former Star Tribune reporter and current columnist for MinnPost:  by sessions end, that plan (the Governor’s Plan) turned out to be using one-time funds from a special cigarette tax and ongoing funds created by closing a corporate income tax loophole.  Clearly, this backup plan is dedicating general fund monies to the stadium in contradiction to the promises made. Overall, the estimate is a draw of some $20 million per year.

Any fair analysis would conclude:

1) The state’s “due diligence” on the finances of Mr. Wilf was virtually nonexistent. The reality is that people of average incomes are subject to more financial scrutiny when they borrow for a car purchase than Wilf was in a transaction involving hundreds of millions of dollars;
 2) When top leaders expressed surprise at Wilf’s imposition of a seat tax that is further acknowledgement of their ignorance about the very financial package that they were selling to the public.

3) We have not seen any accounting that makes certain that the state’s financial contribution to the stadium and related infrastructure is being monitored to ensure that the cap of $348 million of state spending is being honored. For instance, we know that additional skyways are being built and that the Minnesota Sports Facility Commission is purchasing the Downtown East parking ramp. However, lacking full financial disclosure we do not know the full extent of the state’s contribution.

As if this series of state blunders were not sufficient, we now have Minneapolis leaders rushing to pour more monies into a deal already overloaded with taxpayer funds. I have written a previous blog (December 10, 2013) detailing the rush by the Mayor and City Council to pass a financial package that they knew all too little about. Secrecy and a lack of deliberation are the enemies of competent public policy and that adage holds true here.

State law limits Minneapolis’ contribution to the stadium project to $150 million. Since the city has pledged $150 million to the stadium itself, how can they issue another $65 million in General Obligation bonds without going over the legal spending limit?

A second and more potentially harmful element is the question of anticipated revenue versus costs when it comes to financing and operating parking ramps and the park.  First of all, by now it should be abundantly clear to anyone with an IQ approaching room temperature that if there were profit to be made in operating a parking ramp or park, Mr. Wilf would have seized that opportunity.  He has successfully cornered the market on profit and is leaving the risk to the taxpayer.

For instance, the ramp will be built at an anticipated capital cost of $30,000 per stall.  Interest payments and operating costs are in addition.  Further, the agreement calls for 1,418 spaces to be “ provided for Vikings patrons and MLS (soccer) patrons at no charge to the MSFA or the Vikings.” How do you make money when you give away your revenue?

In addition, the General Obligation bonds are spread out over 30 years with the developer providing a subsidy starting at $2.75 million and rising to $4 million per year for the first 10 years.  After that, bond payments are dependent on that limited revenue stream.  Then the taxpayer is on the hook and that explains the city’s stonewalling of requests for detailed spreadsheets.

And then we have the “Park” or “Yard” as it is often described.  This is land that was purchased by the city from the Star Tribune Company with the intention of serving as a stadium plaza and public park. It was also thought that the Vikings would have exclusive use for game days expected to be 10 a year. Now, after analyzing the agreement, it turns out that if the Vikings bring in a professional soccer team (which they will), the number of days for professional sports usage will go up to 100. Considering that we have at least a five month winter, the Vikings will control the usage of the park for nearly one-half of its usable time. In addition, they have a liquor license and free use of the park.  That leaves all costs including maintenance to be borne by Minneapolis taxpayers.  According to the Star Tribune (August 2, 2014), Park Board officials “expect the cost of operations and maintenance to approach $3 million a year.”  That would be some $90 million from the city over the life of the lease.”

Even former Mayor Rybak who rushed the agreement through the City Council last December is now “shocked” and suggested that this “should deeply concern the public.”  Well it does.

In spite of all these missteps and the raising of legitimate financial concerns, the State Auditor has refused a request to get involved.  Few people like controversy but we expect our political leaders to always have the courage to do right.

Certainly, it is unsettling to challenge large interests who have gained so much from this deal. Likewise, no one wants to call one’s political allies to accountability.  However, the State Auditor is the people’s financial watchdog and that expectation cannot and must not be compromised.  After all, if the State Auditor will not protect us, who will?

During the course of preparing this blog, I have been working with Paul Ostrow, former President of the City Council of Minneapolis and currently a County Attorney in Anoka.  He has been a truly outstanding and courageous leader.  His summary on the stadium issue is that  “the real legacy is a betrayal of the public trust by public officials wanting to fund the Vikings stadium while keeping the real costs and choices hidden from the people they are sworn to represent.”

The goal here is not election politics but rather confronting a problem that will harm us over the long-term unless we act decisively now.

One reality that must govern any future actions is the realization that the demands for more public money will not end. The demands will be with us through the life of the lease.  Witness just in the past week the articles on the glass and its impact on birds and the Minneapolis Park Board’s refusal to take over the “Park” project. Further, notice that all discussions on costs revolve around the taxpayer and not the owners of the Vikings.

With this in mind, I would submit the following proposals:

1 – That the Governor declare a “hold” on all pending taxpayer expenditures involving the stadium project. This includes Minneapolis as well as all state agencies and commissions. It is imperative that the bleeding stop.

2 – That the Governor work with the State Auditor and Legislative Audit Commission (it is bi-partisan) to create a joint audit team for the purpose of reviewing and enforcing the stadium spending limits imposed by the Legislature on state and local governments. This team should also be empowered to make recommendations relative to cost savings including shifting more of the burden to the beneficiaries (the Vikings owners).

The Governor, State Auditor and the Legislative Audit Commission should assume oversight responsibility. It may sound improbable for a Governor, State Auditor and Legislative leaders on a bi-partisan basis to work together during a highly competitive political campaign. However, I am persuaded that voter pressure will keep everyone in line.

3 – That candidates for Governor, State Auditor, and the Legislature discuss during their campaigns the role of pubic financing in public-private partnerships.  Perhaps they can agree to 1) appoint people to vital posts based on merit and not political friendship. This means selecting people with a demonstrated competence in business and administration commensurate with the talents of those representing the private sector.

It is equally imperative that all fully abide by not only the open meeting law but also the intent behind it. Openness is an enormous asset when making public policy.


We have the opportunity to correct some of the mistakes of the past and start building agreements toward restoring our traditional priorities  which always reflected a balanced commitment to our quality of life.  Central to that should always be our concern for our children - all our children.