Tony Sertich, Commissioner of the Iron Range Resources and Rehabilitation
IRRRB must use
incentives to nurture, retain and attract Iron Range businesses
Civic CaucusFocus on
CompetitivenessInterview November 1, 2013
Dave Broden (vice chair), Sallie Kemper,
Dan Loritz (chair), Dana Schroeder, Clarence Shallbetter. By phone:
Janis Clay, Pat Davies, Tony Sertich.
The Iron Range Resources and
Rehabilitation Board (IRRRB), a state economic development agency for
northeastern Minnesota founded in 1941 by the Minnesota Legislature
and then-Gov. Harold Stassen, has invested $71.5 million in projects
on the Iron Range during the three years in which Tony Sertich has
been commissioner of the agency. Originally focused on replacing the
depleting natural iron ore industry with the mining of taconite, the
IRRRB now promotes and invests in business, community development and
workforce development in its service area.
According to Sertich, in the past, the
agency focused on trying to attract new businesses to the Iron Range
by promising them monetary incentives. Now its first priority is to
help existing businesses in the region to grow. It is also focusing on
bringing value-added production to the region in mining and wood
products and on developing the area's workforce by encouraging
improvements in technical education in the high schools and community
Sertich says the majority of what the IRRRB
does is to provide gap-financing loans to companies in the region or
companies considering locating there. The loans are generally tied to
a commitment from the companies to provide jobs for a certain amount
of time at a certain wage level. Sertich finds himself "in-between" in
the controversy over how big a role economic incentives to businesses
should play in economic development versus making investments in
education, the workforce and infrastructure. He believes both are
Tony Sertich has served as commissioner ofthe Iron Range Resources and
Rehabilitation Board (IRRRB), a state economic development agency
founded by the Legislature in 1941, since his appointment by Gov. Mark
Dayton in 2011. A Democrat, he served in the Minnesota House of
Representatives for over a decade, representing District 5B, which
includes portions of the Iron Range in St. Louis County. At age 30, he
became the youngest House Majority Leader in state history.
As a fourth-generation Iron Ranger and a
resident of his hometown of Chisholm, Sertich understands the
challenges and opportunities facing northeastern Minnesota and works
as an advocate for the region. He is the business manager of a family
business on the Iron Range. He also is a co-instructor in the Master
of Advocacy and Political Leadership program at the University of
Minnesota, Duluth. He serves on the Duluth Seaway Port Authority.
Sertich has a B.A. degree in theater and
political science from Hamline University in St. Paul.
Range Resources and Rehabilitation Board (IRRRB) is a state economic
development agency founded in 1941 by the Minnesota Legislature and
Gov. Harold Stassen to rehabilitate the economy of northeastern
Minnesota, a region then dependent on natural iron ore mining. In
its early years, IRRRB economic development efforts centered on mining
research and replacing the depleting natural iron ore industry with
the mining of taconite.
By the 1960s, business development and
increased diversification of the northeastern Minnesota economy became
a key IRRRB mission. Passage of an amendment to the state constitution
in 1964, known as the Taconite Amendment, helped establish a stable
form of taxation for Iron Range mining companies, enabling the
construction of taconite plants across the region and creating
thousands of new mining jobs. According to current IRRRB Commissioner
the agency helped
fund the transition from mining iron ore to mining taconite, which
"has maintained the vibrancy of our mining industry in Minnesota and
in the entire U.S." He said Minnesota mines over 80 percent of the
taconite mined in the U.S. today.
The IRRRB serves northeastern Minnesota in a
swath between the Crosby-Ironton area and the tip of the Arrowhead, an
area roughly the size of West Virginia. The service area, which
has a population of 150,000 people, encompasses 140 communities, 15
school districts and parts of seven counties. It includes three iron
ranges: the Cuyuna Range, the Mesabi Range and the Vermilion Range.
The taconite production tax, paid by mining
companies in lieu of property taxes, has funded the IRRRB since 1971.
With IRRRB funding previously based on the occupation tax, which
decreased as natural iron ores were depleted, the 1971 Legislature
appropriated one-cent-per-ton from the taconite production tax to the
he production tax is levied
on mining companies based on how much taconite they take out of the
ground. In 1971,
the tax generated $170,000 in revenue to the agency. Today, a portion
(22 percent) of the taconite production tax supports IRRRB programs
and operations. Sertich said the
agency's annual budget is now $35 million.
Noting that the IRRRB does not receive state
funds, Sertich stressed that the taconite production tax is a local
tax that mining companies pay instead of paying local property
taxes. "It goes back to the Taconite Amendment," he said. People
sometimes think it's a state tax, he said, because the Legislature
sets the production tax level in the state tax bill and the state
Department of Revenue collects the tax.
But the state sends the production tax
revenue directly back to the Iron Range, where it is distributed by a
formula established in state law. Twenty-two percent goes to the IRRRB.
The rest goes to the cities, counties and school districts in the
region, since they get no property tax income from the mining
companies, and to property tax relief for Iron Range homeowners.
"Every dollar of it is raised on the Iron Range and every dollar comes
back to the Iron Range," Sertich said.
He added that, in addition to the local
production tax, the taconite mines also pay an occupation tax to the
state, in lieu of the state corporate income tax, and pay into the
University of Minnesota trust fund.
The Taconite Amendment, which passed in 1964
and governed the taxation of taconite mining and production, expired
in 1989, after its 25-year time limit. The amendment is still in
the state Constitution, but no longer limits the ability of the
legislature and the governor to impose occupation taxes on taconite
mining and production. In fact, the legislature has made a number of
changes in taconite occupation taxes since 1990.
The IRRRB is a unique state agency.
According to Sertich, it is the only state agency headquartered in
rural Minnesota (in the city of Eveleth), the only state agency that
serves only a portion of the state, and the only state agency that
gets no state funding. He said the IRRRB differs from economic
development districts created by cities, because it was created by the
Legislature, is multi-jurisdictional, and has more authority and
flexibility in how its funds can be spent.
The agency's board consists of the state
senators and representatives elected from state senatorial or
legislative districts in which one-third or more of the residents
reside within the IRRRB service area. One additional state senator is
appointed by the Senate's Committee on Rules and Administration.
Today, the IRRRB's mission is to promote and
invest in business, community development and workforce development in
northeastern Minnesota. Sertich said the agency invests in
business by giving economic incentives, mostly forgivable loans, to
businesses to locate or expand in the region. It invests in community
development in cities in the region by helping fund water and sewer
systems, roads and other infrastructure. And it works with colleges
and high schools and it funds programs to make sure the region has a
well-trained workforce into the future.
Minnesota has historically figured out a
balance between foundational competitiveness (things like quality of
education, the workforce, infrastructure, etc.) and investment
attractiveness. "There's no one silver bullet," Sertich said. "We
have to make sure we have a mix. There must be a balance between
taxation and regulation and investment in research and development,
education, and infrastructure."
Sertich said a multibillion-dollar Indian
company, Essar Steel, is looking at developing a taconite plant in
northeastern Minnesota and producing value-added by potentially making
steel. When company officials came to Minnesota, they first wanted to
go to the site where the mine would be located. Next, they wanted to
see the high school and the community college to find out where their
workforce was going to come from, what sort of capacity is there and
where their kids would go to school. The third place they wanted to
see was the hospital to see if it was prepared to respond to a mining
accident and how their workers would be treated.
Only after that, Sertich said, did the Essar
officials want to sit down to talk about taxes and regulations. "That
was the order of importance," he said.
He noted that over the past five or six
years, many companies have off-loaded the decision-making process of
site selection. "They hire other companies to do due diligence about
where they should expand or locate," he said. "So engineers, former
regulators and others go around and size up communities, but they
can't tell us what the project is or who the company is. It's kind of
frustrating for us, because our biggest pitch is what do you need to
succeed and we can tailor our support to you."
The IRRRB's first priority is to help
existing businesses in the region to grow. "Much of our strategy
had been taking our checkbook and offering businesses money to come to
northern Minnesota," Sertich said. "We were trying to sell ourselves
as a checkbook, rather than as a place with a strong workforce."
"We were traveling all over trying to hit a
home run, when we already have a bunch of companies here," he
continued. "Instead of looking for that one company that will bring
500 jobs, I'd rather look internally and see if we can help 50
companies create five jobs apiece. We would have a broader economic
base and the smaller companies are already here. We don't have to
convince them to come here. There's a lot less need for financial
incentives, because they're already invested here. It's an easier
The second IRRRB priority is pursuing
value-added production in minerals and in timber. Sertichsaidvalue-added
production would add to the region's economic stability and more high
wage, high skilled jobs. "We're looking at value-added in wood
products, just like in minerals," he said. "Sugars in wood could
replace some oil-based plastics in a whole host of products all across
the world. We don't have to just use wood for biomass or fuel."
The third priority for the IRRRB is focusing
on the many companies in the region that are producing products and
services for outdoor recreation.
The fourth priority is figuring out how the
region can attract businesses where people can work from home.
"We haven't been able to fully crack
that nut yet," Sertich said. "You need broadband and connectivity.
More people would like to look out and see a lake with a loon than see
a parking ramp and face traffic. I think we're going to eventually win
that argument, but I think we're at the front end of that discussion."
A Georgetown University study found that by
2018, 70 percent of the new jobs in Minnesota will require education
and training beyond a high school diploma. "Gone are the days when
you can walk out of high school and get a job to support a family in a
mine or a paper mill," Sertich said. "Our mining industry is requiring
something more than high school. They're working with tech schools and
colleges on things like computer-simulated training for truck drivers
and shovel operators."
"The mining industry of today is more
technical than in the past," he continued. "Everything has been
digitized and automated. It's phenomenally complicated. These
industries have evolved. We're definitely generations away from the
pick and shovel."
The IRRRB owns two tourist sites: the former
Ironworld, now the Minnesota Discovery Center, and the Giant's Ridge
ski hill and golf courses. The agencyused to operate Ironworld,
but a local nonprofit board now runs the renamed Minnesota Discovery
Center, bringing more stability to its operation.
More exploration has shown that northeast
Minnesota has one of largest deposits of copper, nickel, palladium and
cobalt in the world. According to Sertich, nonferrous
copper-nickel mining is a potential new development for the Iron
Range, because higher prices have made it more economically viable.
PolyMet Mining, Inc., is focused on developing its NorthMet
copper-nickel-precious metals project on the Iron Range.
He said the NorthMet proposal has been going
through an environmental review process, which is looking at the
impacts of specific proposals. "They're at the tail end of that," he
said. "In a few weeks that report will come out and Minnesotans will
have chance to question and comment on the proposal." He said if the
project can move forward, the permitting process will begin and the
project will then go to construction.
"Timeliness is an issue," Sertich said.
"When investors are at the table, they're investing in a window of
opportunity that is beneficial for them. Timeliness is very important
to the future of economic development."
"Gov. Dayton is frustrated by inefficient
bureaucracy," Sertich continued. "He wants a fair process, making sure
our regulators are our referees and that we see all the data before
making a decision. But he wants the process to be more efficient. It's
been in the review process now for eight years."
The IRRRB is encouraging improvements in
K-12 education in the region to prepare a workforce trained in the
more technical skills needed for today's jobs. Sertich said the
agency is working on bringing more hands-on, applied learning classes
back into the schools. What used to be "shop" classes are now things
like pre-engineering, welding, nursing, working with computers. "Those
are the first programs that get cut, because they are very expensive,"
The IRRRB has partnered with local high
schools, the five local community colleges and local industries to
"bolster up" those classes in K-12 schools. The agency has provided
some funding directly to deliver those classroom opportunities. "We
can make kids aware of industry at younger ages," he said.
The agency is involved with the Applied
Learning Initiative, which offers applied classes in high schools,
with students getting college credit through the community colleges.
"We work with our community partners to make sure students are
learning what they need to know and are using up-to-date equipment,"
It's important not to ignore existing
companies in the area. An interviewer asked how local and state
investments in existing Minnesota companies like 3M and the Mayo
Clinic compare with what the IRRRB is doing on the Iron Range.
"It's a slap in the face to existing
companies if we ignore them and look over their heads," Sertich
responded. "We can't forget about existing companies. But don't ignore
those companies coming in. It's a multi-pronged effort."
There is disagreement over how big a role
economic incentives to businesses should play in economic development
efforts. "Some people think we should stop providing economic
incentives and spend all our money on education, research and
infrastructure," Sertich said. "Others say we must provide more
economic incentives because we're competing with other states and
globally to attract businesses. I'm somewhere in-between. It's not an
exact science. There is the potential to go overboard and overpay for
"Minnesota has had a more broad and
progressive policy of investing in the workforce, education and
infrastructure, but also giving economic incentives," he continued.
"We can't be radically off the board on the indicators they're looking
at. We must play in every area, but we must play to our strengths. We
can't have a big fat zero on economic incentives or we're going to
lose a lot more than we win."
The majority of what the IRRRB does is to
provide "gap financing" loans tied to job creation. Many are tied
to a commitment to provide jobs at a certain wage level. He said the
agency doesn't incentivize low-wage jobs. Most of the agency's loans
are under $500,000.
"We usually don't give loans to mining or
existing paper industries," he said. "The vast majority of our funding
goes to manufacturing and other industries that are exporting out of
our region. They're putting their own capital in and getting some from
banks. We're the gap financing. We're trying to be more and more
strategic. We're trying to invest in those companies who are committed
to the area."
Not every business that has received a
monetary incentive from the IRRRB has succeeded. "Not every
economic incentive is going to work," Sertich said. "We're going to
invest in businesses that fail. We must get comfortable with that
fact. Not every business succeeds; that's a fact of life. We shouldn't
get reckless, but it's happened in the past and it will happen again"
Over the last three years, the IRRRB has
funded about $71.5 million in projects. Sertich said the total
public and private investment in the area during that time has been
$436 million, which has created 4,000 new jobs in the region.
The Civic Caucus
is a non-partisan,
tax-exempt educational organization. The Core participants
include persons of varying political persuasions, reflecting years of leadership in politics and
business. Click here
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David Broden, Janis Clay, Bill Frenzel, Paul Gilje,
Jan Hively, Dan Loritz (Chair), Marina Lyon, Joe Mansky,
Tim McDonald, John Mooty, Jim Olson, Wayne Popham and