The real concern behind IRRRB stock purchases

This past Sunday, the Duluth News-Tribune ran a story on how the Iron Range Resources and Rehabilitation Board lost about $280,000 through its investment in Duluth Metals. The story originated with Aaron Klemz, of Friends of the Boundary Waters, who had crunched the numbers and determined that the agency had failed to recoup all of a $937,500 investment it had made in Franconia stock back in 2011, prior to its acquisition by Duluth Metals. He sent his calculations to a few reporters, myself included.

I opted against the story mostly because we all know hindsight is 20-20. The IRRRB is far from the only investor in Duluth Metals that took a loss. Just about anyone who sunk money into the company came out of the deal with less green in their pocket.

Buying stock is risky. But sometimes it pays off— and the IRRRB has seen gains as well as losses in the handful of stock purchases it has made over the years.

Given the amount of money we’re talking about, roughly $280,000, it struck me as pretty thin gruel for a story that was as convoluted as this one.

When you compare it to the more than $10 million in outstanding loans to the Mesaba Energy Project— money that’s almost certainly gone for good— this was awfully small potatoes. For an agency that takes in $100 million a year in revenue, a $280,000 loss is equivalent to the guy who makes $100,000 a year who loses 280 bucks on a stock deal. I figured I had better stories to cover.

To me, the real issue here is whether the agency should be investing in corporate stock at all, particularly given the composition of the agency’s board.

Most of us who invest, buy stock in a company and hope for the best. We don’t have the ability, in most cases, to jigger the playing field to help boost our investment. But the IRRR board is comprised of some very powerful politicians, and they have, on occasion, pushed changes in state policy that have aided companies in which the agency has invested. And that’s the real problem here.

With investment, inevitably, comes a certain lack of objectivity. That’s why I don’t invest in local companies on which I might have to report, even if I think they might be sound investments. Doing so automatically puts you on the side of the company, and that could easily affect one’s editorial judgment.

Of course having a platform to influence public perception of a company is one thing. Having substantial control over the levers of state government, including the ability to pass laws directly benefitting favored companies, or harming competitors, is an entirely different matter.

While a small handful of other state departments have, on occasion, made modest investments in private companies (the Department of Employment and Economic Development also bought stock in Franconia, for example), these agencies are run by bureaucrats, who are charged with implementing policies, not making them.

In that sense, the IRRRB is unique, and it’s one of the reasons that many, myself included, believe the public interest would be better served by an IRRR board comprised of citizens, than one comprised of sitting legislators.

While the legislators who sit on the IRRR board may not directly benefit financially from a stock purchase, they certainly have reason to further the interests of the companies in which the agency invests— if only to keep negative stories, like the one in last week’s News-Tribune, from appearing.

That’s a bigger concern yet when the companies involved are advancing controversial projects, such as copper-nickel mining, which have the potential to bring both positive and negative impacts (read: winners and losers) to the region. When you’re invested in such a company, it’s quite natural to emphasize the winners and ignore the potential losers.

When some of those same legislators who approved a stock purchase in a copper-nickel mining company are down in St. Paul weakening environmental laws, or pressuring state regulators to green light controversial projects, despite legitimate concerns, that’s an even bigger cause for worry.

Sure, legislators might well argue that they would be taking such steps anyway, for other reasons, and that well may be. But that’s hardly an argument for getting still further in bed with a company or project over which a healthy bit of skepticism is always well warranted.

It’s hard to argue that the regulatory authorities of the state will adequately oversee projects with significant environmental impacts, and the potential for catastrophic effects, when we have lawmakers and state agencies, like the IRRRB, directly invested in the companies at issue. If the agency wants to forge a silver lining from its disappointing investment in Duluth Metals, it would adopt a policy prohibiting such investments in the future.