TOWER— It appears a “morass of conflicting auditor and attorney advice” may have contributed to the current woes of Tower’s Gundersen Trust. That was one of the conclusions drawn by trust member Steve Wilson, who has spent weeks researching the history of 30-plus-year-old trust.
The trust, in its early years, provided the city with anywhere from $20,000-$40,000 in returns on an annual basis, which supported city operations, education, and recreation.
But poor management in more recent years, questionable advice from the city’s auditors, and low returns on bonds and certificates of deposits have left little after setting aside funds to cover the impact of inflation on the trust.
Now, members of the trust are trying to right the ship, while avoiding mistakes made in the past. One of the biggest, said Wilson, was the 2018 decision by the trust board to convert from a public nonprofit to a government trust.
“It was originally set up as a nonprofit, like the Gardener Trust [in Ely],” said Wilson.
In fact, said Wilson, the original language of the trust documents appear to have been taken nearly verbatim from the Gardner Trust, which had been founded just two years earlier.
But, based on advice from the city’s auditors, Wilson said city officials began taking steps to convert the trust from a non-profit to a government trust, which Wilson described as “the worst of all worlds.” By 2018, city officials completed that transition, but Wilson said it now appears that decision was a mistake, one that sharply limited the trust’s ability to direct its funds into more lucrative investments.
“It’s on Walker Giroux and Hahne,” said Wilson. “They said we didn’t meet the public benefit test for a nonprofit.”
Wilson noted that he was summarily removed from the board back in 2015, about the time city officials began moving to convert to a government trust. “I was thrown off the board; I suspect because they thought I might object,” he said.
Wilson said his in-depth review of the trust’s history has been revealing. “I’ve learned you don’t want to just sit back and take the auditor’s or the attorney’s advice. It was often conflicting,” he said. He added that Walker Giroux has not been very helpful with his inquiries. He said he eventually contacted a Hibbing auditing firm, Sterle CPA. “They provided a carefully considered response with some other things to think about,” said Wilson.
Wilson said he now believes the city might be best off transferring management of the trust to a separate foundation, like the Duluth-Superior Foundation or a similar entity, that manages endowments from a number of other cities and institutions. He said such entities can typically generate at least four percent returns on an annual basis, which, in the case of the Gundersen Trust, could yield almost $40,000 a year based on the trust’s roughly $1 million in assets.
While the change could well provide bigger annual returns on the trust’s funds, it could also limit the city’s ability to borrow funds from the trust, as it has done over the years for major expenses, such as a new fire engine and harbor-related expenses. In some cases, noted Wilson, a transfer of the trust’s assets to a separate foundation would be irrevocable.
But Wilson said the trust shouldn’t make any decision on next steps until it has thoroughly reviewed the situation with an experienced attorney. Toward that objective, the trust board briefly reviewed proposals from two law firms, Hanft Fride and Frybeerger, Buchanan, both of Duluth. But the two proposals had just arrived, so the board agreed to postpone any decision on the selection of a firm until the trust’s next meeting, which will most likely be held in May.