From Mesaba Energy to Foxconn, boondoggles light money on fire | Essay
Who could have foreseen? Foxconn groundbreaking in June 2018, when the company was going to build high-tech flat screens. White House photo.
An old friend in Iron Range politics once said it was easier to get people riled up about $25,000 in wasted taxpayer money than $10 million. “Twenty-five grand is a pickup truck,” he told me. “Ten million is incomprehensible.”
Pickups cost $50,000 now — more if you want your butt warmed while you idle in the drive-thru — but the point remains. Some consider a mother buying juice boxes with food stamps wasteful spending, but shrug at multi-millions to sustain ambiguous development schemes.
This phenomenon creates perfect conditions to grow a boondoggle.
Boondoggles are as old as time — think of the Devil himself — but the origin story of the word “boondoggle” is 90 years old, arising during President Franklin Roosevelt’s New Deal. A government program built a factory that made neckerchief slides, sometimes called boondoggles, to create jobs.
Boondoggles are magical projects that turn sketchy, unnecessary, or self-serving concepts into perfectly legitimate activities. In the world of boondoggles, nothing is too outlandish. Think of how the Pendergast political machine of Kansas City paved a river to appease loyal workers and business interests in 1935. It was supposed to help prevent flooding, but actually made flooding worse.
Today, these kinds of projects garner support from Democrats and Republicans, which sometimes makes boondoggles the only things that can pass gridlocked state legislatures or Congress.
Boondoggles promise jobs, which builds excitement with unions and local governments. Other developers see opportunities to gain secondary returns. And, just like how carbon monoxide mimics oxygen as it suffocates, boondoggles often seem like genuine progress, re-electing officials even as the local economy dies.
Existentially, boondoggles convey the notion that the world’s problems are easy to solve; it just takes money and blind faith in the people asking for the money.
Admittedly, one of the problems with boondoggles is that they are subject to interpretation. One person’s boondoggle might be the cornerstone of another person’s entire belief system. For instance, detractors might describe ethanol, public transit, infrastructure, clean energy or even the United States military as boondoggles. But real boondoggles are much more specific.
Let me share an example of a boondoggle I’ve covered. It’s an idea that has cost $41 million in taxpayer dollars over two decades, but still hasn’t produced a product.
With a name like ‘Excelsior’ …
In 2001, LTV Steel announced the closure of its taconite mine in Hoyt Lakes. Looking back, we can mark this moment as a historical turning point, the high-water mark for mining employment in the Taconite Age. It was — or should have been — the moment we realized that mining alone would never restore the economic and political strength of the Mesabi Iron Range.
But among the many diversification ideas that state and local governments could have pursued, one emerged as the definitive favorite among the local political establishment, then dominated by the Democratic-Farmer-Labor Party. A newly formed company called Excelsior Energy proposed something called the Mesaba Energy Project.
Originally, the Mesaba Energy Project was to be a coal gasification power plant near the LTV site. Its principals were Tom Micheletti and his wife Julie Jorgensen, both energy industry lawyers and lobbyists seeking to build their own company.
Micheletti was a high school hockey star from Hibbing. He was friendly with the Range DFL political establishment and had a history with Minnesota Power. The narrative was compelling: hometown boy wants to create jobs on the Range.
In 2001, the Iron Range Resources and Rehabilitation Board, a public agency known as the IRRRB, first loaned $1.5 million to the project for planning. Two years later, they loaned another $8 million to advance the project. The loans were highly flexible, preserving several options to delay payback. Indeed, they’re still unpaid.
Excelsior moved the project from Hoyt Lakes to a site near Taconite in Itasca County, citing land issues and proximity to coal. In fact, the entire Mesabi Range is geologically unsuitable for carbon capture and sequestration technology, so they actually suggested building a pipeline for coal slurry to be shipped back to North Dakota.
Even so, had Excelsior Energy promised a significant investment to build their power plant, none of this would be all that noteworthy. It might even have been great news, at least if you accept the efficacy of this specific kind of “clean coal” technology. (Scientists are increasingly skeptical.)
But Micheletti and Jorgensen founded their company on a $60,000 personal investment, less than most people pay for a starter house. Instead of a big private investment by the owners, the Mesaba Energy Project hinged on a two-step political parlay with the state Legislature and Public Utilities Commission.
The company hoped to pass a law mandating that existing utilities buy electricity from a Minnesota-based “innovative energy project.” The same law would designate their proposal as such a project. All that would remain was a rubber stamp from the PUC.
This meant that a company founded on money borrowed from Minnesota’s mining tax dollars would be capitalized on the back of a state law requiring customers to do business with them. Quite a lift. That’s why the company employed several dozen lobbyists through the mid-2000s — and zero millwrights.
Years later, the Office of the Legislative Auditor investigated how Excelsior Energy spent the original IRRRB loans. It was against the rules for them to spend the money on lobbying, but the auditor found that it was impossible to say exactly how the money was spent. Most of it went to high-profile Twin Cities law firms for unspecified work. Many of these firms employ lobbyists, but good luck proving that’s where the money went.
Thanks to the efforts of these lobbyists, DFL legislators and conference committee heroics by Iron Range State Sens. Tom Bakk and David Tomassoni, Excelsior got its bill. Republican Gov. Tim Pawlenty signed it. They then got another $10 million in state grants, which led to another hefty boost from GOP U.S. Sen. Norm Coleman, who paved the way for a large federal grant to explore their new technology.
Excelsior Energy eventually turned their $60,000 investment into $41 million in public funding for legal fees, office expenses, personal reimbursements, and salaries. Unfortunately for them, the state PUC shot down the requirement that mandated the purchase of power from Excelsior.
Live and die by the Gucci loafer: Lobbyists and lawyers from bigger companies like Xcel and Minnesota Power proved to be the scheme’s undoing. They argued that Excelsior’s power would be so expensive they’d have to raise rates. (And then, many years later, they would raise rates anyway.)
When Excelsior’s original loans came due in 2011, the company changed its tune. They would no longer build a coal plant, but rather a natural gas power plant. This admission was enough to get their loans re-extended until 2019. But, in a stealth action that received no reporting at the time, a provision extending them another six years was added to a bill in 2017.
The company address now points to a ritzy storage facility in New Hope. Micheletti is retired and Jorgensen is selling solar farm technology to municipal customers.
Their loan with the IRRRB will come due again in 2025. The original papers are old enough to drink, and certainly would if they could. None of the elected officials who advanced the project will be in office when that day comes. Everybody involved enjoyed long, fruitful careers.
Boondoggles are by no means confined to northern Minnesota’s Iron Range region, a place that has been accused of relying on them for more than a century.
Wisconsin’s efforts to attract the Taiwanese manufacturer Foxconn to a site near Racine drew enormous attention. Under the original 2017 proposal, Foxconn would put $10 billion into a factory complex in the Badger State in exchange for a gobsmacking $3 billion state incentive package. More than 13,000 jobs were promised.
The Foxconn deal was the darling of former Wisconsin Gov. Scott Walker and then-President Donald Trump. Whatever the project’s actual merits, it became a widely touted Republican talking point attesting to American manufacturing’s return to glory days under Trump.
But reality proved underwhelming. Foxconn hedged on its investment even as the massive public costs drew increasing scrutiny. Walker’s 2018 defeat in his bid for re-election could be at least partially attributed to the Foxconn flop.
Today, Foxconn does operate a factory in Wisconsin, but much smaller in scope. The company investment and employment each total about 10% of the original proposal.
Foxconn might be an example of a boondoggle designed for short-term political gain that simply asked too much of human credulity. We’ll never know how serious the original $10 billion proposal was. In fact, the mystery surrounding boondoggles is one of their most effective defense mechanisms.
People on the Great Plains are watching that happen right now. Earlier this year, an undisclosed company sought more than $1 billion in public subsidies to build a factory in Kansas. The catch? No one could know the name of the company or any specific details without signing a non-disclosure agreement. Legislators voting on the subsidies could learn more, but only if they signed an NDA.
Some lawmakers did this; others refused. But the NDAs prevented those who knew the details from discussing the project with those who had not. This included fellow lawmakers and even the constituents who had elected these officials. This turned public debate on the project into a farce.
Meantime, the same thing was happening in Oklahoma, where the legislature and governor authorized up to $700 million for an unnamed factory. Ultimately, the big secret turned out to be a Panasonic plant to build batteries for Tesla. The company was playing the two states off of one another, and in fact continues to do so, having yet to decide where to locate.
All of these projects share a common strategy that is becoming ubiquitous in American economic life. While socialism remains a dirty word when it comes to benefits for the broader population, developers and corporations expect those benefits as established policy. The public takes the risk, while the private sector later reaps the profits.
Almost 40 years ago, Rudy Perpich, Minnesota’s only governor to hail from the Mesabi Iron Range, was lambasted for a $3 million incentive deal that created an ill-fated chopsticks factory in Perpich’s hometown of Hibbing. To this day, you will hear seasoned political hands on both sides of the aisle laughing about the folly of the Iron Range chopsticks factory.
This only demonstrates how boondoggles have evolved. In terms of dollars, that project was a comparatively small public investment. And at least the chopsticks factory was actually built and, for a time, produced by-God chopsticks. (Albeit inferior ones, rejected by East Asian consumers.) Such earnestness in the business of boondoggling harkens a bygone era.
But do not lose sight of the true cost of boondoggles like the Mesaba Energy Project, Foxconn or their ilk. Yes, they waste vast amounts of taxpayer money. But worse, they steal time, energy and hope from a society that desperately needs real solutions to our most challenging problems.
This perhaps best illustrates the point that lasting economic development begins in the community and is better compared to gardening than to dropping a prosperity bomb. It also suggests that if helping people is the end goal, we might try investing in them directly, rather than letting the funding first pass through the kidneys — often diseased — of the well-connected.
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