A generation ago, Pheasants Forever was but a dream of a young newspaper outdoors columnist named Dennis Anderson, who launched the organization to rally outdoorsmen to protect bird habitat from encroaching urbanization and agricultural use. Today, it’s a formidable entity with $43 million in annual revenue and 125,000 members (27,000 of them in Minnesota) in 600 chapters in the United States and Canada. Nearly half of its revenue comes from government sources.
Of late, the White Bear Lake-based nonprofit has taken on a more decisive role—buying hundreds of acres of land each year to keep it perpetually out of the hands of developers and agribusiness. Enabling it to do so is more than $45 million generated through taxes, dollars appropriated each year through Minnesota’s Legacy Amendment since its passage in 2008. In fact, Pheasants Forever receives more Legacy support than any other nonprofit program.
Why, and how, pheasant habitat protection has become the biggest private purpose of an amendment designed to sustain the state’s legacy helps illustrate significant questions and concerns about how the $7.5 billion it is raising is being managed. And it raises the question: Whose legacy will taxpayers really end up supporting?
Legacy’s landslide popularity
The Legacy Amendment? If the name doesn’t resonate, you probably voted for it nonetheless. Six years ago, as a wicked recession stormed in and opposition to tax increases was rising, Minnesota voters chose, by a 56-39 margin, to write a 25-year tax increase into the state’s constitution. That decision raised the state’s sales tax by three-eighths of a cent to 6.88 percent. The regressive nature of the sales tax didn’t get much attention during the amendment campaign, but this tax hits lower-income households harder than taxes on property and income, according to the Institute on Taxation and Economic Policy.
Legacy revenue, pouring in at a rate of about $300 million a year ($7.5 billion over its life), is dedicated to clean water, the arts and cultural scene, parks and trails, and outdoor habitat. There’s no single river through which the revenue flows, no agency in charge. Four complex and overlapping funding structures—with a host of citizen boards and review panels—divvy up Legacy money for each of the four funding pots. The appropriations process is opaque. The Legacy website is incomplete and infrequently updated.
The Outdoor Heritage and Clean Water funds each get 33 percent of the money. The Arts & Cultural Heritage fund gets 20 percent. The Parks & Trails fund gets 14 percent. (See the supplemental information to learn more about each individual fund.)
Five years in, many question whether Legacy spending is living up to the promises of those who pushed the amendment and benefit from its largesse. In an audit released late in 2011, the state’s Office of the Legislative Auditor (OLA) raised numerous concerns around the Legacy funding process and its governance. OLA did not uncover major abuses, but concluded that “for most people the ultimate concern is whether Legacy money is used to achieve the outcomes proposed in the Legacy Amendment.”
Rep. Rick Hansen, a DFL legislator from South St. Paul, is among those calling for more monitoring of Legacy funding practices and outcomes. The House Republican leadership kicked him off the Outdoor Heritage Council in 2011 after he questioned the council’s emphasis on land acquisition, voting against certain purchases and proposing more effort be focused on improvements to existing public lands. Last year, with the DFL back in control of the Legislature, he was reappointed. Hansen, perceived by outdoor heritage interests as a maverick, thinks the council focuses too much on land acquisition and should spend more restoring and enhancing land already owned by the state.
Minnesota: A growing landowner
Land purchases have become a source of ongoing tension in much of northern Minnesota, where large public holdings limit development and depress property tax revenue. State government owns at least 17 percent of land in Minnesota (some estimates place it as high as 25 percent), ranking fourth among states in total acreage, according to the Department of Natural Resources. Now it is bringing more land under public ownership thanks to Legacy acquisitions. Under the Outdoor Heritage Council’s 25-year plan, as many as 1.5 million acres could be publicly acquired (for all types of preservation and restoration purposes) with Legacy dollars if the fund’s current trajectory is maintained. This translates into about 2,300 square miles, or nearly four-fifths the acreage of the seven-county metro area.
Local government is concerned. Thirteen counties have already approved “no net gain” public land resolutions, some before the amendment passed. These declarations are only advisory, but they are a measure of the opposition to land sales that lead to yet more public ownership.
“The Legislature needs to ask tough questions because this is a large chunk of change,” Hansen says of Legacy funding. “It’s a question of outcomes. What are we getting for that money?”
Hansen is a member of Pheasants Forever and several other outdoors groups, but thinks some of the Outdoor Heritage Council’s most passionate backers, including Dennis Anderson, have too much influence at the council. “There has been a band-of-brothers philosophy that those who worked on the Legacy campaign,” he says, “are entitled to the fruits of the campaign.”
Pheasants’ members function almost as real estate brokers in connecting their organization with private owners willing to sell their land, says Garry Leaf, executive director of the advocacy group Sportsmen for Change, which backs the council and its grants to Pheasants and similar conservation organizations.
Pheasants spokesman Rehan Nana says the organization saw an opportunity to permanently protect habitats for wildlife. Pheasants has used two-thirds of its Legacy money for these purchases (the other third goes to restoring habitat). Pheasants defenders say its outsize role in handling Outdoor Heritage funds is largely due to its initial preparedness to take action with them. Bill Becker, executive director of the Outdoor Heritage Council, says Pheasants had already developed the capacity to engage in land deals and had projects ready when the amendment’s funds began to flow.
Pheasants conveys all of this land to the DNR or the U.S. Fish & Wildlife Service. Minnesota county officials worry about the tax impact of these deals. Counties have received payments in lieu of taxes for state-owned land for many years. But thus far, legal concerns have kept the state from using Legacy funds for land stripped from the tax rolls after it was acquired with Legacy money.
An easy billion
To get a sense of whether Legacy is delivering on its promises, TCB looked at more than 7,000 Legacy grants and appropriations among the $1.015 billion distributed in the first four years of the amendment’s life, interviewed more than 50 key stakeholders, and sifted through countless reports and articles. While departments of state government are Legacy’s main beneficiaries, parts of the nonprofit sector are awash in new funding.
Pheasants excels at securing grants from Minnesota’s Lessard-Sams Outdoor Heritage Council, which is funded through the Legacy Amendment. All told, it won $45.5 million in Legacy money during the period—roughly a seventh of all Legacy funds going to private interests.
The next largest recipient is the Minnesota Historical Society, at $19.9 million, followed by the Nature Conservancy at $19.6 million. But this is small potatoes compared to the dollars flowing to state government. (The Legacy statute requires its tax receipts to be dedicated to new programs and initiatives, even dollars that are routed to state agencies. But in their hands, Legacy dollars have become hard to trace. See “An auditor’s nightmare” sidebar.) Minnesota’s DNR is the hands-down biggest recipient, with more than $401 million in new money during Legacy’s first two biennia. And Legacy funding means the State Arts Board has the highest per capita spending in the United States, projected at $6.36 per person for 2014.
Backers argue this spending has made the state significantly more competitive economically. “What Minnesota did is one of the best investments in our economy we could have made,” says Peggy Ladner, executive director of the Nature Conservancy’s Minnesota operations. “It has everything to do with our business climate—our land, our water and our quality of life. These are what attract talented people.”
Yet interviews conducted by the Civic Caucus with a parade of business climate watchers last year show nary a mention of the Legacy Amendment as a factor in attracting or keeping business. Quality of life gets attention, but factors like education and workforce quality, regulation, taxes and support for entrepreneurs turn up as the primary concerns. (The caucus is a public affairs group; interviews are posted on its site, civiccaucus.org.)
Fighting for funds rather than outcomes
A few years before voters passed the amendment, the Minnesota Taxpayers Association (now called the Minnesota Center for Fiscal Excellence) issued a prescient warning. Sensing correctly that billions of dollars in state taxes were about to be set aside as untouchable for years, in 2006 it examined research and reporting on a similar amendment in Missouri. Its analysis concluded that while the causes might be worthy, so are causes repeatedly subjected to annual scrutiny by state legislators; dedicating state funds for Legacy-like causes would strip the state of its ability to reset priorities, the association noted. Others say that fencing off so much tax money for Legacy causes for so many years limits state budget flexibility and ultimately steers dollars away from education, transportation, disaster relief and other public causes. For example, $10 million buys annual pay and benefits for 143 teachers or 6.7 miles of two-lane rural highway, according to the Minnesota House research office. But Legacy is a money spigot that can’t be diverted or turned off.
Minnesota voters shrugged off that and other concerns, thanks largely to the remarkably savvy campaign for the amendment. Veteran political hand Ken Martin, now chair of the DFL Party, led the drive. Two major pro-amendment groups raised $4.1 million in 2008, 32 times the amount raised by the amendment’s only major opponent. The strategy focused on the importance of restoring and maintaining the integrity of Minnesota’s water. Days after the election, a poll taken by Lake Research Partners for the Minnesota Environmental Partnership found that 42 percent of registered voters who backed the amendment cited “cleaning up and protecting Minnesota’s lakes, rivers and streams” as the primary single reason for their vote. Other causes were cited by only 27 percent combined.
From the beginning there have been catfights in the Legislature over how to distribute Legacy proceeds. Last year the battles over appropriations got so rugged that Gov. Mark Dayton declared that he has “rarely seen the acrimony and distrust” stirred up in the 13 legislative sessions he’s participated in. The further we get from 2009, “the more the bloodletting,” DNR Commissioner Tom Landwehr told TCB.
Some of the state’s strongest advocates for clean water, like former Senate Finance Committee chair Gene Merriam, worry that Legacy funding won’t do nearly enough to guarantee cleaner water. Merriam, who was also a DNR commissioner, says that although taxpayers spent more than a billion dollars to clean up the Minnesota River in the last three decades, government agencies couldn’t show the money led to cleaner water. “I don’t regret that the Legacy Amendment passed,” Merriam says. “My chief concern is that it won’t be as beneficial as it should be.”
And in the end, it might not be easy to prove. In 2001, Dennis Anderson wrote a series for the Star Tribune, where he has been the outdoors columnist since 1993, hailing the virtues of a dedicated funding scheme that set aside millions of sales tax dollars for conservation causes in Missouri. The Taxpayers Association’s 2006 analysis found that even as dedicated money rolled in for various conservation-related initiatives, core state services were being slashed. Something similar has been happening in Minnesota, recalling the budget crises of 2008-09, where state finances were squeezed just as Legacy dollars began flowing in.
Legislative Auditor Jim Nobles’ analysis of Legacy grants and procedures raised numerous red flags (see sidebar), most notably a lack of clarity on how to measure results. The state’s audit concludes that for most Minnesotans, the ultimate issue is whether Legacy money is used to achieve the outcomes proposed in the amendment.
The question looms large, and thus far, there is little to point to. “There should be a high standard for how we program these funds,” says McKnight Foundation president Kate Wolford, “so that in the end, we can say, ‘Wow, we did the right things.’ ”
For more on the Legacy Amendment Investigation see the following supplemental information:
Legacy’s power players
The Columnist > Dennis Anderson
Friends and foes see crusading Star Tribune outdoors columnist Anderson as the voice of the orange. Insiders say his persistent advocacy was influential in Legacy’s passage. He began writing columns in 1980, and in 1982 founded Pheasants Forever, easily the top nonprofit beneficiary of Legacy money. Nearly all Minnesota’s dailies, including Anderson’s, editorialized against the amendment; virtually all of their outdoors columnists, including Anderson, backed it.
The Arts Guy > Dick Cohen
Senate Finance Committee Chair Dick Cohen is credited with brokering the deal that brought the arts and heritage sector to the Legacy Amendment’s partnership. He’s the state’s ultimate arts advocate, using Legacy funding to catapult Minnesota to first among states in per capita arts funding. And because the Arts & Cultural Heritage Fund has some of the loosest change in the Legacy pot, Cohen is under constant lobbying pressure to allocate money to causes.
The Diplomat > David Hartwell
A life-long conservationist, David Hartwell is the citizen-chair of the Lessard-Sams Outdoor Heritage Council. In his day job he’s president of Bellcomb Technologies, a New Hope-based manufacturer of honeycomb panels used for office systems. He attempts to guide dueling factions to make orderly funding recommendations for the Outdoor Heritage Fund.
The Troublemaker > Phyllis Kahn
Representative Phyllis Kahn’s Minneapolis House district flanks the Mississippi. As chair of the House Legacy Committee, she’s an outspoken critic of the priorities of the Lessard-Sams Outdoor Heritage Council. Kahn wants more money for the metro area, so she made sure last year’s House bill grabbed more Legacy dollars for it. Gov. Mark Dayton vetoed the changes, and the Democrats’ spat made headlines. “He’s the only governor who’s ever hung up on me,” Kahn told TCB.
The Boss > Tom Landwehr
Tom Landwehr returned to the Department of Natural Resources in 2011 to lead the agency of about 2,800 employees. A sportsman, Landwehr is the consummate insider, with 17 years at the DNR as a biologist and wildlife manager. He spent 12 years in management at Ducks Unlimited and the Nature Conservancy. The DNR is the crossroads for about 40 percent of all Legacy dollars. That puts Landwehr at the junction of a litany of debates about how to spend Legacy money.
The Watchdog > Jim Nobles
Jim Nobles was just appointed to his sixth six-year term as Minnesota’s legislative auditor. Public affairs aficionados dub him the state’s most enduring and credible watchdog. Known for his cool demeanor and low profile, he and his staff have uncovered a staggering array of questionable practices over years of monitoring state government. So far, OLA has done one major audit of Legacy policies and practices, plus at least seven smaller ones. Expect many more.
Parks and Trails Fund
Metro/outstate battle lines drawn
The Legacy Amendment’s language for this fund states that the money may only be spent “to support parks and trails of regional or statewide significance,” considerably looser language than for the Clean Water or Outdoor Heritage funds. As a result, watchdogs think these funds could be spent on deferred maintenance or other projects that would previously have been financed through traditional funding sources and programs.
Last year saw tense meetings of a committee set up to establish sharing percentages among statewide, rural and metropolitan interests. DNR Commissioner Tom Landwehr said that reaching agreement on the fund’s 40-20-40 split “nearly caused a meltdown” due to acrimony among the groups. One reason? Brian Rice, general counsel and lobbyist for the Minneapolis Park & Recreation Board, has been an unstinting advocate for a larger metro share of this pot.
Audit: Key problems
The Office of the Legislative Auditor (OLA) suggested that nongovernment individuals and groups need more opportunities to advise the DNR and Metropolitan Council about Legacy grants the two agencies are making. OLA cited a concern that agencies spend too much Legacy money operating and maintaining existing parks and trails, and not enough on meaningful enhancements.
Outdoor Heritage Fund
Public ownership of ever more land
By far the easiest of the funds to describe from a “follow the money” perspective, the Outdoor Heritage Fund is overseen by the Lessard-Sams Outdoor Heritage Council, a 12-member group of eight citizen-appointees and four legislators.
The council meets about once a month to develop funding priorities and review and select proposals to recommend to the Legislature. Appropriations include land and easement purchases, and many kinds of habitat protection and restoration projects. Asked what exemplary projects are possible because of the influx of funding, supporters cite a $36 million Legacy grant that helped purchase perpetual conservation easements on 187,000 acres of intact forest and wetland ecosystem along the Upper Mississippi.
Legacy backers argue that the council’s use of Legacy money to buy or set aside land owned by private landowners has lessened acreage vulnerable to patchwork development. But the strategy has renewed long-standing tensions over Minnesota’s large amount of tax-exempt land, as organizations like Pheasants Forever purchase acreage and convey it to state and federal agencies for perpetual preservation (see main story).
Case in point—in 2011, UPM Blandin, the Finnish transnational that owns the Blandin Paper Co., jolted assessors in four northern Minnesota counties when it launched challenges of their valuations for its extensive property holdings. Blandin cites Legacy-funded conservation easements as part of its claim for a reduced valuation. Blandin paid $1.43 million in property taxes to Itasca County governments on the parcels at issue in 2011, according to county tax records. If its appeal succeeds, county officials estimate local governments would lose up to $3.53 million in 2011-’13 property taxes, plus continuing hits in the years ahead. A Minnesota Tax Court decision is pending.
The Lessard-Sams Council was the arena for a dustup during the 2013 legislative session. The dispute pitted metro legislators, particularly Minneapolis DFLer Phyllis Kahn, against council members. The vast majority of Outdoor Heritage dollars flow to Greater Minnesota, but metro legislators want a bigger piece of the pie. When legislators modified the council’s recommendations, Gov. Mark Dayton vetoed the changes. Since then, the council has recommended several new metro restoration and enhancement projects for funding in 2014.
Audit: Key Problems
The 2011 Legislative Auditor’s report suggested the state might not have the resources to manage the land it already owns. “We think that using money from the Outdoor Heritage Fund to purchase land will remain an ongoing concern,’’ OLA warned. To solve the tax starvation concern, legislators have proposed that Legacy funds be tapped for payments to local governments in lieu of taxes. Addressing counties’ concerns about losing property taxes when Legacy-acquired land falls off tax rolls, the audit noted that Deputy Attorney General Christie Eller has warned the Outdoor Heritage Council that doing so might not be legal.
Clean Water Fund
Programs without outcomes?
Legacy’s Clean Water Fund was voters’ highest priority and is bringing new money to one of Minnesota’s most vexing challenges: how to make the state’s rivers, lakes and streams as clean as clean can be. The money goes entirely to government agencies, some of which re-grant it to cities, counties, and watershed districts, sometimes in partnership with nonprofits. Six state agencies, the Met Council and the University of Minnesota Water Resources Center propose funding allocations to the governor, who sets priorities in his annual budget proposal.
A 19-member Clean Water Council is advisory, with no funding role. Grants can be difficult to track, since they are spread across multiple agencies and often combined with non-Legacy funds.
Tension points are numerous. Critics say outcomes should be stressed, since it’s possible to measure whether water is cleaner. And the fund’s emphasis on government frustrates officials at nonprofits, who think they can accomplish more, at a lower cost, than their public counterparts can.
Audit: Key Problems
Some environmental organizations and legislators worry that money won’t go to the projects most likely to lead to significantly better water quality. OLA vetted the Minnesota Center for Environmental Advocacy’s review of 123 grants (some of them Legacy grants) made by the Minnesota Board of Water and Soil Resources (BWSR) and couldn’t find “measurable progress” in reaching water quality goals. BWSR’s then-assistant director Julie Blackburn was quoted in the Star Tribune saying, “Legacy money is coming in faster than the data needed to identify projects that provide the biggest bang for the buck.” OLA also found a need to focus on moving beyond testing and data collection toward actions that mitigate and prevent water contamination.
An auditor’s nightmare
Auditing the effectiveness and integrity of the Legacy Amendment is proving difficult.
Legislative Auditor Jim Nobles’ audit of the four Legacy funds identified major issues likely to remain ongoing concerns. They raise “complex questions without easy answers,” says Nobles, who says his ultimate concern is whether Legacy money is being used to achieve the outcomes codified in the Amendment.
Consider the language of the amendment itself, which says Legacy money “must supplement traditional sources of funding . . . and may not be used as a substitute.” Times got tougher in the recessionary years that swept in just as Legacy dollars began flowing. That motivated state agencies to seek Legacy funds to patch existing programs. Nobles declined to draw a bright line on this. Instead, he recommended that the Legislature “establish a process that legislators could use” to do so.
The issue is crucial because it strikes at the heart of the Legacy tax’s ability to create the outcomes voters were promised. “Nobles really let us down,” says Outdoor Heritage Council chair David Hartwell. Also unhappy is retired legislator Gene Merriam, who serves on the Clean Water Council. Merriam argues that many Legacy grant-seekers have an “institutional imperative” to tap Legacy money to protect existing programs.
Monitoring another concern, conflicts of interest, is freighted with controversy because of deep disagreements over what constitutes a conflict. The audit noted two Star Tribune stories about Pheasants Forever: Scott Rall, president of a Pheasants chapter, voted for millions in Legacy grants to Pheasants projects as a member of the Outdoor Heritage Council, which approved the grants. And Ron Schara, on-air host and executive producer of a weekly Pheasants Forever TV show, was named to the council and voted on Pheasants grants.
The auditor also expressed concern over state government’s ability to measure how much administrative cost to assign to Legacy, leaving the efficiency of the various funds up for debate. The Legislature has sought to limit Legacy administrative expense, but state agencies have told legislators their guidelines are confusing.
Dave Beal is a retired business editor of the St. Paul Pioneer Press, a longtime Twin Cities business journalist and a regular TCB contributor. Sarah Lutman is a consultant to nonprofits who covers philanthropy and the nonprofit sector for TCB and authors our monthly Performing Philanthropy column.
This article is reprinted in partnership with Twin Cities Business.