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Legislative Auditor: More documentation needed for Legacy Amendment

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Throwing a pot
A Veterans in the Arts student throws a pot at the Northern Clay Center in Minneapolis, Minn. Wednesday, Nov. 2, 2011. The program recently received a grant from the Legacy Fund.
MPR Photo/Jeffrey Thompson

The state Legislative Auditor on Wednesday recommended more documentation on how Legacy Amendment funds are spent to ensure lawmakers and the groups that receive money are complying with the law.

The report found inconsistencies in the structures and procedures used to oversee the Legacy Amendment funds. It said a requirement that the Legacy funds "supplement" and not "supplant" traditional funding streams has caused confusion and uncertainty.

Minnesota voters approved the constitutional amendment in 2008 to send a three-eighths-cent sales tax to the outdoors, clean water, parks and the arts. The report from the Office of the Legislative Auditor is the first in-depth accounting of whether the funds are being spent as intended and receiving proper oversight.

"It's one of those nagging issues that is important but is unclear," Legislative Auditor James Nobles told lawmakers during a two-hour hearing of the Legislative Audit Commission. "We cannot discern from the language or the history an enforceable standard."

But Nobles and his staff rejected the definition a coalition of conservation and environmental groups have presented — that programs for the outdoors should receive 1 percent of the state's general fund to keep with historical levels. 

"There is no requirement to maintain a certain level of funding," said Judy Randall, evaluation manager for the Office of the Legislative Auditor.

But Randall and Nobles said agencies should still keep better track of general fund spending as it compares to Legacy spending so that there's documentation of their efforts to follow the law. It could be important if there were ever a lawsuit, Nobles said. 

"We think a court would be more willing to show deference to the legislature if it saw due diligence," he said.

Molly Pederson with Conservation Minnesota said she'll be watching to see what lawmakers and state agencies come up with to document the different spending sources. 

"There's the legal definition and there's what's also known as the public smell test, and we are hoping that the legislative process comes up with something that satisfies both of those," she said.

The report cited a range of concerns about the amendment, including conflicts of interest, levels of administrative costs and whether Legacy programs are achieving results. 

But a separate  financial audit of three of the funds — outdoors, clean water and parks — found that most internal controls were adequate to ensure Legacy money was being spent responsibly. The report examined only the Minnesota Pollution Control Agency, the Department of Natural Resources and the Board of Soil and Water Resources — the three agencies that receive the largest percentage of those three funds.

Auditors did find some problems with those three agencies' finances. For example, the report said the Minnesota Pollution Control Agency, the Department of Natural Resources and the Board of Soil and Water Resources could not demonstrate that certain Legacy expenditures complied with all the legal restrictions of the amendment. That included questions about what portion of an employee's salary should come from Legacy funds and whether the same portion of the employee's time was being spent on Legacy projects.

The same three agencies also paid some grantees for costs without ensuring the costs complied with the Legacy law, the report said. And auditors found that the Minnesota Pollution Control Agency and Board of Water and Soil Resources made unauthorized advances of Legacy money to grantees.

Deputy Legislative Auditor Cecile Ferkul gave one example: The MPCA advanced a grantee $450,000, but the money wasn't used immediately.

"We found that over $300,000 of that money was still being held in a money market account by the grantee," she said. "We're recommending that the agencies not advance grant funds unless authorized to do so." There were also accounting errors. For example, the DNR paid one grantee a sum of $473,000 twice. When the grantee caught the error, the DNR allowed the grantee to keep the money and use it to offset future reimbursement requests. It took nearly five months for the offset to occur. 

The Legislative Audit Commission met for more than two hours Wednesday afternoon to hear from Legislative Auditor James Nobles and his staff.

Sen. Ann Rest, DFL-New Hope, said she was generally pleased with the report's findings on how agencies were carrying out Legacy programs. But she said the DNR's duplicate payment was unacceptable.

"How in the world does something like that happen?" she asked.

Auditors recommended the DNR review the payment errors and improve controls to prevent future errors. DNR Commissioner Tom Landwehr said his department is following all the recommendations and will have better controls in place by January.

"Clearly there are some deficiencies and we are working on them," he said. 

Lawmakers also expressed some frustration about not being able to know if Legacy programs were producing the results that were intended. Some lawmakers asked whether too many projects of "marginal significance" were receiving Legacy funding.

That's an ongoing question that Randall's office can't answer,

"It's something that's going to be there for the length of the amendment. It's something everyone is going to have to grapple with," Randall said.

Sen. Claire Robling, R-Jordan, questioned whether too much Legacy money was going toward testing and monitoring water quality rather than cleaning up impaired waters. But a member of the Clean Water Council that makes funding recommendations for clean water Legacy money defended the programs. 

"It's impossible to know the outcome if you don't know where you've started," said Rep. Paul Torkelson, R-Nelson Township.

On conflict of interest issues, Nobles said it was hard to define what constituted one. But the report recommended that the Clean Water Council work on increasing awareness of conflict of interest requirements.

Torkelson said that recommendation surprised him, because unlike the Lessard-Sams Outdoor Heritage Council, the Clean Water Council does not make recommendations on specific projects but takes a broader oversight role.

Nobles responded that members of the Council are serving in order to influence policy, so they should take care to disclose and deal with conflicts.

In the first two years of the amendment, the Legislature approved more than $450 million in sales tax money to fund programs that were carried out across the state. A similar sum has been allocated for the two-year period that began in July.

Thirty-three percent of the funds go to the outdoors; another 33 percent goes to clean water; the state's parks and trails receive 14.25 percent; and arts and culture programs receive 19.75 percent.

Minnesota Public Radio is among 18 public broadcasters receiving arts and culture Legacy money. MPR received $2.6 million in the first two years of the amendment and is receiving $1.3 million in the current fiscal year.

MPR Reporter Stephanie Hemphill contributed to this report.