School district's consolidation legal wrangling may have statewide impact

School construction
The gym as seen from the stage of the auditorium at the North Woods School in Cook, Minn. Part of the St. Louis County school system, the facility is still under construction and is slated to open for classes next year.
Derek Montgomery for MPR

Two legal disputes involving a rural northern Minnesota school district could impact how other Minnesota school districts communicate with their constituents about tax hikes and provide financial data to the public on construction projects.

Both stem from the St. Louis County Schools' controversial consolidation plan, in which voters approved a tax increase to build two new schools and close others. Critics of the plan initiated both cases.

Last week, the Minnesota Supreme Court heard arguments from an attorney representing the mayor of Tower, Minn., and a citizens' group who filed a complaint against the school district for allegedly using taxpayer money and false statements to promote the bond referendum that paid for the consolidation plan.

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More on this story:
• Johnson Controls deal rankles officials, voters

And the editor of a weekly newspaper plans to ask the state Court of Appeals to weigh in on whether he should have access to agreements signed between Johnson Controls, a company that worked on the school district's consolidation plan, and its subcontractors.

DID PROMOTING BOND REFERENDUM GO TOO FAR?

In 2009, the St. Louis County Schools were facing a budget deficit, and school district officials decided the only way to ensure the district's survival amid declining enrollment was to consolidate. The district hired Johnson Controls consultants to help officials come up with a consolidation plan and communicate with constituents about it.

Literature distributed to voters claimed that the district would have to dissolve if a $78 million bond referendum was rejected because the district's deficit would swell to more than $4 million within a few years. The district also claimed that approving the bond referendum would bring new educational opportunities to the district's students. The bond referendum passed.

Steve Abrahamson, the Tower mayor, argued that the claims leading up to the vote were false, and he said the school district should have reported what it spent on promoting the bond referendum, as instructed in campaign finance reporting laws.

An administrative law judge dismissed the claims, but the Minnesota Court of Appeals agreed with the mayor that some of the statements the district used to inform voters about the bond referendum were false. The appeals court also said school districts are subject to campaign finance laws.

The state Supreme Court will decide whether school districts are subject to campaign finance reporting requirements and whether an administrative law judge was correct in dismissing the case.

On Tuesday, an attorney representing the school district argued that officials were distributing factual information — not trying to persuade voters to approve the bond referendum.

"If you look at the record as a whole [the newsletters] were not promotional in nature," attorney Stephen Knutson said. "The district was going to be in statutory operating debt."

But Erick Kaardal, an attorney representing Abrahamson and other constituents, said more and more school districts are crossing the line and should be reporting campaign expenditures just like everyone else.

"School districts have turned themselves into campaign machines," he said.

SHOULD SUBCONTRACTS RELATED TO PUBLIC PROJECTS BE OPEN?

The St. Louis County Schools ended up hiring the same company that did consulting work to oversee the voter-approved $78 million construction project.

One of the most outspoken critics of the school district's restructuring — and its work with Johnson Controls — has been the Timberjay, a weekly newspaper with editions in Tower-Soudan, Cook-Orr and Ely.

The paper's editor, Marshall Helmberger, has questioned the projections the school district used in deciding to consolidate. He has also tried to report on details of the contract Johnson Controls has with the project's architectural firm, Architectural Resources Inc.

Rather than hiring the architectural firm directly, the school district opted for a broader professional services contract with Johnson Controls, who took care of hiring and overseeing the architect. But there's dispute as to whether Minnesota's open records law, the Data Practices Act, applies to such an arrangement.

Through its attorney, David Lillehaug, Johnson Controls argued before an administrative law judge that it doesn't.

"This is not about contracts with government agencies; it's about contracts between private companies," Lillehaug, a former U.S. Attorney, said during a hearing last month.

Johnson Controls and Architectural Resources have argued that contracts between private companies contain trade secrets and proprietary information.

"It would be a huge change in the construction industry" if the subcontracts were ruled public, said Steven Lindemann, an attorney for Architectural Resources.

Administrative Law Judge Eric Lipman has sided with Johnson Controls and dismissed Helmberger's complaint, but Helmberger said he plans to ask the state Court of Appeals to weigh in.

"The big concern here is if companies like Johnson Controls can use this as sort of an umbrella contract, and then they go out and hire everybody," Helmberger said. "That could be riddled with conflicts of interest and secret deals ... and their contention is that the public would never be able to see any of those contracts."

The Data Practices statute says data kept by private companies in the course of performing a government function should be public, but the statute doesn't define government function, said Mark Anfinson, a media attorney who helped Helmberger on the case.

Anfinson said the case is significant for those who believe the public and the media should be able to examine government contractors' records.

"It's an important precedent, because it deals with an important aspect of government, which is private companies that do contract work with government — a pretty big portion of the whole stream of business in this state," he said.