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Listen MPR's Dan Kraker on attempts to diversify the Iron Range's economy
Apr 12, 2016
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Listen MPR's Dan Kraker talks with Iron Range workers about the future
Apr 13, 2016
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Listen MPR's Dan Kraker on the Iron Range's quality of life
Apr 15, 2016
Whenever the longstanding and elusive goal of economic diversification is brought up on the Iron Range, inevitably someone will bring up the story of the chopsticks factory.
"I have to chuckle, in my time as commissioner, I'd just ask, name a success, name a failure. And chopsticks factory always comes up," said Tony Sertich, former commissioner of the Iron Range Resources and Rehabilitation Board.
• MPR News event: The Future of the Iron Range | Wednesday, April 13, 6-8 p.m. | Hibbing Community College
The story goes back to the 1980s, when the Iron Range was reeling. About 10,000 mine workers had lost their jobs, more than 60 percent of the mining workforce. The region was desperate for new jobs.
So the IRRRB, with backing from then-Governor and Iron Range native Rudy Perpich, kicked in about $3 million to help a Canadian company build a factory in Hibbing to make chopsticks for export to Japan. It was supposed to create over a hundred jobs.
Yet two years later, the factory was closed. And even though that happened when "I was in middle school," as Sertich, who now heads the Northland Foundation, recalled, it's still held up as almost a folk legend of failure when it comes to efforts over the past several decades to diversify the Iron Range's economy beyond just iron mining.
But that effort is finding renewed focus on the Iron Range now, as the region grapples with the latest dip in the boom-and-bust roller coaster of a mining-based economy. Nearly 2,000 mineworkers have been laid off over the past year, with hundreds, if not thousands, more laid off from businesses that rely on the mines.
• Related: Bad economy gets worse on Range
Those jobs have fallen victim to a complex global steel economy, where a surge of sometimes-illegal imports have forced American steel companies to curb production — which in turn has led to the closure of seven of the 11 iron ore mines and production facilities in Minnesota.
And while Iron Rangers are used to the volatile swings of mining, many say this downturn feels different. Some sense a greater urgency this time to grow a more sustainable economy, one that fosters local entrepreneurs, nurtures small businesses and targets industries that can build on the region's mineral and timber resources.
They hope that diversifying the economy and promoting the region's quality of life can deliver stability when the mining industry takes its inevitable dips.
While most are confident the industry will recover — Cliffs Natural Resources has announced it intends to reopen Northshore Mining this May, and anticipates restarting United Taconite by the end of the year — historically the industry has rarely returned to the same number of jobs.
• Related: Iron Range turning a corner? Northshore mining to reopen May 15
"What happens is we don't recover to the same levels," said Sertich. "It's a decline in the recovery every time. The margins are feeling tighter, the swings are happening a lot more frequent."
But even though the number of mining jobs on the Iron Range has steadily declined, from a high of about 16,000 in 1979 to about 4,500 today, it can be intensely difficult to diversify away from jobs that averaged about $90,000 a year before this latest round of layoffs.
In his time at the IRRRB, Sertich said, "we could not find an industry, and I would suggest it is likely impossible to find an industry, for the same skill set, for the same sort of economic impact for a region, that will have the same salaries, to come into a region. That is a hard nut to crack."
Mining accounts for just 7 percent of employees on the Iron Range, yet it constitutes 17 percent of the region's payroll. That's higher than any other sector of the economy other than health care.
• Explaining the Iron Range downturn: Layoffs amid the challenges of a global economy
And that money flows throughout the region's economy, to people like Doug Ellis, who runs Virginia Surplus in downtown Virginia, Minn. Steel-toed boots he sells to mineworkers make up about 30 percent of his business. But with the downturn, his business, like many in the area, is down. "Nobody's going to buy boots when they're not working," he said.
Success and failure
Failed economic diversification efforts like the chopsticks factory tend to get the headlines, but there have been successful investments to create jobs on the Iron Range that aren't reliant on the mining industry.
One is in a low-slung factory at the end of a dead-end road in Chisholm, the home of Minnesota Twist Drill, and one of only four companies in the U.S. that manufactures drill bits.
The company grinds out 80,000 bits every day with different lengths and widths and finishes, bound for customers across the U.S. and the globe.
The company began in a local entrepreneur's garage in the late 1960s. Current CEO Scott Allison and a group of other local investors bought the business in 2003. Since then they've jumped from $3 million in sales to $22 million, he said.
The IRRRB gave Minnesota Twist Drill a $750,000 loan in 2009 to help purchase another company. That loan was forgiven when the company met job creation goals.
The firm employs about 120 people with experienced employees making nearly $20 an hour. That's a far cry from high-paying mining jobs. But, as Allison points out, the jobs at Minnesota Twist Drill are not affected by the whims of the mining industry.
"We feel bad for our friends and brothers and relatives that work in the mining companies, but we're also proud that we haven't laid off. In fact, we're hiring right now, he said."
Allison attributes the company's success to loyal, hardworking employees but said local ownership is the biggest factor. For example, transportation costs are an issue, he said. They could save money if they located elsewhere.
But Allison and other owners don't want to live anywhere else. They love small-town life on the Range and the access to hunting and fishing. So they're willing to make some sacrifices, Allison said. He believes those are the businesses the region should support.
"Investing in, and reinvesting in our local companies is where the diversity begins," he said. "That's where the Iron Range will grow stronger."
Nearby, next to the Range Regional Airport outside Hibbing, Detroit Diesel Remanufacturing makes electronic components for industries around the world in a facility built by the IRRRB a decade ago to lure new jobs to the region. The company has grown to more than 100 employees from fewer than 50 about eight years ago.
A local entrepreneur started the company in Hibbing in 1987 but it was sold to Detroit Diesel, a subsidiary of Daimler AG, in 2007. "If they were looking to start a company, they never would have picked Hibbing," said manager Dave Rhode.
And in Chisholm, the IRRRB recently approved a $5.9 million loan to Delta Air Lines to refurbish its call center there. Customer service centers on the Range operated by Delta, Blue Cross Blue Shield and other companies together employ over 1,200 people.
But those successes have often gone overshadowed by IRRRB loans that failed to deliver on their job creation promises.
A Minnesota Office of the Legislative Auditor report released in March blistered the agency for, in some cases, not even knowing if those targets had been met.
• Related: Audit calls out Iron Range board on losses, loans, governance
In many instances, the report concluded the IRRRB did not require companies to report the number of jobs they create using subsidies. And for companies that do provide job data, the agency does not independently verify it.
"Given the economic challenges that the region is currently facing," Legislative Auditor Jim Nobles said, "there's never been a time when the IRRRB is more needed, and we need it to be efficient and effective. But we found some significant deficiencies of the operations of the IRRRB."
Those include the agency's support of the Mesaba Energy project in 2003. The proposed coal gassification power plant in the early 2000s was supposed to create 600 full-time jobs, and more than 1,000 construction jobs.
It received about $9.5 million from the IRRRB, plus another roughly $20 million from the state and federal governments. Only $340,000 was paid back, and it never broke ground.
Longtime Iron Range blogger and political observer Aaron Brown calls it "the biggest modern failure of economic development" on the Iron Range.
"This is an example, however, of the kinds of economic development that tends to be most popular," he added. "Because they're big, industrial things, that employ lots of people, and all the right people are behind them. The established movers and shakers of the Range were all with this thing."
Brown wonders how much money was wasted in chasing a "long-shot goal," when the region could have made investments in dozens of smaller ventures.
Sertich calls it swinging for singles and doubles rather than home runs, and it's a philosophy that seems to slowly be taking root on the Iron Range.
"We need to drive some of the local entrepreneurs and their projects and dreams," current IRRRB commissioner Mark Phillips said. "Just doing what I call smokestack chasing, that's very difficult."
Growing entrepreneurship on the Range
Jen Mogensen was an unlikely mine worker. The 34-year-old from Mountain Iron was a stay at home mom of three. She earned a degree in graphic design but couldn't find a job on the Range.
So she applied for a job with Mining Resources, an iron concentrate plant outside Chisholm, where her husband worked. To her surprise, she loved it.
"I learned so many skills that I didn't even know that I was capable of," she said. "I couldn't put air in my own tires, I just relied on the man to do that. And then I'm in a loader, and doing the best that I've ever done. It has made me more independent as a person. I thought we would be there forever."
Later she moved to Mesabi Nugget in Hoyt Lakes, also owned by Steel Dynamics. But early last year she was laid off. "It was devastating." She recalled. "We were all in a room, 200 of us. At that time I don't even know if you could hear anything in the room. It was absolutely silent. I think everybody's heart caved in at that point."
Now Mogensen is back in school, studying business at Mesabi Range Technical College in Virginia. She's part of a federal program that pays to retrain workers who have lost their jobs as a result of foreign trade. Minnesota mineworkers can qualify because the layoffs have been caused by a sharp rise in steel imports.
When she's done, she hopes to open a brewpub or restaurant. "My hope is to open a business that will help the community thrive, and not be so heartbroken when the mining industry goes down," she said.
"I would love to see the Iron Range have something more to fall back on than just mining," added Mogensen's classmate, 42-year-old Laura Holter of Virginia.
"I guess when I look at the Range, I think of mining, and I think tourism and health care," she said. "Somebody's got to take some big opportunity, and some big risks, though, in order to make something else like that happen."
The problem, according to economic development officials, is that there are fewer people on the Range taking those kinds of entrepreneurial risks.
"What has been diminishing, I feel, over time is a lack of entrepreneurial spirit in some instances," said Sertich, the former IRRRB head now with the Northland Foundation. He believes that comes from a long cultural history on the Range of trusting large institutions to solve problems.
"Many of these towns were developed by mining companies," he said. "The companies owned the mine, the homes, some of the businesses, and the transportation at the time."
And while the mines employ fewer than a third of the workers than they did forty years ago, during the boom times, they're still among the best-paying jobs in the region.
It can be hard to convince a would-be entrepreneur to give that up, to take on the difficult and risky task of launching a business, said Shawn Wellnitz, CEO of the Duluth-based Entrepreneur Fund, which provides training and access to funding for people trying to start new businesses.
It's challenging to "make the case, 'Hey, you may not make an income for a year or two while you're growing a business,' especially if you don't have a strong network of other people who have done it, who you've seen grow and evolve and succeed," he said. On the Iron Range, "you don't always have the same amount of role models that you might in other places."
The key, he said, is getting businesses to "Stage Two": "That's usually where a lot of your job growth comes in, and some of the different diversity that we're looking for — those $1 million to $20 million companies, but you have to grow them!"
The Entrepreneur Fund, which was launched in the 1980s to help laid-off mine workers start businesses during a mining bust period, recently provided a loan and some consulting to a new restaurant in Eveleth called BoomTown, where 38-year-old owner Erik Lietz said business was, well, booming.
"I hate to say it, but it's too good," he said. "It's been very busy, way higher than we ever thought it would be."
Lietz was laid off by mining companies twice before deciding to open a restaurant. "I said enough of this, I'm tired of being laid off, and I cashed in my 401(k), and here I am."
He and his wife Jessica first bought and reopened The Whistling Bird restaurant in Gilbert. They followed with BoomTown about a year ago. But Jessica Lietz says it was tough getting going.
"One of the biggest struggles getting this place started was just getting the financing together for it," she said. "When we met with banks, they didn't want to fund us at all. It's too risky."
Eventually the city of Eveleth also came through with a loan. They're already up to 65 employees, and exploring opening up a third restaurant.
The challenge on the Range is to build more BoomTowns.
"The biggest issue we have is how do we create entrepreneurs to do something that isn't associated with mining," said Betsy Olivanti, a business consultant with the University of Minnesota Duluth's Center for Economic Development in Virginia.
Most of the Range's successful entrepreneurs are now baby boomers, she said. "They got laid off from the mine, they saw a need that they followed through on," she said. "We need to encourage that next group."
Creating a place to live, not just to do business
In 1998, the historic Lyric theater in downtown Virginia was on the cusp of being torn down, just like in the Joni Mitchell song, to put up a parking lot.
Originally built as an opera house in 1912, the theater was part of the vaudeville circuit in the 1920s. It had sat vacant since 1955, as blasts from nearby taconite mines periodically shaking plaster loose from the ceiling.
But before it could be razed, Pete Pellinen and a group of locals formed a nonprofit and bought the building for $20,000. For the past 18 years, they've tried to scrape together funding to restore it to its former grandeur.
"Sometimes we get a lot accomplished, sometimes we spin our wheels," he said.
Pellinen, 61, grew up in Virginia, left after high school, and never thought he'd return. But after a career in which he toured Europe and the U.S. as an opera singer, he returned to raise his kids and try to restore the theater to host plays, concerts, and films, to help revive Virginia's decaying downtown.
He estimates that will cost between $7 million and $9 million. It's a lot of money, but Pellinen says he hears all the time from local schools and hospitals that when they try to recruit doctors and teachers to the Range, they always get questions about the arts and other cultural offerings.
"The candidate will say, 'Your facility for health care or school is wonderful and I would love to be a part of it, but my significant other and family say, no way are you taking me to that wasteland,'" Pellinen said.
Across the Iron Range, people say the region needs to do more than just hold out a bag of money and hope companies will bring jobs there. Leaders also need to focus on the amenities that will attract families, including arts and culture, outdoor recreation, and downtown revitalization.
Along Virginia's main drag, storefronts sit vacant, lamented Julianne Paulsen, owner of Rocks the Jewelers and head of the Virginia Economic Development Authority.
"Without a healthy downtown or healthy communal sense, big business, why would they want to locate here?" she asked. "Why would their families want to come here? What reason would they have to stay?"
Phillips, the current IRRRB Commissioner, said the agency is focusing more of its public works money on things like community centers, rather than just basic infrastructure like sewer or road projects. He's trying to approach the goal of economic diversification more broadly.
"If we can up the quality of life a little, do some entrepreneurship things locally, do a little business attraction around those industries we've identified, like biochemicals, biofuels, new kinds of minerals ... I call all that diversification because we've only had iron ore mining," he said. "It's been a very small box for generations. We're trying to move in a whole new direction."
Phillips and others say the Range must also do a better job selling the qualities it already enjoys, especially its proximity to lakes and woods.
"I live on a lake, I live in a 'resort,'" said Lisa Vesel, executive director of the Minnesota Discovery Center museum in Chisholm. "I can get out, I can hike the trails, I can go into the state park, it's beautiful. And that lifestyle, I probably couldn't afford that in the Twin Cities, frankly."
A lot of people outside the Range don't realize what it has to offer, she said. "We have to tell our story better. There is kind of a negative undertone. We need to change how we talk about our own backyard."
Changing that tone will also help attract more tourists to the area, said Beth Pierce, who directs the Iron Range Tourism Bureau. The Range's post-industrial landscape, with its deep red pits filled with azure blue water surrounded by bright green pine trees, is a unique draw, she said.
"It's beautiful and it's cool, and it's different," she added. "So we need to capitalize on that, and let people know about that, and tie it in with our history, and take some pride in what we have. And share it with the world."
She said investing in amenities for tourists also improves the quality of life for locals. She laments that tourism is often associated with low-wage jobs. While they may not pay as well as mining careers, tourism also provides opportunities for entrepreneurs, she added.
"I hear people saying, well, if mining goes away it's nothing but tourism, like that's some kind of negative thing," she said. "And I completely disagree."
Looking to the future
Desiree Yourczek grew up in Cook, got her degree in communications at the University of Minnesota Duluth, and never thought she'd move back home. She applied for jobs all over the country, but nothing panned out.
Dejected, she returned home. "And then right down the road, literally seven miles from my house, there's this little website company that is hiring for exactly what I want to do and exactly what I went to school for."
Now Yourczek, in her mid-twenties, works as a social media manager at a small company called Art Unlimited. Their clients are national, so she says they've been thriving even as the local economy struggles.
She loves her job. And she's been surprised to learn that she's not an oddity, a young person coming back to the Range.
"I have discovered that there are quite a few of us here that came back, or have stayed here, and love it, and want to help build our communities to be better," she said. "I have so many more friends now than I did before."
Yourczek and her colleagues in a group of young Range people called ReGen are working to dispel what they say is a myth that there are no opportunities for young people, in or out of the mines.
While the Iron Range is still one of the oldest regions of the state, the number of 25- to 34-year-olds working in northeast Minnesota, outside Duluth, has gone up 12 percent since 1995, compared to only about 1 percent statewide.
Much of that growth is in the mining industry. Ten years ago, just 31 percent of mineworkers were under age 45. Now, that's grown to over 50 percent. Just before the layoffs hit last year, more than 1,200 people under the age of 34 worked in the mines.
"I was under this misconception that there aren't many young people, but we're a growing group," said Jessalyn Sabin, 25, a biology instructor at Hibbing Community College who came back to the Range after also attending college in Duluth. "I think everyone thinks we all go away. That's sort of the expectation almost."
Sabin and others admit the Iron Range is not for everyone. It's cold and isolated. There's little night life during the week. No sushi or Indian restaurants. But there's abundant affordable housing, a small-town slowness to life, and easy access to the outdoors. And for those from the Range, there's also the lure of family and friends they grew up with.
But many say that also poses one of the principal challenges the Range faces, that it needs to be more welcoming to outsiders if it truly wants to increase the diversity of talent and businesses it attracts.
"We have this mentality on the Range, calling folks 'packsackers,'" explained Northland Foundation president Sertich, referring to a term first used to describe people who moved to the Range to work in the mines, carrying only packs with their belongings. Now it's used, sometimes in a derogatory way, to refer to people who aren't from the Iron Range.
"I'm very proud to be fourth-generation [from the Iron Range]. But you can't do it to the nth degree, where you're turning people off from moving to your region."
The Iron Range has to go beyond merely accepting new people and younger people, but must also allow them to lead the region going forward, he added. "That's going to attract new investment, that ability to share across generations."
Young people like Desiree Yourczek say that ability to have a say is why they're excited for the Range's future.
"I can get involved in my community and make a difference and connect with a bunch of other young Iron Rangers that are willing to do the same," she said, "so that we can push forward into a better future."
If you go: The Future of the Iron Range
In a free event hosted by MPR News, speakers will take the stage to pitch their ideas to generate jobs and revitalize communities across the region — everything from small business support to mountain biking trails, to conversations with young people and mining experts.
Hosts Cathy Wurzer (host of MPR News' Morning Edition) and Dan Kraker will follow with their questions, allowing the audience to weigh in, too.
• When: Wednesday, April 13
• Time: 6-8 p.m.
• Location: Hibbing Community College | Get directions
• Register: The Future of the Iron Range | Admission is free, but registration is recommended.