The DNR overpaid $2.7M to the Iron Range. Now it needs that money back.

ST. PAUL — Local governments on the Iron Range must return hundreds of thousands of dollars to the Minnesota Department of Natural Resources after the agency miscalculated multiple years of mining revenue distributions.

The DNR gave $2.7 million to Range counties, municipalities and school districts that should have gone to a statewide education fund, with most of the overpayments occurring from 2022 to 2024.

While the error affected each of the six northeastern Minnesota counties that receive mineral funds, only a handful of communities in Itasca and St. Louis counties still owe money back to the state.

Itasca County; the city of Nashwauk; the Nashwauk-Keewatin, Greenway and Rock Ridge school districts; and Biwabik Township must pay back over $100,000 in mistakenly distributed funds.

“All of these counties and these small cities, school districts, are going to be ladened with all of this money, this overbilling, because of [the DNR’s] mistake? And they’re now coming back and saying they want it to be paid in full?” said Nashwauk Mayor Greg Heyblom at the Tuesday, Oct. 14, Council meeting.

“I just — I don’t see it. I don’t see it. I don’t agree with it.”

DNR Chief Financial Officer Mary Robison said, to her knowledge, an error of this magnitude has never occurred in the fund distribution.

“My team and I, we take very seriously handling things well, and we handle a large volume of very complex things like mining rents and royalties, revenues, and this is just not up to our usual standard,” Robison said in an interview Tuesday.

“We recognize that, and we know we need to take steps to correct it. And we’re in the midst of those steps.”

How did this happen?

The DNR is responsible for collecting mining royalties and rent revenue and distributing those dollars according to state law.

That money goes into the minerals management account. Four times a year, the DNR checks that account balance. If it’s over $3 million, the DNR “sweeps” the excess money for inclusion in the annual distribution of mining funds to counties, school districts and municipalities.

“We track those things manually in Excel [spreadsheets], and the errors that occurred were simply staff errors in the tracking of those sweeps. They were formula errors in Excel,” Robison explained.

“And so those errors, done unintentionally on the part of staff — it wasn’t ill intent at all — translated into overpayments to five different counties from which the revenue was generated.”

In late August, the DNR noticed the balances of the various mineral funds were lower than they should be.

The agency discovered the overpayments and then audited back to 2016, when the quarterly sweeps began. Staff also identified some much smaller underpayments over the years, but the “huge majority” of the issue affected the 2022, 2023 and 2024 distributions.

Itasca County Auditor-Treasurer Austin Rohling was notified of the mistakes in late August, just before the annual distribution, which is typically paid out in early September.

“It’s frustrating, for sure,” Rohling said. “It is a difficult budgeting year, not just this year. Certainly, local economics, everybody’s feeling the pinch a little bit, and every dollar matters. ... But mistakes happen, and the situation is what it is.”

Itasca County and cities and school districts on its eastern border are particularly impacted because the last few years of payments have been unusually high.

The money is distributed based on where the revenue was generated. Without an active mine, Itasca County’s payments are typically much lower than neighboring St. Louis.

But Mesabi Metallics is preparing to open the first new mine on the Range in over 50 years, just north of Nashwauk. As part of that process, the company had to pay the significant bill it had accrued in the 17 years since the mine was first announced.

Repayment plans

The DNR reduced this year’s mining distribution to help offset the money owed, which was enough to cover most of the overpayments.

But Itasca County, five cities, four school districts and seven townships still have to pay back the DNR. Three of those taxing districts owe more than $10,000, and six owe more than $100,000.

The county acts as the fiscal agent for the mineral dollars, so the DNR sends the money to the county, and then the county divvies it up among the various taxing districts according to state law.

The DNR, St. Louis and Itasca counties and the taxing districts that still owe money are working together to establish repayment plans.

“It's not something that I can do to say, ‘This is how this is going to work,’” Robison said. “And I think we also have to recognize that different entities have, in many cases, tight budgets, and may have different abilities to pay, and so we know we need to work through that with those entities.”

Itasca County will pay the $400,000 it owes using its reserve funds, which Rohling said are fortunately at a healthy level.

“I don’t foresee a large impact to the finances of the county,” he said. “ ... Certainly, a loss to the county, an opportunity cost. But the nice thing is, yes, we’re able to absorb this as a county relatively well.”

The Nashwauk City Council discussed its $200,000 repayment at its meeting Tuesday. The city was notified of the issue by a Sept. 30 letter from the DNR.

City Clerk/Administrator April Kurtock told the Council the DNR would allow the city to repay over three years because it's the sum of three years of overpayment.

The Council plans to ask for a five-year plan.

“We should be able to pay it in our time because it wasn’t our fault,” Councilor Tom Martire said.

While some taxing districts work out how to pay back the mistaken funds, others that were shorted funds will decide how to spend the unexpected money.

St. Louis County and the city of Hibbing were each underpaid $400,000. The Hibbing School District was owed $800,000.

'The system we work in’

The DNR hasn’t examined how the Permanent School Fund — where the $2.7 million in overpaid funds were supposed to go — has been impacted.

It’s a large fund — over $1 billion. The interest earned on that fund is distributed to districts across the state; $58 million was sent out last year. The impact on the schools is a two-year delay on the interest that would have been earned on the shorted money, Robison said.

“I do think we will turn quickly to the Permanent School Fund once we’ve worked through the repayment issues and make sure that we work to make that fund full as best we can,” she said.

The DNR is also reviewing its processes and ensuring that procedures are in place to catch manual errors. Robison also acknowledged that mineral revenues and their distribution are very complex. Moving forward, she said the agency will try to improve understanding of them, both internally and externally.

“Because if we can get a better understanding, then I think everyone will be more apt to notice when things look amiss,” she said. “I think a lot of things in the external world are complex. These are difficult revenues to forecast and predict, and legal requirements are often complicated.

“But that’s the system that we work in, and we just need to make sure that we’re adapting and operating appropriately within that environment.”