Public money for private business: Empowerment Zone bonding for former director's project

Site of the proposed Midtown Eco Energy project. (Photo by Lisa Peterson)

"There's something about it that just doesn't smell right."

Annie Young doesn't mince words when speaking about the bio-mass incinerator/generator project proposed for the Phillips neighborhood in South Minneapolis. Young, a commissioner-at-large for the Minneapolis Park and Recreation Board, adds, "A lot of us that were initially supportive of it are now changing our minds."


For previous articles on the Midtown Eco Energy project, see:

Green fuel or green-washing? by Dan Gordon, TC Daily Planet

Neighbors blast proposed Phillips biomass plant at public hearing by Dan Gordon, TC Daily Planet

March meltdown ahead for Midtown Eco-Energy? by Mary Turck and Dan Gordon, TC Daily Planet

In March, the Minneapolis City Council will face one more decision on the project, this time on a request for a second contract extension that would keep alive $78 million in Empowerment Zone bonding for the Midtown Eco Energy project. The basis for the $78 million in bonding is the project's promise to employ seven Empowerment Zone residents. Midtown Eco Energy is the only Empowerment Zone bonding proposal ever approved by the City Council.

Midtown Eco Energy needs city hall approval for two components: purchase of city land for its proposed energy plant and financing for the project through the Empowerment Zone program. The project has been criticized for cronyism. City council member Lisa Goodman chairs the city council's Community Development Committee, a group that oversees the administration of the EZ program. She is also an investor in the Midtown Eco Energy project and owns land in Kandiyohi County with two of the principals in the project, Michael Krause and Kim Havey. Havey and Goodman previously shared a condo, and have been close friends since their college days. Krause formerly served on the Minneapolis Planning Commission. The third principal in the project, Craig Wilson, formerly served as an aide to Goodman.

Both time and money are running out for the Empowerment Zone program. Federal funding will end in 2009. According to the 2007 HUD report, the program has committed $28.9 million to 190 programs and initiatives since 1999. The program now has only $1.96 million left to spend during its remaining year, according to a staff report released January 10. But it also has $130 million in bonding authorized. Up until now, none of the $130 million in EZ bonding authority has been issued to any project. Former director Kim Havey says that some organizations asked about bonding, but that none qualified, so none formally applied for bonding. The only bonding application that has been approved is the Midtown Eco Energy application, made by Kandiyohi Development Partners.

Kandiyohi has created a shell company called Midtown Eco Energy LLC that has its sights set on using $78 million in tax-exempt Empowerment Zone bonds to fund a wood-burning power generator in south Minneapolis.

The fact that Midtown Eco-Energy doesn’t have any employees, hasn’t found a buyer to purchase this potential electricity, and doesn’t yet know who will manage the plant doesn’t seem to have hindered the bonding approval. The bonding deal came before the EZ executive committee in August 2006. At that meeting, EZ staff was directed to convene a working group to consider questions about the application and concerns about the bonding process.

At the September 14, 2006 meeting of the full EZ governance board, staff raised a question about whether a business would actually need to have employees to qualify for EZ bonding. The governance board passed a motion saying that this was a requirement.

EZ director Jonathan Palmer sent Havey a 9/29/06 email saying that Midtown Eco-Energy, as a shell company with no employees, probably wouldn’t be eligible for EZ bonds. He promised, however, to work to find a solution for the former director. Subsequent e-mails said that Great River Energy would also manage the plant.

Palmer evidently found a way around the "problem," if only by ignoring it. Without any further EZ board vote or discussion reflected in the minutes, the bonding proposal sailed directly to the city council, where it was unanimously approved in November 2006. The next EZ board discussion of the project would not come until September 2007, when Kim Havey appeared before the EZ governance board and received unanimous approval for the bonding project – which had already been approved by the city council.



Timeline for EZ and City Council action on Midtown Eco Energy


June 2006 – City Council grants Kandiyohi Development Partners an option to purchase the city land where the incinerator/generator would be located.
August 2006 – The EZ executive committee receives proposal for bonding and asks for creation of a working committee to investigate it and a staff report.
September 2006 – EZ governance board passes a resolution saying that no bonding can be approved for an entity that has no employees. (Midtown Eco Energy has none.)
November 2006 – City Council unanimously approves EZ bonding for Midtown Eco Energy.
March 2007 – City Council approves one-year extension of option to purchase
July 2007 – City Planning Commission issues conditional use permit for construction, good until 7/30/08.
September 2007 – Kim Havey appears at EZ governance board to ask for approval of bonding authority. EZ governance board approves.
March 2008 – most recent extension of option to purchase will expire.
July 2008 – conditional use permit for construction will expire

The November 2006 bonding approval was based on a proposal that claimed widespread community support, promised clean energy production, and said that Great River Energy would purchase the electricity generated by the plant. In 2008, Great River Energy is out of the picture. Midtown Eco Energy now says Xcel Energy will purchase the electricity, but Midtown and Xcel still have not signed any such agreement.

The city council's previous grant of an option to purchase city land for the project will expire at the end of March. Until now, all Kandiyohi Development Partners/Midtown Eco Energy requests for bonding, for the option to purchase, and for extensions of agreements have sailed through the city council with unanimous support – not surprising, given the connections of the developers. The mayor co-chairs the Empowerment Zone board and appoints several of its members. Two city council members, Don Samuels and Robert Lilligren, also sit on the EZ board. This time around, however, the project faces closer scrutiny. Neighborhood groups that wrote letters of support for the project last summer, including the East Phillips Improvement Coalition, have either withdrawn support or are reconsidering their positions.

Minneapolis: One of Fifteen Zones

The Empowerment Zone program was intended to be one of the Clinton administration’s legacies—a ten-year blitzkrieg assault on urban poverty. In 1999, packages of grant money, tax incentives, and bonding authority were wrapped up and delivered to Minneapolis, along with 14 other major cities, to disburse as each city saw fit. The federal government’s Department of Housing and Development (HUD) commissioned each city to set up a mechanism to allocate and distribute the funds in a way that would stimulate growth in its most impoverished neighborhoods.

City officials in Minneapolis got together, carved out a 6.7 square mile set of shapes cut from census data, and laid them on the Minneapolis map. There are large zones in north and south Minneapolis, as well as a small one in northeast that has had only one project built. Almost 50,000 residents live in the zones, which include five neighborhoods—Near North, Harrison, Sumner-Glenwood, Phillips, and Whittier—as well as portions of the surrounding neighborhoods.

Nearly 120 cities tried and failed to win Empowerment Zone funding. Minneapolis was chosen on the strength of its application, which highlighted the brutal gap between the city’s rich and poor.

“A third of all children under five live in poverty in Minneapolis,” the 1998 application stated, “…and the violent crime rate is eight times that of the region.” Unique to the Empowerment Zone approach, as opposed to previous war-on-poverty campaigns, was its emphasis on a holistic approach. Rather than focusing on only one area, such as employment, the program targeted housing, economic development, crime and safety, education, and community-based services. Before the program got off the ground, most of these emphases disappeared. Over the years, Minneapolis Empowerment Zone board members have revised the program to concentrate mainly on economic development.

“The program was trying to be too many things to too many people,” says EZ Director David Fey. “We needed to sharpen it and re-state its focus.”

The Empowerment Zone program has been called a sign of hope for struggling inner-city neighborhoods and a cash cow for well-connected developers. Some have dubbed it “a modern day plantation,” claiming an apparent reluctance to distribute grant money to minority-led projects.

A 2003 HUD audit report strongly criticized the Minneapolis program for giving EZ funds to programs that did not benefit Empowerment Zone residents, or that benefited relatively small numbers of EZ residents. In addition, the HUD audit found that the Minneapolis EZ inaccurately reported results of projects and inflated the numbers of people served.

A 2005 Minneapolis Civil Rights Commission investigation was sparked by complaints that the EZ program did not serve minority residents. The Commission struggled to complete an investigation, as EZ staff refused to provide information. In the end, the Commission report criticized aspects of the program, but recommended in favor of reform rather than prosecution.

Bonding for Midtown Eco Energy, based on the promise of creating seven jobs for EZ residents, raises questions about what qualifies as economic development. This is not the first time that such questions have been raised, or the only project to generate criticism. Future articles in this series will look at other aspects of the Empowerment Zones in Minneapolis, including:

Part 1 – Public money for private business: $78 million in bonding for a project that promises to employ seven Empowerment Zone residents.
Part 2 - Falling short—business development, housing, and job creation: Out of the money that has been awarded in the last nine years, the lion’s share has gone to development firms and large, established non-profits.
Part 3 - The color of funding: Since its inception, the program has caused bitterness among some neighborhood activists, who say it hasn’t directly benefited the African-American communities it was intended to serve.
Part 4 - All power to the people? Community charges cronyism: While seven of the EZ governance board members selected by the City Council are required to be residents living inside the empowerment zone, many have questioned whether this truly amounts to community representation.

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    Dan Gordon's picture
    Dan Gordon

    Dan Gordon (upagainstthewalrus [at] riseup [dot] net) is a freelance writer in the Twin Cities.

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    That's Smith Foundry

    Ooops. That photo is of Smith Foundry and not of the site of the proposed combined heat and power facility in East Phillips. FYI.

    Photo Near Eco Energy Site

    I am the photographer who took the photo. The foundry is part of the industrial complex of buildings near the eco-energy site. The photo was intended to show the industrial nature of the area. In addition, the entire area is gated off on the Sunday when I shot the photos. But thank you for your clarification.

    Photo is not of site in question

    The property pictured is not the proposed site for the Midtown burner. The proposed site is what is currently the solid waste transfer station -- a 1930's WPA building that used to be a garbage burner. I believe the property pictured is part of the roofing manufacturing plant that is in the same area. The proposed site is south from where the photographer is standing for this photo. See this photo for the building in question:

    $11 million+ per job?

    do I have this right? $78 million in public bonds sold to create 7 jobs for Phillips residents while spewing over a million pounds of toxic air pollution into our neighborhoods. Mmmm...Who are we empowering here? It seems to be the already empowered. With $78 million, folks in the Phillips neighborhood could be set up an endowment for job creation that would last forever. Using a standard endowment draw of 5% per year, one could create 86 jobs that paid $45,000/year. Could we use 86 talented teachers, parks patrols, social support workers, peace officers, public artists and a crew of workers to beautify this neighborhood? This a classic case of developers and politicians stealing well-intentioned funds and lining their own pockets on a scale that is truly appalling -- especially considering that the beneficiaries don't even have to breathe the bad air they create.

    Public Money for Private... (Midtown "Eco" Energy)

    Something not only doesn't smell right with "Eco" Energy, it stinks. Good work on exposing the cronyism and questionable dealings between the Mpls. City Council, Kandiyohi Development, Empowerment Zone financing, and a host of other mysterious characters behind the so called "Eco" Energy wood-burning power plant. There is so much more going on behind the scenes that the public needs to know.... People ask, what's really going on with "Eco" Energy? Quickest answer: just as real estate is all about "location, location, location" this "Eco" plant is all about "permit, permit, permit". Study the massive, 219 page proposed permit for "Eco" Energy written by the Minnesota Pollution Control Agency (MPCA). You soon see, that despite Kandiyohi's smooth sell, "Eco" will STILL emit up to one million pounds of toxic air pollution every year! How is it that the Mpls. City Council and the Mayor think it is fair to let 3 well-connected "investors" (including a City Council -Member) force a minimum of 40 to 60,000 city residents to breath up to one million pounds of toxic air pollutants each and every year, for at least the next 30 or more years, until the bonds are paid off? These same investors can sell the 85+ million dollar project in just 10 years and pocket 100% of the profits (including the benefits of the 78 million dollars of special federal bonding authority!) Why should the City Council allow just 3 people, no matter how powerful, to force these 40-60 thousand city residents to breathe the "toxic air sewer" connected to these 3 people's private "investment", built primarily with special public financing? Further, how can the Mayor and the Council justify letting the investors callously choose one of the worst possible locations for any kind of polluting facility: East Phillips, when it is well-known to be one of the most polluted areas in the entire 5-county metropolitan area? East Phillips is already an EPA "Superfund" site for arsenic contamination (this facility would add even more arsenic to the neighborhood), it also has a foundry, an asphalt plant, the list goes on and on. How is locating this type of facility in Phillips, NOT a classic case of "environmental racism", as defined by MPCA's own guidelines? By the way, why did the investors choose Phillips? Follow the money: it is part of the Mpls. "Empowerment Zone", and qualifies as a "blighted urban area". That fact, allows the investors to tap 78 million dollars of special federal bonding authority to build their 85+ million dollar plant. The era of dirty politics and cronyism should have ended years ago, but a number of Council-Members may not have gotten the message. They soon will. Any that have yet failed to wake-up and smell the rancid coffee behind this dirty project, will soon have some "splainin" to do to a number of very upset voters in their wards. We will not go away until each Council-Member is held accountable for their action or inaction on this dirty environmental "white elephant" and the irresponsible political and financial dealing behind it. Many thanks to the TC Daily Planet, along with a number of small community newspapers who have invested and risked a lot, to stay at the front lines of this story. You are truly working hard and seeking to do real journalism, on issues that truly matter... in an era when it's harder and harder to find other media organizations doing the same. "A voice from the neighborhoods"

    burners schemes are often tied to scandal.....

    The picture is slightly misleading--the actual site has a brick building and a big smokestack but not all the stuff shown in the picture. It's a former garbage incinerator. In effect, the "Eco" people are trying to bring another polluting incinerator to the site. The story itself is excellent. I have heard that the Kandiyohi folks are trying to bully the East Phillips Improvement Coalition and perhaps other organizations and individuals who are now opposing their burner project. That lawsuits have been threatened... That threatening letters may have been sent... Can the Planet check this out? am

    It's actually the caption that's misleading

    The photographer explained that she was not able to get a good shot of the actual site so she got one of the area. It's the caption that is confusion the situation. But back on topic, as a resident of the area I would love to see more discussion about how we could create a truly clean distributed energy source in our neighborhood at the Midtown Eco-Energy site. I understand and share the concerns with incineration and creating higher demand for disposable products and over consumption, but I am also deeply concerned about our current centralized, large, dirty and inefficient fossil fuel based electric generation transmission and distribution system. We need to move to a more distributed system where energy is produced closer to the point that it is consumed, on a smaller scale and with clean resources. The Midtown Eco-Energy proposal has a lot of good to it, but the devil is in the details and there's a lot to be improved in this case, obviously. The Netherlands and Denmark burn biomass (I believe a combination of staw and waste woods) in their neighborhoods. My understanding is that Kandiyohi is not willing to invest in the same level of emission protections as are used in Europe and that's unfortunate if that is true and a reason to oppose the project as it's proposed. Personally, I would support incineration if it came along with the proper emission technologies, a reliable fuel source that was acceptable and identified, the plant was restricted by law in what it could burn, and the CO2 emissions and some of the waste heat were used to feed a neighborhood greenhouse that could provide some real jobs for the neighborhood and locally grown produce year round that the neighborhood would surely benefit from. In the not too much longer term, there could be an even cleaner option. We could have a power plant at the Midtown Eco-Energy site that doesn't use combustion at all. We could have a power plant at that location that is powered by a fuel cell system using hydrogen generated by Minnesota wind power along with, perhaps, some on-site solar power in a chemical process with no emissions. This technology already exists; it's just not "affordable" on a commercial scale for a project this size. That's because of State and Federal policy that subsidizes the old centralized system. This policy can and should be changed. Let's start advocating for a great project in our neighborhood; let's stop being just against a bad project. Let's be for a great project.

    This heavy industrial use

    This heavy industrial use of the land alone would seem to be a very low and improper use for a parcel that abuts a major greenspace (Pioneers Cemetary) and is highly proximate to both the Hiawatha line and Greenway commuter routes (which will eventually double as a streetcar line). The appropriate use of the land according to sound land-use principles and common sense would be for mixed-income housing and light industrial uses and live-work spaces compatible with such housing. This would improve the lives of those in the neighborhood, and bring in new residents to enhance the community without pricing the current ones out of the market. The area east of Hiawatha used to be a giant railyard wasteland. The greenway used to be a rail line. These things have been changed to improve the human experience of this neighborhood. The chemical processing site at Hiawatha and 28th has been remediated and now houses a health-promoting use. The arc of development in this area is away from heavy and negative impact industry. So why does the city want to push back to those days? To allow this incinerator would ensure the asphalt plant would continue at its current inappropriate site, rather than being eventually superseded by a healthier use that would create as many jobs, like the green institute. The only conclusion one can draw is that the city wants to hold this neighborhood back from its potential as a healthy community and keep it down for the sake of a few monied interests.

    $130 million

    Does anyone know the status on the $130 million in EZ bonding authority? Will it be put to good use before it is taken away?