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Two Harbors city attorney warns of conflicts of interest, state auditor looks into mayor's businesses

It's the latest in a month of controversy for Chris Swanson.

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Two Harbors Mayor Chris Swanson takes the stage to present a letter from six Iron Range mayors supporting the Trump-Pence campaign during Vice President Mike Pence's campaign visit to Lake Superior Warehousing in August 2020 in Duluth.
Clint Austin / File / Duluth News Tribune
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TWO HARBORS — Mayor Chris Swanson is under new scrutiny as the city attorney outlines a potential conflict of interest with the Festival of Sail planner and the Minnesota Office of the State Auditor begins looking for any payments from the city to his and his family's businesses.

Nichole Bjornrud of the auditor's special investigations division sent a "communication" to the city "requesting assistance and cooperation in obtaining information concerning any disbursements which may have been made by the city to" several businesses belonging to Swanson and his family, according to an item on the City Council's agenda Monday.

An agenda item from the Two Habors City Council agenda
An agenda item for the Monday, Feb. 14, Two Harbors City Council meeting shows the Minnesota Office of the State Auditor is looking into a number of businesses belonging to Mayor Chris Swanson and his family.
Screenshot

The auditor's office is seeking disbursement to the following businesses:

Donald McFarland, a spokesperson for the auditor's office, told the News Tribune that state law bars the office from releasing any information on an audit or investigation until it has been published or if it is no longer being pursued.
Swanson did not respond to the News Tribune's requests for comment early Monday. He has said in the past that city policy prevents him from speaking to the News Tribune.

During Monday's meeting, Swanson pulled the item detailing the state auditor's effort from the consent agenda and placed it into new business so it could be discussed.

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"There's actually been situations in the past where other businesses in the community have been able to participate in receiving grants from the city of Two Harbors," Swanson said in the meeting. "I think all of you sitting around this table remember a situation in which, and I have the emails to back that up, that I spoke to former city administrator Dan Walker, put that in writing and said that we will not be participating as a family or any of our family businesses, in receiving grants or grant money. Just want to make sure everybody's crystal-clear on that."

But the News Tribune has found at least one example of a Swanson family business receiving money from the Two Harbors Development Fund, the city's private nonprofit that distributes mostly publicly funded loans to Two Harbors businesses. The Two Harbors Development Fund is made up of mayor-appointed board members who the council must also consent to.

Using money through a grant from Iron Range Resources and Rehabilitation, the Two Harbors Development Fund on Oct. 18, 2019, entered into a $100,000 loan with Life Garage LLC, according to public records the News Tribune obtained through a records request with the IRRR.

Chris Swanson is listed as the company's "manager," according to the Minnesota Secretary of State, but he does not appear anywhere on the loan documents. Instead, his daughter, Callie, signed the documents and her position is listed as "president."

The state auditor's investigation is the latest in a month of controversy for Swanson.

Attorney addresses conflict of interest

Last week, the News Tribune first reported that the Festival of Sail contracted with First Day Events, a newly formed nonprofit incorporated by Swanson's daughter, Ashleigh, 20, just before he urged the council to pen a letter of support for the potential of bringing the festival to town last fall. Its registered office had been the Swanson family home in Two Harbors until Wednesday, when Ashleigh filed to have it moved to a law office in Minneapolis.

So far, there is no contract between the city and First Day Events or the Festival of Sail. But for the Festival of Sail to happen, a special event permit needs to be applied for and granted to use Minnesota Department of Natural Resources property along Agate Bay.

City Attorney Tim Costley reiterated a point he made in a special meeting last week: If the city will be named on the permit, it should enter into a contract with whomever is putting the event on so the city doesn't assume all the liability.

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But given the facts that First Day Events was incorporated by Swanson's daughter and is the event planner, Costley pointed out that the city code, city charter and state law all bar a city from entering into a contract that could even have an indirect conflict with an elected official.

"It is an absolute bar to have a contract where an elected official has a direct or indirect interests — can't do it. Doesn't matter if you disclose it, doesn't matter if you abstain — complete bar, can't go there," Costley said.

Swanson said the advice he was getting from his attorney was different.

"No, the purpose of the state law is to allow for that to happen in a transparent transaction without participation from that elected official," Swanson said.

To which Costley responded: "You have your own attorney giving you legal advice. That's fine. But this council has my opinion: It is an absolute bar."

And, he said, the fact that First Day Events is under review by the state auditor's office should play into any decision by the councilors.

"That should cause you pause," Costley said. "That should cause you to exercise caution going forward here."

Ultimately, the council tabled the decision on whether or not to apply for the DNR permit until next council meeting, which is Feb. 28.

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AG won't take up mayor's underwater hotel or crypto comments

Costley also said the Minnesota Attorney General's office declined to issue a written opinion on the a batch of comments Swanson made regarding his plans for an underwater hotel in Lake Superior and his interview to the New York Times laying out his plans for involving cryptocurrency investors in city projects .

Costley said the attorney general said an opinion was not necessary because there was no contract proposed to the city and there was no proof of Swanson having a financial stake in the projects.

Now, it's up to the council to determine the next steps. They can either do nothing, discuss it and resolve it among themselves, ask for outside attorneys to write an opinion on the mater or ask Costley to write an opinion on the matters.

This story was updated at 10:15 p.m. Feb. 14 with additional information from city council meeting and public records request by the News Tribune It was originally posted at 12:46 p.m. Feb. 14.

Jimmy Lovrien covers energy, mining and the 8th Congressional District for the Duluth News Tribune. He can be reached at jlovrien@duluthnews.com or 218-723-5332.
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