State auditor: Two Harbors mayor may not have disclosed all business interests when they went before city
The report also finds the council and city attorney properly reviewed Chris Swanson's potential conflicts.
TWO HARBORS — A state investigation into Mayor Chris Swanson found he may not have disclosed interests in organizations that went before the City Council. It also found the council and city attorney "acted appropriately" in reviewing whether conflicts of interest existed.
The 12-page investigative report released by the Minnesota Office of the State Auditor on Thursday found Swanson, who faces a recall election Aug. 9, disclosed his interest in some of his organizations that went before the council but documentation of disclosures for other organizations could not be found.
"The (Office of State Auditor) found instances where city actions involved one or more of the businesses that appear to be connected to the mayor," the report said. "Documentation suggests that the mayor may have disclosed an interest in some of these businesses. For others, we found no documentation of such disclosure."
The investigation into the mayor's business dealings began in February, the News Tribune first reported.
In an interview with the News Tribune on Thursday afternoon, State Auditor Julie Blaha said the investigation was prompted by "a flurry" of concerns regarding Swanson that people shared with her office, the Minnesota Attorney General's office and the city attorney.
Blaha credited the City Council for preventing conflicts of interests with the mayor to occur.
"I would suggest that the actions of the actions of the City Council not only protected local citizens' interest, but also helped protect the mayor, too," Blaha said. "I think he avoided some problems because (the City Council) avoided a number of contracts."
Asked if she believed Swanson was being careless with his mixing of business and public service, Blaha said she couldn't speak to that.
"Frankly, that's up to the people of Two Harbors to decide on Aug. 9," Blaha said, referring to the recall election.
According to the auditor's report, Swanson disclosed his involvement in Life Garage, LLC as “a mentor and advisor and as the father of Callie Swanson.”
As the News Tribune previously reported , Callie Swanson is listed as Life Garage LLC's president, according to a $100,000 loan Life Garage received from the Two Harbors Development Fund, a city-run nonprofit, in October 2019.
The auditor's report said Swanson also signed business filings with the state "for the assumed name Garage Starts, LLC, for the nameholder — Life Garage, LLC."
Swanson was the CEO of Garage Starts, the Garage Start website said earlier this year ( he no longer appears on the website's "About" page ).
The $100,000 loan was funded through a grant from the Department of Iron Range Resources and Rehabilitation to the Two Harbors Development Fund, but Life Garage had borrowed a total of $150,000, according to meeting minutes from the fund obtained by the News Tribune through a city data request.
Callie Swanson received an additional $70,000 in loans from the fund in July 2020 to help fund construction work at Burlington Station, her gift and candy shop in Two Harbors, according to the fund's minutes.
The report did not mention the loans Life Garage or Burlington Station obtained through the city-run nonprofit, but cited a September 2019 letter from Steve Overom, the city attorney at the time, saying the fund was a "standalone Minnesota nonprofit corporation" and included the mayor's disclosure of his connection to Life Garage. Because of that, Overom said the loan did not present a conflict of interest between the city and Swanson.
"It is my view that actions by the THDF are not actions by the city as a result of the involvement of Mayor Swanson with Life Garage, LLC does not violate Two Harbors City Code Section 2.61, Subd. 2A.," Overom wrote, according to a copy of the letter provided to the News Tribune by the State Auditor's Office.
However, Overom did urge Macey Jones, then both a THDF board member and Life Garage employee, to resign from one of her roles before the THDF considered Life Garage's loan.
Current City Attorney Tim Costley is now fully separating the nonprofit from the city.
Blaha echoed Overom's opinion.
"A lot of times, cities generally don't have the authority to run a nonprofit," Blaha said. "So it might be a nonprofit that does things that benefit the city, but it's not the city's profit. So therefore, they don't have the authority over that, and that may be why there isn't a contract there."
The report said Swanson, a board member of the Friends of the Bandshell Park in 2017 and 2018, also abstained from voting on certain actions related to the group before the council but that the meeting minutes do not say why Swanson abstained.
But meeting minutes in August 2017, March 2018 and November 2019 show the city provided city funds to the Chalk.a.lot festival, but that "these meeting minutes do not reflect a disclosure by the mayor of a connection to the nonprofit corporation."
The report also suggests Swanson changed his tune on disclosing his interest in First Day Events, the nonprofit incorporated by his daughter, Ashleigh Swanson, that was organizing volunteers and applying for permits from the city for the upcoming Festival of Sail after the mayor urged the council to support hosting the event (the group is no longer involved in the event.)
The articles of incorporation also listed Sarah Koster, who was the executive administrative assistant for Swanson's Garage Starts.
"City Council meeting minutes indicate that when asked about the business First Day Events, the mayor reported to the City Council that the individual who filed the (Office of Secretary of State) paperwork for First Day Events 'was his admin and worked for him,'" the report said. "He went on to say that, 'He thought that he could just abstain from a vote.' He also reported 'that his counsel has shared with him that, particularly in small communities, people will have conflicts of interest. His understanding is that he should be transparent, but that people can have contracts as long as they disclose them.' However, in subsequent meeting minutes, the mayor reported 'that he has no direct or indirect interest in First Day Events.'"
The Office of State Auditor recommended the city require elected officials complete economic interest disclosure statements going forward.
"If the city required its elected officials to complete similar statements shortly after taking office, the city might be in a better position to identify potential conflicts of interest when they arise," the report said.
The report listed several additional recommendations the city could take to avoid such issues in the future:
- Record abstentions from voting due to a conflict of interest in the City Council meeting minutes. Name and reason for abstention should be recorded.
- Ensure city officials and city employees only serve in a non-voting capacity on the board of nonprofits meant to help local government.
Additionally, the report found the Two Harbors City Council and Costley, the city attorney, "acted appropriately in considering whether certain conduct by the mayor violated provisions of Minnesota Law, the City Charter, the City Code, and the City Communications Policy.
"These determinations are the responsibility of the City Council and the City Attorney in the first instance, and our review revealed nothing to suggest that they were reached improperly or were without support," the report said.
In a memorandum of opinion, Costley wrote that Swanson repeatedly used his official city position “for personal benefit or business interests” on a number of issues, the News Tribune reported in March.
Last month, the council voted 6-0 to urge Swanson to resign. Swanson did not attend the meeting and has not attended a council meeting since.
Swanson will face a recall election Aug. 9. Two Harbors voters will answer "yes" or "no" to the question: “Shall Mayor Christopher Swanson be recalled?”
City officials did not immediately respond to the News Tribune's request for comment.
An emailed statement sent to the News Tribune by Ashleigh Swanson on behalf of Mayor Swanson said: "Today is a great day for Two Harbors. The truth is starting to come out."
Prior to the report's release Thursday morning, the only publicly available information on the auditor's investigation came from an agenda item on the Feb. 14 council meeting agenda. The agenda item said Nichole Bjornrud of the state auditor's special investigations office had sent a letter to the city asking for all disbursements from the city to eight organizations belonging to or connected to Swanson and his family.
But in his statement, Swanson blamed the Resign or Recall recall committee for mischaracterizing the State Auditor's inquiry as an audit into his businesses during a court hearing.
The State Auditor was looking into any disbursements the city may have sent to Swanson-family organizations.
Blaha said the lesson for all local officials should be to err on the side of caution with potential conflicts.
"Disclose early, disclose often," Blaha said. "The sooner you can get out on the table, the less risk you have. Want to avoid risks? Lay out all potential conflicts right up front."
This story was updated at 4:04 p.m. July 28 with quotes from State Auditor Julie Blaha and Mayor Chris Swanson; additional information from a letter from former City Attorney Steve Overom; a PDF of the letter; and a photo of the agenda item announcing what the State Auditor was looking into. It was originally posted at 12:36 p.m. July 28.