State auditor’s office finds issues with Jasper and JDC activities

The city of Jasper has been advised by the Office of the State Auditor (OSA) to separate its operations from those of the Jasper Development Corporation (JDC).

“Mike [Baustian, mayor of Jasper] and I were told to either resign from our positions with the city or resign from our positions with the JDC,” said Jasper City Clerk/Treasurer Cortney Kounkel during the Aug. 10 Jasper City Council meeting. “We have resigned from our positions with the JDC just so we can keep our city positions here. However, this opened up another can of worms for every single organization that we have here in Jasper, whether or not we can share members, whether or not it can be run through the city, whether or not any of that can happen.”

According to a letter from an investigator with the OSA dated June 1, the auditor’s office received concerns about payments by the city of Jasper to the JDC, which is a nonprofit corporation. In response to the concerns, the OSA contacted Kounkel and reviewed copies of relevant city financial documents and meeting minutes.

“Based upon its review the OSA found that the city did not follow Minnesota Law when it (1) paid the legal fees of the nonprofit corporation, (2) allowed the nonprofit corporation to use the city’s address for its business filings and mailing address, and (3) paid $30,000 to the nonprofit corporation without receiving anything in return,” according to the letter.
In 2019, the city paid the JDC $30,000 for the former bowling alley property, which Baustian had bought privately at an auction and sold to the JDC. Baustian abstained from the vote to purchase the property. According to the OSA letter, the city issued the $30,000 check to the JDC on Jan. 9, 2019 and the check was signed by Baustian as the mayor and Kounkel as the clerk/treasurer, and endorsed by Kounkel as the clerk/treasurer of the JDC.

Back in October, the city’s former attorney, Ben Denton, informed the city council when it was considering selling the former bowling alley property to Kyley Mills, owner of the Stonewall Bar and Grill, that based on his interpretation of state statute the sale of the property from the JDC to the city was not valid.

“There are some contracts between a city and others that are not valid under the law, even if the people who should abstain did abstain,” Denton said at the time. “Also, some of those contracts that are not valid under the law can’t be cured after the fact. A lot of them can, but some of them cannot. This is one of them that’s a void contract under the law and under the law it can’t be cured after the fact.”

Denton said after that meeting that the issue was that Baustian was also the president of the JDC and even though he abstained from voting on the matter, the sale was not valid because he was part of the local government body that purchased the property and the nonprofit organization that sold it to the city. The city at that time voted to cancel the sale and the $30,000 was returned to the city on Oct. 14, 2021.

“Based on information provided by the city, it appears that no purchase agreement was ever signed, no deed was obtained by the city, and the property records reflect that the property’s ownership did not change,” according to the OSA letter. “It appears therefore that the city, in effect, loaned $30,000 in public funds on an interest free basis to the nonprofit corporation for close to three years.”

According to the letter from the OSA, it appears that the JDC dissolved in 2008 and was reinstated in 2016. The letter indicates that, according to the city, Denton, Kounkel and Baustian worked to file the reinstatement of the JDC.
“Minnesota law expressly prohibits cities from creating nonprofit corporations, absent explicit legal authority to do so,” according to the letter.

The OSA recommended that the city should only pay itemized claims for amounts actually owed and supported by adequate supporting documentation. It also recommended that the city separate its operations from those of the JDC.
“City officials and employees should serve only in a non-voting capacity on the board of any nonprofit corporation created to assist a local government,” according the letter.

The OSA indicated that the city should not permit the JDC to use its address or resources and recommended that the city consult with its current legal counsel to consider whether the JDC should be dissolved “due to conflicts of interest and the absence of any authority for a city to create a nonprofit corporation.”

Kounkel asked the city’s current legal counsel, Jennifer L. Eisma-Reinke with Eisma & Eisma Attorneys at law, of Luverne, what that meant for other nonprofits in the city. She said she was advised that for organizations like the Jasper Lions’ Club, ambulance and fire department, city council members and employees can be part of the organizations, but cannot be voting members. For the Quartziter Club and the United Fund, the city was advised that they should sever ties with the organizations and they should have their own bank accounts and boards.

Those recommendations caused concern among the city council and staff, as well as community members, during the Aug. 10 city council meeting.

“Like Mike had said, we have a lot of hands in this community, but we don’t have a lot of working hands in this community,” Kounkel said.

Baustian described the situation as “frustrating” and said people often wear multiple hats in small towns.
“That’s just how small towns run,” he said. “You have to help in a lot of different facets of the community and a lot of different volunteerism.”

Quartziter Club President Lisa Petersen said the club already has its own board, but that three-quarters of its members were members of the fire department, ambulance or city council. She said the Quartziter Club has operated through the city for insurance purposes and expressed concern about having enough people to help during the all school reunion planned for next year’s Quartziter Days.

“We’re all trying to help the city of Jasper with everything that we do,” Petersen said. “This has become a huge problem for everybody because of a few people.”

Kounkel said she’s worried about what it all means for the city, but that, for one thing, it means local organizations will need board members who are not associated with the city. She said people associated with the city can still volunteer with the organizations, based on the advice of the city’s legal counsel.