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Use of flood money for start-ups questioned

Fri, Mar 14th, 2008
Posted in Government

RUSHFORD - In the days immediately following the flood of 2007, it was difficult for Rushford residents and civic leaders to imagine anything worse than the muddy water covering their town and nearly everything in it.

Now, seven months later, city officials may long for those days when the task at hand was clear: clean up.

The mayor, city administrator and council now find themselves dealing with legislation, stipulations and intents that at times seem as clear as mud.

At issue is the question of just how flexible the flood relief dollars really are. And in what direction can they flex? If dollars can be given to start-up businesses, why not citizens trying to rebuild homes?

In a letter writing campaign to legislators, the council, and local papers, homeowner Larry Mierau is questioning why some of the funds being used for business can't be transferred over to housing to help residents who are still struggling with flood recovery. Mierau says he's one of the people who've "fallen between the cracks" because he qualified for a Small Business Administration loan, which makes him not eligible for the Quick Start funds.

At age 62, Mierau says he now has thirty years of payments to SBA, in addition to his original mortgage. He maintains that there is nothing in the flood relief bill "that precludes a transfer of funds" from business to housing.

Mierau further contends that by granting funding for $500,000 each to two businesses not impacted by the flood last month (Hypersonic-LLC and Connaughty Industries), the council was violating the intent of the law. Mierau quoted from the Preamble which refers to "providing money to match and supplement federal disaster assistance for property damaged by the floods of August 2007."

Mierau also points to a phrase in Section 8 of the bill that says "Assistance under this subdivision is not limited to businesses," thus bolstering his argument that it should be okay to transfer funds to flood-damaged homes, but not to new business.

Mierau received a reply to his letter from state representative Ken Tschumper, an email that he circulated at the council meeting, where Tschumper appears to agree with Mierau "that the City council acted on false and inaccurate information (when it declined to move funds into housing). The disaster relief legislation clearly states that money can be moved from one fund to another."

Tschumper also wrote that he confirmed with Paul Moe, Deputy Commissioner of DEED, "that MIF money should be used for all businesses damaged by the flood first before any money is given to start-up businesses."

In another email presented by Mierau, state representative Steve Drazkowski not only agrees with Mierau but also says he's drafted a letter to State Auditor Rebecca Otto "asking her to provide an analysis of the disposition of flood relief funds in Rushford. It is the role of the State Auditor to carry out audits when questions involving the authorization of the expenditure of state funds are raised."

But the City Administator and council used as rationale for its decision to give loans to Hypersonic and Connaughty that MIF funds are also intended for developing business so that the community may not just survive, but one day thrive.

And Drazkowski's email acknowledges that the flood recovery loan program carried a stipulation to aid "businesses that did not suffer damages but with assistance can increase job creation or economic activity in the community," but still maintains that "(t)he sole intent of the state's flood relief law passed on Sept. 11, 2007, is to assist flood victims."

"Providing $1 million to a pair of upstart companies was not the Legislature's intent," Drazkowski writes.

Drazkowski concludes that his contacting the State Auditor "is not a crusade against aid being delivered to Rushford's businesses; they need all the help they can get. The attempt here is to ensure the generosity of Minnesotans is correctly appropriated and not abused."

Meanwhile, at its meeting last Monday the council approved loans to two more new businesses on a smaller scale: : $152,651 to Shawnee's Bar & Grill and $12,000 to the Variety Store.

Editor's note: Read an Rep. Steve Drazkowski opinion on this matter on Page 4: Flood air intent must be honored.

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