North Dakota Development Fund hits pause as Legislature expected to weigh its future

Board members of the North Dakota Development Fund voted Thursday to pause new business while the Legislature weighs potential changes to the state-backed business financing program that drew critical audit findings, raising alarms for some lawmakers.

The board also reviewed those audit findings – which included a lack of documentation for millions of dollars in transactions and inconsistent conflict of interest procedures – and a more recent audit that had lesser, more common findings.

The meeting was the first since the board’s leaders resigned last month. Separately, the Ethics Commission voted to begin an inquiry into the fund in late October.

Additionally, the head of the Legislature’s audit review committee is planning to introduce legislation to repeal the Development Fund and the Commerce Department, though he acknowledged the latter would be a heavy lift.

The Development Fund, created in 1991, provides loans and investments as gap financing to new businesses that might not be able to get loans elsewhere.

Pause

The board voted unanimously to temporarily pause new financing transactions and unsigned applications, effective immediately. The fund’s child care loan program isn’t affected.

Commerce Commissioner Chris Schilken made the motion. Four of the eight board members met Thursday. Two seats are vacant. Two members were absent.

Schilken said it’s prudent to pause as officials and lawmakers consider changes to economic development policies in the 2027 legislative session.

“I think it’s also recognizing that we are addressing some of the issues in the performance audit and taking it seriously,” Schilken said.

The decision allows the board to consider four applications in the review process. The board met during a 30-minute closed-door executive session to discuss companies’ financing applications and active loans and investments.

The board will continue administering its current portfolio, the Commerce Department said in a news release.

Lawmakers seek AG probe after audit finds problems with North Dakota business financing program

Audit talk

For the first time, the Development Fund’s board reviewed the findings of the 2019-2024 performance audit that drew lawmakers’ scrutiny earlier this fall.

Those included insufficient documentation for various transactions and application evaluations, inconsistent conflict of interest and “related party” processes and unverified job data reported by borrowers. The audit found nearly $4 million in funding for five organizations that had relationships with two board members.

Board Chair Joel Brown and Fund CEO Brian Opp said the Development Fund has made improvements, such as stronger documentation and a policy prohibiting “related party” transactions. The fund has no “related party” transactions” now, Opp said. Brown asked a special assistant attorney general to give guidance of what constitutes a “related party” or conflict of interest. 

Brown said it’s up to the Legislature, governor’s office and Commerce Department what the future of the Development Fund is.

“But we do have a responsibility as board and as staff to respond to this audit finding in a constructive way,” Brown said. He suggested that future board meetings include updates on improvements.

The fund provides flexible gap financing, which often puts it in a higher-risk environment, Opp said. 

“It’s really important to recognize that it’s not that anybody’s out here considering and approving or financing outrageous deals,” he said.

Also, Brady Martz representatives walked the board through a financial audit of the last fiscal year that gave the Development Fund overall good marks but for four findings an audit rep said were fairly common. An agreement with the Bank of North Dakota for next year is expected to help improvements, Opp said.

Resignations

Fund Board Chair Jim Albrecht and Vice Chair Rob Lindberg submitted their resignations on Oct. 20, effective immediately. They did not elaborate on their reasons or timing in resignation letters obtained by the Monitor.

Albrecht wrote: “I submit this resignation in support of the Commerce Department’s efforts to work with the legislative body to cast a new vision forward for the NDDF and other funding mechanisms in the State.”

Lindberg wrote: “I extend my best wishes to the Department of Commerce as it and the administration restructure the economic development efforts of the state.”

Albrecht did not respond to a voicemail for comment. Lindberg did not respond to a text message.

One of the board’s first actions Thursday was to unanimously elect Brown as chair for the meeting.

North Dakota Ethics Commission to launch inquiry into Development Fund problems

Ethics inquiry

Last month, the Ethics Commission voted unanimously to begin an inquiry into the Development Fund’s problems, based in part on the decision by Attorney General Drew Wrigley to decline an investigation requested by the Legislature’s audit review panel.

Wrigley cited a legal conflict of interest because his office represents current and former Development Fund board members in a lawsuit. He also said there was no criminal evidence to necessitate referring the matter to another entity to investigate.

Earlier this month, Commission Executive Director Rebecca Binstock notified State Auditor Josh Gallion and Opp of the inquiry and requested documents relating to the performance audit and policies and operations of the fund, including conflict of interest disclosures.

Potential repeal legislation

Sen. Jeff Magrum, who chairs the Legislature’s audit review committee, welcomed the Ethics Commission’s inquiry. His committee voted in September to recommend the 2027 Legislature shut down the Development Fund.

Magrum, R-Hazelton, said he is in the early stages of planning legislation for next year to repeal the Development Fund and the Commerce Department and to dissolve or audit various other state grant and loan programs.

“I like that mentality for all of these funds – just get rid of them all and start over again because there should be a component in every one of these agencies to follow all of the money that’s being distributed through them,” Magrum said.

Repealing the Development Fund would encompass transferring its funding to the state’s general fund and handing the administration of its remaining loans to the state-owned Bank of North Dakota, he said.

The Development Fund is legally structured as a nonprofit corporation but functions as a state-administered public economic development entity within the Commerce Department, an agency spokesperson said in September.

The Commerce Department is a necessary state agency for helping the state’s business development and guiding people who want to come to North Dakota, said Rep. Mike Nathe, who helps write the Commerce budget in the Legislature. He said he is open to discussion about what’s working and not working with the Development Fund.

“That’s a legitimate discussion, but to have a bill to do away with Commerce? That’s laughable. That’s not even serious,” said Nathe, R-Bismarck.

Reach North Dakota Monitor reporter Jack Dura at [email protected].