Auditors urge overhaul of grant/loan program for rural Utah communities

(Francisco Kjolseth | Tribune file photo) This Aug. 7, 2017, file photo shows crews moving coal at the Levan transfer facility along Interstate 15, south of Nephi, where a steady flow of trucks unload it before it is transferred to train cars. The Utah Community Impact Board set aside more than $50 million toward a deep-water port project in Oakland, Calif., that would be a shipping point for Utah coal.

Utah set up a fund decades ago to distribute federal mineral royalties to rural communities to support projects that alleviate the impacts of mineral extraction on nontaxable public land.

But over the past several years, the Permanent Community Impact Fund Board’s mission has strayed to embrace projects that could actually exacerbate those impacts in the name of economic development, according to a legislative audit released Wednesday. Auditors found its system for approving grants and loans lacked consistency and that its oversight of financial aid should be improved.

Speaking before lawmakers Wednesday, auditors offered 15 recommendations for overhauling the program that oversees hundreds of millions in spending on projects ranging from cemeteries to railroads. The account is administered by the Utah Department of Workforce Services, while the decisions over which projects to fund are left to the board, commonly known as the CIB, made up of rural county commissioners and designees from state government.

Last year, it took in $36.6 million in federal revenue and $79 million in total when loan repayments were added. The fund allocated $112.2 million last year, including $28 million toward the proposed Uinta Basin Railway. Now under review by the federal Surface Transportation Board, the controversial $1.2 billion, 80-mile rail project is seen as a way to replace trucks for moving the basin’s oil to refineries and make this waxy crude more competitive.

Auditors found a lack of policies to ensure CIB-backed projects benefit the larger public; that its board members want better guidance to ensure consistency in funding decisions; that projects often don’t undergo competitive bidding; and that internal policies are incomplete and erratically followed.

One such policy is a $5 million cap on the CIB’s participation in a single project. Of the nearly 1,600 projects the board has funded since 2000, it approved grants or loans to 54 that exceeded that limit, totaling more than $500 million, or about a third of its spending during that period.

“We believe the board should establish maximum award size with exceptions where appropriate, where they can provide extra justification and the board can ensure best practices are followed,” auditor Benn Buys told the Legislative Audit Subcommittee.

Mirroring criticism that has been leveled at the CIB in the past, auditors raised concerns that some of these big infrastructure projects could be seen as handouts to private businesses. Buys highlighted two Uinta Basin paving projects, which upgraded the Seep Ridge and Leland Bench roads, consuming $69 million in CIB funding.

“These projects were largely built to provide easier access to oil and gas wells,” Buys said. “We are not saying there was anything improper about these projects. Because there is some gray area, we think additional policies could help the board in making these decisions.”

State law outlines 11 criteria the board is to apply when weighing grant applications. Auditors urged policies be put in place to ensure these criteria are applied in an equitable, consistent and transparent manner.

"The board should also ensure all projects provide a good value to the community in alleviating impacts," Buys said. "That's in accordance with state statute that says CIB funds should be used to benefit the maximum number of citizens."

The CIB’s leadership agreed with every recommendation the audit offered to address these deficiencies. Some already have been implemented, such as a scoring matrix now used to prioritize projects in accordance with the 11 criteria, according to CIB Chairman Jonathan Hardy, who heads the Utah Division of Housing and Community Development.

“No applicant is alike and nobody fits all the criteria the same way,” Hardy told lawmakers. “We are excited to build on these improvements but also recognize that all applications are not alike. Because each community’s ability to repay is unique, there will be some slight variances between otherwise similar purposes.”

Normally, CIB awards are balanced evenly between grants and low-interest loans, but in the past five years, the awards have been heavily weighted toward grants, which could undermine the sustainability of the fund, warned the audit.

Auditors analyzed five awards totaling nearly $12 million in CIB funding and found just one where more than one bid was received before contracts were awarded.

“We can’t confidently say these entities got the best price on the project," Buys told lawmakers, "because they only received a single bid.”

State Treasurer David Damschen, who sits on the CIB and had previously raised questions about the board’s practices, agreed the audit’s recommendations would help ensure the impact fund is used for its legally mandated purpose, which is to support rural communities with projects like acquiring fire trucks, fixing roads and building civic buildings.

“That’s the CIB’s sweet spot,” Damschen said in an interview. “Those large infrastructure project funds were creations of the Legislature, and I never thought the CIB was built to handle those kinds of transactions. It’s awkward that the CIB would be saddled with these complex projects.”

The treasurer was making reference to the Legislature’s move to divert $53 million in CIB money for “throughput infrastructure” projects, then later earmarking that money specifically for a marine export terminal. Such a massive project would be located far outside Utah but would help get more of the state’s coal to Asian markets.

The CIB previously had authorized the award as a loan to four coal-producing counties, triggering a controversy over the CIB’s priorities. Some observers, including Damschen, argued the CIB should stick to its federal mandate of supporting projects that improve the lives of rural Utahns.

“It’s appropriate the board exercise discretion," Damschen said. "We need to still have flexibility, but what we need are guardrails, and that’s what the audit will help.”