Production tax slipping even as mine profits soar

Raise the subject of mining these days on the Range and people tend to take up sides right away, for or against.

But I suspect there’s one thing that everyone should be able to agree on, and that is this: when mining does occur—be it copper-nickel or taconite— the state and the region should see as much benefit from it as possible. Mining, particularly of the kind of large deposits found in northeastern Minnesota, can generate a tremendous amount of wealth... at least for somebody. But as we report this week, less and less of that wealth is staying here on the Range, as the value of the taconite production tax continues to erode under the effects of inflation and a status quo mentality among too many elected officials from our region.

There was a time when a lot of that wealth stayed here on the Range. We see it in the beautiful schools and public buildings that dot Iron Range communities, reminders of an era that, unfortunately, has largely past. Today, the region’s taconite mines are yielding as much ore as ever, and the value of that ore has skyrocketed, by as much as 360 percent in just the past eight years, to over $90 a ton. Indeed, the value of the ore produced here now exceeds $3.5 billion annually—yet the share of that windfall that remains in our region has fallen dramatically.

Mechanization continues to mean fewer mine workers, even when total production remains the same. Direct wages in the mining industry amount to about $300 million a year, or barely eight percent of the market price for a ton of ore. But the tax revenues that mining companies pay have fallen even faster. Today, the production tax raises less money, in real dollars, than it did in 1991, when taconite was valued at about $28 a ton.

Less than 25 years ago, the taconite production tax amounted to approximately seven percent of the price of a ton of pellets on the market. Today, it’s less than three percent.

According to the 2013 Mining Tax Guide, the production tax generated $82.4 million in 1991. That money, collected in lieu of property taxes, was distributed to area cities, counties, school districts, and taxpayers, and funded economic development efforts across the region.

Adjust for inflation, and that $82 million has the buying power today of over $140 million. But we don’t collect $140 million a year in taconite taxes— this past year it amounted to just $102 million. What’s more, about 13 percent of the production tax raised today goes back to the mining companies for plant improvements. That wasn’t the case in 1991. That hefty rebate means that, in effect, the value of the production tax has actually eroded by 38 percent, while the value of a ton of taconite has increased more than ten-fold.

Is it any wonder the rich get richer?

In terms of public policy, this is inexcusable. It’s not as if the region couldn’t use the additional resources. For years, the region’s homeowners enjoyed very affordable property taxes, in part because the taconite production tax helped pay down a portion of local tax bills. But as legislators sat back and watched the production tax erode against inflation, funding for that credit has lost value and area homeowners have seen a steady escalation in their property taxes. Cuts in city and school funding have only exacerbated this trend.

Just this past month, the IRRRB had to turn down nearly half of the public construction projects that area cities and townships had submitted to the agency for funding. It’s not as if the rejected projects were unworthy. And it certainly isn’t that the mining industry can’t afford an adjustment in the production tax. It’s just that some of our lawmakers seem content to let the mining companies drop an ever-shrinking plate of crumbs on our region.

Think, for a moment, about the number of good jobs that we give up each year when the Iron Range settles for crumbs, and allows ever more of the value of this region’s natural wealth to wind up in the pockets of well-heeled investors on Park Avenue.

Even simply adjusting for inflation, and ending the tax rebate program, would generate an additional $50 million this year. Distribute this to area cities, counties, and school districts, and you’re talking about hundreds of new jobs as teachers, librarians, construction workers, cops, and firefighters.

Or, we could think bigger, and start to collect a percentage of the value of the ore being dug and processed in our region. Quebec recently implemented a minimum tax on the value of ore— it’s set at four percent for large companies, like the ones that operate here. An equivalent tax rate here would have generated over $140 million last year. In addition, the province levies an income tax on corporate profits, further adding to the revenues available for provincial priorities. Here in Minnesota, the mining companies are paying a much lower tax rate on the value of their ore, and they’re exempt from the corporate income tax, besides.

Unfortunately, our lawmakers have allowed Minnesota to become a lap dog for mining interests, who are reaping huge financial returns while our communities continue to suffer from diminished prospects and a lack of good jobs.

Forget the idle threats from the mining companies that would inevitably accompany any talk of higher production taxes. The fact is, many other states and provinces are already assessing higher fees. And let’s face it, these companies have both major investments here, and massive reserves of taconite. What are they going to do? Start mining taconite in South Dakota in hopes of lower taxes? Good luck with that.

The good news (and, yes, there is some) is that at least a few of our legislators are interested in restoring the value of the production tax. Rep. Carly Melin, DFL-Hibbing, is one of them. So is Rep. Tom Anzelc, DFL-Balsam. These legislators deserve credit for being willing to buck the status quo and fight to restore some equity to the production tax. Now we just need to convince the rest of our legislators to join them.