MARQUETTE - Local government and schools officials are worried a proposed new severance tax on non-ferrous mining operations - most notably the Kennecott Eagle Minerals Co. copper and nickel mine and milling project - could threaten to shortchange local taxing units by tens of millions of dollars in tax revenue.
But 110th Dist. State Rep. Matt Huuki, R-Atlantic Mine, said the legislation he's considering introducing in Lansing next month would not hurt local communities and is aimed at reducing economic impediments for smaller mining companies and their investors, lowering the number of legal challenges and simplifying the method of determining mining taxes.
Huuki said his severance tax should provide the same amount of money to local governments as the current tax structure, based on assurances he's received from the state treasury officials.
"There's a lot of concern about it," Huuki said. "My whole goal with this is to make it be revenue neutral by the end of the life of the mine."
But the concept of "revenue neutral" has been greatly contested by local officials over recent days.
On Tuesday, the Marquette County Board unanimously passed a resolution against Huuki's proposed legislation after local assessor Howard Robare used the most recent draft of Huuki's bill, and values from Kennecott's website on its investment and expected mining yields, to compute anticipated tax revenue losses under the Huuki severance tax.
Robare is the tax assessor for the city of Ishpeming and Humboldt, Michigamme and Powell townships. His figures were reviewed by Marquette County's Equalization Department officials.
Over the 10-year life of the mine, 300 million pounds of nickel and 250 million pounds of copper are expected to be mined at the site in Michigamme Township and processed at Kennecott's mill in Humboldt Township, according to Kennecott.
Robare projected total losses to the county, the Marquette-Alger Regional Education Service Agency, NICE Community Schools, Republic-Michigamme Schools and Humboldt and Michigamme townships valued at $10.2 million a year under the severance tax levy.
"I think that we need to go on record very fast and say that we're totally opposed to this," Marquette County Commissioner Deborah Pellow said Tuesday. "Certainly Humboldt Township and Michigamme (Township) stand to lose, but so do we and so do the schools and at a time when the schools need more money, why would they want to do this in Lansing? It's really a bad, bad bill."
At the suggestion of Marquette County Commissioner Bill Nordeen, Huuki is expected to meet with the Marquette County Board at 6 p.m. Tuesday in Room 231 of the Marquette County Courthouse Annex, located along Baraga Avenue.
Huuki said he has tried to reach Department of Treasury Legislative Affairs Director Howard Ryan to clear up the discrepancy in the figures. But Ryan is not due back from the holidays until Tuesday. Huuki expects to speak with him before he meets with the board.
"Either treasury looked at this wrong or the townships looked at it wrong," Huuki said.
Huuki stands by a pledge he made to local officials he met with before Christmas that if his severance tax isn't revenue neutral he won't introduce his bill. Huuki's district includes Powell Township in Marquette County and six western Upper Peninsula counties.
"What astounds me is as one looks at the future mining sites in the Upper Peninsula, everything is basically in Marquette and west-that's his district, he is hurting his constituents," said Marquette County Commissioner Jim Cihak. "I don't get that."
Cihak suggested sending Robare's spreadsheet and the county's resolution against the bill to Huuki, state Sen. Tom Casperson, R-Escanaba, and 109th Dist. State Rep. Steve Lindberg, D-Marquette, to further inform them on the situation. The board unanimously concurred.
Severance taxes are assessed on minerals and other resources, intended to compensate the loss of taxable resources. County and township officials said Huuki's bill would replace ad velorum and property taxes with the severance tax.
"That's totally unacceptable from our perspective," said Humboldt Township Supervisor Joe Derocha, given the alleged revenue shortfalls.
One of the reasons Huuki was creating the tax was to aid smaller mining companies that don't have the capital to build a mine and at the same time pay those taxes as soon as they start boring, as is required by current law.
"They are getting taxed on a high revenue ore before they even have any revenue coming in," Huuki said. "I want to make this as investor-friendly as possible."
County and township officials were critical of Huuki for not talking with them about his bill sooner.
"Rep. Huuki has been working on this since February 2011 and we just found out about it, that's disheartening at best," Pellow said.
Commissioners Gerald Corkin and Pellow said their meeting with Huuki and Michigamme and Humboldt townships officials recently was hard to arrange. They said a reluctant Huuki did everything he could to avoid the session.
When they did meet at a local restaurant, Corkin said Huuki initially said he had no details available on what he was developing. But the delegation then produced a draft copy of Huuki's legislation they had obtained from an undisclosed source.
"After the supervisor for Humboldt pulled out the bill and said, 'Well, I have this,' then he (Huuki) sent one of his children to the car to get the bill off the dashboard," Corkin said.
Huuki said the reason he didn't discuss details of his bill in previous months was to avoid exactly what has occurred-local officials being upset about the bill before it has even been finished or introduced.
"There's been about eight drafts of this bill," Huuki said. "It doesn't make sense to get people riled up about something that doesn't have a chance to see the light of day."
Corkin said he first heard about the bill in a recent newspaper article. He said local officials were concerned that if they didn't find out more about the measure quickly, and voice their opposition, the bill may have been pushed through the legislature before locals knew what was in it. They fear more money will be diverted to state coffers.
"There's a lot more going on with this than meets the eye. Part of it is the bureaucrats in Lansing for one thing plus the inexperience of this representative. He's hardly got his feet wet as far as government and does not understand local government very well," Corkin said. "And so there's a lot of issues going on, but I think he's being used to do this and being led. So we need to get in a fight to show them what kind of damage this is going to do to all the (taxing) units in Marquette County."
Huuki said he's unhappy the county passed its resolution.
"The way they did it was very ugly and I'm a little bit upset about it," Huuki said. "I don't think it was kosher."
Rick Lindstrom, equalization director for Marquette County, said Kennecott would pay less under the severance tax, but something would have to change in current law - like Huuki's bill - to make that happen.
Huuki said Kennecott officials are not pushing for the severance tax, but rather it is a bigger issue for smaller mining companies looking to begin projects in his district.
Kennecott President Adam Burley said, "We have consistently been an advocate of the principle that those communities, schools, and public services that are local to our operations benefit most as a result of our presence here.
"While Kennecott is open to the discussion of a variety of taxation approaches, any new tax proposal should remain sensitive to the requirements and expectations of our local communities," Burley said. "Because developing mining operations is very capital and time intensive, it is critical that policymakers formulate a competitive approach that provides business certainly, and encourages additional investment, mineral exploration, business expansion and job creation in Michigan."
Burley said that under Michigan's existing tax law for hard rock mining, Kennecott estimates it will pay in excess of $100 million in taxes, including property tax to local governments and schools, sales taxes, local and state income taxes and royalties paid to the Michigan Parks Endowment Fund.
"Our tax generation in the U.P. began more than 10 years ago when the project here was initiated, and will continue to grow as we move into production in 2013," Burley said.
The state geologist is expected to set the price on the Kennecott ore body in mid-February.
John Pepin can be reached at 906-228-2500, ext. 206. His email address is jpepin@miningjournal. net.
