MARQUETTE - Townships expected to be affected by any non-ferrous mining severance tax remained concerned this week about a proposal being developed by the administration of Gov. Rick Snyder.
A Lansing delegation met with the Marquette County Board Tuesday to discuss the issue, which could influence revenue derived from the Kennecott Eagle Mine on the Yellow Dog Plains.
The basic premise of the administration's proposal is instead of having four different taxes for non-ferrous mining (real property, personal property, corporate income, and sales and use), a single severance tax (set percentage charge of gross ore sales revenue) would be developed.
Key tenets of the administration's current proposal include a 3 percent severance tax, to be collected by local jurisdictions, with 45 percent of the revenue maintained by the impacted counties, townships, school districts, intermediate school districts and the school aid fund.
The distribution of funding would follow the current property tax distribution and offset revenue that would have been provided to the locals under the current property tax distribution model. The remaining 55 percent of the severance tax will go into a rural development fund to support long-term regional economic growth.
The Rural Development Fund would provide dollars, including matching funds, to facilitate infrastructure improvements for broadband/Internet connectivity, energy, rail and talent to strengthen rural economies.
Humboldt Township Supervisor Joe Derocha said his community wants to maintain the ad valorem property tax for Kennecott's Humboldt Mill, which the administration's proposal supports.
Derocha, while not defending Kennecott, said the administration seems only concerned with a severance tax for the nickel and copper Kennecott expects to mine, not other non-ferrous mineral products in the state, including limestone and salt.
"I like to call a spade a spade. To me, this looks like a money grab - whether it be the administration or the Department of Ag. - the very suggestion of someone coming in and taking 55 percent of the tax revenue sounds unacceptable to me," Derocha said. "I don't know why anybody is even thinking that should be acceptable."
Marquette County Commissioner Gerald Corkin agreed.
"The whole issue is troubling to me the way the state has gone about it," Corkin said. "...From Day One, I said they were in here to try to siphon off money and that's exactly what it is. So I guess it's a troubling issue when you don't know where you're going to end up with something that's so important to every place in Marquette County. This is important for the next 50 to 100 years with the precious metals that are here."
County board members remained skeptical Tuesday of a valuation of Kennecott's mine set at $191 million by the state geologist in February. The geologist said that value is a "snapshot in time," expected to increase as the ore is mined and development costs decline.
"The ore value was estimated anywhere from $2 to $8 billion," Commissioner Paul Arsenault said. "Why would Kennecott spend a half a billion dollars to open a mine that's worth $191 million? It doesn't make sense to me."
Commissioner Nick Joseph said he thinks the severance tax appears to be an attempt by the state to recover money lost in Kennecott finding loopholes to allow it to avoid paying state sales tax.
In addition to any severance tax, a 7 percent royalty is paid to the state for the purchase of minerals, which under the state constitution goes to the Michigan Natural Resources Trust Fund for recreation and natural resource-related land purchases and projects.
Another concern for locals, which remains unanswered, is whether caps under the state's Proposal A tax law will affect a severance tax.
Michigamme Township Supervisor Alvar Maki said his township's opinion on the severance tax issue has remained consistent.
"We'd like to make sure that our revenues are protected," Maki said.
Maki said his township, where Kennecott's mine is located, has its own plans for economic development. Maybe the revenue split shouldn't be 55-45, but rather 75-25 in favor of the locals, Maki said.
George Lindquist of Negaunee Township urged the delegation to look worldwide at severance tax rates being levied elsewhere. He said companies in Australia are paying 40 percent severance taxes and the mining is still going on.
"The minerals are really no place else," Lindquist said. "It's not like, somebody's going to go and take their business someplace else. This is where they are."
The delegation's speakers included Keith Creagh, director of the Michigan Department of Agriculture and Rural Development, Valerie Brader, deputy legal counsel and senior policy advisor for Gov. Rick Snyder and Hal Fitch, state geologist and director of the Michigan Department of Environmental Quality's Office of Oil, Gas and Minerals.
John Pepin can be reached at 906-228-2500, ext. 206. His email address is jpepin@miningjournal.net.