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County board frustrated by mine tax plan

August 21, 2012
By JOHN PEPIN - Journal Staff Writer (jpepin@miningjournal.net) , The Mining Journal

MARQUETTE - Members of the Marquette County Board were angered and frustrated last week after state officials failed to match their revenue expectations for a proposed state severance tax on non-ferrous mining operations, including the Kennecott-Rio Tinto Eagle Mine.

Local officials said that to "hold them harmless" by keeping pace with anticipated ad valorem property tax revenue - and based on a Kennecott estimated $3.5 billion value of the Eagle Mine over its seven-year lifespan - local taxing units should receive 1.8 percent of a 3 percent severance tax, or $7.2 million annually for a total of $50.4 million over the life of the mine.

However, Michigan Department of Natural Resources Director Keith Creagh said the state has proposed the 3 percent severance be divided in half with 1.5 percent going to the locals and 1.5 percent to a rural development fund, which would finance infrastructure improvements.

Article Photos

The Marquette County Board and state officials are still looking for a resolution on the provisions of a proposed severance tax for non-ferrous mining operations, including the Rio Tinto Eagle Mine in Michigamme Township. Any agreement will be subject to change in the state Legislature. (Rio Tinto Eagle Mine photo)

Considering a 20 percent deduction for transportation costs, Creagh said the 1.5 percent would generate about $42 million for the locals, $7 million more than state treasury officials contend should be made available, given depreciation of the ore body as mining progresses.

Marquette County Board Chairwoman Deborah Pellow and Marquette County Administrator Scott Erbisch met with Creagh last week, voicing concerns over the state's plan.

"I said to him (Creagh) that if that's their proposal, they need to come before this county commission and take their beating and he said he would be happy to do that," Pellow said.

Creagh said, "I go back to them and say you're getting more than what you would have got under ad valorem at one-and-a-half (percent), tell me about 1.8 (percent) those numbers aren't working for me."

After reading over the proposal Commissioner Michael Quayle said he told Commissioner Gerald Corkin: "The way this is going, it looks like we're going to owe Kennecott and/or the state money versus get anything from them. It's getting that ridiculous."

Commissioner Bill Nordeen disagreed and said the county should step back and look at the gains that have been made and make a counter proposal to the state.

Nordeen said gains made include keeping the Humboldt Mill assessed under ad valorem property tax, capping transportation deductions at 20 percent, having the severance tax collected locally and brownfield development credits charged against the rural development fund and not local taxing units.

"We've won a lot of things," Nordeen said. "We can't just say all of a sudden we're not getting anything our way. We've got to sit back and (see) where we're at and where we want to be. I think where we want to be is we want to be made whole and I'm not sure we're that far apart."

Creagh said the makeup of the rural development board would be bi-partisan and would include two representatives from the Upper Peninsula and three from downstate. The fund would target rural, not urban, infrastructure improvements.

"There's a little bit of, I wouldn't say I'm confused, but I am questioning the Marquette County Board of Commissioners because they get more than they would have under property tax, the fund is targeted toward impacted areas, which is Marquette County, so at the end of the day, I think it's actually a good economic development tool for them," Creagh said.

The county board is also upset about this year's valuation of the Eagle Mine being set at $191 million by the state geologist. County officials had planned to challenge that figure in March, but backed off after Lansing officials said the valuation was only a partial accounting, a claim they later recanted.

"They may agree or disagree, but right now, this year ad valorem property tax the number is $191 (million). That's the number," Creagh said, saying the partial valuation dispute is a legal issue.

Pellow said she believes the impetus behind not giving locals more proceeds from the severance tax is the Legislature's elimination of the Michigan Business Tax.

"To me, the state of Michigan has given away their corporate taxes, with their change that they made, and this is a way to try and get them back," Pellow said. "And in my opinion, it's taking away from us and taking our tax dollars that we have coming and due to us."

Creagh said Kennecott is not subject to corporate income tax. So if it is not paying that tax now, what goes into the rural development fund from the severance tax should be seen as a benefit, not a detriment.

"We actually think its good tax policy that you should pay more than ad valorem property tax as a mining company," Creagh said. "So it's not a tax grab. Does it mean that this was contemplated as the MBT was being abolished, the answer is no. If we're talking about fair tax policy, the answer is yes."

John Pepin can be reached at 906-228-2500, ext. 206.

 
 

 

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