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State agency that lost track of millions wins big in WI mining bill

By   /   January 25, 2013  /   News  /   4 Comments

Part 2 of 7 in the series Mining in Wisconsin

By Ryan Ekvall | Wisconsin Reporter

MINING FOR MONEY: Is there enough accountability for the millions of dollars the state economic development agency could receive if a mining project in northern Wisconsin goes forward?

MADISON — While lawmakers and citizens debate opening a mine in northern Wisconsin, one of the biggest winners would be the state’s embattled Wisconsin Economic Development Corp.

In the evolution of mining reform legislation over the past year, WEDC has gone from receiving nothing to pocketing 40 percent of annual tax proceeds from the project – with no strings attached. And nobody seems to want to talk about it.

Gov. Scott Walker created WEDC to replace the Department of Commerce. The public-private partnership was quickly embroiled in controversy after losing track of a $56 million loan portfolio.

That made WEDC a punching bag for Democrats.

Under current law, all tax proceeds from mining are deposited into a so-called “local impact fund.” That cash would ostensibly send cash to mining communities for infrastructure upgrades.

But a curious thing happened as the bill moved through the Legislature. In Sen. Tom Tiffany’s new version, 60 percent of tax revenue goes to a local impact fund, while 40 percent goes to WEDC.

The weirdness doesn’t stop there. The Hazelhurst Republican’s bill echoes language in SB 488 Sub Amendment 2 — the final version of the Joint Finance Committee bill that failed to move in the Senate last March. It states WEDC must support business development “in this state, giving preference to businesses in an area affected by iron mining.”

But documents reviewed by Wisconsin Reporter show Rebecca Tradewell, an attorney with the state Legislative Reference Bureau, raised concerns that such a funding mechanism “is very broad. … It is not clear who would decide whether this money is appropriated or how the money would be kept track of.”

In short, WEDC, an agency with a record of cash mismanagement, could receive and spend millions of dollars annually that is not accounted for by the Legislature, have nothing to do with mining or the area affected by mining.

Sound familiar?

The Department of Revenue has not yet estimated how much tax revenue might come from a mine in the Penokee Hills. However, the NorthStar Economics study of the proposed mine estimates annual state and local tax yield of $17 million if eight million tons of iron ore are extracted, and $34 million after expansion if 16 million tons of iron ore are extracted.

It’s unclear from the report how much of that tax revenue is derived from the net proceeds tax on mining income.

For comparison, the Flambeau Mine at Ladysmith generated $14 million in net proceeds tax to the state. Forty percent of that, or $5.5 million, went to the Badger Fund, an athletic scholarship program, before eventually being transferred to the state’s general fund, according to a report from the Flambeau Mining Company.

Ore was extracted from that site for five years. The first phase of Gogebic Taconite’s proposal for Penoke Hills spans 35 years.

It’s unclear if the Legislative Reference Bureau’s questions have been answered because key players aren’t talking.

Walker’s office did not respond to requests for comment.

“We had no involvement in the drafting of mining legislation,” said Tom Thieding, spokesman for WEDC. Thieding said WEDC doesn’t comment on draft language unless asked by a member of the Legislature. “Check with the authors on that,” he advised.

So Wisconsin Reporter called around. Staff of Assembly Speaker Robin Vos, R-Rochester, sent us to the office of Senate Majority Leader Scott Fitzgerald, R-Juneau. Fitzgerald’s staff sent us to Sen. Alberta Darling, R-River Hills. Darling’s staff said to check with Legislative Council documents, which did not provide any answers.

Last session, Vos and Darling co-chaired the Joint Finance Committee, which produced the final version of mining legislation in 2012. This was after Fitzgerald dissolved the Senate Select Committee on Mining and gave drafting responsibility to the Finance Committee.

Tiffany told Wisconsin Reporter he didn’t know who put the WEDC subsidy into the JFC bill, which he adapted to his bill.

But Tiffany shined some light on the reasoning behind sending 40 percent of tax revenue from iron mining to WEDC with no spending strings attached.

“Rather than the funds getting commingled in the general fund where it could be spent for anything, we wanted to make sure money could be used for economic development purposes,” Tiffany explained.

Why was the requirement that WEDC spend the money within 100 miles of a mine site taken out of the bill’s language?

“Let’s say there was a business further than 100 miles from a mine site, but was making equipment ancillary to the mining industry,” Tiffany posited. “It would be disappointing if a company 150 miles away from a mine site, making mining equipment, and needed help with startup costs or a new product couldn’t get it.”

Tiffany’s bill doesn’t include restrictions that WEDC has to spend the money on industry related to mining.

“We want to give WEDC a bit more discretion with that. There are times when they need that discretion,” Tiffany said.

“At the end of the day, we wanted some flexibility.”

Before Senate Bill 488 Sub-Amendment 2, the final destination for tax proceeds from mining changed twice. In the first Finance Committee compromise bill, adapted from Assembly Bill 426 — the bill that passed the assembly on party lines — 60 percent of mining revenue collected would go to the local impact fund while 40 percent would go to the state’s general fund.

Sub Amendment 1 provided 70 percent of tax revenue to the local impact fund, 20 percent to WEDC and 10 percent to a mining transportation fund.

That language required WEDC to create a “regional Wisconsin diversification program” and use the money it receives for economic development in “coordination with appropriate units of local government to businesses that are located in close proximity to, but no more than 100 miles from, the site of a mine for ferrous metallic minerals.”

Since then, the language about a regional diversification program, coordination with local government and proximity to the mine site has been removed.

The questions remain: Who requested the removal of the language, and why?

Contact Ryan Ekvall at rekvall@wisconsinreporter.com.

Part of 7 in the series Mining in Wisconsin


Ryan formerly served as staff reporter for Watchdog.org.

  • K.

    What is even more interesting about WEDC is that they did not hire not one worker from the Dept of Commerce when the agency was replaced. Not one. Maybe had they kept a few who oversaw the loans being repaid, WI tax payers wouldn’t have lost $56M.

    I would love to know where many of those workers went.

  • plankbob

    Good story. Tiffany’s claim about wanting “flexibility” sounds like code for “we don’t want people to know where this money ended up.”

  • Harvey Marx

    Great article! WDEC seems to be going after a lot of money. Is anyone curious about the 200 million dollars they just tried to take from the Wisconsin Retirement System trust fund?

  • Franseenit

    It’s about time we see who SPECIFICALLY is playing fast and easy with taxpayer money – we all should want NAMES – NOW!!!