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Digging up tax warnings from WI’s mining past

By   /   January 29, 2013  /   No Comments

By Ryan Ekvall | Wisconsin Reporter

MADISON – As a Republican-led mining reform bill would funnel millions of dollars of mining tax proceeds into the embattled Wisconsin Economic Development Corp., one government official is warning locals of what he sees as an emerging pattern of the state’s cash grab for mining tax revenue.

Al Christianson, the long-time city administrator of Ladysmith, cautioned Northwoods’ officials to use their leverage to negotiate a favorable tax proceeds split while they could – before legislation is passed.

They’ve been through this before. City official warns state deals on mining taxes can be constraining.

Christianson acknowledged the region didn’t experience many problems getting mining tax revenue back from the state, but toward the end of the Flambeau Mine operation Christianson said he got the impression “that the intention was for the state to put more of its stamp on where the dollars went and maybe keep more in the state coffers.”

In 1997, for example, $200,000 was transferred from the local impact fund to the now-defunct state Department of Commerce. Those funds eventually were used to help convert the Flambeau mine buildings for other uses.

In Wisconsin, taxes collected from metallic mining flow into the Mining Investment and Local Impact Fund board (or Mining board) – or at least they did when it was still active in the early 2000s. The stated purpose of the board is “to distribute moneys from the Mining Fund to local units of government to defray socioeconomic and environmental costs of metallic mineral mining.”

In the case of the Ladysmith mine, “defraying” often meant large economic development grants.

Back then people “stretching the definition of mining–related expenses,” as a mining board member told the AP in August 1984, were forced to apply for a grant, leaving paper trails of dubious mining impact funds requests (and approvals).

“Boy, I tell you, I feel sorry for you people,” Jack Giovanoni, (the former board member) said at a board meeting. “If you spend this kind of money and this (mining) project doesn’t go, you’re hung.”

Documents show a $473,000 grant in 1996 for Rusk County airport expansion. The city of Ladysmith received $750,000 to finish a city-owned building in an industrial park to attract a modular home builder to the area.

Other requests for a water quality analysis and mining impact professional fees were denied.

The proposed mining legislation, authored by Sen. Tom Tiffany, R-Hazelhurst, would send 40 percent of the annual mining tax collected to WEDC with no requirements as to how the money is spent or instruction to keep the mining money separate from other WEDC funds.

WEDC is the public-private entity created by Gov. Scott Walker to replace the Department of Commerce. Since WEDC took over as the state’s economic development arm it has been engulfed in controversy and missteps, including losing track of a $56 million loan portfolio and having undefined acceptable risk policies for loans.

The legislation may not fully square with sound taxation principles, according to one tax policy watchdog.

“When you have very specific taxes on an industry like this, generally, sound tax policy would imply that the tax money would go for something related to what’s being taxed,” said Dale Knapp of the nonpartisan Wisconsin Taxpayers Alliance.

Knapp cited the gas tax as an example. The tax collected on gas sales is supposed to go toward road construction and maintenance.

“If you look at current law, 100 percent of tax revenues would go to the mining fund. Something like that would make some sense. One would expect mining proceeds to go to something related to what’s going on in mining.”

It’s still unclear how this language became part of the mining legislation. The office of Senate Majority Leader Scott Fitzgerald, R-Juneau, which multiple legislative sources is responsible for the change, has not responded to several interview requests.

With 40 percent going to WEDC, Christianson warned the Iron County Mining Impact committee to get some kind of guarantee that 60 percent would be returned to the locally impacted area.

“What I was telling them, if it were me as a local government official with not a whole lot of pull, I’d be looking for legislation for any given number of years before the law could be changed,” Christianson said. “Because future state legislators may face pressure to find additional dollars and that might be some easy picking.”

The Legislative Fiscal Bureau estimated that at $100 per long ton, net proceeds to the state could reach $15 million annually from a mine in the Penokee Hills after several years in operation during the mine’s first phase. Under this scenario, WEDC would receive $6 million annually in mining tax revenue.

In addition, WEDC’s newly named CEO Reed Hall, or his designee, will sit on the Mining board, along with the secretary of the state Department of Revenue and nine other Walker appointees  — three public members, two county officials, two municipal officials, a school board member and an American Indian.

Walker is also the chairman of the WEDC board of directors.

Leslie Kolesar, chair of the Iron Co. Mining Impact committee, isn’t as hung up on the tax issue. Kolesar, who testified in favor of Tiffany’s proposed legislation, said the community’s biggest coup would come from the jobs a mine would bring to the area and not tax revenue.

“If they’re going to offer us 80 percent, we’re not going to turn that way. But 100 percent of nothing is nothing. Is (tax proceeds) a deal breaker? Absolutely not,” she said.

Kolesar notes highways 77 and 13, the main arteries leading to the potential mine site, are state highways. Officials from Gogebic Taconite, the mining company that has proposed a $1.5 billion mine, have said G-TAC will pay for its own infrastructure upgrades, such as transmission lines and water. Kolesar said local infrastructure, including schools, was built to support many more people than currently live in the area.

“There will be enough revenue coming in,” Kolesar added.

The layers of bureaucracy involved in getting at that revenue sometimes frustrated Christianson.

“Typically, municipalities would take property tax, but now the state is biting its piece out,” he said of the net proceeds tax in lieu of property tax on mining minerals. “It bothered me we had to apply to get it back. It’s a migration of local control to the state. If you’re a local government official, you’re almost always going to be against that.”

Christianson said his community ultimately got back 93 percent of the funds that flowed to the Mining board.

Much of that money was used to finance $2 million industrial buildings for manufacturers in the housing industry. Christianson said the economic development projects led to 500 new jobs in the area and were designed to help offset the boom-bust mining cycle. After the national housing bubble burst, about half of those jobs were cut, he said.

In stark contrast to the unabated funds WEDC will receive and spend, local governmental bodies must get a proposal passed through the local impact committee — such as the Iron Co. Mining Impact committee. Then the proposal is brought to the Joint Mining Impact committee — made up of representatives of counties and municipalities on the various local committees. The proposal is then brought to the state Mining board, which decides if the proposal is granted.

At the end of 2012, the Mining fund had a $205,000 balance, according to the Department of Revenue.

Contact Ekvall at rekvall@wisconsinreporter.com

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