Should mining companies contribute more to mining towns?

Mining companies are doing well currently in Minnesota, but the towns where they operate and draw labor from are seeing less from companies for schools and economic development.

Marshall Helmberger of the Timberjay does the math and provides some additional context. Read his full article here.

To understand just how badly state and local governments have fared in recent years, consider the taconite production tax, the primary means by which the state of Minnesota collects tax revenue from mining companies. The production tax was implemented decades ago as an alternative to levying property taxes on mining companies and their vast holdings in northeastern Minnesota.

As recently as 1991, the production tax annually collected about $82 million from mining companies operating on the Iron Range. At the time, the companies were producing about 39 million tons of taconite a year, which is virtually identical to production levels in recent years. At that time a ton of taconite was valued at $28, so the year’s annual production generated revenues or equivalent value of approximately $1.1 billion to the mining companies. The $82 million the companies paid to the state in production tax amounted to just over seven percent of the market value of the ore they produced.

In 2012, by comparison, the 39.7 million tons of taconite that mining companies produced on the Range enjoyed an average market value of $90/ton, netting the companies a combined $3.6 billion in total output value. Even adjusted for inflation, the mining companies enjoyed a 360 percent increase in output value compared to 20 years earlier. While the costs of mining have also increased, by about 90 percent over the same period, those cost increases have fallen well short of the increase in overall taconite prices.

Even as industry revenues have grown remarkably, the amount that mining companies paid in production taxes actually fell substantially, once adjusted for inflation. That $82 million in production taxes that the mining companies paid out in 1991, had the same buying power as $140 million today, based on the consumer price index, or CPI. Yet, the companies actually paid just $102 million, or just 2.84 percent of their operating revenues. That’s compared to more than seven percent of operating revenues that they paid 20 years earlier.

Today’s Question: Should mining companies contribute more to mining towns?

  • Sue de Nim

    Yes. Decades ago it was enough that the mines provided lots of jobs, but mining is so much more highly mechanized now that the jobs they provide, though highly paid, are relatively few.

    • pat in Grand Rapids

      I’m glad there are still a few reporters who actually take time to do research. Good for the Timberjay! They always seem to be the best source of news up here in the Northland.

  • PaulJ

    I’d compare their total tax bill (not just production taxes) to the total taxes of other ‘contributors” to see if they are paying their share. You can’t have an entity leveraging their economic muscle as a way to get away with something. SKOAL!

  • Jim G

    Yes. They did proportionally much more in the past to support the local communities and the state coffers. This is our state’s taconite ore, which we a giving away at low tax rates to whose benefit? The benefit mostly goes to the mining companies and their shareholders. Again, the profits are hoarded by those with the capital to invest, while the workers, communities, and state get a small pittance of the profits. Some might conclude that the mining companies have bought themselves a cozy and profitable relationship with our state legislators. A sorry state of collusion between political leaders and mining interests which is setting astounding low taxes on the industry. Who is watching out for the interests of the citizens of Minnesota? Fix the formula. Tie it to inflation and ore prices. Make it work for Minnesota, and the mining industry.

  • reggie

    I’d focus less on the companies and more on the depletion of the resource. The Norwegians and the Saudis seem to have realized that their oil resources will be depleted, and have devised schemes to collect sufficient extraction taxes to build enormous sovereign wealth funds on which to rely long after the oil stops flowing. We should be looking at iron, copper, and other minerals in the same way. (In the case of copper — last week’s question — we should also be levying a substantial environmental tax to build a publicly controlled fund to mitigate the almost inevitable pollution and to remediate the land after the mining companies have moved on to more profitable sites.)

  • Rich in Duluth

    Yes. Our property taxes are based on the estimated market value of our homes. That has gone up and down in recent years, as have the taxes. Since the rest of us are paying on a percentage of the value of our property, it would seem appropriate to tax the mining companies on a percentage of the value of their production.

  • Jamie

    Sure. Raise the rate per ton to keep up with inflation, but don’t blame them for not voluntarily paying extra.

  • lindblomeagles

    Naturally all companies should give more to the communities they are apart of. But currently, a majority of American people (and practically ALL politicians) insist asking companies for more money isn’t fair or American. The argument is based on the idea that the companies provide jobs and should not be penalized for creating their own wealth. But the truth is companies create jobs BECAUSE THEY HAVE TO, not because they want to. Even lawyers and doctors who can create their own clients, create partnerships. It is extremely difficult to make money WITHOUT employees, and even more difficult to grow consumers if schools, homes, streets, and parks, aren’t created. These things entice people not only to work and shop with certain companies, but they also grow loyalty, something companies, politicians, and the majority OVERLOOK every time they shift companies’ tax burden onto consumers and employees.

  • Quinn

    I think that this is a great opportunity for the black community to take charge and help push for the training of the black unemployed to work for the mining industry. The mining industry should be forced to help train and educate. The new Mayor of Minneapolis should push for this and would love to see a higher standard of living for people of color. I can see it now, black communities springing up in our great north land. Wonderful. Unemployment dropping, incomes for people of color taking off, welfare lines gone, food stamp needs reduced, black on white crime ended. I love mining.