Saturday, December 01, 2012

Updated: County, township officials oppose Huuki's mining severance tax bills

By Michele Bourdieu

The Humboldt Mill, pictured here, is the facility where Rio Tinto plans to process ore from their Eagle Mine into separate nickel and copper concentrates, which will be transported by rail to an offsite smelter. The tailings will be sent to the Humboldt Tailings Disposal Facility, which includes a pit used by previous mines. Rio Tinto has been remediating that pit and building an underground cut-off wall to contain the water in the pit. Rio Tinto changed its original plan to haul ore to a railhead close to the Eagle Mine when the company bought the mill. (Photo © and courtesy Jeremiah Eagle Eye. Reprinted with permission.)

HUMBOLDT, Mich. -- Humboldt Township Supervisor Joe Derocha made two trips to Lansing (about a 7.5-hour drive each way) in less than a week to defend his township against outgoing 110th District Michigan Rep. Matt Huuki's proposed package of House bills for a nonferrous metallic minerals extraction severance tax that would replace property taxes.

The Humboldt Mill is projected to be used for processing ore from Rio Tinto-Kennecott's Eagle Mine (for nickel and copper), located on the Yellow Dog Plains near Big Bay, Mich.

Humboldt Township Supervisor Joe Derocha points out the multi-volume permit (on top shelf) that will allow Rio Tinto to process ore from their Eagle Mine at the Humboldt Mill. Derocha has asked state legislators to remove Humboldt Township from a proposed package of bills for a nonferrous metallic minerals extraction severance tax that would replace property taxes. (Photo by Keweenaw Now)

Derocha says the new tax, if enacted as law, would result in a loss of several millions of dollars in tax revenue for his township over the life of the mine.

On Thursday, Nov. 29, Derocha's own 109th District State Representative, Steven Lindberg (D-Marquette), called him with the unhappy news that the package of bills (HB 6007, 6008, 6009, 6010, 6011 and 6012) had just passed the State House of Representatives on a third reading, with the vote almost 100 percent along party lines -- Republicans all voting in favor of the package of bills. Next the bills go to the State Senate, which also has a Republican majority.

Last week Derocha, along with a group of local officials, including Marquette County commissioners, hoping to convince the House Tax Policy Committee of their concerns about the bills, met with a panel of 10 Republicans and seven Democrats on Tuesday, Nov. 20.

According to a Nov. 24, 2012, article in the Marquette Mining Journal on that hearing, "State Rep. Matt Huuki, R-Atlantic Mine, recently introduced the severance tax bills (house bills 6007-6012) aimed at simplifying the tax structure and decreasing high start-up costs for non-ferrous mining operations and creating an associated rural development fund for infrastructure improvements."*

Derocha told House representatives on the Tax Policy Committee, "I respect Representative Huuki, but I strongly disagree with his legislation."

The revenue from the proposed severance tax was originally to be divided with 60 percent to benefit the local taxing units and 40 percent for the rural development fund to be created by the legislation. Many western Upper Peninsula officials, including the Marquette County Board, believed that split would mean much less revenue to support school districts and local government services normally funded by property taxes.

Huuki and his Republican colleagues ceded some ground by changing the revenue split to 65 percent for local taxing units and 35 percent for the rural development fund and by eliminating transportation deductions for mining companies.

Debbie Pellow, Marquette County Board chair, told Keweenaw Now on Friday, Nov. 30, that the Board's position at this time is an 80-20 percent split, with Humboldt Township not being included in the severance tax.

"That's been our position for the last several months and we're not changing it," Pellow said.

She noted the county is now working on the numbers to determine what the 65-35 split would mean with the loss of property taxes. They also have issues with the bill's wording on buffer lands, the fact that property taxes already paid by Rio Tinto -- or paid through an interim severance tax in 2013 and 2014 -- would have to be returned through a credit to their severance tax over a five-year period with the county paying interest.**

"We gained some ground with the transportation deduction being removed from the bill (and with) their increasing the split (but not enough)," Pellow added. "Every little bit they change it helps us locally, and we hope to gain more ground in the Senate."

Pellow said the county is working with Rio Tinto and hoping to have the buffer lands issue and the interim severance tax issue introduced in the Senate committee hearings that begin this coming week.

"We're not happy with what it is now," Pellow said about the House Bill. "It needs to be changed."

She said the county also has issues with the rural development fund. Instead of having only two members on that board from the Upper Peninsula, they would like to see three and, "in a perfect world," would want the entire fund to be spent in the UP, nowhere else. They oppose as well the fact that the bill allows up to $250,000 to be taken out of this fund for surveillance by the Department of Environmental Quality (DEQ)**

Derocha agreed the rural development fund should be spent in the UP -- in his opinion for local education. He also considered the slight change in the split and other changes insufficient. After returning home for Thanksgiving, Derocha drove to Lansing a second time on Sunday, Nov. 25, in order to attend a second hearing the following day -- Monday, Nov. 26 -- with the House Tax Policy Committee considering the bills. He went alone this time, the only one representing a local government and community.

At the beginning of Monday's hearing, Rep. Vicki Barnett (D-Farmington Hills) challenged Huuki's proposed bills.

"We have no fiscal data on this at all so I'm not sure what kind of money we're talking about here when it comes to what the local governments are currently collecting vs. what they'll be getting by giving up all other taxes collected and moving to a severance tax -- and then what they're going to give up when we move to a severance tax that's split 65-35," Barnett said.

Huuki talked about models being used to estimate the severance tax but was not able to give Barnett any concrete data of comparison.

"We have no numbers in front of us, and you're asking me to make a vote that's going to change a major form of taxation in this state without any numbers today, tomorrow or ten years from now going forward," Barnett added. "If you've got model numbers I really think it would be nice if you shared them with the committee members so that we know what numbers we're looking at."

Invited to speak by Chairman Rep. Jud Gilbert (R-Algonac), Derocha addressed the House committee members, expressing his hope that he could consider them true "statesmen" and "stateswomen" -- by definition, persons with a bedrock of principles, a moral compass.

"We have a moral compass for the 469 residents that I represent -- and a moral compass for your constituents as well," Derocha said. "We have to have a vision. We also have to have the ability to build a consensus to achieve that vision. That's why we're here."

Derocha went on to explain that the Humboldt Mill has been on the ad valorem rolls for 34 years processing ore from ore bodies and numerous mines outside the township.

"We have no minerals for extraction," Derocha said. "The severance tax is designed, by design, for mineral extraction. Humboldt Township has no minerals. It should not be included."

Derocha gave examples of (non-mining) companies in other Michigan townships that pay ad valorem taxes to those communities. He also cited documents, including one from State Geologist Hal Fitch, that said the Humboldt Mill would be exempt from the severance tax.

He asked the representatives to remove Humboldt Township completely from the severance tax bills, noting that would not cost the state anything, while it would cost Rio Tinto.

Asked how much his township would receive from property tax on the mill, Derocha said, "We will receive $580,000 on the ad valorem rolls."

Derocha objects to the fact that the bill package does not address ore coming from ore bodies or (potentially) from other companies outside the township. He said the proposed legislation doesn't guarantee protection from possible pollution that could end up in Humboldt's pit from an under-capitalized mining company that might not be able or willing to protect the environment in the way that a wealthy company like Rio Tinto promises to do. Derocha said this legislation would allow these smaller, under-capitalized companies to get permitted in Michigan -- which can raise environmental questions.

"We've seen first-hand what happens to under-capitalized mining companies," Derocha noted.

An example of a company that left an environmental mess in Humboldt Township was the owner of the Ropes gold mine near Ishpeming that used cyanide to process ore at Humboldt and left it and a large amount of tailings in the pit, leading to water issues.

On a map in his office, Humboldt Township Supervisor Joe Derocha indicates the proximity of the Humboldt tailings pit to wetlands and the Middle Branch of the Escanaba River (about a half mile north of US 41), which empties into Lake Michigan. Rio Tinto intends to build a water treatment plant at the site and to keep the tailings under water (see videos below). (Photo by Keweenaw Now)

When the Ropes mine collapsed and had to close, the State of Michigan settled for $100,000 and left a mess for Humboldt, Derocha explained.

An April 1993 article in the Michigan Outdoor Journal states as follows: "Waste water containing low levels of nickel and arsenic was discharged from the Ropes Mine site until it was closed in February 1991. At the Humboldt Mill site gold was extracted from the mined material and tailings were deposited in the Humboldt Pit until March 1990. The pit continues to discharge waste water containing copper and nickel. Earlier cyanide, a chemical component of the gold-removal process, was also discharged. The cyanide has since naturally decomposed."

Marquette County Commissioner Mike Quayle, who listened to the Nov. 20 House Committee on Tax Policy hearing, agrees with Derocha that the severance tax opens the door to mining companies that may not have the capital to protect the environment.

"I think it's a very bad tax, not only for Marquette County but for the whole Upper Peninsula," Quayle said. "Not only is it not making the locals whole, but it's also allowing for under-capitalized mining companies to start mines in the UP -- which may lead to environmental disasters if these companies don't have the capital to do the job right."

Quayle said he does have some confidence in Rio Tinto in that they appear to be trying to mine in an environmentally sound way.

"However," he added, "I've not seen any evidence of a mine that at some point in time did not contaminate the area. I also feel that Rio Tinto has received too many tax incentives."

Quayle pointed out that Rio Tinto has already received at least $300 million in deductions. Thanks to Governor Snyder's tax breaks to corporations, Rio Tinto will not pay corporate business taxes -- thus the need for the 35 percent going to the rural development fund. Without that, the state would have only received around $600,000 for the state school tax. In addition, the state will receive 7 percent in royalties as they leased the land for the mine to Rio Tinto.

Derocha told the committee he was grateful to Rio Tinto for cleaning up pollution left in the pit by previous mining companies.

"(Rio Tinto) has been a good steward for the environment in Humboldt Township," Derocha said. "They've been exemplary in cleanup and their environmental vision for Humboldt Township."

At a September community forum they held in Humboldt, Rio Tinto staff answered several questions from local residents concerned about water in the Humboldt pit,
water testing and monitoring, the capacity of the pit, and water discharge amounts.

At Rio Tinto's Sept. 17, 2012, community forum held in the Humboldt Township Hall, Rio Tinto staff answer questions from the audience. Pictured here, from left, are Gary Laitala, Humboldt resident, who asked about the volume of water discharge; Kristen Mariuzza (standing), Rio Tinto Eagle Project environmental and permitting manager for technology and innovation; Jessica Sandstrom, Human Resources coordinator for the Rio Tinto Eagle Mine, who spoke about local hire numbers; Dan Blondeau (standing), Rio Tinto Eagle Mine Communications and Media Relations advisor, who gave an introductory presentation on the Eagle Project; Darrell Fox, Rio Tinto Eagle Mine Human Resources advisor; and Darby Stacey, chief metallurgist for the Rio Tinto Eagle Mine. (Photo by Keweenaw Now)

Videos: Humboldt water issues discussed at Rio Tinto community forum

At the Rio Tinto community forum in Humboldt last September, Kristen Mariuzza, Rio Tinto Eagle Project environmental and permitting manager for technology and innovation, answers a resident's question on betonite, explaining how it is being used to make an underground cut-off wall to keep water from leaking out of the Humboldt pit. Concerning the resident's complaint about truck traffic on a road near his home, she assures him staff members will communicate with him about the inconvenience. (Videos by Keweenaw Now)

Kristen Mariuzza answers a question on water testing and explains how the water treatment plant planned for Humboldt is being designed to take care of the worst-case scenario.

Humboldt Township Supervisor Joe Derocha asks Kristen Mariuzza about the capacity of the Humboldt pit.

Rio Tinto's Kristen Mariuzza answers questions from local residents on water quality in the Humboldt pit and the amount and rate of discharge at the facility.

Derocha said his objection to the severance tax is separate from environmental issues. At the time of Rio Tinto's September forum, the proposed tax didn't come up in the discussion. He said he was aware of Huuki's idea for a severance tax bill at that time but had no bill draft to review and was not certain it would even be introduced.

"The severance tax format is based on cost of goods sold," Derocha said. "It allows the mining company to extract the minerals and not have to pay taxes on the minerals they've extracted until the minerals are sold."

A local community could provide services for this company, but if the company never sells the ore there's no benefit for the community, he noted.

At the Nov. 26 committee hearing, Chris Meyer of Warner Norcross and Judd, representing Rio Tinto, commented that the Dept. of Treasury would determine how the severance tax is divided between Humboldt Township and other jurisdictions.

"This is state policy and I'm sure the Department will be fair to Humboldt Township," Meyer said.

Meyer also noted that if ore from other companies is processed by the Humboldt Mill it would be subject to the severance tax and Humboldt Township would have an argument that they should have a portion of that and could bring that argument to the Dept. of the Treasury.

Derocha explained to Keweenaw Now that the severance tax, while it simplifies the tax on an ore body and assumes job creation, is really not needed in Humboldt.

"We currently have legislation in place -- it's called an Industrial Facilities Tax. So if the local unit wants to attract business as Humboldt has done, we can utilize what's called an Industrial Facilities Tax abatement," Derocha said. "The Industrial Facilities Tax would allow a community to come in and give a tax rebate (a reduction of their property tax) to a mining company to encourage start-up. We already have that in place. We don't need this special legislation."

Derocha added, "I respect the fact that the state representative (Huuki) wants to create jobs. I just wish there was a little more balance in this legislation."

Update: Derocha and residents of his township plan to attend a State Senate committee meeting in Lansing on the package of House Bills on the severance tax. A Senate committee meeting is tentatively scheduled for 1:30 p.m. on Wednesday, Dec. 5, in Rooms 402 and 403, Capitol Building, 100 S. Capitol Avenue, Lansing, MI   48933.


* Click here to read the Nov. 24, 2012, Mining Journal article, "Mine tax vote set Monday," by John Pepin.

** Click here to read a legislative analysis of the House Bills 6007 - 6012, as passed in the Michigan House of Representatives this week. Click here to read HB 6008 on the severance tax. Click here for HB 6009 on the rural development fund.

1 comment:

aunteedahlia said...

Lansing is hell-bent on extracting as much wealth as possible from the U.P., mostly in the form of minerals and timber. The rural development fund, which is a part of the severance tax package, would pay for infrastructure to expedite the wholesale devastation of our resources. If you think Rio Tinto would be paying for construction of County Road 595, think again...