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Taconite taxes tapped for school construction

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Duluth News Tribune
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Duluth Minnesota 424 W. First St. 55802

Legislation that would divert taconite taxes for new school construction in consolidating districts has become law and could help break new ground across the Iron Range.

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The provisions, included in the Legislature’s omnibus tax bill signed into law by Gov. Mark Dayton last week, go far beyond the effort to co-locate schools from the Virginia, Eveleth-Gilbert and Mountain Iron-Buhl school districts.

The new law — a permanent change in how taconite taxes are allocated — will make available about $8 million to $10 million annually in the coming years to help Iron Range school districts pay back bonds for new buildings, but only if they join forces.

Because bonds are paid back over time, the new fund could help spur some $100 million in new construction.

Tony Sertich, Iron Range Resources and Rehabilitation Board commissioner, said his agency stands ready to administer the new schools fund, noting the agency handled a one-time $38 million allocation for school construction a year ago.

“This is an important direction for how we should be spending money going forward. Education is critical for economic development,’’ Sertich said. “This new school fund will be a carrot to promote cooperation between districts. It’s money available if communities decide that this is what they want to do. The important part of this is that the communities still decide if this is the route they want to go.”

The money will be there for future projects even if the Quad Cities effort doesn’t advance, Sertich noted.

Under the new law, the per-ton tax on taconite produced won’t go any higher than it otherwise would have. But there have been subtle changes in where the money ends up. The production tax was $2.53 per ton in 2013 and is slated to go to about $2.60 per ton for 2014, according to the Minnesota Department of Revenue.

Last year the taconite tax, applied to nearly 40 million tons of taconite iron ore shipped from Iron Range operations, amounted to more than $100 million divided among local school operations, counties, cities, townships and the IRRRB; mining companies don’t pay property taxes. But this is the first time taconite taxes have been diverted into a permanent fund for school construction.

According to state officials and Iron Range lawmakers, the new law:

  • Applies to all school districts within the taconite tax area that vote to join forces, including the current Quad Cities effort if residents vote to consolidate or co-locate. But the law also is retroactive to 2009, meaning districts such as Mesabi East and the St. Louis County district could apply for the new money to help pay back bonds for their already-built consolidation/construction projects. The law allows for the money to accumulate in the new schools account administered by the IRRRB, which would decide which projects qualify. A super-majority, seven of nine votes on the board, would be necessary to approve funding.
  • Divert about $2 million per year away from the state’s general fund. The new law captures 5 cents per ton of the state’s so-called “occupation tax” that mining companies pay, essentially a state income tax on mining revenues. The money would come from the portion of the occupation tax that goes into the state general fund but would not affect how much occupation tax goes into the K-12 state school fund or University of Minnesota fund.
  • Divert 5 cents per ton, about $2 million per year, away from a rebate program for mining companies into the new school fund. Currently that rebate program amounts to about 32.5 cents per ton and is awarded back to taconite companies based on their reinvestment and upgrades to modernize their plants. The remainder would continue to be available for the rebate program.
  • Divert part of the taconite production tax that now goes to counties and instead use it for the new school fund. The plan calls for about 5 cents per ton of the taconite product tax that goes to counties to go to the school fund. That will cost St. Louis County about $1.7 million in 2015 — when the law kicks-in — out of the $11.7 million the county now gets from taconite taxes. Lake and Itasca counties each would lose about $200,000 per year.
  • Captures two-thirds of all taconite tax increases for at least the next three years. Currently, the taconite tax goes up each year based on a federal price index. That increase usually is spread across the many various funds that tap taconite tax. With the new law, two-thirds of that inflationary hike will go into the new school fund and one-third will go into the Douglas J. Johnson economic protection trust fund, used for large economic development projects on the Range.

But the changes don’t just involve taxes. Additional language is advancing in the Legislature’s omnibus education bill dealing with the definition of co-located schools and what state school aid would be available for new construction in addition to the taconite tax money.

Other provisions also call for a majority vote of residents in the school districts involved.

The taconite tax changes were the brainchild of state Sen. Tom Bakk, DFL-Cook, and some other Iron Range lawmakers who say several Range schools need physical upgrades to keep the region competitive economically. As district enrollments shrink, any effort to pay for new schools through excess levy referendums becomes more of a burden on residents — especially because any increase in property taxes to pay for schools doesn’t include mining companies.

“If we had big companies like 3M on the Iron Range, we would just capture more of their property taxes to help build new schools. But we have mining companies, and they don’t pay property taxes, so it gets more complicated,’’ said state Sen. Dave Tomassoni, DFL-Chisholm.

Bakk did not respond to repeated attempts by the News Tribune to comment for this story.

Capturing part of the taconite tax for better, more modern schools is critical for the region, Tomassoni said.

“Bigger schools with more students can offer more courses, attract more teachers, better teachers and better prepare the next generation for the jobs we need,’’ Tomassoni said.

St. Louis County Auditor Don Dicklich confirmed that the county would lose about $1.7 million in taconite tax revenue annually, or about 1 percent of its levy budget, under the new law. But Dicklich said that doesn’t necessarily mean a property-tax increase for county residents. Other factors could offset that loss of money, he noted, such as higher property valuations or a cut in spending.

John Ongaro, the county’s intergovernmental relations director and lobbyist at the state Capitol, said county officials are supportive of legislation that encourages meaningful consolidation to save money and provide better schools for Iron Range students. But he said they also are urging tweaking the law, probably through another tax bill to be passed in coming weeks, so counties aren’t hit as hard.

“It’s important to have quality education on the Iron Range because that’s our future work force that’s going to keep this region competitive,’’ Ongaro told the News Tribune. “But the county is taking a bit of a haircut in the process. We’re still hopeful we can make some changes yet this year to soften that hit.”

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John Myers
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