Minnesota lawmakers raise taconite tax to help pay for Iron Range school constructionMinnesota’s per-ton tax on taconite iron ore produced in the state will increase a dime this year, and the extra money will be dedicated to help rebuild and retool Iron Range schools.
By: John Myers, Duluth News Tribune
Minnesota’s per-ton tax on taconite iron ore produced in the state will increase a dime this year, and the extra money will be dedicated to help rebuild and retool Iron Range schools.
The taconite provision was included in the 2013 Legislature’s final omnibus tax bill, which Gov. Mark Dayton signed into law Thursday.
The per-ton tax on taconite will increase to $2.56. Half the increase is part of an annual inflationary increase — this year, about 5.3 cents per ton produced. But there’s also an additional increase of a nickel per ton.
“We’re capturing that 10.3 cents to build and rebuild facilities for schools within the taconite tax relief area,” said state Rep. Tom Anzelc, DFL-Balsam Township, who served on the House Tax Committee and helped craft the taconite tax changes. “It’s something that’s long overdue and the school districts simply can’t handle on their own.”
That money will be made available for school construction and improvement projects through bonds issued by the Iron Range Resources and Rehabilitation Board.
The extra money for school construction projects won’t affect other recipients of taconite tax revenue, such as homeowners, counties, towns and city governments and the Iron Range Resources and Rehabilitation Board. They all should get about the same amount as last year out of the taconite tax pool.
While lawmakers have allowed the inflationary escalator to go up in some years, freezing it in others, it’s the first time since 1992 that they have increased the base tax, Minnesota House research analysts said.
That’s not exactly what mining companies want as they look to cut production costs. But it’s also not expected to cause major hardships, said Craig Pagel, president of the Iron Mining Association of Minnesota industry group.
“No one, and no business, likes to have their taxes raised,” Pagel said. He added, however, that Iron Range lawmakers helped avert other, more onerous costs to mines, such as increased electricity costs from a new solar mandate that mines were exempted from.
“The Iron Range delegation worked very hard for their constituents, and the mines benefited from that,” Pagel said.
Companies can get rebate
Of the $2.56 total tax, mining companies can apply for a rebate of up to 32 cents per ton to pay for any new capital improvements that add to the productivity or longevity of their Iron Range plants, such as pollution-control equipment, upgrades or new technology.
“The rebate brings the effective tax down to about $2.24 per ton,” Anzelc said. “We obviously think that’s a fair level at this point.”
The rebate provision also was changed to require a full matching investment by the company to get the 32 cents-per-ton rebate. Until now, mining companies only had to match the first 14.7 cents of the rebate. Again, the mining companies didn’t want that change, but Pagel said that nearly all improvements in the past have been matched at least 1-to-1 by the company.
Minnesota’s six operating taconite plants, an iron ore recovery operation and a steel nugget plant all pay a per-ton tax on their finished product rather than property taxes on the value of ore in the ground or the value of their plant. Last year, total taxable production amounted to just over 39 million tons, the most since 2005. This year’s total is expected to be about the same.
Range’s own bonding bill
While the 2013 Legislature approved only a small bonding bill, the Iron Range delegation found their own bonding bill of sorts in the tax bill. Range lawmakers crafted a plan to use surplus in a separate taconite tax account that is used to reduce the cost of property taxes for Iron Range homeowners.
Because there are fewer homes, and because their value has declined some in the past few years, Anzelc said the taconite tax homestead relief fund is overstocked.
Of the surplus, about $38.7 million will be diverted to 21 projects across the Iron Range — from the Hibbing Memorial Building to new water supplies for Hibbing and Biwabik to a sewer system in Crane Lake and a city marina in Tower.
St. Louis County will act as the fiscal agent for the money, with each project assigned a specific number of cents per tons of the total tax.
Instead of using the surplus to increase each homeowner’s tax relief, Range lawmakers decided to aim the surplus toward 21 construction projects across the Taconite Tax Relief Area.
“Yes, we could have increased the taconite credit (for homeowners). But all eight of us felt it was important to put people to work and get these projects done,” Anzelc said. “These were the 21 most shovel-ready projects on the list. They can start work right away.”
In addition to the non-school construction projects, future surplus money in the homestead credit account will be funneled to school districts, increasing the portion of their operating revenue that comes from taconite taxes.
“Schools actually get two increases out of this bill,” said Joel Michal, House Research tax expert.
That was a goal of lawmakers going into the session.
“We have several schools that really have some special circumstances, both for construction and in per-pupil funding,” said Rep. Carly Melin, DFL-Hibbing. “I know the mining companies aren’t thrilled about the increase. But compared to the increase in the price of the taconite they sell, their tax has really lagged behind.”
Occupation tax hike scuttled
Mining companies were successful in beating back a provision in the House tax bill that would have doubled the state’s occupation tax on taconite producers, a de facto corporate income tax separate from the production tax. That would have cost the existing mining companies about $20 million combined and would hit U.S. Steel operations especially hard, Anzelc said.
Lawmakers did agree to divert 2.5 cents per ton of the existing occupation tax annually, about $2 million annually, into a new fund to be used by the Department of Natural Resources and Minnesota Pollution Control Agency to “expedite permitting” for mining projects in the state. That could mean adding more staff or consultants to conduct permitting reviews more quickly.