Panel: Keep Minnesota Legislature away from IRRRB fundIron Range officials should figure a way to permanently keep the state Legislature away from what’s supposed to be a local taconite tax trust fund.
By: John Myers, Duluth News Tribune
Iron Range officials should figure a way to permanently keep the state Legislature away from what’s supposed to be a local taconite tax trust fund.
That’s the recommendation of a 17-member task force that met over the past six months at the request of Iron Range Resources and Rehabilitation Board Commissioner Tony Sertich.
The task force will present its findings to the IRRRB today in Eveleth.
The task force has recommended the trust fund, named after former state Sen. Doug Johnson of Cook and now sitting at about $150 million, be taken away from the state Department of Revenue and out of the purview of state lawmakers to be collected and administered locally.
Exactly how to do that, however, remains uncertain.
Because the taconite-production tax that goes into the trust fund is collected in lieu of local property taxes, Iron Range officials say the money is local and should stay local. But under current state law, the taconite-production tax is collected by the state and doled back to local governments on the Iron Range.
The tax, especially the money sitting in the trust fund, has been eyed by a cash-strapped state government over the past decade as an easy fix to help balance state budget books. And that effort to raid the Iron Range fund has Sertich and others looking for a way to lock it up for good.
Two years ago, when Republicans controlled the Legislature, they passed a bill to take $60 million out of the Iron Range trust fund to help balance the state budget. The effort was thwarted, however, by DFL Gov. Mark Dayton.
“Several times in recent years, either governors or legislatures have looked at the fund and tried to use it to balance the state budget,” Sertich told the News Tribune on Wednesday. “But it’s not state money; it’s local property tax money, and it should stay local.”
Earlier efforts by Republican Gov. Tim Pawlenty’s administration to eye the trust fund were blocked by the DFL-controlled Legislature.
“At some point the stars are going to line up where we can’t block it,” Sertich said. “So I’ve made it a priority that, before I leave this job, we’re going to figure out a way to make sure that money stays on the Iron Range.” He added that the involvement of the state in a local tax is confusing, obtrusive and unnecessary.
Because the regional taconite-production tax (and the IRRRB) is unique in Minnesota, and apparently nationwide, it’s a problem that doesn’t often come up — how to keep state hands off local money overseen by a state agency.
The task force recommended two options, both of which probably would require legislative action:
So far, Sertich isn’t taking sides publicly on which way to go.
“I don’t want to put a finger on the scales,” Sertich said. “I want to hear a good debate by the board members, and we’ll see which way this goes.”
State Rep. Carly Melin, DFL-Hibbing, who served on the task force, said the time is ripe to make a move to protect the fund.
“I think it’s something we have to address, and sooner rather than later,” Melin said. “We came very close to having the state government intercept what amounts to locally raised property taxes, and that would have been unprecedented.”
Rep. Tom Anzelc, DFL-Balsam Township, and an IRRRB board member, said the tradition of seniority and longevity among Iron Range legislators has helped build coalitions to keep the money local. But as those lawmakers retire, and seniority is lost, he said the trust fund may be in more danger.
“I’m not sure how far we should go. I’m not sure that a private nonprofit is the right way to go to administer public tax funds,” Anzelc said. “But my interest is piqued. We aren’t going to have the kind of seniority we’ve had for that many more years. And then what happens to our money?”
Anzelc said the most-permanent solution would be an amendment to the state constitution making it clear that the taconite-production tax and the funds that the tax goes into are local and should be controlled and spent locally.
“But I’m not sure that is attainable,” he said.
About the taconite production tax
Decades ago Minnesota lawmakers agreed to tax taconite iron ore companies based on how much material they produce to sell, not how much ore they owned in the ground or how much land they occupied. Active mines, processing plants and tailings basins are not subject to property taxes. Instead, mining companies paid $2.56 per finished ton of processed taconite iron ore in 2013.
Of the total production tax, about 22 percent goes to the Iron Range Resources and Rehabilitation Board (the rest goes to cities, towns, schools and counties). Of the IRRRB’s share, a portion goes into the Douglas J. Johnson Economic Protection Fund. (A separate occupation tax on mining companies does go to the state in lieu of corporate income tax.)
The trust fund was created in 1977, when taconite production was setting annual records. Some geologists had warned, however, that taconite could run out by about 2002 and that tax revenue should be set aside for that rainy day to help bolster economic development.
That doomsday prediction has proved to be false — taconite production is expected to be robust for decades, assuming there’s a domestic steel industry in play to keep demand high. Each year, more money goes into the fund than is spent (the goal is to spend only the interest accrued each year) and the trust fund sits at nearly $150 million.
Since it was founded, the fund has provided about $73 million for various economic diversification loans and grants, including such projects as the Essar Steel Minnesota taconite plant and proposed iron plant now under construction, as well as the Mesabi Nugget iron nugget plant.