There's been a lot of
discussion lately about changes in the taconite industry and the potential
for new mining ventures in Minnesota. The controversy surrounding the 21st
Century Mineral Fund and its importance to the future of Northeastern
Minnesota is front-page news.
What seems to be missing from the debate is any discussion of the
current impact of the taconite industry to this region's economy, and the
importance of retaining the existing jobs. The taconite industry employs
more than 4,000 people in the mines and plants. For every job in the
industry, more than $300,000 per year flows through the regional economy
and provides additional employment opportunities in the railroads, power
plants, ports and other businesses that support the production of taconite
Removing the $1.2 billion plus per year that steel companies pay for
pellets produced in Minnesota would be devastating to our economy.
Bankruptcies and consolidations in the steel industry are changing the
relationship between the taconite mines and the steel mills. Steel
companies are shedding their ownership of the mines. The mines are
transitioning from captive operations to merchants of iron ore pellets.
Pellets are a commodity that can be purchased from Michigan, Canada or
Brazil. The taconite mines in Minnesota have to be cost-competitive to
remain in business.
All of the mines have made strides in reducing costs. It's the only way
they're going to stay in business. Labor productivity has improved.
Suppliers have been squeezed. Energy consumption has been reduced. One
area of significant cost requiring attention is the level of the current
Production taxes on Minnesota taconite companies are paid in lieu of
property taxes. The current tax rate, net of re-investment credits, is
$1.75 per ton. This rate is four times higher than Canada's and six times
higher than Michigan's, our prime competitors. The production taxes paid
by the taconite industry are several times higher than the property taxes
they would pay if they were treated like other businesses and industries
Last year those taxes amounted to an astounding $15,000 per industry
employee, compared to a state average of about $1,400 per employee in
Why is the tax so high? It's because the taconite industry pays for
things no other business or industry in the state is expected to pay for.
No other industry pays for the entire operation of a state agency and for
all of the economic development funds for a region. No other industry is
required to contribute money to a fund because they might go out of
business someday. No other industry or business directly subsidizes
individual property taxes with a tax credit.
Businesses and industries need to pay their fair share of taxes, to
support schools and local units of government. When an excessively high
tax rate threatens the long term survival of a business, something needs
to change to retain the jobs. If a company cannot make a profit, it will
not remain in business. New mining ventures will not locate here just
because we promise them investment dollars.
The hundreds of millions of dollars in expenditures required for copper
nickel development or value-added iron production will only be made if
there's a realistic expectation that a company can be profitable over a
long period of time. Do we think those investments will be made here if we
plan to tax those companies at a rate that is four to six times that of
competing jurisdictions? Will companies invest here if they believe their
taxes will be quadrupled once their plants are built? How existing
businesses are treated will directly impact whether those investments are
The taconite industry is fighting for survival. Reducing the production
tax to a reasonable level will help the industry be competitive and
survive for the long term. The jobs that this industry provides, both
directly and indirectly, are not easily replaced. We have a choice. We can
have excessively high taxes, or we can have jobs for the long term. We
cannot have both.
JONATHAN HOLMES is manager of the Minorca
Mine near Virginia