Should mining companies contribute more to mining towns?

Cleveland Cliffs Inc
This undated file photo provided by Cleveland Cliffs, Inc., of the Hibbing Taconite mine located in Hibbing, Minn., provides an excellent sense of scale of mining equipment. (AP Photo/Cleveland Cliffs Inc., File)

Mining companies are doing well currently in Minnesota, but the towns where they operate and draw labor from are seeing less from companies for schools and economic development.

Marshall Helmberger of the Timberjay does the math and provides some additional context. Read his full article here.

To understand just how badly state and local governments have fared in recent years, consider the taconite production tax, the primary means by which the state of Minnesota collects tax revenue from mining companies. The production tax was implemented decades ago as an alternative to levying property taxes on mining companies and their vast holdings in northeastern Minnesota.

As recently as 1991, the production tax annually collected about $82 million from mining companies operating on the Iron Range. At the time, the companies were producing about 39 million tons of taconite a year, which is virtually identical to production levels in recent years. At that time a ton of taconite was valued at $28, so the year’s annual production generated revenues or equivalent value of approximately $1.1 billion to the mining companies. The $82 million the companies paid to the state in production tax amounted to just over seven percent of the market value of the ore they produced.

In 2012, by comparison, the 39.7 million tons of taconite that mining companies produced on the Range enjoyed an average market value of $90/ton, netting the companies a combined $3.6 billion in total output value. Even adjusted for inflation, the mining companies enjoyed a 360 percent increase in output value compared to 20 years earlier. While the costs of mining have also increased, by about 90 percent over the same period, those cost increases have fallen well short of the increase in overall taconite prices.

Even as industry revenues have grown remarkably, the amount that mining companies paid in production taxes actually fell substantially, once adjusted for inflation. That $82 million in production taxes that the mining companies paid out in 1991, had the same buying power as $140 million today, based on the consumer price index, or CPI. Yet, the companies actually paid just $102 million, or just 2.84 percent of their operating revenues. That’s compared to more than seven percent of operating revenues that they paid 20 years earlier.

Today's Question: Should mining companies contribute more to mining towns?

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