Mine tax: Investment in Michigan’s rural future

A new mining era is dawning in the Upper Peninsula. At least five big operations are getting underway or entering the permitting process, and maybe half a dozen more are busily exploring and testing the waters for future mines.

The Michigan Environmental Council opposed the first of these mines – London-based Rio Tinto’s Eagle Project in the Yellow Dog Watershed near Big Bay. We believe state regulators have not been rigorous in enforcing the state’s mining laws that were developed specifically to protect Michigan’s waters and public health from this particular type of mining.

We will continue to watchdog each new permit. However it’s clear that these operations —environmentally risky as they are—are going forward. They enjoy strong support from Governor Snyder, Northern Michigan lawmakers and state agency staff.

Along with these risks comes an opportunity; specifically, a chance to capture additional revenue from these rich mineral reserves and reinvest that money into building a more resilient rural Michigan that will thrive even after the minerals and mining companies are gone.

Michigan leaders, led by Director Keith Creagh and the Michigan Department of Agriculture and Rural Development, are currently exploring the potential for adding a new severance tax on minerals and investing the money in a new rural economic development program.

The idea is to support these rural communities once the wealth of the mining operations has departed.  Mining operations are relatively short-lived ventures. Economically, times are good while the mine is running. Once the minerals are removed (typically seven to 10 years) the companies and jobs move on. High unemployment and low wages (the long busts) have all too often followed the short booms of extractive industry.

Diversify or die

This is especially true of new mines in Michigan’s beautiful and very rural Upper Peninsula. Minerals are a one-time boost; once they’re gone, they’re gone. Communities must diversify that economy or face slow and painful decline.

One model being contemplated for Michigan is to invest the severance tax in a trust fund that would fund rural economic development initiatives to help the Upper Peninsula become more diverse and resilient for the long haul.

There is precedent for such decision. Sean O’Leary of the West Virginia Center on Budget and Policy suggests that:

“Many of the top severance tax-collecting states preserve their natural resource wealth through severance tax-funded trust funds. These trust funds not only act as a stable source of funding through the swings of the natural resource market and as a permanent source of revenue for after the resource is gone, but they also act as economic development and diversification tools. In Montana, for example, the Big Sky Economic Development Trust Fund program aids in the development of good-paying jobs and promotes long-term stable economic growth through grants financed by the fund.”

In Michigan, such a fund could support a strong rural economy that reflects the UP’s unique assets with investments like:

• Microenterprise support, similar to the loans from Northern Initiatives, that would help preserve local fish markets, spark eco-tourism operations and kick-start for-profit ventures of local wood artisans, small-scale manufactures of unique local products, and traditional craftspeople.
• Enhanced local food programs such as kitchen incubators, food trucks and farm markets that expand access to traditional and locally produced food and beverages.
• Improved access to emerging and traditional outdoor adventure opportunities, from mountain biking in the Keweenaw to ice climbing near Munising, dog sledding  to trout fishing.
• Support for regional assessments and sustainable economic development planning that help communities devise long-term land use and growth plans, similar to the Grand Vision program in Northwest lower Michigan
• Infrastructure investments that protect the UP’s rural character while making sure its unique products are accessible in the future, including broadband, passenger and freight trains, long-distance paths and trails, and local streets that support biking and walking as well as automobiles.
• Expanded marketing and branding of UP destinations and experiences such as The Great Waters Program, also run by Northern Initiatives.
• Strong linkages between local business and regionally significant destinations such as wilderness areas, state parks and national lakeshores.

In 38 states

Currently 38 states have a severance tax, mostly imposed on coal, natural gas, and oil. Research has shown that these severance taxes don’t deter mining in any significant way—the value and limited availability of these resources mean they will get mined anyway.

These funds offer states and local communities a way to recoup the temporary costs of hosting the mining operation, and to invest wisely in the things that will provide a prosperous and sustainable future once the mining (and the minerals) are long gone.

It makes sense to add a severance tax on the minerals to be mined in Michigan, and to establish a fund to support sustainable economic development for rural areas for the future.

The big question then becomes: what should we invest the money in? What do we create now, during the short boom, to help build a sustainable foundation of prosperity in Michigan’s Upper Peninsula 10, 50 or 100 years from now? (The ideas in the bullet points above are just a few of the possibilities.)

It amounts to Rural Placemaking—protecting, enhancing and promoting our best natural assets and tapping them for a strong agenda of talent attraction and quality of life. With that in mind a few key components should be prioritized in any economic development investments for Michigan’s rural communities:

• In a world where talented workers are mobile and untethered to a specific town or factory or firm, great places become successful places because they can attract the best and brightest people.
• Research shows that talented people, particularly young people and older professionals, want great places with access to the outdoors, including bike trails, parks, rivers and beaches. Adventure competitions such as triathalons and off-road running events are drawing record numbers of participants in Michigan and around the nation.
• Michigan’s best natural resource industries—forestry, agriculture, tourism, recreation—can be done sustainably and can be compatible with a place-based, talent-attraction agenda for rural Michigan.
• From sandy Great Lakes shorelines to cold, clear trout streams, from deep, restorative forests to rolling, grass-covered prairies, rural Michigan has an underlying foundation of natural assets that gives us a competitive advantage unique to the Midwest. We can attract talented people—including the well-educated innovators who will create the businesses of the future.

Granted, these assets must be nurtured and they must be coupled with other attractors: job opportunities, great schools, lively towns and safe neighborhoods. Those, too, are all likely candidates for a Rural Economic Development Trust Fund targeted toward a place-based economic development strategy.

But at the end of the day, the best thing this fund could do is secure and restore the foundation of the Upper Peninsula’s greatness— its unique outdoor heritage.

The UP—and all of rural Michigan— has more to offer the world than just minerals. And without turning our backs on our automotive heritage or the mining and forestry and factories that support us still, this is a chance for rural northern Michigan to rethink itself, and craft a new image—and self-image—built primarily on the Pure Michigan places we know and love.

Brad Garmon is the Michigan Environmental  Council’s Director of Conservation and Emerging Issues

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Links for further reading:

Will Mines Gets State Riches for A Paltry Sum? - Detroit Free Press

Mines Beginning Digging Into UP Free of Key State Tax - Bridge Magazine

Keeping College Graduates in Michigan: Michigan Colleges Foundation Student Survey Findings - MCF April 2011

Taxes On Resources Vary Widely Among States - Bridge Magazine

Creating an Economic Diversification Fund: Turning Nonrenewable Natural Resources into Sustainable Wealth for West Virginia - West Virginia Center on Budget and Policy

Investing In The Future:  Making The Severance Tax Stronger For West Virginia - West Virginia Center on Budget and Policy

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