Iron Range officials are plotting ways to keep the Legislature from raiding a $140 million trust fund bankrolled by taxes on taconite production. This week, they weighed a panel's recommendation to remake the structure of the fund — and perhaps even the state agency that runs it — to ensure that it's used locally, rather than as a state budget fix.
"One thing I'm sure of is if we keep the status quo of this fund, it will eventually be raided," said Tony Sertich, commissioner of the Iron Range Resources and Rehabilitation Board, or IRRRB, at a meeting in Eveleth, Minn. He charged a task force last year with studying what "dramatic changes" might shield the nest egg, named after former state Sen. Doug Johnson of Cook. GOP lawmakers tried to tap $60 million from the fund in 2011 to help balance the budget, but Gov. Mark Dayton quashed the move.
Because mining companies pay the production taxes in lieu of property taxes, the northeastern Minnesota lawmakers who make up the board argue that those dollars must remain in the region, financing decades of projects to diversify the economy and create jobs.
"These are local property tax dollars that our businesses up here are paying," said Senate Majority Leader Tom Bakk, DFL-Cook, by phone Thursday. "I wouldn't think about trying to wrestle some property tax money that Mayo Clinic pays to Rochester ... or that 3M pays to Maplewood.
"They're Iron Range property taxes we're squirreling away for the future."
In a December report, the 17-member task force recommended two options to reshape the governance of the Douglas J. Johnson Economic Protection Fund. The first would turn the fund into a nonprofit or economic development authority, overseen by local citizens. A second, more dramatic proposal would require legislative action: Redesign the IRRRB itself, separating it from state government to become an autonomous, regional authority that sets the tax rate then collects and doles out that money.
The state now collects the taconite production taxes, tempting lawmakers, before the money returns to the region, said former state Sen. Ron Dicklich, the task force's chairman. "It looks like it's state money," he said "It's always been confusing. It's always created problems."
The fund was created in 1977 with an eye toward the eventual slowdown of taconite mining. Initially named the 2002 Trust Fund, it would help the Iron Range "rebuild its economy after what was then anticipated to be the decline of the taconite mining industry around 2002," according to the task force's report. But the still-strong industry has continued paying the bills.
The fund gets a small slice of the total mining taxes — about $5 million of the $102.6 million distributed in 2013. Counting that $5 million, the IRRRB got a total of $29.7 million. Much of the rest went to cities, school districts and property tax relief.
The fund stands at $140.6 million in cash, stocks and bonds. The goal is to spend the fund's interest on grants and economic development. Since its start, the board has withdrawn $73 million from the fund. In the early 1980s, it put millions toward jobs programs and, more recently, made loans to Mesabi Nugget and, controversially, PolyMet Mining Corp., to help it acquire land for a copper mine near Babbitt, Minn.
Many folks have suggested to Sertich that the Legislature just pass a law that makes clear that the trust fund "stays on the range," he said at Thursday's meeting. But because a subsequent Legislature could reverse that action, "that's not good enough." A constitutional amendment would be more permanent, Sertich added, but less feasible.
Bakk doesn't believe the group should — or maybe even could — make the IRRRB a regional agency, rather than a state one. State law created the taconite production tax, plus the Taconite Assistance Area, the area that benefits from it. "We just can't get ourselves out of state statute," he said.
But a third-party group taking charge of the trust fund could help protect it, he said.
But some mining leaders might oppose such a change. Notes from the task force's November focus group with mining leaders reveal concerns that having the trust fund as a separate entity could encourage nepotism and discourage accountability.
But under the control of a citizen board, Sertich argues, the fund could gain "another set of eyes making those decisions."
The Iron Range lawmakers will study the options in the coming weeks then propose any legislative changes that would be required this session. A final change could come this summer.
At Thursday's meeting, the DFL legislators said it's the right time to make big changes to the endowment or the broader state agency. A reworking of the agency would require buy-in from the Legislature, now under DFL control. And while the IRRRB could move funds into nonprofit or economic development authority, it would need the governor's OK. Sertich said he has not yet talked with Dayton, but at Thursday's meeting, legislators assumed he'd be supportive.
"If anything's going to happen," Dicklich said, "it can happen under this alignment we have now."