The ghosts of 1989 come to haunt Carson City on mining taxation

In 1989, Acting Gov. Bob Miller fulminated against the mining industry in a way that had rarely been heard in the capital.

“The fact is this: mining does not pay its fair share to the state,” Miller railed in his State of the State speech.  “A gold mine that would pay a million dollars in state and local taxes in Nevada pays $8 million in Colorado. And you know, that might be tolerable if the mines were taking a renewable resource from the ground. But they’re not. One day, the ore will be gone. And so will the companies. And so will that source of income.”

How relevant those words seem a quarter-century later.

As lawmakers, led by Senate Minority Leader Michael Roberson, debate whether to pass SJR 15, which would erase mining’s taxation protection the industry helped write into the Constitution in 1864, and ponder whether to give voters a chance to enact a new tax on the industry, history may be instructive. In addition to Santayana’s famous admonition, legislators must wonder whether what happened in 1989 could happen in 2013, why the passage of a joint resolution followed by an election should so scare the mining lobby and how so many of the issues of today in Nevada were also the issues of yesterday.

Missed in all of the hoopla this week but not in 1989 is that the Constitution is not a blanket impediment to taxing mining – there are ways around it. The impediment to taxing mining is the mining lobby.

Although the industry agreed to give up some deductions last session, a truly serious effort to tax the industry last came in the 1980s. The miners essentially have gone untouched in 25 years since a fiery, colorful Las Vegas assemblyman named Marvin Sedway, who chaired Ways and Means, wanted to go after the industry in 1987.

Sedway didn’t get nearly what he wanted – at one point he suggested $20 an ounce --but lawmakers settled for a “compromise" with the miners called Senate Joint Resolution 22, which changed the net proceeds of minerals tax in the Constitution, allowing it to be taxed at rate capped at 5 percent.

Without the mining lobby’s opposition and lawmakers set free from the tethers, it passed…unanimously.

While it may have seemed like a coup at the time, the real winners were…the mining companies. The total cost to the industry was estimated to be a measly $52 million, which did little for the multibillion-dollar state budget, either.

But there was more embedded in the resolution that shows just how skillful – and Machiavellian – the mining lobby really was (is?).  The measure did not simply allow the mining tax rate to go up – it limited how mining could be taxed, too.

As one wag who was there at the time put it, “they ‘helped’ us while constitutionally prohibiting extraction fees.”

Indeed, you can see the language: “No other tax may be imposed upon a mineral or its proceeds until the identity of the proceeds as such is lost.”

Miller wasn’t satisfied after he took over for Richard Bryan, who had ascended to the U.S. Senate. So in 1989, looking for more money for education (sound familiar?), Miller expressed his support for SJR 22 but added in his State of the State:

“It’s a start - but it’s not enough. With a slightly larger share from mining, we can make kindergartens available to every Nevada child (does this sound familiar, too?), particularly in rural counties where kindergarten instruction is not available. We can provide a teacher for every 19 children in every first and second grade classroom statewide, beginning this fall. And we can hire school counselors for two-thirds of all the elementary schools without one today.”

Miller eventually had to settle for the $52 million from SJR 22, however, as his efforts were stymied by the miners. By the time SJR 22 came before lawmakers again in 1989, only one lawmaker opposed it: Marvin Sedway.

So the special election was set for May 2, 1989: “Shall the Nevada Constitution be amended to allow the taxation of minerals at a rate different than other property and to limit other taxes upon minerals and their proceeds?”

The “argument for passage” was: “The proposed amendment would allow the legislature to tax the net proceeds of mines at a rate different than other property, up to the constitutional limit of 5 percent.” (Nothing about the limiting other tax methods, you notice.)

The “argument against passage” was just priceless: “There is a perception that the mining industry already pays sufficient taxes.” Oh? Where would that be? In the Barrick and Newmont offices?

Absent any mining opposition (not even a plaintive plea not to be thrown in the briar patch!), the results were stunning:

Statewide: 107,989-30,753.

Clark: 56,991-10,682

Washoe: 26,211-11,352

Rurals: 24,587-8,719

Three to one in the rurals! You can see how overwhelming it was, and why mining might be – or should be – petrified if something were to get on the ballot next year, even if the industry spent money to tell us, as it did in the late ‘80s, “mining works for Nevada.”

In his book, “The University of Nevada, Las Vegas: A History,” Eugene P. Mooring mentioned that the year after the 1989 special election, Newmont gave $1.5 million to the southern school. It was at the time the largest donation in the company’s history.

“Politics, however, may have played some role in the company’s altruism,” Moehring wrote, alluding to the extraction of the $52 million, calling it an "action the industry was eager not to see become a habit.”

And indeed it has not, as the miners have inundated the political and charitable worlds with millions of dollars, establishing a reputation for generosity to various causes and many lawmakers – indeed, one mining advocate is infamous for her almost limitless credit card expense account.  I suppose this is all part of being good corporate citizens – and influential political players.

A serious question remains after all of this: How much can mining afford to pay? That’s not an easy one to answer. It’s not just Miller’s prescient admonition about one day the gold not being in them thar hills. It’s the global opportunities opening up all the time for the companies making Nevada, eventually, less important.

So what is the right amount that lawmakers should ask for and the industry lobby would agree to? Right now, the industry answer is probably the same one Al Pacino gave G.D. Spradlin in the first “Godfather” sequel when Michael Corleone responded to the senator’s request for money: Nothing.

But can they maintain that posture, or simply mask it with the usual “industry-specific taxation is bad, broad-based taxes are good” mantra we have heard from mining and gaming forever. (Notice gaming has not broken on the new proposal from mining, except for those rogues from Las Vegas Sands.)

That doesn’t mean there haven’t been efforts to pit gaming against mining – in 1989 and this week. Just as Roberson compared mining’s tax burden to gaming’s when he unfurled his proposal Tuesday, so, too, did Miller in 1989:

“Half of the top twelve largest mining producers in Nevada have major foreign ownership. Their profits are leaving the state and leaving this country. The Las Vegas Hilton Hotels alone pay more taxes in this state than the entire mining industry. Because of the mining industry’s unwillingness to pay its fair share, we may not have enough money to achieve some of the goals we have set for better preparing Nevada’s children for the future.”

The plus ca change….

The votes last session for SJR 15 to tee it up for 2013 and the ballot question next year were decisive but not nearly so overwhelming as in 1987 and 1989 for SJR 22. That’s because the miners were opposed to SJR 15, although they knew it was only the first round.

Roberson and his counterpart, Steven Horsford supported it, and the influence of mining thorn Sheila Leslie in the Assembly helped, too. The eight “no” votes in the Senate were all Republicans – Greg Brower, whom the miners supported against Leslie (too good to be true), and Joe Hardy now say they will vote for it, as do newcomers Scott Hammond and Mark Hutchison.

In the 2011 Assembly, all of the Democrats voted for it. The miners brilliantly have created doubt this session about a huge budget hole if SJR 15 passes, which some Assembly Democrats had bought. But now that legislative lawyers says that is not so, the Democrats have political cover to vote for it again.

But that’s the easy part. The questions remain on whether an alternative mining tax can be crafted and whether Roberson & Co. can get Democratic votes for that. I would love to hear the Democrats' argument for opposing any new method to help fund education….

Depending on how the legal questions are resolved, the miners may have backstop in Gov. Brian Sandoval. He doesn't want new taxes and is running for re-election. But can he be swayed? Doubtful.

At no point do I expect Gov. Sunny to say what Miller said in 1989 as he closed his remarks calling for more mining taxes based on how little the industry pays compared to gaming:

“Remember those facts the next time you see a television commercial or newspaper ad that says, ‘Mining: It works for Nevada.’ It is not working hard enough.”