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Shafted Again

When it comes to handouts for the mining industry, the Arizona Legislature is a bottomless pit. This year has been no exception.

First things first: I've got to give the Arizona mining lobby credit. These guys are pros. The dean of dollar-digging at the Capitol is Jim Bush. Bush, Arizona Chamber of Commerce glad-handers and a few other lobbyists have, in the past five years, won their clients tax cuts amounting to tens of millions of dollars a year. Not bad, considering the mining industry only contributed about $74,000 to Arizona state political candidates in 1998.

This spring, Bush, et al., came begging for a reduction in the state's mining severance tax, a levy placed on nonrenewable commodities taken from the earth. They took advantage of the fact that the worldwide copper market has plummeted in the past year. A pound of copper that used to cost $1.20 now goes for just 65 cents.

Bush won. The severance tax was cut in half. The State of Arizona will lose $8 million in 2000 and another $8 million in 2001 from its general fund. This money will have to be made up by other taxpayers. But here's the kicker: The severance tax cut will only lower the cost of producing a pound of copper by a penny.

So the mining companies save some dough, Arizona loses some, and, in the end, the copper industry in our state is still depressed.

Marshall Vest, forecast project director in the College of Business and Public Administration at the University of Arizona, calls the severance tax cut a "feel-good" measure "that has virtually no impact. It is not going to make a difference as to whether mines remain open or whether copper mines move elsewhere. Honestly, they can't move elsewhere."

That's dubious public policy.
But wait. It gets worse.
Experts say this dip is cyclical. Copper prices soared a couple of years ago, then dropped, largely because of the Asian economic collapse. The Asian market is improving, but Latin America is entering a recession, so it will be at least a year before copper prices go up again. But they will go up, Vest promises.

The Legislature's slashing of the severance tax isn't cyclical. It's permanent.

It didn't have to be. Senator George Cunningham, a Tucson Democrat, offered an amendment that would have given the mines relief during this crisis, then restored the old severance tax rate in better times.

But that wasn't good enough for the money miners, and why should they settle for anything less than their way? Since Cunningham came to the Legislature in 1992, he's watched his colleagues hand the mining industry relief worth tens of millions of dollars each year, in the form of lower property taxes and cuts on sales taxes for production materials.

"In my seven years in the Legislature, the mining industry has sent out an army of lobbyists with the specific and singular intent of reducing their tax burden and their current operating costs. And frankly, I think a case could be made that they are no longer paying their fair share, and they need to," Cunningham says.

The mining lobbyists nonetheless trounced the opposition as usual, with disingenuous claims that basically went unchallenged. Arizona Mining Association lobbyist Jim Bush argued that the severance tax is unfairly imposed on just the mines.

"When Motorola and Intel and these people take a raw product and make something, we do not tax the process. Only in this industry do we tax that," Bush told the Senate Finance Committee before it rubber-stamped the proposal on March 15.

"But [the mines] are the only industry that extract raw materials from the land that are absolutely nonrenewable," Cunningham counters.

And as to Bush's claim that the severance tax cut will make a difference in the industry's performance in Arizona, Cunningham says, "The severance tax is not making the mines in Arizona noncompetitive. It is the price of copper and the production costs in Arizona. That will change as a result of the demand in the world markets. It will not change as a result of changing the severance tax."

Even Arizona Mining Association president Chuck Shipley admits the severance tax cut won't make much of a difference. The mining lobbyists stopped short at promising that mines would not be closed if the cut was approved. In fact, Phelps Dodge recently shut down a significant portion of its mining operations in Silver City, New Mexico, just weeks after the New Mexico Legislature approved tax cuts for the mining industry there.

The Arizona tax cut frustrates academics like UA's Marshall Vest and Tom Rex, research manager at Arizona State University's Center for Business Research. Rex is infuriated by state government handouts which he says don't do anything to fix what is a problem that should be addressed by Congress and the international business community.

"The mining industry in this country . . . is much like a lot of the manufacturing industries, where there is a lot of competition from other countries that pay a whole lot less [in production costs]," Rex says. "If the nation wants to take on that issue, then it should take on the issue at the national level and decide whether this particular industry is critical to this country, and if so, then at the national level, you do something. To give a tax cut at the state level to me doesn't make sense."

Furthermore, most mining companies with operations in Arizona also have vast operations overseas. In some ways, their multinationalism undermines their Arizona enterprises.

The cruel reality is that the mining industry in Arizona is no longer as important as it once was, Rex says, replaced in the industrial pecking order by aerospace and high-tech manufacturing, and tourism. Although the mining lobbyists talk about the $2 billion overall economic impact on the state, Rex claims that number is overinflated, and notes that mines employ just about 13,000 people in the state.

"Mining's got some importance, but it is a small, small industry, and it could pretty much disappear without doing more than just registering a blip statewide," Rex says.

The mining severance tax cut is just a small example of how public policy is made in our state--and that rankles Rex.

"Personally, I'm opposed to special treatment for any given industry or individual company, whether it be a tax cut or whether it be special gimmes and the like," he says. "Why are taxpayer monies being sent to the private sector? It's as easy as that."

To put the copper crisis into perspective, consider Jim Bush's client, Phelps Dodge. Between 1993 and 1997, the company's net profits totaled almost $3 billion. Copper prices soared in the middle of the decade, and the company made $745 million in 1995 alone. That number dipped to $408 million in 1997 and plunged to $190 million last year.

So the rest of Arizona's taxpayers are supposed to dig deeper to help out a company that, in a bad year, nets almost $200 million?

Phelps Dodge's share of the $8 million severance tax cut in Arizona won't mean a hill of beans to the company, but it means a lot to the people of Arizona.

Instead of granting the mining severance tax cut, the Arizona Legislature could have fully funded the Healthy Families program statewide. Or spread that $8 million among the state's 30,000 underpaid public school teachers, or put it toward reducing class sizes, which are the third highest in the nation.

Or dedicated the money to retrain miners who might be laid off by the foundering Arizona mining industry.

Contact Amy Silverman at 602-229-8443 or at her online address: asilverman@newtimes.com


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