A $2 billion hole in the Nevada budget has state lawmakers scrambling for new sources of revenue, and a prime target for new taxes is the mining industry.
With the price of gold hovering around $900 per ounce, gold mining conglomerates are experiencing record profits in Nevada. But, the miners say they don't like the idea of being singled out.
The pour room deep inside the Barrick Goldstrike Mine is understandably secure. After all, this is where it all comes together -- the place where molten gold is poured into 900 ounce ingots bigger than a loaf of bread.
"We do have cameras in different areas to keep an eye on the gold as it's being moved around," said Barrick Pour Room Supervisor Lou Elu.
But make no mistake, someone is coming for the gold, or at least a slice of it. Nevada lawmakers are taking a hard look at the booming profit margins of gold producers.
Over a seven year period, Nevada gold miners produced a whopping $25 billion worth of bullion, but paid $125 million in state taxes -- a tax rate of .5-percent. The Nevada Constitution specifies that 5-percent is the maximum the miners can be taxed. In 2007, Nevada miners produced $5 billion worth of gold and paid a mere $30 million in mineral taxes.
Groups like the Progressive Leadership Alliance of Nevada are pressuring lawmakers to make the mining companies pay more.
City Life Columnist Hugh Jackson is the point man for PLAN on mining issues. He cites the states two biggest mines, Goldstrike and Newmont, as examples of why the tax law must be changed. "Both of these mines in the last half year have reported proceeds in excess of half a billion dollars and paid to the general fund zero on that production. Zero on half a billion dollars. That is sick. That is wrong, when working mothers are paying 7.75-percent sales tax every time they take their kids for a happy meal," he said.
The reason the miners are able to duck paying more, Jackson says, is that Nevada allows them to write off nearly everything they spend. "Not just their extraction expenses, but the cost of insurance, marketing, refining, the cost of paying their workers comp, the benefits for their employees, almost everything is excluded," he said.
In the 40 years since the miners began digging into the Carlin Trend west of Elko, they've extracted an astonishing 70 million ounces of gold, with millions more awaiting extraction. Yes, times are good right now, says Lou Schack of Barrick Gold.
But mining is the ultimate boom and bust business, something Nevadans should know better than anyone. While gold prices are up at present, so are production costs. For years, while gold prices were low, the mines operated at a barely noticeable profit margin.
The Carlin mines represent billions of dollars in capital investment, a monumental gamble, Schack says, but one that has paid off for towns like Elko, which have the lowest unemployment rate in the state and the highest wages. It's money that ripples out into the community. "We provide a lot of very good jobs, excellent tax revenues for the counties. Obviously most of the economic activity that happens out here is driven by mining," said Schack.
Mining companies bristle at the suggestion that they don't pay taxes. The industry paid $200 million in overall taxes, including property and sales taxes in 2007, while adding tens of millions more to the community pot in the form of scholarships and other donations.
Mining is prepared to step up to the plate and pay more, Schack says, but only if other industries do likewise. "We feel we pay substantial taxes in Nevada and elsewhere, and we don't feel it's fair to be targeted. However, if there is a careful examination of the tax structure in Nevada that looks at all businesses as sources of revenue, that's the constructive approach I think we need to see," he said.
Schack says that increased taxes might not hurt while gold prices are high, but there comes a point of diminishing returns should prices drop, as they always seem to do. And it could damage one of the state's only economic success stories. "If the costs of business go up substantially, it certainly would not help what is a vibrant industry in this state," he said.
Thursday, George Knapp's look at Nevada's mining industry continues. At 5, the I-Team examines concerns about long term environmental consequences of gold mining. Then at 11, Native Americans will explain why some mining operations strike at the heart of their spiritual beliefs.
