Director Keith Creagh to Speak at Michigan Rural Council Meeting

by: Brad Garmon, Michigan Environmental Council

A new mining era appears to be dawning in the Upper Peninsula. With at least five big operations either getting underway or entering the environmental permitting process, and maybe half a dozen more busily exploring and testing the waters for future mines, it’s clear that these companies are enjoying strong support from Governor Snyder, Northern Michigan lawmakers and state agency staff. Now it appears there may be a new opportunity to capture additional revenue from the rich mineral reserves and to reinvest that money into building an economy that could support rural northern Michigan for decades to come.

Michigan leaders, led by Director Keith Creagh and the Michigan Department of Agriculture and Rural Development, are currently making the rounds as they explore the potential for adding a new severance tax on minerals and investing the money in a yet-do-be developed Rural Economic Development program. The idea is to support these rural communities once the wealth of the mining operations has departed.  On the whole, rural communities around the country have learned that mining operations are relatively short-lived ventures. Times are good while the mine is running but 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.

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 then find a way to diversify that economy or face slow and painful decline.

One model being contemplated for Michigan is to use the severance tax to establish a trust fund that would invest for the long-term in the rural economic development initiatives that would 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.”

Currently 38 states have some type of severance tax, mostly imposed on coal, natural gas, and oil. Research has also 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, and the incremental additional cost is largely offset by federal subsidies and marginally higher costs for end products. But these funds do offer states and local communities like those in Michigan a way to not only recoup the temporary costs of hosting the mining operation, but to invest wisely in the things that will provide a prosperous and sustainable future once the mining (and the minerals) are long gone.

During the last several years, Michigan took steps to develop laws that will hopefully make this new era of mining cleaner and less disruptive of the pristine wilderness and waterways they inevitably impact—hopefully the bust won’t include heavy burdens from pollution or costly clean ups of mismanaged operations. But better yet, with the addition of a severance tax and a new Rural Economic Development program, this new mining era can help build a more resilient rural Michigan, especially for the Upper Peninsula.

I think 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. For me, the big question then becomes: what should we investment the money in? What do we create now, during the short boom period that will help build a sustainable foundation of prosperity in Michigan’s Upper Peninsula 10, 50 or 100 years from now?

For me, it amounts to Rural Placemaking—protecting and 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 I think a few key components should be prioritized in any economic development investments for Michigan’s rural communities:

  • In a world where talented workers are more mobile than ever, and not tethered 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 trails and recreation.
  • Michigan’s best natural resource industries—forestry, agriculture, tourism, recreation—are largely sustainable and completely 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 that 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, in my humble opinion, is to secure and restore the foundation of the Upper Peninsula’s greatness, and that is its unique outdoor heritage.

The U.P.—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.

About the guest blogger:

Brad Garmon is the Director of Conservation and Emerging Issues at MEC, where he has worked since moving to Michigan in 2001. Brad holds degrees in Earth Science and Geospatial Analysis, and a master’s degree in English. In addition to policy work on natural resources protection, land conservation, economic development and Smart Growth issues across Michigan, he is a member of the Michigan Sense of Place Council, the Michigan Environmental Advisory Council, the national Growth Management Leadership Alliance and the People And Land Leadership Council. He was appointed by Governor Snyder to the Michigan State Parks and Recreation Blue Ribbon Panel in 2011.

Links for further reading:

“Will Mines Gets State Riches for A Paltry Sum?” Detroit Free Press. http://www.freep.com/article/20111128/NEWS05/111280328/Will-mines-get-state-s-riches-paltry-sum-?odyssey=tab|topnews|text|FRONTPAGE

“Mines Beginning Digging Into UP Free of Key State Tax.” Bridge Magazine. http://bridgemi.com/2011/11/mines-begin-digging-into-u-p-free-of-state-tax/#.TzV9RrGPmwM

“Keeping College Graduates in Michigan: Michigan Colleges Foundation Student Survey Findings.” MCF April 2011 http://www.michigancolleges.org/files/michigancolleges.org/MCF_Findings%20Report_Final2.pdf

“Taxes On Resources Vary Widely Among States.” Bridge Magazine.
http://bridgemi.com/2011/11/taxation-on-resources-varies-widely-among-states/#.TzV9h7GPmwN

“Creating an Economic Diversification Fund: Turning Nonrenewable Natural Resources into Sustainable Wealth for West Virginia.” West Virginia Center on Budget and Policy. http://www.wvpolicy.org/downloads/WVEconomicDiversificationTrustFundRpt013012.pdf

“Investing In The Future:  Making The Severance Tax Stronger For West Virginia.” West Virginia Center on Budget and Policy. http://www.wvpolicy.org/downloads/SeveranceTax121311.pdf