Local governments across Alaska have long taxed raw materials that are extracted locally but sold elsewhere. Haines could be next.
In October, voters will weigh in on whether the borough should implement something called a severance tax, which would apply to exports including timber, gravel and mineral ore. Supporters of the proposition hope to ensure the community gets some financial benefit from ongoing or future export activities.
The idea is to tap new sources of tax revenue and, at least in theory, shift some of the burden off locals. Proponents say that’s particularly urgent as costs rise and financial support from the state wanes.
“If we tax all activities at a low or moderate level, we don’t have to really carry the financial responsibilities, the burden, exclusively on residents’ properties,” said assembly member Eben Sargent.
Raw material exports are subject to sales tax where they’re purchased but not where they originate. Aside from a potential boost in industry-related jobs, some say that means local communities don’t really stand to benefit.
“If you’re selling to a smelter in Asia, I don’t understand who pays what tariff, or import duty, or otherwise. But it certainly doesn’t benefit the locality here,” said assembly member Kevin Forster.
A severance tax, the idea goes, could change that.
“You’re severing a natural resource from the land, right? So once you take it out, it won’t come back, it won’t be there for future generations to do something with,” said Alaska Municipal League executive director Nils Andreassen.
“Revenue that comes from that severance is meant to build up or support a community or economy,” he added.
Critics of the tax have raised concerns about targeting certain industries and making Haines a less attractive place to do business.
Assembly member Mark Smith ultimately voted against sending the issue to voters in June. Despite a range of tweaks to make the tax more workable for industry, he said during an assembly meeting that he thinks it’s unconstitutional to tax things that people sell on private property.
“I spoke earlier and said this is as close to anything that I would be aligned with,” Smith said. “But I’m not going to vote for this.”
The rest of the assembly did vote in favor of adding the proposition to the ballot.
Of the three categories of raw materials the tax would apply to, gravel is currently the only one being exported from the borough. Timber used to be, and it could be again.
Oregon-based Northwest Forest Products Inc. won a contract years ago to carry out the so-called Baby Brown sale. The harvest hasn’t begun, but the sale would be the area’s largest in decades, and it would result in timber exports overseas.
Ore isn’t currently being exported either. But that would change if the Palmer Project, the mineral exploration site north of town, went into development.
“The mining one is a long-term play that just sort of establishes an expectation that if the mining occurs within the Haines Borough, it will be done on terms that benefit the Haines Borough financially,” Sargent said.
Exporters would be taxed $5 for every thousand board feet of timber, and $0.15 per ton of sand, gravel or other rock. Both were largely based on Yakutat’s severance tax, while the general framework was adopted in part from Kodiak’s.
Sargent said the assembly ultimately dropped the gravel rate slightly lower than Yakutat’s to ensure Haines’ current gravel export activity would remain competitive in the broader market.
The ore-related provision is more complicated and emulates a severance tax in the Northwest Arctic Borough, which is home to the Red Dog Mine.
The measure would impose a 4.5% tax on a mine’s gross production value.
But it also offers the industry an alternative. Rather than paying the tax, they could negotiate a separate payment – referred to as a Payment in Lieu of Taxes, or PILOT agreement – with the borough. That would likewise have to be approved by voters.
The assembly went back and forth on the idea but decided to include both the tax and the alternative payment structure to give the borough some leverage in potential negotiations.
“Where the assembly netted out was that no matter what ultimate tax structure you might end up under, you’re going to get the best deal for the community if you start from a negotiating point of having a tax on the books,” Sargent said.
The mining industry has opposed severance taxes on the grounds that they cause significant uncertainty for existing and future mines.
But the industry has been more supportive of negotiating separate payments. That’s because those payments mean mining companies have a clearer idea of what they’ll owe long-term – and that they can be tweaked to accommodate both the mine and the community.
Forster said it’s important to get something on the books sooner rather than later, especially because the Palmer Project recently changed hands.
“If the town’s going to do something to prepare itself,” he said, “the time is nigh.”
As he sees it, the ballot question isn’t a matter of whether there should be a mine – or other industrial activity – in Haines. It’s more about how the community would or wouldn’t benefit if a large project came through.
“If you put 50 people in a room and ask them to espouse how they feel about a mine in the valley, it gets real contentious, right?” he said.
“If you just ask the question: if there’s going to be major industrial development in this valley, do we want to see the least harm and the most benefit? Then all of a sudden, I think everyone’s on the same team,” he added.
Early voting for the municipal election starts Sept. 21. Election day is Oct. 6.
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