How mining will escape Session ’09 unscathed

By J. Patrick Coolican, David McGrath Schwartz

Wednesday, May 27, 2009 | 2 a.m.

The gold mining industry began the legislative session like some 19th-century prospector who got lucky: Everyone outside the mining camp jealously eyed his nuggets, and he slept with one eye open and a hand on a revolver.

The upheaval in the world economy created record prices for gold as the session began four months ago, and prices have stayed high — more than $900 per ounce.

With the state in fiscal crisis and mining companies making record profits in an extremely friendly Nevada tax environment, many capital observers expected mining companies to see their tax bills increase. Despite the state’s $3 billion budget hole and all the talk that mining would pay more, however, the industry emerged unscathed.

Backed by a small army of more than two dozen lobbyists from some of Nevada’s most prominent firms, including R&R Partners, Jones Vargas and former elected officials such as Assembly Speaker Richard Perkins, they got the mining taxes pulled out of closed-door budget negotiations between Democrats and Republicans.

How did they do it?

They came in knowing their backs were to the wall and methodically worked over urban legislators one by one at endless private meetings and dinners. And they leveraged the influence of rural legislators such as state Sen. Dean Rhoads, R-Tuscarora.

U.S. Senate Majority Leader Harry Reid, who is up for reelection in 2010 and needs to pick up rural votes wherever he can, was also helpful, two mining lobbyists said.

A Reid spokesman didn’t deny the senator’s involvement, though he extended credit to others.

“Sen. Reid is a longtime champion of the mining industry and it should come as no surprise that he monitors these issues both in Nevada and nationally,” spokesman Jon Summers wrote in an e-mail.

He added: “He is flattered that people want to give him credit for controlling what was in (and not in) the negotiated tax package, but the fact is that Senators Rhoads and McGinness and Assemblyman (John) Carpenter all made the case that making rushed changes to Nevada’s mining tax code would send the wrong signal to Congress and was not something they could support.”

Reid apparently made it known that with mining under assault from coastal, urban Democrats in Washington, state Democrats had to show solidarity with the industry.

Reid’s involvement aside, there’s no doubt Rhoads and Carpenter — Republicans being courted to vote for the tax package the Legislature passed last week — had significant leverage. Democrats needed two Republican Senate votes to override an expected veto from Gov. Jim Gibbons, but wanted more than that in both houses to give themselves political cover for the tax vote.

Rural Republicans in mining districts knew it and pushed hard.

“Rural senators whose districts are most affected, who have the most mining jobs and impact on county and local governments, made clear their opposition,” said Billy Vassiliadis, CEO of R&R Partners, the advertising and public affairs firm, which represents mining companies.

Rhoads, for instance, made it clear that a yes vote for a tax package was contingent on mining not being targeted.

Assemblywoman Sheila Leslie, D-Reno, one of the most liberal members of the Legislature, agreed with Vassiliadis’ analysis. “They have a lot of lobbyists, and essentially blocked it by using rural Republican senators’ votes,” Leslie said.

Tim Crowley, president of the Nevada Mining Association, said legislators simply listened to reason.

“I think the legislators, by and large, didn’t agree with singling out one industry,” he said, though this is belied by the 3 percentage point increase in the hotel-room tax, which was clearly leveled at the gaming industry.

Liberals who argued for higher taxes on mining thought they had a good case: In 2007 the state set a record with $5.4 billion in commodities extracted, according to the state Minerals Division. With the tax rate on mining capped at 5 percent, the state received $38 million and counties $37 million, according to Minerals Division records.

The tax on car rentals, by comparison, gave the state nearly $30 million in the past fiscal year.

Nevada is the largest gold producer in the United States, and trails only China, South Africa and Australia worldwide.

While most states tax mining based on gross value, Nevada’s mining companies can deduct a slew of expenses, including equipment depreciation, ore transport and minerals marketing. After the deductions, Nevada mining companies reported net proceeds of $1.5 billion in 2007, up from $853 million in 2005.

Crowley argues that in 2007, from which the latest figures are available, the mining industry paid $200 million in state and local taxes, through sales, property and payroll taxes. The industry also argues that its companies offer jobs that pay good wages and offer good benefits in communities that would be economically barren without mining.

Some liberals, outraged by the failure to raise taxes on the industry, are ready to press on after the session.

Bob Fulkerson, head of the Progressive Leadership Alliance of Nevada, had early in the session said that the Legislature should reduce deductions that the mining companies take before determining the “net proceeds” on the minerals they take out of the ground. Fulkerson said he thought mining would have had more trouble if Democrats had not needed two Republican votes in the Senate to pass a tax package. But, he said, “I’m disappointed in the whole bunch of them.”

His group is looking at a ballot initiative to go after mining, talking to its member organizations and doing “reconnaissance,” he said.

Leslie said the industry may have overplayed its hand this session.

“I think they’re going to regret that they didn’t come to the table,” she said. “The backlash among the public and legislators is strong. Most people in Nevada feel they’re not paying their fair share.”