The Legislature passed 3 mining proposals. Now what?

Nevada Democrats said they wanted to start a conversation about mining.

And now there’s a lot to talk about.

As part of the 32nd Special Session currently underway, the Nevada Legislature passed not one… not two… but three different joint resolutions proposing constitutional amendments related to the mining industry, which since the founding of the state has been criticized as having a sweetheart deal backed by a powerful and deep-pocketed lobby. All three proposals can now be considered by the 2021 Legislature. If one is approved by that body, it will appear on the 2022 general election ballot to be decided on by voters.

Assembly Joint Resolution 1 & Senate Joint Resolution 1 would both tax mining on 7.75 percent of their gross proceeds of minerals. Currently, mining companies are taxed on their net proceeds of minerals and the tax rate is capped at 5 percent.

AJR1 would send 75 percent of revenue raised to the state general fund and 25 percent to a new account to be used for educational purposes, health care or economic assistance for residents. SJR1 would send 50 percent of revenue raised to the state general fund and 50 percent to a new program that makes payment to residents, presumably like an Alaska-style dividend.

Both resolutions would make it so only a simple majority is needed in both houses of the Legislature to increase the tax rate but a two-thirds majority is required for lowering the tax rate — a reversal of the state’s existing two-thirds rule for passing any tax increase.

That two-thirds rule effectively stopped Democrats during the first special session of this summer from capping the amount of deductions mining companies are allowed to take, which would have raised their amount of taxable net proceeds for companies.

Assembly Joint Resolution 2 would raise the tax cap from 5 percent to 12 percent of net proceeds. The proposal was introduced as an “olive branch” to the mining industry, said Speaker Jason Frierson. Newmont Corp. and Barrick Gold Corp., the world’s largest two gold mining companies that operate together in Nevada under a joint venture called Nevada Gold Mines, testified in neutral on the bill, with representatives saying they appreciated having a seat at the table and working with legislators. The Nevada Mining Association also testified neutral on AJR2.

Because it remains a tax on net proceeds, AJR2 does not address the issue of deductions, which have been routinely criticized as excessive.

AJR2 would raise significantly less money than AJR1 and SJR1, though representatives of the industry claim the sizable leap in the tax rate could put companies out of business. Using the actual reported tax amounts from the Legislative Counsel Bureau, AJR2 would have brought in $260 million in tax revenue while SJR1 and AJR1 would have brought in $600 million.

Under the existing tax structure, mining companies paid $113 million in net proceeds taxes in 2019.

The gross proceeds of minerals was $7.7 billion that year.

Although all three resolutions adjust the constitution, there are still many details to be fleshed out, presumably during the 2021 Legislative session. Frierson noted after AJR2 was introduced that lawmakers and the industry had discussed exempting companies whose gross proceeds of minerals fell under $20 million annually.

The concession spoke to a claim made repeatedly by Republicans during discussion on all three resolutions that small mines would be shut down as a result of a tax hike.

“Mom-and-pop mines that make less than $20 million,” quipped an incredulous Democratic state Sen. Shannon Bilbray-Axelrod. “Wow.”

Lawmakers also have the discretion to treat minerals differently. For example, gold, which makes up about 90 percent of gross proceeds within the state, could be handled differently than silver, copper, lithium or the laundry list of less prominent materials pulled from the earth.

Similarly, geothermal companies are already handled differently than hard rock minerals.

With AJR1 and SJR1, lawmakers will also have to contend with the issue of county budgets. Currently counties receive approximately 53 percent of the net proceeds of minerals extracted in them. Those two bills strip that direct funding completely, though lawmakers suggested the state would through legislation keep the counties whole financially. AJR2 would retain the current structure for returning mining tax revenue to counties.

What none of the proposals do is remove mining from the Nevada Constitution altogether. Mining is the only industry enshrined in the state constitution. Tax structures for all other industries are set by legislators in state law and can be changed with far fewer hurdles.

“I am of the belief that our tax policies guiding a single industry do not belong in the constitution,” said state Sen. Ben Kieckhefer, a Republican who in 2011 and 2013 voted in support of having mining stripped from the constitution. “We are doubling down on this. Either way it’s bad.”

Nevada voters in 2014 narrowly rejected a proposed amendment to remove mining from the constitution. Advocates recently renewed that push following the onset of the coronavirus pandemic and economic downturn.

Every Assembly Republican and all but one Senate Republican voted against all three resolutions. State Sen. Joe Hardy broke party lines and voted for AJR2.

“I’m sure my phone will ring,” he said prior to the vote. “I hope that I can take information and be able to appropriately use it. But I think this also gives people an opportunity to look at something that may not be as egregious as some of the other things that they may end up voting on.”

Every Senate Democrat and all but four Assembly Democrats voted in favor of all three resolutions. Democratic Assembly members Maggie Carlton, Richard Carrillo, Dina Neal and Ellen Spiegel voted against SJR1.

The Senate resolution received the coldest public reception of all three bills, with no one testifying in support of the resolution and several prominent groups known for their vocal support of increasing mining taxes expressing opposition or neutrality on the resolution. Their concerns were primarily on the belief that a dividend program would encourage profits over environmental responsibility and give mining even more political power.

Process, pace questioned by GOP

Gov. Steve Sisolak’s proclamation declaring the 32nd Special Session included a laundry list of items — criminal justice, unemployment, elections, evictions, business liability and worker protections. It did not include the word “mining” or any variation thereof. However, it did include a line about passing legislation that ensured any constitutional amendment resolution passed by a special session be immediately “published.”

That hinted at the possibility of a constitutional amendment proposal being in the works, as the constitution requires that any resolution calling for an amendment be published no later than three months prior to the election selecting the next legislature.

That meant Monday.

Clarifying that publishing rule was included as part of Assembly Bill 2, which also added into law temporary rules on the use of remote technology for participation in interim legislative committees and changing some personnel titles within the Legislative Counsel Bureau.

Republicans accused Democrats of showing “an unprecedented disregard for the constitution, tradition and the importance of a fair and transparent process.”

Throughout hearings and floor votes, in both chambers, GOP members questioned how the body could address an issue not on the proclamation. LCB legal division issued an opinion on Sunday that the topics of resolutions did not have to be on the official proclamation. They issued a second legal opinion that resolutions proposing a constitutional amendment are not subject to the two-thirds rule.

Republicans also argued that a special session was not the place for discussions on raising taxes.

“I was under the impression that we deliberately made it difficult to run these things in the period of a year or two,” said state Sen. Keith Pickard, a Republican, adding that the years-long process allowed for full vetting to take place.

Following Nevada Mining Association President Tyre Gray being allowed to participate in the Assembly’s joint hearing on AJR1 and SJR1, state Sens. James Settelmeyer and Ira Hansen requested during the Senate hearing that the same be allowed in the upper chamber but were denied.

“The voters are ultimately going to decide this,” Hardy said later during the floor vote. “I hope next time we see it, we can get input because I don’t think the input we’ve had today is adequate.”

Democrats contended jump starting the process of a constitutional amendment on mining taxes is directly related to the pandemic, which will have a lasting economic impact, particularly on the gaming and tourism industries.

LCB staff noted that Nevada lawmakers passed a constitutional amendment proposal during the 1987 and 1989 Legislatures, then almost immediately held a special election (in May 1989) to get voter approval. That successful process placed into the constitution the current provisions on mining taxes that lawmakers are now trying to remove.