Nevada's Golden Child

by Judith Lewis

Amid the suited throngs milling inside Nevada's State Legislature building in late February, Jan Gilbert looked like a wood sprite who'd wandered into a room full of bankers. With graying hair tousled about her shoulders and an effervescent smile, Gilbert held a clutch of miniature Canadian flags in one hand and a sheaf of papers in the other. Curious reporters and lobbyists buzzed around her; even an occasional legislator stopped by.

"So nice to meet you!" she'd say, rearranging her armload of props to proffer a flag and a paper printed with a "statement," as she described it, "from one of our Canadian mining shareholders." The message opened with hearty thanks to legislators "for coming to help strengthen the lock" hardrock mining has on Nevada's politics. It dismissed the state's massive gaming industry as "a poor relative" to the mining business, which is dominated by Canadian gold-mining firms Barrick Gold, Kinross and GoldCorp, and it celebrated the "sweetheart tax deals" the industry enjoys in Nevada.

"Even as we Canadian mining corporations made billions in your state last year, we got to pay next to nothing." And should anyone try to change that, "we'll rev up our mercenary army of lobbyists and crush anyone who stands in our way!"

"Nevada," Gilbert added, "has been so supportive of us!"

Gilbert, of course, is neither sprite nor shareholder, Canadian or otherwise. Instead, she's a co-founder of the Progressive Leadership Alliance of Nevada (PLAN), a coalition of labor, social justice and environmental groups working to shift Nevada away from its miserly libertarian foundations. She had come to this special legislative session to school whoever would listen about mining's stingy history in Nevada, where a sharp drop in revenues has blown an $887 million hole in the state's $6.9 billion budget. Inside the hearing rooms, state legislators, who typically meet a scant 120 days every other year, worked frantically through the $50,000-a-day emergency session, weighing whether to fire more state college professors or to send homeless psychiatric patients into the street. Meanwhile, Gilbert roamed the hallways, occasionally breaking character to offer her version of a fix: Make the $81 billion international gold mining industry pay more state taxes.

Not that Gilbert expected the legislators to abruptly pass any bold new tax laws. "They knew the miners would take them to court if they did that," she said, "and that would take too much time out of solving the dire problems we have." Instead, she was trying to build momentum for a measure PLAN hopes to put to the voters this fall. The "Fair Mining Tax Initiative" would end the state's constitutionally mandated "net proceeds of minerals tax," which allows mining companies to pay no more than a 5 percent tax on their profits. It would replace it with a minimum 5 percent severance tax, based on the gross value of the minerals severed from Nevada's ground. The organization needs 97,002 signatures before June 15 for a place on the November ballot.

"We've got large organizations signing on," Gilbert said. "The teachers are for it, the labor unions for it. Even the real strong anti-tax people, the people who say they don't believe in any kind of taxes, are for it. I've gotten signatures from people who say, 'Don't tax me. Tax them.' "

It's hard to know how accurate Gilbert's assessment is: In a Las Vegas Review-Journal poll conducted last spring, 46 percent of respondents opposed doubling taxes on mining; PLAN's proposal would raise mining taxes by a factor of seven. (Seventy percent of those asked supported a higher cigarette tax, however, and more than half would raise gambling taxes: People are always willing to tax sin.) But public opinion may have changed: Conditions in the state have deteriorated in the year since the poll was conducted. At the same time, the mining business, currently dominated by gold and reveling in the mineral's high prices, has boomed.

From 2000 to 2008, Nevada's mines pulled just under $31 billion worth of gold from the mountains; after deducting everything from the $5,000-apiece tires on their Brobdingnagian trucks to their pro-mining billboards, the entire industry paid over $201 million in taxes, distributed among the local counties and the state's debt and general fund. Had there been a 5 percent tax on the gross value of all the minerals extracted, those taxes would have amounted to more than $1.5 billion. In 2009 alone, a tax on 5 percent of the gross production of Nevada's mines would have brought in nearly $300 million -- one-third of the amount lawmakers were trying to scrape up to fill the hole in their current biennial budget, which ends in June 2011.

But on the first day of the special session, even the relatively anemic proposal to change mine tax rules from the state's scandal-haunted Gov. Jim Gibbons, R, was making lawmakers nervous -- and not just because Gibbons had damaged his already frayed credibility the night before, when a television news crew discovered his girlfriend hiding in the Reno airport bathroom as the governor got off the plane. Gibbons, a geologist and former lawyer for the mining industry, had asked the Legislature to consider halving the number of deductions a mining company can take, so that the state can raise another $50 million over the next two years. Legislators had actually considered a similar fix in 2009, but this time around, any mention of a mining tax prompted a change of subject.

"We do need to change how we're approaching mining, but there are legal and constitutional concerns about how (the deduction proposal) would proceed," said Senate leader Steve Horsford, a Las Vegas Democrat and former mining lobbyist. "So unless there are objections, we'll agree that this approach is not the right one."

Back out in the hallways, Gilbert observed that Horsford (who, through his spokesman, Dave Berns, declined to be interviewed for this article) "can't very well attack people who contribute so much to everybody's campaign. (The mining companies) are big supporters of Democrats. They give money to everybody." Gilbert even took some herself when she ran for the assembly in 2002. ("I got a $500 check from Barrick," she recalled. "It said: 'To our favorite liberal.' ")

Indeed, if you eavesdropped on the hallway conversations among lobbyists, legislators and reporters, you quickly learned that, whatever responsibility mining might assume for helping to solve the state's budget woes, it would not be laid upon the industry unilaterally by the governor or forced on it by the Legislature. It would be a solution that the industry's own lobbyists had a hand in drafting, and one to which the industry itself had benevolently agreed.

"I know the governor is eager -- and rightly so -- to put money in the system," said Nevada Mining Association President Tim Crowley. "But I don't believe it will be by taking away deductions from the mining companies. We wholeheartedly believe that's a precedent no business would tolerate."

Instead, Crowley offered, "The mining industry will participate in solving the state's problems." Just not by paying more taxes.

For an outsider, it's staggeringly hard to understand mining's power in Nevada. It cannot be easily explained as a consequence of political contributions: Casino employees and moguls, such as Steve Wynn and Sheldon Adelman, two of the richest men in the state, give much, much more to their pet causes and candidates -- in some years nearly 10 times more -- than mining interests do, and yet gaming now pays an annual tax on its gross receipts of 6.75 percent, plus an assortment of annual fees, such as $250 on each slot machine. Nor is hardrock mining anywhere close to the state's main economic engine: It accounts for only 2 percent of Nevada's gross domestic product. Were the Canadian and Colorado-based companies to pack up and leave for New Guinea, as some fear they might, only the small towns in the northern half of the state would even really notice.

But mining is woven into Nevada's history in a way that few industries are, anywhere. The hot springs that burble up through the Earth's crust around the northern Nevada cities of Winnemucca and Elko are a recurring reminder that, 40 million to 100 million years ago, upwellings of magma and magma-heated waters laced the northern Great Basin's craggy mountains with silver and gold. The mountains themselves -- irregular, steep, and separated by shrubless valleys planed flat by prehistoric lakes -- spent many millions of years spinning and drifting into their current north-south alignments after the Pacific Plate slammed into North America at the California coast. Every once in a while, a fault breaks loose with a sufficiently jarring 6.2 or so to remind local residents that those mountains have not quite finished moving.

Not, in fact, by a long shot: The Sierra Nevada shift one centimeter closer to the ocean every year. One day, the floating lithosphere will split apart here, creating a brand-new ocean where Nevada once stood, and no one will care how much companies pay to take minerals out of the ground. For now, however, it's impossible to forget that those precious metals, the ones that have been mined ever since Mark Twain was hedging bets on silver, are the reason Nevada became a state.

Fully four-fifths of the gold excavated in the United States -- one-fifth of the world's supply -- comes out of the fog-draped mountains of northern Nevada. The state is the fourth-largest source of the world's gold, right behind China, South Africa and Australia. Only one goldfield in the world, the Witwatersrand Basin in South Africa, is thought to have more gold than the Carlin Trend near Elko, where Denver-based Newmont Mining has been operating since 1965. Literally hundreds of mountains have been carved up for mines here in the last century and a half, some of them by international corporations that have made a stab at restoring the land when they're done, others by fly-by-nights that left open pits behind to rot, and pit lakes to suck water from the aquifer for decades. Currently, at least 24 tax-paying companies dig for gold here, with Barrick and Newmont the dominant forces. And today's jittery economy has yet more investors out looking for new strikes.

 

 

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Gold is an industry that booms when times are bad elsewhere, and droops when other industries flourish: Unlike copper, iron and molybdenum, gold doesn't need a lively manufacturing sector to be useful. It only needs untrustworthy currency and a mercurial stock market. During the lush days of the late-1990s, an ounce of gold went for $250; as the economy began to decline in the next decade, it topped $500. In 2007, gold sold for $670 an ounce; in 2008, $850; in 2009, $1,110. The spot price as this article went to press was $1,152 per ounce.

Those numbers make it all worthwhile for companies like Barrick and Newmont: The environmental impact statements, the lawsuits, the heavy capital investment required to find and extract minerals from towering mountains. Separating microscopic gold flecks from raw ore requires massive crushing machines to reduce the rock to gravel, and complex processes to leach gold from the resulting slurry with cyanide. At Barrick's brand-new Cortez Hills Mine, an expansion of existing operations on the edge of the Crescent Valley 70 miles west of Elko, ore moves to the mill on a conveyor belt 10 miles long. It took two years and $50 million to complete.

Barrick's sales rose by $270 million within the last year, and the company posted a profit of $604 million in 2009, despite being embroiled in a legal battle with the Western Shoshone over the environmental and cultural impacts of Cortez Hills, which some Shoshone say impinges upon a sacred mountain. On April 14, a U.S. district court judge ruled that mining operations could continue while the Bureau of Land Management continued its site evaluation; as a result, Barrick has not cut any of its staff. The unemployment rate among Lander County's 5,000 some residents, which includes Crescent Valley and the freshly bustling mining town of Battle Mountain, remains 7.7 percent.

Meanwhile, the state's urban counties are bleeding jobs. Unemployment in Clark County, which includes Las Vegas and Henderson, hit 13.9 percent in February. The state's general fund balance is crashing: Nevada draws two-thirds of its revenue from gaming and the eighth-highest sales tax in the country: 6.5 percent statewide, a percent or two higher in certain counties. But in a year when the entire U.S. economy resembled a craps table, people weren't exactly flocking to the slots and shops on the Vegas Strip. The Nevada Gaming Control Board reports a 20 percent drop in gaming revenues since 2008, when they hit an all-time high of $12 billion.

Even so, casino and slot-machine owners put more than $1.5 billion worth of taxes and fees into the state's general fund last year. Gaming's tax rules were written decades ago, back when gangsters still ran the craps tables. The industry wasn't regulated because its proprietors were public-spirited citizens, but because everyone agreed the business needed to be kept in line so the feds didn't shut it down. Even Frank Sinatra lost his casino license in the 1950s for accommodating a mob boss at the Sands.

Mining tycoons, on the other hand, benefit from a glorified historical legacy in Nevada that inspires politicians to act in their favor. So far, everyone who has challenged this legacy has failed, including the late Assemblyman Marvin Sedway, a Las Vegas Democrat famous for chain-smoking in the hearing room. In the late 1980s, Sedway wanted to tax gold at $20 an ounce. His effort ultimately led to a 1989 ballot initiative that, instead of raising mining's taxes, wrote the existing rate deeper into Nevada law.

"The background of Nevada politics," wrote historian Richard Gordon Lillard in 1942, "was for 30 years a fight of mine operators against paying taxes." Nevada took its first stab at regulating mining in 1861, just a few years after Henry Tompkins Paige Comstock laid claim to a vein of silver ore under Virginia City, and miners swarmed in to work the Comstock Lode. The first governor of the Nevada Territory, James W. Nye, needed a small police force to control the boisterous new crowd of mostly young men, and expected to pay for it with tax on the mines' gross production. But then as now, mining interests held sway over the Legislature; a tax on net profits, with all expenses deducted out, was the best Nye could get.

The issue resurfaced in 1863, when Nevada made a bid for statehood and drew up its first Constitution. As University of Nevada Las Vegas professor Michael Bowers explains in The Sagebrush State: Nevada's History, Government and Politics, once it gained statehood, Nevada would lose its substantial federal subsidy, and so it needed to seek out new sources of funding. A battle ensued: On one side was politician John North, who argued for a property tax on mining claims; on the other, mining lawyer William Stewart, who said mines should be taxed only on what they produced, since not every mine developed proved successful. The pro-tax faction prevailed in the Constitution.

That first Constitution, however, was rejected by four-fifths of the territory's 11,000 voters, many of whom likely worked in mines or were digging up their own claims and submitting samples to assayers. At least one delegate to the state's constitutional convention blamed its failure entirely on the mining tax.

The next year, after Nevada was granted statehood, Nye tried again. The document that emerged from the second constitutional convention taxed mines based on their net proceeds. It passed easily and was ratified in 1865. Seven years later, the federal government solidified the industry's rights with the General Mining Act of 1872, which declared mining the "best use of the land," and afforded it every privilege, from the right to exploit claims on other people's property to leaving behind a mess with absolute impunity. The law still allows hardrock miners to lease public land cheaply, take from it what they can, and pay no royalty to the federal government.

The 1872 Mining Law, like the Homestead Act of 1862, was written to settle the West, just as Nevada's Constitution was written to encourage its mining entrepreneurs. Since that time, however, the scattering of ephemeral rural outposts that came and went with available resources has grown into a state in which 85 percent of its 2.6 million residents cluster around the cities of Las Vegas and Reno. The old-time rough-and-ready miners have been squeezed out by global corporations. And yet efforts to modify the 1872 law have met fierce bipartisan resistance, most recently from Nevada's Democratic senator, Harry Reid, who, as majority leader, explicitly stands in the way of mining law reform.

"We've got to work out what (the mining industry) wants, and I will take care of them," the senator, a miner's son, said in a speech last month. In other words, a bill that West Virginia Democratic Congressman Nick Rahall introduced in the House last year, to impose an 8 percent royalty on the gross production of hard-rock minerals taken from public lands, doesn't stand a chance.

But Reid's position is perilous these days. Some polls show him 15 points behind Republican contender Sue Lowden in the 2010 Nevada Senate race, and at least 5 points short of beating anyone else. If he loses, mining's influence may well decline in Washington, D.C. According to David Damore, an assistant professor of political science at the University of Nevada at Las Vegas, it is finally beginning to diminish in Nevada. "This is the first time in the decade that I have been here that politicians and opinion leaders have openly questioned the industry's privileged position," he says. "Reading the tea leaves and thinking about the huge budget hole the state is facing in the next biennium suggests that things may change."

"We're not a bunch of Canadians!" Lou Schack, a spokesman for Toronto-based Barrick Gold, lives in Elko, in the heart of Barrick's Nevada territory. The corporation operates mines in Africa, Argentina and Australia, and has five properties, including its Goldstrike mines on the prolific Carlin Trend, within 100 miles north or south of the I-80 corridor in northern Nevada. As Executive Vice President of Exploration Alexander J. Davidson told shareholders three years back, this state is the company's "key focus."

Sitting around a conference table eating lunch, with muddy boots and self-rescue canisters from a just-finished mine tour piled around the room, Schack gives the assembled geologists, safety supervisors and Cortez Hills Mine's general manager, Joe Dick, a chance to discuss their regional bona fides. One was born and raised in Elko, another drifted around Montana and Utah before coming to work for Barrick. Joe Riney, a visitor from the Nevada Mining Association in Reno, recently moved out from San Francisco, and worried Reno would be too small. But he's heard so much good stuff about Elko that he's looking for a way to relocate again. "I can't believe it myself," he says. "I'm looking at an even smaller town."

The message is clear: Life is good in Elko. The schools are first-rate, the streets safe, recreational opportunities abound and Native Americans, Latinos and working-class white people live in cooperative harmony. (In fact, the Shoshones in Elko have declined to fully support the tribe's lawsuit against Barrick.)

Part of this good life is no doubt due to the mining companies' desire to maintain their reputations as benevolent local forces: As part of a settlement with the Shoshone, for example, Barrick has set up a college scholarship fund for tribal members. And because mining unquestionably scars landscapes, releases mercury into the air and depletes local groundwater, Barrick has put land stewardship on its list of official corporate priorities. Schack even boasts of a company proposal to grow algae for biofuels in left-behind pit lakes.

Barrick currently employs 1,000 people at the Cortez Hills Mine, and will add another 100 jobs this year, at an average annual salary of $70,000 plus benefits. But those jobs don't help much with the state's revenues, because Nevada has no personal income tax. Even if Wal-Mart brings a franchise to Battle Mountain, Nevada will gain little from it: In addition to all the other taxes the state rejects, it has no corporate income tax.

Barrick effectively operates as a substitute local government in the absence of a real one, providing support to Great Basin State College in Elko, donating to community organizations, fighting house fires and providing emergency medical services in Crescent Valley. "We're careful not to replace government," Schack says, "but there are critical needs and we have to address them." Every now and then, the community asks too much, he admits, and the company says no.

It's not surprising, then, that the one state senator, Republican Dean Rhoads, and three assembly members who represent rural Nevada remain vigorously opposed to new taxes on the industry that sustains them. Like many people in the region, Claudia Wines, the director of the Northeastern Nevada Museum in Elko, worries that the international mining companies Nevada hosts will find other places to mine if Nevada costs them too much. "Mining has been part of our history right from day one," she says. "If we didn't have it here, we'd have as many economic problems as the rest of the state."

The quest for more mining taxes to distribute across the state is no different, Wines says, "than Las Vegas wanting to take our water." (The Southern Nevada Water Authority has proposed supplying Las Vegas with 16 billion gallons a year from the Snake Valley Aquifer on the Utah border, 300 miles to the city's north.) "We take offense at the idea that the main industry in northeastern Nevada has to pay for the problems in Las Vegas," she says.

It's true that, at the moment, unemployment figures are low in the mining counties. But in better times for the rest of the economy, the reverse is often true. And mining, by its nature, is a volatile business. Although some people you meet in Battle Mountain and Elko now say they wish that California could annex Las Vegas, one day, when the mines are empty and the blackjack tables are full, they may wish they had it back. In January 1994, when gold prices were low and mining operations near the Crescent Valley running down, unemployment in Lander County topped 15 percent. And when gold fell below $300 an ounce in 1999, mining-dependent Humboldt County cost $1 million more in state taxes than it had paid out.

Lou Schack says that one of Barrick's goals is to help create sustainable communities that will be able to thrive "whether we're here or not." What Barrick can't do, however, is make the gold last forever. The forces that threaded these mountains with minerals will never recur in a human timescale; when the minerals are gone, the money that makes Elko such a nice place to live will also disappear. And it won't take long: Barrick's Goldstrike Mine on the Carlin Trend might have five to seven years left; Newmont's nearby Emigrant Mine will likely produce only until 2017. Schack expects the gold at the $500 million Cortez Hills site to last at least for another decade, but that's "assuming favorable market conditions."

Faced with the impermanence of natural resources, other state governments have opted to collect and save taxes from their limited resources while they still can. Wyoming has a Permanent Mineral Trust Fund in which it socks away a small portion of the 4 to 7 percent average tax oil, gas and coal producers pay on the gross value of the resources they sever from the ground. California Assembly Member Alberto Torrico has introduced a bill to fund higher education with a 12.5 percent gross tax on oil and gas production.

Indeed, these days progressive Reno Assemblywoman Sheila Leslie has begun to echo Sarah Palin, who in her half-term as Alaska governor managed to raise the windfall profits tax on the oil and gas industry to 25 percent of net profits, raking in $6 billion for the state in 2008. (Alaska has $27 billion stored in its permanent fund.) She succeeded by pointing out, again and again, that one true thing: You can't put the oil back in once you've taken it out.

"They're taking a non-renewable resource out of the ground and not paying for it," Leslie says of the state's hard-rock miners. And when the gold is gone, gambling will be all Nevada has left.
Leslie believes Nevadans have finally begun to see the mining industry as a possible balancing force during economic downturns, and voters are therefore increasingly willing to adjust the state Constitution accordingly. "I don't need a poll to know whether there's public support for a higher mining tax," adds Leslie. "I just need a trip to the grocery store. I have people approaching me all the time asking, 'Why aren't we taxing mining?' She has even heard suggestions that lawmakers replace the familiar billboard slogan, "Mining -- It works for Nevada," with a new one: "Nevada -- It works for mining."

In the pre-dawn hours of Monday, March 1, the Nevada State Senate and Assembly emerged from the six-day special session with a balanced budget. They cut an even 10 percent across state agencies, put government employees on a four-day work week, and reduced state education spending by 6.9 percent. They also managed to raise nearly $200 million in new revenues without technically raising taxes. Part of that includes more money from mining, as the high price of gold added an unforeseen $58 million to the industry's tax bill. Also -- beginning on June 30, 2011, when the current biennial budget runs out -- mining companies have agreed to pay a new fee based on the size and holdings of each company, bringing another $25.7 million to the state over the course of the following two years.

"We weren't gleeful about it," the Nevada Mining Association's Tim Crowley says, adding that legislators initially asked for $100 million from the mining industry. "We accepted it begrudgingly, because this is crisis time. Everyone's feeling hurt."

For a change, gaming lobbyists stood their ground, declining to pay the $32 million it takes to run the Gaming Control Board. "This time, for the first time, we just can't help," Billy Vassiliadis, a lobbyist, told legislators.

No one seems certain how sound that budget is. Some economists have predicted Nevada will find itself in dire circumstances next year. State budget director Andrew Clinger has gone on record estimating that the shortfall could balloon to $2.5 billion.

"What's not really even known is how much more has to be cut," Jan Gilbert says. Gilbert always seems to be on the verge of a punchline, no matter what she's talking about. She describes handing out flags in the Legislature as "a way to have fun in dismal circumstances." But her laughter fades when she starts talking about the future. When the Legislature counted its revenues this year, it included funds from the federal government's Temporary Assistance for Needy Families (TANF) and Medicaid subsidies, "federal dollars that haven't been committed yet," Gilbert says. "Our caseloads are skyrocketing in health and human services because people are increasingly living in poverty."

The mining tax initiative won't help anytime soon, either: Even if voters approve it this fall, they will have to approve it a second time, in 2012, in order to amend the Constitution. But Gilbert says the effort is worth it. "If we don't do something, nothing will ever change."

In February, the Nevada Mining Association filed a lawsuit to block PLAN's mining tax initiative on the grounds that it violates Nevada's Constitution by singling out one industry for special treatment. District Court Judge James Wilson struck down the complaint, but also forced the activists to re-word their initiative. That means throwing out the 12,000 signatures they've already collected and starting over, no easy task.

But perhaps it's a sign of the ballot initiative's potential success that the mining association has appealed to the State Supreme Court. The court has expedited the case, and its judges expect to render a decision before June.

All those lawyers and legal fees have got to cost them a lot of money," Gilbert says. "But when you think about it," she adds, "that's just another expense they can write off. You can bet their net profits will be lower than ever this year."

Judith Lewis is a High Country News contributing editor. She writes from Venice, California.

Editor's note: PLAN State Director Bob Fulkerson is an HCN board member.

This coverage is supported by contributors to the High Country News Enterprise Journalism Fund.

For more information, please visit:

Nevada Taxpayers Association on the state's net proceeds of minerals tax

Barrick's Cortez Hills Mine

Progressive Leadership Alliance of Nevada's Fair Mining Tax campaign

The Nevada Mining Association

EARTHWORKS on the 1872 Mining Law

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