EVELETH (AP) -- The agency in charge of making the Iron Range economy more diverse is bracing for a big financial hit.
The Iron Range Resources and Rehabilitation Agency may be forced to make deep spending reductions next year as two taconite plants struggle to make tax payments. The agency, which was already hurt by the 2001 closure of LTV Steel Mining Co., relies on a $2.10-per-ton taconite production tax based on each plant's annual pellet production for its primary funding.
Nonpayment of taconite taxes by National Steel Pellet Co. and EVTAC Mining Co. would translate into about $9.6 million less IRRRA revenue during fiscal year 2004. National Steel filed for Chapter 11 bankruptcy protection in March and EVTAC has a sharply reduced number of production contracts for next year.
"We're hoping for the best, and planning for the worst," said Brian Hiti, IRRRA's deputy commissioner.
When taconite has boomed, so has the IRRRA. But when taconite production takes a nose dive, the IRRRA is the first to be hit by the loss of production tax money.
Following 2000, when the taconite industry produced 44.9 million tons, the agency had a 2001 annual budget of about $32.4 million.
After 2001's production of 31.6 million tons, the 2002 IRRRA budget slipped to about $29 million. For fiscal year 2003, the agency's projected budget is just more than $25 million.
If both National and EVTAC are unable to pay taxes, the 2004 budget may need to be slashed to about $20 million.
Agency officials are trying to plan ahead for several different scenarios.
"We have no way of knowing exactly what we are going to get," said Don Dicklich, chief financial officer. "If EVTAC doesn't get some additional pellet contracts, our agency is looking at the production tax from that tonnage being gone. We are watching every day, but in the meantime, we are looking down the road to be able to skinny the agency."
It could be months before the future and taxpaying ability of the two plants are determined. In the meantime, IRRRA officials and the agency's 13-member board are bracing for reductions.
"The agency is facing a crisis as far as future funding," said retiring Sen. Doug Johnson, DFL-Tower, a longtime board member. "There will have to be a significant effort by a new commissioner and the board to reduced fixed costs."
Agency officials are working on short-term and long-term strategies for Ironworld Discovery Center in Chisholm and Giants Ridge Golf and Ski Resort in Biwabik, Hiti said. The agency also is working with the state Department of Employee Relations to approve early retirement packages for up to 12 IRRRA employees. The current staff has about 88 full-time equivalent positions, a reduction of about 33 percent from several years ago. Last year, the agency cut 17 full-time equivalent positions.
"Range people have seen downturns before, but things have generally come back," said state Sen.-elect Tom Bakk, DFL-Cook. "This time, things are going to be different. Legislators on this board are going to have to make some decisions that are not going to be popular, and that is something that nobody has faced before."
The face of the agency and board also could change in 2003 with the election of Republican Tim Pawlenty. He has the authority to replace IRRRA Commissioner John Swift, who was appointed by Gov. Jesse Ventura.
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