Big tax break for coal sales stalls in the Legislature

Lawmakers debated but failed to pass a proposal to give about $12 million in annual tax breaks for coal sales Wednesday in an effort to save the Navajo Generating Station power plant, which is closing next year.

Potential buyers are looking at the power plant, but are unlikely to step in and save it without the tax break, said bill sponsor Rep. Mark Finchem, R-Tucson.

Peabody Energy runs the Kayenta Mine on Navajo and Hopi land in northern Arizona. The mine sells coal to the power plant 80 miles away. If the plant closes, so will the mine.

Finchem argued that taxes on the coal are are illegal, but the courts have not recognized that. His bill made it through the House but was held in the Senate Finance committee Wednesday.

“We just don’t tax natural resources,” Finchem told members of the Senate committee.

While it appeared the bill would pass 4-3 on a party line vote with Republican support, Chairman David Farnsworth, R-Mesa, clearly frustrated, held the bill after the debate, indicating the votes were not there.

Sen. Warren Petersen, R-Gilbert, was the only Republican who didn’t offer support for the measure during the

hearing.

An economic analysis of the bill from the Joint Legislative Budget Committee estimated the state general fund would lose about $12.2 million in taxes with the exemption.

Counties also would lose some tax revenue, the committee said, though the bill was amended to allow Navajo County to collect an excise tax on the coal and “make them whole,” Finchem said.

While the taxes themselves are a small fraction of the cost to run the power plant, Finchem said the tax issue is important to any potential buyer because the dispute over the taxes represents a legal risk that buyers want to avoid.

He provided a letter from the Hopi Chairman Herman Honanie to lawmakers contending that the coal should not be taxed because it originates on tribal land and such taxes interfere with tribal sovereignty.

Michael Blank, Peabody’s director of state government relations, said the mining company has previously, unsuccessfully, challenged the legality of the taxes.

Like Finchem, he cited the importance of the coal plant and mine to the economies of the tribes and to Northern Arizona in general. About 750 people worked at the combined operations before the power plant began to wind down, with vacant positions left open and some maintenance skipped.

“I see a crisis coming in the northern part of the state,” Blank said.

Salt River Project runs the plant for the electric companies that all agreed to close it. The U.S. Bureau of Reclamation is also a partial owner and, along with

the Navajo Nation and Peabody, is looking for new buyers to run the plant.

SRP President David Rousseau said recently it was so unlikely anyone can run the plant profitably that it would take a “unicorn” to appear to purchase it .

Finchem said two companies were in serious discussions to buy the power plant.

“The good news is, I never believed in unicorns before, but there are a couple on the horizon,” Finchem said Wednesday.

Democrats on the committee questioned who those potential buyers were, but neither Finchem nor Blank would name them, citing confidentiality agreements.

Sen. Steve Farley, D-Tucson, said he had seen estimates that the tax revenue was closer to $30 million from the coal sales.

“I would rather give $30 million directly to the Navajo Nation,” he said to Navajo Nation Speaker LoRenzo Bates, who spoke in favor of the bill.

“Imagine how much economic development you could do.”

Farley repeated that suggestion to committee member Rep. Rick Gray, R-Sun City, who directed attention at the 10 or so miners in the audience.

“They are not saying give me a handout,” Gray said to applause from the crowd. “They say, ‘Let me keep my job.’”

Finchem said solar and wind energy get tax breaks and compete with the coal plant.

“It’s kind of hard to compete when you are being given taxpayer support,” Finchem said.

SRP officials have said several times that the coal plant is no longer economical because natural gas prices are so low gas plants produce power at a lower rate for utility customers.