A Mess With Taxes

[November 26th, 2008]

At a time when Oregon faces a billion-dollar budget deficit, state officials are handing out tax credits to at least one company whose affiliate left taxpayers holding the bag for an estimated $20 million mining disaster.

The director of a local mining watchdog group says that’s bad environmental and economic policy.

“It just doesn’t make any sense to me that we’re giving what amounts to general fund dollars to a company that effectively cost taxpayers tens of millions,” says Larry Tuttle, director of the Center for Environmental Equity.

Tax-credit critics such as Jody Wiser of Tax Fairness Oregon say Tuttle is absolutely right.

“The problem is we’re saying ‘yes’ to tax credit applicants without asking whether what we’re doing makes sense and acting as if we don’t have the power to stop things,” Wiser says.

Lou Torres, spokesman for the Oregon Department of Energy, which runs the tax credit program, says his agency lacks the resources to conduct a background investigation of tax-credit applicants. Nor, Torres says, is a check required by law.

“What we’re paying attention to is whether the company is a viable owner, whether they’ve proposed a viable project and whether the project saves or produces the energy it’s supposed to,” Torres says. “We don’t have the capacity to do a background investigation.”

The issue arose earlier this year when the Energy Department awarded Marubeni Sustainable Energy Inc., a subsidiary of the Japanese conglomerate Marubeni Corp., a $20 million business energy tax credit for a project in Lakeview that will turn wood waste from a nearby sawmill in the south-central Oregon town into energy.

Such credits are a result of a 2007 state law that sweetened Oregon’s already generous tax credit program, allowing beneficiaries to get credits for half their investment.

So Marubeni can avoid the payment of $10 million in taxes over the next five years, or it can sell the credits to another company that needs them.

One of the purposes of the enhanced tax credit program was to make it easier for Oregon to comply with another law passed by the 2007 Legislature requiring 25 percent of the electricity consumed here to be produced from renewable sources by the year 2025.

But neither law contains provisions disqualifying a company that may have otherwise harmed the environment by its actions.

In Marubeni’s case, Tuttle says, that’s a shame, because, according to a 2006 Eugene Register-Guard story, Marubeni financed a Canadian company—Formosa Exploration Inc.—whose activities created an environmental mess in southwestern Oregon.

In 1990, Formosa Exploration opened the Silver Butte Mine, a source of copper, zinc and thorium, near Riddle in Douglas County.

In 1994, Formosa ceased mining, according to Department of Environmental Quality records. The company began to clean up the site but declared bankruptcy in 1997, leaving taxpayers on the hook for any ensuing problems.

DEQ officials soon discovered Formosa’s attempted cleanup, or “reclamation,” was a failure.

Here’s the latest description from the federal Environmental Protection Agency, which in 2007 listed the mine as one of Oregon’s 12 Superfund sites.

“Stormwater-driven contaminant releases from the mine have led to an annual discharge of approximately 5 million gallons of acid rock drainage, containing up to 30,000 pounds of dissolved copper and zinc along with other metals,” according to the 2007 EPA report. “Heavy metals concentrations in Middle Creek and the South Fork, and into Cow Creek, exceed aquatic life standards.”

The waters used to be “prime habitat for steelhead and coho salmon,” according to a 2004 Oregon DEQ report, but 18 miles of streams that eventually feed into the South Umpqua River, one of the state’s top fishing and rafting resources, are now heavily polluted.

Before turning the site over to the EPA, the Oregon DEQ spent $1.7 million on site investigation and cleanup.

Denise Baker-Kircher, EPA’s project manager for the mine, says EPA lawyers are investigating Marubeni’s level of responsibility and recently got several boxes of documents—all in Japanese. “All we know right now is the cleanup will be very expensive,” says Baker-Kircher—maybe $20 million or more. (A Marubeni representative was unavailable for comment.)

Other mining states, such as Colorado and Montana, have “bad actor” laws that prevent companies from applying for benefits such as tax credits before they resolve previous liabilities, Tuttle says.

“We’ve got clearinghouses to check for conflicts in other areas in Oregon,” he adds. “This case just makes me wonder if we’re in such a hurry to grant tax credits to anybody who says they’re ‘green’ that we’re not asking enough questions.”