How much should your grandchildren pay for coal?

The issue of coal is not just one of public health and welfare. It is one of corporate welfare despite the cries of socialists and liberals about 75 jobs.

I support Ron Paul’s Libertarian economics when applied to government and corporatism. Through that lens we see that our great-great-grandchildren will still be paying for our “gift” to Usibelli.

And, though Usibelli, the state and the Mat-Su Borough don’t provide a great deal of information, my conclusions are simple arithmetic derived from what they do tell us.

Here’s an example of the facts: Usibelli claims it will mine Wishbone Hill for 12 to 15 years, which, according to the U.S. government, contains about 14.2 million tons of coal. That’s about 1 million tons a year, according to Usibelli, or 2,740 tons a day, 365 days a year (even Christmas). If they use 42,000-pound trucks (and ignore seasonal weight limit laws) means at the very least 260 truck trips every single day running through Palmer, or one behemoth truck every five minutes, 24 hours a day, 365 days a year. The borough’s scenario is much worse with 372 trips from 8 p.m. to 6 a.m. on a 300-day schedule, about a truck a minute.

This is simple arithmetic based on Usibelli’s statements.

But who is paying for the extra $1 million a year in maintenance that will be required on those 10 miles of highway? Usibelli? I don’t think so.

That is chump change compared to what our great-great-grandchildren will still be paying the Chinese for our gift. It is beyond my ability to figure out what the actual final cost is going to be because so much is hidden. Maybe as much as $4 billion for the railroad, port and highway, maybe even more. No one is saying exactly (Alaska Railroad is authorized for more than $3 billion in bonds for this project). If the borough direct indebtedness by bond is just 10 percent, or $300 million, that’s $3,750 for every man, woman and child in the borough (not inclusive of the additions to the national debt for the federal pork). At current rates, the average landowner will pay about $500 a year in interest for those bonds, many owned by the Chinese.

But we get so much for all that, is the belief.

We don’t know if we get anything. If you read the borough’s Port MacKenzie scheduled tariffs you will find a tariff for lumber, you’ll find a tariff for gravel, cement or even housing units, but not for coal. Coal simply says, “negotiated.” The borough reports that it might get wharfage fees of $800,000 a year. The borough lease for the Wishbone Hill area isn’t even real money and presumed real-estate taxes are only $255,000. And, that $3 billion in bonds the railroad might issue actually reduces Usibelli’s shipping costs (and Alaska Railroad revenue) by around 100 miles from Healy. Plus, it eliminates the Seward facility and its jobs. But of most importance to Usibelli are the lawsuits arising from health and damage claims by Seward’s residents — averted by relocating.

The state might receive a few dollars in severance taxes (Usibelli says $1.125 million). But even those few dollars are up for grabs. The severance tax is based on net profits, minus some tax credits. Good accounting should eliminate those tax costs for Usibelli. Apparently, there is also a clause about not having to pay tax for the first three-plus years for new mining ventures in the state code (AS 43.65.010 miningl). I believe the federal tax is 55 cents a ton.

But what about the jobs?

I actually believe Usibelli will be hiring many more than 75 folks. I don’t believe many jobs will go to local folks. Except for the lowest paying, most of these are union Teamster jobs. New people might move to town from Healy, but how much are we willing to pay for those jobs?

The other problem with the whole thing is at today’s rates Wishbone Hill coal is worth about $80 million a year on the world market, or about $1 billion over the 14 years. Our $3 billion to $4 billion (or maybe much more) investment just doesn’t make sense.

I believe it would be cheaper in real dollars, not just health care or environmental dollars, to pay Usibelli $8 million a year to not mine and hire 75 bums to go to work for the borough (and do nothing), than the interest payments would be on the money that will never be repaid to the Chinese for the infrastructure for Usibelli.

That’s right. Just the interest we — and our great-great-grandchildren — would pay is many times greater than the salaries, fees, taxes and even Usibelli’s profit.

As a fiscal conservative I am appalled. Even liberals and democrats should be appalled. As a taxpayer, I don’t want to give the Chinese $500 a year to make a gift to a private corporation and I most certainly don’t want to pass on to my grandchildren and their grandchildren this debt.

If mining is to be an imperative and we are going to do it right we should look to the model being employed by the Australians. There, the mining companies are now being required to build their own infrastructure, ports, rail and the like, meet strong labor and conservation codes, and are taxed up to 25 percent of market price. Recently a “carbon tax” was enacted, too.

Apparently, this has not been a deterrent to mining, but rather an incentive. Peabody just made an $80 billion deal. State coffers are full, health care is universal and children are educated and fed. And the mining companies like BHP and Peabody, how are they doing? Their stock is up more than 350 percent. That is, if mining is economic, without state welfare, then the mining companies will make the investments required.

The information I used is from the Alaska Railroad Annual report 2010, the Usibelli website, the alaskamining.org website, several world spot market reports of 13K+btu low sulfur prices, the current Mat-Su Borough Annual Report 2011 and online research into published bonds, memorandums and budgets since 2006 on the Mat-Su site, as well as the Port MacKenzie tariff schedule published in 2006. Research also includes recent news reports on Australian coal and The Motley Fool investment guides, and the Alaska state severance tax codes and mining license fees. The Alaska Department of Natural Resources “Coal Mining Program” was referenced. Of most importance, the borough’s own 2010 “ISER Wishbone Hill Mining Impacts” report was referenced.

Gregory Gusse lives in Palmer.