State auditor on mining: Long-term risk too hard to quantify

Thirty-one nonferrous mineral leases were recently approved by the Minnesota Executive Council ­— that is, by the governor, lieutenant governor, secretary of state and attorney general. I voted against them.

In my judgment as state auditor, important financial questions related to nonferrous mineral mining have emerged. Minnesota taxpayers are entitled at least to have a full discussion of the issues.

The state owns mineral rights under much of Minnesota's land. It leases those rights to private mining companies. The leases give companies the right to explore for nonferrous minerals beneath both public and private lands. The companies must seek additional permits from the state to begin mining, but the reason for both the leases and the exploration is mining.

Iron ore (ferrous) mining has existed in Minnesota for more than a century. It is part of our history and identity. Because of iron ore mining, Minnesota has a fairly well-developed body of mining law to protect the environment and the taxpayer.

Nonferrous mining, however, is new to Minnesota. It brings with it unfamiliar risks.

Nonferrous minerals are found in sulfur-bearing rocks. When sulfide waste rock is exposed to water and air, sulfuric acid is produced. Toxic heavy metals can also be released. When sulfuric acid and heavy metals get into our surface waters, fish and plant life die. Waterfowl and other wildlife populations follow.

Minnesota law requires mining companies to provide financial assurances. A financial assurance is a damage deposit provided by the mining company before mining begins to ensure that cleanup and reclamation can be done after the mine closes. Financial assurances, if sufficient, protect taxpayers from having to foot the bill for cleanup costs.

Cleanup related to nonferrous mines is costly and difficult to predict. State regulators estimate that the PolyMet Mining site in northern Minnesota, for example, will require water treatment for up to 500 years. How do we calculate such financial risk 500 years into the future? How do we account for changes brought on by technology, the environment or the economy over such a long period of time?

How will local governments and the local economy be financially impacted? Will other local economies suffer a negative financial impact? Will it impact other stakeholders such as hunters and anglers and wild rice gatherers?

As state auditor, I am charged with looking out for taxpayers' financial interests. Based on the evidence I have seen so far, I am not convinced that we know how to accurately quantify the size of the financial risk of this type of mining. The U.S. Government Accountability Office, an independent nonpartisan agency that reports to Congress, says that financial assurances for nonferrous mining have been inadequate to cover cleanup costs. According to one GAO report, "after cleanup became mandatory, many parties responsible for hard rock mining sites have been liquidated through bankruptcy or otherwise dissolved, [leaving the cost of cleanup] to the taxpayer."

To make nonferrous mining work in Minnesota, state rules should be changed to make certain mining companies pay the costs of final cleanup up front. They can "internalize" the financial risks when developing their business models instead of leaving them to the taxpayers. Because water quality continues to be affected years after a mine is closed, sufficient funds to clean up the site must be retained to cover perpetual water treatment when necessary. Payment in full of financial assurances, in cash or cash equivalents, should be required before mining commences.

Finally, a financial assurance review should be included in every environmental impact statement. Annual reviews of financial assurances should be required and made available to taxpayers upon request, not just when the Department of Natural Resources decides to make them public.

I know nonferrous mining is an extraordinarily sensitive issue in Minnesota. We all value clean water, and we all want good jobs and low taxes. Yet, as state auditor, I have a responsibility to you, the taxpayer, to encourage informed discussion and responsible financial decisionmaking. Open discussions lead to informed decisions — ones more likely to result in an increase in benefits to the public than to an increase in costs.

Rebecca Otto, a DFLer, has been state auditor since 2007.