Coal won't face Arizona sales taxes after Gov. Ducey signs bill

Gov. Doug Ducey signed a bill Wednesday that will exempt coal from sales taxes in Arizona.

Supporters of the action hope it will help attract a buyer for the embattled Navajo Generating Station and keep the state's only coal mine open.

The coal-fired power plant near Page buys coal from Peabody Energy's Kayenta Mine, but the plant is scheduled to close next year, which will also force the closure of the mine.

"This bill is essential to the economic success of the Navajo Nation, the Hopi Tribe, and surrounding communities," Ducey's signing letter said.

The mine is near Kayenta, and it straddles Navajo and Hopi land. The power plant is about 80 miles away on Navajo land outside Page near Lake Powell.

RELATED: 10 challenges to keeping the Navajo Generating Station open

Will exemption encourage potential buyers?

Rep. Mark Finchem, R-Oro Valley, and other Republicans pushed for the tax exemption to make the plant more appealing to new buyers who could run it beyond 2019, though no such buyer has come forward publicly.

Finchem said during hearings on the bill that he had spoken with potential buyers and the exemption would encourage them to move ahead.

An economic analysis of the bill from the Joint Legislative Budget Committee estimated the coal mine currently pays about $20 million annually in state and local taxes. More than $16 million goes to the state, $2 million to education under Proposition 301 and about $1.6 million to Navajo County.

The bill won't become effective unless the power plant is sold and a new lease is signed by 2023. It also allows Navajo County to continue collecting tax on the coal.

Supporters said the financial impact of the tax exemption was moot, as the state will lose the tax revenue and much more if the plant closes. The JLBC said it did not have enough information to determine if the exemption would allow the plant to find a buyer. Analysts confirmed that the state tax-revenue loss would be the same if it closed.

RELATED: When power plant closes, so will a lifeline for one Native American tribe

Supporters: Tax break will save jobs

Allowing the tax break to preserve the coal plant and mine's 750 mostly Native American jobs and other economic benefits was a worthwhile trade-off, Finchem and other proponents argued.

Ducey agreed with that in his signing letter.

"As a state, we must do everything we can to help protect these rural jobs," he wrote. "This bill provides another tool in the toolbox to find another buyer of the Navajo Generating Station ..."

RELATED: Arizona coal plant's electric train rolling toward uncertain future

If the plant and mine close, the Navajo Nation's approximately $173 million annual budget will shrink by about $40 million from lost coal royalties and lease payments from the power plant.

The smaller Hopi Tribe stands to lose more than $12 million from its total budget of about $18 million.

Why the plant is closing

Salt River Project and the other electric companies that share the power plant decided last year it would be more economical to purchase power from low-cost natural-gas burning power plants.

The U.S. Bureau of Reclamation is also a partial owner and is trying to find a way to keep the facility open.

The utilities put the closure off for two years to allow the Navajo and Hopi tribes to adjust to life without the coal plant and mine.

RELATED: Coal miners fight to keep plant open; SRP says only a 'unicorn' can save it

SRP has stopped conducting routine maintenance that the plant would need were it to run beyond 2019, which is one of several hurdles a new buyer would face.

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 Peabody and the tribes dispute whether the coal should be taxed in the first place.

The dispute represents a legal risk that buyers want to avoid, he said.

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