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February 2007 Edition
W.S. ADAMSON & ASSOCIATES
AT UTAH MINING ASSOCIATION The month of February is a continuation of the 45-day Utah legislative session that began on January 15th and concludes on February 28th. The four major pending bills that are of most interest to the UMA members are as follows: SB142 sub1 - Sales and Use Tax Exemptions and Refund for Certain Business Inputs This bill, sponsored by Senator Howard Stephenson (R), would remove the sales and use taxes on mining equipment capital purchases for the entire Utah mining industry (coal, hardrock, and mineral), as well as mining industry suppliers. The bill, if passed, would take effect on July 1, 2007, and has been the top Uma legislative priority in this session. Many mining companies and suppliers throughout the state have urged the Utah legislature and Governor Huntsman to support this legislation. Thank you for all your efforts on this important bill. At this time, the bill is part of the business tax reform group of bills. It has been unanimously passed in the Senate and is waiting floor consideration in the House. If passed by the Utah legislature, Governor Huntsman is expected to sign the bill. SB171 sub1 - Research Activities Tax Credit This bill, sponsored Senator Howard Stephenson (R), allow companies in Utah to obtain would tax credits for research activities. It would increase the percentage of expenses or payments that serve as the basis for calculating tax credits for research activities in the state; and provides a nonrefundable tax credit equal to 5% of a taxpayer's qualified research expenses. Mining companies and suppliers would be eligible for this research tax credit. SB18 sub2 - Use of Oil and Gas Revenues This bill, sponsored by Senator Lyle Hillyard (R), would establish an ongoing severance tax trust fund for the State of Utah whose interest would be spent on capital infrastructure projects. The trust fund would receive Utah generated severance tax monies when they exceeded $5 million for minerals and $20 million for oil and gas annually. In high severance tax revenue years, this would prevent the Utah legislature from spending the tax monies and building them into the base budget, and thereby needing more severance tax revenue in lean years. Both the oil and gas, and minerals industries are supporting this severance tax trust fund. It does, however, require a change in the Utah constitution to set up the trust fund, which will be put on the ballot for voter approval if passed. SB78 - Protection of Constitutionally Guaranteed Activities in Certain Private Venues This bill, by Senator Mark Madsen (R), would fundamentally change existing longstanding law to put one's personal property rights above another's property rights. In essence, the bill would allow employees to bring weapons in their cars onto an employer's property parking lot. Under current law, an employer can prevent any employee from bringing a weapon onto the employer's property. Many mining and other businesses throughout the state are opposed to this legislation, which passed the Utah Senate by a vote of 22 to 7. The bill is now pending in the House.
ALTON COAL LEASE Utah Mining Association sent the following letter to BLM regarding the Alton coal tract lease: Mr. Keith Rigtrup RE: Alton Coal Lease By Application Dear Mr. Rigtrup: On behalf of the Utah Mining Association ("UMA"), we support the federal lease by application submitted by Alton Coal Development, LLC for the Alton coal tract in Kane County, Utah. The Utah Mining Association, organized in 1915, strives to bring together the interests of mining in harmony with other productive interests in the state of Utah. UMA represents over 25 major companies in Utah that mine, process, smelt or refine minerals. UMA also represents more than 125 companies and individuals that provide Utah's mining industry with legal, banking, consulting services, supplies, equipment, and a myriad of other forms of support. As President of the UMA, I currently serve on the Governor's Coal Resource Advisory Committee (the "Committee"). In this capacity, I am aware of the urgent need for development of additional coal reserves in Utah. Attached is a Coal Resource Report (attachment B.1.A.) developed by the Committee and presented by the Utah Governor's Energy Advisor, Dr. Laura Nelson, to the Utah Legislature on October 18, 2006. The Committee estimated that the remaining supply of coal reserves in the three central Utah coal fields could last at most only about 55 years at current rates of production of 25 million tons/year. This report stated that ". . .if Utah wishes to sustain a coal mining industry and use coal-fired electric power generation, the State and the coal industry will have to look to other areas in the State for minable coal." The report also states that ". . .Utah coal resources are being depleted at a much more rapid rate than in the past." The Committee identified the Alton coal field as one of six areas which hold the future for Utah's coal industry. A copy of the Coal Resource Report to the Utah State Legislature is enclosed along with a map and chart supporting the conclusions of the Report. In addition, the 2005 Utah Coal Report published by the Utah Geological Survey on page 7 states:
Then, on page 16 of the 2005 Utah Coal Report it states:
And finally, on page vii of the 2005 Utah Coal Report it states:
It is important to note that from the pie chart (attachment B.1.B) that 65% of Utah's remaining coal reserves are currently off limits for development because of the Grand Staircase Escalante National Monument designation by President Clinton. Because these resources are currently not available for development, the need for the Alton Coal field is more critically important. BLM estimates that the Alton coal tract, as currently delineated, contained approximately 46 million tons of in-place federal coal. This coal is needed to allow the Utah coal industry to continue to supply the electric utility generators in the State of Utah. The UMA, therefore, strongly encourages BLM to consider the urgent need for development of this new coal reserve, and to approve the lease by application for the Alton coal field. David Litvin LETTER TO THE GOVERNOR The following letter was sent to Governor Huntsman from the Department of Natural Resources, Division of Oil, Gas and Mining: The Honorable Jon M. Huntsman, Jr. RE: Senate Bill 142, 1st Substitute, "Sales and Use Tax Exemption for Certain Business Inputs" Dear Governor Huntsman: This letter provides the perspective of the Department of Natural Resources' Division of Oil, Gas and Mining regarding a bill currently being considered by the Utah Legislature, Senate Bill 142, 1st Substitute, "Sales and Use Tax Exemption for Certain Business Inputs." This bill would result in an extension of the sales and use tax exemption currently enjoyed by other general manufacturing in Utah to specifically Utah's mining industry for equipment and machinery used in the production process having an economic life of three or more years. The fiscal note for this bill is a $4.9 million reduction in general fund revenue to the state in FY 2008 and a $5 million reduction in FY 2009. We recognize that this matter was not a consideration of the Governor's budget as originally proposed; however, it does represent an industrial sales and use tax cut that corresponds well with the Governor's objective to achieve tax reductions for Utah citizens. We also believe this bill would be a positive method to increase the economic development in coal mining and mineral mining in our state. Passage, of this bill would enable Utah to have a sales and use tax policy for mining equipment that is comparable to the nearby states of Arizona, Colorado, If the bill is passed by the legislature in its current form, we encourage your positive consideration of this bill. Any questions or requirements for additional information can be directed to Director John Baza, Division of Oil, Gas and Mining. Mike Styler John Baza
HOT-WASTE BILL DODGES GUV'S VETO EnergySolutions no longer needs to ask elected leaders for permission to allow its Utah radioactive landfill site to grow - up to a certain point. Gov. Jon Huntsman Jr. declined to veto a bill Tuesday that gives up policy oversight - by local officials, the Legislature and the governor - as long as expansions stay within the current mile-square boundary in Tooele County and do not involve hotter waste. For the first time in his administration, Huntsman allowed a bill to go into law without his signature, disappointing more than 1,000 Utahns who had called and written in opposition to the bill and prompting the nuclear waste company to declare victory. "From our perspective, we got what we wanted," said Greg Hopkins, vice president of communications for the company. Huntsman did not hand the critics a complete defeat, however. While he agreed with lawmakers and the company that the bill "clarified" the way the executive branch has regulated the company, he also announced he would use his authority to impose a cap on the volume of waste allowed at the site. "It is not the legislation that concerns me, but the nuclear waste industry and its impact on Utah," he said in a statement about his decision. "I take very seriously my responsibility to ensure that our state will not become the dumping ground for other states' nuclear waste." To get the cap, Huntsman will ask the federally designated oversight body for the EnergySolutions site - the Northwest Compact - to limit the amount of waste to the volumes currently licensed, no more than 13 million cubic yards or about double the amount of low-level radioactive and hazardous waste the site has disposed of in its 19 years. EnergySolutions said last fall its licensed capacity in Utah is 30 million cubic yards, and it insists that Huntsman and the Legislature no longer have control over what happens within the site's current boundaries. The company also operates a disposal site for hotter waste in South Carolina, the only low-level waste facility besides the Tooele County site to serve 39 states. In addition to the new cap, Huntsman said he will get regular reports of types and qualities of waste going to EnergySolutions, and he will "issue executive orders to ensure protection of the public health and environment." The Healthy Environment Alliance of Utah, an environmental group better known as HEAL, said enactment of the bill still leaves open the possibility that legislators could overturn the state's ban on hotter waste and block the governor from stopping the change. At the same time, the group acknowledged that the governor exercised his authority to limit radioactive waste, as he pledged repeatedly during his campaign and while in office. "It sounds like Governor Huntsman told the [Depart-ment of Environmental Quality] to put away its rubber stamp," said Vanessa Pierce, HEAL's executive director. Regulators have amended the company's license more than 80 times since 1988. Those changes allowed the site to take more and different kinds of waste, and regulators never directed the company to seek approval for expansions from the Legislature and governor, as HEAL and other critics contend the law requires. Huntsman early in his tenure had said he would only sign or veto bills, never allowing them to go into effect without his signature. His spokesman, Mike Mower, said he decided to contradict that pledge because he felt SB155 did not go far enough in saying how EnergySolutions should be regulated and wanted to register his disapproval short of a veto. ENERGY SOLUTION OR CURSE ON LAND? Utah Mining Association President David Litvin looked at displays for a proposed surface coal mine southwest of Bryce Canyon National Park and saw a solution to the country's increasing demand for electricity. Southern Utah Wilderness Alliance staff attorney Stephen Bloch viewed the same displays with disdain, maintaining "some bad ideas don't go away. This was a bad idea 30 years ago and it's a bad idea now." These polar positions were expressed Wednesday night at Salt Lake City's Main Library during the fifth and final meeting in which the U.S. Bureau of Land Management was soliciting public input on issues that should be addressed in an environmental impact statement (EIS) being prepared on the coal mine proposal, known as the Coal Hollow Project. The EIS will address Alton Coal Development LLC's application to lease 3,600 acres of BLM land about three miles south of the Kane County town of Alton. The company also is seeking a state permit to mine another 440 acres of private land within the federal acreage. The Utah Division of Oil, Gas and Mining began that permit process last June. If both permits are approved, Alton Coal Development projects its strip mine could remove 2 million tons of coal annually. It would create 50 jobs in Alton, a ranching and livestock community of 134 residents, nearly a quarter of whom live below the poverty level. About 190 truck trips each weekday would carry the coal north through Panguitch, then west to Interstate 15 and south to a railroad line near Cedar City. But the proposed mine's proximity to Bryce Canyon, and the fact that it is upwind from several other national parks in southern Utah, undoubtedly will generate objections over air quality and regional haze. "This will be another source of dust and particulate matter that will impact air quality and visibility," Bloch contended. Litvin argued that the company must adhere to strict federal and state dust-control standards, "so I don't see any visibility impact to the surrounding national parks." He also emphasized the importance of high-paying jobs to the area, both at the mine itself and in support capacities. Bloch and Litvin were among three dozen people who filtered through the library room during a three-hour open house. Many were bureaucrats from the state mining division and various agencies whose comments will be incorporated into the EIS, such as the U.S. Office of Surface Mining and the U.S. Environmental Protection Agency. Among the few members of the general public, Salt Lake City resident Gary Gaz said, "We have to get coal from somewhere, and people down there need jobs." He supported the proposal as long as "they put the land back close to what it was" and do not cut off access to four-wheeling and biking. The BLM also held meetings in Alton, Kanab, Panguitch and Cedar City. The agency's draft EIS is scheduled to be out in April of 2008. After a three-month public comment period, the final EIS is likely to be published in October of 2008. A decision is expected in the first quarter of 2009.
URANIUM CLEANUP HITCH WASHINGTON - Cleaning up a mountain of uranium tailings near Moab will take five times as long as initially projected, potentially dragging on through 2028, Energy Secretary Samuel Bodman said. "The information I have is that 2028 is the schedule," Bodman told Rep. Jim Matheson during a House hearing. "We have a lot of demands on our environmental operations." The Energy Department made a final decision in 2005 to haul the 10.5 million tons of tailings - remnants of uranium milling done at the Atlas Minerals Corp. mill during the Cold War - by rail to a lined pit. At that time, the department planned to begin moving the pile this year and finish shuttling the tailings and complete the project between 2011 and 2012. "That was shocking to hear," Matheson said after the hearing. "This is an expensive project, I don't want to deny Matheson asked Bodman about the Energy Department's plans for the pile because the department has requested bids to move 2.5 million tons of the pile and the congressman wanted to know why the department seemed to be breaking the work into pieces. DOE spokeswoman Megan Barnett said 2028 is the current target for closure based on the current funding levels and could change once a contractor is selected. The department is in The Bush administration has proposed spending $23 million on the Moab project next year. Over the last five years the department has pumped 75 million gallons of contaminated water and put other measures in place to keep chemicals in the pile from reaching the Colorado River, she said. "We are committed to making progress there," she said. Both of Utah's senators said they were troubled by the Energy Department's delays on the Moab pile. "That's very disturbing to me, and I intend to push DOE to recognize the need to keep as close as possible to the original timeline," Sen. Orrin Hatch said in a statement. Sen. Bob Bennett said Bodman is scheduled to be before the appropriations committee next month and he will work with the administration "to make sure this project stays on track." "Obviously, I am very concerned if DOE plans to extend the project timeline too far," Bennett said. The tailings pile now sits just outside Arches National Park on the banks of the Colorado River and studies have found that toxic chemicals such as ammonia are seeping into the groundwater, threatening four species of endangered fish. The contamination has also alarmed officials downstream, since the river provides drinking water for an estimated 25 million people. "I continue to get evasive, incomplete information from DOE regarding the need to remove the health and safety threat posed by this pile. I will press this issue with the Secretary until I get satisfactory answers about the project timeline and the budget," Matheson said. The pile spans about 130 acres. Thick sludge is what remains of the Cold War uranium pile. Atlas bought the uranium mill in 1962, but closed it down in 1984. In 1998, the company filed for bankruptcy, leaving a temporary cap on the pile and an inadequate cleanup fund. In 2000, Utah's delegation got legislation passed putting the Energy Department in charge of remediation of the site. Moving the 10.5 million tons of tailings and 1.4 million tons of other contaminated soil entails building a dedicated rail line and shipping rail cars full of material 30 miles north to Crescent Junction. Groundwater remediation is expected to take 75 years.
PUBLIC ACCESS CONTINUES ON TRUST LANDS The Trust Lands Administration and the Department of Natural Resources have entered into a new agreement to continue to allow public hunting, trapping, fishing, and viewing of public wildlife on approximately 3.2 million acres of Utah trust lands while providing fair compensation to Utah's schoolchildren and other trust beneficiaries. The agreement is for a 10-year term beginning September 1, 2007, continuing through September 1, 2016. In addition to providing public access on trust lands, the Trust Lands Administration has agreed to not:
The Trust Lands Administration:
If the Trust Lands Administration sells or leases certain large blocks of trust land, the payment made by the Department of Natural Resources to Trust Lands will be reduced by specified amounts. "I believe we have an accord that serves two worthy purposes - public access to premium hunting and recreational lands and fair compensation to the beneficial owners of those lands," says Kevin Carter, Director of the School and Institutional Trust Lands Administration. "I am pleased with the outstanding effort the Department of Natural Resources and the Division of Wildlife Resources have devoted to this arrangement." "We are pleased with this new agreement. It represents a fair balance between the interests of the Trusts Lands Administration and DNR," says Mike Styler, DNR Executive Director. "The agreement preserves these critical wildlife habitats and keeps them open to hunters, fishers and other wildlife enthusiasts."
A CONSERVATIVE SOLUTION TO THE CLIMATE CHANGE PROBLEM When George W. Bush, The Washington Post and the insurance giant Lloyd's of London agree on something, it's obvious a new wind is blowing. The climate change debate is here to stay, and as America warms to the idea of environmental conservation on a grander scale, it's vital that conservatives change the debate before government regulation expands yet again and personal freedom is pushed closer toward extinction. The fact is, I'm a conservative and a conservationist - and that's OK. For the past 20 years, I have seen the ever-so- gradual effects of rising sea levels at our farm on the South Carolina coast. I've had to watch once-thriving pine trees die in that fragile zone between uplands and salt marshes. I know the climate change debate isn't over, but I believe human activity is having a measurable effect on the environment. The real ''inconvenient truth'' about climate change is that some people are losing their rights and freedoms because of the actions of others - in either the quality of the air they breathe, the geography they hold dear, the insurance costs they bear or the future environment of the children they love. But like a polar bear searching for solid ice, many people seem ready to dig into the first solution offered to slow or reverse climate change. Cue former vice president Al Gore - the politician turned screen star who could take home an Academy Award this weekend and a Nobel Peace Prize later this year - whose call for greater government intervention is resonating with administrations in this country and across the globe: California may soon ban incandescent light bulbs; France wants to force the Kyoto-less United States to pay carbon taxes on exports; and the European Union is pushing automobile emission standards that would cost carmakers such as Volvo roughly $3,200 more per vehicle. Make no mistake, the issue of environmental conservation sits squarely on the battle line between government and liberty. From light bulbs to automobiles, government will gladly expand its regulatory reach even if the result is a hamstrung economy and curtailed individual freedoms. Yet conservatives have remained largely absent from this debate, and by pulling back from the environmental battle they have conceded the high ground to those on the far left. I believe conservatives have a window of opportunity, but that window is closing fast. First, conservatives must reframe the environmental discussion by replacing the political left's scare tactics with conservative principles such as responsibility and stewardship. Stewardship - the idea that we need to take care of what we've been given - simply makes sense. It makes dollars as well, for the simple reason that our economy is founded on natural resources, from tourism and manufacturing to real estate and agriculture. Here in South Carolina, conservation easements are springing up across the state as landowners see the dual benefit of preserving the environment and protecting their pocketbooks. Second, conservatives must reclaim lost ground from far-left interest groups by showing how environmental conservation is as much about expanding economic opportunity as it is about saving whales or replanting rain forests. When corporations such as BP and Shell America pursue alternative energy sources, they not only cut carbon emissions but help cut our petroleum dependency on OPEC nations. When South Carolina restaurants recycle their oyster shells, they not only restore shellfish habitat but take a job off local governments' plates and ensure continuing revenue streams for local fishermen. Third, conservatives must respond to climate change with innovation, not regulation. This means encouraging private research and implementation of more eco-friendly construction, more energy-efficient workplaces and more sustainable ways of going about life - all of which cuts costs and protects God's creation. It means looking past the question of whether your car's exhaust melts polar ice caps and instead treating our environment as an investment our future depends on. South Carolina is creating an advisory group that will study the effects of climate change on commerce and vice versa, with an eye toward crafting a plan that balances the needs of the business and environmental communities. I am a conservative conservationist who worries that sea levels and government intervention may end up rising together. My earnest hope going forward is that we can find conservative solutions to the climate change problem - ecologically responsible solutions based on free-market principles that both improve our quality of life and safeguard our freedoms. For if conservatives cannot reframe, reclaim and respond to climate change with our principles intact, government will undoubtedly provide a solution, no matter how taxing it may be.
WORKERS IN DEMAND PUSHES UTAH WAGES UP Although a nearly dry labor pool is stunting Utah's job growth, the dearth of workers is pushing up wages at the highest rate in more than a decade as employers try to sweeten the allure of their openings. From January 2006 to last month, Utah's job growth rate was 4.5 percent. That was up a tick from December's revised 4.4 percent and down nearly a full point from a peak of 5.4 percent in June 2006. Only about 35,300 Utahns were without jobs in January, down sharply from 52,700 a year prior. Nationally, unemployment rose to 4.6 percent from December's 4.5 percent. Year-over job growth nationally dipped from 1.6 percent to 1.4 percent in January. But if the state's economy no longer is white hot, it still is sizzling, said Mark Knold, chief economist for the Department of Workforce Services. "It's like pushing a car full-speed down a steep hill and beginning to run out of gasoline," he said Tuesday. "You still keep going fast, it's just that one of your indicators is running into restrictions." The tight labor market also has meant competition over available workers. An indicator is the 5.4 percent average wage increase Workforce Services noted between January 2006 and last month - the highest such increase recorded in 15 years. In Utah, the availability of jobs continues to simply outstrip the resident population's ability to fill them. January's unemployment rate was 2.7 percent, up slightly from December; with 52,400 jobs created over the past 12 months, the jobless rate still was well under the 4.0 percent Knold says effectively reflects full employment. The unemployment "rate is still rock bottom. We're at a point where, more and more, we will have to depend on in-migration of workers - from other states, even other countries - for employment growth." Jeff Thredgold, a Zions Bank consultant, agrees that a "major constraint to even stronger Utah economic performance is a lack of people to hire, [and] such tight labor availability should lead the . . . economy to slow modestly" as this year continues. "Even so, we expect Utah to remain among the top 10 states in employment growth," Thredgold noted in his most recent economic outlook newsletter. The construction industry continued to lead the way on job creation, adding 13,500 jobs in the past year. However, that sector of the economy could see employment growth slow some in coming months. "The number of new [construction] jobs added will moderate somewhat," Knold predicted. "New-home permit approvals are running below last year's record levels, so as a result, construction employment demand will moderate." Construction employment grew 16.3 percent over the past year. A close second was the natural resources and mining sector, adding 1,400 jobs for a 15.4 percent improvement. Trade/transportation/utilities added 8,600 jobs (up 3.8 percent), while the professional/business segment created 8,200 positions (5.6 percent). The trucking subsector alone was up 5 percent in job growth, creating 900 positions for a total of 18,600 employees. "Things are going very well for us," said Kelle Simon, president of Kelle's Transport (formerly Simon Trucking). "Things got just a bit slower after the holidays, but that's traditional in this market. Things should pick up again in the second quarter." Kelle's Transport has seen its work force, now 95 strong, and its business jump by more than a third in the past year, Simon said. Only the information sector showed little growth, coming in at just 100 new jobs the year over, for a 0.4 percent growth rate. Knold blamed that primarily on layoffs that came before and after America Online's sale of its 400-employee Ogden call center last October to Teleperformance USA. But that sector's job-creation performance should improve. Teleperformance spokesman Mark Pfeiffer said his company expects to steadily hire new staff in coming months. "Right now we are at 280 employees. [AOL] was down to about 320 and about to shut down when we took over," he said. "Our intention is to stabilize operations, save those jobs and grow the center toward its full potential."
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U.S. AGAIN SETS A RECORD FOR TRADE DEFICIT WASHINGTON - The U.S. trade deficit hit a record in 2006 as Americans bought more goods from China, more oil from around the world and more vehicles from Japan. If that seems pretty much like a dog-bites-man story, maybe it's because 2006 marked the fifth consecutive year that the trade deficit hit a new high. The U.S. last ran an annual trade surplus in 1975 as the Vietnam War wound down and ''Saturday Night Live'' made its television debut. The gap between what the U.S. sells abroad and what it imports rose to $763.6 billion last year, up 6.5 percent from the previous record of $716.7 billion in 2005. For December, the deficit jumped a bigger-than-expected 5.3 percent, to $61.2 billion. In response, the Bush administration pledged to keep pursuing its free-trade policies, while Democrats now controlling Congress demanded a change in course. Bush administration officials said the wider deficits were primarily a factor of faster growth in the United States and warned against pursuing policies that would erect protectionist trade barriers in this country. Treasury Secretary Henry Paulson announced he was naming Alan Holmer, a pharmaceutical company executive and a former trade official during the Reagan administration, to be his deputy in charge of a new high-level strategic dialogue with China that he instituted in December. House Speaker Nancy Pelosi and 13 other top House Democrats sent Bush a letter saying the new trade figures underscored the urgency for a course change on trade. ''The consequences of these persistent and massive trade deficits include not only failed businesses, displaced workers, lower real wages and rising inequality, but also permanent devastation of our communities,'' the Democrats said. They noted that more than 3 million manufacturing jobs have been lost since Bush took office, with about one-third of those losses attributed to the rising deficit in manufactured goods. The Democrats urged Bush to pursue more cases against unfair trade practices, including a challenge before the World Trade Organization against currency practices of both China and Japan. U.S. manufacturers contend the Chinese yuan is undervalued by as much as 40 percent, making Chinesegoods cheaper in the United States and U.S. products more expensive in China. American automakers have also alleged that Japan is unfairly manipulating the value of the yen to boost U.S. sales of Japanese cars. According to the data released Tuesday, imports of vehicles and parts from Japan hit $60.2 billion for 2006, and the auto industry's trade deficit with Japan grew 14 percent - more than double the rate of the overall trade deficit. Growing unhappiness over the trade deficit and lost manufacturing jobs played a role in a number of congressional campaigns last fall, helping Democrats win control of both the House and Senate for the first time in 12 years. The latest trade gap comes at a critical time for Bush, who faces the challenge of persuading Congress to extend fast-track trade-promotion authority, which is set to expire July 1 and which he needs to pursue new trade agreements. FED
HOLDS KEY INTEREST RATE STEADY Pointing to a revved-up national economy and encouraging news on inflation, the Federal Reserve held interest rates steady Wednesday, which should bode well for consumers in Utah and across the country. After Fed Chairman Ben Bernake and his central bank colleagues left an important interest rate unchanged at 5.25 percent for a sixth straight month, Wall Street surged in response and Wells Fargo & Co. economist Kelly Matthews in Salt Lake City said there should be little upward pressure on credit card and other variable-rate loans and lines of credit. "The Fed acted appropriately. And even with market interest rates creeping up a bit lately, we remain in a very favorable interest-rate environment," Matthews said. And that means commercial banks' prime interest rate - for certain credit cards, home-equity lines of credit and other loans - stays at 8.25 percent. That once again gives a break to borrowers who until last summer had endured the pain of two-plus years of rate increases. Rates on 30-year mortgages, which are indirectly affected by Fed actions, also are expected to remain stable - or even fall - throughout the rest of the year. James Wood, director of the Bureau of Economic and Business Research at the University of Utah, said there have been mixed signals on the direction of the nation's economy in recent quarters, although fourth-quarter numbers that were released Wednesday showed stronger growth than expected. He expects the Fed to take a wait-and-see approach on interest rates until there is a little better picture on the direction of the nation's economy. "We appear to be in a lot better shape than a lot of people thought 30 to 60 days ago. And of course here in Utah we're doing extremely well," he said. Fed policymakers agreed. They delivered a more positive assessment of the economy than in December, recognizing improvements in economic growth, inflation and even the troubled housing sector. ''Overall, the economy seems likely to expand at a moderate pace over coming quarters,'' they said in a statement. The Fed also observed that core inflation, which excludes energy and food prices, has ''improved modestly in recent months.'' That was an upgrade from December, when policymakers fretted about ''elevated'' readings on underlying inflation. They continued to note that inflation risks remain, keeping open the possibility of a rate increase. Still, with the Fed's fairly upbeat assessment, many economists believe rates probably will remain where they are for much of this year. ''They are taking a slightly softer stance on inflation. They are not as concerned about inflation as they were last year,'' said Victor Li, associate professor of economics at Villanova School of Business. The Fed's announcement came hours after the government reported that the economy snapped out of a sluggish spell and grew at a 3.5 percent pace in the final quarter of last year as consumers ratcheted up spending. The report also showed that underlying inflation ebbed during the quarter. The fresh snapshot of business activity, released by the Commerce Department, underscored the resilience of the economy. It has managed to keep moving despite the ill effects of the residential real-estate bust and an ailing automotive sector.
NMA RELEASES REPORT DETAILING MINING INDUSTRY'S NMA recently commissioned a comprehensive analysis detailing the 2005 economic contributions generated by the mining industry. The analysis, conducted by Moore Economics, is entitled "The Economic Contributions of the Mining Industry in 2005" and is now available on NMA's web site at: www.nma.org. The report provides information on a national basis, on a state-by-state basis and by industry sector. Among the significant findings contained in the report are:
GLOBAL TRADE GALVANIZES CATERPILLAR Since becoming chairman and chief executive of Caterpillar Inc. three years ago, Jim Owens has seen the Peoria, Ill., maker of heavy equipment nearly double in size -- to $41.5 billion in revenue last year -- as it rode a global boom in construction and mining. The growth had its pains, as Caterpillar struggled with production bottlenecks, lengthy delivery times and capacity-expansion missteps that occasionally disappointed Wall Street. Now Mr. Owens, 61 years old, says he is more concerned with fattening the company's bottom line by making manufacturing more efficient, slimming dealer inventories and continuing to press for free trade. The Ph.D. from North Carolina State University, who joined Caterpillar 30 years ago as an economist, oversees a global behemoth of 278 factories and 94,000 employees. In Naples, Fla., attending a recent meeting of the Business Council, Mr. Owens discussed world-class manufacturing, free trade, Sen. Barack Obama, Federal Reserve Chairman Ben Bernanke and the NCAA basketball tournament. Excerpts: WSJ: Caterpillar just announced a $7.5 billion share buyback. Why? Mr. Owens: Sitting on a big wad of cash doesn't make any sense whatsoever for shareholders. It also tends to promote bad practice among management. Almost all good companies make their worst mistakes in the best of times. That's when you get into overreaching. You've got more [cash] than you know what to do with, and you think you're so damned good you can buy anything and make it better. WSJ: How is it that Cat added nearly $20 billion in revenue in the last three years?" Mr. Owens: We've done it on the strength of the global economy. In 1998 through 2002, we experienced a prolonged recession in our key markets. In the 2004-through-2006 period, the global economy experienced its best three years of growth since World War II. That drove strong commodity prices, and the combination of [those and] the strong economy led to a significant increase in investment for natural-resource development and global infrastructure. When this surge in demand started in 2004, we were well-positioned in terms of market leadership and some excess capacity to realize significant organic growth in a very short period of time. WSJ: Looks like you're going to easily hit your goal of $50 billion-plus in annual revenue by 2010. Is it time to set the bar higher? Mr. Owens: What we're really about in this near term is just a relentless focus on execution. We're very focused on introducing a Caterpillar production system that's universal across all of our manufacturing operations world-wide. We've had a propensity to do things at least slightly differently all over the world. We've benchmarked many different industries and then our own best-in-class facilities and created our own recipe book. Whether our top-line sales are $45 billion or $60 billion is going to be a lot less important than pulling off that operational excellence. The Holy Grail is not top-line sales growth; it's bottom-line [profit) growth. WSJ: You've also said you want to get away from the automotive model of stuffing dealers' inventories with products. Mr. Owens: We want to keep some dealer inventory out there so they can see it and buy it and try it, but we want to get away from having them carry significant amounts of inventory. If you look back ... dealer-inventory swings have in every case aggravated the business cycle for Caterpillar. We work overtime to build inventory in the up cycles, and then [in down cycles] help them get it moved by price discounting or other bad practices. We've got to convince them that they don't need to hold the inventory. This is a huge cultural change. WSJ: Are you concerned about the new political climate for trade in Washington? Mr. Owens: I have been very worried about a turn inward, a feeling that we can sustain our standard of living by building walls around the country and blocking trade. That would just be a grievous mistake, bad for the United States and bad for the global economy. I've been traveling in Asia for 26 years, and I've seen hundreds of millions of people lifted out of abject poverty from the benefit of exporting to the United states. I would say the republicans made a terrible mistake in partisanizing trade. It needs to be a bi-partisan, national policy to be a free-trading country. It's easy to bash [free trade], because if somebody loses a job, you can personalize it. The fact that tens of thousands are benefiting by buying very high-quality, very low-price goods imported from China is one of the great realities of the American standard of living. WSJ: What about the Democrats? Mr. Owens: I'm encouraged that Democrats who as a party were bashing trade now have more thoughtful people stepping forward to say this shouldn't be about partisanship. Barack Obama is a senator from our state, and I've had the chance to talk to him about it. I quite frankly was very disappointed he voted against [the Central America Free Trade Agreement]. How can you not want free trade with countries that have done most of the things we'd like them to do in terms of democratizing their countries? [But] he seems to be a guy who can move off of extreme partisan positions and try to find win-win positions. We need to win him over. WSJ: How do you make the argument that free trade is a win-win situation to someone who fears his $75,000-a-year job will be out-sourced to China? Mr. Owens: It's a very difficult sell. It's like the guy who's making horse carriages when the car comes along. How do you make the case to him that the car's going to make the World a better place? We try to educate our employees on the importance of exports to us. We exported $10 billion worth of product last year, and many jobs in our U.S. facilities are very much geared to export markets. Many small manufacturing companies that supply materials to us probably don't consider themselves as exporters, but they are. If we don't export, we don't buy from them. So they lose jobs. WJS: Will Caterpillar's U.S. workforce shrink as it expands abroad? Mr. Owens: We're going to have a lot more employment growth outside than inside the US. We [Americans] are 5% of the world's population. And today, we're more than 20% of global gross domestic product. So it shouldn't shock Americans or even worry us too much that 10 or 15 years from now we're going to have a smaller percentage of GDP because our country's not growing as fast as emerging countries. It doesn't mean that our standard of living's going to go down. It just means that theirs is going to grow much faster. WSJ: What's the best country to do business in? Mr. Owens: Brazil in some respects is challenging, but we've got one of the best operations we have in the world due to the leadership we have in that facility and the espirit de corps. I was in China recently, and I heard people there say they wanted to be the Brazil of Asia. Some of our large Midwestern facilities have kind of a challenge of mixed allegiance to the company or the union, a we/theyism that we haven't successfully purged. We're trying to have people understand that if we pay you, you're on our team and we want your heart and soul, we want you to help us be cost-effective, we want you to help us improve quality. WSJ: What was the buzz at Business Council? Mr. Owens: The buzz is always about the economy. The key issue right now is do we see some easing of interest rates over maybe the latter half of the year and reacceleration of the U.S. economy and a soft landing here that creates a soft landing in the global economy? Or do we end up tightening again and having slow growth become slower growth or recession in 2008? We've got to drive some liquidity. I'm certainly feeling that inflation is a minimal risk, and I worry that we may overcorrect. WSJ: What does Ben Bernanke do? Mr. Owens: I think he's going to sit on a pat hand for a while. I think we're going to see inflation be very well-behaved, and I expect he'll be in a position to be comfortable easing interest rates in the latter half of the year. WSJ: Did executive compensation come up at the Business Council? Mr. Owens: It's amazing how much more time boards are spending looking at proxy statements and compensation write-ups and dotting i's and crossing t's. How does this help us compete in the global marketplace? For CEOs, if you make over $1 million, that's "excessive pay." If you participate in financial services or in sports that's OK. WSJ: You're a big college-hoops fan. Who's going to win the NCAA basketball tournament? Mr. Owens: If I had to pick one team and put money on the table right now, I'd pick Florida.
DOW TAKES 416-POINT DIVE Like an explosion that starts an avalanche, a plunge in Chinese stocks on Tuesday, February 27, set off a cascade of losses in exchanges around the globe, culminating in Wall Street's most dismal trading day since the Sept. 11, 2001, terrorist attacks. By the end of the trading day in New York, about $632 billion of market value had been lost in the United States alone, according to Standard and Poor's, as investors large and small - fretting that the Chinese and U.S. economies may be cooling - unloaded shares. Chinese stocks fell almost 9 percent, their biggest drop in a decade. The Dow Jones Industrial Average lost 416.02, or 3.3 percent, to 12,216.24. The Nasdaq was nearly off 100. The main indexes on European exchanges also fell about 3 percent. The bloodletting continued when trading began in Asia today. Australia's benchmark S&P/ASX200 index slumped 3.45 percent in the first 30 minutes of trading. In Japan, the Nikkei 225 stock index fell 693.50 points, or 3.83 percent, to 17,426.42 points on the Tokyo Stock Exchange about 20 minutes after the start of trade. New Zealand's stock market fell more than 3 percent in hectic trading early today. Former Federal Reserve Chairman Alan Greenspan, who said a recession in the U.S. was ''possible'' later this year, may have been the catalyst for the global sell-off. On Monday, Greenspan said, ''It is possible we can get a recession in the latter months of 2007.'' On Tuesday, one day after sending Shanghai's benchmark index to a record, investors dumped stocks to lock in profits amid speculation about a fresh round of austerity measures from Beijing to slow the nation's sizzling economy. The Shanghai Composite Index tumbled 8.8 percent, or 268.81 points, to close at 2,771.79, its largest decline since it fell 8.9 percent on Feb. 18, 1997, at the time of the death of Communist Party elder Deng Xiaoping. Chinese regulators shifted into damage control today, with a government-run newspaper denying rumors of plans for a 20 percent capital gains tax on stock investments. But Greenspan's comments also took a heavy toll on Asian markets. ''Our economy is also dependent on the U.S. economy, if there is adverse news, exports from our country is going to drop,'' said S. Sharath, an analyst with MIDF-Amanah Investment Bank in Kuala Lumpur, Malaysia. In the United States, traders and investors decided it was time to bail amid signs of trouble in the U.S. economy, but market analysts said Tuesday's retreat, after a huge rally that stretched back to October, was a long time coming. Any market that's seen an advance that carried the Dow to 31 new closing highs can expect to pull back, even sharply. The decline was nonetheless explosive, sending the Dow briefly down more than 546 points during afternoon trading. In addition to the news from China and Greenspan's remarks, it was sparked by a report that U.S. durable goods orders fell in January by the largest amount in three months. The housing market also looked pretty dismal Tuesday after a Standard & Poor's index showed single-family home prices across the nation were flat in December. And a report from the National Association of Realtors said median home prices fell for the sixth straight month. The swiftness of the Dow's decline was attributed to computer glitches that kept some trades from being immediately reflected in the index of 30 blue chip stocks. The broader Standard & Poor's 500 index fell 50.33, or 3.47 percent, to 1,399.04, and the tech-dominated Nasdaq composite index was off 96.66, or 3.86 percent, at 2,407.86.
UTAH 'ECONOMIC DYNAMISM' NO. 1 Ever thought you were living in a state that is an economic dynamo? A report released Tuesday, February 27, says you are, and, what's more, it's the hardest-charging dynamo in the country. While Utah had divergent results in various categories in the 2007 State New Economy Index, it finished tops among all states for "economic dynamism." The report, released by the Ewing Marion Kauffman Foundation and the Information Technology and Innovation Foundation and available at www.kauffman.org/neweconomy, gauges "the degree to which state economies are knowledge-based, globalized, entrepreneurial, information technology-driven and innovation-based." "When you look at the report, I see a lot of things we're doing really well," said Jason Perry, executive director of the Governor's Office of Economic Development. "When it comes to dynamism, we're No. 1. That's a very important piece of economic development. It shows that many of our key initiatives are doing very well. It shows the entrepreneurial spirit in the state and how important those particular aspects are for our economy." The report's economic dynamism rankings were based on jobs in fast-growing "gazelle" firms (those with annual sales revenue growing 20 percent or more for four straight years), the degree of job churning, the number of Deloitte Technology Fast 500 and Inc. 500 firms, the number and value of companies' initial public offerings, the number of entrepreneurs starting new businesses and the number of individual inventor patents issued. Those dynamism elements are "exactly what we do well in the state of Utah," Perry said. "As we go around looking for business to grow here and to relocate, we always talk about that particular aspect. This is the first time we've seen it in print, though, and it's very satisfying to see that that's the case." In overall rankings, Utah was 12th - not quite as strong as in 1999, when it was sixth but up from 2002's placement of 16th. The report noted that it used different indicators and methodologies for each report, so the total scores are not necessarily compatible and a state's movement does not necessarily reflect changes in its economy. Richard Nelson, president and chief executive officer of the Utah Technology Council, said the report was "good news for Utah and Utah's high-growth companies." Utah's rankings were "impressive," especially its top-five rankings in several categories. "With a governor who is tech-savvy and has put an emphasis on collaboration, Utah's innovative and entrepreneurial economy is thriving," Nelson said. He said the dynamism ranking is not surprising when the underlying components are considered. "We've long known that the Inc. 500 high-growth companies have underscored Utah's success," he said. "In fact, the Inc. 500 highlighted Utah as the epicenter of high-growth companies just three years ago." The "dynamism" ranking was among five core categories that incorporated several indicators. Others were "knowledge jobs," where Utah was 15th; digital economy, 18th; innovation capacity, 18th; and globalization, 32nd. Perry said Gov. Jon Huntsman Jr. has been talking about globalization as a need to be filled in Utah. "We've got to start tapping into the global economy and take our business more to those environments," he said, noting trade missions, the establishment of an international trade office and world trade center developments among the initiatives. "That one key area shows the gap we've been trying fill the past couple of months. That's one area where we can really improve." Among the 26 indicators from various sources used for the index score, Utah's top 10 rankings included second for e-government and inventor patents; third for job churning, online population and Internet domain names; fourth for fastest-growing firms; fifth for venture capital; and 10th for high-tech jobs and high-wage traded services. Regarding venture capital, Nelson said Utah's "fund of funds" "is working now that it's been open the past year in attracting additional substantial new sources of capital to the state." Utah finished in the middle of the pack in several categories and dead last for computer and Internet usage in schools. But the report noted that one surprise was that several states with strong technology economies - California, Maryland and New Hampshire among them - have generally scored near the bottom on that measure. Perry said that ranking might be offset by Utah's third-place listing for online population. "Our state is very well-connected already in our homes in every capacity ... so, by itself, it (the school technology ranking) is not particularly alarming. If you had very low technology in our schools and a low measurement of connectivity in our population, that would be much more concerning," he said. Among Utah references in the report was one noting that top-ranking states tend to be wealthier. "Some states with higher per capita incomes lag behind in their scores (for example, Alaska, Illinois and Wyoming), while other states with lower incomes do relatively well (such as Texas and Utah)," it said. Among other statistics and comments about Utah in the report were:
Perry noted that all of the index categories fit well with the state's economic cluster strategy and that the report will be useful to state officials. "I think this report is very informative and well-grounded in solid economic principles. Because of that, the rankings will be built into our policy decisions. These are really the elements of the New Economy that we're dealing in, and Utah needs to be poised in these areas to exceed expectations. I think this is one of those studies worth taking note of and worth using to set policy.
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4-7 International PDAC Convention, Toronto, Canada. For more info. visit: www.mininginvestmentshow.com 5-7 Utah Water Users' Workshop, The Dixie Center, St. George, Utah. For more info. contact Megan Poulton at 435-797-2802. 20-22 Mercury & Multi Emissions compliance, Pittsburgh, PA. For more info. visit: www.americancoalcouncil.org 29-30 Coal in the West Conference, Denver, CO. For more info. visit: www.lawseminars.com
30-May 3 Coal Prep 2007, Lexington Center, Lexington, Ky. For more info. visit: www.coalprepshow.com
10-11 Industry Summit on Mining Performance (Business Process Improvement), Tuscon, AZ. For more info. visit: www.outreach.psu.edu/C&I/BPI/default-home.htm 21-23 Spring Coal Forum, Memphis, TN. For more info. visit: www.americancoalcouncil.org
6 UMA EDUCATION GOLF TOURNAMENT, RIVERBEND GOLF COURSE, Riverton, Utah 24-26 Rocky Mountain Coal Mining Institute Annual Convention, Copper Mountain Resort, Copper Mountain, CO. For more info. visit: www.rmcmi.org
23-25 PRB Coal Use Seminar, St. Louis, MO. For more info. visit: www.americancoalcouncil.org
23-24 UMA ANNUAL CONVENTION, GRAND SUMMIT HOTEL, Park City, Utah
8-10 Coal Market Strategies, Tucson, AZ. For more info. visit: www.americancoalcouncil.org
3-4 Coal Trading Conference. For more info. visit: www.americancoalcouncil.org
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