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Not all mineral companies on Great Salt Lake pay their fair share, audit finds

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Not all mineral companies on Great Salt Lake pay their fair share, audit finds

Jun 18, 2024 | 8:43 pm ET
By Kyle Dunphey
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Not all mineral companies on Great Salt Lake pay their fair share, audit finds
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The shores of the Great Salt Lake near Antelope Island are pictured on Tuesday, May 21, 2024. (Photo by Spenser Heaps for Utah News Dispatch)

Utah is missing out on large sums of money that could be generated through royalties paid by mineral companies operating on the Great Salt Lake, a legislative audit found. 

“Some mineral extraction operators are not always following administrative rule or the royalty calculations as set forth in their individual royalty agreements,” Audit Supervisor Nicole Lusche told lawmakers Tuesday. “That has resulted in incorrect compensation to the state.” 

During a Legislative Audit Subcommittee meeting on Tuesday, auditors presented findings from a report examining the Utah Division of Forestry, Fire and State Lands and companies that operate on the Great Salt Lake to extract minerals. The audit examined existing royalty agreements — essentially a fee imposed by the state based on the minerals extracted from the lake — and how those funds were being used.  

The division oversees mineral operations on the lake, where seven companies currently pay royalties on five minerals: sodium chloride, magnesium, magnesium chloride, potassium sulfate and lithium carbonate. 

Those companies, according to the audit, are paying different rates for the same commodity. And the division did not track or verify royalty reports or payments, which auditors found resulted in “incorrect payments and missing documentation.” 

The report was requested by the Legislative Audit Subcommittee to look into the state’s involvement and oversight of mineral extraction on the Great Salt Lake, which has been a contentious issue at the capitol. 

Last summer, House Speaker Mike Schultz, R-Hooper, labeled the Great Salt Lake the “wild west” of mineral extraction. In an attempt to tame it, lawmakers passed HB453, which imposed a fluctuating tax companies will pay for the minerals they extract from the lake.

“I very much appreciate what you’re doing,” Schultz told Jamie Barnes, director of Forestry, Fire and State Lands, referring to the division’s attempt to hold mineral companies accountable. “I think your predecessors before you ran a pretty loose ship in regards to trying to hold their feet to the fire.” 

According to auditors, that “loose ship” has in some cases cost the state nearly $1 million. 

Luscher pointed to royalty rates for sodium chloride — those royalties vary by the operator, which goes against the current state guidelines. According to the audit, Utah is missing out on an estimated $832,000 by not holding all companies to the current rate. 

But auditors also say it’s on the division to review these agreements and calculations to ensure the companies are compliant. 

The audit also found that operators are taking deductions that go beyond what’s allowed under the administrative rule. Usually it’s for things like bags, boxes or anything directly related to shipping, but the auditors found companies were taking deductions for storage, fuel and handling. 

The two largest operators on the lake take about $20 million each year in deductions — royalties represent a small percentage of that amount, but Luscher said “even 5% of that $20 million represents $1 million in supplemental royalties annually for the state.” 

The audit recommended the division “clearly define and validate” what can be taken as a deduction. 

The audit also looked into ways to remedy some of these inconsistencies — according to auditors, funds are available, but the division has to request an appropriation from the legislature. 

“It’s the division’s responsibility to initiate a formal request,” Luscher said 

Additionally, the audit found that much of the money generated through mineral extraction doesn’t go back to the lake. Mineral extraction activities make up roughly 90% of the revenue in the division’s Sovereign Lands Management Account, but only about 33% of those funds are spent on the lake. 

Auditors recommend the division track appropriations from that account to see where those funds are being spent. 

Responding to the audit, Barnes said the division has had trouble hiring people for low wage positions, forcing them to “settle for under qualified individuals.” 

“We haven’t been able to attract the talent in this niche field. And so that puts us in a predicament when it comes to this complex environment that we’re trying to regulate,” she said. 

The division is also trying to revise current rules in place regarding royalties, which she said is slow going but nearing the finish line. 

“You will see those new rules coming out probably within the next 30 days,” she told lawmakers. 

Despite some tense meetings between lawmakers and the mineral companies, Barnes said there’s been a major shift in how operators conduct business. 

“We went from it being completely one sided to them working hand in hand with us,” she said. “The tone has changed. They want to save the lake. They want to still operate out there, and they realize that without a lake there is no success for anyone.”