Protectionism is trickling down from Washington, and leading the charge is Michigan state Senator Rick Jones, yet another economically undereducated Republican.
At present, Michigan buys road salt on a best price basis. However, our legislators are discussing a 6% tariff (note: this was originally 8%, as some of the articles quoted below state) on salt purchased out of state. There seems to be only one company which would benefit from the tariff.
Road salt bid bill could raise prices for Michigan
In 2017, the state awarded nearly $16 million in contracts for 349,265 tons of salt. Detroit Salt Co. was awarded $4.4 million of that, while Compass Minerals was awarded $9.8 million, according to the DTMB. The remainder went to Morton Salt and Cargill.
More purchases are made by local governments, according to Caleb Buhs, a spokesman for the DTMB. State and local governments spent a combined $48.1 million on road salt in 2017…
Detroit Salt has about $20.1 million worth of contracts with Michigan, about one-fifth of the state’s total, according to a House Fiscal Agency analysis.
This Detroit News article is confusing. If $20 million is one-fifth of the state total it adds up to $100 million – more than the $64 million (16+48) the article otherwise suggests. Or is $48 million the total of “State and local government” salt purchases?
The numbers also don’t square with the statement that Detroit Salt has one-fifth of the state contracts AND $4.4 million of $16 million in state contracts – which is more than a quarter. Either we already pay Detroit Salt above market prices, these are multi-year contracts or something else is going on that the article fails to reconcile. In any case, we can derive some reasonable approximations using other sources.
I looked to a state of Michigan Attorney General’s report on the Winter of 2014-2015. Following are some notes from that report:
It was recently reported that public agencies in Michigan use nearly 2 million tons of salt annually to clear snow and ice.8
The contracts expire on August 31, 2016, with two 1-year options, but prices are rebid every spring. The contracts serve MDOT, and approximately 300 local public entities.
According to MDOT, the 2014-2015 winter season average cost of road salt for the state and local road agencies was $65.81 per ton…
Compass [Minerals] was also the only bidder in 2014-2015 in all of the counties in the top half of the Lower Peninsula, including Missaukee County…
The mine is  currently running at full capacity…
Detroit Salt did not have enough inventory to bid on all of the MiDEAL requests.
What does this tell us?
1- The cost of the 2 million tons of salt used in 2014-2015 was approximately $132 million.
2- Contracts are multi-year, but get repriced.
3- Northern counties in the lower peninsula can be glad they had out of state suppliers.
4- In 2014 Detroit Salt was running at capacity and had depleted inventory. Employment couldn’t be increased.
And if you read pages 20 and 21 of that report, you’ll see some of Detroit Salt’s problems were self-inflicted. Notably, their choice of delivery methods.
To preserve some fraction of Detroit Salt jobs, Senator Jones is asking taxpayers for $8 million in taxes. That’s nearly $113,000 per job/per year, assuming all 70 jobs are at risk. It’s likely, though, that we’re not talking about total layoffs, so the cost per job “saved” would be much higher.
The minimum annual $113,000 cost per job also ignores the cost to distributors, private users of road salt, and truckers. Neither does it consider the negative effect on employment in salt related businesses. It doesn’t contemplate the possible deterioration of roads, or increases in accidents due to more parsimonious use of road salt. It doesn’t recognize lost opportunity costs; every extra dollar spent on salt could have gone to fix potholes. Those things are unseen by Senator Jones.
It’s worth noting that Detroit Salt is a subsidiary of the Kissner Group, a Canadian company.
Detroit Salt’s leading competitor, Compass Minerals, is a US company operating a mine in Canada (Goderich, Ontario), while Detroit Salt is a Canadian company operating a mine in the US. So, the only possible point of this tariff is to “save” a few jobs at a single Michigan company outside of Senator Jones’ district. More from Crain’s: Bill seeks to help Detroit Salt gain edge over Canadian firms
The only Michigan company that sells a mined product to the state is Detroit Salt, which employs about 60 people on Sanders Street in southwest Detroit…
Sen. Rick Jones, a Republican from Grand Ledge who sponsored the bill, says the state should do what it can to protect Michigan workers’ jobs. He said he’s not concerned that the state might grant an incentive to a company with Canadian ownership, in part to offset competition by other Canadian suppliers.
“You call it a Canadian company,” Jones said. “I call it Americans, Michiganders, working here in the state of Michigan, and we need to support them and not workers somewhere else. If it is based here and providing 60 to 80 jobs to people here in Michigan, I consider it a Michigan company.”
I call it a subsidy to the Kissner Group.
Purchases of salt mined in Ohio would also be affected. Ohio already has tariffs on salt similar to the Michigan proposal, but they don’t apply them to Michigan. Senator Jones’ bill would apply our tariff to Ohio. I wonder how long Ohio will continue Michigan’s exemption?
One would have expected this to be a violation of the Commerce Clause in either case. Apparently, “an exception to the U.S. Constitution’s commerce clause applies to states if state government is acting as a participant in the market and not a regulator.” This is semantic gymnastics. It’s regulation by price-fixing.
All this central planning seems to be at cross purposes, with taxpayers caught in the middle by politicians pandering to populist economic ignorance. It’s just too complicated for them to pick winners and losers. One reason for the lower price for Canadian salt is said to be the $CDN/$US exchange rate: Something our president complains is an economic weapon in China’s hands. Simultaneously, he is doing his best to weaken the Canadian dollar by threatening to blow up NAFTA. Meanwhile, Rick Jones is clueless about anything except buying votes with your money.