Good morning Chairman Costa, Ranking Member Pearce, members of the Subcommittee. Thank you for inviting me to testify this morning on H.R. 2262, The Hardrock Mining and Reclamation Act of 2007. I am Steve Ellis, Vice President of Taxpayers for Common Sense, a national non-partisan budget watchdog group.

Since its inception in 1995, TCS has pushed for reform of the General Mining Law of 1872. It is a relic of an entirely different era and high time it is amended to reduce its exorbitant taxpayer subsidies.Taxpayers for Common Sense supports H.R. 2262 as a strong step toward reigning in the excesses of the Mining Law of 1872. I will detail some of these excesses and describe how H.R. 2262 addresses them.

The 1872 mining law enables entities to patent or buy federal land for a pittance. Under the law, you would pay, in 1872 dollars, less than 31 cents to buy an acre of federal land. So you end up with examples like in Crested Butte, Colorado where the federal government sold 155 acres to the Phelps Dodge mining company for approximately $790, despite a company estimate that the land could produce up to $158 million in after-tax profits over 11 years. This is in an area where land prices range as high as $1 million per acre.In  FY1995, Congress began enacting one-year patent moratoriums. However, continuing the decade-long practice of one-year extensions makes little sense for anyone. H.R. 2262 rightly throws patenting of federal land onto the ash heap of history.

Despite the private sector extracting public assets from the ground, under the Mining Law of 1872 taxpayers receive no compensation whatsoever. Since enactment of the mining law, the total value of minerals that have been taken without compensation is an estimated $245 billion. That’s the equivalent of emptying Fort Knox of all its gold two and a half times over. By comparison, the oil and gas industry generally pays 12.5% in royalties on what they extract from onshore federal lands. H.R. 2262 requires an 8% royalty on net smelter returns. Net smelter return is essentially the gross revenue for the mineral product that the mine receives from a refinery or smelter. This ensures that the royalty automatically adjusts to changes in the market and does not over- or undercharge. TCS is aware of other proposals such as net revenue or net profits royalty, but we believe these offer too much opportunity of gamesmanship on what the deductible costs will be. Mineral Business Appraisal, self-described geologic and mining experts in the appraisal of all types of mineral property, describe net profits royalty, indicating “[t]here are virtually no buyers for this type of royalty because of the creative accounting that the mining operator can use to depress the royalty payment amount. The distinguishing feature of a net profits royalty is that, depending upon the exact definitions in the mining lease and the actual calculations, it will very often be zero.” According to Mineral Business Appraisal, net smelter “royalty payments are also fairly simple to calculate and administer in that only the selling price and quantity of mineral product produced or sold are required for their determination.” In addition, “this type of royalty will usually have the highest market value of all the royalty types.” One significant change Taxpayers for Common Sense would like to see in H.R. 2262 royalty structure is to increase the payment to at least 12.5%, which would be more commensurate with other extractive industries.

Sticking Taxpayers with the Fiscal Hangover

All too often, after all the minerals have been removed, mining operations split town and leave communities with a mess and taxpayers holding the bag to pay for clean up. It’s a big bag. A 2004 report by the EPA put the cost of remediation of hard rock mines at $20 – $54 billion. 
 
To address these unfunded liabilities, H.R. 2262 tightens existing regulations requiring financial assurance and operation plans, and restricts mining from areas where the risk of an expensive clean-up is too great.  Over the years, the Department of Interior has had to be prodded repeatedly to require adequate financial assurances in the form of surety bonds and other tangible assets. Clearly, further legislation to ensure taxpayers are not stuck with the tab is required.To help taxpayers deal with the existing fiscal hangover, H.R. 2262 uses the royalty payments to establish two trust funds. The Abandoned Locatable Minerals Mine Reclamation Fund would receive two-thirds of the royalty payments to clean up areas where the mining industry left communities and taxpayers with a costly mess. The Locatable Minerals Community Impact Assistance Fund would receive one-third of the royalty payments to help States, communities and Indian tribes that are socially or economically impacted by past mineral activities. Both of these trust funds would remain on budget and would be subject to future appropriations.These two trust funds absorb the entire revenue generated by the royalties in H.R. 2262.

As the bill progresses toward enactment, TCS urges Congress to enable a portion of the revenue generated by the bill to be deposited in the General Treasury. The minerals are extracted from land owned by all of us, and Americans should reap the financial benefits. Moreover, TCS believes that the standards for both funds should be clarified and tightened. Clean-up standards should be strong and explicit, and restrictions placed on the community impact fund to ensure that it doesn’t become a long term subsidy, but rather a time-limited tool to help communities redirect their economy in the wake of a mining operation.

Taxpayers have waited far too long for real reform of the Mining Law of 1872. Public lands are taxpayer assets, and should be managed in a way that preserves their value, ensures a fair return from private interests using them for profit, and avoids future liability. H.R. 2262 certainly advances that cause, which is why Taxpayers for Common Sense supports the bill. As it moves through the legislative process we will work to ensure some percentage of the royalty payments are returned to the treasury, and royalty rates are increased to harmonize with those for oil and gas. Thank you very much for inviting me here today and I will be glad to answer any questions that you might have.