Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 10:00 AM

David Finkenbinder

Mr.

Testimony of
David Finkenbinder
Vice President Congressional Affairs
National Mining Association
On Behalf of the National Mining Association
Before the
Committee on Energy and Natural Resources
Of the
U.S. Senate
September 26, 2005
Mr. Chairman, members of the Committee, on behalf of the National Mining Association,
I want to express our appreciation for this opportunity to comment on the administration and
performance of the Abandoned Mined Land (AML) Program established under the Surface
Mining Control and Reclamation Act of 1977.
The AML Program was established with the principal objective to restore unreclaimed
lands mined for coal prior to August 3, 1977 that pose threats to the public health and safety.
The AML fee paid on each ton of coal produced and sold to fund the program was authorized
initially until 1992, but has been extended twice. With the current authorization scheduled to
expire on June 30, 2006, there will undoubtedly be many viewpoints expressed today about the
remaining requirements and the need to extend the fee to support those requirements. In this
regard, Mr. Chairman, NMA has no position on the Coal Act or issues surrounding the
reauthorization of the AML, but offers some observations about the history of the program, and
presents various considerations to assist you and your colleagues in making public policy
decisions about the program’s future.
Revenues and Expenditures
Since 1978, the coal industry has contributed more than $7.5 billion to the AML Fund.
The Office of Surface Mining (OSM) reports that as of September 30, 2002 about $1.62 billion
of the high priority (Priority 1 & 2) abandoned coal mined lands inventory has been reclaimed.
Another $320 million has been used to reclaim priority 3 coal sites, and $285 million for noncoal
projects. Appropriations from the AML Fund for this period totaled about $5.7 billion. In
other words, less than forty per cent of all the money appropriated is finding its way to on-theground
reclamation of the inventory of coal and non-coal projects. Placed in the context of the
high priority coal inventory—the principal mission of the program—less than thirty cents of
every dollar appropriated from the AML Fund reaches that objective.
Progress and Expectations
In 1986, the National Academy of Sciences (NAS) performed a mid-term review of the
AML program. See National Academy of Sciences, Abandoned Mined Lands: A Mid-Course
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Review of the National Reclamation Program for Coal (1986). At that time, the NAS projected
that by the expiration of the AML fee in 1992, total revenue for the program would reach about
$3.3 billion. As it turns out, the projection was close to the mark with actual receipts reaching
slightly more than $3.2 billion. NAS also found at that time that most States expressed
confidence that they would complete reclamation of their priority 1 and 2 inventory of projects
by 1992. Id. at 65. It was this confidence that resulted in the States’ view that in the meantime
they should reclaim lower priorities even before they complete the two top priorities. Id. This
approach apparently had some merit since as NAS projected all the states, except six, would
have enough funds from their state share alone to reclaim priority 1 and 2 projects with an
estimated cost of about $811 million. Moreover, the total state share alone appeared to be
adequate to reclaim all priorities at an estimated cost of about $1.7 billion. Id. at 154-55. In
short, at the time of the mid-term review of the program more than ample funds appeared to be
available to address not only the high priority coal inventory, but the other priorities as well.
By 1992, $870 million of the high priority coal inventory had been reclaimed. But now
the target had moved, and OSM reported that the remaining high priority coal inventory was $2.6
billion—almost three times the inventory reported in 1986. Since then, it appears that things
have actually regressed. Since 1998, it appears that for each dollar of high priority inventory
reclaimed, two dollars are added as unfunded high priorities. Now the high priority coal
inventory is almost $3 billion. And, after $5.7 billion in appropriations from the AML Fund, only
$1.62 billion of the high priority coal inventory has been reclaimed. Continuing business as usual
would mean that it will require at least $9 billion to reclaim the current $3 billion high priority
coal inventory.
Structural Impediments to Success
Twenty five years, two AML fee extensions, and almost $6 billion later, you will hear
that the “job is not finished.” You will also hear various viewpoints on why that is the case. We
believe the answer largely lies with structural impediments in the current law related to grant
formulas, competing program demands that all conspire to thwart cost-effective achievement of
the program’s principal purpose, and revenue allocation.
The AML Program has been called upon to serve many different demands. It has also
been designed to serve those demands through multiple delivery mechanisms. We have Federal
programs and State programs. And, within each of those we have special programs, such as the
Rural Abandoned Mine Program, Emergency Programs, Appalachian Clean Streams Initiatives,
various State Set-Aside Programs, and Technology Development and Transfer Programs. All of
these programs compete for funds under various priorities and funding formulas. The first two
priorities which comprise the program’s core objective relate to restoring abandoned coal mined
lands that pose dangers to the public health and safety. There is no overarching requirement that
funds be directed toward the high priority coal inventory. Indeed, it appears that these other
programs operate as exit ramps to divert funds away from the high priority inventory. And, all
of these programs carry with them extensive federal and state administrative costs.
According to the OSM white paper, "The Job's Not Finished", around 1989 the
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demographics of coal production changed and an imbalance developed between fund availability
and needs. As a result, the statutory allocation formula for AML revenue precludes the use of a
substantial portion of the industry’s AML fees for the high priority coal inventory. Half of all
fees paid on coal production in a state are earmarked for AML use in that state regardless of the
remaining high priority coal AML needs. During the early years of the program, this allocation
structure posed little consequence for assuring that AML fees were available for high priority
coal inventory. As coal production increased in the West with a relatively smaller coal AML
inventory, a larger proportion of AML fee revenue became unavailable for high priority coal
projects in other regions with a larger share of the high priority needs. OSM’s recent white paper
explains the consequences of this imbalance. For the first 15 years of the program, 95% of all
state grants were used for high priority coal projects. However, over the past 10 years, only 64%
have been used for the program’s core objective. And, this percentage will continue to decline
absent changes to the law.
Considerations Going Forward
By the time the current fee authorization expires next year, the coal industry will have
paid $8 billion in AML fees. Simple math tells us that this sum should have been sufficient to
complete both the already reclaimed and current high priority coal inventory with $3 billion to
spare. Will it require $9 billion—perhaps more—to complete the current high priority coal
inventory? The answer will depend upon choices made about whether and how the program is
reauthorized. We set forth below several of the questions faced in dealing with the current
program structure and requirements. Not surprisingly, each constituency will have different
answers and preferences.
1. Multiple Delivery Mechanisms and Programs
Do we need—can we afford—the multiple delivery mechanisms and subprograms that
divert funds away from the high priority coal inventory? RAMP is a prime example of this
diversion. The program competes with state needs and has not been funded since 1996.
Nonetheless, 10% of all AML fees paid annually are still allocated to RAMP which as of last
year had accumulated $331 million which cannot be used for other purposes unless expressly
reprogrammed by Congress. Emergency Programs also present a duplicative system with some
states assuming the responsibility, while 9 states—two of which have the most emergencies—
declining to assume that responsibility as part of their approved AML programs. States still use
a provision of the law added in 1990 that allows funds to be set-aside in anticipation of the fee
expiring in 1995. There is something wrong with the concept of setting aside industry AML fees
for future use, and then calling for the industry to keep paying because the job is not yet finished.
2. Fund Allocation and Distribution
Should the current allocation and distribution formula be replaced with a system that
directs AML fee revenues to areas with the greatest need in terms of remaining high priority coal
inventory? OSM’s white paper indicates that the historic production (pre-1977) is a close
surrogate for where the high priority coal inventory sites are located. If such a change is made,
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what happens to the current allocations? States that have completed their high priority coal
inventory may feel that they should receive some portion or all of the unexpended balances in
their accounts. Distribution of those amounts will affect funding requirements. For example, the
unexpended state share for the certified states comprises 30% of the unappropriated AML
balance. The allocation and distribution issues present the most fundamental question: Does
coal AML remain a national problem that still requires of a national solution? If so, should the
solution be administered in a manner more fitting and efficient for a national problem?
3. Adhering to Priorities
What good are priorities if there are so many and there is not an overarching requirement
to abide by them? Presently, the law sets out no less than five priorities ranging from the
protection of the public health and safety from extreme dangers posed by abandoned coal mined
lands to the development of land. There is no requirement that AML fees be used first for the top
priority before moving on to lower priorities. In at least two states, the amount of AML fees used
to reclaim priority 3 areas either approximate or exceed the amounts spent to reclaim priority 1
and 2 areas. In each case, the amounts spent in these states for priority 3 projects would have
been more than enough to finish their current unreclaimed priority 1 and 2 inventories.
4. The Inventory
Does the high priority coal inventory serve as a benchmark for measuring progress and
success? Each time it appears the goal becomes closer, the goal line is moved further away. In
1998, the remaining high priority coal inventory was less than $2.5 billion. In 1999, the
inventory swelled by an additional $3 billion as a result of a state—which already accounted for
one-third of the inventory—moving up lower priorities to the priority 1 and 2 inventory. But
even when that inexplicable swelling is removed, the inventory appears to grow by about $2 for
every $1 dollar of high priority coal reclamation. To some, the inventory has transformed itself
from a management tool to a funding gimmick in order to establish the AML program as a
permanent fixture. Some suggest that the inventory should be frozen to avoid this temptation
and provide focus and discipline for future expenditures.
5. Administrative Costs
How much do we need to spend in order to spend? A General Accounting Office (GAO)
report found that between 1985-1990 $360 million, or 28%, of the $1.3 billion spent during that
period was used for Federal and State administrative expenses. General Accounting Office,
Surface Mining: Management of the Abandoned Mine Land Fund (July 1991). But even this
amount may understate the percentage of funds used for administration since, as GAO noted,
some States incorporate administrative expenses into their construction grants that are counted as
reclamation project costs. As for Federal expenses, GAO reported that during that period OSM
spent $137 million for administration while using about $100 million for reclamation projects.
We are not aware of any single source of information tracking the amount of AML fees used for
administration. But piecing together various sources related to AML program performance
suggests that over $1 billion has been spent to administer the program.
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6. The AML Fee
What should the levels of the fee be and how much more can or should the coal industry
pay into the AML fund? The job may not be finished, but the lack of AML fees is not the
reason.
Mr. Chairman, thank you again for the opportunity to present NMA's observations on the
history of the AML program. We hope the various considerations will assist you and your
Subcommittee as you address the public policy decisions regarding the coal AML program.