<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:71409.wais]
EFFECT OF MINING CLAIM FEES ON DOMESTIC EXPLORATION: ARE THEY WORTH
IT?
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
March 29, 2001
__________
Serial No. 107-12
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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______
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COMMITTEE ON RESOURCES
JAMES V. HANSEN, Utah, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska, George Miller, California
Vice Chairman Edward J. Markey, Massachusetts
W.J. "Billy" Tauzin, Louisiana Dale E. Kildee, Michigan
Jim Saxton, New Jersey Peter A. DeFazio, Oregon
Elton Gallegly, California Eni F.H. Faleomavaega, American
John J. Duncan, Jr., Tennessee Samoa
Joel Hefley, Colorado Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland Solomon P. Ortiz, Texas
Ken Calvert, California Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado Calvin M. Dooley, California
Richard W. Pombo, California Robert A. Underwood, Guam
Barbara Cubin, Wyoming Adam Smith, Washington
George Radanovich, California Donna M. Christensen, Virgin
Walter B. Jones, Jr., North Islands
Carolina Ron Kind, Wisconsin
Mac Thornberry, Texas Jay Inslee, Washington
Chris Cannon, Utah Grace F. Napolitano, California
John E. Peterson, Pennsylvania Tom Udall, New Mexico
Bob Schaffer, Colorado Mark Udall, Colorado
Jim Gibbons, Nevada Rush D. Holt, New Jersey
Mark E. Souder, Indiana James P. McGovern, Massachusetts
Greg Walden, Oregon Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho Hilda L. Solis, California
Thomas G. Tancredo, Colorado Brad Carson, Oklahoma
J.D. Hayworth, Arizona Betty McCollum, Minnesota
C.L. "Butch" Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
Allen D. Freemyer, Chief of Staff
Lisa Pittman, Chief Counsel
Michael S. Twinchek, Chief Clerk
James H. Zoia, Democrat Staff Director
Jeff Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
BARBARA CUBIN, Wyoming, Chairman
RON KIND, Wisconsin, Ranking Democrat Member
W.J. "Billy" Tauzin, Louisiana Nick J. Rahall II, West Virginia
Mac Thornberry, Texas Edward J. Markey, Massachusetts
Chris Cannon, Utah Solomon P. Ortiz, Texas
Jim Gibbons, Nevada, Calvin M. Dooley, California
Vice Chairman Jay Inslee, Washington
Thomas G. Tancredo, Colorado Grace F. Napolitano, California
C.L. "Butch" Otter, Idaho Brad Carson, Oklahoma
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
------
C O N T E N T S
----------
Page
Hearing held on March 29, 2001................................... 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming, Prepared statement of.................... 15
Gibbons, Hon. Jim, a Representative in Congress from the
State of Nevada............................................ 6
Rahall, Hon. Nick J. II, a Representative in Congress from
the State of West Virginia................................. 6
Prepared statement of.................................... 7
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts, Prepared statement of.............. 46
Statement of Witnesses:
Anderson, Robert, Deputy Assistant Director, Minerals, Realty
and Resource Protection, U.S. Bureau of Land Management.... 13
Prepared statement of.................................... 14
Calbom, Linda, Director of Financial Management and
Assurance, U.S. General Accounting Office.................. 8
Prepared statement of.................................... 9
Craig, Steven D., Vice President, Golden Phoenix Minerals,
Inc........................................................ 33
Prepared statement of.................................... 35
Septoff, Alan, Reform Campaign Director, Mineral Policy
Center..................................................... 29
Prepared statement of.................................... 30
Tangen, J. P., Director, Alaska Miners Association........... 23
Prepared statement of.................................... 24
Additional materials supplied:
Kohlmoos, William B., Reno, Nevada, Letter submitted for the
record by The Honorable Jim Gibbons........................ 2
Viljoen, Ben, Chairman, Esmeralda County Board of
Commissioners, Esmeralda County, Nevada, Letter submitted
for the record by The Honorable Jim Gibbons............... 4
EFFECT OF MINING CLAIM FEES ON DOMESTIC EXPLORATION: ARE THEY WORTH IT?
----------
Thursday, March 29, 2001
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The Subcommittee met, pursuant to notice, at 2:40 p.m., in
Room 1324, Longworth House Office Building, Hon. Jim Gibbons,
presiding.
Mr. Gibbons. [Presiding.] The Subcommittee on Energy and
Mineral Resources will come to order.
The Chairwoman, Barbara Cubin, is detained. She will be
here momentarily and we are going to get this hearing underway.
I want to welcome the ranking member, Mr. Rahall of West
Virginia, and all the witnesses here today who are going to
testify.
For the record, without objection, in order to make things
flow a little more smoothly, I would like to enter into the
record two letters, a letter from Mr. William Kohlmoos of Reno,
Nevada, dated March 22nd, relating to the effect of mining
claim fees on domestic exploration, and the letter from the
Esmeralda County Board of Commissioners, dated March 21st,
regarding the effect of mining claim fees on revenue streams
for the county.
[The letters follow:]
[GRAPHIC] [TIFF OMITTED] T1409.004
[GRAPHIC] [TIFF OMITTED] T1409.005
[GRAPHIC] [TIFF OMITTED] T1409.006
[GRAPHIC] [TIFF OMITTED] T1409.007
STATEMENT OF HONORABLE JIM GIBBONS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEVADA
Mr. Gibbons. Before we begin, I think it's important that
we set the stage on what this hearing is about. This is an
oversight hearing on the effect of mining claim fees on
domestic exploration.
Personally, I have a problem with some of the rhetoric
that's being used out there to portray everything about the
mining industry in the worst possible light, while at the same
time failing to acknowledge that mining provides a substantial
benefit, both individually and to our society as a whole.
Without mining, and the knowledge of how to use metals, we
would still be living in the Stone Age.
World War II has been termed a ``war of copper mines and
steel mills''. Using raw materials produced by miners, American
industry was able to produce enough war materials for itself
and our allies, and because of that, America became the arsenal
of democracy and, in large part, the mining industry was able
to produce raw materials in record amounts.
Much of the environmental damage from mining was done
during this time when our ability to produce energy and metals
for the war effort would determine our future as a free Nation.
I think I would rather deal with this environmental damage than
with the consequences of losing World War II.
As a result, I think our mining industry has been given a
black eye. I think today's technology in mining is certainly
vastly different than it was of yesterday, and hopefully we can
enlighten the public and enlighten the Committee with your
testimony here today, with regard to this very issue which has
an effect on the United State' resources and its ability to
maintain this country as the number one country in the world.
Mr. Gibbons. With that, I would turn to my friend, Mr.
Rahall, for any opening remarks he may have.
STATEMENT OF HONORABLE NICK J. RAHALL, II, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WEST VIRGINIA
Mr. Rahall. Thank you, Mr. Chairman.
Mr. Chairman, I just want to state at the outset that the
title of this hearing, certainly, in my mind, does not suggest
any intention to give this subject matter an objective overview
or review. I mean, look at the title. ``Effects of Mining Claim
Fees on Domestic Exploration: Are They Worth It?'' Obviously,
that leads one to believe there is a predisposition toward
these fees--not worth it, whatever ``it'' may be.
I simply wanted to point this out to set the stage here. In
my view, one focus of this hearing should be on the beneficial
effect that the mining claim holding fee has had on reducing
speculation on public domain lands. Another focus should be on
how the fee provides for at least some, albeit minimal, return
to the American people for the use of their lands. But that is
perhaps not going to be the case today.
This hearing apparently is intended to be a forum to
disparage the fees on the basis of some relatively minor
discrepancies in BLM's accounting for how it used fee receipts.
The fact of the matter is that the mining claim holding fee
was first put into effect during Fiscal Year 1993, and was
reauthorized by an appropriations bill through the end of this
fiscal year.
It would seem to me that sufficient time has passed for the
industry to become accustomed to this fee. And it would seem to
me that paying this fee, instead of digging up $100 worth of
dirt under the mining law's assessment work requirement, is a
more efficient way to operate.
Now, I happen to think that the authorizing committees of
Congress should do their job. That's this Committee. That's why
I introduced H.R. 1085, to make this holding fee permanent.
Certainly, when you look at the Bush budget blueprint, it
becomes apparent that many Interior Department programs are
going to be squeezed--to probably put it mildly. Under that
circumstance, I see no reason why the mining industry should
notfinance a portion of the costs associated with administering
the mining law program.
Further, I see no reason why this Committee, the
authorizing committee, should not do its job and move this
legislation, rather than sit idly by while the appropriators do
our jobs for us.
Thank you.
[The prepared statement of Mr. Rahall follows:]
Statement of The Honorable Nick Rahall, Ranking Democrat, Committee on
Resources
At the outset, I would note that the title of this hearing does not
suggest any intention to give the subject matter an objective review.
Titling this hearing--Effects of Mining Claim Fees on Domestic
Exploration: Are They Worth It? obviously leads one to believe there is
a predisposition toward these fees not worth it. . . . . . whatever it
may be.
I simply wanted to point this out to set the stage here. In my
view, one focus of this hearing should be on the beneficial effect the
mining claim holding fee has had on reducing speculation on public
domain lands. Another focus should be on how the fee provides for at
least some albeit minimal return to the American people for the use of
these lands. But that is perhaps not going to be the case. This hearing
apparently is intended to be a forum to disparage the fees on the basis
of some relatively minor discrepancies in BLM's accounting for how it
used fee receipts.
The fact of the matter is that the mining claim holding fee was
first put into effect during Fiscal Year 1993, and was reauthorized by
an appropriations bill through the end of this fiscal year. It would
seem to me that sufficient time has passed for industry to have grown
accustomed to this fee. And it would seem to me that paying this fee,
instead of digging up $100 worth of dirt under the Mining Law's
assessment work requirement, is a more efficient way to operate.
Now I happen to think that the authorizing committees of Congress
should do their job. That is why I introduced H.R. 1085 to make this
holding fee permanent. Certainly, when you look at the Bush Budget
Blueprint, it becomes apparent that many Interior Department programs
are going to be squeezed. Under that circumstance I see no reason why
the mining industry should not finance a portion of the costs
associated with administering the mining law program. And I see no
reason why this Committee, the authorizing committee, should not do its
job and move this legislation rather than stand idly by while the
appropriators do our jobs for us.
Thank you.
______
Mr. Gibbons. Thank you, Mr. Rahall.
Right now I would like to introduce the two witnesses that
are on the panel before us. We have with us the Director of
Financial Management and Assurance from the U.S. General
Accounting Office, Linda Calbom, and Deputy Assistant Director,
Minerals, Realty and Resource Protection, U.S. Bureau of Land
Management, Mr. Robert Anderson.
Miss Calbom, the floor is yours. Welcome.
STATEMENT OF LINDA M. CALBOM, DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE
Ms. Calbom. Thank you. Mr. Vice Chairman and members of the
Subcommittee, I am happy to be here today to discuss certain
cost charges made to the Bureau of Land Management Mining Law
Administration Program. I will refer to the program as MLAP as
I go through my short statement here.
We last reported on this program about a year ago, when we
briefed Subcommittee staff on BLM's administration and use of
mining maintenance fees. That work resulted in BLM undertaking
a review of its contracts and services charged to MLAP to
determine if improper charges of this nature had been made to
the program.
In addition to that, the Subcommittee asked that we review
labor charges to MLAP, which make up the bulk of the costs of
the program, and also, to take a look at the methodology that
BLM used in its review of MLAP charges for contracts and
services. And finally, we determined whether BLM employees were
aware of the sources of MLAP funding.
My statement today will focus on the results of our work in
these three areas. There is a detailed discussion of our
findings in our report that is actually being released today.
As far as our review of the labor charges, we performed a
survey of BLM employees who charged labor to the program during
the first 10 months of Fiscal Year 2000. This review covered
nine administrative states and offices which reported
obligations of over $23 million in Fiscal Year 2000. That's
about 72 percent of the total obligations for the program.
As you can see from Chart 1 that we have here--hopefully
you can see it. If not, those of you who can't, it's attached
to the back of my statement. About half of the employees
reported working and charging the same amount of time to the
program, which is as it should be. However, almost 39 percent
reported that they charged more time to the program than they
actually worked, while only about 11 percent reported charging
less time than actually worked.
These improper charges mean that BLM's financial records do
not reflect the true cost of the program. They are also in
direct conflict with BLM's policy, which stresses--and I will
quote--``Charging work tasks, employee salaries, procurement or
contract items, or equipment purchases to any subactivity other
than the benefiting subactivity, violates the terms of the
Appropriations Act.'' It's pretty clear.
Based on our survey sample, we estimated a net overcharge
to the program of almost 11 percent for the 10-month period
that we looked at, resulting in a potential overcharge of about
$1.2 million for the nine offices included in our review. Our
analysis of BLM records also showed that certain employees
received bonuses and awards from MLAP funds for work unrelated
to mining.
BLM's policy is that any bonuses and awards received as a
result of labor performed should be charged to the subactivity
that benefited from the labor, which makes sense. However,
awards were given to individuals for tasks unrelated to MLAP
operations, including assisting in the moving of a BLM office
to a new facility, and as compensation for not using BLM's
relocation service when selling a private residence as part of
a lateral transfer.
As far as the review BLM did of its contracts and services,
our earlier work had indicated some problems in this area. So
BLM reviewed contracts and services over $1,500 that were
charged to the program during fiscal years 1998 and 1999. We
found that the methodology BLM used was appropriate and
thorough, and that it did identify the majority of contracts
and services improperly charged to the program during that
time.
The contracts that were reviewed represented over $8
million, or almost 90 percent of the total contracts and
services obligated to the program during that time period. Of
that, BLM determined that about $716,000 in contracts and
services should not have been charged to the program.
The improper payments, as shown in Chart 3 which we have
here, included things such as $34,000 for janitorial services,
which actually represented a full year's contract cost for
these services in a field office that only was partially
involved in MLAP; $30,000 for the appraisal of Federal coal
leaseholds, which, of course, isn't included in the program;
$25,000 for an attorney in an EEO settlement for an employee
who had not worked on MLAP tasks; and $2,000 for a habitat
survey of a threatened and endangered species of butterfly in
an area with no active mining.
Although BLM has taken appropriate steps to correct these
past improper charges of contracts and services to MLAP, it has
not established specific procedures to prevent the recurrence
of similar improper charges in the future.
Finally, as was requested, we asked in our survey whether
BLM employees were aware of the source of MLAP funding. The
short answer is no. Approximately 70 percent stated they were
not aware of the source of the funding.
We made a number of recommendations in our report to
address the issues I have discussed here today, but the bottom
line is, until BLM makes some significant changes, there will
continue to be a high likelihood of improper use of MLAP funds,
and little reliance can be placed on the accuracy of reported
MLAP cost information.
That concludes my statement, Mr. Vice Chairman.
[The prepared statement of Ms. Calbom follows:]
Statement of Linda M. Calbom, Director, Financial Management and
Assurance, U.S. General Accounting Office
Madam Chairman and Members of the Subcommittee: I am pleased to be
here today to discuss our review of certain charges made to the Bureau
of Land Management's (BLM) Mining Law Administration Program (MLAP).
Accurate cost information is crucial for proper program management and
is especially important for MLAP since this program is partially funded
through mining fees that the Congress has designated to be used only
for mining law administration operations.
We last reported on this program a year ago when we briefed your
office on BLM's administration and use of mining maintenance fees. That
work resulted in BLM undertaking a review of its contracts and services
charged to MLAP in the previous two fiscal years and identifying some
improper charges to that program. Our prior work also led to your
request that we (1) review labor charges to MLAP during the first 10
months of Fiscal Year 2000, (2) review the methodology that BLM used in
its review of MLAP charges for contracts and services during fiscal
years 1998 and 1999 and evaluate its approach for correcting improper
charges, and (3) determine whether BLM employees were aware of the
sources of MLAP funding.
My statement will focus on the results of our work in these three
areas. A detailed discussion of our findings is contained in our report
Bureau of Land Management: Improper Charges Made to Mining Law
Administration Program (GAO-01-356), which is being released today.
In brief, BLM employees we surveyed disclosed that many of the
hours charged to MLAP during the first 10 months of Fiscal Year 2000
did not accurately reflect hours actually worked on MLAP. Based on our
survey sample, we estimate a net overcharge of almost 11 percent for
the 10 month audit period, resulting in a potential overcharge of about
$1.2 million \1\ for the nine BLM administrative states \2\ and offices
included in our review.
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\1\ Since this figure is derived from sample data, it is subject to
sampling error. Taking this random variation due to sampling into
account, we are 95 percent confident that the actual overcharge ranges
between $0.6 and $1.9 million. This result offers assurance that a net
overcharge for MLAP occurred for the survey period.
\2\ Administrative states are BLM's administrative offices, which
in some cases have jurisdiction over areas beyond the boundaries of the
state named. Our work examined 9 of BLM's 18 administrative states and
offices.
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BLM's review of contracts and services over $1,500 that were
charged to MLAP during fiscal years 1998 and 1999 employed a
methodology that was appropriate and identified the majority of the
contracts and services that were improperly charged to MLAP operations
during that time period. Specifically, BLM determined that about $716,
000 in contracts and services should not have been charged to MLAP.
Finally, in response to our survey, approximately 70 percent of BLM
employees stated they were either not aware of the source of MLAP
funding or did not know that the program is partially funded by fees
collected from miners and designated for MLAP operations.
To address the weaknesses identified through our work, we have made
recommendations to BLM intended to create more specific criteria and
clearer policies related to the use of MLAP funds.
background
BLM's MLAP is responsible for managing the exploration and
development of locatable minerals on public lands. Locatable minerals
include the so-called "hardrock minerals," such as copper, lead, gold,
silver, and uranium. MLAP operations include activities such as:
<bullet> Lreviewing and approving plans and notices of mining
operations,
<bullet> Lconducting inspections and enforcement to ensure
compliance with the terms of plans and notices of operation and related
state and local regulations, and
<bullet> Lidentifying and eliminating cases of unauthorized
occupancy of mining claims.
MLAP operations do not include work on nonlocatable or common
variety minerals, such as sand or gravel, or oil and gas work.
The program is funded through mining fees and by appropriations to
the extent that the fees are inadequate to fund the program. \3\ Since
1993, mining fees have included an annual $100 mining maintenance fee
on unpatented mining claims and sites and a $25 location fee on new
claims and sites. The maintenance fees are collected in lieu of the
annual $100 worth of labor or improvements (also called "assessment
work") required by the Mining Law of 1872. The authorization for these
fees expires on September 30, 2001.
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\3\ BLM has general statutory authority to use receipts from mining
fees for MLAP operations. Annual appropriations acts establish an
amount of BLM's appropriation for Management of Land and Resources
(MLR) to be used for MLAP operations. The appropriations acts require,
however, that the mining fees that BLM collects be credited against the
MLR appropriation until all MLR funds used for MLAP are "repaid." To
the extent that fees are insufficient to fully credit the MLR
appropriation, the MLR appropriation absorbs the difference and
therefore partially funds MLAP.
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some labor costs were improperly charged to mlap
Our survey of BLM employees showed that the number of hours charged
to MLAP were not a reliable record of the number of hours actually
worked on the program. According to employees, the number of hours
charged to MLAP were often in excess of the number of hours worked on
MLAP issues, or were charged for work unrelated to mining. In addition,
some employees received bonuses or awards from MLAP funds although they
charged no hours to the program.
Our survey population consisted of BLM employees who charged labor
hours to MLAP during the first 10 months of Fiscal Year 2000. The nine
administrative states and offices included in our review reported MLAP
obligations of over $23 million in Fiscal Year 2000, representing
approximately 72 percent of total reported MLAP obligations. In this
survey population, about one- half of the employees reported working
and charging the same amount of time to the program. However, almost 39
percent reported that they charged more time to MLAP than was actually
worked, while only about 11 percent reported charging less time to MLAP
than was actually worked. These results are summarized in Attachment 1.
These improper charges to MLAP mean that BLM's financial records do
not reflect the true cost of the program. They are also in conflict
with BLM's policy, which stresses that "Charging work tasks, employee
salaries, procurement or contract items, or equipment purchases to any
subactivity other than the benefiting subactivity violates the terms of
the Appropriations Act." BLM's policy also emphasizes that ``records of
actual costs and accomplishments must be (as) accurate as possible.''
Based on our survey sample, we estimate a net overcharge to MLAP of
almost 11 percent for the 10- month audit period, resulting in a
potential overcharge of about $1.2 million for the nine BLM
administrative states and offices included in our review.
Many employees reported that the improper charges to MLAP were
driven by BLM's funding allocations \4\ rather than the actual work
performed. In other words, charges were improperly made to MLAP because
that subactivity had funds available for obligation. Based on our
survey, approximately 56 percent of the employees who charged more time
than worked to MLAP said they did so because funds were available in
that program. Employees also stated that they charged MLAP based on
directions from their supervisor or a budget officer. Approximately 50
percent \5\ of the employees who charged more time than worked to MLAP
reported that they did so based on the directions of a supervisor or
budget officer. Again, this is in direct conflict to BLM's policy that
indicates charging a subactivity simply because "money is available
there" is a violation of the appropriations act. These results are
summarized in Attachment 2.
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\4\ OMB Circular A-34 defines allocation as one method of
restricting Federal funds available for obligation. It is used broadly
to include any subdivision of funds below the suballotment level, such
as subdivisions made by agency financial plans or program operating
plans, or other agency restrictions.
\5\ Employees could provide more than one explanation, therefore
the percentages listed above do not total to 100 percent.
---------------------------------------------------------------------------
Of the employees who stated that they charged more time to MLAP
than they actually worked, some reported charging time for such non-
MLAP related tasks as processing applications to drill oil and gas
wells; working on environmental remediation projects; doing recreation
management; preparing mineral reports for land exchanges; and
conducting work on common variety minerals, such as sand and gravel.
BLM officials characterized these tasks as generally not appropriate
for MLAP.
Our analysis of BLM records also showed that certain BLM employees
received bonuses and awards from MLAP funds for work unrelated to
mining. In clarifying BLM's policy, BLM's Director of Budget stated
that any bonuses and awards received as a result of the labor performed
should be charged to the subactivity that benefited from that labor.
However, awards were given to individuals for tasks unrelated to MLAP
operations, \6\ such as assisting in the moving of a BLM office to a
new facility and as compensation for not using BLM's relocation service
when selling a private residence as part of a lateral transfer. When
asked why such bonuses and awards had been charged to MLAP, BLM
officials either could provide no explanation or stated that MLAP had
been charged by mistake.
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\6\ We also found individuals who received awards from MLAP funds
for MLAP- related work, even though the hours and associated labor were
not charged to MLAP. BLM officials stated that charging these awards to
MLAP was appropriate and that the associated labor should also have
been charged to the program. Not charging the associated labor costs to
MLAP resulted in program costs being understated.
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blm effectively identified contracts and services improperly charged to
mlap but needs additional procedures to prevent recurrence
BLM's review of contracts and services over $1,500 that were
charged to MLAP during fiscal years 1998 and 1999 employed a
methodology that was appropriate and thorough and identified the
majority of the contracts and services improperly charged to MLAP
operations during that time period. The contracts reviewed represented
over $8 million, or almost 90 percent, of the contracts and services
obligated to MLAP during that time period. BLM determined that about
$716,000 in contracts and services should not have been charged to
MLAP. The improper payments, as shown in Attachment 3, included:
<bullet> Lover $34,000 for janitorial services,
<bullet> L$30,000 for the appraisal of Federal coal leaseholds,
<bullet> L$25,000 for an attorney in an Equal Employment
Opportunity settlement for an employee who had not worked on MLAP
tasks, and
<bullet> L$2,000 for a habitat survey of a threatened and
endangered species of butterfly in an area with no active mining.
In addition, our review identified an additional $40,000 for two
contracts and services that were improperly charged to MLAP. These
contracts and services were for a cooperative agreement for geographic
information system support and a biological survey. BLM officials
agreed and stated that correcting adjustments would be made to the
proper appropriation for the additional $40,000.
BLM prepared an instruction memorandum to provide guidance on
correcting the contracts and services charges that were improperly
charged to MLAP in fiscal years 1998 and 1999. BLM officials have told
us that they are identifying the appropriations for fiscal years 1998
and 1999 that should have been charged for these costs and that there
are sufficient funds to make the correcting adjustments of about
$716,000.
Although BLM is taking the appropriate steps to correct these past
improper charges of contracts and services to MLAP, it has not yet
established specific procedures to prevent the recurrence of similar
improper charges in the future. Until such procedures are established
and implemented, there continues to be a high risk of improper use of
MLAP funds for unrelated contracts and services.
many employees are unaware of source of mlap funding
Finally, as requested, in our survey we asked BLM employees whether
they were aware of the source of funding for MLAP. Approximately 70
percent of BLM employees who responded were either not aware of the
source of MLAP funding or did not know that the program is partially
funded by fees collected from miners and designated for MLAP
operations.
conclusions
In summary, the costs of some labor and a number of contracts and
services were improperly charged to MLAP, resulting in other
subactivities benefiting from funds intended for MLAP operations.
Therefore, fewer funds have been available for actual MLAP operations.
Although BLM has taken steps to make correcting adjustments for some of
these improper charges, it has not established specific guidance or
procedures to prevent improper charging of MLAP funds from recurring in
the future. Until additional procedures for MLAP are developed and
effectively implemented, the Congress and program managers can only
place limited reliance on the accuracy of MLAP cost information.
recommendations for executive action
We have included in our report the following four actions that the
Director of the Bureau of Land Management should take to address the
issues I have discussed here today:
<bullet> Lmake correcting adjustments for improper charges to
appropriation accounts;
<bullet> Lremind employees that time charges and other obligations
are to be made to the benefiting subactivity as stated in BLM's Fund
Coding Handbook and develop a mechanism to test compliance;
<bullet> Lprovide detailed guidance clarifying which tasks are
chargeable to MLAP operations, such as those listed in the background
section of our report; and
<bullet> Lconduct training on this guidance for all employees
authorized to charge MLAP.
Madam Chairman, this concludes my statement. I would be happy to
answer any questions that you or the Members of the Subcommittee may
have.
______
Mr. Gibbons. Thank you very much.
Mr. Anderson.
STATEMENT OF ROBERT ANDERSON, DEPUTY ASSISTANT DIRECTOR,
MINERALS, REALTY AND RESOURCE PROTECTION, BUREAU OF LAND
MANAGEMENT, ACCOMPANIED BY LARRY BENNA, BUDGET DIRECTOR, BUREAU
OF LAND MANAGEMENT
Mr. Anderson. Thank you.
Madam Chairman and members of the Committee, I appreciate
the opportunity to appear here today to discuss the Bureau of
Land Management's operation of the Mining Law Administration
Program and our use of the dedicated funds from the $100 claim
maintenance fee and the $25 location fee.
I have with me today Larry Benna, who is our Budget
Officer, just in case the budget comes up. Larry is directly
behind me. Thank you, Larry, for coming.
At the request of the House and Senate authorizing
committees, the General Accounting Office, GAO, conducted a
review of BLM's use of the Mining Law Administration moneys in
nine States and the BLM headquarters office. The GAO reported
that in Fiscal Year 1998, $18.6 million, or approximately two-
thirds of the $27.8 million expended in the mining law program,
was spent on labor, while obligations for operations amounted
to approximately $9.2 million. In examining the operational
dollars spent by BLM in Fiscal Year 1998, GAO's report
highlighted several contracts which appeared questionable.
In response to GAO's report, the Director of BLM promised
quick remedial action to address any instances of improper
contract charges to the Mining Law Administration Program.
Thereafter, the BLM conducted an intensive in-house examination
of all contracts in which over $1,500 was charged to the Mining
Law Program. The BLM also expanded the scope of this review to
include Fiscal Year 1999.
The BLM review disclosed that certain contract charges that
should have been made to other programs were erroneously made
to the mining law program. In response, the BLM subsequently
refunded $716,000 of erroneous charges to the Mining Law
Administration Program through internal budget adjustments. The
identified contracts and services charges have been corrected
and the use of the recovered mining law funds is being tracked
and monitored.
Most recently, the GAO conducted a limited review of labor
spending in the first 10 months of Fiscal Year 2000. The GAO
surveyed a sample of 125 employees and asked for their
understandings and recollections concerning how their time was
charged last year. The GAO report estimated that, based on
projections of this sampling, approximately $1.2 million in
mining law administration funds were on BLM activities that did
not directly relate to mining law administration.
We are firmly committed to improving cost accountability in
the Mining Law Administration Program. We are making
improvements in guiding and training our employees in the
proper uses of mining law funding. In addition, we will focus
on better methods of monitoring mining law funds.
We have already taken some steps in this direction. For
example, prior to GAO's survey of labor charges, we initiated a
survey of the mining law workload and the skill mixes in our
field and state offices. We will use the results of this survey
to better align budget and staffing to correspond with the
workload.
As the GAO found in its survey, a significant amount of
miscoding of time resulted from field offices not having
funding to match program workloads. Additionally, through a
newly developed web-based Management Information System, the
BLM now has access to workload and cost data on a current
basis. As the agency becomes more familiar and proficient with
the use of this data tool, our ability to monitor and track
costs and obligations by program will be enhanced.
In response to the GAO's recommendations, we will issue by
the end of April, 2001 additional instructions to our field
offices on the types of work activities and operational
expenses which may be charged to the mining law program.
The BLM appreciates the advice and assessment the GAO has
given to our Mining Law Administration Program. We are
committed to making improvements aimed at ensuring that Mining
Law Administration funds are properly directed to the
management of this program.
Madam Chairman, this concludes my prepared statement, and
we would be happy to answer your questions.
[The prepared statement of Mr. Anderson follows:]
Statement of Bob Anderson, Deputy Assistant Director, Minerals, Realty
and Resource Protection, Bureau of Land Management
Madame Chairman and members of the Committee, I appreciate the
opportunity to appear here today to discuss the Bureau of Land
Management's (BLM) operation of the mining law administration program
and our use of the dedicated funds from the $100 claim maintenance fee
and $25 location fee.
Through Interior Appropriation Acts, the BLM has been authorized
since Fiscal Year 1993 to charge a $100 maintenance fee to mining
claimants. This fee substitutes for an earlier requirement that mine
claimants perform $100 worth of labor or make $100 worth of
improvements, collectively referred to as assessment work, in order to
maintain a claim under the General Mining Law of 1872. The BLM is
authorized to retain the maintenance fee and use it to defray
administration costs associated with operation of BLM's mining program.
Those operators qualifying as small miners are exempt from the $100
holding fee, but continue to be required to perform $100 worth of
assessment work annually.
At the request of the House and Senate authorizing committees, the
General Accounting Office (GAO) conducted a review of BLM's use of the
Mining Law Administration monies in nine states and the BLM
headquarters office. The GAO reported that in Fiscal Year 1998, $18.6
million, or approximately two thirds of the $27.8 million expended in
the mining law administration program, was spent on labor, while
obligations for operations amounted to approximately $9.2 million. In
examining the operational dollars spent by BLM in Fiscal Year 1998,
GAO's report highlighted several contracts which appeared questionable.
In response to GAO's report, the Director of the BLM promised quick
remedial action to address any instances of improper contract charges
to the mining law administration program. Thereafter, the BLM conducted
an intensive in-house examination of all contracts in which over $1,500
was charged to the mining law administration program. The BLM also
expanded the scope of this review to include Fiscal Year 1999.
Our review revealed that most contracts were legitimately charged
to mining law administration. For example, the GAO identified a
contract for $3,500 to Hollywood Show Lights, which at first glance
might raise questions. Hollywood Show Lights provides specialized
lighting facilities and vehicles principally to the movie industry.
However, further BLM clarification of the contract disclosed that
Hollywood Show Lights provided staff and heavy equipment to the BLM for
the removal of trash and material from an unauthorized use site on a
mining claim in the Tick Canyon area of Los Angeles County. Upon
review, both the BLM and the GAO determined this to have been a proper
utilization of mining law administration funds.
The BLM review disclosed that certain contract charges that should
have been made to other programs were erroneously made to the mining
law administration program. In response, the BLM subsequently refunded
$716,000 of erroneous charges to the mining law administration program
through internal budget adjustments. The identified contracts/services
charges have been corrected and use of the recovered mining law funds
is being tracked and monitored.
Most recently, the GAO conducted a limited review of labor spending
in the first 10 months of Fiscal Year 2000. The GAO surveyed a sample
of 125 employees and asked for their understandings and recollections
concerning how their time was charged last year. The GAO report
estimated that, based on projections of this sampling, approximately
$1.2 million in mining law administration funds were used on BLM
activities that did not directly relate to mining law administration.
In our February 2001 response to the GAO, we stated that we would
attempt to make appropriate adjustments and restore the misdirected
funds. However, unlike our review of contract expenditures, we believe
it to be difficult, if not impossible, to reconstruct accurately all of
our employees labor charges in order to identify where possible
misdirection of labor costs may have occurred and should be adjusted.
In addition to requiring a significant commitment of resources, this
process would most likely result in questionable conclusions as
corrective actions would necessarily rely on employees recollections of
time spent doing work as much as a year ago. After discussions with the
GAO which are scheduled to take place in the next two weeks, we intend
to review the GAO's survey results and correct specific instances of
miscoding in Fiscal Year 2000.
We are firmly committed to improving cost accountability in the
mining law administration program. We are making improvements in
guiding and training our employees in the proper uses of mining law
administration program funding. In addition, we will focus on better
methods of monitoring mining law administration funds. We have already
taken some steps in this direction. For example, prior to GAO's survey
of labor charges, we initiated a survey of the mining law
administration workload and the skill mixes in our field and state
offices. We will use the results of this survey to better align budget
and staffing to correspond with workload. As the GAO found in its
survey, a significant amount of miscoding of time resulted from field
offices not having funding to match program workloads. Additionally,
through a newly developed web- based Management Information System
(MIS), the BLM now has access to workload and cost data on a current
basis. As the agency becomes more familiar and proficient with the use
of this data tool, our ability to monitor and track costs and
obligations by program will be enhanced. The MIS will facilitate better
and more intensive monitoring of expenditures.
In response to the GAO's recommendations, we will issue by the end
of April, 2001, additional instructions to our field offices on the
types of work activities and operational expenses which may be charged
to the mining law administration program.
The BLM appreciates the advice and assessment the GAO has given to
our mining law administration program. We are committed to making
improvements aimed at ensuring that mining law administration funds are
properly directed to the management of this Program.
Madame Chairman, this concludes my prepared statement. I would be
pleased to answer any questions that you or the other members of the
Committee may have.
______
Mr. Gibbons. Thank you very much, Mr. Anderson. We will try
to adhere to the five-minute rule for those of us who wish to
question you during this period of time.
I'm going to defer my questioning to the Chairwoman of the
Subcommittee, Mrs. Cubin from Wyoming, if she has any questions
at this time.
[The prepared statement of Mrs. Cubin follows:]
Statement of The Honorable Barbara Cubin, Chairman, Subcommittee on
Energy and Mineral Resources
The Subcommittee meets today, in our oversight capacity to review
the Bureau of Land Management's handling of the mining law
administration program supported by claim fees. Since 1993, hardrock
mining claim holders have been required to annually pay $100 per lode
claim, placer claim or millsite which they wish to hold for the
following year. Holders of ten or fewer claims nationwide may elect to
perform the traditional assessment work requirement rather than pay
this fee.
This so-called holding fee will expire after the collection due
this September 1st unless reauthorized. The current authorization is a
product of an interior appropriations act rider from Fiscal Year 1999.
Prior to this time the fee was levied upon miners via the 1993 budget
reconciliation act, and initially it was a product of another
appropriations bill.
A somewhat unusual aspect of the claim holding fee is that the BLM
collects the funds from the miners but does not deposit them into the
general treasury for later appropriation. Rather, the fees are an
offset against what sums BLM is annually appropriated for Management of
Land and Resources. Then, if the fee collection falls short of mining
law administration program needs, the difference is to come from
general funds.
Our first panel will testify as to the manner in which BLM has
spent the holding fees collected expressly for the purpose of mining
law administration. Last Congress, our Senate counterparts and I asked
the General Accounting Office to review these expenditures. We wanted
to know how well, or poorly, the BLM was doing toward insuring that
expropriated dollars from the miners wasn't being spent on salaries,
contracts and other program costs which should have been paid from
appropriated dollars out of the general fund.
Lo and behold, the GAO's auditors learned what many had surmised--
BLM personnel too often code their time and expenses to budget accounts
deemed to be flush with cash. Like Willie Sutton who said that he
robbed banks because that's where the money is , apparently some
supervisors in BLM have elected to have folks code to mining law
administration whether they worked in that area or not, because the
funds were available.
While we should be no less concerned if appropriated dollars are
misspent, the mis-expenditure of a fee collected directly for a
specific purpose is especially worrisome to those paying the freight.
How can Congress rationally debate reauthorization of this fee if we
don't know how the BLM is actually spending the money? Likewise, the
debate must consider the impacts of fee reauthorization upon our
domestic industry and the economies of the rural communities which have
supported public land minerals exploration over the decades.
Our second panel of witnesses today will address the issue of the
large reduction of holding fees collected since the late 1980's.
Initially the sum of holding fees collected was over $35 million per
year, but the drastic fall-off in mining claims has diminished this
total to barely $21 million last year. In the late 1980's, prior to
this fee, BLM reported that some 1.2 million mining claims were of
record in their data base. Now the figure is less than 250,000. Most
likely multiple factors were at work to cause this result, but
imposition of the holding is clearly a candidate for part of the blame.
I look forward to our distinguished panel enlightening us upon
these issues.
______
Mrs. Cubin. Mr. Chairman, I do have some questions.
My first question is for Mr. Anderson. I have in front of
me the verdict of a trial that occurred in the United States
District Court for the District of Wyoming. It's a sexual
harassment case. The verdict just came in, for a million
dollars awarded to the plaintiff, in a suit against the BLM.
I just want to make sure that none of that million dollars
that is being awarded to the plaintiff come out of this fund. I
just want to go on record in making sure that that doesn't
happen. Can you give me any assurances that that won't happen?
Mr. Anderson. I'm glad I brought my budget guy today.
Larry?
Mr. Gibbons. For the record, if you do testify, please
identify yourself with your name and your position.
Mr. Benna. Good afternoon. My name is Larry Benna. I'm the
Budget Director for the Bureau of Land Management. I appreciate
the opportunity to be here.
In response to the question, again, as the document you
have just came from the courts, I'm not intimately familiar
with it. But I don't imagine we would charge things to that,
but I will review that for the record and provide a detailed
response.
Mrs. Cubin. I appreciate that, although I can tell you that
I'll bet, if you were asked prior to the GAO study, it would be
hard to imagine some of the expenditures that came out of this
fund would be made as they were made. So I will be watching, I
guess, is what I need to say.
This is also to Mr. Anderson. There were nearly 760,000
active mining claims in early 1993, before the $100 claim
maintenance fee was levied. This was dropped to just under
333,000 active claims in September of '94, which is a loss of
427,000 claims. As of September, 2000, there were almost
236,000 active mining claims, which translates to a loss of an
additional 97,000 claims.
Do you think that the loss of any of these 663,000 active
mining claims since this fee was imposed have had an impact on
exploration levels in the United States?
Mr. Anderson. There may be some, but in our analysis of the
metal prices, especially for gold, and the location of claims,
we find there is a very close parallel in the comparison of
metal prices and the number of claims that are staked in any
given year, and also dropped in a given year.
Mrs. Cubin. So it's not your testimony, is it, that the
price of metals is the only reason that these claims have
dropped? I can tell you from firsthand knowledge, I know that
the fee has impeded exploration in the country.
Mr. Anderson. I'm sure there's merit to your opinion, Madam
Chairman. Of course, the metals market--
Mrs. Cubin. Certainly it's important as well, Mr. Anderson.
I can see that.
Mr. Anderson. And the cost of doing business and the profit
margin all have a role to play in this as well.
Mrs. Cubin. Probably it's a multifaceted problem, including
access as well, so I completely agree with your answer.
In prior years, did the fees that were collected fully fund
the Mining Law Administration Program before the $100 fee was
charged?
Mr. Anderson. Before the...?
Mrs. Cubin. Oh, okay. The early years of the $100 holding
fee, excuse me. Did it fully fund the Mining Law Administration
Program?
Mr. Anderson. Yes.
Mrs. Cubin. GAO states that most BLM employees that they
interviewed were unaware of the funding sources. Given that
this funding comes primarily from holding fees, don't you think
that that is an important thing that employees should know, in
keeping track of their time and expenses?
Mr. Anderson. We sure do, Madam Chairman. We have to do a
better job in making sure that they know where this funding
comes from, and also how to use this funding.
As mentioned in my testimony, we have already made an
impact on our field offices, and also here in the Washington
office, on how those funds are to be used. We have three memos
that have gone out on various aspects of the program, and on
coding, on the use of mining law funds. So I think there is a
heightened awareness right now as we speak, and there will be
more as we put out more guidance in the future.
Mrs. Cubin. Thank you.
Mr. Gibbons. Thank you very much, Mrs. Cubin.
Mr. Rahall.
Mr. Rahall. Thank you, Mr. Chairman.
If the claim maintenance fee were revoked, where would the
money to administer the mine law program, including approval of
permits and enforcement of mining regulations, come from? If
the maintenance fee were revoked, where would the money for
everything else come from?
Mr. Anderson. We would have to ask the Congress to
appropriate that money.
Mr. Rahall. Okay. Do you expect President Bush to include a
claim maintenance fee in his budget request?
Mr. Anderson. I would like to defer that question to our
budget officer here.
Mr. Benna. I had a strange feeling you would.
Mr. Rahall, with all due respect, perhaps we can respond to
that after the President's budget has been released. It's due
for release on April 9th. We are exercising some considerable
caution about discussing that prior to the actual release of
the budget. I think that would be my statement for now.
Mr. Rahall. You can't be caught on the record then?
Mr. Benna. No, sir.
Mr. Rahall. Okay, thank you.
Thank you, Mr. Chairman.
Mr. Gibbons. Thank you.
Mr. Otter.
Mr. Otter. Thank you, Mr. Chairman.
Mr. Anderson, how many different programs like the Mining
Law Administrative Program does the BLM have within its
category of receipts?
Mr. Anderson. I'll let Larry Benna answer that question.
Mr. Otter. Larry, you're getting double duty today.
Mr. Benna. I guess it comes with the territory.
I don't think I can give you the actual number of specific
accounts. I can provide that for the record. We do have other
programs that are receipt-based. For example, we do operate a
recreation program that is funded from recreation fees. We do
have various other charges, like our range improvement fund is
funded out of 50 percent of the grazing fees that are
collected. We do also make several payments to states and
countries that come from receipts that are generated from
public land activities. We've got several other programs that
we operate based on service charges--for example, processing
rights of way. So it's fairly in-depth.
Mr. Otter. Thank you. Perhaps I can cut to the quick here,
then, or to the chase.
Is it the practice then of the BLM, in authorizing its
expenditures from each of these funds, to assign a certain duty
time or amount of time per employee, say, to grazing and
recreation, to mining law? Is that the practice?
Mr. Benna. I think our general practice is to instruct our
employees to allocate funding based on the work that they're
actually planning to do, and then we ask them to record their
time and their cost based on the work they actually do perform.
Mr. Otter. Great. Could you ballpark for me, then, the
total funds that would come into BLM under all the programs
that it has?
Mr. Benna. You mean receipt funds?
Mr. Otter. Yes, but not from general fund appropriations,
but from fees, dues, recreational expenses, whatever.
Mr. Benna. I think a ballpark number, again without having
documents in front of me, in Fiscal Year 2000, I think we
collected somewhere on the order of between $1.6 and $1.8
billion.
Mr. Otter. One point six to one point eight billion.
Mr. Benna. Yes, sir.
Mr. Otter. Miss Calbom, when you were going through this
audit, am I to believe that you only audited the mining
administration fund?
Ms. Calbom. Yes, that's correct.
Mr. Otter. Have you any reason to believe that similar
mistakes and misappropriations were made for this billion, six
hundred? Have we any reason not to believe that there was
likewise mistakes made in the misassignment of hours worked per
program charged for that money, for a billion, eight hundred
million?
Ms. Calbom. It is certainly possible, given the findings
that we had in looking at this program.
Mr. Otter. Has the GAO looked at that?
Ms. Calbom. We have not at this point, no.
Mr. Otter. Okay. Thank you, Mr. Chairman.
Mr. Gibbons. Thank you, Mr. Otter.
Mr. Inslee.
Mr. Inslee. Thank you, Mr. Chair.
You know, we're going to a policy where citizens have to
pay for parking their car on the side of the road going through
the national forests, and have to be increasing fees to take
their kids for a picnic in a national park, and have got to pay
a fee to park in an area where you get out and go cross-country
skiing. You have got to have a fee every time you turn around
to walk through our national lands. And yet, I see people are
proposing that hard rock miners should be able to essentially
have a free rental to do explorations on land, with significant
changes to the land, for free, when my citizens have to pay to
walk their kid around, which doesn't do a darned thing to the
park land or the forests.
They also want to transfer the cost of this maintenance
expenditure from the miners, who stand to make a billion
dollars a year, which is what is estimated they take out of
public lands each year, they want to transfer the cost of that
program, onto my citizens, who have to pay money for the mere
purpose of walking their kid 20 feet from their parked car.
I just want to ask any of you three at the table, does that
seem right to you?
Mr. Anderson. The 1872 mining law, of course, has been
around for a long time. Not to raise another issue, but the
mining law states that the land shall be free and open to
exploration and development. Of course, that was 125 years ago.
There are merits on both sides. The real reason for
assessment work was to prompt substantive work toward the
discovery of a valuable mineral. That hasn't always occurred
with assessment work. In fact, there have been a few reports
that say just the contrary, that miners would file their
affidavits of assessment work but wouldn't do the work itself.
So, in 1993, of course, Congress imposed this $100 fee, and I
think it has been an advantage to the taxpayer in terms of
helping administer these programs under the mining law.
That's a roundabout answer. I can't give you a yes or a no.
Mr. Inslee. Well, I'll give you three options: Yes, no, or
I prefer not to answer that question, as to what you truly
believe.
Mr. Anderson. Well, I guess--
Mr. Inslee. Any three is fine with me, as long as they're
honest.
Mr. Anderson. I guess I would choose not to answer the
question, with that--
Mr. Inslee. I appreciate that.
Miss Calbom, how would you answer that question?
Ms. Calbom. Well, what our work was focusing on was looking
at the cost of the program and how well the costs are being
accounted for. The original idea of charging the fee was that
it was supposed to be a self-funding program. I guess our
concern is that you can't tell whether it's a self-funding
program or not if you don't know the true costs of the program.
You know, in making a determination, I don't know whether a
fee should be charged or not, or how much it should be, but I
do know that, when you're trying to determine that, you need to
know the true cost of the program.
Mr. Inslee. Is there any other activity that causes this
potential substantial damage to the land that does not pay any
fee for the right to use Federal lands? I am told oil and gas
pays some royalty; I'm told kids pay to picnic on Federal
lands. Is there any others, like hard rock mining, that do not?
Mr. Anderson. I can't think of any, no.
Mr. Inslee. Madam Chair, I really hope that you--actually,
Madam Chair is not in the chair at the moment, is she.
Mr. Chair, I hope you entertain Mr. Rahall's issue here for
continuing this fee, because I really believe it was
inappropriate to shift these costs to the general taxpayer, who
is already getting charged for having picnics. I hope you
seriously bring this to the Committee's attention. Thank you
very much.
Mr. Gibbons. Mr. Inslee, I would report that even the two
industry witnesses that are going to testify here later today
do not suggest the fee should be eliminated, so I would hope
you will listen to what they have to say.
The purpose of this fee, of course, was not to stop
exploration on land. The purpose of this fee was to assist the
BLM with its administration of the mining laws and programs
that are affected through the course of the 1872 mining law. So
to suggest that the MLAP and the fee assessment was to
substitute for exploration misstates the purpose and the
character of the fee. It simply was an alternative that the
Administration thought in 1993 was necessary to assist the BLM
with their administration.
With that, let me turn to Miss Calbom and ask a question.
In your testimony today, of course, you indicated that you
surveyed some BLM employees. Who was included in this survey?
Was it administrative? Did you question the administrative side
of the BLM, or was it simply the employees? And how did you
carry out this survey?
Ms. Calbom. What we did was we took a look at anyone who
charged time to the program, so that would include supervisors,
employees and--
Mr. Gibbons. If I may interrupt you, and I apologize, did
you look for specific authorizing authorities, whether it was
written or otherwise, from the Administration, on how this time
was to be charged or how this money was to be used in this
whole process?
Ms. Calbom. Oh, yes. These funds were clearly earmarked to
be used just for MLAP operations.
Mr. Gibbons. What I'm asking, though, were there directions
given, directives given by the BLM, or through its management,
as to how this money would be authorized and spent, or charged?
Ms. Calbom. There were some directions given...if I may
confer with my colleagues for a moment. [Conferring.]
The budget justification is probably the closest thing that
describes the particular activities that should be charged to
this program. That's one of the recommendations we make, that
there needs to be better communication to the employees as far
as what should be included. Because, back to your original
question, what our survey showed was that a lot of people
really didn't understand what was supposed to be included.
As far as how we did our survey, if you would like me to go
ahead and answer that question, as I said, we identified
individuals who charged time to the program. I believe there
were about 744 individuals. We did a statistical sample of 125
individuals from that population, and then we sent out our
survey ahead of time to them. We called them and actually
interviewed them over the phone. We were actually able to reach
all but nine people, and those people had either left BLM or
were on extended sick leave. So we had a very good return rate
on that survey.
Mr. Gibbons. Let me ask a follow-up question.
Does the BLM have an obligation to reimburse the MLAP
program under this misappropriation or misuse that you have
identified?
Ms. Calbom. It is, in fact, a purpose violation. I believe
they have reimbursed the program for the contracts and
services. I don't believe the labor portion has been reimbursed
at this point.
Mr. Gibbons. Do you know how much of the $716,000
outstanding amount is assessed only to labor?
Ms. Calbom. The $716,000 related to the contracts and
services, and that's the piece I think that was, in fact,
reimbursed.
We had made a statistical estimate, which you can't go by
exactly, but we estimated about $1.2 million in labor
overcharges had occurred. But that was only for a 10-month
period and it didn't include all the states and offices. And
there was a range to that estimate as well. So--
Mr. Gibbons. So this amount, the $1.2 million, could
actually be extensive, if you went back to the time of the 1993
period through the period which you did your audit?
Ms. Calbom. It certainly would likely be larger than that,
yes.
Mr. Gibbons. Mr. Anderson, do you wish to comment on the
payback obligation of the labor cost?
Mr. Anderson. Let me just answer that, and maybe Larry can
supplement it.
For the 125 employees that they interviewed, we plan to
meet with the GAO in the upcoming weeks to determine, from the
information they have--and we don't have that information yet--
the names of the people who coded their time to the mining law
fund. We plan to investigate this further to see if we can
determine exactly when they charged their time through 1990,
what, in fact, they should have charged their time to.
As to the other employees, out of the 700, the 500 or so,
we do not plan to go back for those employees because it would
be difficult to do so. We could certainly interview them, but
after this time period, I'm not sure how well their memories
might serve them as to where they spent their time. It might
not be efficient to do that.
Mr. Gibbons. Miss Calbom, one quick question, and then I'll
turn it over for a second round.
Is your opinion that the misapplication of the time and/or
use of the MLAP funds is a violation of statutory law?
Ms. Calbom. I would have to turn to our legal counsel on
that. [Conferring.]
As I did mention before--I guess I did know the answer--it
is a purpose violation and it would violate the MLAP
appropriation.
Mr. Gibbons. So, Mr. Anderson, you do understand the
importance of that violation?
Mr. Anderson. Yes, sir.
Mr. Gibbons. And the requirement would then be you would
have an obligation to correct it?
Mr. Anderson. Yes.
Mr. Gibbons. I think my time is up. Mrs. Cubin, do you have
more questions?
Mrs. Cubin. No, Mr. Chairman.
Mr. Gibbons. I think right now we would have only one
remark, and that would be this Committee and the members of
this Committee may have additional written questions which they
would like to submit to you in writing. I would ask that you do
answer them specifically and, once you have completed your
answers, return them. We request that they be returned, once
you receive them, within two weeks of receipt of those
questions, if you can possibly comply with that time frame.
With that, we would like to excuse you and thank you for
your testimony here before us today. We appreciate the time you
have taken. Thank you.
With that, we would like to call up the next panel,
Attorney-at-law Mr. J.P. Tangen, testifying on behalf of the
Alaska Miners Association; Mr. Alan Septoff, Reform Campaign
Director of the Mineral Policy Center; and Mr. Steve Craig,
Vice President, Golden Phoenix Minerals, Inc.
Gentlemen, in order to get moving, I would ask that you
look at our little timer that's in front of you. We try to keep
our comments within a five-minute time frame. We are certainly
not going to ask you to leave if you exceed that, but we would
like to be reasonable. Both the Committee members and the
witnesses that are around you would appreciate some adherence
to at least a proximal time of five minutes.
If you wish, this Committee, without objection, would
receive your written testimony in the record and you may
summarize, for your own convenience, your written testimony.
If that is understood by all, I would ask Mr. Tangen to
begin. Welcome to the Committee. We look forward to your
testimony.
STATEMENT OF J.P. TANGEN, DIRECTOR, ALASKA MINERS ASSOCIATION
Mr. Tangen. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today. My name is J.P. Tangen, and I am
appearing today before this Subcommittee on a topic that
significantly affects the mining industry in Alaska.
I am here today as a director of the Alaska Miners
Association. The Alaska Miners Association is an industry
support organization of approximately 1,000 individual miners,
engineers, scientists, and providers of goods and services to
the mining industry in Alaska.
Our organization has been representing miners and
associated interests in Alaska since territorial days and draws
its heritage from the hearty souls who crossed the Chilkoot
Trail and who mined the beaches of Nome a century ago.
The key ingredients of the Mining Law of 1872, and what has
made it possible for Alaska's miners to persevere, are the twin
concepts of self-initiation and security of tenure. Alaska
miners know, or at least they did know until the mining law
reform movement emerged, that all they needed to do was to go
on to the vacant and unappropriated public domain, or Forest
Service lands, and locate a claim. If they followed relatively
simple rules, their title would be unassailable.
Further, by doing a modest amount of annual labor for the
benefit of their claims, their tenure was secure forever. That
labor could be measured in sweat equity and required little
cash beyond that needed for a few barrels of diesel fuel. An
old cat and a welding torch meant that the locator could prove
up his claim. If it was as big as he hoped, and as rich as he
dreamed, he could turn it over to a major mining company and
live off the proceeds. If it was something less, he might be
able to work it himself for wages, or slightly better. Or, if
there was nothing there at all, he could move on to another,
more promising site.
When, in 1992, FLPMA was amended to provide for rental
payments in lieu of labor, the statutory framework changed.
Rental payments are sometimes acceptable to major mining
companies that have substantial financial resources upon which
to draw, and can make decisions to hold or release large blocks
of claims based upon a few drill holes, or perhaps a slightly
better find on the far side of the world. For those of us
committed to Alaska, however, neither abandoning a claim nor
paying five dollars per acre, as the same may be escalated, is
a satisfactory result.
The requirement for holding fees in lieu of annual labor on
a mining claim in order to protect one's title has a pernicious
aspect to it. Those fees serve to feed a large and growing
bureaucracy performing tasks that appear to us to be of
questionable necessity or objective value. It would be one
thing if the fees were calculated to result in an expanded
industry, but no one pretends that this is the case. Since the
fee's inception, the number of claims on BLM and Forest Service
lands in Alaska has plummeted, as miners have sought minerals
elsewhere. The anticipated revenue stream derived from these
fees is a small fraction of what was hoped for. There is no
evidence that over the past decade the fee structure has
advanced the industry or the national interest in producing
mineral commodities domestically. When coupled with the
December 5, 1996 opinion of former Solicitor Leshy prescribing
BLM's obligation under FLPMA to charge fees for a variety of
governmental activities which ostensibly ``benefit'' the miner,
it appears that this exercise is more motivated by the desire
to stop mining than by the desire to protect the public
interest.
A small seasonal placer operation on a remote Alaska creek
cannot always afford a five-dollar-per-acre fee for simply
holding a claim from one year to the next. A Federal mining
claim is typically 20 acres. An acre is equal in size to a
square 208 feet on a side. For the miner who holds more than
ten claims, five dollars an acre can be a considerable amount
of money for a relatively small amount of ground. This is
especially true if he also has to pay for inspections and
environmental impact statements, public hearings, validity
determinations and more, as proposed under the new 3809
regulations recently released by the Clinton Administration. If
these 3809 regulations survive, and if the BLM fees regulations
now being circulated for comment survive, and if the rental
payments regulations survive, the small miners of Alaska may
not.
I wish to make it clear that the Alaska Miners Association
is not unilaterally opposed to a holding fee in lieu of annual
labor. In some instances, it may be an appropriate alternative.
What we are opposed to is the size of the fee and its
disposition. We believe that operators should have the option
of performing labor to protect their holdings, even if the
number of claims in which they have an interest exceeds ten.
There is no apparent justification for an arbitrary limit of
ten. Because the more obvious mineral deposits have often been
developed, larger and lower grade occurrences are now being
brought into production. Small operators are unduly stifled by
a ten-claim limit.
The effect of these regulations ought to be to encourage
exploration and, where warranted, development of valuable
mineral deposits on Federal lands. The experience over the past
10 years has been to the contrary.
I appreciate the opportunity to testify, Mr. Chairman, and
I will submit my entire testimony for the record.
[The prepared statement of Mr. Tangen follows:]
Statement of J. P. Tangen, Director, Alaska Miners Association
Good afternoon. My name is J. P. Tangen. I want to thank you for
the opportunity to present testimony to the Subcommittee today on a
topic that significantly affects the mining industry in Alaska. I am
appearing here today as a director of the Alaska Miners Association.
The Alaska Miners Association is an industry support organization of
approximately 1,000 miners, engineers, scientists, and providers of
goods and services to the mining industry in Alaska. Our organization
has been representing miners and associated interests in Alaska since
Territorial days and draws its heritage from those hearty souls who
crossed the Chilkoot Trail and who mined the beaches of Nome a century
ago.
holding fees as a part of the national policy
The issue before the Subcommittee today is an excellent example of
the problem we have with how our national mining policy is currently
being implemented. We believe that the Minerals Policy Act of 1970 (30
U.S.C. 21a) articulately expresses what should be the national policy
regarding mining. We believe this policy should be on an equal footing
with the national environmental policy. We believe that the
contribution which the mining industry has made to the United States
over the past two hundred years is so significant that the industry
should be protected and defended by Americans everywhere, rather than
vilified for actions which predate the adoption of contemporary
standards.
Beginning in 1989, the members of our association together with
miners large and small across the United States came under attack when
Senator Dale Bumpers introduced his first version of legislation to
repeal the 1872 Mining Law. The Bumpers proposal included, among other
things, payment of an annual rental fee as a substitute for the
assessment work requirement. The following January, Representative Nick
Joe Rahall introduced H.R. 3866 to reform the Mining Law of 1872.
Rahall's bill contemplated payment of a rental fee and included a
required amount of diligent expenditures or an additional payment in
lieu of diligent development expenditures. At the end of the 1990
legislative session, the Senate Energy and Natural Resources Committee,
as a part of the budget reconciliation process, nearly passed an annual
$100 per claim holding fee on the holders of Federal mining claims.
In 1991, Rahall and Bumpers reintroduced their legislation. The
Rahall bill once again would have required a rental fee and a diligent
development expenditure or a payment in lieu of diligent development,
while the Bumpers bill would have required a holding fee of $5 per
acre, increasing by $5 every five years.
In 1992, the Bush administration's budget bill included a $100 per
claim annual holding fee. Specifically, Amendment 18 to the Department
of the Interior and Related Agencies Appropriations Act, 1993 (Public
Law No. 102-381) in one page [did away] with 120 years of law and
judicial decisions concerning maintenance of unpatented mining claims.
<SUP>7</SUP> A small miner exemption was included in the Act; however,
due to the way it was interpreted by the BLM, many small miners were
confused about its provisions and lost their claims.
---------------------------------------------------------------------------
\7\ Hubbard, Randall E., Rental Fees, Assessment Work, and
Maintenance Requirements for Unpatented Mining Claims Getting Simpler?
40 Rocky Mountain Mineral Law Institute 8-8 (1994)
---------------------------------------------------------------------------
The 1993 Omnibus Budget Reconciliation Act (Public Law No. 103-66)
did not improve the situation. That Act was implemented by a set of
regulations finalized on August 30, 1994 that extensively detailed the
requirements to be imposed on mining operations. The Interior and
Related Agencies Appropriation Act for Fiscal Year 1999 (Public Law
105-277) changed the rules once again. The interim final rule that
followed on August 27, 1999, clarified the small miner exemption. At
last this exemption was made effective in protecting those operators
with ten claims or less.
I would like to make two points today with regard to this specific
amendment to the General Mining Law. First, we believe it negatively
modifies the essence of the Mining Law of 1872 and second, it
apparently does not accomplish what it was designed to do.
the nature and purpose of the mining law
We regard the mining law of 1872, as amended, to be an essential
implementation of a fundamental American right. First and foremost, the
law contributes to the free economy by enlarging the economic pie.
Every time a miner recovers an ounce of gold or a pound of zinc from
the public domain, he has made a contribution to the common wealth.
That commodity, like the product of the farmer and the forester and the
fisherman ultimately makes the world a better place. If that commodity
finds its way into the economy as a gold contact on a computer
motherboard or a galvanized nail for a new home, the world is improved
thereby. Those professions that create such new wealth are unlike the
stockbroker or the pipefitter. Without a constant supply of new
commodities, the stockbroker would have no stock to broker and the
pipefitter would have no pipes to fit. If an item cannot be grown,
initially it has to be mined.
We are not insensitive to the concerns about the environment. But
environmental demands have been a moving target for the past thirty-
five years, and before that they were not on the national radar screen
at all. If environmental standards ever come to repose, the mining
industry will embrace them just as it has embraced the health and
safety laws that once were a hot issue before environmentalism was in
vogue, and the wage and hour standards before that. The resolution of
environmental issues in conjunction with mining activities should not
demand killing the industry that produces necessary commodities, but
encouraging it to flourish in a manner acceptable to all people.
Minerals are not evenly distributed across the face of the earth.
They are concentrated in specific locations dictated by diverse
geological factors. Outcroppings are rare. Even in a highly mineralized
environment such as Alaska, the discovery of a valuable mineral deposit
is laborious, costly, time-consuming and infrequent. Experienced and
well-trained individual prospectors have an even chance with the best-
financed major mining companies of making a significant new discovery.
It is the hope for a profit that drives exploration efforts.
Venture capital is always hard to come by and with commodity prices
generally depressed, as they have been during the past decade, other
investment opportunities have siphoned off much of the funding that
previously made exploration on Federal land in Alaska possible.
Notably, mineral exploration on state and Native land in Alaska has not
suffered the same fate over recent years because of the supportive
attitude of the state toward mining. Of the four large mines currently
operating in Alaska, two are on state land, one is on Native land and
one is partly and Native land and partly on Federal land managed by the
Forest Service. None are on land managed by the BLM. This dichotomy
suggests that commodity prices and availability of capital alone are
not dispositive of why miners are not exploring on Federal land.
self-initiation and security of tenure
The key ingredients of the Mining Law of 1872, and what has made it
possible for Alaska's miners to persevere, are the twin concepts of
self-initiation and security of tenure. Alaska's miners know, or at
least they did until the mining law reform movement emerged, that all
they needed to do was go onto the vacant and unappropriated public
domain (or Forest Service lands) and locate a claim. If they followed
relatively simple rules, their title would be unassailable. Further, by
doing a modest amount of annual labor for the benefit of their claims,
their tenure was secure forever. That labor could be measured in sweat
equity and required little cash beyond that needed for a few barrels of
diesel fuel. An old cat and a welding torch meant that the locator
could prove up his claim. If it was as big as he hoped and as rich as
he dreamed, he could turn it over to a major mining company and live
off the proceeds. If it was something less, he might be able to work it
himself for wages or better. Or if there was nothing there at all, he
could move on to another, more promising site.
When, in 1992, FLPMA was amended to provide for rental payments in
lieu of labor, the statutory framework changed. Rental payments are
sometimes acceptable to major mining companies that have substantial
financial resources upon which to draw and which can make decisions to
hold or release large blocks of claims based upon a few drill holes or
perhaps a slightly better find on the far side of the world. For those
of us committed to Alaska, however, neither abandoning a claim nor
paying $5 per acre (as the same may be escalated) is a satisfactory
result.
mining and the environment
We are not unmindful of the concerns raised by extreme
environmentalists who worry about everything from chemical spills to
interrupted wilderness experiences. For the most part, their public
positions are irresponsible, exaggerated and misleading. Twenty-first
century mining in Alaska is characterized by extensive reclamation and
a commendable track record of safe operations, not only in terms of
personnel, but also in terms of the environment. No significant
activity occurs without difficulties, but for every such problem there
is a reasonable remedy. Ironically, mining operations from a previous
era when reclamation was not a standard are broadly deemed historical
artifacts to be protected and preserved. From Skagway to Kennecott to
Kantishna to Nome, Alaska's mining history is the stuff tourists pay to
see and Park Rangers are quick to protect.
bureaucratic excesses
The requirement for holding fees in lieu of annual labor on a
mining claim in order to protect one's title has a pernicious aspect to
it. Those fees serve to feed a large bureaucracy performing tasks that
are of questionable necessity or objective value. It would be one thing
if the fees were calculated to result in an expanded industry, but no
one pretends that is the case. Since the fees inception the number of
claims on BLM and Forest Service lands in Alaska has plummeted as
miners have sought minerals elsewhere. <SUP>8</SUP> The anticipated
revenue stream derived from these fees is a small fraction of what was
hoped for. There is no evidence that over the past decade that the fee
structure has advanced the industry or the national interest in
producing mineral commodities domestically. When coupled with the
December 5, 1996, opinion of former Interior Solicitor Leshy
prescribing BLM's obligation under FLPMA to charge fees for a variety
of governmental activities which ostensibly benefit the miner, it
appears that this exercise is more motivated by the desire to stop
mining than by the desire to protect the public interest.
---------------------------------------------------------------------------
\8\ See Attached Table.
---------------------------------------------------------------------------
A small seasonal placer operation on a remote Alaska creek cannot
always afford a $5.00 per acre fee for simply holding a claim from one
year to the next. A Federal mining claim is typically 20 acres. An acre
is equal in size to a square 208 feet on a side. For the miner who
holds more than ten claims, $5.00 per acre can become a considerable
amount of money for a relatively small amount of ground. This is
especially true if he also has to pay for inspections and environmental
impact statements and public hearings and validity determinations and
more as proposed in the new 3809 regulations, recently released by the
Clinton administration. If these 3809 regulations survive, and if the
BLM fees regulations now being circulated for comment survive, and if
the rental payments regulations survive, the small miners of Alaska may
not.
Former Secretary Babbitt promoted the myth of miners ripping off
the public interest by securing title to mineral lands for a token
price. Most miners don't seek patent. Babbitt's statements belied more
than the elements of a land purchase transaction. They implied, quite
unfairly, that the extraction of minerals from the ground was an easy
and remunerative process. No matter what the technique, whether by
placer or by hardrock, whether by gravity or flotation, whether in the
Brooks Range or on the Kenai, the act of recovering minerals from an
unrelenting host is just plain hard work. If the miner in Alaska had to
deal with nothing other than metallurgy and the elements, it would be a
challenge. When regulation and oversight are thrown into the mix, the
chore becomes a much heavier burden.
I wish to make it clear that the Alaska Miners Association is not
unilaterally opposed to a holding fee in lieu of annual labor. In some
instances it may be an appropriate alternative. What we are opposed to
is the size of the fee and its disposition. We believe that operators
should have the option of performing labor to protect their holdings,
even if the number of claims they have an interest in exceed ten. There
is no apparent justification for an arbitrary limit. Because the more
obvious mineral deposits have often been developed, larger and lower
grade occurrences are now being brought into production. Small
operators are unduly stifled by a ten claim limit. The effect of these
regulations ought to be to encourage exploration and, where warranted,
development of valuable mineral deposits on Federal lands. The
experience over the past 10 years has been to the contrary.
conclusion
The Alaska Miners Association wants to be on the record in support
of flexibility under the law. The payment of a fee in lieu of
performing annual labor on Federal mining claims is acceptable as long
as the fee is reasonable and an alternative. We are opposed to being
forced into one avenue or the other. We believe that fees derived from
mining operations ought to be used for the benefit of the industry to
strengthen it, not weaken it. The contribution which the mining
industry makes to our national prosperity is significant. Intemperate
regulation is not in the public interest.
I cannot speak for miners in other states or locations, but over
the years I have known and represented Alaska miners from Candle to
Ketchikan and from Chicken to Cooper Landing. None have grown wealthy
by mining commodities from Federal lands in Alaska. Mining in Alaska is
not akin to pumping oil from Prudhoe Bay. Mining is labor intensive and
frequently provides only bacon and beans for a family. It is hard but
good work and provides a necessary benefit for all Americans, and
perhaps all of the world. It deserves your protection.
______
[GRAPHIC] [TIFF OMITTED] T1409.003
Mr. Gibbons. Thank you very much for your testimony. We
will receive your full and complete written testimony into the
record, without objection.
Mr. Septoff.
STATEMENT OF ALAN SEPTOFF, REFORM CAMPAIGN DIRECTOR, MINERAL
POLICY CENTER
Mr. Septoff. Good afternoon. I am Alan Septoff, Reform
Campaign Director of the Mineral Policy Center. Thanks for
inviting me to testify today.
MPC is an environmental organization dedicated to
protecting communities and the environment from adverse impacts
of mineral development.
So is the claim maintenance fee worth it? Although the
invitation doesn't frame the question this way, I assume the
complete question the hearing intends to ask is, ``Is the claim
maintenance fee worth it to the public?'' In our opinion,
unsurprisingly, the answer to that question is yes. It is yes
because the fee's impact on exploration is relatively
insignificant, it's yes because the fee cuts down on land
fraud, and it's yes because it funds environmental regulations
in the public interest.
To that end, MPC takes this opportunity to wholeheartedly
endorse H.R. 1085, the Claim Maintenance Act of 2001, sponsored
by Nick Rahall. It would make permanent the claim maintenance
fee and the patenting moratorium.
Other issues aside, the claim maintenance fee is worth it
simply because it's the only return that taxpayers receive for
the disposition of their own minerals. Twenty-two million
dollars per year isn't much, especially considering the BLM
estimates that over one billion dollars in public minerals are
mined each year, but it's more than nothing.
Let's take a look at the fee's impact on explorations. Some
suggest that the claim maintenance fee forces the mining
industry to look overseas to invest exploration dollars. A
prominent international mining industry survey contradicts that
view. Notwithstanding the claim maintenance fee, it has ranked
the State of Nevada the most attractive climate for mineral
investment in the world for the past three years running. It
has also ranked Alaska in the top ten for investment climate
three years running, as well.
The Nevada State Bureau of Minerals conducts an annual
exploration survey, which provides some of the more credible
evidence that the claim maintenance fee negatively impacts
exploration. Let's take a closer look at it.
Perhaps most revealing, the 1999 survey shows that, even as
worldwide spending on exploration decreased, exploration
spending in the State of Nevada actually increased. Also, the
same survey reveals that the claim maintenance fee has a
relatively limited impact upon exploration investment. The
Nevada survey asked respondents to rank the importance of 11
different factors influencing exploration investment. For small
budget respondents, the impact of the claim maintenance fee
ranked 8th most important out of 11 factors surveyed. For
larger explorers, the impact of the claim maintenance fee on
exploration investment ranked dead last.
Land speculation. The number of valid mining claims dropped
in half the year the claim maintenance fee became effective.
That drop can be interpreted in at least two ways. One,
exploration activity decreased, and two, land speculation
decreased. Anecdotal evidence, past GAO and CBO analysis, and
President Bush Senior's 1991 budget proposal, indicate that
speculation was at least as significant as exploration.
People are always looking for something for nothing, and
without the claim maintenance fee, that's exactly what they
get. Even with the claim maintenance fee, unscrupulous
marketers try to sell information about staking mining claims
as free land. By no means the only example, the addendum to my
testimony that comes from the www.governmentland.com website
serves to illustrate the problem.
The GAO verified the problem. In its 1990 report,
``Unauthorized Activities Occurring on Hardrock Mining
Claims'', GAO surveyed 59 mining claims, on which 33 had
unauthorized activities.
Also in 1990, the Congressional Budget Office predicted
that a yearly claim holding fee would actually benefit mining
activity because it would clear speculative use of mining
claims, thus opening up land formerly closed to folks who
actually intend to mine.
To that end, in 1991, President Bush's budget proposal
included a claim maintenance fee along with an estimate that
the fee would reduce the number of inactive claims by over
225,000 in the first year.
As the GAO identified, the claim maintenance fee funds most
of the Mining Law Administration Program. MLAP includes the
enforcement of the 3809 mining regulations, which among other
things protects taxpayers from assuming the burden of
environmental clean-up costs when mining companies default.
Especially in a new era, when proposed general
appropriations for Interior-related budget items are declining,
continuing a dedicating funding source for enforcement seems
wise.
In closing, I would like to note two things. One, in 1990,
the BLM and the Forest Service estimated that 80 percent of the
1.2 million claims then active weren't used for mining. Twenty
percent of 1.2 million, the remainder, is 240,000, or just
slightly more than the number of active claims today after the
claim maintenance fee has been in effect.
Two, I would like to note that we find it interesting that
the GAO report investigates only improper labor charges to
MLAP. The GAO has a well-deserved reputation for nonpartisan
analysis of all things Federally fiscal. Why wasn't the GAO
requested to answer the question posed by this oversight
hearing: ``Is the claim maintenance fee worth it?'' Perhaps
it's because they have already given it: ``We recommend the
Federal Government require claim holders to pay the Federal
Government an annual holding fee.''
That concludes my comments, and I thank you for the
opportunity to testify.
[The prepared statement of Mr. Septoff follows:]
Statement of Alan Septoff, Reform Campaign Director, Mineral Policy
Center
Chairwoman Cubin, members of the Subcommittee. Good afternoon. My
name is Alan Septoff I am Reform Campaign Director of Mineral Policy
Center. Thank you for inviting Mineral Policy Center to testify before
this Subcommittee on the worthiness of the claim maintenance fee.
Mineral Policy Center (MPC) is an environmental organization
dedicated to protecting the environment and communities from the
adverse impacts of mineral development, and cleaning up pollution from
past mining. Our national office, based in Washington D.C., provides
support to citizens across the country and around the world. Our field
offices in Colorado and Montana assist communities throughout the
western United States concerned about the impact of mineral development
in their backyards.
Hundreds of community groups and organizations with millions of
members support our efforts to reform the 1872 Mining Law and improve
public policy and industry practices related to mining.
MPC believes that responsible mining can and does occur on our
public lands.
the claim maintenance fee is worth it.
We believe the claim maintenance fee is definitely worth it. It
protects the Nation's interest in our public lands in several different
ways: it protects the public's financial interest in mineral resources;
it protects the public's lands from fraudulent use; it protects the
public's environmental interests by funding the enforcement of the
BLM's surface management regulations.
To that end, Mineral Policy Center would like to take this
opportunity to wholeheartedly endorse HR1085, the Claim Maintenance Act
of 2001, sponsored by Resources ranking member Nick Rahall of West
Virginia. It would make permanent the claim maintenance fee and the
patenting moratorium. In one fell swoop it would end the biggest public
land giveaway left on the books and ensure that dedicated funds exist
to enforce mining regulations.
subsidies
Before I launch into the rest of my testimony, I would like to
start with a reminder. The1872 Mining Law is still the law of the land
when it comes to the disposition of publicly owned hardrock minerals on
publicly owned lands. Aside from the claim maintenance fee and a
nominal $25 initial claim location fee, the mining industry pays
NOTHING to the owners of public minerals for the value of those
minerals the taxpayers of the United States. This is in marked contrast
to the royalties that the coal, oil and natural gas industries pay to
taxpayers, and in marked contrast to the royalties that hardrock mining
companies pay one another. Although it is true that the mining industry
must invest considerable capital in order to extract and process
minerals, so must a General Motors invest in capital before it can
produce cars but GM still must pay to obtain the raw materials that go
into its finished product.
Additionally, lest we forget, the 1872 Mining Law still allows
valid mining claim holders to buy mineral bearing public lands for $5
per acre. Such purchases would be going on today if not for the
patenting moratorium that must be renewed each year (excepting
grandfathered claims). Hopefully, even an industry friendly President
will see that it makes no sense to give away billions of dollars in
mineral rich lands, and will choose to support the moratorium renewal
this year. The total of these mineral giveaways? Since 1872, we
estimate that the American taxpayer has essentially given away to the
mining industry over $240 billion in mineral value and a land area the
size of the state of Connecticut.
These giveaways are just part of the story, other mining industry
subsidies still lurk out there such as the percentage depletion
allowance: a double subsidy that allows mining companies to deduct the
costs of mining a mineral deposit that they acquired without payment.
This subsidy litany is a long winded way of saying that, other
reasons aside, the claim maintenance fee is worth it simply because it
is the only return that taxpayers receive for the disposition of their
own minerals. $22 million per year isn't much, considering the BLM
estimates that the value of minerals annually taken from BLM-managed
public land is in excess of $1 billion, but it's more than nothing.
claim maintenance fee -- is it worthwhile?
It is undeniable that the number of valid claims on public lands
dropped precipitously the year the claim maintenance fee became
effective. It is undeniable that number of valid claims on public lands
have remained below pre-claim maintenance fee levels ever since.
Additionally, annual mineral industry surveys performed by the Nevada
Division of Minerals indicate that the claim holding fee is one of the
factors that limit exploration in Nevada. Let's take those three facts
together at face value, and assume that the claim maintenance fee does
reduce exploration investment in the United States.
That assumption frees us to address the real question of this
hearing: given the impacts of the claim maintenance fee, are those
impacts worth it to the owners of the public minerals the American
taxpayers. In our opinion, unsurprisingly, the answer to that question
must be yes. Beyond the value of simply requiring the mining industry
to pay SOMETHING for the minerals it extracts from public lands, we
believe the claim maintenance fee's benefits exceed its costs to the
PUBLIC for several reasons: (1) claim drops notwithstanding, recent
mining industry surveys reveal that U.S. states are consistently among
the most attractive sites for mining capital investment; (2) the claim
maintenance fee significantly cuts down on land speculation and land
fraud; (3) the claim maintenance fee is a dedicated source of funding
for the enforcement of mining regulations in an era where land
management budgets may be shrinking.
investment attractiveness
Some have suggested that the claim maintenance fee forces the
mining industry to look elsewhere to invest exploration dollars. A
prominent international mining industry survey by the Fraser Institute
<SUP>9</SUP> contradicts that view. Notwithstanding the claim
maintenance fee, it has ranked the state of Nevada the most attractive
climate for mineral investment in the world for three years running. It
has ranked Alaska in the top ten for investment climate three years
running as well.
---------------------------------------------------------------------------
\9\ Fraser Institute Annual Survey of Mining Companies 2000/2001
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The Nevada Bureau of Minerals exploration surveys <SUP>10</SUP>,
indicating that the claim maintenance fee negatively impacts
exploration in the state, bear closer examination. Perhaps most
revealing, the 1999 survey shows that even as worldwide spending on
exploration decreased, exploration spending in the state of Nevada
increased.
---------------------------------------------------------------------------
\10\ State of Nevada, Commission of Mineral Resources, Division of
Minerals, Nevada Exploration Survey 1999.
---------------------------------------------------------------------------
Second, the survey actually reveals that the claim maintenance fee
has relatively limited impact upon exploration investment. The survey
asked respondents to rank the importance of 11 different factors
influencing exploration investment in Nevada. Included among those
factors were geology (mineral potential), commodity prices, uncertainty
about mining law reform, and claim maintenance fees. Responses were
reported in three categories: respondents with an exploration budget
greater than $1 million, respondents with an exploration budget less
than $1 million and overall respondents. For all respondents, geology
and commodity prices were the two most important factors affecting
exploration investment. Interestingly, all respondents ranked
uncertainty about mining law reform more important than the impact of
claim maintenance fees. For small exploration budget respondents, the
impact of the claim maintenance fee ranked 8th most important out of 11
factors. For large exploration budgets, the impact of the claim
maintenance fee on exploration investment ranked dead last.
land speculation & claim validity
The immediate impact of the claim maintenance fee on the number of
valid claims can be interpreted in two ways: (1) exploration activity
decreased; (2) land speculation decreased. Anecdotal evidence, past GAO
and Congressional Budget Office analysis, and President Bush Senior's
1991 budget proposal, would seem to indicate that the latter is at
least as significant as the former.
People are always looking for something for nothing and without the
claim maintenance fee, that's what they get. Even with the claim
maintenance fee, unscrupulous marketers try to sell information about
staking mining claims as free land only tangentially related to mineral
development. By no means the only example, the attached printout from
the website http://www.governmentland.com serves to illustrate the
problem.
The GAO verified the problem. In its 1990 report, Unauthorized
Activities Occurring on Hardrock Mining Claims, GAO surveyed 59 mining
claims, on which 33 had unauthorized activities (residences).
In 1990, the CBO stated that a yearly claim holding fee would
actually benefit mining activity, because it would clear inactive
(speculative) claims, thus opening up land formerly closed to hardrock
mining. <SUP>11</SUP>
---------------------------------------------------------------------------
\11\ As reported in GAO/RCED-90-111, page 7.
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To that end, in 1991, President Bush's budget proposal included a
claim maintenance fee along with an estimate that the fee would reduce
the number inactive claims by over 225,000 in the first year.
<SUP>12</SUP>
---------------------------------------------------------------------------
\12\ Ibid The right to mine under the 1872 Mining Law is only
vested if you have a valid claim. According to case law, a claim is
valid only if a prudent person could reasonably expect to mine the
mineral deposit at a profit while complying with all applicable
statutes and regulations. Unfortunately, in part due to expense and
with certain exceptions, the Federal Government only checks the
validity of mining claims if they are being patented. So, a claim
holder doesn't have to prove they have found anything valuable to
control a claim under the 1872 Mining Law. The claim maintenance fee
serves as a rough, low-threshold proxy for a validity exam. If a claim
holder doesn't think it's worth $100 per year to them, it probably
doesn't contain a valuable mineral deposit or the reasonable prospect
of a valuable mineral deposit. The claim maintenance fee is supposed to
fund validity examinations, but the fee is inadequate to perform such
exams on all claims staked.
---------------------------------------------------------------------------
enforcement of environmental regulations
As the GAO identified, the claim maintenance fee funds most of the
Mining Law Administration Program. The Mining Law Administration
Program includes the enforcement the 3809 regulations. The 3809
regulations are responsible for, among other things, protecting
taxpayers from assuming the burden of environmental cleanup costs when
mining companies default. The Center for Science in Public
Participation estimates potential taxpayer liability for cleanup at
currently operating mines may exceed $1 billion. <SUP>13</SUP>
Especially in an new era where proposed general appropriations for
Interior-related budget items are in decline, continuing a dedicating
funding source for enforcement of surface mining regulations seems
wise.
---------------------------------------------------------------------------
\13\ Hardrock Reclamation Bonding Practices in the Western United
States, prepared by James Kuipers of Center for Science in Public
Participation for the National Wildlife Federation, Feb. 2000.
---------------------------------------------------------------------------
mining industry political budget vs. claim maintenance fee waste
The GAO estimates that approximately $1.2 million, roughly 5
percent, of claim maintenance fee revenues are spent on BLM activity
not related to the Mining Law Administration Program. Relative to other
government programs and the private sector, we are unqualified to judge
whether 5 percent is an egregious, typical, or low amount of resource
misallocation.
We do know that the annual mining industry lobbying budget dwarfs
$1.2 million. In 1998, the last year for which complete data is
available, the Center for Responsive Politics reports that the mining
industry spent $9.2 million on lobbyists and $3.8 million in donations
to political candidates. Assuming the GAO misallocation estimate holds
approximately true year to year, the mining industry spent ten times
more, $13 million, than the misallocated portion of claim maintenance
fee revenues. $13 million also constitutes approximately half of all
claim maintenance fee revenues.
gao report
In closing, I would like to note that Mineral Policy Center finds
it interesting that the General Accounting Office report investigates
only improper labor charges to the Mining Law Administration Program.
The GAO has a well-deserved reputation for nonpartisan analysis of all
things Federally fiscal. Why wasn't GAO requested to answer the
question posed by this oversight hearing: is the claim maintenance fee
worth it? Perhaps it is because they have already given it: [we
recommend the Federal Government] require claim holders to pay the
Federal Government an annual holding fee in place of the annual work
requirement. <SUP>14</SUP>
---------------------------------------------------------------------------
\14\ GAO/RCED-90-111, page 7.
---------------------------------------------------------------------------
Thank you for the opportunity to testify.
______
Mr. Gibbons. Thank you, Mr. Septoff.
We would like to welcome Mr. Craig from Nevada. We
appreciate your being here, from Golden Phoenix Minerals. Mr.
Craig.
STATEMENT OF STEVEN D. CRAIG, VICE PRESIDENT, GOLDEN PHOENIX
MINERALS, INC.
Mr. Craig. Good afternoon, ladies and gentlemen, Mr.
Chairman and members of the Subcommittee. My name is Steve
Craig and I'm Vice President of Golden Phoenix Minerals, which
is based in Reno, Nevada.
Golden Phoenix is a junior exploration and development
company. I am a trained exploration geologist with 26 years of
experience in all aspects of exploration.
When the $100 maintenance fee was authorized via rider in
1993, Congress thought this was a good way to reduce the
environmental impact on public lands by eliminating the $100
per claim assessment work requirement. When the rider was
passed, the western United States was experiencing a major gold
exploration and mining boom. Unfortunately, Congress may not
have been fully aware of the devastating impact the maintenance
fees would have on the gold boom and all the people that made a
living from it.
When the maintenance fee was enacted in 1993, the entire
exploration community experienced shock and disbelief. Many
individuals had hundreds of claims, and they couldn't afford to
pay the BLM the $5,000, the $50,000, or more required to hold
them. Larger companies could pay the new fees, but if they were
not budgeted or some claims were considered to be of low
potential, then they were dropped. Thousands of claims were
dropped to save money.
This resulted in less money than was predicted for the
government. As my chart on page 3 of my written testimony
shows, the number of claims held in Nevada dropped from about
340,000 to under 150,000 claims. People could not afford to
hold mining claims and explore them at the same time. Of the
claims that had their maintenance fees paid, most were paid by
large companies at the operating mines, or by small companies
which had some cash. The $100 maintenance fee basically wiped
out the individual prospector overnight, and most of the
exploration conducted by companies.
Communities like Silver Peak, Eureka, Tonopah and Ely were
literally devastated because the prospectors stopped coming to
town to spend money. They stopped paying the county fees on
their claims, which the counties used for different programs.
They didn't buy gas, groceries, truck repairs or motel rooms.
Stores closed, gas stations went out of business, and heavy
equipment operators had to sell their equipment. Rural Nevada
shut down. Thousands of people lost their jobs, including a lot
of my friends.
The $100 maintenance fee has affected the way Golden
Phoenix conducts its business. The company has two key
employees, has very limited financial resources, and has
typically struggled its entire existence. The company is also
one of the very few left in Nevada that is attempting to find
and develop ore bodies.
During the last three years, the $100 maintenance fee was
constantly in the forefront of our planning. We had to save and
scrimp to make those payments. If we failed to meet them, then
we would lose the properties that contained drilled
mineralization, and the company would be forced to shut down
under bankruptcy.
We went through considerable stress over this. Essentially,
the $100 maintenance fee was a double whammy. We needed to
explore our properties, but we had to spend our money on
maintenance fees just to keep the claims. During the last three
years the company has dropped five of its properties because we
could not pay the maintenance fees. The last filing year, we
paid $45,400 to hold our claims on our last two properties.
Currently, our bank account is empty.
Since the $100 maintenance fee was instituted, the entire
infrastructure of the exploration community has been eroded
away. The attack on the mining industries during the Clinton
years has been the ``Perfect Storm'', just like the movie. Many
companies engaged in exploration have shut down or moved
overseas, and we have lost hundreds of skilled people, foremost
exploration geologists, self-educated prospectors, claim
surveyors, assayers, drillers and technicians. We need a
lifeline tossed to us, not an anchor.
In summary, the $100 maintenance fee has had a devastating
effect on the mineral exploration industry. There has been a
loss of a large number of jobs in the rural communities where
exploration takes place, and less exploration has created the
future loss of raw minerals for industrial America, the effect
of which we have yet to feel.
I urge Congress to eliminate or significantly reduce the
$100 claim maintenance fee and, by so doing, create
opportunities for the discovery of additional mineral resources
by the American prospector.
Mr. Chairman, this concludes my prepared remarks.
[The prepared statement of Mr. Craig follows:]
Statement of Steven D. Craig, Vice President, Golden Phoenix Minerals,
Inc.
I am here today to tell you about the devastating effect the $100
per claim maintenance fee has had on individuals, rural communities,
the mining industry, and the future supply of minerals to the United
States.
basics of mining claims
The right to locate a mining claim on public lands administered by
the Bureau of Land Management (BLM) or the United States Forest Service
(USFS) is granted under the general mining law. Claims are self
initiated by persons or companies who want to explore and develop the
minerals under the claim. The surface and minerals continue to remain
under the jurisdiction of the BLM or USFS.
A typical mining claim's maximum size is 600 feet wide and 1500
feet long and covers about 20 acres. A total of 32 claims will normally
cover one square mile, or 640 acres. One mining claim usually does not
cover an entire mineralized zone. Consequently, hundreds of claims may
have to be staked to cover the zone and other potential undiscovered
zones.
A mining claim is required to be filed with the county in which it
is located, and in Nevada, costs $26.50 for the initial filing and
another $5.50 annually. The same claim also has to be filed with the
BLM, which requires a $100 maintenance fee and a one-time $35 filing
fee for a total of $135. Then, every September 1 thereafter, the BLM
collects a $100 maintenance fee to keep the claim valid. Non payment to
the county or BLM invalidates the claim.
On an acre basis, the combined initial filing fees average $8.075
per acre, or $5,168 per square mile, thereafter it is $6.75 per acre or
$4320 per square mile. For simple comparison, the annual geothermal
leasing fees may be as low as $1.00 per acre or $640 per square mile,
and oil and gas rental fees may be as low as $$1.50 per acre or $960
per square mile.
The county filing fees that are collected in Nevada are distributed
to the county and to the Nevada Division of Minerals. The counties use
the fees to fund the recordation and management of the claims. The
Division of Minerals uses the filing fees to fund the state abandoned
mine program. None of the fees collected by the BLM assist the counties
or state, but go instead to the U. S. Treasury.
stages in the exploration and mining process
The reason the general mining law was developed was to give all
citizens of the United States an opportunity to earn a good living and
to supply the Nation with important metals. Back when the mining law
was passed, the Nation needed gold and silver, and it wanted to
populate the wide-open spaces of the West. As time went by and as the
Nation needed new supplies of different metals for its growth, the
prospector was out looking for the metal that was in demand.
Now let me discuss the different stages of the exploration and
mining process. Please be aware that if the first exploration stage is
unsuccessful, then the other stages do not take place. Furthermore,
extensive permitting and bonding is required by state and Federal
agencies at every step in the process.
The first stage is grassroots exploration, or prospecting.
Prospecting identifies mineralized areas, and if they have potential
for a discovery, then they are acquired under the location rules of the
general mining law. After the claims are located, the surface is
further examined and the subsurface tested with drilling or trenching.
The persons that usually do the initial prospecting and staking of
mining claims are single individuals or persons employed by a company.
The cost to stake mining claims usually average about $100 per claim
and this is a direct cost to the locator, before the filing fees are
paid.
The second stage is discovering a potential economic ore body and
defining its size, grade and economic viability. A junior mining
company usually does this step, but only if it has the financial
resources. Major companies will also do this, but only after they have
acquired the property from a prospector or a junior. The amount of
money that may be spent during this phase is from $1 million to $10
million. Generally, a large portion of the money that is spent stays in
the community, which is near the ore body.
The third stage is building the mine facilities and developing the
ore deposit. The amount of construction investment ranges from $25
million to $200 million to build the mine, and with considerable risk.
Again, a significant amount of this money stays in the communities it
is spent. Only medium to large sized companies have the expertise and
finances to complete this step.
The fourth stage is mining the orebody, which results in long term
jobs, payback and profit for the company, and tax money to different
government entities.
The fifth stage is closure and reclamation of the mine to the
standards committed to in the original operating plan and which a
reclamation performance bond guarantees. When completed, the land
returns to its previous use, which in the West is usually range for
wildlife or cattle. The amount of money spent during this phase ranges
from $1 million to $20 million.
The timeframe for discovering and exploring for an economic deposit
may be from three to 10 years. It may take another three to five years
and $30 to $200 million of investment to develop a mine. Much of this
money is spent locally to the benefit of nearby rural communities.
the $100 fee in 1993
When the $100 maintenance fee and $25 filing fee (later increased
to $35) were authorized via a rider in 1993, Congress thought this was
a good way to reduce the environmental impact on public lands by
eliminating the $100 per claim assessment work requirement. When the
rider was passed, the Western United States was experiencing a major
gold exploration and mining boom. Unfortunately, Congress may not have
been fully aware of the overall five stages of exploration and mining
process, as I described above. Nor was Congress able to predict the
devastating impact the maintenance fees would have on the first stage
of exploration to individuals, communities, mining companies, and the
potential future well being of the United States.
The chart below shows the number of active claims on an annual
basis in Nevada since 1982. Practically all of these claims were
located over gold prospects and mines, while only a small number were
located over copper, silver or lead-zinc prospects. The chart shows the
impact the maintenance fee has had on Nevada since its passage in 1993.
In the last three years, claim numbers continue to decline due this fee
and low gold price.
[GRAPHIC] [TIFF OMITTED] T1409.001
gold price history
The following chart shows the history of the gold price from 1979
to the present. At the time of the introduction of the maintenance fee,
the gold price rose from about $330 per ounce to near $400 per ounce
and remained at that level for several years. These data suggest a
strong correlation between the decline in mining claims in 1993/1994
and the maintenance fee imposed on mining claim owners. The decline in
claim numbers was not due to a decline in gold price.
[GRAPHIC] [TIFF OMITTED] T1409.002
the fee takes effect
When the maintenance fee was enacted in 1993, the entire
exploration community experienced shock and disbelief. Many individuals
had hundreds of claims, and they couldn't afford to pay the BLM the
$5000, $50,000, or more required to hold them. Larger companies could
pay the new fees, but if the fees were not budgeted, or some claims
were considered to be of low potential, then they dropped thousands of
claims to save money. This resulted in less money to the government
than had been predicted. As the chart shows, the number of claims held
in Nevada dropped from about 350,000 to under 150,000 claims. People
could not afford to hold mining claims while they explored them and
with the hope that a large company might lease them. Of the claims that
had their maintenance fees paid, most were retained by large companies
at the operating mines or by small companies with some cash.
The $100 maintenance fee basically wiped out the individual
prospector and most of the exploration conducted by companies.
Essentially, the very first step in the exploration and mining process
had literally been eliminated and the following steps in the mining
process would not take place.
The "One Job Creates Seven Jobs" Rule John Dobra, a mineral
economist at the University of Nevada-Reno, has studied the creation of
other jobs in communities from just one mining job. He reports that for
each employee of a mining company, seven more jobs are created in
communities both near and far from the mining site. This job creation
has tremendous economic implications to rural communities.
The same is true for prospectors and explorationists. When the $100
maintenance fee was instituted, the prospectors stopped going to the
field to look for good mineralized areas. They stopped paying the
county fees on their claims, and they didn't buy gas, groceries, truck
repairs, sample bags, or motel rooms. They didn't contract bulldozers,
backhoes or drill rigs. Assay labs didn't have samples to analyze.
Basically, all the people that depended on the exploration activities
of prospectors and geologists could no longer make a living.
Communities like Silver Peak, Eureka, Tonopah, and Ely were
literally devastated because the prospectors stopped coming to town to
spend money. Stores closed, gas stations went out of business, and
heavy equipment operators sold their equipment. Rural Nevada shut down.
Thousands of people lost their jobs, including a lot of my friends.
the impact to golden phoenix, a junior exploration company
The $100 maintenance fee has affected the way Golden Phoenix
Minerals has conducted its business. The company was incorporated in
1997, just when resource companies fell in disfavor with investors,
tech stocks were looking to make a run on the markets, and the gold
price was starting its decline to $250 per ounce. The company is a
publicly traded junior company with two key employees, has very limited
financial resources, and has typically struggled its entire existence.
The company is also one of the very few left in Nevada that is
attempting to find and develop ore bodies. We hope we can survive until
better times come.
In the 1998 filing period, the company was in desperate times. Our
money had run out, and we were just realizing that we would not be
getting paychecks. We dropped four exploration properties for a total
of 241 mining claims and saved $24,100. In the 1999 filing period, we
dropped two more of the properties and reduced the other properties for
a total of 190 claims. Our payment to the BLM that year was $48,700,
which we got from some limited investor financing. We were living on
our savings and hadn't seen a pay check for a year. In 2000, our
finances were better, but we reduced our claim blocks again by another
33 claims, to save money. That year we paid $45,400 to the BLM.
During the last three years, the $100 maintenance fee was
constantly in the forefront of our planning. We had to save and scrimp
to make those payments. If we failed to meet them, then we would lose
the properties that held drilled defined mineralization, and the
company would be forced to shut down under bankruptcy. We went through
considerable stress over this. In addition to paying the filing fees,
we still spent any available money on the properties to explore them.
Essentially, the $100 maintenance fee was a double whammy. We needed to
explore our properties, but we had spent the money on the maintenance
fees just to keep the claims.
This past December we became very excited about a new mineralized
area that we had discovered, which had gold values of up to one ounce
per ton. We contracted a land surveyor to locate 120 claims, which cost
us over $12,000 in direct costs to complete. As it turned out, when it
came time to file the claims, we didn't have the $19,380 required to
file the claims in the county and BLM, and the claims are now invalid.
We are out $12,000 plus the claims.
the potential long-term impact on the united states
The United States is the major economy in the world, and energy and
raw materials allow it to enjoy high living standards. However,
California is finding out that electricity does not come from a light
switch. They will have to spend several years building power plants
before that light switch is secure. The same goes for mining. We have
shut the switch off and the country will suffer for it in the future.
By taking away the incentive to find ore deposits in this country, the
long-term viability and productivity of the mining industry will grind
to a halt, and it is definitely grinding to a halt. Even though we can
get some of our raw materials from foreign countries, this is not risk
free, nor is it secure.
Since the $100 maintenance fee was instituted, the entire
infrastructure of the exploration community has been eroded away. The
attack on the exploration and mining industries during the Clinton
years has been the Perfect Storm , just like the movie. Many small to
medium sized mining companies engaged in exploration shut down or moved
overseas, where the risk to operating was perceived to be less. We have
lost hundreds of skilled people, foremost exploration geologists, self-
educated prospectors, claim surveyors, assayers, drillers, and
technicians. Most of these people now have other employment and may not
come back even with changes in the laws and regulations.
The low price of gold, the legislative land withdrawals, the
maintenance fee and ever tougher environmental regulations have all
come together in the Perfect Storm to severely weaken the exploration
industry. We need a lifeline, not an anchor. It may take awhile for
exploration to recover.
proposed alternatives
What do we do about the $100 maintenance fee? The best thing we can
do is to get rid of it. However, if getting rid of the $100 fee is not
possible, the Committee could consider the following alternatives:
<bullet> LAllow assessment work and permitting costs to be filed in
lieu of the $100 maintenance fee.
<bullet> LReduce the maintenance fee to $20 per year, retain the
one time $35 filing fee, and require the money be kept in the county of
origin.
<bullet> LIf the fee is retained, then pro-rate the initial cost of
filing so that only a full year requires $100, a half-year is $50 and
so forth.
summary
The $100 maintenance fee has had a devastating effect on the
mineral exploration industry, including individual prospectors, small
companies, and major mining concerns. There has been the loss of a
large number of jobs in the rural communities where exploration takes
place. Less exploration has created the future loss of raw minerals for
industrial America, the affect of which we have yet to feel. I urge
Congress to eliminate or significantly reduce the $100 mining claim
maintenance fee and, by doing so, create new opportunities for the
discovery of the additional mineral resources by the American
prospector.
______
Mr. Gibbons. Thank you very much, Mr. Craig.
Before I turn to Mrs. Cubin for questions, I do want to
kind of clear up the record here.
It seems that there is some misinterpretation or
misstatements out there, that since 1866 real or bona fide
mining claimants have had the legal tools to overstake or
``speculatively'' hold mining claims and earn the right to mine
the claimed area. Unfortunately, the holding fee isn't
necessary to clear nonbona fide miners from this land. There
are other legal tools to do that.
Also, I would say that it certainly is a disservice to say
that the untrue statements of an unscrupulous person published
is in any way a justification to say the mining claim fee is
necessary. That is certainly not necessary as well.
With that, I would turn to Mrs. Cubin for her questions.
Mrs. Cubin. Thank you, Mr. Chairman.
I think the major concern with the $100 fee is the effect
that it has on the grassroots type miner and on the small
companies. Certainly the big companies can afford to pay it.
It might come as a surprise to you, Mr. Septoff, that I
agree with you and the GAO, that there ought to be some annual
fee charged or, in lieu of that, a way to encourage exploration
by the small miners, the grassroots people, as I will call
them, without making it impossible for them to produce minerals
that would benefit our country--maybe increase the number of
claims that are exempt or start with a low fee for a few years
and then drastically escalate the fee, so that we just don't
have land tied up.
But as the Chairman said earlier, I don't think anyone is
necessarily saying that we don't need something here, but I
think we need to open the discussion and do something, not only
to protect the smaller miners, which is laudable in and of
itself, but also to have the minerals, as Mr. Craig stated, for
the use of the country.
Having said that, I wanted to ask Mr. Craig, at the present
time, how much of what I'm calling grassroots exploration and
claim staking is going on in Nevada?
Mr. Craig. Well, I am pretty active in the exploration
community in Nevada. That's what I did for 26 years. I keep
track of a lot of activities, just because I like that as a
hobby.
I would say that exploration has shut down. Where I'm
getting most of that information is from my friend, Rob Berry,
who handles land management services. He actually works with
the BLM and even tells them how many active claims they have,
because they've got so much going on they can't keep track of
how many claims they have, so they have to go to a private
industry person to get that information.
According to Rob, there's only been about 2,000 to 3,000
claims staked and filed since last September 1st.
Mrs. Cubin. To put this in perspective, why there are so
many claims, it's because the claims are 20 acres.
Mr. Craig. Yes, 20 acres.
Mrs. Cubin. If you explore, exploring 20 acres for a one-
man operation--Well, just put that 20 acres in perspective in
terms of a small miner and a large miner, why you would have so
many claims. I think that's one thing that people don't
understand.
Why would you have so many claims that would cost you
$45,000 a year?
Mr. Craig. Well, the best business practice for mining
deposits--and notice I said ``deposits''. When you get to a
mineralized area, there are always multiple deposits. There are
many deposits. Often you don't know where they all are. So as
part of the exploration process, you stake a lot of claims over
prospective areas. And yes, it may seem like that's
speculation, but that's what exploration is. You're speculating
that you're going to find a deposit. So most of the time, large
deposits occupy many claims.
Mrs. Cubin. Mr. Tangen, you stated that the rental fee is
especially hard on independent prospectors and junior
companies. What do you mean by these terms, and why is rental
so hard on these people?
Mr. Tangen. As Mr. Craig indicated about junior companies
or small companies, most new mineral discoveries are made by
self-employed, independent prospectors, or small exploration
companies, which are known as juniors, as opposed to large
mining companies. These individuals and juniors are
entrepreneurs, characterized by high skill, innovative, high
energy, determination, et cetera, but with low financing.
For these companies, every dollar is carefully guarded and
carefully spent. Every dollar that goes to pay rent is a dollar
that's not available for exploration.
Dollars spent on exploration are often spent in rural
areas, as Mr. Craig suggested, for gas, groceries, and provide
far greater benefit than the same money going into the Federal
treasury. Mining operations, in addition, come in a variety of
sizes, have several phases. The earliest phase is prospecting
and raw exploration.
The United States in general, and Alaska in particular, has
not been completely prospected. Early phase exploration is
frequently undertaken by so-called junior companies, who raise
capital on the open market. This capital is extremely hard to
come by, and every dollar that does not go directly into the
ground--that is to say, in this case, every dollar that is
siphoned off by the government--is an additional dollar that
has to be raised.
The point is that this money is hard to come by. And when
it goes to the Federal Government, it doesn't beneficiate the
property.
Mrs. Cubin. With the Chairman's permission, one more
question.
Just for the record, from your experience, if all three of
you would like to answer, does the small miner exemption work,
and why?
Mr. Tangen. In Alaska you have a situation in which the
small miner exemption has been made workable as a result of
recent changes in the regulations. But we have a situation in
which the sideboards on it are too small. The ten claims limit
is beneath the number that is reasonable.
Mom and pop operations on a remote creek in Alaska would
frequently have 30 or more claims. An exploration geologist,
again as Mr. Craig has suggested, going out and finding a new
prospect, might have no real handle on how big that deposit
might be, so he could possibly locate a thousand claims or
more.
The term ``small miner'' is probably a misconception. I
think what we have is a situation in which we either have
junior prospectors on the one hand, or small financial
operators on the other. It shouldn't relate to the number of
claims that they have.
Mr. Septoff. We honestly don't know much about small
miners, and part of that is because small miners, for the most
part, are notice mines.
Mrs. Cubin. Are what? Excuse me.
Mr. Septoff. Notice mines. And BLM doesn't release
information about notice mines publicly.
What we do know for a fact is that there are between 30-
35,000 separate individuals holders of mining claims, and of
those 30-35,000, between 25-30,000 fall under the small miner
exemption.
Mrs. Cubin. Mr. Craig?
Mr. Craig. I personally haven't dealt with the small miner
exemption, so this is what I'm getting from my friends.
What I have been told is that there is so much confusion,
especially from the BLM, about what their assessment work
actually applies to and so forth, that they've thrown up their
hands and they prefer to pay the $100, just so they can keep
their claims active. There seems to be a lot of bureaucracy
involved with how the small miner is treated by the BLM.
Mrs. Cubin. Thank you, Mr. Chairman, and I thank the
members of the panel.
Mr. Gibbons. Thank you, Mrs. Cubin.
Gentlemen, I know there is an impact. It is also indicated
from your statements on counties, et cetera. But my question
is, when you go to determine information about a potential or
existing mining claim, where do you get the information? Is it
through the county or through the BLM now?
Mr. Tangen or Mr. Craig.
Mr. Craig. I can clearly say that, if I want to get good
information quickly, I go to the county. BLM's accounting of
mining claims is completely redundant. It's duplicated.
Mr. Gibbons. So the expense of the BLM charging to have
information about mining claims is duplicative to the effort of
the county?
Mr. Craig. The county has been doing this for 130 years,
and they've done a great job. I go there first.
Mr. Gibbons. If you were to do a title search on a mining
claim, where would you go?
Mr. Craig. I would go to the county. They have all the
records.
Mr. Gibbons. Does the county require it to be recorded in
any way?
Mr. Craig. Yes. Yes, they do.
Mr. Gibbons. Either Alaska or Nevada, I'm sure you could
testify as to the overall impact. I heard in someone's
statement--I believe it was Mr. Tangen. Did you talk about the
impact on communities, or was it Mr. Craig?
Mr. Tangen. I think both of us to some extent did.
Mr. Gibbons. My thought is that, in your statements, are
you proposing that this mining claim fee be adjusted? What
suggestions would you give to us--and this is a question to all
three of you--what suggestions would you give to us with regard
to the mining claim fee? How should we look at adjusting it, if
it's necessary to adjust, to accommodate the concerns that you
have?
Mr. Tangen. If I may, sir, let me start.
I have three significant, specific suggestions that I would
urge you to make. First of all, I would urge you to lift the
ten-claim limit, so that it's either open or it's a much larger
number.
Second of all, I would urge that it be optional; that is to
say, if the operator has the ability and desire to put the
money into the ground, then that should be an offset, if not
100 percent, perhaps 75 percent or something like that.
The third point is to reduce the size of the amount. Again,
the situation in which the $5 per acre amount is burdensome at
this point in time, perhaps a lesser fee, perhaps half that or
whatever, perhaps a graduated fee over time.
I should point out, for instance, that under the Alaska
mining law, for mining on State land, in which there is three
times as much land open to mining under State law than there is
under Federal law in Alaska at this point in time, for the
first 10 years the fee is set at one rate and then thereafter
it is raised and raised a second time. So there are
administrative alternatives to it.
Mr. Gibbons. Mr. Septoff.
Mr. Septoff. We certainly agree that the claim maintenance
fee should be increased over time.
I don't know how the ten claim limit was set to begin with,
so I can't really comment on that. What I can comment on, and
would like to remind everybody, is that the claim maintenance
fee applies to all claims, not just to small miners. When the
claim maintenance fee went into effect, to begin with, it was
supposed to be indexed for inflation. It started at $100 and it
was supposed to be adjusted, I think every five years, for
inflation. And it hasn't changed since. So we would think it
should be indexed for inflation, which I believe would have it
over $200 now, but I'm not quite sure.
Mr. Gibbons. Mr. Craig?
Mr. Craig. Well, knowing how the government works, they
don't want to give up any fees. But may I suggest we reduce the
maintenance fee to something that is on par with something like
geothermal leasing or coal and gas leasing. In Nevada--and I
don't know what all the costs are, and I don't want to open up
a bunch of issues here--but in Nevada, geothermal leases are a
dollar an acre. That makes that $20 a claim. I think that's
right on par with what the Federal Government is leasing land
out for.
Another issue that I wanted to bring up is that if we
wanted to stake claims today, on March 29th, we have 90 days to
file those claims, and that puts us at June 29th, which means
we would have to pay a $100 maintenance fee, plus the $35
filing fee and recording fee, $130 per claim, and then, one
month later, two months later, we have to pay another $100 just
to hold those claims. So that's why we're not going to see a
lot of claims filed the rest of the year, because why pay rent
on something for the amount of time that you've got. So that
would be something else. If we're going to retain the fees,
then at least prorate them to time.
Mr. Gibbons. Thank you.
Mr. Tangen, in your testimony you talk about the number of
claims that are in Alaska, public versus state land, or other
non-Federal lands I should say.
What has been the experience of the number of mining claims
filed since '93 on Federal versus non-Federal lands in Alaska?
Do you have that information?
Mr. Tangen. Yes, sir. Attached to my written testimony is a
graph which displays the number of claims in Alaska, Federal
claims and State claims. I know that you can't see it here, but
the fact is that, in 1990, there were approximately 25,000
Federal claims and approximately, a little bit over 30,000
State claims.
Since that period of time, the number of Federal claims has
fallen off dramatically, and then has held at a fairly low
level, around the 11,000 claim level.
In the meantime, the number of State claims went down for a
little while, as reflected by the commodity prices, I think,
generally the price of gold. But since 1996, the number of
claims on State and private land in Alaska has increased--and
by private land, I'm essentially referring to land owned by
Native Regional Corporations--until we have approximately
45,000 State of Alaska claims on State and private lands.
Mr. Gibbons. So what you're saying is there's no parallel
to the fact that metal prices have driven down all mining
claims across the board, because non-Federal claims have risen,
even though the metal prices have been down--
Mr. Tangen. Absolutely. To a certain extent, the commodity
prices had an impact, but that impact has now been factored
into the business decisions. Mining claim locations have
essentially been on the increase.
The attitude of the State of Alaska toward mining is
substantially more friendly than the attitude of the Federal
Government toward mining on Federal ground. In the past decade,
especially the past half-dozen years, the burden that has been
put on the miner in Alaska to go out and locate a mineral
deposit on Federal ground has been onerous; whereas during that
same period of time, our Governor, a Democratic governor, has
publicly and repeatedly announced that Alaska is open for
business and has basically welcomed the mining industry on to
State land and private land.
Mr. Gibbons. Well, you're competing directly with Nevada,
so I don't wish you well in that effort. But thank you very
much.
[Laughter.]
Mr. Tangen. Well, we don't hold a candle to Nevada. Don't
misunderstand. Nevada has some very, very big operations,
claims and companies.
Mr. Gibbons. I'm only joking, of course.
Mr. Craig, in your 26 years of experience--and, of course,
I have a similar background to yours, and some experience as
well--but looking at the claim maintenance fee versus
assessment fees, as they used to be charged, as assessment work
used to be charged, not always, if a person holds a mining
claim, is anything being extracted out of the ground? So the
fact that it's called a fee for a billion dollar industry, or
whatever--I mean, some people are holding these claims in
expectation of having the opportunity to develop, explore and
market their commodities.
Is it your experience that everyone who pays a fee is
getting something out of that ground?
Mr. Craig. No. I think when someone pays the fee, they have
the right to hold the claim for another year. The only way
they're going to get anything out of the ground is if they can
get some work done on that ground.
Mr. Gibbons. And the fee itself doesn't necessarily
prohibit exploration--
Mr. Craig. No, it doesn't prohibit.
Mr. Gibbons. It doesn't stop disturbance.
Mr. Craig. But if you are going to get something out of
that claim, you have to advance it somehow by doing work on it.
Mr. Gibbons. All right.
Now, in your estimate, what hoops do you have to jump
through to develop a mine?
Mr. Craig. Oh, tremendous hoops. This exploration-mining
industry is the most regulated industry, I swear, in the United
States. Just to get a drill hole done on a piece of--well, let
me back up. Let me just start all over again.
Let me just talk about our Borealis property, where the
property is under jurisdiction of the U.S. Forest Service. It
had been mined previously by Echo Bay Minerals. There is 10
million tons of crushed, leached material on drill pads.
I put in a plan of operation to the U.S. Forest Service and
it took six months for them to get back to me, and in the
interim, to get back to me for the amount of bonding it would
take to reclaim the disturbance I proposed, but they wanted us
to do an archaeological survey on top of the leach pads, which
I thought was a little out of line. And because I was going to
use a buggy-mounted rig, where there's going to be no
disturbance, they wanted a $20,000 exploration bond put down.
That's when I said we're not going to disturb any land. We can
explore without disturbing the land.
So I still haven't reached a consensus with the Forest
Service on that.
Mr. Gibbons. What is an estimated cost that it would take
to get a gold mine into production today? Just kind of a
ballpark average figure, starting from the day you would out on
the ground today.
Mr. Craig. Okay. If we walked out on the ground today to do
exploration, it would probably cost a couple of million, five
to ten million dollars, just to do exploration and studies,
drilling holes. If we wanted to build a mine, it would be
anywhere from a minimum of $30 million all the way up to $200
million. And all of this is under tight scrutiny by the Federal
Government, the State government, EPA, the Army Corps of
Engineers. Permits have to be gotten, studies have to be done.
Also, that's another fallout of this whole decline in the
exploration industry. Archaeologists are out of jobs now. These
are the people who go out and study whole areas that were
funded by mining companies. Things like that.
Now, obviously, once the mine is put into production, then
there's mining that takes place, people have jobs, numerous
Federal taxes are paid. This is where the Federal Government
really scores big. A lot of taxes are paid. It's not a free
ride. The government gets a lot of money out of a mine once
it's put into production.
This $100 maintenance fee is a real problem up front. It
seems fairly small to our friends who don't like mining, but
where the government really comes out ahead is on all these
taxes, income taxes and so forth.
Now, after the mine is exhausted, then it's still going to
cost anywhere from one million to ten million to thirty million
dollars of costs to reclaim the lands. Again, our requirements
today are not like back in 1849, where we have all of these
dirty pictures, you know, that show up in the press. The
reclamation that's done today, especially in Nevada, is superb.
You drive along I-80, drive by the Lone Tree Mine, Marigold
Mine, you see round hills out there. You go, huh, that's kind
of interesting. Now it looks very nice. There's grass on it,
sometimes you see cows on it. It's been totally reclaimed.
So there is a lot of money that the mines generate over the
years, and a lot of it goes to the Federal Government, and a
lot of people get paid.
Mr. Gibbons. So what you're saying is it's not a free ride.
Simply because you go out there and stake a claim, it is not
free ride to get the minerals out of the ground, whether it's
gold, a precious commodity, or some other mineral, which may be
beneficial to society, beneficial to the way we live today.
Mr. Craig. That's right.
Mr. Gibbons. As I hear you, even from the smallest
operation, it could cost anywhere from $30-40 million for the
smallest operation, to $200 million and above for some of the
larger operations, before they're able to begin to get a
profit, or any income coming back to them from that operation,
that mine, whichever they may have. So they've got to put out
an investment.
Mr. Craig. It's all front end investment.
Mr. Gibbons. Front end loaded, and in hopes of making it to
a point where the commodity will pay back the cost of their
investment.
Certainly I think all of us on this Committee can
understand the value of mining. I mean, no one in this room, I
would hope, would say that we don't need mining in this
country, simply because everyone knows it takes 44,000 pounds
of mined metals and minerals per person, per year, to create
the quality of life that we have, including everything from
health care all the way down to the vehicles we drive, and the
telephones and anything else we communicate with is all done
with mining.
With that, I have noticed we've kept you here now for two
hours, maybe a little in excess. I do want to thank all three
of you for, one, taking time out of your busy day to testify
here today--you presented us with some valuable information,
information and ideas--but I think it will be helpful for us as
a Committee to make decisions about where we're going on this
issue of a mining claim maintenance fee.
Certainly we have our work cut out for us, but we would
also ask you that there may be members of this Committee who
may wish, or the staff of the Committee itself, may wish to
submit written questions to you, that we hope you would answer
in the faith that they're given, to provide us with the
necessary information to help us make our job a little easier.
[A statement submitted for the record by The Honorable
Edward J. Markey follows:]
Statement by The Honorable Edward J. Markey, a Representative in
Congress from the State of Massachusetts
Thank you, Mr. Chairman. Our public lands are our national
treasure. They are wilderness areas of incomparable grandeur. They
remind us of what our pioneering fathers first saw as they strode
across this land. But for some special interests, our public lands
represent our national treasure chest. For out of these lands they draw
oil, wood, silver, and gold. And it is true these resources benefit our
nation. But we are at a point in history where we have the capability
to step back and think carefully about our use of these resources we
must think about not just today's needs, but tomorrow's generations.
What do we leave to our grandchildren?
As you know, I oppose the President's proposal to drill for oil in
the Arctic National Wildlife Refuge. I cannot support allowing oil
companies to rip into the pristine biological heart of the Refuge for a
few drops of oil when we have technological substitutes at hand. But at
least with the on-going oil extraction from public lands, the public
gets a more reasonable return on the development. The American taxpayer
receives 12.5 percent of the value of the oil extracted. The extraction
of coal and natural gas also yield the same benefit. But with silver
and gold, there is no such royalty. The mining enterprises move in, dig
in, and pull out the jewels from the treasure chest, and the benefit to
the owners of the land are these nominal fees that are the subject of
our hearing today.
And at what cost to our future generations? Mining is not an
inherently environmentally friendly venture. Cyanide, sulfuric acid,
and heavy metals can be generated and spread across the land as a
result of mining activities. The EPA says that mine wastes have
polluted 12,000 miles of our nation's waterways and 180,000 acres of
lakes and reservoirs. Uncontaminated soil can impact streams as well
when the supporting vegetation is stripped away.
The Mining Act of 1872 was intended to encourage the development of
the West. But this was passed back when Ulysses S. Grant was President
and Robber Barons like Jay Gould, Jim Fiske, Andrew Carnegie and
Cornelius Vanderbilt were calling the shots. We are long beyond the
days of wooden-wheeled wagons rambling through the wilderness in search
of buried treasure. Instead we have environmental degradation as the
result of a billion-dollar-a-year industry on public lands. Are the
mining fees worth it? At the very least, these fees represent a minimal
offset to mining activities in our public lands.
Some of you may remember the old Bee Gees song, ``The New York
Mining Disaster of 1941,''
I keep straining my ears to hear a sound.
Maybe someone is digging underground, or have they given up and all
gone home to bed, thinking those who once existed must be dead.
Today, we don't need to strain our ears to hear the sound of the
mining industry digging on public grounds. They may hope we've given up
and all gone home to bed, but mining reform is not yet dead.
I look forward to the testimony of today's witnesses.
______
With that, I want to thank you again, and will excuse you
as witnesses. There are no other panels to be heard today, so I
will once again thank everyone for attending and call this
hearing to a close.
[Whereupon, at 4:08 p.m., the Subcommittee adjourned.]
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