Politics of Poverty

US giving away gold

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Taxpayers receive zero benefits from federal lands gold mining

It sounds like a late-night TV infomercial, but it’s true. In the midst of a fiscal crisis, the US government receives no royalty payments for gold extracted from federal lands. Yesterday, the US Government Accountability Office (GAO) released a report on mineral extraction and revenues from land administered by the Department of the Interior. The report, requested by Senator Tom Udall and Rep. Raul Grijalva, found that not only does the government not collect any royalty for “hardrock minerals” such as gold, silver, copper, and uranium, it does not even know how much of such minerals are being produced! “We found that federal agencies generally do not collect data from hardrock mine operators on the amount and value of hardrock minerals extracted from federal lands because there is no federal royalty that would necessitate doing so,” the report said.

This bizarre state of affairs is a result of the General Mining Act of 1872 which, amazingly, still governs hardrock mining and allows operators to mine without paying any royalty. No benefits and significant impacts on the environment and Native and other communities—sounds like a great deal. In contrast, oil and gas royalties from federal lands provided $10.1 billion to the Treasury each year in 2010 and 2011.

The government has been “leaving a huge pot of money on the table”, says Rep. Grijalva. “There’s no reason to keep these extraction and royalty laws out of date… Keeping the public and Congress in the dark any longer about what’s going on with federal property doesn’t serve any public purpose, and it should end.” said Grijalva, a member of the House Committee on Natural Resources.

Even when royalties are collected for oil and gas, the rates are quite low. Many offshore oil lease royalty rates are as low as 12.5 percent. But it gets worse. The “effective royalty” rate found by the GAO study—the amount the government actually collected—was in some cases significantly lower than the rate specified in the lease. (Though it was not a focus of the report, it is worth noting that for the years studied in this report, FY10 and FY11, surprisingly little revenue from these offshore leases, unlike oil and gas activities on public lands, comes back to the coastal communities and states bearing the brunt of the risk from these activities, particularly across the Gulf of Mexico. Much has been written in recent weeks about incoming Senators Ron Wyden, Lisa Murkowski, and Mary Landrieu’s interests in addressing this disparity in revenue sharing in the 113th Congress.)

It should not take Members of Congress asking the GAO for information for citizens to know how much is being generated by our nation’s oil, gas and minerals. One part of the fix is implementation of the Section 1504 (the so-called “Cadin-Lugar” provision) of Dodd-Frank. The Securities and Exchange Commission has issued final rules for Section 1504 that require all oil, gas and mining companies reporting to the SEC to disclose royalties and other payments on a project-by-project basis—both in the US and abroad.  The Interior Department has expressed support for this provision. Oxfam and the Publish What You Pay US coalition has been working for the past two years on getting this provision implemented and Oxfam is now part of a legal battle pitting the US oil industry against the SEC.

US implementation of the international voluntary Extractive Industries Transparency Initiative by the Department of the Interior may also help. But as the GAO notes it is unclear whether production of hardrock minerals will be required—as in some other countries—and full reporting and implementation may be four years down the road.

Ultimately, it is up to Congress to reform the outdated 1872 mining law. Rep. Grijalva has cosponsored a bill, the Fair Payment for Fair Payment for Energy and Mineral Production on Public Lands Act, which would set a 12.5 percent royalty rate on hardrock minerals and says “he looks forward to supporting and strengthening an updated version in the upcoming Congress.”

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