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Producing Steel Cents a Battle
By David L. Ganz, Numismatic News
March 13, 2008

Steel cents are coming, but the process of making it so is the focus of battle between supporters of two different pieces of legislation.

At a hearing March 11 on Capitol Hill the result was a parade of competing interests, stakeholders with differing opinions, and proposed resolutions to what all perceive as the problem of high coinage costs. The cost of producing the cent and nickel far exceed face value.

Rep. Luis V. Gutierrez, D-Ill., chairman of the Subcommittee on Domestic and International Monetary Policy, Trade and Technology of the Committee on Financial Services said, "This hearing provides the subcommittee an opportunity to closely examine measures that could save taxpayers well over $100 million annually."

Significantly, before considering labor costs or overhead, he said that raw materials cost for current coin compositions were 1.7 cents "to make a penny and 10 cents to make a nickel;" he said this resulted "in more than a $100 million loss to taxpayers in 2007 alone."

Four witnesses presenting testimony in two panels was the mode of the hearing. Mint director Edmund C. Moy was the sole member of the first panel. Others who testified in this second panel included a former member of Congress, Jay W. Johnson, now a consultant to Collector's Universe, and before that in the Clinton Administration director of the Mint. Also testifying: Richard M. Geerdes, President & Chief Executive Officer, National Automatic Merchandising Association (NAMA) and Michael J. Brown, vice president of U.S. Public Affairs, Barrick Gold Corporation. Brown also is a member of the Citizens Coinage Advisory Committee and during Donna Pope's tenure at the Mint served as her special assistant. Being commented on were at least two bills, H.R. 3330, introduced Aug. 2, 2007, by Gutierrez and Rep. Barney Frank, D-Mass., the full committee chairman, and H.R. 5512, introduced this year.

H.R. 3330 is entitled the "Coinage Materials Modernization Act of 2007" and authorizes the secretary of the Treasury to prescribe the weights and the compositions of circulating coins.

Some say this delegation of the power given Congress by the Constitution (Article I, 8) is unconstitutional - and Moy commented on that to the committee, together with other arguments favoring the Mint-sponsored bill.

H.R. 5512, on the other hand, introduced on Feb. 28 by Rep. Zack Space, D-Ohio, for himself, Gutierrez and Frank, is called "Coin Modernization and Taxpayer Savings Act of 2008," and takes a slightly different approach, beginning with precatory language and an historical recitation of some coinage events designed to put in context the delegation of Constitutional powers.

The new bill is different from its predecessor, and probably constitutional, because it sets parameters for the Treasury secretary to follow.

In H.R. 5512, the head of the Treasury "shall prescribe the weight and the composition of the dollar, half dollar, quarter dollar, dime, 5-cent, and 1-cent coins" with several added requirements. First is that, "The coins shall be coined, minted and materials fabricated in the United States."

Next, Congress sets the parameters that the Secretary must follow: "In prescribing the weight and the composition of the dollar, half dollar, quarter dollar, dime, 5-cent, and 1-cent coins," Treasury is require - must - consider "factors relevant to the potential impact of any revisions to the weight and composition of the material on the current coin suppliers." It outlines a substantial consultation and vetting process with what seems like all possible interested parties.

"The secretary shall enter into a formal rulemaking process," which is a time-consuming and deliberate process on notice to Congress and its constituency. Then the icing on the cake and proof that there is no real delegation of powers: Congress takes it back! It directs some specifications for the golden dollar and gold coin issues of the Mint, including variations on weight.

It also puts on the brake for any sudden change in composition for denominations other than the cent that is, the nickel, dime, quarter and half dollar. The bill would prohibit change until "the end of the fiscal year which is the 5th of 5 sequential fiscal years in each of which the net cost of producing such circulating coins ... has exceeded the total face value of such coin."

Plans for the cent are not left for the Treasury chief, either. Congress picks up its constitutional responsibilities in the bill by directing major changes for the denomination. "During the period beginning 180 days after the date of the enactment of the Coin Modernization and Taxpayer Savings Act of 2008 and ending on the effective date of any subsequent change by the secretary of the composition of the 1-cent coin under paragraph (1), the 1-cent coin shall be produced primarily of steel; and meet such other specifications as the secretary may determine to be appropriate, including any change in the weight."

It then goes on to talk about how Congress wants the coin to appear: "The 1-cent coin shall be treated to impart a copper color to the appearance of the coins so that the appearance is similar to 1-cent coins produced of a copper-zinc alloy."

In a sop to collectors, the bill says for 2009: "No provision of this paragraph shall apply with respect to 1-cent coins described in section 304 of the Presidential $1 Coin Act of 2005 that are issued for numismatic purposes." These are the Lincoln commemoratives.

Moy liked the first bill; but as to the second, which clearly reflected drafting that was part of leadership thinking, "The Department of the Treasury is requesting the ability to determine the metal content of the Nation's coinage because it would ultimately result in significant taxpayer savings by providing the Department with the flexibility to respond to changing market conditions through an open, fair and deliberative process."

Thus, he said, "the Department and the United States Mint can support the "Coin Modernization and Taxpayer Savings Act of 2008," but only if two specific objections ... are removed or addressed."

Those two objections:

the provision mandating five years of consecutive losses because it deprives the United States Mint of needed flexibility to act as quickly.

it addresses one denomination at a time based on the volatility of metal prices. The vending and coin handling industries would potentially have to repeatedly face costly changes denomination by denomination.

Moy's solution is to re-direct the problem and define a slightly different problem with a ready solution: "we need to consider the relationship of new materials for all of our coins. Regardless of the relationship between production costs and face value, any change in production processes or materials that lowers the cost to produce coinage saves the taxpayer money."

A third objection:

the requirement that "mandates the production of one-cent coins made primarily of steel 180 days after the enactment of this legislation, without first obtaining any public input." Moy's rationale: that it "restricts the United States Mint's flexibility to ascertain and employ the most cost-effective material and production process time frame."

All told, Moy told the Committee that even changing the cent, in the Mint's view, would be time consuming. "The United States Mint anticipates a reasonable time frame to make these critical decisions to be 18 to 24 months to properly implement this mandate and do our part to bring a penny made primarily of steel to the marketplace."

Former Mint director Jay Johnson substantially concurs in Moy's opinion.

Johnson also expressed some concern for the Lincoln bicentennial cent issues of 2009.

The vending machine industry was well-represented by Geerdes. He started he was before the committee "on behalf of NAMA's nearly 1 million members nationwide in this over $40 billion dollar a year industry."

His take on the proposals: "NAMA's specific and unique perspective on H.R. 5512" says that "this legislation should be passed."

Brown's testimony focused first on the cause of the problem that has jacked up the price of copper, zinc and nickel. "Today we are experiencing what is being called a "Super Surge" in demand for metals. The rapid industrialization of economies in China and India have fueled a demand for metals, precious and base metals, the likes of which we have not seen since the Industrial Revolutions of the United States and the United Kingdom"

He then gave an extended history of mint compositional changes in the 1960s and '70s, before talking about the seminal sleight of hand that made the copper cent of 1982 a zinc coin that was copper-plated.

"After clearing court challenges by the [Copper] Fabricators, production began in mid-1982," Brown said. "It should be noted that 1982 is the only year that the Mint produced a blend of copper cents and copper-plated zinc cents. The new copper-plated zinc cent went largely unnoticed by the public, but fulfilled all of the expectations of the Mint, the Congress, Treasury and the Federal Reserve."

What happens next is anyone's guess, but before the changes the Mint wants can be effected, Congress must do its job and deliberate.

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On March 14, 2008 PETER JORDHAMO said
On March 16, 2008 Robert (Bob) Wyda said
I believe that the Congress and Mint are shooting from the hip as usual.

I do not believe the total anticipated savings (to tax payers) that will be saved.  There would not be any savings.  Infact; the stopping and startup of material changes would eat the savings if any.

If they want to save money, cut the number of coins minted by half.  As a long time Collector and Dealer- I think that somebody from Congress needs to get back to the real world.

It is almost impossible to purchase uncirculated coins, even produced by the billion.  Why?? #1 There are enough circulated coins available.  Banks will not buy new coins because they want to save money. #2 The Fed Reserve does not distribute coins like they were required to.  #3 The mint does not have a mode of issuing uncirculated coins other than those that cost a premium.  #4 the cheaper the mfg cost the replacement cost will cost more.  Thanks
On March 16, 2008 Francis Maloney said
It is time to dispense with the bull.  Copper-coated steel for cents is not only cheaper, but BETTER.  SOMEBODY may show their displeasure by mutilating copper-coated ZINC cent that he or she may return to circulation !!!
On March 18, 2008 David said
Maybe Lincoln cents could be produced with the same material as the canadian cents. I think that would be the logical course of action.
On March 22, 2008 JeffK said
The EU uses copper-coated steel 1, 2, and 5? coins.  Stop the fussing and change the composition.

But our coinage system needs a lot more modernization than steel cents.  A 2? piece would save a lot  more by reducing the number of cents needed - you'd never need more than 1 penny to make change. There's no mandate anymore that it be twice as big, so it'd save metal too.  

Next Congress has to find the will to stand up to the lobbyists at Crane Paper and Kill (the $1) Bill.  It's almost as bad as the penny.  Print half as many $2 bills and use the 3 billion $1 coins we'll soon have for making change instead of sitting in piggy banks.

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