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TESTIMONY OF

JOHN A. MASTERSON

COUNSEL TO THE HONORABLE DAVID D. FREUDENTHAL, GOVERNOR

STATE OF WYOMING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

HOUSE COMMITTEE ON RESOURCES

BARBARA CUBIN, CHAIRWOMAN,

AT ITS OVERSIGHT HEARING ON

THE ABANDONED MINE TRUST RECLAMATION FUND

July 24, 2003

INTRODUCTION

Good morning Madam Chairwoman. My name is John A. Masterson, and I am the legal counsel to Governor David D. Freudenthal of the State of Wyoming. I have been invited here today to speak briefly on the reauthorization of the Surface Mining Control and Reclamation Act (SMCRA) and the Abandoned Mineral Lands Fund, from the perspective of Wyoming, our nation’s largest producer of coal and, therefore, the nation’s largest source of AML funds. I commend you for your willingness to hear from representatives of coal-producing states about this important issue. We stand ready to work with Congress in addressing the shortcomings of SMCRA and the need to distribute AML funds. On behalf of Governor Freudenthal, I wish to thank the members of the Subcommittee on Energy and Mineral Resources of the House Committee on Resources and Chairwoman Barbara Cubin for inviting the State of Wyoming to testify at this hearing today.

HISTORY

When the Surface Mining Control and Reclamation Act was enacted in 1977, it included a fee on coal production. Proceeds from the fee were placed in the Abandoned Mine Land (AML) fund. By law, one-half of the fees collected in each state or on tribal lands were to be returned to the state or tribe of origin. The other half of the collections were to be spent at the discretion of the Secretary of the Interior to address reclamation issues of national importance. All AML expenditures, including state and tribal shares and the OSM’s allocation, are subject to the federal budgeting process and annual appropriation by Congress.

Despite the bill’s intent and the clear mandate of law, Congress has never appropriated to states and tribes the 50% of fee collections guaranteed in the law. Wyoming, for example, has received only 29% of fees collected in our state since the approval of Wyoming’s reclamation plan in 1983. This refusal of the federal government to discharge its obligations to the states is of grave concern to Wyoming.

In addition to the failure to allocate these funds, the unappropriated pool of money became an irresistible source of substantial interest income. As a result, SMCRA was amended by the Coal Act of 1992 to allocate that interest to mitigate deficits in the United Mine

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Workers Combined Benefit Fund (CBF). This diversion of interest deprives the states and tribes of an additional $70 million in annual revenue that could have been used to remediate the public safety hazards of unreclaimed mine sites. The potential to add additional beneficiaries to CBF coverage is another concern to Wyoming, as it would further reduce the pool of funds available to meet the original intent of SMCRA.

We are very concerned that Wyoming’s coal producers will be asked to bear the largest burden of AML fee collections without the return of an equitable portion of those funds to Wyoming. In 2002, Wyoming producers paid in over $126 million; yet, Wyoming’s AML program received only $28 million in distributions. That’s only 23% of the money Wyoming contributed, while other states have received 40%, 50% and even over 100% of their contributions.

Appropriations from Congress to address AML problems in Wyoming and other coal states are constrained by budget ceilings established by Office of Management and Budget. Annual AML distributions to states and tribes have never reached the 50% of AML fee collections mandated by Congress in SMCRA. As a result, the AML Trust Fund now contains almost $1.5 billion, of which $972 million is the states’ share balance, which by law should have been distributed to AML states and tribes.

Through fiscal year 2002, Wyoming coal companies have paid over $1.637 billion into the fund. Less than 30% of these collections have returned to the State. Wyoming has received only $468.5 million in annual allocations. Over $374 million of Wyoming’s state share resides in the AML fund. This money – now idle in the federal account – could be put to productive use reclaiming hazardous mine sites and mitigating the deleterious effects of mining and mineral processing activities in Wyoming communities.

OBLIGATIONS TO COMBINED BENEFITS FUND

The 1992 Coal Act shifted the AML Trust Fund interest away from reclamation and towards the social needs of United Mine Workers’ dependents and the desires of the bituminous coal operators by subsidizing shortfalls in the Combined Benefits Fund (CBF). These social priorities have steered AML funds away from the needs of states and tribes, especially those states that produce the lion’s share of the Nation’s coal. Wyoming is here today to remind you of the obligations of law adopted as part of SMCRA in 1977. States and tribes are to receive one-half of AML fee collections within their borders. The federal government has not lived up to this law, and appears to be moving even further from its original commitments under pressure from smaller, perhaps more vocal, constituencies.

Wyoming recognizes the federal government’s obligations to the Combined Benefit Fund and accepts that the promises made to the miners who produced the energy to fuel America’s industrial development must be kept. Wyoming encourages Congress to consider creative alternative funding mechanisms which would sever CBF dependency from AML revenues and allow those funds to be applied to the priorities established by Congress. The United Mine Workers Combined Benefits Fund is a health care problem that should not be resolved in the context of the AML fund debate. If the CBF funding remains a part of the AML obligations, then Wyoming suggests that the unpaid Trust Fund balance due the states be used to fund the required benefits going forward.

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WYOMING PRIORITIES AND REMAINING WORK

Wyoming still has a substantial inventory of Priority 1 and Priority 2 coal and noncoal sites that must be reclaimed to ensure a safe environment for Wyoming citizens. The reclamation of highwalls, pits, mine openings, coal fires, subsidence features and other hazards must be addressed. Wyoming’s history of coal production, first to fuel the transcontinental railroad and later for power generation, has left a legacy of underground coal mines and future hazards. Each year, Wyoming sees an increasing number of hazardous subsidence features in schoolyards, fairgrounds, public recreation areas, and close by public roads, railroads and power transmission lines. These features will be a danger to Wyoming citizens and visitors to our state for years to come. Funds must be available into the future to address these inevitable hazards.

While a “certified” state, Wyoming has eligible mine-related hazards awaiting reclamation. Wyoming’s internal inventory has about $50 million in remaining P1 and P2 coal sites and $60 million in remaining non-coal sites. There are an additional 1,200 projects that will be added to our inventory as soon as the cost estimates are completed. Community infrastructure work also remains a significant problem facing our state.

In addition, Wyoming vast coal reserves are constantly threatened by mine fires and coal seam fires. One grass fire in 2002 ignited 56 coal seam fires on federal, state, and private land in one Wyoming county. The Bureau of Land Management and private landowners have repeatedly requested assistance from Wyoming AML to suppress in situ coal seam fires. The prolonged drought in Western states means that Wyoming will see continued multiple occurrences of mine fires and in situ seam fires. Wyoming AML is currently monitoring two dozen mine fires in various areas of the state, including one within a few hundred yards of a residential and commercial area of the Town of Kemmerer. While the cost of containment of these fires cannot be accurately determined, estimates range from $1 million to $10 million per fire.

WYOMING’S PROPOSAL

Wyoming has reviewed the various proposals to amend SMCRA to extend fee collections and modify program guidelines and conditions. As of today, none of these alternatives has been introduced in Congress. Rather than respond to the proposals of other interests, allow us to candidly state Wyoming’s concerns for you.

Frankly, Wyoming’s interests would be best be served by termination of the reclamation fee. The advantages to Wyoming’s economy of allowing the fee to expire outweigh benefits derived from the distribution of AML funds. This is especially true since Congress has not appropriated the 50% share promised in SMCRA and shows no inclination to release Wyoming’s share of the AML trust fund. In our view, extending this tax also amounts to the continuation of a selective tax on a single industry and the citizens consuming energy from this industry. The problem this tax is designed to address – abandoned mine lands from prior generations – is a national legacy and should be remedied by the expenditure of general revenues rather than a selective tax.

Wyoming recognizes, however, the unfortunate reality that this tax will be extended in some form. Therefore, we ask you consider the following as you move forward:

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· Make a fact-based determination of the appropriate level of tax to be charged on surface, underground, and lignite coal. Evaluate the respective rates with a view towards lessening the overall tax burden, as well the particular tax burden, inflicted upon Wyoming’s coal industry. Rates were arbitrarily set at the time the tax was established, and in the 26 years since, substantial changes in production economics, technology and demand require a factual investigation to equalize the fees.

· Accept that the Combined Benefit Fund commitment must be honored, and develop an alternative funding mechanism that does not divert future AML funds to this purpose.

· Adjust the allocation formula to increase allocations to certified states (like Wyoming) while diverting all available excess (including RAMP and some belt tightening at OSM) to historical coal problems. This concept is further discussed below.

· Take AML distributions off budget to avoid the limitations imposed on AML appropriations by the federal budgeting process. This would provide flexibility to shift increasing amounts to eastern states with the greatest need.

· Reduce restrictions on certified states to address non-coal and infrastructure needs in communities impacted by mining practices. Certified states should have the ability to budget the expenditure of AML funds generated in their states based on priorities established by the State, not the federal government.

· The monies previously collected and owed to the states must be paid according to law. Wyoming has been repeatedly advised that OSM cannot pay the states the money owed under the current tax because “the money doesn’t exist.” This position is not only contrary to federal law requiring the redistribution of the states’ shares, but minimizes the reality that these funds represent reclamation, jobs and public health and welfare in our state. These taxes were real when they were collected and are not a simple accounting item.

· Similarly, Wyoming must receive its share of AML monies going forward. These funds must no longer be subject to convenience or legislative whim. Congress has stated that this problem is significant enough to justify congressional action and a federal tax. If the problem is indeed this serious, and if we are to maintain credibility in addressing it, then the problem is too serious to allow funds collected for the states and owed the states to go unallocated.

ADDRESSING HISTORICAL COAL NEEDS

Wyoming recognizes that Eastern states – Pennsylvania, West Virginia, Kentucky – have substantial remaining historical Priority 1 and 2 coal sites that must be addressed with the proceeds from the reclamation fee. Wyoming believes that a fair and equitable distribution of those funds can satisfy reasonable needs for all states participating in the program established by Title IV of SMCRA. We would suggest the following steps:

· Eliminate the Rural Abandoned Mine Program (RAMP) and dedicate that 10% of future collections to historical coal sites using existing distribution formulas. This reallocation would make an additional $28 million available annually to distribute for historical coal problems.

· Tighten belts at OSM. OSM has proposed to transfer certain functions such as the Emergency Program to the AML States. A reduction of the OSM share of collections from 20% to 15% would add $14.4 million annually to the amount available to historic coal states.

· Create an independent funding source for CBF shortfalls. Reducing CBF demands on AML Trust Fund interest could make $20 million to 30 million available annually.

· Take some portion of AML appropriations off budget. AML distributions to states and tribes have been limited by Office of Management and Budget agency budget ceilings. Current appropriations to all states and tribes have been about $165 million per year, and it will be difficult to exceed this total amount unless an off-budget compromise is made.

SUMMARY AND CONCLUSIONS

Wyoming has long suffered the severe impacts of fluctuations in the State’s extractive mineral-based economy. Wyoming’s historical role as a major energy producer for the nation will continue to have negative effects on Wyoming citizens for generations to come. Coal mine subsidence, coal fires, highwalls, pits, bogs, and mine openings will always be a fact of life in Wyoming.

Further, public facilities in mining-impacted Wyoming communities – schools, transportation, water systems, sewage systems, emergency service delivery, medical facilities and other community infrastructure – will continue to suffer from the traditional “boom and bust” economic cycle that is endemic to the natural resource-based economy found not only in Wyoming but also in the eastern states with high historical coal production. Any reduction in AML revenue, especially coupled with the continued burden of the AML tax on the State’s coal producers, is an unacceptable combination that will prove detrimental to Wyoming’s economy and its citizens. Our state needs, in fact, requires, either relief from the fee or a guarantee that the State will receive an increased share of future AML revenues.

Wyoming respectfully requests that we be included in future discussions regarding AML fund extensions. Wyoming is America’s largest coal-producing state and has a long history of coal production to meet the nation’s industrial needs. Since the construction of the transcontinental railroad in the early 1860's, and into the foreseeable future, Wyoming will be a vital source of natural resources for our country. We are proud of our role in the economy, industry and environment of the United States, but we cannot forget that, in this issue, our quality of life, safety, environment and health are at stake.

Wyoming thanks the Subcommittee on Energy and Mineral Resources of the House Committee on Resources and its Chairwoman, Barbara Cubin, for the opportunity to present this testimony today.