[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                   H.R. 5512, THE COIN MODERNIZATION
                   AND TAXPAYER SAVINGS ACT OF 2008

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON

                       DOMESTIC AND INTERNATIONAL

                 MONETARY POLICY, TRADE, AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-98


                    U.S. GOVERNMENT PRINTING OFFICE
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma                  KEVIN McCARTHY, California
                                     DEAN HELLER, Nevada

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Domestic and International Monetary Policy, Trade, and 
                               Technology

                 LUIS V. GUTIERREZ, Illinois, Chairman

CAROLYN B. MALONEY, New York         RON PAUL, Texas
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
PAUL E. KANJORSKI, Pennsylvania      FRANK D. LUCAS, Oklahoma
BRAD SHERMAN, California             DONALD A. MANZULLO, Illinois
GWEN MOORE, Wisconsin                WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JEB HENSARLING, Texas
WM. LACY CLAY, Missouri              TOM PRICE, Georgia
KEITH ELLISON, Minnesota             PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              MICHELE BACHMANN, Minnesota
ROBERT WEXLER, Florida               PETER J. ROSKAM, Illinois
JIM MARSHALL, Georgia                KENNY MARCHANT, Texas
DAN BOREN, Oklahoma                  DEAN HELLER, Nevada


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 11, 2008...............................................     1
Appendix:
    March 11, 2008...............................................    23

                               WITNESSES
                        Tuesday, March 11, 2008

Brown, Michael J., Vice President, U.S. Public Affairs, Barrick 
  Gold Corporation; Member, Citizens Coinage Advisory Committee; 
  and former Special Assistant to the Director, United States 
  Mint...........................................................    16
Geerdes, Richard M., President & Chief Executive Officer, 
  National Automatic Merchandising Association...................    18
Johnson, Hon. Jay W., Consultant, Collector's Universe; former 
  Director, United States Mint; and former Member of Congress....    14
Moy, Hon. Edmund C., Director, United States Mint................     5

                                APPENDIX

Prepared statements:
    Brown, Michael J.............................................    24
    Geerdes, Richard M...........................................    30
    Johnson, Hon. Jay W..........................................    32
    Moy, Hon. Edmund C...........................................    35

              Additional Material Submitted for the Record

Gutierrez, Hon. Luis V.:
    Congressional Research Service memo, dated March 10, 2008, 
      re: Constitutionality of Congressional Delegation of the 
      Authority to Dictate the Metallic Composition of Coins to 
      the Executive Branch.......................................    52
    Letter from the American Beverage Association, dated March 
      10, 2008...................................................    55
    Letter from Bryan D. Anderson, dated March 7, 2008...........    56
    Letter from Brinks, Inc......................................    57
    Letter from Dunbar Armored, dated March 5, 2008..............    58
    Letter from Brinks, Inc......................................    57
    Letter from NAMA, dated March 6, 2008........................    59
    Letter from PepsiCo, dated March 10, 2008....................    61
    Statement of Hon. Zack Space.................................    62
Paul, Hon. Ron:
    Letter to Hon. Michael G. Oxley, former chairman of the 
      Financial Services Committee, from the United States Mint, 
      dated May 1, 2006..........................................    63
    Press release from canada.com, dated July 5, 2006............    65


                   H.R. 5512, THE COIN MODERNIZATION
                    AND TAXPAYER SAVINGS ACT OF 2008

                              ----------                              


                        Tuesday, March 11, 2008

             U.S. House of Representatives,
                       Subcommittee on Domestic and
                     International Monetary Policy,
                              Trade, and Technology
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:33 p.m., in 
room 2128, Rayburn House Office Building, Hon. Luis V. 
Gutierrez [chairman of the subcommittee] presiding.
    Members present: Representatives Gutierrez; Paul, Castle, 
Lucas, and Roskam.
    Chairman Gutierrez. This hearing of the Subcommittee on 
Domestic and International Monetary Policy, Trade, and 
Technology will come to order.
    The subject of today's hearing is H.R. 5512, the Coin 
Modernization and Taxpayer Savings Act of 2008, an important 
piece of legislation that could save taxpayers well over $100 
million annually by granting the United States Mint the 
authority to alter the content of coins if the cost of minting 
coins does not exceed each coin's face value.
    I want to say good afternoon, and thank you to all of the 
witnesses for agreeing to appear before the subcommittee. On 
our first panel we will hear from the Director of the United 
States Mint, and our second panel includes a representative 
from the vending machine industry and a former U.S. Mint 
Director.
    We will be limiting opening statements to 10 minutes per 
side, but, without objection, the record will be held open for 
all Members' opening statements to be made a part of the 
record. I yield myself 5 minutes.
    Good afternoon. The purpose of today's hearing is to 
consider legislation that has the potential to save taxpayers 
over $100 million annually, by reducing the cost to mint $.01 
and $.05 coins. Since March of 2003, increasing metal prices 
caused by high world demand for core metals have driven the 
cost of copper and nickel up by 300 percent, while zinc has 
increased by 450 percent. As a result, the cost of producing 
our Nation's circulating coins has increased dramatically.
    In Fiscal Year 2007, it cost nearly $.02 to make each 
penny, and $.10 to make a nickel, needlessly costing the 
American taxpayers nearly $100 million last year, alone. These 
losses will continue to mount unless we act to change the 
metallic content of our $.01 and $.05 coins.
    The penny and the nickel have been in the negative 
situation since 2006. Prior to 2006, the government had never 
before spent more money to mint and issue a coin than the 
coin's legal tender value. The U.S. Mint anticipates that by 
changing the composition of just the penny and the nickel to 
less expensive materials, we can save the government hundreds 
of millions of dollars without compromising the integrity or 
utility of these coins.
    In a July 2007 letter to Congress, the Treasury Department, 
with the support of the Office of Management and Budget, 
requested that legislation be put forward granting the 
Secretary of the Treasury the authority to change the metallic 
composition of coins. H.R. 5512, the Coin Modernization and 
Taxpayer Savings Act of 2008, gives the Treasury Secretary the 
requested authority.
    Under H.R. 5512, the Secretary will have the power to 
change the metallic content of coins: half dollar; quarter 
dollar; dime; nickel; and penny. The bill requires the 
Secretary to consult with related industry and consider factors 
related to the effect the changes in coin content may have on 
the industry.
    In addition, the bill mandates that the Secretary enter 
into a formal rulemaking when making changes to the content of 
coin. The bill further requires the Mint to begin production of 
a steel penny within 6 months of enactment. This should result 
in immediate and substantial savings to taxpayers.
    For coins besides the penny, the legislation requires that 
production costs for a coin would have to exceed the coin's 
face value for 5 continuous years before the Mint's authority 
to change the content is effective. This retroactive 5-year 
look-back not only makes certain that the trend in rising metal 
prices is established in the market and not temporary, but also 
provides some security to companies and their workers who 
partner with the Mint in creating new coins.
    If we continue minting coins with the current metal level, 
with each new penny and nickel we issue we will also be 
contributing to our national debt by almost as much as the coin 
is worth. These losses are mounting rapidly, and with commodity 
prices forecasted to stay near existing levels for several 
years, we need to act immediately to give the Mint the 
flexibility to lower the cost of producing the penny and the 
nickel.
    I believe that H.R. 5512 will give the U.S. Mint the 
authority it needs to make the necessary changes to our coins 
without creating an undue burden on the relevant industries or 
causing a disruption in the minting process. As always, I look 
forward to a vigorous debate, and I yield 5 minutes to the 
ranking member, Congressman Paul.
    Dr. Paul. Thank you, Mr. Chairman. Mr. Chairman, I have no 
objection to changing the content of the penny. But I do oppose 
H.R. 5512, because it is unconstitutional to delegate the 
determination of the metal content of our coins to the 
Secretary of the Treasury. Under Article 1, Section 8 of the 
Constitution, the Congress is given the power to coin money and 
regulate the value thereof.
    It is a shame that Congress has already unconstitutionally 
delegated its coinage authority to the Treasury Department. 
That is no reason to further delegate our power, and 
essentially abdicate congressional oversight, as the passing of 
H.R. 5512 would do.
    Oversight by Members of Congress who have an incentive to 
listen to their constituents ensures openness and transparency. 
This bill would eliminate that process, and delegate it to 
unelected bureaucrats. The Secretary of the Treasury would be 
given sole discretion to alter the metal content of coins or 
even to create non-metal coins.
    Given the history of congressional delegation and 
subsequent lax oversight on issues as important as the conflict 
in Iraq, it would be naive to believe that Congress would 
exercise any more oversight over an issue as unimportant to 
most Members as the composition of coins.
    While I sympathize with the aim of Section 4 of this bill, 
to save taxpayers' money by minting steel pennies, it is 
disappointing that our currency has been so greatly devalued as 
to make this step necessary. At the time of the penny's 
introduction, it actually had some purchasing power. Based on 
the price of gold, what one penny would have purchased in 1909 
requires $.47 today. It is no wonder, then, that few people 
nowadays would stoop to pick up any coin smaller than a 
quarter.
    Congress's unconstitutional delegation of monetary policy 
to the Federal Reserve, and its reluctance to exercise 
oversight in that arena, have led to a massive devaluation of 
the dollar. If we fail to end this devaluation, we will 
undoubtedly hold future hearings as the metal content of our 
coins continues to outstrip the face value.
    H.R. 5512 is a sad commentary on how far we have fallen, 
not just since the days of the founders, but only in the last 
75 to 100 years. We could not maintain the gold standard, nor 
the silver standard. We could not maintain the copper standard. 
And now, we cannot even maintain a zinc standard.
    Paper money inevitably breeds inflation and destroys the 
value of the currency. That is the reason that this proposal is 
before us today.
    And, Mr. Chairman, I have a brief unanimous consent request 
to make here, if I could, sir. Mr. Chairman, I also want to 
introduce a few items into the record at this point.
    I have a letter from the Mint to Congress from 2 years ago 
detailing the cost of production of the penny and the nickel, 
and a news story, about 2 months later, that quotes a Canadian 
mint official as saying its copper-coated steel penny made in 
the same factory as a U.S. cent costs 7/10 of a cent.
    I would also like to request that the Mint supply us with 
some things that can be made part of the record: The 
alternative material study referred to in the 2004 Mint annual 
record, and work papers leading to the production of that 
report; also, any other Mint internal or public reports since 
the 1973 report that detailed possible alternative materials.
    I believe there was one in 1980, and summaries of Mint 
contracts with outside firms in the late 1980's and early 
1990's, as the Mint sought other sources of coin materials. I 
believe there were at least three companies involved in that 
R&D.
    Chairman Gutierrez. Without objection, it is so ordered.
    Dr. Paul. Thank you.
    Chairman Gutierrez. Has the ranking member concluded?
    Dr. Paul. You want me to recognize him?
    Chairman Gutierrez. It is okay, I will. Mr. Castle, you are 
recognized for 5 minutes.
    Mr. Castle. Well, I will not take more than 1 minute. I 
would like to thank you, Mr. Chairman, for the hearing.
    I am also very concerned about the cost of making the 
penny. The gentleman from Texas, Mr. Paul, raises other 
concerns that we have to think about, as well.
    I am also concerned about the cost of making a nickel and I 
think we do need to address these issues in this country. There 
is no question in my mind that we cannot pay more to make our 
coinage than it is worth. It is that simplistic, regardless of 
how things are going to be changed.
    So, I think this is an appropriate hearing and an 
appropriate subject. I do not know if I know the exact way 
correct it, but the bottom line is that something clearly has 
to be done. And with that, I yield back.
    Chairman Gutierrez. Mr. Roskam, would you like to be 
recognized, sir?
    Mr. Roskam. Thank you, Mr. Chairman. Thank you, Mr. 
Chairman, for holding this hearing, along with Ranking Member 
Paul.
    Recently, the humble penny has created quite a controversy. 
And why is it that a copper-coated zinc coin has created such a 
fuss? Well, it's easy. It costs $.017 cents to make each one, 
actually more than it's worth, as we've heard already. And, at 
current production rates, the Federal Government spends more 
than $134 million to produce 8 billion pennies annually, at a 
cost of $54 million to the taxpayer.
    At the request of the U.S. Mint, legislation was introduced 
last year to transfer congressional authority to determine coin 
composition and weights to the U.S. Mint. The Mint has argued 
that Congress is slow to deliberate, and that it currently 
doesn't have the authority to perform the research necessary, 
and the development on its potential component modifications.
    But the truth is, Mr. Chairman, I think, quite to the 
contrary. The Mint does have the R&D authority. The Mint 
research leading to the change in content of the $.01 coin 
included work in the Research Triangle Institute in North 
Carolina, and with the Ball Corporation, which had a division 
in Tennessee, now a separate company that produces penny 
blanks.
    Also, it seems to me that the Mint has been the leader in 
slowing down changes to coin components. In the 2004 Mint 
annual report, it was stated that the first comprehensive 
coinage materials study for circulating coins had begun. The 
objective was to review and consider cost-effective 
alternatives or alternative materials for current and future 
coin denominations. This study, to my knowledge, was never 
completed.
    Additionally, when the Mint sent a letter to Congress in 
2006 saying the cost to produce the penny would rise to nearly 
$.017, no recommendations from the Mint have since followed.
    I oppose ceding Congress's constitutional authority, held 
since 1792, to the U.S. Mint. And so, I introduced H.R. 4036, 
the Cents and Sensibility Act, last fall, along with the 
gentleman from Delaware, Mr. Castle. I introduced this bill to 
ensure taxpayer dollars are saved in the production of the 
penny by immediately changing the composition of the penny to 
copper-coated steel, and requiring the U.S. Mint to swiftly 
make recommendations on a comprehensive reworking of the 
metallic content of other circulating coins, so that Congress 
can consider and vote on the proposals.
    My bill ensures that this will be done, making sure that no 
American jobs are threatened by the changes, without simply 
transferring the cost from the government to business and 
consumers, and without handing over congressional decision-
making powers to entities where it doesn't belong.
    In today's hearing, we will be discussing newly introduced 
legislation that was introduced by our colleague, Zack Space, 
H.R. 5512, the Coin Modernization and Taxpayer Savings Act of 
2008.
    I was pleased to discover that a section of my bill was 
incorporated into this one. Some may call that legislative 
larceny, but I call that a compliment, and I am delighted to 
see it. The inclusion of the modification of the components of 
the penny from copper-coated zinc to copper-coated steel will 
slash the cost to make the penny, and I look forward to hearing 
the entire testimony today.
    And, with that, I yield back the balance of my time.
    Chairman Gutierrez. Thank you, Mr. Roskam.
    We are pleased to have with us the Director of the United 
States Mint, Mr. Edmund Moy. Mr. Moy was sworn in as the 38th 
Director of the U.S. Mint on September 5, 2006. As Mint 
Director, Mr. Moy leads the world's largest manufacturer of 
coins, metals, and coin products.
    Prior to becoming Director, Mr. Moy was a Special Assistant 
to the President for Presidential personnel at the White House. 
Prior to his current public service, Mr. Moy spent 8 years 
working with venture capital firms and entrepreneurs, including 
the Wall Street private equity firm Welsh, Carson, Anderson & 
Stowe.
    From 1989 to 1993, he served in the Federal Healthcare 
Financing Administration at the U.S. Department of Health and 
Human Services, as Director of the Office of Managed Care. In 
that position, he was responsible for overseeing $7 billion in 
annual expenditures to Medicare- and Medicaid-managed 
healthcare programs.
    From 1979 to 1989, he was sales and marketing executive for 
Blue Cross Blue Shield United of Wisconsin. He graduated from 
the University of Wisconsin in 1979 with a triple major: 
economics; international relations; and political science.
    You are recognized for 5 minutes, Mr. Moy.

  STATEMENT OF THE HONORABLE EDMUND C. MOY, DIRECTOR, UNITED 
                          STATES MINT

    Mr. Moy. Chairman Gutierrez, Ranking Member Paul, and 
members of the subcommittee, thank you for inviting me here 
today to testify on the Coin Modernization and Taxpayer 
Protection Act of 2008, H.R. 5512.
    Chairman Gutierrez, first a personal note. Thank you for 
your leadership on this issue, to try to save taxpayers money, 
and I appreciate this opportunity to have a public discourse 
about it.
    Due to the spiraling costs of nickel, copper, and zinc, the 
United States Mint will lose about $100 million this year on 
pennies and nickels. High metal costs for these low-
denomination coins have become an unsustainable and unnecessary 
drain on the U.S. Treasury and on taxpayers.
    To solve the current problem and prevent it from occurring 
with other denominations, the Treasury Department has asked for 
the authority and flexibility to determine the metal content of 
all of the Nation's coinage, using an open, transparent, and 
public process. I enthusiastically support legislation that 
maximizes taxpayer savings, and I am encouraged by several 
provisions of H.R. 5512.
    Congress has proven that by giving the Secretary of the 
Treasury authority to test and select alternative metals, that 
is the best solution to the problem of rising metal prices.
    In 1974, Congress authorized the Secretary of the Treasury 
to vary the contents of the penny to save money, authority that 
the Secretary exercised 8 years later, saving the taxpayers 
money by changing the penny from a copper-zinc alloy to copper-
plated zinc.
    Eleven years ago, Congress granted the Secretary of the 
Treasury sole discretion to select materials for the $1 coin. 
This has also proven to be cost effective for the taxpayers.
    The Department is asking Congress for the same authority 
for all circulating coins that Congress granted to the 
Secretary for the $1 coin. Consequently, we object to those 
provisions of H.R. 5512 that differ from the Department's 
proposal.
    The first provision we oppose mandates sustaining 5 
consecutive years of losses before taking action to protect the 
taxpayers from rising metal costs. In the current case of the 
penny and the nickel, losses after 5 years would add up to 
half-a-billion dollars, which is just the kind of taxpayer 
burden that we're trying to seek to prevent.
    A related concern with this provision is that it may hurt 
the vending and coin handling industries. Under the Treasury 
proposal, adjustments to vending machines and systems could be 
accomplished at the same time, rather than denomination-by-
denomination.
    A second provision of the bill mandates that pennies be 
made primarily of steel 180 days after the law's enactment. We 
oppose this provision because it leaves the public out of the 
process of selecting coinage materials, and because of several 
practical considerations.
    The Treasury Department's proposal would employ an open, 
transparent, and deliberative public process to consider new 
material for all of the Nation's coinage, including the penny. 
What is good for all of the other denominations is also good 
for the penny.
    Also, steel may not be the panacea. It is significantly 
harder than zinc, so we must test the life of our dies to 
determine whether the cost can be reduced by switching to 
steel. It doesn't make sense to reduce the cost of materials 
used in the penny if they are offset by higher manufacturing 
costs by replacement dies.
    The United States Mint will also need 90 to 150 days to 
provide specifications to potential vendors for a copper-plated 
steel penny blank, with the potential of reducing the penny's 
cost. Potential vendors supplying penny blanks will need at 
least 18 months to procure steel feedstock, and to make 
machinery investments. A reasonable timeframe for us to 
properly implement a steel penny mandate would be 18 to 24 
months.
    I applaud and thank the subcommittee for seeking to solve 
the penny issue quickly. I only caution that several other 
countries have tried to resolve this problem of high metal 
prices with steel, and it has not proven to be a long-term 
solution.
    The subcommittee and the Treasury Department desire to save 
taxpayers money, and serve the very best interests of the 
country. So I am confident that, by working together, we will 
find the best solutions to the rising cost of our coinage.
    The Department of the Treasury and the United States Mint 
can support H.R. 5512 if two objectionable provisions are 
removed. And, if they are removed, the United States Mint is 
poised to begin implementing the legislation the instant it is 
approved.
    So, thank you, Mr. Chairman, for the time provided for me 
today, and I look forward to discussing this with you and your 
colleagues.
    [The prepared statement of Director Moy can be found on 
page 35 of the appendix.]
    Chairman Gutierrez. Thank you, Director Moy. I ask 
unanimous consent that the following documents be entered into 
the record: Number one, the memorandum to me from the 
Congressional Research Service regarding the constitutionality 
of congressional delegation of the authority to dictate the 
metallic content of coins; number two, a written statement from 
Congressman Zack Space; and number three, letters from related 
industries interested in the bill.
    Without objection, it is so ordered. And now I will yield 
myself 5 minutes.
    Director Moy, first, some comments on your testimony. 
Regarding the 5-year look-back provision, you state that 
because of this provision, H.R. 5512, ``assures that a 
significant portion of the $782 million in seigniorage we 
return to the taxpayer in Fiscal Year 2007 will be put at risk 
over time.''
    I think that statement could be misleading because it 
includes, as I read your testimony, the negative seigniorage 
for the penny and the nickel for 2007. So it may be open to 
debate to state that a substantial portion of that amount would 
be put at risk, when it already includes the losses for 
negative seigniorage.
    Furthermore, your statement ignores any savings or positive 
seigniorage from the penny, and ignores the fact that your 
provision is retroactive, and that we are already in the third 
year for the nickel. So, unless the Mint could simultaneously 
and immediately alter the content of the penny and the nickel--
and you have testified that it will take at least 2 years, just 
to change the penny--I think that statement might not be 
helpful.
    Finally, your assessment of this section of the bill fails 
to note that nothing in the bill prevents the Secretary from 
coming to Congress with specific recommendations on changing 
the content of other coins, prior to the 5-year coin.
    We are here to work with you, Director, and I understand 
that the Mint wants flexibility. But Congress needs to maintain 
some control over the process, and we believe the 5-year 
provision allows for some spikes in the metal markets that may 
not be long-term trends.
    Congress isn't giving the Secretary a free ticket to change 
the content of coins without justification; there has to be 
substantial justification. And if that presents itself in a 
period of less than 5 years, then the Secretary can come to 
Congress to ask for specific changes at that point.
    Let me ask the Director, would the Mint support the 5-year 
loss test if the Mint had research and development authority 
during the interim? In other words, let us say that the Mint 
could conduct R&D at any time on new composition of any coin. 
Then, when the coin goes into negative seigniorage, the Mint is 
ready. And if the Mint believes that it has the best 
alternative already for the full production, it requests that 
Congress waive the 5 years, or whatever is remaining in the 5 
years. Is that something that would make you more comfortable, 
as Director?
    Mr. Moy. Thank you, Mr. Chairman. That is a very good 
point. I am open, as you know, to working through that 
particular issue.
    What we are trying to do--and I have a great respect for 
Congress, and so, you know, part of what has been 
institutionally an issue has been whether the Mint has explicit 
or implicit authority to act on its own in research and 
development. What you propose helps clear that up. And, as a 
result, I would be supportive.
    But, overall, what I am concerned about is--and I think 
your point kind of addresses this--not only am I concerned 
about negative seigniorage, I am also concerned about the 
erosion of seigniorage. So, I don't want to just wait until the 
coin begins losing money, meaning it costs more than the face 
value to make, but, like on the quarter, where it only costs us 
$.09 to make a quarter, I don't want to see that $.09 go to 
$.25 and lose that benefit to the taxpayer before making a 
change.
    Chairman Gutierrez. Thank you very much. I recognize my 
ranking member, Congressman Paul, for 5 minutes.
    Dr. Paul. Thank you, Mr. Chairman. I only have one 
question, and it has to do with who makes the final decision. 
And you understand the problem, we understand the problem, and 
I am just concerned about how we do it, and the process.
    So, what would be wrong with you just offering your 
suggestions to the committee, and we put it in a piece of 
legislation and pass it? That would satisfy me, as far as the 
responsibility and authority goes. What would be wrong with 
doing it that way?
    Mr. Moy. It has been done several ways throughout history. 
But, most recently, Congress has given a considerable amount of 
flexibility to the Mint, and to the Secretary of Treasury, to 
make these decisions.
    What would be helpful to the Mint is if Congress 
specifically tasked the Mint to address this question. And 
since I have been Mint Director, I have not been specifically 
asked to come up with a solution. But once tasked with that, 
that would then give us the ability to have an open proposal 
process.
    Number one is to get the best ideas in the country to solve 
that problem within the criteria that we lay out. And then, 
secondly, once we determine what the best solution might be, 
then to get the lowest bid for that particular solution, which 
is why what you're saying is, I think, doable. But what the 
Mint right now is proposing gives us the most flexibility in 
getting there.
    Dr. Paul. So what I am suggesting has been done that way in 
the past?
    Mr. Moy. It has.
    Dr. Paul. And, although it has been done in the current--
the way you are suggesting, it has been done both ways--
technically, I think the responsibility is here.
    So, I would strongly urge the committee to consider us, you 
know, respecting that responsibility, and maybe asking the Mint 
to actually offer the suggestions, and maybe we can put it in 
the form of legislation. I yield back my time.
    Chairman Gutierrez. Thank you very much. Mr. Castle?
    Mr. Castle. Mr. Director, has there been any study with 
respect to the elimination of the penny? I mean, I have done my 
own little surveys on it, but I don't know if anything official 
has been done.
    Mr. Moy. Yes. That is probably a bit above my pay grade--
    Mr. Castle. A bit above mine, too, by the way.
    Mr. Moy. --to talk about the elimination of the penny. But 
I will say a couple of brief things about this.
    First of all, the Mint is a government agency, so we are 
here to serve the American people. If the American people 
decide that there should be no penny, then the Mint will do its 
best to accommodate that.
    Second, the purpose of the Mint is to satisfy the demands 
of the American people. Currently, the American people continue 
to demand the penny. And so, therefore, our priority, then is--
if we have the obligation to make it, we need to make it as 
efficiently and as cost effectively as possible, which is why 
we're discussing this in the hearing.
    The elimination of the penny would have a minimal impact on 
the Mint, from a human resources perspective, because most of 
our circulating coins are run through a very automated process. 
But it would have an effect on costs, a long-term for the rest 
of the Mint, because last year we produced 16 billion coins; 8 
billion of them, half of them, were pennies. And if we don't 
make pennies any more, you have a lot of idle presses, of which 
you have to spread those fixed costs around the rest of the 
coins you make.
    Mr. Castle. Let me tell you what I do, and I will bet you 
75 percent of the people in this room do it, and 75 percent of 
the people in the country do it. When I get change, 
particularly low-level change, I stick it in an old beer mug I 
have from college, and it sits there. And, you know, maybe 
after 2 or 3 years, my wife will change it in, somehow or 
another. But it takes the pennies out of circulation almost as 
immediately as they are put into circulation.
    Do we ever make an effort to try to keep them recirculating 
so we do not have to make as many pennies, or is that a PR 
campaign that we just don't want to undertake?
    Mr. Moy. You know, one of our observations has been that 
yes, that is the case. My wife is extremely organized, so I 
have the penny tube, the nickel tube, the dime tube, and then 
she packs it up and brings it to the bank once it gets full. 
But, yes, they're out of circulation for a while, whether for a 
week or for 3 years--as in your case.
    But what we have seen over time, is with coin sorting 
companies like Coinstar, they have set up and, you know, people 
can't hold coins forever. And so, eventually, they turn them 
in. And these coin sorting companies have been for around for a 
long time now. Eventually, all the pennies out of circulation 
are getting back into circulation again.
    And so, what we have seen, though, is in the past 5 years 
or so, penny production has been very consistent. We constantly 
replace about 5 percent of the penny supply out there, which 
means consistently there is a slight increase in demand from 
year to year.
    Mr. Castle. Just a final question. I realize that the cost 
of producing pennies is higher than their actual value, and the 
same goes for the nickel, I guess. Is this correct?
    Mr. Moy. Yes.
    Mr. Castle. Where are we with the dime and the quarter? How 
close are they at this point?
    Mr. Moy. Let's see. The dime is probably around $.07 right 
now, the quarter is about $.10. Why we're also proposing that 
all coinage be looked at is if there is a possibility of 
reducing the quarter's cost from $.10 to $.05, and yet not 
affect the vending industry, etc., that is a greater savings to 
the taxpayer.
    And so--but right now, both the dime and the quarter and 
the dollar coin are still in positive seigniorage.
    Mr. Castle. Thank you, Mr. Chairman. I yield back.
    Chairman Gutierrez. You know, we will be right back. We 
have one vote. So why don't we go vote, and we will be right 
back. That way, Mr. Roskam can have his full 5 minutes. I want 
to be sure that he gets to ask all of his questions.
    This hearing is recessed.
    [Recess]
    Chairman Gutierrez. Congressman Roskam, for 5 minutes.
    Mr. Roskam. Thank you, Mr. Chairman. Director, just a quick 
question for you.
    Can you tell me the nature of your understanding of the 
authority to do research and development as it relates to the 
mix of coins? Because it seems to me that there is some 
ambiguity right now. I am sensing in your answer previously to 
Mr. Paul that you didn't feel like you had the research and 
development authority but I am also--you know, it seems like, 
in the past, the Mint has had that, in terms of aluminum coins, 
you know, some of those types of things.
    Mr. Moy. Yes.
    Mr. Roskam. Is there an ambiguity in your--in the 
authority? Has it never been resolved? Or was authority granted 
by Congress in one instance and not the other? Could you speak 
to that?
    Mr. Moy. Yes, I certainly can. And I think it is all of the 
above. There certainly is ambiguity--
    Mr. Roskam. Wrong answer.
    Mr. Moy. Okay. But, let's see, maybe the best place to 
start is we certainly believe that we have the authority to do 
internal research, which we have done.
    We have examined over 70 different alloy combinations that 
fall roughly into 12 different categories. We have a general 
idea of what may work and what might not work. Where we don't 
think we have the authority is to take it to the next step, 
which is begin the testing on it, which requires us to procure, 
you know, test blanks, and all this experimentation, which ends 
up costing a lot of money, doing that.
    And then, you also have the issue of, once we start doing 
that, you have existing suppliers and vendors who may feel 
threatened about it, don't think we have the authority, and may 
file to have us slow down, etc. And so, part of this is to help 
clarify whether we have explicit authority to do what.
    I think it is a worthy question for us to be discussing--
    Mr. Roskam. That makes sense to me. Can you speak to the 
authority that the Mint has had in the past to do things? In 
other words, on other mixes of metals, have you had the ability 
to explicitly--have you explicitly had the authority of 
Congress, or did you get an opinion from counsel that said, 
``Hey, we can do this, just go ahead and sin boldly?''
    Mr. Moy. No, I tend to be kind of a cautious person, 
especially when it relates to Congress, because I want to get 
it done right--
    Mr. Roskam. Listen, if you are putting nickels, dimes, and 
quarters in a row, you are very cautious.
    Mr. Moy. Yes. And so, regarding taking a look at that 
authority, our research has shown that there have been a couple 
of explicit instances where Congress has said, ``Mint, you have 
the authority to vary the metal content.''
    The first was in 1974, with the penny, which allowed the 
Mint--which basically said, ``Pennies have to be made out of 
zinc and copper, but the Mint can choose what percentage of 
each.'' Originally, it was mostly copper and a little bit of 
zinc, and, because of the rising price of copper, all the Mint 
did was reverse the percentages, so it was mostly zinc with the 
copper plating. So, on that one, Congress specifically said, 
``Mint, you have that authority.''
    The second one was with the dollar coin. With Sacajawea in 
1999, the legislation that authorized that specifically said it 
was up to the Secretary of the Treasury to figure out what the 
best metal content is: ``We are even going to throw out the 
weight and a number of other things, to give you the most 
amount of flexibility.''
    Now, in exercising that flexibility, we were very careful 
to make sure we consulted with industry, tried to make sure 
there was enough materials, etc., etc., which narrowed the 
scope of things you can look at. But we did have complete 
authority.
    Mr. Roskam. Could you live with just the authority to do 
that research and development to that next step, not just 
internal but external, so that is not ambiguous, but with 
Congress retaining the ultimate authority for what the content 
is? You could live with that, right?
    Mr. Moy. Yes. You know, certainly that--yes, I could live 
with that, because it moves us in the right direction.
    But it is also not optimal, because we have not really had 
to deal with this issue for a long time, because metal prices 
have been very stable for 30 or 40 years. They have been 
relatively a flat line. Really, take a look at the last 3 
years. They have gone dramatically upwards, and then spiked a 
lot.
    So, what the concern here is, you know, what might be right 
today might not even be right 6 months from now. And that is a 
lesson that we have learned from Canada. Canada has gone to a 
steel penny, but not exclusively. Canada's mint has the 
authority to switch to whatever metals.
    And they frequently go from zinc to steel, back to zinc 
again, for two reasons: First, cost--sometimes zinc is cheaper, 
sometimes steel is cheaper; and second, accessibility, which--
plated steel is not easily accessible, or you can't get enough 
quantities.
    Mr. Roskam. I got it.
    Mr. Moy. Yes, right.
    Mr. Roskam. Is there a third way, and that would be to come 
up with an approved--that Congress would give the authority for 
X, Y, and Z, and then you choose within that mix, but then you 
don't have the authority to act as a Lone Ranger, and come up 
with something on your own? You could live with that, couldn't 
you?
    Mr. Moy. Yes. And, again, I--you know, what you have 
proposed moves us in the right direction. You know, from the 
Mint's perspective, it doesn't give us optimal flexibility, but 
it does give us some. And certainly that is better than where 
we are today.
    Chairman Gutierrez. The time of the gentleman has expired. 
Congressman Lucas, you are recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman, and I appreciate you 
holding this hearing on this important topic. I apologize for 
my late arrival, but as always, there are lots of things going 
on at once here in Congress.
    Director, first off, let me say that, as one of the many 
Members of Congress, and certainly the public out there, I take 
with great interest the things that you and your staff do at 
all of the facilities of the United States Mint. And I have 
been very impressed with the efforts to become more open, to 
catalog your historic records, and in effect, to open your 
attic up to America's numismatists. That is a very important 
thing to do.
    Ironically, as we look at this proposed piece of 
legislation, the Coin Modernization and Taxpayer Savings Act, I 
can't help but think that perhaps we need to look at the entire 
picture for just a moment, if you would, Director, about how 
your agency's function has changed in the last couple of 
centuries, how our very monetary system has changed.
    When your predecessors began in 1793, every coin had that 
value of metal in it. A one cent piece had one cent worth of as 
close to pure copper as they could find. Every silver dollar 
had a dollar's worth of silver in it, or as close as they could 
possibly get.
    But things have changed. After 2 centuries of inflation, 
the world is not what it once was. We don't make half cents any 
more, we don't make $.02 pieces, or $.03 pieces. I don't think 
you make very many $.50 pieces for actual commerce any more. 
Things have changed.
    So, I guess my observation to you is perhaps, Director, 
maybe in addition to looking at the metal content of our 
various coins, maybe we need to sit down and reassess what we 
make, and how it fits in the commerce stream, and whether we 
should be making certain items or not. And I know that fires up 
the emotion in certain places around the country.
    But, clearly, the $.01 piece that would have been used when 
my father was born in 1931 doesn't go very far, compared to the 
purchasing power of a $.01 piece at this day and time. And I am 
not so sure that those $.50 pieces that the public doesn't want 
to carry in their pockets would buy what that $.01 piece would 
have bought the year my father was born.
    So, I guess what I am asking you is, looking in your 
crystal ball, have you considered at the Mint at what point in 
time certain denominations simply aren't practical to make any 
more? Have you considered that in your overall scheme of 
analysis?
    Mr. Moy. Yes. I have, from a very informal perspective, but 
not a very formal studied and researched perspective.
    The two comments that I would offer is, you know, one 
indicator of the demand for coins is how many coins banks order 
to the Federal Reserve and the Federal Reserve places with us. 
And currently, there is still demand for all denominations. And 
so that is at least one indicator that the American people like 
the current mix of coinage.
    But the broader issue that you bring up--which I think is a 
worthwhile question, and I'm not sure we're going to get to an 
answer in this particular forum--is like the European Union had 
a chance to start from scratch, their currency. And what we 
have seen worldwide is a trend toward higher denomination 
coins, because they last longer, and a movement away from lower 
denomination coins.
    And so, I think if there is any crystal ball that is 
relatively accurate, that is a worldwide trend.
    Mr. Lucas. Very good point, Director. I would agree, 
wholeheartedly. If you look at the things that we have made in 
the past--and, of course, we didn't start out making this size 
of a $.01 piece, we certainly didn't start out making something 
we refer to commonly as a nickel.
    And the question not necessarily for you to answer, but the 
question I think we have to consider as Congress, since it is, 
as I assume--my friend, Congressman Paul has clearly noted--our 
constitutional responsibility on these issues, to consider 
whether we need to make $.01 pieces. Should we return to the 
half-dime of the days of old, which was half the weight of a 
$.10 piece, and step away from the nickel? Do we even need to 
make $.50 pieces any more? Should we be looking at $5 or $10 
coins?
    I think that that is outside of the realm of this bill, but 
it is something that this committee/subcommittee/full 
committee/Congress should be looking at. Do we need to truly 
modernize the system, as opposed to put Band-aids on, and patch 
around the edges?
    And, with that, I appreciate my chairman's very patient 
time allocation here, and would note that I would like to, Mr. 
Chairman, submit some written questions to our friends at the 
Mint at the conclusion of this hearing. And thank you for 
having a hearing.
    Chairman Gutierrez. Without objection, it is so ordered. 
Thank you very much, Director Moy.
    Mr. Moy. You are welcome, Mr. Chairman.
    Chairman Gutierrez. I appreciate your testimony here today. 
And maybe we can figure out how the government does like the 
private sector, you know, they account for fluctuations in the 
market. They buy futures, and they get stock, and they kind of 
figure it out.
    But, in the interim period, we're going to continue working 
with you. Thank you so much for your testimony today.
    Mr. Moy. I appreciate your leadership on this.
    Chairman Gutierrez. Thank you. And we have--testifying on 
our second panel, we have got a change, and thank you so much.
    Testifying on our second panel, we have a former Mint 
Director and former Member of Congress, Jay W. Johnson. Mr. 
Johnson was appointed by President Clinton as the 36th Director 
of the U.S. Mint in May of 2000. During his tenure, the Mint 
set new records for the total amount of coins produced, and 
total revenue for the U.S. Treasury.
    In 2000, Mr. Johnson also served as Chief Advisor to the 
Executive Director of Marketing for U.S. savings bonds, 
responsible for nationwide marketing, promotion, and publicity. 
Previously, Mr. Johnson was Deputy Assistant Secretary for 
Congressional Relations for the Department of Agriculture. From 
1997 to 1999, Mr. Johnson served as U.S. Congressman from 
Wisconsin's eighth district.
    Mr. Johnson currently serves as an independent 
communications consultant and an advisor on coin and 
information technology matters. His broadcast media 
communications experience was garnered throughout his career 
while working as a television and radio anchorman, reporter, 
and producer for various stations in Wisconsin, Florida, 
Indiana, and Michigan--over 30 years, between 1965 and 1996.
    Mr. Johnson received his master of arts degree in radio, 
television, and political science from Michigan State 
University; a bachelor's degree in speech and radio television 
from Northern Michigan; and he also served in the U.S. Army 
from 1966 to 1968. Please, would you give your testimony, Mr. 
Johnson?

    STATEMENT OF THE HONORABLE JAY W. JOHNSON, CONSULTANT, 
COLLECTOR'S UNIVERSE; FORMER DIRECTOR, UNITED STATES MINT; AND 
                   FORMER MEMBER OF CONGRESS

    Mr. Johnson. Thank you very much, Chairman Gutierrez, and 
Ranking Member Paul. And, again, other members of the 
committee, I appreciate very much your having this hearing.
    When I was Mint Director in 2000 and 2001, it still cost us 
less than a penny to make a penny. But even then, the margins 
were slim. And we all knew that, inevitably, the cost of the 
minting of $.01 coins would result in negative seigniorage. It 
hasn't taken long for the cost of metals, materials, and 
manufacturing to overtake the actual value of the $.01 and $.05 
coin.
    So, it makes good sense to give the Department of the 
Treasury and the U.S. Mint the power to make the appropriate 
coin composition changes, so the Mint will not continue to lose 
money by minting our smallest coins.
    In fact, it has happened many times before, as we have 
heard in the testimony. In the 1960's, the Mint acted very 
quickly--in fact, within a matter of months--as it saw the 
rising price of silver, to change the metal composition of 
coins to eliminate the costly silver from the current 
circulating coinage, and replace it with the so-called sandwich 
metal composition, which we have in use today. Congress passed 
a bill September 5, 1962, to give authority for the 95 percent 
copper and 5 percent zinc coins, eliminating tin from the make-
up of the coin.
    In terms of the $.01 coin, I wanted to quote a recent book, 
``History of the U.S. Mint and its Coinage,'' by David Lange, 
who writes of a period in the 1970's as he says, ``Inflation 
continued to plague the lowly cent, as its metallic value 
periodically approached its face value, though the cost of 
recovering this copper negated any potential profit. The threat 
of rising copper prices prompted Congress to grant the Mint 
permission to change the cent's composition whenever needed, to 
avert a crisis. And history has shown that the changes in coin 
composition can be made quickly and easily when the need and 
desire to make that change are deemed important.''
    Since I left the Mint and the government, I remained in the 
coin and numismatic business, and I have noted the interest 
among coin collectors as to the future of the penny and the 
nickel. Their concern is exactly the same as most citizens, 
that the government is losing money by continuing to make $.01 
and $.05 coins that nearly double their face value to 
manufacture.
    They have also a numismatic interest, in that any change in 
coinage, whether it be the obverse or reverse design, or 
metallic make-up, creates a new variety or type of coin, and 
thus another numismatic change which, perhaps not noticeable by 
the general public, will become another turning point in the 
history of the $.01 and $.05 coins.
    In fact, what will mark next year the 100th anniversary of 
Lincoln's image on the obverse of the $.01 coin, the internal 
make-up or metal content of this coin has changed many times, 
all of this of interest to collectors, because every change, 
even slight ones, create a new type or subset of the penny, 
which continues to look essentially the same to the average 
consumer.
    As one collector told me, all of the changes in coinage, be 
they design change, or metal composition changes, enhance the 
collectability of that coin, and that is good for the 
numismatic industry. One thing they might not like, they told 
me, is a metallic change which will change the appearance too 
much, since collectors, like a lot of folks, appreciate 
tradition.
    They also will not like a metallic composition which will 
not wear well, or tarnish easily, or not even look or feel like 
the traditional penny.
    All changes in coinage, said another numismatist, are just 
intriguing to the collector, and another reason for saving 
them. It is this changing history of the penny that is the so-
called Indian Head Penny, or the Wheat Years Penny, or, indeed, 
the metal composition, which just adds to the numismatic 
history of the penny.
    During a time of war, the Mint had the power and used it to 
find the most economical and feasible ways to save money by 
making coins of different materials. Again, the Mint, acting on 
the wishes of Congress, moved quickly. Congress approved the 
steel cent December 18, 1942. Production of the new steel cent 
began less than 3 months later. I brought a visual example of 
one.
    In 1944, because many $.01 coins were still in use for 
parking meters and other coin operated mechanical devices, the 
Mint heard the complaints of citizens and owners of coin-
operated devices, and went back to using a form of brass. The 
brass cents were regularly seen as late as the 1970's.
    Today, also in a time of war, the Mint and Treasury need 
the power and authority to make the best use of its own staff 
and the resources, as well as suppliers, to find the most 
inexpensive way to continue to make the $.01 and $.05 coins for 
less than their face value. I have no doubt the U.S. Mint will 
do its best work to accomplish this.
    [The prepared statement of Mr. Johnson can be found on page 
32 of the appendix.]
    Chairman Gutierrez. Thank you very much. Next, we have 
Michael Brown, currently at Barrick Gold Corporation, vice 
president, U.S. public affairs in Washington, D.C., and Nevada. 
He formerly served between 1981 and 1989, at the United States 
Mint as Special Assistant to the Director, and press secretary 
in Washington.
    He has a bachelor of science degree from Ohio State 
University, and an MBA from George Washington University.
    You are recognized for 5 minutes.

  STATEMENT OF MICHAEL J. BROWN, VICE PRESIDENT, U.S. PUBLIC 
  AFFAIRS, BARRICK GOLD CORPORATION; MEMBER, CITIZENS COINAGE 
    ADVISORY COMMITTEE; AND FORMER SPECIAL ASSISTANT TO THE 
                  DIRECTOR, UNITED STATES MINT

    Mr. Brown. Thank you, Mr. Chairman. I had the pleasure of 
working for many years with the former Subcommittee on Consumer 
Affairs and Coinage, and working closely with Chairman Frank 
Annunzio of Chicago during that time, and I also worked with 
Congressman Paul during his first term of service in the House, 
to help make the American eagle gold bullion coin a reality.
    I come to you today as a private citizen. I have been 
involved in coinage since 1981. And, after meeting Mr. Johnson, 
I have now known every Mint Director since Eva Adams in the 
Kennedy Administration. I am registered to lobby for Barrick, 
here in Washington, D.C., but they have no interest in this 
legislation, or any other coinage matters before Congress.
    I am a huge fan of Director Moy. The technical innovations 
he has brought to the United States Mint are phenomenal, and I 
would encourage the committee to visit the Philadelphia Mint, 
to see that.
    Today we are experiencing what is called a super cycle in 
the demand for commodities, particularly in base metals. The 
rapid industrialization of China and India has fueled a demand 
for precious and base metals that we have not seen since the 
industrial revolutions of the United States and the United 
Kingdom.
    Prices for base metals are at record highs. Recycling rates 
for metals are at record levels. I have spent a lot of time in 
Nevada. I see, regularly, reports of people stealing copper 
from construction sites, including stealing copper from 
energized electrical lines.
    No one knows when or if this cycle will subside. But a 
consequence of this super cycle is the effect it is having on 
our domestic coinage, particularly the penny, a coin that 
Chairman Annunzio would call the ``Kleenex of coins,'' because 
it was disposable, but when you need it, nothing else would do.
    This is not the first time Congress has had to consider the 
effect of rising commodity prices on the coinage system. In the 
mid-1960's, the dollar, the half-dollar, the quarter-dollar, 
and the dime were made of silver. Much of that came from mines 
in Nevada. However, rising demand for silver and electronic and 
photographic applications elevated silver prices to levels that 
there was massive withdrawal and melting of silver coins. This 
caused the government to look for alternatives to that.
    There was significant public debate involving the Executive 
and Legislative Branches, plus the Federal Reserve Bank. 
Congress held five separate hearings, and eventually even 
created a Joint Commission on Coinage, with members appointed 
by President Johnson.
    Instrumental in resolving this situation, though, was a 
report the Treasury and the Mint contracted with from Battelle 
Memorial Institute of Ohio, that they prepared that recommended 
the conversion from silver coinage to the copper/nickel clad 
coins that we use today. That became part of the Coinage Act in 
1965.
    Sensitive to the silver price, and facing a need to 
construct a costly new mint in Denver--a mint that, actually, 
was never built--the Federal Reserve and the Mint produced a 
report in 1973 on alternative materials for $.01 coins. There 
was a brief consideration of the aluminum cent. In fact, there 
were some even distributed, I believe, in this room at that 
time. But, for a variety of reasons, the idea of an aluminum 
cent was shelved.
    In 1974, because of the oil embargo that was occurring, we 
had a surge of inflation in the economy, and we faced a serious 
penny shortage as copper prices rose to then what were record 
levels. This caused the Mint to take a much larger look at our 
coinage system, and, through the Research Triangle Institute, 
did a comprehensive study of America's coinage and currency 
systems.
    It was a very bold step for the Mint in an era where hiring 
independent contractors by a government agency was an 
exceptional undertaking. Clearly, the Mint was trying to get 
ahead of the curve, and avoid a crisis like it had experienced 
in the 1960's.
    In response to the 1970's shortage, Congress granted the 
Mint a measure of discretion to adjust the copper content of 
the $.01 coin, if necessary to avoid shortages. A former Mint 
executive, Dr. Alan Goldman, whom I had the pleasure of 
knowing, worked in the 1970's on alternative alloys for the 
$.01 coin.
    And they took a recommendation to the Congress in the 
latter part of the Carter Administration, recommending 
converting from a copper penny to a zinc-copper-plated zinc 
cent. That decision was shared with the six leading members of 
the Banking Committee. The Mint was under an appropriation at 
that point, so I presume that would have been the chairman and 
ranking minority members of the banking committees, the 
subcommittees, and the appropriation committees.
    The decision, though, to go to the zinc cent then fell to 
Buchanan, the incoming treasurer. It was implemented by my 
boss, Donna Pope, in 1982. We successfully converted to the 
zinc cent. It worked for us for quite a long time. Chairman 
Annunzio, when he retired, recounted it as one of the successes 
that he had during his chairmanship.
    I think we now find ourselves in a situation where rising 
metal prices again compel the Mint and the Congress to look for 
new alternatives. And, I think as evidenced by the experience 
with silver and the experience with zinc, a collaborative 
process can be reached to resolve this problem. Thank you.
    [The prepared statement of Mr. Brown can be found on page 
24 of the appendix.]
    Chairman Gutierrez. Thank you very much. Next, we have Mr. 
Richard M. Geerdes? Good. I try to get close. We also welcome 
him.
    He is the president and CEO of the National Automatic 
Merchandising Association. Mr. Geerdes assumed the leadership 
of NAMA on January 1, 1999. A native of Chicago, Mr. Geerdes 
holds an MBA in finance, and a bachelor's degree in management 
information sciences from Western Illinois University. His 
education was completed in 1975, after several years of service 
in the U.S. Army domestically, and in Vietnam.
    Mr. Geerdes has worked at NAMA since 1988 in various 
capacities. He joined the staff of NAMA following his 
experience as a vending operator in a series of senior 
management positions with Interstate, United, and Canteen 
Corporation. He serves as president of the foundation of NAMA, 
and is a member of the foundation's board of directors. He also 
serves as a director on the board of the Worldwide Vending 
Association, based in Brussels.
    He, and his wife, Joan, raised two sons and reside in 
Hickory Hills, southwest of Chicago. Welcome, Mr. Geerdes.

 STATEMENT OF RICHARD M. GEERDES, PRESIDENT & CHIEF EXECUTIVE 
     OFFICER, NATIONAL AUTOMATIC MERCHANDISING ASSOCIATION

    Mr. Geerdes. Thank you, Mr. Chairman. And I thank you and 
the other distinguished members of the committee for the 
opportunity and the invitation to testify in support of H.R. 
5512.
    As you said, I am the CEO of NAMA, a 501(c)(6) national 
trade association headquartered in Chicago, and I am here on 
behalf of NAMA's nearly 1 million members nationwide, in an 
industry that exceeds $40 billion a year. NAMA's membership is 
composed of the key elements of our Nation's vending industry, 
the small and mid-sized businesses who are the owner-operators 
of millions of coin-operated machines across our country in 
public and private locations, and the small, mid-sized, and 
large businesses who are the suppliers of bottled cans, cup 
beverages, packaged foods, and other packaged products sold to 
the public in those coin-operated vending machines.
    H.R. 5512 is very important and NAMA supports its passage. 
The coin modernization process and needs of our Federal 
Government and country, the productive operation of our 
industry, and meeting the needs and best interests of the 
taxpayer/consumer/customers who use our country's vending 
machines and purchase our suppliers' products are all vital 
aspects of this bill.
    I am here to offer NAMA's specific and unique perspective 
on it, and discuss why this legislation should be passed.
    In its current form, and after very productive 
collaboration with the committee's staff, the bill now provides 
that future coins, while reducing production costs for the 
taxpayer, must work in existing coin acceptance equipment in 
our country's vending machines, and anywhere where coins are 
used, without modification to that equipment.
    NAMA, on behalf of the food and refreshment vending 
industry, appreciates very much this fine tuning of the bill, 
from both a practical and a cost-to-the-industry standpoint, 
and the opportunity to work with the committee staff to make 
the bill as practical and beneficial as possible.
    Section 3 of the bill is important to us because, in its 
current form, it provides two key benefits. First and foremost, 
it will result in keeping costs down for customers who use our 
country's vending machines. Vending is an industry with a very 
low profit margin, and a very high capital investment ratio, 
without a lot of room to absorb cost increases without asking 
customers to pay more. Of course, these customers are also 
taxpayers, so this bill will help make their dollars stretch 
further in meeting their personal and family needs.
    Second, it avoids millions of dollars of additional expense 
for our Nation's small business owner-operators who run the 
vending industry. It's a mature, but a very key retail channel 
of convenience to consumers. Those dollars are vitally needed 
now, for the viability and modernizations underway in the 
industry that will ensure that it can continue to meet the 
needs of consumers in the future, as well as maintain and grow 
the jobs it supplies to taxpayers across the country.
    NAMA believes that H.R. 5512 thus promotes both the 
financial interests of our country's consumers and the 
taxpayers, as well as those of our economy. Today it is even 
more apparent that every effort to assist small businesses to 
operate more productively, and to invest more dollars to that 
end, and to help keep vending machine user costs down for the 
American consumers and taxpayers, is vital for the economy's 
growth and health.
    We at NAMA share your committee's interest in protecting 
consumers from unnecessary higher prices, and in saving the 
taxpayer money. We are pleased to be part of this process in 
which your committee develops legislation to make those goals a 
reality.
    Of course, we agree that rising prices for the commodities 
require an examination of the alloys used in making U.S. coins, 
but we respectfully submit that such an examination should be 
just one element in a broader, more fundamental coin and 
currency reform evaluation. Any such reform might include--and 
should include, in our opinion--replacing dollar bills with 
dollar coins, which would save the taxpayer hundreds of 
millions of dollars a year.
    With the full concurrence of the NAMA board of directors, 
NAMA fully supports this legislation as written, and we have 
communicated our support nationally to our membership, and 
asked them to contact you, in Congress, to do likewise.
    We look forward to working with you and all the members of 
the committee, as well as the committee staff, on continuing 
initiatives. And, again, I thank you for the opportunity, and I 
would be happy to answer any questions. Thank you, sir.
    [The prepared statement of Mr. Geerdes can be found on page 
30 of the appendix.]
    Chairman Gutierrez. Thank you so much, Mr. Geerdes. I have 
a question for Mr. Johnson.
    In your testimony, you mention the changes made in the 
alloy content of the penny of 1974. Your conclusion is that 
coin composition changes can be made easily and quickly if the 
need and desire are present.
    But the Mint has argued that much of the delay with going 
to a steel penny is the possibility of additional wear and tear 
on dies, because steel is a stronger alloy. I can see where 
that might be an issue over a period of time, once minting the 
steel penny has started. But do you see why that would delay 
the actual starting of minting a steel penny?
    Mr. Johnson. Well, I think the bill gives a lot of 
flexibility, in terms of this. And, as I mentioned, you know, 
this is not an issue that has not been studied, or we haven't 
seen coming for a while. So I think there has been some 
research done on this.
    I am certainly not a metallurgical expert, but I think in 
terms of giving the authority and the flexibility, that there 
is still congressional control, yet it gives enough authority 
and flexibility and broad range to the Mint that it 
accomplishes a lot in this bill, and what we want to 
accomplish.
    Chairman Gutierrez. Thank you, Mr. Johnson. Mr. Geerdes, in 
your testimony you mentioned the importance of future coins 
produced by the Mint working in existing coin acceptance 
equipment and vending machines, without modifying the 
equipment. We have tried to accomplish that in H.R. 5512; I 
think we have. Can you elaborate on the importance of this 
provision?
    Mr. Geerdes. Mr. Chairman, as I said, the industry has a 
very low margin and high capital intensive investment. And it 
is made up of--the majority are very small owner-operators.
    The cost of a vending machine at this point in life, for a 
brand new piece of equipment, a stripped-down model is 
approximately $5,000 for the equipment. The coin mechanism 
itself, which does not come as part of that, is an option which 
can run into several hundred dollars. And then, the coin 
acceptance equipment for the paper money acceptance is another 
$200 or $300 on top of that. So you probably have $1,000 
additional cost in payment acceptance equipment on the machine.
    In order for--if the Mint made coins that did not work in 
the equipment right now, in effect what we would be doing is 
turning away our customers from this over 6 million machines 
every year. When many of us go up to a machine, we expect the 
coinage and currency will work in that machine, and be 
accepted.
    And so, the first concern would be--
    Chairman Gutierrez. How many machines did you say there 
are?
    Mr. Geerdes. There are over 6 million machines in the 
United States. That's a very conservative estimate.
    So, first of all, we would be losing sales in an industry 
that can ill afford to do that, and is in a very mature state 
in its life. So we have to be very competitive, and watch our 
costs closely, in order to make sure that the prices are as 
competitive as possible.
    And the other aspect of it is, of course, the aspect of 
cost that the business owner would incur. Because, just to 
modify the equipment will cost them a labor visit of perhaps 
$50 to $75 to visit each vending machine they own, in order to 
update it, to obtain--you know, whenever Congress, or whenever 
the government introduces new currency, that is a requirement.
    If the coins needed to be changed out, the mechanisms 
needed to be changed out, you're looking at 6 million machines 
times several hundred dollars per machine, which is basically a 
cost that the industry cannot sustain.
    Chairman Gutierrez. Thank you very much. Mr. Lucas, you are 
recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman. Mr. Geerdes, on those 
machines, if--and, as you probably observed in my earlier 
comments--looking at it from a slightly different perspective, 
as long as a new $.05 piece had the same metal qualities as a 
dime, a quarter, whatever, it would be more a matter of 
adjusting to accept the size--because that's one of the 
challenges, you have to have certain metallistic 
characteristics to go through--so it's--I guess what I am 
asking is it is certainly possible that, if we adopted a $.05 
piece that was similar in metallistic qualities to a dime or 
the quarter, it wouldn't--it would cost to make adjustments to 
your machines, to your people's machines, to accept the smaller 
size, but it would be less complicated than other alloy 
changes, perhaps.
    Mr. Geerdes. Congressman, I believe that is true, yes.
    Mr. Lucas. What percentage of the sales through vending 
machines in this country are $.01 transactions?
    Mr. Geerdes. To the best of my knowledge, certainly in the 
food and refreshment side of the industry, which NAMA 
represents, zero.
    Mr. Lucas. Okay. So the majority--the issue here we're 
looking at, from the perspective of your people, are the effect 
on the $.05 pieces.
    Jay--and I call you Jay, because we served together on the 
House Agriculture Committee--when you were director of the 
Mint, how many $.01 pieces did we make, on an annual average? 
Just off the top of your head, a guesstimate.
    Mr. Johnson. I guess it was about 10 to 15 billion at the 
time.
    Mr. Lucas. Billion?
    Mr. Johnson. Yes, billion.
    Mr. Lucas. So, we were literally turning out billions every 
year, and have continued to turn out billion after billion 
after billion after billion. Okay--
    Mr. Brown. Coinstar made a big difference. Coinstar is 
putting back into the industry--I think when I was a Mint 
Director, at that point, they returned almost an equal amount 
of $.01 coins that the Mint made. Now I think they return about 
3 times the amount that the Mint makes.
    Still, people stash so many coins, and it's easier for 
banks and stores to just order new coins, rather than 
recirculate the old ones.
    Mr. Lucas. Mr. Brown, from your historic perspective, in 
the past, on what occasions, if so, have we looked at the 
overall question of our coinage in sum total?
    Mr. Brown. The Congress looked in 1965, when they had to 
deal with the silver issues. The Research Triangle Institute 
actually looked at currency and coinage in their report that 
they presented for the Mint. But it is--there has not been a 
comprehensive look at the coinage system since, really, 1965.
    Mr. Lucas. Thank you, sir. And, once again, Mr. Geerdes, in 
your food industry's part of the vending machines, $.01 pieces 
are not a factor. It's how we handle the $.05 pieces that have 
a potentially dramatic economic impact on your clientele?
    Mr. Geerdes. Right, Congressman. And, of course, quarters 
and dimes, as well.
    Mr. Lucas. Quarters and dimes, as well. With that, once 
again, thank you, Mr. Chairman.
    Chairman Gutierrez. Thank you.
    Mr. Lucas. And this is going to be a wonderful bill to work 
with. I can see some good amendments coming here.
    Chairman Gutierrez. Okay. I look forward--
    Mr. Lucas. And mark-ups, sir. Thank you, Mr. Chairman. I 
yield back.
    Chairman Gutierrez. I look forward to working with you, Mr. 
Lucas. I want to thank the witnesses and the Members for their 
participation in this hearing.
    The chairman notes that some Members have additional 
questions for the witnesses, which they may wish to submit in 
writing. Therefore, without objection, the hearing record will 
remain open for 30 days for Members to submit written questions 
to the witnesses, and to place their responses in the record. 
This subcommittee hearing is now adjourned. Thank you all so 
much.
    [Whereupon, at 4:06 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             March 11, 2008


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