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Fuzzy math

Coal companies should pay their fair share

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Every few decades, stories erupt in the press over waste, corruption and abuse of the management of federal minerals. While never fully tallied, the revenue lost by the American people and Indian tribes is undoubtedly huge, running into billions upon billions of dollars.

The latest scandal involves the failure of coal companies to pay fair royalties for coal owned by the public. Headwaters Economics, a respected nonpartisan group based in Bozeman, estimates that from 2008 through 2012, coal companies underpaid royalties to the federal government to the tune of between $620 million to $865 million.

Why does the public get consistently shortchanged? The answer in part is that mineral producers have too much power within the federal system to pad profits at the public's expense. A shroud of secrecy also prevents the press and public from rooting out problems before revenues disappear and the culpable parties escape accountability.

The time is ripe for change, and the good news is that the Department of the Interior finally seems ready to act. In a series of steps in 2010 and 2011, former Interior Secretary Ken Salazar dismantled the scandal-ridden Minerals Management Service and made a fresh start through a new Office of Natural Resources Revenues. Current Interior Secretary Sally Jewell has set the stage for further reform by initiating a series of listening sessions in the West, designed to foster "an honest and open conversation about modernizing the federal government's coal program."

You could say, however, that the pattern of scandal and failed reform started with Teapot Dome bribery in the 1920s. After World War II, decades of corporate oil theft and fraud were finally uncovered in 1980, when an inspector stopped a truck with stolen oil from the Wind River Reservation. In 1982, the federal Government Accountability Office determined that Interior had leased one-twelfth of the nation's coal reserves for only 40 percent of its fair market value.

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In 1990, the Bureau of Land Management abruptly abandoned competitive coal leasing in favor of dividing vast Western coal tracts among monopoly producers, setting the stage for decades of underpaid leases and royalties. After many years of investigations into royalty problems, the Minerals Management Service was finally disbanded following reports that its staff had accepted gifts from, used drugs and had sex with industry personnel. This same Minerals Management Service created the environment that has allowed coal companies to exploit the system consistently for years.

Two simple policy changes could end the continuing scandal of underpaid leases and royalties. First, the Department of Interior needs to be in charge of valuing minerals, putting an end to the current method, which relies on corporations to self-report. Second, open up the royalty books so the press and public can prevent scandals and ensure that proper royalties are paid.

The current system of corporate self-reporting of coal sale proceeds invites underpayments through excessive exclusions, deductions and pricing manipulation. It gives companies far too much say in deciding what they will pay in royalties to the public and to tribes.

Instead of using an income-tax-style system, Interior could start doing what the Mineral Leasing Act says it should do: Directly value coal for royalties much like a property tax. Just as property taxes are determined by fair market value, so, too, should the royalties on coal owned by the American people.

This change will produce a fair return to the public. At the same time, the property valuation approach will enable Interior to report to the public the value of the coal, how that value was determined and the amount of royalties paid. Once this has been established for coal, Interior can do the same for oil and gas.

Transparency will end once and for all the cycle of federal mineral scandals, allowing Secretary Jewell to write a new history for her department by providing the American people with a fair and open system for managing the minerals they own.

Dan Bucks is a contributor to Writers on the Range, a column service of High Country News (hcn.org). From 2005 to 2013, he served as Montana's Director of Revenue and from 1988 to 2004, he was executive director of the Multistate Tax Commission.

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