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Ardent Listener
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 Posted - 11/13/2007 : 17:10:55
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Mint Fears Losses From Penny Meltdown: Cindy Skrzycki (Correct)
By Cindy Skrzycki
(Corrects 17th paragraph to reflect bans on melting.)
Nov. 13 (Bloomberg) -- In Washington, a city known for multi-billion-dollar budget deficits, some members of Congress and the Bush administration are near a meltdown over a much more modest figure: the old copper penny.
The government fears that citizens will melt U.S. pennies minted before 1982 to extract the copper, which, even with recent dips, has shot up in price over the past five years. In December the U.S. Mint banned any melting of pennies and nickels (nickel prices are up too), sidetracking one Ohio metals expert's plan to cash in.
The government explained that it could cost more than $1 million a day to replace coins withdrawn from circulation to extract the metal. The increase in metal prices means the coins are now more expensive to make than they are worth. Walter Luhrman, of Jackson, Ohio, figures he'd net $1.5 million a year.
``This is real money,'' Beth Deisher, editor of Coin World, of Sydney, Ohio, the world's largest circulation coin publication, said of the businessman's idea. ``It's like going for gold on the ocean floor.''
Deisher, who editorialized against Luhrman, said for the past few years, ``Rome has been burning and the Treasury hasn't done anything about it.''
Indeed, over the past few months, the issue has been no small change in Washington, triggering two bills, a scheduled hearing, and complaints to the Treasury Department about why it has taken so long to react to the rise in metal prices.
It costs 1.67 cents to make a penny, up from .93 cents in 2004. This means the U.S. Mint lost $31 million in making 6.6 billion new pennies in fiscal 2007 and another $68 million for more than 1 billion nickels, according to Michael White, a spokesman for the U.S. Mint. Speculators, taxpayers, suppliers, and coin collectors are affected too.
`Grossly Overestimating'
The government is ``grossly overestimating the effect this would have on coinage supplies across the country,'' said Matt Thornton, a spokesman for Representative Zack Space, a freshman Democrat who is Luhrman's congressman. ``They are assuming everyone will take coins out of circulation and melt them down.''
Space has introduced a bill that would ban the Mint's ban on Luhrman's pennies-from-heaven plan.
Treasury has proposed that it be allowed to transfer from Congress to itself the authority to measure and make adjustments in the composition and weight of coins, so it can head off future spikes in metal prices.
This would be historic. Since Congress created the Mint in 1792, it has exercised constitutional authority over America's pocket change.
Space's bill to help Luhrman is attached to the Treasury proposal, which is up for consideration in the House Financial Services Committee.
`Taxpayers' Pockets'
Representative Spencer Bachus of Alabama, the senior Republican on the committee, opposes turning over authority to the Mint as well as, according to a statement, allowing ``a single company with a few employees to mine the taxpayers' pockets.''
``My boss doesn't believe it is giving the powers of Congress away,'' said Steve Adamske, a spokesman for Representative Barney Frank, the Massachusetts Democrat who is chairman of the committee, explaining his support for the bill.
The Treasury request also triggered a complaint from Representative Jerry Costello, an Illinois Democrat. He suggested that allowing the Mint to use less expensive materials without congressional direction would hurt one of his constituents, Olin Brass in East Alton, Illinois, which counts the Mint as its top customer.
Two other members introduced a separate bill to order the Mint to start making pennies out of copper-coated steel.
Earlier Bans
Bans on melting have followed changes in the makeup of U.S. coins before, in 1967 with the transition from silver and in 1974 because of an earlier worry about demand for the penny.
Luhrman, 60, president of Jackson Metals LLC, of Jackson, Ohio, said in an interview that he has spent his entire career in metals. He said he expected his idea to pay off because he calculates there are 191 billion pennies in circulation -- including the ones in your dresser drawer -- and about one in four was minted before 1982 and thus made of 95 percent copper (and 5 percent zinc).
The country is awash in pennies, Luhrman said, and the Federal Reserve, which is in charge of distributing coins, orders new ones minted instead of moving around surpluses. The Mint said there isn't a surplus.
Melting Not Illegal
Before starting his company last year, Luhrman said he checked with the Mint to make sure it wasn't illegal to melt down pennies. He operated for about five months before the government ban was ordered.
He bought pennies from banks and used special equipment to cull the copper-heavy ones minted before 1982. He estimated he could process 5 billion coins annually, separating out 1.2 billion copper pennies.
Luhrman planned to ship the post-1982 ``worthless'' pennies, which are 95 percent zinc, to areas of the country with penny shortages. He estimated he could save the government $5.25 million in the first 90 days by shuttling his surplus to markets with shortages, instead of having the Mint stamp new ones.
The businessman said he had hired 16 people for his operation. He signed contracts with currency-handling companies such as Brink's Co. in Richmond, Virginia, and Coinstar Inc. in Bellevue, Washington, to get intelligence on the location of penny surpluses and deficits. And he hired a trucking service to ship the pennies.
Luhrman insists he can do the government and taxpayers a service while he makes a pretty penny.
``During the time they work on figuring out the composition of a new coin, let us do what we can do to reduce the number they have to mint at this price,'' he said. ``Every penny being made is wasting money -- a lot of money.''
(Cindy Skrzycki is a regulatory columnist for Bloomberg News. She can be reached at cskrzycki@bloomberg.net .)
To contact the writer of this column: Cindy Skrzycki at cskrzycki@bloomberg.net
Last Updated: November 13, 2007 12:17 EST
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