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$1 Billion That Nobody Wants
Originally published on Wed August 1, 2012 6:33 pm
Politicians in Washington hardly let a few minutes go by without mentioning how broke the government is. So, it's a little surprising that they've created a stash of more than $1 billion that almost no one wants.
Unused dollar coins have been quietly piling up in Federal Reserve vaults in breathtaking numbers, thanks to a government program that has required their production since 2007.
And even though the neglected mountain of money recently grew past the $1 billion mark, the U.S. Mint will keep making more and more of the coins under a congressional mandate.
The pile of idle coins, which so far cost $300 million to manufacture, could double by the time the program ends in 2016, the Federal Reserve told Congress last year.
A joint inquiry by NPR's Planet Money and Investigations teams found that the coins are the wasteful byproducts of a third, failed congressional effort to get Americans to use one-dollar coins in everyday commerce.
In 2005, Congress decided that a new series of dollar coins should be minted to engage the public. These coins would bear the likeness of every former president, starting with George Washington. There would be a new one every quarter. So, far, the Mint has produced coins through the 18th president, Ulysses S. Grant.
Members of Congress reasoned that a coin series that changed frequently and had educational appeal would make dollar coins more popular. The idea came from the successful program that put each of the 50 states on the backs of quarters.
But as the new presidential dollar coins rolled out, the greenback lost none of its dominance in Americans' hearts and wallets.
If the mandate to make presidential coins wasn't enough to generate a growing heap of unwanted coins, a political deal ensured that even more unwanted coins would be produced.
It was easier for the bill's sponsor, then-Rep. Mike Castle (R-DE), to move the presidential coin bill forward if it didn't displace other dollar coins honoring Sacagawea, the teenage Native American guide to Lewis and Clark.
The deal: The mint would be required to make a quota of Sacagawea coins. Currently, the law says 20 percent of dollar coins made must have Sacagawea on them.
So, there are now about 1.2 billion dollar-coin "assets" chilling in Federal Reserve vaults, unloved and bearing no interest. By the time the presidential coin series finishes, and there are coins honoring all past presidents, there could be 2 billion.
Several congressional leaders contacted by NPR declined to comment for this story.
The Senate Banking, Housing and Urban Affairs Committee has jurisdiction over coins. Its chairman, Tim Johnson (D-SD), would not agree to be interviewed about dollar coins.
Neither would the committee's ranking member, Republican Richard Shelby of Alabama, who recently requested a Government Accountability Office study on dollar coins.
Both the Mint and the Federal Reserve provided information for this story, but neither agency would agree to an on-the-record interview.
The finances of all of this? You could say the government has wasted money to make money.
Some 2.4 billion dollar coins have been minted since the start of the program in 2007, costing taxpayers about $720 million. The government has made about $680 million in profit by selling some 1.4 billion dollar coins to the public since the program began.
Still, it's the program's waste that hits home when you're staring at millions of unused coins.
The Inner Sanctum
Inside one basementlike Federal Reserve vault in Baltimore, NPR was able to see 45 million $1 coins of various types. The coins were overflow from vaults elsewhere.
And despite a national indifference to the coins, they were heavily guarded.
A group of journalists from NPR passed through a metal detector and special secure doorway before reaching the inner entrance to the vault, a fence gate secured by two common Master padlocks.
Two staffers minding the coins each had a key to one of them, and as the NPR group moved around the vault, the minders kept the group physically surrounded.
Inside the vault, dollar coins languished in clear plastic bags piled high on sturdy metal pallets that looked like baby cribs.
Through the bags, one could see Sacagawea mingling with Suffragette Susan B. Anthony and rubbing edges with some of America's early chief executives. Glaring fluorescent lights coaxed an occasional shimmer from the dollars, which are made mostly of manganese brass and have a gold color.
One row of pallets bore a handwritten note that said, "Dollars ... 48 skids ... 6,720,000."
But how many of them will ever see a laundromat, soda machine or toll booth?
Without an overhaul to the cash system that completely substitutes coins for bills, very few.
Try, Try Again
After the Susan B. Anthony and Sacagawea series lost their bids to become America's pocket change sweethearts, the presidential series was the next big idea.
But in a report to Congress last year, the Federal Reserve said the coins are now being held "with no perceivable benefit to the taxpayer," and that banks are sending them back to the Fed in increasing numbers.
"We have no reason to expect demand to improve," the Fed said. "We also note that a 2008 Harris poll found that more than three fourths of people questioned continue to prefer the $1 note."
Still, dollar coin proponents, including some advocacy groups and vending-based industries, are undeterred.
Leslie Paige, who represents watchdog group Citizens Against Government Waste, says the government should withdraw the dollar bill from the market and force Americans to use the coins.
"I think Americans will definitely embrace the dollar coin if they're just given the opportunity," she says.
As for the Harris Poll showing Americans don't want dollar coins, Paige says, "I suspect that they just don't understand what the up sides are," including the fact that coins don't need to be disposed of as bills are.
"The idea that, 'Oh, I don't want them jingling in my pocket,' I mean, I don't know, most people carry quarters with them," Paige says. "They use them for meters and all kinds of other things, so I certainly think Americans can adapt."
Money-Saver Or Hidden Tax?
You may have heard that dollar coins are more cost-effective than dollar bills. Paige and other dollar-coin advocates point out that coins last longer than bills, and that's why they save money. A coin could last 30 years, but a new dollar bill will be ready for the shredder in less than four years.
But if moving exclusively to dollar coins would save money, the question is, whose money? Certainly, issuing the coins and having them circulate, rather than sit in vaults, would create a source of revenue for the government.
Whether taxpayers would benefit is another matter.
A Government Accountability Office study out this spring says that switching to a dollar coin "would provide a net benefit to the government" of about $5.5 billion over 30 years.
But it's not because coins are cheaper. The report says the government would not recover the cost of switching from bills to coins over that period.
Instead, the benefit to the government would come only from the profit it makes by manufacturing each coin for 30 cents and selling it to the public for a dollar.
When this profit, known as seigniorage, is factored out, switching to the dollar coin would actually cost taxpayers money over three decades, according to a Federal Reserve analysis of the GAO's figures. The cost works out to $3.4 billion.
The Fed's Louise Roseman wrote to the GAO that seigniorage should not be considered in an analysis of whether the switch would benefit the larger U.S. economy.
The reason, says Roseman, director of the Fed's Division of Reserve Bank Operations and Payment Systems, is that seigniorage "is a revenue transfer from the private sector to the government."
So, in other words, a tax? The profit to the government predicted by the GAO assumes that the government would have to issue 1.5 dollar coins for every dollar bill removed from circulation. That's because people handle coins differently than they do bills.
Even if all dollar bills were replaced with coins, some say the nation's evident distaste for dollar coins will simply mean more small transactions will be done electronically. And, it could accelerate a technological trend toward payments with mobile devices.
Jack Weatherford, an anthropologist who wrote the 1998 book The History of Money, says he loves coins, but he doesn't love the billion dollar coins piled up in the nation's coin vaults.
"Destroy them," he said. "People will not accept these coins. Nobody in America wants to use them. As long as they have a paper currency, they will use that."
Of using coins to save money, Weatherford says that in an era of electronic financial transactions, "the argument is about 50 years too late. Coins have rapidly become less and less important in our society — like paper money itself is becoming less and less important."
Buyer's Remorse For Bill's Proponents
Delaware's Castle, who left Congress after a primary loss and now practices law, acknowledges that the demand for golden dollars didn't materialize as he had hoped.
Castle says he and others knew when they were passing the bill that widespread adoption of dollar coins would be hindered by the continuing production of dollar bills. But he says that mandating a wholesale switch from bills to coins was politically untenable then, as it is now.
"It's not quite like cutting somebody's Social Security," Castle says, "but politically it's not something the members want to deal with, so it's just very hard to get something like that done."
When Congress was considering the law, the Congressional Budget Office warned that there would be low demand for the coins. The Federal Reserve Board cautioned that coin inventories and storage costs would increase.
Castle says the coins should continue to be produced, but in smaller numbers.
"It's ridiculous to have this kind of over-inventory pile up," he says. "I might actually make some phone calls myself as a result of reading these reports and learning more about what this problem appears to be."
But what should happen to that quota for Sacagawea coins, for which there is very little demand, and which the Federal Reserve no longer orders from the Mint?
Earl Pomeroy, a former Democratic congressman from North Dakota who championed the quota while serving in the House, hedges a bit.
Pomeroy stands by his defense of "dear old Sacagawea." But he acknowledges that there's at least some folly in continuing to make coins that will not be used.
"I think the foolish part of the law may be not the Sacagawea part, but the fact that with no one picking up these coins, we've got to keep printing them because we've got to get through the rest of the presidents list," says Pomeroy, who lost his bid for a 10th term in Congress last year. "That to me doesn't seem to make any sense at all.
"Is the nation waiting with bated breath for us to get to the Calvin Coolidge coin? No! Maybe we should call a halt to this whole thing."
STEVE INSKEEP, host:
Politicians in Washington hardly let a few minutes go by without mentioning that the government is broke. So you may be surprised to hear that there are more than one billion one-dollar coins sitting unused in government vaults. And the number is growing.
The pileup is due to a law passed in 2005 requiring the minting of a new set of dollar coins honoring all the presidents - all of them. A law Congress passed and then apparently, forgot.
Robert Benincasa, with our investigative team, and David Kestenbaum, with NPR's Planet Money, unearthed the story.
DAVID KESTENBAUM: The situation with the dollar coins has gotten so serious that the Federal Reserve had to redesign a vault in Texas to hold them all.
ROBERT BENINCASA: We got to see some of the coins at another vault in Baltimore.
(Soundbite of vault door opening)
Ms. AMY ESCHMAN (Assistant Vice President, Cash Operations, Federal Reserve, Baltimore): This is our coin vault. It's roughly the size of a soccer field.
KESTENBAUM: Amy Eschman is assistant vice president of cash operations here.
BENINCASA: The place looks more like a giant basement than a vault. There are rows and rows of metal bins filled with plastic bags, filled with coins.
KESTENBAUM: Why are the coins here? In 2005, Congress passed a law, ordering the Mint to make dollar coins honoring all the presidents, starting with Washington. It was the latest attempt to get Americans to use dollar coins. We're up to Ulysses S. Grant so far.
BENINCASA: If you've never seen a presidential dollar coin - well, they never really caught on.
KESTENBAUM: We look in the bags, and along with the presidents are those Sacagawea dollar coins. Sacagawea - the Native American woman who guided the explorers Lewis and Clark - those coins are still being minted, too. It's required by law.
BENINCASA: The coins cost 30 cents each to make. The government has a billion coins in vaults. Do the math; that's $300 million wasted.
KESTENBAUM: Each bag of 2,000 coins weighs around 35 pounds.
Can I try and lift it up? OK.
Ms. ESCHMAN: We actually have some posters in our break room that have proper lifting and stretching.
BENINCASA: You might think the Mint could just make fewer coins. But the way the law is written, it can't. There are two main reasons the coins are piling up.
KESTENBAUM: First, the law requires that as the Mint makes its way through the presidents, it has to create enough of each coin to satisfy initial demand.
BENINCASA: So take Thomas Jefferson - popular president. The Fed estimated people would want 168 million Jefferson coins. So it ordered that many from the Mint. And the coins went out into the world.
KESTENBAUM: But when people didn't want the coins anymore, they came back to the Fed, where they sat in the vaults. This happens with every president as we go down the list.
BENINCASA: The other reason coins pile up, is a second provision Congress put in the law. That requires the Mint to keep making those Sacagawea coins.
KESTENBAUM: Currently, if the Mint makes, say, 100 million Millard Fillmore coins, it has to make 25 million Sacagawea coins - one for every four presidential coins. According to the Fed, there's basically no new demand for Sacagawea coins. So they pile up at the vault, too.
BENINCASA: So what was Congress thinking? Well, we have tape of what Congress was thinking.
Representative CAROLYN MALONEY (Democrat, New York): I rise in support of a bill that Mr. Castle and I have authored, that is a win-win for taxpayers and the economy.
KESTENBAUM: This is congresswoman Carolyn Maloney, Democrat from New York, speaking on the House floor in 2005.
Rep. MALONEY: This bill earns money for the government, benefits the small businesses and consumers, educates all users of American currency about their presidents and first ladies.
KESTENBAUM: Congresswoman Maloney declined to be interviewed for this story.
BENINCASA: She was partly right. The program is making the government money, overall. The coins cost 30 cents to make. And if someone wants one, they pay a dollar for it. So the government makes 70 cents on those.
KESTENBAUM: But still, something like 40 percent of the coins end up in vaults. The government is wasting money, making money.
We did reach a lawmaker behind the bill who is no longer in office - Mike Castle, Republican from Delaware. He says the hope that people would shift away from paper dollars to dollar coins just did not happen. He says he's never actually seen one of the coins in circulation.
Mr. MIKE CASTLE (Former Congressman): It's hard to come by them. Good luck. You could spend an entire day in New York City or another big city, trying to find a dollar coin in your change, and you'd be hard pressed to do so.
BENINCASA: We shared the most recent numbers with Mike Castle. He said if he were still in Congress, he'd try to change the law.
Mr. CASTLE: It's ridiculous to have this kind of over-inventory pile up. You know, I might actually make some phone calls myself.
KESTENBAUM: There was one more key lawmaker in the House involved.
Rep. MALONEY: I grant Earl Pomeroy, congressman Pomeroy, all the time that he desires.
KESTENBAUM: Earl Pomeroy, Democrat from North Dakota, fought to get language in the bill, to make sure the U.S. kept making those Sacagawea coins.
Mr. EARL POMEROY (Former Democratic Congressman, North Dakota): You see, I represent the State of North Dakota, home of Sakakawea, as we say in Hidatsa; Sacajawea, as she is known in the Shoshoni language.
KESTENBAUM: We reached Earl Pomeroy, who is also no longer in Congress. He agrees now, looking back, that quota he pushed for has turned out to be a problem. But he sees the whole program as a failure.
Mr. POMEROY: I think the foolish part of the law may be not the Sakakawea part, but the fact that with no one picking up these coins, we've got to keep printing them because we've got to get through the rest of the president's list. Now that, to me, doesn't seem to make any sense at all.
You know, is the nation waiting with bated breath for us to get to the Calvin Coolidge coin? No. Maybe we should call a halt on this whole thing.
BENINCASA: The Federal Reserve is set to deliver its 2011 update on the Presidential Dollar Coin Program to Congress shortly.
KESTENBAUM: The Mint, meanwhile, is readying to release the next batch of presidential dollar coins: Rutherford B. Hayes, who served from 1877 to 1881.
I'm David Kestenbaum.
BENINCASA: And I'm Robert Benincasa, NPR News.
INSKEEP: And you can see photos inside the vault, and read more about our investigation, at NPR.org.
It's MORNING EDITION, from NPR News. Transcript provided by NPR, Copyright National Public Radio.