Government's Chief Watchdog: Interior Department Shockingly Short-Changing Taxpayer

It’s finally here and the news isn’t good.

Today the Government Accountability Office (GAO) released a long-awaited examination of the way the Department of Interior (DOI) sells taxpayer-owned coal on federal land.

The bottom line: Interior’s Bureau of Land Management (BLM) doesn’t follow basic accounting principles in pricing this taxpayer-owned asset, and they won’t turn over information on how they price the coal even though their own guidelines say they should.

Interior should sell no more public coal until this broken system has been totally overhauled.

According to Senator Ed Markey (D-MA) who called for the investigation when he was in the House:

These noncompetitive practices are costing taxpayers in Massachusetts and across the nation, benefitting just a few coal companies who may be leasing public coal resources at bargain-basement prices. Taxpayers are likely losing out so that coal companies can reap a windfall and export that coal overseas where it is burned, worsening climate change. This is a bad deal all around.


A Markey fact sheet on the report can be found here. A Reuters story here and a New York Times story here. The AP story, "Report: Coal Companies Win and Taxpayers Lose," here.

The GAO report shows there is no available rationale for how much BLM charges for federally owned coal. What’s more, there have been no independent assessments of 107 lease sales over a 23 year period. The GAO report found that in nearly 90 percent of lease sales, only a single coal company submits a bid for coal mining rights, even though federal law requires that sales should be competitive among multiple companies.

In 1982 a scandal erupted when it was revealed BLM colluded with the coal industry and underpriced federal coal to the tune of $100 million (goodbye James Watt). Congressional hearings followed, commissions were formed, new BLM guidelines issued. Today’s GAO report essentially says nothing’s changed. It’s the first formal audit of the program in 20 years.

It’s as if you found out your accountant was ripping you off 20 years ago, told him to change his ways but didn’t bother to follow up until now. Surprise! He’s still ripping you off. And in this case it’s a multi-billion dollar wallet-thinner.

An investigation by DOI’s own Inspector General last year found that for every penny the BLM undervalues a ton of coal, the taxpayer loses $3 in a lease sale. Senator Markey estimates its $7 for the largest leases. Billions of tons have been leased since the last audit. (You can read more on the IG report here and here.)

A 2012 report by the Institute for Energy Economics and Financial Analysis estimated that since the 1980's the coal leasing program has short-changed taxpayers $28.9 billion. The Institute estimated that one lease sale alone that happened after their study came out cost taxpayers $1.2 billion.

And of course, the more coal is essentially subsidized in this fashion, the more dirty, carbon polluting coal gets burned in the US. That's because the artificially low price is more likely to box out cleaner forms of energy like wind, solar, and natural gas. Thus the American taxpayer is paying an additional price in terms of the (associated) health impacts from coal burning pollution, like more asthma attacks, chronic bronchitis and respitory-related hospitalizations. Children and the elderly are particularly vulnerable.

But back to today’s report, which also found:

  • BLM uses outdated information to price a ton of coal
  • BLM does not consider all market factors, like potential export value, when pricing coal
  • BLM “does not explicitly consider estimates of the amount of coal that can be mined economically.”
  • BLM’s own guidance states that redacted public versions of its appraisal reports should be prepared, but no BLM state office has prepared such reports
  • BLM shuns the marketplace. The vast majority of the tracts of coal the Bureau selects for sale—90 percent since 1990—have attracted only one bidder.
  • BLM accepts bids below its own fair market value without even documenting why
  • State BLM offices set the value of the coal, but most work without independent review, to the point of state programs operating in direct conflict with federal guidance and transparency recommendations
  • Guidelines so outdated that they refer to staff positions that don’t even exist
  • Some states do not even account for inflation when using the outdated lease information.

The GAO report makes some clear recommendations. BLM should:

  • Update its pricing guidance to include more than one appraisal mechanism
  • Make sure that all state BLM offices are following the proper federal guidelines when pricing coal (pretty sad they had to include that one)
  • Develop guidance on how to consider export potential and value as part of the appraisal process, and identify potential sources of information on coal exports that state offices should use when conducting appraisals.
  • “To eliminate the disconnect between its guidance and the BLM state offices’ practice of not releasing appraisal documents to the public,” relevant entities should come to an agreement on the type and extent of information that should be released.
  • Make summary information on past sales available on the BLM website.


Not that heavy a lift, huh?

All of this leads to a clear conclusion. No more federal coal leasing until this program is thoroughly overhauled.