The Surface Mining Control and Reclamation Act (SMCRA, P.L. 95-87), enacted in 1977, established federal standards for environmental protection at surface coal mining operations, and for the surface effects of underground coal mining operations. It also established the Abandoned Mine Land (AML) program to oversee state and federal reclamation of sites mined and abandoned prior to the enactment of SMCRA.¹ Administration of the AML program was to be one of the responsibilities of the Office of Surface Mining (OSM), which was also established by SMCRA.

The cost of reclamation of these sites was estimated at the time of enactment at $33 billion;² however, the operators of these mines--whether or not they were still in business--often could not be held responsible for these older sites because no standards had been in effect when these mines were in production. The legislation envisioned that the states would develop their own pro grams for reclamation (as well as enforcement of surface mining regulations governing mines in current production), and upon federal approval of these programs, would assume primary responsibility for these activities.

To finance reclamation of abandoned mine sites, the legislation established that a fee on coal production -- $.35/ton for surface production and $.15/ton for underground production -- would be paid by coal producers into an Abandoned Mine Reclamation trust fund. SMCRA authorized collection of AML fees through the end of 1992; the Energy Policy Act of 1992 (P.L. 102-486) extended the AML authorization through the end of FY2004. In the interim, the Omnibus Budget Reconciliation Act of 1990 (OBRA, P.L. 101-508) had extended authority for AML collections through FY1995. Additionally, OBRA authorized the OSM to invest the unappropriated balance of AML funds in U.S. Treasury securities. The investment interest ($69 million in FY1996, and $241 million during the period FY1991-96) is deposited to the AML fund; however, the Energy Policy Act of 1992 (P.L. 102-486) authorized transfer of up to $70 million annually of this interest income, beginning in FY1996, to the United Mine Workers to help pay the health benefits of retired miners.³ Distribution of reclamation grants from the AML fund are subject to annual congressional appropriation.

An inventory of AML sites nationally was developed, with sites classified based upon the public health and safety hazards they posed. States with reclamation programs meeting federal requirements are eligible to receive AML funds.⁴

SMCRA provided that 50% of AML collections would be allocated to the states; this is generally referred to as the "state share" of AML fees. The balance of the collections was placed under the control of the Secretary of the Interior and is generally referred to as the "federal share." As amended by P.L. 101-508, 40% of this federal share (or 20% of the whole of AML collections) is designated for (1) emergency projects in states and on tribal lands; (2) projects in states and on tribal lands without approved reclamation plans; (3) the Small Operator Assistance Program (SOAP); and (4) federal administrative costs. Twenty percent (or 10% percent of total AML collections) is set aside to be transferred to the Department of Agriculture for its Rural Abandoned Mine Program (RAMP).⁵ An additional earmark is made for the Appalachian Clean Streams Initiative (ACSI). The ACSI program was initiated in FY1994 to clean up and restore streams damaged by acid mine drainage, largely the result of past coal mining.

The remaining 40% of the federal half of total AML collections constitutes a pool from which supplemental grants may be awarded to the states for remedy of Priority 1 and 2 sites,⁶ based upon historic coal production.

The fundamental purpose of the AML program does not appear to be in jeopardy or under challenge; nonetheless, its design and operation raises significant issues, some unique to the AML fund, and some common to trust funds in general. The AML program touches upon long-held state concerns about levying fees on residents or businesses operating in one state to remedy nationwide problems -- albeit for the "common good" -- but which dot the landscape disproportionately among the several states. The allocation and distribution of AML collections are designed to preserve a rough equity, given the anomaly that the states with the greatest inventory of priority AML sites are no longer among the largest coal producers. But not all states are comfortable with the distribution.

Nor are they sanguine about the level of annual congressional appropriations from the fund. From the inception of the program, the fund has had unappropriated balances (see Appendix 1). This places the AML fund in company with other trust funds held by the federal government (such as the Highway Trust, and Land and Water Conservation Funds) where some states

-- eyeing the unappropriated balances -- believe their citizens, and businesses operating within their borders, pay more into the fund than the state receives in benefits. Some also point out that the unappropriated balances exist only on paper and argue that the Administration does not seek, and Congress does not enact, larger appropriations because it would add to the federal deficit.

The description which follows of the process by which the distribution of grants from the AML is calculated will help set these and other issues concerning the AML fund in better context.

Congress annually appropriates money from the AML fund. OSM then calculates the distribution to each eligible state and Indian tribe from its shares of state and federal apportionments of AML collections. Since the program 5 inception and through FY1996, collections have totaled $4.4 billion; disbursements have totaled $3.3 billion.⁷ At the end of FY1996, unappropriated collections in the State Share Balance totaled nearly $583 million; unappropriated federal balances totaled nearly $500 million. However, only half of the more than estimated $1.2 billion in total unappropriated balances projected by the end of FY1997 might be available for grants because of other earmarks .⁸

As shown in Table 1, Congress appropriated $177.1 million for AML for FY1997, of which $141.7 million is being distributed for reclamation, including an allocation to the ACSI.⁹ The latter figure is also net of allocations to federal expenses for program administration and other specific activities.¹⁰

The Energy Policy Act of 1992 (P.L. 102-486) provided that payments of up to $70 million annually would be made from interest earned on AML funds to the retired miners health benefits fund of the United Mine Workers (UMWACBF, United Mine Workers of America Combined Benefit Fund) to pay the premiums of retirees who worked for companies that went bankrupt, or which no longer exist. A transfer of $47.2 million was made in FY1996, and a transfer of $31.4 million has been made for FY1997. A transfer of $56 million has been estimated for FY1998.¹¹

                Source:Office of Surface Mining (OSM).

The Administration's request for FY1998 is $177.3 million. However, owing to a 20% increase in spending for the Appalachian Clean Streams Initiative (ACSI), boosting it to $5 million for FY1998, the requested appropriation would net out to a reduction of nearly $670,000 in non-ACSI grants to states and tribes.

The amount approved by Congress for non-emergency state reclamation grants is drawn from unappropriated balances in the state and federal shares of the AML fund. However, before annual grants are made to the states, money is set aside from the Congressional appropriations to fund emergency programs in states that have their own emergency programs.¹² This figure is based on estimates of needs provided to OSM in advance of the fiscal year. Then the AML appropriation, net of emergency funding to states that operate their own emergency programs and funding for the ASCI, is divided into state and federal "shares;" 55 percent of the balance is designated to the state share, and 45 percent to the federal share. Distributions for State Emergency Programs, and the Appalachian Clean Streams Initiative (ACSI) are separate line items (see Table 2).

* A distribution of $325,000 for an ACSI project to Tennessee, a non-primacy state, was transferred to federal Reclamation Program Activity.

Just as AML collections are divided into state and federal shares, annual distributions are paid from both shares. Designating an amount of current AML collections for the federal share removes the identification with any specific state of virtually half of AML collections. While the draw from the pool of AML revenues allocated to individual state shares is fairly straightforward and proportional, more complex adjustments affect the proportionality of the final distribution paid from the federal share. This makes it difficult to measure a direct transfer of wealth among individual states.

Calculation of the distribution of grants to a state from its share of AML collections is based on the state's share of previously collected, but yet undistributed AML fees. The distribution to a state from the federal share is based on: [1] a state's coal production prior to 1978, before enactment of the Surface Mining Control and Reclamation Act (SMCRA) that established the AML fund; and [2] adjustments to the distribution made on behalf of minimum program states to bring their grants up to a designated minimum level of funding for reclamation.

Minimum program states are states with relatively low annual coal production. For these states,¹³ SMCRA was amended in 1990 to authorize appropriations for the reclamation of the most dangerous sites (so-called priority 1 and 2 sites) listed in the AML inventory at the lesser of (a) the estimated cost to reclaim those sites; or (b) a minimum program level of $2.0 million. Prior to that, annual appropriations had provided $1.5 million annually to minimum program states.

These minimum program levels, however, are subject to annual appropriations by the Congress. Congress may appropriate all, or less than, the $2.0 million currently authorized. For FY1995, Congress reduced the minimum program appropriation to $1.5 million. In its FY1996 and FY1997 budget submissions, the Administration retained the FY1995 congressional language reducing the appropriation to minimum program states to $1.5 million. The appropriations legislation was reported accordingly by the reviewing committees, and approved.

The distribution of AML collections to individual states from the state share is based on the state's percentage of the total balance of unappropriated AML funds that remain allocated to the states. Consequently, the percentage of funds returned to states from their remaining designated share of AML collections does not vary greatly among the states participating in the program. As is shown in Table 3, the state share distribution for FY1997 amounted to 12.43% of state share balances at the end of FY1996. This uniformity is quite deliberate.

Because coal production was concentrated until fairly recent times in the eastern and Appalachian regions, the greatest number of abandoned mine land sites are located in these areas. It was acknowledged at the time of enactment that AML revenues would be insufficient to address all AML sites. The regional shift in production threatened to exacerbate further the insufficiency of reclamation funds for older coal-producing states. This is because minesites in the West are far likelier to come under state and federal standards that were not in place when eastern minesites were in production. As production shifts westward, AML collections from western states are increasing even though reclamation needs in that region are less -- while collections have declined from eastern and Appalachian states that have some of the oldest and greatest reclamation needs.

The annual grants to individual states drawn from the federal share are determined by a more complex series of calculations. An initial calculation of the grant to individual states and tribes from the federal share of AML revenues is made by multiplying the federal share (45%) of the annual appropriation by each state's share of historic coal production prior to 1978. States or tribes without qualifying historic coal production are excluded, as are states that have no unfunded priority 1 and 2 AML problems in the AML inventory. The calculation of the percentages of historical coal production is adjusted so that the percentages of states or tribes eligible for a distribution from the federal share totals 100 percent. The adjusted calculation is the "preliminary federal share" of the grant appropriation, subject to adjustment to provide for minimum

This is exclusive of any distribution to certain states for the Appalachian Clean Streams Initiative (ACSI).
^b Arkansas is expected to have a negative state share balance through FY1998. Source. Office of Surface Mining

If the calculated distribution to a minimum program state falls short of the minimum program level, the state receives a supplement paid out of the Federal Expenses share of AML collections. The supplement is set at whatever sum will bring the state's distribution for a given year up to the minimum program level --authorized at $2 million, but currently appropriated at $1.5 million.

The needs for the minimum program states are summed, and the federal share to the other states is adjusted downward proportionately to meet the minimum program need. The use of historic coal production and the minimum program adjustment assures that states that generate less AML collections but have a greater number of AML sites receive a larger award than they would if grants were based solely on the geographic origins of current payments into the AML fund.

The calculation of the minimum program adjustment is shown in Table 4. Final distribution of AML revenues follows in Table 5. While the calculation of the minimum program adjustment measures how much certain states are "contributing" to the needs of minimum program states, some might argue that this does not have much meaning as a wealth transfer because the adjustment is subtracted from federal AML funds. On the other hand, others might suggest that the designation between the federal and state shares is an artifice given that the funds are generated from coal production in the separate states, and that the fairness of certain features of the AML program can be debated. Whatever issues might be raised by the minimum state program, it should be borne in mind that the factor having the greatest effect upon the relative proportionality of AML grants among the states is the portion of the allocation based upon historical coal production and, therefore, reclamation needs.

These states and the Navajo Tribe have no further coal reclamation projects and therefore not eligible for distribution from the federal share. The Hopi Tribe has insufficient inventory of Priority I and 2 sites to qualify for a distribution from federal Share funds, the Crow Tribe inventory still shows some high priority sites, but the Tribe has been adequately funded to address these sites.

This is the amount needed to raise the sum of the state and federal share to 81.5 million.

^c The preliminary federal share distribution of all non-minimum program states is summed ($86,250, 198), and percentage contribution represents what percentage each state's preliminary share is of that total.

d Calculated as the percentage in Column 4 multiplied by the total emergency program need ($7,686,177).

Source: Office of Surface Mining

The AML program touches upon long-held state concerns about levying fees on businesses within states to remedy nationwide problems -- albeit for the "common good" -- but which dot the landscape disproportionately among the several states. As has been shown here, state coal production -- current and historic -- is the fundamental and initial determinant of what mine owners and lessees in a state pay into the AML fund, and what the state reclamation programs receive from it. The division of AML collections into federal and state shares, and the additional adjustments built into the process, are designed to preserve a rough equity, given the anomaly that the states with the greatest inventory of priority AML sites are no longer among the largest coal producers.

The fundamental purpose and design of the AML program does not appear to be in jeopardy or under challenge. Progress has been measurable, and the AML program appears to have established, for most, an acceptable balance between the state and federal role in reclaiming abandoned sites.¹⁴ In the near-term, the greatest concerns may be the unappropriated balances in the AML fund, and the objections of minimum program states at being denied the maximum annual distribution previously authorized by Congress.

At its inception, the AML program provided that states, upon approval of submitted plan designs, would play a central role in reclamation. This was because it was anticipated that AML collections and grants would fall far short of needs, and that the states would be best qualified to establish their own site-specific priorities.

At the end of FY1996, the estimate of the cost of reclaiming remaining Priority 1 and 2 sites was $2.5 billion. An additional $1.7 billion may be needed to complete Priority 3 sites.¹⁵ This, however, reflects only those Priority 3 sites currently in the AMLIS inventory. Reclamation of all known Priority 3 sites is estimated at $20 billion.¹⁶

Additions to the AML fund during each of the next two fiscal years are projected around $360 million.¹⁷ If one assumes congressional appropriations of AML funds at the level approved in the FY1997 budget (and essentially identical in the Administration's FY1998 request), it strongly suggests there will be a need to reauthorize the AML fund beyond FY2004. As time passes, more and more of the balance of unfunded or unreclaimed sites will be situated in Eastern and Appalachian states, suggesting that reauthorization of the fund in later years may grow more controversial.

In the first years of AML collections, appropriations from the fund were low because few states had reclamation programs in place. As more state programs were approved, annual appropriations increased and, during FY1983-85, exceeded collections (see Appendix). Since then, collections have exceeded appropriations; unappropriated balances are projected to exceed $1.2 billion by the end of FY1997. Generally, the argument against higher disbursements was that several states were not in a position to effectively administer larger grants. However, in recent years, the states contend that they could accelerate AML reclamation under the programs they have in place, and that appropriations have been restrained by the effort to balance the federal budget.

In September 1996, the National Association of Abandoned Mine Land Programs (NAAMLP), a group of state officials directly involved in AML grant administration, released a proposed plan prepared by the Interstate Mining Compact Commission to increase the amount of money available for reclamation. The plan would eliminate the unappropriated balances in the trust fund and establish a more direct role for the states and tribes in managing AML monies.¹⁸ Under the plan, the unappropriated balance and earned interest on AML monies would be deposited to state and tribe accounts.¹⁹ States would prepare multi-year Reclamation Management Plans that, once approved, would allow states to draw on their accounts consistent with annual spending levels set out in their Plans.

The plan's intention is to have the pace of reclamation governed not by congressional appropriation, but by a particular state or tribe's capacity to manage and administer its own reclamation program (consistent with the multi-year plan the state or tribe will have submitted to OSM). Proponents of the plan argue that this would accelerate the pace of reclamation at lower cost, and create employment.

Distribution of the unappropriated balance on the scale favored by the NAAMLP could lessen the amount of AML monies available for the United Mine Workers Combined Benefit Fund (UMWACBF).²² Transfers to this fund are limited by P.L. 102-486 to a maximum of $70 million annually; however, the transfer is paid from the interest earned on the unappropriated balances in the AML fund. While the demands of the UMWACBF will presumably decline with the passage of time, the interests of the UMW retiree health benefits and abandoned mine reclamation could become caught up in a potentially unusual crosscurrent.²³

Though authorized to receive as much as $2.0 million annually, Congress set the appropriation to minimum program states at $1.5 million for FY1995, FY1996 and FY1997. The FY1998 budget request from the Administration proposes to maintain it at that level.

Minimum program states would prefer the higher level. In June 1996, the Western Governors' Association passed a resolution expressing support for boosting the minimum grant to $2.0 million. Arguing that it is unfair to cut funding to minimum program states when there are unappropriated balances in state share accounts, the Western Governors, in the same resolution, called for "distribution of the cumulative unappropriated fund balances to the States."²⁴

On the other hand, minimum program states have received more than the proportion of the federal share these states would have received were the allocation based only on the states' pre-SMCRA coal production. However, this does not refute the main argument of minimum program states that they are disadvantaged by the cut. The increase in the minimum program state authorization from $1.5 million to $2.0 million, it can be argued, was a recognition by Congress that there are enough high-priority reclamation sites in those states to utilize the full $2 million authorized, and that a 25% cut in this appropriation is disruptive to the program. If minimum program states, estimated to number 10 in FY1998, were granted the full authorization of $2.0 million per state, it would add $5.0 million, or roughly 2.8% to the budget request, as proposed.

While it is not known whether there will be any legislative proposals to adjust the authorization or appropriation to minimum program states, or to increase overall annual appropriations from the AML fund, these issues are likely to be the subject of discussion and study in the future.

* Projected
^a Receipts for FY1992-1998 include interest payments on the unappropriated balance of AML funds.
^b Appropriated balances for FY1996-FY1998 include payments to the United Mine Workers of America Combined Benefit Fund (UMWACBF).

³ United States Department of the Interior Budget Justification, FY1998. Office of Surface Mining Reclamation and Enforcement, p.75.

⁷ See Appendix I for cumulative AML receipts, appropriations, and unappropriated balances, including estimates through FY 1998. Receipts by that time should exceed $5.1 billion, and disbursements more than $3.7 billion.

⁸ As noted earlier, P.L. 101-508 designated that, as of FY1992, the establishment of new and specific congressional directives reduced to 40% from 50% the percentage of those monies designated for supplemental AML grants to states with reclamation programs. As a consequence, the funds technically available for supplemental grants since the inception of the program is higher than 40% of the current total unappropriated balance.

⁹ Office of Surface Mining. Fiscal Year 1997 Grant Distribution.