From the U.S. Government Accountability Office, www.gao.gov Transcript for: Coin Composition Description: Audio interview by GAO staff with Lori Rectanus, Director, Physical Infrastructure Related GAO Work: GAO-16-177: U.S. Coins: Implications of Changing Metal Compositions Released: January 2016 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. It's January 2016. It takes money to make money, and the U.S. Mint made 13 billion coins in 2014. However, production costs are rising, prompting the government to look for savings by changing what change is made of. A team led by Lori Rectanus, a director in GAO's Physical Infrastructure team, recently reviewed how altering the composition of coins could affect the government and businesses. Tim Walker sat down with Lori to talk about what they found. [ Tim Walker: ] I can't think of anything I can buy for a nickel, but it's pretty surprising to learn that the government can't even make a nickel for a nickel. Why is that? [ Lori Rectanus: ] Well, coins are made of metal and metal costs money. In fact, a nickel is made of a blend of copper and nickel. So we have a situation where in the past several years, metal prices have risen such that in some cases, it actually costs us more money to make the coins than they're worth. So it takes us eight cents to make a nickel. It costs us almost two cents to make a penny. So for those coins, we lose money on every coin that we make. Now, the good news is we still make money on dimes and quarters, and so in the end, we still come out ahead. [ Tim Walker: ] So is there anything that the government can do to bring some of those costs down for the money-losing coins? [ Lori Rectanus: ] So anything the government can do to reduce production costs that makes us able to make a coin for less than its face value is a good thing because that gives us more profits, and those profits are given to the Treasury to reduce our debt. So how do you do that? You either reduce operating costs or you reduce the price of the materials. In this case, metals. So the U.S. Mint, who is responsible for making the coins -- they're part of the Department of Treasury -- has done a lot over the past couple years to reduce their operating costs by reducing administrative costs in overhead, but we still have the issue of the prices of the metal, and that's why they're looking at potential changes to reduce metal prices. And in fact, they're required by law to do it. In 2010, Congress said that the Mint has to explore cheaper alternatives, so they're taking two tactics to address that. The first thing they're looking at is changing the actual composition of the current metal in the coin, the idea being that you would increase the cheaper metal and scale back on the more expensive metal. Not a significant change, but it would lead to about $8 million in savings a year according to the Mint. The more significant change they're looking at is changing the metals that are in the coin. Again, a more significant change would be different production processes. That can save about $30 million a year. In 2014, the Mint spent about $500 million to make about $800 million worth of coins. So whether it's 8 million or 30 million, still sort of a small chunk of change when you think about $500 million that they're already spending. [ Tim Walker: ] But still, savings are savings, so if the government could save money by taking one of these measures, why hasn't it done so already? [ Lori Rectanus: ] If it were only about the government saving money, that would be one question, but it's really not. It's also about how the coins are used in commerce. We may not realize it, but there are millions of machines out there that accept coins. When you do your laundry, when you pay to park, when you buy a soda, when you play a video game in an arcade, these machines have been specifically calibrated to accept the current coin as it is today, so any changes you make to a coin require changes to those machines and there will be costs associated with that. In fact, in 2014, vending industry representatives told the U.S. Mint it could cost them up to $4 billion to change their machines. Now, when we looked at those estimates, we felt that they were overstated for a lot of reasons, but we do acknowledge there's going to be costs, and that's significant because that law that I told you about, it not only requires the Mint to explore alternatives, but it also says they can't put anything into place that would significantly impact industry or require them to make significant upgrades to their machines. [ Tim Walker: ] So then are we at a stalemate or can the U.S. Mint make recommendations that satisfy both parties? [ Lori Rectanus: ] Well, that's a great question. It really is up to the Mint to determine if there are recommendations it can make to balance government savings and manage industry costs. They are required by the law to make these recommendations. They haven't made them yet and there isn't a time frame for when they plan to do so. [ Tim Walker: ] This sounds like a complicated issue. What would you say for our listeners is the bottom line of your report? [ Lori Rectanus: ] The bottom line is even though the estimates both from the Mint in terms of what they could save and the estimates from the industry as to what it could cost them are not precise. And we took issue with some of them in our report. They provide enough information to know that ultimately the greater the government savings, the more likely your costs are for industry. And so ultimately, Congress and the Treasury need to decide what their priority is. Do they want to shoot for the government having fewer savings, but potentially leaving the industry untouched or are they more interested in getting greater government savings, realizing that there could be an effect on industry, or finding some sweet spot between the two? [ Background Music ] [ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the next episode of GAO's Watchdog Report for more from the congressional watchdog, the U.S. Government Accountability Office.