President Obama's recently submitted 2013 Budget includes a proposal to provide the United States Mint with greater flexibility in the material composition of circulating coins. Specifically, the Budget seeks to enable the Treasury Department to explore, analyze, and approve new, less expensive metals for all circulating coins.
Currently, the authority to establish the composition of coins rests with Congress. In December 2010, the Coin Modernization, Oversight, and Continuity Act of 2010 was signed into law, which provided the Secretary of the Treasury with the authority conduct research and development activities for alternative metallic coinage materials. Within a required report due to Congress by December 2012, the Secretary may make recommendations for changes to the composition for circulating coins, however any changes would still need to be accomplished through an act of Congress. By contrast, the proposal included in the 2013 Budget would bypass Congress and provide the Secretary with direct authority to alter coin compositions.
The Budget provides justification for the change based on "volatile metal prices" which have contributed to negative margins on both the penny and nickel. During the 2011 fiscal year, the United States Mint's unit cost to produce and distribute the cent was 2.41 cents and the unit cost for the nickel was 11.18 cents.
Since 2006, it has cost the US Mint more than the respective face value to produce the cent and the nickel. In the latest fiscal year, the losses generated from producing cents and nickels was $116.70 million. Since 2006, total losses from producing the two denominations has reached $359.80 million.
Historically, the gains, or seigniorage, generated from producing the dime, quarter, and dollar coins have more than offset the losses generated from the cent and nickel. However, this situation may change in the coming years due to the higher anticipated demand for cents and nickels and the recent decision to suspend production of Presidential Dollars for circulation. During the 2011 fiscal year, the most profitable denomination was the $1 coin, which generated $382.8 million in seigniorage. Without this amount, the US Mint would have experienced a loss from circulating coin operations.
The 2013 Budget is somewhat odd in that it takes credit for the decision to halt the production of "excess dollar coins " as an example of the Administration's moves to cut wasteful spending (Cuts, Consolidations, and Savings page 2), but then later acknowledges that the suspension will reduce the amount of revenue generated by the Mint to offset losses generated from the cent and nickel (Cuts, Consolidations, and Savings page 173).
The Budget also mentions that the United Stats Mint annually returns "hundreds of millions of dollars" to the Treasury General Fund. While this was true in prior years, for the 2011 fiscal year, the United States Mint deposited only $51 million to the Treasury General Fund. The US Mint held a significant portion of their net income and seigniorage in reserve, citing uncertainties in cash flow due to the losses generated by the cent and nickel and the expected reduction in seigniorage generated from the production of Presidential Dollars.
Another proposed step included in the Budget is the removal of the requirement for at least 20% of all dollar coins produced and issued by the United States Mint to be Native American Dollars. The Budget indicates that removing the requirement "would increase the Mint's flexibility to match the supply to consumer demand." In previous years, the 20% requirement resulted in the US Mint producing the Native American Dollars in large numbers essentially driven by the production of Presidential Dollars. However, since the production of Presidential Dollars for circulation has been suspended, the issues created by the 20% requirement will be less significant.
Full text from Cuts, Consolidations, and Savings Page 173: