BLM Needs to Better Manage Financial Assurances to Guarantee Coverage of Reclamation Costs
GAO-05-377: Published: Jun 20, 2005. Publicly Released: Jul 25, 2005.
Since the General Mining Act of 1872, billions of dollars in hardrock minerals, such as gold, have been extracted from federal land now managed by the Department of the Interior's Bureau of Land Management (BLM). For years, some mining operators did not reclaim land, creating environmental, health, and safety risks. Beginning in 1981, federal regulations required all operators to reclaim BLM land disturbed by these operations. In 2001, federal regulations began requiring operators to provide financial assurances before they began exploration or mining operations. GAO was asked to determine the (1) types, amount, and coverage of financial assurances operators currently use; (2) extent to which financial assurance providers and others have paid to reclaim land not reclaimed by the operator since BLM began requiring financial assurances; and (3) reliability and sufficiency of BLM's automated information system (LR2000) for managing financial assurances for hardrock operations.
According to GAO's survey of BLM state offices, as of July 2004, hardrock operators were using 11 types of financial assurances, valued at about $837 million, to guarantee reclamation costs for existing hardrock operations on BLM land. Surety bonds, letters of credit, and corporate guarantees accounted for most of the assurances' value. However, these financial assurances may not fully cover all future reclamation costs for these existing hardrock operations if operators do not complete required reclamation. BLM reported that, as of July 2004, some existing hardrock operations do not have financial assurances and some have no or outdated reclamation plans and/or cost estimates, on which financial assurances should be based. BLM identified 48 hardrock operations on BLM land that had ceased and not been reclaimed by operators since it began requiring financial assurances. BLM reported that the most recent cost estimates for 43 of these operations totaled about $136 million, with no adjustment for inflation; it did not report reclamation cost estimates for the other 5 operations. However, as of July 2004, financial assurances had paid or guaranteed $69 million and federal agencies and others had provided $10.6 million to pay for reclamation, leaving $56.4 million in reclamation costs unfunded. Financial assurances were not adequate to pay all estimated costs for required reclamation for 25 of the 48 operations because (1) some operations did not have financial assurances, despite BLM efforts in some cases to make the operators provide them; (2) some operations' financial assurances were less than the most recent reclamation cost estimates; and (3) some financial assurance providers went bankrupt. Also, cost estimates may be understated for about half of the remaining 23 operations because the estimates may not have been updated to reflect inflation or other factors. BLM's LR2000 is not reliable and sufficient for managing financial assurances for hardrock operations because BLM staff do not always update information and LR2000 is not currently designed to track certain critical information. Specifically, staff have not entered information on each operation, and for those operations that are included, the information is not always current. Also, LR2000 does not track some critical information--operations' basic status, some types of allowable assurances, and state- and county-held financial assurances. Given these limitations, BLM's reliance on LR2000 to manage financial assurances is mixed: headquarters does not always rely on it and BLM state offices' reliance varies. To compensate for LR2000's limitations, some BLM offices use informal record-keeping systems to help manage hardrock operations and financial assurances. BLM has taken some steps and identified others to improve LR2000 for managing financial assurances for hardrock operations.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: In June 2006 BLM transmitted an Instruction Memorandum (IM No. 2006-172) to all State Directors providing guidance to generate a Bond Review Report in LR2000. The IM states that the purpose of the Bond Review Report is to comply with GAO's recommendations addressing the BLM's hard rock mining bonding program. At the end of each FY (beginning in 2006), the state BLM Directors must review the Bond Review Report and certify that all reclamation cost estimates for Notices and Plans within their States requiring review were examined and are adequate. A corrective action plan must be developed by the State Directors to address any identified deficiencies in the cost estimates within 60 days of generating the Bond Review Report. By December 1, State Directors must send copies of the Bond Review Reports, Certifications, and Action Plans to the BLM Director. The Bond Review Report in LR2000 and the transmittal of this IM addresses the BLM's Action Plan for ensuring that operators have required financial assurances and that the financial assurances are based on sound reclamation plans and cost estimates.
Recommendation: To ensure that hardrock operations on BLM land have adequate financial assurances, the Secretary of the Interior should direct the Director of BLM to require the BLM state office directors to establish an action plan for ensuring that operators of hardrock operations have required financial assurances and that the financial assurances are based on sound reclamation plans and current cost estimates, so that they are adequate to pay all of the estimated costs of required reclamation if operators fail to complete the reclamation.
Agency Affected: Department of the Interior
Status: Closed - Implemented
Comments: In June 2006 BLM transmitted an Instruction Memorandum (IM No. 2006-172) to all State Directors providing guidance to generate a Bond Review Report in LR2000. The IM states that the purpose of the Bond Review Report is to comply with GAO's recommendations addressing the BLM's hard rock mining bonding program. Data standards for Plans and Notices have been modified and a new action code created in LR2000 to generate the Bond Review Report. All hard rock operation case types must be updated with the new data standards by September 30, 2006. In addition, new action codes for reclamation cost determined, bond amount obligated, and operations authorized, as well as the associated sequence of data input will allow BLM to generate the Bond Review Report and manage the financial assurances associated with these operations.
Recommendation: To ensure that hardrock operations on BLM land have adequate financial assurances, the Secretary of the Interior should direct the Director of BLM to modify LR2000 to ensure that it tracks critical information on hardrock operations and associated financial assurances so that BLM headquarters and state offices can effectively manage financial assurances nationwide to ensure regulatory requirements are met.
Agency Affected: Department of the Interior