Congress again considers doing away with the penny Studies differ on whether it costs more than 1 cent to manufacture the coin

September 08, 1996|By Marcia Myers | Marcia Myers,SUN STAFF

The lowly penny, whose usefulness as a coin has become overshadowed by its image as a nuisance, has finally become more expensive to produce and distribute than it's worth.

It is sorry news for an icon symbolizing thrift and good luck, and it has accelerated talk of the penny's demise.

Politicians say it is no longer a question of "if" the one-cent coin will be abolished, but "when."

"We're just looking at ways to make life a little easier," said Rep. Michael N. Castle, head of a House banking subcommittee looking into the penny's future.

'I've observed disregard'

"I've looked at the polls, which show less and less acceptance of the penny. I've personally observed the disregard for it in a variety of stores, which wave it off."

Castle, a Delaware Republican, commissioned a recent General Accounting Office report on the future of the penny.

For now, the penny's survival hangs by a thread attached firmly to public sentiment. Many consumers say they don't use the one-cent coin much, but politicians know it still carries emotional currency.

Like their constituents, they grew up on maxims like "a penny saved is a penny earned." They have tossed their share of coins into fountains for wish-making. Some have even slipped them into loafers.

So rather than abolish the penny outright, some expect Congress to consider steps outlined in the GAO report -- laws that would either round off purchases to the nearest nickel or that would give the customer that option.

"In this situation, demand for the penny might decrease over time, and the government could then phase out the penny," the report said.

The idea has been tested.

In 1980, pennies were eliminated at American military bases in Europe to save the expense of transporting them.

Initially, commissaries and other places heard complaints. Some even chose to round prices downward automatically to make the change more palatable to customers.

'No complaints"

"But after a few months, there were no complaints; people just went on with their lives," said John Baldwin, GAO assistant director who headed the report. "I think you could probably expect that in the U.S."

A number of other countries -- including France, the Netherlands, Spain and Britain -- also stopped producing low-denomination coins during the past 20 years because the purchasing power had become so low and the production costs too high.

Those changes went smoothly, according to the GAO.

Opinion is split on whether rounding would cost anybody more money. Some believe merchants might round up prices. Others say it will all even out.

There remain some big potential problems, said Baldwin. What to do if the estimated 132 billion pennies out there somewhere are returned, for instance.

Americans for Common Cents, a pro-penny group representing mining and coin-manufacturing interests, says eliminating the penny would have devastating consequences for charities that depend on pocket-change contributions and would cost hundreds of jobs in mining, production and transportation.

Mark Weller, the group's executive director, argues that the coin is still needed for over-the-counter transactions.

"It's become embroidered into the social and commercial fabric of the public," he said.

But, mostly, Americans would miss its symbolism, Weller said.

He and others predict legislation in the next couple of years will permit rounding off prices.

Castle, however, said he doesn't expect action that quickly; legislation to eliminate the penny outright is at least a few years off, he said.

But he's convinced that Congress will do away with the penny, particularly if it continues to be a money loser.

By GAO calculations, the United States lost $8 million to $9 million in producing and distributing pennies in 1994, the most recent year for which figures are available.

Officials at the U.S. Mint say the GAO's work was flawed, that the penny remains profitable.

"Our analysis reveals that the penny, in fact, remains profitable by a significant margin," Philip N. Diehl, director of the Mint, wrote in a letter to the GAO. His calculations showed a profit of as much as $26.6 million in 1994.

Diehl said the penny's profitability depends on whether it costs more than a cent to manufacture. The GAO factored into its study costs not directly connected with the manufacture of the penny, he said.

'Sitting in piggy banks'

But besides examining profitability, Congress will want to know if this coin is being used. The conclusion of the GAO is that it is not.

"It's pretty much a one-way street," said Baldwin, author of the report.

"The government ships them out, and the presumption is they're sitting in people's piggy banks and jars and drawers."

Pub Date: 9/08/96

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