Summary: In response to a congressional request, GAO assessed the availability and cost of surety reclamation bonds for surface coal mine operators in four states to determine the reasonableness of rate-setting procedures.
GAO found that: (1) since 1984, mine operators have had difficulty in obtaining reclamation bonds because of a decrease in the number of companies underwriting the bonds; (2) some underwriting companies required as much as 100 percent of the bond's face value as collateral; (3) the use of non-surety bonds in three of the states it reviewed increased from 6 percent in 1984 to 15 percent in 1986; (4) no new company entered the reclamation bond market between 1984 and 1986 in three of the states; and (5) the coal market's economic condition and the extended-liability-period requirements created uncertainties in the surety industry. GAO also found that: (1) since July 1985, seven surety underwriters have become insolvent, affecting about 400 operators and more than $50 million in bonds; (2) 70 percent of the outstanding bonds were replaced either by other surety bonds or by some collateral mechanism; (3) while the large mine operators were able to obtain replacement bonds for 75 percent of their bonds' value, smaller operators obtained replacements for only 10 percent of their affected bonds' values; and (4) surety bonds have historically proven to be the most frequently used financial assurance mechanism in all the states it reviewed. GAO believes that a market may exist for other companies offering similar services.
