A performance audit of the Copper Tariff Board

              STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
OF THE
COPPER TARIFF BOARD
JUNE 1983
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 83- 1 2
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
June 27, 1983
Members of the Arizona Legislature
The Honorable Bruce Babbitt, Governor
Mr. Denison Kitchel
Arizona Copper Tariff Board
Transmitted herewith is a report of the Auditor General, A Performance
Audit of the Arizona Copper Tariff Board. This report is in response to a
January 18, 1982, resolution of the Joint Legislative Oversight
Committee. The performance audit was conducted as a part of the Sunset
Review set forth in A. R. S. Ss41- 2351 through 41- 2379.
The blue pages present a summary of the report; a response from the
Arizona Copper Tariff Board is found on the yellow pages.
My staff and I will be pleased to discuss or clarify items in the report.
w
Douglas R. Norton
Auditor General
Enclosure
1 1 1 WEST MONROE SUITE 600 PHOENIX. ARIZONA 85003 ( 602) 255- 4385
OFFICE OF THE AUDITOR GENERAL
A PERFORMANCE AUDIT OF THE
COPPER TARIFF BOARD
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 83- 12
INTRODUCTION AND BACKGROUND
SUNSET FACTORS
FINDING
TABLE OF CONTENTS
The A r i z o n a Copper T a r i f f Board is i n a c t i v e and is
no l o n g e r needed.
WKITTEN RESPONSE TO THE AUDITOR GENERAL'S REPORT
- Page
i
Tlie Office of the Auditor General has conducted a performance a u d i t of the
Arizona Copper T a r i f f Board i n response t o a January 18, 1982, r e s o l u t i o n
of the J o i n t L e g i s l a t i v e Oversight Committee. This performance a u d i t was
conducted a s a p a r t of the Sunset Review s e t f o r t h i n Arizona Revised
S t a t u t e s ( A. R. S.) SS41- 2351 through 41- 2379.
Created i n 1933, the Arizona Copper T a r i f f Board i s a five- member Board
responsible for promoting the copper mining industry i n the S t a t e . The
Board has functioned e x c l u s i v e l y i n lobbying f o r Federal t a r i f f
l e g i s l a t i o n and a d m i n i s t r a t i v e t r a d e p o l i c i e s which protected domestic
copper production from f o r e i g n imports. During the four decades of the
1930s, 1940s, 1950s and 1960s the Board a c t i v e l y campaigned f o r the
p r o t e c t i o n of Arizona's copper mining industry which continues t o supply
over 60 percent of the copper produced i n the United S t a t e s . Although the
amount of t a r i f f d u t i e s on copper imports f l u c t u a t e d , the Board
s u c c e s s f u l l y lobbied f o r the i n s t i t u t i o n and adjustments of " p e r i l
pointsw-- a s p e c i f i e d world copper p r i c e l e v e l a t or below which suspended
import d u t i e s become a u t o m a t i c a l l y r e i n s t a t e d .
However, the Board has been v i r t u a l l y i n a c t i v e f o r a t l e a s t 1 5 years. The
Board has met only four times s i n c e 1967 with the l a s t meeting occurring
i n 1977. None of the meetings r e s u l t e d i n any s u b s t a n t i a l Board
a c t i v i t y . According t o the Board's chairman, i n the e a r l y 1970s, some
Board members exerted e f f o r t s on behalf of t h e i n d u s t r y t o influence
Federal r e g u l a t i o n s i n t h e a r e a s of d e p l e t i o n allowances and investment
c r e d i t s . However, two l e t t e r s ( one t o a former U. S. Senator from Arizona
and the other to a U. S. Congressman) and two Board statements presented t o
the I n t e r n a t i o n a l Trade Commission ( one i n 1975 and the o t h e r i n 1978) a r e
the only evidence of o f f i c i a l Board a c t i v i t y since 1967. The Board has
not responded to recent economic conditions a f f e c t i n g the copper industry
i n Arizona d e s p i t e i t s s t a t e d i n t e n t i o n t o function during emergencies.
Other S t a t e agencies and p r i v a t e groups c u r r e n t l y perform the Board's
functions without Board involvement. While the Board has been i n a c t i v e ,
the Governor's s t a f f , the Off i c e of Economic Planning and Development
( OEPAD), A r i z o n a ' s c o n g r e s s i o n a l d e l e g a t i o n , l a b o r unions, mining
a s s o c i a t i o n s and mining companies have a c t i v e l y sought Federal a c t i o n t o
remedy problems i n the domestic copper i n d u s t r y .
We recommend the L e g i s l a t u r e consider allowing the Arizona Copper T a r i f f
Board t o terminate on July 1, 1984. I f the Board is allowed t o terminate,
we recommend t h e L e g i s l a t u r e consider commending Board members f o r t h e i r
years of s e r v i c e t o the S t a t e . The tenure of c u r r e n t Board members ranges
from b t o 38 years. Another past Board nember served i n excess of 30
years.
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance a u d i t of the
Arizona Copper T a r i f f Board i n response t o a January 18, 1982, r e s o l u t i o n
of the J o i n t L e g i s l a t i v e Oversight Committee. This performance a u d i t was
conducted a s a p a r t of the Sunset Review s e t f o r t h i n Arizona Revised
S t a t u t e s ( A. R. S.) $ § 41- 2351 through 41- 2379.
I n 1931, a Copper T a r i f f Commission was c r e a t e d by executive order t o
promote and p r o t e c t the copper mining industry i n Arizona. Two years
l a t e r i n 1933, the L e g i s l a t u r e e s t a b l i s h e d the Copper T a r i f f Board t o
r e p l a c e t h e Commission. The 1933 l e g i s l a t i o n recognized the importance of
the copper mining industry which a t t h a t t i m e , according t o two long- term
board members, provided about 25 t o 35 percent of the S t a t e ' s revenues.
According t o A. K. S. $ 27- 171. A. the purpose of t h e Board is:
" to encourage and promote the copper mining i n d u s t r y ,
the development of new copper mines, and t h e i n c r e a s e
i n the amount and value of taxable property."
H i s t o r i c a l l y , the Board has l i m i t e d its f u n c t i o n s e x c l u s i v e l y t o lobbying
f o r Federal t a r i f f l e g i s l a t i o n and a d m i n i s t r a t i v e t r a d e p o l i c i e s which
protected donestic copper production from f o r e i g n imports. During the
four decades of the 1930s, 1940s, 1950s and 1960s, the Board a c t i v e l y
campaigned f o r t h e p r o t e c t i o n of Arizona's copper mining industry which
continues t o supply over 60 percent of the copper produced i n the United
S t a t e s .
By 1932, the Copper T a r i f f Commission, the forerunner of the Board, had
s u c c e s s f u l l y i n f l u e n c e d F e d e r a l l e g i s l a t i o n which imposed copper import
d u t i e s of 4d per pound. Congressional and executive a c t i o n s gradually
reduced the o r i g i n a l 4d per pound duty r a t e t o the c u r r e n t 0.84 r a t e ,
altliough a t times the t a r i f f was completely suspended. The Board, however,
s u c c e s s f u l l y lobbied f o r the i n s t i t u t i o n and adjustments of " p e r i l
pointsw-- a s p e c i f i e d world copper p r i c e l e v e l a t or below which suspended
import d u t i e s become automatically r e i n s t a t e d .
The Board c o n s i s t s of f i v e members appointed by the governor f o r a term t o
r u n c o n c u r r e n t l y with t h a t of the governor. However, reappointment of
members has been common r e s u l t i n g i n lengthy tenures. The tenures of
c u r r e n t Board members range from 8 t o 38 years. Another past member a l s o
served on the Board f o r over 30 years.
Personnel and Budget
The Board has no s t a f f and Board members receive no compensation.
Although the Board has obtained approximately $ 3,000 i n annual
appropriations it has reverted v i r t u a l l y a l l a p p r o p r i a t i o n s t o the General
Fund f o r a t l e a s t t h e p a s t 1 5 years.
Audit Scope
The scope of our a u d i t was l i m i t e d t o the following i s s u e s :
The need t o continue the Arizona Copper T a r i f f Board and
The e f f e c t i v e n e s s and e f f i c i e n c y with which the Board has met its
o b j e c t i v e s .
The Auditor General and s t a f f express a p p r e c i a t i o n to the members of the
Copper T a r i f f Board f o r t h e i r cooperation and a s s i s t a n c e d u r i n g t h e course
of our a u d i t .
SUNSET FACTORS
In accordance with A. R. S. $ 941- 2351 through 41- 2379, 11 f a c t o r s a r e
considered to determine, i n p a r t , whether t o continue o r t e r m i n a t e t h e
Arizona Copper Tariff Board. Not a l l of the 11 f a c t o r s were a p p l i c a b l e t o
the Board since it does not perform a r e g u l a t o r y function.
Objective and purpose i n e s t a b l i s h i n g the Board
The purpose of the Arizona Copper T a r i f f Board a s s e t f o r t h i n A. R. S.
$ 27- 171. A. is:
' . . t o encourage and promote the copper mining
i n d u s t r y , the development of new copper mines, and the
increase of the aniount and value of taxable property."
Since its establishment i n 1933, the Board has focused e x c l u s i v e l y on
lobbying f o r Federal t a r i f f l e g i s l a t i o n and a d m i n i s t r a t i v e t r a d e
p o l i c i e s favorable t o the domestic copper i n d u s t r y .
2. The e f f e c t i v e n e s s with which the Eoard has met its o b j e c t i v e and
purpose and the e f f i c i e n c y with which the Board has operated
In i t s e a r l y years the Board supported Federal t a r i f f l e g i s l a t i o n ,
a s s i s t e d i n t h e d e t e r m i n a t i o n of t a r i f f suspension p o l i c i e s and
s u c c e s s f u l l y convinced Congress to f i x " p e r i l points" or f l o o r p r i c e s
a t or below which suspended import d u t i e s a r e r e i n s t a t e d . Since the
1960s, however, the Board has been l a r g e l y i n a c t i v e . The Board has
n o t functioned e f f e c t i v e l y i n response t o recent r e c e s s i o n s and
unemployment i n the copper industry ( s e e Finding, page 7).
3. The e x t e n t t o which the Board has o ~ e r a t e dw ithin the ~ u b l i ci n t e r e s t
I l i s t o r i c a l l y , the Board's e f f o r t s contributed t o the enactment of
Federal l e g i s l a t i o n and t r a d e p o l i c i e s favoring domestic copper
production. These e f f o r t s were i n the public i n t e r e s t since Arizona
produces over 60 percent of the n a t i o n ' s copper supply, and t h e copper
industry i n Arizona is a major employer and c o n t r i b u t o r t o the S t a t e ' s
economy.
4. The extent t o which r u l e s and r e g u l a t i o n s promulgated by the Eoard are
c o n s i s t e n t with the l e g i s l a t i v e mandate
The s t a t u t e s do not r e q u i r e the Board to promulgate r u l e s and
r e g u l a t i o n s and none have been promulgated.
5. The extent to which the Board has encouraged input from the public
before promulgating i t s r u l e s and r e g u l a t i o n s and the extent t o which
i t has informed the public a s t o its a c t i o n s and t h e i r expected impact
on the public
The Uoard does not have rule- making a u t h o r i t y and no r u l e s and
r e g u l a t i o n s have been promulgated.
6. The extent to which the Board has been able to i n v e s t i ~ a t e and resolve
complaints which a r e within i t s j u r i s d i c t i o n
The Uoard does not r e c e i v e , i n v e s t i g a t e or resolve complaints from the
public.
7. The extent to which the Attorney General o r any o t h e r a p p l i c a b l e
Agency of S t a t e government has the a u t h o r i t y to prosecute actions
under enabling l e g i s l a t i o n
The s t a t u t e s do not d e f i n e v i o l a t i o n s nor p r e s c r i b e p e n a l t i e s .
Therefore, no prosecutable a c t i o n s a r e s p e c i f i e d i n the enabling
l e g i s l a tion.
8. The extent t o which the Board has addressed d e f i c i e n c i e s i n the
e n a b l i n ~ s t a t u t e s which Drevent it from fulfill in^ its s t a t u t o r v
mandate
The Board has not proposea s t a t u t o r y changes. I n 1977, the Board
discussed changing the Board's name t o r e f l e c t a broader r o l e and
i n t e r e s t i n matters a f f e c t i n g the copper i n d u s t r y . Board members
decided a g a i n s t the change since i t required amending the s t a t u t e s .
However, the Board could f u l f i l l its o r i g i n a l s t a t u t o r y mandate under
the present l e g i s l a t i o n .
9. The extent to which changes a r e necessary i n the laws of the Board t o
adequately comply with t h e f a c t o r s l i s t e d i n the subsection
Our review revealed t h a t no changes a r e needed to conply with the
Sunset Factors addressed.
10. The extent t o which the termination of the Board would s i g n i f i c a n t l y
ham t h e p u b l i c h e a l t h , s a f e t y or welfare
Termination of the Board would not harm the public h e a l t h , s a f e t y or
welfare ( see page 10).
11. The extent t o which the l e v e l of r e g u l a t i o n exercised by the Board is
a p p r o p r i a t e and whether l e s s or more s t r i n g e n t l e v e l s of r e g u l a t i o n
would be a p p r o p r i a t e
This Sunset Factor does not apply t o the Arizona Copper T a r i f f Board.
FINDING
THE ARIZONA COPPER TARIFF BOARD IS INACTIVE AND IS NO LONGER NEEDED.
The Arizona Copper Tariff Board is no longer active and should be
terminated. Although active during its early years, the Board has met
infrequently and accomplished little for at least the past 15 years.
Other State agencies and private groups are currently performing its
functions.
Board Is Inactive
Although the Board functioned actively at one time, it has been almost
completely inactive since at least 1967. The Board has not responded to
recent economic crises affecting the copper industry in Arizona despite
its stated intention to function during emergencies.
The Board functioned actively following its establishment in 1933.
Serving as a lobbying organization representing the State in Washington,
D. C., it worked through most of the 1960s to influence Congressional
actions and Federal administrative policies affecting the copper industry
in Arizona. The Board focused its efforts almost exclusively on tariff
issues and international trade policies. During this period, the Board
was instrumental in the establishment and adjustment of " peril
pointsw-- international prices below which tariffs are reinstated.
According to the Board chairman, the Board was also active with regard to
Federal regulations in the areas of investment credits and depletion
allowances.
Since the 1960s, however, Board activities declined, and for at least 15
years the Board has been virtually inactive. The Board has met only four
times since 1967. One meeting, however, was prompted by the Governor's
office. Another meeting was held in response to a State Senate committee
request for a report on its level of activity. None of the meetings
resulted in any substantial Eoard activity. Two letters-- one to a former
U. S. Senator from Arizona and the other to a U. S. Congressman-- and two
Board statements presented t o the I n t e r n a t i o n a l Trade Commission-- one i n
1975 and another i n 1978-- are the only evidence of Board a c t i v i t y since
1967. With the exception of a meeting with our a u d i t o r s i n February 1983,
the Board has not met s i n c e November 1977.
Both the L e g i s l a t u r e and the Governor's o f f i c e recognized the Board's
i n a c t i v e s t a t u s e a r l y i n the 1970s. I n 1972, a S t a t e Senate committee
requested an a c t i v i t i e s r e p o r t from the Board; and i n 1975, the Governor's
o f f i c e a l s o requested such a r e p o r t . I n 1975, the Executive Budget Office
recommended e l i m i n a t i n g a p p r o p r i a t i o n s because the Board had reverted a l l
funds since f i s c a l year 1967- 68 and other S t a t e agencies and p r i v a t e
groups performed i t s f u n c t i o n s . The Board responded by emphasizing its
h i s t o r i c a l r o l e r e l a t e d t o copper t a r i f f s and by i n d i c a t i n g t h a t i t only
functioned during " emergencies" i n the i n d u s t r y . The Board's budget
s t a t e d t h a t ". . . when t h e r e i s a t h r e a t t o the copper industry t h i s
Board goes on a n a c t i v e s t a t u s and its ' g o a l s and o b j e c t i v e s ' go i n t o
e f f e c t . " The Board f u r t h e r s t a t e d t h a t i f an emergency a r i s e s , the Board
may e~ liploy experts and r e l a t e d s t a f f t o study the s i t u a t i o n and make
recommendations and, i f necessary, appear before Congress t o present
information.
Despite its i n t e n t i o n t o f u n c t i o n during emergencies the Board has
remained i n a c t i v e during recent periods of severe economic recession and
high unemployment i n the i n d u s t r y . The copper i n d u s t r y r e c e n t l y reduced
employment l e v e l s by 43 percent and completely shut down some operations.
In one Arizona county dependent on copper, unemployment l e v e l s reached 67
p e r c e n t , one of the highest unemployment r a t e s i n the nation. Yet, the
Board has not responded to these conditions, nor has it defined the type
of emergency s i t u a t i o n which would r e q u i r e t h e Board t o r e a c t i v a t e i t s e l f .
The Board has not responded t o recent problems f o r two reasons. F i r s t ,
although the s t a t u t e s s t a t e the Board's general purpose i s t o ". . .
encourage and promote the copper industry . . . ," the Board has
t r a d i t i o n a l l y limited its r o l e t o lobbying f o r Federal t a r i f f l e g i s l a t i o n .
Second, according t o the Board chairman, the Board members ' consensus was
t h a t f u r t h e r e f f o r t s t o i n c r e a s e t a r i f f p r o t e c t i o n f o r the copper industry
would be " f u t i l e and impracticable" i n view of the United S t a t e s '
p a r t i c i p a t i o n i n the General Agreement on T a r i f f s and Trade ( GATT)" and
tile strong f r e e t r a d e p o l i c i e s of r e c e n t F e d e r a l a d m i n i s t r a t i o n s .
However, the Board did not make these decisions o f f i c i a l l y . The Board has
not met since 1977, and a v a i l a b l e Board records do not document any Board
decisions made with regard t o problems a f f e c t i n g the copper industry
during the past 15 years.
S t a t e Agencies and P r i v a t e Groups
Perform the Board's Functions
Other S t a t e agencies and p r i v a t e groups c u r r e n t l y perform the Board's
functions without Board involvement. While the Board has been i n a c t i v e ,
the Governor's s t a f f , the Office of Economic Planning and Development
( OEPAD), A r i z o n a ' s c o n g r e s s i o n a l d e l e g a t i o n , labor unions, mining
a s s o c i a t i o n s and mining companies have a c t i v e l y sought Federal a c t i o n t o
remedy problems i n the domestic copper industry.
In October 1977, a s p e c i a l g u b e r n a t o r i a l committee held a day- long meeting
i n Washington, D. C. regarding " the depressed copper s i t u a t i o n i n
Arizona." Members of the Governor's o f f i c e and OEPAD s t a f f e d t h e
committee and prepared information on the economic recession a f f e c t i n g
Arizona's copper i n d u s t r y . S o l u t i o n s discussed included t a r i f f
adjustments and s t o c k p i l i n g . The committee met with the Arizona
Congressional delegation, r e p r e s e n t a t i v e s of the Departments of Labor and
the I n t e r i o r and members of t h e I n t e r n a t i o n a l Trade Commission. The Board
neither p a r t i c i p a t e d i n nor knew about the committee.
* The GATT, i n s t i t u t e d i n the 1950s, is a r e c i p r o c a l t r a d e agreement
between the United S t a t e s and over 73 nations which a u t h o r i z e s t h e
President t o reduce import d u t i e s on s e l e c t e d t r a d e items.
Furtherniore, i n four congressional sessions since 1976, including the
c u r r e n t s e s s i o n , an Arizona congressman o r senator has introduced
l e g i s l a t i o n which proposed the inlposition of t a r i f f s on copper imports.
The proposed l e g i s l a t i o n would have equalized the c o s t of producing copper
domestically with the c o s t of production i n c o u n t r i e s which do not adhere
t o the same p o l l u t i o n standards a s the United S t a t e s . While the
Governor's o f f i c e , a labor union, some mining companies and mining
a s s o c i a t i o n s supported these b i l l s , most Board members appeared unaware
t h a t such l e g i s l a t i o n had been proposed. During the course of our a u d i t ,
we contacted various congressional s t a f f members i n Washington D. C. who
developed copper t a r i f f l e g i s l a t i o n i n the past 15 years. None knew about
o r had heard of the Arizona Copper T a r i f f Board.
COhL'LUSION
The Copper Tariff Board is not needed a s evidenced by its i n a c t i v e
s t a t u s . The Board has n o t met since 1977 and other agencies and p r i v a t e
groups perform the Board's functions.
1. The L e g i s l a t u r e should consider allowing the Arizona Copper Tariff
Board t o terminate on J u l y 1, 1984.
2. I f the Board i s allowed t o terminate, the L e g i s l a t u r e should consider
commending Board members f o r t h e i r many years of s e r v i c e t o t h e S t a t e .
ARIZONA COPPER TARIFF BOARD
DENISON KITCHEL, Chatrrnan '
W. P. GOSS, Vice Chairman June 23, 1983
P. 0. Box M
San Manuel, Arizona 85631
THOMAS G. CHILTON, Secretary/ Treasurer
P. 0. Box 37
Superior, Arizona 85273
ROBERT A. GALLAHER
5101 Via Entrade
Tucson, Arizona 857 1 8
EDWARD C. MAXWELL
100 Pershing
Miami, Arizona 85539
- " r , r o ; ~ f r l n s2 . ?; orton
d ' ~ u d i t oGr eneral, ' 3 t a t e of *'- rizona
111. , l e s t v i ~ n r o e - - ? u i t e 4CO
Phoenix, " 12 85003
- 7 Cear r. Norton
Yeceipt is acknovlle$ ged of t h e r e v i s e d preliminary
d r a f t r e p o r t enclosed with your l e t t e r of June 21, 1983.
The 3oard has no coinmznts t o make at t h i s t i n e " vith reg-a
r d t o t h i s r e p o r t .
Cn behalf of a l l t h e rfiembers o f t h e Board, I w i s 3 .
t o corv~ neilfi t h e c o u r t e s y zn6 e f f i c i e n c y of t h e rnemSers of
your s t a f f i n the conduct o f t h i s investi, 7, ation.
' Iery t r u l y yours,
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( Cenkson ; , i t c h e l ,
C ha i r n ~ a n
cc: "' ernbrrs of t h e 3oarr7