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A2 | Saturday/Sunday, September 20 - 21, 2014
THE WALL STREET JOURNAL.
* * * * * * * *
U.S. NEWS
THE NUMBERS | By Jo Craven McGinty
The Costly-to-Make Penny Isn’t From Heaven
Americans
place little value
on the penny,
and it’s costing
us millions each
year.
Consumers
accumulate coins during cash
transactions, but they are less
likely to spend pennies on future purchases than other coins.
As a result, a significant number of one-cent coins don’t continue to circulate.
Businesses still need them to
make change, however, so the
U.S. Mint continually replenishes the supply, producing far
more pennies than any other
coin. So far this year, the Mint
has produced 7 billion pennies—more than nickels, dimes
and quarters combined.
“We keep making the penny
because the banks ask for it,”
said Tom Jurkowsky, a spokesperson for the U.S. Mint.
Demand for coins works like
this: Businesses deposit excess
cash at banks, swapping out
bills and coins as needed to get
the right mix of change to serve
customers. Depository banks
make a similar transaction, returning excess currency to the
Federal Reserve and placing orders for the denominations they
need. The Fed responds to those
orders by redistributing cash
that it stores or collects. When
the Fed doesn’t have enough
coins to meet demand, it orders
new ones from the Mint.
A substantial amount of
change is lost, discarded or destroyed, contributing to the demand for new coins, and pennies get the most dismissive
treatment. Since 2000, 21% of
pennies have gone missing,
nearly twice the proportion of
quarters, according to data provided by the Fed.
This year, the Mint has spent
more than $114 million to make
pennies, compared with $83.7
million for nickels, $72.3 million
for dimes and $133 million for
quarters.
Adding to the expense is the
fact that pennies—like nickels—
cost more than their face value
to produce. In 2011, at their
peak, each penny cost 2.41 cents
to make, while nickels cost 11.18
cents. Quarters, in comparison,
cost 11.14 cents per unit to make
that year.
That sounds like a bad deal,
but coins last 30 years or more,
and if they remain in circulation, it might not seem like such
a terrible investment.
“They may cost more to produce,” said Mallory Duncan, a
senior vice president for the National Retail Federation, “but a
nickel is used thousands of
times.”
Various bills have been introduced to eliminate the penny,
but none has passed, and in
2010, Congress directed the
Mint to look for cheaper ways
to make coins, such as changing
their composition, but the Mint
has given up on trying to make
a penny for less than a cent.
No Small Change
The U.S. Mint makes billions of new one-cent coins every year—more than any other denomination. But the
penny costs more than its face value to produce.
oduce.
Number of coins minted annually*
Cost to make each coin
$0.14
9 billion coins
8
0.12
7
0.10
6
5
0.08
4
0.06
3
0.04
2
0.02
1
0
FY2000
’10
’14†
FY2000
*excluding collectibles †through July, unaudited
Source: U.S. Mint annual reports
“We just can’t do it,” Mr.
Jurkowsky said. This year, the
penny cost 1.63 cents per unit.
The cost of producing pennies and other coins depends in
part on metal prices, and, as
The Wall Street Journal reported recently, the price of
zinc, the primary metal used in
pennies, is at a three-year high.
Pennies once were 95% copper, but because of rising costs,
the composition was changed in
’10
0
’14†
Note: Fiscal year ends Sept. 30.
The Wall Street Journal
1982 to 97.5% zinc and 2.5%
copper. (Melting the coins to
turn a profit on the valuable
metals is illegal.)
The zinc industry, naturally,
supports keeping the penny in
circulation, and its arguments in
favor of the coin can be found
at the website for Americans for
Common Cents, which is run by
a firm that lobbies on behalf of
the industry. Other groups, such
as Citizens to Retire the U.S.
Penny, founded by a Massachusetts Institute of Technology
physics professor, argue against
producing the coin.
From a practical perspective,
dropping the penny is doable.
Charges would still be in cents,
and payment for cash transactions could be rounded up or
down—a practice that has
something of a precedent: Gasoline charges already include a
decimal place, the mill, for
which no coin exists, and gas
purchases are rounded up.
If the U.S. eliminated the
penny, it wouldn’t be the first
coin it abandoned. In the 1800s,
the country minted three-, twoand half-cent coins, among
other defunct denominations.
Nor would it be the first country to abolish the cent. Canada
decided to get rid of its penny
in 2012. In the 1990s, Australia
and New Zealand withdrew
their one- and two-cent coins.
And other countries have eliminated their lowest-value currency.
“New Zealand even withdrew
the five-cent coin in 2006,” Jeff
Starck, a senior editor at Coin
World, said.
On the other hand, changing
the composition of coins is
trickier than it sounds. Vending
machines, armored trucks,
banks and others gauge the
value of coins by their weight
and size or by their electromagnetic signature. Changing any of
those properties would create
expensive logistical headaches
for businesses that handle
coins.
“Maybe we are able to make
coins for a little bit cheaper
price, but what is the potential
cost to, say, the vending-machine industry?” Mr. Jurkowsky
said. “It affects large groups of
stakeholders.”
The Mint will make its next
biennial report on the status of
coin production costs to Congress in December.
Fed Rate-Hike Tool
Stirs Some Concern
Slide The City
BY MICHAEL S. DERBY
AND JON HILSENRATH
Participants traveled along a slip-and-slide in Salt Lake City in July. Los Angeles has so far refused to issue a permit for a similar event.
To Slip and Slide, or Not, in Dry L.A.
LOS ANGELES—Amid a historic drought in a city known for
epic traffic, the plan raised eyebrows from the start: a 1,000-foot
slip-and-slide, brimming with
cool water and lining the full
length of a busy downtown street
for one day. Swimsuit-clad revelers of all ages on inflatable tubes
would skim down the giant plastic channel, passing the federalcourt building on the left and
City Hall on the right before
splashing into a glistening pool.
Almost 11,000 people signed a
petition against the slide, opposing such a use of water while Angelenos are being urged to
shorten showers and skip watering lawns. But as the September
heat broke records, the event,
planned for the last Sunday of
the month, was quick to sell out.
On Thursday, the city’s publicworks department denied slide
organizers a permit, possibly putting an end to the event and at
least throwing it into question.
Event organizers on Friday
said it had been postponed but
that they were still working with
the city. “We would love for participants to stick with us as we
continue to work through issues
with the city in order to hold the
event in the near future,” said a
statement
from
organizers
emailed to ticket buyers.
On
Friday,
public-works
spokeswoman Tonya Durrell said
the Los Angeles Department of
Water and Power and the Department of Public Works had agreed
that the event was “not consistent with the seriousness of the
statewide drought.” Ms. Durrell
said the event organizers could
appeal the decision.
It was unclear if Slide the City,
the company organizing the
event, would appeal. “L.A. has
been very, very political,” said
Slide the City co-founder T.R.
Gourley. “We just became a lightning rod for the city saying ‘these
guys are wasting water.’ ”
One local resident, Karina
Soto, created an online petition
to stop city officials from approving the water slide. The petition
has received almost 11,000 signatures. On the petition website,
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Ms. Soto wrote, “It is extremely
irresponsible for any city in California to allow an event like one
featuring a giant water slide to
take place for the sake of money
and fun while the state as a
whole has been suffering from
this drought.”
Despite the uproar, the 4,000
available tickets for the Sept. 28
event—which range from $20 for
a single ride to $35 for the “triple
slider,” and a select number of
$50 “VIP slider” tickets—sold
out.
Doug Poor, a 25-year-old auditor and Orange County resident,
launched his own online petition
opposing Ms. Soto’s antislide petition. So far, Mr. Poor’s petition
has only attracted 256 signatories, but, he says, “I promoted it
[on social media] for maybe three
days, then I let it do its own
thing.”
After the initial resistance,
Slide the City’s representatives
worked with city staff to arrange
for the water—which would be
trucked to the site and treated
with chlorine—to be recycled
throughout the day, then filtered
and used to irrigate some of the
city’s parks. In all, Mr. Gourley
said, the slide would use about
16,000 gallons of water, which is
roughly equivalent to the daily
usage of 130 Los Angeles residents. A portion of the proceeds
from the event were slated to be
donated to an organization that
provides clean water to people in
undeveloped areas of the world.
Mr. Poor and other slide supporters say it is all for the sake of
having fun and isn’t nearly as
wasteful as some of the city’s
other water-guzzling amenities,
such as golf courses.
“We’re creating an amazing
family-friendly event for the city,”
said Mr. Gourley, a former movie
producer who put on his first
slip-and-slide event last year in
Salt Lake City.
The company has also held a
sliding event in Boise, Idaho, and
Mr. Gourley and his partners plan
to bring the oversize slip-andslide to several domestic and international cities next year. “Either way,” Mr. Gourley said, “It’s
just a slide. It’s not like we’re curing the world of cancer.”
Fed chief
Janet Yellen
says the central
bank expects
fluctuation in
interest rates
when raised.
at Prudential Fixed Income,
said the change in rules “becomes a concern, especially
around quarter-end.”
Reverse-repo trading is part of
the Fed’s strategy for raising
rates when the time comes. In the
past, when the Fed wanted to
raise the fed-funds rate, it withdrew small amounts of reserves—
the money banks park at the central bank—from the system.
Because the Fed has flooded
the banking system with reserves during its response to the
financial crisis and recession, it
plans to use other methods. Its
primary tool for influencing the
fed-funds rate will be the interest rate it pays banks for those
reserves. Raising that rate—now
at 0.25%—should influence
banks’ willingness to lend out
reserves and lift a broader array
of short- and long-term rates.
—Katy Burne
contributed to this article.
CORRECTIONS  AMPLIFICATIONS
More than 90% of all skin cancers are basal-cell carcinomas that
are slow-growing and unlikely to
be fatal, according to commentaries in the Journal of the American
Medical Association and Lancet
Oncology. A graphic with an article on overdiagnosis in cancer in
the Health Care Report on Monday incorrectly identified the
source as the American Academy
of Dermatology. In addition, an
estimated 18% of lung cancers diagnosed with low-dose CT scans
are unlikely to be fatal, according
to research published in JAMA Internal Medicine. The graphic incorrectly suggested that the 18%
figure referred to all lung cancers.
Affiliates of the Simon family
own approximately 57% of the
limited partnership interest in the
operating partnership of Wash-
ington Prime Group Inc., which
translates to about a 9% stake in
the entire operating partnership.
An article in the Property Report
on Wednesday about Washington
Prime’s agreement to purchase
Glimcher Realty Trust Inc. incorrectly said that Simon family affiliates own 57% of Washington
Prime’s operating partnership.
On the first two days of golf’s
Ryder Cup, four players on a team
sit out in each session. An Arena
article on Friday about the coming Ryder Cup competition incorrectly said that two players for a
team sit out.
The last name of boxing
great Joe Louis was misspelled
as Lewis in some editions Friday
in a Mansion interview with
boxer Oscar de la Hoya.
Readers can alert The Wall Street Journal to any errors in news articles by emailing [email protected] or by calling 888-410-2667.
P2JW263000-8-A00200-1--------XA
BY ERICA E. PHILLIPS
Federal Reserve Chairwoman
Janet Yellen spent months devising a strategy for managing
short-term interest rates. Two
days after the plan’s release, some
market participants warn the new
approach may have flaws.
Analysts and others said the
Fed’s new limits on a tool designed to influence short-term
rates could undermine its effectiveness. The Fed plans to use
the tool, known as overnight reverse repurchase agreements,
when it starts raising rates from
near zero sometime next year as
the economy strengthens.
The Fed uses so-called reverse repos to soak up cash from
money-market mutual funds and
other nonbank financial institutions and pays them interest in
return. The interest rate the Fed
sets on these instruments—now
0.05%—will gradually rise as the
Fed raises rates.
The Fed said Wednesday that
it would continue to use its
benchmark federal-funds rate, an
overnight rate on interbank lending, as its key rate for communicating where it wants short-term
rates. The fed-funds rate influences other borrowing costs
throughout the economy, such as
on mortgages and business loans.
The fed-funds-rate target will
be expressed as a range—as it is
now from zero to 0.25%—and
central-bank officials expect the
repo rate to help set the lower
boundary of that range.
Fed officials, wary of putting
too much weight on this new, little-used instrument, on Wednesday announced limits on how aggressively they will enter into
reverse-repo trades. Analysts
said this could mean short-term
interest rates could periodically
drop below the intended floor,
perhaps by a substantial degree.
“Limiting the size of facility usage could reduce the effectiveness
of the fixed-rate [reverse repo] facility as an interest rate floor in
the future,” Goldman Sachs economist Kris Dawsey said.
Ms. Yellen appeared to acknowledge this risk Wednesday,
in a press conference that followed the Fed’s policy meeting,
and didn’t seem worried. “The
[Fed] expects that the effective
federal-funds rate may vary
within the target range and
could even move outside of that
range on occasion,” she said.
Fed officials’ views on this
program have evolved in the
past year. In September 2013,
New York Fed President William
Dudley highlighted the instrument as a promising way for the
Fed to set a floor on rates.
Early this year, however, Fed
officials became wary about entering extensively into trades
with money-market funds, and
they have worried that a lack of
limits on reverse-repo activity
could destabilize the financial
system in times of stress.
The new limits cap the Fed’s
total reverse-repo activity at
$300 billion daily, well above the
average of about $120 billion
this year, yet a fraction of the
$3 trillion of overall reserves in
the financial system. Demand for
reverse repos surges some days,
particularly at the end of a quarter. On June 30, for example, it
reached $339 billion, and could
go higher in a crisis.
Market participants warned
there could be periodic spikes
of demand above the cap, creating volatility in short-term
rates. Joseph D’Angelo, who is
head of the money-market desk
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