[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





 HOW CAN WE MAXIMIZE PRIVATE SECTOR PARTICIPATION IN TRANSPORTATION?--
                                 PART I

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ENERGY POLICY, NATURAL
                    RESOURCES AND REGULATORY AFFAIRS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2004

                               __________

                           Serial No. 108-220

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
96-634                      WASHINGTON : 2004
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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          ------ ------
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs

                     DOUG OSE, California, Chairman
EDWARD L. SCHROCK, Virginia          JOHN F. TIERNEY, Massachusetts
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
CHRIS CANNON, Utah                   DENNIS J. KUCINICH, Ohio
NATHAN DEAL, Georgia                 CHRIS VAN HOLLEN, Maryland
CANDICE S. MILLER, Michigan          JIM COOPER, Tennessee
PATRICK J. TIBERI, Ohio

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                   Barbara F. Kahlow, Staff Director
                          Lauren Jacobs, Clerk
                     Krista Boyd, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 18, 2004.....................................     1
Statement of:
    Allen, William R., president, Amador Stage Lines, Sacramento, 
      CA; Katsumi Tanaka, chairman of the board and CEO, E NOA 
      Corp., Honolulu, HI; Terrence V. Thomas, president, 
      Community Bus Services, Inc., Youngstown, OH; Dr. Adrian 
      Moore, vice president, Reason Foundation and executive 
      director, Reason Public Policy Institute; Dr. Ronald D. 
      Utt, Herbert and Joyce Morgan senior research fellow, the 
      Heritage Foundation; and Dr. Max B. Sawicky, economist, 
      Economic Policy Institute..................................    54
    Frankel, Emil, Assistant Secretary for Transportation Policy, 
      U.S. Department of Transportation..........................    10
Letters, statements, etc., submitted for the record by:
    Allen, William R., president, Amador Stage Lines, Sacramento, 
      CA:
        Letter dated May 25, 2004................................   152
        Parking lot shuttle bus schedule.........................   165
        Prepared statement of....................................    57
    Frankel, Emil, Assistant Secretary for Transportation Policy, 
      U.S. Department of Transportation:
        Information concerning audits............................    37
        Information concerning characteristics of contracts......    50
        Information concerning grants........................... 22, 33
        Information concerning projects..........................    27
        Information concerning Sections 5306(a) and 5307(c) of 49 
          U.S.C..................................................    35
        Information concerning standard operating procedures.....    52
        Prepared statement of....................................    13
    Moore, Dr. Adrian, vice president, Reason Foundation and 
      executive director, Reason Public Policy Institute, 
      prepared statement of......................................   105
    Ose, Hon. Doug, a Representative in Congress from the State 
      of California, prepared statement of.......................     4
    Sawicky, Dr. Max B., economist, Economic Policy Institute, 
      prepared statement of......................................   144
    Tanaka, Katsumi, chairman of the board and CEO, E NOA Corp., 
      Honolulu, HI:
        Poster for ``The Bus''...................................   181
        Prepared statement of....................................    69
        Prepared statement of Jennifer Dorn......................    77
    Thomas, Terrence V., president, Community Bus Services, Inc., 
      Youngstown, OH, prepared statement of......................    87
    Utt, Dr. Ronald D., Herbert and Joyce Morgan senior research 
      fellow, the Heritage Foundation, prepared statement of.....   125

 
 HOW CAN WE MAXIMIZE PRIVATE SECTOR PARTICIPATION IN TRANSPORTATION?--
                                 PART I

                              ----------                              


                         TUESDAY, MAY 18, 2004

                  House of Representatives,
  Subcommittee on Energy Policy, Natural Resources 
                            and Regulatory Affairs,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Doug Ose 
(chairman of the subcommittee) presiding.
    Present: Representatives Ose, Schrock, Tiberi and Tierney.
    Staff present: Barbara F. Kahlow, staff director; Lauren 
Jacobs, clerk; Megan Taormino, press secretary; Krista Boyd, 
minority counsel; and Cecelia Morton, minority office manager.
    Mr. Ose. Good morning. Welcome to this morning's hearing of 
the Subcommittee on Energy Policy, Natural Resources and 
Regulatory Affairs.
    Today's subject matter is how can we maximize private 
sector participation in transportation. We have two August 
panels of witnesses, and we will get to an introduction of them 
shortly.
    Our order of battle here is that we make opening 
statements--actually, establish a quorum, make opening 
statements, swear our witnesses in. Then, the witnesses get to 
make their statements, which we have received. Then, we will go 
to questions by Members for the witnesses. With that 
understanding, we will proceed.
    Much of the Nation's transportation infrastructure is aging 
and in need of repair. Also, additional ground transportation 
services are needed, especially in areas of population growth. 
There are many advantages to participation by the private 
sector in improving America's transportation system. For 
example, infrastructure improvement projects can often be 
completed more quickly and at reduced costs, transportation 
services can often be delivered more cost effectively, and 
Federal and State funds can be devoted to other pressing needs, 
especially given the deficits we face.
    In 1964, the Congress began to enact laws to encourage 
private sector participation in transportation. The 1966 law 
that established the Department of Transportation identified 
six reasons to establish the Cabinet-level department. The 
second reason was to, ``facilitate the development and 
improvement of coordinated transportation service, to be 
provided by private enterprise to the maximum extent 
feasible.''
    DOT's implementing rule assigned primary responsibility for 
evaluation of private transportation sector operating and 
economic issues to the Assistant Secretary for Transportation 
Policy, whose organization is located within the Office of the 
Secretary and who is here with us today.
    In addition to laws requiring private sector participation 
to the maximum extent feasible, Federal regulations support 
this objective. For example, the governmentwide grants 
management common rule--which we have a copy of right here just 
for everybody's reference if we need it--provides that Federal 
grantees and subgrantees, ``must not use equipment acquired 
with grant funds to provide services for a fee to compete 
unfairly with private companies that provide equivalent 
services.''
    Today, the subcommittee will explore opportunities for 
further private sector participation in ground transportation 
and past experiences with public-private partnerships, service 
delivery by competitively-awarded private sector providers, and 
existing private sector transportation services.
    Also, the subcommittee will examine the administration's 
record in facilitating private sector participation in 
transportation and its record in faithfully implementing the 
various private sector participation statutory provisions 
through its codified rules, oversight, enforcement and other 
initiatives.
    In March 2003, I learned of a public takeover of a contract 
that had for the previous 25 years been competitively awarded 
for mass transit shuttle bus services in Sacramento, CA. I 
began a 9-month investigation. I found three primary items: 
first, an unneeded expenditure of substantial Federal funds; 
second, noncompliance by a local transit grantee with the 
Federal law requiring private sector participation to the 
maximum extent feasible; and, third, inadequate enforcement by 
the Department of Transportation. Without evidence of grantee 
compliance with the private sector participation requirements, 
the Department of Transportation awarded $2.4 million to the 
local transit authority for the purchase of buses and later 
allowed this local agency to use these buses in a takeover of 
an existing mass transit service that had been provided by a 
private sector provider and at an estimated additional cost of 
$277,000 annually.
    Before termination of the existing contract, I requested 
that the Department of Transportation investigate the situation 
to ensure statutory compliance. After the takeover in August 
2003, I recommended that the Department of Transportation 
initiate a rulemaking to implement the statutory private sector 
participation requirements outlined in the 1994 law passed by 
Congress and for the Department of Transportation to take an 
appropriate enforcement action against the noncompliant Federal 
grantee. Sadly, to date, the Department of Transportation has 
neither initiated a rulemaking nor taken any enforcement action 
that I am aware of. Since my investigation of this case, I have 
learned of additional cases, some of which we will hear about 
today, that seem to be in violation of existing Federal 
regulations, where the Department of Transportation has allowed 
local transit authorities to compete unfairly with existing 
private mass transit service providers.
    Our witnesses today include the Department of 
Transportation's responsible Assistant Secretary, leading think 
tanks experts, and three adversely affected small business 
operators of mass transit services. Congress wants and 
Americans deserve a reliable and cost-effective transportation 
system and one that does not harm existing small business 
operators or transportation services.
    I want to welcome our witnesses here today. They include 
the Department of Transportation Assistant Secretary for 
Transportation Policy, Mr. Emil Frankel; the president of 
Amador Stage Lines, Sacramento, CA, Mr. William Allen; the 
chairman of the Board and CEO of E Noa Corp., Honolulu, HI, Mr. 
Katsumi Tanaka; the president of Community Bus Services, Inc., 
of Youngstown, OH, Mr. Terrence V. Thomas; the vice president 
of Reason Foundation and executive director, Reason Public 
Policy Institute, Dr. Adrian Moore; the Herbert & Joyce Morgan 
senior research fellow at the Heritage Foundation, Dr. Ronald 
Utt; and, Dr. Max Sawicky, who is an economist at the Economic 
Policy Institute.
    [The prepared statement of Hon. Doug Ose follows:]

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    Mr. Ose. I want to welcome my friend from Virginia to the 
committee and offer him the chance to offer an opening 
statement if he so chooses.
    Mr. Schrock. Nothing.
    Mr. Ose. As I said earlier on, that as a matter of course 
in this committee we swear all of our witnesses in. So, Mr. 
Frankel, if you would please rise.
    [Witness sworn.]
    Mr. Ose. Let the record show that the witness answered in 
the affirmative.
    Mr. Frankel, we have received your written testimony; and, 
trust me, I have read it, including all of the information 
about the various financing programs that the Department has 
under way. I want to recognize you for 5 minutes for the 
purpose of summarizing your testimony. I have a heavy gavel on 
the time, so I just forewarn you.

      STATEMENT OF EMIL FRANKEL, ASSISTANT SECRETARY FOR 
    TRANSPORTATION POLICY, U.S. DEPARTMENT OF TRANSPORTATION

    Mr. Frankel. Thank you, sir.
    Mr. Chairman, Congressmen, first of all, I request that 
longer written statement be made part of the record; and I am 
pleased to be here on behalf of the Secretary and the 
Department to discuss private participation in transportation.
    As you have noted, this hearing is especially timely in 
light of the pending reauthorization of the surface 
transportation programs. Obviously, few things have as great an 
impact on economic development, growth patterns and quality of 
life as transportation; and improved facilities in the 
transportation sector lead to greater productivity in 
attracting new businesses and improved accessibility. A healthy 
transportation sector is essential to President Bush's efforts 
to keep America on track for a more prosperous future.
    One way to ensure a vibrant transportation sector is to 
encourage private participation in the public sector, and I am 
pleased that you are holding these hearings to look at that 
issue.
    The Department is committed to providing a greater role to 
the private sector in transportation services and, importantly, 
in infrastructure investment. I think our commitment to that is 
indicated by the proposals contained in the administration's 
SAFETEA proposal to reauthorize TEA-21 and the surface 
transportation programs.
    Improving the transportation system of one of the fastest 
growing economies in the industrialized world obviously 
presents significant challenges. Because, as robust as our 
networks are and our economy is, as you pointed out, they are 
aging, the transportation infrastructure is aging and is 
increasingly being operated at or above capacity. We need to 
seek a wide range of investment alternatives in order to deal 
with capacity and improvement issues, because congestion 
represents a significant and growing risk to our economy.
    SAFETEA lays the foundation for reforming the way Americans 
invest in and use our transportation system. The administration 
seeks to give States new tools to manage congestion, to raise 
additional revenue from users, to attract private capital to 
highway and mass transit infrastructure, and to leverage 
existing resources more efficiently.
    The need for investment capital for transportation is the 
driving force behind the push for innovative finance. As I have 
said, we need new sources of investment capital for our 
transportation system, and we have proposed a series of 
innovative financing initiatives. Specifically, by trying to 
foster public-private partnerships; drawing on the public's 
willingness to pay direct user charges for transportation 
benefits through tolling and value pricing, which is absolutely 
critical to leveraging private investment; and also, leveraging 
that private investment through private activity bonds; 
enabling additional transportation facilities to be developed 
more quickly and at less cost; and, more flexible financing 
options through amendments to the TIFIA and State 
Infrastructure Bank programs. We obviously can't limit 
ourselves to one or two of these financing mechanisms but need 
all of them.
    Toll facility financing and construction can be a viable 
resource alternative, and these enable the creation of public-
private partnerships, because the private sector needs to find 
source revenue streams to give it a return on its investment 
and to service its private debt.
    Promoting innovation is not new to the Department or to the 
Federal Highway Administration. For decades, the Federal 
Highway Administration in particular has encouraged increased 
private sector participation in project planning, design, 
construction, maintenance and operation of highways and 
bridges; and, we continue to do that.
    I would like to talk a bit about the innercity bus 
industry, where also the administration has made, in this 
proposal, the SAFETEA proposal, important provisions. The 
private sector obviously plays a key role in operating the 
essential elements of the Nation's transportation system; and, 
private carriers provide an important, if often overlooked, 
link in the intermodal chain of personal movements, that is, 
through innercity or through over-the-road bus services.
    The administration's SAFETEA legislation recognizes this 
potential and supports several initiatives to strengthen the 
bus industry's role in the national transportation network, 
including a $85 million capital grant program for innercity bus 
intermodal facilities, making intermodal service information 
improvements an eligible grant expense.
    SAFETEA would also require that innercity buses have 
reasonable and appropriate access to other publicly funded 
intermodal facilities. I must say that we are disappointed that 
the House of Representatives, in its bill to reauthorize T-LU, 
has not recognized or acknowledged and taken any of these steps 
with regard to strengthening the private over-the-road or 
innercity bus industry.
    The history of public transportation in the United States 
is obviously a history of private sector involvement in the 
movement of people; and, in the 1960's, Congress recognized the 
continued health our urban areas required increased Federal 
involvement with mass transit to play a critical role.
    Mr. Ose. Mr. Frankel, your time has expired.
    Mr. Frankel. Thank you, sir.
    Mr. Ose. That is an excellent summary.
    [The prepared statement of Mr. Frankel follows:]

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    Mr. Ose. I recognize my friend from Massachusetts, if he 
chooses, for the purpose of an opening statement.
    Mr. Tierney. I am going to pass on the opening statement, 
and we can get right to the questions. Thank you, though.
    Mr. Ose. My friend from Ohio, which is a large State, for 
the purpose of an opening statement.
    Mr. Tiberi. No, thank you.
    Mr. Ose. We are going to go straight to questions.
    Mr. Frankel, I am curious about something. I want to 
clarify something. I saw in your testimony the comments about 
intercity bus service and then also transit and private sector; 
and I concluded implicitly, I hope correctly, but I stand to be 
corrected if otherwise, one is between cities and one is within 
a city. Transit is considered--I mean, that is the nomenclature 
for bus service within a city?
    Mr. Frankel. Essentially, that is the case, Mr. Chairman. 
Yes. That is why it is sometimes referred to--or more often, I 
guess--as over-the-road buses. That is the particular focus on 
services between metropolitan areas. Although, in fact, many--
as you well know, and it is a subject here, in many cases the 
same companies will sometimes, under contract, provide services 
within a metropolitan area or urbanized area.
    Mr. Ose. They may have dual wings of the business doing 
intercity and transit services?
    Mr. Frankel. Correct. Our proposals are really directed at 
the private sector provision of what I will call innercity or 
intrametropolitan area of services.
    Mr. Ose. Now, the Transit Administration works with local 
public transit providers?
    Mr. Frankel. That is primarily the case. That is right. 
Although, as you well know, one of its important programs is 
rural, the rural bus program, in which in virtually all cases, 
if not all, those services are provided under contract, usually 
by private companies.
    FTA is the administer of the grants, grants made through 
States, through State departments of transportation, largely, 
for rural bus services. Your description is basically the case. 
That is certainly the way that we think of FTA, to a large 
degree.
    Mr. Ose. That is why I chose the word local rather than 
rural or urban.
    Within these arrangements between FTA and the local public 
service provider, FTA is asked to make grants along the course 
of business, is that correct?
    Mr. Frankel. Of course this is true for the Department, but 
FTA is a grantmaking agency; and its powers, as you know, 
derive from the welfare clause of the Constitution, not, as we 
pointed out in my written statement, not from the commerce 
clause. It is essentially not a regulatory agency, unlike, for 
example, NHTSA, the National Highway Traffic Safety 
Administration, which is essentially a regulatory agency versus 
a grantmaking agency like FTA.
    Mr. Ose. I have page 5 where that you talk about the 
welfare clause. For those grants, your testimony states: FTA's 
ability to exert influence over the transit industry is limited 
to setting terms and conditions over the use of Federal grant 
funds.
    Now when you set terms and conditions, to what extent do 
you set terms and conditions? What are the parameters of the 
terms and conditions on the grants that you otherwise make?
    Mr. Frankel. Well, Mr. Chairman, I think probably in terms 
of providing you the detail that you might require, I would 
rather supply that subsequently in writing. I am not the 
Administrator of FTA, and I can say only in general terms, it 
is exercising oversight, obviously, and making sure that the 
grants are carried out consistent with national purposes and 
the statutory purposes.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.014
    
    Mr. Ose. If a local service provider comes forward and says 
to the FTA, we are applying for a grant of X amount of dollars 
to acquire a maintenance facility, you would judge that under 
the circumstances at that time?
    Mr. Frankel. Well, first of all, the grants are largely--
again, some exception with the rural program, obviously--but 
the grants to which you are referring, to more urbanized areas, 
are strictly capital grants. They are not for operations.
    They are no longer in the business, as you well know, of 
providing operating subsidies. And the conditions really 
relate--the development of these capital programs, as is true 
of a State transportation agency, are consistent through 
planning processes, the planning requirements of how T-21 is 
extended going through an MPO process, the development of TIPS 
and State TIPS----
    Mr. Ose. All of these are capital assets?
    Mr. Frankel. The acquisition of capital assets. These 
become programs subject to local planning processes and 
priorities and then are funded and, in many cases, are funded 
through formula programs. Not entirely. FTA, unlike the highway 
program, is not entirely by any means a formula program, but 
there are elements of that in which the local agencies in 
cooperation, if you will, with the MPOs develop their own 
priorities of how these capital grants can be used, these 
capital funds can be used.
    Mr. Ose. My time has expired.
    Mr. Tierney. Thank you, Mr. Frankel, for your testimony 
here today and for joining us.
    Some people would think that local transit systems are, in 
fact, local, that the local community would be the one to 
decide whether or not they are going to use a private carrier 
or a public carrier. I am getting the inference from your 
testimony that the administration--I will say ``you'' except I 
think you are representing the administration's position on 
this--somehow thinks that is a decision that shouldn't be left 
to the local community, that the community should be forced to 
use private companies instead of public companies. Am I correct 
in where you are going on that?
    Mr. Frankel. No, I wouldn't say that, Congressman. I think, 
frankly, your initial characterization is generally what our 
view is, particularly strongly; and I think this permeates our 
SAFETEA proposal, that decisions are State and local decisions 
to be made particularly in terms of operations. There are 
provisions in the law to which the chairman has made reference 
which emphasize an important role for the private sector, which 
we do try to recognize; and, we do try to strike a balance in 
terms of creating options and alternatives for State and local 
authorities and agencies to utilize private resources and 
private capital.
    Mr. Tierney. I have a little trouble buying that, because I 
look at the administration's reauthorization proposal, and I 
think they go a little bit further than that. It seems to me 
what they try to do is allow the Department of Transportation 
to withhold certification of a transit program, if the program 
doesn't, in the Federal agency's opinion, allow sufficiently 
for private operators to compete.
    We are putting the Federal opinion of whether or not there 
was the right amount, in their subjective opinion, to compete 
or not, as opposed to the local people. I am disturbed by that. 
I am wondering how an administration that tells us how much 
they like the local communities and all decisions are local 
could get to the point where they have that sort of, I think, 
heavy-handed language in there, or at least language that 
allows for interfering on a subjective basis. Can you reconcile 
that for me?
    Mr. Frankel. Well, again, Congressman, I think this 
permeates the law and has for some time. There is a balance to 
be struck. I think the balance, to a significant degree, has to 
be struck on a case-by-case basis. As I pointed out and as you 
recognized, the power of FTA, unlike other agencies, is really 
conditioning and exercising oversight in grants--capital grants 
that it makes, in ensuring that they used in a manner 
consistent with the whole statutory framework.
    That is something that we try to do. Decisions are made one 
way or the other; and, you know, there can be controversial 
decisions. But, essentially, that is exercising--that has been 
true certainly before our proposal. Our proposal----
    Mr. Tierney. This is new language. Your proposal injects 
something entirely new into the process here. This isn't the 
proposal where the administration says, well, we are going to 
leave it to the local community. It says that we are going to 
have the Department of Transportation actually make a 
subjective decision as to whether or not this sufficiently 
allowed private competition and then withhold certification if 
the Federal level doesn't think that is the case.
    Mr. Frankel. Respectfully, Congressman, I don't think that 
is something we are proposing or something you are proposing.
    Mr. Tierney. Let me put it this way. It specifically 
repeals Section 5305(e)(3), which, you know, is a pretty clear 
point. Then, it adds to that language. So, I mean, how do you 
tell me that you don't think it is something new, something 
that breaks from the past?
    Mr. Frankel. It is trying to create a framework where 
balance and decisions can be made consistent with, I think, 
what the framework of this law has been for some time. I think 
the major initiatives that we have taken deal with trying to 
promote greater private investment and private engagement. But 
largely----
    Mr. Tierney. You are trying to put your finger on the 
scale. That is what troubles me. If it is a local decision, 
then let's keep our finger off the scale, and let's not say we 
are going to make a Federal justification for our subjective 
opinion on that.
    How are we going to protect that from happening, Mr. 
Frankel? How are we going to ensure that local communities are, 
in fact allowed to make a local decision? If you put the kind 
of clause that the administration wants, how are we going to 
protect that and how are we going to say that the local 
community is not going to be overruled by some bureaucrat at 
the Federal level who just subjectively decides, hey, you know, 
you don't have enough Federal people, and this is the ideology 
that we have, and we want the private guys in there?
    Mr. Frankel. Well, Congressman, again, I think it is a 
question of balance on a case-by-case basis.
    Mr. Tierney. Where is the balance? You keep using this word 
``balance.'' This isn't a situation where you say that the 
Federal Department of Transportation is going to make sure that 
there is a balance. You are saying that they are going to make 
sure that there is going to be certification withheld if they 
didn't think there is enough private angle in there.
    Mr. Frankel. Again, in my opinion, respectfully, that is 
consistent with, maybe clarifies, but consistent with what the 
thrust of the law has been for some time.
    Mr. Tierney. Mr. Frankel, I tell you that in 20 odd years 
of practicing law and looking at things like this, I think you 
are so off the mark on that. But you have certainly maintained 
your line, and I respect your position that you have to 
maintain the story. That is your story and you are sticking 
with it, as they say. So thank you.
    Mr. Frankel. Thank you, sir.
    Mr. Ose. Mr. Frankel, the 1966 law that established DOT 
identified six reasons to establish the Department. The second 
reason was to facilitate the development, improvement of 
coordinated transportation service to be provided by private 
enterprise to the maximum extent possible--Section 2(b)1 of 
Public Law 89-670.
    The question is, since January 2001, in highways, mass 
transit and rail, since January 2001, what private sector 
participation projects including public private partnerships--
has the administration initiated or facilitated?
    Mr. Frankel. Well, let me say, Mr. Chairman, that much of 
that really rests, as I referred to, in proposals we have made 
in SAFETEA. There are steps that we are trying to take 
administratively.
    One project I would like to mention--I sit in my capacity 
as Assistant Secretary for Policy on something called the 
Credit Council, which is, if you will, a board of directors for 
the TIFIA program. One of the projects that--one of the loans, 
if you will, credit assistance that we approved is for SR-125, 
which is a private--a franchised private highway, if you will, 
developed in southern California, with which I am sure you are 
quite familiar.
    Also, we have made proposals, as you know, and Congress has 
been receptive so far in this process to proposals we have made 
to amend the TIFIA program. We are also looking at 
opportunities administratively to open up greater innovation in 
the highway area on the part of States and allow them to build 
and utilize mechanisms--existing mechanisms to create public-
private partnerships.
    Finally, as I mentioned in my testimony, a very important 
proposal that we have made in our legislation is to open up the 
opportunities for State decisions about utilization of highway 
user charges, to create revenue streams to support private 
investment. I can't resist saying that I think the T-LU, passed 
by the House, its provisions for tooling we find as unduly 
constraining and making it much more difficult for private 
investment to be made in the highway sector.
    I might say in the rail side, this again is in the nature 
of the proposal, really at the heart of the President's 
proposal to reform the provision of innercity passenger rail 
services, is to--I wouldn't say privatize. It has been accused 
of that. That is not a goal of the administration, rather to 
open up the opportunities for competition in the provision of 
innercity passenger rail, which could include--not limited to 
but certainly include an important role for the private sector.
    That is important. So far, we haven't been able to engage 
the Congress I think in meaningful discussion as yet about 
reform of innercity passenger rail. But, that is one of the 
most important elements.
    In terms of the transit area, I am not as familiar with 
specific steps in that area, and I would like to supply you 
subsequently with more specific answers in that regard.
    Mr. Ose. OK. We would appreciate that.
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    [GRAPHIC] [TIFF OMITTED] T6634.015
    
    Mr. Ose. From your answer and summary on that State Route 
125, the FTA provided some credit assistance, which I presume 
to be some sort of grant.
    Mr. Frankel. That is the TIFIA program. A TIFIA loan was 
approved in connection with SR-125.
    Mr. Ose. And then the administration's other initiatives, 
there is one dealing with innercity rails and trying to find 
some means of making it more efficient, which will be 
particularly useful along the Atlantic Seaboard. Then you are 
going to get back to us with additional ones, both in highways 
and rail and specifically in the transit area.
    Mr. Frankel. That is correct.
    Let me respectfully, sir, just amend something you said. As 
a matter of fact, the President's proposal on innercity 
passenger rail is to open this up for all parts of the country. 
I think a State that has done more on its own than almost any 
other is California, and I think the playing field needs to be 
leveled in that regard.
    We have made proposals that would allow all--appropriate 
areas of the country, regions of the country that want to move 
and where innercity passenger rail can fill an important niche 
in a multimodal transportation system, to allow them to develop 
systems which would receive--be eligible for capital grants 
from the Federal Government and would allow opportunities which 
we think can be done under existing law to enhance competition 
in the provision of those services. That is meant to be a 
national program, not a regional program.
    Mr. Ose. Right. I see my time just expired.
    The gentleman from Massachusetts.
    Mr. Tierney. Mr. Chairman, I think Mr. Frankel has been 
kind in answering the questions I had to ask.
    I would just like to ask for unanimous consent to put on 
the record a statement of the Amalgamated Transit Union with 
respect to this issue.
    Mr. Ose. Without objection.
    Mr. Tierney. Thank you. Thank you, Mr. Frankel.
    Mr. Ose. Mr. Frankel, in 1994 Congress passed amendments to 
the 1964 mass transit law that required private sector 
participation to the maximum extent feasible; and I cite as 
reference Section 5306(a) and 5307(c) of Public Law 103-272 in 
making that statement.
    In your written testimony, entitled Transit and the Private 
Sector, you state: FTA's ability to exert influence over the 
transit industry is limited to setting terms and conditions 
over the use of Federal grant funds. And that is on page 5. In 
fact, underline that.
    My first question is, does the Department of 
Transportation--let's back up. Congress passed this law; the 
Executive signs it. Congress passes legislation; the Executive 
signs it. It becomes law. The agencies then go to rulemaking 
processes to implement that law.
    Now, this law which was passed in 1994, these amendments, 
does the Department of Transportation intend to issue 
implementing rules for Section 5306(a), private enterprise 
participation, and 5307(c), public participation requirements, 
as I requested in writing in August 2003?
    Mr. Frankel. Mr. Chairman, rules are not always the means 
by which an agency will implement statutes which have been 
enacted. As I pointed out and as you acknowledge, FTA is a 
grantmaking agency, not a regulatory agency. It does issue 
rules on occasion, but it is not principally in the process, in 
the business, if you will, of issuing rules.
    These laws can and should be enforced through other--
oftentimes, other means, guidance to the field and to grantees. 
Policy statements, much of which has been----
    Mr. Ose. Let me just interrupt there, if I might, Mr. 
Frankel, because it has been brought to my attention--it was 
brought to the Department's attention by third-party private 
providers that certain local grantees were not complying with 
these provisions in a 1994 law; and the feedback I get in sum 
and substance is, well, you know, this is--I am summarizing, 
paraphrasing, putting words in our mouth. However you wish to 
make it sound, the feedback from the agency was: Well, you 
know, we are not an enforcement agency.
    Well, every department and agency of the government--I can 
go to different spots--enters into contracts, grants and what 
have you. Are you saying that you are unique because these 
other departments and agencies have enforcement mechanisms? Are 
you saying that DOT is unique in this respect?
    Mr. Frankel. No. First of all, we are specifically I think 
in this area talking about FTA. I am not saying--I don't want 
to--I can't speak to what may or may not have been said. I am 
pointing out that the enforcement mechanisms, if you will, the 
oversight mechanisms exercised by FTA in this regard is through 
the enforcement of the grants, ensuring that grants are used in 
a manner consistent with the statutory framework; and, 
unfortunately, that often takes the more extreme measure of 
either terminating grants or limiting or withdrawing some of 
the grants, as opposed to the more classic regulatory powers 
that might be exercised by certain other agencies as the 
particular means available to FTA.
    It is also further complicated--and without reopening the 
discussion with Congressman Tierney, it is also complicated by 
the fact that these are State or, in this case, local decisions 
going through a planning process. And, really, the enforcement 
mechanisms--among the enforcement mechanisms available to FTA 
is the certification of the planning process, to make sure that 
as capital programs--surface transportation capital programs 
are developed and go through the planning process, the MPO 
process, that FTA and the Federal Highway Administration 
certify that the planning process has considered all of the 
things that need to be considered under Federal law.
    There are a web of enforcement mechanisms, not necessarily 
the classic ones that people are more familiar with with 
certain other agencies.
    Mr. Ose. What happens when a grantee doesn't comply with 
the terms of the grant--the terms and conditions of the grant 
that the Secretary has otherwise signed off on? I mean, this 
sounds great--I mean, I want some of this kind of thing. How do 
I get the queue for this? It is like the agency says, well, 
sorry we can't enforce it.
    Mr. Frankel. No, that is not the case. If in fact there has 
been a violation, it could take the form of not certifying a 
plan. That is, a TIP is developed--or, indeed, the whole 
planning process could be--certification for a planning process 
and MPO could be withdrawn. That has happened a couple of 
times. Not difficult to sustain politically, I might say, where 
it has been done, but it has been done. In the case of a 
particular grant that the agency, in this case FTA, could 
decide that the grant should be terminated or suspended or some 
portion of it suspended.
    That is the particular enforcement mechanism. It doesn't 
always allow for some of the subtleties that are available with 
some regulatory agencies where they can exercise their power in 
a different way.
    Mr. Ose. However, the grantee knows the rules of the road, 
so to speak, when it applies for the grant. That if it does not 
comply with terms and conditions, the grant can be terminated?
    Mr. Frankel. Well, and/or the planning agencies.
    Mr. Ose. My time has expired.
    Mr. Tierney. It has expired again, Mr. Chairman.
    Mr. Ose. I apologize.
    Mr. Tierney. You are free to continue on if you want. I 
know you have your finger only about halfway down the page 
there.
    Mr. Ose. I have multiple pages, though.
    Mr. Tierney. We can go back and forth over my one point 
again, if you want to do that.
    Mr. Ose. Are you teaming up on the chairman here?
    Mr. Tierney. Why not?
    Mr. Ose. All right. So back to my question. Pursuant to the 
1994 law, which, if my chronology is correct was 10 years ago, 
what is the intention of the Department of Transportation as it 
relates to implementing rules, putting the law into effect 
regarding private enterprise participation in public 
participation requirements? Are you or are you not going to 
undertake a rulemaking?
    Mr. Frankel. Well, I think I am--it would be more 
appropriate for the Administrator of FTA to answer that 
specific question. That is where the rulemaking, if you will, 
would occur. I do want to say that traditionally what has been 
done in this area--traditionally, what has been done in this 
area, the steps that I have described, that is a review of the 
planning process and a continuing oversight over the grant.
    Mr. Ose. Well, on August 6, 2003, I actually sent a letter 
to the Administrator Jennifer Dorn, and the feedback I got from 
counsel to Ms. Dorn was that Dorn refused to undertake a 
rulemaking to effectuate the statutory private sector 
participation requirements since there was a legislative 
proposal that Congress was still considering.
    Now what happens if Congress doesn't take this up? We are 
going to sit here in abeyance forever, pending some legislative 
resolution?
    Mr. Frankel. Well, I think it is not some--I think what we 
are dealing with, obviously, is the pendency of reauthorization 
legislation. We are operating in a framework--as you know, but 
for three extensions, we would have no authorizing legislation 
for any of these programs.
    We are in the stage where we are, hopefully, about to enter 
into a period of a multi-year reauthorization and some change 
in these programs in which Congress, still in the conference 
process, will have an opportunity to look at some of the issues 
that we are talking about this morning.
    I think the feeling--and I can't speak for Administrator 
Dorn, but I think the feeling was that this was a particularly 
maybe inappropriate time, while Congress itself was looking at 
these issues, to issue a rule.
    There are other means, as I said, available. There are 
regular means available.
    Mr. Ose. We passed a law in 1994. We passed a law in 1994. 
It passed with support from both sides of the aisle, in both 
Houses of the Congress, and administration from the other party 
had signed it. Now, are you telling me that, 10 years in, we 
are waiting for, I don't know, for it to rain cats and dogs 
before we pass a rule implementing legislation that we passed 
10 years ago?
    Mr. Frankel. Well, I am not saying that. But whether the 
Administrator and FTA intends on considering a rule is 
something that I think it is better for FTA to respond to.
    I do want to reiterate what I have said earlier; and that 
is rulemaking, in my opinion, may not be the appropriate step 
and the best means to carry out that statute in a process where 
FTA, as a grantmaking agency, essentially has the power to 
condition grants and exercise oversight as how these grants are 
used.
    That is a continuing process. It is on a one-by-one basis 
but also could take the form of issuing guidance or policy 
statements to the field and to grantees.
    Mr. Ose. You don't have any parameters by which a potential 
grantee out in the private sector or in the public provider 
sector can go to to look at how they might approach FTA for a 
potential grant? I mean, it is just pretty nebulous, it sounds 
to me.
    Mr. Frankel. Well, I am not sure I am understanding your 
question exactly.
    Mr. Ose. Well, we don't have rules. I am not aware of any 
guidance. Congress passed a statute, but we don't have any 
rules. I am not aware of any guidance. If I am out in the 
public or private sector trying to provide transit, whether it 
be public or private, I am siting there kind of grasping at 
clouds, if you will, to figure out how to put in an 
application.
    I am aware of the terms and conditions. But, interestingly 
enough, you know, I have more than anecdotal information that 
says that, when a grantee violates the terms and conditions, 
the Department of Transportation says we can't get into that, 
because we don't have a rule.
    I mean this is a circuitous argument. You are going to have 
to correct me if I am wrong.
    Mr. Frankel. I don't know that was the basis, if you will, 
of any decisions that are made on some of the cases that you 
are particularly concerned with. But the--again, whether 
rulemaking is the appropriate way to carry this out--there have 
been attempts over the years on the--as I understand it, by the 
Department to issue guidance or policies; and, as a matter of 
fact, under pressure--this is now sometime ago, but under 
pressure from Congress, the Department had to withdraw those 
rules.
    With all due respect, as Congressman Tierney's questions 
indicated, this is not an area in which there are Blacks and 
Whites; and I think people have to look at this, if you will, 
on a case-by-case basis.
    It may be appropriate for FTA to consider the issuance of 
additional guidance or new guidance. But, again, through the 
planning process, that is at the heart of this really. These 
are local decisions, and looking at the validity or the 
authenticity of the planning process and through the use of 
certification or denying certification to a plan or to the 
process, it becomes a toll that is available to the Department 
and has and continues to be so.
    Mr. Ose. Can you tell us how many times you have--what was 
your word--revoked a grant? Have you taken any enforcement 
actions on grantees where the grantees have violated the terms 
and conditions of their grant?
    Mr. Frankel. I think I would--rather than try to guess at 
that, Mr. Chairman, I will be happy to supply you that.
    Mr. Ose. I got three I would like you to check on 
specifically. They will be testified to later.
    Mr. Frankel. Right.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.016
    
    Mr. Ose. I do just want to say, in 49 CFR, it does vest in 
the Office of the Secretary the responsibility for encouraging 
maximum private development, maximum private development of 
transportation services.
    Mr. Frankel. Right.
    Mr. Ose. Frankly, I know what kind of money is involved in 
buying one of these buses. It is not exactly chump change. You 
might want to think about providing certainty to the potential 
private providers of transit by adopting a rule or some sort of 
framework under which there is certainty. I mean, I have to 
tell you, that is just a glaring gap in how this is proceeding. 
I don't mean to beat you over the head on it.
    Mr. Frankel. No, that is fine.
    Mr. Ose. Frankly, it is just not acceptable management. I 
know guidance has no legal effect. So does he.
    Now in terms of--well, I yield to the gentleman from 
Massachusetts. Undoubtedly, you have questions.
    Mr. Tierney. I have no questions. I am just watching you go 
on and on. You have dug far enough. We will see where it goes.
    Mr. Ose. OK. Mr. Frankel, the common rule that guides 
governmentwide grants management, provides various remedies for 
grantee noncompliance. Those include temporarily withholding 
cash payments pending correction of any deficiency, disallowing 
all or part of the cost of the action that is not in 
compliance, wholly or partly suspending or terminating the 
current award for the grantee's program, withholding future 
awards--excuse me, withholding further awards for the program, 
or taking other remedies that may be legally available. That is 
in 49 CFR, subsection 18.43(a), on page 148.
    Now, going back to 5306(a) and 5307(c), dealing with 
private sector participation, has DOT enforced anything under 
either of these sections in any of those five remedies? I think 
your testimony was you would like to respond to that in 
writing?
    Mr. Frankel. I would, sir.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.017
    
    Mr. Ose. Now, you also have--within the grants process, 
there is a triennial audit that occurs on all of the grants.
    Mr. Frankel. That is of the planning process. That is 
correct, sir. You are right.
    Mr. Ose. So every grantee is subject to a triennial audit?
    Mr. Frankel. That is apparently the case. At least I think 
what we are talking here, in the context of FTA.
    Mr. Ose. Within the body of your response to the previous 
question, I would like to know how many of these triennial 
audits, including deficiency findings of noncompliance with 
private sector participation requirements--I would like you to 
specifically respond to that question.
    Mr. Frankel. OK. I would be happy to do that, Mr. Chairman.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.018
    
    Mr. Ose. Then the second is, how many of these 
noncompliance findings resulted in an enforcement action?
    Now I want to go through a specific situation in 
Sacramento. I briefly discussed my investigation of this 
situation regarding a 25-year, competitively awarded contract 
for mass transit service in Sacramento. I just want to step 
through this and make sure that my understanding of the facts 
is, in fact, your understanding of the facts.
    There was a July 2000, triennial audit in which the 
Department of Transportation found a deficiency by the grantee 
in compliance with the private sector participation 
requirements. That is my understanding. Is that correct? This 
is for Sacramento RT.
    Mr. Frankel. I am aware of the particular case.
    Mr. Ose. If that gentleman would like to testify, he can 
step forward, rather than whisper in your ear. We can get it 
straight from him, if you would rather.
    Mr. Frankel. I don't want--I want to try to answer your 
question as accurately as I can.
    My understanding, Mr. Chairman, was that related to the 
public notice requirements in terms of the provision of 
services. There were additional--as you well know, the transit 
agency established new services, and there was a question about 
public notice of the--my understanding, is a question of 
appropriate public notice of those services.
    Mr. Ose. In terms of where the notices were placed and 
where they were circulated to?
    Mr. Frankel. I believe that is the case.
    Mr. Ose. We would like to ascertain whether or not that is 
your understanding in fact, rather than belief. So we are going 
to submit that question to you in writing.
    Mr. Frankel. Thank you, sir.
    Mr. Tierney. Clarification. Can you give me the date?
    Mr. Ose. It is July 2000.
    Mr. Tierney. Thank you.
    Mr. Ose. Now when the triennial audit determined a 
deficiency, did you notify the grantee of this deficiency in 
August 2000? My information is that you did.
    Mr. Frankel. Again, Mr. Chairman, I think these detailed 
questions really are appropriately directed--I know you have 
done so in letter--but appropriately directed to FTA rather 
than to me. I think we will supply--obviously, the Department 
and FTA will supply you with specific answers to those 
questions.
    I am really not in a position to speak on such matters. I 
can talk generally about this particular case in the context of 
the subject of this hearing. But, in terms of the specific 
details, I am not the Administrator directly responsible for 
that. I think it would be misleading for me to try to answer 
those specific questions.
    Mr. Ose. Does the gentleman right behind you know the 
answers?
    Mr. Frankel. I don't know whether--he is the counsel to 
FTA, as you know. But, I think probably the more appropriate 
step, Mr. Chairman, would be for us--in terms of the specific 
questions, as opposed to kind of putting them in the context of 
the overall subject of this hearing, for us to prepare a 
written response in which we can draw on FTA's detailed 
knowledge of these circumstances.
    Mr. Ose. OK. Well, let's just go through the questions and 
see what you can recall from previous discussions at the 
Department.
    So, we aren't able to ascertain whether or not the grantee 
was notified in August 2000 of the deficiency finding?
    My information tells me that, on October 1, 2000, the 
Department of Transportation approved $2.4 million in the form 
of a grant to this particular agency to purchase new buses.
    Mr. Frankel. That is my understanding.
    Mr. Ose. Did the terms and conditions of that grant 
preclude the use of those buses to, if you will, squeeze out a 
private provider on any service that they are currently 
providing?
    Mr. Frankel. My understanding of this situation is, 
respectfully, that was--that is not our perception, let me say, 
of the circumstances. The circumstances here, as I understand 
it, were that the State of California--State of California, not 
the local transit district--the State of California had made 
it--through its general services agency had made a decision to 
terminate charter services. The transit--local transit agency, 
again going through the process of developing its operations, 
developed new services, new scheduled regular services, not 
charter services available for the public, and these buses were 
utilized. This capital equipment was utilized in the provision 
of those services.
    Mr. Ose. OK. Under the same code section, which is the 49 
CFR, on page 136, subsection 18.323, and I am--notwithstanding 
the encouragement in subsection 18.25(a) to earn program 
income, the grantee or subgrantees must not use equipment 
acquired with grant funds to provide services for a fee to 
compete unfairly with private companies that provide equivalent 
services, unless specifically permitted or contemplated by 
Federal statute.
    Was the service for which the State of California, through 
the Department of General services, using these $2.4 million 
worth of buses, was that specifically permitted or contemplated 
by Federal statute?
    Mr. Frankel. I hope this is responsive to your question, 
Mr. Chairman. But I think it is fair to say that the decision--
in administering the grant the decision was--that the 
circumstances in Sacramento in this case did not fit the 
circumstances you described or the law as you described it. 
These were not services in competition. The local transit 
agency was not developing services in competition with what had 
been charter contractual services with the State of California.
    I understand and respect the fact that you have a different 
view. But, I'm saying that the agency in this case, FTA, in 
administering the grant reached the conclusion that there had 
not been a violation of this law, of this regulation or 
requirement.
    Mr. Ose. Well, if I can just share--actually, I see my time 
is up.
    Mr. Tierney. I am ready to go.
    Mr. Ose. Well, then I will yield to the gentleman from 
Massachusetts.
    Mr. Tierney. Mr. Frankel, as I understand the sequence of 
events on this--and perhaps you can help me here--is that the 
Department of General Services terminated the contract with 
Amador.
    Mr. Frankel. They either terminated it or had even given 
notice that they were going to terminate it. I am not exactly 
sure of timing.
    Mr. Tierney. But that happened?
    Mr. Frankel. Correct.
    If I can, Mr. Congressman--I am sorry. I believe there was 
the expiration of a contract and indication that the contract 
would not be extended further.
    Mr. Tierney. OK. And, following that, they had contracted 
to purchase fare medium from SACRT?
    Mr. Frankel. That is my understanding.
    Mr. Tierney. It wanted more frequent and more comprehensive 
service?
    Mr. Frankel. Open to the public. Like any scheduled 
service, with intermediate stops and conceivably routes 
somewhat different from what the contractual services had been.
    Mr. Tierney. Exactly. And, in fact, the SACRT isn't a 
charter service, is it?
    Mr. Frankel. The decision by FTA in administering the grant 
was this did not--was not in competition with the earlier 
charter service.
    Mr. Tierney. Because the charter service has a closed 
clientele, which is what Amador had, and SACRT is open to all 
the public, and the other group that Amador had was within that 
larger group?
    Mr. Frankel. Correct.
    Mr. Tierney. It is not even applicable on that basis. We 
really are discussing apples and oranges here, charter versus 
noncharter, when we talk about the type of service and the 
legal basis here. Am I correct?
    Mr. Frankel. I think, without necessarily referring to 
apples and oranges, as I said, the FTA's decision, as I 
understand it, was that this service provided by the Sacramento 
transit agency was not in competition with the--was different 
from, not in competition with the earlier charter service, 
which had not been extended by a different agency, that is, the 
State of California's General Services Agency.
    Mr. Tierney. I think some of the statutes that Mr. Ose is 
referring to really talk or speak to the formation of transit 
authorities after bus operators go bankrupt?
    Mr. Frankel. Right. That is the whole basis of FTA. Much of 
our local transit programs, as we all know----
    Mr. Tierney. That is not, in fact, what occurred here in 
that situation? That is not applicable either.
    Was Amador ever denied the avenue of appeal that the FTA 
does provide?
    Mr. Frankel. No, my understanding is that there was a 
process and that they have gone through. I don't know myself 
whether that process is completed or their opportunities for 
litigation or appeal, but there has been a process, and they 
have availed themselves of that process.
    Mr. Tierney. I just don't want to beat this to death, but 
SACRT can't be competing with Amador if Amador had already been 
notified that they were being terminated?
    Mr. Frankel. That apparently was--I assume----
    Mr. Tierney. The termination that was made.
    Mr. Frankel. I assume that was one of the bases of FTA's 
decision or view that there was not a violation of any law.
    Mr. Tierney. I think the determination was clearly made 
that SACRT currently does not provide services that meet the 
definition of charter service.
    Mr. Frankel. That is again my understanding of the basis of 
FTA's actions here, or its response to these circumstances.
    Mr. Tierney. Thank you.
    Mr. Ose. I thank the gentleman. I think you were trying to 
help me. It is my understanding that--and we will get into this 
with the next panel--but the service that Amador was providing 
did not have a closed clientele, that you could walk up and get 
on; that the--there was no charge whether you were envisioned 
as part of that clientele by the Department of General Services 
or not. So, in fact, it was not a charter service, it was 
something else. It was an intracity transit service, and 
interestingly enough, as it relates to my friend's comment 
about provisions of this law applying now to the bankruptcy of 
a local transit agency, if I understood his point correctly, 
the requirements for maximum feasible private sector 
participation embedded in the law that originally set up the 
Department of Transportation, not some subsequent requirement.
    I would like to go on with my understanding of the 
chronology of events here. I want to go back to the $2.4 
million for purchase of new buses. I will readily admit that I 
advocated for that to the FTA, but I did not understand that 
those buses were going to be used to, in effect, replace the 
transit service that Amador was providing otherwise.
    In July 2001, the local grantee, the Sacramento RT, adopted 
a new standard operating procedure, including the promise of 
notification and specific publications of general circulation 
regarding changes to the contract and the like, to ensure no 
future violation of private sector participation requirements. 
It appears to me in July 2001, the grantees recognized that 
they were subject to the private sector participation 
requirement. Is that your understanding also?
    Mr. Frankel. I would assume that to be the case. I don't 
want to say. Having not been involved in it, I can't speak 
specifically, but I assume that to be the case. The law is the 
law. Everybody involved in this area understands what the 
requirements are.
    Mr. Ose. I might quibble over that given the testimony we 
are going to get from the second panel.
    On March 6, 2003, I am told that the private sector 
provider in this case, Amador, California Bus Association filed 
an emergency protest with FTA; is that your understanding?
    Mr. Frankel. I can't speak to the dates, Mr. Chairman. I 
don't know the specifics.
    Mr. Ose. On March 13th, I asked the Department of 
Transportation to expedite its review of this emergency 
protest. And on March 18th, I'm told that the Department of 
Transportation's regional office directed the grantee, 
Sacramento RT, to stay its proposed takeover of the transit 
service from Amador stating, ``FTA further requests that SACRT 
hold any action on the subject contract or service in abeyance 
pending the outcome of our review of SACRT's response.''
    Is that your understanding?
    Mr. Frankel. Without getting into the specifics, I believe 
it was directed to--again, through the enforcement of the 
grant, whether the grant had been utilized in a manner 
consistent with the requirements. That is the grant to require 
the buses and not to compete with the private sector. 
Obviously, FTA wanted to take the time to be able to make a 
thoughtful decision about that.
    Mr. Ose. We are able to confirm that occurred on March 
18th; is that your testimony?
    Mr. Frankel. I can't speak to the specific dates. I am not 
the Administrator.
    Mr. Ose. We will send you another letter.
    On March 25th, I'm told that the grantee, Sacramento RT, 
effectively said, big deal, to the FTA, and they acted to award 
the contract. Is that your understanding, that contract to 
replace Amador was agreed to by Sacramento RT on March 25th?
    Mr. Frankel. Again, I will have to confirm the specific 
facts that--to which you're referring.
    Mr. Ose. On August 5, 2003, without having any specific 
documentation of compliance with the July 2001 standard 
operating procedure, the Department of Transportation issued a 
decision on the March 6, 2003, emergency protest finding that 
the grantee met, ``minimum compliance.'' And the quotation I 
cite is, ``RT has met with the minimum statutory requirements 
for public notice and comment in section 5307, and that while 
it appears that RT could have done more to explore the use of 
private sector providers in this situation, RT has met the 
minimum requirements of section 5306.'' I have a copy of the 
decision here.
    How do you determine someone has met the minimum 
requirements if you don't have a rule in place to define that?
    Mr. Frankel. Well, I suppose--people can differ about that. 
As an individual, I would say that is quite possible. There is 
a law here. There are a set of requirements driven by the 
statute, and we have been talking about exactly that, exactly. 
As I said, they are striking the right balance here, and I 
think FTA is in a position in terms of enforcing its grants and 
assuring grants are used in a manner consistent with the law to 
be able to make a decision on a case-by-case basis.
    I don't know necessarily, with all due respect, Mr. 
Chairman, that a rule or guidance, additional guidance, might 
be appropriate and useful in these circumstances, but I can't 
see any reason why an agency cannot make a decision based on 
facts presented to it as to whether or not the law has been 
complied with. I think that is what FTA did. I understand that 
you might have a different view and conceivably might have 
reached a different decision. This was directed to the public 
notice requirements, as your quote indicates.
    Mr. Ose. I am trying to understand the logic. In July 2001, 
the grantees promised to adopt new notification procedures to 
ensure no future violation of the private sector participation 
requirements. If the process at that time had been 
satisfactory, why did they have to adopt new ones? If they had 
to adopt new ones because the process wasn't satisfactory, how 
can RT then be found in compliance with, ``the minimum 
requirements?'' There seems to be a disconnect here.
    Mr. Frankel. I understand what you are saying, Mr. 
Chairman, and I am not in a position to speak to that. 
Obviously there are remedies available to the parties here if 
they feel there has been an abuse of discretion. But, the 
agency acted on the basis of the information and the facts it 
had that there had not been a violation of the terms of the 
grant.
    Mr. Ose. My time has expired. The gentleman from 
Massachusetts.
    Mr. Tierney. I don't want to interfere with your 
progression on that. I just think the point I would make here 
is that there is a process, and that to my knowledge, at least, 
and, Mr. Frankel, you confirmed that, that Amador is going 
through that process and availing themselves of it. If you 
don't like the answer, I guess, it is not nearly--if we are 
going to try to change the law because they don't like the 
answer they are getting, I think perhaps the Transportation 
Committee might be the place to go.
    It seems clear to me that Amador, the company, had an 
avenue to go. I think there are serious issues here that--where 
a determination could be made that Amador had a closed 
situation, and RT has a different situation. I think that the 
sequence of events are pretty clear that Amador was terminated, 
and SACRT was contracted. So I can see where the agency made 
that decision. I think, if the facts break out some other way, 
then the process will let us know how it happens, and people 
can avail themselves of it. If we want to change the statute, 
then certainly they would go to the proper avenue and proper 
committee and try and work on that basis.
    Mr. Frankel, let me just ask you very broadly is there 
anything about the process in this particular case that you 
think has been abused or somebody has not had the opportunity 
to avail themselves of?
    Mr. Frankel. Not to my knowledge, Congressman. I am not the 
direct official responsible for the administration of these 
laws, but, to the extent that I am aware of it, there is 
nothing that appears to indicate that FTA has not exercised its 
discretion and judgment to the best extent that it possibly 
can, recognizing that people--whenever judgment is exercised in 
the administration of laws, that people will have different 
views.
    Mr. Tierney. I'll yield back.
    Mr. Ose. I thank the gentleman.
    You know, this isn't about Amador or Ohio or Hawaii. This 
is actually about the use of Federal dollars, because the net 
effect of this process of the minimum compliance, if you will--
those aren't my words, but the Federal taxpayer ended up paying 
$277,000 more per year for service that they had been receiving 
from a private provider who had virtually no complaints filed 
with the Department from open clientele, and who had for any 
number of years successfully met the terms of the contract. 
This is about Federal money.
    Mr. Tierney. Will the gentleman yield?
    Mr. Ose. Yes.
    Mr. Tierney. Are you saying they were arbitrarily taken off 
the contract?
    Mr. Ose. I am saying that someone figured out how to change 
the contract without putting it into a publication of adequate 
general circulation. They got caught in this July 2000 
triennial audit and were advised that they needed to change 
their process. At that point, subsequent to that point, they 
did it again, and the grantor in this case, the Federal 
Government, FTA, is basically turning a blind eye to the 
expenditure of $277,000 more annually.
    Mr. Tierney. Are you telling me basically you just want the 
facts reinterpreted? You don't agree with the FTA's review of 
this situation?
    Mr. Ose. Actually I don't care who provides the service. I 
just want my $277,000 back.
    Mr. Tierney. What I am trying to get at here, I don't live 
in California.
    Mr. Ose. You would be welcome to move there. We need more 
attorneys.
    Mr. Tierney. I bet. I mean, what you are saying, though, is 
that somebody--and who is the one who terminated Amador to 
begin with?
    Mr. Ose. That is what I am trying to find out. It appears 
to me as if SACRT did, and then FTA signed off on that.
    Mr. Frankel. If I may respectfully take some issue with a 
couple of the comments you have made, Mr. Chairman. First of 
all, the decision about the contract, the initial decision 
about the contract with the private company was a decision by 
the State of California, by an agency of the State of 
California, not by the local transit agency.
    Second, it is my understanding since FTA, outside of the 
Rural Transit Program, is not in the business any longer of 
making--operating grants subsidizing operations, that the 
$277,000 a year to which you are referring is not Federal 
money. I am not saying that it is not taxpayer money, and your 
point, as a public official, may be perfectly appropriate, but 
those are not Federal funds. What the Federal funds were used 
for, which concerns you, and I appreciate that--what the 
Federal funds were used for was for the capital acquisition of 
the buses that were used in the service.
    Mr. Ose. $2.4 million.
    Mr. Frankel. I don't know exactly what the----
    Mr. Ose. If you want to talk about 2.4 million, the larger 
the number, the better. I would like to recover that, too.
    Mr. Frankel. Whatever it is, it is. There were the capital 
grants which were made for buses for the transit agency which 
were used in this service, which was, again, in the 
determination of FTA, a new service. The transit agency didn't 
make the decision to terminate a contract and then use Federal 
money to buy buses and provide the same service. That is not 
the perception and judgment of FTA.
    Mr. Ose. Except the $2.4 million was obtained from FTA 
sometime prior to the Department of General Services's decision 
to terminate or to reopen the contract; am I not correct on 
that?
    Mr. Frankel. I would have to verify that, but that is 
likely to be the case.
    Mr. Ose. How is it that the local grantee can now use 
assets acquired by funding of FTA to provide a service for 
which there is a private provider who can provide that same 
service regardless of whether it is for more or less?
    Mr. Frankel. The decision by the agency was that it was not 
the same service.
    Mr. Ose. Which agency?
    Mr. Frankel. FTA, in administering the grant and exercising 
oversight of the grant.
    I appreciate you have a different view, and I respect that, 
but the agency's--at the heart of the agency's decision, and 
certainly an important element of it, is it was not the same 
service, but different service. It was public service as 
opposed to a contractual charter service with an agency of the 
State of California.
    Mr. Ose. Mr. Frankel, I have the advantage of going home 
every weekend. I know exactly the service that was being 
provided, because I could walk up without identification and 
get on the bus. It was not a charter. I was not precluded from 
being a rider, if you will. Nobody asked me for ID. I didn't 
have to pay. I could just go to the parking lot where I knew 
the bus was going to be, get out of my car, walk over and get 
on the bus.
    Mr. Frankel. I am not an expert on this, but I think what 
distinguishes--certainly as far as what I think--what 
distinguishes charter services at least in this these 
circumstances, it was point to point. It was not the kind of 
scheduled route, if you will, with intermediate stops and maybe 
a somewhat different group, which is my understanding is the 
transit agency was providing, albeit still providing the basic 
service of parking lot to downtown points of employment.
    Mr. Ose. We are going to have testimony from somebody later 
that will flesh that out, because I happen to think the 
circumstances upon close examination are significantly 
different from your understanding.
    The gentleman from Massachusetts.
    Mr. Tierney. We had $2.4 million that Mr. Ose was able to 
extract from the Federal Government here to provide equipment 
that should have gone probably to Massachusetts, no doubt.
    Mr. Ose. I will be happy to give it to you.
    Mr. Tierney. We could have used it. And, that was for RT to 
run its routes. Subsequently, some sufficient time later, 
Amador is notified that they are being terminated, and they are 
notified by the State and not by RT, right?
    Mr. Frankel. That is the case. I can't confirm the dates 
and the exact sequence.
    Mr. Ose. I will stipulate that is my understanding also.
    Mr. Tierney. So that helps me. First, you have RT up and 
going with buses that they got from Federal money, and they are 
doing their thing, and Amador gets terminated. Then the State 
is the one who contracted with the RT?
    Mr. Frankel. No. There is no contract. RT is providing 
service.
    Mr. Tierney. Just expanded its routes and provides service.
    Mr. Frankel. It is operations. And that is a local decision 
in which FTA does not get engaged.
    Mr. Tierney. The local decision said there's a need, 
there's some people that could use a ride, and RT just expanded 
their routes.
    Mr. Frankel. I presume the transit agencies in your 
congressional district will make decisions about where it is 
going to provide service.
    Mr. Tierney. They are now doing that, and Amador feels 
chagrined by this whole thing, and that they're not being 
treated properly or whatever. And then, they have an appeal 
process which they have availed themselves of.
    Mr. Frankel. It is my understanding that they have gone 
through a process, and they still have remedies, I presume, 
available to them.
    Mr. Tierney. Which I presume they raised the issue of 
whether or not they were a closed service or charter or 
whatever, and that is one of the issues that will be determined 
in that process.
    Mr. Frankel. I can't speak to the specific issue. The 
specific issue that was raised with FTA is whether the 
appropriate procedures had been followed as far as public 
notice in connection with the capital grant for the acquisition 
of the buses which were subsequently utilized in routes that 
were frankly not obviously inconsistent with the routes that 
had been provided on a charter basis by the private contractor.
    Mr. Tierney. Let me do this again. The issue is nothing to 
do with what happened on the termination of Amador or with the 
subsequent absorption of those clientele. From there, they went 
back and decided to get some technical point of a notice. I am 
telling you how it sounds from here.
    Mr. Frankel. Bear with me for just a minute. Let me be 
accurate about this. With respect to the acquisition of the 
buses, the public notice was initially deemed to be inadequate 
and was remedied in the view of the agency administering the 
grant. In the case of the service, the extension of the 
service, the public notice given by the transit agency was 
deemed to be adequate. I presume both of those were raised, but 
I don't know that for a fact, in connection with the appeal.
    Mr. Tierney. The first notice was where they were going to 
get the Federal money to buy the buses, and they said 
originally that was inadequate, so they made it adequate, and 
they got the money. At some point, they were deemed adequate, 
and they got the money.
    Mr. Frankel. That is my understanding.
    Mr. Tierney. Later, when they decided to change their 
routes to expand their services that now encompasses where 
Amador used to be, there was another notice, and somebody has 
challenged that, but the FTA has decided they think it was 
sufficient minimally or otherwise, that it was sufficient.
    Mr. Frankel. Again, that is my understanding.
    Mr. Tierney. Aggrieved parties have a process that they can 
go through to have that issue litigated in some sense?
    Mr. Frankel. They have availed themselves, as far as I 
know, of appeals to FTA. And under administrative law 
procedures, one can always contest whether an agency has abused 
its discretion, which is really kind of at the heart of this 
inquiry in many of these questions whether there has been an 
abuse of discretion on the part of FTA in administering these 
grants.
    Mr. Tierney. Let's go back and say suppose that in the 
process someone says the notice of the new routes for, you 
know, the RT or whatever, it was insufficient, so you can't do 
your new routes. That just leaves Amador without doing the 
routes, and leaves RT without doing the routes, and leaves 
these people walking, right?
    Mr. Frankel. I presume that would be the case. They were 
separate, but there were parallel decisions. There was a 
decision by the State of California not to renew the contract 
with the private contractor--private company.
    Mr. Tierney. I guess my question that you can't answer, is 
there some conspiracy theory here that the State was in cahoots 
with somebody and decided to go after Amador, thinking that 
once we knock off Amador, somehow this other service will be 
expanded? Is that the crux of the argument here?
    Mr. Ose. My only concern is the $277,000.
    Mr. Tierney. Yeah, but, you know, you have the situation, 
it seems, to have gone along. Amador got knocked off, which is 
totally separate from the issue of notice and then provision of 
services by RT.
    Mr. Ose. If the gentleman will yield.
    Mr. Tierney. Sure.
    Mr. Ose. My concern here is the process was not properly 
compliant, and the result was that the Department of General 
Services ends up asking for an extra $277,000 from us to 
provide a transit service for which there had been no 
complaints or inadequacy.
    Mr. Tierney. Reclaiming my time. They are not asking for 
$277,000 from us. It is not our problem. They are getting that 
from the State. Second, there is an appeal. These people are 
making the arguments in the appropriate place, so what are we 
doing here?
    Mr. Ose. Actually examining the manner in which the Federal 
agencies----
    Mr. Tierney. I think it is a little inappropriate for us to 
be jumping in the middle of the process as opposed to waiting 
to see how it played out and then deciding whether or not this 
needed to be done. Either party could still prevail, if I 
understand. We are jumping in and trying to put our foot on the 
pedal.
    Mr. Ose. I am not sure that either party can prevail at 
this point. I would defer to Mr. Frankel to clarify that, but I 
believe this contract has been executed and in place.
    Mr. Tierney. There is no contract.
    Mr. Ose. The contract between the Department of General 
Services and SACRT for the service being provided, that is in 
place.
    Mr. Tierney. I am trying to clarify. He's indicated there 
are no services that they are looking for.
    Mr. Frankel. If you will allow me to correct this, my 
understanding is the terms are different. There was a contract 
between the General Services Administration and the private 
company Amador. That contract was not extended. A local transit 
agency is supplying services which fill that market, if I could 
put it in those terms.
    There is a subsidy to which you made reference. There may, 
in fact, be a contract, I don't know, between the State and the 
local transit district to pay their money as an operating 
subsidy. But, again, not to split hairs, it is a different 
contract from the contract that existed between the State and 
the private contractor. I know in my State, the State 
department of transportation--I can't speak about California--
the State department of transportation provides operating 
subsidies to local transit districts who are losing money. I 
presume, if it is not exactly that in California, it is 
probably something similar to that. It is a different kind of 
arrangement between the State and the transit district from 
what existed between the State and Amador to provide a specific 
service from point to point for its employees.
    Mr. Tierney. The State subsidizes RT for its general 
services, for the entire service it provides. If they do 
anything at all, that would be the nature of that.
    Mr. Frankel. It is typically the case.
    Mr. Tierney. Let's use the case of Massachusetts, and they 
are trying to change that and take away from the subsidies. I'm 
sure that some States have taken them off the subsidies, and 
some have them on there, but it is generally for their entire 
operation and not for any specific aspect of it.
    Mr. Frankel. Certainly the case in my State. I don't know 
the circumstances. It is possible that there may be a specific 
contract between the State and the regional--excuse me, the 
local transit agency that this service would be subsidized, but 
I don't know about that. Generally these are in the nature of 
operating subsidies. The Federal Government, as I said, except 
for rural services and some other limited services, does not 
provide operating subsidies to local transit agencies.
    Mr. Tierney. With respect to the particular claimants or 
individuals on this Amador, is there still a process of which 
they are availing themselves? Is that ongoing, or where is 
that, do you know?
    Mr. Frankel. I don't know the answer to that, Congressman. 
Again, we'll try to supply that to you.
    Mr. Tierney. I ask that, and in deference to the chairman, 
I want to know where we are coming in this situation. Is it not 
yet done, and maybe we ought to hold back a little bit.
    Mr. Ose. I think we are going to find out from the next 
panel because the principals are going to be testifying. I just 
want to make sure we are all clear on the process here. The 
Department of General Services, on the anniversary date of its 
existing contract with then service provider Amador, 
readvertised, put out a request for proposals to provide a 
transit service for the intracity movement of an open 
clientele; in other words, you could walk up and get on. You 
could still walk up and get on this transit service. That part 
hasn't changed.
    The Department of General Services executed that contract, 
and subsequent to the execution of that contract entered into 
an agreement with SACRT to use buses that had been acquired, 
procured, using an FTA grant; am I correct on that 
understanding?
    Mr. Frankel. My understanding, Mr. Chairman, is that the 
service being provided by the Sacramento Transit Agency is not 
the same as--it may be the same in the sense of serving similar 
customers, but it is distinguishable, certainly in a legal 
context, from the service that had been provided by Amador. It 
is not considered by FTA to be charter services as the prior 
contract with the private company had been considered hence, in 
the view, the determination of FTA that it was not in 
competition with a private company.
    Mr. Ose. Can you, for the record, share with us the 
characteristics of the existing contract that distinguish it 
from the previous contract in terms of the conclusion you guys 
reached that the previous contract was a charter and the 
existing one is not? Would you share those characteristics with 
us for the record?
    Mr. Frankel. I don't want to do that here. We certainly 
will supply that, and I assume your question assumed that we 
will do so subsequently.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.019
    
    Mr. Ose. Now, given the history that was evidenced in the 
triennial audit of July 2000, what is the Department of 
Transportation doing to ensure ongoing compliance with the July 
2001 new standard operating procedure that this grantee 
adopted?
    Mr. Frankel. I would have to refer at least in general 
terms, Mr. Chairman, to the--to my initial remarks, and that 
there is a regular process of review and certification of the 
planning process and continuing oversight over this, like any 
other grantee agency, that they are acting within the terms of 
law. And specifics beyond that we will have to supply to you.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T6634.020
    
    Mr. Ose. Now, one of the responses we got back from legal 
counsel was that the Department of Transportation does not 
intervene in, ``operational decisions.'' What I did is I went 
to 49 CFR and looked for the phrase ``operational decisions,'' 
and I didn't find it. Did I miss it, that the compliance with 
the Federal grant--if the noncompliance is a function of 
operational decisions that there is no recourse?
    Mr. Frankel. I think I would answer that in a little 
different way, which is that it is the case that FTA does not 
engage in exercising oversight over--generally speaking, over 
decisions made about such issues such as routes, fares and so 
forth.
    Mr. Ose. Let me go the second step. If I go back from 49 
CFR to the legislation that was passed and signed, is there 
some provision in there whereby, ``operating decisions'' are 
outside the compliance review process which you otherwise 
exercise? In other words, if I submit a grant request, and you 
or FTA approves it and provides the funds, and I use those 
funds to operate a transit system, is that an operating 
decision that leaves the use of those assets acquired by virtue 
of an FTA grant that may push a private provider out of the 
market--is that operating decision not subject to compliance 
requirements?
    Mr. Frankel. I don't want to try to engage in a legal 
discussion here, because I am not expert on transit law, but, 
it is the case, the pattern of this agency, which is not 
regulatory. It makes capital grants to local transit 
authorities, and it does not engage in the process, and I 
wouldn't think, with all due respect, that the Congress of the 
United States would want to engage in the process of looking 
over the shoulder and having to approve decisions about what 
fares should be charged, what compensation should be paid, what 
routes should be developed in response to the local community.
    I might say, if you will bear with me, that one of the 
principles we tried to capture in the proposal, the safety 
proposals, for reauthorization is to really try to strengthen 
State and local discretion. And, we hope that, as this law 
emerges, this reauthorization emerges from Congress, that there 
will be continued respect for State and local discretion I know 
that both of you have been strong supporters of throughout your 
careers.
    Mr. Ose. Well, we are in a bit of a dilemma here. Mr. 
Frankel, we have a number of other questions that, due to the 
exigencies of time, we are going to submit to you in writing. 
They follow along pretty significantly my train of questioning 
so far.
    Mr. Frankel. I suspect our answers may follow along the 
same basis.
    Mr. Ose. Mr. Tierney and I have been called for a vote. We 
are going to go ahead and excuse this panel, and then we are 
going to take a recess and go vote and come back.
    Mr. Frankel, I thank you for your attendance. I happen to 
have strong opinions on this. Hopefully you can defend your 
position.
    Mr. Frankel. Thank you, sir. And I appreciate the 
opportunity to be here.
    [Recess.]
    Mr. Ose. We are back. Our second panel is comprised of six 
witnesses, individually. They are--our first witness is the 
president of Amador Stage Lines of Sacramento, CA, Mr. William 
Allen.
    Also joining us is the chairman of the Board and CEO of E 
Noa Corp. from Honolulu, HI, Mr. Katsumi Tanaka. We also have 
Youngstown, OH, the president of Community Bus Services, Mr. 
Terrence Thomas. Joining us from the Reason Foundation is the 
vice president for the Reason Foundation, the executive 
director of the Reason Public Policy Institute, Dr. Adrian 
Moore. We have from--joining us from the Heritage Foundation, 
the Herbert and Joyce Morgan senior research fellow, Dr. Ronald 
Utt.
    Sixth but not least, we are joined today by an economist 
from the Economic Policy Institute, Dr. Max Sawicky. Welcome to 
our witnesses.
    Gentlemen, as you saw in our first panel, it is the custom 
of this committee to swear in all of its witnesses. If you 
would all rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Ose. Let the record show that the witnesses all 
answered in the affirmative. OK. Our practice here is that we 
recognize the witnesses for 5-minute periods to summarize their 
written submittals. Mr. Allen, you are recognized for 5 
minutes.

STATEMENTS OF WILLIAM R. ALLEN, PRESIDENT, AMADOR STAGE LINES, 
SACRAMENTO, CA; KATSUMI TANAKA, CHAIRMAN OF THE BOARD AND CEO, 
   E NOA CORP., HONOLULU, HI; TERRENCE V. THOMAS, PRESIDENT, 
COMMUNITY BUS SERVICES, INC., YOUNGSTOWN, OH; DR. ADRIAN MOORE, 
   VICE PRESIDENT, REASON FOUNDATION AND EXECUTIVE DIRECTOR, 
REASON PUBLIC POLICY INSTITUTE; DR. RONALD D. UTT, HERBERT AND 
 JOYCE MORGAN SENIOR RESEARCH FELLOW, THE HERITAGE FOUNDATION; 
  AND DR. MAX B. SAWICKY, ECONOMIST, ECONOMIC POLICY INSTITUTE

    Mr. Allen. Thank you. My name is William Allen. I am 
President of Amador Stage Lines, one of the largest private bus 
operators in Sacramento County. I am here today to outline 
FTA's failure to enforce Federal requirements on a grantee, 
Sacramento Regional Transit.
    As a result, RT began operation of a local parking shuttle 
that had been competitively contracted through various private 
carriers since the late 1970's. Amador has operated its service 
from 1993 to 2003. FTA abetted the transfer of over $2.4 
million from taxpayers for the purchase of buses that would 
ultimately be used to take business away from taxpaying private 
operators like ourselves.
    This transfer of funds happened even though RT failed to 
properly notify interested parties, as required by Federal 
notification and consultant statutes.
    What is even more incredible to me is that RT reduced 
service to half the frequency of the private operator, but 
still lost over $277,000 annually just to provide the service 
that in the past had been provided by tax-generating private 
operators at a profit. In part, due to poor decisions like 
this, RT is now facing a systemwide rate hike in the attempt to 
increase its dreadful 21 percent revenue return through its 
fare box.
    In 1998, 1999, RT entered into secret negotiations with the 
State and received an exclusive agreement to operate the local 
bus contract. Actions taken by RT, starting in 1998, 1999 to 
the start date of April 7, 2003, violated Federal statutes, 
regulations and a signed grant agreement with the FTA 
conditioning use of these funds.
    In 2001, Amador had in good faith extended the contract to 
the State with no knowledge of the aforementioned secret 
negotiations. It wasn't until December 2002 that some of the 
riders began voicing their displeasure to our drivers about the 
impending change of carriers. This was the first time that our 
company had any idea that RT was intent on taking over this 
service.
    On January 27, 2003, myself, numerous riders and the 
California Bus Association attended the RT board meeting to 
voice our protest to the service. The RT board ignored the 
public comments and authorized the takeover. On March 6, 2003, 
CBA filed an emergency protest with the FTA's Washington office 
requesting relief from the pending nationalization of the State 
shuttle routes. On March 13, 2003, Chairman Ose wrote 
Administrator Dorn requesting an FTA review of the CBA protest 
filed on March 6th.
    His letter specifically referred to CBAs request to suspend 
the contract's termination until the FTA had completed an 
investigation. On March 18, 2003, the FTA notified RT that it 
was requesting that they hold any action on the subject 
contract or service in abeyance pending the outcome of FTA's 
review.
    The FTA's letter of March 18th makes it clear that the FTA 
had first recognized its statutory responsibilities. On March 
24, 2003, the RT board at the urging of its general manager 
completely ignored the FTA's written instructions to cease and 
desist and approved the final April 7th takeover plan.
    After being made aware of the RT's decision on March 24th, 
the FTA never admonished RT for its brash behavior. Moreover, 
FTA's lack of response encouraged RT to continue without fear 
of consequences. Ultimately, FTA sided with RT's argument. This 
seemed odd since the August 2, 2002, triennial audit financed 
by the FTA had cited RT with violation of the private sector 
statutes on notification and consultation during the same time 
period as this case.
    The FTA could never demonstrate by independent 
investigation or by evidence from our RT how RT met each 
statutory obligation as requested by Chairman Ose's letter of 
August 6th.
    In what appears to be a cry for rulemaking after further 
followup requests by Chairman Ose, the FTA states that they had 
no jurisdiction over statutory compliance by grantees for 
operational decisions. This came even after the FTA felt they 
had enough jurisdiction on March 18th to issue a cease and 
desist letter to RT.
    FTA's record of failure is allowing a grant to RT for $2.4 
million for equipment, when the intent of the grant was to buy 
equipment that would displace private operations. This is in 
violation of various codes which state in part that assistance 
programs must not use equipment acquired with grant funds to 
provide services for a fee to compete unfairly with private 
companies that provide equivalency.
    FTA grantees must comply with rigorous planning and private 
enterprise requirements. A congressionally mandated audit found 
that RT had failed the entire public participation process. The 
FTA's failing to encourage private participation prevented 
unfair and unlawful Federal subsided competition.
    Amador employees have been harmed by the failure of the 
FTA. Approximately 25 drivers, mechanics and cleaning personnel 
were left without jobs due to the FTA's inaction and inability 
to enforce their regulations. Amador urgently requests FTA 
engage in meaningful rulemaking as requested by Chairman Ose.
    The FTA has failed to meet the standard of enforcement to 
the detriment of the taxpayers and riders across the country. 
It is time for this practice to stop.
    Thank you very much.
    [The prepared statement of Mr. Allen follows:]

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    Mr. Ose. I thank the gentleman. Our next witness is Mr. 
Katsumi Tanaka, who is the chairman of the Board and CEO of the 
E Noa Corp., a transit provider in Honolulu, HI. Welcome, sir. 
You are recognized for 5 minutes.
    Mr. Tanaka. I am pleased to be addressing this body which 
gives an opportunity for which I have thirsted over the course 
of many years. In 38 hours or so, back in Honolulu, HI, the 
county of Honolulu will apply for $20 million circumventing FTA 
scrutiny in order to run a service that we have been running 
for over 38 years.
    Let me demonstrate my point. Back in Waikiki, we have 95 
percent of the tourists. This is a fixed route for which we run 
trollies. At this very hour the county of Honolulu, instead of 
serving local residents, is about to serve tourists.
    Let me demonstrate further. This pamphlet is in the 
Japanese language, not in the English language. In the front 
page, at the preface, is the mayor of Honolulu, Jeremy Harris, 
who says to the Japanese people, using Federal dollars and 
local taxes, you will enjoy economic tours around the Island 
for $2.
    Obviously, operations like us who depend totally on revenue 
from fares without subsidy will be wiped out. Our peril back in 
Hawaii is that the private sector today is about to be 
assaulted by the government, Federal and county, constantly 
courting tourists instead of local residents.
    Moreover, the most popular destination on the Island of 
Oahu is called Hanauma Bay. About 8 years ago, in the name of 
ecology, Haunama Bay was closed to balance ecology as well as 
the visitors' desire to visit it.
    Once Haunama Bay, which was the most coveted of business 
for the private sector, the private sector has been ostracized. 
The only buses that are allowed into Haunama Bay today are the 
city buses.
    As a result, many parts of Oahu, local residents ask for 
many buses, more services, more frequency, to which the Mayor 
of Honolulu will say, we have to serve areas where there are 
more customers. Where the customers are is in Waikiki, where 
the customers thirst for low fares, where the private sector 
depends entirely on its livelihood. That is the very purpose 
for which the cunty of Honolulu is asking for $20 million. I 
hope that FTA and others will put a stop to Honolulu County's 
operation of tourists, while neglecting local residents.
    We are a small business. Moreover, the buses, the city bus 
is run by the Teamsters. The average hourly wage of the 
Teamsters is about 48 percent higher than private sector. 
Moreover, the Teamsters are provided, of course at taxpayers 
expense, full benefits, medical, pension funds. Today the 
private sector in Hawaii is losing drivers to the city bus.
    We are not capable of redressing our grievances because of 
the powerful combination of Federal funds, county funds and the 
State--county of Honolulu. The very same regime that operates 
tour operations also operates the police, and there is 
systematic harassment of our drivers with neglect of the city 
buses. This is truly a phenomenon that I never expected to take 
place in the United States. This is truly a matter for which we 
need your succor immediately, not future deliberations.
    Again, I repeat, within 38 hours or so the county of 
Honolulu may be granted $20 million, and this is a statement 
from Jennifer Dorn. We have learned from experience that this 
exemption, meaning grants of $25 million or so, encourages 
project sponsors to artificially define projects into smaller 
segments in order to avoid being subject to FTA assessment.
    That is exactly the point, the county of Honolulu that 
started with asking for more than $2 billion for the entire 
Island of Oahu, arguing the case that the residents of Oahu 
deserve better public transportation. Instead, the magnified 
program has shrunk into Waikiki only. I repeat in Waikiki, 95 
percent of the tourists live in Waikiki.
    So today the very same regime asking for $20 million has 
aggrandized its appetite to constantly court tourists as a 
source of revenue at the general neglect of local residents. 
Thank you very much. We need help immediately in the form of 
FTA not certifying whatever the allegations are the county of 
Honolulu makes.
    [The prepared statement of Mr. Tanaka follows:]

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    Mr. Ose. Thank you, Mr. Tanaka. Do you want to introduce 
Ms. Dorn's statement into the record?
    Mr. Tanaka. Yes.
    [The information referred to follows:]
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    Mr. Ose. Without objection so ordered. Mr. Thomas, you are 
recognized for 5 minutes. Welcome, sir.
    Mr. Thomas. Thank you, sir. My name is Terry Thomas. I am 
president of Community Bus Services in Youngstown, OH. CBS 
provides contract bus services for senior citizens and persons 
with disabilities, and has been in business since 1933, and we 
now operate over 100 vehicles.
    Like the other bus companies testifying today, we have come 
to realize that the private investment we have made in public 
transit is viewed as an undesirable impediment by many public 
transportation agencies, including the FTA.
    CBS's most recently awarded public transit service contract 
is with the city of Niles, OH, in Trumble County. After a 10-
year-long struggle to bring public transit to the largest 
populated county in the United States, Mayor Ralph Infante of 
Niles, OH, successfully secured an FTA grant to operate public 
demand response transit service.
    In September 2003, my company was awarded the competitively 
procured contract to operate the service. If this was all there 
was to the story, it would be viewed as a positive example of 
competitive contracting. However, because of the actions of 
WRTA and the Chicago Regional Office of the FTA, much needed 
service was needlessly withheld from the people of Trumble 
County for 10 long years. The WRTA, for several decades, was 
the only public transit system in the Youngstown-Warren Area.
    Yet, while receiving FTA formula funding for decades, based 
in large part on Trumble County's population, WRTA consistently 
refused to extend service to Trumble without being paid 
additional for the cost of the service.
    The longstanding frustration eventually led Trumble and the 
city of Niles to create its own system. Niles solicited bus 
service proposals from qualified providers. WRTA never 
submitted a proposal in response to Niles' solicitation. 
Instead, WRTA immediately protested the award of any contract 
resulting from the effort.
    The approach by WRTA was to try to thwart the award of any 
contract to operate public transit service to anyone other than 
itself, thus guaranteeing WRTA exclusivity and a monopoly in 
providing public transit services in the two-county area on a 
noncompetitive basis.
    FTA's Chicago Regional Office supported WRTA in this 
effort, ruling that WRTA was at an unfair competitive 
disadvantage in December 2002. The city of Niles appealed the 
FTA Chicago Regional Office finding, and it was subsequently 
reversed in May 2003 when reviewed by the FTA General Counsel's 
office in Washington, DC.
    Niles only then was able to move forward and award a 
contract, albeit not until September 2003. Let me emphasize 
that it was not until the FTA General Counsel's office stepped 
in from Washington, DC, to reverse the decision of the FTA 
Chicago Regional Office and its local grantee transit property, 
the WRTA, that Niles was able to proceed with this bus service 
delivery.
    Although Niles eventually prevailed, 10 years is a long 
time to wait for a decision. In a separate Ohio example, a 
local private bus company, Advanced Coach, filed an FTA 
complaint against the Southeast Area Transit, called SEAT, an 
FTA grantee in southeastern Ohio.
    The complaint involved SEAT's unfairly competing against 
private bus companies by operating bus service for a fee to 
third party entities utilizing equipment and facilities 
acquired with Federal grants. Some of these contracts involve 
peak hour shuttles to local employers that would otherwise be 
operated by private bus companies without FTA funding.
    FTA has stepped back from encouraging the use of private 
bus operators, as required by the Federal Transit Act, by 
abandoning the fully allocated cost doctrine. This regulation 
was supported and framed under a contract for the FTA by the 
consulting firm of Booz Allen, which required public federally 
subsidized transit agencies to compare true costs of 
operations, include fare allocations of administrative, 
maintenance and related costs as opposed to mere operational 
and marginal costs. It is no surprise that the public transit 
agencies pressed until the FTA relented and abandoned the 
analytic fully allocated cost requirement.
    I have attached Circular 7005-1 issued in December 1986 
that describes the fully allocated cost requirements. Utilizing 
bus operators as an element of a community transportation 
program makes good fiscal sense and is operationally practical.
    I ask that FTA engage in a rulemaking, as Chairman Ose has 
requested, that will establish meaningful thresholds that meet 
the meaning of FTA's own words, and that its grantees meet 
rigorous planning and private enterprise requirements.
    Given that under FTA private sector provisions there exist 
no private right of action for judicial review in the courts, 
an arm's-length enforcement responsibility should be given 
either to the DOT Secretary's office or become subjected to 
negotiated rulemaking, where the private sector has a position 
to sign off on new arm's-length enforcement rules.
    Otherwise, by continuing the current course of action, 
private bus operators will soon be forced out of business 
altogether.
    In my short time before you today, I want to leave you with 
the thought that many of the frustrations which have been 
encountered by private bus operators in the Federal transit 
program could be resolved with statutory language directing FTA 
to make rules that protect private bus operators that offer 
more uniformity and arm's-length enforcement.
    Thank you so much, Mr. Chairman and Mr. Tierney.
    [The prepared statement of Mr. Thomas follows:]

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    Mr. Ose. We appreciate your testimony. Our next witness is 
the vice president of the Reason Foundation, Dr. Adrian Moore. 
Sir, we received your testimony. It is lengthy. You are 
recognized for 5 minutes to summarize.
    Dr. Moore. Thank you, Mr. Chairman. You know, the stories 
we have just heard about anti-competitive behavior by public 
transit agencies has a long history. I wrote a book a few years 
ago published by the Brookings Institution that documented a 
great many, sort of a historical pattern. It is the nature of 
public transit agencies that they try to rub out any 
competition that they might face from the private sector.
    In the context of Federal grantmaking, the State and local 
transportation projects that receive Federal grants have a 
different accountability structure than ones that are funded 
locally. You can see this where you live, when you look at 
projects that are funded, say, by a local sales tax versus ones 
that get Federal grants. You hear about the ones that are 
funded with State and local funds. The Department of 
Transportation or the local transit agency feels compelled to 
make sure that people know how this money is being spent.
    Projects funded with Federal grants you generally never 
hear about. There are things that are done quietly on the side 
by these agencies. They are only accountable to the FTA or the 
DOT. It a different accountability structure. At the same time, 
the kind of free money aspect of these grants creates strong 
incentives to use the dollars internally rather than make use 
of private sector participation, not necessarily weighing cost 
effectiveness and speed of production and so forth, and I think 
all of that is pretty much common sense.
    That is why these provisions that the chairman read earlier 
in the hearing are in the law. There is a recognition that 
there are some incentive problems here, and we need to have it 
in the law that private sector participation needs to be 
weighed.
    I think where FTA and DOT are missing the bus is that--you 
can't have a hearing without at least one pun--where they are 
missing the bus is they are not making these grants on a 
performance basis. We understand that we want State and local 
governments to make these decisions on their own. These are 
State and local services. But, the fact is, if you are going to 
get Federal money to do something, being accountable for the 
use of that money makes sense.
    I am not talking about micromanaging those things. But, if 
it is within the law and within good management practices for 
the DOT to ask these agencies to report back what are the 
projects they are using the money for, how were they executed, 
and are they meeting the goals that they stated they were going 
to meet in applying for the funds in the first place?
    By not following through in that fashion, by not making 
full use of the private sector, we are missing a lot of value. 
There is a lot of displaced private funding that could be 
brought to the transportation projects.
    Again, the chairman made a good summary of the 
transportation funding needs that we face in this country. 
There is a lot of private money that could go to provide 
transportation services if they were allowed to do so and they 
weren't pushed out of the market. This goes from toll-funded 
roads to private transit services within cities.
    When you think about transit services within cities, since 
that is a lot of what we are focused on here, there is a lot of 
biases in the way things are funded away from doing competitive 
operations of these systems once you have purchased the capital 
with a Federal grant. But, it is interesting to see that in the 
United States and Europe, where you have contracted out 
operation of bus services, you have made use of private sector 
participation, you are looking at an average of 35 percent cost 
savings. I think some of the examples have highlighted those 
kind of savings.
    It is also very interesting to see how much the costs of 
publicly operated systems plummet when part of the system is 
operated by a private contractor or when they do face direct 
competition from a private bus service. The cost differentials 
become really obvious. It makes the public agency very 
uncomfortable.
    Surveys performed by the Transportation Research Board of 
transit agencies who have contracted out operations find that 
80 percent of them would say that they would gladly do this 
again if they had a chance to do it over again. They are very 
satisfied with private sector participation. These are not 
cheerleaders, these are not private companies, these are public 
officials, public employees, who are just trying to get the job 
done.
    To boil this down to recommendations, I think, at this 
level I think the DOT needs to make these grants on a 
performance basis, set out clear criteria. It is already in the 
law. They can fold that into the contract criteria in a fairly 
straightforward fashion. I think they believe that it is sort 
of implicit and it is embedded in the local planning process, 
and, if you have ever been participated in an MIS, you have 
probably seen that is not the case. MISs are very political 
processes, they are not technical processes.
    Embedding some of this in the grant requirements makes 
sense. Obviously the transportation funding bill, even if the 
one that is currently up is not in the debate stage any more, 
it is going to come around again. There are a lot of things 
embedded in the transportation funding bill that are 
problematic or raise barriers to private sector participation. 
I think we need to continue to tackle those.
    Thank you very much.
    [The prepared statement of Dr. Moore follows:]

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    Mr. Ose. Thank you, Dr. Moore. Our next witness is the 
Herbert and Joyce Morgan senior research fellow at the Heritage 
Foundation, Dr. Ronald Utt. Sir, we have your testimony. It is 
very informative. We have read it. You are recognized for 5 
minutes to summarize.
    Mr. Utt. Thank you, Mr. Chairman. My name is Ron Utt. I am 
a research fellow at the--senior researcher at the Heritage 
Foundation, where I conduct research on transportation, 
housing, privatization, and public-private partnerships for 
infrastructure investment.
    It is an honor and privilege to appear before the 
subcommittee today to discuss opportunities for the public 
sector to work cooperatively with the private sector to harness 
the resources, talents and creativity of the competitive 
marketplace to improve transportation.
    Let me also add here that the views I express in this 
testimony are my own and should not be construed as 
representing any official position of the Heritage Foundation.
    Until recently, in the United States, most surface 
transportation relied almost exclusively upon government 
spending and user fees to expand capacity, maintain 
infrastructure and cover operating costs. Much of the public 
revenue dedicated to those systems was derived from Federal and 
State fuel taxes and local property taxes, and as long as 
vehicle-miles traveled continued to rise, and fuel tax rates 
could be increased every couple of years, growth and dedicated 
revenues was adequate to meet the needs.
    Around 2000, 2001 growth in vehicle-miles slowed, and many 
voters throughout the country made it clear they did not want 
State and Federal fuel taxes raised.
    At the same time, many States saw their budget deficits 
widen, and money was often moved from deferrable transportation 
spending to other programs. As resources for service 
transportation fell or stagnated, a money shortage also created 
the willingness on the part of some public officials and 
private investors to take a serious look at greater private 
sector participation in surface transportation projects.
    Although the United States is no stranger to innovative 
private sector solutions for transportation, it lags behind 
Europe and Asia in the scope of implementation, largely because 
these other countries confronted serious budget limitations 
decades before we did and thus were forced to begin thinking 
creatively in the 1980's.
    Beginning with privatization of many of Japan's passenger 
rail lines in the 1980's, one country after another began to 
increase its reliance on private sector partners to help 
control costs, increase financial resources. The London bus 
system is now contracted out entirely to private operators, as 
is much of Copenhagen's and Stockholm's.
    Although many countries in Europe and Asia are ahead of us 
in creating innovative arrangements, we have the advantage of 
being able to learn from their successes and also from their 
failures. With the likelihood that future public revenues for 
transportation will continue to be limited, partnerships with 
the private sector are certain to increase, especially at the 
State level where a number of major projects are already under 
serious consideration.
    An interesting example of some of the opportunities being 
pursued now are those that are emerging in Virginia. Virginia 
has enacted one of the most accommodative public-private 
partnership laws in the country to encourage qualified private 
sector enterprises to propose to the State Transportation 
Department partnership opportunities for investment in new road 
and transit capacity.
    Originally enacted in 1988 to permit the construction of a 
specific toll road in Loudon County, the law was subsequently 
amended in 1995 to allow any qualified partnership to be 
proposed for eligible transportation projects throughout the 
State. In response to the wide scope the law allowed, a private 
company proposed to use a partnership arrangement to fund and 
build the Pocahontas Parkway in Richmond.
    That was completed and opened in 2002. But before that, in 
1995, another proposal was received from a private company to 
take over the maintenance duties on a portion of Virginia's 
interstate highways. That contract was granted to the proposer, 
and is still in effect today. And in fact they were so 
successful that about a year and a half ago the District of 
Columbia picked up the same contractor to do the maintenance 
and repair work on its share of the interstate highways running 
through town.
    More recently, largely a consequence of limitations on 
future and Federal highway funding, a number of new partnership 
proposals have been presented to Virginia DOT. Over the past 15 
months, DOT has received five separate proposals to add 
capacity on three congested interstate segments. And recently a 
sixth proposal is being developed for the proposed rail line to 
connect Dulles Airport with the existing Metro system. Overall, 
these projects could attract new investment to Virginia in 
excess of $10 billion.
    This is about 10 times more than what Virginia gets from 
the Federal Highway Trust Fund each year. So we are talking 
about significant pools of money. $6 billion for two competing 
proposals on Interstate 81, anywhere from a half a billion to a 
billion dollars of competing proposals to build a toll express 
HOT lane on 95, extending as far down as Fredricksburg, and a 
proposal to do toll express lanes, HOT lanes on the Virginia 
side of the Beltway.
    These are significant projects which will vastly, if they 
go through, vastly increase the resources available for 
transportation projects in Virginia at very little claim on the 
public treasury, allowing what revenues they have from gas 
taxes and other sources to be used on projects that cannot be 
sustained with private sector interests or self-sustained on 
tolls and other forms of fees.
    Virginia is not alone. Georgia adopted the Virginia law in 
2003, and they already have two competing proposals on their 
project.
    I think we are out of time, so let me wrap it up with that. 
Thank you, sir.
    [The prepared statement of Mr. Utt follows:]

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    Mr. Ose. Thank you, Dr. Utt. Our sixth witness, comes to us 
from the Economic Policy Institute, where he serves as an 
economist. That would be Dr. Max Sawicky.
    Sir, we received your testimony. You are welcome to 
summarize in 5 minutes.
    Mr. Sawicky. Thank you, Mr. Chairman. I would like to thank 
the committee for the chance to present my views. You have my 
statement. I will spare you the reading of it or most parts 
thereof.
    There is an old joke that involves a man, a woman who isn't 
his wife, and a clothes closet. It ends with the line: 
Everybody has to be some place. It is true, everybody has to be 
some place.
    I am not sure we have to be here. We might better be 
regaling the city fathers and mothers of Sacramento about how 
to run their bus system. I am little puzzled by that.
    I want to make four points. No. 1, I am not a lawyer. No. 
2, buses are complicated. No. 3, research does not always make 
us smarter. And, No. 4, let Sacramento be Sacramento.
    A lot of the discussion here has been about legal 
arrangements going to what the rights are of State and local 
governments in terms of contracting. I am not a lawyer so I 
can't evaluate them. There is rhetoric and even legislation to 
the effect that there is some inherent right of private sector 
operators to do public work. Now, again, although I am very 
dubious as to the Constitutionality of that, I am not a lawyer. 
What I can say with more confidence is from an economic 
standpoint there is no justification for that.
    The public interest is having work done most efficiently, 
not necessarily by private operators. In fact, if it could be 
done privately, it doesn't mean it should be done privately 
from the standpoint of efficiency. There was legislation called 
Freedom from Government in Competition, which seemed to embody 
that principle, but fortunately the actual passage of it 
watered down the application of that significantly. So, that is 
point one.
    Point two, buses are complicated. I would argue that the 
transportation function goes well beyond rolling a bus from 
Point A to Point B and picking up and dropping off people in 
between. There are other factors besides timeliness. There is 
courtesy, safety, comfort, environmental implications, the 
proper breadth of service, the extent to which you want to 
maintain unprofitable--routes that are unprofitable in and of 
themselves, and fitting all of that into a regional 
transportation system, which is really the public problem, I 
think is even more complicated.
    I would argue that a narrow view of this kind of work is 
really inadequate.
    No. 3, research does not always make you smarter. 
Literature on the cost savings, which seems to be the thing 
that is touted most often as the case for contracting always 
being better, or almost always, is actually very diverse.
    There is a Transportation Research Board study. I will just 
quote one sentence that is also in my testimony. The committee 
recognized from the outset that a comprehensive review of past 
studies on contracting would in all probability have generated 
more questions than answers. My colleagues know about studies 
showing that contracting saves money. I can cite studies 
showing that is not always necessarily the case.
    For instance, a study from the University of California at 
Berkeley said the effects of contracting on costs are examined 
for the years between 1989 and 1993. The findings show that bus 
services under contract are sometimes but not always less 
costly than directly operated services. We conclude the cost 
efficiencies can be achieved in many different ways, depending 
on local conditions, and contracting should not be assumed to 
be the most appropriate strategy in every situation. So 
research does not always tell you simply what to do.
    In light of that complexity, that brings me to my last 
point. From a Federalist standpoint, again, the basis for us 
trying to determine here, or through Federal law or through 
rules, how Sacramento or any other local jurisdiction should 
conduct a fairly complicated decision whether or not to 
contract out, how much, where, how, when. I think the U.S. 
Congress, much less us here in Washington, are not well 
situated to make that decision. It is really more for local 
government.
    There is a Federal interest in oversight of Federal 
dollars. But, of course, the question is where you draw the 
line. What is the reliable or the feasible extent of intrusion 
or management? I think that in light of the complexity of this 
kind of decision, even something like buses, it is not--the 
Federal Government is not well situated, is not better situated 
certainly than the people in Sacramento, CA, and in the States 
to make that decision.
    Thank you very much.
    [The prepared statement of Mr. Sawicky follows:]

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    Mr. Ose. Thank the gentleman for his testimony. OK. As in 
the previous panel, we will entertain questions both from Mr. 
Tierney and myself.
    This is a question for all of you. We will just move across 
the panel from left to right. The Department of Transportation, 
to one degree or another, seeks to facilitate competitive 
contracting for building new infrastructure, for maintaining 
existing infrastructure, and for operating existing services.
    Do you think that has been successfully implemented or not, 
and, if you think it has or has not, would you give us some 
feedback as to how we might improve? Mr. Allen.
    Mr. Allen. Well, I can't see in our particular case in the 
Sacramento area how FTA has helped the infrastructure. RT has 
some really internal problems as far as operating. There was a 
big article in the paper just the other day about their see-
through buses because they don't have very many riders. That 
comes back to the 21 percent return on their fare box.
    They need to, I think, go out and find a way to do better 
service at less cost. So as far as the infrastructure, I am not 
sure what the FTA has done to help that. I don't know.
    Mr. Ose. Mr. Tanaka.
    Mr. Tanaka. In the case of Oahu, we are blessed by millions 
of dollars put by the tourists. As a result, therefore, we have 
plenty of private companies with equipment, vehicles, purchased 
on our own without Federal funds. Therefore, bringing private 
sector into carrying local residents, as well as tourists, 
certainly will result in greater savings, including those 
counties and States that need such funding more than Hawaii.
    However, the playbook phrase in Hawaii is: it wouldn't cost 
us anything so long as we get Federal funding. So any Federal 
funding is greatly enjoyed by the State of Hawaii. With respect 
to ground transportation, yes, we have numerous excess capacity 
by private companies because the county of Honolulu has invaded 
into our territory. As a result, many private companies have 
idle buses.
    For Hawaii, and especially the Island of Oahu, we are in a 
very, very appropriate situation where we ask that the Federal 
Government and others enforce the existing laws. They will 
work; they are not enforced.
    Mr. Ose. Mr. Thomas.
    Mr. Thomas. I have two comments. The answer is the FTA has 
not sought to include private involvement. The examples I have, 
No. 1, are in Cleveland, OH, where I operated a community 
circulator, a public transit service. A nice little circulator 
route. It was a pilot project for a few years back in late 
1980's.
    Once it was determined that there would be successful 
ridership, the RTA then concluded in its planning that they 
should expand it systemwide. They went from two circulators to 
about 30, and they sought competitive proposals. Then they 
threw them all out.
    Years later, when I got to talk to the financial people on 
the inside of the RTA, it was the disparity, as Dr. Moore 
mentioned, the disparity between the cost of service that 
humiliated the transit property. They couldn't stand the fact 
that we were charging $35 to $40 an hour, including the cost of 
the bus, compared with $70 to $80 an hour excluding the cost of 
the bus for the service.
    That changed the entire focus of my company, because I 
thought for sure we had it made. We were going to grow our 
service. Instead, we left the Cleveland market. Then, 
separately in my testimony, I talked about a much smaller 
example in Youngstown and then in Niles, OH, where it was 
another public entity that wanted to perform service in their 
own area that the current public transit grantee tried to 
prevent, and actually the mayor had to go through the appeals 
process at FTA. If the General Counsel in D.C. at the FTA's top 
legal office didn't intervene, that service still wouldn't be 
performed.
    It seems like every time we try to get involved, at least 
in Ohio, it gets shut down. There is some contracting for 
public transit services in Ohio. It is very limited and very 
clear that it is undesirable.
    Mr. Ose. Dr. Moore.
    Dr. Moore. I would reiterate the answer. The straight up 
answer to your question is no, the FTA has not sought. They see 
themselves as a grantmaking organization. As long as the 
requirements--their job is to give the money to these people, 
as long as they dot the Is and cross the Ts, basically asking 
for the money, they give them the money. That is obviously 
their role. They don't see their role as in any way shaping how 
these projects are done.
    As to how they can improve that, I think there are two main 
areas. First of all, it is perfectly reasonable for them to 
have criteria that these grants are not used to put a private 
operation out of business. That should be fairly easy to 
determine and enforce and should be a simple requirement of 
making a grant.
    A little bit more complex, but just as important in a 
broader context, is broader public-private sector participation 
in these things could be induced by FTA, or not induced, 
allowed I guess by FTA if they--if they had criteria, 
performance criteria, as I mentioned in my testimony, saying 
what is it you are going to accomplish? How many people are you 
going to serve? How much service are they going to get?
    If private sector participation can help an agency to 
provide more, than it would get used. If it doesn't, and in 
many cases it may not, then it wouldn't get used. But, it would 
be an outcome based way of getting private sector participation 
folded into the decisionmaking which right now is generally not 
on the table.
    Mr. Ose. Dr. Utt.
    Mr. Utt. On a broader issue, on sort of the broader 
question you asked, since 1955, the Federal Government has been 
issuing edicts and Executive orders extolling the virtues of 
private market, encouraging bureaucracies to work more closely 
with them, and noting that it is a great source of money and 
cooperation and creativity. It is the purpose of our 
administration to change the way we do things. From now on, we 
will work more closely with the private sector.
    There has been little effective action as a consequence of 
these edicts. They make everybody feel good, but nothing really 
much changes in the operation of those programs. On the issue 
of transportation, I am not sure that new edicts, new 
regulations, new intentions would make much of a difference on 
the kind of infrastructure we already have in existence, which 
brings me to the nature of the infrastructure.
    The Federal Highway Program that we are dealing with today 
was created in the mid-1950's for a single, well-defined 
purpose. That was to build the interstate highway system. That 
was their only job, a border to border, coast to coast, 
connecting all of the major cities in the country. That was 
largely completed in the early 1980's, and it never adopted 
another objective that was quite as clear as that.
    At the same time, the transportation problems we have 
today, as I think have been illustrated by everybody, are 
increasingly local and regional in nature. But, you have a 
national program here in Washington that is sort of trying to 
figure out how we do this on a local level, on different bus 
systems, and I think that what has come out of this is they are 
just not particularly well equipped to do that.
    I suggest that the real issue is to review the Federal 
program we have, say has it outlived its usefulness, and are we 
better simply turning it back to the States, which is something 
we have advocated.
    Mr. Ose. Dr. Sawicky.
    Mr. Sawicky. Well, I have been writing about federalism for 
about 20 years now. A theme that I think always comes up is the 
difficulties from the Federal Government of closely regulating 
what State and local governments do, either with money or 
without money. Both parties, all kinds of programs, there is a 
continual interest in Washington to try to do good and to do 
good through other people who have different motives, 
interests, possibly well motivated, possibly otherwise.
    There is a chronic problem, I think, expecting the Federal 
Government to get very deeply involved in how any local entity 
is contracting now, or doing anything else for that matter. We 
might note at the same time that there are huge difficulties in 
Federal contracting, which I think Congress and the executive 
branch have yet to get a good handle on.
    I think--to imagine that the Federal Government could clean 
up or regulate or significantly improve what State and local 
governments do in that realm, alongside a longstanding lack of 
success in greatly advancing the way Federal contracting is 
done is really problematic. So my vibe here is against over-
reaching. Now, there is a case for money for Federal aid, even 
without too much oversight, which, you know, we can go into if 
you like.
    I don't think that the lack of ability to closely regulate 
precludes any kind of Federal aid, contrary to Dr. Utt.
    Mr. Ose. The gentleman from Massachusetts.
    Mr. Tierney. I would like, Dr. Sawicky, for you to go into 
that a little further, on the last train of thought that you 
had, the benefit or possibility of giving Federal money, but 
having the oversight come from someplace else, which is where I 
suspect you were going.
    Mr. Sawicky. People are concerned, rightly so, with Federal 
aid being used inappropriately or in some kind of malfeasance 
at the local level. Well, once Federal aid is in the State and 
local coffers, it is no different from any dollar in principle. 
They have no interest in using a Federal dollar any differently 
than they would use their own money. We expect State and local 
political processes and the politics to regulate that.
    Now, from a tax standpoint, which I also work on, there is 
advantage in some level of centralized finance of local 
operations. Local taxes have negative economic incentives. 
People have an incentive to run away from the tax to a 
neighboring jurisdiction or State. The Federal Government has a 
greater capacity to tax the economy as a whole. So there is--it 
is cheaper for the Federal Government to collect taxes than 
State and local governments. There is a case for some Federal 
leverage of State and local finances, even apart from any 
significant oversight.
    There are also other motivations for Federal aid. There are 
considerations for economic development, for equalizing fiscal 
capacity across State and local jurisdictions. So there are a 
variety of justifications for Federal dollars absent a great 
amount of oversight in the use of those dollars when they are 
going to the State and local governments.
    Mr. Tierney. I appreciate your comments. I don't want to 
get into a debate with you. I would have some problems about 
the money supplanting State money and local resources and their 
failure to use the money for the intended purpose.
    But, I wanted to really hear what you had to say, and I 
appreciate that.
    Mr. Allen, you made some comments during your testimony 
that you thought there were secret negotiations with the State. 
Do you have some empirical evidence that you would care to 
share with us about just who had those negotiations and when 
they occurred?
    Mr. Allen. Yes, I would. We were in constant contact with 
General Services throughout the last year and a half, because 
our contract initially was in 1996 and went through 2001. It 
was a 5-year contract. This contract had been competitively bid 
for 25 years. We were just the last one in the mix.
    I want to make clear that this is not an Amador issue, this 
is an industry issue.
    Mr. Tierney. Thank you for that. But, in my limited time, 
my real question is, what was the secret negotiation and who 
were the parties involved in it?
    Mr. Allen. OK. It was General Services and Regional Transit 
and their planning department.
    Mr. Tierney. Do you have names you want to name here and 
dates that this happened?
    Mr. Allen. Names? Oh, boy. I don't have the names off--I 
can get you the names if you would like.
    Mr. Tierney. Do you know specifically who was involved in 
that?
    Mr. Allen. Well----
    Mr. Tierney. My point is, were you surmising this or do you 
have some hard evidence?
    Mr. Allen. I know that we were talking to them every day 
about an extension or were they going to put it out to bid, 
because the time was running out. It took about 9 months to 12 
months to get the vehicles. I was in constant contact with 
them, saying your time is getting short. What are you going to 
do?
    They just said that this, you know, we are working on 
putting the bid package together. We are getting all of our 
``I''s dotted and ``T''s crossed. They were stringing us out 
basically. In the meantime, from the information we have 
received through investigation, they had this other plan 
already in the works.
    Mr. Tierney. I guess that is what I am looking for. What 
investigation? What other information have you got to convince 
us that there was this other track of negotiations going on in 
secret?
    Mr. Allen. There were the meetings between ourselves and 
the California Bus Association and----
    Mr. Tierney. That was not General Services----
    Mr. Allen. No, after the fact. With General Services to ask 
them how this all went step by step by step. It was--actually 
it took three meetings at one point for them to finally 
acknowledge that there were meetings. So, I mean it was like 
pulling teeth because it was secret.
    Mr. Tierney. I suspect--it is somewhat unfortunate that we 
don't have other people here to sort of put this whole picture 
together, because I appreciate that you have a perspective on 
that, and I would expect that you would.
    But I would certainly like to hear what the State was doing 
and thinking and saying during that period of time as well as 
the RT people, whatever. The chairman tells me that we are 
going to have other hearings at some point in time. I would 
rather have seen it all together so we can have a little 
interplay here and get to the bottom of this.
    But, you know, if you would submit to the committee, if you 
have hard evidence, empirical evidence that there were 
individuals and entities involved in secret negotiations 
improperly during the course of this situation, I would hope 
that you would submit that to us in writing.
    Mr. Allen. I can do that.
    Mr. Tierney. Thank you.
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    Mr. Ose. Mr. Allen, I want to make sure--I keep trying to 
get the chronology correct. When the contract under which your 
company offered the transit service, if I understand correctly, 
and from my experience anyone who parked in a certain area or 
along the path of the service itself could effectively just 
walk on the buses, there was no charge?
    Mr. Allen. This whole service was basically a union 
negotiated benefit for the State workers. So, as you would 
note, Mr. Chairman, the parking lots were underneath the 
freeways, they were remote from downtown. It was about a mile, 
a mile and a half route from the parking lots to downtown 
center.
    I believe they paid $20 a month when we first started for 
this parking spot plus transportation.
    Mr. Ose. Who is they?
    Mr. Allen. The State employees.
    Mr. Ose. The State Employees Union or the State of 
California?
    Mr. Allen. The State employees paid the State of 
California. It was probably a deduction out of their payroll.
    Mr. Ose. Much like we have at the Federal level then with 
the transit benefit for State employees, priced at $20 a month, 
they could have a deduction from their pay?
    Mr. Allen. That is right. They would get parking, very 
reasonable parking, plus transportation in. And the idea was to 
keep the--Sacramento has a smog problem. So it was to keep the 
people from the city core with the cars.
    Basically, they had their name, their name badge, their 
State card. They would show the card, and, if they didn't have 
a card, they paid a dollar. Now, anybody could pay a dollar. We 
asked them, you know, how do we know if they are a State 
employee versus a non-State employee. Because some of these 
State employees parked in the street versus parking in the 
parking lot to pay the $20.
    They would park in the street and walk in with their card. 
So, in any event, they said just take a dollar from whoever 
doesn't have a card. We don't care if they are Joe Public or 
they are State workers, it doesn't matter to us.
    That is what we did. We had a fare box in the front of the 
bus. They paid a dollar if they didn't have their card. It was 
open to the public. We had--you know, we had stops along the 
way. We stopped actually at the regional transit stops. This 
was a service that--General Service gave us the maps. We had 
published schedules that went out to--all of the employees had 
schedules. They had--there were scheduled times. There was like 
16 buses at the top end at one time working off of three 
different parking lots. It was regular mass transit service.
    Mr. Ose. OK. Well, first of all, I need to admit that I owe 
you a dollar. I snuck onto your transit without paying.
    All right. Someone parking underneath the freeways, they 
would walk over and show their State employee ID, or they would 
park in the street and get on showing their State employee ID. 
If they didn't have their State employee ID, they paid a dollar 
for the movement from the parking lot to the State office 
buildings that are in the core?
    Mr. Allen. That is correct.
    Mr. Ose. Now, you had 16 buses. How many stops along the 
way?
    Mr. Allen. There were, from the parking lots inbound, there 
was probably not too many until you got to the city core. You 
would get right down to the east end. That would be the first 
stop. Then they would work their way down through the main part 
of town. On the way out would be more of the stops, because 
there were more State buildings to pick up at. Probably 8 to 10 
stops.
    Mr. Ose. But, the entire route was in the downtown core? 
Started at the freeway parking lots, looped in, and looped back 
out?
    Mr. Allen. Right. And, they came in--no stops until the 
buildings. They hit all of the buildings, and no stops once 
they left the buildings.
    Mr. Ose. Now, my understanding or my experience has been 
that, in addition to the transit service you were operating 
under this contract, RT was running buses up-down J Street and 
L Street and also north and south on 16th and 19th and the 
like.
    So you are running a transit service, and RT is running a 
service at the same time?
    Mr. Allen. We were, and we were actually using their bus 
stops.
    Mr. Ose. You had permission, by virtue of a negotiation, to 
use RT's bus stops as a mutual collection point?
    Mr. Allen. Yes.
    Mr. Ose. Were they designated bus stops?
    Mr. Allen. They were RT bus stops. They didn't say State 
employees bus stop.
    Mr. Ose. Like any RT bus stop along the path?
    Mr. Allen. There were designated RT bus stops at various 
points. We didn't hit every one of their bus stops, but we hit 
the ones that the State asked us to stop at.
    Mr. Ose. My time has expired. The gentleman from 
Massachusetts.
    Mr. Tierney. Well, I just want to cover one point, and 
maybe I am putting too fine a point on it. But, you had folks 
that had a card and they could get on your bus. You had folks 
who were without a card, and you got a dollar, so that was a 
penalty for having a card, I take it. But, you let people get 
on even if you weren't sure that they were employees. I guess, 
it sounds to me like morally a decision was made not to go 
through the cost or hassle of enforcing the provision, but 
rather just to take the occasional stray that got on there and 
let them ride for a buck, as opposed to go through a big, long, 
convoluted process of trying to keep other people off. It 
doesn't sound to me like there is some conscious decision to 
open up to the public and notice that everybody could ride 
these things.
    Mr. Allen. There could have been partially what you said. 
But, realistically, we were starting and stopping at a parking 
lot, remote parking lot.
    Mr. Tierney. It is unlikely that you were going to get 
people going there just to take your bus, unless they were 
working in part of that group?
    Mr. Allen. The schedule that we operated is identical to 
what RT is running today.
    Mr. Tierney. Well, I appreciate that added comment, 
although it wasn't even part of my question remotely. But, the 
idea is that you were stopping there to pick up those 
employees, for the most part. That was your deal. You weren't 
there because you had a contract to pick up people that had 
negotiated that right or privilege or whatever it was----
    Mr. Allen. Right. It is right.
    Mr. Tierney. You wouldn't have been there without that 
deal?
    Mr. Allen. There was free parking out there on the street 
if somebody caught wind of our service.
    Mr. Tierney. I don't need to hear that. I am trying to 
narrow my points. You were there because you had negotiated an 
agreement to be there to pick up those employees. You would not 
have been there but for that?
    Mr. Allen. Exactly. The same as RT today.
    Mr. Ose. I think----
    Mr. Tierney. That is fine.
    Mr. Ose. I think the answer is yes.
    Mr. Tierney. Right. I just would like to have the answers 
to my questions without the argument part of it. I understand 
where you are coming from. You have had ample time to present 
your case. This was really just looking for that answer.
    Mr. Ose. Would the gentleman yield?
    Mr. Tierney. In a second. You were there because someone 
gave you a contract to go to that spot and pick those people 
up. You weren't there as some independent person who just 
decided to stop there on your own?
    Mr. Allen. That is correct.
    Mr. Tierney. Thank you. Go ahead. I want to yield if you--
--
    Mr. Ose. No, I was going to help.
    Mr. Tierney. Thank you. Dr. Sawicky, as an economist, when 
you will look at the argument that some used about using 
private transit operators because they are more cost effective, 
do you think that is necessarily accurate? I think you answered 
that, that you see it going both ways.
    How do you measure costs in situations? Is it just dollars 
and cents? What other factors are involved?
    Mr. Sawicky. Well, there are other factors. But, even in a 
narrow sense of cost one of the reasons that--results of 
studies seem to conflict is that people are using different 
cost models. The idea that has already been mentioned of fully 
allocated costs, where some proportion of overhead or fixed 
cost is added on to the--what you can call the marginal cost, 
or the cost of running the service.
    So when you compare public and private, in that model, 
broadly speaking, not always, the private sector looks better 
in terms of simply narrow cost. Now, the problem people may 
gloss over there is that this idea of fully allocated cost is 
based on an unobservable sequence of events or an assumption; 
namely, that over the long run the government agency will be 
able to restructure itself economically and efficiently to 
narrow down its operations and costs proportionate to any 
change in its workload.
    It is as if you cut the Transportation Department's budget 
10 percent, you could cut the Secretary of Transportation's 
salary by 10 percent. In practice that is not necessarily what 
will happen for a variety of reasons. The alternative cost 
model, which--where the public sector tends to do better and 
often comes out ahead, is just comparing marginal costs or what 
might be called the costs that can be escaped if you contract.
    If I am a public agency, I contract out. There are some 
costs that I will retain associated with the service, even 
though I am contracting. There is some oversight cost. There is 
still some supervisory components. The question from the 
standpoint of savings of the public sector, in the short run, 
when you look at the marginal cost or the escapable cost, the 
public sector tends to do better. So, again, the complexity of 
this begs for the decision to be made closest to where the deal 
is going to go down, not here.
    Mr. Tierney. I assume part of that is determining that 
certain routes get served, whether or not they are profitable?
    Mr. Sawicky. Well, that, again, the public service has more 
than--typically more than multiple objectives. Politicians are 
ambitious. They want to do a lot of good things. So when they 
propose a service or a program they have typically more than 
one goal for the program. And in the case of a transportation 
system, one of the thorny issues is the incorporation of routes 
that in and of themselves if you contracted them out would not 
be profitable and, therefore, would not exist.
    This is sort of the same problem with the post office. It 
costs more to deliver a letter to somebody way out in the 
country than in the city. Do we charge that person in the 
country proportionate to that cost, or do we have this idea of 
universal service? Now, a local jurisdiction or a State has to 
face that question and may come out one way or the other.
    But, to compare some isolated narrow view of a particular 
piece of a service to the usual array of public objectives in a 
program is really an apples to oranges comparison. In that 
exercise, once again it may be the public sector that looks 
more costly glossing over some of those external things that 
people, at least some people expect to result from the service 
being provided.
    Mr. Tierney. Can I have one last question? What happens if 
it is privately contracted out and the private contractor goes 
bankrupt?
    Mr. Sawicky. Well, another difficulty with contracting is 
that, if you convert from public to private, and the public 
sector loses capital equipment, expertise and experience, there 
are some additional transition costs to taking it back in if 
that becomes necessary.
    In fact, there have been cases where for one reason or 
another a private contract goes belly up. The public sector is 
faced with the job of taking that work in and rebuilding a 
capacity that it may have lost. There is a transaction cost 
there. For that reason, one of the leading advocates of 
contracting, Emanuel Savas, recommends that, when you have 
contracting, at the very least there always should be some 
reserve public sector capacity that is maintained, kept up and 
running in the event that there needs to be a reversion.
    The other thing you can do is require performance bonds in 
the event of a real problem with the private operators. There 
is something that keeps the public sector whole in this 
exercise if it has to take the work back. There is risk 
involved. But, I am not one that says never try to contract. I 
am not one that is against competition. I think the way this is 
ordinarily viewed tends to simplify the matter, and again there 
is a federalism, pretty good federalism argument for separating 
who is running whose contract.
    Mr. Tierney. Thank you.
    Mr. Ose. Well, Mr. Allen, I want to go back to this. I am 
trying to just make sure I get on the record the state of play 
at the time you had the contract. You are running a shuttle 
from the remote parking lots to the core, picking up people who 
either have a State ID card or a dollar at parking lot oriented 
stops.
    You have, according to your testimony, the schedule you 
were running at the time you had the contract is identical to 
RT's today?
    Mr. Allen. It is essentially identical. What they have done 
to make it a little different looking on a map, is they have 
added--there is a center core on their map of service that we 
did not do that is unrelated to this problem. It was service 
they already had. If you laid the two maps down together of 
what they show now, because they put a third one in there. If 
you take the third one out, the two are identical. The two that 
we had originally were identical.
    Mr. Ose. Are the buses that are doing the shuttle today, 
from the remote parking lots to the--I think you said 8 or 10 
stops, are they also being utilized to run this piece that has 
been added, or is that a different route?
    You have a north-south route and an east-west route, and 
the north-south stops at a point where you can get off that bus 
and get on the east-west route?
    Mr. Allen. Yes.
    Mr. Ose. OK. Now, did the--I mean, your shuttle service, 
you were operating what I will call the north-south route, 
going from the parking lots to the core?
    Mr. Allen. Exactly.
    Mr. Ose. Now, on that schedule, you testified that you had 
at peak up to 16 buses operating on an 8 or 10-minute 
intermittent stop basis?
    Mr. Allen. They were actually--we were on 5-minute 
headways.
    Mr. Ose. Do you know whether or not, as compared to where 
this new east-west component now is part of this plan, did you 
have a stop at that location where RT currently stops its bus 
to connect the east-west component?
    Mr. Allen. Yes.
    Mr. Ose. OK. Now, do you have anything you can submit to 
the committee that would memorialize what your schedule was and 
what your contact was that you had to the shuttle?
    Mr. Allen. Yes.
    Mr. Ose. OK. We are going to ask you to do that.
    Mr. Allen. OK.
    [The information referred to follows:]

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    Mr. Ose. What I want to do is then go to RT and ask them 
for a copy of theirs. I am sorry to belabor the point. But, I 
just want to make sure that we get it right. You have buses 
running north-south. You have 8 or 10 stops along the way. You 
are being paid under contract with the Department of General 
Services somewhere around a million bucks a year.
    Mr. Allen. About a million-two.
    Mr. Ose. That service runs from the parking lots into the 
core. It makes stops along the way at various State buildings 
or other existing RT stops for which you have permission to 
use. Then, it runs back to the parking lots on a circular 
route?
    Mr. Allen. That is right.
    Mr. Ose. How is that different from what RT is doing today?
    Mr. Allen. I frankly don't see any difference in what they 
are doing today. The only difference that I see is that the 
stops that they do--they have put some stops intermediate 
between actually the buildings and the parking lots, which I 
think is more for charade, because we have had people with 
their money hanging out to try to get on and they drive right 
by.
    We don't think those are necessarily legitimate stops. They 
show as stops. But, basically, the function is the same. It 
goes to the parking lot. It goes to State buildings. It makes a 
circle, then it goes back to the parking lot.
    Mr. Ose. Do they have more stops on their route then you 
had on yours?
    Mr. Allen. Only the ones I just mentioned. There is one 
stop halfway between the parking lot and the buildings. But 
nobody could ever get on that.
    Mr. Ose. Mr. Allen, I appreciate your--a review of the 
contract service that you provided.
    Mr. Tanaka, DOT has not yet issued its implementing rules 
from the 1994 private sector participation requirements. Having 
been in business before I came here, it would seem to me that 
the certainty that would come with those rules would be a 
positive influence on what I might or might not be able to 
accomplish.
    What is your view of that? Would you prefer having rules, 
or do you prefer--which is a specific word defined in law, or 
do you prefer guidance?
    Mr. Tanaka. We prefer law over guidance. Moreover, I wanted 
to emphasize in these discussions, our law or our lifeline 
happens to be tourists, a significant component of which 
include foreigners, such as the Japanese. We are talking about 
using Federal funds as well as county taxes for which 
foreigners do not pay, and, yet, the county of Honolulu, once 
again, is about to use Federal funds to replace us.
    Mr. Ose. Before you put that down, the money that was used 
to prepare that poster, where did the money come from that was 
used to prepare that poster?
    Mr. Tanaka. Either from me or one of the lenders from which 
I borrow.
    Mr. Ose. So this is your piece?
    Mr. Tanaka. Yes.
    Mr. Ose. Now, you also had a piece that had a statement 
from the mayor?
    Mr. Tanaka. Yes.
    Mr. Ose. Now, where did the money come from to prepare that 
piece?
    Mr. Tanaka. This is either the Federal funds, but most 
likely local taxes.
    Mr. Ose. Would you like to submit both pieces for the 
record?
    Mr. Tanaka. Yes.
    [The information referred to follows, the remaining 
information may be found in subcommittee files:]
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    Mr. Ose. So that we will end up with possession of both?
    Mr. Tanaka. Yes. But, to be accurate, the county of 
Honolulu created what is called Oahu Transit Service, described 
as, quote, instrumentality of the county of Honolulu to run 
public transportation. That entity, OTS, has a board of 
directors totally subjected to the mayor, and therefore I take 
it as an agent of the county of Honolulu, but that OTS using 
its logo, The Bus, contracted with a private Japanese printer 
for which the private Japanese printer pays royalties.
    Mr. Ose. The question for us is whether or not the Federal 
funds are being used to frankly reduce private service 
providers from having an opportunity.
    Mr. Tanaka. Definitely. Yes, that is our case.
    Mr. Ose. You would prefer the certainty of a defined due 
process rule?
    Mr. Tanaka. Yes.
    Mr. Ose. Now, Mr. Thomas, from your perspective as an 
operator do you prefer the certainty of a rule or the 
flexibility of guidance?
    Mr. Thomas. Well, given the fact that we cannot go to 
court, you know there is no private right of action for us, 
there is no remedy at law here. We have to have an arm's-
length, third party law statutory----
    Mr. Ose. We have a statute.
    Mr. Thomas. But, it is not--and in my one testimony about 
the 10-year effort, it took 10 years and a ridiculously lengthy 
process on appeal to get the decision that was evident. We need 
clarification on that process. And we need it--it has to be a 
better law than it is today----
    Mr. Ose. What you need is something that defines the rules?
    Mr. Thomas. In the law unfortunately.
    Mr. Ose. Dr. Moore, your experience, rule or guidance?
    Dr. Moore. I might argue--a rule would bring--answer your 
setup, Mr. Chairman, of the certainty for the private sector, I 
think. Embedded in a rulemaking they could meet the goals that 
I have talked about.
    Really to do better grantmaking, guidance would probably 
help them do better grantmaking. A rule would help them obey 
the law better. So, you know, assuming you made a reasonably 
good rule that would embed a lot of guidance in it, in terms of 
how they make their grants, you might wind up--that is a little 
bit of a mixed answer. There is more than one problem we are 
trying to solve, I guess.
    I can make a guess of a rule is a better solution in one 
case and guidance is better in another. But, I think the 
question of justice here would be better served by a rule.
    Mr. Ose. Dr. Utt.
    Mr. Utt. I would like to go more toward performance based 
contracting, allocation grantmaking, where there are a series 
of goals that are supposed to be met, by any additional funds 
grants received by any community. That would make it difficult 
to do things that would otherwise seem to be a waste of money, 
in the sense that people who are already being severed by 
private sector money, public sector money comes in and simply 
displaces that, ultimately no net new service to the community 
at an increase in Federal allocation.
    It would seem to me that we would start with general goals 
of this money is for the purpose of enhancing the mobility of 
the particular community that gets it, the people of it. You 
can slice that differently. But, the question is--another way 
of looking at it, was everybody in the Honolulu transit market 
sufficiently served so that we could then begin to use 
additional money to displace service that was already being 
provided at no public expense?
    I think what we need to do is simply have a criteria in 
which we try to use good judgment in terms of what things are 
there. One of it is to not try to make distinctions between 
public or private, but rather does this money enhance the 
mobility of the community? Will it be of general value to the 
broad transit users or potential users of the community rather 
than trying to regulate things that often have unintended 
consequences?
    Mr. Ose. I am thinking about Dr. Utt's comment. I want to 
come back to that.
    Dr. Sawicky.
    Mr. Sawicky. I won't beat to death the point I have been 
making, that there is some limited scope that ought to be 
observed here for Federal involvement in local decisions. I 
would say if the demand was to steer money to contractors 
rather than to public agencies, obviously law would work better 
than something less than law.
    But, again, from the standpoint of looking at the way the 
Federal Government has tried to regulate or influence State and 
local government behavior over a long period, there is--there 
are limits of that even when there are laws. I think that needs 
to be kept in mind. As far as the justice of it, I don't see a 
mandate in any particular direction as just at all. In 
Washington we have an Air and Space Museum which caters to 
tourists. It is not air and space brought to you by McDonnell-
Douglas. So the government, State, local or Federal has a 
perfect right to monopolize any type of business it chooses to 
from a legal standpoint as far as I know, and from an economic 
standpoint, there could be cases where that is beneficial to 
the taxpayers. Again, I think my biases on this are pretty 
obvious.
    Mr. Ose. Almost libertarian in nature, which is fine by me. 
Alright.
    Now we are going to go from the right to the left this 
time. Given that FTA makes grants, and different grantees 
receive grants, how does the Department of Transportation or 
FTA go about enforcing the terms and conditions of those grants 
with--we have seen one example where at best you can say the 
grant morphed from one purpose to another and, at least from my 
perspective, the FTA washed its hands of it.
    But, how do you enforce the terms and conditions of the 
grant? Dr. Sawicky.
    Mr. Sawicky. With great difficulty. I have done research 
on--specifically on Federal grants-in-aid in the most simple 
dimension, which is the effect of spending at the other end. 
The majority of grants and aid have no effect on spending at 
the other end. They replace local money.
    It is very important--it is important to design a grant in 
a way that has that effect, if that is what you want. Typically 
in the political process, that is kept to a minimum. You have 
more apparent types of influence on State and local governments 
than actually pan out in the end. I think it is just a very 
difficult exercise.
    I can't speak to the administrative law dimensions of it at 
all, because I have no background there. But, from my view of 
it, looking at the economics of it, it is just very hard--
grants are a very blunt instrument. To try to get too far into 
how they are used takes a lot of effort and is difficult to do.
    Mr. Ose. From the spending side, your point is the money is 
fungible?
    Mr. Sawicky. Right.
    Mr. Ose. Dr. Utt, how do you enforce the spending?
    Mr. Utt. By talking about terms and conditions, that is in 
fact very valuable. But it is--also turns it into a process 
driven approach to public policy rather than a goal oriented 
approach to public policy.
    In the ideal world these things have a certain purpose, and 
we entrust local DOTs and local MTAs and so on and so on to 
sort of fulfill the will of whatever the Federal purpose is. I 
am not sure that in FTA grants we have a lot of conditions and 
a lot of processes and a lot of paperwork.
    But, I am not sure that any of these grants require 
anything of value to happen at the end, other than that buses 
are bought--the appropriate contract is applied to all of the 
workers, and they sort of do what they claim they are going to 
do and buy the buses. But, whether there is any enhancement or 
advancement of mobility in the community is often something 
that nobody has any particular interest in, nor do we look at 
different modes.
    I mean, we simply say this much is for transit, whether it 
is needed or not, or whether there is a better alternative 
someplace else, which goes back to the sort of clear goals of 
enhancing mobility for people and leaving as much discretion as 
possible to the people that we entrust to spend and allocate 
this money and, if goals aren't met, then have some recourse 
there.
    Mr. Ose. What kind of recourse?
    Mr. Utt. Maybe go back to a process oriented program, more 
Federal control. I don't know. I think an interesting case is 
the No Child Left Behind, which is one of the first Federal 
programs in which you give money, and you give people more 
discretion with that, but you expect in the end that the 
children would read better, do math better than they did 
before. If you don't achieve those goals, then there are 
presumably some penalties associated with it.
    If you can do that with something as controversial and 
difficult as education, I think you can certainly do that with 
some things that are easily quantifiable like how many 
passengers did you pick up and how much of the community did 
you serve?
    Mr. Ose. Now, Mr. Sawicky, let me just return to you. If a 
grant is made and the grantee does not comply with the terms 
and conditions of the grant and the grantor does not enforce 
the terms and conditions of the grant, what are you going to 
get?
    Mr. Sawicky. The grantee is going to do what they want with 
the money.
    Mr. Ose. Are you going to get more of it or less of it?
    Mr. Sawicky. Well, chances are the grantee will do what 
they would have preferred to do in absence of the grant, but 
for relatively minor effect on their overall resources.
    Mr. Ose. Dr. Utt, are you an economist also?
    Mr. Utt. Yes.
    Mr. Ose. If you have an incentive to do something and a 
disincentive to do another and you don't enforce the incentive, 
what do you get?
    Mr. Utt. Well, you need some sort of enforcement at the 
end. But, I think what we are talking about is enforcement of 
goals so that people don't engage in counterproductive 
activities with the money that they get. That has to be--
somehow those kind of performance standards have to somehow be 
included in whatever regulations, guidelines or criteria you 
adopt.
    As I said, most Federal programs with the exception of 
parts of the Federal education program are devoid of any 
performance responsibilities. As long as you hire the people 
you are supposed to hire, as long as you do quarterly reports, 
as long as you don't steal the money, nobody really cares at 
the end of the day whether children get educated better or not 
or educated at all.
    That is the way that many programs have operated. I think 
what we need to do is start using that as the model, and for 
things that are easily quantifiable subject to widely accepted 
engineering standards that we begin to say, hey, let's start 
doing it here.
    In that case it would be very difficult for people to start 
willfully wasting money because there would be some obvious way 
to measure their failure to achieve goals. Then, at some point, 
various punishments would be devised or withdrawals of money or 
fines or something like that.
    Mr. Ose. Dr. Moore, how do you enforce these things.
    Dr. Moore. Well, I would like in two places. The mechanism, 
the mechanism is to have as Dr. Utt pointed out some objectives 
and have some quantifiable information come back to say that 
those objectives are being met. The OMB has been working for 
the last couple of years trying to figure out how to measure 
the performance of Federal grantmaking programs. I don't know 
how much they have to discuss on the DOT grants, but I know, 
you know, everything from research grants to service grants, 
how do you measure whether you're getting what you're allegedly 
giving the grants for.
    The other place to look would be the vast array of private 
foundations that are out there that give out grants to 
nonprofits like mine, and some of them just give money to 
people they like. Some of them are very performance driven, 
and, if you can't prove that you did everything you swore you 
were going to do with that money in terms of accomplishing 
things, you don't get any more money from them.
    So there, you know the models are out there. This isn't 
rocket science. It's just fairly new to most Federal 
bureaucracies to try to do grants this way.
    Mr. Ose. Mr. Thomas, on your private experience, if you 
contract to have something done, and the contracting party 
doesn't do it, and you don't enforce the provisions, what 
happens?
    Mr. Thomas. Ultimately, I would go to court.
    Mr. Ose. Do you get more of the aberrant behavior or less?
    Mr. Thomas. Well, it depends on how it comes out; but if I 
win, I get less.
    Mr. Ose. If nobody's enforcing it, you're guaranteed to get 
more?
    Mr. Thomas. That's right.
    Mr. Ose. Would it be your conclusion that absent some means 
of enforcing terms and conditions, that you will not only have 
for instance this kind of behavior in Sacramento or Ohio or 
Hawaii, you'll have it in every single location?
    Mr. Thomas. Yes, it is.
    Mr. Ose. Why?
    Mr. Thomas. Because it's too easy to get away with doing 
what you want to do.
    Mr. Ose. OK. Mr. Tanaka, how do we enforce this stuff?
    Mr. Tanaka. Yes, before answering directly, I wanted to 
answer the question that you formulated, which is the grantee 
is encumbered by conditions and terms, but the grantor doesn't 
enforce and then the grantor does not follow the law. The end 
result is Honolulu. In other words, I remember one of these 
economists mentioned how the ground transportation got 
federally funded. The word was welfare. From welfare, I deduce 
that essential services that are necessary in the ordinary life 
of residents, means welfare, and for welfare, Federal and local 
governments provide even if governments lost money. Moreover, 
welfare does not include tour operations.
    The problem in Hawaii is, once again, using Federal funds 
and local taxes and now, at this very hour, the applicants, 
that is to say the county of Honolulu is applying for $20 
million, not for Oahu as an island, but in Waikiki, 2 miles, 2 
squares miles. So that even today, the most-frequently run bus 
is called No. 22, which is called attractions and beaches.
    So the tour 22 rotates from Waikiki hotels to Hanama Bay 
and Sealight path and returns. On the way from Waikiki, surfeit 
with tourists, the buses will stop where local residents are 
waiting, but they will be denied the service because these 
buses have no vacancy. Our problem is very, very acute. Once 
again, I want to remind, in about 36 hours, 38 hours, the FTA 
may grant $20 million to provide frontal attack on private 
businesses. This goes to the very survival of tour operations. 
I fundamentally believe that none of these programs ever was 
intended to run tour operations.
    Mr. Ose. You think it's mission creep?
    Mr. Tanaka. Yes.
    Mr. Ose. All right. Mr. Allen, how do we enforce the terms 
and conditions?
    Mr. Allen. Well, I think we have to remember that these 
public operators are predators. They are not our friends. That 
is just because there has been no enforcement. I think you need 
to--if someone were found to be in violation, like regional 
transit is in this case, in our case, we believe they should be 
prohibited for a number of years from getting any future 
grants. They should have their purse strings cut because that's 
the only way you're going to wake these guys up. They're not 
going to--you know if there's no rules, they're not going to 
listen. They are going to continue or ask them for the money 
back. I don't know if that's practical, but you know somehow 
you've got to get their attention on this. Don't take 
everything for face value. When they make an application, I 
mean they made an application back with this case in 1999, I 
believe it was.
    Mr. Ose. My first year. Came right through my office.
    Mr. Allen. OK. Anyway, in 1999--I'm not holding that 
against you now. In 1999 they made this application.
    Mr. Ose. Call it what it is.
    Mr. Allen. Nobody knew these buses were going to be used to 
put private enterprise out of that particular part of their 
business. If that were the case, I don't think you would have 
gone along with that. I know you wouldn't have gone along with 
that. So, I mean, they do things you know kind of below the 
periscope because they are, again they're predators. So I think 
it is very important that they are very specific on what their 
needs are. And before, in the case of buses for example, you 
need to know what they are going for, where are these buses 
going to be used for. If they're going to be used to go down, 
you know, down Watt Avenue in our particular town, that's 
great. That's a public service. If they're going to be going, 
you know competing with private industry, I think that's a big 
mistake.
    Mr. Ose. I want to ask the operators in particular, when 
you look at the current code sections, and you read them, or 
your counsels read them, do public transit operators, if they 
are in a situation where there is a private operators, are they 
able to use capital assets acquired by virtue of these grants 
to compete with you? In other words, can they use Federal money 
to buy buses to compete with you where you're already providing 
a service, is it your understanding that they may or may not do 
that?
    Mr. Allen. I would think, from the reading of the direct 
reading of regulations they would not be able to.
    Mr. Ose. Mr. Tanaka.
    Mr. Tanaka. The answer is we believe that we should not be 
wiped out by Federal funds and local taxes. Moreover, back in 
Honolulu, this phrase, maximum extent feasible is interpreted 
as we just have to try. But from our point of view, we just 
have to pretend. We just allege we have complied with these 
laws and then FTA says oh, that's a local decision, that must 
be correct. But, the Honolulu case was in violation of three 
fundamental rules. No. 1, did not exert itself to maximum 
extent feasible I believe to avoid negative financial impact 
upon existing providers of transportation. No. 2, Honolulu did 
not, to the maximum extent feasible include private sector 
participation in the planning.
    In fact, if anything, we have been excluded. And No. 3, 
county of Honolulu did not exercise maximum extent feasible to 
make a genuine finding and then apply for certification that 
the services is essential, unless what is essential is tour 
operation. We are talking about not Hawaii, we are not talking 
about Oahu. We are talking about Waikiki, a dominant sector 
within Oahu, where virtually all tourists reside. That is the 
very geographic area and the only geographic area that the 
county of Honolulu is applying for $20 million.
    Mr. Ose. OK. Mr. Thomas.
    Mr. Thomas. In the SEAT example, the--it is very evident 
that the subsidized vehicles are out there competing with the 
private sector. Actually, there is a nonprofit agency right in 
my operating area that provides contract service with 
subsidized vehicles that I am shut out of because of the 
artificial rate that they are able to provide. They get the 
buses for free. So, it's happening not only in Ohio, but it's 
happening everywhere. I can go into many examples of this. Is 
it clear in the statute that's a violation? It's crystal clear 
if you choose to read it. I mean, it's crystal clear that you 
are not supposed to use those against the private operators.
    Mr. Ose. I want to touch on this appeal process too. Now, 
each of the three of you have had to actually go through 
appeals. Each of the three of you can probably give a much more 
refined analysis of how it works positively or negatively. We 
are just going to go through this. We are going to start with 
Mr. Tanaka. You filed an appeal for the decision of the local 
transit operator.
    Mr. Tanaka. Well, I don't know what it meant by appeal. But 
we have expended hundreds of thousands of dollars to lawyers 
who have told me the following: No. 1, with respect to public 
transportation issues, we litigate on the basis of 
environmental statements, No. 1. No. 2, our ``appeal'' has been 
based on reading the law, interpreting them and then 
registering our complaints to FTA. The end result of which is 
FTA will say that's a local decision.
    Mr. Ose. Was it your testimony that said that the local 
transit operator had dismissed all the other alternatives and 
accepted their own House driven one.
    Mr. Tanaka. He never examined other alternatives. As I said 
earlier, a song in Hawaii that's sung most frequently is it 
wouldn't cost us anything because it's Federal funding. Then, 
apply for Federal funding and, instead of deploying the Federal 
funding for local residents who hunger for more transportation, 
deploy in Waikiki.
    Mr. Ose. Mr. Thomas, your appeal process took, if I recall, 
more than--almost a year. What did it cost you?
    Mr. Thomas. Well, it cost--the city of Niles had to retain 
technical counsel, and it cost them $38,000 to fight that. That 
was the 1-year appeal. But it was a 10-year problem. The county 
actually, the 9 years prior to the city getting involved, the 
county went through the same process and I funded that, and the 
cost of that was in the $200,000 range. But, once the city of 
Niles became a grantee, an eligible grantee, they filed their 
own appeal, had their own counsel and it cost them $38,000, and 
that was the 1-year process.
    Mr. Ose. Are you aware of other private transportation 
providers who have gone through their appeal process?
    Mr. Thomas. I certainly am.
    Mr. Ose. What has been, anecdotally--well, let me flip it 
around. If we sent you a letter asking you to cite chapter and 
verse, would you be able to share with us----
    Mr. Thomas. Well, one glaring example is the Flint, MI 
case.
    Mr. Ose. If we sent you a letter, you'd be able to respond?
    Mr. Thomas. Yes.
    Mr. Ose. Now, do you have anything you'd like to share with 
us anecdotally about Flint, MI?
    Mr. Thomas. Thank you. Flint, MI was a case that the 
Federal grantee wiped out the local private operator and 
started running service that eventually not only did the 
operator lose his business and all of his money, but he had to 
appeal to the other operators in the country, who might be 
sympathetic to his cause, so it ended up costing literally 
hundreds of thousands of dollars for the group to get it to the 
point where we realized at that point in time that if there was 
no private right of action here, if there was no remedy through 
the courts, there were only two remedies left.
    That was a Supreme Court decision and that was to fund a 
Supreme Court suit, or separately to do what we are doing 
today, take it to the Hill and get this rule specified. That's 
why I bring up the Flint decision. But, there are several other 
decisions like that across the country.
    Mr. Ose. Mr. Allen, are you aware of other complaints 
protests or appeals in the California area?
    Mr. Allen. Oh, yes. There is the one down in Palm Springs 
with Sun Line which was a major case that I know that the 
California Bus Association worked on quite extensively.
    Mr. Ose. OK. So if we sent you a letter, much like we are 
contemplating sending Mr. Thomas, you'd be able to give us 
chapter and verse.
    Mr. Allen. Yes.
    Mr. Ose. All right. First of all, I want to thank you all 
for coming today. I appreciate the testimony. Mr. Allen, don't 
forget your dollar here.
    Mr. Allen. I'll take it. I need it.
    Mr. Ose. It's clear to me that we have a problem here with 
great respect to Dr. Sawicky, we make lots of decisions up here 
on this Hill about how to use Federal money, and when it's not 
used in the manner in which a grantee submits its application, 
I have every right, and I think my voters have every 
expectation that I will weigh in to make sure that it is 
complied with.
    I am severely disappointed at the apparent attitude and the 
actions to date in terms of enforcing the terms and conditions 
for which capital assets acquired by use of Federal money are 
being utilized frankly in what appears to be a systematic 
effort to push private providers out. You might not have--you 
might have the best service, you might not. But, for the 
taxpayers in, for instance, Mr. Tierney's district to be asked 
to give money to people in Mr. Tiberi's district for the 
purpose of putting Mr. Thomas out of business is just simply--
it simply needs to be reviewed. It needs to be reviewed 
thoroughly.
    I thank all six of you for coming. Dr. Utt, I hope you make 
your meeting. I think we have you out of here in time. Again, 
thank you all for coming. This hearing's adjourned.
    [Whereupon, at 2:10 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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