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





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

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

                                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

                               __________

                           SEPTEMBER 30, 2004

                               __________

                           Serial No. 108-277

                               __________

       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


                                 ______

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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
TODD RUSSELL PLATTS, Pennsylvania    JOHN F. TIERNEY, Massachusetts
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
EDWARD L. SCHROCK, Virginia          STEPHEN F. LYNCH, Massachusetts
JOHN J. DUNCAN, Jr., Tennessee       CHRIS VAN HOLLEN, Maryland
NATHAN DEAL, Georgia                 LINDA T. SANCHEZ, California
CANDICE S. MILLER, Michigan          C.A. ``DUTCH'' RUPPERSBERGER, 
TIM MURPHY, Pennsylvania                 Maryland
MICHAEL R. TURNER, Ohio              ELEANOR HOLMES NORTON, District of 
JOHN R. CARTER, Texas                    Columbia
MARSHA BLACKBURN, Tennessee          JIM COOPER, Tennessee
PATRICK J. TIBERI, Ohio              BETTY McCOLLUM, Minnesota
KATHERINE HARRIS, Florida                        ------
MICHAEL C. BURGESS, Texas            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 September 30, 2004...............................     1
Statement of:
    Dorn, Jennifer L., Administrator, Federal Transit 
      Administration, U.S. Department of Transportation, 
      accompanied by D.J. Gribbin, Chief Counsel, U.S. Department 
      of Transportation, Federal Highway Administration; and 
      William Sears, Chief Counsel, Federal Transit 
      Administration.............................................    11
    Tangherlini, Dan, director, D.C. Department of 
      Transportation, Washington, DC; Tom Mack, chairman, 
      Tourmobile Sightseeing, Washington, DC; Jerome Cooper, 
      chairman, Transit Alliance and president, Jamaica Buses, 
      Inc., Jamaica, NY; David N. Smith, director of marketing 
      and sales, Oleta Coach Lines, Inc., Williamsburg, VA; and 
      Steven Diaz, esq., former Chief Counsel, Federal Transit 
      Administration, Department of Transportation, Law Office of 
      Steven A. Diaz.............................................    50
Letters, statements, etc., submitted for the record by:
    Cooper, Jerome, chairman, Transit Alliance and president, 
      Jamaica Buses, Inc., Jamaica, NY, prepared statement of....    88
    Diaz, Steven, esq., former Chief Counsel, Federal Transit 
      Administration, Department of Transportation, Law Office of 
      Steven A. Diaz, prepared statement of......................   124
    Dorn, Jennifer L., Administrator, Federal Transit 
      Administration, U.S. Department of Transportation, prepared 
      statement of...............................................    14
    Gribbin, D.J., Chief Counsel, U.S. Department of 
      Transportation, Federal Highway Administration, letters to 
      Congressmen................................................    41
    Mack, Tom, chairman, Tourmobile Sightseeing, Washington, DC, 
      prepared statement of......................................    77
    Ose, Hon. Doug, a Representative in Congress from the State 
      of California, prepared statement of.......................     4
    Smith, David N., director of marketing and sales, Oleta Coach 
      Lines, Inc., Williamsburg, VA, prepared statement of.......   110
    Tangherlini, Dan, director, D.C. Department of 
      Transportation, Washington, DC, prepared statement of......    53

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

                              ----------                              


                      THURSDAY, SEPTEMBER 30, 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, Tiberi, Davis (ex officio), 
Tierney, and Kucinich.
    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. Welcome to this morning's meeting of the Energy 
Policy, Natural Resources and Regulatory Affairs Subcommittee. 
Noting the presence of a quorum, I will call the meeting to 
order.
    Today, we are meeting on the subject of ``How Can We 
Maximize Private Sector Participation in Transportation?'' I am 
joined by the gentleman from Ohio, Mr. Tiberi. We are going to 
go ahead and commence.
    On May 18, 2004, this subcommittee held its initial hearing 
on maximizing private sector participation in transportation. 
Witnesses included the Department of Transportation, think tank 
experts, and three adversely affected small business operators 
of mass transit services. Today, we will focus on mass transit 
and highways, and we will further explore DOT's record in 
implementing the various statutory and regulatory private 
sector participation requirements.
    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 cost, transportation 
services can often be delivered more cost-effectively, and 
Federal and State funds can be devoted to other pressing needs.
    In 1964, Congress began to enact laws to encourage private 
sector participation in transportation. The 1966 law that 
established Department of Transportation identified six reasons 
for 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 rules assign 
primary responsibility for ``evaluation of private 
transportation sector operating and economic issues'' to the 
Assistant Secretary for Transportation Policy, who is 
organizationally located within the Office of the Secretary.
    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 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.''
    I became especially interested in this subject in March 
2003, when I learned of a public takeover of an over 25-year 
competitively awarded contract for mass transit services in 
Sacramento, California. Since then, I have found a number of 
things. First, we have come upon unneeded expenditure of scarce 
Federal funds, substantial in nature; second, we have come upon 
noncompliance by a federally funded local transit grantee with 
the Federal law requiring private sector participation to the 
maximum extent feasible; and, third, we found inadequate 
enforcement by the Department of Transportation. Now, after the 
public takeover, in the city of Sacramento, peak hour bus 
service is every 15 minutes, versus every 5 minutes prior to 
the takeover, and the service costs 76 percent more, that being 
over $150,000 per bus today versus just over $86,000 per bus 
then.
    In August 2003, I recommended two primary things: first, 
that the Department of Transportation initiate a rulemaking to 
ensure implementation of the statutory private sector 
participation requirements and, second, that the Department of 
Transportation take an appropriate enforcement action against 
the noncompliant Federal grantee. To date, Department of 
Transportation neither initiated a rulemaking, nor took an 
enforcement action. DOT argued that it is a grant-making, not a 
rulemaking agency, and it has a reduced enforcement rule. 
However, DOT does have a fiduciary responsibility to assure 
that Federal grant funds are expended in accordance with 
Federal law.
    Since my investigation of this case, I have learned of 
additional cases involving federally funded grantee 
noncompliance with existing Federal statutory or regulatory 
protections. In some cases, the Department of Transportation 
has not enforced its own rules and, as a result, allowed local 
transit authorities to compete unfairly with existing private 
mass transit service providers. In another case, the New York 
City Council stated that a proposed takeover by a local transit 
agency of franchised private sector bus services ``potentially 
make the City responsible for paying hundreds of millions of 
dollars in transfer costs arising from necessary purchases of 
infrastructure.''
    Our witnesses today include the Department of 
Transportation, current and former expert public officials, and 
three additional adversely affected small business operators of 
mass transit services. Small businesses remain the backbone of 
our economy. Congress wants and Americans deserve a reliable 
and cost-effective transportation system, and one that does not 
harm existing small business operators of transportation 
services and does comply with the private sector participation 
requirements first laid out in 1964 in the Urban Mass Transit 
Act.
    I want to welcome our witnesses today. They include 
Jennifer Dorn, the Administrator of the Federal Transit 
Administration; Dan Tangherlini, the Director of the District 
of Columbia Department of Transportation; Tom Mack, Chairman of 
the Tourmobile Sightseeing operation here in Washington, DC; 
Mr. David Smith, the director of marketing and sales at Oleta 
Coach Lines in Williamsburg, VA; Jerome Cooper, the chairman of 
Transit Alliance and president of Jamaica Buses, Inc., Jamaica, 
NY; and Mr. Steven Diaz, esq., former Chief Counsel for the FTA 
and the Department of Transportation.
    In addition to these individuals, Ms. Shirley Ybarra, 
president of the Ybarra Group and Council Member for the 
National Council for Public-Private Partnerships, and former 
commissioner of the Virginia Department of Transportation, 
accepted our invitation to testify on September 29th but is 
unavailable for today's rescheduled hearing. Therefore, her 
testimony will be made part of today's hearing record. Last, we 
invited Iris Weinshall Schumer, commissioner of the New York 
City Department of Transportation, to testify, but she declined 
to do so.
    [The prepared statement of Hon. Doug Ose follows:]

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    Mr. Ose. I want to recognize the gentleman from Ohio for 
the purpose of an opening statement.
    Mr. Tiberi. Thank you, Mr. Chairman. It is my intent not to 
have an opening statement today. We have a number of panelists; 
I look forward to hearing from them and asking them questions 
once their testimony is done. Thank you, Mr. Chairman.
    Mr. Ose. I thank the gentleman. As usual, he is brief and 
to the point.
    Our practice here, as reflected in committee rules, we 
swear in all of our witnesses. Whether you are an 
administration, business, or small business witness, what have 
you, we subject you to the same regiment across the board. So, 
our first panel today is Ms. Jennifer Dorn, who is the 
Administrator for the Federal Transit Administration at U.S. 
Department of Transportation. The others that I mentioned will 
be on our second panel.
    Ms. Dorn, if you would please rise and raise your right 
hand.
    [Witness sworn.]
    Mr. Ose. Let the record show the witness answered in the 
affirmative.
    Our normal practice here is that, having received your 
written testimony, we invite you to share with us the 
highlights in summary form. We are going to recognize each of 
our witnesses on each of the panels for a period of 5 minutes 
to do that. Ms. Dorn being the only witness on today's panel, 
we might give you 5\1/2\ minutes, but we are going to be pretty 
sharp on the clock. So, thank you for joining us today. You are 
recognized for the purpose of a summary of your statement.

 STATEMENT OF JENNIFER L. DORN, ADMINISTRATOR, FEDERAL TRANSIT 
ADMINISTRATION, U.S. DEPARTMENT OF TRANSPORTATION, ACCOMPANIED 
      BY D.J. GRIBBIN, CHIEF COUNSEL, U.S. DEPARTMENT OF 
  TRANSPORTATION, FEDERAL HIGHWAY ADMINISTRATION; AND WILLIAM 
      SEARS, CHIEF COUNSEL, FEDERAL TRANSIT ADMINISTRATION

    Ms. Dorn. Thank you, Mr. Chairman. Thank you for the 
opportunity to discuss with you and members of the committee 
how we can work together to increase private sector 
participation in public transportation. I do appreciate the 
committee's interest in and vigorous pursuit of private sector 
participation in America's transportation network. This 
administration strongly supports increased involvement of the 
private sector in the transportation arena, and I am proud of 
this administration's actions to date and the proposals that we 
have submitted to Congress support that.
    Over the last 3\1/2\ years, FTA has pursued our goal of 
increasing private sector participation through a number of 
strategies, including increasing private sector opportunities 
to deliver services, promoting private sector involvement, 
reducing administrative barriers to private sector service 
delivery, and contracting and advocating statutory changes that 
will help increase private sector involvement in transit.
    In November 2002, I asked approximately 75 representatives 
of private sector operators, transit agencies, and union 
representatives to spend a day with me and our senior staff to 
develop an action plan, what we believe to be a win-win 
proposal to deliver more public transportation to the American 
people through collaborations between the public and the 
private sectors. That group, over half of whom represented 
private sector operators, came to a consensus on a number of 
the most important things that could be done to support private 
sector involvement in transportation. Among other things, they 
agreed that, at the Federal level, we should focus on the 
following four items:
    Since the primary objective of private sector involvement 
should be to maintain and grow ridership, performance awards 
should be developed for private and public operators to grow 
ridership. The administration's reauthorization proposal 
reflects that.
    No. 2, there should be Federal leadership in education and 
proliferation of best practices, including procurement, cost 
models for fair and auditable cost comparisons, and contract 
administration. Thus, in the procurement arena FTA has 
undertaken a number of measures that this group had suggested 
to eliminate unnecessary rules and restrictions, while 
affording grantees maximum flexibility to make sound business 
judgments based on more than simply low bid.
    There has been a renewed emphasis on ensuring sound grantee 
procurement practices. We have revised our procurement circular 
to the benefit of all of our stakeholders, we have issued best 
practices, and, with the strong support of both public and 
private stakeholders who recognize that we need to have more 
involvement of both sectors in order to have a fulsome 
transportation provision for this country.
    Third, there was the view that there should be Federal 
neutrality in the choice of providers. FTA should not, in its 
policies and practices, favor either private sector providers 
or public sector providers; and, in order to ensure that 
transit operators operate in a transparent manner, which was 
the concern of private sector operators, and to help everyone 
understand the rules, we have developed, published, and 
distributed, a plain English brochure that explains the rules 
with regard to charter services. We are in the process of 
developing and will soon publish and distribute a similar plain 
English brochure that explains the rules with regard to school 
bus operations, and we are distributing those nationwide to 
private sector operators, public sector operators as well.
    The fourth area of focus by this group that we convened 
suggested that potential competitive contracting should really 
focus on new services and services based on new technologies. 
We took that advice seriously as well, and we are working very 
hard across departments to ensure that new opportunities for 
transportation services are available to the private sector, 
especially in the growing arena of human service program 
transportation services and paratransit services. Conservative 
estimates put this market for paratransit services at over $5 
billion annually, with over 70 percent of those services 
provided by the private sector.
    Mr. Chairman, given the regulatory and legislative history 
surrounding the private sector involvement issue, the 
requirements for private sector participation are not easily 
tracked by our stakeholders; they are scattered, indeed, in a 
variety of laws, regulations, circulars, technical assistance, 
guides and other materials published for each FTA program. And, 
while I continue to believe that a revamping of our regulations 
and circulars should be undertaken only after the surface 
transportation laws are reauthorized, I also believe that we 
can do a better job of explaining the current requirements to 
all stakeholders.
    Therefore, I have asked FTA's general counsel to develop a 
user-friendly guide to private sector involvement requirements 
for use by planning agencies, transit agencies, and private 
sector transportation providers. I expect the document to again 
explain in plain English what the requirements are, how they 
are enforced, what sanctions may be applied under what 
circumstances, and what recourse is available to private 
parties who believe they have not been afforded the 
opportunities provided in law. We will make every effort to 
complete this document and circulate it for comment in the next 
90 days.
    Again, Mr. Chairman, I appreciate your continued interest 
in and concern about protecting private sector transportation 
operators from unfair competition. I assure you that I will 
handle any such matters identified by or brought to FTA for 
resolution fairly and in accordance with the applicable laws 
and regulations, as I have sought to do in the past. Thank you.
    [The prepared statement of Ms. Dorn follows:]

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    Mr. Ose. Thank you, Ms. Dorn.
    We are joined by my good friend from Massachusetts, Mr. 
Tierney, who I am going to recognize for the purpose of an 
opening statement.
    Mr. Tierney. Thank you, Mr. Chairman. I will be brief. I 
know that today's hearing is going to focus on private sector 
participation in transportation, and I think private operators 
play an important role in providing that transportation 
throughout the country. That includes private transit operators 
who, just like their public counterparts, provide much of the 
needed transportation for commuters, students, and passengers.
    There is, however, a decision as to whether and how often 
local systems should use private operators, and it is not a 
decision that should be made by the Federal Government, in my 
view. Transit systems are inherently local, and the decisions 
about using public or private operators I think should also be 
local. State and local officials should have the freedom to 
choose transit operators based on factors like safety, service 
needs, reliability, and quality of services.
    Particularly in light of Congress's attention this week on 
the recommendations of the 9/11 Commission, an important issue 
we should be addressing is how we can improve the safety of 
mass transit. The 9/11 Commission's report points out the 
vulnerabilities of service transportation systems, and I am 
interested in hearing from the witnesses testifying today their 
thoughts on what needs to be done to improve transit safety.
    I also, Mr. Chairman, ask unanimous consent that the 
hearing record be held open for 10 days so that the American 
Public Transportation Association can submit information to be 
included in the record.
    Mr. Ose. Without objection.
    Mr. Tierney. I thank you, Mr. Chair, and yield back.
    Mr. Ose. I thank the gentleman.
    I am pleased to recognize the gentleman from Ohio for the 
purpose of an opening statement.
    Mr. Kucinich. I want to thank the Chair for holding this 
hearing and just say that mass transit in our major cities is 
no small matter. Many people who are transit-dependent depend 
on the decision of this Congress to help make sure that those 
systems are intact. So, any decisions that are made by this 
committee and by the Congress with respect to providing for 
greater participation of the private sector in transportation 
needs to be scrutinized very carefully with respect to service, 
reliability, the cost. I appreciate the fact that the Chair is 
willing to go into these issues. Thank you.
    Mr. Ose. I thank the gentleman for his opening statement.
    Our normal practice is we go to rounds of 5 minute 
questions. One of the curious things about Congress is we all 
have multiple commitments, so, if you see Members get up and 
leave and come back and leave and come back, that is ordinary 
business around here. So, bear with us as we struggle through 
that.
    I think given my friend's time constraints, I am prepared 
to allow you to go first, if you want. Mr. Tierney for 5 
minutes.
    Mr. Tierney. Thank you for that courtesy; I appreciate it.
    Ms. Dorn, thank you. As you noticed from my opening 
statement and from questions that I asked Assistant Secretary 
Frankel last May when he was here, I raised the point whether 
local transits are, I think, local, and so I think they should 
be the ones to decide what their needs are. I ask, don't you 
think that the ones that make the decisions on how to run their 
transit operations should also make the decision on whether to 
use public or private transit sector people?
    Ms. Dorn. Certainly the historic approach to transportation 
in this country has been the view that there is a Federal 
responsibility to assist in providing funds for necessary 
transportation. Decisions about what kind of transportation and 
where it should be located have been relegated to the local 
authorities and local decisionmaking process. The Federal 
statutes that outline requirements for grantees who receive 
Federal funds are very clear that this local decisionmaking 
must be respected.
    By the same token, the laws are quite clear, even if in 
many places in the law they indicate that certain processes are 
important to follow. A specific one has to do with the public 
involvement process. And, while we do not prescribe explicitly 
what that local process must be, we are very precise about the 
kinds of public involvement that are required for the locals to 
make those decisions so that no one is left out. Fundamentally, 
it is a local decision, but there are caveats about how those 
local decisions are made in the light of day with public notice 
about routes, fares, schedules, and those sort of things so 
that the local community has an opportunity to have input on 
those decisions.
    Mr. Tierney. So, we are clear and we agree that there is 
nothing in the law that prevents local communities from 
choosing private transit providers if they wish to, right?
    Ms. Dorn. Correct.
    Mr. Tierney. Are there limited circumstances when public 
transit agencies should be permitted to provide community-based 
charter services directly to local governments and private 
nonprofit agencies that would not otherwise be served in a 
cost-effective manner by private operators? Now, that is the 
question. I am going to give you an example to help you out on 
that.
    Ms. Dorn. OK. Thank you. I appreciate that.
    Mr. Tierney. I do this by way of the representative who 
represents Santa Monica Transit. Apparently, the Monterey-
Salinas Transit was recently unable to transport volunteers 
from the Defense Language Institute at the Monterey Presidio to 
rehabilitate selected homes owned by elderly and disabled. The 
community group is called the Monterey-Salinas Rebuilding 
Together With Christmas in April. As a result, no service was 
provided for the group, since no private charter operator 
stepped up to the plate.
    In an instance like that, the question really is would that 
be an appropriate limited circumstance where public transit 
agencies might be permitted to provide those community-based 
charter services?
    Ms. Dorn. That is a very good question about a complex set 
of local circumstances. Let me answer it in general terms and 
be very clear that I am not talking about the Santa Monica 
issue; it has not been brought to my attention.
    If the grantee is providing charter bus service, what it is 
that the FTA does is we have responsibility for ensuring that, 
in fact, charter service is provided. Mass transit is defined 
in the law as not being charter, so our view must be is this in 
fact charter in order to determine whether or not there is 
inappropriate or appropriate competition with an equitable type 
of service.
    So the kind of questions we ask, as the grant manager, we 
say did the grantee receive approval from FTA for one of the 
exemptions provided under law, that no private operator, for 
example, is willing and able; did the grantee publish notice of 
intent to provide the service; or did a private charter 
operator request that the grantee provide charter equipment or 
service because it did not have accessible equipment.
    We have very specific questions so that we can follow the 
intent of the law, which deliberately states that charter is 
not mass transit. It is a very complex arena, but we have laid 
out in statute and in regulation, in circulars, in guidance, 
and in our triennial process exactly what it is that is 
required so that the law is followed.
    Mr. Tierney. I yield.
    Mr. Ose. The difference between charter and mass transit, 
if I understand correctly, is whether it is an open door or 
closed door?
    Ms. Dorn. That is one of a number of conditions, yes, that 
is correct.
    Mr. Ose. I want to come back to those other conditions.
    Mr. Tierney. I yield back. Thank you.
    Thank you, Ms. Dorn.
    Ms. Dorn. Thank you.
    Mr. Ose. All right, I am going to take my 5 minutes.
    Those other conditions as to whether or not it is a charter 
or mass transit, one is open door versus closed door.
    Ms. Dorn. Whether a fee for service has been charged; 
whether it is offered to--the open door is, I assume, opened to 
a closed----
    Mr. Ose. Anybody walk-up?
    Ms. Dorn. Exactly. Specified times would be a part of a 
charter threshold; and that schedules and the amount that you 
pay can be altered by who has requested the service; and, 
whether the destination is determined by parties seeking the 
service. We have a whole list of what charter is and what mass 
transit is, and those are the threshold questions that we ask.
    Mr. Ose. How many of those standards have to be met in 
order for it to be judged to be a transit service as opposed to 
a charter service?
    Ms. Dorn. It is my understanding that the issue of the 
control of the fares and the schedules very often is the 
critical balancing test. These decisions have to be made in the 
context of a case-by-case decision, so I can't say that every 
single test must be met in its entirety. There is some 
allowance for discretion, but these are the general 
requirements for meeting the definition of charter.
    Mr. Ose. In the Defense Language Institute that my friend 
referenced, I presume that was a charter, or determined to be a 
charter service?
    Ms. Dorn. I couldn't comment on the specific case. I can 
say that these are the definitional requirements to meet the 
test. So, I wouldn't want to, at the spur of the moment, say it 
is or it is not.
    Mr. Ose. So, if there is a bus service--and we are, at the 
moment, going to leave it undefined--if there is a bus service 
from point A to point B that is regularly scheduled to leave 
point A at such and such a time and has scheduled stops along 
the way intermediate to getting to point B, that would be one 
of the standards FTA uses to determine whether this is a 
charter or a transit service? Do I understand that to be one of 
the thresholds?
    Ms. Dorn. If those schedules and stops had been determined 
not by the grantee, so to speak, or the provider of the 
service, but the acquirer of the service. So control of where 
it stops and when, under mass transit, is made by the grantee, 
by the service provider, rather than those who are procuring 
the service.
    Mr. Ose. So, if the acquirer of the service determines 
where it stops, it is a charter?
    Ms. Dorn. That is one of the conditions, correct.
    Mr. Ose. If the provider of the service determines the 
stops, one of the tests there would be that it is a transit 
service?
    Ms. Dorn. That is one of the conditions, yes. That is one 
of the ways that it allows us to determine whether, under the 
law, it is mass transit or charter.
    Mr. Ose. OK. In other words, you have the acquirer of the 
service, you have the provider of the service, and then you 
have the people who use the service. If the people who use the 
service pay a fee to board the bus, is that one of the 
standards used to determine whether it is a transit service or 
a charter service?
    Ms. Dorn. A fee to board the bus?
    Mr. Ose. Yes, like $1 to get on the bus.
    Ms. Dorn. Well, I understand that, yes, sir. If it is a 
part of the contract for service, then that is a charter.
    Mr. Ose. So, if the acquirer of the service, who has 
determined the schedule and the route and all that, tells the 
provider of the service you may charge your users $1, then that 
would reinforce FTA's conclusion that it is a charter. But, if 
the acquirer makes no such requirement of the provider, either 
pro or con to whether or not they charge a fee for their 
service, that would be indicative of transit service?
    Ms. Dorn. Those conditions may or may not. It is all 
dependent on the specifics of the contract, the specifics of 
the case as interpreted by the very issues that we need to 
consider by law of what is charter and what is mass transit. 
So, Mr. Chairman, I just hesitate to posit by taking one 
particular condition and then to say in this instance that is 
charter. And, certainly we could very carefully, for the 
record, provide an answer, but it very likely would be the same 
answer; it may or may not, depending on other aspects that we 
have to consider.
    Mr. Ose. What are the other aspects?
    Ms. Dorn. What we talked about, the fee for service, 
whether it is under the contract, it is to a specific group of 
people, whether the people who ride can alter the time or the 
people who procure. There are a number of issues defined in our 
regulation about what is charter service.
    Mr. Ose. It would seem to me that, on each of these 
standards, as it relates to a predetermined route, you either 
have a predetermined route or you don't. It would seem to me 
that if someone who boards the bus is assessed a fee for that 
on a use basis, you either have that or you don't. You either 
have the ability to change the arrival or departure times or 
you don't. You either have the ability to change the route or 
you don't. And, what I am trying to get is whether or not, in 
the aggregate having evaluated each of those parameters, is 
there some sort of scoring system that gets you to a 
determination whether something is a charter or a transit?
    Ms. Dorn. In some instances, Mr. Chairman, it is relatively 
subjective and, as I said, very often the tipping point, so to 
speak, has to do with who controls the fares and the schedules. 
Every provision of different types of service, charter or 
whatever kind of service, has different kinds of 
characteristics depending on where they are going, what the 
contract is.
    So, we look to the specific contract. For example, one 
contract in a charter service may permit the driver to stop at 
a senior citizen center that wasn't previously scheduled 
because his charter contract bus is not yet full, so he or she 
can divert and go to a senior citizen center that wasn't 
contemplated on that day's charter trip. So, I just use that by 
way of an example that each of these cases requires very 
careful examination.
    Mr. Ose. You are saying that some of these parameters may 
actually indicate one as opposed to other parameters may 
indicate exactly the opposite. In effect, one of the tests that 
you have highlighted, you have the ability to waiver from a 
fixed route, but that would indicate that it is either a 
transit or a charter, without a definitive determination. But, 
then you may have another thing where you pay a charge to get 
in, which indicates it is exactly the opposite. That is what 
you are suggesting, that you have to take them in the aggregate 
rather than individually, if I understand your testimony?
    Ms. Dorn. I would just say that each case is evaluated on 
its own merits in comparison to the standards that are defined. 
And, the nature and type of transportation in our country is so 
rich and so diverse that it must, and should, be made on a 
case-by-case basis with a very as strict as possible 
definition. So, I would not want to say that we have to take 
the aggregate versus weighing this or that.
    Mr. Ose. I thank the gentlelady.
    The gentleman from Ohio.
    Mr. Tiberi. Thank you, Mr. Chairman.
    Ms. Dorn, do you believe that a publicly funded entity 
should be in the business of providing service competition in 
the same market with an already private serving entity?
    Ms. Dorn. A couple of comments with respect to that good 
question, Congressman. First of all, this administration is 
strongly supportive of encouraging, enabling under the law 
private sector participation in transportation. That serves 
every community better when those options are available and 
they are exercised when locally preferred, and it allows 
transportation to be more robust and to continue our economy's 
growth. First point.
    Second point, FTA is bound by the strict reading of the law 
in terms of under what conditions there can be appropriate 
competition or not. The FTA law specifically allows federally 
funded mass transit transportation to compete with the private 
sector under certain conditions, and there are a number of 
conditions that are outlined in the law that only if that 
service, for example, is essential to a program of service, not 
the grantee's, a program of service for the community; if it 
provides for participation of private companies to the maximum 
extent feasible; if just compensation is paid; and, it is my 
understanding, labor protections are in place. So, the law very 
specifically tells us under what conditions it is appropriate 
for public to compete with private in the arena of mass 
transportation, and we have endeavored at the FTA to fulfill 
and respect very carefully that careful crafting in statute.
    Mr. Tiberi. Let me get a little more specific. In our May 
18th hearing earlier this year, ENOA Corp. in Hawaii presented 
one such case.
    Ms. Dorn. I am sorry, I am having trouble hearing.
    Mr. Tiberi. ENOA Corp., at our May 18, 2004 hearing, 
presented one such case. In today's hearing Oleta Coach Lines 
in Williamsburg will be presenting another such case of the 
public sector competing with the private sector. Since January 
20, 2001, can you tell me how many times the FTA has enforced 
the provision in its own rules to ensure that local government 
mass transits are not competing unfairly with existing private 
sector companies?
    Ms. Dorn. First, may I comment on the Williamsburg case? It 
is my understanding that is on appeal to my office, so it would 
be inappropriate to comment.
    Mr. Tiberi. OK.
    Ms. Dorn. I just wanted to make the record clear on that.
    With respect to how we enforce what we vigorously believe 
and what the law requires, we are a grant-making agency that 
has very strict contractual requirements with every grantee. 
With respect to private sector participation, we have planning 
requirements generally for both the grantees and the 
metropolitan planning organizations, and we insist that they 
take a strong look at what has been required in the law about 
private sector participation.
    As you know, Congress has very seriously limited FTA's 
authority to enforce or to withhold certification in that 
arena; however, there are other arenas, the charter bus issue, 
the school bus violation, etc., where we take a very close look 
through triennial reviews, which we work with our grantee 
regularly, we do quarterly reviews, and we are very serious 
about their knowing the private sector participation 
requirements and fulfilling them.
    For example, in the triennial review we have determined 
there were about 12 formal complaints with respect to charter 
or the triennial review. We have had, over the past several 
years, 10 findings in our triennial review that indicate there 
is a problem with how the transit agency completes that private 
sector requirement. We have very vigorously enforced to make 
sure that they remedy those problems, and I am pleased to say 
that in the 10 instances where we found a violation of private 
sector involvement, those have all been remedied by the 
grantee.
    Mr. Tiberi. You can just give me a number answer, if you 
could, on this. Since January 2001, how many protests have you 
received from existing private sector mass transit providers 
about unfair competition? Just if you could give me a number.
    Ms. Dorn. I know of none at the formal headquarters level. 
However, I make it very clear that in our grant-making 
responsibility, our regional offices are working daily with our 
grantees, and many times informally they will say to the 
grantee we don't see your public involvement process, you don't 
have a public notice, we are going to withhold funds, or let us 
wait until you put this mechanism in place. So many times that 
is informally resolved. Our strong interest, as the 
Administrator of mass transit programs, is to ensure that the 
community receives the services that are in so many cases 
desperately needed.
    In the context of doing that, we work on a day-to-day basis 
to make sure that our grantees are compliant with the law and 
that we don't stop the delivery of service. What we want to do 
is to get compliance. Our records at the headquarters level 
show that these kinds of complaints are rare.
    Mr. Tiberi. Mr. Chairman, can you indulge me just one final 
question to followup?
    Mr. Ose. I would indulge you however you like.
    Mr. Tiberi. Just a yes or no answer. Take your FTA hat off. 
Do you believe that a public sector entity should compete with 
a private sector entity already in existing market? Take your 
FTA hat off. Yes or no?
    Ms. Dorn. Sir, I won't take off my FTA hat, but I would say 
to you that personally and professionally I believe there is 
wisdom in the law as they have prescribed the mass transit 
issue. I think there are many factors to be considered, and I 
believe that this administration has proposed significant 
enhancements for private sector involvement, which I thoroughly 
support, and that would make the law even better.
    Mr. Tiberi. Thank you.
    Mr. Ose. I want to followup on a question you asked having 
to do with Williamsburg.
    Ms. Dorn, on September 14th, a local James City Council 
Community Services official stated that ``Williamsburg Area 
Transport has been pleased to operate this successful pilot 
project, but does not intend to operate the route in the 
future.'' Would that charge your response to Mr. Tiberi's 
inquiry regarding that matter and your freedom to comment on 
it?
    Ms. Dorn. I am sorry, I am having trouble hearing.
    Mr. Ose. Williamsburg Area Transport does not intend to 
operate the route in the future, as of September 14, 2004.
    Ms. Dorn. I would still hesitate to comment on the facts of 
the matter, because I am not aware of all of the facts of the 
matter. So, I would suggest that I would be very happy to take 
a look at the matter if it is not a formal complaint that needs 
to go through a particular process, but I think it is risky to 
posit something when I don't have the entire facts.
    Mr. Ose. I am pleased to recognize the chairman of the full 
committee who joins us today, Mr. Davis of Virginia.
    Mr. Davis. Thank you, Mr. Ose. I appreciate your holding 
this hearing. I just have one question.
    On the active and proposed public-private partnerships in 
Virginia, we have a completed project, the Pocahontas Parkway, 
and five active public-private partnerships now: Route 28, 
Route 288, the Colefield Expressway, Jamestown 2007, and Route 
58. In addition, we have six rail or road projects that are in 
the proposal stage, including Dulles rail, which is very 
critical; the Hot Lanes on the Beltway; Hot Lanes on I-95 and 
I-81, widening the Powhite Parkway western extension in the 
third; Hampton Roads Crossing.
    What is your view on all such proposed projects; have you 
been involved; and can you comment on the Dulles rail project 
in particular?
    Ms. Dorn. Sure. Let me begin, Congressman Davis, with the 
first point, Washington-Dulles. The project which has now been 
approved to be into preliminary engineering, we are pleased 
that this is the first to use the procurement method under 
Virginia's Private-Public Partnership Act for Mass Transit. We 
believe that this has very important prospects for delivering 
on time, on budget this important transportation segment in 
this corridor. It is one of FTA's New Starts proposals, and we 
are certainly supportive of the increased private sector 
investment.
    Our primary involvement, however, has been related more to 
the criteria for financial investment and whether it meets the 
test. However, we look forward to continuing to work with the 
grantee in this unique and hopefully growing public-private 
partnership approach.
    With respect to the other five highway public-private 
partnerships, I would want to defer to my colleague, Federal 
Highway Administrator. We can either do that for the record or 
we have an individual here who could speak more specifically.
    Mr. Davis. Let us hear from him.
    Ms. Dorn. OK, great. D.J. Gribbin is the Chief Counsel for 
the Federal Highway Administration.
    Mr. Davis. Was he sworn?
    Mr. Ose. Mr. Gribbin, please rise and raise your right 
hands.
    [Witnesses sworn.]
    Mr. Ose. Let the record show the witness answered in the 
affirmative.
    The gentleman from Virginia.
    Mr. Gribbin. Thank you, Mr. Chairman. In response to your 
question, the Federal Highway Administration has been working 
very closely with VDOT and the Warner administration on all of 
those projects. In fact, on the I-81 project in Virginia in 
particular, that is what we call a SEP-14, a Special 
Experimental Project 14, which we use on a case-by-case basis 
to help advance public-private partnerships. In this case, we 
have a regulation that does not allow a State to issue an RFP 
prior to a recorded decision on a project. We use SEP-14 to 
waive that requirement because of the unusual nature of the I-
81 project. That was the first time in the Nation that we had 
done so.
    Mr. Ose. I thank the gentleman.
    Ms. Dorn, currently FTA has 18 codified rules, including 
one for planning assistance and standards, one for project 
management oversight services, one for credit assistance for 
surface transportation projects, but has none on private sector 
participation. And the source that I am referring to is right 
here--the Code of Federal Regulations. In 1994 Congress passed 
amendments to the 64 Mass Transit law requiring private sector 
participation to the maximum extent possible, and that is 
Sections 5306(a) and 5307(c) of Public Law 103-272.
    In a June 28th of this year reply to one of my post-hearing 
questions, the Department of Transportation stated, ``Section 
5307(c) compels FTA to accept a grantee's annual certification 
of intent to comply. . . . FTA carries out the Section 5307(c) 
mandate through the agency's triennial review process.''
    DOT also noted that in 1994 the prior administration 
rescinded the Reagan administration's October 1984 nonbinding 
guidance on private sector participation.
    In your written statement for today's hearing, you stated 
``in our judgment additional rulemaking is not necessary for 
FTA to enforce current law,'' and that is on page 2 of your 
statement.
    Now, after discovering grantee confusion and noncompliance, 
in August 2003, I requested that you issue implementing rules 
for Sections 5306(a), dealing with private enterprise 
participation, and 5307(c), dealing with public participation 
requirements.
    One logical option, it seems to me, is to amend FTA's major 
capital investment rule, Part 611, since it already implements 
part of 49 U.S. Code Section 5309, Capital Investment Grants 
and Loans.
    Do you intend to amend an existing FTA rule or issue 
another freestanding FTA rule in order to clear up grantee 
confusion on this matter?
    Ms. Dorn. Mr. Chairman, FTA addresses private sector 
participation requirements in a variety of regulations and 
circulars, including the very important joint FTA-Federal 
Highway Administration planning regulations implementing the 
two sections which you mentioned, 5306 and 5307. With 
considerable changes affecting the private sector involvement 
now before Congress, we are very hopeful that those will pass, 
and I do not believe that it would be fruitful to amend the 
current regulations at this time.
    However, as I indicated in my oral statement, I agree that 
because there are so many places at which private sector 
involvement requirements are in the law, the regulations, the 
circulars, that I do believe a clarification is needed even in 
the interim, while we await passage of the legislation; and I 
have directed my staff to develop a plain English guide, if you 
will, for comment, and we expect that to be ready for 
circulation within 90 days.
    It is my view that currently we do not need to modify the 
rules to get clarification. We may need to better explain the 
rules that exist and make sure that they are in a more user-
friendly fashion.
    Mr. Ose. I am trying to find the assurance under which this 
subcommittee basically can say this issue has been resolved so 
I can go on to the next, because I have no shortage of similar 
issues in other agencies that are kind of like in a queue 
waiting to be looked at. I am not sure that I share your 
confidence that the highway authorization bill is going to be 
passed and that will take care of clarifications such as you 
suggest.
    This isn't exactly a new issue. I have to express some 
dissatisfaction to you that, notwithstanding your comment that 
you are going to undertake guidance, guidance isn't binding. It 
just simply isn't binding; it has no legal force. I am just not 
convinced that, frankly, you are taking this very seriously.
    Ms. Dorn. In our agency, contractual commitments are 
definitely binding, and I can assure you that we have very 
vigorously enforced, through our triennial review process and 
the master agreement that all grantees must sign and certify, 
if and/or when we find a violation of these private sector 
requirements, we get on it.
    And, in fact, as I mentioned, of the 10 that we discovered 
over the past number of years, each one of them has been 
resolved. We don't give the agency the option to resolve it in 
the long-term; we say X number of days we expect the public 
involvement process, for example, to be remedied by adequate 
private notice, etc.
    Mr. Ose. Well, I would like to explore that for a little 
bit, because I have more than a passing knowledge of one that I 
brought to your attention. Pursuant to a triennial review you 
did of SACRT back, I believe, in the year 2000, you entered 
into a Memorandum of Understanding regarding a Standard 
Operating Procedure for the days going forward.
    Yet when I brought it to your attention that Sacramental 
Regional Transit has not complied with the requirements of that 
MOU in terms of how they conduct their affairs relative to one 
public-private competition, I have yet to see the first 
meaningful step whereby FTA would hold those folks accountable 
for not complying with an agreement that they signed long prior 
to the issue of this public-private competition arising.
    This has to do with the issuance of a contract for service, 
but even more fundamentally how that contract was awarded in 
the first place, which your people examined under that 
triennial audit, identified the flaws, brought them to the 
attention of the local entity, had them sign an agreement 
saying that they would fix their systems; they haven't fixed 
their systems, I have brought it to your attention, and nothing 
has happened.
    Ms. Dorn. Mr. Chairman, we have documentation that 
requirement has been met, in terms of public involvement, and 
we asked, in the context of the case that you mentioned, for 
that documentation to be submitted. We examined it and we found 
it to be sufficient. To our knowledge, the grantee is in 
compliance. If you have additional evidence to that effect, FTA 
would eagerly take a look at that matter to ensure that it is 
remedied.
    Mr. Ose. My point is that there was absolutely no 
consequence for the overt act commissioned by Sacramento RT for 
changing their advertising pattern from the historical norm in 
a single instance, the net result of which was to take a 
private service provider out of a position and replace them 
with a public service provider. You can call it potato soup if 
you want, but a rose by any other name has thorns.
    This was a screw-up on the part of FTA. You can dance 
around the issue, you can talk about minimal compliance, but 
the net effect of the lack of oversight on behalf of FTA in 
terms of the Memorandum of Understanding that resulted from 
your triennial review is that the advertising that should have 
taken place in a particular manner did not and a private 
provider lost a service.
    Now, you and I can sit here and debate it all you want, but 
the net effect is that the system got hijacked; I brought it to 
your attention. Near as I can tell, you haven't even sent a 
single letter to the municipal entity calling to their 
attention the fact that they changed their system, and I have 
to express to you some not so small dissatisfaction with that.
    Ms. Dorn. I understand and respect that. I respectfully 
disagree. We have done everything we have been able to do to 
both resolve the case fairly and appropriately under the terms 
of the law, and it is our understanding, clearly been 
documented, that this agency is in compliance with what we 
required of them in the triennial review.
    Mr. Ose. Under the basis that it was a charter service, as 
opposed to a transit service?
    Ms. Dorn. That is our lawyer's view of the law.
    Mr. Ose. The parameters of which are very subjective.
    Ms. Dorn. Pardon me?
    Mr. Ose. The parameters of which, according to your earlier 
testimony, are highly subjective.
    Ms. Dorn. I don't believe I said highly subjective. There 
are elements of subjectivity, and that is why there is case law 
that would advise us and very specific lengthy list of factors, 
no single factor being the exclusive factor.
    Mr. Ose. You can see why I was so interested in the 
parameters. I have no small frustration in getting FTA to 
define what those factors are in a determinant status so that 
people can actually rely on them in the future. That is why I 
asked for a rulemaking, as opposed to guidance, on these 
issues.
    Ms. Dorn. We certainly have not kept as secret the factors 
which define charter; anything but. I personally sent a letter 
to over 600 grantees in the last year to very strictly define 
what is charter, what is not, to what standards they must be 
held accountable in the law and our regulations. So, we are 
doing everything possible to make this user-friendly and so 
that everyone knows what is and is not a charter.
    Mr. Ose. Gentleman from Virginia.
    Now, the governmentwide grants management common rule 
provides various remedies for noncompliance by a grantee, and 
some of those remedies include temporarily withholding cash 
payments pending correction of the deficiency, disallowing all 
or part of the cost of the action not in compliance, wholly or 
partly suspending or terminating the current award for the 
grantee's program, withholding further awards for the program, 
taking other remedies that may be legally available. These are 
just some of the remedies for grantee noncompliance.
    As it relates to the triennial review that indicated that 
the Standard Operating Procedure at SACRT did not meet FTA's 
requirements, were any of these remedies implemented?
    Ms. Dorn. I am not exactly sure where to start on this 
question because we have a fundamental disagreement about how 
the common grant rule applies to FTA programs.
    Mr. Ose. Well, let us even go back further.
    Ms. Dorn. OK.
    Mr. Ose. Did you or did you not find SACRT in compliance 
with your operating procedures pursuant to your triennial 
review in the year 2000?
    Ms. Dorn. With respect to the bus plans for bus 
procurement, correct, we did not find them in compliance. They 
later came into compliance through the documentation that was 
submitted to us.
    Mr. Ose. I had a conversation with the Executive Director 
of Sacramento RT on July 14, 2004, in which she told me quite 
directly, in response to a direct question, no, we didn't 
bother to implement those things for 3 years. Now, at what 
point did you make the determination that SACRT was in 
compliance with the triennial review?
    Ms. Dorn. I am not sure of the dates, sir, but I do know 
that we have documentation, to the best of my knowledge, that 
those requirements were put in place in a timely fashion.
    Mr. Ose. Actually, they told you they were put in place.
    Ms. Dorn. We saw notifications of public hearings and other 
such documentation. I cannot recall what it was, but I asked if 
we had the documentation in hand; they said yes; I looked at 
it. More importantly, my Chief Counsel thoroughly examined it, 
and we were satisfied.
    Again, if there is additional evidence that relates to this 
case, then we would be more than happy to review it. We do not 
have that.
    Mr. Ose. For the record, would you please check on the date 
so that I can compare the date at which you made that 
determination to the date indicated by the Director SACRT, the 
date indicated to me in July of this year as to when they 
actually implemented those provisions? I will give you a 
question, if you would like, in writing to which you can 
respond.
    Ms. Dorn. Whatever you prefer, sir. That would be fine.
    Mr. Ose. Given the history of this particular grantee and 
my concern about FTA's oversight of its compliance, there 
remains a question dealing with this particular grantee 
amounting to about $1 million in previous years' unobligated 
money that was otherwise directed to SACRT. I am aware that as 
of September 1st of this year there were previously unobligated 
funds totaling $990,000 and change which were to expire on 
September 30th, today. Has FTA, since September 1st, approved 
the release of these funds to SACRT?
    Ms. Dorn. I would be happy to provide that for the record, 
sir. I am not aware. We have 2,000 grantees, and certainly in 
the last month there is always a rush by our grantees to 
obligate funds because they have completed adequately the 
process. I would be happy to check on that.
    Mr. Ose. These are fiscal year 2002 funds.
    Ms. Dorn. OK.
    Mr. Ose. Now, I notice the gentleman who came up and 
testified a moment ago has a Blackberry that is readily 
available. Perhaps during the course of our conversation he can 
contact your office and find out the status of these funds. Do 
you think that would be possible?
    Ms. Dorn. We will make every effort.
    Mr. Ose. OK.
    On our second panel today we have invited two witnesses, 
Iris Weinshall Schumer, who is the commissioner of the New York 
City Department of Transportation and the chairman of the 
Transit Alliance representing seven affected private sector 
transit operators to discuss the proposed takeover by a 
federally funded local transit agency, that being the 
Metropolitan Transit Authority [MTA], of private sector bus 
services in Queens, Brooklyn, the Bronx, and Manhattan that 
currently operate under contracts with the city.
    On June 11th of this year, the Council of the city of New 
York held a hearing on this particular idea, and its briefing 
paper for the hearing stated that the proposed takeover 
potentially makes the city responsible for paying hundreds of 
millions of dollars in transfer costs arising from necessary 
purchases of infrastructure, such as additional depots, 
garages, buses, and fueling stations.
    The Transit Alliance's written testimony for today's 
hearing states that ``the most recent budget submitted to the 
City Council calls for payment to MTA of $161 million, which is 
approximately $11 million more than present costs for delivery 
of the same service.'' It also states that ``once the takeover 
is consummated the MTA plans to cut service.'' And, attached is 
a September 23rd of this year letter from an AFL-CIO union 
stating that ``the MTA has not shown any evidence that it can 
adequately fulfill this major undertaking. . . . this. . . . 
would, without a doubt, be a `lose-lose' situation to all.''
    Do you have any estimate of the difference in total public 
costs between the current franchisee arrangements and the 
proposed takeover that I have just cited?
    Ms. Dorn. No, sir, I do not.
    Mr. Ose. Does FTA play a role in providing funds to the 
city of New York necessary to facilitate this takeover?
    Ms. Dorn. No. It is my understanding not. This issue, as I 
understand it, as you have described it, it is a local matter 
at this point. However, I am asking my Regional Administrator 
to ensure that the requirements of the law are known to the 
grantee so that private sector involvement requirements, public 
involvement requirements are met on this very important matter. 
I certainly agree that this kind of local decision we must do 
everything possible to make sure that we make aware to the 
grantee their requirements for full public involvement so that 
a decision can be made. We have received no complaints on that 
matter to date.
    Mr. Ose. My investigation of the situation leads me to 
believe that, as it relates to Queens, Brooklyn, the Bronx, and 
Manhattan, you have mass transit service being provided by 
private operators, and that at least facially it appears to me 
as if the city of New York is moving to acquire those services 
so that such services can be provided by a public entity. If I 
understand that correctly, they cannot use Federal money to 
effect that change?
    Ms. Dorn. It is my understanding that decision by MTA has 
not been made; they are in the process of making local 
decisions on that. What our role is is to make sure, as MTA and 
the city pursue possible changes, that they comply strictly 
with the law respecting public involvement and private sector 
involvement.
    Mr. Ose. Under the understanding that you have of this 
situation, is the city of New York able to rely on the FTA for 
grants, the purpose of which would be to effectuate the 
purchase of these private services?
    Ms. Dorn. I have no specific knowledge about that piece. I 
would not want to hazard a guess.
    Mr. Ose. If the circumstances are as I have described, in 
that the services currently being provided in Queens, Brooklyn, 
the Bronx, and Manhattan, are in fact privately provided, can 
the city of New York be confident that FTA will approve their 
grant for funds, the purpose of which will be to acquire these 
private services?
    Ms. Dorn. Our job is to make sure that the requirements for 
private participation are met. So, I don't want to prejudge 
what they might decide, in what context, etc. We have a very 
strict law and interpretation about what it is that we can and 
cannot do in terms of a local decision, and I would not want to 
hazard a guess as to what this grantee has in mind, what the 
city has in mind, but we do know that there are very 
specifically laid out protections in certain instances for the 
private sector, as I described for the Congressman earlier.
    Mr. Ose. In a hypothetical situation involving four 
privately owned mass transit services in suburbs of a 
hypothetical large city, if the hypothetical large city sought 
to acquire those private services, would the hypothetical large 
city be able to rely with any degree of certainty on the FTA 
being willing to provide grants, the purpose of which would be 
to acquire such private mass transit services in such 
hypothetical suburbs of hypothetical large city?
    Ms. Dorn. Mr. Chairman, they could certainly rely on the 
fact that FTA would vigorously enforce the law with respect to 
Section 5323(a), which says FTA law specifically allows 
federally funded mass transportation to compete with the 
private sector under certain conditions. So, the test would be 
whether or not those conditions have been met. That is the law 
that we are required to administer, and you can believe and 
accept, I hope, that we will vigorously enforce that law, as is 
our job.
    Mr. Ose. Could you highlight for me your understanding of 
the conditions under which a public entity could compete with a 
private provider under such circumstances?
    Ms. Dorn. If the service is essential to a program of 
services, if the service provides for participation of private 
operators to the maximum extent feasible, if just compensation 
is paid, and if labor protections are in place. Those are the 
generic conditions which are specifically outlined in our rule, 
in our law, that define the conditions under which the public 
sector can compete with the private sector in mass transit.
    Mr. Ose. So, if the circumstances are such as to allow the 
public sector to compete, just compensation would have to be 
paid? Just compensation for what?
    Ms. Dorn. I don't want to move inappropriately beyond my 
depth; I am not a lawyer. This is a very complex matter of law. 
I would like to ask my Chief Counsel.
    Mr. Ose. Would Mr. Sears like to be sworn in?
    Ms. Dorn. That would be fine. I would like him to be. Thank 
you.
    [Witness sworn.]
    Mr. Ose. Let the record show that Mr. Sears answered in the 
affirmative. Mr. Sears is the Chief Counsel for the FTA.
    Sir.
    Mr. Sears. Thank you, Mr. Chairman. The provision of just 
compensation under 49 U.S.C. 5323(a) is a provision that has 
not been opined on much by FTA in recent decades, as there has 
been very little in the way of a provider of public 
transportation acquiring a private provider of transportation. 
But, the general rule of law in this area of statutory 
construction is that there is a reasonableness standard applied 
to what just compensation is, and it is determined on a case-
by-case basis.
    Mr. Ose. If the public entity provides a service, and the 
ridership on the private provider goes down, is there an 
element of condemnation there?
    Mr. Sears. Condemnation as a matter of law, sir?
    Mr. Ose. Yes.
    Mr. Sears. I don't believe so under 5323.
    Mr. Ose. OK.
    Mr. Sears. But, I would have to look into that, sir.
    Mr. Ose. Does the issue of just compensation relate to the 
facilities or to the value of the franchise that might be 
affected?
    Mr. Sears. Well, if I could reiterate that it has been, I 
believe, at least 20 years since this provision of law was 
exercised before at the time the Urban Mass Transportation 
Administration. I believe that just compensation speaks toward 
the loss to the private provider of public transportation and 
that the calculus is grounded in the loss to the private 
provider.
    Mr. Ose. So, it would go beyond just the actual real estate 
or rail line, to the value of the franchise itself?
    Mr. Sears. Again, the jurisprudence surrounding this is 
somewhat dated, but my recollection is that is correct, yes.
    Mr. Ose. I wonder how it is we could possibly share such 
information with the potential public provider in New York 
City. Any idea how that might happen?
    Our second panel today, we have two witnesses. The first is 
the District of Columbia Director of Transportation and the 
other is the only person who for 30 years has operated the 
competitively awarded private sector franchise known as the 
Tourmobile, who will discuss the proposed two-phase Downtown 
Circulator system in Washington, DC.
    Now, a May 8, 2000 National Park Service memorandum states: 
``The system proposed for implementation in the study may 
require financial subsidy to operate and will provide no 
monetary return to the National Park Service. The present 
concessioner-operated interpretive shuttle does not require 
subsidy and pays fees in which four National Capital Region 
parks and the National Park Service--split on an 80/20 
franchise fee basis--approximatley $600,000 to $700,000 
annually.''
    In December 2000, the Department of Transportation Office 
of the Secretary co-signed a Memorandum of Agreement for the 
proposed circular system, stipulating that DOT agrees to 
``Guide the MOA group through the reauthorization process of 
the transportation funding bill.''
    What specifically has Department of Transportation done to 
advance this project since January 21, 2001?
    Ms. Dorn. FTA has not participated in any monetary way with 
respect to this, so no Federal requirements are applicable, 
including the private sector. I will need to get back to you 
with respect to the Memorandum of Agreement; I am not familiar 
with the specifics of that, although I do know that the FTA's 
requirements would not be triggered because there is no funding 
involved from our agency. So, I would be happy to provide for 
the record a more explicit discussion about the Memorandum of 
Agreement which you cite.
    Mr. Ose. Mr. Sears, it is my understanding we have faxed 
you a copy of that Memorandum of Agreement. Is that true?
    Mr. Sears. I apologize, sir, I can't attest as to whether I 
received that fax or not.
    Mr. Ose. We will followup on this in writing. What we are 
looking for is dates and documents for the hearing record.
    Now, the District of Columbia Downtown Business Improvement 
District Web site on its proposed circulatory system states 
that current estimates are just under $12 million in capital 
costs and $6 million annually in operating costs. Do you know 
if these costs include any financial subsidy? Do they recognize 
the full buyout cost for the franchisee known as Landmark 
Services Tourmobile? If so, how much is estimated for the 
subsidy and how much for the buyout? And, if not, do you have 
separate estimates for the subsidy and the buyout, and what are 
they?
    Ms. Dorn. FTA has no involvement from the funding 
perspective, nor any other perspective that I am aware of, so I 
can't comment on any more than that.
    Mr. Ose. FTA has not been approached, either preliminarily 
or otherwise, by the District of Columbia City Council and the 
like regarding potential grants that might be used to 
facilitate this takeover?
    Ms. Dorn. To my knowledge, not; however, our regional 
offices on a regular basis attempt to respond to inquiries from 
organizations, private and public, all the time. So, I wouldn't 
want to say that no one has approached FTA. I do know that no 
funding has been committed or contemplated from the 
headquarters perspective.
    Mr. Ose. OK, we will be sending you a letter for further 
followup on this subject.
    Ms. Dorn. OK.
    Mr. Ose. This, to me, is one classic example. Having almost 
been run down by the Tourmobile on numerous occasions, I want 
to make sure that it stays in existence so it can run down my 
successor.
    Mr. Tiberi.
    Mr. Tiberi. No further questions.
    Mr. Ose. Mr. Davis.
    Mr. Davis. Let me ask you, the impact of street closings on 
mobility downtown, are you familiar with that?
    Ms. Dorn. Sir, I could not speak to that; my colleague from 
the Federal Highway Administration would potentially be able to 
do that.
    Mr. Davis. Be better off.
    Ms. Dorn. Would certainly be better, yes.
    Mr. Ose. Bring him up here.
    Mr. Gribbin. I have already been sworn.
    Mr. Ose. You have been sworn.
    Mr. Davis. Let us talk about these street closings going on 
downtown. Obviously it has had a huge effect on mobility. It is 
even having an effect on mobility around the Capitol, trying to 
get in in the mornings. What is the Federal Government doing to 
address access and mobility downtown?
    Mr. Gribbin. I apologize, Mr. Chairman, I am actually not 
prepared to answer that question this morning. We can get an 
answer back to you.
    [The information referred to follows:]

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    Mr. Davis. All right. I will wait until the next panel.
    Mr. Ose. I am sorry, Mr. Chairman, I missed that. I was 
multi-tasking.
    I want to thank Ms. Dorn, Mr. Sears, the gentleman from 
Federal Highway for joining us today. We have a number of 
questions; we will be sending you followup in writing. We would 
appreciate a timely response. We want to encourage you to 
expedite your rulemaking in any way, shape or form we can. And, 
I am just not done with Sacramento RT.
    Ms. Dorn. We got that impression, sir.
    Mr. Ose. Thank you.
    Ms. Dorn. Thank you.
    Mr. Ose. We will take a 5-minute recess.
    [Recess.]
    Mr. Ose. All right, we are back. This is the second panel 
for the Subcommittee on Energy Policy, Natural Resource and 
Regulatory Affairs hearing on the subject of ``How Can We 
Maximize Private Sector Participation in Transportation?''
    Our second panel is composed of five individuals. They are 
Dan Tangherlini, who is the director of the District of 
Columbia Department of Transportation here in Washington; Mr. 
Tom Mack, the chairman of Tourmobile Sightseeing here in 
Washington, DC; Mr. Jerome Cooper, chairman of the Transit 
Alliance and president of Jamaica Buses, Inc., in Jamaica, NY; 
Mr. David Smith, director of marketing and sales for Oleta 
Coach Lines, Inc. from Williamsburg, VA; and Mr. Steven Diaz, 
esq., former Chief Counsel for the Federal Transit 
Administration at the Department of Transportation.
    Gentlemen, as you saw in our first panel, we swear in all 
our witnesses. That is the standard of course; it is not 
judgmental. If you would all rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Ose. Let the record show that all five witnesses 
answered in the affirmative.
    Now, as with our first panel, we have received your written 
testimony. In front of you I believe this monitor is working; 
that monitor is not. They are all working now. I stand 
corrected. They are both working. There are three little 
rectangles on that larger black box; there is green, yellow, 
and red. Green means you are in your 5 minute period; when it 
switches to yellow, it means you have a minute left; and, when 
it switches to red we put you on a long bus ride to pick your 
destination.
    Your testimony has all been received; we have looked at it. 
We are very appreciative of your preparing it and submitting 
it. We are going to recognize each of you in turn to summarize 
your testimony in 5 minutes. Every got it?
    Mr. Tangherlini, thank you for joining us today. You are 
recognized for 5 minutes.

  STATEMENTS OF DAN TANGHERLINI, DIRECTOR, D.C. DEPARTMENT OF 
TRANSPORTATION, WASHINGTON, DC; TOM MACK, CHAIRMAN, TOURMOBILE 
 SIGHTSEEING, WASHINGTON, DC; JEROME COOPER, CHAIRMAN, TRANSIT 
ALLIANCE AND PRESIDENT, JAMAICA BUSES, INC., JAMAICA, NY; DAVID 
 N. SMITH, DIRECTOR OF MARKETING AND SALES, OLETA COACH LINES, 
  INC., WILLIAMSBURG, VA; AND STEVEN DIAZ, ESQ., FORMER CHIEF 
    COUNSEL, FEDERAL TRANSIT ADMINISTRATION, DEPARTMENT OF 
          TRANSPORTATION, LAW OFFICE OF STEVEN A. DIAZ

    Mr. Tangherlini. Thank you for having me, Mr. Chairman. 
Chairman Ose, members of the committee and staff, my name is 
Dan Tangherlini, and I am the director of the District of 
Columbia Department of Transportation. Thank you for inviting 
me here today to testify on the topic of private sector 
participation in transportation, especially regarding the 
proposed Downtown Circulator. I particularly look forward to 
the opportunity to clear up some misconceptions about the 
Circulator proposal.
    First, I would like to give you some context about the DDOT 
and the amount of work that we do with the Federal Government 
and with the private sector. In fiscal year 2003, the last year 
in which we have closed the books, DDOT spent $42 million of 
local funds and $200 million in Federal funds on road, bridge, 
highway construction and maintenance. Of that sum, more than 90 
percent was contracted out to the private sector. Since Mayor 
Anthony A. Williams took office in 1999, the amount of 
contracting to the private sector has increased from $110 
million to $219 million, or more than 100 percent increase.
    The Williams administration and my Department are committed 
to ensuring that the District's citizens get the most value out 
of each transportation dollar spent on their behalf, and we are 
very proud of our record.
    The idea for a Downtown Circulator was developed by the 
National Capital Planning Commission as part of its legacy 
plan, a long-range vision plan for the Nation's capital 
completed in 1997. This Federal agency is tasked with ensuring 
the Nation's capital's workers, residents, and visitors can get 
around the city as quickly and easily as possible. They saw on 
the horizon a need for much expanded public transportation 
options in order to link popular destinations for an ever-
growing population of downtown core.
    Everything foreseen by the NCPC has been confirmed by local 
studies over the last decade. Downtown D.C. has added 
approximately 9.5 million square feet of office space since 
1998. There are 3,000 new residents living in or near downtown, 
and another 3,000 new residents will be moving in next year. 
During this same period, we have added an enormous amount of 
cultural and entertainment space, and are attracting millions 
of more visitors than we were just 8 years ago.
    In short, the District has added a city the size of 
downtown Denver in the last decade, while we have eliminated 70 
percent of all short-term surface parking, reduced available 
roadways through security closures, and we have not added a 
single bus route to help people move about downtown. The city's 
transit service has traditionally focused on bringing people 
from surrounding communities and neighborhoods into and out of 
downtown.
    Last month, the annual Texas Transportation Institute study 
of congestion placed Greater Washington with the third worst 
congestion in the country, after Los Angeles and San Francisco, 
and we only missed that by 1.4 minutes of delay per person, so 
we are catching up. Many of the people clogging suburban 
roadways are coming into the District and may be encouraged to 
take public transportation if we do a better job of providing 
surface links.
    Finally, the National Park Service provided us with 
invaluable data earlier this year on the unmet demand for 
transportation by visitors to downtown D.C. The Park Service 
survey found that fully 71 percent of visitors, representing 
millions of people per year, would like to use an inexpensive, 
non-interpretive bus service if one were available.
    In late 1998, the Downtown D.C. Business Improvement 
District, a group of downtown property owners, developers, and 
business leaders, took the NCPC idea and began to develop it. 
The idea for a Downtown Circulator was widely embraced by 
downtown business interests, a number of Federal agencies, 
including GSA and the NCPC, the Mayor and the D.C. Council.
    The plans for the Circulator have evolved over the years. 
The planning group attempted to be as creative as possible to 
solve as many problems of congestion, access, and mobility as 
possible. As ideas were tested and discussed, we were able to 
develop a realistic plan of action that includes two phases of 
service: one that could be developed independently by DDOT with 
its existing partners and a second phase that could be 
developed in conjunction with the private sector and the 
National Park Service. In fact, I will add one reason we 
divided the project into two phases was to avoid in any way 
encroaching on the Park Service's existing single interpretive 
service concessionaire.
    The Downtown Circulator is designed to be low-cost, very 
frequent, and faster than other public transportation due to 
less frequent stops. It is a form of bus rapid transit, if you 
will, and will provide no interpretive service.
    Phase I of the Circulator, which is scheduled to begin in 
the spring of 2005, has a route to link Union Station with 
Georgetown via the new residential neighborhood growing along 
the Convention Center-Mass Avenue corridor, as well as tying 
the Convention Center to our emerging Anacostia development 
area. We also hope to extend it perhaps to the new baseball 
stadium.
    It was always our desire to bid out Phase I, and until just 
last week this was not an available option. We have since 
learned that there may be a possibility to bid this phase to 
the private sector. If the National Park Service were to allow 
some opening of the existing concession, it would be our view 
that a variety of services should be offered through bidding 
with the private sector.
    What may really be at issue is Phase II, a service that 
could be available to 92 percent of mall visitors who do not 
use current interpretive service, and the more than 70 percent 
of mall visitors who would like low-cost, non-interpretive 
transit service. Nothing can happen in Phase II without Federal 
involvement through the Park Service. If NPS chooses to change 
and/or compete the existing more than 30 year old arrangement, 
we believe a private sector-operated non-interpretive service 
should be offered.
    In conclusion, the District Government and its public-
private partners have worked hard with the private sector to 
include them in every project we have done over the last 
several years. Despite the fact that there is absolutely no FTA 
funding being used to support Phase I of the Circulator, we are 
committed to work with the private sector operators to the 
extent we are able.
    I very much appreciate the opportunity to appear before you 
today and am available for any questions you have.
    [The prepared statement of Mr. Tangherlini follows:]

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    Mr. Ose. Thank you, Mr. Tangherlini.
    Our next witness is Mr. Tom Mack, who is the chairman of 
the Tourmobile Sightseeing enterprise that is so ubiquitous 
here in Washington.
    Sir, welcome. Thank you for joining us. You are recognized 
for 5 minutes.
    Mr. Mack. Thank you, Mr. Chairman and members of the 
committee, for extending us an invitation to appear before you. 
I regret that the Tourmobile is so hazardous to you; we will 
talk to them about that.
    In 1967, the National Park Service issued a public 
prospectus seeking concessions to operate a mass transportation 
system on the Federal mall. The Federal mall is a fragile 
place; the ecology is fragile and there are too many cars. The 
atmosphere is causing damage to the plant life and others 
there. The Park Service decided that it needed a mass 
transportation somewhat consistent with the 1901 McMillen plan, 
which called for a pedestrian mall and a mass transportation 
system. That ideal has been sought for a long time. We don't 
know if that will ever be achieved, but it is certainly 
important.
    We participated in the competitive bid circumstance, and, 
at that time, our organization, Universal Interpretive Shuttle 
Corp. I, bid and we were issued a contract whereupon we were 
sued by numerous who lost, and we spent a number of years in 
court. In 1968, the Supreme Court issued a decision favorable 
to the Secretary of the Interior, the Director of the National 
Park Service assuring that the Secretary of the Interior had 
absolute control over the contract which was issued, and in 
March 1969 the service began.
    We extended our service to Arlington National Cemetery in 
1970 at the request of the Department of the Army, and we have 
been there 32 years. I acquired Tourmobile in 1981 and have 
owned it since that time, and we continue to receive high marks 
from the National Park Service in terms of evaluations, and 
they continue to do so even under difficult circumstances.
    The first time I became aware of some appearance on the 
national mall related to transportation services was something 
called a Museum Bus. The Museum Bus, the intention of that 
organization, as I understand it, was to take people off the 
Federal mall and take them on their buses to places of culture, 
museums, art places throughout the city, and perhaps other 
locations. That operation lasted for a significant amount of 
time, I thought, for an experiment. The experiment proved an 
absolute failure and it was discontinued.
    I have never spoken with anyone from BID, an organization I 
first became aware of when--Downtown Improvement District BID--
I received a telephone call from a Washington Post writer, who 
asked me if I was aware of the Circulator program; I told him 
no. Will you send me the information? He said he couldn't, but 
read The Washington Post tomorrow. I did, whereupon I learned 
that BID, in concert with others, but principally BID, because 
they were the spokesperson for this and the potential operator, 
I believe, had expressed an opinion which was stated in the 
Post that they intended to begin an operation on the national 
mall similar to mine; asked me my opinion about that. I told 
them it would destroy my business.
    I still haven't spoken with anyone from BID, and I thought 
it was quite arrogant on their part to make such a statement 
without even conferring with me or letting me know what they 
intended to do, and asking me if I had any ideas about it or 
wanted to participate in it. I don't, but perhaps that 
opportunity will prevail.
    The information that I received on BID and that proposed 
Circulator operation is fraught with Federal funding. They have 
stated on numerous occasions that the foundation of their 
operation will be dependent upon tourists. Unequivocally, that 
has been stated numerous times. I believe that is a serious 
mistake and we oppose it.
    [The prepared statement of Mr. Mack follows:]

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    Mr. Ose. I thank the gentleman for his time and his 
testimony.
    Our next witness, Mr. Jerome Cooper, who is the chairman of 
the Transit Alliance and president of Jamaica Buses, Inc., in 
Jamaica, NY.
    Sir, welcome. Pleased to have you join us. You are 
recognized for 5 minutes.
    Mr. Cooper. Thank you, Mr. Chairman. My name is Jerry 
Cooper. I am the chairman and chief executive officer of Green 
Bus Lines, Triboro Coach, Jamaica Buses, and Command Bus 
Companies, who represent the Transit Alliance. We are private 
operators of bus mass transportation services in Queens, 
Brooklyn, and Manhattan in New York. Collectively, these 
companies employ 2,000 people, providing daily transportation 
to about 400,000 riders.
    I have worked for these companies for 45 years, and, for 
the past 7 years, I have been the CEO and chairman of the 
Board. Although these titles and the company names may sound 
like institutional corporations, they are not. The four 
companies and their predecessors are, to my knowledge, the 
oldest operating mass transportation organizations in the 
United States. We invented mass transportation in the New York 
area. These businesses were built by hard-working people and 
entrepreneurs, not government agencies.
    Shortly after World War I, a group of veterans found 
employment in our transit system. Eventually, these veterans 
became the bus drivers and mechanics who created the modern 
corporate entities which today are the principal assets for 
about 315 shareholders who are the decedents of these veterans. 
For over 100 years private effort and capital have continuously 
made efficient and convenient transportation an everyday 
expectation for our riders.
    Sadly, the city of New York, a recipient of enormous 
amounts of Federal funding for transit, is trying to put these 
companies out of business and preparing unnecessarily to lose 
hundreds of millions of public dollars in the process.
    Since the Federal Government began public transit 
assistance, private transit companies have been swallowed up by 
local government, but not Green Bus, Triboro, Jamaica, or 
Command. We are living proof that private enterprise works in 
transit.
    Unfortunately, New York City, the bastion of capitalism, 
has embarked on a program to push these private companies out 
of transit. Public officials inaccurately railed that these 
companies do not maintain buses adequately or care about the 
safety or comfort of the transit-riding public. Yet, the city 
refuses to spend more than $150 million in federally 
appropriated funds to retire old, obsolete, and exhausted 
equipment.
    Of the 709 buses in the combined fleets, on average 80 are 
out of service on a daily basis because of the need for repair 
or are Told that is not financially practical to repair them. 
Of the 709 buses, 98 are not wheelchair equipped and are 
inaccessible to persons with disabilities. The average age of 
268 buses of the combined fleet is 18 years or older. Many 
parts cannot be obtained and must be cannibalized from other 
equipment. These facts should be compared to the Federal 
standard of a 12-year useful life for transit buses.
    We operate under the cardinal rule that not a bus leaves 
the depot unless we deem it to be safe and reliable. The 
shortage of equipment results in overcrowding and short 
tempers. The public deserves better.
    The city is sitting on $150 million which has been 
appropriated and is available to replace the city's outdated 
fleet, but the city will not apply for these funds and replace 
the buses. They won't apply for the funds because, if they do, 
they must buy buses to replace the fleet we operate for them, 
which they don't want to do so they can use the artificial 
safety convenience and comfort crisis they have created to 
prove what a bad job the private sector does in maintaining and 
operating the buses. They will not apply for the funds because 
the city has previously arranged to transfer the work to the 
Metropolitan Transit Authority.
    Although the city administration proclaimed that the city 
would save $150 million in operating costs once the takeover 
occurred, the most recent budget submitted to the City Council 
calls for payment to the MTA of $161 million, which is 
approximately $11 million more than present costs for delivery 
of the same service. The city's estimate of the cost of the 
takeover does not include the value of our realty or our 
intangible property rights, which has been publicly placed at 
hundreds of millions of dollars. It is also no secret that, 
faced with large deficit, the MTA plans to cut service. To me, 
this takeover is wasteful, ill advised, and badly planned.
    In the limited time allowed, I can only give the outline of 
a very counterproductive situation. I have submitted several 
supplemental documents for your consideration, and I thank the 
subcommittee for the opportunity of testifying here today.
    [The prepared statement of Mr. Cooper follows:]

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    Mr. Ose. Thank you, Mr. Cooper.
    Our next witness is Mr. Davis Smith, who is the director of 
marketing and sales of Oleta Coach Lines in Williamsburg, VA. 
He is joined today in the audience by his father, Howard Smith.
    Sir, thank you for joining us. You are recognized for 5 
minutes.
    Mr. Smith. May God bless you, Mr. Chairman, and thank you. 
My name, again, is David Smith, and I am the director of 
marketing and sales for Oleta Coach Lines. My parents, Howard 
Smith, who is present here, and Tawana Smith founded Oleta 
Coach Lines in 1986 and our family has been serving the 
communities of Williamsburg, James City County, and York County 
ever since.
    As you have probably had a chance to read, my father and I 
discussed in 2000 with the community the need of connecting 
Virginia's historical triangle via a motorcoach service. In 
2001 our planning began, and by 2002 Oleta began regular 
motorcoach tours to Jamestown and Yorktown from central pickup 
locations in Williamsburg. We then saw the need for a mass 
transit service to Jamestown and Yorktown for tourists, 
employees, or anyone who needed just transportation to any of 
the four Jamestown or Yorktown sites. We started a trial 
service in January 2003, which led up to us having a 
familiarization tour with local and State level officials, 
including the local transit agency, in March 2003.
    Oleta was applauded by all who attended, so, with help from 
the local press, our transit service officially began. Much to 
our surprise, in March 2004, it was publicized that 
Williamsburg Area Transport, a department of James City County, 
was planning to partner with Colonial Williamsburg Foundation 
and the National Park Service to start a pilot transportation 
program free or charge for tourists interested in visiting 
either Jamestown or Yorktown.
    Operating expenses for WAT, Williamsburg Area Transport, 
came through an enhancement grant from the U.S. Department of 
the Interior totaling over $44,000. WAT's federally funded 
buses would operate this service from Memorial Day to Labor Day 
weekends, which is Williamsburg's peak tourism season.
    Immediately from the start of this service our ridership 
drastically decreased. On June 7th, we filed an official 
complaint with FTA's regional office in Pennsylvania. After 
close to 2 months from filing our complaint, and just a few 
weeks before the service was over, FTA ruled that this service 
provided by WAT was in fact mass transit. FTA failed to 
acknowledge DOT and FTA statutes and regulations in that, No. 
1, WAT was using DOT and FTA-funded vehicles; No. 2, the local 
private bus operators were not consulted with in this project; 
No. 3, the participation of the private enterprise was zero.
    WAT, in one instance, stated in an e-mail, which we had 
received through the Freedom of Information Act, that Oleta, a 
private charter company, apparently has recently voiced 
concerns that they were not involved by NPS, National Park 
Service. This statement was made on March 2nd, close to 2 
months before this service began.
    FTA completely ignored two major facts: that, No. 1, Oleta 
was already offering this service successfully; No. 2, per all 
the documents and advertisement about WAT service, riders 
needed an admission ticket in order to ride WAT's bus, which 
would make this a closed door service and not open to the 
general public.
    The first full week after this pilot program was over, I am 
happy to report that our ridership levels have increased 
dramatically. Upon preparing for this hearing, on September 
28th, we learned that yet another transit organization by the 
name of Hampton Roads Transit had copied a passenger commuter 
service that Oleta had been offering since 2001. This service 
that Oleta was given by the Department of Motor Vehicles a 
Certificate of Public Convenience and Necessity connected the 
cities of Williamsburg, Newport News, and Hampton to relieve 
traffic congestions. Upon research we learned that, on 
September 7th, HRT began the same service through a grant 
received from the State totaling over $848,000. This would 
cover their operating expense and was also the purchase of 
three new coaches.
    Doing further research on the situations that have been 
coming up with the transit organizations and the private 
sector, I came across a document on the Jamestown 2007 Web 
site. Transportation information had been collected from both 
transit agencies and charter bus operators for the purpose of a 
bus census in and around Williamsburg. Out of the 18 private 
providers found in surrounding cities, as well as in 
Williamsburg, Oleta was not listed.
    We have come to the conclusion that WAT and HRT, with 
support of the FTA, is trying to put in particular my family's 
small company out of business. We pray that this subcommittee 
will see to it that something be done to make sure that the 
private sector receives maximum participation in all projects 
and programs related to transportation.
    Thank you for your time.
    [The prepared statement of Mr. Smith follows:]

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    Mr. Ose. I thank the gentleman for his attendance and 
testimony.
    Our final witness in the second panel is Mr Steven Diaz, 
esq. He is former Chief Counsel for the Federal Transit 
Administration at the Department of Transportation, now in 
private practice.
    Sir, thank you for joining us. You are recognized for 5 
minutes.
    Mr. Diaz. Thank you, Mr. Chairman. I am honored to be here. 
My name is Steven Diaz. I am an attorney based here in 
Washington. I have spent the past 30 years practicing mass 
transportation law, half the time in public practice, half the 
time in private practice. My testimony today represents my own 
personal opinion of long standing and is addressed to the issue 
of private sector participation in mass transportation. I will 
address specifically the rescission by the Clinton 
administration of the private enterprise policy of the FTA, 
which was adopted in the Reagan administration. I have also 
submitted supplemental documents in support of my testimony.
    As the single largest source of mass transportation 
investment, the Federal Government plays a central role in 
encouraging and facilitating policies used around the country 
to implement mass transportation programs. From the beginning 
of the mass transit program, Congress has demanded that 
federally appropriated funds be used to increase the mass 
transportation available to our citizens, not merely to replace 
private ownership with public ownership and not to duplicate or 
undermine existing transportation offered by private 
investment.
    Diverging transit investment is a matter of getting and 
keeping America moving, a practical matter, not a matter of 
ideology or partisan purpose. Both great Republicans and great 
Democrats have forged a policy of leveraging public with 
private equity in transit.
    As the supplemental materials I have supplied demonstrate, 
the pursuit of the maximum use of private operators in mass 
transportation long has been supported by such leaders as 
Senators George Mitchell, Bob Dole, Mark Hatfield, Bob Graham 
of Florida, and the late Daniel Patrick Moynihan of New York. 
Indeed, David Osborne, coauthor of Reinventing Government, who 
was one of the principal manager advisors to the Clinton 
administration, specifically praised the FTA Office of Private 
Sector Initiatives and the agency's former private sector 
guidance as a model for the effective management of government-
assisted transit programs. Mr. Osborne implored the Federal 
Transit Administration not to rescind its private sector 
guidance.
    This practical approach is shared by America's elected 
State and local leaders as well. Public sector leaders, such as 
Mayor Kurt Schmoke of Baltimore, Mayor Frank Jordan of San 
Francisco, Governor Lawton Chiles of Florida, and Governor 
William Donald Schaeffer of Maryland, among others, 
specifically endorsed the policy prior to its rescission. The 
strong positive effect that private sector-oriented transit 
programming has traditionally had in minority communities is 
underscored by the statistics cited by former Congressman Alan 
Wheat in the letter he wrote to try to persuade the FTA not to 
abandon its private sector guidance. In the same vein, the 
Eastern Paralyzed Veterans Association noted its concern for 
the negative impact upon the disability community of a Federal 
withdrawal from a strong private sector participation policy.
    The Office of Advocacy of the Small Business Administration 
also admonished the Department of Transportation not to abandon 
the private enterprise guidance. In a scholarly review of the 
sources for the guidance and a reasoned analysis of its impact, 
the Office of Advocacy spoke with candor and urgency in support 
of the policy.
    Each of these writers had a different emphasis in 
supporting a strong Federal policy for the utilization of 
private sector operators, but the very wide array of 
commentators and their various separate reasons are themselves 
indications of the scope and the importance of the contribution 
that private operators of mass transportation services have 
made. There is every reason to encourage such participation 
and, indeed, to strengthen this important and vital element of 
our national transportation infrastructure, which has always 
been a mandatory, if not always enforced, feature of the 
Federal transit program.
    You have heard from a number of witnesses who have given a 
good overview of why reform is needed. Although it is sometimes 
said that the Federal Transit Administration is not a 
regulatory agency--I believe that was reiterated this morning 
when the Administrator said we are a grantmaking agency--it 
defies common sense to say that billions of dollars of 
federally appropriated funds are simply given out with no 
concomitant Federal fiduciary obligation. Money is appropriated 
by Congress for specific purposes, and upon specific 
conditions; hence the 18 existing FTA rules already published 
in the Code of Federal Regulations.
    If Congress is serious about encouraging Federal transit 
infrastructure investment leveraged with private equity, it 
must require an implementing regulation to that effect. This is 
especially true in light of the enforcement experience we have 
had without such a regulation, as demonstrated particularly by 
the case studies which have been presented to the subcommittee. 
After all, in management in the public sector, just as in 
management in the private sector, it is always a question of 
getting the most bang for the buck.
    Mr. Chairman, I thank the subcommittee for its interest in 
my views, and I am pleased to respond to any questions you may 
have.
    [The prepared statement of Mr. Diaz follows:]

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    Mr. Ose. I thank the gentleman for his testimony and his 
presence.
    All right, as we indicated in the previous panel, what we 
do is we just have questions for you. To the extent that we can 
get through all our questions, there will be fewer follow-on 
questions. I do want to advise the witnesses that I have a note 
here that between 11:30 a.m. and noon we are going to have 
three votes, so we are going to go as quickly and as 
expeditiously as we can. That is not to say that, if you have a 
point you want to make, we are going to roll right over you. I 
want you to make your points. I want you to answer our 
questions. If you have a point that occurs to you, make it. All 
right?
    Now, Mr. Diaz, in particular, I want to start with a 
question to you. Your point about the dollars, I was tempted to 
offer Ms. Dorn that she could send the money out and I would 
come over and I would supervise whether or not the money is 
used to the purpose that it is supposed to go. I knew what the 
answer would be, but I was going to offer it anyway. What is 
your view of FTA's enforcement role to date of the statutory 
requirements for private sector participation in mass transit?
    Mr. Diaz. Mr. Chairman, clear signals are sent from 
Washington that don't have to be embodied in rules to make 
people act. With the recission of the private enterprise 
participation policy, a signal was sent out that was received 
loud and clear. You have heard many tales, some in your own 
district, of what happens when enforcement is sought on 
regulations since the rescission of the policy, and I think we 
can safely say that it is a matter of a lack of perceived 
intent, and the perception is what is a matter of policy, and 
policy is what the board of directors of the United States, or 
the Congress, is supposed to set.
    Mr. Ose. Long story short, you are saying that FTA is kind 
of giving a wink and a nudge to the enforcement provision; they 
are just not doing it.
    Mr. Diaz. It is a reasonable conclusion from the histories 
that have been presented, yes, sir, it is.
    Mr. Ose. Do you think the issuance of a rule consistent 
with the other 18 rules, the purpose of which were to bring 
certainty or clarity to what constitutes private sector 
participation in mass transit, do you think that is a good idea 
or could stand further review?
    Mr. Diaz. I have been an administrative lawyer and a public 
lawyer for many years, sir, and the only thing I can say to you 
is that clarity is the essence of the matter, and I think that 
the committee would well consider the degree of clarity that it 
received in the first panel with the rules and the intentions 
of the committee.
    The fact of the matter is that the charter regulation, for 
example, is not unclear; the standards are very plain. If you 
can't look at a service with common sense and know that it is 
open to the public or closed to the public, if you can't know 
who is paying for it, if you can't know whether it is published 
in the timetables and the schedules or not, then I would 
suggest that some training is in order.
    Mr. Ose. Thank you.
    The bells you just heard were calling me to a vote. I have 
15 minutes and, with great respect, it is likely to take 40 
minutes for the two follow-on votes beyond that, so we are 
going to try and finish this up. This is not to be 
disrespectful, it is just the press of time. To the extent that 
we can't finish up, we will be sending questions in writing to 
you, and we would appreciate timely responses accordingly.
    Mr. Tangherlini, on July 23rd of this year, you sent a 
letter to Martz Gold Line about the proposed Circulator in D.C. 
stating, ``The Circulator is an appropriate public transit 
service'' and then further ``After gaining cost and operating 
experience in Phase I, it is the partner group's current 
intention to invite competitive bidding on Phase II services 
from private contractors.'' Now, you have changed that a little 
bit in your testimony today regarding Phase I in particular. My 
question is, in the context of the Business Improvement 
District's Circulator proposal, will that require Federal 
funding to implement?
    Mr. Tangherlini. A couple of things. The point about 
changing it, we have changed it because we were interested in 
working with the private sector providers in the city to see 
what other options we could explore. Our interest is in 
providing high-quality service at the lowest possible cost, and 
we think that perhaps the private sector could be part of that. 
We were under the impression that the buses funded from money 
that had been won through a lawsuit, something called the D.C. 
Rider's Trust, could only be operated by WMATA. We have learned 
since that may not be the case, and we are fully interested in 
exploring a proposal that might allow for private sector 
operation.
    Would it require some subsidy? Yes, it would, but we 
propose a level of subsidy, we think, which is unique in public 
transportation finance that would include private, local, and 
Federal subsidy through the District of Columbia Appropriations 
Bill, not through the Federal Transit Administration. No 
Federal Transit Administration money would be used to pay for 
the buses; no Federal Transit Administration money would be 
used to operate the buses.
    Mr. Ose. So, you get around the prohibition on, if you 
will, the squeeze-out effect by using direct appropriations as 
opposed to FTA grants?
    Mr. Tangherlini. Again, we don't think there is any 
squeeze-out effect. I would like someone to show me what 
private sector operator is operating on K Street providing 
frequent service on K Street. This is transit service from 
across the town, from the Convention Center to the waterfront.
    We also believe that this is just the beginning of fair 
recompense for the Federal Government's closure of such streets 
as Pennsylvania Avenue and E Street, separating the east and 
west portions of the city, and continued closures up here on 
Independence and Constitution, or at least checkpoints that 
have made mobility in the city very hard due to the security 
closures.
    Mr. Ose. One of the concerns I have has to do with the 
Tourmobile services, and, Mr. Mack, I want to followup on this 
with you. Mr. Tangherlini indicates that there is no evidence 
there will be an adverse impact to your enterprise. You have 
30-odd years of experience here. What is your sense of that?
    Mr. Mack. It is untrue.
    Mr. Ose. OK.
    Mr. Mack. As I told the reporter of The Washington Post 
which quoted D.C. BID and others indicated that they wished to 
implement the service on the national mall, and they were 
intending to do it my first understanding was in 2001 and later 
Circulator reports, as Mr. Tangherlini indicate they change 
from time to time, the next proposed takeover in effect was in 
2003. I guess they will change that to another time since it 
hasn't happened so far.
    But, there is no question about it. If a federally funded 
entity imposes itself on the Federal mall, where our operation 
is, our operation will not be able to survive. I think that 
quoting the letter that you referred to, I believe in one of 
the paragraphs it indicates that the Circulator expects to 
impose its second phase after the Park Service issues its 
report, and that solicitation of private operators may be 
appropriate then.
    Mr. Tangherlini probably understands that he, BID, nor 
anyone else other than Secretary of the Interior, has an 
authority to put any kind of transportation on the national 
mall. It appears from this letter that you referred to to Martz 
that they are assuming that this is a done deal. They are 
proceeding and in numerous studies that this organization has 
commissioned, every one that I have seen or heard of indicates 
that there is a tremendous amount of money needed to fund it 
and that it can't operate otherwise.
    If we are talking about 90 buses ultimately when the 
service is completed, with facilities to maintain those buses, 
55 passenger full-size buses operating on clogged streets that 
are already dangerously overloaded, I believe, this proposal 
makes no sense, and it will endanger the operations of my 
company and other companies also. And, as a matter of fact, I 
think one of the studies commissioned by this organization 
indicates that it will have a predatory effect upon the 
existing transit system in order to fill the seats that they 
plan to purchase.
    Mr. Ose. Before we leave this issue, I just want you to 
understand on both sides of this, without being judgmental, I 
am watching this and I will continue to watch this, and I will 
watch it until it is done or I am done, one or the other, 
whichever comes first.
    Mr. Cooper and Mr. Smith, if I may, you are both private 
operators. I know of no testimony to the effect that your 
service isn't adequate or that it is not meeting the needs of 
your customers. Can you estimate the adverse economic effect to 
your company if the DOT refuses to enforce on public entities 
the non-compete clause portion of its grants? In other words, 
if they take the Federal money then compete against you, what 
position does that leave you in with your respective 
enterprises?
    Mr. Cooper. If by what you mean is an MTA takeover of the 
lines, I assume that is what you are referring to?
    Mr. Ose. In whole or in part?
    Mr. Cooper. Well, if they take over the lines or partly 
take over the lines and there is no increased funding to us or 
there aren't any new buses purchased, we can't put those fleets 
on the road. In other words, we have certain peak pullouts that 
have to be met.
    When you have equipment that is 18 and 20 years old, where 
the bulkheads and the engines and the transmissions need to be 
overhauled immediately, and you have to put those against the 
wall, it does two things: first of all, we have a certain 
pullout we must meet and certain other requirements we have to 
meet. If we can't meet those, then, in a way, our incentive 
payments, which we get from the city, is deducted. In addition, 
the cost to maintain 20-year-old buses that have hundreds of 
thousands of miles on them, which are falling apart literally, 
it is impossible to maintain.
    Mr. Ose. And, that would be the case of using MTA's 
existing rolling stock? That is the situation they face, not 
that you face.
    Mr. Cooper. I didn't hear the question.
    Mr. Ose. Your point about the cost to maintain very heavily 
used equipment, that is the situation MTA faces, not the 
situation you face?
    Mr. Cooper. That is exactly right.
    Mr. Ose. OK.
    Mr. Cooper. The general manager of Green Bus Lines is here 
today, and she has said to me over and over again we can't get 
these buses through the door. And, we won't put out a bus that 
is not safe and reliable. Now, that is as opposed to an MTA 
that has unlimited funds. While they don't operate on our 
lines, you can see the difference in the quality of the 
equipment.
    It is just difficult to make headways, it is difficult to 
make pullouts, it is difficult to do any of the things that are 
required. And, we did, for more than 100 years, an apparently 
satisfactory to the city, but now for some reason we are an 
anathema to them and I don't know how to answer those questions 
anymore with them.
    Mr. Ose. So, your point is that the city's competition with 
you using Federal funds to keep these assets rolling would put 
assets on the street that are less safe, less well maintained, 
your ridership would go down, etc.?
    Mr. Cooper. Well, you have just about paraphrased what we 
would say. You can't compete that way if you don't have the 
equipment to put on the road, you just can't. I submitted a 
couple of letters from the unions involved here, and these poor 
people, they have to get those buses out on the road. It is 
tough to put a 20-year-old bus which needs almost a total 
repair back on the city streets, but they do it, and we 
maintain service and we do the best we can. But we can't keep 
this up. It just can't go on.
    I told the City Council that, if the MTA were to take this 
over at some future date, they can't forget us in the interim 
period; we need equipment.
    Mr. Ose. Mr. Smith, in your enterprise same kind of 
question: what is the economic impact of the FTA's blind eye, 
if you will, toward the private participation requirements in 
the law?
    Mr. Smith. I am trying to make sure I understand your 
question. As far as monetary?
    Mr. Ose. Yes. What would be the impact on your enterprise?
    Mr. Smith. Well, I looked at, once again, with information 
that I had received from the Freedom of Information Act that I 
had requested, they had 102 days worth of service for if we do 
everything completely down to the tee with what they were doing 
as far as 102 days, hours, they incorporated radio costs and 
everything like that, they received a grant for $44,600. Our 
price being a privately owned and operated company, one which 
has to pay for insurance, no insurance breaks, no fuel cost 
breaks, our price came to $47,000. So, you can see the 
closeness of it.
    If we do a per ridership, ours is on a minimum price, just 
for kids, is five. On the 3 months that they did it, I think it 
came out to approximately 2,000 some riders from beginning to 
end of this pilot. So, at a minimum of $5 per kid, that is 
about what it would be.
    Did that answer your question?
    Mr. Ose. Yes.
    I apologize. I have to go vote. I am not going to be back 
in time for us to have a timely continuation of this 
discussion. I want to express my appreciation to each of you 
for coming here and being candid with us, because it can't be 
easy to be candid in public on issues involving this amount of 
money and this important level of detail. That is the first 
thing. The second thing is we have questions. I have questions 
that I have not yet been able to get to ask. We will be sending 
them respectively to each of you as the case suggests, and we 
would appreciate a timely response to the committee.
    I am a strong advocate for business. I happen to think 
there is not a single product I know of that can't be more 
effectively and less costly delivered by private enterprise 
compared to the government delivery. I want to encourage you to 
stand your ground. While I may not be here next year, I do know 
people who will be here next year who share my passion for 
keeping government out of successful private businesses.
    Again, I want to thank you all for joining us today, and we 
will send you these questions.
    And we are adjourned.
    [Whereupon, at 12:14 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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