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



                                                   S. Hrg. 102-000 deg.

THE FEDERAL PRISON INDUSTRY'S EFFECTS ON THE U.S. ECONOMY AND THE SMALL 
                         BUSINESS ENVIRONMENT

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

                             JOINT HEARING

                               before the

      SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT & GOVERNMENT PROGRAMS

                                and the

                 SUBCOMMITTEE ON TAX, FINANCE & EXPORTS

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                    WASHINGTON, DC, OCTOBER 1, 2003

                               __________

                           Serial No. 108-39

                               __________

         Printed for the use of the Committee on Small Business


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



                                 ______

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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Hoekstra, Hon. Peter (R-Michigan)................................     5
Lappin, Harley G., Federal Prison Industries.....................    11
Fay, Christopher, The Milton S. Eisenhower Foundation............    13
Palatiello, John, U.S. Chamber of Commerce.......................    14
Boenigk, Rebecca, Women Impacting Public Policy..................    16
McClure, Angie, Habersham Metal Products.........................    18

                                Appendix

Opening statements:
    Akin, Hon. Todd..............................................    41
    Toomey, Hon. Patrick J.......................................    44
Prepared statements:
    Hoekstra, Hon. Peter.........................................    46
    Lappin, Harley G.............................................    53
    Fay, Christopher.............................................    62
    Palatiello, John.............................................    65
    Boenigk, Rebecca.............................................    70
    McClure, Angie...............................................    75
    American Apparel & Footwear Association......................    77
    American Federation of Government Employees, AFL-CIO.........    79
    Contract Services Association of America.....................    81
    Office Furniture Dealers Alliance............................    86
    Uniform & Textile Service Association........................    92

                                 (iii)

 
THE FEDERAL PRISON INDUSTRY'S EFFECTS ON THE U.S. ECONOMY AND THE SMALL 
                          BUSINESS ENVIRONMENT

                              ----------                              


                       WEDNESDAY, OCTOBER 1, 2003

                  House of Representatives,
                        Committee on Small Business
    Subcommittee on Workforce, Empowerment, and Government,
 Subcommittee on Subcommittee on Tax, Finance, and Exports,
                                                   Washington, D.C.
    The Subcommittees met, pursuant to call, at 2:10 p.m. in 
Room 2360, Rayburn House Office Building, Hon. Todd Akin 
[Chairman of the Subcommittee on Workforce, Empowerment, and 
Government Programs], presiding.
    Present from Subcommittee on Tax, Finance, and Exports: 
Representatives Toomey, Chabot, Musgrave, Beauprez, Millender-
McDonald, Ballance, and Majette
    Present from Subcommittee on Workforce, Empowerment, and 
Government Programs: Representatives Akin and McCotter
    Chairman Akin. The meeting will come to order. Good 
afternoon. I would like to begin by thanking my friend and 
colleague, Congressman Pat Toomey, who chairs the Subcommittee 
on Tax, Finance, and Exports, for joining me in holding this 
joint hearing. I know the Federal Prison Industries is of great 
interest to him, and, like many other Members, he has concerns 
about the impact of FPI or Federal Prison Industries on small 
business in general.
    FPI was established 69 years ago with the following goals. 
First of all, employing and providing skills and training to 
inmates, keeping them constructively occupied, as well as 
producing market quality goods for sale to the federal 
government, and then in addition operating FPI in a self-
sustaining manner, and then minimizing FPI's impact on private 
businesses and labor. While acknowledging these as admirable 
goals, the Committee is concerned as to how well FPI is 
achieving these goals, particularly whether or not FPI is 
minimizing its impact on private business and labor.
    Congressman Pete Hoekstra of Michigan has recently proposed 
House Resolution 1829, the Federal Prison Industries 
Competition in Contracting Act, that would significantly change 
the way business is done at FPI. Congressman Hoekstra, thank 
you for joining us. I am grateful that you have agreed to 
testify before this Committee as to the merits of your bill.
    I would also like to recognize Dr. Lappin recently became 
the CEO of Federal Prison Industries. Congratulations, Dr. 
Lappin. I look forward to hearing your testimony and that of 
the others who have been kind enough to join us here today.
    Before we begin, however, I would like to give my other 
colleagues an opportunity for an opening statement, so with 
that I would go to Congressman Toomey if you would like.
    [Mr. Akin's statement may be found in the appendix.]
    Chairman Toomey. Thank you, Mr. Chairman, and thank you for 
joining me in this hearing. I do think this is a very important 
issue, and I look forward to examining the role of the Federal 
Prison Industries or FPI.
    As most of us no doubt know, FPI was given a special kind 
of status in the government procurement process. I believe it 
is called mandatory source status, which essentially means that 
private sector competitors cannot compete against the Federal 
Prison Industry unless the FPI grants an exemption from what is 
essentially a monopoly.
    It seems to me that there is substantial evidence that this 
policy has been harmful to American industry, American workers 
and a variety of industries, especially the textile, furniture 
manufacturing and a number of others. I think at times it 
actually means people are closing their doors, people who are 
trying to run a small business and trying to make ends meet for 
their family.
    In 2001, we made a substantive change in how this policy is 
carried out with respect to the Defense Department, and I hope 
we will have some discussion about that change and other 
changes, and I hope we will contemplate what has been happening 
in recent years where Federal Prison Industry sales have grown 
quite significantly; at least that is my understanding.
    I, too, look forward to the testimony of my colleague from 
Michigan, Mr. Hoekstra, who has been really a champion on this 
issue for a number of years now and who was really the leading 
force on getting the changes in the DOD and who has co-
sponsored a bill, H.R. 1829, which is the Federal Prison 
Industries Competition in Contracting Act of 2003 and which I 
am a co-sponsor.
    I should say as a general matter I do not object to work 
programs for prisoners, but I do believe that law abiding, 
hardworking citizens who are just trying to support their 
families ought to at least get at equal shot at government 
contracts and not be frozen out in favor of an industry that 
employs exclusively convicted prisoners.
    I am looking forward to the testimony of all the witnesses 
and a series of questions, and I thank the Chairman for 
conducting the hearing today.
    [Mr. Toomey's statement may be found in the appendix.]
    Chairman Akin. Thank you very much. I also had opportunity 
for a couple of other opening statements. I do not know if 
Congressman Udall is here.
    Mr. Carter, I understand you have a witness that you would 
like to introduce. Let us go ahead, and why do you not please 
introduce your witness. Then we will go ahead straight to 
Congressman Hoekstra.
    Mr. Carter. Thank you, Mr. Chairman. Chairman Akin, 
Chairman Toomey, I would like to thank you for holding this 
hearing and for allowing my constituent, Rebecca Boenigk of 
Bryan, Texas, to testify on behalf of women-owned businesses 
who sell goods and services to the federal government.
    Rebecca Boenigk co-founded Neutral Posture, Inc. with her 
mother in 1990 and has served as chief executive officer since 
1996. Ms. Boenigk and her mother led Neutral Posture from a 
start-up company to a publicly held company in just nine years. 
She has 21 years of experience in research, development, design 
and manufacturing of ergonomic seating.
    Ms. Boenigk serves on the Industry Advisory Board of the 
National Science Foundation, University Cooperative Research 
Center in Ergonomics at Texas A&M University, which is in my 
district. She also serves as a board member of the Center of 
Entrepreneurialship in the Mays Business School at Texas A&M 
University.
    Ms. Boenigk is a founding member of Women Impacting Public 
Policy, which was founded to advocate for women business 
owners. She is the co-recipient of the Ernst and Young 
Entrepreneur of the Year award in manufacturing in Neutral 
Posture and has received numerous awards under her direction.
    Ms. Boenigk's first priority is her family. Married 15 
years to Bobby Boenigk, she has two children, Rachel, 13, and 
Ryan, 12. She leads company efforts in supporting local 
community organizations such as Still Creek Boys Ranch, the 
Childrens and Go Texan organization and is the chair of the 
Jody Moore Memorial Fund for Breast Cancer Research.
    It is my honor to introduce Rebecca to the Committee. I 
believe her background and leadership will prove very useful to 
the Committee's oversight of Federal Prison Industries and 
opportunities of women-owned businesses to sell to the federal 
government.
    I thank you for recognizing me, and I would ask to be 
excused for another hearing.
    Chairman Akin. Thank you, Judge.
    Could you please have the nice gentlelady that you were 
introducing raise her hand so I know who we are talking about 
here? Okay. Thank you. Thank you, Judge.
    Also, I believe we have another witness who is going to be 
introduced by Congressman Norwood. Is that correct?
    Mr. Norwood. Yes, Mr. Chairman. Thank you very much for the 
opportunity, first of all, to have this hearing. As a co-
sponsor of Mr. Hoekstra's bill, I am encouraged by the fact 
that more of us in different districts are beginning to wake up 
and understand what this is doing to small businesses in our 
district, so thank you, Chairman Akin and Chairman Toomey, for 
having this meeting and allowing someone not on your Committee 
to attend.
    I really appreciate the chance to introduce to all of you 
Angie McClure. Angie, please stand up. There you are way back 
in the back. She is going to lend her expertise to all of us 
today, as she did to me this past August as I spent a few hours 
in their plant in Cornelia, Georgia.
    Ms. McClure has served as vice president of Habersham Metal 
Products Company in Cornelia, Georgia, since 1995. Prior to 
joining Habersham Metal, Ms. McClure served as a law clerk for 
a Chief Magistrate Judge in the state court system of Georgia 
for seven years. She holds a Bachelor's degree in both Public 
Administration and Criminal Justice from Brenau University in 
Gainesville, Georgia, and a Master's in Business Administration 
also from Brenau University.
    Mr. Chairman, as I said, I had the opportunity to tour the 
Habersham Metal factory in August and learn of the positive 
impact that Mr. Hoekstra's Federal Prison Industries 
Competition in Contracting Act bill will do. I was already a 
co-sponsor on the congressman's bill, but spending those few 
hours in this plant with Ms. McClure really brought home to me 
the difficulty that smaller businesses are having in competing 
in a world where labor is not very expensive for those who are 
building similar products.
    This not only affects Habersham Metal in Georgia, but it 
also affects 600 and something other companies in Georgia. We 
are all going to have a little meeting at Georgia Tech in 
November and discuss this problem, but I am a very strong 
supporter of this legislation.
    I thank and congratulate both of you chairmen for having 
this hearing, and I am particularly grateful that you have 
given me the opportunity to come introduce my constituent to 
you.
    With that I will yield back, Mr. Chairman.
    Chairman Akin. Thank you, Congressman Norwood. I had a 
chance to be down in Atlanta a couple weeks back, and it is a 
wonderful place. I appreciate your doing the honors.
    We are going to have two different line-up of witnesses. 
The first one is Congressman Hoekstra, who is, I might add, a 
gentleman who needs no introduction. However, there is someone 
who did want to introduce him here, and we are going to go to 
Congressman Toomey now for that introduction.
    Chairman Toomey. Thank you, Chairman. Yes, I did indeed 
want to introduce my colleague. Just for the record, Peter 
Hoekstra is in his sixth term representing the Second 
Congressional District of Michigan. He serves on three 
Committees, Education and Workforce, Transportation and 
Infrastructure, and the Select Committee on Intelligence.
    In addition to all the work he has done for years on the 
Federal Prison Industries issue, he is an outspoken advocate 
and expert on a variety of education issues, workforce issues, 
and he is a great champion of fiscal discipline and fiscal 
responsibility.
    Congressman Hoekstra has worked tirelessly on Federal 
Prison Industry reform. I admire his work on this effort, his 
dedication to his constituents. I am looking forward to hearing 
his discussion of his bill, which I indicated earlier I am 
proud to be a co-sponsor of, and I should point out that this 
is a bill that at this point has become the product of a great 
deal of bipartisan work and a great deal of input, so I thank 
you for joining us today and look forward to your testimony,
    Chairman Akin. Thank you.
    Congressman, if you would proceed then, please? Do you have 
a statement, I believe, to start with?
    Mr. Hoekstra. I am full of statements today.
    Chairman Akin. Okay. Good. We will see if we can keep it to 
about five minutes or so worth of statements maybe. Thank you.

STATEMENT OF THE HONORABLE PETER HOEKSTRA, A REPRESENTATIVES IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Hoekstra. Thank you. Thank you, Mr. Chairman, to both 
of the chairmen, for allowing me to talk about something that I 
do have a passion about. I have a passion about it because of 
the impact that it has had on people in my district and the 
kind of impact that it has had on small businesses and your 
constituents and others around the country.
    FPI is able to derive and deprive small businesses from the 
opportunity to bid on over $500 million worth of business each 
and every year through the process that is called mandatory 
sourcing. Mandatory sourcing, very straightforward, means we 
bid--actually, we do not bid. We tell you to buy from us. We 
tell the federal government to buy from us, and no one else has 
the opportunity to bid for that work. It is rather unique.
    I know that this is not a legislative hearing, but I am 
pleased to report that the Committee on the Judiciary has 
reported out H.R. 1829, which a number of you have sponsored. 
It is a bipartisan bill. Representative Barney Frank, 
Representative Mac Collins, Representatives Carolyn Maloney and 
Bernard Sanders of the House Judiciary Committee are all co-
sponsors. John Conyers, the Ranking Democrat on Judiciary, is 
also a supporter of the bill.
    This bill was reported out of Judiciary Committee on a 
strong bipartisan vote. The principal amendment seeking to 
weaken the bill was defeated on a bipartisan roll call of 19 to 
eight. The bill enjoys strong bipartisan support within the 
ranks of the House Committee on Small Business with 14 co-
sponsors, led by the Committee's Chairman, Mr. Manzullo, and 
the Committee's Ranking Democratic Member, Ms. Velazquez. Like 
I said, we have worked on this for a number of years and have 
brought together one of the most unique coalitions I think in 
the House today.
    The core objective of H.R. 1829 is the elimination of FPI 
status as a mandatory source to the various federal agencies. 
The bill requires FPI to compete for its federal contract 
opportunities rather than simply being able to take them as 
they can today. The elimination of FPI's mandatory source 
status will provide access to federal contracting opportunities 
now foreclosed.
    FPI and other opponents of the elimination of FPI's 
mandatory source status are now trying to hide between the FPI 
stable of suppliers, suggesting that enactment of H.R. 1829 
will hurt them. As with many of FPI's assertions, this one 
proves false.
    With FPI operating as a prime contractor exercising its 
mandatory source status, an FPI supplier has a very 
preferential place in the federal procurement process. Remember 
what mandatory sources means in practical business terms. FPI, 
rather than the buying agency, determines whether FPI's offered 
product and delivery schedule meets the agency's mission needs.
    FPI, rather than the buying agency, determines the 
reasonableness of FPI's offered price. FPI can demand its 
offered price provided that it does not exceed the highest 
price offered to the government for a comparable item. The 
highest price offered to the government.
    No government purchases need to have been made at such 
price, and FPI determines comparability. To make a competitive 
purchase, the buying agency must actually obtain FPI's 
permission, a so-called waiver. As a former business person, I 
would like to be part of a team that can force its customers to 
make purchases from them. It gives me a guaranteed base of 
sales. Why would I want to relinquish such a preferred status? 
Why would suppliers to FPI want to give up that kind of 
preferred status?
    However, from a public policy standpoint, FPI's mandatory 
source status is simply indefensible. By eliminating FPI's 
mandatory source status, H.R. 1829 merely provides access to 
those federal business opportunities for all, not just those 
who are FPI suppliers.
    FPI's current suppliers will be free to win government 
business indirectly as a supplier to FPI, or they may choose to 
sell directly, something which many of them already do. As is 
the nature of the marketplace, business will be won based on 
their ability to best meet the federal agency's needs or, more 
accurately, the taxpayer's needs in terms of quality, delivery 
and price.
    Many FPI suppliers have reputations of highly competitive 
quality performers. These folks, if they are quality supplier 
to FPI, can be quality suppliers, and this bill would allow 
them to compete for federal government business directly.
    We will not decrease business opportunities available 
through purchases by federal agencies. H.R. 1829 eliminates FPI 
status as a mandatory source, not FPI's ability to compete. 
They are still free to compete.
    There will be dire predictions regarding the impact of H.R. 
1829 on FPI. Keep in mind that H.R. 1829 leaves in place a 
broad array of competitive advantages enjoyed by FPI. 
Proponents of H.R. 1829 like to say that the bill levels the 
playing field for small business. Many of us would like that 
kind of level playing field. More aptly, H.R. 1829 simply 
allows businesses, small and other than small, to simply get on 
the playing field for government contracts through the 
elimination of mandatory sources.
    Inmate workers of FPI will continue to be paid at wage 
rates substantially less than the federal minimum wage 
prescribed by the Fair Labor Standards Act. Currently, FPI's 
highest wage is $1.15 per hour, with some being paid as low as 
23 cents per hour. FPI wage rates, against which American firms 
and American workers are expected to compete, look to me to be 
modeled after the wage rates dictated by the Communist 
Government of China.
    Chairman Akin. Congressman, we are getting a little close 
on time. I like that Communist Government of China part. Is 
that good, or can you sort of summarize things at this point, 
do you think?
    Mr. Hoekstra. It is awful tough, but let me just say I 
think three questions that need to be answered.
    Chairman Akin. Thank you.
    Mr. Hoekstra. Thank you, Mr. Chairman. Thank you for your 
patience.
    First, what can be done to more truly level the playing 
field when FPI competes for federal contracts against small 
business? For example, why should H.R. 1829 not require that 
FPI's bid price be adjusted to reflect an inmate labor cost of 
at least the minimum wage rate required by the Fair Labor 
Standards Act.
    I would respectfully ask that my constituents' questions 
should be asked today. I would be most interested in the 
response of the new director of the Federal Bureau of Prisons, 
who asserts that he is eager to reform FPI.
    Second, why is FPI allowed to bid in a contract competition 
limited to competition among small businesses. One of the 
things that I have in my bill that some of the Members of this 
Committee have been critical of my bill on, and you may want to 
consider an amendment, but FPI is a business that is over $500 
million, yet they have the authority to compete on small 
business set asides for the federal government.
    Is that a reasonable position for us to take? That is 
something that we are going to take a look at in our bill as it 
comes to the floor.
    The third question. After America has lost 2.7 million 
factory jobs over the last three years, is it defensible for 
FPI to be activating new factories at 17 new prisons to furnish 
more products under its indefensible mandatory source status?
    Think about it. This is a manufacturing outfit that is 
going to build 17 new factories as identified in their annual 
report. Such expansions will probably make FPI the fastest 
growing manufacturing concern in America today. Can any of us 
think of a company that is building 17 new plants?
    I would request that my full statement be inserted into the 
record. Thank you for your patience. If anyone has any 
questions, I would be more than willing to take them.
    Thank you, Mr. Chairman.
    [Mr. Hoekstra's statement may be found in the appendix.]
    Chairman Akin. Without objection.
    I think before we go straight to questions I would like to 
offer our Ranking Member, Ms. Millender-McDonald, if you would 
like to have an opening statement?
    Ms. Millender-McDonald. Yes. Thank you so much, Mr. 
Chairman, and thank you and the other Chairman, my colleague, 
the Ranking Member, and myself for convening such an important 
hearing such as this.
    I would like to agree with my dear friend and colleague, 
Mr. Hoekstra, in saying that we really do need to revisit the 
minimum wage of those inmates who are working on the various 
programs through FPI. We also need to level the playing field. 
I think it is so critical for that.
    My statement says just that, Mr. Chairman; that the small 
businesses are struggling to receive the fair share of federal 
contracts. This is not just happening, so we need to look at 
that. My statement is so involved here I will not read this. I 
will just submit that for the record.
    I thank you so much for convening this hearing, and I agree 
already with my colleague and friend, Mr. Hoekstra. He and I, I 
know when I first got here, went on Washington Journal 
together, so I have had some affinity for him since then to 
some limited degree.
    Nevertheless, I do agree with him on our revisiting the 
competitiveness of the mandatory source by which FPI deals, the 
minimum wage by which they give to the inmates and the leveling 
of the playing field that needs to be. All of those things, in 
my opinion, need to be revisited.
    Thank you so much.
    Chairman Akin. Thank you for your opening statement.
    We have a few minutes to ask some questions of Congressman 
Hoekstra. Because of the fact that we have a number of other 
guests and will be having to ask questions of them, I would 
urge people if you have a burning question please indicate now, 
and we will go ahead and allow that questioning.
    Ms. Millender-McDonald. They are all burning, Mr. Chairman.
    Chairman Akin. They are all goods ones? I am going to 
forego asking questions right now.
    Congressman, we will be inviting you to come up and join us 
here when we bring the second panel up.
    Mr. Hoekstra. Thank you very much.
    Chairman Akin. Congressman Toomey?
    Chairman Toomey. Thank you, Mr. Chairman. I do have a 
couple of questions for my colleague.
    Mr. Hoekstra, you made the point that in fact it is the FPI 
that makes decisions rather than the agency about the products 
that they will buy, and I am wondering if you could elaborate 
on that?
    What do you mean when you say it is the Federal Prison 
Industry that makes these decisions rather than the agency? 
That is my first question, and then I have another.
    Mr. Hoekstra. It is very straightforward. If there was a 
product or a commodity that is manufactured by Federal Prison 
Industries, our federal agencies are required to go to Federal 
Prison Industries first as a supplier.
    If for whatever reason a federal agency believes that 
Federal Prison Industries, the product that is provided by 
Federal Prison Industries, does not meet their needs they have 
to submit a request to Federal Prison Industries for a waiver 
that would then enable them to go to the private sector and do 
competitive bidding or go to GSA and go through the bidding 
process. FPI is the sole determiner as to whether their 
products meet the agency's needs or not.
    Chairman Toomey. Let me follow up with some specifics. If 
an agency believes that something that the Federal Prison 
Industry manufactures is more expensive to obtain it through 
Federal Prison Industry or the quality is not up to the quality 
that they believe is available in the private sector or they 
think it is going to take longer to get to them than a private 
competitor could deliver it, are those criteria sufficient for 
the agency to say sorry, we are going elsewhere?
    Mr. Hoekstra. The agency cannot determine that they will go 
elsewhere. They would have to put that in their waiver request.
    Federal Prison Industries would then determine whether the 
product that they produce meets the quality, price or delivery 
schedule that the agency has outlined. Federal Prison 
Industries makes that determination, not the buying agency.
    Chairman Toomey. So there is such a determination to be 
made, but it is made exclusively by the Federal Prison 
Industry?
    Mr. Hoekstra. That is correct.
    Chairman Toomey. Your bill, does it put the Federal Prison 
Industry out of business?
    Mr. Hoekstra. Our bill removes mandatory--it does a number 
of things, but the key component as it affects Federal Prison 
Industries is that it removes mandatory sourcing.
    Federal Prison Industries would be eligible to bid for the 
products that are procured by federal agencies and as a 
qualified bidder. You know, if they win the bid they get the 
business. If they do not, then it goes somewhere else.
    Chairman Toomey. And is there anything in your bill that in 
any way diminishes the enormous competitive advantage that they 
have by virtue of their very low-cost labor?
    Mr. Hoekstra. No. Well, they might argue, but the things 
that they continue to have. We do not address the wage issue. 
We do not address the issue that their facilities are provided 
to them by the Bureau of Prisons. We do not address the issue 
that they receive a $20 million interest free line of credit, 
so most of the advantage, if not all of the advantages, other 
than mandatory sourcing, are maintained.
    Chairman Toomey. Okay.
    Ms. Millender-McDonald. Will the gentleman yield?
    Chairman Toomey. I would be happy to yield. I will yield 
back the balance of my time.
    Ms. Millender-McDonald. Mr. Chairman?
    Chairman Akin. I would be happy to recognize you.
    Ms. Millender-McDonald. I just wanted to mention that Mr. 
Hoekstra did mention that there should be some amendments or 
there could be amendments, and I propose that one of those 
amendments would be minimum wage that I would perhaps submit to 
be a part of this because it is important that those who are 
doing the service should get better than just a low wage that 
they are presently getting to do this service while they are 
inmates.
    Mr. Hoekstra. I thank you very much. Like I have said, as 
we have gone through the bill that is something that has come 
up, and I think the other thing that has come up based on 
feedback from the Members of the Small Business Committee is 
why are we letting a company that is this large bid on small 
business set asides? It makes no sense.
    Chairman Akin. Thank you, Congressman.
    Are there additional questions? If not, Congressman, if you 
would care to join us?
    Mr. Beauprez. Mr. Chairman, might I?
    Chairman Akin. Yes. I am sorry.
    Mr. Beauprez. Congressman, if I might? I would like to 
pursue a little bit of that competitive advantages line of 
thinking.
    You highlighted a couple. I have just written down through 
your comments the wage issue certainly being one. Would it be 
fair to say another one would be operating overhead because you 
spoke about the facilities basically I guess being furnished.
    Mr. Hoekstra. Yes.
    Mr. Beauprez. Access to capital. What else might there be?
    Mr. Hoekstra. Inmate worker benefits. No contribution for 
social security or unemployment compensation, no employee 
benefits paid, factory space furnished by the host prison, 
equipment is free, free access to a broad range of equipment 
that is excess to other federal agencies.
    Utilities are furnished by the host prisons. Taxes. They 
are exempt from state and federal income state tax, gross 
receipts tax, excise tax and state and local sales tax on 
purchase. Insurance claims for personal injury or property 
damage are paid for by the U.S. Government. Workplace and 
health safety. They are exempt for OSHA, EPA and those types of 
things, and then the access to capita.
    A lot of the things that are a significant cost to your 
small business you can just cross right off, you know, the 
expense side of the ledger for Federal Prison Industries.
    Mr. Beauprez. I am not looking at one, but I seem to recall 
that pretty well covers the waterfront on my old P&L report on 
the expense side.
    Mr. Hoekstra. Yes.
    Mr. Beauprez. Thank you.
    In the spirit of full disclosure, Mr. Chairman, I think I 
ought to mention that I, too, am a co-sponsor of this 
legislation.
    Chairman Akin. Thank you. Thank you for your comments.
    Mr. Hoekstra. Mr. Chairman, thank you very much. I do have 
lots more answers, but since there are no more questions I will 
join you up front.
    Chairman Akin. Thank you, Congressman.
    Mr. Hoekstra. Thank you.
    Chairman Akin. If I could ask the second panel of witnesses 
to please come forward now?
    As the panel is being seated, I would just call attention 
to the Committee. We are fortunate today to have with us 
batting in the first position on our second panel the Honorable 
Harley Lappin. He is the chief executive officer of the Federal 
Prison Industries and the director of the Bureau of Prisons.
    Harley has agreed to stick with us here through the 
statements of the different witnesses, and then he is going to 
take questions first, but we are going to excuse him when we 
are done with those questions. If we keep things moving along, 
hopefully we will be able to honor your schedule. We thank you 
for joining us.
    I will do that as an introduction to our first witness, who 
is again Harley Lappin. He is the director of the Bureau of 
Prisons and chief executive officer of Federal Prison 
Industries.
    Our second witness is--let me make sure I have them in the 
right order. No, I do not. I am going to have to be on my toes 
here. Okay. Our second lineup is Christopher Fay, and that is 
Milton Eisenhower Foundation. You are the director of that, if 
I am not mistaken, Christopher.
    Mr. Fay. Yes, one of the directors.
    Chairman Akin. One of the directors. Thank you very much.
    Our third is Mr. John Palatiello. Is that correct? U.S. 
Chamber of Commerce, Chairman of Procurement & Privatization 
Council.
    Our other two witnesses have already been introduced, Angie 
McClure on my right and Rebecca is it Boenigk?
    Ms. Boenigk. Boenigk.
    Chairman Akin. Boenigk. Okay. Thank you, Rebecca.
    What we are going to do is just go ahead and let each of 
you make a five minute statement or so, opening statements, and 
then we will open things up for questions.
    Director, please?

 STATEMENT OF THE HONORABLE HARLEY G. LAPPIN, CHIEF EXECUTIVE 
OFFICER, FEDERAL PRISON INDUSTRIES, AND DIRECTOR, FEDERAL BOARD 
                           OF PRISONS

    Mr. Lappin. Good afternoon, Chairman Akin, Chairman Toomey, 
Members of both Subcommittees. I appreciate the opportunity to 
appear before you today and discuss Federal Prison Industry. I 
also appreciate your willingness to accommodate my schedule, 
allowing me to testify and then answer a few questions and then 
leave. Thank you very much.
    As director of Bureau of Prisons, I also serve as the chief 
executive officer of Federal Prison Industry. Although I have 
been in my current position for less than six months, I have 
served in the Bureau of Prisons for 18 years in a variety of 
capacities, including warden at two institutions and regional 
director.
    I am not involved in the daily operational details of the 
FPI program, but have firsthand knowledge of the impact this 
program has on reducing crime and in making prisons safer to 
manage and less expensive to operate. Today, there are more 
than 172,000 federal inmates. The federal inmate population has 
increased by more than 600 percent since 1980, and it is 
projected to increase to more than 215,000 by 2010.
    The Bureau of Prisons is sensitive to the concerns of the 
Members of Congress, as well as business and labor 
representatives, that any negative impact of the FPI program on 
the private sector should be minimized. We do not oppose 
balanced and practical reform of FPI. Consistent with the 
Administration's position, any reform should simultaneously 
provide federal agencies greater procurement flexibility, 
increased access by private sector companies to government 
purchase and ensure the Attorney General maintains adequate 
work and opportunities for inmates incarcerated in federal 
prisons.
    The Bureau has no control over the number of inmates who 
come to the prison, their length of stay or the background they 
bring with them. We do, however, have influence over their 
chances of success upon reintegrated into society. The Bureau 
of Justice Statistics has reported recently that recidivism 
among state prison systems increased over the recent 10-year 
period. During approximately the same timeframe, the federal 
prison system recidivism rate declined.
    We know, based on rigorous research, that the positive 
impact is due to inmate programs that include work assignments, 
drug treatment, education, vocational training and others, all 
of which provide inmates with skills and cognitive abilities to 
function successfully when they return to their community.
    Federal Prison Industry plays an integral role in reducing 
recidivism. Inmates who work in FPI are 24 percent less likely 
to commit crimes and 14 percent more likely to be employed for 
as long as 12 years after release as compared to similar 
inmates who do not have FPI experience.
    The impact of the FPI program is particularly significant 
because FPI focuses on employing more serious offenders. In 
fact, 76 percent of the inmate population workers have been 
convicted of drug offenses, weapons and other violent offenses. 
These inmates are at higher risk for recidivism because they 
typically have extensive and violent backgrounds, poor 
educational accomplishments and limited work experience.
    FPI is a crime reducing program that is financially self-
sustaining and receives no appropriated funds for its 
operation. Although inmates work for FPI to produce products 
and perform services, the real output of the FPI program is 
inmates who are more likely to return to society as law abiding 
taxpayers because of the improved job skills, training and work 
experience.
    Last year, FPI spent more than a half a billion dollars on 
purchasing raw materials, supplies, services and equipment from 
private sector vendors. The amount represents 74 percent of the 
entire revenue earned by FPI programs, and more than 62 percent 
of this money went to small businesses.
    Efforts to reform the FPI program in a balanced manner are 
already underway. We are already working to reduce FPI's 
program reliance on mandatory source, reduce production in 
office furniture and textiles and emphasize new areas for 
inmate jobs. The FPI board of directors recently adopted 
several resolutions to ensure the FPI program does not place an 
undue burden on private industry and small business.
    The collective effect of these and other programs has been 
a decline in the FPI program sales and earnings. As a result, 
the FPI program has had to close or downsize 13 factories and 
reduce inmate program participation in FPI by about 2,000 
inmates. If FPI is not able to maintain its viability as a 
correctional program or is not able to maintain adequate levels 
of inmate enrollment, there will be negative ripple effect.
    First and foremost, if fewer and fewer inmates develop the 
fundamental skills of the workplace, recidivism will increase 
at a substantial cost to taxpayers and victims of crime. 
Second, there may be disruption to small businesses that 
currently depend on FPI program for their continued business 
success, and, third, opportunities to provide restitution to 
victims of crime will decrease
    I recognize that this is a complex public policy issue with 
no easy answer. I look forward to working with the 
Administration, Members of the Subcommittee and others to 
achieve a practical, balanced, cost effective reform of Federal 
Prison Industry.
    Chairman Akin and Chairman Toomey, again I appreciate the 
opportunity to testify before you today and look forward to 
your questions. Thank you.
    [Mr. Lappin's statement may be found in the appendix.]
    Chairman Akin. Thank you, Director. You hit it exactly 
within a few seconds. That is pretty good timing.
    We are just going to proceed across with our witnesses. Mr. 
Fay, if you would proceed?

 STATEMENT OF CHRISTOPHER FAY, DIRECTOR, MILTON S. EISENHOWER 
                           FOUNDATION

    Mr. Fay. I, too, would like to thank the panel and the 
Committee to allow me to testify and thank Chairman Akin and 
Chairman Toomey, thank the staff, Joe Hart and Tom Bazos, for 
inviting me. This is a very great honor to appear before you.
    Ms. Millender-McDonald. And also the Ranking Member.
    Mr. Fay. And the Ranking Member. I am sorry.
    Ms. Millender-McDonald. Thank you.
    Mr. Fay. Yes. I come to the subject of Prison Industries 
from a slightly different angle. I am now the director of the 
Milton Eisenhower Foundation, which is a private sector 
continuation of the Kerner Commission and Violence Commission 
started by President Johnson.
    Incidentally, I am going to give you a condensed version of 
this, but I would appreciate it if my whole testimony is 
entered into the record.
    Chairman Akin. Without objection.
    Mr. Fay. Thank you. My work with the Foundation is to 
replicate model programs for ex-offenders, and so one of the 
things I would like to address before this Committee is the 
impact Prison Industries has on the ability of the offender 
when he or she is released to actually make it on the outside. 
It is my contention that the design of Prison Industries in the 
current form does not adequately prepare the inmate to find 
employment.
    Prior to coming to the Eisenhower Foundation, I ran a 
program in New York City for 10 years called Broadway 
Community, which worked with homeless people and drug addicts, 
and for the most part the people I worked with had come out of 
prison, federal prisons, and had failed in their efforts to 
make it on the outside. They were not able to actually use 
those skills and find adequate work.
    I would like to point out even in the literature that 
Prison Industries puts out that those rudimentary and 
fundamental work skills tend to be things like showing up on 
time, working under authority, being able to focus on a task. 
Very important things, but if you are going to work with a 
person for a number of years that are incarcerated for a number 
of years, surely we can get on to more high level skills. It 
also points out in the literature that most of the best work 
goes to lifers, people who are not going to come out and look 
for another job.
    In my present work, I am affiliated with the Delancey 
Street Foundation, which is probably the world's most famous 
and most successful program for ex-offenders located in San 
Francisco and four other facilities around the country.
    They actually take the kind of people that he was just 
describing, really hard core individuals who are facing in some 
cases life terms, and within the average of four years these 
individuals do learn multiple life skills, and their record of 
success with their graduates is 80 percent. In other words, 80 
percent of people who are hard core felons, hard core drug 
users, actually develop marketable skills, go on and become 
productive members of society.
    I say that because we know that it can work. There is at 
least one outstanding model in this country that demonstrates 
that you can train people in work skills so they do not go back 
to prison. I would recommend that any discussion on the subject 
of Prison Industries, whether how it affects small business or 
anything else, we also keep in mind the impact it has on the 
offender.
    In the long run, we will have a much more humane society if 
we try and refocus the work of Prison Industries to really 
train the inmates. That becomes the primary focus rather than 
the making of money.
    In the end, we will have a lower number of people in 
prisons, much less recidivism, and we will all be proud to see 
that the prisons have really had an impact on the human lives, 
our own brothers and sisters.
    Thank you very much.
    [Mr. Fay's statement may be found in the appendix.]
    Chairman Akin. Thank you.
    Mr. Palatiello?

     STATEMENT OF JOHN PALATIELLO, CHAIRMAN, PROCUREMENT & 
        PRIVATIZATION COUNSEL, U.S. CHAMBER OF COMMERCE

    Mr. Palatiello. Thank you, Mr. Chairman, both Chairmen and 
Ranking Members of the Subcommittees. I am John Palatiello. I 
am executive director of MAPS, a trade association of mapping 
spatial data and geographic information services firm, and I 
also chair the Privatization and Procurement Council of the 
U.S. Chamber of Commerce. It is my honor to appear on behalf of 
the Chamber this afternoon.
    As you know, the Chamber is the world's largest business 
federation, representing more than 3,000,000 businesses and 
organizations. What you may not know is that over 96 percent of 
the Chamber's members are small businesses with no more than 
100 employees, and 71 percent of our members have 10 or fewer 
employees.
    Reform of Federal Prison Industries has for a number of 
years been at the top of the Chambers' government procurement 
platform. I commend the Subcommittee for its dedication to this 
issue and the interest of holding hearings on FPI competition 
and its effect on small business.
    I will not spend a lot of time on the history of FPI. I 
think you all are very familiar with that, and so I will get 
right to the point. FPI is a non-competitive monopoly, and, in 
our view, monopolies have no place in a free market economy. 
When you remove competition from the equation, you are left 
with higher prices, lower quality of service and lower 
productivity. Non-market based practices also stifle innovation 
and reduce the availability of goods and services, and that is 
exactly what we have in federal procurement today because of 
the presence of Federal Prison Industries.
    F.P.I. as a federal program, as a federal agency, puts the 
government in a role of being the opposing team to small 
business rather than being the umpire refereeing disputes among 
competitors in the marketplace. If you ask the question is 
there a level playing field for small business, the answer is 
absolutely not.
    Today, FPI produces over 300 products and services. In 2002 
alone, their sales totaled nearly $700 million, making it the 
thirty-ninth largest federal contractor. It makes it a 
formidable competitor to large business and has an even greater 
advantage over small business that is virtually insurmountable.
    The Small Business Committee has dedicated a great deal of 
time in recent months to the loss of jobs in the United States 
and the slow growth of jobs in our economy today, both in the 
manufacturing sector and the services sector, particularly with 
regard to the loss of jobs offshore.
    Think for a moment of the double whammy that small 
businesses face. The competition that we are receiving from low 
wage jobs offshore and the competition we face right here at 
home from low wage, terribly advantaged positions in Federal 
Prison Industries. We believe that private firms and small 
businesses should be allowed to compete fairly and on a level 
playing field with FPI for federal contracts, plain and simple, 
by eliminating the mandate that government agencies purchase 
from FPI.
    You have already heard about the waiver process that is 
virtually non-existent. FPI gets to be, and pardon me for 
mixing my sports and judicial metaphors, but they get to be 
judge, jury and prosecutor. They decide what they sell, when 
they sell, how much they sell it for and who they sell it to. 
The buying agency has no decision making in the process.
    Again, as Mr. Hoekstra indicated, there is a waiver 
process. The waiver is granted by FPI. They have to voluntarily 
agree not to sell. There is no right of an agency to say FPI 
does not deliver what we are looking for and, therefore, we 
want to go to the open marketplace. That option is not at the 
disposal of federal agencies today.
    We also believe that FPI is abusing its statutory authority 
with the way it aggressively and I think in a predatory manner 
enters a variety of markets, including the services area. FPI 
is not content to be a monopoly in sales to the federal 
government. It now believes it has the authority to sell in the 
commercial marketplace.
    When you look at the list of advantages that Mr. Hoekstra 
mentioned, and I can go over them as well, it is an 
extraordinary advantage to allow Prison Industries to sell 
services in the commercial marketplace. This Congress and this 
government has spoken emphatically about prison made products 
for China, and yet we are going to condone allowing prison 
services in the open marketplace here in the United States? 
There is no authority for that, but they have granted that to 
themselves, again the predatory nature of the way they operate.
    We strongly support Mr. Hoekstra's bill. We are unmindful 
of the need to manage and rehabilitate inmates and the bill 
strikes a balance by providing new opportunities on where we 
can use prison employees. I will be glad to discuss that in 
more detail under questioning.
    Let me make one final point very quickly. We have a 
coalition that includes the Chamber of Commerce and the AFL-
CIO. We have AFSCME and NFIB in our coalition supporting this 
bill. Our coalition includes not only small businesses that are 
adversely impacted by unfair competition, but our coalition 
includes those suppliers that are selling whole products or 
commodities to FPI, and we support Mr. Hoekstra's bill.
    We do not think this would have an adverse impact on those 
suppliers. We think it would have a positive impact on all 
businesses
    Thank you very much, Mr. Chairman.
    [Mr. Palatiello's statement may be found in the appendix.]
    Chairman Akin. Thank you. Thank you for your comments.
    We will next go to I think it is Ms. Boenigk.
    Ms. Boenigk. Yes, sir.

STATEMENT OF REBECCA BOENIGK, CEO AND CHAIRPERSON OF THE BOARD, 
NEUTRAL POSTURE, INC., BRYAN, TX, ON BEHALF OF WOMEN IMPACTING 
                      PUBLIC POLICY (WIPP)

    Ms. Boenigk. Good afternoon, Mr. Chairman and Members of 
the Committee. My name is Rebecca Boenigk. I am the CEO and 
chairman of the board of Neutral Posture. We are located in 
Bryan, Texas.
    I am here today appearing on behalf of Women Impacting 
Public Policy, a national bipartisan public policy organization 
advocating on behalf of women-owned businesses representing 
460,000 members. I am also a member of the Women Presidents 
Organization and a member of WBENC, which is the Women Business 
Enterprise National Council.
    Neutral Posture is certified as a woman-owned business. We 
were certified by WBENC. The company was founded in 1989 by my 
mother, Jaye Congleton, and myself. We have been in business 
for 15 years. We have 90 employees at our Texas facility, and 
we have another 12 employees at our facility just outside of 
Toronto in Cambridge. We opened up a Canadian facility last 
year.
    I want to commend you for holding this meeting. It is very 
important to us that there is reform in Federal Prison 
Industries because it is so unfair when we have to go and try 
and compete with them. Again, basically because they have a 
monopoly it is not really competition.
    Approximately 25 percent of my business comes from the 
federal government. We have had a government schedule contract 
for over 10 years, and we do manufacture ergonomic chairs and 
multi-purpose chairs, much more comfortable than the ones you 
are all sitting in right now.
    About 75 percent of our income comes from the Neutral 
Posture line, which is the high end, task intensive ergonomic 
seating line. The chairs have contoured seats, which help 
reduce seated pressure. We have an inflatable air lumbar in the 
back rib. Our chairs have been proven to reduce injuries and to 
reduce workers' comp costs. There is no other chair that Prison 
Industries has that can compete with our high end line of 
seating.
    The State of Washington, for example, used our chairs, and 
by using our chairs they reduced their injury rate by 60 
percent and their workers' comp costs by 90 percent. That is 
pretty significant. Those savings cannot be passed on to a lot 
of the government agencies because the government agencies are 
required to buy from FPI instead of giving us the opportunity 
to help them reduce their injuries and their cost.
    Because UNICOR or FPI is our competitor and they do not 
make a chair like ours, the chair that they have that is the 
closest to our chair, the highest end chair they have, is 
called the Freedom chair. It sells to government agencies 
around $650. My chair that I offer has five more adjustments 
than that chair, and it sells for $536, so we are over $100 
less, and we have a better product that is available in five 
days.
    Although the government agencies would like to buy from us, 
they are told that they cannot. They are told that they have to 
go to FPI. Even though we have better price, better quality, a 
lot of research to back up our product and great lead times, we 
still do not have the opportunity.
    We have estimated that over the last 10 years we have lost 
approximately $10 million in sales because of FPI because of 
situations where we have gone in and we have been told just up 
front that we are not even allowed to compete for the business.
    Recently we went into San Francisco. There is a new federal 
building going up. Before we could even get our foot in the 
door, we were told there would be no waivers granted on that 
building. This is before they even knew what we had to offer. 
It was just said this is strictly a FPI/UNICOR building. There 
will be nothing put in this building that does not come from 
them.
    The other part that really bothers me is that if we have an 
agency that wants to buy from us, they have to go and get this 
waiver. Again, because the waiver comes from FPI, they are few 
and far between.
    In the last two years, because the industry as a whole has 
been down so much, we have not seen one waiver get granted for 
us in over two years. That is something that especially when 
they do not even have a competitive product for our chair, the 
fact that they will not grant a waiver because they do not want 
to lose any more business is just completely unacceptable to 
me.
    The Subcommittee should also know that in some cases the 
chairs are not manufactured in the prisons at all. They are 
manufactured in the manufacturing facility of the subcontractor 
or major supplier, some of which are competitors of mine. They 
will send the chairs to the prisons, and they will have to put 
a screw here or a screw there, put them together again, and 
then they slap their label on them, and they are sent out.
    This has just happened to us because of the State of 
Washington. We have held the State of Washington contract for 
eight years, and we were told that we would no longer be able 
to hold the contract unless we worked with the prisons, so now 
in order to sell to the State of Washington we have to make the 
chairs in Texas, completely assemble them, take them back 
apart, put them in boxes and send them to the state prison so 
that they can then put them back together, mark them up and 
sell them back to the state.
    This is something that is happening all over the place. My 
option was to either work with the prison to do that or to lose 
the business altogether.
    Also, with FPI's overhead I was just astonished to hear all 
of the things that you take into account because as a small 
business owner I have to pay all of those things. I mean, my 
health insurance alone is $600,000 a year just to provide 
health insurance for my employees. All of those things that you 
take into account, that is a tremendous advantage that they 
have from a price standpoint.
    When you look at the fact that our chairs are competitively 
priced lower and we still have to cover all of those costs on 
our own, it is just amazing. I mean, this has got to be an 
incredibly profitable group to be able to sell the chairs at 
the prices that they sell and still not have any of that 
overhead that they have to cover.
    Chairman Akin. We are just about out of time here. It is 
not really fair for me to ask questions ahead, but do you have 
any really uncomfortable chairs for Committee Members who ask 
too many questions?
    Ms. Boenigk. Sure. I can do that. We can build them 
uncomfortable, but we do not normally.
    Ms. Millender-McDonald. Get a lot of them, would you, Mr. 
Chairman?
    Ms. Boenigk. I do want to say one more thing.
    Chairman Akin. Sure.
    Ms. Boenigk. We have seen FPI show up in the commercial 
market recently at two of our biggest trade fairs, and they 
have come in with great, fancy literature that just says FPI. 
Nowhere on there does it actually say it is Federal Prison 
Industries. They are trying to sell into the commercial market 
now, not just to government agencies. This is sales that they 
are trying to make into the commercial market as well.
    Again, because of their competitive advantage that would be 
very distressing to my company to see that happen.
    Thank you very much.
    [Ms. Boenigk's statement may be found in the appendix.]
    Chairman Akin. Thank you for your testimony.
    Our last witness, but not the least. Ms. McClure?

  STATEMENT OF ANGIE MCCLURE, VICE-PRESIDENT, HABERSHAM METAL 
                     PRODUCTS, CORNELIA, GA

    Ms. McClure. Thank you, sir. I am a small business. She is 
a small business. We do not represent a bunch of other 
government things. We are a small business, and we appreciate 
the Small Business Committee here.
    I represent Habersham Metal Products, as Congressman 
Norwood has just referred to previously, in Cornelia, Georgia, 
That is in the North Georgia Mountains. I guess you would never 
know it by my accent.
    We produce metal doors and frames for the detention 
industry. Our work is 95 percent dependent on government 
contracts. In 1996, the FPI did an impact study before they 
decided to come and build doors and frames in our industry. 
They predicted that they would only affect my particular 
business, Habersham Metal, in this impact study by 6.2 percent.
    What the study did not take into account was what the 
effect would have on our entire market. Virtually all federal 
work was taken away in detention doors and frames. The pool of 
other work, which was very limited, became very competitive.
    As you can realize, less work means prices drop. FPI has 
created such a tight market in our industry that prices have 
reduced in my industry by 26 percent since 1996. That hurts. We 
had 270 employees in 1996. We now have 165. These things have 
really affected Habersham Metal, and it has affected the entire 
industry for metal doors and frames.
    We are one of the many firms that are struggling to remain 
viable. I have a list of 627 companies in the State of Georgia 
alone that are affected by FPI. This is a list that have 50 or 
more employees. Taking that calculation, that is 31,350 
taxpaying citizens in the State of Georgia alone that are 
affected daily by FPI. It is not just the CVA or the 
Correctional Vendors Association. There is only 16 CVA 
manufacturers in the State of Georgia. You have 627 companies 
that are affected daily because of FPI.
    Let me share with you some examples specifically that 
happened at Habersham Metal. We worked for several months on a 
federal project in Louisiana. This work would mean three months 
of work for our company. When the specification came out, it 
was strictly FPI.
    The only thing left in the specification and the request 
for proposal was the more difficult, custom hollow metal work, 
which the FPI did not want. They just wanted the easy 
manufacturing runs that they can make a lot of money on. That 
leaves the scrapings for all of us others. That reduced our 
workload from three months to three weeks, and that is 165 
people that depend on that work daily.
    The same thing happened to us in Hazelton, West Virginia. 
Another example was in Butner, North Carolina. The supplier for 
hollow metal doors and frames in Butner, North Carolina, had 
the contract, did the design drawings, submitted the design 
drawings, and was in production planning on a half a million 
dollar contract.
    F.P.I. decides well, we want that contract, so they reduced 
the supplier's contract. This supplier is in an impoverished 
HubZone, a certified HubZone manufacturer in south Georgia. 
That hurts. Half a million dollars is a very big contract to a 
small company with only 40 people employed.
    Inmates are incarcerated because they committed crimes 
against society. Now society is being put at risk by allowing 
inmates to hold their containment in their own hands. I mean, 
for God's sake. Let the prisoners build their own doors and 
frames to hold them in? That just does not make good sense.
    Those who oppose FPI, they do so with well-intended, but 
misguided, desires to rehabilitate inmates. You know, there are 
a lot of other things that the inmates can do. They can build 
buildings for Habitat for Humanity, feed the hungry. There are 
a lot of other ways that we can rehabilitate inmates instead of 
taking work from citizens, taxpaying citizens that are 
hardworking, law abiding citizens.
    That is my testimony, and I implore you for the sake of 
millions to reform the FPI. Thanks.
    [Ms. McClure's statement may be found in the appendix.]
    Chairman Akin. Thank you, Ms. McClure. I appreciate all of 
your testimonies.
    I am going to remind the Members of the Committee that we 
have made an agreement with Director Lappin that we are going 
to direct our questions first of all to him so that we can do 
that. I am going to run through the typical order of our people 
to do the questions, and then we will direct questions to the 
other four members of the second panel.
    I am going to just forego my comments for a minute and just 
go directly to Ms. Millender-McDonald.
    Ms. Millender-McDonald. Thank you, Mr. Chairman, and thank 
you all so much for being here today. You have enlightened us 
with your testimony.
    Mr. Lappin, since you do have to leave, and I understand 
that, I have several questions. One is what is the percentage 
of your private sector vendors first? What are your crime 
producing programs? If you are saying that recidivism has 
declined, by how much? What percent?
    If you do not have this information now, can you please get 
it to my office as to the breakdown per ethnic groups and 
gender? I need to know the recidivism reduction or decline, 
what type of crime producing programs you are doing.
    It is true that you have no control of offenders who come 
into the institution, but you do have some control as to how 
they leave the institution ready for work and hopefully not to 
be returned again. How do you do that? What types of programs 
do you have?
    Lastly, you spoke about downsizing 13 factories, and yet we 
heard from Mr. Hoekstra that 17 factories are being built. How 
do you account for this and account for an increase of $92 
million that you got from fiscal year 2001 I think it is or 
2002? Yes, sir? Question.
    Mr. Lappin. Thank you, ma'am. First of all, let me address 
the recidivism issue. I do not have all those statistics here 
with me, but we will be able to provide that to you in writing.
    We have a variety of crime reducing programs, in our 
opinion, to include Federal Prison Industry, residential drug 
treatment, GED, vocational training programs, a variety of 
other community service projects. I heard mentioned Habitat for 
Humanity. We do a lot of that work. We suit all of that to the 
benefit of the individual participating. We encourage it as 
much as we can and certainly see it having an impact.
    I do know that our evaluation of recidivism, about 10 years 
ago we had about--during a period of about 10 years, which was 
just recently completed, our recidivism rate was about 44 
percent. We have reduced it now to about 40 percent in the 
federal prison system, but the breakdown specifically by 
category and so on and so forth I do not have with me at the 
present time.
    Ms. Millender-McDonald. But you will get that to me?
    Mr. Lappin. We will provide that to you in writing----
    Ms. Millender-McDonald. Thank you, sir.
    Mr. Lappin [continuing]. and for the rest of the Committee 
Members.
    As far as I indicated in my testimony, as a result of some 
adjustments to some resolutions based on the Federal Prison 
Industry to some other legislation, we have felt the impact in 
a number of our product areas, especially furniture, and we 
recognize the need to do that. Again, we are attempting to 
shift our product lines away from those requiring mandatory 
source.
    I think that would be of benefit to the Committee as well. 
Not all of our products and services fall under the mandatory 
source requirement. We will provide for all of you a list of 
those products that fall into mandatory source.
    Ms. Millender-McDonald. We do need to know what those 
products are.
    Mr. Lappin. Absolutely. We will list those products that 
are applicable to mandatory source and those products and 
services that are not. We are doing all we can to shift our 
work, our additional work towards those products and services 
that do not fall into mandatory source.
    Ms. Millender-McDonald. Let me interject something, sir. Do 
you now feel that those that are not under the mandatory source 
should be competitive then?
    Mr. Lappin. We actually are not opposed to the elimination 
of the mandatory sourcing. It is the speed at which this 
occurs. Again, that is something we will have to sort through, 
but, as I indicated, we are trying to move ourselves away from 
relying on those product lines that require mandatory source to 
those product lines and services that do not.
    We believe we could still employ inmates. Whether or not to 
the level we have in the past would be determined by the 
products and services available in that area.
    Ms. Millender-McDonald. What percentage of these products 
are mandatory source?
    Mr. Lappin. I do not have the specific percent. We can 
provide that to you.
    Ms. Millender-McDonald. Thank you. Mr. Lappin, are you with 
me, and I cannot speak for the rest of them, that we have to 
see rehabilitation so that these inmates who are not lifers can 
come out and be able to fit into this society as upright 
citizens? Are we really rehabilitating?
    Mr. Lappin. We have three primary objectives in the Bureau 
of Prisons--protect the public, provide an environment for the 
staff and the inmates that is safe, and, third, to provide as 
many skills building programs for inmates in our custody to 
improve their skills and ability and their success upon 
release.
    We believe that many of the programs we offer, the variety, 
the array, is having a significant impact on that. We recognize 
the difficult public policy dilemma that we are discussing here 
now for work for inmates, impact on small business, and I 
convey to you again we want to do whatever we can to have less 
impact on the small businesses.
    We want to open the door so more businesses can certainly 
compete for products and services, more flexibility for 
government agencies, while at the same time still affording 
inmates the ample opportunity to work, participate in the 
UNICOR program, improve their work in job skills and habits and 
hopefully be more successful upon release.
    Ms. Millender-McDonald. Thank you, Mr. Chairman.
    Chairman Akin. Thank you.
    Next would be Congressman Toomey.
    Chairman Toomey. Thank you, Mr. Chairman. I have several 
questions for Mr. Lappin.
    The first one is, as no doubt you are aware, I am glad that 
you support the elimination of mandatory source requirements. 
Of course, Congressman Hoekstra's bill does this gradually, 
phases this out over five years. That is my understanding, 
which strikes me as longer than I would like to see it take, 
but in your view is that not enough time?
    Mr. Lappin. Well, the Administration really has not taken a 
position on the legislation. We are still assessing the impact 
and so on and so forth.
    As I indicated, Federal Prison Industry, the direction the 
Federal Prison Industry Board has given us, is directing us 
away from those products that require or fall under mandatory 
source to other products and services that do not require 
mandatory source.
    Chairman Toomey. So you are not willing to say whether or 
not you can----.
    Mr. Lappin. At this point we have not fully assessed the 
impact. Again, the Administration has not taken a position in 
that regard, but hopefully in the near future.
    Chairman Toomey. I would hope in the near future. Let me 
ask another question. What percentage of Federal Prison 
Industry employees/workers are either illegal aliens or are 
serving a life term without the possibility of parole, if any?
    Mr. Lappin. Well, let me just talk a little bit about the 
numbers. About 172,000 inmates in the Bureau of Prisons. About 
28 percent are illegal aliens. A very small percentage of all 
the inmates are serving life sentences.
    Our average sentence is about seven to eight years, so 
inmates are still serving a significant amount of time, a long 
enough time that we need an array of programs. It just cannot 
all be education, which is very important, or all vocational 
training or all work.
    It is really important to have a combination of all three 
because, as you can imagine, most of these inmates come to us 
with limited skills, low literacy rates and so on.
    Chairman Toomey. Okay. I understand all that. So you are 
saying 28 percent of all of the total prison population are 
illegal aliens?
    Mr. Lappin. That is correct.
    Chairman Toomey. All right. Now, would you suggest or would 
you say that that would then be reflective of the population 
that are participating in the Federal Prison Industry work?
    Mr. Lappin. No, I would not. We probably have a lower 
percentage of inmates who are non U.S. citizens working in 
Federal Prison Industries.
    Chairman Toomey. But you still do have some?
    Mr. Lappin. There may be some. We can provide to you the 
specific data related to the breakdown of the inmates by 
citizenship.
    Chairman Toomey. I would like to know what percentage are, 
you know, here illegally and, therefore, do not belong her when 
they are paroled or when they are released and belong somewhere 
else. Therefore, why are we losing American jobs to train 
people to perhaps be productive workers in another country?
    Frankly, you know, their rehabilitation is not of great 
concern of mine. They did not belong in the first place, and 
they are not going to be here when they get out of prison.
    Mr. Lappin. A large percentage of this group are housed in 
low security, private contract facilities where we do not 
operate prison factories.
    Chairman Toomey. Okay. Another question comes to mind. 
Approximately what percentage of all the agency waiver requests 
are granted by the Federal Prison Industry?
    Mr. Lappin. Again, I do not have those specifics. We can 
provide to you the percentage of waivers we have approved and 
how that compares to the number that we have not approved. I 
would be more than happy to provide that information.
    Chairman Toomey. Do you have any vague idea? Is it half?
    Mr. Lappin. I do not have a clue, and I would hate to tell 
you something that I am not that familiar with.
    Chairman Toomey. I do not mean any disrespect, but it just 
seems, you know, whether the overwhelming majority are approved 
or whether it is a tiny percentage or somewhere in between, it 
is an important question since the Federal Prison Industry, as 
I understand it, and correct me if I am wrong, but it retains 
exclusive authority of determining whether or not a waiver will 
be granted.
    It just seems pretty important to have an idea of whether 
most are or if they are never granted.
    Mr. Lappin. My hesitation is the fact that we have made a 
lot of changes recently to the waiver process as a result of a 
resolution passed by the Federal Prison Industry Board. As a 
result of that, you know, we are seeing a different approach to 
the waiver approval or disapproval process.
    I would be more than happy to provide to you as recent 
numbers as we have to the entire Committee here in the next few 
days.
    Chairman Toomey. Yes. I would appreciate that.
    Mr. Lappin. Let me go back to the earlier question. They 
just informed me I forgot. The inmates who are deportable, who 
are going to be deported, are not eligible to work at all in 
FPI.
    Chairman Toomey. Okay.
    Mr. Lappin. We will break that down for you as well.
    Chairman Toomey. All right. Good. My last question, Mr. 
Chairman, has to do with this question that several of the 
other panelists raised about Federal Prison Industries sales 
going into the commercial marketplace.
    First of all, is it your understanding that the authorizing 
legislation authorizes the Federal Prison Industry to sell 
directly into the commercial market and to sell to non-
government entities?
    Mr. Lappin. The existing legislation?
    Chairman Toomey. Yes.
    Mr. Lappin. Let me just say that any product or services 
that we currently produce we have reviewed by our legal staff, 
by the legal staff of the Bureau of Prisons and then reviewed 
by the Department, and they have provided approved or agreed 
with us that we have the authority to go into these areas.
    Service is the primary area that we are going into in 
commercial areas. Very few in the products. Services we do not 
see falling under the mandatory source, and we do commercial 
services.
    Chairman Toomey. So it is your understanding that as a 
general matter it is legally authorized under current 
legislation for you to compete against the private sector in 
the private sector for services?
    Mr. Lappin. Services. Correct.
    Chairman Toomey. And to some degree for products, but to a 
lesser degree?
    Mr. Lappin. Yes. I can provide you our interpretation of 
that along with the supporting documentation.
    Chairman Akin. I think we are about out of time here.
    Chairman Toomey. I will yield the balance of my time, but 
just register that I find that surprising and disappointing and 
rather problematic, frankly.
    Chairman Akin. Thank you.
    Next, Congressman Udall?
    Mr. Udall. Thank you, Mr. Chairman. Mr. Chairman, I would 
like to put my opening statement in the record.
    Chairman Akin. Yes, without objection.
    Mr. Udall. Mr. Lappin, you said that you tried to minimize 
the impact on small business from what your Prison Industries 
do. Could you tell us what you do now to lessen the impact on 
small business?
    Mr. Lappin. There are a number of opportunities here. 
First, before we go into a new product area we advertise. We 
offer the public to speak before the Federal Prison Industry 
Board either in person or in writing, as well as in services 
there is a notification of sorts.
    At any time I would encourage the folks who are here at the 
table if they are seeing they are being impacted by us, this 
happens frequently where we are contacted by other small 
businesses. We are asked to consider how to lessen the impact.
    They certainly have the opportunity to contact the Federal 
Prison Industry chairperson, the CEO of Federal Prison 
Industries, through the Committee, however, and we would 
certainly look into how to lessen the impact of their 
competition with Federal Prison Industry.
    Mr. Udall. Thank you. How many inmates are involved in 
Prison Industry programs?
    Mr. Lappin. As of today, we have about 19,500 inmates 
participating in UNICOR as a training or program initiative.
    Let me just say, I think years ago when this legislation 
was passed, as they said, back in the 1930s, it was passed. I 
think it was implemented as it was intended to be, and I think 
it has been implemented, you know, and continues to be 
implemented as it was intended to be.
    I think what no one expected was about 50 years after it 
was passed we saw such a significant growth in the federal 
prison system and other prison systems as well. In our intent 
to continue to train and educate and teach inmates better work 
skills, Federal Prison Industry as well continued to grow.
    Again, I think that the whole intent here again is a crime 
reduction program. It has grown significantly, but it has grown 
only because of the fact that the federal prison population has 
grown so significantly over the last 23 years.
    Mr. Udall. Do you believe that in fact by inmates getting 
involved in your program it does reduce crime in the long term?
    Mr. Lappin. We can provide to you the research that we 
completed. Again, 24 percent less likely to return to prison, 
14 percent more likely to be employed. This is after tracking 
these individuals for as long as 12 years after release.
    What is a shame in a way is, granted, we employ 19,000 or 
20,000 inmates, but the bulk of the inmates, many, many of the 
inmates, never participate in this program all because we have 
waiting lists at all the institutions.
    We are never able to get all of them into the program for 
even a brief period of time before they are released from 
custody, so we are still missing a large group of individuals, 
but recognize that we are trying to balance the impact, and we 
are also trying to balance the growth.
    Mr. Udall. Thank you. I thought I heard two different 
figures here on downsizing and building more; that you were 
downsizing 13 on the one hand and then building 17 more 
factories. Is that correct? Could you tell us what is going on 
there?
    Mr. Lappin. Sure. As indicated, the original legislation 
mandates that we be self-sustaining. To be self-sustaining, we 
are having to make adjustments because we are seeing a decrease 
in the sales that we have had in the past. To remain self-
sustaining, we are having to do what any other organization 
would do. We are having to absorb some of that loss from within 
the agency.
    The growth, on the other hand, is the fact that over the 
next four or five years we are going to gain again 25,000 or 
30,000 inmates, and as we add institutions, and I do not 
disagree with you there. Again, these are all medium and high 
security facilities, facilities where we get the most difficult 
individuals, the ones that have the greatest difficulty in 
their return to the community because they have longer crime 
histories.
    They have lower literacy rates. They have less skills and 
abilities, so we really try to focus on employing a majority of 
the inmates in Federal Prison Industries and having them 
participate in this program at our higher security level 
institutions such as the mediums and highs, of which these 16 
or 17 institutions are.
    Mr. Udall. So the 13 that you are downsizing there at one 
place in the system and the 17 that you are building are 
someplace else?
    Mr. Lappin. You know, what we have done is in an effort to 
move the program away from the mandatory source is identify 
some of these other areas where we either compete or the 
customers are coming to us, and it is not under mandatory 
source, to revise a product or a service.
    We have replaced some of those 13 with some of the products 
that were intended to go to these 16 or 17 prisons we were 
going to bring on line, which we realize is going to be a 
challenge for us down the road to be able to find additional 
services or products to go into those locations, again products 
and services that do not have requirement of mandatory source 
or follow the mandatory source requirement and do not have as 
much of an impact on jobs of U.S. citizens.
    Chairman Akin. Thank you. Just to recognize once again my 
own Subcommittee Chair and thank you so much for joining us.
    Our next question comes from Mr. Beauprez.
    Mr. Beauprez. Thank you, Mr. Chairman.
    Mr. Lappin, I formally have been I guess both a customer or 
a supplier to Prison Industries back in my home state of 
Colorado. I used to be in the cattle business and sold cattle 
occasionally to the dairy herd at one of our prisons and also 
competed because they were obviously producing milk and meat as 
well, just as we were, so I am familiar with it.
    I am also familiar I think with the objective as stated, 
and I share it, that of reducing recidivism and in getting 
incarcerated inmates reentered back into society as productive 
citizens.
    I visited at length with the immediate past director of our 
state prison system, and he told me, I recall, that education 
and specifically literacy training was number one for 
effectiveness in reducing recidivism at least in the State of 
Colorado. I would love to have a comment from you on that.
    The percentages have already been probed, and I am going to 
assume that it does not do a whole lot of good to go there 
because you said you are really not prepared to speak to 
percentages, but is it correct that there are about 300 
different products produced, as was testified, and about $700 
million in annual sales? Is that roughly correct?
    Mr. Lappin. I cannot be specific on the number of products. 
I am sure it is in that range. Our annual sales is about $678 
million total revenue.
    Mr. Beauprez. Okay. Around $700 million. All right.
    Mr. Lappin. $672 million.
    Mr. Beauprez. Have you given any thought? If you do not 
know all the percentages and such, you did testify I think 
rather clearly that you are not opposed to eliminating the 
mandatory sourcing requirement.
    What might achieve the stated objective to both get the 
inmates educated, as well as trained to reenter society and not 
create the problem that we are addressing here today in 
competing with the private sector?
    It feels to me like the private people have all that 
overhead and are paying taxes, and this is in a very real way a 
tax on top of the tax that they are already paying.
    Mr. Lappin. Let me do a couple things. In addition to 
providing you the breakdown, let me also provide to all of you 
what exactly the appropriations provide. UNICOR/Federal Prison 
Industries receives no appropriations. We do provide a location 
for it to conduct its business.
    We will provide to you a breakdown of beyond that what is 
paid for by Federal Prison Industry and what is not paid for by 
Federal Prison Industry--utilities, that whole breakdown--
because I am not sure it is exactly as it was conveyed.
    As far as the role of education, vocational training, work, 
we see significant reduction as well by inmates who participate 
in education. Again, education, vocational training, improved 
literacy. Teach them a skill. Those are very, very important 
components of the Bureau of Prisons, and we have a variety of 
programs in that regard, typically very short-term in nature.
    When your average sentence is eight, nine, 10 years, you 
are not going to keep them in those types of programs for that 
long and make it realistic. The additional realistic work 
environment is a part of that continuum that we believe is 
important to filling or trying to meet all the needs that these 
inmates lack when they enter the Bureau of Prisons or go to 
prison in general. That is really the focus.
    You know, what I want to say as far as mandatory source is 
we are not pursuing products in that area. We believe there is 
potential for us to rely far less on it, depending on how it 
was to be phased out, but our focus is really towards those 
services, as an example, that are not performed on U.S. soil, 
that we can bring back to this country, repatriate, in addition 
to some services or----.
    Mr. Beauprez. Do you have examples? My time is about to run 
out.
    Mr. Lappin. We provide, and let me just give you a couple 
examples. Again, we will do this in writing to you. Just a 
second. I have it right here.
    Data entry, some areas in recycling and others that we have 
brought back to the U.S., again areas that do not impact. 
Distribution services, packaging services, equipment rebuilding 
services are some of the things that we have repatriated.
    As far as services provided in this country, laundry 
services typically at the military bases, container repair 
services, printing services and vehicle repair services.
    Mr. Beauprez. One last question very quickly. From the 
description Mr. Hoekstra gave when I asked a question about the 
competitive advantage/disadvantage, even if we eliminated this 
mandatory sourcing would you not be able to still compete 
rather favorably?
    Mr. Lappin. I think we are competing very well in those 
areas where we currently do not have mandatory source.
    Mr. Beauprez. I yield back, Mr. Chairman.
    Chairman Akin. Thank you.
    I think our next questioner is going to be Congressman 
Ballance, if I am not mistaken.
    Mr. Ballance. Thank you, Mr. Chairman.
    I am familiar with Prison Industries from my service in the 
State of North Carolina. I am not as familiar with the federal 
project, but I believe that the theory is appropriate that we 
would have this work available, but I do not believe that we 
ought to have an unfair advantage or compete with private 
industry.
    Now, the first question is why should the Federal Prison 
Industry have the authority to grant or not grant waivers?
    Mr. Lappin. I am sorry?
    Mr. Ballance. Why should you have the authority on the 
waiver question?
    Mr. Lappin. Again, we have made a number of adjustments to 
the waivers, and----.
    Mr. Ballance. But why should you have it? Why not have a 
third party deal with that?
    Mr. Lappin. It is an option that certainly could be 
considered. Up to this point, the Federal Prison Industry Board 
has kept that authority with Federal Prison Industry, but it is 
certainly something that I am sure the Federal Prison Industry 
Board would consider if you would like us to do that.
    Mr. Ballance. Well, I do not think you should have it, but 
the other question is I am told do you have sales 
representatives who work on commission?
    Mr. Lappin. We actually do not have a sales force. That is 
I think originally why mandatory source was originally designed 
because Federal Prison Industry does not employ their own sales 
force. We do limited advertising. That that we do is contracted 
through some of our partnerships, so we have a very small sales 
force.
    Mr. Ballance. We have such limited time. I do not want to 
be rude, but our time is very limited. My question goes to the 
issue of commission.
    Mr. Lappin. I do not know how the small sales force we 
have, I am not sure exactly how that works. We can certainly 
provide to you an overview of who is part of the sales force, 
whether they are contract or our own, and we can provide that 
to you in written form.
    Mr. Ballance. The real heart of the question would be 
whether or not those people have anything to do with these 
waivers.
    Mr. Lappin. I do not believe that they do, but again I am 
not directly involved in the operational procedures related to 
the waivers, to who approves them, who does not. I would be 
more than happy to provide that information to you in writing. 
If you have any further questions in that regard, we can clear 
it up in that regard.
    Mr. Ballance. I was not here in 2001, but did you testify 
down here in 2001?
    Mr. Lappin. No, I did not. I have been in this job since 
April 4.
    Mr. Ballance. I do not have any further questions.
    Chairman Akin. Thank you, Mr. Ballance.
    Next question goes to Mr. McCotter.
    Mr. McCotter. Thank you, Mr. Chairman. Sorry I was late. I 
was in another Committee meeting.
    For my own edification just to make sure I am right about 
this, Federal Prison Industries takes taxpayers' money through 
the prison system to subsidize and then competes against those 
very taxpayers. Is that pretty much what I think was testified 
to?
    Mr. Lappin. I am not sure I understand exactly what you 
mean by that. Federal Prison Industry is a self-sustaining 
company or organization within the Bureau of Prisons who does 
compete for appropriated funds and providing products to other 
government agencies.
    Mr. McCotter. But the overhead is not like the private 
sector. I mean, I think I have a sheet here that shows the 
competitive advantage obtained by Federal Prison Industries, 
and I do not think that those are costs incurred by the 
taxpaying businesses. I think those are their money being used 
to provide that subsidy to Federal Prison Industries, but I can 
look that up.
    It just seems to me a question, because I was reading 
through the written statements, and I was fascinated because 
rehabilitation seems to be the key here. It seems to me that 
prisoners rehabilitate themselves in the end because there is 
no greater compelling reason to rehabilitate yourself than stay 
out of prison.
    When they do that, why does there necessarily have to be 
some type of skill that competes with the private sector? Why 
is there not more of a humanitarian bent to it? We spend a lot 
of money on things like AmeriCorps to get people to volunteer 
to help their community and to learn compassion for their 
fellow human beings. It seems prisoners would need that. I do 
not understand why that would not be a better way to go, if you 
can answer that.
    Finally, I am curious. If rehabilitation and productivity 
in the outside world is the goal, on page 6 you talk about FPI 
is going to ``emphasize new areas for inmate jobs, particularly 
service jobs that are moving overseas.'' Now, part of job 
training is something you would hope they would pick up skills 
from this. Are we also going to pay to send them overseas to 
have one of those?
    Mr. Lappin. Let me back up to the first question I will 
start with. We believe that we need to offer inmates 
opportunities to improve themselves; that it does not happen on 
their own.
    Mr. McCotter. Can I just ask a question on that? I am 
sorry. How does a prisoner get into Federal Prison Industries?
    Mr. Lappin. It is a voluntary request. They go on a waiting 
list with everybody else that has requested. They are then 
interviewed and accepted after their name comes up to the top 
of the list.
    Mr. McCotter. So you are already starting with some of the, 
you know, relative statements, but better, self-motivating 
prisons that show a penchant to want to be rehabilitated, which 
might be more of a correlation with your 24 percent recidivism 
rate drop than the actual program itself.
    Mr. Lappin. We do not force any inmate to participate in a 
program. All of the programs in the Bureau of Prisons are 
voluntary with the exception of one, and that is all inmates 
will have a work assignment. Now, that given work assignment 
would not be UNICOR unless they volunteer and ask to work in 
that capacity.
    You are right. We still have a large percentage of inmates 
in the federal prison system and other systems as well that 
resist, that do not want to change, that do not think they need 
to change, but we have a large percentage of them at some point 
in their incarceration say, you know, the reason I am here is 
partly my responsibility and at some point say I need to 
change. Here are some opportunities for me to do so.
    That is why there are no mandatory programs other than 
work, so in that capacity all of them are inmates who are 
saying yes, I want to change.
    Mr. McCotter. So then the 24 percent might not be an 
accurate number then, really a fair number to compare to the 
general population that is not like that? It is kind of like 
the argument about parochial schools versus public schools in 
terms of performance.
    Mr. Lappin. All I can say is I am not a research expert. 
This group of people who worked in UNICOR were compared to a 
like group of inmates who really the only difference between 
the two groups was the fact that one group worked in UNICOR and 
the other group did not. We saw that 24 percent fewer of them 
were returning to prison.
    Mr. McCotter. That is a big difference. I mean, that is a 
big difference. One group is more motivated to do this and one 
is not, which shows that a penchant towards rehabilitation. I 
mean, I am just saying it because it is in there. If 
rehabilitation is your number one goal, in fairness I want to 
make sure we have it.
    I believe there is a direct causal relationship between the 
Federal Prison Industries and small business being hurt. I 
would like to see a direct demonstrable correlation between 
rehabilitation of people on the Federal Prison Industries to 
make the program survive because in the final analysis before I 
go vote or do whatever I have to do, Dostoevsky did not write 
``Crime and Rehabilitation''. He did not. He wrote Crime and 
Punishment, which is why society does not become a bunch of 
vigilantes.
    Now when you take people and put them in prison to punish 
them and you go ahead and punish taxpayers by helping to put 
them out of business through Federal Prison Industries, I 
wonder if we do not have a problem.
    Mr. Lappin. Again, all I can say, sir, is that we have seen 
significant positive impact from inmates who participate not 
only in this program--this is one of the crime reduction 
programs we offer, as well as residential drug treatment, 
education and others. We see those inmates who participate in 
those programs being more likely to succeed upon release from 
prison.
    Chairman Akin. I appreciate the questions. We are out of 
time on that question, Mr. McCotter.
    We have several other congressmen that have not had an 
opportunity to ask questions. I think we have about 35 minutes 
or so of voting in front of us. I guess my question is can you 
hang in there, take a break and then take the last two 
questions, or do you feel that you are going to have to move 
along?
    Mr. Lappin. I unfortunately am going to have to move along. 
I would be more than happy. Send those questions to me. I would 
be more than happy to provide a response to those in writing, 
or we can appear again at a future Subcommittee hearing.
    Chairman Akin. I am going to dismiss anybody else on the 
Committee who needs to scoot. We have a vote coming up and 
probably have about 13 minutes or so left.
    What I am going to try and do then is I am going to try and 
let Ms. Majette ask. Maybe you could get about three minutes or 
so in. Congressman Hoekstra, if you want to do a minute or do, 
but I will hang in here. We will try and run the last couple.
    Mr. Udall. Mr. Chairman, apparently we submitted, the 
Committee did, questions. This was before you were there. They 
have not been answered the last time around, so we are hoping 
you will be a little bit better, Mr. Lappin, than the last 
group.
    Mr. Lappin. I am sorry. We will certainly look into that. I 
was not aware of that.
    Chairman Akin. Thank you.
    Ms. Majette, if you could just go right ahead? Thank you.
    Ms. Majette. Thank you, Mr. Chairman.
    Mr. Lappin, it is my understanding that FPI advertises for 
some of their product lines, and it is also my understanding 
that about two-thirds of the product lines are mandatory 
source.
    I have been handed some material. It says: ``One quality 
name frequents more federal offices than any other. UNICOR is 
your preferred source for exceptional quality products and 
services.'' It shows a picture of a chair, office furniture, 
coats, some other items that according to the information I 
have received that chairs and office furniture and coats are 
under that mandatory source.
    My question is why are you spending money to advertise for 
things that are already covered under the mandatory source 
product lines? What kind of money are you spending on this that 
could be better spent in other ways?
    Mr. Lappin. Our advertising in general is rather limited 
compared to most other agencies or companies of this nature. 
There are many----.
    Ms. Majette. Do you mean of this nature meaning that 
already have the mandatory source protection?
    Mr. Lappin. We are the only ones that have mandatory source 
protection.
    Ms. Majette. Well, then why do you need to advertise for 
thing that are already covered under the mandatory source 
protection?
    Mr. Lappin. You would be surprised at how many people do 
not realize that UNICOR produces furniture.
    Ms. Majette. But is that not in direct competition to what 
some of the other people here have already talked about?
    I am sorry. I do not want to pronounce your name 
incorrectly. Ms. Boenigk?
    Ms. Boenigk. Ms. Boenigk.
    Ms. Majette. Ms. Boenigk, who makes office chairs, she has 
to advertise. She has to factor in all of those costs of 
advertising as far as the cost of doing business, whereas you 
are having people produce these same items for 25 cents an hour 
to $1.15 an hour, which is the same kinds of things that we are 
being criticized for and we criticize other countries for for 
having those low wages, not even getting into the point about 
how that affects people's self-esteem if you are talking about 
trying to rehabilitate them and get them back into the 
mainstream.
    I need an answer to this question of why you are spending 
money and what kind of money you are spending for these kinds 
of mandatory source items. If you feel it necessary to do that, 
then why should you have that kind of protection?
    Mr. Lappin. Again, many, many government agencies do not 
realize that we produce furniture. It is under the mandatory 
source. We try to inform them through a variety of ways about 
what products we offer, and I can provide to you how much we 
spend on advertising.
    Again, this is part of the profit from it is not 
appropriated funds that are being spent on the advertising.
    Ms. Majette. Well, as a former Judge in state court and 
having presided over thousands of criminal cases over the last 
almost 10 years before I resigned to run for Congress, I know 
that there are lots of other things that can be done other than 
having people spend their time working at 25 cents an hour to 
produce materials.
    Frankly, I am from the State of Georgia, and I share the 
witnesses' concerns. If we are actually using that money----.
    Chairman Akin. We are about running out of time. I am 
sorry. I promised that I was going to get over when your three 
minutes was up.
    Ms. Majette. I would like to get that material, that 
information in writing.
    Mr. Lappin. We will certainly do that.
    Ms. Majette. Thank you.
    Chairman Akin. Thank you.
    Congressman Hoekstra?
    Mr. Hoekstra. Thank you. Thank you, Mr. Chairman.
    Chairman Akin. You have about a minute or two.
    Mr. Hoekstra. I thought we were going to get off on a very 
good footing when we met before until you said I am not sure it 
was presented accurately.
    Mr. Lappin. I am sorry, sir.
    Mr. Hoekstra. I take great offense at that. Let me ask you 
a question. Recidivism in the study that you are talking about 
is 24 percent, a 24 percent reduction.
    What is the reduction in that same study when inmates are 
put into vocational and remedial education programs?
    Mr. Lappin. We have those numbers, sir. I do not know the 
exact----.
    Mr. Hoekstra. How can you not know that number? It is 33 
percent. When we put people in vocational education, we give 
them remedial education, it is 33 percent. When you put them to 
work to compete against these folks, it is 24 percent. It is 
the same thing that our second witness here said.
    You know the 24 percent because you are out there to 
protect the business. Our bill, because of Mr. Conyers' and Mr. 
Frank's concern about educating these people and making them 
productive when they get back into society, we have a huge 
component in there for vocational training, remedial education, 
and that is what we are advocating. That is what this bill 
advocates.
    All you advocate is to put more of them to work, to put 
more of these people out of work, and you do not even know the 
number that says to really reduce recidivism let us give them 
vocational training. Let us give them meaningful work, and let 
us give them the basic educational skills that they need. You 
walk away from that.
    Unbelievable that you keep quoting the 24 percent, 24 
percent, 24 percent, say that we do not have our facts right on 
this, and then you do not even know that the most effective way 
to reduce recidivism is to give these folks vocational training 
to give them real skills rather than taking screws in and out 
of a chair, make work projects, high labor content.
    Chairman Akin. Congressman, I think we are----.
    Mr. Hoekstra. My time is up. I do not need any more time. 
You have been great. Thank you.
    Chairman Akin. Thank you very much.
    Director, I really appreciate your coming in. It was not an 
easy kind of panel and all. We also appreciate that you have 
been in the job for a fairly short period of time.
    I think the whole reason that the program was created years 
ago was a good intention. Perhaps it needs to be adjusted and 
worked on. I appreciate your saying that you are willing to 
talk to us about that. We will look forward to working with you 
on it.
    Mr. Lappin. Thank you.
    Chairman Akin. Thank you.
    To the rest of our panel, this happens. We have to do these 
votes. We will hopefully see you in about 35 minutes. Thank 
you.
    Mr. Lappin. Thank you, sir.
    [Recess.]
    Chairman Akin. The Subcommittee will come to order again. 
As you notice, we have somewhat fewer Members here on the 
Subcommittee at this point. That is no uncommon because of the 
voting and the many complicated schedules that the Member have.
    Now we are at a point where we are going to do some 
questioning. Each of you made your opening statements. I have a 
couple of questions here. I guess maybe the first one, John, I 
am going to direct your direction, but if others want to 
comment on it that would be fine. Then I have another question 
of a general nature.
    First is what does FPI do to consult with business and 
groups in commercial services to ensure that FPI's actions do 
not adversely affect U.S. firms and workers? Does FPI have a 
policy in which it does impact analysis and take appropriate 
action regarding its effects on the marketplace?
    Mr. Palatiello. Mr. Chairman, the answer is they have no 
policy, and they have no practice or procedure. They take a 
very literal reading of the law.
    During the break I was kind of jesting with Ms. McClure 
that as onerous as her company was mentioned and treated in the 
competitive impact study, she ought to have been at least 
grateful that they did a competitive impact study. FPI reads 
the law as not requiring competitive impact studies on 
services, and, therefore, they do not conduct competitive 
impact studies on services.
    Let me share with you our own personal experience from the 
standpoint of the mapping association that I am privileged to 
be executive director of. When Federal Prison Industries 
started getting into the mapping and geographic services area, 
there was no consultation. There was no public notice. There 
was no request for comments.
    The market study that they did they hired a consultant to 
estimate the market. It was all internally so that they could 
define the market themselves. There was no outreach to the 
private sector.
    One of the areas where the mapping community suffers from 
unfair competition is not only from Prison Industries, but even 
before their entry, is the fact that historically or until 
about 10 years ago a lot of mapping was done in-house by 
government agencies at the federal level, state Departments of 
Transportation and so on.
    Our organization has been very aggressive in trying to get 
government agencies to outsource more of their mapping work. 
When Federal Prison Industries entered this field, we went and 
met with them. Their response to us was to congratulate us on 
different types of outsourcing provisions that we were 
successful in getting Congress to pass. They were watching what 
we were doing and seeing that as a market opportunity.
    They actually said to us that prisoners would not adversely 
impact the private sector because they are not taking any work 
away from the private sector. They would be taking work away 
from government employees, so it would be work that would be 
contracted out from the government that they would be taking, 
not work from the private market.
    We were absolutely incredulous about that rationale and 
explanation, but that was the extent. It was something that we 
initiated. We asked for a meeting with them. That is a long-
winded answer, but I wanted to give you that anecdotal 
experience. The answer is there is no requirement in their 
eyes, and, therefore, they do none.
    Chairman Akin. Thank you. Anybody else wish to respond to 
that question?
    Ms. McClure. Yes, sir. Dr. Lappin had referred to allowing 
Industries to speak to their board of directors about the 
impact that they will have on private industries. He just 
mentioned the impact on services.
    We have used that avenue. Five of our people that are in 
the same industry, companies, all five of us, the major players 
in the----.
    Chairman Akin. These are the door----.
    Ms. McClure. The door industry. Yes, sir. The door and 
frame industry.
    The major players that were in the impact study actually 
addressed three different times the board of directors and 
begged them not to do that. It did not help. I mean, we have 
written letters. We have had numerous meetings with the board. 
That is not an avenue that will help us.
    Chairman Akin. Okay. Anybody else on that question?
    [No response.]
    Chairman Akin. Okay. I have one more these are what I call 
canned questions. Then I get to just ask a couple of my own 
here in just a minute.
    If FPI were to sell services in the commercial marketplace, 
do you believe there would be a level playing field between 
small businesses and Prison Industries? If not, what advantages 
do you feel Prison Industries would have over small business?
    Mr. Palatiello. I will start with that. We believe that it 
would be an extraordinarily unlevel playing field and that they 
would enjoy significant disadvantages.
    Let us look at two issues. One is services and products for 
the government, and then let us look at commercial. Let me 
reiterate briefly what Mr. Hoekstra indicated just to make sure 
it is on the record.
    They do not have to pay minimum wage. They do not have to 
pay any worker benefits like social security, unemployment 
insurance, anything of that nature. They either do not 
calculate overhead or do not have overhead, or it is subsidized 
and provided by the Bureau of Prisons and, therefore, by the 
taxpayer.
    Free access to equipment that is determined excess or 
surplus by other agencies. They do not pay any taxes, federal, 
state, local. They enjoy the sovereign immunity of the 
government of the United States, which means they buy no 
insurance. There is no performance clause in their contract. If 
they do not perform, so what? We do not enjoy that. We have a 
requirement to perform. Workplace safety, OSHA, EPA 
regulations, zoning at the local level. They are exempt from 
all of that. Access to capital.
    Let us remember, I believe that Mr. Lappin was let us say 
less than completely candid when he said they received no 
appropriated funds. Every dollar they get in a contract is 
appropriated funds. It is money from the Department of Defense. 
It is money from GSA. It is money from the Interior Department. 
It is all appropriated funds.
    Now, we are splitting hair because there is no direct 
appropriation to FPI, but all of their sales are from 
appropriated funds to other agencies. In addition to that, they 
have a statutory line of credit. They can borrow up to $20 
million from the U.S. Treasury at an interest rate of 5.5 
percent. I have been to the bank. I have to borrow money from 
time to time, lines of credit for my business. I cannot get 
those terms.
    When you look at all of those in the commercial market, 
there would be an extraordinary competitive advantage, the ones 
I have just listed, that small business just cannot compete 
with.
    Let me make one other point that I think is important to 
remember. All of those advantages that I just mentioned and Mr. 
Hoekstra mentioned, Mr. Hoekstra's legislation does not touch 
those. His legislation does not affect any of those advantages. 
They would remain in FPI in terms of their ability to sell 
within the government.
    Mr. Hoekstra's bill only addresses the issue of access to 
the market and ability to compete. We believe that in the 
government market even with all those advantage we can be 
competitive, but when you turn that loose in the free market 
economy I do not think we can be as competitive, and that is 
why we are so adamantly opposed to commercial market entry.
    Chairman Akin. It is interesting. I have been Subcommittee 
Chair and going to a number of different cities and held some 
of these hearings. Some of the hearings that we have talked 
about we have been talking about job loss around the country.
    You know, my firm belief in answering the question of 
companies moving overseas is ultimately you have to change the 
equation. You have to make it profitable for businesses to want 
to stay here.
    Actually, this list that you just mentioned would be kind 
of a nice place to start if we could cut all of our businesses 
free from all of these other different OSHA and sovereign 
immunity. That would make the free enterprise world pick up a 
little bit in this country, I would think. I think a lot of 
businesses might even move back to our country if we could give 
them the same advantages. Maybe they have a good thing going 
here.
    Ms. McClure. You can add corporate income tax to that list, 
too.
    Chairman Akin. I think you mentioned taxes in general. They 
do not pay any taxes, right?
    Mr. Fay. I would like to add that it is a very captive work 
force.
    Chairman Akin. It is supposed to be, is it not? Yes.
    Mr. Fay. But that is definitely an advantage they have over 
everyone else.
    Chairman Akin. Right. Good. Anything else on that question?
    [No response.]
    Chairman Akin. I have just a couple of others. Let me just 
ask you. If you were a legislator and you were working on a 
bill and you take a look at the situation the way it is now, 
what would you do with FPI? What things would you change right 
now?
    First of all, do you think that the program is even 
legitimate in the first place? Second of all, what would you do 
if you could change just one thing? What would be the one place 
where you would go to make a change?
    I will just come right straight down the line. Everybody 
gets only your first choice. You do not get a second. Just the 
first thing you would change with FPI.
    Mr. Fay. Well, I think that they have contradictory aims 
and so I would think that they need to have one philosophy as 
to what their objective is.
    I think in the beginning, back in the 1930s, there was this 
idea that this work was going to be rehabilitative and 
educational. People would actually get jobs that they could 
take on the outside. I think everything that they do should 
come out of that objective, so whatever work a person does in 
prison, if this is to remain afloat, should be a transferable 
skill to the outside.
    That would mean actually changing the nature of what kind 
of work they do. They would not be imitating third world 
industries. They would be highly skilled jobs. That would 
really change the dynamic in terms of having to be competitive.
    Chairman Akin. So you are saying there is a little bit of a 
difference in mission statements. Currently the way the program 
is set up is we are simply trying to make a product that we can 
put out in the market. Whether it is competitive or not, we 
will almost force it on the government, but the objective is to 
keep these people doing something that is productive. You are 
saying that they would be----.
    Mr. Fay. Yes, but to do something productive is one thing. 
That could be make work.
    Chairman Akin. I was ready to finish the sentence, okay?
    Mr. Fay. I am sorry.
    Chairman Akin. The second half you are saying would be not 
productive, but you want them doing something in prison that is 
going to give the highest percentage that they will not end up 
in prison again once they get out?
    Mr. Fay. Exactly.
    Chairman Akin. And that should be the focus, not whether or 
not they are dutifully employed within the prison?
    Mr. Fay. Right.
    Chairman Akin. Okay. So you would say you would shift the 
focus of what the program is a bit off to one side?
    Mr. Fay. Yes.
    Chairman Akin. Okay. That would be your number one thing 
you would change?
    Mr. Fay. Yes.
    Chairman Akin. Okay.
    Mr. Fay. But that would actually alter the whole nature of 
what they do right now. That is a big shift.
    Chairman Akin. Yes, when you change the purpose of what it 
is set up for. Yes. I understand the subtlety of what you are 
saying, I think. Yes. Thank you.
    John?
    Mr. Palatiello. Mr. Chairman, number one, we do support the 
objective and the original intent of Federal Prison Industries.
    Chairman Akin. Which was?
    Mr. Palatiello. Which is to reduce idleness, to contribute 
to rehabilitation, to help provide skills so that they are 
marketable upon release. Those are admirable goals, and we 
think they are as valid today as they were when they were 
created.
    Chairman Akin. Are you disagreeing with our second witness 
that the function was just to keep them busy, as opposed to 
having them have marketable skills? It seems like you blurred 
those two together a little bit.
    Mr. Palatiello. I think Mr. Lappin articulated what he 
thought their objectives were. He mentioned three. I think all 
three that he mentioned are certainly valid.
    To me, and we have had hearings on this in the past as 
well, and I think this gentleman's point is a very good one 
about more of the rehabilitative, the life skills training, 
things of that nature probably are much more important. The 
education, as Mr. Hoekstra, pointed out, are probably much more 
important than the job training aspect.
    Chairman Akin. Just keeping them busy, per se? Okay.
    Mr. Palatiello. Okay.
    Chairman Akin. I did not mean to shortcut you. Go ahead. 
What was your point?
    Mr. Palatiello. With regard to the first part of your 
question, the goals and missions of the program we support.
    We regard to your second question, my flippant answer would 
be the one thing would be to pass Mr. Hoekstra's bill, but I 
know there is a lot in the bill. I would say that the one----.
    Chairman Akin. I understand that.
    Mr. Palatiello. But I think to get to the heart of the 
issue is the one thing if I were in your shoes, in your chair, 
the one thing that I would do would be to simply open access to 
the market and allow the private sector to compete in 
government procurement with all those other advantages, at 
least open it up and provide some means by which FPI, like any 
other entity, has to sink or swim on the ability to provide a 
good product or service at a fair market price and deliver it 
to the specifications and schedule that the client or customer 
is looking for.
    Chairman Akin. That is the main thing that Congressman 
Hoekstra's bill would do, is it not?
    Mr. Palatiello. That is what we believe. Yes, sir.
    Chairman Akin. Okay. That would be your main thing would be 
to basically remove the umbrella and say everybody has to 
compete just like everybody else in spite of the fact that FPI 
has these other advantages which we have talked about.
    Mr. Palatiello. Yes, sir.
    Chairman Akin. Okay. Fine. Thank you.
    Yes? I am sorry.
    Ms. Boenigk. Boenigk.
    Chairman Akin. Boenigk. That is right.
    Ms. Boenigk. It is a tough one. I agree with the mandatory 
part of it going away, and I think it may be something that 10 
or 12 years or 20 years from now we have to look at again 
because maybe it changes things. They do take into account the 
fact that they get all of these other things paid for.
    If I add up the amount of money that they get for free that 
I have to pay for, it makes up about 60 percent of my total 
cost. The rest of my costs are coming in because I have to buy 
the materials to build the chairs.
    I would be so amazingly profitable that I probably would 
not be sitting here. I would have retired by now because I 
would have made so much money if I had a 60 percent margin on 
everything that I do.
    If you look the way prisons used to be, they were self-
sufficient. We had a prison in Brazoria, Texas, that did 
everything on their own. They had their own. They grew their 
own food. They grew their own cotton to make their own clothes.
    That is a great way for you to learn life skills because if 
you get out you know how to grow food to feed yourself instead 
of doing something that is going to take that business away 
from us.
    Chairman Akin. So you have one thing to change right now 
with a magic wand. What would you do, just basically the same 
thing; make it so that the markets are all competitive? Is that 
what you are saying, or would you just get rid of FPI entirely?
    Ms. Boenigk. I think if I had a magic wand, yes, I would 
get rid of FPI entirely. I do not think that that is a 
realistic thing to have happen today. I think we do have to 
phase it out over time and at least give the marketplace the 
opportunity to see if they can survive.
    If they cannot survive in our world, then they have to deal 
with it just like I have to deal with it. If I do not have a 
product that the customer wants, I am going to go out of 
business. If I lose productivity or efficiency because of that, 
that is my issue to deal with.
    Chairman Akin. Do you think there is any benefit from what 
you understand of FPI providing anything for the prisoners? Do 
you think it is providing any kind of an important service at 
all to inmates or not particularly?
    Ms. Boenigk. I think that when you look at the fact that 
the educational side of it is getting a much better return on 
investment----.
    Chairman Akin. In terms of recidivism, et cetera.
    Ms. Boenigk. Exactly. Exactly. I mean, I have to look at 
every dollar I spend from a return on investment standpoint. If 
I can get a 33 percent return versus a 24 percent return, I am 
going to spend my money on the 33 percent. It seems like they 
should be doing the same thing.
    Chairman Akin. Okay. Thank you, Ms. Boenigk.
    Mr. Fay. Could I add one quick thing to that?
    Chairman Akin. Sure.
    Mr. Fay. The individuals who are in Prison Industries often 
are occupied for 40 hours a week. Therefore, their ability to 
go do educational programs is reduced, so you often have the 
choice of going into Prison Industries or getting that 
education.
    Chairman Akin. Okay. Ms. McClure?
    Ms. McClure. You said one thing?
    Chairman Akin. If you had to change one thing.
    Ms. McClure. Stop them from building doors and frames 
really.
    Chairman Akin. That is practical.
    Ms. McClure. Well, that is my number one hope. You asked 
me.
    My second choice is just to get rid of the whole thing. I 
mean, I liked his idea. Let us educate them. Let them be more 
functional to society. I agree. It has just gotten too big, too 
out of hand, and the whole intent is gone.
    Chairman Akin. I think there was originally in their 
mission statement the idea that they were supposed to be 
sensitive to what they were doing to competition and to private 
industry. From what I am hearing, you are saying there is not 
any of that----.
    Ms. McClure. No, sir.
    Chairman Akin.--in the way that it is managed now.
    Ms. McClure. No.
    Chairman Akin. Is this all under this Director Lappin? Does 
he really have control over this, or are there other people 
that make decisions? Do any of you know?
    Ms. McClure. We went in front of the board of directors, 
and there were like I believe six or seven of those. They 
basically control.
    Chairman Akin. What is going on?
    Ms. McClure. Yes, sir.
    Chairman Akin. Okay. Good. I am just going to do one more 
question, and that is if there were a question that somebody on 
the panel could ask you and they have not asked you, what would 
the question be and then what would your answer be to that 
question? This is like trying to write a college application.
    Anything we have not covered is what I am saying that I 
need to know about?
    Ms. Boenigk. I have a question for you.
    Chairman Akin. Yes?
    Ms. Boenigk. I do not remember when I read the bill if 
there was anything in there about the waiver process. Is that 
something that even though the mandatory part is going to be 
lifted, obviously that is going to be phased out over a number 
of years, and they still are going to have some preference in 
there.
    Chairman Akin. I do not know the details of Congressman 
Hoekstra's bill. This is not an issue that I have been tracking 
on. I am a Subcommittee Chair on this Committee, so this is not 
one, but I think we may have an answer.
    We have an answer I think to your question. The waiver 
process is eliminated by the bill.
    Ms. Boenigk. Okay. Thank you.
    Chairman Akin. Okay.
    Mr. Palatiello. Mr. Chairman, there is one point that I 
think needs to go on the record. I have it in my prepared 
statement, but I think it is worth highlighting because it was 
addressed I believe in some of the colloquy earlier.
    Remember, this program was created in 1934 by legislation, 
so it is 69 years this year. There is a provision in law that 
says, enacted in 1934, that it is illegal to engage prison made 
products in interstate commerce, and that is what prohibits 
Federal Prison Industries and in most cases the state prisons 
from selling products in the commercial market.
    Think about what our economy was like in 1934. We were a 
manufacturing based economy. We had just gone through the 
industrial revolution and just made the transition from an 
agricultural based economy to a manufacturing based economy.
    The opinion that was mentioned before, and if I can I would 
like to subsequently submit it for the record. The opinion that 
was written under the Clinton Administration said that since 
Congress was silent on the issue of services in 1934, it must 
not be prohibited. Therefore, Prison Industries can engage in 
services in the commercial market.
    That is an absolutely ludicrous opinion for any attorney to 
arrive at. To think that Congress was consciously in 1934 
distinguishing between products and services when we did not 
yet have a services based economy is outrageous. That is the 
opinion upon which they believe that they have the authority to 
enter the commercial market.
    A few years ago, and my memory is failing me on this, but 
it was three or four years ago. It may have been longer since I 
have been working on this issue for so long now. They actually 
put a rule making in the Federal Register on their ability to 
go into the commercial market. They sought public comment.
    There was such an outcry from the private sector that they 
really lacked the authority to do that. They did shut it down. 
They have never done anything with rule making, but they are 
still----.
    Chairman Akin. They are still doing it anyway.
    Mr. Palatiello. They are doing it anyway.
    Chairman Akin. They are doing it anyway.
    Mr. Palatiello. Yes, sir.
    Chairman Akin. Proceeding without a rule.
    Mr. Palatiello. Yes, sir.
    Chairman Akin. Does that make them subject to a lawsuit 
perhaps?
    Mr. Palatiello. I believe there has been some litigation. I 
do not know. I guess none of us have felt like we wanted to 
invest the money----.
    Chairman Akin. Okay.
    Mr. Palatiello.--in that. We have been trying to work with 
the board of directors. We have been trying to work with Mr. 
Lappin's predecessors. We have been trying to work the 
legislative process.
    I guess our strategy has been that perhaps we would have a 
more favorable return on investment by pursuing those options 
rather than litigating.
    Chairman Akin. Thank you.
    I thank you all for your attendance today and for your 
input. I also appreciate some of you bringing your congressmen 
along with you as well.
    Have a good day. The hearing is adjourned.
    [Whereupon, at 4:58 p.m. the Subcommittee was adjourned.]

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