[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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WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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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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