[House Report 106-937]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-937

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



 
     RECALCULATION OF FRANCHISE FEE OWED BY FORT SUMTER TOURS, INC.

                                _______
                                

October 5, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Young of Alaska, from the Committee on Resources, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3241]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 3241) to direct the Secretary of the Interior to 
recalculate the franchise fee owed by Fort Sumter Tours, Inc., 
a concessioner providing service to Fort Sumter National 
Monument in South Carolina, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. RECALCULATION OF FRANCHISE FEE.

  (a) Definitions.--In this section:
          (1) Franchisee.--The term ``franchisee'' means Fort Sumter 
        Tours, Inc., a concessioner providing service to Fort Sumter 
        National Monument, South Carolina.
          (2) Secretary.--The term ``Secretary'' means the Secretary of 
        the Interior.
  (b) Recalculation of Franchise Fee.--Not later than 30 days after the 
date of enactment of this Act, the Secretary shall--
          (1) recalculate the amount (if any) of the franchise fee owed 
        by the franchisee; and
          (2) notify the franchisee of the recalculated amount.
  (c) Arbitration.--
          (1) In general.--If the amount of the franchise fee as 
        recalculated under subsection (a) is not acceptable to the 
        franchisee--
                  (A) the franchisee, not later than 5 days after 
                receipt of notification under subsection (b)(2), shall 
                so notify the Secretary; and
                  (B) the amount of the franchise fee owed shall be 
                determined through binding arbitration that provides 
                for a trial-type hearing that--
                          (i) includes the opportunity to call and 
                        cross-examine witnesses; and
                          (ii) is subject to supervision by the United 
                        States District Court for the District of 
                        Columbia in accordance with the title 9, United 
                        States Code.
          (2) Selection of arbitrator or arbitration panel.--
                  (A) Agreement on arbitrator.--For a period of not 
                more than 30 days after the franchisee gives 
                notification under paragraph (1)(A), the Secretary and 
                the franchisee shall attempt to agree on the selection 
                of an arbitrator to conduct the arbitration.
                  (B) Panel.--If at any time the Secretary or the 
                franchisee declares that the parties are unable to 
                agree on an arbitrator--
                          (i) the Secretary and the franchisee shall 
                        each select an arbitrator;
                          (ii) not later than 10 days after 2 
                        arbitrators are selected under clause (i), the 
                        2 arbitrators shall select a third arbitrator; 
                        and
                          (iii) the 3 arbitrators shall conduct the 
                        arbitration.
          (3) Commencement and completion.--An arbitration proceeding 
        under paragraph (1)--
                  (A) shall commence not later than 30 days after the 
                date on which an arbitrator or arbitration panel is 
                selected under paragraph (2); and
                  (B) shall be completed with a decision rendered not 
                later than 240 days after that date.
          (4) Applicable law.--
                  (A) Relevant time period.--The law applicable to the 
                recalculation of the franchise fee under this 
                subsection shall be the law applicable to franchise fee 
                determinations in effect at the beginning of the period 
                for which the franchise fee is payable.
                  (B) Previous decisions.--No previous judicial 
                decision regarding the franchise fee dispute that is 
                the subject of arbitration under this subsection may be 
                introduced in evidence or considered by the arbitrator 
                or arbitration panel for any purpose.
          (5) Fees and costs.--If the franchisee is the prevailing 
        party in binding arbitration, the arbitrator or arbitration 
        panel shall award the franchisee reasonable attorney's fees and 
        costs for all proceedings involving the disputed franchise fee 
        consistent with--
                  (A) section 504 of title 5, United States Code; and
                  (B) section 2412 of title 28, United States Code.
  (d) Bids and Proposals.--Until such date as any arbitration under 
this Act is completed and is no longer subject to appeal, the 
Secretary--
          (1) shall not solicit or accept a bid or proposal for any 
        contract for passenger service to Fort Sumter National 
        Monument; and
          (2) shall offer to the franchisee annual extensions of the 
        concessions contract in effect on the date of enactment of this 
        Act.

                          PURPOSE OF THE BILL

    The purpose of H.R. 3241 is to direct the Secretary of the 
Interior to recalculate the franchise fee owed by Fort Sumter 
Tours, Inc., a concessioner providing service to Fort Sumter 
National Monument in South Carolina, and for other purposes.

                  BACKGROUND AND NEED FOR LEGISLATION

    Fort Sumter Tours (FST) is a relatively small family owned 
and operated park concession providing visitor transportation, 
by boat, to Fort Sumter National Monument administered by the 
National Park Service. FST is currently the only concessioner 
which provides service for visitors to see Fort Sumter. FST has 
annual gross concession income of approximately $2.2 million 
and provides employment for approximately 40 families. Since 
1962, FST has provided exemplary service to Fort Sumter to the 
satisfaction of the public and the National Park Service.
    In the mid-1980s the National Park Service required FST to 
make a capital investment of approximately $1.5 million to 
improve visitor services. Given the size of the investment, a 
15-year concessions contract was executed in 1986. At that time 
a franchise fee, which by law is to reflect the ``probable 
value'' of the contract privileges, was established by the 
National Park Service at 4.25% of gross receipts. There was no 
change in the contract privileges, but at the end of the first 
five year period, the Park Service notified FST that based upon 
a five year reconsideration of the franchise fee (February 
1992) the probable value of the contract privileges had 
increased. The Park Service demanded a new fee of 12% of gross 
receipts.
    According to Park Service guidelines (NPS-48), a franchise 
fee reconsideration takes place in two discrete steps. First 
the Park Service determines whether a change in the current 
franchise fee is warranted. If not, no further analysis is 
needed and the fee remains as is. If a change is found to be 
warranted, the second step involves the Park Service setting 
maximum amount of the franchise fee, and the calculation of 
that fee. In the case of FST, however, numerous and egregious 
errors were committed by the Park Service at both of these 
steps. At the first step, determining whether a franchise fee 
increase is warranted, the Park Service is supposed to compare 
concession net income with concession gross receipts, assets, 
and equity, then determine concession profitability, and then 
compare the profitability with other industry norms. With FST, 
however, the Park Service instead added FST's concession and 
non-concession income and compared that with only the 
concession receipts, assets, and equity. The effect of this was 
to vastly overstate FST's concession profitability by over 80% 
which led to nearly tripling the franchise fee. Had the Park 
Service not committed this error, under its own guidelines, the 
fee would have remained at 4.25%.
    The situation worsened for FST with numerous other mistakes 
in the second step after the Park Service erroneously 
calculated that a franchise fee increase is warranted. For 
example, when setting the maximum franchise fee the Park 
Service also included the non-concession income, which allowed 
the maximum fee to be set at 16.6% instead of 8.7% if 
calculated correctly. Effectively, this exceeds the maximum fee 
permitted using the Park Service's own guidelines by 73%.
    Other examples of Park Service errors include: (1) 
inappropriate and inaccurate use of the Dun and Bradstreet 
Industry norms which were not derived from comparable 
industries, were not representative of FST, and did not offer a 
large enough sample size to make valid comparisons; (2) 
discounting the actual cost of a new vessel purchased by FST 
and used in the concession business; (3) disallowing 
substantial expenses incurred by FST ; and (4) assuming away 
legitimate equity invested by FST. Combined, these errors have 
led to an insurmountable and intolerable situation for FST.
    Fort Sumter Tours, Inc. has been in continuous litigation 
with the Park Service over the increased franchise fee since 
1993. FST has lost three court cases at the federal District 
Court and the U.S. Court of Appeal level, including a suit 
recently settled in favor of the federal government in the U.S. 
District Court for the District of Columbia. However, the 
issues of the actual data used in fee calculation and the 
additional non-concession income in the franchise fee 
calculation were never addressed by the courts and never 
resolved.
    H.R. 3241 will attempt to correct the calculation errors by 
requiring the Secretary of the Interior to reassess the 
franchise fees owed by Fort Sumter Tours Inc. This is to be 
done within 30 days of enactment and to the approval of Fort 
Sumter Tours Inc. If an acceptable agreement is not reached, 
the matter must be referred to binding arbitration under the 
National Parks Omnibus Management Act of 1998 (Public Law 105-
391). The arbitration must commence no later than 30 days after 
Fort Sumter Tours Inc. deems the recalculation unacceptable.
    H.R. 3241 assures that laws applicable to franchise fee 
determination at the time payment became due will be used 
during arbitration. Further, prior decisions regarding the 
franchise fee dispute may not be considered or used as evidence 
for any purpose. Reasonable legal fees and costs of the 
proceedings shall be awarded to Fort Sumter Tours, Inc. by the 
arbitrators Fort Sumter prevails.

                            COMMITTEE ACTION

    H.R. 3241 was introduced on November 5, 1999, by 
Congressman Mark Sanford (R-SC). The bill was referred to the 
Resources Committee and within the Committee to the 
Subcommittee on National Parks and Public Lands. On March 30, 
2000, the Subcommittee held a hearing on the bill. On April 13, 
2000, the Subcommittee met to consider the bill. No amendments 
were offered, and the bill was ordered favorably reported to 
the full Resources Committee by a vote of 7-4, as follows:


    On July 26, 2000, the Resources Committee met to consider 
the bill. An amendment in the nature of a substitute was 
offered by Congressman James V. Hansen (R-UT) which conformed 
the House bill to language in the Senate bill (S. 2231). The 
amendment was adopted by voice vote. No further amendments were 
offered and the bill, as amended, was ordered favorably 
reported to the House of Representatives by voice vote.

            COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII of the Rules of the House of Representatives, the 
Committee on Resources' oversight findings and recommendations 
are reflected in the body of this report.

                   CONSTITUTIONAL AUTHORITY STATEMENT

     Article I, section 8, and Article IV, section 3 of the 
Constitution of the United States grant Congress the authority 
to enact this bill.

                     COMPLIANCE WITH HOUSE RULE XIII

    1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the 
Rules of the House of Representatives requires an estimate and 
a comparison by the Committee of the costs which would be 
incurred in carrying out this bill. However, clause 3(d)(3)(B) 
of that Rule provides that this requirement does not apply when 
the Committee has included in its report a timely submitted 
cost estimate of the bill prepared by the Director of the 
Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974.
    2. Congressional Budget Act. As required by clause 3(c)(2) 
of rule XIII of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, this 
bill does not contain any new budget authority, credit 
authority, or an increase or decrease in tax expenditures. 
According to the Congressional Budget Office, the bill could 
affect offsetting receipts and the spending of those receipts, 
but concludes that the effect ``would have no net impact on the 
federal budget.''
    3. Government Reform Oversight Findings. Under clause 
3(c)(4) of rule XIII of the Rules of the House of 
Representatives, the Committee has received no report of 
oversight findings and recommendations from the Committee on 
Government Reform on this bill.
    4. Congressional Budget Office Cost Estimate. Under clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for this bill from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 3, 2000.
 Hon. Don Young,
 Chairman,Committee on Resources,
 U.S. House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3241, a bill to 
direct the Secretary of the Interior to recalculate the 
franchise fee owed by Fort Sumter Tours, Inc., a concessioner 
providing service to Fort Sumter National Monument in South 
Carolina.
     If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Deborah Reis.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 3241--A bill to direct the Secretary of the Interior to 
        recalculate the franchise fee owed by Fort Sumter Tours, Inc., 
        a concessioner providing service to Fort Sumter National 
        Monument in South Carolina

    H.R. 3241 would require the National Park Service (NPS) to 
recalculate the franchise fee that it charges to Fort Sumter 
Tours, Inc. (FST), a concessioner providing transportation to 
visitors at Fort Sumter National Monument. If the recalculated 
fee is not acceptable to FST, a new fee would be established 
through binding arbitration. The bill would require that the 
arbitrator award FST reasonable legal costs of all proceedings 
involving the fee dispute if the concessioner is the prevailing 
party.
    CBO cannot estimate the budgetary impact of H.R. 3241 
because it would probably depend on the outcome of a legal 
proceeding that has not yet occurred. We expect that the 
dispute over the FST franchise fee of between 4.25 percent 
(which is what the company currently pays the NPS) and 12 
percent (which is the adjusted rate established by the agency 
in 1991).
    Under the higher rate of 12 percent, the federal government 
could receive about $3 million in fees, interest, and penalties 
owed by FST since 1991. This amount could be collected--and 
spent--in the absence of legislation because the NPS has 
recently begun administrative action to collect it. (To date, 
FST has not paid the higher rate.) If the lower rate would be 
chosen by an arbitrator, the government would lose the $3 
million owed to it (assuming that the arbitrator would make the 
lower rate retroactive to 1991). In addition, if the arbitrator 
would deem FST to be the prevailing party, the government would 
have to pay about $500,000 in legal costs that have been 
incurred by the company over the past several years to dispute 
the 12-percent rate. According to the Department of the 
Interior, this payment would be made from appropriated NPS 
funds, assuming the availability of the necessary amounts.
    What would happen to annual franchise fees after 
arbitration is also uncertain, CBO expects that by the time a 
decision would be reached, the FST concession contract will be 
expired.
    Annual offsetting receipts (and associated direct spending) 
from franchise fees after 2001 would depend on the outcome of 
competitive bidding for the concession.
    H.R. 3241 could affect offsetting receipts (a credit 
against direct spending) and the spending of those receipts; 
therefore, pay-as-you-go procedures would apply. CBO estimates, 
however, that because the NPS would probably have been allowed 
to spend the amounts that it would have received in the absence 
of arbitration, the loss of such amounts would have no net 
impact on the federal budget.
    The bill contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On October 2, 2000, CBO transmitted a cost estimate for S. 
2331, a similar bill ordered reported by the Senate Committee 
on Energy and Natural Resources on September 20, 2000. The two 
estimates reflect differences in the two versions of the 
legislation, primarily the treatment of legal expenses of FST 
if the company would be deemed the prevailing party.
    The CBO staff contact for this estimate is Deborah Reis, 
who can be reached at 226-2860. The estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                    COMPLIANCE WITH PUBLIC LAW 104-4

    This bill contains no unfunded mandates.

                PREEMPTION OF STATE, LOCAL OR TRIBAL LAW

    This bill is not intended to preempt any State, local or 
tribal law.

                        CHANGES IN EXISTING LAW

    If enacted, this bill would make no changes in existing 
law.

                            DISSENTING VIEWS

    There is no justification for this legislation and its 
approval would set an unwise precedent. As a result, we urge 
our colleagues to oppose H.R. 3241.
    Fort Sumter Tours (FST) has had a contract with the 
National Park Service (NPS) to operate a tour boat service to 
and from Fort Sumter National Monument since 1961. The Fort is 
accessible only by boat and virtually all of its 230,000 annual 
visitors must use FST.
    In 1986, FST renewed its contract with the NPS, which now 
runs through December 31, 2000. The contract set FST's 
franchise fee at 4.25% of gross receipts and specified that the 
fee was to be recalculated every five years. Importantly, the 
contract specified that, while FST could request advisory 
arbitration to help resolve disputes, the only appeal of a fee 
recalculation was to the Secretary of the Interior.
    In 1991, the NPS notified FST of its intention to raise the 
franchise fee from 4.25% to 12% of gross receipts for the 
second five-year contract period (June 1991 to June 1996). FST 
objected, claiming that the NPS had made numerous accounting 
and mathematical errors in its fee recalculation. However, 
rather than entering advisory arbitration as provided for in 
the concessions contract, FST sued the NPS in federal court in 
South Carolina where it lost at trial and on appeal (the 
Supreme Court declined to review the case). Subsequently, FST 
re-filed its lawsuit in federal court in the District of 
Columbia, where it again lost both at trial and on appeal. 
Throughout the litigation, NPS stood by the new fee but did not 
terminate the FST contract despite the fact that FST has only 
been paying 4.25% since 1986. FST currently owes the NPS more 
than $2 million in back fees, penalties and interest.
    H.R. 3241 would have Congress intervene in this ongoing 
dispute by directing the Secretary of the Interior to 
recalculate the franchise fee that, according to the bill, is 
``allegedly'' owed by FST. Further, the legislation specifies 
that if the recalculation is not acceptable to FST, the 
franchise fee owned shall be determined through binding 
arbitration. In addition, the legislation states that none of 
the previous court decisions regarding the fee dispute may be 
``introduced into evidence or considered by the arbitrators for 
any purpose.'' In effect, H.R. 3241 would have the congress re-
write contractual provisions agreed to by both parties in 1986 
to provide Fort Sumter Tours a remedy not contained in the 
original contract, that of binding arbitration.
    The consequences of such a step for the Park Service would 
be very serious. The NPS is currently party to thousands of 
concessions and other contracts, the terms of which are relied 
upon to allow our National Park system to function. Should we 
pass H.R. 3241, it will be clear that those contract terms are 
reliable only until Congress decides to alter them. Never again 
will NPS be able to enter a contract with the assurance that 
the contract terms will not be altered during the life of the 
contract. Never again will a party contracting with the NPS be 
assured that the agreement they are signing today will be the 
same agreement in effect tomorrow. It is difficult to imagine 
how the NPS, or any other contractor, might accomplish its 
mission under these circumstances.
    Furthermore, passage of this measure would override the 
decisions of two Federal District Courts, two Federal Courts of 
Appeals and the U.S. Supreme Court and would specify that those 
decisions are to be ignored in the arbitration proceeding 
mandated by the bill. With passage of this measure, the 
Congress would erase a decade of jurisprudence in this case and 
then mandate that all parties ignore everything gleaned from 
those decisions.
    Proponents of the bill argue such intrusion into the 
judicial process is necessary because none of the courts 
mentioned above reached the issue FST claims is central to its 
case, namely that the NPS made several mathematical mistakes in 
recalculating FST's franchise fee in 1991. This is both true 
and irrelevant.
    FST voluntarily elected to ignore the appeals process 
provided for in its contract and instead sought judicial 
review. The courts held that , under the terms of that 
contract, the franchise fee was reviewable by the Secretary but 
not by the courts and that such a system of review is 
reasonable. If what FST wanted was a review of the mathematical 
calculations underlying the new fee, it should have used the 
appeals process set out in the contract to which they agreed. 
That FST failed in its attempts to secure from the courts 
relief to which it was not entitled is neither surprising nor a 
justification for Congressional intervention.
    In addition to the National Park Service and the Judiciary, 
H.R. 3241 has negative policy ramifications for the Congress 
itself. Rather than focusing on the significant policy issues 
raised by the concessions system throughout our national parks, 
this bill would establish a precedent for Congress to intervene 
on a case by case basis to mandate specific remedies for 
individual concessioners. Neither the hearing record in this 
case, no the legislation itself provide an explanation of why 
this case was worthy of legislation action. As a result, it is 
unclear on what basis Congress might refuse to consider future 
legislation re-writing each and every disputed contract in the 
park system.
    In addition to these policy concerns, H.R. 3241 represents 
poorly crafted legislation. The bill mandates that, if the 
concessioner is the ``prevailing party'' in this arbitration, 
he shall be awarded his attorney's fees. Given the length of 
this litigation, we can only assume this represents a 
significant sum of money. However, the legislation fails to 
define the term ``prevailing part.'' The NPS position is that 
FST owes $2.2 million while FST's position is unclear but may 
be that they owe nothing. Given the wide variety of decisions 
an arbitrator might reach when the parties are more than $2 
million apart, determining whether or not FST is owed 
attorney's fees may be impossible.
    Finally, the legislation mandates that, despite the fact 
that FST's current contract expires this December, the National 
Park Service will be required to offer FST annual contract 
renewals for as long as this arbitration, and any appeals, are 
pending. Given FST's penchant for endless, and so far fruitless 
appeals, this could guarantee FST the concession at Fort Sumter 
for a fifth decade or more, presumably at whatever fee they are 
willing to pay. Not only does this violate every principle of 
our concessions system, it also allows FST to continue building 
on its $2.2 million dollar unpaid debt. How large might the 
loss to taxpayers be if the Park Service ultimately prevails 
but, thanks to passage of this bill, FST has had another ten or 
more years to rack up a debt they cannot satisfy?
    Fort Sumter Tours has enjoyed a tax-payer subsidized, 
government-sponsored monopoly for almost forty years. Over 
those four decades, FST's business has expanded consistently 
and is now a multi-million dollar operation involving a variety 
of non-concessions activities including dinner cruises and 
sightseeing tours. FST has shown itself to be fully capable of 
defending itself and has had its day in court on a number of 
occasions. FST does not need a legislative remedy nor do the 
facts of this case merit one. Given the disastrous 
ramifications of granting FST such a remedy, this legislation 
should be defeated.
                                   George Miller.
                                   Frank Pallone.
                                   Mark Udall.
                                   Carlos Romero-Barcelo.
                                   Joseph Crowley.

                                  
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