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74–727 2001

FEDERAL GOVERNMENT COMPETITION WITH

SMALL BUSINESSES

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JULY 18, 2001

Serial No. 107–19

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN THUNE, South Dakota

MIKE PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

TODD W. AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELA ́ ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

WILLIAM PASCRELL, New Jersey

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 18, 2001 ............................................................................... 1

WITNESSES

Eakes, John, Owner & President, Royal Laundry Systems ................................. 3

Hamerschlag, Arthur, Deputy CFO, Veterans Health Administration ............... 4

Spates, Michael, Manager of Delivery Options, U.S. Postal Service ................... 5

Tucci, Gregory, Past Owner, P.A.S.S. of Granville ............................................... 7

Merritt, Rick, Executive Director, PostalWatch .................................................... 9

Reisland, Scott, Owner & Manager, Denali Grizzly Bear Cabins/Campground . 30

Mack, Tom, Owner & President, Tourmobile, Inc ................................................ 31

Mastromarco, Dan, Travel Council for Fair Competition ..................................... 34

Hart, Clyde, Vice-President, American Bus Association ...................................... 36

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 43

Vela ́zquez, Hon. Nydia ..................................................................................... 44

Prepared statements:

Eakes, John ....................................................................................................... 46

Hamerschlag, Arthur ....................................................................................... 53

Spates, Michael ................................................................................................. 56

Tucci, Gregory ................................................................................................... 68

Merritt, Rick ..................................................................................................... 72

Reisland, Scott .................................................................................................. 144

Mack, Tom ......................................................................................................... 148

Mastromarco, Dan ............................................................................................ 165

Hart, Clyde ........................................................................................................ 177

Additional Information:

Statement of Mr. C. Jack Pearce, President, O.S.I. Management, Inc ........ 184

Letter to Matthew Szymanski, Special Counsel, from Michael Jimenez,

Strategic Impact, Inc .................................................................................... 196

Letter to Congressman Manzullo from Greg Felt, Canyon Marine, Inc ...... 200

Letter to Mr. Spates from SBA ....................................................................... 217

Letter to Mr. Spates from Chairman Manzullo ............................................. 221

Letter to Chairman Manzullo from PostalWatch .......................................... 225

Letter to Chairman Manzullo from USPS ...................................................... 236

(1)

FEDERAL GOVERNMENT COMPETITION WITH

SMALL BUSINESS

WEDNESDAY, JULY 18, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Committee met, pursuant to call, at 10:15 a.m. in room

2360, Rayburn House Office Building, Hon. Donald A. Manzullo

(chairman of the Committee) presiding.

Chairman MANZULLO. The full Committee on Small Business will

come to order.

Today, the Committee will examine the extent, impact and fairness of direct competition by the government with small businesses. We will hear testimony on a VA hospital in Illinois competing with a private laundry owner; the Postal Service competing

with private mailbox services, including a couple from Granville,

New York, driving them out of business; the National Park Service

competing with private recreational services, including an Alaskan

campground owner and local Tourmobile owner; and the Federal

Transit Authority competing with charter bus services.

We also have written testimony on the Air Force and Army providing river rafting services in Colorado—the Air Force providing

river rafting services; I did read that right—in competition with

private outfitters there. That witness could not be here today, but

his statement is on the table, along with other witness statements

provided to the Committee.

The relevant federal agencies have also been invited to participate. Two of these agencies will present witnesses today, while the

others have chosen only to present material for the record. Evidently they do not have enough bureaucrats to send one here to

testify on their behalf.

These examples represent a larger pattern, a pattern that costs

small businesses contracts, revenues and jobs. Such competition by

the government seems unfair by definition since the government

shares little or none of the regulatory and tax burdens that it imposes on these small businesses.

I look forward to the testimony of the witnesses before us. On behalf of the Committee, I thank you all for coming, especially those

who traveled from quite a distance.

I now yield for an opening statement by the gentlelady from New

York, Congresswoman Vela ́zquez.

[Chairman Manzullo’s statement may be found in appendix.]

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. I am happy that the

Committee is examining this issue today because I believe these

2

problems are a core mission of advocating small business. This

Committee has addressed the burden of government regulation and

paperwork, which drain time and money from small business and

discourages them from competing for federal contracts.

In the past year, we have focused a great deal of attention on the

practice of bundling, which is the systematic exclusion of small

business from skilled federal contracts when they are bought out

and handled by prime contractors. We have proven time and time

again that this practice does more than just discriminate and exclude. Bundling is costly, wasteful, inefficient and more likely to

procure lower quality goods and services for the federal government.

In addition, this Committee and others have held a series of

hearings in past years on the Federal Prison Industries’ anti-competitive practices for government contracts. Last month, we took a

fresh look. We learned that UNICOR paid a fraction of the federal

minimum wage, remained exempt from OSHA requirements and

can dictate pricing. No company in this country could possibly get

away with that. All of these practices hurt American entrepreneurs’ right to compete and win lucrative federal contracts.

Today we focus on an even more pernicious phenomenon: the federal government’s direct competition with small business for goods

and services. This is exactly opposite the ideal of the market economy. No company should fear direct competition from the government, which is more entrenched, subsidized, protected and powerful than they could ever be.

These are difficult activities to ferret out because they have been

restricted for a generation first by the Office of Management and

Budget’s Circular 876 and later by the 1998 FAIR Act. Under scrutiny, anti-competitive government activities have become more subtle. That is why we are here: to look a little deeper.

We will hear the concerns of several small businesses here, in

particular both charter contracts, one by federally backed public

transit authority, as well as the practice of the post office which

imposed requirements on independent mailbox owners that drove

away customers.

Our aim here is simple; to continue to remove barriers and obstacles the federal government has placed in the way of America’s

small businesses. Our entrepreneurs have reason to expect the government will not compete with them directly, just as they expect

the government to allow them to compete fairly for federal contracts.

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you very much, Congresswoman

Vela ́zquez.

Our first witness is John Eakes.

Mr. EAKES. Yes, sir.

Chairman MANZULLO. John is a constituent of mine, the owner

and president of Royal Laundry Systems in Marengo, Illinois. It is

interesting that none of the small business people in Marengo,

which is a very small town in the Midwest, had proffered written

testimony in our last hearing dealing with competition from Federal Prison Industries.

3

John, we look forward to your testimony. The rules are you will

see a little light in front of you. When it gets to four minutes the

yellow light goes on, and then when the red light goes on you

should conclude by that time or very shortly thereafter.

We look forward to your testimony. The testimony of all the witnesses and all the Members of Congress will be incorporated into

the full record without objection.

Thank you.

STATEMENT OF JOHN EAKES, OWNER/PRESIDENT, ROYAL

LAUNDRY SYSTEMS

Mr. EAKES. Mr. Manzullo, thank you very much. I appreciate the

opportunity——

Chairman MANZULLO. John, could you put the desk mike closer

to you, please? Thank you.

Mr. EAKES. Thank you very much. I appreciate the opportunity

to be here.

My name is John. My last name is Eakes. I am the president and

owner of a company called Royal Laundry Systems of Wisconsin,

Inc. Years ago I had laundry plants in Wisconsin, Janesville and

Racine and on and on. That is why it is a Wisconsin corporation.

I am here because I am very concerned about competing with the

United States Government, especially the V.A. hospital system and

especially the V.A. hospital located in Hines, Illinois. I also compete

with the prison system, and I have lost business to the prison system. I have already lost business to the V.A. hospital system.

Now, I pay a considerable amount of taxes. In fact, I would rather have the tax and let the IRS have the government or the profit,

but it does not sound fair to me to compete with a government entity with my tax dollars. It appears that I am paying taxes to put

me out of business.

Now, I have lost several competitive bids to the V.A. hospital.

They are bidding out of their minds. Number one, they do not know

how to bid. They do not know how to price it, and it is not a level

playing field. I do not mind competition. I have been fighting competition all my life. But, I like a level playing field, and the U.S.

Government, the V.A. hospital system, is not a level playing field.

They bid on an account, which is a state account. It is a rehab

center, and they bid a price of 23 cents a pound. Now, attached to

my attachment here in the back of the room you will see a Laundry

News article that was put out by the V.A. hospital system that

their cost is over 35 cents a pound, so how can they bid 23 cents?

When you do a half a million pounds of linen times 11 or 12 cents,

they are losing a lot of money.

What really concerns me is they are calling on one of my largest

medical centers in the Chicagoland area. If they get that one, I will

lay off about 40 people. These are God’s poor people. They make

$7 or $8 an hour. They pay taxes along with everybody else. That

is the kind of jobs we are going to lose.

My laundry plant is located in Harvard, Illinois. That is

McHenry County. I also have a laundry plant in Rockford, Illinois,

which is Boone County. I still have one down near St. Louis, Missouri.

4

I already mentioned that I pay a lot of taxes. You name it, I pay

it. Now if I happen to make a dollar, if I get real lucky and make

a dollar, the IRS wants 39 cents out of that dollar, and then the

State of Illinois wants another three cents, so they get 41 cents.

I have never received any federal grants or any contracts of any

kind.

Thank you very much.

[Mr. Eakes’s statement may be found in appendix.]

Chairman MANZULLO. That is right to the point, John. We appreciate that very much.

The next witness is Arthur Hamerschlag. Is that correct?

Mr. HAMERSCHLAG. That is correct.

Chairman MANZULLO. Thank you. He is the deputy CFO——

Mr. HAMERSCHLAG. Correct.

Chairman MANZULLO [continuing]. At the Veterans Health Administration here in Washington. I look forward to your testimony,

Mr. Hamerschlag.

STATEMENT OF ARTHUR HAMERSCHLAG, DEPUTY CFO,

VETERANS HEALTH ADMINISTRATION

Mr. HAMERSCHLAG. Thank you very much, Mr. Chairman. I have

a brief statement, but with your permission I will read an even

briefer summary.

I appreciate the opportunity to be here, Mr. Chairman. I think

the record of the Department of Veterans Affairs in support of

small business is a good one, and under the leadership of Secretary

Principi we are taking steps to further improve that record.

The V.A. has authority to purchase health care resources needed

for the veterans’ health care from community providers and in limited circumstances to sell resources to other community entities.

Let me first say that V.A. has one primary mission, and that is

to serve the needs of veterans and to do so in a cost effective and

efficient manner. It is not in V.A.’s interest to enter into a contract

that would have a negative impact on any community provider of

that service.

V.A. has taken several steps to ensure that the agency acts responsibly with the contracting authorities it does have, and basically we ensure that any resource to be sold is consistent with statute, policy and common sense. As a matter of policy, Mr. Chairman, V.A. is not interested in competing with any other provider

of a community health care resource or causing any harm to any

commercial provider of a health care resource.

Our policy and our practice is simple. If V.A. becomes aware of

an adverse impact to a commercial interest, we will not provide

those services. That was done when our laundry at Hines considered contracting with Lorel University and will be done for any

proposal about which we receive notice of a complaint. That is and

will continue to be our practice. I think this example proves that

our policy is in place and in fact does work.

Mr. Chairman, you should also be aware that at this time the

Hines V.A. Medical Center does not rely on laundry services of any

other non-V.A. entity and does not propose to do so.

5

Mr. Chairman, I would like to say again I appreciate the opportunity to be here. I would be happy to answer any questions you

or the Members of the Committee may have.

[Mr. Hamerschlag’s statement may be found in appendix.]

Chairman MANZULLO. We have a vote, so we are going to vote

and come right back. Thank you.

[Recess.]

Chairman MANZULLO. Our next witness will be Michael Spates,

who is the Manager of Delivery Options, U.S. Postal Service, in

Washington, D.C.

Mr. Spates, we look forward to your testimony. Thank you for

coming this morning.

STATEMENT OF MICHAEL SPATES, MANAGER OF DELIVERY

OPERATIONS, U.S. POSTAL SERVICE

Mr. SPATES. Good morning, Mr. Chairman and Committee Members. My name is Michael——

Chairman MANZULLO. Could you pull that mike closer to you?

Thank you.

Mr. SPATES. My name is Michael Spates. I am the Manager of

Delivery Operations—I know it says options, but it does still fit the

description—for the U.S. Postal Service. I ask that my full written

testimony be submitted for the record. I will now give you a brief

overview of that testimony.

I am happy to be here today in response to your request to address the issue of competition by the Postal Service with small

businesses. The request cited in particular competition with a family owned commercial mailing receiving agency or CMRA, as we

call it. You are seeking to determine the extent, impact and fairness of this competition, and I will address these issues.

The Postal Service recognizes that small businesses help drive

our nation’s economy. We are an important enabler of small business, a vital communications and distribution link. The Postal

Service has a long, ingrained tradition of promoting businesses, especially small businesses, offering services and meeting their special needs. In fact, the Postal Service website, usps.com, has a link

entitled Tools to Help Small Businesses. It is very educational and

helpful.

In addition, the Postal Service has a long history of being a leader in contracting with small and minority owned businesses, a

partnership that benefits us both. Small businesses are critical to

the ongoing success of the Postal Service, and we are continuously

looking for ways to strengthen our relationship, not ways to diminish it.

At the same time, the Postal Service has to maintain a delicate

balance between meeting the needs of the business customer and

the consumer protection needs of the mailing community. The commercial mail receiving agency rules improve the security of the

mail by strengthening the requirements involved in the application

and for use of a private mailbox. The end result benefits both businesses and consumers by reducing opportunities to use a private

mailbox for fraudulent purposes.

Provisions associated with private mailboxes, it is important to

note, mirror the same provisions and regulations on post office

6

boxes. Any perception that the Postal Service is seeking to compete

unfairly with CMRAs may arise from allegations that recent rule

changes were designed to make it difficult for CMRAs to operate

and thus create a competitive advantage for the Postal Service. The

rules in question were intended to fulfill the U.S. Postal Service’s

consumer protection responsibilities.

Small business interests participated in the development of these

new rules and standards. They were represented by the CMRA industry, the Small Business Administration, the National Federation of Independent Businesses and the National Association of

Self-Employed.

The evolution of CMRA rules, which include mutually agreed

upon modifications and compromises, is a result of ongoing meetings with these various interest groups and the positive support of

the CMRA industry and their representatives.

During the discussion stages of developing the final rule, there

was opposition from small business representatives who wanted to

continue using the designator suite for a business, implying that it

was an office space when actually it was a mailbox.

Critics of the small business proposal, primarily the law enforcement representatives, strongly felt the use of suite could be deceptive to consumers. Also, a representative of Attorney Generals from

28 states supported the original proposal of the Postal Service to

use PMB, which means private mailbox, just like PB or POB

means post office box. It designates a box.

In response to the revised proposal, 50 state Attorney Generals

plus the District of Columbia and the Virgin Islands signed a letter

opposing the allowance of an alternative to the pound sign as a

designator instead of PMB. Some states are considering legislation

at the state level to tighten these requirements more.

As I stated previously, the Postal Service is attempting to maintain a delicate balance. There is a significant input from the regulatory agencies such as the Department of Justice, the Federal

Trade Commission, state and local law enforcement. The initiative

was not an effort of the Postal Service to compete with CMRAs.

It is important to note what the CMRA industry themselves are

saying about fraud. I would like to reference the guidance that is

put out by a CMRA association known as the Associated Mail and

Parcel Centers. They represent 2,700 CMRAs. It was put out in

2001, and it was written by its president and executive director,

Charmaine Finney, who is also the chair of the Coalition Against

Unfair U.S. Postal Service Competition. Ms. Finney was a positive

participant in our meetings.

I would like to quote their training manual. ‘‘It is important to

note that CMRAs have historically been recognized as safe harbor

for criminal elements. The history of crooks and rip off artists utilizing the CMRA is legion. The California consumer protection law

may appear to be onerous to many operators, but if there had not

been a high number of people perpetuating scams in California

CMRAs, it would not have been passed.’’ This is a quote directly

from their training manual.

In conclusion, though some critics charge that the enactment of

CMRA rules create an appearance the Postal Service misused its

regulatory authority to hinder competition, the Postal Service

7

proudly believes it acted responsibly in addressing the concerns of

those impacted by the regulation.

The end result is a stronger, more effective working relationship

among the CMRA, small businesses, law enforcement and the Postal Service, resulting in enhanced consumer protection.

Thank you.

[Mr. Spates’ statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

Our next witness will be Mr. Gregory Tucci, former owner of the

P.A.S.S. of Granville, New York. Mr. Tucci, we look forward to your

testimony.

Could you move the microphone closer to you? You might want

to lift it up a little bit there. Thank you.

STATEMENT OF GREGORY TUCCI, PAST OWNER, P.A.S.S. OF

GRANVILLE (DEFUNCT)

Mr. TUCCI. Chairman Manzullo and distinguished Members of

the Committee, thank you for this opportunity to address the Committee today and share with you my experience as a small business

owner who made the fatal mistake of opening a business in competition with the United State Postal Service.

My name is Gregory Tucci, and in June of 1997 I opened a mail

and parcel center in the small town of Granville in upstate New

York. My business, named P.A.S.S. of Granville, was the type of

business the Postal Service refers to as a commercial mail receiving

agency or CMRA, but we offered more services than this implied.

One week prior to opening the store, I went and visited Roger

Curtis, Postmaster of the Granville Post Office, to discuss my new

venture, and he informed me that all we needed to do to receive

mail for our customers was to file a list of our customer names and

box numbers with him once a year. He made no mention of Form

1583. Hence, they had none on file when the new regulations took

effect.

Like many businesses, we got off to a slow start, but many prospective customers were interested in the services we offered over

and above what they could get at the post office. Unlike the post

office, our facility was fully handicapped accessible and provided

customers with 24 hour secure access. Several prospects expressed

interest and indicated they were thinking about switching to our

service when their P.O. box rental expired.

In late May, Postmaster Curtis personally delivered a copy of the

new regulations governing CMRAs to us. He admitted not understanding the new rules and was unable to explain any of the confusing and ambiguous details. He also presented us with a single

copy of a Form 1583 to be filled out and signed by every one of our

customers.

My wife, Elaine, the store manager, understood them perfectly.

She concluded that we could be in for big trouble. She proved to

be right. Every single one of our mailbox customers refused to execute the Form 1583 after reading the Privacy Act Statement on the

back of the form, which stated that their home address and personal information could be released to anyone who asked for it if

they were using our mailbox for business purposes. They felt this

was a massive invasion of their privacy and violated their Fourth

8

Amendment rights, while posing a threat to their safety and the

safety of their loved ones.

Those not using the box for business could see no reason to list

the names and ages of their children. Parents are advised not to

release this information for the safety of their children, and this

was a major concern to them.

This was only the beginning of our problems. During the next

few months, at least two dozen people came to the store to apply

for mailboxes; however, when presented with Form 1583 changed

their minds, citing the same reasons as our existing customers.

Several of our mailbox customers just decided against the hassle

and let their mailbox rental agreements expire without renewing.

We started losing significant revenue, and our cash flow became

so critical that when tragedy struck and Elaine’s mother passed

away in July of 1999, we could only afford to close the store for one

day in order to attend the funeral.

In August of 1999, we were notified by Postmaster Curtis that

our store did not comply with the CMRA regulations. We filed a

list of our customers, complete with addresses as required, but we

had no completed Form 1583 to offer him. We had no feasible way

to verify that each customer actually resided at the address we had

on file.

We received a certified letter from Postmaster Curtis on September 29 threatening to shut off our mail delivery on October 13

if we continued to be in non-compliance. We promptly notified all

our customers and stopped collecting rent from them. Despite the

threat of mail disruption, our customers still refused to file the

1583 form, and on October 13, 1999, all mail delivery was discontinued to our customers.

After the shutting down of our mail delivery in what could be

characterized as retribution for doing business with a postal competitor, the post office made our customers jump through hoops trying to collect their mail that was being held hostage.

With the permanent loss of all mailbox income, as well as the

sales of other products and services to our mailbox rental customers, our business began to hemorrhage red ink. Our financial

backer saw only disaster ahead and promptly withdrew all support.

P.A.S.S. of Granville closed its doors for the last time on November

20, 1999.

Filing bankruptcy, combined with the loss of her mother, our

business and our house, devastated my wife, Elaine. She was diagnosed with severe clinical depression and remains under a doctor’s

care today.

The Postal Service used its regulatory powers to run us out of

business. It is as simple as that. The Postal Service characterized

all private mailbox customers as criminals while claiming the

CMRA regulations were necessary to prevent mail fraud and identity theft. Our customers were not criminals. They were lawyers,

teachers, people with disabilities, survivors of domestic abuse and

small business owners: in other words, Americans with constitutional rights.

What I find most disturbing about this entire ordeal is that the

Postal Service launched a regulatory assault on an entire industry

of small business competitors without ever demonstrating any need

9

for the regulations. A recent report from the Postal Service’s own

Inspector General confirms this. By the time we closed our doors,

these regulations had disrupted the entire private mailbox industry

to such a degree that I could not even sell our mailboxes at fire

sale prices.

The Postal Service showed absolutely no regard for the impact

that these regulations could have on CMRAs and their customers,

requiring every small business in America who used a private mailbox to change their address and purchase all new stationery, marketing materials and business cards, potentially driving them out

of business. In the words of Timothy McVeigh, our customers were

‘‘just collateral damage.’’

The USPS showed no concern for our customers’ privacy objections or for the expense of changing their address. They took no

pity on victims of domestic violence who had found a safe haven.

They did not care if we were driven into bankruptcy. Frankly, I am

of the belief that shutting down small, private mailbox businesses

such as mine was the sole purpose of the regulations in the first

place.

We ran an honest business and worked hard to build our reputation. It is too late to save our business, but it is not too late to save

our fellow mailbox stores, their small business customers or all the

other small businesses that will undoubtedly suffer a similar fate

as the Postal Service continues leveraging its vast regulatory power

and exemption from the Administrative Procedures Act to gain

competitive advantage over an ever increasing number of small

business markets.

[Mr. Tucci’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

Our next witness is Rick Merritt, who is the executive director

of PostalWatch out of Virginia Beach. We look forward to your testimony, Mr. Merritt.

If you could take the mike? Thank you.

STATEMENT OF RICK MERRITT, EXECUTIVE DIRECTOR,

POSTALWATCH

Mr. MERRITT. Thank you, Chairman Manzullo and honorable

Members of the Committee. Thanks for this opportunity to appear

here before you today, and thank you for the very important work

that you do on behalf of the small business community around the

country.

My name is Rick Merritt. I am the executive director of PostalWatch, a grassroots organization founded to provide small businesses with a voice in postal matters. My statement was kind of

short, but Mr. Spates brought up a few issues that I would like to

address before I get started.

Mr. Spates indicates that the Postal Service cooperated with the

small, private mailbox industry and small business groups in preparing these regulations. The truth of the matter is that these organizations only became involved after the Postal Service promulgated the rules as final rules after receiving over 8,000 comments

opposing and only ten supporting the rules.

10

I also might add that I find it interesting that Mr. Spates brings

up the Federal Trade Commission as the last time that we checked

they had no position on the private mailbox issue.

He mentions a consumer protection responsibility on the part of

the Postal Service. Unfortunately, I do not think the Postal Service

based on the last time that I read Title 39 has the authority to decide what it perceives as deceptive and that is in fact the domain

of the Federal Trade Commission.

Moving on with my statement, a growing number of federal establishments are attempting to grow their budgets outside the appropriations process by entering a broad range of competitive endeavors. Of federal competitors, the Postal Service, with $67 billion

a year in revenues, is by far the largest and most problematic. Its

unique ability to regulate without protection afforded by the Administrative Procedures Act and disrupt the mail delivery of its

competitors puts it in a class of its own.

The CMRA regulations and rules that we have been discussing

with the last two witnesses, although modified, are still problematic to the small businesses and their customers that operate private mailbox facilities. Despite the changes that have been implemented over the last two years, the rules remain onerous, fundamentally flawed and ultimately unsustainable.

In executing this anti-competitive scheme, the Postal Service,

claiming exemption from the Administrative Procedures Act, misused its regulatory power to the detriment of a commercial competitor. It is clear private mailboxes compete with the Postal Service

for P.O. box rental business.

In 1995, prior to the implementation of these rules, the Postal

Service had an 8.7 percent annual growth rate in P.O. box revenues. By 1997, the year these rules were first proposed, the growth

rate had fallen to 1.3 percent. In that same year in November, the

Postal Service in their five year strategic plan referred to the industry as rapidly growing and a significant competitor.

The fact that they are a competitor to the Postal Service is clear.

What is unclear is why the Postal Service chose not to do the type

of due diligence that a federal agency has a public policy responsibility to do when regulating a competitor.

These are responsibilities that were clearly put forth by the U.S.

Justice Department Antitrust Division in 1979 when the Postal

Service attempted to regulate magnetic computer tapes as magically becoming letter mail. The Justice Department gave it clear

guidance on what its requirements were, one of which was to demonstrate that there was a need.

The Postal Service has done no studies on the criminality and,

quite frankly, has no evidence as to any significant or disproportional criminality taking place at private mailbox facilities. It also

did not conduct an impact study to determine what the economic

and, in the case of the Tuccis, life altering effects these regulations

would have on the small business people that they were regulating.

Notwithstanding, the Postal Service has produced no factual evidence as to any disproportional or significant criminality emanating from CMRAs, and consequently they have created a regulatory scheme that has damaged their competitors without documenting a need or demonstrating that they gave any concern for

11

the impact of their regulatory policies. This is just poor public policy and realistically cannot be tolerated.

The Postal Service unfortunately has a long history going back

to the Hoover Administration of anti-competitive practices, referring to the airmail scandals in the 1930s. We cannot give deference

to the Postal Service saying that they think these rules are important and necessary and thus we should allow them to regulate

their competitors without documenting the need. That I think is

the single, essential aspect of this.

I see I have run out of time. Unfortunately, I have a lot more

to say, Mr. Chairman. Thank you very much.

[Mr. Merritt’s statement may be found in appendix.]

Chairman MANZULLO. Thank you for coming. I have just a couple

questions here.

Mr. Hamerschlag, did you say that Hines V.A. Hospital is not engaged in doing the commercial laundry?

Mr. HAMERSCHLAG. That is correct, Mr. Chairman. We checked

twice before the hearing and double checked. At this time, they are

not providing commercial laundry services, to our knowledge.

Chairman MANZULLO. Mr. Eakes, do you have anything to the

contrary on that?

Mr. EAKES. They do have and were processing it. If they stopped,

Mr. Chairman, they must have stopped just recently. They had a

state bid called John J. Madden, which is located near Hines. They

also have a large hospital on the south side.

I have attended the bid meetings. They received the bid, so if

they are not processing the linen I wonder who is?

Chairman MANZULLO. Do you have any response to that, Mr.

Hamerschlag?

Mr. HAMERSCHLAG. The Madden contract was terminated June

30. As far as I know, we checked with the Hines people, and they

say they are not considering any commercial work at this point in

time.

Chairman MANZULLO. So they do no laundry other than just inhouse?

Mr. HAMERSCHLAG. Yes. Correct. It is all through V.A. facilities.

Chairman MANZULLO. Okay. What about for other facilities? Do

you know for other hospitals or other not-for-profits?

Mr. HAMERSCHLAG. No. They are not doing work for anyone

other than V.A. facilities.

Chairman MANZULLO. Right there?

Mr. HAMERSCHLAG. They may be doing work for other V.A. facilities, but no non-V.A. facilities.

Chairman MANZULLO. Okay. Okay. Evidently, the notice of the

hearing took care of your problem, John. We appreciate V.A. jumping on this right away as soon as you got notice from us.

Mr. Eakes, if you have any further problems on that contact us

or, Mr. Hamerschlag, would he have the ability to contact you directly on that?

Mr. HAMERSCHLAG. Absolutely.

Chairman MANZULLO. Okay. Thank you very much. I appreciate

that.

12

I have some questions. Mr. Spates, in your testimony you said

that the provisions associated with private mailboxes mirrored the

regulations associated with post office boxes. Is that correct?

Mr. SPATES. Yes, sir.

Chairman MANZULLO. Do people who go into the U.S. Post Office

have to fill out a form similar to 1583?

Mr. SPATES. Yes, sir, they do.

Chairman MANZULLO. Is it the same form?

Mr. SPATES. It is called a 1093. The 1583 is similar to a 1093.

Chairman MANZULLO. It is similar?

Mr. SPATES. The information is the same.

Chairman MANZULLO. Does it ask for the names and the ages of

the children?

Mr. SPATES. That I would have to check.

Chairman MANZULLO. Well, you should know that. Do you have

that form with you?

Mr. SPATES. No, sir, I do not, but I——

Chairman MANZULLO. Why do you not have that with you? I

want it before you leave, or you are not going to leave the room.

If anybody is here from the post office, I would like you to retrieve that form immediately and bring it to my desk.

Is there anybody here with you?

Mr. SPATES. Yes, there is.

Chairman MANZULLO. All right. You can use our computers if

you want. I would expect you to get up and leave right now to get

that form. Could you instruct somebody to do that?

Could you take them to our computer so they could dig it off the

website? Thank you. We will come back to you on that.

Mr. SPATES. All right.

Chairman MANZULLO. Now, I noticed in your testimony that you

did not mention anything about the IG’s report from Kenneth C.

Weaver, the Chief Postal Inspector, dated April 9, 2001. Is that correct?

Mr. SPATES. Are you talking about the IG’s report that went to

Mr. Weaver and to Mr. Potter?

Chairman MANZULLO. That is correct.

Mr. SPATES. Right.

Chairman MANZULLO. You mentioned nothing about that in your

testimony.

Mr. SPATES. I will be glad to. I took an excerpt out of the response. I am very familiar with it. Mr. Weaver and Mr. Potter both

responded to the IG’s audit, taking exception to the fact that they

only interviewed in their audit people who were opposed to regulations. They did not talk to a single one of the state Attorney Generals involved or other consumer protection interests.

Chairman MANZULLO. So you are saying that there is a problem

with the Inspector General’s Office and the post office?

Mr. SPATES. The conclusion, and I am speaking for myself right

now. The conclusion——

Chairman MANZULLO. I would expect you to speak on behalf of

the post office——

Mr. SPATES. All right.

13

Chairman MANZULLO [continuing]. Because you are here in that

capacity. I appreciate your personal opinions, but you are here representing the government.

Mr. SPATES. I am very familiar with the IG’s audit and the various stages of that audit. We felt it was not objective in the fact

that it only interviewed opponents.

Chairman MANZULLO. What we can do here is I can have a special panel and bring in your people and then bring in the people

from the mailboxes that feel they got the brunt of it, and then you

could have testimony right here. We can draw the conclusions ourselves, present that to Congress, and perhaps they may want to

have some kind of remedial legislation on it.

I am just astonished that you are dismissing outright the report

of your own IG. I mean, this is a very damaging report.

Mr. SPATES. The IG said several things in that report, and that

is the Postal Service took extra steps. Even though they were not

required from a regulatory standpoint to do certain things, the

Postal Service took extra steps after they published the first rule

to get all the reactions from the industry. We worked out compromises and put out subsequent modifications to their rule.

Chairman MANZULLO. No. This statement from the IG says, ‘‘Our

audit revealed the Postal Service complied with internal rule making procedures, revising rules for commercial mail receiving agencies. In some cases the Postal Service went further and accommodated the affected parties than internal procedures required. However, the Postal Service did not fully assess the impact of revised

rules on receiving agencies and their box holders.’’

Do you agree with that?

Mr. SPATES. What they are referring to in that last statement—

the first statement is accurate, and that is what I just paraphrased

a moment ago.

What they are talking about on the impact was primarily the

cost. Mr. Merritt did a cost study that became quoted in the industry press as far as how much it would cost these people to change

stationery and other costs.

Chairman MANZULLO. Did the——

Mr. SPATES. The IG—I am sorry.

Chairman MANZULLO. Go ahead and finish your statement.

Mr. SPATES. The IG reviewed that cost analysis, and it had problems with it also. It said it was over exaggerated.

What the Postal Service did to help mitigate any cost consequences for CMRAs is it delayed the implementation of the requirements. They do not go into effect as far as the addressing requirements until next week, so they have known about this for almost three years as far as the addressing changes.

During their normal turnover of stationery, depending on whether they wanted to use the pound sign or the PMB sign, they were

well aware it was coming.

Chairman MANZULLO. Well, there is more impact than changing

stationery. The other side of the impact is running people out of

business. That is what happened to Mr. Tucci.

Did the post office comply with SBREFA on this?

Mr. SPATES. I am sorry. I did not hear the question.

14

Chairman MANZULLO. Did you comply with SBREFA? Do you

know what that is?

Mr. SPATES. No. I am sorry.

Chairman MANZULLO. That is the Small Business Regulatory Enforcement Fairness Act. It applies to government agencies, but not

to the post office.

We will have an amendment to make the post office fully comply

with all the other regulations that are required of other federal

agencies. I am sure that Mrs. Vela ́zquez would probably join me in

that to make sure.

Would the post office mind, just as a matter of a courtesy to the

Chair, doing a cost impact analysis as if you had to comply with

SBREFA?

Mr. SPATES. I will have to see what those requirements are.

Chairman MANZULLO. See, now the shoe is on the other foot.

Those are rules and regulations that apply to all other agencies

that should apply to you. That is what these gentlemen are talking

about here.

Mr. SPATES. We will do the cost analysis to the best of our ability. We will meet the requirements.

I just wanted to point out we submitted in testimony in October,

1999, our cost analysis, a critique of the cost analysis done by Mr.

Merritt. In there it shows what the real consequences are.

Chairman MANZULLO. What about Mr. Tucci? Is he a consequence?

What happened to you, Mr. Tucci? Why did your customers not

want to fill out Form 1583?

Mr. TUCCI. Among our customers, we did have an abused spouse.

Chairman MANZULLO. Could you put that closer to you?

Mr. TUCCI. Among our customers, we had an abused spouse who

did not—she used her mailbox for business purposes, too. With the

way the regulations were, her spouse could find her by going into

the post office and asking where her physical address is. It would

be given to him.

Chairman MANZULLO. Just a second. Mr. Spates, if somebody

comes to the Granville, New York, postmaster and asks, does so

and so have a post office box here, is the postmaster at liberty to

give the name of a post office box holder?

Mr. SPATES. The regulations used to be if somebody was doing

business out of a post office box, a business, you could provide the

name of the business owner, but that is not true.

Chairman MANZULLO. If they are doing business out of the post

office box?

Mr. SPATES. Out of the post office box, yes.

Chairman MANZULLO. Okay. Go ahead.

Mr. SPATES. That is not true. That information will not be provided just across the counter like it was before. It has to come from

some law enforcement agency through a request. The same is also

true for 1583.

Chairman MANZULLO. This says in Box 12 on Form 1583, ‘‘If applicant is a firm, name each member whose mail is to be delivered.’’

Then there is a parenthesis, ‘‘(All names listed must have verifiable

identification. A guardian must list the names and ages of minors

receiving mail at their delivery address.)’’

15

Does that mean that parents have to disclose the names of their

children?

Mr. SPATES. To my understanding, yes. I am not the expert on

the requirements.

Chairman MANZULLO. You are the expert on it. That is why you

are here.

Mr. SPATES. I just want to clarify something, and that is the reason for that is there could be mail received at that house to Joe

Smith. We do not know whether Joe Smith is a person perpetuating a fraud, an older person, or is it one of the minor children

of the family?

Chairman MANZULLO. But if they have the same last name? Do

you mean every time somebody has another kid they have to file

an amended 1583?

Mr. SPATES. I do not think it has gone that far.

Chairman MANZULLO. But that is what this says.

Mr. SPATES. If there is a change in who is receiving mail there,

you have to list it.

Chairman MANZULLO. Now, I am Rural Route, Egan, Illinois. We

lost our post office. It got merged with Leaf River. It comes to 792

East Lightsville Road.

We get names of all kinds of people who supposedly live at that

household. I do not think the post office looks at the name of each

addressee and says, does that addressee live at this house or receive mail at that box.

Mr. SPATES. The point is a 1583 is filled out saying I am giving

permission for the CMRA to act as my agent. Other people in your

house can receive mail while they are staying there. It does not

mean that you are their agent.

Chairman MANZULLO. A parent is the natural guardian and

agent with the ability to consent to medical care. Surely that would

carry over with the ability to consent to receiving mail at the same

P.O. box or residence as the child.

Mr. SPATES. I do not know if you are talking about your private

mailbox. I am talking about——

Chairman MANZULLO. No. I do not have a private mailbox.

Mr. SPATES. I mean your personal mailbox.

Chairman MANZULLO. That is correct.

Mr. SPATES. I am sorry.

Chairman MANZULLO. That is okay.

Mr. SPATES. I am talking about the CMRA is acting as an agent.

That means they are entitled to receive mail for those people who

sign the 1583.

What happens sometimes in cases of divorce is somebody will

submit a fraudulent 1583 to get his or her spouse’s mail. These are

the people who I am authorized to receive the mail for.

Chairman MANZULLO. What I do not understand is that I, with

my mailbox, do not have to sign any form to receive any mail.

What about Occupant?

Mr. SPATES. Where it says——

Chairman MANZULLO. Yes. What about Rural Delivery? How

about the political junk mail that we send out?

Did you get your form yet? Did that form come yet? We can

check it later.

16

Mrs. VELA ́ ZQUEZ?

Mr. PASCRELL. Would the gentlelady yield?

Ms. VELA ́ ZQUEZ. Sure.

Mr. PASCRELL. Mr. Chairman, I wanted to go back to your line

of pursuit. I know Mr. Spates is the messenger.

In examining this form, it is a very serious accusation that was

made in the testimony that there was not a compelling need to

change the regulations. I do not know exactly where I stand on

whether there was.

What are the statistics? I mean, it would seem to me in light of

the questioning by the Chairman and the example of children that

was there an intent that there might be a front organization and

that literature may be getting to kids that we would have no control over? What is the real reason for doing this in the first place?

Mr. SPATES. The real reason is if I put Joe Smith was a minor

child——

Mr. PASCRELL. Right.

Mr. SPATES [continuing]. And we did not know that, Joe Smith

could have been an adult in there receiving running some kind of

a scam. If we see Joe Smith and we know Joe Smith is a child, we

are not going to assume there is a possibility of a scam.

There are certain indicators that CMRAs have put out for looking for scams when mail comes into one of those——

Mr. PASCRELL. But what was the original basis of changing that

particular regulation? Did you have a plethora of information

which led you to conclude that there were perpetual frauds? I

mean, did law enforcement come to you and say this is what we

recommend; you would make our job a lot easier. Is that how that

happened?

Mr. SPATES. How the regulations got——

Mr. PASCRELL. Or none of the above? Tell me.

Mr. SPATES. A combination of all the above. The testimony back

in October, 1999, was the Inspection Service presenting cases of

mail fraud, significant cases. I will give you a couple that made national news, and that was in the—that is why Florida is changing

their regulations or looking to change their regulations.

The case of Medicare fraud that was covered on NBC News, Policing of America, where post office boxes were set up to look like

doctors’ offices, and false billing statements were filed. That was on

the news.

The case in New York recently where the gentleman was stealing

the identity of well-known people like the Forbes family members,

et cetera. That was all run through a CMRA.

Mr. PASCRELL. So Mr. Tucci goes into business. He gets those

folks who want to participate in his business in that he can establish for them a service, a particular service. Does he have to investigate each of those potential customers of his in order to see their

background? I mean, does he have that purview? Does he have that

authority to do that? Do you want him to do that?

Mr. SPATES. No.

Mr. PASCRELL. What do you want him to do?

Mr. SPATES. Just to get two forms of identification just like is required, one of them with a picture ID, to verify that the person and

the address where that person lives.

17

Mr. PASCRELL. Mr. Chairman, I would thank the gentlelady.

Ms. VELA ́ ZQUEZ. Mr. Eakes, how has the Department of Veterans

Affairs responded when you have confronted them about harming

your business?

Mr. EAKES. Excuse me. How have they responded?

Ms. VELA ́ ZQUEZ. Yes.

Mr. EAKES. When you walk into the building, they all run and

hide. They do not even talk to you, so I do not know. I cannot respond to that.

Ms. VELA ́ ZQUEZ. So you never have talked to them?

Mr. EAKES. Oh, yes. Yes.

Ms. VELA ́ ZQUEZ. What was the reaction? What was their answer

to you?

Mr. EAKES. I cannot remember. There really was not any kind

of a response to speak of. They just received the bid, and they went

and processed the laundry.

Now, the gentleman to the left of me here said they quit in June.

That is only about two or three weeks ago. They had the business

for about two or three years. They have another account located on

the south side of Chicago that is also a state rehab center. I do not

know if they are still down there or they quit, but obviously they

may have quit, which is good.

Ms. VELA ́ ZQUEZ. Okay. When you state in your testimony that

you have lost several competitive bids to the V.A., would you please

specify what bids you lost?

Mr. EAKES. One of them was——

Ms. VELA ́ ZQUEZ. Are they commercial contracts or government

contracts or city contracts?

Mr. EAKES. They are State of Illinois rehab centers—they are

owned by the State of Illinois—and their bids.

Ms. VELA ́ ZQUEZ. Mr. Hamerschlag, did the Department of Veterans Affairs include any federal employees who are involved in

the laundry contracts on the list required by the activities inventory reform, the FAIR Act?

Mr. HAMERSCHLAG. I cannot answer that question. I can either

provide it for the record or consult with staff here.

Ms. VELA ́ ZQUEZ. Do you have staff here that can answer that

question?

Mr. HAMERSCHLAG. Yes. Yes, I do

Ms. VELA ́ ZQUEZ. Mr. Chairman?

Chairman MANZULLO. Sure.

[Pause.]

Mr. HAMERSCHLAG. Yes. Our laundries are listed on the FAIR

Act.

Ms. VELA ́ ZQUEZ. They are?

Mr. HAMERSCHLAG. Yes.

Ms. VELA ́ ZQUEZ. Were those employees considered to be performing an inherent government function?

Mr. HAMERSCHLAG. Yes, they are.

Ms. VELA ́ ZQUEZ. Did the V.A. receive any comments about any of

the employees listed on your FAIR Act submission?

Mr. HAMERSCHLAG. We will have to provide that for the record.

I cannot give you an answer to that right now.

18

Ms. VELA ́ ZQUEZ. Okay. Mr. Hamerschlag, you state in your testimony that the V.A. will back out of the commercial contract if the

V.A. receives a complaint by a small business.

Mr. HAMERSCHLAG. That is correct.

Ms. VELA ́ ZQUEZ. What constitutes a complaint?

Mr. HAMERSCHLAG. Mr. Eakes is a good example. He wrote the

President some time ago. We responded back to him in January of

this year. He was concerned at that time about Loyola University.

We took direct action and made it clear to the folks in Hines that

they would not compete for that business at Loyola.

Ms. VELA ́ ZQUEZ. I have a couple of questions about the V.A.’s

contracting practices and how they relate to small businesses.

Last year, the Democrats on this Committee released an evaluation of 21 federal agencies on their achievements towards their

small business goals. We will be releasing the next edition coming

this summer.

In looking at the V.A.’s achievements, I know that the V.A. set

the women owned business goal and the small, disadvantaged business goal below the statutory goal of five percent. In fact, the small

disadvantaged business goal is only 2.5 percent, half the statutory

goal. Would you please explain to me why did you set a goal below

the statutory goal?

Mr. HAMERSCHLAG. I have no direct knowledge of that. I will be

happy to provide that for the record if I might.

Ms. VELA ́ ZQUEZ. Well, you should have knowledge about that.

You knew that you were coming to this hearing and that we would

be discussing contracting practices within the V.A. You should be

able to answer this question.

Mr. Chairman, I would request that he submit for the record——

Chairman MANZULLO. That would be fine. I do not think that

Mr. Hamerschlag’s area of expertise is the area that you are questioning him on. We will go into that with the appropriate witness.

Ms. VELA ́ ZQUEZ. Well, he has to prepare because he knows that

we would be—or at least the staff should know that we will be asking this type of question.

Let me just ask you this simple question. You just said in your

testimony that you care about small businesses.

Mr. HAMERSCHLAG. Yes, ma’am.

Ms. VELA ́ ZQUEZ. Yes. So why do you think, and you do not have

to be an expert on this, the field of federal procurement. How can

you explain why the V.A., if you care so much about small businesses, set a goal below the statutory goal of five percent?

Mr. HAMERSCHLAG. I would like to answer that question, but I

have to tell you that is really not in the area I have any direct

knowledge of. I just cannot give you an answer.

Ms. VELA ́ ZQUEZ. Well, let me just say this to you. Not only did

you set a goal below the statutory goal, but then when you set

those goals very low you do not achieve them either.

You need to go back to the V.A. and talk to them and tell them

that not only are you not complying with the statutory goal set by

the United States Congress, but that we are going to be releasing

a report that is going to evaluate the performance of the V.A. regarding federal procurement goals and federal procurement practices.

19

Mr. HAMERSCHLAG. You may rest assured I will carry that back.

Chairman MANZULLO. Would you like that in writing so you

know exactly what she is asking for?

Mr. HAMERSCHLAG. If you would like to make it part of the

record, that would be fine.

Chairman MANZULLO. Thank you very much.

Mr. Bartlett.

Mr. BARTLETT. Thank you very much.

We have been discussing a lot of details relative to the practices

of specific government agencies and their competition with small

businesses. I would just like to ask a very generic kind of question.

I notice here that we are receiving testimony relative to the Department of Veterans Affairs, U.S. Postal Service. The next panel

will be the National Park Service and the Federal Transit Authority and their competition with small business.

Not even listed here is another government agency entity which

I know has had a major impact on small business, and that is the

federal prison system in their employment. I have a small business

person in one of the counties I represent that was almost put out

of business because the prison system decided just arbitrarily that

they were going to make aluminum containers. That was their

business. Garrett Container. Had the prison done that, they would

have just put them out of business.

Competition is good for everybody, and I know that many government agencies now are deciding to compete for services that they

used to do themselves in-house. They have developed procedures

for commercial pricing so that they can be sure cities, for instance,

are now contracting with others to collect their trash if they can

do it cheaper than the municipal employees can collect the trash.

They have developed commercial pricing procedures so that you

can make sure you are comparing apples with apples when you are

comparing the bid that you get from your municipal, state or federal employees and the bids you are getting from the private sector.

I do not know any small business that does not think they can

compete with a government agency and win if it is on a level playing field, but I am very familiar with some of the problems with

the post office. The post office’s motif for their little stores looks

very much like the motif for one of their commercial competitors.

You know, this is really the 700 pound gorilla that the little mom

and pop shop is dealing with.

I remember when the home alarm people came in to talk with

me because they were concerned that the cable people or telephone

people and cable people also were going to get into the home security alarm business. There were a bunch of these private sector

competitors. They were not afraid of competition. They compete

every day and stay alive.

What they were afraid of was competing were what they referred

to as a 700 pound gorilla. The phone company owned the lines coming into the house. They just felt that they had an unfair advantage. That was worked out to the satisfaction of these small business people so that now the telephone company can compete. They

are competing on a level playing field.

I think the fundamental issue here is how do we get to a point

where there is a level playing field? I do not know anybody in small

20

business who does not think they can do a better job than government can do if they are on a level playing field.

Is that not what we need to do is to make sure that there is a

level playing field here? Is that not the concern of small business:

that it is not a level playing field?

Mr. Merritt?

Mr. MERRITT. Yes, Congressman Bartlett. One of the problems

with the level playing field that is so often talked about is that government establishments enjoy enormous human and economic resources that dwarf those of even established small businesses by

multiple orders of magnitude, and realistically they cannot be divorced from their competitive advantages.

I think we all would agree. At least the Members of the Committee here I believe would agree that a government agency using

its federal privileges for competitive advantage is poor policy. The

problem is they cannot divorce themselves from them because those

advantages exist by the pure fact of them being a federal entity.

I think that is a significant problem for small businesses.

I might point out that there is a very growing trend of government agencies going in and competing with the private sector. Last

week, the AP ran a story about Amtrak, which posted the largest

loss in its history of $944 million, despite generating a total of 46

percent of its total revenues from non-passenger train operations.

When Amtrak gets to what, say 99 percent non-train operations,

is that when we decide that it is not really in the public interest

any more? I might point out that when they sell souvenirs, somebody is not selling souvenirs.

When the Postal Service decided to sell passport photos, those

passport photos they sold came at the direct expense of a small

merchant down the street. They did not create any more demand

for international travel or passports when they went into that business.

I think we have some problems with even the concept of allowing

federal agencies to compete with private sector companies.

Mr. BARTLETT. If your analysis is correct, and that is that it is

just inherently fundamentally impossible for a federal agency to be

on a level playing field with the private sector, then they should

not be competing.

I need to be convinced of that, and what I would like to do is encourage you to submit to us some recommendations as to how we

can get to that decision point where we decide whether or not a

level playing field can be created. If it can be created, then you

need to tell us how that process should be conducted. If it cannot

be created, then federal agencies should not be competing with the

private sector.

I would like to believe that we can, at least in many circumstances, create a level playing field so that competition will do

what it always does: make the product or service better and make

it cheaper. Goodness knows, government bureaucracies could benefit by some competition, could they not?

Mr. MERRITT. If it was on a level playing field.

Mr. BARTLETT. If it is on a level playing field, yes.

Mr. MERRITT. Unfortunately, again, my basic premise.

Mr. BARTLETT. I think that is our challenge.

21

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you very much.

Our search is on for the elusive Form 1093. We have been advised that the Form 1583 is on the USPS internet site, but Form

1093 is not.

The post office has been called, and the fax is on its way. Is that

correct?

Mr. SPATES. She is not in the room here, so she must be out looking for it.

Chairman MANZULLO. All right.

Mr. SPATES. I do not know why that is not on the web also.

Chairman MANZULLO. I do not know why you did not bring it

with you because you made the statement that the regulations for

1583 are the same as the USPS. I would have expected it with the

memo.

Mrs. Tubbs Jones?

Mrs. TUBBS JONES. Thank you. Good morning, Mr. Chairman,

Ranking Member, gentlemen on the panel.

I am going to stay with the United States Postal Service but

come from a different perspective. I come from a prosecutor/Judge

background, having worked with law enforcement in the past, and

the experience of having had a lot of dilemma with post office boxes

and lack of identification for many of those situations.

I am reading, Mr. Spates, the government relations statement. It

looks like a statement from the United States Postal Service that

you worked with the CMRA industry to promote some of these

changes. Is that correct, Mr. Spates? Who from the industry did

you in fact work with?

Mr. SPATES. We had representatives from Mail Boxes, Etc. We

had representatives from the Association of Mail and Parcel Centers. That is the one I referred to earlier that represented 27 of the

smaller CMRAs. We had two other representatives—I do not have

their names handy right now—that represented different franchises.

Mrs. TUBBS JONES. And would you restate again what your purpose in promulgating these regulations was, sir?

Mr. SPATES. The purpose to begin with—first, there is one thing

I want to add to make sure everybody understands. The 1583 is

generating a lot of discussion. The 1583 has been modified, but it

has been in effect for CMRAs for over 30 years that you had to file

a 1583.

There is also now a form for CMRAs to formally apply as the

agent. That was very informal before, but the 1583——

Mrs. TUBBS JONES. What was the original purpose for the 1583,

Mr. Spates?

Mr. SPATES. It is to sign off that I am legally saying that this

person can act as my agent to receive my mail in my name, especially if it is certified or something to that effect.

Mrs. TUBBS JONES. Go ahead. You were saying that you met with

the CMRA representatives, and as a result of those discussions

what occurred?

Mr. SPATES. Let me go back. Do you mind if I go back a little

bit in time?

Mrs. TUBBS JONES. No. Go right ahead.

22

Mr. SPATES. Mr. Merritt brought it up about the initial rule and

all the comments. The initial rule apparently did not get as much

wide circulation among the industry members as we thought. We

got 8,000 responses, but most of them were form letters.

What we did after the first filing is the Chief Postal Inspector,

Ken Hunter, who was the Chief Postal Inspector at the time, because this was all done under consumer protection and fraud protection, called together industry members, anybody who had interest in these regulations, and that includes small business representatives, state Attorney Generals—the group got rather large—

to see what we could do to modify the regulations to reach a compromise between protection and impact from small businesses.

Those meetings, there has been at least a half a dozen large

meetings that Mr. Hunter was chairing that pulled together compromises on these regulations. As they reached compromises, new

proposals went out. Issues on privacy, typing up the privacy restrictions on what can be released, was added to it, working with

the Coalition Against Domestic Violence and representing their interests from a Protective Order standpoint. If they are running a

business out of their home, they did not want any information released.

That has all been included in these regulations, so they have

evolved to get better over time. Are they perfect? Maybe not, but

they are significantly improved from the initial regulations and

what existed prior to the regulations.

Mrs. TUBBS JONES. Thanks, Mr. Spates.

Mr. Merritt, do you believe that the Postal Service, the UPS,

the—let me say this correctly—CMRAs, have any obligation to assist law enforcement in deterring fraud through mailboxes or people using fraudulent addresses or making misrepresentations as to

how they are or what they represent?

Mr. MERRITT. That is obviously a very long and complicated——

Mrs. TUBBS JONES. No, it is not a long and complicated question.

The question merely is do you believe that they have any obligation

to assist law enforcement in dealing with that issue? It is very simple.

Mr. MERRITT. Oh, absolutely. I am sorry. I wanted to go into

more detail. Absolutely. I do.

Where I part company with the Postal Service is where the Postal Service in its role as a regulator takes it upon itself to regulate

in this case a particular competitor using that particular reasoning

without justifying it as necessary. That is where our problem comes

from, not from——

Mrs. TUBBS JONES. So you do not—I am assuming you own a

CMRA. You personally do that?

Mr. MERRITT. No. I was just a customer for 12 years that was

forced to change my address—— Mrs. TUBBS JONES. Okay.

Mr. MERRITT [continuing]. Unfairly and supply information that

I did not feel was necessary.

Mrs. TUBBS JONES. So you merely come here as someone who you

believe your privacy has been invaded, not as a representative of

one of these CMRAs that has had to deal with law enforcement

where there have been fraudulent addresses and the like?

23

Mr. MERRITT. Right.

Mrs. TUBBS JONES. I am just trying to be clear on who you represent.

Mr. MERRITT. That is correct.

Mrs. TUBBS JONES. I do not mean to denigrate that. I think it

is a great idea that if you believe your privacy has been invaded

that you should be here, but I am trying to get on the table as well

the whole issue of how do we address the issues that are raised by

the Postal Service and others with regard to fraud and people who

are constantly on the internet and all kinds of places where particularly in my community senior citizens who are put in a terrible

situation as a result of being bilked by people who represent that

they are something that they are not, and they use the mail service

to do it.

I am out of time. I am sorry. Thank you very much. If the Chairman will allow me time for you to respond, I would be glad to have

you respond.

Chairman MANZULLO. Go ahead. Please.

Mr. MERRITT. Mr. Chairman, with your permission. Fraud is a

big problem. There is no doubt. It does negatively impact the most

vulnerable of our society.

The problem is that with these regulations if you want to look

at it from a fundamental standpoint, we have a commercial enterprise, the United States Postal Service, which has tremendous regulatory authority and their own in-house law enforcement, fully

empowered law enforcement organization, not reporting to the Justice Department, but to potentially commercially minded executives.

The point here is that if there is a particular problem that needs

to be addressed, then they should have done the due diligence that

SBREFA and REGFLEX and the Administrative Procedures Act

put in place to protect small businesses.

The other point is that for the first time with these regulations

the Postal Service has embarked and set a precedent for changing

our address driven mail delivery system to a resident recipient

driven system that requires identification, and the privacy consequence is another issue of much consternation these days.

Chairman MANZULLO. Thank you, Mr. Merritt. I know that you

are very energetic, and we appreciate that. That is why you are

here.

Congresswoman Napolitano?

Mrs. NAPOLITANO. Thank you, Mr. Chairman. I was just looking

at the 1583 and reading the testimony of Mr. Tucci in regard to

his customers not willing or able to fill out the form is concerned.

What type of client usually is a box rental client?

Mr. TUCCI. I can give you several examples. One of our customers was a lawyer. Another one—we had mention of the internet. It was a girl who did a lot of communicating with people on

the internet, and she wanted a safe haven for mail so that they

would not know where she actually lived because she was leery,

and we have all heard the stories.

As I said, we did have an abused spouse who wanted a safe place

where she could get her mail without her spouse being able to sit

outside the post office for eight hours. It would only take eight

24

hours. Our post office is not even open that long to get mail. She

could come in any time, 24 hours a day. She could stagger her

times coming in and be safe.

We had several small business people who preferred that the

mail came to a box rather than to their house. It just enabled them

to separate business from home a little bit. As a business owner,

you do not necessarily want everybody knowing your home address

and bothering you at home at any hour of the day. By having a private mail, even a P.O. box or a private mailbox, it just gave them

a little more privacy at home.

Mrs. NAPOLITANO. Was there any indication or at least were you

aware that any of your customers might have been involved in

some kind of fraudulent type of operation?

Mr. TUCCI. None of our customers did. To be honest with you, we

had identification from all of our customers on file. If the post office

had a problem with a customer they could come to us, and we could

give them all the information they had. Our customers trusted us

with that information. They were not trusting the post office with

that information.

The biggest objection they had was the Privacy Act statement

that is on the back of 1583. We heard that the post office will not

give that out. Well, the post office has made it a rule to not give

that out. They have not made it part of the regulations that that

information will not be given out. Therefore, two years down the

road they could change that rule without going through the whole

process.

Mrs. NAPOLITANO. Mr. Merritt, could you answer that?

Mr. MERRITT. The Postal Service, as they interpret their regulatory power, is exempt from even posting notice and requesting

comment to the rule making, so Mr. Tucci is in effect correct. They

could change the rules at will any time they wanted to.

Mrs. NAPOLITANO. Mr. Spates?

Mr. SPATES. We would not change the rule, especially pertaining

to privacy, without following the process. I have the lawyer here

with me who helps us on that process. He can verify that. We

would file a proposed notice to get comments. In fact, we tightened

up the privacy rules, and we put out for comment back when we

were tightening up the privacy rules.

Mrs. NAPOLITANO. But this form has been in effect 30 years. Why

has it not been done?

Mr. SPATES. It has been done. If I may point out, on the privacy

statement on the 1583 it says about two-thirds down in kind of

small print, ‘‘Information concerning an individual who has filed an

appropriate Protection Order, for example, will not be disclosed in

any of the above circumstances except pursuant to the Order of a

Court of competent jurisdiction.’’ This is one of the revisions.

Mrs. NAPOLITANO. Yes. You are talking about a Protective Order.

I am talking about any client.

Mr. SPATES. This information will not be released.

Mrs. NAPOLITANO. It just does not make sense.

Mr. SPATES. It used to be released, but not now.

Mrs. NAPOLITANO. The last statement in the last few lines indicates that, ‘‘If the form is not completed, the mail will be returned

to sender.’’

25

Mr. SPATES. If a 1583 is not filled out then that CMRA cannot

legally act as the agent for that person, so we cannot give that mail

to the CMRA.

Mrs. NAPOLITANO. Is that not stretching it a little bit far? These

people have opted to have a recipient of their mail, and they

verified name, address, drivers license or whatever it is that they

used to be able to get up the account.

Mr. SPATES. And had not signed the 1583?

Mrs. NAPOLITANO. Correct.

Mr. SPATES. We do not have any evidence to show that they authorized——

Mrs. NAPOLITANO. But they do.

Mr. SPATES. The CMRA does?

Mrs. NAPOLITANO. I am assuming they are.

Mr. TUCCI. Yes. We had all that information on file. If the post

office questioned whether we were able to, we could show it to

them, but we would want to keep it on file. We only turned over

a list of names and box numbers of our customers receiving mail.

If there was any question as to whether we were in agreement

with these people, they could come in and ask us and check it off

their list or something, but the information our customers trusted

us to keep private. They did not trust the post office to keep it private.

Mr. SPATES. But the point is the Postal Service is turning over

mail to an independent third party that we have no evidence to

show that they have the authority to receive the mail for that person.

Mrs. NAPOLITANO. Then the question, Mr. Spates, from me,

would be, have you found areas or times or instances where there

has been a problem for a recipient of a piece of mail that is dated

that has gone through a mail service unbeknownst to them?

Mr. SPATES. Unbeknownst to them? Yes, ma’am. The case in

point got a lot of publicity several years back on the 60 Minutes

show where the identity theft of——

Chairman MANZULLO. Would you yield on that?

Mrs. NAPOLITANO. Yes. Certainly.

Chairman MANZULLO. Do you have something more specific than

a TV show? Do you not have real, live examples of fraud to which

you are referring?

Mr. SPATES. We can provide them.

Chairman MANZULLO. I mean, why do you not have that now?

That is why we are having the hearing.

Mr. SPATES. I have one case with me that just broke in the

Washington, DC, metropolitan area. If you want me to outline it,

I can.

Chairman MANZULLO. Your time is up, but if you want to take

a minute now. You know, I am not interested in what 60 Minutes

or one of those shows have on there. I mean, that is interesting,

but I would expect that you would have a portfolio of abuse after

abuse after abuse.

Mr. SPATES. We do have that. That was provided in the October

of 1999 testimony. We have updated that.

Chairman MANZULLO. Can you update for us?

Mr. SPATES. Yes. Yes.

26

Chairman MANZULLO. Okay. I finally got this Form 1093, and I

can assure you that when I was elected to Congress—our family

maintains two residences—and I went to the PO in Alexandria,

they gave me this form. Do you know what I put on here? I put

my name and address and signed it. No one asked me for a picture

ID. No one asked me for the name of my children.

I mean, I have a very difficult time believing, Mr. Spates, that

the Form 1583 is the substantial equivalent. I mean, first of all,

it does ask Name of Person Applying and Name of Organization.

Mr. SPATES. I am not sure that this 1093——

Chairman MANZULLO. This came from your office.

Mr. SPATES. I am just saying I am not sure this is the latest one.

Chairman MANZULLO. All right. You are not going to leave the

room until somebody makes a verification. Does anybody know if

this is in fact the form in effect from the USPS, Form 1093 dated

July, 1998? Is this the one that is in effect? Does anybody know

from your organization? Ask them, please.

Mr. SPATES. Jeff? Is Jeff back there? There he is.

Chairman MANZULLO. Does anybody know? How many are here

from USPS? How many people do you have with you?

Mr. SPATES. Three.

Chairman MANZULLO. There are three people here? Who was

called at USPS for this Form 1093?

Mr. ZELKOWITZ. We have been calling the Retail people and Delivery. The Delivery expert is not in the office today.

Chairman MANZULLO. What is that person’s name?

Mr. ZELKOWITZ. Roy Gamble.

Chairman MANZULLO. Roy Hamble?

Mr. ZELKOWITZ. Gamble.

Chairman MANZULLO. Campbell?

Mr. ZELKOWITZ. Gamble with a G.

Chairman MANZULLO. Gamble?

Mr. ZELKOWITZ. Right.

Chairman MANZULLO. And that person’s official capacity?

Mr. SPATES. He works in Delivery. He has been heavily involved

with modifications to the form from the standpoint of identification

requirements and working with our Retail people.

Chairman MANZULLO. And he reports to you?

Mr. SPATES. Yes, he does.

Chairman MANZULLO. Why did you not bring him with you?

Mr. SPATES. He is on annual leave. He is away out of town.

Chairman MANZULLO. And there is no one else that has the answer on that?

Mr. SPATES. The Retail Operations folks, as Jeff mentioned.

Mr. ZELKOWITZ. I have not been successful in reaching those people yet.

Mr. SPATES. This is a Retail Operations proposal.

Chairman MANZULLO. I would just like to say that I am not done

with this yet. For the hearing, that is fine.

I am going to give Ms. Vela ́zquez a couple more minutes if she

wants to follow up——

Ms. VELA ́ ZQUEZ. Yes.

Chairman MANZULLO [continuing]. And then we will go to the

next panel.

27

Ms. VELA ́ ZQUEZ. Mr. Spates, the preamble in the final regulation

on commercial mail receiving agencies dated March 25, 1999,

states that, ‘‘A number of commentors for ‘the new rule’ questioned

the intent of the undertaking to amend the rule. There are assertions from CMRAs that compliance with the regulation would put

them out of business. Customers of CMRAs assert that the rule

making appears to discriminate against them because of their

choice of an address. These claims are erroneous.’’

This is what appears on your report. Now that you are aware

that the rule could indeed in fact put CMRAs out of business, will

you amend the rule?

Mr. SPATES. Since that time, we have amended the rule to make

some changes. The PMB designation. The CMRAs felt like that was

a scarlet letter identifying them as a possible problem address.

That is when Ken Hunter, working with the CMRA industry, came

up with a compromise allowing you to use PMB or pound sign. A

lot of them do use pound sign today.

What you are not allowed to use, and in fact the State of California prohibits it for CMRAs already, is the word ‘‘suite.’’ That

was a real concern for hiding behind, saying I have an office space.

That is what suite implies. That was some of the concerns.

We made other changes, and privacy issues was one of them,

that answered the concerns of Mr. Tucci. There have been significant modifications.

We have also extended the time line of when this goes into effect

so that they can turn over, you know, their stationery stock and

business advertising. A lot of modifications were made.

There was also a modification made where it originally said in

the rule we will return mail that did not have those designations.

Ms. VELA ́ ZQUEZ. Mr. Spates, the modifications were made after

you put out the rule.

Mr. SPATES. Right, because that is when everybody came out of

the woodwork, all the special interest groups, and we wanted to—

we made a mistake, and we——

Ms. VELA ́ ZQUEZ. But Mr. Tucci was put out of business because

of the rule.

Mr. SPATES. 1583 was in effect when Mr. Tucci opened his business. That has been in effect for over 30 years. If someone did not

want to fill out a 1583, that has been there. The CMRAs, there are

roughly 10,000 of them today. They are still growing. They have

had that requirement all along. I do not think we can blame it on

1583.

Ms. VELA ́ ZQUEZ. Mr. Tucci, you did not know about the Form

1583?

Mr. TUCCI. No. Before I opened the business, the week before

that I went to our local postmaster. I asked him what I needed in

order to receive mail from my customers.

All I was told was that I had to report their names and the box

numbers that they were using once a year. No mention was ever

made of the original 1583, which I have never seen a original 1583.

Ms. VELA ́ ZQUEZ. Is there a process in place, Mr. Spates, where

you explain?

Mr. SPATES. There is a reference to explain it. I would like to ask

Mr. Tucci a question if I can.

28

Ms. VELA ́ ZQUEZ. Sure.

Mr. SPATES. Were you a franchise, part of a franchise?

Mr. TUCCI. No.

Mr. SPATES. You were just totally independent?

Mr. TUCCI. Yes.

Mr. SPATES. We have literature that is provided to postmasters

to provide to CMRAs as far as what the——

Ms. VELA ́ ZQUEZ. Did you get a copy of that?

Mr. TUCCI. No, I did not.

Ms. VELA ́ ZQUEZ. What do you have to say to that, Mr. Spates?

Mr. SPATES. If he did not, it is very unfortunate. Very unfortunate.

Ms. VELA ́ ZQUEZ. Well——

Mr. SPATES. You are talking about a small post office deep in the

ranks of the Postal Service. I apologize that they made a customer

error, but——

Chairman MANZULLO. Excuse me a second. I come from a small

town, and I take great exception to reference even to a small post

office as somehow being second class to a larger city post office——

Mr. SPATES. I was not——

Chairman MANZULLO [continuing]. Because the people that I deal

with at our post office have answers for every question. In fact, at

times he has even helped me fix my tractor. He knows the name

of my dog. Some carry biscuits.

Whenever a business person goes to a postmaster, regardless of

the size, and says I want to comply with the law I would expect

that postmaster to have the information and not have to rely upon

an association. It is not the job of the association to instruct people

in small businesses going into this. It is the job of the post office.

Mr. SPATES. I totally agree with you. I apologize that I gave the

impression. To show you just what a small town, 5,000 people

roughly, postmaster did for Mr. Tucci and his customers, those people were concerned that they were not getting their mail. He separated the mail and personally carried it down to Mr. Tucci’s organization separated for the people who had a 1583 and gave it to Mr.

Tucci.

You are right. The postmaster does bend over backwards in the

local communities to help them out, so while I do not know exactly

what transpired that first day they met, but Mr. Curtis kept bringing him up to date on what was required, and there still was not

any compliance.

Ms. VELA ́ ZQUEZ. Mr. Tucci, would you like to comment on that?

Mr. TUCCI. Yes. First off, if there was a problem with us not filing a 1583 in the first place, our customers were receiving their

mail for two years up until the new regulation took effect.

As for hand delivering our mail, that was after the mail was cut

off. In order for our customers to get their mail before it was sent

back to the sender, they went down to the postmaster, filled out

a 1583. Instead of Mr. Curtis handing them the mail then, he made

them come back to our store. He brought the mail back down to

our store and handed it to them there.

Ms. VELA ́ ZQUEZ. Yes?

Mr. SPATES. From my conversation with Mr. Curtis, they filled

out the 1583, and then he brought the mail down to them on sevVerDate 06-NOV-2001 04:35 Nov 06, 2001 Jkt 074727 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 E:\HR\OC\A727.XXX pfrm02 PsN: A727
29

eral occasions. It was not just you had to come to the post office

every day. He brought it down on several occasions.

He also allowed them to file a change of address if they wanted

to go somewhere else, to have their mail sent somewhere else. He

was helping the customer out who had a 1583.

Mr. Tucci was given plenty of advance notice, although it has to

be approved all the way up to the district manager level, to correct

the situation. Nothing was done, so we could not deliver the mail

for the other people.

Chairman MANZULLO. If you would yield?

Ms. VELA ́ ZQUEZ. Sure.

Chairman MANZULLO. Evidently nothing was done because people did not want to reveal the names of their children and their

ages, and they would not fill out the form. Is that correct, Mr.

Tucci?

Mr. TUCCI. Yes.

Chairman MANZULLO. That is why nothing was done. I would

defy anybody to take a look at the 1093 dated July of 1998, while

you are trying to find out if this is current, and Form 1583. There

is no language similar on here to indicate you have to list the

names of your children. I would never fill out a 1583 that listed

any of my children. That is no one’s business. That is not the business of the post office.

I doubt very much, Mr. Spates, whether or not if the name of my

children were on a form and I had a box and a document came addressed to them that you would think there was some kind of a

fraud. If that is where you are spending the time to look for fraud,

I can think of better places where it could be done than that.

We want to thank the first panel for coming, and we will continue to work on it. Mr. Spates, I appreciate your patience and everybody else here.

Mr. Hamerschlag, I appreciate the fact that the V.A. jumped on

this as soon as Mr. Eakes got a hold of you. I appreciate looking

forward to any other problems that may arise.

We have a vote here. During the period of time, the staff could

get the second panel ready.

[Recess.]

Chairman MANZULLO. We are going to start our second panel.

We continue this hearing on federal government competition with

small businesses.

Our first witness will be Scott Reisland, owner and manager of

Denali Grizzly Bear Cabins and Campground in Denali, Alaska. He

came all the way from Alaska to testify here today. Is that correct?

Mr. REISLAND. Yes, sir.

Chairman MANZULLO. And along with your son? Is he here?

Mr. REISLAND. My son and I are very excited to be here.

Chairman MANZULLO. We are honored that you came here and

at your own cost.

Mr. REISLAND. Yes, sir.

Chairman MANZULLO. We have a five minute rule, but we are a

little bit flexible. We appreciate your testimony. Why do you not go

ahead and start, Mr. Reisland?

30

STATEMENT OF SCOTT REISLAND, OWNER/MANAGER, DENALI

GRIZZLY BEAR CABINS/CAMPGROUND

Mr. REISLAND. Thank you. My name is Scott Reisland. I am from

Denali, Alaska. My parents moved to that area in Alaska during

the territory days and developed a small cabin and campground

business, which our family of five run to this day.

I am here also representing eight neighboring campgrounds in

the Denali area, along with the National Association of RV Parks

and Campgrounds, ARVC, which is our trade association. We have

concerns with National Park Service infringement on private enterprise nationwide.

The campgrounds around Denali and gift shop people and businesses in the tourist industry are very gravely concerned and are

being threatened by specifically Denali National Park and Preserve. The Park Service developed a plan for growth in the Denali

area with an increase in campsites, camper amenities such as delis,

gift shops, showers, a liquor store and other conveniences.

This development plan—Denali National Park was required to do

an economic impact on the surrounding businesses and an environmental impact. The environmental impact performed by the U.S.

Wildlife Service showed that this was critical moose habitat where

they planned to develop the campground and new facilities at and

that it was a very critical habitat and would have negative impacts

on the animals in the park.

No economic study was done to see or realize an impact with the

private sector. There was simply a statement that it was underprovided by the private sector. This was brought to the attention

of Superintendent Steve Martin of Denali National Park, and with

him the people voiced their concerns, businesses. The Denali Borough wrote resolutions in opposition of this growth.

I have a whole packet of letters from campground owners and

gift shop people in the Denali area, all private business, which I

would like to give to you in support of small business and the damage that this development at Denali Park would do to us.

Chairman MANZULLO. Could you suspend for a second, Scott?

The National Park Service was invited to participate at this hearing and specifically refused to get involved.

You are telling me that they never did conduct an economic impact study?

Mr. REISLAND. No, sir.

Chairman MANZULLO. And they have never requested any documents from any of the affected businesses?

Mr. REISLAND. We got together and had a hearing with Superintendent Martin. I set up the meeting. The Denali Borough was

present. We sent documents to them saying please look at our occupancy rates. Please look at the impact you will have on us. We

were hoping that this would be solved in-house, the problem solved,

and they would not continue with the development.

This summer they are bulldozing huge areas of the park. I have

pictures I have brought with me from Alaska showing all the new

development. They disregarded our pleas and our occupancy rates

and our information and moved forth.

Chairman MANZULLO. Why do you not go ahead and continue

with your testimony?

31

Mr. REISLAND. Okay. The Denali National Park says well, we

want to build rustic campsites. There are none available in the private sector. The outlying campgrounds, we are only two or three

or five miles from this proposed development area.

The private campground owners have developed showers, amenities, trying to draw visitors out of Denali Park and into the private

campgrounds. We have a difficult time with this because the Park

Service, with their large budgets, can offer small dollar costs for a

campsite. We cannot come close to what they can offer because we

have a host of taxes and maintenance, and we just do not have the

budgets that the park has to run the business.

The size. Superintendent Martin said that the growth is nominal.

Well, he is talking 50 sites which equates to 5,500 campsites which

we will lose in the Denali area because the park fills up. We survive only off the overflow after the park has absolutely no vacancies, so we are taking the scraps left from the Park Service in the

tourist industry, what is left over.

We are talking about 5,500 camp nights. A season is about 110

days in Denali. Everything is closed in the winter. This equates to

about $100,000 that the nine campgrounds are going to lose directly from this development, and that is a lot of money for us.

As I say, we are small mom and pop campgrounds, families that

have been there, homesteaders from the early territory days of

Alaska. Several. There are new people that have come in to develop

since there has been a growth in tourism, which we are not seeing

today. Tourism has actually dropped. Alaska is now below average

in visitation for states nationwide in tourism.

We have offered and we have shown the Park Service that we

can accommodate the extra tourist load, which we do not really see.

We are just very upset. I am here as a last resort to request some

help from this Committee and the people that I am meeting here

in Washington.

We just have a lot of family businesses whose livelihoods are on

the line directly because of the negative ramifications of the Park

Service competing with us.

Thank you.

[Mr. Reisland’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much.

We have some fights going on on the Floor. I beg your forgiveness for the inconvenience, but I have to run and go down and vote.

I will be right back.

[Recess.]

Chairman MANZULLO. James Madison said that the Constitution

was set up with a lot of hoops and loops and made purposely complex for the purpose of having good government. Forgive us.

Our next speaker will be Tom Mack. Tom is the owner and president of Tourmobile, Inc., of Washington. Mr. Mack?

STATEMENT OF TOM MACK, OWNER/PRESIDENT,

TOURMOBILE, INC.

Mr. MACK. Thank you, Mr. Chairman, for the privilege of——

Chairman MANZULLO. Mr. Mack, could you bring the mike closer

to you?

32

Mr. MACK. Thank you, Mr. Chairman, for the privilege of being

present and to share with you and the Committee a real life example of how government can step in and provide unfair financial subsidies and support for a non-profit organization that intends to

compete head on with a long time, tax paying, private company

that is already under contract with an agency of the federal government to provide the same transportation service.

It is longstanding federal government policy, as expressed in

OMB Circular A–76, the government should not compete with its

citizens. Our company, Tourmobile Sightseeing, began its operation

in 1969 after having won a contract from a prospectus presented

by the Park Service nationally, and after having won that contract

we were sued by some agencies of the federal government, as a

matter of fact, claiming that the Secretary of the Interior did not

have the authority to issue such a contract.

It is ironic that our relationship from that time on I would say

for 20 years or more has been excellent, outstanding, but recently

it is not what it has been, and communications have been poor.

The organization that has threatened us now is called D.C. BID,

District of Columbia Business Improvement District. This is a nonprofit organization, but has enlisted the support of a large number

of agencies of the federal government such as WMATA, the U.S.

Department of Transportation, GSA, National Capital Planning

Commission, and we even have information that the Smithsonian

Institution had intended to join this organization as, as they call

it, a stakeholder.

We acquired this information under the Freedom of Information

Act because we had heard rumors that our organization was being

threatened, and we simply did not know how it could be threatened

in that we had a contract that does not expire for another four and

a half years.

Nevertheless, the Washington Post, the Washington Business

Times, the Washington Journal, all wrote stories about the intention of BID, which is largely represented by the District of Columbia, to propose and operate a service directly competitive with ours.

The first time frame that I had was in the year 2001. They have

since moved it to 2003 and later to 2005. They change a lot, but

their objective remains the same. It is to operate a competing service as ours on the national mall.

In the beginning, and this is ironic, the Secretary of the Interior

was challenged, questioning his authority to issue such a contract.

The Supreme Court made a decision, which the Congress considers,

the way it is, the way it is going to be, that the federal government

has control over the federal enclave and certainly not an organization such as BID, which strongly represents the District of Columbia.

The Park Service now appears to at least hold serious discussions with this organization, BID, and we learned under Freedom

of Information that it has been doing so, communicating with them,

for two years. Although the Park Service has written a letter to

BID, to the mayor of the District, telling them in fact that our organization has a legitimate contract that will not be abrogated, we

have the right to do what we are doing, it took them more than

two years to write such a letter.

33

During that time, some of my managers, certainly some of our

employees, felt severely threatened. They did not know whether the

stories printed in the media and the electronic media also were

true and whether they would have a job.

In a case like that, our company has been threatened to the point

of possible destabilization. When the personnel are unhappy, when

they are uncertain of what they may be doing, even in the face of

attack that we have a contract, and I, of course, discussed that

with them and told them, they nevertheless were shaken when

they saw these articles in the newspaper and heard about it on television and on the radio.

The downtown Business Improvement District has no experience

operating a transportation operation. In its own statements it has

indicated that it proposes hiring someone to do it for them on federal land. One of those is WMATA, the metro system. The metro

has its hands full doing what it is presently doing. BID indicated

that if Metro could not do it, it would take the authority to find

someone else to do so.

We were simply surprised that an organization like the National

Park Service with whom we surely have had a close partnership

would take more than two years to address this organization and

tell them clearly and forthrightly you cannot do this, you cannot

operate on the national mall, there is a concessionaire there who

has operated 32 years and each and every year received high

marks for performance.

That again is disheartening when one works under those circumstances. The Park Service knows that this is unfair, unreasonable, but it did that.

The real culprit here, however, I feel is BID, which was able to

organize, to talk with and to get federal agencies to sign on as, as

they call them, stakeholders, and sign documents, which we received again under Freedom of Information, that they would support such an operation.

It is not possible for these organizations not to have known that

a contract was already in existence. As a matter of fact, they even

addressed the question arrogantly, in my opinion, feeling that they

can get around it and especially since the National Park Service

was present at their meetings I believe from the very beginning.

We are continuing our operation now. We expect to continue it.

We feel that after having served 50 million people over the 32

years that the quality of service speaks for itself, and we hope that

even after our contract ends in four and a half years a service similar to ours can continue to operate consistent with the Supreme

Court decision that pointed out very clearly that the Secretary of

the Interior had undeniable control over the federal mall and national parks.

Chairman MANZULLO. How are you doing on time there, Mr.

Mack?

Mr. MACK. Sir?

Chairman MANZULLO. How are you doing on time?

Mr. MACK. I am fine.

Chairman MANZULLO. Okay. Did you finish your thoughts?

34

Mr. MACK. I did, sir. I simply wanted to thank you and the Committee for this opportunity and to share an unfair competition

plight in which I and my company are the intended victims.

[Mr. Mack’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Dan Mastromarco.

That is a good Swedish name like Manzullo.

Mr. MASTROMARCO. That is exactly right.

Chairman MANZULLO. He is with the Travel Council for Fair

Competition. We look forward to your testimony.

STATEMENT OF DAN MASTROMARCO, TRAVEL COUNCIL FOR

FAIR COMPETITION

Mr. MASTROMARCO. Thank you. I appreciate it. I want to begin

by thanking you, Mr. Chairman, and also your staffer, Matthew

Szymanski, for putting this hearing together and focusing on this

very important issue.

My name is Dan Mastromarco, and I am executive director of the

Travel Council for Fair Competition, which is a coalition of several

small business trade associations that includes the National Tour

Association, the American Society of Travel Agents, the American

Bus Association, the American Hotel and Motel Association, America Outdoors and the National Park Hospitality Association.

We are formed to accomplish two objectives. First, to raise public

awareness of the problem of unfair competition both with respect

to government competition and non-profit unfair competition, second, to defeat misguided public policies which contribute to that

problem.

Mr. Chairman, two small business owners, as you know, have

joined me on this panel. One has literally crossed the tundra during his peak business season to tell his story. The other is the general manager of Tourmobile, a fixture in this nation’s capital. Let

me also introduce, as you pointed out, Mr. Reisland’s son, Donovan,

who is sitting behind me, who is exercising his own sort of oversight over our function today. What we are here to do is to prevent

Mr. Reisland and Mr. Mack from becoming Mr. Tucci on the first

panel: in other words, put out of business because of federal competition.

Let me begin by saying that I hope this Committee can help

their individual concerns. If you cannot, who will? Their presence

here demonstrates the degree to which their livelihoods are so

deeply affected by unfair competition. In a larger sense, however,

these gentlemen did not come here to represent their special interests or their business. They come to symbolize the national threat

of an abuse that cries out for constant vigilance and prioritization.

Allow me to make a few observations. First, unfair competition

is not localized, not sporadic and not confined to one business or

industry. It is burgeoning, it is widespread, and if you so chose to

you could extend these hearings several days on the problem confronting small business in the travel industry alone. Broaden that

to affected industries, and you would not have to leave this room.

Second, Mr. Chairman, it is not new. If we were to imply that

this is a new issue, the ghosts of the 1933 and 1955 Congress

would visit upon us. The history of unfair competition is marked

35

with a cavalcade of abuses and failed efforts to correct them over

more than three-quarters of a century.

Third, the position of small business is not wishy-washy. It is unequivocal. Mr. Chairman, TCFC members possess a fundamental

philosophy that has deep roots in the tenets of our republic. Government should not be engaged in activities that can be fulfilled by

private enterprise. The existence of small businesses are proof positive that government need not be duplicating their efforts.

We share this philosophy with good company. More than two

centuries ago, Thomas Jefferson had this to say. ‘‘Let the general

government be reduced to foreign concerns only except to commerce, which the merchants will manage the better the more they

are left free to manage for themselves, and our general government

may be reduced to a very simple organization and a very inexpensive one; a few plain duties to be performed by a few servants.’’

Let us compare his words to no less an authority than the manifesto of the Communist party by Karl Marx and Fredrick Engels.

It describes a state of affairs that would come to fruition once Communism takes root as, ‘‘Centralization of the means of communication and transport in the hands of the government . . . extension

of factories and instruments of production owned by the state . . .

and establishment of industrial armies.’’

Mr. Chairman, government competition is fundamentally unfair

because the government enjoys numerous and unquantifiable advantages. It is inefficient. As comedian P.J. O’Rourke said, effectively translating Jefferson’s words into the modern age, ‘‘You cannot get good Chinese take out in China nor Cuban cigars, and

Cuban cigars are rationed in Cuba.’’

Well, let me in the interest of expediency move to what I think

this Committee should look toward and seek to accomplish. First,

it is important, Mr. Chairman——

Chairman MANZULLO. You are about a minute overdue now.

Mr. MASTROMARCO. Oh, okay.

Chairman MANZULLO. Could you finish up in a minute so we can

make sure Mr. Hart testifies——

Mr. MASTROMARCO. I certainly will.

Chairman MANZULLO [continuing]. Before the bells go off again?

Mr. MASTROMARCO. All right. I think that it is important that

this Committee exercise constant vigilance by jealously and liberally using your oversight function.

Second, concentrate on specific agencies as you have done in this

hearing.

Third, work with the Administration to develop a cohesive national strategy for reliance on the private sector. You know, nearly

a quarter of a century ago GAO recommended a single national policy endorsed and supported by both the legislative and executive

branches, and their report is as valid then as it is today.

Let me just conclude in the following way. As your staff advances

into this issue, they will hear from naysayers that the problem cannot be solved. That is the time in which you wish to look back to

this hearing and think about our industry, a quintessentially commercial industry.

36

Why is the government more cost effective in operating a tour

bus or means of transportation, running campgrounds, mass transit, rafting trips? These are quintessential commercial activities.

We appreciate your time.

[Mr. Mastromarco’s statement may be found in appendix.]

Chairman MANZULLO. Thank you very much. It is kind of hard

to get everything into five minutes.

Our next witness is Clyde Hart, Jr. Clyde the vice-president of

the American Bus Association. He is here at the request of Ms.

Velazquez dealing with a very interesting situation going on in

New York.

Mrs. Vela ́zquez is tied up in a meeting. She extends her apologies. We appreciate the fact that you are here. Go ahead, Mr. Hart.

We look forward to your testimony.

STATEMENT OF CLYDE HART, JR., VICE-PRESIDENT,

AMERICAN BUS ASSOCIATION

Mr. HART. Thank you, Mr. Chairman. Good afternoon. My name

is Clyde Hart, and I am the vice-president of government affairs

for the American Bus Association.

The ABA is a national trade association representing the interests of the private intercity motorcoach industry. ABA is comprised

of approximately 3,400 member companies that operate buses and

provide related services to the motorcoach industry.

A.B.A. members provide all manner of bus services to 775 million

U.S. bus passengers annually. Our roster of members includes nationally known intercity bus passenger carriers, regional carriers

and family owned businesses across the nation.

I am here to make you aware of a serious problem that affects

the private bus industry, specifically the problem of unfair competition from publicly funded transit agencies, universities and national parks.

First a few words about the motorcoach industry represented by

ABA. The industry serves more than 4,000 communities directly

with scheduled or fixed route service. The industry is a small business success story, comprising almost 4,000 companies of which 90

percent operate fewer than 25 buses. The motorcoach industry accomplishes all this and more with the highest safety rating of any

commercial passenger transportation mode and all without benefit

of government subsidy.

This lack of subsidy is the core of my testimony. ABA members

face increased competition from transportation providers that are

subsidized. Not a week goes by without a call from an ABA member company complaining of a transit agency that has failed to provide proper notice as required by federal law of their intent to compete for a charter job or, worse, having lost their job to a subsidized

carrier.

Many times ABA is not notified of the charter bid, again as required by law. In addition, there have been instances where the

FTA has advised transit agencies how to structure proposed charter operations to circumvent the charter regulations and pass legal

muster.

The ABA keeps a record of examples of public transit agency incursions into charter operations. There are many. Just a few examVerDate 06-NOV-2001 04:35 Nov 06, 2001 Jkt 074727 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 E:\HR\OC\A727.XXX pfrm02 PsN: A727
37

ples include: in Oregon local transit agencies provided free passes

and charters, compliments of local transit agencies, to conventioneers and guests.

In North Carolina, a local transit agency provided charter transportation for college basketball tournaments and conventioneers.

And in Maine, when a local transit agency bid out a fixed route

service, private companies did not win the bid because the local

transit agency’s true overhead, as well as higher tax exemptions on

fuel, were not calculated fairly.

These practices by public transit agencies have a deleterious effect on our members and on the riding public. Having one’s business peeled away like an onion means that the operation will, in

time, lose the ability to provide service elsewhere along its system.

The FTA has actively encouraged the subsidized competition in

the past. For example, the charter restrictions do not apply to transit service that is scheduled service rather than charter. As long as

the transit agency can plausibly claim that the service falls outside

the definition of charter service then the private operator may not

challenge the transit service.

There is a growing problem with public transit agencies providing intercity service. While there is nothing in the law that allows public transit agencies to offer such service while receiving

FTA grant money, there is nothing in the law that expressly prevents it. This is because there is simply no workable definition of

intercity service in the law.

Indeed, FTA has determined that intercity service is merely

scheduled service for the general public with intermediate stops

over fixed routes connecting two or more urban areas. Given this

limited definition, it is no wonder that we are treated to the spectacle of public transit systems offering intercity system.

A.B.A. needs Congress and the FTA to establish a workable definition of intercity service for all types of bus operations. Greyhound

Bus Lines, for example, has complained of local public transit systems linking together to provide intercity service in California. Indian Trails Bus Company has lodged a similar complaint in Michigan. Without such a workable definition, it may quite literally be

possible for the New York transit system to offer intercity service

between New York City and Chicago, Illinois.

Even unlikely publicly subsidized organizations are beginning to

encroach on the private market. The Flagstaff Public School System, which owns and operates its own bus fleet in cooperation with

Northern Arizona University, also provides charter service. The

school district states they do ‘‘this to keep their drivers employed’’

during the summer.

Congress can resolve these concerns in two ways. First, require

FTA to establish a clear definition of inter city service that is not

eligible for federal funding. Second, specifically provide that transit

agencies may not provide regular route service beyond their urban

area boundaries.

On behalf of the ABA and its members, I want to thank you and

the Committee for the opportunity to address these issues.

[Mr. Hart’s statement may be found in appendix.]

Chairman MANZULLO. We appreciate that very much.

38

Again, I ask your apology for these beepers going on and off with

the votes. That is the reason why other Members are not here as

they had to hurry off to other engagements.

Scott, I have some problems with the way this whole issue of information and making the park land into a recreation area came

about and what was furnished to the small business people. My understanding is that you and was it seven other retail owners are

clustered around Denali? Is that correct?

Mr. REISLAND. That is correct. We are located all within—our

personal business is right on the south boundary of Denali Park,

which is six miles from the visitors center where everyone goes at

the entrance to the park.

Within an eight mile radius of that visitors center there is the

north boundary of the park, and there are campgrounds and all

types of camper amenities, gift shops, book stores. We are right

within a six, seven, eight mile area as close as we can get to the

park itself without being in the park, of course, yes. There are

quite a few businesses aside from camper parks that are also being

affected.

Chairman MANZULLO. Denali, prior to this major construction,

did offer campsites? Is that correct?

Mr. REISLAND. Yes.

Chairman MANZULLO. How many sites did they offer?

Mr. REISLAND. Riley Creek, which currently has existed for many

years, is 100 campsites, and that is the largest campground in all

the area.

They also have a campground about a couple miles away from

Riley Creek, which is called a rustic camping site, Marino Campground, which is run by the park. That is 60 sites. They also have

campgrounds on into the park.

Chairman MANZULLO. And those have been there for some time?

Mr. REISLAND. Yes, they have.

Chairman MANZULLO. How many spaces, how many sites, do

they want to add?

Mr. REISLAND. Fifty.

Chairman MANZULLO. Fifty. But they also want to add a bunch

of amenities? Is that correct?

Mr. REISLAND. Correct.

Chairman MANZULLO. My understanding also is that normally

the park fills up first, and then the eight retailers have enough of

the overflow?

Mr. REISLAND. Absolutely. The park fills up first for camping,

and then the people cannot find a spot to camp so they start trickling out to the boundaries of the park and going to the public or

private campgrounds. Private campgrounds.

Also with the park developing the 50 more sites, we will lose the

ancillary benefit of campers in our campgrounds, you know, buying

from our gift shops, from our little grocery stores, so we will also

lose money not only on hard camp nights and the money from paying for a campsite, but also in ancillary propane sales and that sort

of thing.

Chairman MANZULLO. When people buy items inside the park, do

they have to pay sales tax?

Mr. REISLAND. No, they do not.

39

Chairman MANZULLO. So the local communities become deprived

to a great extent of sales tax revenues by these items being purchased inside the park?

Mr. REISLAND. That holds true also with the camping facilities.

The private campgrounds outside the park boundaries pay taxes to

the Denali Borough, which runs the ambulance services, the fire

and a whole host of different programs, which the park is tax exempt from paying anything to the Denali Borough, yet they reap

the rewards of our tax dollars for getting ambulance service in the

park and fire department service. That is correct.

The Denali Borough has written a resolution. You will get a

packet as soon as we can copy it that shows resolutions from the

Denali Borough and the mayor strongly opposing the park in this

development because they will lose what is called overnight tax,

overnight accommodation tax that we have in Alaska.

Chairman MANZULLO. The National Park Service, though, complains that they are 20 years behind in construction and about

what, $8 billion short of the money that they need just to maintain

their present facilities. Have you heard those figures, Scott?

Mr. REISLAND. I imagine they were behind. At one time the park

was the only thing out there and so there was a reason for them

to have a liquor store and offer a little store and amenities because

that was it. It was all wilderness, several hundred miles away from

Fairbanks or about 400 miles away from Anchorage. If you were

to go to Denali, you needed those services.

Since then, the highway has come through between Fairbanks

and Anchorage, and it has become a lifeline between the two with

Denali Park in the center. Private enterprise has developed unbelievably in that area to take up and provide services for folks traveling to Denali.

I do not see why they need to expand any more of their own facilities because private enterprise is more than willing to supply

anything the park can provide and more.

Chairman MANZULLO. Who is the person with whom you were

having conversations at the National Park Service?

Mr. REISLAND. Superintendent Steve Martin.

Chairman MANZULLO. And he is at Denali?

Mr. REISLAND. At Denali.

Chairman MANZULLO. Has he been cooperative with you?

Mr. REISLAND. What he has told us—we have had meetings. We

have really wanted him to do a real economic impact study, so we

gave him what we have in our facilities, how many campsites we

have, how many electric RV sites, how many dry camping sites.

We gave him all this information hoping that he would look at

it and see the light that hey, there is a—we can accommodate the

increase in terms of outside the park in the private sector, but he

has taken a position that we are 100 percent occupied, and they

need to do the development.

Chairman MANZULLO. Is that his decision to make, or does it

come from higher up in Washington?

Mr. REISLAND. I do not know.

Chairman MANZULLO. It would be interesting to find out.

40

Mr. REISLAND. We have worked and tried very hard. The borough and the private sector has worked very hard to try to persuade Superintendent Martin to not go through with this.

Chairman MANZULLO. At what stage is the construction?

Mr. REISLAND. They are currently bulldozing, plowing trees,

clearing land for this development.

Chairman MANZULLO. What we are going to do is, I would like

you to get the information on the loss of business, the fact that you

are not 100 percent occupied, and get that to Attorney Szymanski.

We will send a letter to the superintendent and request that he

answer within a relatively short period of time. If he does not, then

he might be sitting here in Washington under subpoena.

I am very disappointed with the fact that the National Park

Service is discourteous in not sending somebody here to represent

them. I just cannot, you know, blowing off a Congressional Committee on items this critical.

Is anybody in this room here from the National Park Service? No

representatives at all?

Mr. MASTROMARCO. If they were, I am not sure they would admit

it.

Chairman MANZULLO. You know, they would have been sent

here. I did not say that to embarrass anybody, but not having anybody here to testify is not—you do not do that.

Mr. REISLAND. Sir, we have the list of all documents in support.

Chairman MANZULLO. Matt, if you could write that letter? We

will get on that right away. I have a question to ask you, Mr.

Mack. We hear nothing but great compliments of the Tourmobile.

As people contact our office, we let them know that this is the best

way to get around in Washington.

My first question to you is, is there a need for another service?

In other words, are all your coaches filled all the time? Are there

people that are turned away from your service that would necessitate another line coming in?

Mr. MACK. No, there is not a need for another service. We are

well serving those people who are interested in getting on our service.

We at one time carried upwards of two million people annually.

Presently we are carrying about 1.4 million or 1.5 million.

Chairman MANZULLO. Is there a reason for that?

Mr. MACK. Increased competition. You know, really the Park

Service could address a question like this, but one thing is very

clear. Information that we received, again from a Freedom of Information request, is that our operation does not do as well as it

might because the Park Service has not done what it said it intended to do in the first place, which was under the old and esteemed McMillen Plan, the federal plan, was intended to be a pedestrian mall with a mass transportation system operating

throughout with an absence of traffic and parked cars.

I know that the Park Service has tried to some extent to do that.

They do acknowledge that it is a problem. They have not been able

to achieve it. That to a fair extent decreases our ability to accomplish what we might otherwise do.

There is no need certainly, absolutely not, for a service similar

to ours there now as we are there.

41

Chairman MANZULLO. Would they be running the same routes as

you?

Mr. MACK. The one proposed by BID covers our route, yes, in addition to others throughout the city. Their objective, as clearly stated in their information, which we have, is their title suggests what

they intend to do, business improvement district.

At the top of their circulator plan they state their intention, and

their intention is to take people, tourists, off the mall and take

them throughout the city of Washington.

Chairman MANZULLO. In the information that you gave us appears this interesting statement by BID. It says, ‘‘The purposes of

the Tourmobile and the circulator are different. However, as the

Tourmobile is an interpretive service to present and explain the

area to visitors, the circulator’s function is transportation and marketing.’’ Come on.

Mr. MACK. That is their intention. However, they are relegating

the importance of a very old Park Service tradition I believe started by——

Chairman MANZULLO. That is like giving them straight As.

Mr. MACK. President Theodore Roosevelt, and that is one of interpretation. That is part of the Park Service’s job to interpret. You

find Park Service personnel at monuments, memorials, battlefields,

various places, historic houses. I am pleased to say that it was the

Park Service’s very good idea.

Chairman MANZULLO. That is how they are trying to circumvent

breach of contract is to say it is something different.

What does Tourmobile have, 22 or 23 different stops throughout

the——

Mr. MACK. Yes, sir. Twenty-five.

Chairman MANZULLO. Twenty-five different stops. The people get

on and off. They get back on with shopping bags full of stuff and

do all kinds of things on that tour, do they not?

Mr. MACK. Yes. Yes, sir.

MALE VOICE. And learn a lot about the District.

Chairman MANZULLO. They learn a lot about the District, buy a

lot of things and pay a lot of sales tax.

I cannot see any qualitative distinction between what you are

doing and what they are trying to do.

Mr. MACK. I see their intention is to expand their business. They

are into a lot of things. We got their annual report—it is a financial

report—off of the web and discovered some of the things that they

are doing. They are doing a lot of things, but they are subsidized.

Chairman MANZULLO. For example?

Mr. MACK. Helping the homeless, cleaning streets, offering information to tourists, among other things, but it is subsidized by the

District government primarily. And now they feel that, whether

that has been successful or not I am not qualified to say, but it is

clear here that their next intention is to get into the transportation

business.

Chairman MANZULLO. Did you have some questions from Mrs.

Velazquez that you wanted me to ask to Mr. Hart on the issue in

New York?

FEMALE VOICE. No.

42

Chairman MANZULLO. Okay. There is some kind of a conference

coming up in New York that a bid went out recently with a private

carrier in the city?

Mr. HART. Yes. I am confused a little bit, Mr. Chairman, because

there are conferences in New York City all the time, but I do remember Rochester Transit getting a bid to provide transportation

to a conference while in New York City.

Chairman MANZULLO. That is correct.

Mr. HART. Yes. Again, we think that is just something that a private business could do.

Chairman MANZULLO. Do you have more details on that?

Mr. HART. I could certainly provide them for you, Mr. Chairman.

Chairman MANZULLO. Okay. If you could, I would appreciate it

very much.

Mr. HART. Certainly.

Chairman MANZULLO. I appreciate you all coming here. I again

appreciate the indulgence of the time.

Scott, you came all the way. You literally crossed the tundra to

come here. How long are you going to be in Washington?

Mr. REISLAND. I will leave, sir, on the 21st, so I will get to do

some sightseeing, which I am very excited about and my son is

very excited about.

Chairman MANZULLO. Well, if there is anything that our office

can do personally, stop on by. We will give you tickets.

I expressed to Mr. Young here, a Member of Congress, that you

were here, and I know he wanted to stop by and exchange hellos

with you, but that just was not possible.

Again, I want to thank all of you for coming. All of your statements will be made part of the permanent record.

This Committee is adjourned.

[Whereupon, at 1:40 p.m. the Committee was adjourned.]

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