79–006

106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 106–937

RECALCULATION OF FRANCHISE FEE OWED BY FORT

SUMTER TOURS, INC.

OCTOBER 5, 2000.—Committed to the Committee of the Whole House on the State

of the Union and ordered to be printed

Mr. YOUNG of Alaska, from the Committee on Resources,

submitted the following

REPORT

together with

DISSENTING VIEWS

[To accompany H.R. 3241]

[Including cost estimate of the Congressional Budget Office]

The Committee on Resources, to whom was referred the bill

(H.R. 3241) to direct the Secretary of the Interior to recalculate the

franchise fee owed by Fort Sumter Tours, Inc., a concessioner providing service to Fort Sumter National Monument in South Carolina, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill

as amended do pass.

The amendment is as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. RECALCULATION OF FRANCHISE FEE.

(a) DEFINITIONS.—In this section:

(1) FRANCHISEE.—The term ‘‘franchisee’’ means Fort Sumter Tours, Inc., a

concessioner providing service to Fort Sumter National Monument, South Carolina.

(2) SECRETARY.—The term ‘‘Secretary’’ means the Secretary of the Interior.

(b) RECALCULATION OF FRANCHISE FEE.—Not later than 30 days after the date of

enactment of this Act, the Secretary shall—

(1) recalculate the amount (if any) of the franchise fee owed by the franchisee;

and

(2) notify the franchisee of the recalculated amount.

(c) ARBITRATION.—

(1) IN GENERAL.—If the amount of the franchise fee as recalculated under subsection (a) is not acceptable to the franchisee—

(A) the franchisee, not later than 5 days after receipt of notification under

subsection (b)(2), shall so notify the Secretary; and

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(B) the amount of the franchise fee owed shall be determined through

binding arbitration that provides for a trial-type hearing that—

(i) includes the opportunity to call and cross-examine witnesses; and

(ii) is subject to supervision by the United States District Court for

the District of Columbia in accordance with the title 9, United States

Code.

(2) SELECTION OF ARBITRATOR OR ARBITRATION PANEL.— (A) AGREEMENT ON ARBITRATOR.—For a period of not more than 30 days

after the franchisee gives notification under paragraph (1)(A), the Secretary

and the franchisee shall attempt to agree on the selection of an arbitrator

to conduct the arbitration.

(B) PANEL.—If at any time the Secretary or the franchisee declares that

the parties are unable to agree on an arbitrator—

(i) the Secretary and the franchisee shall each select an arbitrator;

(ii) not later than 10 days after 2 arbitrators are selected under

clause (i), the 2 arbitrators shall select a third arbitrator; and

(iii) the 3 arbitrators shall conduct the arbitration.

(3) COMMENCEMENT AND COMPLETION.—An arbitration proceeding under

paragraph (1)—

(A) shall commence not later than 30 days after the date on which an arbitrator or arbitration panel is selected under paragraph (2); and

(B) shall be completed with a decision rendered not later than 240 days

after that date.

(4) APPLICABLE LAW.— (A) RELEVANT TIME PERIOD.—The law applicable to the recalculation of

the franchise fee under this subsection shall be the law applicable to franchise fee determinations in effect at the beginning of the period for which

the franchise fee is payable.

(B) PREVIOUS DECISIONS.—No previous judicial decision regarding the

franchise fee dispute that is the subject of arbitration under this subsection

may be introduced in evidence or considered by the arbitrator or arbitration

panel for any purpose.

(5) FEES AND COSTS.—If the franchisee is the prevailing party in binding arbitration, the arbitrator or arbitration panel shall award the franchisee reasonable attorney’s fees and costs for all proceedings involving the disputed franchise fee consistent with—

(A) section 504 of title 5, United States Code; and

(B) section 2412 of title 28, United States Code.

(d) BIDS AND PROPOSALS.—Until such date as any arbitration under this Act is

completed and is no longer subject to appeal, the Secretary—

(1) shall not solicit or accept a bid or proposal for any contract for passenger

service to Fort Sumter National Monument; and

(2) shall offer to the franchisee annual extensions of the concessions contract

in effect on the date of enactment of this Act.

PURPOSE OF THE BILL

The purpose of H.R. 3241 is to direct the Secretary of the Interior

to recalculate the franchise fee owed by Fort Sumter Tours, Inc.,

a concessioner providing service to Fort Sumter National Monument in South Carolina, and for other purposes.

BACKGROUND AND NEED FOR LEGISLATION

Fort Sumter Tours (FST) is a relatively small family owned and

operated park concession providing visitor transportation, by boat,

to Fort Sumter National Monument administered by the National

Park Service. FST is currently the only concessioner which provides service for visitors to see Fort Sumter. FST has annual gross

concession income of approximately $2.2 million and provides employment for approximately 40 families. Since 1962, FST has provided exemplary service to Fort Sumter to the satisfaction of the

public and the National Park Service.

In the mid-1980s the National Park Service required FST to make a capital investment of approximately $1.5 million to improve

visitor services. Given the size of the investment, a 15-year concesVerDate 11-MAY-2000 21:15 Oct 06, 2000 Jkt 089006 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\HR937.XXX pfrm11 PsN: HR937
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sions contract was executed in 1986. At that time a franchise fee,

which by law is to reflect the ‘‘probable value’’ of the contract privileges, was established by the National Park Service at 4.25% of

gross receipts. There was no change in the contract privileges, but

at the end of the first five year period, the Park Service notified

FST that based upon a five year reconsideration of the franchise

fee (February 1992) the probable value of the contract privileges

had increased. The Park Service demanded a new fee of 12% of

gross receipts.

According to Park Service guidelines (NPS–48), a franchise fee

reconsideration takes place in two discrete steps. First the Park

Service determines whether a change in the current franchise fee

is warranted. If not, no further analysis is needed and the fee remains as is. If a change is found to be warranted, the second step

involves the Park Service setting maximum amount of the franchise fee, and the calculation of that fee. In the case of FST, however, numerous and egregious errors were committed by the Park

Service at both of these steps. At the first step, determining whether a franchise fee increase is warranted, the Park Service is supposed to compare concession net income with concession gross receipts, assets, and equity, then determine concession profitability,

and then compare the profitability with other industry norms. With

FST, however, the Park Service instead added FST’s concession

and non-concession income and compared that with only the concession receipts, assets, and equity. The effect of this was to vastly

overstate FST’s concession profitability by over 80% which led to

nearly tripling the franchise fee. Had the Park Service not committed this error, under its own guidelines, the fee would have remained at 4.25%.

The situation worsened for FST with numerous other mistakes

in the second step after the Park Service erroneously calculated

that a franchise fee increase is warranted. For example, when setting the maximum franchise fee the Park Service also included the

non-concession income, which allowed the maximum fee to be set

at 16.6% instead of 8.7% if calculated correctly. Effectively, this exceeds the maximum fee permitted using the Park Service’s own

guidelines by 73%.

Other examples of Park Service errors include: (1) inappropriate

and inaccurate use of the Dun and Bradstreet Industry norms

which were not derived from comparable industries, were not representative of FST, and did not offer a large enough sample size

to make valid comparisons; (2) discounting the actual cost of a new

vessel purchased by FST and used in the concession business; (3)

disallowing substantial expenses incurred by FST ; and (4) assuming away legitimate equity invested by FST. Combined, these errors have led to an insurmountable and intolerable situation for

FST.

Fort Sumter Tours, Inc. has been in continuous litigation with

the Park Service over the increased franchise fee since 1993. FST

has lost three court cases at the federal District Court and the U.S.

Court of Appeal level, including a suit recently settled in favor of

the federal government in the U.S. District Court for the District

of Columbia. However, the issues of the actual data used in fee calculation and the additional non-concession income in the franchise

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fee calculation were never addressed by the courts and never resolved.

H.R. 3241 will attempt to correct the calculation errors by requiring the Secretary of the Interior to reassess the franchise fees owed

by Fort Sumter Tours Inc. This is to be done within 30 days of enactment and to the approval of Fort Sumter Tours Inc. If an acceptable agreement is not reached, the matter must be referred to binding arbitration under the National Parks Omnibus Management

Act of 1998 (Public Law 105–391). The arbitration must commence

no later than 30 days after Fort Sumter Tours Inc. deems the recalculation unacceptable.

H.R. 3241 assures that laws applicable to franchise fee determination at the time payment became due will be used during arbitration. Further, prior decisions regarding the franchise fee dispute

may not be considered or used as evidence for any purpose. Reasonable legal fees and costs of the proceedings shall be awarded to

Fort Sumter Tours, Inc. by the arbitrators Fort Sumter prevails.

COMMITTEE ACTION

H.R. 3241 was introduced on November 5, 1999, by Congressman

Mark Sanford (R–SC). The bill was referred to the Resources Committee and within the Committee to the Subcommittee on National

Parks and Public Lands. On March 30, 2000, the Subcommittee

held a hearing on the bill. On April 13, 2000, the Subcommittee

met to consider the bill. No amendments were offered, and the bill

was ordered favorably reported to the full Resources Committee by

a vote of 7–4, as follows:

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On July 26, 2000, the Resources Committee met to consider the

bill. An amendment in the nature of a substitute was offered by

Congressman James V. Hansen (R–UT) which conformed the

House bill to language in the Senate bill (S. 2231). The amendment

was adopted by voice vote. No further amendments were offered

and the bill, as amended, was ordered favorably reported to the

House of Representatives by voice vote.

COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of rule XIII

of the Rules of the House of Representatives, the Committee on Resources’ oversight findings and recommendations are reflected in

the body of this report.

CONSTITUTIONAL AUTHORITY STATEMENT

Article I, section 8, and Article IV, section 3 of the Constitution

of the United States grant Congress the authority to enact this bill.

COMPLIANCE WITH HOUSE RULE XIII

1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the Rules of

the House of Representatives requires an estimate and a comparison by the Committee of the costs which would be incurred in carrying out this bill. However, clause 3(d)(3)(B) of that Rule provides

that this requirement does not apply when the Committee has included in its report a timely submitted cost estimate of the bill prepared by the Director of the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974.

2. Congressional Budget Act. As required by clause 3(c)(2) of rule

XIII of the Rules of the House of Representatives and section

308(a) of the Congressional Budget Act of 1974, this bill does not

contain any new budget authority, credit authority, or an increase

or decrease in tax expenditures. According to the Congressional

Budget Office, the bill could affect offsetting receipts and the

spending of those receipts, but concludes that the effect ‘‘would

have no net impact on the federal budget.’’

3. Government Reform Oversight Findings. Under clause 3(c)(4)

of rule XIII of the Rules of the House of Representatives, the Committee has received no report of oversight findings and recommendations from the Committee on Government Reform on this

bill.

4. Congressional Budget Office Cost Estimate. Under clause

3(c)(3) of rule XIII of the Rules of the House of Representatives and

section 403 of the Congressional Budget Act of 1974, the Committee has received the following cost estimate for this bill from the

Director of the Congressional Budget Office:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 3, 2000.

Hon. DON YOUNG,

Chairman,Committee on Resources,

U.S. House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 3241, a bill to direct the

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Secretary of the Interior to recalculate the franchise fee owed by

Fort Sumter Tours, Inc., a concessioner providing service to Fort

Sumter National Monument in South Carolina.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Deborah Reis.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

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

in South Carolina

H.R. 3241 would require the National Park Service (NPS) to recalculate the franchise fee that it charges to Fort Sumter Tours,

Inc. (FST), a concessioner providing transportation to visitors at

Fort Sumter National Monument. If the recalculated fee is not acceptable to FST, a new fee would be established through binding

arbitration. The bill would require that the arbitrator award FST

reasonable legal costs of all proceedings involving the fee dispute

if the concessioner is the prevailing party.

CBO cannot estimate the budgetary impact of H.R. 3241 because

it would probably depend on the outcome of a legal proceeding that

has not yet occurred. We expect that the dispute over the FST franchise fee of between 4.25 percent (which is what the company currently pays the NPS) and 12 percent (which is the adjusted rate

established by the agency in 1991).

Under the higher rate of 12 percent, the federal government

could receive about $3 million in fees, interest, and penalties owed

by FST since 1991. This amount could be collected—and spent—in

the absence of legislation because the NPS has recently begun administrative action to collect it. (To date, FST has not paid the

higher rate.) If the lower rate would be chosen by an arbitrator, the

government would lose the $3 million owed to it (assuming that the

arbitrator would make the lower rate retroactive to 1991). In addition, if the arbitrator would deem FST to be the prevailing party,

the government would have to pay about $500,000 in legal costs

that have been incurred by the company over the past several

years to dispute the 12-percent rate. According to the Department

of the Interior, this payment would be made from appropriated

NPS funds, assuming the availability of the necessary amounts.

What would happen to annual franchise fees after arbitration is

also uncertain, CBO expects that by the time a decision would be

reached, the FST concession contract will be expired.

Annual offsetting receipts (and associated direct spending) from

franchise fees after 2001 would depend on the outcome of competitive bidding for the concession.

H.R. 3241 could affect offsetting receipts (a credit against direct

spending) and the spending of those receipts; therefore, pay-as-yougo procedures would apply. CBO estimates, however, that because

the NPS would probably have been allowed to spend the amounts

that it would have received in the absence of arbitration, the loss

of such amounts would have no net impact on the federal budget.

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The bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would

impose no costs on state, local, or tribal governments.

On October 2, 2000, CBO transmitted a cost estimate for S. 2331,

a similar bill ordered reported by the Senate Committee on Energy

and Natural Resources on September 20, 2000. The two estimates

reflect differences in the two versions of the legislation, primarily

the treatment of legal expenses of FST if the company would be

deemed the prevailing party.

The CBO staff contact for this estimate is Deborah Reis, who can

be reached at 226–2860. The estimate was approved by Peter H.

Fontaine, Deputy Assistant Director for Budget Analysis.

COMPLIANCE WITH PUBLIC LAW 104–4

This bill contains no unfunded mandates.

PREEMPTION OF STATE, LOCAL OR TRIBAL LAW

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

CHANGES IN EXISTING LAW

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

(9)

DISSENTING VIEWS

There is no justification for this legislation and its approval

would set an unwise precedent. As a result, we urge our colleagues

to oppose H.R. 3241.

Fort Sumter Tours (FST) has had a contract with the National

Park Service (NPS) to operate a tour boat service to and from Fort

Sumter National Monument since 1961. The Fort is accessible only

by boat and virtually all of its 230,000 annual visitors must use

FST.

In 1986, FST renewed its contract with the NPS, which now runs

through December 31, 2000. The contract set FST’s franchise fee at

4.25% of gross receipts and specified that the fee was to be recalculated every five years. Importantly, the contract specified that,

while FST could request advisory arbitration to help resolve disputes, the only appeal of a fee recalculation was to the Secretary

of the Interior.

In 1991, the NPS notified FST of its intention to raise the franchise fee from 4.25% to 12% of gross receipts for the second fiveyear contract period (June 1991 to June 1996). FST objected, claiming that the NPS had made numerous accounting and mathematical errors in its fee recalculation. However, rather than entering advisory arbitration as provided for in the concessions contract,

FST sued the NPS in federal court in South Carolina where it lost

at trial and on appeal (the Supreme Court declined to review the

case). Subsequently, FST re-filed its lawsuit in federal court in the

District of Columbia, where it again lost both at trial and on appeal. Throughout the litigation, NPS stood by the new fee but did

not terminate the FST contract despite the fact that FST has only

been paying 4.25% since 1986. FST currently owes the NPS more

than $2 million in back fees, penalties and interest.

H.R. 3241 would have Congress intervene in this ongoing dispute

by directing the Secretary of the Interior to recalculate the franchise fee that, according to the bill, is ‘‘allegedly’’ owed by FST.

Further, the legislation specifies that if the recalculation is not acceptable to FST, the franchise fee owned shall be determined

through binding arbitration. In addition, the legislation states that

none of the previous court decisions regarding the fee dispute may

be ‘‘introduced into evidence or considered by the arbitrators for

any purpose.’’ In effect, H.R. 3241 would have the congress re-write

contractual provisions agreed to by both parties in 1986 to provide

Fort Sumter Tours a remedy not contained in the original contract,

that of binding arbitration.

The consequences of such a step for the Park Service would be

very serious. The NPS is currently party to thousands of concessions and other contracts, the terms of which are relied upon to

allow our National Park system to function. Should we pass H.R.

3241, it will be clear that those contract terms are reliable only

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until Congress decides to alter them. Never again will NPS be able

to enter a contract with the assurance that the contract terms will

not be altered during the life of the contract. Never again will a

party contracting with the NPS be assured that the agreement

they are signing today will be the same agreement in effect tomorrow. It is difficult to imagine how the NPS, or any other contractor,

might accomplish its mission under these circumstances.

Furthermore, passage of this measure would override the decisions of two Federal District Courts, two Federal Courts of Appeals

and the U.S. Supreme Court and would specify that those decisions

are to be ignored in the arbitration proceeding mandated by the

bill. With passage of this measure, the Congress would erase a decade of jurisprudence in this case and then mandate that all parties

ignore everything gleaned from those decisions.

Proponents of the bill argue such intrusion into the judicial process is necessary because none of the courts mentioned above

reached the issue FST claims is central to its case, namely that the

NPS made several mathematical mistakes in recalculating FST’s

franchise fee in 1991. This is both true and irrelevant.

FST voluntarily elected to ignore the appeals process provided for

in its contract and instead sought judicial review. The courts held

that , under the terms of that contract, the franchise fee was reviewable by the Secretary but not by the courts and that such a

system of review is reasonable. If what FST wanted was a review

of the mathematical calculations underlying the new fee, it should

have used the appeals process set out in the contract to which they

agreed. That FST failed in its attempts to secure from the courts

relief to which it was not entitled is neither surprising nor a justification for Congressional intervention.

In addition to the National Park Service and the Judiciary, H.R.

3241 has negative policy ramifications for the Congress itself. Rather than focusing on the significant policy issues raised by the concessions system throughout our national parks, this bill would establish a precedent for Congress to intervene on a case by case

basis to mandate specific remedies for individual concessioners.

Neither the hearing record in this case, no the legislation itself provide an explanation of why this case was worthy of legislation action. As a result, it is unclear on what basis Congress might refuse

to consider future legislation re-writing each and every disputed

contract in the park system.

In addition to these policy concerns, H.R. 3241 represents poorly

crafted legislation. The bill mandates that, if the concessioner is

the ‘‘prevailing party’’ in this arbitration, he shall be awarded his

attorney’s fees. Given the length of this litigation, we can only assume this represents a significant sum of money. However, the legislation fails to define the term ‘‘prevailing part.’’ The NPS position

is that FST owes $2.2 million while FST’s position is unclear but

may be that they owe nothing. Given the wide variety of decisions

an arbitrator might reach when the parties are more than $2 million apart, determining whether or not FST is owed attorney’s fees

may be impossible.

Finally, the legislation mandates that, despite the fact that FST’s

current contract expires this December, the National Park Service

will be required to offer FST annual contract renewals for as long

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as this arbitration, and any appeals, are pending. Given FST’s

penchant for endless, and so far fruitless appeals, this could guarantee FST the concession at Fort Sumter for a fifth decade or more,

presumably at whatever fee they are willing to pay. Not only does

this violate every principle of our concessions system, it also allows

FST to continue building on its $2.2 million dollar unpaid debt.

How large might the loss to taxpayers be if the Park Service ultimately prevails but, thanks to passage of this bill, FST has had another ten or more years to rack up a debt they cannot satisfy?

Fort Sumter Tours has enjoyed a tax-payer subsidized, government-sponsored monopoly for almost forty years. Over those four

decades, FST’s business has expanded consistently and is now a

multi-million dollar operation involving a variety of non-concessions activities including dinner cruises and sightseeing tours. FST

has shown itself to be fully capable of defending itself and has had

its day in court on a number of occasions. FST does not need a legislative remedy nor do the facts of this case merit one. Given the

disastrous ramifications of granting FST such a remedy, this legislation should be defeated.

GEORGE MILLER. FRANK PALLONE. MARK UDALL. CARLOS ROMERO-BARCELO ́

. JOSEPH CROWLEY.

Æ