Statement by John Palatiello on Federal Prison Industries

Statement of the U.S. Chamber of Commerce presented by John Palatiello before the Federal Prison Industries, Board of Directors

October 24, 2002

The U.S. Chamber is the world's largest federation of business organizations, representing more than three million businesses and professional organizations of every size, sector and region of the country. The Chamber serves as the principal voice of the American business community. The Chamber respectfully submits these comments for the record of the Federal Prison Industries (FPI) Board of Directors meeting.

Mr. Chairman and Members of the Board, I am John Palatiello, Executive Director of MAPPS, a national association of firms in the surveying, spatial data and geographic information systems field. I am also a member of the U.S. Chamber of Commerce and have the privilege of serving as the Chair of the Chamber's Privatization and Procurement Council. It is on the Chamber's behalf that I appear before you today.

For many years, the Chamber has led the business, labor and federal managers coalition that advocates comprehensive, fundamental reform of FPI. Legislative reform is way overdue and more oversight by the FPI Board and Congress is needed now. We appreciate your outreach to the business community and invitation to come before you to discuss issues that you as the new FPI Board can address to foster better businesses practices for this organization.

Unauthorized Expansion

The Chamber's Privatization and Procurement Council provides a forum for members to share information and discuss issues important to their business or organization. Membership on the council is representative of the Chamber's overall membership as it ranges from the nation's largest federal contractors to small business owners with fewer than 50 employees. You would be amazed at the large percentage and broad array of businesses that bring the FPI reform issue to the table during policy discussions among members. Businesses involved in anything from mapping and engineering to optical labs, furniture and apparel manufacturing to those furnishing fire equipment and other equipment to our first responders can tell a different story of how FPI's unfair "competition" has impacted them. None of them dispute the need to better rehabilitate prisoners but all agree it should not be done on the backs of the private sector or result in blatant waste of taxpayer's dollars.

Unfortunately, many Chamber members, especially small businesses, are afraid to speak publicly about their individual experience for fear of retaliation by FPI itself. The fear of losing just one contract that could literally force their company out of business is enough to silence an entrepreneur from even speaking out against FPI's unfair practices. All businesses, not just those marketing to the federal government, could easily fall victim to the next FPI expansion. They have even witnessed FPI grant itself authority to enter into the commercial market for services.

FPI's Board of Directors has been given broad statutory authority by Congress to decide what goods FPI will be authorized to produce and the amount of a product FPI will be permitted to offer. The Board is to ensure that FPI employs the maximum number of inmates possible without adversely impacting the private sector. Despite this broad statutory authority, it seems that FPI staff has, to date, been able to revamp a great deal of the Board's authority in practical terms. Today, FPI staff appears to be making decisions on product line expansion, drafts impact studies that justify the expansion, and then may be actually drafting the Board's decision authorizing the expansion. If true, we urge you to reclaim your authority to minimize FPI's adverse impact on the private sector.

Commercial Market Expansion

FPI's desire to expand into the commercial marketplace is an alarming development that is seen as a call to arms by industry. The Chamber for three reasons opposes FPI's move into the commercial marketplace. First, the decision to expand into the commercial marketplace is in conflict to the clear language of FPI's enabling legislation and therefore arbitrary, capricious and beyond the discretion of the Board. Second, it is a reversal of more than sixty years of public policy. Finally the creation of a state run enterprise, competing with its own citizens, is a policy so at odds with the role of government in a free society, that it is a decision best left to Congress.

Title 18 U.S.C. section 4122(a) specifically states:

Federal Prison Industries shall determine in what manner and to what extent industrial operations shall be carried on in Federal penal and correctional institutions for the production of commodities for consumption in such institutions or for sale to the departments or agencies of the United States, but not for sale to the public in competition with private enterprise.

This section, the very first provision in the statute governing the administration of FPI, spells out in clear, plain language that the markets for prison commodities is other prisons and federal agencies, but not for sale in the commercial marketplace. Since its inception in 1934, FPI has adhered to this statutory prohibition preventing it from entering commercial markets. They have exclusively, and with preferential status, sold their products to the federal government. In other words, for more than sixty years, FPI had interpreted their statute to mean what it says, "but not for sale to the public in competition with the private sector."

Now however, despite this seemingly clear prohibition on entering the commercial market found in the statute, recent evidence shows they have engaged in expansionist practices. Sixty-five years of public policy should not be overturned, especially without public debate. The United States should not be selling commercial services in competition with law abiding taxpaying businesses, using prison labor that is paid no more than $1.25 an hour. FPI's expansion in the commercial market is a dramatic shift in policy, and in conflict with the clear language of 18 U.S. C. 4122(a). We urge that you examine this expansion and take action to halt FPI's activity in the commercial market.

FPI Lobbying Activity

One final note, we are concerned that FPI's current management staff is, we are told, lobbying Congress on legislative proposals without obtaining the necessary clearance procedures from the Office of Management and Budget (OMB). And I should emphasize FPI staff continued to lobby House Judiciary Committee members advocating changes to H.R. 1577, the FPI Competition in Contracting Act during the committee mark-up even after OMB intervened by asking the Justice Department to hold FPI staff at bay. It is alarming that FPI staff may be continuing this unauthorized conduct, thereby inaccurately portraying the Administration's position to Members of Congress and their staff.

Again, thank you for the opportunity to appear before you today on behalf of the U.S. Chamber of Commerce and submit these comments on behalf of Chamber members, small and large, that rely on an efficient, fair competitive process in providing the federal government with goods and services to maintain and grow their businesses. I'd be happy to answer any questions you might have. Thank you.