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MC-UMCOR

HEARING

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY
AND JUDICML ADMINISTRATION

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION

MARCH 11, 1993

rial No. 15

krrs [\ MS

BOSTON PUBLIC LIBRARY =

GOVERNMENT DOCUMENTS DEPART

Printed for the use of the Committee on the Judiciary

72-576 cc

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1994

For sale by the U.S. Government Printing Office
Superintendent of Document.s, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043637-0

^H ■ s S'^/i '■ 10:1 / /^

MM. PRISON INDUSIEIES, INC-UNICOR

HEAEING

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY
AND JUDICAL ADMINISTRATION

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION

MARCH 11, 1993

rial No. 15

h.rri M /iJo3

BOSTON PUBLIC LIBRARY' i

GOVERNMENT DOCUMENTS DEPART '■

Printed for the use of the Committee on the Judiciary

72-576 CC

U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1994

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043637-0

COMMITTEE ON THE JUDICIARY

JACK BROOKS.

DON EDWARDS, California
JOHN CONYERS, JR., Michigan
ROMANO L. MAZZOLI, Kentucky
WILLIAM J. HUGHES, New Jersey
MIKE SYNAR, Oklahoma
PATRICIA SCHROEDER, C<4orado
DAN GLICKMAN, Kansas
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Vinginia
JOHN BRYANT, Texas
GEORGE E. SANGMEISTER, IHinois
CRAIG A. WASHINGTON, Texas
JACK REED, Rhode Island
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
DAVID MANN, Ohio
MELVIN L. WATT, North Carolina
XAVIER BECERRA, California

Texas, Chairman
HAMILTON nSH, JR., New York
CARLOS J. MOORHEAD, California
HENRY J. HYDE, minds
F. JAMES SENSENBRENNER, JR.,

Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
STEVEN SCHIFF, New Mexico
JIM RAMSTAD, Minnesota
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Vir^ginia

Jonathan R. Yarowsky, General Counsel

Robert H. Brink, Deputy General Counsel

ALAN F. Coffey, Jr., Minority Chief Counsel

Subcommittee on Intellectual Property and Judicial Administration

WILUAM J

DON EDWARDS, California
JOHN CONYERS, JR., Michigan
ROMANO L. MAZZOU, Kentucky
MIKE SYNAR, Oklahoma
BARNEY FRANK. Massachusetts
HOWARD L. BERMAN, California
JACK REED, Rhode Island
XAVIER BECERRA, California

HUGHES, New Jersey, Chairman

CARLOS J. MOORHEAD, California
HOWARD COBLE, North Carolina
HAMILTON nSH. JR., New York
F. JAMES SENSENBRENNER, JR.,

Wiscraisin
BILL McCOLLUM, Florida
STEVEN SCHIFF, New Mexico

Hayden W. Gregory, Counsel

ElDWARD O'Conneix., Assistant Counsel

WlIXJAM F. Patry, Assistant Counsel -

jARn.YN DUPONT. Assistant Counsel

THOBIAS E. MOONEY, Minority Counsel

Joseph v. Wolfe, Minority Counsel

(II)

CONTENTS

HEARING DATE

Page

March 11, 1993 „ 1

OPENING STATEMENT

Hughes, Hon. William J., a Representative in Congress from the State of
New Jersey, and chairman. Subcommittee on Intellectual Property and
Judicial Acuninistration 1

WITNESSES

Benjamin, Maynard H., executive vice president, the Envelope Manufacturers
Association of America 58

Grotefend, Michael, president. Council of Prison Locals, American Federation
of Government Employees (AFLr-CIO) 92

Hawk, Kathleen M., Director, Federal Bureau of Prisons 7

Kinter, Marcia Y., director, government affairs. Screen Printing Association
International 54

Perry, Susan, director, governmental affairs. Business and Institutional Fur-
niture Manufacturer's Association, Grand Rapids, MI 65

Seiter, Richard P., Chief Operating Officer, Feaeral Prison Industries, Inc 28

Sullivan, Charles, national director. Citizens United for Rehabilitation of
Errants (CURE) 80

Swinmier, Ross O., president and chief executive officer, Cherokee Nation

Industries, Inc., Stilwell, OK 78

ZaluskVj, John L., economist, on behalf of the American Federation of Labor
and Congress of Industrial Organizations (AFL-CIO), and head of the
Office of Wages and Industrial Relations, Economic Research Department,
AFL-CIO 83

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Benjamin, Maynard H., executive vice president, the Envelope Manufacturers
Association of America: Prepared statement 60

Fish, Hon. Hamilton, Jr., a Representative in Congress from the State of
New York: Opening statement 5

Grotefend, Michael, president, Council of Prison Locals, American Federation

of Government Employees (AFL-CIO): Prepa»«d statement 93

Hawk, Kathleen M., Director, Federal Bureau of Prisons:

"Prep Study Links UNICOR Work Experience With Successful Post-Re-
lease Outcome" 14

Prepared statement 9

Kinter, Marcia Y., director, government affairs. Screen Printing Association
International: Prepared statement 55

Perry, Susan, director, governmental affairs. Business and Institutional Fur-
niture Manufacturer's Association, Grand Rapids, MI: Prepared statement .. 68

Seiter, Richard P., Chief Operating Officer, Federal Prison Industries, Inc.:
Prepared statement 30

Sullivan, Charles, national director, Citizens United for Rehabilitation of
Errants (CURE): Prepared statement 82

Swimmer, Ross O., president and chief executive officer, Cherokee Nation

Industries, Inc., Stilwell, OK: Prepared statement 79

(III)

Page

Zalusky, John L., economist, on behalf of the American Federation of Labor
and Congress of Industrial Organizations (AFL-CIO), and head of the
Office ofWages and Industrial Relations, Economic Researdi Department,
AFL-CIO: Prepared statement 86

APPENDIXES

Appendix 1.— Statement of Hon. Jan Meyers, a Representative in Congress
from the State of Kansas, March 11, 1993 103

Appendix 2.— Statement of the Coalition for Government Procurement, Mareh
11 1993 ^^

Appendix S.^tateinent of Kathleen A. Leonard, executive director, Federal
Correctional Vendor's Association, March 11, 1993 107

Appendix 4.— Statement of Robert Millan, member. Board of Directors, Fed-
eral Prison Industries, March 11, 1993 108

Appendix 5.— Letter from Hon. Beiyamin A. Oilman, a Representative m
Congress from the State of New York, dated Mareh 17, 1993. transmitting
a statement from Stephen Heller, owner, Hiltronics Corp., undated Ill

Appendix 6.— Letter from Hon. William J. Hu^es, chairman. Subcommittee
on Intellectual Ptoperty and Judicial Administration, to Kathleen Hawk.
Director, Federal Bureau of Prisons, VS. Department of Justice, April
8 1993 1"

Appendix 7.— Letter from KatW^ Hawk, Director, Federal Bureau of Pris-
ons (with attachments), to Hon. William J. Hughes, chairman, May 6,

j^gg3 116

Appendix 8.— Letter from Hon. William J. Huffhes, chairman, to Sue Peny,
(firector, governmental affairs, Business and Institutional Furniture Manu-
facturer's Association, April 8, 1993 (no response was received) 128

FEDERAL PRISON E^DUSTRIES, WC.— UNICOR

THURSDAY, MARCH 11, 1993

House of Representatives,
Subcommittee on Intellectual Property

and judicl\l administration,
Committee on the Judiciary,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room
2237, Rayburn House Office Building, Hon. William J. Hughes
(chairman of the subcommittee) presiding.

Present: Representatives William J. Hughes, Carlos J. Moorhead,
F. James Sensenbrenner, Jr., Bill McColium, Hamilton Fish, Jr.,
Howard Coble, and Steven Schiff.

Also present: Hayden Gregory, counsel; Jarilyn Dupont, assistant
counsel; Veronica Eligan, secretary; and Joseph V. Wolfe, minority
counsel.

OPENING STATEMENT OF CHAIRMAN HUGHES

Mr. Hughes. The Subcommittee on Intellectual Property and
Judicial Administration will come to order. The Chair has received
a request to cover this hearing in whole or in part by television
broadcast, radio broadcast, and still photography, or bv any such
methods of coverage. In accordance with committee rule 5(a) per-
mission will be granted unless there is objection.

Is there objection?

Hearing none, permission is granted.

Good morning, and welcome to this morning's hearing. This
morning we will be hearing testimony on UNICOR, Federal Prison
Industries, Inc. The Federal Prison Industries is a self-supporting
government corporation created in 1934. The corporation was cre-
ated to formalize prison management efforts to provide dependable
work for the greatest number of inmates.

Inmates have always been required to work in some fashion.
Federal inmates were responsible, along with military inmates, for
assisting with the construction of Leavenworth Prison many years
ago in Kansas. This was considered the traditional "hard labor" —
"breaking rocks" to assist in construction projects.

Prisoners still take part, on a limited basis, in the construction
and landscape preparation of new and modernized facilities. In-
mates also still work in prison facilities in janitorial and laundry
jobs. In fact, all medically able inmates, subject to security and dis-
ciplinary considerations and participation in drug and literacy pro-
grams, are available to work. The restrictions on inmate construc-
tion labor and the limited number of prison facility jobs, however,

(1)

compel the establishment of additional jobs, such as those created
by Federal Prison Industries.

The work requirement prevents inactivity and imposes discipline
but also is part of the effort to provide training for inmates which
hopefiilly can be utilized upon release, thus reducing recidivism.

The understandable apprehension of violent crime and the real
possibility of recidivism has resulted in more criminals being sen-
tenced, and for longer sentences. Society continues to support more
prison construction or, at least, more prisons and prisoners. This
support is often without the fiill realization of the attendant con-
sequences. The actual costs which follow an increase in persons in-
carcerated are of less immediate concern than the desire to get
criminals off" the street.

Once these criminals are behind the prison walls there is a pre-
cipitous drop in public interest and scrutiny. Though out of the
public view, in my judgment, these prisoners are, nonetheless a re-
ality. There is still a price to pay, not onlv for the taxpayer but for
the prison personnel who must deal with the growing number of
inmates. If we have more inmates, we must have more work for
them to do. It is as simple, I think, as that.

The Federal Prison Industries program is a critical component of
overall prison management. The Federal prison population now
stands at over 74,000 in the Federal prison facilities and over 8,000
in contract facilities. This represents more than a tripling or in-
mates since 1980.

The Federal Prison Industries has been no stranger to con-
troversy over its stated mission. Even with the corporation's incep-
tion, appropriations riders were passed preventing its entry into
particular industries or purchasing certain materials to use in
manufacturing. The private sector, both business and labor, contin-
ues to express great concern over the impact of UNICOR and it's
understandable.

In response to the complaints of the private sector, legislative
changes have been mandated for UNICOR over the past few years
which have led to some modifications of operation. I hope that
today we will hear about some of those changes and results which
followed.

I am very aware of the impact the Federal Prison Industries has
on business and labor. There will alwavs be some impact and I sus-
pect it has been more pronounced in the past few years because of
the general economic decline. I am hopeful that the work of the
Prison Industries task forces will result in mutual agreements and
understandings concerning the present operations of UNICOR and
its future direction.

I might say before I recognize the ranking Republican that it is
a very, very difficult issue because as we downsize the military
which has been a natural supplier, basically, of work for Prison In-
dustries, and we see an astronomical increase in the number of
prisoners, everybody understands that we have to keep them busy.
We're at something like 141 percent of capacity now and so we
have a ticking time bomb. If you don't keep them busy, that basi-
cally invites all kinds of problems. So we have a real challenge and
today's hearing should be, I think, very interesting and very pro-
ductive and I look forward to the testimony.

The gentleman from California.

Mr. MooRHEAD. Thank you, Mr. Chairman. I would like to com-
mend you for scheduling tnis important hearing on Federal Prison
Industries. I would also say that I totally agree with the statement
that you made. I cannot find any area that I would disagree with
you on.

I recall a few years ago when Mike Quinlan, then Director of the
Federal Bureau of Prisons, was testifying before this subcommittee
and he pointed out that Federal inmates nad an average of four fel-
ony convictions. This graphic statistic highlighted how serious the
problem or recidivism is among Federal offenders.

It is my firm belief now, just as it was then, that we need to do
more to stem the rate of recidivism by somehow doing a better job
of rehabilitating Federal offenders. At the very least I think that
we could key our efforts on young offenders who are coming into
the system for only the first or perhaps the second time and at-
tempt to rehabilitate them before they become truly hardened
criminals.

Clearly, when a Federal inmate is released back into the commu-
nity he often has a very low-level job skill which coupled with the
stigma of imprisonment makes it very difficult for him to find a job.
This enhances the prospects of his return to a life of crime and ulti-
mately to prison.

A recent Bureau of Prison study on post-release employment
found that inmates who participate in the FPI work programs were
less likely to return to a life of crime after release and were more
likely to be employed. So this program has values far beyond the
work they may be producing. It has value in rehabilitating offend-
ers and thus making them less likely to be a burden on society. To
be successful in the long run, FPI needs the cooperation of industry
and labor.

Like the chairman, I am hopeful that positive recommendations
and ideas will result from the ongoing efforts of the Brookings sum-
mit and I look forward to the testimony of our distinguished wit-
nesses.

I would like to say that I know most of the opposition to Prison
Industries has come from people in the furniture industry, not alto-
gether, but an awful lot of it has. I think that we have to con-
stantly be trying to diversify into areas where we really need new
skilled workers that will be able to go out and get jobs. I think
that's a challenge. I don't think they can give up the furniture work
that's done because it is already established and it is one job that
they are most able to do on an immediate basis.

When I look at industries like the television industry, I see that
most of it has gone overseas. Why can't we try to at least build
some plants in that area or do some of the work of that type in
the areas where there are jobs available.

I would like to see us really look for new areas to kind of cut
down on the opposition that we are getting from some sources. But
I truly think that we are very narrow sighted if we try to cut down
on prison industries and try to limit it too much just because it
may compete with people that want to sell the Grovernment prod-
ucts. The cost to society is just too great to let this number of peo-
ple in prisons grow and grow and grow. We have a responsibility

when we take them into custody to try to train them to do some-
thing when they get out. I know those that have been in prison a
half a dozen times are probably too hardened to do anything with.
But boy when you get these people early, especially those that are
first or second time offenders, you do have a great opportunity and
it is our responsibility as a Congress and your responsibility, those
of you that are involved with the administration of the prisons, to
really do something to turn this thing around.

We cannot afford as a society to have such a large percent of our
people in prison and going back and forth time and time again. It
is a challenge for all of us. Thank you.

Mr. Hughes. Well, thank you, Carlos, for that very, very fine
statement.

The gentleman from New York.

Mr. Fish. Thank you, Mr. Chairman. I, too, am pleased that this
oversight hearing on Federal Prison Industries has been scheduled.
At the outset, I would like to express my appreciation to the wit-
nesses who were scheduled to appear here this morning. Their tes-
timony, I am sure, will greatly help the members of this sub-
committee to better understand the UNICOR situation as well as
that of the impacted private industries.

The existence of Federal Prison Industries presents us with a dif-
ficult polity dilemma, as you, Mr. Chairman, have recomized in
your opening statement. On the one hand, we on the Judiciary
Committee must be concerned about the rapidlv increasing num-
bers of inmates in our Federal prison system. Tne number of Fed-
eral inmates is over 74,000 ana the Federal prison system is cur-
rently operating at 141 percent of capacity. Now, this helps us to
focus on the need to provide inmates with usefiil activities that
may provide them with a marketable skill upon their release. But,
as we all know, the bottom line is the need to manage large num-
ber of Federal inmates and to protect the safety of prison person-
nel.

On the other side of the coin are the various businesses — ^both
large and small — that compete against UNICOR for the Federal
contracting dollar. The industries most affected include furniture
and furnishings, electronics, printing, envelope manufacturers, and
manufacturers of apparel and textile products. The private sector
looks to the mandatory statutory preference for prison-made goods
as inherently unfair. Prison furniture, for example, is the 10th
largest furniture manufacturer in the United States. The loss of a
government contract means the loss of jobs for law-abiding Amer-
ican citizens and may even mean that a particular employer must
go out of business.

Now, these are hard facts for our constituents to understand,
particularly today. The inmates in Federal prisons are paid far less
than minimum wage, no Social Security of health benefits need to
be paid by their employer. Competing against prison labor in a cost
sense is not a fair tradeoff, particularly given the mandatory pref-
erence in the FPI statute.

Now, as members of this subcommittee know, in 1991 the ac-
counting firm of Deloitte & Touche was commissioned to conduct
a market study on the operations of Federal Prison Industries and
m£^e recommendations to the Congress in the light of these prob-

lems. Their report was issued in August 1991. Unfortunately, the
last time this subcommittee held hearings on Federal prison issues
was April 24, 1991, prior to the issuance of the Deloitte & Touche
report. We have never had a hearing focused on their findings. And
Mr. Chairman, I am hopeful that in the near future this sub-
committee will be able to hear direct testimony from those individ-
uals at Deloitte & Touche who conducted the market study — as I
understand, interviewing hundreds of people — in the hopes that
their testimony can provide us with some fiirther insights and
ideas, which if I understood your testimony and that of the ranking
member, Mr. Moorhead, are issues that we all look forward to.

I also take note of the fact that the Brookings Institution con-
vened a "summit" on these issues last year. Brookings has been
brokering a series of meetings involving representatives of indus-
try, labor, and FPI. Those meetings have helped to improve com-
munication, but they have not yet come up with a satisfactory solu-
tion to our policy dilemma. I remain hopeful that an agreement on
market share ceilings can be worked out between FPI and the most
severely impacted industries. This subcommittee also needs to con-
sider tne issue of offshore growth opportunities by UNICOR and
whether or not FPI should pursue a role as a subcontractor.

Finally, we need to identify new products and services that will
keep inmates productively engaged, but, hopefully, will have a far
less adverse effect and impact on our Nation s basic industries.

Mr. Chairman, I look forward to working withyou and members
of the subcommittee for the solution to this difficult and complex
problem.

Mr. Hughes. Thank you, Mr. Fish.

[The opening statement of Mr. Fish follows:]

Opening Statement of Hon. Hamilton Fish, Jr., a Representative in Congress

From the State of New York

Thank you, Mr. Chairman. I am pleased that this oversight hearing on Federal
F*rison Industries has been scheduled. At the outset, I would like to express niy ap-
preciation to the witnesses who are scheduled to appear here this morning. Their
testimony, I am sure, will greatly help the members of this Subcommittee to better
understand the UNICOR situation as well as that of impacted private industries.

The existence of Federal Prison Industries presents us with a difficult policy di-
lemma, as you have recognized, Mr. Chairman. On the one hand, we on the Judici-
ary Committee must be concerned about the rapidly increasing numbers of inmates
in our federal prison system. The number of feaeral inmates is over 74,000 and the
federal prison system is operating at 141 percent of capacity. This helps us to focus
on the need to provide inmates with useml activities that may provide them with
a marketable skill upon their release. But, as we all know, the oottom line is the
need to manage large numbers of federal inmates and to protect the safety of the
prison personnel.

On the other side of this coin are the various businesses — ^both large and small —
that compete against UNICOR for the federal contracting dollar. The industries
most affected include furniture and furnishings, electronics, printing, envelope man-
ufacturers, and manufacturers of apparel and textile products. The private sector
looks on the mandatory statutory preference for prison-made goods as inherently
unfair. Prison furniture for example is the tenth largest furniture manufacturer in
the Nation. The loss of a government contract means the loss of jobs for law-abiding
American citizens and may even mean that a particular employer must go out of
business.

These are hard facts for our constituents to understand. The inmates in federal
prisons are paid far less than minimum wage, and no social security or health bene-
iits need to be paid by their employer. Competing against prison labor In a cost
sense is not a fair trade-off, particularly given the mandatory preference in the FPI
statute.

As the members of this Subcommittee know, in 1991 the accounting firm of
Deloitte & Touche was commissioned to conduct a maiket study on the operations
of Federal Prison Industries and make recommendations to Congress in the light
of these problems. Their report was issued in August, 1991. Unfortunately, the last
time that this Subcommittee held hearings on federal prison issues was on April 24,
1991, prior to the issuance of the Deloitte & Touche report. We have never had a
heeuing focused on their findings. Mr. Chairman, I am still hopeful that in the very
near future that this Subcommittee will be able to hear direct testimony from those
individuals at Deloitte & Touche who conducted the market study — perhaps their
testimony could provide us with some further insists and ideas.

I also should take note of the fact that the Urookings Institution convened a
"Summit" on these issues last year. The Brookings has been brokering a series of
meetings involving representatives of industry, labor, and FPL Those meetings have
helped to improve communications but they have yet to come up with a satisfactory
solution to our policy dilemma. I remain hopeful that an agreement on market share
ceilings can be worked out between FPI and the most severely impacted industries.
This Subcommittee also needs to consider the issue of off-shore growth opportunities
by UNICOR and whether or not FPI should pursue a role as a subcontractor. Fi-
nally, we need to identify new products and services that will keep inmates produc-
tively engaged but hopefully will have a far less adverse impact on our nation's
basic industries.

I look forward to working with the Members of this Subcommittee for the solution
of this diflicult and complex problem.

Mr. Hughes. We are very fortunate, indeed, to have the fur-
niture czar of the country with us on this committee. Mr. Coble.

Mr. Coble. I am not sure I am deserving of that, Mr. Chairman.
I am deeply appreciative. I thank you, Mr. Chairman.

Mr. Chairman, I will be brief. I did not come with a prepared
statement, but I have made some notes as we went along and I
would like to share them with those in the audience. As the chair-
man pointed out, I do proudly represent the furniture capital of the
world and also the textile capital of the world, I might add, Mr.
Chairman.

I am going to associate my remarks more with the gentleman
from New York. I am not uncaring nor insensitive to rehabilitating
inmates. I think it is urgently important that we do this; but, folks,
I cannot for the life of me believe that the operating of FPI does
not damage private-sector free enterprise. Now, I'm not suggesting
that we shut down FPI. I am not sa)dng that at all. But I think
there ought to be some sort of balance that we could strike because
it is my belief that the playing field is tilted in favor of the Govern-
ment-sponsored, i.e., taxpayer-sponsored operation of FPI as op-
posed to the private sector.

I mean, many of mv small furniture people borrow money to cre-
ate jobs. They put their necks on the line. With a Government-
sponsored program we just put more money into it, for as the gen-
tleman from New York pointed out, no Social Security, et cetera,
so obviously I think the playing fields are not fair nor equal nor
equitable, and that bothers me. And I'll admit, Mr. Chairman, that
I come to this hearing not objective, but very subjective. I have an
ax to grind. I represent ^miture people. I represent textile people
in the private sector. So having said all that I look forward to hear-
ing the testimony today, Mr. Cnairman. I thank you for having rec-
ognized me.

Mr. Hughes. I thank the gentleman. The first panel today in-
cludes Kathleen Hawk, Director of the Federal Bureau of Prisons,
and Richard Seiter, the Chief Operating Officer of Federal Prison
Industries, Inc. KaUileen Hawk is the s^h Director in the Bureau

of Prisons existence. She was appointed to the position on Decem-
ber 4, 1992, and has been with the Bureau since 1976. She received
her doctorate of education in 1978 from West Virginia University.
Director Hawk has held a number of positions in the Bureau in-
cluding warden of the Butner Federal Correctional Institution in
North Carolina. This is the first time she has had the opportimity
to testify before Congress and in this subcommittee and we are
veiy, very happy to have her this morning.

You may come forward, Madam Director.

Richard Seiter is an Assistant Director with the Bureau of Pris-
ons and the Chief Operating Officer of Federal Prison Industries,
Inc. He holds a Ph.D. in public administration from Ohio State
University. He's been a warden at the Federal Prison Camp at
Allenwood and the director of the Ohio Department of Corrections.

We welcome you to today's hearing. I might sav that we have
your statements and, without objection, they will be made a part
of the record in fiill. We hope you can summarize for us, but you
may proceed as vou see fit.

Welcome, Madam Director.

STATEMENT OF KATHLEEN M. HAWK, DIRECTOR, FEDERAL

BUREAU OF PRISONS

Ms. Hawk. Thank you. Mr. Chairman and members of the sub-
committee, I appreciate the opportunity to appear before you today
with Rick Seiter. We are here today to discuss a program that is
critical to the Federal Bureau of Prisons and to the Department of
Justice, and I believe to the administration of criminal justice in
general, and that program is Federal Prison Industries, otherwise
known as UNICOR.

I will provide you with a 5-minute summary of my testimony and
submit my full testimony for the record.

To understand why Federal Prison Industries is one of the Bu-
reau's most critical programs, I would like to begin with a brief re-
minder of the Bureau's mission statement to protect society by con-
fining oflTenders in the controlled environments of prisons ana com-
munity-based facilities that are safe, humane, and appropriately
secure and which provide work and other self-improvement oppor-
tunities to assist offenders in becoming law-abiding citizens.

As vou know, there is a very delicate balance between the
public s need to feel that appropriate s£mctions have been adminis-
tered and the need to provide Federal inmates with those opportu-
nities for self-improvement in quality core services such as medical,
dietary, religious, et cetera, to fully meet the constitutionally man-
dated conditions of confinement. Nearly all Federal inmates that
are confined today will eventually be returned to the commimity
and we believe that the Federal prison experience should, if pos-
sible, prepare these offenders to lead a productive and crime-free
life. For this reason after we ensure that we are properlv protecting
the public and our institutions are safe and humane, the Bureau's
most pressing mandate is to provide offenders with meaningful op-
portunities to gain skills that they need for successful reintegpration
into society.

By making our institutions a "factory within a fence" as former
Chief Justice Warren Burger advocated, and providing state-of-the

art substance abuse treatment, literacy programming, and voca-
tional training, prisons are preparing inmates for successful return
to the community.

Over the past several years the Bureau has been finding it in-
creasingly difficult to balance these goals given our population in-
creases. In 1983, just 10 years ago, the Federal inmate population
was approximately 30,000 inmates. Today, as many of you have in-
dicated, the population has climbed now to more than 74,000 in-
mates within our institutions and another 8,300 held in non-Fed-
eral contract facilities. The population is growing by 5,600 inmates
per year. This means that by the end of this decade the population
will be approaching 130,000 inmates.

This unprecedented rise is attributable to such factors as: crimi-
nal justice initiatives that have focused law enforcement and pros-
ecutorial resources on drug law violations; mandatory minimum
sentences, which have lengthened the amount of time that offend-
ers remain confined; the elimination of parole; the reduction of
good time; an increased Bureau of Prisons role in housing pretrial
detainees; and an ever greater number of noncitizen inmates.

As more and more inmates enter the system and given the lim-
ited expansion capacity that the Bureau faces, the programming
needs I mentioned become even more important. Federal Prison In-
dustries is the most effective correctional management program to
relieve inmate idleness and to ensure the orderly operation of Fed-
eral prisons. This progfram provides inmates witn valuable training
opportunities, creates a work ethic, and prepares inmates for
reintegfration back into the community.

During times of fiscal constrgiint and cost containment, Federal
Prison Industries is extremely important to the Bureau because it
is self-supporting, successfully achieving its mission without con-
gressional appropriations. It is one of tne few governmental pro-
grams which does not contribute to the burden of the U.S. tax-
payers.

Congressman Moorhead mentioned the PREP study that was
completed recently by the Bureau of Prisons. That's our Post-Re-
lease Employment Project; it reinforced the fact that inmates who
participate in Federal Prison Industries work progframs are better
adjusted while incarcerated and have better post-release perform-
ance than inmates who have not participated in Federal Prison In-
dustries.

To summarize the study results, we found that inmates who par-
ticipated in Federal Prison Industries work and other vocational
programming during their imprisonment showed better institu-
tional adjustment, were less likely to be revoked at the end of their
first year back in the community, were more likely to be employed
while in the halfway house and in the community, and earned
slightly higher wages in the community than inmates who had
similar backgfround characteristics, but who did not participate in
work and vocational training programs.

The Bureau clearly recognizes that we must balance our depend-
ence on Federal Prison Industries as a self-supporting correctional
program with the need to minimize any negative impact on the pri-
vate sector.

I would like to note, however, that Federal Prison Industries
does contribute to the economic well-being of thousands of small
business across the Nation. Last year, Federal Prison Industries
sold over $417 million in products and services to the Federal Gov-
ernment. Of this amount, 90 percent was returned directly to the
private sector through tne purchase of raw materials, supplies,
services, and production equipment, the construction and renova-
tion of buildings, and the expenditure of employee salaries.

Building on our existing relationships with the private sector, it
is our intent that Federal Prison Industries continues to seek mu-
tually advantageous partnership arrangements that will offer in-
mate employment opportunities, as well as benefit private sector
businesses.

The Bureau is very much concerned about minimizing any undue
negative impact on the private sector that would result from Fed-
eral Prison Industries expansion. But, considering the continued
growth of the Bureau's inmate population, it is necessary for Fed-
eral Prison Industries to expand to provide more inmate work op-
portimities.

Officials in Federal Prison Industries have been meeting with
leaders from industry and labor over many months to discuss the
different options for expansion and how they might be implemented
in a cooperative fashion. Mr. Seiter will further discuss these ini-
tiatives in his comments. I am very impressed with the dedication
and the talent of the individuals who nave been involved in this
effort, and am confident that solutions to these very difficult issues
will be found. Our goals are not in conflict. We all want to provide
meaningful jobs for inmates in ways that minimize the impact on
the private sector.

Thank you, Mr. Chairman, for the opportunity to testify before
the committee, and we look forward to your questions.

Mr. Hughes. Thank you, Ms. Hawk.

[The prepared statement, with attachments, of Ms. Hawk fol-
lows:]

Prepared Statement of Kathleen M. Hawk, Director, Federal Bureau of

Prisons

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to
appear before you and discuss Federal Prison Industries, Inc. (FPI). Wiui me today
is Richard Seiter, Assistant Director of the Bureau of Prisons and Chief Operating
Officer of FPI. Robert Millan, a member of the Board of Directors of FPI, was unable
to testify and I have submitted his prepared testimony for the record.

We are here to discuss a program that is critical to the Federal Bureau of Prisons,
to the Department of Justice, and I believe to the administration of criminal justice
generally. That program is Federal Prison Industries (FPI)— or UNICOR as it is
also known.

In my testimony I would like to review with you the role that FPI plavs in the
Bureau of Prisons; the astonishing growth in the prison population; the challenges
that the growth poses to the BOP and specifically to FPI; and finally how we are
striving to meet these challenges, while remaining sensitive to the concerns of the
private sector.

Because FPI is an essential program of the Federal Bureau of Prisons (BOP), I
think it is well to start with a brief reminder of the basic mission of the BOP itself:
to protect society by confining offenders in the controlled environments of prisons
ana community-based facilities that are safe, humane, and appropriately secure,
and whidi provide work and other self-improvement opportunities to assist offend-
ers in becoming law-abiding citizens. The Bureau of Prisons provides correctional
services to confined Federal offenders, through a comprehensive network of prison
and community-based programs. The Bureau s programs assure public safety, offer-

ing inmates the opportunities to make positive changes in their lives. A carefully
managed system of policies and procedures ensures that a well trained and carefully
supervised staff property use their authority and maintain a high level of profes-
sionalism.

Even in a prison system that is not crowded, careful choices are required with
respect to the programs and services made available to inmates. There is a delicate
balance between tne pubUc's need to feel that appropriate sanctions have been ad-
ministered and the need to provide important programs and services to the inmate
population. Even when crowding is a factor, institutional operations still must em-
body the legal, operational and practical needs for providing programs and services
to the confined population.

On an external level, the Bureau must carefully reconcile security and public safe-
ty against the need to return inmates to a society better prepared for living crime-
free lives. Nearly all inmates are eventually released to the community, and their
Federal prison experiences must help prepare them for that return.

As a result, after assuring public safety and safe internal operations, corrections'
most pressing mandate is to provide offenders with an opportunity to gain the skills
they need to function productively within their community, if they so desire. By
making an institution into a "factory within a fence," as former Chief Justice War-
ren Burger advocated, or providing state of the art drug treatment or literacy pro-
gramming, prisons are preparing inmates for successful return to the community.

This Sm)committee is weU aware of the population pressures within Federal pris-
ons from testimony presented by my predecessor, former director of the BOP J. Mi-
chael Quinlan. From 1940 through the early 1980's the number of inmates in Fed-
eral facilities held fairly steady, between 20,000 and 25,000. By 1983, pust 10 years
ago, the total had risen to over 30,000. Today the inmate population is nearly
75,000, with another 8,300 being held in non-Federal contract facilities. That's an
annual average increase throughout the last decade of about 4,500 additional in-
mates. Since 1990, the totaJ population has grown by about 5,600 per year, a level
which we expect to continue through the end of the decade. This will mefin that the
Federal inmate population at the end of this decade will be approaching 130,000,
almost double that of the end of 1991.

This unprecedented rise is attributable to six factors: 1) criminal justice initiatives
that have refocused law enforcement and prosecutorial resources on drug law viola-
tions; 2) minimum mandatory sentences which have lengthened the amount of time
offenders remain confined; 3) elimination of parole; 4) reduction in "good time"; 5)
an increased BOP role in housing pre-trial detainees; and 6) an ever greater number
of non-citizen inmates.

During the past decade, there has been a substantial increase in Federal law en-
forcement, prosecutorial, and abjudication activity. The average time served in pris-
on has also increased significantly, especially for drug offenses, violent crimes, and
weapons offenses. These increases result from both legislative and policy initiatives.
The 1984 Comprehensive Crime Control Act (CCCA) established the United States
Sentencing Commission, which developed sentencing guidelines and mandated in-
creased penalties for "career offenders." Subsec[uent legislation established manda-
tory minimum sentences for drug trafficking and weapons offenses. This cotnbina-
tion of mandatory minimum sentences and the Sentencing Guidelines have signifi-
cantly increased the length of time served by Federal inmates. For example, average
time served for drug offenses has increased by a factor of 3 (from about 20 to over
65 months).

The rise in the number of drug convictions during the 1980's reflects the addi-
tional resources devoted to Federal drug prosecutions. Currently, approximately 60
percent of the Bureau's inmates are incarcerated for drug-related offenses. In 1981,
about 5,300 defendants were convicted of Federal drug offenses, compared to over
16,000 in 1990. In 1980, a Federal drug conviction resulted in a prison term 62 per-
cent of the time; in 1990, over 85 percent of convicted Federal drug defendants went
to prison.

The Bureau's prison population strongly reflects the inc«)act of longer terms served
due to imposition of mandatory minimum sentences. There are over 60 criminal
statutes that embody this type of penalty, but only four that frequently result in
convictions. These four principally apply to drug and weapons offenses and defend-
ants classified as career criminals.

In order to achieve "honesty in sentencing", the Sentencing Reform Act of 1984
abolished parole and severely restricted the availability of good time credits. Good
time was restricted to 15 percent of the sentence or 54 days per year (under old
law good time reduced the sentence by about one third) and "vested" the good time
on a yearly basis, to limit the authority of the Bureau to withhold good time.

While its primary mission is the incarceration of sentenced oflenders, over the

East several years, the Bureau of Prisons has steadUy increased its assistance to the
LS. Marshals Service in housing unsentenced Federal pre-trial detainees. During
the last decade, the Federal detainee population has grown by over 400 percent. Due
to the loss of Federal detention bed space in State and local facilities faced with
their own population increases, the average daily detention population in the Bu-
reau's institutions has increased over eightfold, from 844 in 1980 to over 7,000 at
the end of 1992.

Criminal aliens represent 24 percent of the Bureau's inmate population, and they
are another important factor in its rapid growth. The majority of these inmates
come from Mexico, Colombia, and Cuba, and their differing cultural backgrounds
often present unique management problems.

Because of these six factors, the Bureau's inmate population is continuing to grow
dramatically at an unprecedented rate. In order to fulfill the Bureau's statutory mis-
sion and to ensure the safety of 25,000 staff, a prudent array of meaningful program
opportunities are made available to the inmate population. On a practical level,
work, education, vocational training and other internal programs are valuable in
constructively managing the time that inmates spend in the institution. Even if
there were no rehabilitative benefits to these activities, they would reduce idleness
and boredom that are severely aggravated by current crowded prison conditions, and
which can lead to riots and disorder that endanger public safety.

Providing a sufficient range of programs and domg so in a professional environ-
ment, is far more likely to engender positive inmate adjustment to confinement than
if these daily activities were not available. I can assure you that the single most
important correctional program to me, as the Bureau's director, is the prison indus-
tries program.

FPI is an effective correctional management tool. It relieves inmate idleness and
ensures the orderly operation of Federal prisons. The program provides inmates
with valuable training opportunities, creates a work ethic and prepares inmates for
reintegration into the community.

Through work in FPI, inmates develop positive work habits such as getting to
work on time, getting along with peers, learning to work for supervisors, taking
pride in a product, and understanding more about how to function in an industrial
environment. FPI provides perhaps the best opportunity inmates have to learn to
be accountable for their actions in an environment that simulates that of the real
world, in which there is a direct relationship between the quality of work and re-
wards received, through such FPI policies as incentive pay based on an inmate's
production.

FPI is the Bureau's principal incentive to motivate inmates toward positive insti-
tutional adjustment and good behavior. No longer having such incentives as parole
and good time, the industries program is one of the few ways in which inmates —
even "lifers" — have something significant to lose by breaking the rules. An inmate
who works for FPI and who causes a disturbance pays a high and immediate price:
the loss of income — often a more serious consequence than disciplinary segregation,
which is of limited duration. The chance to be an FPI employee and the desire to
retain the pay and stability that FPI affords are strong motivators for good behav-
ior.

The way in which FPI integrates with other Bureau programs strengthens them
as well. For example, inmates cannot reach the higher grades of FPFs pay scale un-
less they are enrolled in a GED program. They are required, as a condition of FPI
emplojntnent, to contribute half oi their income to the Financial Responsibility Pro-
gram (FRP), paying their court ordered fines, restitution, victim compensation, child
support, alimony, and other legal obligations. Since 1987, more than 74,000 inmates
have participated in this Financial Responsibility Program contributing a total of
over $65 million. Many inmates go beyond this program by contributing regularly
to the well-being and financial security of their families with earnings from FPI.

The results of a recent Bureau study. The Post Release Employment Project
(PREP), answered the question of whether inmates working in prison industries or
participating in vocational or apprenticeship training (study group) were more likely
to succeed than their matched comparison counterparts (comparison group). The
PREP Study showed:

Study group members demonstrated better institutional adjustment than did
the participants in a comparison group. Study group members were less likely
to have misconduct reports within the last year of their confinement, and when
they did, it was less likely to have been for serious misconduct. Study group
participants were also rated by the team of staff who manage the inmates day-
to-day activities as demonstrating a higher level of responsibility than their
comparison counterparts. An inmate's level of responsibility refers to his/her

level of dependability, financial responsibility, and the nature of his/her inter-
action with staff and other inmates.

At the point of the offender's halfway house assignment, toward the end of
their sentence, both studv and comparison offenders were equally likely to suc-
cessfully complete their halfway house stay, althou^ study inmates were far
more likely to obtain a job.

Inmates who participated either in work or vocational programming or both
during their imprisonment showed better post-release amustment. They were
less l3cely to recidivate by the end of their first year bade in the community,
were more likely to be employed in the halfwav house and community, and
earned slightly more money in the community than inmates who had similar
background characteristics, but who did not participate in work or vocational
training programs.
(More detailed information on the PREP Study is found in the attached report.)
In these veiv difiicult budget times, it is important to note that FPI is also self-
supporting, achieving its mission without one cent of Congressional appropriations.
It nas remained self-sufficient since 1934. It is one of the few governmental pro-
grams which alleviates, rather than contributes, to the burden on U.S. taxpayers.
Over its history, FPI has returned $80 million to the U.S. Treasury. Any programs
to replace FPI would have to be fiinded by Congress. We estimate that alternative
programs could cost the taxpayer tens of millions of dollars.

FTI is also a boon to the economic well being of thousands of small businesses.
Last year, FPI sold over $417 million in products and services to the Federal gov-
ernment. Of this amount, about 90% was returned directly to the private sector
through the purchase of raw materials, other supplies, services and production
equipment, construction and renovation of buildings, and the expenditure of em-

Sloyee salaries. Sally Ingram Whitehurst, the Vice President of the First National
ank in Terre Haute, Indiana, tells of the positive impact that FPI has on her com-
munity:

There are over 50 businesses throughout the Wabash Valley area that
supply materials to UNICOR. When you add it all up, it is $3 million that
stays right at home in this community in the Wabash Valley. And, that's
pretty impressive.

Building on existing relationships and developing new relationshi{)s with the pri-
vate sector is our god. It is our intent that FPI continue to emphasize partnership
arrangements that will benefit both parties.

Managing the explosive growth in our inmate population will continue to demand
effective correctional programming. Over the last five years this has meant some
growth in FPI inmate employment and sales, but I can assure you that we have
been most sensitive to the potential impact, if any, that FPI may have on the pri-
vate sector. As I said earlier, the inmate population rose from an average 1988 level
of 43,500 to a 1992 average of 67,300, an increase of 55%. During this same period,
inmate emplojrment rose from an average of 14,100 to only 15,400, an increase of
only 10%. We have been able to manage throudi substantial increases in other Bu-
reau programs, particularly drug education ana drug counseling; education and lit-
eracy; occupational and technical training; public service employment for low secu-
rity inmates; and institutional maintenance work. Prior to these newer efforts, the
industries program often employed 30% to 40% of an institution's population, and
our wardens would have liked to employ higher levels.

As we move forward during the next 7-8 years, our plans are to ensure com-
plementary correctional programs that will enable the Bureau to meet its mission
with a target employment level of 25% in the 25-30 new factories that will be acti-
vated during that tune. We anticipate that total inmate employment in industries
will be in the 26,000 range by the year 2000, or about 22% of the total BOP popu-
lation.

The diallenge of managing the projected growth in the inmate population in Fed-
eral prisons (mring the remainder of the 1990's can only be characterized as stag-
fering. As correctional administrators, we received our baptism of fire during the
980*3, during which the American public's impatience with the nation's continuing
crime problems led to the "War on Drugs. "In addition to increased law enforcement
and prosecution, resulting in higher conviction rates, the stricter Federal sentencing
laws I mentioned earlier have nad a major effect on the Bureau's operations. The
increasing numbers of offenders who now must be incarcerated, rather than being
diverted from the prison system through probation, combined with the dramatically
increased length of sentences, have made the Bureau of Prisons the single lai^gest
component of the Department of Justice.

As long as the inmate population continues to increase, FPI must continue to ex-

f)and by providing more wore opportunities. Oflicials in FPI have been meeting with
eaders from industry and labor over many months to discuss the different options
for expansion and how they might be implemented in a cooperative fashion. Our
goals are not in conflict. We all want to provide meaningful jobs for inmates in ways
tiiat minimize the impact on the private sector.

Thank you, Nfr. Chairman, for asking me to testify before the suboonmiittee on
this important program.

PREP Study Links UNICOR

Work Experience

With Successful

Post- Release Outcome

May 22, 1991
Revised January 8, 1992

William G. Saylor and

Gerald G. Gaes

Office of Research and Evaluation

PREP Study Links UNICOR Work Experience
With Successful Post-Release Outcome

By William G. Saylor and Gerald G. Gaes

his report summarizes some of
the initial findings of the Post
Release Employment Project (PREP)
conducted by the Office of Research
and Evaluation. The PREP study
was designed to answer fundamen-
tal questions about the effect of
prison vocational training and work
experience on offenders' behavior
when they are released to the com-
munity.

PREP is primarily an analysis of the
differences between Federal of-
fenders who received training and
work experience (the study group)
and similar offenders who did not
participate in these activities (the
comparison group).

The study and comparison groups
were also contrasted with a
"baseline" group of offenders who
represented all other inmates
released in the same time frame as
the study and comparison of-
fenders.

Background and Methodology

Preparation for the Post-Release
Emplojnnent Project began in 1983.
Data collection on post-release out-
comes for more than 7,000 inmates
continued, for the most part, into
early 1987, although some data
came in as late as October 1987.

Throughout the duration of this
project, in which study and com-
parison inmates were released
from the Bureau (1984 through
1986), about 35 percent of in-
mates in institutions with Federal
Prison Industries (UNICOR) opera-
tions ^vere employed by UNICOR.
Currently, 32 percent of inmates
in such institutions are employed
by UNICOR.

We do not know^ whether there is
an optimal level of UNICOR
emplojonent in an institution. In-
creasing or decreasing the p>er-
centage of inmates employed in
prison industries may or may not
increase the positive effects of
employment. Consequently, the
conclusions of this study could be
influenced by the proportion of
inmates employed by UNICOR.

Unlike most studies of prison
vocational training or work ex-
perience, PREP is a prospective,
longitudinal study. Study in-
mates ^vere identified by case
management staff at the institu-
tion over a period of several
years. Inmates ^vere selected for
the study group prior to their
release if they had participated in
industrial work for at least 6
months or had received vocation-
al instruction. The study group is
composed primarily of inmates
with UNICOR work experience -

57 percent had exclusively UNICOR
work experience, while 19 percent
had a combination of UNICOR
work experience and vocational
training, or apprenticeship training.
The remaining 24 percent were in-
volved in some combination of voca-
tional or apprenticeship training.

The comparison group was chosen
to be as much like the study group
as possible. A comparison observa-
tion was selected specifically for
each study group member from a
cohort of individuals who were
released during the same calendar
quarter. Each pairing w^as based on
an exact match of gender and in-
dividual security level and on the
closest possible match in criminal,
educational, and employment his-
tories and characteristics of the cur-
rent offense.

While the study and comparison
groups were similar to each other
in terms of expected length of stay,
individuals in these groups were
much more likely to have a longer
expected length of stay than in-
mates in the baseline group. In ad-
dition, the conviction offense for
study and comparison groups
tended to be more serious than the
baseline group. These differences
are especially significant because
they underscore the fact that PREP
study participants were by no
means those individuals who
seemed most predisposed to suc-
ceed in either a prison program or
in the community after release. See
Table 1 (page 3) for specific informa-
tion on these three groups.

Institutional Adjustment

An argument for continuing or
even expanding industrial work op>-
portunities in prisons is that such
programs are necessary to cope ef-
fectively -with inmate idleness and

that they help to ensure the order-
ly running of correctional institu-
tions. This is not an issue directly
addressed by the PREP study. To
explore this issue, a research
design \vould have to evaluate
changes in institutional miscon-
duct patterns related to the expan-
sion or contraction of prison
industries. Comparison among
prison systems that have varying
degrees of industrial work
programs is very difficult since
prison systems are often different
in many other ways as well.

In this section, we address a more
focused question: Do inmates
working in prison industries or
participating in vocational train-
ing evidence better institutional ad-
justment than their matched
comparison counterparts?

Table 2 (page 5) shows the results
of three measures that suggest
study group participants did show
better institutioncU adjustment
First, study group members were
less likely to have a misconduct
report v«thin their last year of in-
carceration and, second, w^hen
they did, it was less likely to have
been for serious misconduct.
Third, study group participants
were rated by their unit teams to
have a higher level of respon-
sibility than their comparison
counterparts. An inmate's level of
responsibility refers to his/her
level of dependability, financial
responsibility, and the nature of
his/her interaction with staff and
other inmates.

Halfway House Outcomes

The Bureau of Prisons contracts
with halfway houses to provide
qualifying inmates an oppor-
tunity, prior to the end of their im-
prisonment, to work in the

Table 1

Comparison Among Study, Comparison, and Baseline Offenders

2
Severity of Current Offense

Comparison Group

Stody Group

Baseline Group

#ob&

#obs.

Lowest

7.7

(219)

7.6

(152)

11.8

(1619)

Low Moderate

34.2

(977)

30.1

(606)

38.7

(5331)

Moderate

33.9

(968)

34.8

(700)

32.0

(4400)

ffigh

16.6

(474)

16.4

(331)

13.1

(1808)

Greatest

7.6

(217)

U.l

(224)

4.4

(602)

Total

(2855)

(2013)

(13760)

Type of Prior Commitments

Comparison Group
% #o1k.

Study Group
% #obs.

Baseline Group
% fobs.

None

Minor

Serious

Total

44.1
17.8
38.1

(1259)

(507)

(1089)

(2855)

49J

17.7
32.8

(966)
(356)
(661)

(2013)

50.5
17.2
32.3

(6952)
(2370)
(4438)

(13760)

Projected Length of Incarceration

Comparison Group
% #nbs.

Study Group
% #obs.

Baseline Group
% #obs.

0-12 Months
13-59 Months
60-83 Months
84 + Months

25.3

71.6

2.4

0.7

(721)

(2045)

(68)

(21)

27.0

67.7

4.4

1.0

(544)

(1361)

(88)

(20)

43.4

53.9

2.1

0.6

(5977)

(7421)

(282)

(80)

Total

(2855)

(2013)

(13760)

'The results reported in this table are sutistically significanL Percentages may not toUl 100.0 due to
rounding.

^ Offense severity categories presented above are those used by the Bureau of Prisons to dassifv
inmates. 'Greatest" severity offenses include homicide, rape, kidnaping, and espionage, while 'lowest'
severity offenses are primanly personal drug use and property offenses (up to $2,000r

community. This is also the first oi>-
portunity to recidivate. Although
most study offenders were released
through ahalfway house, many of
the comparison inmates were
released directly to community su-
pervision. Table 3 (page 6) depicts
some of the important halfway
house outcome information col-
lected in the PREP study.

The variable disposition shows that
almost the same proportion of study
(83.9 percent) and comparison (83.3
percent) inmates successfully com-
pleted their halfway house stay. On
average, study inmates spent 98.0
days in the halfway house environ-
ment prior to their release to com-
munis supervision, while
comparison inmates spent 93.5
days. Table 3 also shows that study
observations were 24.4 percent more
likely than comparison observations
to obtain a full-time job at some
point during their halfway house
stay. Of the 3,070 study inmates
released through a halfway house.
86.5 percent obtained a full-time
job, while only 62.1 percent of the
1043 comparison inmates released
through a halfway house had
worked at a full-time job. Study ob-
servations were also 7.7 percent
more likely to obtain day labor
employment (e.g., a 1-day job per-
forming unskilled labor at a con-
struction site). Nevertheless, both
study and comparison group mem-
bers who obtained employment
spent the same proportion of their
entire halfw^ay house stay on their
job (on average, about 4.1 and 1.5
days per week on full-time and day
labor jobs respectively).

One of the responsibilities of staff at
halfway houses is to provide
employment counseling. As can be
seen from Table 3, most offenders
get jobs through their own resour-
ces. Study inmates, however, were

more likely to get employment
help from their friends or from
an employment agency than were
comparison inmates. This was
true for the longest and most
recently held job. Finally, for in-
mates who left their longest held
job at the halfway house, most
study offenders quit in order to
get a better job, although 7.8 per-
cent •were fired and 23.8 percent
were laid off. Comparison sub-
jects were more likely to quit
their jobs for reasons other than
to get a better job.

In summary, at the point of
halfw^ay house release, both study
and comparison offenders were
equally likely to successfully com-
plete their halfway house stay, al-
though study inmates were far
more likely to obtain a full-time
or day labor job.

Post-Release Outcome

Once released to community su-
pervision, offenders in the PREP
study were followed by making
phone calls to their supervising
probation officers. Follow-up oc-
curred at 6- and 12-month inter-
vals. However, monthly
information w^as collected over
the entire interval.

Table 4 (page 9) shows the 6- and
12-month dispositions for study
and comparison subjects. At both
the 6- and 12-month follow-up
. points, study group offenders
were less likely to have been
revoked from, supervision. Al-
though not depicted in Table 4,
study and comparison groups
were statistically indistinguish-
able in their reason (parole viola-
tion vs. new offense) for being
revoked at both the 6- and 12-
month junctures. Nevertheless,
the predominant reason for

Table 2^
institutional Adjustment

Frequency of Disciplinary Reports Within the Last Year

Comparison Group
% #obs.

Study Group
% #obs.

None

One or More

Total

73.8
26.2

(766)
(1038)

77.7
212

(587)
ri68^

(755)

Type and Frequency of Most Serious Disciplinary Reports

Comparison Group
#obs.

2.6

3.5

Study Group
% #obs.

Any "Greatest'
More than One "High '

within the Last 2 Years
Only One "High " within

the Last 2 Years 10.5

More than One

"Moderate " within the

Last Year 2.9

Only One "Moderate '

within the Last Year 8.4
More than One "Low/

Moderate " within the

Last Year

(27)

(36)

(109)

(30)
(87)

1.6

2.4
9.3

2.4
9.1

None
Total

.3
71.3

(3) 0.0

(lACi\ 73.9

(1038)
Level of Responsibility

(12)
(18)
(70)

(18)
(69)

(0)

(55S1
(755)

Comparison Group
% #obs.

Study Group
% #obs.

Poor

Average

Good

Total

7.4
40.7
51.8

(77)
(423)
(538^

(1038)

2.9
37.5
59.6

(22)
(283)
r4S0^

(755)

' The results reported in this table are sialisticaDy significant PercenUges may not total 100.0 due to
rounding.

Table 3^

Halfway House Outcome Data

Disposition

Escapes
New Arrests
Return to Custody
Successful Completion
Other

Number of Observations

Comparison
Group

6.8
0.1
9.1
83.3
0.7

(1042)

Study
Group
%

5.2
0.5
8.4
83.9
2.0

(3070)

Percent Obtaining Full-Tinne or Day Labor Employment^

Full-Time Job
Day Labor Job

Number of Observations

Comparison
Group

62.1
1.3

(1043)

Study
Group

86.5
9.0

(3070)

Person or Agency Responsible for Finding Most Recently Held Job

Halfway House

Offender

Friends

Relatives

Employment Agency

Other

Number of Observations

Comparison

Study

Group

13.6

15.7

57.3

51.6

4.8

13.6

6.8

8.2

2.5

6.2

15.0

4.7

(646)

(2649)

(Continued on next page)

' The results reported in this table are stallstically significant. Percentages may not total 100.0 due to

rounding.

^ These two categories, full-lioie and day labor, are not mutually exclusive.

Table 3 (continued)
Halfway House Outcome Data

Person or Agency Responsible for Finding the Longest Held Job"

Comparison

Group

Halfway House

18.9

Offender

51.4

Friends

2.7

Relatives

8.1

Employment Agency

6.4

Other

13.5

Number of Observations

(37)

Study
Group

16.1

49.8

15.0

6.7

8.6

3.8

(257)

Reason Why Offender Left Longest Held Job

Comparison
Group

Fired

Laid Off

Quit for a Better Job

Quit - Other Reason

Number of Observations

3.0
9.1

33.3
54.6

(33)

Study
Group

7.8
23.8
44.1
24.2

(256)

'This subtable excludes individuals whose longest held job is also their most recently held job.

revocation during each 6-month
period (60-70 percent) for both
groups was a parole violation rather
than a new offense.

Furthermore, inmates who par-
ticipated exclusively in UNICOR
were also less likely to have their su-
pervision revoked than were com-
parison group offenders. Although
the magnitude of difference may
seem small, the differences are both
statistically significant and substan-
tively meaningful.

At the 12-month time period, 10.1
percent of comparison offenders
had been revoked, while only 6.6
percent of study offenders had been
revoked. In other recidivism studies
conducted by the Bureau, about 20
percent of released inmates were
revoked or rearrested within a year
of their release. In 1980, the percent-
age was 19.4. in 1982. 23.9, and in
1987. 19.2.

The differences among study, com-
parison, and baseline groups indi-
cate several important conclusions:
(1) Due to the research design and
the matching methodology, there
are characteristics of both study and
comparison offenders that decrease
their likelihood of recidivating; (2)
UNICOR work experience and voca-
tional training further increases the
likelihood of post-release success;
(3) Had 'we compared the study
group to a normal baseline group,
even with statistical controls, it is
likely we would have exaggerated
the differences between offenders
who participated in work and voca-
tional training and those who did
not.

Table 5 (page 10) shows the propor-
tion of study and comparison group
offenders who were employed
during the follow-up period in any
given month. It also shows the

average wages earned in each
month, as well as the 6- and 12-
month totals. Although not indi-
cated in Table 5, there is a
tremendous amount of variability
in post-release wages, which is
probably why most comparisons
did not reach statistical sig-
nificance. The table shows that
study group offenders were more
likely to be employed in any of
the 12 months following their
release to the community. At the
end of 12 months, study group in-
mates had averaged about $200
more in wages than comparison
group offenders. Although this
result was not statistically sig-
nificant, it seems to be a pattern
worthy of continued observation.

In summary, inmates who par-
ticipated in UNICOR work and
other vocational programming
during their imprisonment
showed better adjustment, were
less likely to be revoked at the
end of their first year back in the
community, were more likely to
be employed in the halfway
house and community, and
earned slightly more money in
the community than inmates
who had similar background char-
acteristics, but who did not par-
ticipate in work zuid vocational
trtdning programs.

Future Analyses and Reports

The analyses discussed in this
report represent only the most
fundamental differences between
study and comparison offenders.
Future analyses will address
mobility issues - the impact of
prison w^ork and vocational train-
ing on changes in occupations
before, during, and after release
from prison. We wdll also analyze
specific occupational work and
training effects to the extent the

Table 4^
Post-Release Outcome Data — Disposition''

Disposition - 6 Months

Completed
Under Supervision
Revoked

Comparison
Group

12.7

81.2

6.2

Study
Group

10.0

85.1

4.9

Number of Observations

(2495)

(2236)

Disposition — 12 Months

Completed
Under Supervision
Revoked

Number of Observations

Comparison
Group

8.5
81.4
10.1

(1829)

Study
Group

7.9

85.6

6.6

(1502)

The data reported in (his table are statistically significant. Percentages may not total 100.0 due to
rounding.

The data in Table 4 show Ihat about 600 - 700 fewer inmates from each group were represented in
the 12-month followup than in the b-month followup. The reason for this is Ihat when the PREP study
was terminated, there were about that numtjer of offenders still in the "pipeline" for whom no
1 2-month outcome data was collected.

Table 5^
Post-Release Outcome Data — Employment

Percentage of Offenders Employed in
Each of the First 6 Months:

Month 1
Month 2
Months
Month 4
Months
Month 6

Number of Observations

Comparison

Study

Statistical

Group

Significance

65.6

74.7

65.5

75.1

•

65.8

74.2

64.7

72.8

63.7

71.1

61.1

68.6

(2506)

(2253)

Percentage of Offenders Employed in
Each of the Latter 6 Months

Month 7
Months
Month 9
Month 10
Month 1 1
Month 12

Number of Observations

Comparison

Study

Statistical

Group

Significance

71.8

79.2

70.7

77.1

68.8

76.1

66.7

74.3

64.9

72.9

63.1

71.7

(1831)

(1503)

(Continued on next page)

'in this table, significant contrasts are noted with an "*," while "n.s." is used to indicate "not significant."
Also, percentages may not total 1 00.0 due to rounding.

^The increase in the percentage employed between months 6 and 7 for both groups is a statistical
artifact. This is because the percentages are based on the number of observations still under supervision
at the end of each 6-month interval. However, this does not inlluencc the monthly comparisons
between the two groups.

For the same reason, the average wages (shown on the continuation page of Table 5) diminish over
each 6-monlh interval. This is because the wages earned during the month (the numerator) are zero lor
any individual who was unemployed during a month and consequently earned no money, while the
number of observations (the denominator) used to calculate the average is determined by the
observations still under supervision at the end of each 6-month intervaf. (footnote continues)

Table 5 (Continued)
Post-Release Outcome Data — Employment

Average Wages Earned in
Each of the First 6 Months

Comparison

Study

SUtisUcal

Group

Signifirflniv

Month 1

668.25

723.57

Month 2

693.45

737.17

Month 3

703.32

727.80

OS.

Month 4

701.09

733.82

njs.

Months

693.12

720.77

ns.

Month 6

676.35

701.29

ILS.

Total 1 - 6 Months

$4,135.59

$4,344.42

ILS.

Number of Observations

(2506)

(2253)

Average Wages Earned in
Each of the Latter 6 Months

Comparison
Group

Study
Group

Statistical
Significance

Month?
Months
Month 9
Month 10
Month 11
Month 12

851.02
835.92
828.03
815J7
793.06
769.45

846.10
845.98
833.50
8??, 71
822.97
820.97

n.s.
n.s.
n.s.
n&
ns.
n.s.

Total 7 - 12 Months

$4,893.06

$4,991.72

ns.

Number of Observations

(1831)

(1503)

Total 1-12 Months

$9,665.88

$9,862.82

njs.

(continued) Although some individuals retained a job over the entire observation period and
may have maintained, or even increased, their remuneration, the average wage for the group
declined due to the increase in the number of individuals who became unemployed for some
period of time and therefore earned zero dollars for those months.

Summary of the initial PREP Findings

• study group members demonstrated better institutional adjustment than did the par-
ticipants in a comparison group. Study group members were less likely to have miscon-
duct reports within the last year of their confinement, and when they did, it was less
likely to have been for serious misconduct. Study group participants were also rated
by ^eir unit teams to have a higher level of responsibility than their comparison
counterparts. An inmate's level of responsibility refers to his/her level of dependability,
financial responsibility, and the nature of higher interaction with staff and other in-
mates.

• At the point of halfway house release, both study and comparison offenders were
equally likely to successfully complete their halfway house stay, although study inmates
Kvere far more likely to obtain a job.

• Inmates who participated in work and vocational programming during their imprison-
ment showed better post-release adjustment. They were less likely to reddivate by the
end of their first year bad( in the community, were more likely to be employed in the
halfway house and community, and earned slightly more money in the community
than inmates who had similar badcground characteristics, but who did not participate
in work and vocational training programs.

data allow. Every inmate's job or
vocational training was classified ac-
cording to the Department of
Labor's Dictionary of Occupational
Titles (DOT). These DOT codes will
allow us to look at broad, as well as
more refined, classes of occupations
and their impact on post-release out-
come.

We have also collected economic
climate data. Data such as un-
employment statistics, industrial
sector information, and informa-
tion on the demographic charac-
teristics of the areas to which
Inmates were released will allow us
to examine the relative impact of
these economic climate data in rela-
tion to work and vocational train-
ing.

As part of the data collected on
study inmates while they were in
prison, work evaluations con-
ducted by the inmates' super-
visors w^ere gathered, as well as
ratings of the inmate's perfor-
mance in the vocational training
courses. This performance infor-
mation will allow us to examine
whether the intensity of the
inmate's work performance af-
fects post-release success.

Although the impact of work and
vocational training in Federal
prisons has produced differences
that could be viewed as modest,
they are nevertheless substantial-
ly and statistically significant ef-
fects. It is also possible that
further analysis will show us how^
to optimize our training through

specific skills acquisition. It is also
likely that the economic climate of
an area is an important deter-
minant of an offender's community
employment. We are well aware
that many ex-offenders not only
must overcome low skill levels, but
also the local and global conditions
that compound the already for-

midable challenge of finding and
keeping a job, given the stigma of
past incarceration.

If you have any questions or com-
ments about the information
presented in this article, please
contact Bo Saylor or Gerry Gaes at
202/724-3118.

May 22, 1991

Revised January 8, 1992

'Artual time served was computed for the study and comparison groups and, as one would expect, based on
the projerted length of incarceration, the study group sen«d more time than did the comparison group. On
average, study group inmates served about 6 months longer than comparison group inmates.

^All of the results in Tables 1 ,2,3. and 4 are statistically significant In Table 5, significant contrasts are indi-
cated with an "•,' othenwise, "n.s." is noted for 'not significant." Statistical tests in Tables 1 through 4 and the
employment data for Table 5 are chi^quare tests for differences in proportions. The statistical test for employ-
ment wages in Table 5 were based on t-tests of differences in group means. We have also noted rn each table
the different number of observations. Not all information was collected or available on all observations in this
study Furthermore, as the study progressed through the post-release outcome stages, inmates vrauld be
revoked, or othenwise "drop out" of the study (e.g., successfully complete their period of supennsion).

Mr. Hughes. Mr. Seiter, welcome.

STATEMENT OF RICHARD F. SEITER, CHIEF OPERATING
OFFICER, FEDERAL PRISON INDUSTRIES, INC,

Mr. Seiter. Thank you, Mr. Chairman, and members of the sub-
committee. I also appreciate the opportimity to appear before you
today with Director Hawk to talk about Federal Prison Industries,
or FPI. In my testimony, I intend to update the subcommittee re-
garding the current status of FPI and the challenges facing it. I
will discuss the congressionally mandated market study and sum-
marize the activities to bring together interested stakeholders since
the issuance of that study.

At the end of fiscal year 1992, FPI employed approximately
15,900 inmates, in 89 factories, in 47 Federal prisons. Sales for fis-
cal year 1992 totaled $417 million. To avoid undue impact on any
single private sector industry, FPI is very diversified, and produces
over 150 different products. In its 59th successful year of oper-
ations, FPI continues to meet its statutory mandates of employing
and training inmates, offering high quality products £ind services to
Federal customers, and operating as a self-sufficient Federal cor-
poration, with no reliance on appropriated funds.

FPI also continues to be an important partner to business and
labor, returning over 90 cents of each sales dollar to the private
sector. Nearly one-half of materials and supplies are usually pur-
chased from small businesses.

FPI is also very sensitive to its impact on the private sector, and
illustrates its sensitivity in many ways. First, FPI regularly de-
clines to add to its product line tnose goods and services that will
have a potentially negative impact on industry and labor. Second,
there is a statutorily required public involvement process that FPI
must go through before adding new or expanded products. Of the
11 recommended new or expanded products, the FPI Board of Di-
rectors has denied three. Third, FPI established the Office of the
Ombudsman to hear concerns from the private sector, and to
proactively reach out to business and labor.

FPI is the most important correctional program within the Fed-
eral Bureau of Prisons, and must parallel the increase in inmates
in Federal Prisons. Since fiscal year 1983, the population has
grown from just under 30,000 to well over 70,000 inmates. FPI's
employment has increased from 7,314 to 15,900 inmates over that
same period of time. To keep up with the expected growth, FPI will
have to increase employment to over 25,000 inmates for fiscal year
1999. This continued demand for growth creates both a challenge
to FPI and concern from the private sector.

As a challenge, FPFs only market is the Federal Government.
Budget cutbacks are expected to reduce the agency's procurement,
especially within the Department of Defense, which makes up ap-
proximately 60 percent of FPFs sales. Additionally, FPI must re-
main self-sufficient. Yet, growth of this magnitude creates a serious
financial cost of building and equipping new factories. Growth
brings additional concerns from business and labor, as each new
market creates a new set of interested parties who often complain
that FPI should not enter their markets.

In response to these concerns, Congress mandated that an inde-
pendent study be done. The market study noted that FPI supplies
only a small fraction, one-sixth of 1 percent, of the goods and serv-
ices purchased by Federal departments. Of those products that FPI
specifically produces, the share of the Federal market was only 1.9
percent. We are very pleased that this study gave FPI excellent
ratings for price, quality, and compliance with specifications. How-
ever, the study concludes that FPI growth in a declining Federal
Government market will continue to create controversy among pri-
vate sector companies, and that there are no easy answers and no
sizable opportunities for FPI to meet growth requirements through
continued diversification.

Therefore, the study recommended three growth strategies. No.
1, that FPI subcontract with Federal prime contractors; No. 2, that
FPI enter into partnerships with the private sector to perform cer-
tain production functions which would otherwise be done offshore;
and No. 3, that FPI substantially increase its provision of services
to the Federal Government.

Since the study left many questions unanswered, and dealt very
little with the realities of implementation, the Brookings Institu-
tion was asked to facilitate the process of discussion and consensus
building. Following formal discussions with private and public sec-
tor officials, the consensus was reached that a summit be held to
involve all interested parties in discussions of a study. A 3-day
summit was held in June 1992. The invitee list, which is attached
to my written testimony, included well over 100 public and private
sector representatives, and over 75 attended.

Two work groups were established to follow on the issues raised
at this summit. One group was to examine methods of improving
communications between FPI and the private sector, and the sec-
ond was to look for opportunities for FPI to employ the required
numbers of inmates while minimizing the impact on the private
sector. There have been many meetings since that time, and I be-
lieve progress is being made.

In summary, the issue of balancing the interests of two valid con-
cerns, ensuring the growth of Federal Prison Industries to meet the
increasing demand of inmates, while minimizing the impact on the
private sector, is a difficult one; however, it is my belief that FPI
is doing what Congress intended it to do when it was established
in 1934 — employ and train inmates to prepare them for release, be
diverse yet self-sufficient, and avoid undue impact on the private
sector.

This is not an easy task. Staff" and inmates, dedicated to FPI's
success in this regard, deserve a tremendous amount of credit.
Each and every day, FPI must ensure total customer satisfaction
in order to sell products and services and continue to meet its stat-
utory responsibilities. I believe that FPI is truly a Federal Govern-
ment success story, as well as a critical correctional program.

Thank you, Mr. Chairman.

Mr. Hughes. Thank you, Mr. Seiter.

[The prepared statement of Mr. Seiter follows:]

Prepared Statement of Richard P. Seiter, CraEF Operating Officer, Federal

Prison Industries, Inc.

opening comments

I appreciate the opportunity to appear before you with Director Kathleen N. Hawk
to discuss Federal Prison Industries (FPI). Dr. Hawk has explained why FPI is es-
sential to the Federal Bureau of Prisons, and the challenge of providing more woric
opportunities for the expanding prison population. In my testimony, I intend to up-
date the Subcommittee regarding the current operations of FPI, to include the num-
ber of inmates employed, the number of factories, and the variety of products and
services provided to our Federal customers. I will also expand on Director Hawk's
presentation on the growth of the Bureau, and what this means for FPI, which must
find new products or customers and continue to be self-sufficient in a downsizing
Federal procurement market. I will discuss the Congressiontdly mandated Market
Study of the operations of FPI and their impact on the private sector, and make
recommendations for growth. Finally, I will summarize for the Subcommittee the ac-
tivities that have taken place since that study in an attempt to bring together the
public and private sectors to find practical solutions to the challenges of growth.

current status of federal prison industries

As noted by Director Hawk, by the end of fiscal year 1992, the inmate population
in Bureau facilities grew to nearly 71,000. Of this total, FPI employed approxi-
mately 15,900 inmates at the end of fiscal year 1992. FPI operated 89 factories at
47 locations throughout the countiy. Average employment throu^out fiscal year
1992 totaled 15,432, up from the FY 1991 average of 14,549.

Sales to Federal departments and agencies in FY 1992 totaled $417.4 million. In
an effort to avoid undue impact on any single private sector industry, FPI is diversi-
fied to the point that it currently produces over 150 different products in 83 dif-
ferent product and services classes, and 46 entirely different 4-digit Standard Indus-
trial Classification (SIC) industries.

In its 59th year of operation, FPI continues to meet its statutory mandates of em-
ploying and training inmates, minimizing any potential impact on the private sec-
tor, offering high quality products and services to Federal customers at current mar-
ket prices, and operating as a self-sufficient Federal corporation, with no reliance
on appropriated funds.

FPI also continues to be an important partner to small business, returning over
90 cents of each sales dollar to the private sector through direct purchases of raw
materials, supplies, services, equipment, and salaries — which totalled over $375 mil-
lion in FY 1992. Nearly one-half of all materials and supplies are purchased from
small businesses.

HOW UNICOR CASH-IS-USED. ■

Ataunas ma Suopim

Fran i>nvaic tecior

bTcena

SaflSiUna
licenu

lyulius. £aiu(nncnL

Miuueiunce ina ^uooiia

Fiom fmiit sector

\vBaxthj
7 tend

y*tm rjciones

US Eauiptneni

Jcenu

FPI is very sensitive to its impact on the private sector. As you know, FPI may
only sell its soods and services to Federal departments and agencies, a very limited
(and probabfyy shrinking) market. Facing tremendous challenges for growth, FPI
must constantly look for new product or service opportunities that can be manufac-
tured in Federal prisons and sold to government customers. However, throughout
this process, FPI remains sensitive to private sector concerns. FPI staff have identi-
fied markets for many new products that were never put into production because
of their potential impact on the private sector. Over tne past five years, FPI has
identified several new products, including various textile and apparel items, ofiice
supplies, and medical care products that have been eliminated from further consid-
eration— either because there was a relatively small market, the market was domi-
nated by small business, much of the domestic market had gone off-shore and the
government market represented the remaining stronghold for U.S. companies, or
fliere was a potentially shrinking government market tnat would put more pressure
on remaining vendors.

FPI must go throu^ a public involvement process before adding new products or
significantly expanding current products. By statute, this process requires intensive

{)rivate sector interaction prior to the Board's decision to allow FPI to expand. I be-
ieve that the process has kept FPI constantly aware of the impact of its actions
on the private sector. Within the last twelve months, FPI has also established the
Office of the Ombudsmem to be a Uaison between the private sector and FPI. The
Ombudsman both hears the private sector's concerns and reaches out to business
and labor regarding FPI activities.

Perhaps most importantly, FPI continues to employ and train inmates, preparing
them for the tremendous challenges that face them in becoming productive, tax-pay-
ing, law-abiding citizens upon release from prison. The Post-Release Employment
Study (PREP) cited by Director Hawk found that not only do inmates who received
training and work skills while employed by FPI find jobs more quickly and earn
more atter release, they are also less likely to commit new crimes than their non-
FPI counterparts.

As Chief Operating Officer of Federal Prison Industries, I am pleased to report
to the Subcommittee that we are meeting our Congressionally mandated mission.
We are employing and training inmates m Federal prisons, we are preparing in-
mates for release, we are remaining self-sufficient, and we continue to be sensitive
to potential effects on private industry and labor.

THE CHALLENGE OF GROWTH

As the most important correctional program within the Federal Bureau of Prisons,
FPI's growth parallels the growth in the number of inmates incarcerated in Federal

{>risons as a result of new sentencing guidelines and an increasing number of drug
aw violators. Since fiscal year 1983, the Bureau's population has grown from an av-
erage of 29,880 to 67,301 (an increase of 225%) for fiscal year 1992. As indicated
in the chart below, FPI employment has increased from a fiscal year average of
7,314 to 15,432 (an increase of 210%) over the same period.

lE&Vr HISTOROL TRENDS

nSCAL TOTAL* FPI*

YEAR BOP POP EWLOY

1983 29,880 7,314

1984 31,396 8,390

1985 33,948 9,461

1986 39,105 11,539

1987 42.437 14,161

1988 43.502 14,115

1989 47.638 13,301

1990 55,749 13,581

1991 61,364 14,549

1992 67,301 15,432

* Averages.

The Federal prison population is expected to continue to grow at a rate in excess
of 10% a year throughout the 1990'3. To keep up, FPI wiU have to increase its em-
ployment to an average of over 25,000 inmates for fiscal year 1999. This continued

demand for growth creates both a challenge for FPI and concerns for the private
sector.

FPI's only market is the Federal government, and budget cutbacks are expected
to reduce agencies' procurements, especially the Department of Defense, which
makes up approximately 60% of FPI sales. Additionally, FPI must remain self-sufli-
cient. Yet growth of this magnitude creates a serious drain on funds for building
and equipping new factories. Continued diversification adds additional costs for
product development, maiteting and sales, customer service, and product losses
that generally result during the first few years after entrv into a new market. All
of this creates an environment that seriously threatens FPTs ability to remain self-
sufficient. Finally, growth brings additional concerns from business and labor, as
each new market creates a new set of interested parties who often complain that
FPI should not enter the market for products that they currently sell to the Federal
government.

In response to these issues. Congress mandated that an independent study be
done to identify the current impact of FPI on the private sector, and target opportu-
nities for growth that minimize such impact. This study was completed and deliv-
ered to Congress in August, 1991. Since that time, there has been much discussion
of the studys findings and recommendations, and we are hopeful that Congress can
consider the report and the results of these discussions in the near future.

THE CONGRESSIONALLY MANDATED MARKOT STUDY

There were three purposes to the Market Study: 1) to identify products and mar-
kets for FPI that will have a minimal impact on private sector industry; 2) to assess
the impact that FPI has had on the private sector in the past; and, 3) to determine
whether the laws that control FPFs procurement process need to be changed.

To appreciate the genesis of the recommendations, it is necessary to understand
the backdrop against which they were made. First, as you know, FPrs sole customer
is the Federal Government, a market that has been declining and will probably con-
tinue to decline. Second, many of the industries in which FPI operates are increas-
ingly affected by imports, leading some companies in these industries to a greater
dependence on the Federal marketplace. Third, many of these same industries have
an increasing concentration of small businesses. Fourth, FPI must increase its em-
ployment and training of inmates over the next 8 to 10 years to keep up with the
dramatic influx of admtional Federal offenders.

Before addressing the recommendations in the study, I would first like to empha-
size several findings made by Deloitte & Touche. More than 70% of FPI customers
interviewed or surveyed indicated that the FPI preference was the primary reason
for utilizing FPI products. Yet, the Market Study found that FPI supplies only a
small fraction of the goods and services purchased each year by Federal depart-
ments and agencies, hi 1990, the Federal Government is estimated to have pur-
chased over $191.2 bUlion worth of goods and services. Of this total, accordm^ to
the Market Study, only one-sixth of one percent was purchased from Federal Prison
Industries. . .._-

The Market Study examined the 83 product and service classes in which tfi pro-
duces, and concluded that, even in this narrower universe of government procure-
ment, FPFs share of the Federal market is only 1.9 percent. Furthermore, since
some private firms also have the much larger market outside of the Federal Govern-
ment available to them, the Market Study also examined FPI's impact on the broad-
er economy and concluded that in the industries in which FPI operates, FPI has less
than one-tenth of one percent of total U.S. production, and that its impact on U.S.
industries has not been significant. ,

We are very pleased that the Market Study gave FPI excellent ratings for pnce,
quality, and compliance with specifications. FPl receives its highest ratmgs for cus-
tom products— those built to the customer's specifications— but also receives above
average quality ratings for items such as electronics assemblies for military equip-
ment. The Market Study concluded that FPI follows product design, testing, and
quality specifications across its product lines. Also, FPI prices were found to be com-
parable to private sector vendors. In general, the Market Study confirms the posi-
tive results of previous examinations of FPI's price, quality, delivery, and customer
service which were conducted by the House of Representatives Judiciary Sub-
committee on Courts, Intellectual Property and the Administration of Justice in
early 1990 and by a General Accounting Office (GAO) audit of FPI in 1985.

In spite of these high marks, the Maricet Study concludes that FPI growth m a
declining Federal government market will continue to create controversy among pri-
vate sector companies, which could eventually undermine the very reason for FPI s
existence— to operate a correctional program charged with employing and trammg

a substantial percentage of the rapidly erowing Federal inmate population. Put sim-
ply, the Market Study concludes that there are no easv answers and no sizable op-
portunities for FPI to meet its growth requirements through continued diversifica-
tion into new products and services.

To address this dilemma, the Market Study suggests that FPI complement sales
of traditional products and services to the Federal government through expansion
of markets and throurfi some changes in the way in which FPI interfaces with the
Federal marketplace. The Market Study recommends three growth strategies:

1. That FPI subcontract with Federal prime contractors, under a mandatory set-
aside arrangement, to perform labor-intensive, li^t manufacturing functions.

2. That FTI enter into partnerships with the private sector to attempt to repatri-
ate certain segments of American industry by manufacturing product components
and performing certain production functions that otherwise could only be accom-
plished by offshore labor.

3. That FPI substantially increase its provision of services to the Federal Govern-
ment, through the enactment of a mandatory source procurement preferencee. The
Federal Government's purchases of services are increasing, and this growth offers
substantial opportunity for FPI to employ more inmates with little likelihood of any
adverse impact on the private sector. We note that the law currently provides &
mandatory preference for services to the National Industries for the Blind (NIB) and
the National Industries for the Severely Handicapped (NISH). We do not believe
that any preference for services in favor of FPI should take priority over the pref-
erence currently afforded to NIB and NISH. In fact, it is our recommendation that
FPI be given a preference that is secondary to these organizations.

The Market Study recommends that by 1998, FPI should generate 50 percent of
all sales through these three new strategies. This means about $100 million worth
of sales in each strategy. While the report recommends that during the transition
period, sales continue to be generated by traditional industries (textiles, apparel,
electronics, fiimiture), at the same time it recommends that as new growth strate-
gies succeed in employing inmates, FPI should reduce its sales of traditional prod-
ucts by about 60 percent from 1998 projections.

MARKET STUDY IMPLEMENTATION EFFORTS

Obviously, the study left many questions unanswered, and FPI, private industry,
and labor have many valid concerns about the study's growth recommendations and
implementation strategies. It was important to have a neutral forum where these
issues could be discussed and resolved. We asked for guidance from and the involve-
ment of The Brookings Institution Center on Public Policy Education for several rea-
sons. Brookings is extremely experienced at bringing together leaders from different
sectors of society for focused problem solving in the belief that these exchanges can
help produce wiser public policy. In addition, Brookings is a neutral peirty that has
the conflict resolution expertise necessary to confront these diflicult issues.

The post-Market Stuay process can be divided into three main phases, with
Brookings oversight, and private sector and Congressional involvement, at each
phase.

First, an advisory committee compmsed of Congressional staff. Department of Jus-
tice officials, and trade and labor association representatives worked with Brookings
to plan the best followup to the Market Study. A decision was made that a "summit"
be held to involve all interested parties in discussions of the study findings, rec-
ommendations, and implementation strategies, over a six-month period, the advi-
sory committee worked on the agenda as well as the participants list to ensure that
no major issues were overlooked, and no stakeholders were excluded.

Phase two included the three-day Summit, which was held in early June 1992 and
was based on the work of the advisory committee. The invitees list included over
100 representatives from many sectors of government. Congress, and the private
sector. (Invitee and attendance lists attached.) The response was excellent; over 75
attended. The Summit was very successful in identifying communication problems,
looking at the correctional needs of the Bureau of Prisons, and providing a forum
for discussion of the Market Study. It focused on the specific problems facing the
industries in which FPI operates, as well as the growth strategies recommended by
Deloitte and Touche. In addition, communication links between the stakeholders
were vastly improved, allowing them to reach a greater understanding of the dif-
ficult problems facing each.

The primary message from the Brookings Summit was that the participants
"should keep the process going and keep the lines of communication open." There
was a firm commitment to continue the process into a third phase: the establish-
ment of work groups to followup on issues raised at the Summit.

Two major woric groups were set up: the Communications work group is examin-
ing how f1?I, industry and labor can communicate more effectively, how FPI can be
more predictable, and how the guidelines process can be improved. The Growth
Strategies worit group is identifying growth options for FPI, and has divided into
four subgroups to examine subcontracting, onshore initiatives, services, and addi-
tional strategies. These groups are responsible for analyzing FPFs ability to expand
in these mancets, the impact on potential stakeholders, and any statutory changes
that may be required.

I am pleased with the progress that is being made through this process, and I

success.

SUMMARY

Balancing the interests of two very valid concerns — insuring the growth of Federal
Prison Industries while minimizing its impact on the private sector — is a classic
problem for governance. As a student of public administration and an administrator
responsible for one of these interests, I am pleased that the dialogue has moved be-
yond adveraarial restatement of positions to a point of candid communications
among interested parties. As a result of the Brookings Summit and subsequent
work group meetings, all are attempting to find solutions that can serve everyone's
interests.

It is my belief that FPI is doing exactly what Congress intended it to do when
it was established in 1934: employ and train inmates to prepare them for release,
be diverse yet self-suffident, and avoid undue impact on the private sector. This is
not an easy task. Yet both staff and inmates dedicated to FPI s success deserve tre-
mendous credit. I am sure the Subcommittee is as proud as I am of government em-
ployees who are not linked to traditional "appropriate and spend" methods of oper-
ations. Each and every day, FPI must insure total customer satisfaction to sell prod-
ucts and services and continue to meet its statutory responsibilities. FPI is truly a
Federal government success story, and one of which I am proud to be a part.

Brookings Summit on Federal Prison Industries iNvrrEEs/ATTENDEES
(* Asterisk indicates those who attended summit.)

*Kate Leonard, Leonard, Ralston,
Stanton and Danks, 1000 Thomas
Jefferson Street, Suite 609,
Washington, DC 20007

Joseph Lane Kiricland, President, AFL-
CIO, 815 16th Street, NW,
Washington, D.C. 20006

Evelyn DuBrow, Vice President,
International Ladies' Garment
Workers' Union, 815 16th Street, NW,
Washington, DC 20006

Segundo-Mercado Llorens, Director of
Government Affairs, United Food and
Commercial Workers Association, 1775
K Street, ISfW, Washington, DC 20006

Eivind Johansen, President, NISH, 2235
Cedar Lane, Vienna, VA 22180

*Executive Director ( Susan Perry
Represented BIFMA), BIFMA, 2335
Burton Street, SE, Grand Rapids, MI
49506

* Larry Allen, Executive Director,

Coalition for Government
Procurement, 1990 M Street, NW,
Washington, DC 20036
David Ladensohn, Vice President, KLN
Steel Products Compemy, 8614 Perrin
Beitel Road, San Antonio, TX 78265

* Marcia Kinter, Director of Government

Affairs, Screen Printing Association,
International, 10015 Main Street,
Fairfax, Va. 22031

Caroline Carver, Director, Government
Relations, American Traffic and Safety
Services Assn., 5440 Jefferson Davis
Highway, Fredericksburg, VA 22401

Douglass Brackett, Executive Vice
President, American Furniture
Manufacturers Association, PO Box
HP-7, High Point NC 27261

Chris Steinbert, Executive Vice
President, American Subcontractors
Association, 1004 Duke Street,
Alexandria, VA. 22314

Joseph CNeil, Chairman, Business
Coalition for Fair Competition,
American Council of Independent
Laboratories, 1725 K Street, NW,
Washington, DC 20006

Richard Lesher, President, US Chamber
of Commerce, 1615 H Street NW,
Washington, DC 20062

Government Consultants, Inc., 2300 M
Street, NW, Washington, DC

John Spevacek, Director of Judication
and Corrections Division, NIJ, 633
Indiana Avenue, NW, Washington, DC
20531

♦Jerry Lawson, SBA, 409 Third Street,
SW, Washington, DC 20416

Scott Dacy, Legislative Specialist, Office
of Congressional Affairs, SBA, 1441 L
Street, NW, Washington, DC 20416

John Sturdivant, President, AFGE, 80 F
Street, NW, Washington, DC 20001

Roberto Rivera, Prison Fellowship
Ministries, PO Box 17500,
Washington, DC 20041

♦ Ben Cooper, Printing Industries of

America, 1730 N. Lynn Street,

Arlington Va. 22209
Larry Martin, Director, Government

Relations, American Apparel

Manufacturers Association, 2500

WUson Blvd., Arlington, VA 22201
Chief Justice Warren Burger, United

States Supreme Court, 1 First Street,

NE, Washington, DC
♦Tom Albrecht, NU, 633 Indiana

Avenue, Washington, DC 20531
Dorothy Seder, Staff Member, United

States Senate, S-146A Capitol Bldg.,

Washington, DC 20510
Ron Klain, Majority Chief Counsel, Attn:

Ann Rung, 224 Dirksen Senate Office

Bldg., Washinston, DC 20510
Gary Slaiman, Majority Counsel, Senate

Judiciary Committee on Anti-'Trust,

308 Hart Senate Office Bldg.,

Washington, DC 20510
Thad Strom, Minority Chief Counsel,

148 Dirksen Senate Office Bldg.,

Washington, DC 20510
John Ball, Minority Staff Director, 428

Russell Senate Office Bldg.,

Washington, DC 20510
Alan Coffey, Minority Chief Counsel, 428

RusseU Senate Office Bldg.,

Washington, DC 20515
Joe Gerard, Vice President of

Government Affairs, AFMA, 918 16th

Street, NW, Washington, DC 20006

♦ Pauline Abemathy, Legislative

Assistant, Office of Carl Levin, United
States Senate, Washington, DC 20510

♦ Richard Alley, Deputy Executive

Director, BOSH, 1735 Jefferson Davis
Highway, Arlington, VA 22202

♦ Barry Levenson, Manager of

Government Sales, Westvaco,
Envelope Division, PO Box 3300,
Springfield MA 01101
♦Andrew Linder, President, Power
Connector, 400 Oser Avenue,
Hauppage, NY 11788

♦ R.L. Matthews, Regional Director,

Bureau of Prisons, 7950 Dublin Blvd.,
Dublin, CA 94568
♦Robert Q. Millan, Director, Board of
Directors, FPI, 500 Thomhill La.,
Middletown, OH 45042

♦ Gerald Miller, Manager, Deloitte and

Touche, 1900 M Street, NW,
Washington, DC 20036

* Will Mo8chella, Legislative Assistant

Office of Frank Wolf, U.S. House of
Representatives, Washington, DC
20515
♦William Natter, Staff Member, Small
Business Committee, U.S. House of
Representatives, Washington, DC
20515

* Glen Pommerening, Deputy Assistant

Director, FPI, Washington, DC 20534

* Donald Pruett, Vice President,

American Furniture Company, PO Box
5071, Martinsville, VA 24115

* J. Michael Quinlan, Director, Bureau of

Prisons, 320 First Street, NW,
Washington, DC 20534
♦Robert Ramsay, Ombudsman, FPI, 320
First Street, NW, Washington, DC
20534

* Barbara Ramsay, Marketing Manager,

Thomasville Furniture, Inc, PO Box
339, Thomasville, NC 27361

* Hardy Ranch, Director of Standards

and Accreditation, ACA, 8025 Laurel
Lakes Court, Laurel, MD 20707

* Charles Rowe, Minority Counsel,

Committee on Small Business, IJ.S.
House of Representatives, Washington,
DC 20515

* David Wolf, Attorney Advisor, Office of

Legislative Affairs, Department of
Justice, 10th Street and Constitution
Ave., NW, Washington, DC 20530

* John Young, President, OLES Envelope

Corp., 532 East 25th Street,
Baltimore, MD 21218

* Tracey Schreft, Associate Director of

Small Business, US Chamber of
Commerce, 1615 H Street, NW,
Washington, DC

* George Schultz, Program Manager,

Office of the Secretary of Defense, The
Pentagon, Washington, DC 20310

* Donald Schwartz, Chairman, Board of

Directors, FPI, Protocol Group, Old
Ridgebury Road, Ridgefield, CT 07810

* Richard P. Seiter, Assistant Director,

Federal Prison Industries, 320 First
Street, NW, Washington, DC 20534

* Char &)bwick. Executive Assistant,

FPI, 320 First Street, NW,
Washington, DC 20534

* Richard Templeton, National Director,

Justice Fellowship, PO Box 17500,
Washinrton, DC 20041

* James Wilson, Special Assistant to the

Associate Attorney General,
Department of Justice, Tenth and
Constitution Ave., NW, Washington,
DC 20530

* Russell Abolt, Executive Vice

President, International Sleep
IVoducts Assoc, 333 Commerce Street,
NW, Washington, DC 22314

* Virginia Baldeau, Director, Office of

Application and Training, NIJ, 633
Iniana Ave., Washington, DC 20531

* Leigh Emick, Office of L.F. Pavne, U.S.

House of Rlepresentatives, 1118
Longworth House of Representatives,
Washington, DC 20515

* Michael Catling, Executive Assistant,

ACA, 8025 Laurel Lakes Court,
Uurel, MD 20707
Norman Carlson, Director, Bureau of
Prisons (Retired), 11410— 15th Street,
North StUlwater, MN 55082

* Gerald M. Farkas, FPI Chief Operating

Officer (Retired), 1981 Moreland
Parkway, B-3, Annapolis, MD 21401

* Jim Gondles, Executive Director,

American Correctional Association,
8025 Laurel Lakes Court, Laurel, MD
20707

* Bob Martineau, President, Correctional

Industries Association, Vermont

♦Warren Cikins, Senior Staff Member,
The Brookings Institution, 1775
Massachusetts Ave., N.W.,
Washington, D.C. 20036

♦Pete Velde (formerly: Administrator,
Law Enforcement Assistance
Administration, Al Smith and
Company, Room 310, 905 16th Street,
N.W., Washington, D.C. 20006

Jerris Leonard (formerly: Assistant
Attorney General, Attorney at Law,
Leonard & Ralston, 1050 Thomas
Jefferson St., N.W., Sbcth Floor,
Washington, D.C. 20007

Alvin J. Bronstein, Executive Director,
National Prison Project, American
Civil Liberties Union, 1611 P Street,
N.W., Washington, D.C. 20036

Mike Grotefend, President, Council of
Prison Locals, American Federation of
(Jovemment Employees, 80 F Street,
N.W., Washington, D.C. 20001

J. Hayden Boyd, Director, Office of
Consumer Goods, U.S. Department of
Commerce, International Trade
Administration, 14th Street &
Constitution Ave., N.W., Washington,
D.C. 20230

♦ Alan V. Burman, Administration, Office

of Federal Procurement Policy, Office
of Management and Budget, Old
Executive Office Building, Room 350,
Washington, D.C. 20503

* Craig Schneider, Director of

Operations, Krueger International,

1330 Bellevue Street, Green Bay, WI

54308-8100
Jeffrey P. Goldstein, President,

Commercial Drapery Contractors, Inc.,

1981 Moreland Parkway, B-3,

Annapolis, MD 21401
Leslie B. Simon, Director, Consumer

Non-Durable Goods Division, U.S.

Department of Commerce, 14th Street

Constitution Ave., N.W., Washington,

D.C. 20230
Scott Fosler, President, National

Academy of Public Administration,

1120 G Street, N.W., Suite 540,
Washington, D.C. 20005

* Beverly Milkman, Committee for

Purchase from the Blind and Other
Severely Handicapped, Crystal Square
5, Room 1107, 1755 Jefferson Davis
Highway, ArUngton, VA 22202

* George Camp, Association of States

Correctional Administrators, Spring
Hill West, South Salem, NY 10590

* Ross O. Swimmer, President/CEO,

Cherokee Nation Industries, Inc.,
Highway 51 West, P.O. Box 860,
StUwell, OK 74960

Horace J. Crouch, Director, Office of
Small and Disadvantaged Business
Utilization, Room 2A 340, The
Pentagon, Washington, D.C. 20301-
3061

Steve Policy, President, International
Communications Industries, 3150
Spring Street, Fairfax, VA 22031

Jack Paris, President, National

Federation of Independent Business,
600 Maryland Ave., S.W., Suite 700,
Washington, D.C. 20024

Bill Pitchier, President, National Office
Products Association, 301 N. Fairfax
Street, Alexandria, VA 22314

G. WiUiam Teare, Jr., President,
Printing Industries of America, 1730
N. Lynn Street, Arlington, VA 22209

Jerry Jasinowski, President, National
Association of Manufacturers, 1331
Pennsylvania Ave., N.W., Suite 1500,
Washington, D.C. 20004

Susan Hager, President, National Small
Business United, 1155 15th Street,
N.W., Seventh Floor, Washington, D.C.
20005

George J. Mertz, President, National
Industries for the Blind, 524 Hamburg
Turnpike, Wayne, NJ 07470,

G. Stewart Boswell, American Apparel
Manufacturers Association, 2500
WUson Blvd., Suite 301, Arlington, VA
22201

John Satagaj, President, Small Business
Legislative Council, 1025 Vermont
Ave., N.W., Suite 1201, Washington,
D.C. 20006

Paul Uetzmann, Executive Vice

President, Cookware Manufacturers
Association, P.O. Box 271, Lake
Geneva, WI 53147

Fawn Everson, President, Footwear
Industries of America, 1420 K Street,
N.W., Suite 600, Washington, D.C.
20005

* John Zalusky, Head of the Office of

Economic and Industrial Relations,
Economic Research Department, AFL/
CIO, 815 16th Street, N.W., Fifth
Floor, Washington, D.C. 20006

* Robert Barbera, Sr., President, Wire

Pro, Inc., 23 Front Street, Salem, NJ
08079

* Cora Beebe, Branch Chief, Commerce

and Justice Branch, Oflice of
Management and Budget, 725 17th
Street, N.W., Washington, D.C. 20503
*Maynard H. Benjamin, Executive Vice
President, Envelope Manufacturers
Association of America, 1600 Duke
Street, Suite 440, Alexandria, VA
22314-3400

* Richard K. Bovd. Manager,

Governmental Relations, Westvaco
Corporation, 299 Park Avenue, 13th
Floor, New York, NY 10171

* Caroline Carver, Director of

Government Relations, American
Traffic Safety Services Association,
5440 Jefferson Davis Highway,
Fredericksburg, VA 25407

* J.J. Clark, Wanlen, Federal Bureau of

Prisons, Federal Correctional
Institution, 1101 John A. Denis Road,
Memphis, TN 38134

* Ed Cook, Vice President, Sales and

Marketing, CPSI, 1491 West 124th
Ave., Westminster, CO 80234
*Manus Cooney, Counsel, Committee on
the Judiciary, U.S. Senate, 148
Dirksen Senate Office Building,
Washington, D.C. 20510

* James P. Copps, Director of

Manufacturing, FPL 320 First Street,
N.W., Washington, D.C. 20534

* Peter Dame, Legislative Director, Office

of Representative Fred Upton, U.S.
House of Representatives, 1713
Longworth House Office Building,
Washington, D.C. 20515
♦Mark D'Areangelo, FPI Board of
Directors, 225 Silver Spring Road,
Fairfield, CT 06430

* John J. Davin, Assistant Postmaster

General, Procurement and Supply
Department, U.S. Postal Service, 475
L'Enfant Plaza, S.W., Room 4011,
Washington, D.C. 20260-6200

•James L. DeProspero, Assistant
Conrunissiouer for Commodity
Management, General Services
Administration, Federal Supply
Service, 1941 Jefferson Davis
Highway, Room 710, Arlington, VA
22202

♦Patrick F. Donaldson, Executive
Director, Citizens Crime Commission,
221 N.W. Second Ave., Portland,
Oregon 97209-3999

♦Harry H. Flickenger, Assistant
Attorney General for Administration,
Department of Justice, Tenth &
Constitution Ave., N.W., Room 1111,
Washington, D.C. 20530

♦John C. Foreman, Principal, Deloitte &
Touche, 1900 M Street, N.W.,
Washington, D.C. 20036

918 16th Street, N.W., Suite 402,
Washington, D.C. 20006

* Ira B. Kirschbaum, General Counsel,

FPI, 320 First Street, N.W.,
Washington, D.C. 20534

* Brad Kyser, Budget Examiner,

Commerce and Justice Branch, Office
of Management and Budget, 725 17th
Street, N.W., Washington, D.C. 20503
•Mark Stein, President, Midtown Ofllce
Products, P.O. Box 7760, Silver
Spring, MD 20907

* Robert Neal, Deputy Associate

Administrator — Ofiice of Federal
Procurement Policy, Ofiice of
Management and Budget, Old
Executive Ofiice Buildmg, Washington,
D.C. 20503

* Kevin Howard, Staff Assistant,

Committee on the Judiciary, U.S.
Senate, 224 Dirksen Senate Ofiice
Building, Washington^ D.C. 20510

* Patricia Martin, Vice President,

Membership Services, International
Sleep Products Association, 333
Commerce Street, Alexandria, VA
22314

* Ed O'Connell, Assistant Counsel,

Subcommittee on Intelectual Property
and Judicial Administration,
Committee on the Judiciary, U.S.
House of Representatives, Washington,
D.C. 20515

* Hayden Gregory, Chief Counsel,

Subcommittee on Intellectual Property
and Judicial Administration,
Committee on the Judiciary, U.S.
House of Representatives, 207 Cannon
House Ofiice Building, Washington,
D.C. 20515

* Alan Israel, Mayor, City of Milan,

Ofiice of the Mayor, 147 Wabash
Street, Milan, Ml 48160

* Jim Johnson, Administrative Assistant,

Office of Representative L.F. Payne,
U.S. House of Representatives, 1118
Longworth House Office Building,
Wadiington, D.C. 20515

* Thomas R. Kane, Assistant Director,

Information, Policy, and Public Affairs
Division, Federal Bureau of Prisons,
320 First Street, N.W., Washington,
D.C. 20534
•Ronald D. Keefer, Director of
Administrative Services and Property
Management, Department of Justice,
400 7Ui Street, S.W., Washington, D.C.

* Thomas P. Kerester, Chief Counsel for

Advocacy, U.S. Small Business
Administration, 409 Third Street,
S.W., Washington, D.C. 20416

* George E. Kilbnger, Senior Deputy

Assistant Director, FPI, 320 First
Street N.W., Washington, D.C. 20534

* Judy King, Director oi Congressional

and Regulatory AiTtdrs, American
Furniture Manufacturers Association,

Mr. Hughes. You have alluded to the summit that was convened
under the auspices of the Brookings Institution. I know Warren
Cikins is with us today, and we are indebted to him and the Brook-
ings Institution for their work in trying to sort out the potential so-
lutions to the dilemma we are in. I wonder if you can describe, in
a little more detail, what process presently exists to get input from
the private sector?

Mr. Setter. In relation to the Brookings summit, Mr. Chairman?

Mr. Hughes. Or otherwise? What process exists?

Mr. Seiter. Well, there are several ways, Mr. Chairman. The
summit does continue with the followup meetings, and they have
been held rather frequently. The work groups continue to meet,
and they are looking to find the opportimity for growth, yet mini-
mize the impact on 5ie private sector. In addition, there is a guide-
line process whereby, before FPI can expand into any additional
areas, there must be a public involvement process. An announce-
ment must be made of the intent to expand, the private sector
must be notified of this intent, and asked to negotiate a market
share. If that is not successful, then that must go to the Board of
Directors. The presidentially appointed Board of Directors will hear
testimony from any private sector interests and representatives of
FPI and make a decision. As I noted, of 11 of those presented, 3
have been denied.

In addition, the Ofiice of Ombudsman was formed to allow an av-
enue for those who may feel impacted, even though on the larger
scale, the industry may not be impacted because the market share

may be small, but because of the individual efforts or targets for
markets that small business or disadvantaged business may have,
they may feel unduly impacted. This is a direct avenue to FPI and
its Board of Directors to get that input known.

Mr. Hughes. A few years ago, the Congress did mandate changes
in FPI operations, so that no single industry would be unduly im-
pacted by operations. Since that legislation was enacted, what
operational changes have you implemented to ensure that the im-
pact is spread among the various sectors of the economy?

Mr. Seiter. Again, Mr, Chairman, the industry involvement
process evolved and guidelines have been very beneficial in that re-
gard. I think they have increased the sensitivity, they have in-
creased the communications, and they have increased the exchange
of data. In that regard, FPI has attempted to add new products.
That public involvement process has been implemented, and the
Board of Directors has heard several testimonies about the poten-
tial impact on that. Those guidelines are being followed, and I
think they have really made major changes in the way FPI looks
at the expansion of products.

Mr. Hughes. The furniture industry, as you know, contends that
it bears the greatest burden of any industry in the private sector.
What are the percentages of your sales that are in furniture? Is
that your largest product area?

Mr. Setter. Mr. Chairman, office furniture is our largest single
market area. We produce 150 different products. However, the
market study noted that the four major areas we target and hit
hardest, in terms of trying to get government customers to buy, are
furniture, textiles, apparel, and electronics. The market study
noted, for fiscal year 1990, that the share of the Federal Govern-
ment fiimiture market that FPI had was approximately 10 percent.
That is not of the national furniture market, an $8 billion or so in-
dustry; but of the Federal Government market. I believe in 1989
it was 13-plus percent. In 1991 it dropped to 8.8 percent. So, we
have actually seen a declining market share, while we have in-
creased sales to the Federal Grovernment, because Federal Govern-
ment purchases of furniture have been increasing. So, it has gone
fi-om a low of 8.8 to a high of about 13 percent of the Federal Gov-
ernment market over the last 3 to 4 years.

Mr. Hughes. In volume of sales, it has increased because of the
increase in purchases?

Mr. Seiter. Yes, sir.

Mr. Hughes. The Board of Directors is appointed by the Presi-
dent, and by statute are representatives of particular groups or
Federal agencies. Have you had any input in the past on these ap-
pointments?

Ms. Hawk. We have, yes. Mr. Chairman, we are able to identify
individuals and offer some input to the White House on who may
be good candidates or who is interested in being on the Board of
Directors.

Mr. Hughes. How often does the Board meet, Mr. Seiter, in a
typicalyear?

Mr. Seiter. They are required to meet approximately three times
a year, Mr. Chairman. They met at least four times last year, and
sometimes five and six times a year.

Mr. Hughes. Has the Board evaluated the Deloitte & Touche
market study, and adopted any of its recommendations, or rejected
any of its recommendations?

Mr. Seiter. The Board had reviewed very thoroughly the market
study, and feel that there is much potential in those recommenda-
tions. They have sanctioned and encouraged the process of the
Brookings Institution involvement in discussions. They are also
anxious to see, however, the results of those discussions, and hear
the pros £ind cons from the interested stakeholders, from the pri-
vate sector and the Government agencies, to see what then might
be the best opportunities to meet the growth requirement, and min-
imize the impact on the private sector.

Mr. Hughes. Have any of the recommendations — and I think you
did somewhat criticize the study as, in many respects, not very
helpful because it did not offer specific suggestions — ^but, were
there any recommendations in the study that have been rejected by
the Board?

Mr. Seiter. No, Mr. Chairman. The Board has really been verv
open to all of those. I think the Board has said that, if you took
the 50 or so specific recommendations of the study, there may be
some that they do not favor as greatly as others, but, overall, they
feel that the best approach is to take the study as a package, and
consider each of the recommendations versus the other ones, and
attempt to meet a 25,000-plus inmate requirement for employment,
and keeping productively busy, while minimizing that impact on
the private sector.

Mr. Hughes. One of the major criticisms of FPI by both labor
and industry is that it is only able to offer competitive prices on
its products because it does not pay minimum, or a prevailing,
wage. We will hear some testimony later on from some of the wit-
nesses that make that argument. What would be the impact on
Federal Prison Industries of requiring a prevailing wage or a mini-
mum wage?

Ms. Hawk. We have studied the impacts of the possibility of hav-
ing to pay minimum wages. What we have found is, if we take the
wages that we pay the inmates right now, and factor into consider-
ation the room and board charge that inmates would pay for being
in the institutions, and the other services that are provided, such
as medical service, the increase to minimum wage would simply
offset these costs.

Mr. Hughes. Is that feasible?

Ms. Hawk. I think one of the factors is that the moneys that the
inmates are paid right now come from the value of the sales that
we make from FPI products. The other services are actually funded
through appropriated funds. If we were to pay the inmates the
minimum wage from FPI sales purely, then the sales would have
to be increased that much more dramatically to be able to cover the
costs of the services that are provided by the institution.

Mr. Hughes. Have you done any studies that would indicate how
much that would amount to?

Ms. Hawk. I do not know exactly what the figures are, no, sir.

Do you know. Rick?

Mr. Seiter. I think, Mr. Chairman, we currently pay inmates ap-
proximately $26 million per year in wages. If prevailing or mini-

mum wages were required to be paid, it would be approximately
$125 million. So, it would be an additional $100 million that would
have to be built into the price of the product, or something else.

If I could, Mr. Chairman, note that the emphasis of Federal Pris-
on Industries is as a correctional program. As a correctional pro-
-am, we attempt to, as is statutorily required, No. 1, be diverse
in product line, No. 2, be labor-intensive. No. 3, minimize the im-
pact on the private sector. No. 4, employ and train inmates, and.
No. 5, remain self-sufficient.

As we have looked at it, the dilemma that we always face is to
change the total makeup of FPI, to try to pay minimum wages, or
be competitive and operate more like a private business would un-
dermine those essential elements of FPI as a correctional program.
It would cause us to probably be less labor-intensive, and to auto-
mate more; not to employ as many inmates, but to try to employ
fewer — maybe not employ the least-skilled, and those that need
FPI employment the most, but employ those that are the best pro-
ducers.

Mr. Hughes. Well, isn't it true though, Mr. Seiter, that one of
the things we are trying to do is to teach them skills that they can
utilize on the outside? So, wouldn't it make more sense to auto-
mate, if that is what we have to do, so that we are teaching the
skills on an automated system that will enable them to cope when
they are released from custody? Doesn't that fly in the face really
of what we are attempting to do? Frankly, if all we are doing is
creating labor-intensive work, but that is not relevant to what is
happening in the marketplace, are we reallv serving our interests?
Are we providing them with the kinds of skills and jobs that they
are going to be able to use when they are released?

Mr. Seiter. Again, it is a very difficult dilemma, to try to make
sure that you are preparing inmates for the work force of the fu-
ture, yet be as labor-intensive as possible, and give that oppor-
tunity to as many people as possible. We try to find that balance.

You have toured our institutions, sir, I know, and have seen
some that are very much state of the art. As much as we can do
in a labor-intensive way, yet still provide that training and job
preparation, we do. We stress teaching the basic work skills, get-
ting to work on time, learning to work for a supervisor, having
pride in your product, getting along with peers, and developing the
skills that we find, from discussions with employers, and looking
at the inmate population, are most lacking in their preparation, not
necessarily that they cannot handle a particular machine, because
that still varies by industry to industry, and by shop to shop, or
employer to employer. If tney can get over that initial hump of
being a good employee, the basic work skills, then employers are
willing to make a commitment to train them.

Mr. Hughes. Thank you.

The gentleman from California.

Mr. MOORHEAD. Thank you.

The figures you gave us — the sales by private manufacturers of
furniture in the Federal market had gone up from 87 percent to
91.2 percent in 1 year. Obviously they nad much larger sales than
they did before in the private market, as opposed to what you have
been selling out of prison industries — ^has that reduced the argu-

ments against prison industries, or has it remained about the
same?

Mr. Seiter. I think, Mr. Moorhead, that there are still those con-
cerns, and valid concerns by the private sector. We feel that we
have tried to be very sensitive, and maintain a sensitivity to the
impact on that industry by market share. We recognize that, as
Deloitte & Touche said, if growth continues in that area, and if
there is a decline in the Federal marketplace, then that could have
a greater impact, even though Deloitte & Touche reported that
there was not a significant impact on that industry at this time.

Mr. Moorhead. This subcommittee, a couple of years ago, did an
informal survey of various Federal agencies that did business with
UNICOR, and the number one complaint seemed to be that the de-
livery schedules were not always as good as they should have been.
Has this situation improved since that time?

Mr. Seiter. Well, yes and no. Again, we face a dilemma of being
diverse in product line, and producing 150 different products. We
must try to do business in a certain way. In that way, once we get
an order, then we buy raw materials and produce that product, be-
cause we cannot commit financial resources to a single product
line, like a private sector business would do which produces only
one product line as a middleperson, as a wholesaler, and a retailer,
and several other people that will assist in selling the product. So,
we do not stock furniture. What we have done is look at some of
the most important trends, in terms of some of the common items,
and try to stock a little bit of that.

The way we generally deal with that is to grant waivers, when
we cannot meet delivery. Last year we received some 6,900 waiv-
ers, requests not to buy from us. The primary reason was that we
could not meet those deliveiy dates. It is for a chair here, or a desk
there, or something. We waived 98-plus percent of those to the pri-
vate sector so that they can meet those delivery dates. FPI is not
designed to be an overnight provider, because there is no retailer.
We are the manufacturer and the deliverer.

Mr. Moorhead. Does that affect you on reorders somewhat?

Mr. Seiter. Yes, sir, it does. If we could concentrate on a single
industry, we could probably do better, and do a better job of getting
reorders. Again, it would have a greater impact on that.

Mr. Moorhead. There are a couple of suggestions that you have
made that kind of intrigue me. One is the public service employ-
ment for low-security inmates. To what extent has that been tried?
Is that just an idea that you have been thinking about?

Ms. Hawk. Congressman Moorhead, if I may? We have explored
that tremendously, and have engaged in it in many of our institu-
tions, especiallv our minimum security institutions. We have actu-
ally eliminated our Federal Prison Industries programs from just
about every one of our minimum security institutions, because
those inmates are able to actually go out into the community and
work on community service projects.

We are exploring more and more avenues to be able to do that.
Right now we are limited by legislation, in that we can only do
community service projects that are at least partially funded by
Federal dollars. So, to the extent that we have been able to get in-
volved in those areas, we have. We are exploring more and more

ways of being able to do that, even with perhaps some of our high-
er security inmates; but absolutely for the minimum security in-
mates.

Mr. MOORHEAD. Well, if 27.6 percent of your prisoners are in the
minimum security category, that is certainly a fertile area for you
to get job support from.

Ms. Hawk. It certainly is. As I indicated, we have already elimi-
nated Federal Prison Industries almost totally from minimum secu-
rity institutions. The goal is to eliminate it totally from these facili-
ties, because we do have other options with those inmates in terms
of programming.

Mr. MooRHEAD. In the pay area then, do they earn minimum
wages while they are there, and then pay their

Ms. Hawk. No. They earn a very very small amount of money.
I believe the range — it begins at 12 cents on the dollar, and does
not reach the minimum level for Federal Prison Industries pay.
They make very little money.

Mr. MooRHEAD. I see.

The other idea that you had was doing subcontract work, where
the work that was being done was now being done overseas, so it
would not aflFect jobs in the United States. How extensively have
you looked into that? How much of that kind of work is now being
done?

Mr. Seiter. Mr. Moorhead, there is a tremendous amount of that
kind of work that has moved offshore, as you are well aware.

Mr. Moorhead. I know.

Mr. Setter. I heard you speak at the last conference.

Mr. Moorhead. I mean, now much of it now have you been able
to do, or have you gone into that at all?

Mr. Seiter. We have not. The reason is that it is one of the rec-
ommendations of the Deloitte & Touche study, but the rec-
ommendation was that we partner with private sector companies
to offer them the opportunity for us to help produce that product
when they have to look offshore now to get the kind of labor-inten-
sive work that they need done; but those products would then be
sold in the open market, and not the Federal Government. Since
we only have the authoriU^ to sell in the Federal Grovemment, we
have not been able to go wrward with that. It is an area that has
been discussed in the Brookings summit and the following work
groups.

Mr. Moorhead. That might be something that we can look into,
if that is an area where mere wouldn't be competition with our
own workers here in this country, or our own companies.

The last thing I was wondering about. Right now you have about
15 percent of your total Federal prisoners that are in this program.
Obviously, that is a relatively small percentage. You mentioned it
will go up to 25, you say?

Ms. Hawk. Our goal is to increase our ceiling that we have
agreed to, which is no more than 25 percent in the institutions that
have Federal Prison Industries. Again, I had referenced that the
minimum security institutions do not have Federal Prison Indus-
tries.

Mr. Moorhead. How do you make your selection? Obviously,
some of them are handicapped, and cannot — probably cannot work

in something like that. How do you select the prisoners that are
going to be in this work program?

Ms. Hawk. Greatly, it is a self-selection process. Obviously, those
who are physically unable to do the work would be excluded. The
inmates apply for jobs in Federal Prison Industries. They work
their way up, through a waiting list, to eventually be hired by Fed-
eral Prison Industries. As long as they maintain good work skills,
good habits, and continue to have good behavior throughout the in-
stitution, they retain their position in Federal Prison Industries.

Mr. MooRHEAD. As you expand into areas that would be less con-
tentious, or competitive, it would seem to me that it might be well
worthwhile to have programs among the prisoners that would in-
still some desire to improve themselves, and to make them better
capable of going out into the world and making a living once they
are released. It might well be worth the dollar spent on the psycho-
logical training that you might give them.

Ms. Hawk. Absolutely, Congressman Moorhead. I could not agree
with you more. In fact, I came into the Bureau of Prisons as a psy-
chologist, and functioned as one for 8 years before I moved into
management. We do have, and have historically had, many pro-
grams that are aimed toward personal development, self develop-
ment, developing good value systems and personal habits, and a
positive approach to work and all of that.

One of the dilemmas facing us is with our overcrowding rates of
141 percent of capacity, it is a little harder to touch as many in-
mates with these kinds of programs. That is one of the tremendous
benefits of Federal Prison Industries, because you are able to en-
gage a far larger number of inmates in this very valuable program
at a lesser staff resource commitment than we would have to make
in personal development programs that are directed at basically
the same kinds of ends.

Mr. Moorhead. I guess my last question would be this. I know
you have some handicapped people that cannot do probably much
of anything; but, what percent of the people in the Federal prisons
are engaged in some kind of activity, whether it is prison mainte-
nance, or prison industries, or whatever? What percentage do you
have working an 8-hour day?

Ms. Hawk. One hundred percent, except for those, as you indi-
cated who are physically restricted, and medically restricted, basi-
cally. Because even those who are handicapped, we find some activ-
ity for them to do which is constructive, which occupies their day,
primarily from about 7:30 in the morning until about 5 in the after-
noon. Every inmate has to be on a work program, or in some type
of education or constructive program during that time period. Their
time is relatively well-regimented in constructive activities. So, if
you consider we are talking about keeping 72,000, or 74,000 in-
mates constructively engaged on a daily basis, for at least 8 hours
of each day of a 5-day week, it is a tremendous investment in time
and energies and moneys on the part of staff resources. Again, why
Federal Prison Industries serves us so well is we are able to engage
a large number of inmates in very clear work-oriented activity that
is very, very productive.

Mr. MooRHEAD. It is primarily only the Prison Industries that
really can train them for jobs that they might be able to work at
later on.

Ms. Hawk. That is clearly the best training. We also have voca-
tional training programs and apprenticeship progn^ams, but those
are generally of a relatively brief duration, perhaps 6 months, 1
year, 18 months. When you consider that the average sentence that
an inmate serves in our institution is 9 years, the vocational train-
ing and apprenticeship programs only go so far.

Inmates also work in our general maintenance around the insti-
tution. The inmates do the plumbing work, the carpentry work,
they cook the food in food service, they do the kinds of maintenance
that are required around the institution. We try to, in each of those
situations, teach them some basic skills that can not only serve
them in the institution to do work, but also hopefully serve some
of them in a constructive way upon release.

Mr. MooRHEAD. Thank you.

Mr. Hughes. The gentleman from New York.

Mr. Fish. Thank you, Mr. Chairman, and I thank my colleague
from Florida for yielding to me at this point.

Ms. Hawk, I was very encouraged with your testimony, in re-
spect to PREP, the Post-Release Employment Project, remforcing
the fact that inmates that participate in FPI work programs are
better adjusted while incarcerated, and have a better post-release
performance. I repeat that because what I had to say earlier, and
what I will continue to say is not critical of FPI's impact on the
prisoner. We all applaud the focus there on, not only keeping them
occupied, but hopefully to train them for — so that they will be pro-
ductive citizens upon their release.

My focus has been with respect to the impact of FPI, as you
know, on the private industries and on the private sector, and con-
cern generally about the size that you have become here, and alter-
natives to what you are doing, FPI has grown into a $417 million
business I think was the testimony, which makes it the size of a
Fortune 500 company. So, I think we have to recognize that.

With respect to these people you were just discussing with the
chairman, the 16 percent in FPI, and the 58,000 out of your popu-
lation of 74,000 that are otherwise occupied, I think that that
would be interesting for us to know what they are doing or accom-
plishing. You must be steering them toward the same goals, I pre-
sume, of being occupied, plus trained to effectuate the same ends.
So, how do they differ?

Ms. Hawk. They differ in a number of ways. One is, as I was in-
dicating, those that are involved in education and training pro-
grams. We now require that every inmate pursue their GED. We
require that they be involved in a GED training program for at
least 4 months, then, if they opt out after that point, there are
some motivational incentives that we have to encourage them to
stay. Those programs are generally of a relatively brief duration.
Again, if you consider that our inmates do a 9-year sentence, edu-
cational and vocational training programs only go on for so long.

The work programs that we nave available are in maintenance
and work areas around the institution. The problem with those is
that the real work that they are doing is relatively limited, because

the real work that they have to do is only that which is needed by
the facility. So, they do some basic plumbing, some basic carpentry,
food service, cleanup, orderly kinds of work. Each of those work de-
tails are so large right now, that even though they are engaged in
that — ^they are assigned to perhaps the plumbing crew for 4 hours,
or 8 hours a day — ^the amount of actual work that each individual
inmate really gets to perform is quite small, because we have
stretched the number of inmates on each of the work det£dls so tre-
mendously in order to give them an identified place to be. So, they
are doing very little real work. They are engaged, they are super-
vised, they are occupied, but they are doing little real work; as
compared to Federal Prison Industries, where they are doing very
honest, real work, completing a real product, and actually contrib-
uting something very definitive, both to their own development, as
well as to Federal Prison Industries, and to the communities.

Mr. Fish. Thank you very much.

Mr. Seiter, I would like to ask you a very basic question. Why
should FPI continue to have a statutory, mandatory preference?
Why shouldn't prison products have to compete with the private
sector companies on the basis of quality and price, and delivery
date, and all of the other factors?

Mr. Seiter. Mr. Fish, I would Hke to go back to the congressional
mandate that we have to be self-sufficient, labor-intensive, diversi-
fied through a very varied product line, and to employ and train
inmates. 'Riis creates a situation that is imlike one that any busi-
ness would face, and reemphasizes the point that we are a correc-
tional program, and not a business. If we were to compete, we must
ensure that we have a level of employment to maintain peace and
order in prisons. If we must compete for every piece of business,
on the customer's part, it obviously would drive up their costs, to
a certain extent, and the time it takes for them to procure their
products. From our perspective, then, we would have to try to do
everything possible to bring down the cost, to make sure that we
were always the lowest possible provider of that good. That per-
haps could happen; but probably, through the normal business ap-
proaches to automate, rather than be labor-intensive, of not provid-
ing so much training, but seek those people that have the skills al-
ready. That would probably undermine the focus of a correctional
program.

So, to maintain the efforts of a correctional program, and the
training that we are providing for inmates, and being diverse, and
minimizing the impact on the private sector, we must assure a cer-
tain level of business, so that inmates will be working, busy, and
productive.

Mr. Fish. You are not saying to us that you cannot compete m
quality with the private sector, are you?

Mr. Seiter. No, sir. We are not saying that. We are required to
meet current market price. We feel we do meet current market
price. The market study has also looked at that, and reports that
we do meet current market price, but that we can do that in a way
that does not require the bidding and the chance that we will not
get a level of work that will allow us to maintain those valid correc-
tional programs.

Mr. Fish. What do you think about an amendment to FPI, and
the statute that would allow you to provide services, not products,
but services to the private sector?

Mr. Seiter. To the private sector, Mr. Fish? Outside of the Fed-
eral Grovemment agencies?

Mr. Fish. Yes.

Mr. Seiter. That would be

Mr. Fish. Services, not product.

Mr. Seiter. Yes, sir. We currently offer products and services to
the Federal Grovemment. We have a mandatory source for those
products, but not for the services. The market study did report that
there is a tremendous opportunity to increase services to the Gov-
ernment because the service markets are going up, both within and
outside of the Federal Grovemment, and that most of those are very
labor-intensive. It will be an expanded market.

The Deloitte & Touche study recommended, even within the Fed-
eral Grovemment, that FPI have a mandatory source for their serv-
ices, in addition to some of those that are already established by
statute, and, therefore, be able to expand those to the level that we
could employ the numbers of inmates that are going to be nec-
essary to employ in the next decade.

Mr. Fish. Well, my time is almost up. I would like iust to make
one more suggestion. Several have been made here by members,
and by the panel on new activities for FPI. One that strikes me
would be basic recycling services. Here we have something new, so
that you are not getting into competition with the established in-
dustry. I am talking about the very basic services — ^the separation,
the preparing the material for recycling, which seem to be labor-
intensive, and will not impact significantly on the private sector. I
would recommend that idea to you.

I thank you very much.

Mr. Hughes. I thank the gentleman. The gentleman from Flor-
ida.

Mr. McCoLLUM. Thank you, Mr. Chairman.

Mr. Seiter, what is the method of pricing that you use? How do
you determine the price?

Mr. Seiter. Mr. McCollum, basically, in three ways. First of all,
we must, by statute, meet current market price. Those three ways
are, number one, if it is what we call a catalog item, a standard
item that we produce, it is not a custom item that is requested bv
the customer, we will go out and do market surveys, and we will
look at what comparable market price is provided by the private
sector to the Federal Grovemment for a like product. And it some-
times is verv difficult to compare apples and oranges, because peo-
ple buy with different — like a car, with a lot of different options.
We make sure we are within that current market price, based on
market analyses.

Second, the military and the Postal Service will often split the
requirements. Thev will say we want to buy it from three vendors,
to assure that we nave a certain amount, and that we have the ca-
pabilities and such. In our case, after they have gone out and bid
to the private sector, and seen what the market will bear, they will
come back to us and say you can have a portion of this, if you can

do it for this price, and it is a yes or no. We either do it, or if we
cannot do it for that price, we cannot take the business.

The third is where there are no Hke items produced in the Gov-
ernment. Some of our cable assemblies are tnat way. A customer
will come to us and say we have never bought this as a replace-
ment cable. It came new on the airplane or tank or whatever. Can
you make this for us? What would the cost be? Then we operate
very much like a private sector company, in the sense of share with
them that these are our material costs, these are the hours of labor
it would take, the overhead — provide all of that to them. They will
do a market analysis, based on some similar kind of buys that they
have made, and ensure it meets current market price, and accept
that price or reject it.

Mr. McCoLLUM. Did the study that was just done, or is the study
group, the Brookings, looking into, or did they look into a pricing
mechanism, comparable to what you do now? Because it sounds to
me like it has some features that would adapt, but not by any
means all, or separate and apart, to be able to price goods that
might be sold into the private market, should the restraints that
we now have in the statute be modified or, in some way lifted? Was
that part of the study? Is that part of the ongoing discussion?

Mr. Seiter. At this point in time, Mr. McCollum, it has not been.
The study did recommend that we move in that direction, but it
stopped short of saying how the pricing issue would be resolved.
Actually, it would have to be done in a wav that any other provider
would contract with their vendors, and to look at "can you meet the
price, quality, and delivery that I require." If so, you can get the
business, if not

Mr. McCollum. Mr. Seiter, several years ago, when I sat on
Chief Justice Burger's Commission on Prison Industries, and some-
time back with Warren Ciken's assistance. I pursued this issue
with the former chairman of this subcommittee, Mr, Kastenmeier.
At that time State prisons had a greater problem than you did be-
cause your growth is current, and your pressures are relatively
new in this regard. I pursued quite vigorously the question of how
could we find a way to be able to sell prison-made goods on the
open market across State lines, and not run afoul of the problems
and criticisms of the private industry groups that are out there of
unfair competition?

The conclusions we reached, at that time, were not too dissimilar
from what you just testified to Mr. Hughes and Mr. Fish about, the
prevailing wage problems. This simply is not practical in the prison
setting. At that time, we were looking to try to encourage private
industry to come into prisons more. They, I guess, have had limited
success in getting that done.

We even made a run at doing this, having gotten organized labor
to support it; but the small business people, again, opposed it, be-
cause there was no pricing guarantee mechanism out there. I have
yet to see anybody do a study that would give us a mechanism. It
would seem to me that there should be some way to come up with
a standard from the Department of Commerce, for each product
that you start to produce, if you have not already been producing
it. There could be some nationwide or regional average mean price
determinant over a period of the last 6 months or something like

that. There might be a method that would be acceptable to private
industry that you could then be able to market goods into the pri-
vate worid, and alleviate a lot of these pressures vou are getting
that seem to me to be mainly because you have still a limited mar-
ket, and because of the mandatory preference that private industry
is complaining about.

Does anv of that sound feasible to you, that some study like that
could produce a market determinant that would be more satisfac-
tory than what currently exists?

Mr. Seiter. Yes, sir. I think that is a very valid approach. We
will carry it back to the Brookings group ana ask if we can jointly
pursue tnat.

Mr. McCoLLUM. That would just be my contribution to it — ^my
thought that that could help. Because some of us, I do not know
how many now, but quite a few of us, at one time, really truly
wanted to modify that statutory prohibition. However, we recog-
nized that it cannot be done if there is an appearance, in fact or
not, that the goods that you would be marketing would be
underpriced because you have prison labor, and because of all of
the factors that keep you from being able to pay the prevailing
wage.

Well, I do not have other questions, because I think that is, to
me, the heart of the matter, Mr. Chairman. I yield back.

Mr. Hughes. I thank the gentleman.

The gentleman from North Carolina.

Mr. Coble. Thank you, Mr. Chairman.

Ms. Hawk, Mr. Seiter, it is good to have you all with us. Even
though the tenor of my earlier remarks may have sounded adver-
sarial, I am not here to bash FPL It is not my desire to put FPI
out of business. I am, as the chairman alluded earlier, the watch-
dog for the furniture and textile people.

Oftentimes on this Hill, and I do not mean this to be critical of
my colleagues, there seems to be a very cavalier attitude about the
business community. Oh, the business community can adjust to
this. They can accommodate. Well, oftentimes they cannot. Often-
times they are hard-pressed to accommodate to new laws and new
regulations that are imposed on this Hill. That is the direction
from which I come.

I visited the facility at Butner, Mr. Seiter, a few years ago, and
was very favorably impressed with the operation. I think you all
produce a very good product. I want to ask a couple of questions,
perhaps three.

One mission of FPI is to rehabilitate prisoners so that they will
become contributing members of society once released. To what ex-
tent do you all have documentation that this is being done? That
is to say, when a prisoner is released from X penal institution, is
he or she able to go out into the private sector and obtain employ-
ment in a related industry for which they have been trained, spe-
cifically with FPI?

Ms. Hawk. I think. Congressman Coble, if you will refer to the
PREP study that we mentioned earlier — and a summary of that is
attached to my formal testimony that was submitted for the
record — we do have documentation that shows, clearly, that the in-
mates who have been involved in Federal Prison Industries are bet-

ter able to maintain employment and maintain employment over
time. Now, that does not mean necessarily that they are working
in the exact trade area that they worked in while within Federal
Prison Industries.

As was stated earlier, you know, the ideal would be to train the
inmate in the exact trade area that they will be working in the
community, and that they would be trained on state of the art
equipment. For the various reasons that we mentioned earlier,
state of the art equipment means that we are not labor-intensive,
which is one of the requirements that we have in our shops. Also,
we cannot always guarantee that the factory that we have in a
given institution is going to be also in that inmate's release com-
munity. What we have found is that, regardless of what type of fac-
toiy they are working in within Federal Prison Industries, there is
a direct correlation confirmed by the PREP study, that shows that
by having learned skills, by having learned good work habits, by
realizing that they can be taught a trade, that they can then go out
into the community and learn a new trade. There is a direct cor-
relation between their involvement in prison industries, and being
gainfully employed upon release, even though it may not be in the
exact same skill area.

Mr. Coble. The independent market study, to which many ref-
erences have been made this morning proposed, among other mat-
ters, that the industries should not be expanded, and that FPI
should limit its market shares to current levels. I think this pro-
posal probably tracks with what I suggested earlier, in trying to re-
move the tilt of this uneven playing field. Is this in fact being
done? Are you all holding the line at the same numbers, and the
same production, or has expansion occurred?

Mr. Seiter. Mr. Coble, the market study did make that rec-
ommendation, but linked it directly with successful implementation
of the other three recommendations that we noted. We recognize
that that is a very valid approach of saying — ^in fact, they specifi-
cally recommended, by 1998, that 50 percent of our inmate employ-
ment be in the three new growth areas, and, instead of 85 percent
currently being in the traditional areas of textiles, furniture, and
electronics, that we concentrate in these new areas. The study rec-
ognized that until there are statutory changes, if necessary, to im-
plement these recommendations, that we would not be successful
at doing that at a level that would allow us to just maintain.

So, they showed in the study that they expected us to continue
to grow in these traditional areas until these were implemented
and, at that time, reduce to those traditional levels.

Mr. Coble. Finally, Mr. Chairman, one more question, if I may.

It is my understanding that when Federal purchasers are to buy
goods, and you all manufacture those goods, they must purchase
from you all. I am furthermore advised, or it is my understanding,
that there is a process whereby waivers can be extended. If — well,
let's say HUD, for example — if HUD needs furniture, and they need
it tomorrow — and I am being very graphic now — ^you all cannot get
it to them tomorrow, or next week, there is a waiver process. Now,
I do not expect you to have the answer to this question, Mr. Chair-
man, but I would like for us to get an answer. I am told that it
is virtually impossible to get a waiver issued. Of course, this would

go back to the Justice Department. A, could you all illuminate on
that matter for me? If not, B, I would like for somebody to let me
know whether or not that is a valid charge?

Ms. Hawk. Congressman Coble, there very clearly is a waiver
process. We must waive any order that we cannot meet in terms
of cost, timely delivery, and quality. Last year, in 1992, we received
almost 7,000 requests for waiver in the — ^was that in the furniture
industry alone, or was that in general?

Mr. Seiter. That was in total.

Ms. Hawk. We granted 98 percent of those waivers. The remain-
ing ones that we did not grant were because we were able to show
the orderer that we were able to meet their requirements in each
of those three categories. _

Mr. Coble. That is an impressive figure, Ms. Hawk. Now, do yovT
know whether or not those waivers were granted in a timely,
prompt way? Maybe that was the complaint that I had.

Mr. Seiter. Mr. Coble, about a year and a half ago, and partly
as a result of this study and conversations with the private sector,
and government customers, and hearing some of the same things
you did, we put in place a waiver processing procedure that re-
quires us to turn those around within 5 days. I think most of the
time we do meet that. If they submit to us the information as re-
quested, and we give all our customers these waiver processes,
then we can do that.

I would like to add also, because I know you are so interested
in furniture that, in 1992, we waived $193 million in furniture or-
ders to the private sector.

Mr. Coble. On that favorable note — ^thank you, folks. Thank you,
Mr. Chairman.

Mr. Hughes. The gentleman from New Mexico.

Mr. ScHlFF. I apologize for being late, but I had another — as
often happens around here, I had another committee meeting at
the same time.

I have one central question I would like to ask the witnesses. In
your judgement, is the primary purpose of prison industries to bring
money into the system? I assume the money stays in the system.
First of all, is that correct? The money from the sale of merchan-
dise to the Federal Government goes where?

Ms. Hawk. The money is used to fund Federal Prison Indus-
tries— to pay the staff and inmate salaries that are working in Fed-
eral Prison Industries. If there is money leftover from that, we are
able to return that to the Treasury. In the histor>' of Federal Prison
Industries, we have returned roughly $80 million. That has not
been in recent history, because we have had so much growth occur-
ring that we have utilized all of the funds within the Federal Pris-
on System.

Mr. ScHiFF. I appreciate that.

The central question is whether the primary purpose of prison
industries is to raise money for the Grovemment, or is the primary
purpose of prison industries to be a rehabilitative program for the
inmates at Federal penitentiaries?

Ms. Hawk. It is very clearly the latter, sir. Federal Prison Indus-
tries is clearly one of our primary programs within the Federal Bu-

reau of Prisons to help inmates better return to the communities
with a workable skill, or skill habits and work habits.

Mr. ScmFF. Well, here is why I raise the question. You obviously
know the inherent conflicts that come up that I have known about
in various prison industries back in my home State that we are re-
ceiving testimony about today. I have never seen the statistics to
which you have alluded, Ms. Hawk, about there is proof that par-
ticipation in Federal Prison Industries leads to less recidivism. I
would personally be grateful, not now, of course, but, at your con-
venience, to receive that information.

I might tell you what I would be looking for. I would be looking
for not a general comparison, well, this number of individuals in
Prison Industries, versus this number in the entire prison popu-
lation; but this number in Prison Industries, compared with com-
parable prisoners in the Federal system, similar criminal histories,
in terms of prior offenses, similar offenses, current offenses that
bring them into the system, to see if, under that comparison, one
can demonstrate a distinction, again, at your convenience.

Ms. Hawk. That is exactly the nature of the PREP study that I
referenced earlier. It is summarized in my testimony. We will en-
sure that you get a complete copy of the study with all of the de-
tails, because we did, in fact, compare those working in Federal
Prison Industries against a control group that matched them, as
closely as possible, in characteristics of offense, past work habits,
all of that, and tracked both of the groups into the community.

Mr. SCHIFF. I would appreciate it. Again, I apologize for being
late, and may have missed that in your testimony. If it is in the
materials, then that is perfectly satisfactory.

Thank you very much. I yield back the balance of my time.

Mr. Hughes. I just have a couple more questions.

You have touched on the importance of keeping inmates busy.
You work overtime at trying to keep them busy. Tne maintenance
programs are primarily an effort to keep them very busy. They per-
form little work, as you have described. What, in your judmnent,
would be the situation if we did not keep them busy through pro-
grams like Federal Prison Industries, which is apart from the ques-
tion of rehabilitation?

Ms. Hawk. That is an excellent question, Mr. Chairman. Having
served as both an associate warden, and a warden at one of our
Federal institutions, it is very clear that idleness breeds very seri-
ous possible consequences, in terms of misconduct, in terms of un-
rest, which can lead to riots and destruction of the facilities. So, it
is absolutely critical that, if we do not maintain some types of pro-
grams to keep the inmates constructively occupied, relieving idle-
ness, the consequences would be much more costly. By looking at
what has happened in other systems, as well as in our own system,
it would be extremely costly to the taxpayer, in terms of potential
damage to human life, as well as the facilities, if the unrest is left
unbridled, and idleness is able to become rampant.

Mr. Hughes. Well, you know, I read the testimony 2 nights ago,
from your testimony, and the testimony of panelists. There is some-
thing that stuck me about it. It struck me that it pretty much par-
alleled what I hear every day of every week in Washington, and
that is that we want to help, and we think it is important, but we

do not want basically for it to have any impact on our sector. I hear
that from every group that comes into Washington to see me. We
want to reduce the deficit, but you cannot touch this.

I have no doubt that it would almost be impossible to develop a
system that would not have some impact. Now, I think that my col-
league from Florida's suggestion is a good one, but I have no illu-
sions about the fact that, even if we were able to determine what
market value is, in pricing your goods or services, we would have
an impact, and we would have the same backlash we see with the
system we have.

Now, I am not suggesting that we cannot do a better job of trying
to diversify, because we need to. I think some industries have
borne a disproportionate burden perhaps over the years. I think
there are some legitimate criticisms that have been directed at
Federal Prison Industries policies which are set by Congress. We
have mandated basically that you task this in a particular fashion.
It may very well be that we need to review some of those policies.

I am going to be asking some of the witnesses who are going to
be coming to see us in just a few minutes what if we went to mini-
mum wage? Would we still have arguments? Would that satisfy the
concerns about the slave labor arguments that we hear, if, in fact,
we target industries like the consumer electronic industries, which
we have a very little market in this country? Would that satisfy
that sector? I doubt it. We will find out.

The bottom line is we cannot have it all ways. I think everybody
here on this committee, I would assume, agrees that it would be
ludicrous for us basically to eliminate some form of prison industry.
Everybody I think would agree that we need to keep inmates busy.
I think we realize that we need to rehabilitate. I mean, our policies
have been bankrupt in that regard. We need to teach skills. We
want to make sure that, in fact, as the prison population increases,
that we reduce idleness, because you do not have to be a rocket sci-
entist to understand what happens when you do not keep inmates
busy in an overcrowded facility.

I think that the hearings and the Brookings process have been
very helpful, and we need to keep looking for ways that we can re-
duce impacts in various sectors. I think that is what I hear you
sa3dng. I think that that is very, very healthy. We need to find
ways to try to reduce the impact in the private sector, and yet, at
the same time, deal with the problems that exist in the prisons
today.

I saw some numbers this past week that are staggering. I mean,
you mentioned 130,000 inmates that we are going to have by the
end of the century. If some of the cockamamie amendments that
are being offered in the Congress are accepted by the Congress,
and we federalize everything, and we keep imposing mandatoiy
minimums so that we keep them in prison for 10 years for first of-
fenses, then we are probably going to have, by the year 2050, more
inmates than we are going to nave people on the outside.

So, I guess we better be prepared for that, and prepared to pay
for it. There is a very simple solution, I would think, and that is
we can eliminate Federal Prison Industries, and just come up with
$100 million or $200 million that is needed to provide the skills.

We can do that, but I doubt if many of my colleagues would want
to vote for that.

So, I think that the process we have underway is a very healthy
one. Let's continue to talk and see if we cannot find better solu-
tions, at the same time, minimize impacts. I think that is what
most responsible people would want to do.

Thank you very much. We appreciate your testimony today. That
is a vote. So, why don't we do this. Why don't we recess until — it
is going to take us 20 minutes — let's recess until 12:15, if we could?
We will resume at 12:15.

[Recess.]

Mr. Hughes. The subcommittee will come to order.

I might say, for your information, that we are going to have ap-
parently a series of votes within the hour. Frankly, rather than at-
tempt to basically come back, which will be later this afternoon, I
may ask you to, please, summarize. We will try to get to all the
witnesses today. What we cannot get to — we may have to resched-
ule another date. I do not want to basically cut off anybody; but
I also do not want you sitting around here the balance of the day
while we linger around on the floor with a series of votes and ma-
neuvers.

So, we will get through as much as we can. We will try to do it
all. If you will summarize, that will enable us to get to the ques-
tions. I have read all of the statements, as I have indicated earlier.

Let's bring up the next panel. The panel consists of Marcia
Kinter with the Screen Printing Association, International; May-
nard Benjamin, with the Envelope Manufacturers Association; and
Susan Perry, with the Business and Institutional Furniture Manu-
facturers Association.

Marcia Kinter is the director of government affairs with the
Screen Printing Association, and has held that post for about 4
years.

Maynard Benjamin is the executive vice president of the Enve-
lope Manufacturers Association, and has been with the association
since 1984. Mr. Benjamin served as a staff member with the Exec-
utive Office of the President, Council of Economic Advisers, and
worked with the U.S. Trade Representative.

Susan Perry is the director of government affairs for the Busi-
ness and Institutional Manufacturer's Association, and has been
with that association since about 1988.

We welcome you today. We have your statements which, as I in-
dicated, will be made a part of the record in full, and I would ask
you to summarize.

Why don't we begin with you, first, Ms. Kinter? Welcome.

STATEMENT OF MARCIA Y. KINTER, DIRECTOR, GOVERNMENT
AFFAIRS, SCREEN PRINTING ASSOCIATION INTERNATIONAL

Ms. Kinter. Thank you. Good afternoon. M^ name is Marcia
Kinter. I am the director of government affairs for the Screen
Printing Association International, or SPAI. We are the national
trade association for the screen printing industry and associated
supplier base. As such, we recognize the importance of the role
Federal Prison Industries plays within our prison system, however,
we cannot agree to support program changes that will unduly im-

pact the private sector. We do believe that, with proper planning
and management, both FPI and private business can operate in to-
days Federal procurement marketplace.

I will say that I believe that the relationship between industry
and FPI has moved away from one of total opposition with an ad-
versarial approach, to one of reluctant acceptance. Everyone must
exist within the same marketplace.

SPAI has long been involved with the issue of Federal Prison In-
dustries. We have participated as part of the original industry
gfroup that helped develop industry guidelines and participated in
the Brookings Institution Summit on FPI. We continue to partici-
pate in the summit work group. The independent market study,
completed by Deloitte & Touche, remains the kev document in all
of our discussions, however, we feel it should be viewed as the
framework for our discussions, and not as the definitive document.
We just simply cannot support all recommendations contained in
the market study.

Specifically, we do oppose any extension of the mandatory pref-
erence. Before we can consider the possibility of extending manda-
tory preference, either in the area of services or subcontracting,
more specific factual documentation must be provided, outlining
FPI's requirements.

Due to the ongoing work of the summit work group, we do feel
it is premature to recommend specific g^rowth strategies at this
time. We feel though that we can offer recommendations that will
make growth strategies easier to implement. Many of the market
studies' recommendations dealt with administrative changes. We
can support activities that would increase the amount of informa-
tion available to both the Federal procurement officer and the gen-
eral public. Specifically, we support the expansion of FPI's schedule
of products to include more specific information on each product's
design, testing, and performance specifications, and more informa-
tion on specific products produced by FPI.

We also support activities to reform the waiver process through
the improvement of reporting and handling procedures. Along this
line, in line with what the Deloitte & Touche study recommended,
we support the creation of a separate arbitration panel for dispute
resolution. Creation of such a panel has long been supported by in-
dustry participants.

Thank you. I would be happy to answer any questions you might
have.

Mr. Hughes. All right. Thank you, Ms. Kinter.

[The prepared statement of Ms. Kinter follows:]

Prepared Statement of Marcu Y. Kinter, Director, Government Affairs,
Screen Printing Association International

Good morning. My name is Marcia Kinter and I am the director of government
affairs for the &;reen Printing Association International, or SPAI. Thank you for the
opportunity to appear today and present our comments on the activities of Federal
F*nson Industries. I would like to start by saying that SPAI is not opposed to the
operation of Federal Prison Industries. FPI serves as a viable means to combat pris-
on idleness in our increasingly crowded prison system. However, we are concerned
about the expansion and development of prison factories. Any new or expanded ac-
tivity needs to be carefully weighed against its impact on the private sector. WhUe
we agree that FPI serves an important function, we cannot agree to support pro-
grams that would unduly impact private industry. So, the question that continues

to face us, is can both exist in a shrinking Federal procurement marketplace? We
believe the answer is yes, that with proper planning and management both FPI and
private business can operate in the Federal procurement marketplace .

SPAI has been involved with Federal Prison Industries since 1989. We were one
of the original trade groups working with FPI in the development of the original
industry guideline procedures that govern FPFs entrance into new product areas
and any significant expansions. We participated in the Brookings Summit on Fed-
eral IVison Industries in June 1992, and continue to work with the woik group that
was established as a result of the summit.

The document that serves for current discussions is the independent market study
completed in 1991 by Deloitte and Touche. Whether or not we agree with the mar-
ket study, the document took an objective look at FPI and documented, many for
the first time, all arguments and discussions for and against FPI. As long as we
recognize that the market studjr*s recommendations are general in nature, then we
can begin to discuss and develop specific implementation activities.

As a study, we feel it represents a good first step. The market study provided a
focal point for discussions, the Summit opened discussion on the possibilities of im-
plementation, and the work group is continuing these discussions and developing
recommendations. It is important to note that the market study does not contain
all the information necessary to make final decisions and recommendations concern-
ing the activities of Federal Prison Industries. The market study has established a
foundation from which to begin.

I feel it is appropriate at this point to discuss what I feel was the most important
outcome of the Brookings Summit — the establishment of formal lines of communica-
tion between all participants in this undertaking. Many of us have been working
on this issue for a long time, and it is fair to say that relations between industry
and FPI have not always been cordial. The most important fact reiterated during
the summit was the need to establish solid lines of communication. The establish-
ment of the Summit Work Group has facilitated the development of more effective
communication. We still do not always agree on all issues, we still debate issues,
but we are now doing it in an open forum.

I mention this because I think it is important to note the change that has oc-
curred in the relations between industry and Federal Prison Industries. We may not
be ardent supporters of FPI, but we have come to an agreement that FPI does serve
a useful purpose and there will alwavs remain a need for prison factories within
our prison system. While we may still disagree with the amount or type of work
that FPI might do, our number one priority continues to focus on minimizing the
impact on the small business community that is in direct competition with Federal
Prison Industries.

The market study did find that FPFs major product classes have a higher con-
centration in small business. The screen printing industry is composed primarily of
small businesses. The average size of a screen printing facility is fifteen employees,
both production and management, with average annual gross sales of $500,000 or
less. FPI does operate several screen printing facilities, and they are in direct com-
petition with our membership. According to the latest information we received, FPI
had ten percent of the Federal market place for all types of signage. This would in-
clude safety signs, such as stop signs, and all types of architectural signage. It is
difficult to determine the actual impact on the small business commumty, oecause
these procurement actions are generally under $25,000, and procurements under
$25,000 are not reported.

SPAI did a survey in 1991 on government procurement activities within our mem-
bership. Companies responding to our survey reported their sales to the Federal
Government had decreased anjrwhere from 2% to 30%. The majority of these oper-
ations were not able to say why their government workload had decreased. They
simply were not getting the calls from their local procurement officers as they had
in the past. So, when you ask for specific information on the impacts of FPI on a
particular industry sector, you must Keep in mind the information available.

Our recommendations to you today are from the perspective of the small business
community, specifically the screen printing industry. We base our recommendations
on the independent market study, out again we stress that this study should only
be used as a framework. We are not opposed to the proposed strategy, i.e., reduction
in sales in the traditional industries by offsetting in other areas. We remain opposed
to the implementation of broad generic recommendations without looking at the spe-
cifics involved.

First, we continue to oppose the extension of FPI's mandatory preference into the
area of services, specifically the printing industry. This recommendation has been
put on the table by FPI, however, we continue to oppose it for several reasons.

The recommendation to expand the mandatory preference to services, specifically
printing, is too broad. In our opinion, it would only perpetuate problems that cur-
rently exist within the traditional industries today.

As an illustration, I would like to take a look at the printing industry. One would
assume that this industry would be relatively easy to define for mandatory pref-
erence. However, which part of the printing industry is FPI considering? There are
currently five different types of printing, all with dilTerent equipment requirements
and different markets. Is FPI considering expansion into offset lithography? Further
expansion into screen printing? Letterpress* Rotogravure or flexographic printing?
Then within each of these different printing categories there are numerous applica-
tions.

For example, the screen printing process is used to print not only signage, but
menirane switches, containers of all types, banners, fleet markings, decals, labels,
all types of textiles and paper products. Private screen printing operations do not
attempt to print all product types, they generally specialize in one or two product
specialities.

A mandatory preference for printing activities is too broad. FPI has failed to show
us that a mandatory preference is truly needed. Figures on the types of facilities
planned, the types of work to be accomplished, and the amount of work necessary
to employ inmates needs to be presented. FPI needs to justify their request with
specific product information. Only when all required information has been supplied,
can a decision be made to support or oppose a request for mandatory preference.

We will not accept a blanket mandatory preference, even with a cap on percentage
of market share. If one were adopted, it is our opinion that in five years we will
be back before you arguing against continuance of a mandatory preference in serv-
ices. We need to take the time now to fully explore the issue, and develop good rec-
ommendations that will move FPI into the future with minimal impact on the small
business community.

With that said, we are taking steps to investigate other service related market
areas for FPI. Recently, representatives from the Joint Committee on Printing, in-
dustry, including a representative from SPAI, labor and the Government Printing
Office toured the Petersburg Correctional Facility to determine their capacity, and
to mesh the needs of the Government Printing Ofiice with FPI. There may be oppor-
tunities where the private sector is not providing for much needed printing services,
thus offering possible maiket areas for FPI that would not unduly impact the pri-
vate sector.

The market study also recommends that FPI become more involved in sub-
contracting opportunities, and that a preference be given in this area as well. We
do not support the market study's recommendation proposing a requirement that
prime contractors use FPI as their subcontractor. In our view, this would only ex-
tend FPI's mandatory preference to the subcontracting level. In order for this to
work as currently proposed by the market study, FPI would have to relinquish its
mandatory preference as a prime contractor. It is not fair to business for FPI to
enjoy a mandatory preference as both a prime contractor and a subcontractor.

The work group is currently discussing this issue. As with the issue of mandatory
preference for services, more information is needed before we can proceed much fur-
ther. For example, we have requested that FPI provide us with information on cur-
rent subcontracting activities, whether or not FPI is using small and small dis-
advantaged businesses as subcontractors, and which manufacturing areas FPI
would like to pursue as a subcontractor.

We do underatand the problem FPI has with subcontracting. And the question re-
mains, can a system be put in place whereby prime contractors wiU receive some
type of credit for using Federal Prison Industries. This is an extremely sensitive
subject, especially for the small business community. Many of SPAFs members are
subcontractors rather than prime contractors. In my opinion, it is too early to rec-
ommend a specific direction for this issue.

While we cannot support any specific growth strategies, we can offer the following
recommendations that will make growth strategies easier to implement, and con-
tinue to improve communications between all parties concerned.

Many of the market study's recommendations dealt with administrative changes.
We can support activities that would increase the amount of information available
to both the Federal procurement officer and the general public. A lack of good solid
information has often been cited by industry participants.

The market study recommends that FPI expand its schedule of products to in-
clude more detailed information on the product itself, such as required design, test-
ing and product specifications, and expanded to include references to the specific
products offered for sale. Confiision still reigns over what products FPI can actually
produce. This confiision was found to exist for both Federal procurement officers and

the private sector. Such a document would fill the void and provide exact and accu-
rate information to all involved with the products produced by FPL

Second, we support activities to reform the waiver process through the improve-
ment of reporting and handling procedures. We also support the creation of a sepa-
rate {irbitration panel for dispute resolution. Creation of such a panel has long been
supported by industry participants.

We also recommend that initiatives be discussed that would help FPI improve its
delivery problems. It has been su^ested that changes be considered to the Federal
procurement regulations to allow FPI more flexibility in procurement of raw mate-
rials. The changes considered would have to be specinc to this issue, and not a blan-
ket exemption from all Federal procurement regulations.

While I do feel that it is premature to offer specific recommendations on growth
strategies, I do believe that the Summit Work Group is making strides toward the
development of an effective package of growth strategies. To offer recommendations
now would be to jump the gun on the work ^roup. I do believe that administrative
changes that can be implemented without legislation should be put in place without
delay.

Thank you Mr. Chairman for the opportunity to appear before you today, and I
would be happy to answer any questions you might have.

Mr. Hughes. Mr. Benjamin. Welcome.

STATEMENT OF MAYNARD H. BENJAMIN, EXECUTIVE VICE
PRESIDENT, THE ENVELOPE MANUFACTURERS ASSOCIA-
TION OF AMERICA

Mr. Benjamin. Thank you. Good afternoon, Mr. Chairman.

Mr. Chairman, there are only 205 envelope converters in the
United States. They produce approximately $2.5 billion in ship-
ments value in 1992, of which about 70 percent, or $1.7 billion
were sales of standard business commercial stationery envelopes.

The value of government envelope shipments is approximately
$68 million in sales, primarily distributed oetween the Government
Printing Office, the General Services Administration, and approxi-
mately 8 percent of this sum is produced by the U.S. Postal Serv-
ice. These are all imder SIC Code 2677.

UNICOR is moving forward to open up an envelope manufactur-
ing facility located in Atlanta, GA. It is still the subject of which
we have great opposition. I am not going to deal with that subject
this afternoon. Rather, I am going to talk about the ways that we
can continue to work together to assure cooperation.

Many statements you have made this morning I think parallel
those of the thinking of many in our industry, in terms of ways
that we can move forward on this entire program together.

One, continue to communicate, as we said this morning, and hold
hearings on the market study. I think it has been well-established
today that the market study contains a great deal of food for
thought for us all. It is worth while for us to continue to take ad-
vantage of the investment we made in that study, to hold hearings
and to gather information from all sides, in terms of how people
are reacting to that information. I also agree with the statement
that Marcie made — that we do not consider this study the ultimate
solution to all of our problems. We feel that the study report is a
document that should be discussed more thoroughly.

Two, that we all ought to come to agreement on solutions before
taking them to Capitol Hill. I think there has been too much bang-
ing on desks up here, and going to see your Member of Congpress,
and complaining about UNICOR. I think we are finding, through
this process of communication that we have had, that we do have

the ability to work out solutions among ourselves, and then bring
them back to Capitol Hill as joint solutions.

Three, accurately define UNICOR's Federal market share. I am
sure it is no surprise to anyone on this committee that the Federal
Government has a very difficult time tracking what it buys and
correlating those purchases by industry. We use the SIC Codes for
tracking industry size, and we also need to use the SIC Codes for
tracking UNICOR's markets. The problem has been that this is
easy to accomplish at the four-digit level, but more difficult to ac-
complish at the seven-digit level.

I note that the Office of Federal Procurement PoHcy, within the
Office of Management and Budget, has embarked upon a proiect to
define Federal procurement at the seven-digit SIC Code level. This
will enable us to assess UNICOR's Federal market share by prod-
uct. This is a key to resolving many of our disputes over data.

Four, develop a model to assess inmate growth against growth in
Federal procurement opportunities. UNICOR should attempt to
create a mathematical model to enable it to scan markets where it
might find future opportunities for growth. Even more important is
the use of demand forecasting and forced planning models as a rel-
atively objective analytical tool in maintaining a dialog with pri-
vate sector firms also operating in a Federal marketplace. Such a
model would give UNICOR and private sector firms the ability to
create various scenarios and choose that scenario that minimizes
the negative impact on a targeted sector of Federal contracting op-
portunities in which UNICOR and private sector firms must jointly

compete. „« . • o-^

Five, step up to the issue of a market ceiling. This is a very dif-
ficult subject for UNICOR to address, that is the subject of an abso-
lute ceiling, by product/market, on its procurement. There is a real
fear, on the part of UNICOR, that, once a ceiling has been estab-
lished, it will never be removed? Where will inmates find employ-
ment? Yet, if UNICOR continues to expand into traditional mar-
kets, it will continue to displace more and more workers, shut
down businesses, and face an ever-growing opposition on the part
of industry and labor. UNICOR must be a good neighbor to labor
and industry if it is to survive. It must give industry and labor
positive assurances that it will not grow within a product or seg-
ment beyond a certain point. Not a ceiling on new growth, but a
ceiling on all growth.

Six, work out a method where subcontracting opportunities will
present themselves. UNICOR cannot be a subcontractor as well as
a primary contractor on Federal procurement. On some procure-
ment, it might only want to sell a labor component, rather than
take title to a Federal product. On others, it may want to take re-
sponsibility for a manufacturing step, or packaging or maintaining
a product. The impediments to subcontracting must be removed,
but not at the expense of market growth controls on UNICOR. If
UNICOR wants cooperation with Federal contractors, then it must
offer those contractors an opportunity to protect their workers.

Seven, consider offshore growth opportunities and production of
products for sale in the private sector very carefully. We ultimately
have to address the issues of production of goods already produced
offshore, and moving toward partnering opportunities with the pri-

vate sector. The growth of the Federal market will probably be very
limited in the future. As we move away from cold war defense in-
dustry, there will be fewer military boots, gloves, clothing, fiimish-
ing, electronic gear, et cetera. Cutbacks m defense will displace
many Federal inmates and, if we are not careful, we will also dis-
place many American workers who pay taxes m nondefense indus-
tries, who are very dependent on government contracts.

Finally begin a more comprehensive effort to encourage industry
and labor participation in the crisis we are facing in prison popu-
lation growth. It seems that every time Congress passes a new
crime bill, there are more minimum mandatory Federal sentences.
These new minimum mandatory sentences mean more inmates tor
Federal prisons and more inmates to keep occupied m a ''ederai
prison. No one will argue that keeping inmates busy is not a better
prison management tool. However, none of us wants to pay tor ttie
cost of incarceration and management of our Federal prison sys-
tem. We all feel that mysteriously somehow it is going to be han-
dled in the Federal budget.

The UNICOR program represents another way we, as citizens,
pay for our prison system. Many citizens pay for it with their jobs,
some with their futures. It is time to get private industry and labor
much more involved in the big picture, not just dealing witti the
results of our system of Federal criminal justice, more inmates. We
need more summit conferences at the highest levels to commu-
nicate this national crisis. Leaders of labor and industry must un-
derstand the future direction of Federal inmate growth if they are
asked to cooperate with UNICOR to provide ways of reducing the
cost of management of the inmate population. Being tough on
crime should not mean being tough on the American worker.

Thank you.

Mr. Hughes. Thank you, Mr. Benjamin.

[The prepared statement of Mr. Benjamin follows:]

Prepared of Maynard H. Benjamin, Executive Vice President, Envelope
Manufacturers Association of America

Mr. Chairman, my name is Maynard H. Benjamin. I am the Executive Vice resi-
dent of the Envelope Manufacturers Association of America located in Alexandria,
Virginia. We are an organization of 80 corporate entities that represent 151 enve-
lope manufacturing plants producing over 65 percent of all envelopes made in the

United States. , j or.

The envelope industry in the United States is small by most standards, lliere are
only 205 envelope converters in the continental United States which produce ap-
proximately $2.5 billion in shipments value in 1992 of which about 70 percent or
$1.7 billion were sales of standard business and commercial stationery envelopes.
The value of government envelope shipments is approximately $68 million in sales
primarily distributed between the Government Printing Office and General Services
Administration. Approximately eight percent of this sum is produced by the United
States Postal Service. These sums all fall under SIC 2677 and related subdivisions
ofthisSICcode.2

INVOLVEMENT WITH FEDERAL PRISON INDUSTRIES

Our involvement with Federal Prison Industries (UNICOR) began in December of
1989 when we received a letter and market study from Federal Prison Industries

1 United States Department of Commerce, "U.S. Industrial Outlook 1993— Paper and Allied
Products," p. 10-20. , ^ „ , , „

* Envelope Manufacturers Association of America, Estimates of Government Sales of enve-
lopes, 1992.

proposing to build an envelope manufacturing facility for the purpose of production
of envelopes for sale to the federal government. We received a copy of the market
study prepared in 1989 and went about a process of notice and oonmient to respond
to the market study and UNICOR's intended direction with regard to envelope man-
ufacturing. We were given opportunities to reply to the study and to appear before
the UNICOR Board of Directors in May, 1990.

Although the UNICOR Board of Directors has authorized UNICOR to move for-
ward into envelope manufacturing, in spite of our objections and presentation of in-
formation which would contradict their study conclusions, we remain categorically
opposed to UNICOR's entry into capital intensive industries like ours. In addition,
we are also opposed because UNICfOR will not employ many inmates as a result
of this venture. Their own market study calls for the employment of 130 inmates,
yet they will cause to be laid off approximately 67 workers in envelope manufactur-
ing facUities — workers who pay taxes, who support their community and who vote.

Several findings of this market study are woruiy of comment at this point:

Finding:

The envelope industry in the United States has been characterized by steady
growth for the past ten years, and is expected to continue to expand at a moderate
pace during the next five years. The value of product shipments in 1989 totaled $2.9
billion.''^

This market estimate is rou^ly correct for 1989. Actually, the value of shipments
was overstated by UNICOR by $84 million by U.S. Department of Commerce esti-
mates.*

However, the industry did not grow at a moderate pace, in fact sales have fallen
by $316 million since 1989.'

Finding:

The industry consists of an estimated 520 domestic producers and, although
there are a half-dozen corporate giants, over 90% of the manufacturing locations
have fewer than 250 employees. Over 80% of the firms have annual stdes volumes
of less than $10 million. It is an industry that is overwhelmingly dominated by
small business."®

There were only 222 domestic producers of envelopes in 1989, and there were ap-
proximately 220 imprinters or printers of envelopes, not converters. Today, as incQ-
cated above, there are 205 envelope manufacturers by our industry estimates.

Finding:

The federal government market for envelopes reached almost $70 million in
1989, and is forecasted to grow at the same annual rate (2.5%) as the market as
a whole. The size of the market and its projected rate of growth, are large enough
to support current and potential vendors and UNICOR."^

Our best estimates presented to UNICOR indicated that the market was only $66
inillion for government envelopes in 1989. In addition, the market which UNICOR
is seeking to compete in is much smaller and defined by the "conmiercial sizes of
envelopes normally procured by the GSA.

GPO and Postal Service. Again, based on our market estimate of $66 million we
also subtract $10.4 million in padded envelope sales and $10 million in stamped en-
velope products produced by the Posted Service for a net market of $46 million for
"commercial envelopes." This would represent 21% of the federal market for com-
mercial envelopes based on 1989 numbers, not the 11.5% which UNICOR estimates.

The sizing of a market, especially the federal segment, is a critical factor in
UNICOR's determination of the value of that market for production of product, cre-
ation of inmate employment opportunities and minimization of impact on the pri-
vate sector. The reason for these differences in data stemmed from UNICOR's oper-
ating guidelines which did not consider industry data early enough in the decision-
making process. In addition, the focus on the total industry, both public and private
segments, in our estimation is erroneous. Some manufacturers adapt themselves to
marketing to the federal government. Clearly, the primary concern for UNICOR's

^Hagerty, James Emmett, "An Analysis of the Impact On Private Industry Resulting From
UNICOR's Entry Into Envelope Manufecturing," UNICOR, Product Development Group, Octo-
ber 31, 1989.

*Same as 1.

"Same as 1.

"Same as 3.

''Same as 3.

competition with private sector Arms is the percentage market in the federal sector
that they will occupy.

It should also be pointed out that UNICOR did provide labor and industry with
an opportunity to comment on its guidelines in July of last year.® One of the items
that we discussed was the issue oi collecting valid market data and correct data on
federal procurement by 7-digit SIC code. I also note that on February 11, 1993
UNICOR did make a request to the OfTice of Federal Procurement Policy to provide
more detailed information on 7-digit procurement.' We feel that the presence of that
operating data will accomplish a long-needed understanding of all parties on
UNICORNS federal maricet share across all products which it currently produces,
thus ending a great deal of dispute with the private sector over how much of the
federal market IJNICOR occupies.

THE CURRENT ENVIRONMENT

UNICOR still has not opened a factory to manufacture envelopes yet they plan
to do so by next year. According to a recent procurement issued oy IJNICOR, they
would like to open a 50,000 square foot facUity manufacturing envelopes for the fed-
eral government located in Atlanta, Georgia. That facility is expected by UNICOR
to produce $2.5 million in sales of product in the first year ana is projected to in-
crease to approximately $10 milUon by the third year, but will not exceed 12% of
the federal market.^"

The Market Study presented earlier projected that UNICOR wanted to employ
130-plus inmates on two shifts. Assuming that UNICOR does reach $10 million in
sales by the third year, it will produce approximately 519 million envelopes by our
calculation. An engineering analysis completed by our industry indicated that to
produce this quantity of envelopes would cost approximately $4.9 million, and sup-
port equipment would cost an additional $756,000. This does not include construc-
tion and other facilities costs which we estimate at $2.8 million. So the entire "front-
end" cost of this facility is $8.46 million.^*

The above represents a per-inmate employed cost of $65,076.92 not including the
other costs of incarceration which are over and above these sums, but let's not worry
about those costs for now. If UNICOR sells $2.5 million worth of envelopes in 1994,
it will spend approximately $900,000 on paper, {mother $20,000 on adhesives, gum
and window film. It has an overiiead cost oi $^3,000 in e»quipment projecting a 20-
year life, and it will have a supervisory staff of three with a minimum payroll of
$120,000 with another $85,000 in taxes, benefits, etc. There are even more costs as
this analysis goes on such as sales, training, transportation, etc. In sum, UNICOR
will be fortunate if it breaks even aft^r three years of operation. That is probably
why very few companies have bid on UNICOR's procurement. It just does not make
good sense as a business transaction.

On average, it will take UNICOR from three to five years to train an adjuster,
four to six months to train a pressman and two to four months to train an inspector/
operator. If a die-cut press is acquired, add one-year. If a "jet press" is required,
add seven months.^^ If it is fortunate and able to train its work force it will prob-
ably be making quality products in the fourth year.

It is also unfortunate for those inmates because they will probably never be able
to get a job as an inspector/operator, pressman, cutter or adjuster in the envelope
manufacturing industry. We have downsized our industry significantly. In fact, over
the past three years we have eliminated 2,500 jobs. Those inmates that work in the
envelope factory will learn what it is like to have a job, they will learn certain me-
chanical skills, and they might develop some other skills that are somewhat trans-
ferable; however, even an envelope press is unique.

UNICOR has been somewhat fortunate in the past. By concentrating its oper-
ations in five core industries, it has been able to achieve suflicient economies of
scale in sufficient size markets where it can return funds to the Treasury. However,
as it moves forward to diversify its operations, the start-up costs and learning curve
that it must master from each new industry that it enters will cost UNICOR a great
deal of money and operating efficiency. It will survive this transition only because
ultimately, the government must support this program either by purchasing goods

"U.S. Department of Justice, Federal Prison Industries, "Letter from Richard P. Seiter," July
23 1992.

*U.S. Department of Justice, Federal Prison Industries, Inc., "Letter to Mr. Robert Neil," Feb-
ruary 11, 1993.

^"Federal Prison Industries, "RFP IPI-R-0002-93," Description/SpecificationsAVork Statement,
p. 5.

" Hill, Charles, E., "Letter To Donald Schwartz," Frf)ruai:y 15, 1990.

"Same as 11.

via the "super-preference*' or providing greater incentives for labor and industry to
work with UNICOR.

HOW CAN COOPERATION WITH INDUSTRY AND LABOR BE ACHIEVED?

This Committee was instrumental in getting the first Maricet Study of Federal
Prison Industries completed in 1992 (The Deloitte-Touche study). That market study
offered a number of observations and recommendations, some of which industry and
labor are in agreement with, and some of which were not. Many trade associations
and labor organizations participated in that market study. Many of us spent hours
in interviews, supplying data, and in briefings on preliminary results. The end-prod-
uct was very disappointing in that there were very few federal opportunities for
UNICOR in which to expand its market share without continuing to focus on the
five traditional industries in which it already has significant market share.

Lq June of 1992, through the cooperation of the Brookings Institution, many of
the affected industries and labor organizations met with representatives from the
Department of Justice, the Administration and the Federal Bureau of Prisons to dis-
cuss our thoughts on the maiket study and other key concerns. This "Sununit" Con-
ference gave us all the opportunity to air our grievances and to begin to work on
resolution of key issues which separated us. After the "Summit" we formed two
working groups, one on communications and one on growth strategies that continue
to meet to this day. We have come a great distance but we stiU nave a great dis-
tance to go.

Here are some thoughts on how we might move closer to eliminating many of the
issues which separate us.

1. Continue to Communicate! Hold Hearings on the Market Study. — The "Sum-
mit" Conference began a process of communication between all of the affected
groups which continues to tnis day. While we are not all in agreement on solutions,
we are talking outside of Capitol HUl not "banging on desks on Capitol HiU. This
is a slow, sometimes agonizing process, where many growth opportunities are ad-
dressed only to find out for some reason or another tney just will not employ enough
inmates to be useful or they will negatively impact jobs in the private sector.

It is surprising that given the number of observations, findings and recommenda-
tions contained in the UNICOR Market Study prepared by Deloitte-Touche, the Ju-
diciary Committee has not yet held hearings on this study to gather reactions to
the study from UNICOR, labor and industry. Given the significance of this study
and the dollar expenditure involved, it might prove to be useful to hear from the
analysts who completed the work as well as from those who provided data and other
input to this important study.

2. Come to an Agreement on Solutions Before Taking Them to Capitol HUl. —
There have and will continue to be a wide array of bills introduced to "fix" some-
thing with regard to the Federal FVison Industries program. Whether they be for
demonstration projects or modifications to UNICOR's operating authority, the
chances of their being useful to all groups are extremely limited. Industry, labor and
UNICOR need to come to some basic agreements on the future if comprehensive leg-
islation to move this program forward is to ever be effective. Those basic agreements
do not yet exist but with each meeting we do move closer.

3. Accurately Define UNICOR's Federal Market Share. — I am sure it is no sur-
prise to anyone on this Committee that the federal government has a very difficult
time tracking what it buys and correlating those purchases to an industry. We use
the SIC codes for tracking industry size, and we also need to use SIC codes for
tracking UNICOR's markets. The problem has been that this is easy to accomplish
at the 4-digit level but more difficult at the 7-digit level. The Office of Federal Pro-
curement Poli<r^ within the Office of Management and Budget has embarked upon
a project to define federal procurement by 7-digit SIC code which will enable us to
assess UNICOR's federal market share by product. This is a key to resolving our
disputes over data.

4. Develop a Model to Assess Inmate Growth Against Growth In Federal Procure-
ment Opportunities. — UNICOR should attempt to create a mathematical model to
enable it to scan markets where it might find future opportunities for growth. Even
more important is the use of a demand forecasting ana force planning model as a
relatively objective analytical tool in maintaining a dialogue with private sector
firms also operating in the federal marketplace. Such a model would give UNICOR
and private sector firms the ability to create various scenarios and choosing that
scenario that minimizes the negative impact on a targeted sector of federal contract-
ingopportunities in which UNICOR and private firms must jointly compete.

The primary inputs of a force structuring model are those elements which rep-
resent its variables. In dealing with the force structuring size first these would in-

dude: prison size, inmate population and eligible inmate population. Why not more?
Because each of these three elements define the maximum number of factories that
can be included within a prison. In essence, the size of the current prison in square
feet determines the maximum inmate strength under ideal conditions. Through an
assessment of work abilities and the security requirements of the institution, an eli-
gible work force can be developed. It is that available work force that must be em-
ployed, or remains underemployed, if there is insuflicient work available in the facil-
ity to support the eligible inmate population.

The inputs to a demand forecasting model would include: industry value of ship-
ments (correlated to 4-digit SIC code gained from Industry Association or U.S. De-
partment of Commerce), UNICOR current market sales (correlated to 4-digit SIC
code), UNICOR's current market share (dividing value of shipments by UNICOR
market sales), UNICOR Federal Share (dividing Industry Segment Sales) (provided
by industry) by UNICOR's 7-dipt SIC sales, and production worker per miUion dol-
lar of shipments value (from U.S. Census of Manufacturers).

The model would first array value of shipments by SIC code adjusted by the
Consumer Price Index. UNICOR's sales data would then be correlated against the
array value of shipments in SIC order/down to seven digits if the array can be buUt.
UNICOR's current market share is easUy derived by dividing the second array by
the first in either four or seven digit detail. Five-percent gross up limits could then
be calculated after the UNICOR share is determined.^^

Next a subsidiary table array would have to be developed to calculate production
worker per million dollar value of shipments value added. This would have to be
calculated as the difference between the value of the final product and the value
of the purchased inputs using UNICOR accounting data. That array would be
matched against the first array in SIC code order.^*

The final calculation would take the five percent increment, multiplied by produc-
tion worker per million dollar value of shipments value added and dividing the re-
sult by one million to show the net increase in emplojrment per five percent incre-
ment per UNICOR market segment.

5. Step Up To The Issue Of Mariiet Ceiling.— A very difficult subject for UNICOR
has been the concept of an absolute ceiling oy product/market on its procurement.
There is a real fear that once a ceiling has oeen established it wiU never be re-
moved, and where will inmates find employment? Yet, if UNICOR continues to ex-
pfind into traditional markets it wiU continue to displace more and more workers,
shut down businesses and face ever-growing opposition on the part of industry and
labor. UNICOR must be a "good neighbor" to labor and industry if it is to survive.
It must give industry and labor positive assurances that it will not grow within a
product or segment beyond a certain point — not a ceiling on new growth but a ceil-
ing on all growth.

For example, why not set an absolute percentage of the federal market across the
board as a goal initially. Also agree to report to those affected industries on a
monthly basis by 7-digit SIC code, which defines product, the cumulative procure-
ment year-to-date and monthly procurement. A share of that product/segment could
be easily computed. This report could also be provided to Congress for monitoring
purposes.

When that procurement goal was reached, UNICOR would suspend use of the
"super-preference" for that product or segment until such time as its market share
fell below that goal. Another alternative would be to phase-out the preference as a
percentage by which UNICOR exceeded that procurementgoal. Clearlv, this would
mandate diversification across other federal procurement. This would also encourage
partnering arrangements or subcontracting arrangements in order to promote cost-
effective diversification.

6. Work Out a Method Where Subcontracting Opportunities WUl Present Them-
selves.— UNICOR can be a subcontractor as well as a primary contractor on federal
procurement. On some procurement it might only want to sell a labor component
rather than take title to a federal product. On others, it may want to take respon-
sibility for a manufacturing step, or packaging, or maintaining a product. The im-
pediments to subcontracting must be removed but not at the expense of market
growth controls on UNICOR. If UNICOR wants cooperation with other federal con-
tractors, then it must offer these contractors an opportunity to protect their work-
ers.

"Warren-Boulton, Frederick R., "An Economic Analysis of UNICOR's Plan To Enter Envelope
Manufacturing: What Kinds of Products Should Prisoner's Make?" ICF Consulting Associates,
August 16, 1990.

"Same as 1.

7. Consider Offshore Growth Opportunities and Production of F*roducts for Sale
in the Private Sector Very Carefully. — We ultimately have to address the issues of
production of goods already produced off-shore and moving toward partnering oppor-
tunities in the private sector. The growth of the federal market will probably be
very limited in the future. As we move away from a "Cold War" defense industry,
there will be fewer military boots, gloves, clothes, furnishings, electronic gear, etc.
Cutbacks in Defense will displace many federal inmates and if we are not careful
we will also displace many American workers, who pay taxes, in non-Defense indus-
tries who are very dependent on government contracts.

While our balance of trade is a critical measure of the health of our economy, we
have to remember that just because a computer is produced overseas it does not
mean that the component parts are produced overseas. It also is important to keep
in mind that in a trade war nobody wins. Any venture to repatriate "American
goods must be studied carefully. We cannot afford to displace any American work-
ers.

I*rivate sector cooperation will not come without effective controls on UNICOR
maricet growth in the public sector. In addition, as UNICOR orients itself to more
and more manufacturing opportunities in the public sector it ignores the shift in job
growth away from manufacturing into services in the private sector. American man-
ufacturing is learning to be competitive in a world environment. American labor is
also adapting its representative work force to allow American manufacturers to be
more competitive. Tiiis will mean fewer manufacturing jobs or manufacturing jobs
in skill areas that require knowledge of computers and other information sciences
skills. Every time a mature industry is chosen by UNICOR for entry, UNICOR
moves farther away from the mainstream of American manufacturing. It will not
achieve private sector cooperation if it remains on its current course.

8. Be^n a More Comprehensive Effort to Encourage Industry and Labor Partici-
pation m the Crisis We Are Facing in Prison Population Growth. — It seems that
every time Congress passes a new crime bill there are more minimum mandatory
federal sentences. These new minimum mandatory sentences mean more inmates
for federal prisons and more inmates to keep occupied in a federal prison. No one
wiU argue tnat keeping inmates busy is a better prison management tool. However,
none of us wants to pay for the costs of incarceration and management of our fed-
eral prison system. We all feel that mysteriously, it is some how "handled" in the
federal budget. The UNICOR program represents another way we as citizens pay
for our prison system. Many citizens pay for it with their jobs, some with their fu-
tures.

It is time to get private industry and labor much more involved in the "big pic-
ture" not just dealing with the results of our system of federal criminal justice —
more inmates. We need more summit conferences at the highest levels to commu-
nicate this national crisis. Leaders of labor and industry must understand the fu-
ture direction of federal inmate growth if they are to be asked to cooperate with
UNICOR to provide ways of reducing the costs of management of the inmate popu-
lation. Being "tough on crime" should not also mean being tough on the American
worker.

Mr. Chairman, we have come a long way in the past year working together. We
have a great deal of woric still ahead of us but I am confident that we should be
able to resolve many of the issues that separate us. I greatly appreciate your kind-
ness in allowing me to submit this statement on behaff of the industry I represent.

Thank -you very much.

Mr. Hughes. Ms. Perry, welcome.

STATEMENT OF SUSAN PERRY, DIRECTOR, GOVERNMENTAL
AFFAIRS, BUSINESS AND INSTITUTIONAL FURNITURE MAN-
UFACTURER'S ASSOCIATION, GRAND RAPIDS, MI

Ms. Perry. Thank you, Mr. Chairman. I have to apologize for a
cold I have. Please bear with me.

I am Susan Perry. I am the director of governmental affairs for
the Business and Institutional Furniture Manufacturer's Associa-
tion. I am also here representing the American Furniture Manufac-
turers Association, and the Coalition for Government Procurement.
I would like to just have my statement put into the record without
my going over it, because a lot of the statement is basically an enu-

meration of problems that we have found with Federal Prison In-
dustries. I really do not want to dwell on that.

Mr. Hughes. We have your statement. We have read it, as I in-
dicated. It is part of the record.

Ms. Perry. Thank you. I do not want to be here today complain-
ing, because I have been doing that for 5 years, and it has not ac-
complished much. In the past 3 years Federal Prison Industries
sales of furniture and metal products, which includes metal fur-
niture, has risen from fiscal year 1990, $108 million, tiscal year
1991, $143 million, fiscal year 1992, $199 million. For some reason,
this has not triggered significant expansion requirements, as laid
out in the guideline procedures.

As an industry, we are taking a beating. As people on the panel
have stated, furniture has borne quite tne brunt of the Federal
Prison Industries program. We have met with you before, Mr.
Chairman, and you have said to us that you hope that there would
be a rollback in the traditional industries. You also indicated to us
that there was a responsibilitv that we had to come up with other
products and other programs for prisoners to go into. We agree that
it is important for prisoners to work, that it is an excellent control
mechanism within the Federal prison system, especially now that
parole has been eliminated for new prisoners. So, we were very dis-
appointed with the Deloitte & Touche report not coming up with
any new products or services for prison industries to go into. I
think probably part of that problem was because accountants were
hired to do this, and accountants are not supposed to be creative,
after all. If they are creative accountants, they end up making pris-
on furniture.

So, we went within our own industry and tried to look for ideas.
We are a creative industry, of course. It is a design-based industry.
So, we opened it up to our members, and to the other people withm
our industry to come up with ideas. We have examined a number
of these. We have come up with three major ones that we feel
would employ a large number of inmates.

As mentioned before, the recycling programs could be used. We
are looking specifically at plastic recycling. Currently, in the Unit-
ed States today, less than 2 percent of the plastic is recycled. The
reason that more is not being done is because it is very labor-inten-
sive and very costly at minimum wa^e to sort plastics. Having
come into Washington very late last night, it is hard to come up
with — I am notorious for props during a hearing — ^in going through
my own luggage, two plastic bottles. They look identical, same
manufacturer, same stuff in them. Two different codes on the bot-
tom. One is a high density polyethylene, and the other is a low
density polyethylene. These have to be sorted to make them valu-
able if they are going to be used in recycling. It is a case of literally
picking up the plastic, reading the code on the bottom, and throw-
ing it in a specific bin. It does not take a lot of training. ^ is not
capital-inten si ve.

If you watched last night's "American Agenda" on "ABC News,"
you saw the Germans sorting trash, which is part of their environ-
mental policy over in Germany now. This is something that pris-
oners could be doing, where they are repaying the society that they
have damaged through their crimes. It is not taking jobs away from

the American worker, because it is not economical for the American
worker to do this.

I use, for example. Congressman Moorhead. Every time I have
talked to him, he has always asked what can be done at Terminal
Island in California? Plastic sorting could be done at Terminal Is-
land. Look at the plastic that has accumulated in southern L.A.,
Los Angeles County, Orange County, the Long Beach area. It
would be a case of — a company like Waste Management, or
Laidlaw, picking up the plastic that has been put in recycling bins,
or at curbside, bringing it to the prisons, running it through a
metal detector, having prisoners sort it. The company — ^the Waste
Management Company would maintain control and ownership of
the plastic, and they take it out the other end. They contract with
the Government for that sorting service.

With only 2 percent of the plastic in the United States being re-
cycled today, I have been told by people within the plastic industry,
that you could probably employ every prisoner, be it Federal, State,
local, or down to the county drunk tank, in doing this type of thing,
because the demand is there. The use for the recycled plastic, the
need for recycled plastic is there. The American public wants to re-
cycle plastic. The hitch — ^the bottleneck is the cost of sorting it.

Other areas that we have looked at as an industry — and, of
course, our industry, being very dependent upon wood, and tropical
woods, is the rain forest — sustainable forestry projects. It sounds
pretty strange, I am sure, to be talking about prisoners, and sus-
tainable forestry down in the Tropics; but one of the major pres-
sures on the tropical rain forest today is needing fuel, cutting trees
down to be used to cook their evening meal.

Prisons factories today are set up as sheet metal plants. They
can do the manufacturing of sheet metal products. One of the prod-
ucts that could be used in the rain forest, and be supplied is partly
humanitarian aid programs from the Federal Grovemment — would
be solar cookers. These are the solar ovens that we made in Girl
Scout camp. We put them out in the sun. I have cooked a pizza in
Michigan in February on one of these things. So, people in the
Tropics no longer have to cut down endangered species and tropical
wood for fuel, but, instead, make this part of an aid project.

The third thing that we are looking at is food processing. "ABC
News," about a year and a half ago, ran a special where they were
showing that a major canner of green beans was landfilling a ton
of green beans a day — a ton a day because they were cosmetically
unacceptable to the American consumer. They were too big. They
were too small. They had a gash in them, something like that.
They were perfectly edible, perfectly fine. Someone like my mom,
if she opened up the can, would say that, these are not good. They
are too big, or too small, or whatever. It is a sin for people in this
country to be going hungry when these kind of things exist when
you have prisoners who could be processing this kind of food. The
nectarines that are too small, the oranges whose peel is too green,
all of the types of produce and products that the Agriculture De-
partment will not allow be sold could go into the prisons and be
processed, canned, made into juice, freeze dried, stable packed,
whatever, and then, in turn, be part of packages to homeless shel-

ters. The Grovemment could give them away, as part of aid, the
same as they do with the surplus cheese and milk products.

These are some things worth thinking about. It takes an alto-
gether different look at what Federal Prison Industries' mandate is.

I am very concerned that Federal Prison Industries wants to be-
come the major supplier of products to the Federal Government.
We see it happening in our industry when there are sales of fur-
niture and metal products, which is almost up to $200 million a
year. As stated before, right now, they are the eighth largest manu-
facturer of office furniture in this country, and moving up fast on
number seven. In a time when our industry dropped 12 percent,
and there are no jobs — if you are training people for jobs out in the
private sector in the furniture industry, there are no jobs, because
today you are not only paying for an inmate, but you are paying
for unemployment for the person that has lost their job because of
the inmate working. So, I think that is imperative.

We are taking a leadership role on this. We, as an industry, have
formed a working alliance, where we will go out and try to develop
these ideas into workable projects for prison industry. We are not
going to come to the Government for money to fimd this type of
project. We are going to take it on ourselves to do it, because we
unaerstand that there is a need to direct the work of prisoners into
something other than furniture, and we hope that we can come up
with some answers.

Thank you.

Mr. Hughes. Thank you, Ms. Perry.

[The prepared statement of Ms. Perry follows:]

Prepared Statement of Susan Perry, Director, Governmental Affairs,
Business and iNsmruTioNAL Furniture Manufacturer's Association, Grand
Rapids, MI

My name is Susan Peny and I am the Director of Governmental Affairs for the
Business and Institutional Furniture Manufacturer's Association which represents
the manufacturers of business, office, and institutional furniture. In addition, I am
also representing the American Furniture Manufacturers Association, manufactur-
ers of residential, dorm, and quarters furniture, and the Coalition for Government
Procurement. I am pleased that this Subcommittee has called for this hearing as
Federal Prison Industries continues to be a major problem for the manufacturers
of furniture and related metal products.

Let me state first that our industry recognizes the value of prison industries as
a correctional tool and a means of teaching inmates a basic work ethic — learning
to get up in the morning, ^o to work, and report to a boss.

President Clinton promised that those who work hard and play by the rules will
be rewarded. I assume that he has not confronted Federal Prison Industries.

Established by Congress in 1934 as a means to keep prisoners busy, FPI has
grown into the $417 million business it is today by taking jobs away from those who
work hard and play by the rules, and giving those jobs to inmates who have violated
society's rules. What was to have been a non-intrusive prison work program, has
become the size of a Fortune 500 company and one of tne top ten manufacturers
of office furniture in the United States. Mandated by Congress to "provide employ-
ment for all physically fit inmates in the United States penal or correctional institu-
tions, diversify, so far as practicable, prison industrial operations and so operate the
prison shops that no single private industry shall he forced to hear the undue burden
of competition from the products of the prison workshops, and to reduce to a mini-
mum competition with private industry or free labor." (emphasis added) FPI has dis-
placed thousands of workers, not only in furniture and metal products, but also in
the fields of electronics, textiles and apparel (the "four traditional industries").

We honestly believe that Congress never intended for Federal Prison Industries
to be the predator that it has become. The original Congressional mandate specifi-
cally protected industries and labor from the potential adverse impact that this pro-

gram could have. But through high pressure tactics and aggressive use of their
mandatory preference (superpreference), FPI has grown dramatically in the past few
years.

In 1988, FPI requested the authority to borrow nmney from the federal treasury.
Congress wisely voted against this raid on the American taxpayer and the bill was
defeated on suspension. Subsequently, the language was attached in the Senate to
the 1988 Omnibus Drug Bill which then passed botn the House and Senate and was
signed into law by President Reagan. Given this authority to borrow money to ex-
pand its operations, FPI has begun an empire building spree unrivaled in our indus-
try.

As part of the borrowing authority that FPI acquired in 1988, it was to adhere
to guidelines established with input from industiy and labor. Industry agreed to
wont with FPI to reach some sort of compromise whereby we all could agree on
what constitutes "significant ejcpansion" and "market share terminology. No actual
compromise was reached and FPI established their own guidelines over industry's
objections. Even with these "guidelines" in place, we continue to raise legitimate ob-
jections to FPFs continued expansion. While their sales of furniture and metal prod-
ucts grew from $107.4 million in 1987, just before the guidelines were put into
place, to $199.3 million in 1992, FPI has yet to trigger the "significant expansion"
provisions of the guidelines procedures and contact the effected mdustry.

In 1989, industry representatives appeared before this subcommittee to express
our concerns about the rapid growth of FPI and its impact on our industry. We indi-
cated at that time that there had to be other products and services that would
spread the burden of this program more fairly.

In 1990, Deloitte & Touche was commissioned to perform a market study to deter-
mine new products and services for FPI expansion. Deloitte & Touche apparently
had little knowledge of procurement policy and ignored most of the information pro-
vided by industry. They also lacked the creativity to discover new products as their
study md not specifically name a single product. They did state that FPI should
"phase out" of the traditional industries, yet offered no viable alternatives.

Armed with this study that did not achieve what had been assigned, FPI has used
it as their premise for all of their subsequent actions.

A "Summit Meeting" was held at the Brookings Institution to bring together in-
dustry, labor. Congressional staff and representatives from agencies to meet with
FPI and attempt to resolve some of our difliculties. While BIFMA was not part of
the original list of invitees, we were included at the insistence of Congressman
Payne. Hopefiil that this would in fact lead to some form of relief for our mdustry,
we attended the Summit and subsequent meetings, dealing in good faith with FPl
even though the impartiality of the proceedings disappeared as FPI eventually took
over the activities of the group.

Hope turned to discouragement as industry and labor were routinely outnumbered
by representatives of FPI, the Bureau of Prisons and Department of Justice, some-
times as much as five to one. Agreements in principle as to caps and roll-backs
based on sales figures, reached between industry and the Director of the Bureau of
Prisons, disappeared with Director Quinlan's resignation. Proposed "caps" based on
number of inmates, without regard to the size of the market, were then drafted by
FPI. Good faith evaporated when FPI proposed le^slation that would:

allow it to compete directly with private industry and labor for commercial
(non-Government) sales;

unreasonably restrict the flow of information from FPI to industry and labor
by exempting FPI Advisory Committees from the Freedom of Information Act;
destroy "Full, Fair and Open Competition" among suppliers by allowing FPI
to contract with a chosen few; and,

eliminate any effective oversight or review of FPFs procurement practices —
practices that the General Accounting Oflice (GAO) frequently has found violate
federal procurement laws and regulations.

The ultimate example of disregard for those potentially impacted by their actions,
was FPFs request that Federal Government Prime Contractors receive credit for
subcontracting to Federal Prison Industries. This would allow Prime Contractors to
fill their small business or small/disadvantaged business requirements by sub-
contracting with FPI, circumventing the true purpose of these set-asides.

All of these proposals have been, and will continue to be, opposed by the furniture
industry. FPI unmirly takes jobs away from hard working, law abiding, taxpaying
Americans. Any FPI proposal that further encroaches on the private sector is mis-
guided and dangerous to the American way. FPI should not have subcontracting
agreements with private sector firms that would allow select subcontractors to take
advantage of FPI's low wages, and their superpreference. Sales to the private sector
without true guarantees that FPI would have to meet all of the requirements of a

private sector company including prevailing wage, health and safety rules, environ-
mental reflations, etc., would put the government in an extremely unfair competi-
tive position. While allowing FPI to manufacture products "currently made off-
shore and selling them to the private sector sounds laudable, they have been un-
able to give a single example of a product that would not affect a small business
somewhere in this country. Lack of labor intensity is still an issue as FPI continues
to use kits which require only li^t assembly to mliill its sales orders. And quality,
deliverability and pricing continue to be problems as sales outstrip their ability to
produce product, leading to a backlog as laroe as $60 million last vear.

And so the same problems continue — FPI claims that there wUl be rioting in the
prisons if their program is in any way curtailed and industry and labor point out
that the government is not only supporting the inmate, but also the worker on the
unemployment line who has been displaced by the inmate. Our faith in the process
is disappearing as FPFs sales of furniture and metal products went from $144 mil-
lion to $199 million during our latest negotiating session. At this rate we cannot
afford to continue to negotiate — the $55 million increase represents more jobs lost
in our industry, an industry which continues to feel the effects of the recession, gov-
ernment and white collar downsizing, and imported products.

We need relief. We need help. We need your attention to this problem.

Thank you.

Mr. Hughes. I heard some data earlier which was furnished by
the Director of the Federal Bureau of Prisons about the market
share for furniture. It suggested that basically since 1988, that
Federal market share had decreased from about 12,33 percent to
8.96 percent in 1991. Is that data inaccurate?

Ms. Perry. I have no way of knowing where Dr. Seiter obtained
this data. I do know that their sales in fiscal year 1990 were $108
million; in fiscal year 1991 were $143 million; and in fiscal year
1992 were $199 million. At the same time, market share decreased.
I am not sure where these numbers are coming from.

Mr. Hughes. Is it possible that — has the mrniture business in-
creased significantly?

Ms. Perry. No.

Mr. Hughes. Has it remained relatively static, or has it de-
creased?

Ms. Perry. It is decreasing. We are a hard-hit industry. Not only
are we hit by the recession, but also by imports, and downsizing.

Mr. Hughes. Well, you have a great advocate on this committee.
Howard Coble fights for you continuously.

Ms. Perry. Yes. Our watchdog, yes.

Mr. Hughes. As a percentage of total sales by Federal Prison In-
dustries, furniture does constitute a higher percentage. That does
give me some concerns. Your testimony indicates that your associa-
tion supports caps. How would you determine what would be a rea-
sonable cap?

Ms. Perry. We are very concerned, because we thought we had
an agreement with Mike Qui^lan, when he was Director of the Bu-
reau of Prisons, that caps would be determined on the percentage
of the market, and based on sales figures. Now, the proposal that
has been put forth recently by Federal Prison Industries, says that
caps should be based on the number of inmates. I will tell you, a
private sector company would love to be able to say I would like
to employ another 100,000 people, or another 10 people.

Mr. Hughes. My question to you is how would you determine it?

Ms. Perry. I would say that it would have to be based on a sales
number — on a number — a sales dollar number. The problem we
have run into, and, as you have said before, nobody knows what
the Federal market is. Based on a percentage

Mr. Hughes. Mr. Benjamin has made some very good sugges-
tions. We could do a better job of tracking that. That has been one
of the criticisms. I think tnat is a legitimate criticism, that we
should be able to rectify.

Let me ask you one more question before I move on to some of
the other panelists. In your written statement you say that, refer-
ring to the summit talks, that good faith evaporated when FPI pro-
posed legislation that would allow it to compete directly with pri-
vate industry and labor for commercial, that is nongovernmental
sales. When did FPI propose that legislation?

Ms. Perry. We had — and I can present it for the record, as part
of the minutes on — and the date escapes me — part of the minutes
that we received from one of the meetings in I think November.

Mr. Hughes. Yes. Who did they propose it to? Because I
never

Ms. Perry. They proposed it to the Brookings summit group. No,
it has not been introduced. I am sorry if I misled you, or you were
misled at all. It was proposed to the group, to the Brookings group.

Mr. Hughes. By whom?

Ms. Perry. Rick Seiter, is my understanding. I will make a copy
of that available to you.

Mr. Hughes. I find that interesting. Because I have talked with
the Federal Bureau of Prisons, and they have resisted that. I mean,
Frank Wolf has introduced legislation.

Ms. Perry. No, this is not the Wolf bill.

Mr. Hughes. It has been referred to this committee. In any con-
versations I have had with the Federal Prison Industries' officials,
they have resisted that approach. So, I find that — well, I see some
heads shaking. I find it very interesting. Because when the Federal
Prison Industries has a proposal, they want to submit a serious
one, they usually know where to find me or others to make the pro-
posal, and they have never done that — ^never done that. So, I find
that very hard to understand.

I will move on to another witness and come back to you. You
have obviously one of the viruses that are going around. We all
have them, and you would not want to be left out.

Mr. Benjamin, would you be willing to agree that the more in-
mates, the more work is needed, and that also has to be taken into
consideration?

Mr. Benjamin. The more inmates, the more work that is needed?
Oh, most definitely, sir. The more inmates you have, you have to
keep them busy. I am a big advocate of the fact that keeping in-
mates occupiea is a viable prison management tool, and I am not
a criminologist, but it just would seem logical to the individual that
that would be the case.

Mr. Hughes. Sure. I think some of the suggestioris you make
about mandatory minimums, and the fact that we really do not pay
much attention to what we are doing, and the impact are correct.
We just think that all of a sudden we are going to be able to man-
age prison problems right on target. To try to address that, I have
asked the Federal Bureau of Prisons to provide me with impact
statements so that when bills are proposed, or amendments are of-
fered, we can debate, as part of that, what the ramifications of a
particular amendment are, such as federalizing all handgun viola-

tions around the country, and the revolutionary way in which we
would change the Federal courts, and the Federal Prisons, if that
became the law. So, I think that that is right on target.

Let me ask you, what do you think of the idea that we would
perhaps move to a minimum wage system, as part of the effort to
look for other markets, maybe offshore, to deal with some of the
concerns, legitimate concerns, raised by, for instance, organized
labor, which basically undercuts the arguments we make about
slave labor around the world, and the impact it has on our private
sector? What do you think of moving in that direction? It would ob-
viously mean policy changes, because we have put Federal Prison
Industries in sort of a straitjacket, by the manner in which we
mandate the way they must operate.

Mr. Benjamem. A couple of things. One. My industry supports the
minimum wage approach. Why? Well, 40 percent of my industry is
unionized. Those workers tell us, on a regular basis, that they feel
that Federal Prison Industries has an unfair advantage, simply be-
cause they can pay people below market. I think that argument
would dissipate itself, if you established a minimum wage floor.

Mr. Hughes. And then you have the argument, well, you are
paying minimum wage, but why don't they pay the prevailing
wage?

Mr. Benjamin. Well, that is also another argument that we have
to deal with too. Because there is a group of our members that also
suggest that FPI ought to compete like any other Federal contrac-
tor, and they ought to have the same burdens and the same wage
scales to deal with.

Now, to a certain extent, what happens — ^in an industry like
mine, it is so heavily competitive — is, as FPI has a superpreference,
and sets a market price for comparable goods, you have a danger
of that becoming a reference price for all comparable Federal goods,
and therefore, boosting the cost that many Federal agencies will
have to pay for their goods. So, I think a proposal like that would
need some study from an economist, who could look at the "boost-
ing" effect that that would have.

You know, we have done a study of FPFs entry into the envelope
manufacturing industry. We did it as part of the process of notice
and comment that went on in 1990 between our industry and the
Federal Prison Industries. Eased on our engineering analysis of
their facility, how much business they would take, and how much
machinery would be required to support that business, there would
be no way, with prevailing rates, for Federal Prison Industries to
make any money within the first 3 years of their operations, right
now.

Now, that is something that is unique, Mr. Chairman, to labor-
intensive industries that are small-niche industries like my own.
Remember that we are dealing with the $2.5 billion a year indus-
try, only 205 domestic producers. The average cost of equipment is
approximately $700,000. So, to put an envelope facility together,
you are talking about a cost, per inmate, before incarceration, of
$65,076.92. That is before incarceration costs. It is going to be very,
very difficult for UNICOR to break even with their entry into this
envelope manufacturing field. If you add a minimum wage or pre-
vailing wage argument back on that, what you inevitably do is —

have to increase costs to break even; they have to raise the market
price. When you raise the market price, you will have the tendency
to set prevailing price for other types of Federal goods, because the
procurement officers are going to look over here and say, you know,
that is a prevailing price. What happens is we end up paying more
for our goods basically.

So, again, basically, we have to be very very careful with that ap-
proach.

Mr. Hughes. Well, I think you have made a very valid point.
Frankly, the primary purpose is rehabilitation, and to keep in-
mates busy. For that reason, we are looking for labor-intensive ini-
tiatives. We purposely designed the workplace so that it is, in
many instances, inefficient. Now, there is a very simple way to deal
with that. We could, as the Federal Government, subsidize basi-
cally the prison industry system. I suspect that your members
would probably have a problem with that too.

Mr. Benjamin. Well, it costs us one way or another, Mr. Chair-
man. We cannot get around that. You are either going to pay it out
in more taxes, or lost business.

Mr. Hughes. We have established that — ^you know, that there is
no easy answer.

Ms. Kinter, you indicate in your recommendations a need for a
reform of the waiver process. Frankly, I think you alluded to some
reporting and handling aspects of it. Can you be a little more spe-
cific?

Ms. Kinter. I believe, in the Deloitte & Touche report, and the
handling of waivers has also been addressed by FPI during some
of our work group meetings. There were indications that FPI
should streamline their waiver handling procedures. Also waivers
for, I believe, if the cost is under $1,000, waivers would not be re-
quired for FPI products. If the cost for procurement activity was
under $1,000, then they would have a 30-day turnaround period,
whereby they had to answer the waiver from the procurement offi-
cer. It was more of a streamlining and internal-type operation.

Mr. Hughes. OK. The gentleman from New Mexico.

Mr. Schiff. I thank the Chair. I believe the witnesses were here
during my exchange with the previous panel. At that time I went
to what I trust was the crux of the matter, from their point of
view — and that is a request to document that the main purpose of
Prison Industries, which brings us all here, and which raises some
antagonisms that can be expected, is really justified. They referred
me to some material that I plan to study. So, I hope it is with that
in mind, you understand, that I am looking for the bottom line
from this panel. Specifically, I am looking for what is the basic ob-
jection here — basic problem? Prison Industries sells currently only
to the Federal Government and Federal agencies; is that correct?
We are not putting — we are not opening store fronts that say Pris-
on Industries. OK.

Is there any suggestion that the Federal Government is paying
too high a price for what it purchases from Prison Industries — is
the suggestion that private enterprise could sell cheaper to the
Federal agencies than Prison Industries can sell?

Mr. Benjamin. Yes, sir.

Mr. Schiff. I am sorry I cannot get nods on the record.

Mr. Benjamin. We think one easy way to test it is look for com-
parable purchases in the private sector. Now, you do not have any
good basis to compare that in envelopes because Federal Prison In-
dustries is not manufacturing envelopes yet. Based on the engi-
neering studies that we have done, you are just going to inevitably
have to pay a higher price for the product, simply because you have
more cost push. 12 percent of your cost of producing an envelope
is paper. Now, you can buy it at government rate for that paper,
and you can buy through the GSA, with their appropriate discounts
for the tonnages that they pay, and then you have got machine
costs, and labor costs, and on top of that, a variety of different
costs. All of a sudden you have a price floor that is higher than the
prevailing floor in industry. Because industry has been doing this
for a great number of years, their equipment is older, it is fully de-
preciated, the work force is much more efficient, per se, simply be-
cause they have been doing it longer, so they do have an efficiency
advantage.

Mr. SCHIFF. So, even though Federal Prison Industries does not
pay the prevailing wage, does not pay Social Security, and does not
pay a number of the benefits directly that private industry pays,
you still maintain that private industry can provide these same
products for less?

Mr. Benjamin. Yes, sir. We feel we can.

Ms. Perry. The Department of Defense Inspector Greneral did a
report on cable and wiring harnesses about 2 years ago, which indi-
cated that, in fact, FPI was overcharging for these. We found nu-
merous instances within our industry where a job has actually
gone out for bid, which does not happen too often, where the price
has been higher, and would be willing to provide those for the
record.

Mr. SCHIFF. I would be very much interested in this information.
This is the reason. I am trying to determine whether this panel
representing private enterprise — and I can accept any message, as
long as I am clear on what it is. Is the message we are especially
interested because we think the Federal Government is overpaying,
versus what we can provide, or is the message we think we nave
some inherent right to Federal business, ana we should not have
to compete with Prison Industries, because then, even if it is cheap-
er for the Federal Grovernment, our industry loses a large share of
a valuable market? If I understand you correctly, you are at least
maintaining to me here today that we think no, we think that, of
course, it would benefit our industry. That is a given. You are say-
ing that the Federal Government would benefit — the agencies
would benefit because they would get a product at a cheaper price
if they bought it from private enterprise?

Mr. Benjamin. That is my testimony, sir. I just believe — and
there is an easy way to test it. Just eliminate superpreference for
envelopes, and let the lowest market price, best product prevail.
That is the easy way to test whether or not that works.

Mr. ScHiFF. Well, if you believe that you have the lower market
price now, for the reasons you gave, why is there an issue of what
Federal prisoners are paid or not paid? You are saying you are al-
ready able to undercut the price of prison industries, based on
these

Mr. Benjamin. It is an issue of fairness with those members of
labor organizations that are our members, sir. It is not an issue re-
lated to the economics.

Mr. SCHIFF. OK All right. I see now. Thank you. All right. Well,
then, as I did with the last panel, I would be very interested in ad-
ditional information, because I came to this hearing presupposing
the other. I am presupposing that — and understandably, a valuable
market was being reduced in its access to private enterprise, but
making the basic assumption that the Federal agencies in fact were
paying less than they would pay on the market. If that is not cor-
rect, I would certainly like to see that information.

Ms. Perry. Congressman, the approach of our industry is a little
different, because we feel that prisoners should not be doing work
that should be done by American workers, nor should Prison Indus-
tries be harming American business. This is why we are so intent
on finding other products and other projects for prisoners to be in-
volved in that, here again, will aid the society that they have
harmed, and that will not take jobs away from American workers
or American business.

Mr. SCHIFF. That is the second — that is what I was looking for.
Stated another way, we should have this business, and the Federal
Government should not be supplying itself, is it not?

Ms. Perry. Yes.

Mr. ScHiFF. OK As long as we understand each other, that is
all right.

Ms. Perry. Absolutely.

Mr. SCHIFF. That is all right. That is what I was looking for. I
understand that argument. If there is evidence further that, in
fact, the Federal agencies — to back up, I am not saying that is not
a valid argument. I want to make that clear, Ms. Perry.

Ms. Perry. Well, an example though, on the other side of over-
pricing. Federal Prison Industries, I guess it is 2 years ago, their
sales were $360 million, of which $14 million of that was profit.
Now, when we talk about profit within Federal Prison Industries,
we are talking about tax dollars that came from other agencies. So,
basically, what you have is the Department of Defense, the Depart-
ment of Agriculture, Social Security Administration, actually subsi-
dizing the creation of new Federal prison factories.

Mr. SCHIFF. These same agencies pay a profit, hopefully, to your
members.

Ms. Perry. Not a big one. Not that big, but yes.

Mr. ScHiFF. Let me conclude. I am sorry. Let me make it very
clear what I am looking for. I understand the argument, and it
may be a valid argument that, if we let Prison Industries produce
something, we take away a part of the free enterprise market. I
mean, that is a argument tnat stands by itself one way or the
other. I am looking for evidence, to the extent it exists, of a second
argument that in fact private enterprise, even given the disparity
in now they are organized, can actually provide these good for less
than these agencies are now paving Prison Industries. If that infor-
mation exists, I would be grateml to receive it.

I yield back, Mr. Chairman. Thank you.

Mr. Hughes. Just to pick up on one thing you said, Ms. Perry,
and that is that you, philosophically, have problems basically with

Federal Prison Industries taking any jobs from Americans. You had
three areas that you suggested, recycHng being one of them. Well,
it just so happens that we do have recycling centers.

Ms. Perry. Yes.

Mr. Hughes. Wouldn't they argue that you are taking work away
from them? I mean, those are hard-working Americans, that are
being paid, in many instances, just above minimum wage. Their
hope is that they will capture a larger market, and they can be-
come more efficient. Isn't it a fact that we cannot design a system
that will not have some impact?

Ms. Perry. Well, only 2 percent of the plastic in this country is
being recycled. There is obviously great room for expansion.

Mr. Hughes. Well, part of the problem is that we have not, in
many instances, developed markets for recycled goods. That is part
of our problem. That is a big part of the problem, as a matter of
fact. We do have recycling centers, and there are Americans that
work at those recycling centers. There are entrepreneurs that want
to see that market grow. Do you have any illusion about what they
would say? They would be marching on Washington also, just like
others, telHng us that it is going to impact their potential market
share.

Ms. Perry. The market for recycled plastics right now is huge,
and to the point where companies like Procter & Gamble and John-
son Wax are looking for plastic. They cannot get enough plastic.

Mr. Hughes. The fact of the matter is that there are entre-
preneurs who are trying to get into that market. They would argue,
would they not, the same argument you are making on behalf of
the furniture manufactures? Wouldn't they make the same argu-
ment?

Ms. Perry. Oh, I am sure.

Mr. Hughes. I have no doubt about it.

Ms. Perry. You are talking about a huge market there that is
98 percent imtouched.

Mr. Hughes. I understand your argument there, when you tell
me that furniture basically has unfortunately taken a dispropor-
tionate hit. I understand that. I have no quarrel with that. We
need to do better. When you start to tell me that basically you have
problems with Federal Prison Industries because they take away
jobs from Americans, what you have done is you have eliminated
the universe of products or services we could provide, because you
are invariably going to have some impact.

Now, granted, we could reduce that impact, and make sure that
we look for growth industries, offshore industries where we are not
very competitive, and look for new ways to provide the rehabilita-
tion and the work in the prison industries, but there is going to be
some impact. The only way that I think you could address it per-
haps would be if we just made up our mind that, as a society, we
are going to pay for it. I suspect we will be hearing from you and
your members if we did that, by increasing the amount that we
spend in trying to keep prisoners busy, and providing skills for
them.

I mean, I have some concerns about some of the jobs we are cre-
ating, because the policy that we have created now runs counter,
I think, to trying to create meaningful employment opportunities

when they are on the outside, because we have created labor-inten-
sive jobs, as I have said earHer, in examining the first panel. Often
labor-intensive jobs do not provide the kinds of skills that they are
going to need when they go out and get a job.

Ms. Perry. As an industry that has lost 12 percent of our sales
in the last year, training people to be furniture manufacturers — we
have enough people on the unemployment line right now.

Mr. Hughes. Yes. You will get no argument with me about the
need to take a look at that, and a whole host of other issues. You
have made some good suggestions today. Do not misunderstand
me. Let's continue the dialog. We obviously have a serious problem.
Nobody would seriously want to argue that we need to close down
a prison industry system, because that just invites more problems.
There are problems. All of us, not just ftimiture manufacturers, or
paper manufacturers, or recyclers, that is a problem that we all
have to face.

All right. Well, thank you very much. The panel has been very
helpful to us. We appreciate it. We will continue the dialog to see
if we cannot find a better way to run this system.

We are going to start the third panel. I ask them to come for-
ward at this time. We will try to conclude your testimony. I hope
that you can be as brief as the previous panel. We will perhaps be
able to do that before these votes come.

The final panel today includes Ross Swimmer, Cherokee Nation
Industries; John Zalusky, AFL-CIO; Michael Grotefend, Council of
Prison Locals; and Charles Sullivan, CURE.

Ross Swimmer is the president and chief executive officer of
Cherokee Nation Industries, Inc., a minority-owned business lo-
cated in Stilwell, OK, and a practicing lawyer. Mr. Swimmer has
had an illustrious career, having been the Chief of the Cherokee
Nation from 1975 to 1985, and was appointed as the Assistant Sec-
retary of Indian Affairs in the Department of Interior in 1985.

John Zalusky is the head of the AFL-CIO Office of Wages and
Industrial Relations, Department of Economic Research, and has
worked in that department since 1975. He is an economist by pro-
fession, specializing in wage systems, employee ownership pro-
grams, and protective labor standards laws.

Mike Grotefend has been the president of the Council of Prison
Locals since 1989. He is presently a Bureau of Prisons corrections
officer with the Federal Correctional Institution, Oxford, WI. He
also has worked in a Federal Prison Industries factory. Mike has
testified before the subcommittee on other occasions, and it is good
to have him back.

Charles Sullivan is the codirector of CURE, a nonprofit organiza-
tion that works to support prisoners and prisoner programs in
State and Federal prisons. Mr. Sullivan has worked with CURE for
over 20 years in Texas, and is codirector of the national office since
1986.

We welcome you today. We have your statements. We have read
them. We would like you to summarize so that we can get right to
questions.

Why don't we begin with you, Mr. Swimmer? Welcome.

STATEMENT OF ROSS O. SWIMMER, PRESffiENT AND CHIEF
EXECUTIVE OFFICER, CHEROKEE NATION INDUSTRIES, INC^
STILWELL,OK

Mr. Swimmer, Thank you. I have submitted a statement for the
record, and I appreciate the fact that you have read it. I will try
to summarize briefly.

My name is Ross Swimmer, I am the president of Cherokee Na-
tion Industries, in Stilwell, OK. It is an Indian community, part of
the Cherokee Nation of Oklahoma, the second largest tribe in the
United States. Our company has been in business since 1969. We
started out as a private-sector company working for Western Elec-
tric, RCA, IBM. We, in 1979-1980, moved into military defense
work and became a subcontractor to prime contractors, primarily
the Boeings, the Voughts, the FMC's, Raytheons, and General Dy-
namics of the world. We have been in that market for quite some
time. Our market niche is wiring cable harness assemblies. We also
distribute products to the industry for companies such as Raychem
and others.

We have been impacted by Federal Prison Industries by the in-
ability to get additional work from the different depos. Do you need
to take a break?

Mr. Hughes, I would just suspend for a minute. Go ahead, Mr.
Swimmer.

Mr. Swimmer. OK

Mr. Hughes. I apologize.

Mr. Swimmer. The work we do for the prime contractors is then
turned over to different Army depos to do the spare part replace-
ment and refurbishment worR. We have attempted, in the past, to
obtain some of that work and, as my testimony reflects, we gen-
erally are turned down, because Federal Prisons has a mandate
for — a preference for all of the work. So, we have prisoners doing
the identical work that we are doing.

Our labor market is very similar. We are in a situation where
we have entry level people that we are trying to employ. They do
not have high skills and abilities. Most of them will not have a
high school education. They are started at a little above minimum
wage, and our average direct labor is probably $5.75 to $6 an hour
type work. That is competitive in our particular industry.

We believe that this is a good way of creating jobs in our area.
It allows these people to go to work in very nontechnical areas of
assembly kind of work. It is, unfortunately, the same kind of thing
that is nappening in the prison systems. I guess our concern now
is that, as our company declines, and it somewhat parallels the de-
cline in the defense business, that our attempts to go to military
bases and obtain similar type of work to what we are doing is being
foreclosed.

If I were to make a recommendation it would simply be that —
we have talked about caps and other things — that, sure, a cap on
an industry, but, in addition to that, perhaps a cap on any one
area — any one base, for instance, even though it is $100 million, or
$90 to $100 million business with Federal Prisons, and our indus-
try in wiring cable harness, it absorbs all, 100 percent of the work
that is done at Mycom, Tacom, and the different military bases. It

could be that perhaps there is some kind of a cap on that, so that
at least we get an opportunity at quoting some of that work.

The second thing is — and I have been meeting with the Brook-
ings group, as a representative of our industry, and I understand
that we are not going to solve this problem by saying no. I firmly
believe that there are, as was testified to earlier, there are other
industries that the burden, if you will, could be spread among. I
also think that there may be opportunities for engaging in busi-
ness, whether it is a subcontractor or otherwise, as long as people
understand that small, and particularly, small, disadvantaged busi-
ness are the ones that will take it on the chin more often than not,
because that is where our people get their start, in the unskilled
labor areas, high -intensive labor markets.

So, I think, to the extent that other solutions are looked for, I
have suggested, and would like to continue suggesting that, espe-
cially small businesses be involved as part of the solutions, and
that, if Federal Prisons goes out and does capture a segment of the
market, that it does so in conjunction with small businesses, and
that we share in that Federal marketplace, because it is important
to us.

Thank you.

Mr. Hughes. Thank you, Mr. Swimmer.

[The prepared statement of Mr. Swimmer follows:]

Prepared Statement of Ross 0. Swimmer, President and Chief Executive
Officer, Cherokee Nation Industries, Inc., Stilwell, OK

My name is Ross O. Swimmer. I am President and Chief Executive Officer of
Cherokee Nation Industries, Inc., Stilwell, Okleihoma. Our company was organjjzed
in 1969 by the Cherokee Nation to help provide jobs for people in Adair County,
Oklahoma. At that time, this area of Oklahoma was considered one of the poorest
counties in the United States. We have made progress over the years, although un-
employment in our area is still several percentage points higher than the national
average.

Cherokee Nation Industries employees 230 people. Our primary business is the
manufacture of wire and cable harness assemblies for militaiy prime contractors in-
cluding such companies as FMC, General Dynamics, Loral Vought, Boeing, and
Martin Marietta. Our company has been successful for several reasons, including
support from our sole shareholder, the Cherokee Nation, ability to retain earnings
to finance growth, a dedicated work force, prime contractor support and an abun-
dance of military work.

In addition to our manufacturing arm, we also are a distributor of value added
parts from AMP, Raychem and John Fluke Instruments. Our gross income is di-
vided about three-fourths from manufacturing and one-fourth from distribution.

I am here as a result of this Committee's invitation to testify regarding Federal
Prison Industries (FPI). I also serve as a member of the task force directed by The
Brookings Institution looking into potential expanded activities of FPI.

There is no Question that FPI needs to put prisoners to work in some productive
capacity. It is difficult, however, for me to explain to my work force that they may
have to be layed off because the work they were doing or could do is being set aside
for prisoners. We have many people, mostly women, who put in long hard hours
working at unskilled labor rates trying to support families. Most of these workers
would actually be receiving more resources for support if they did not work, but they
have a strong work ethic and are very proud of what they do. It is a way of life
for them not just a job. They just don't understand why prisoners get the first con-
sideration for jobs they could be doing.

My reaction is to be positive and search for ways to create emplojmaent in the
prisons. I think no one industry should be heavily impacted. All industries should
share the burden of federal prisoners as well as help create job opportunities for

f)eople being released from prison. The federal government purchases oillions of dol-
ars of good^ every year. As of now Prison Industries has focused on electronics, fur-
niture, printing and textiles. Surely these industries have given enough. Food and

beverage, recycling, automotive, modular housing components, hardware, data proc-
essing and other office conmiunications are but a few industries that might provide
job opportunities for prisoners without further impacting the four major industries
now providing jobs.

As you are aware, the military procurement budget is shrinking rapidly. As a re-
sult, our sales of manufactured product reached 25 million dollars with 325 employ-
ees in 1988, and this year we will sell 12 million dollars of products using 230 em-
ployees. To maintain our capability and provide employment, we recently elected to
seek direct federal work (as distinguished from subcontracting from a prime contrac-
tor). We are now certified as an SBA 8(a) contractor and should be able to secure
work being out-sourced from military procurement centers.

The following is a sample of the kind of responses we have received as our mar-
keting people visited the supply centers: at the Defense General Supply Center,
Richmond, VA, " — we do buy cables, but UNICOR (FPI) gets first chance at all bids
that are considered competitive." At U.S. Army Communications and Electronics
Command, Ft. Monmouth, NJ., " — few buys here, Federal Prisons must give us a
waiver before we can go out competitive." They were not at all interested in talking
about the 8(a) program; at the U.S. Army Armament, Munitions and Chemical Com-
mand, Rock Island, IL, the conunent was, " — anything that has been set aside for
Small Business in the past will not be set aside for 8(a). Federal Prisons gets first
shot at everything, it's the law"; at the U.S. Army Aviation Systems Command, St.
Louis, MO, 'federal Prisons gets first crack at all competitive bids." Approximately
25 government purchasing agencies have been contacted by our internal marketing
people. All have cautioned that the amount of business that a cable and wiring har-
ness company can expect to receive is limited, because of the law requiring them
to go to Federal Prisons first.

m other words, the very same cables we build for our prime contractors to go on
tanks, trucks, rockets, etc., are also being built for army depots for spare parts and
replacements but we don't have much of a chance to do this work. I am concerned
that small, disadvantaged, minority owned and operated businesses are going to fail
if this maiket gets any more saturated by FPI.

To help mitigate the problem of losing work to FPI, we decided to help support
their effort by oeing a value added supplier of parts. If FPI were to manufacture
the harnesses, they still needed wire, contacts and connectors. We have people now
assembling connectors and packaging shrink sleeving for FPI. These total sales to
Unicor in 1991 were $288,351. Our sales dropped in 1992 to $118,968. The reason
we have been given for this 50% drop in distrioution was the consolidation of Unicor
purchasing activity in Washington, D.C. We will be meeting with Unicor ofiicials to
determine their needs and hopefully do more business with them this year. This is
an example of FPI and small businesses woiking together and we hope FPI will con-
tinue usmg small business suppliers. As for new business opportunities for Unicor
(FPI), I would not oppose expansion, even in our industry, as long as it is not exclu-
sive. I also suggest that a umited percentage of any worit be allowed to FPI and
any greater percentage be allowed only if small busmess is included in part of the
work, either as a subcontractor or supplier to FPI. In other words, if FPI is going
to manufacture our cables, at least require FPI to seek out small business suppliers
for their parts and supplies. We do employ 23 people in our distributorship and we
would like to be considered for this kina of business.

I recognize the problem faced by FPI and the rest of society. We all must work
together to reach a solution, but we must be careful so that no one industry is im-
pacted too greatly by the solution. We at Cherokee Nation Industries will continue
to work with PTPI to find solutions and I certainly welcome the attention of this
Committee on this problem.

Mr. Hughes. Mr. Sullivan.

STATEMENT OF CHARLES SULLIVAN, NATIONAL DIRECTOR,
CITIZENS UNITED FOR REHABILITATION OF ERRANTS (CURE)

Mr. Sullivan. Mr. Chairman, I would like to say I have submit-
ted my statement. I will just briefly summarize.

I think, first of all, that we are really talking about apples and
oranges in today's hearing. We are talkin^j about the present sys-
tem of UNICOR, and then we are talkmg about Congressman
Wolfs bill, or the idea of a radical new solution. When I say radi-
cal, I am talking about to the very roots of what UNICOR should

move into — ^that is to bring businesses behind the walls — to make
the small businesses part of the action. So, I would like to talk
about UNICOR as it now stands, and certainly there are some very
very good things in regard to UNICOR, and in regard to providing
real work to prisoners, but where we feel that UNICOR is weak is
in real jobs. We feel that people are not being plugged into the em-
ployable skills that are out there. In other words, there has got to
be employment counselors, on the road, et cetera, from those re-
gional offices that UNICOR has. Also, I think that we ought to look
at the precedent that we have with Affirmative action that perhaps
even people as high as President Clinton could approach major cor-
porations and say we want so many slots for our topnotch UNICOR
people. I think we ought to begin the first 6 months that a person
is released. That is where UNICOR should be plugging that person
into a very very good job. Most of them come out in dead-end jobs.

Now, in regard to the other side — in regard to the Wolf bill of
prison-based business, we would certainly support a minimum
wage. We feel very strongly that prisoners should pay appropriate
expenses, room and board, et cetera. However, I would like to say
when a person leaves prison, for the work that they have done in
prison — ^now, this is work that they should be paid for, they should
have in their account, $5,000 in today's world. If they do not have
a family, and if they are released here in Washington, DC, $5,000
is not a lot of money for them to make it. Most of the places today,
if you look at the list — the directory where prisoners are being re-
leased, they are homeless shelters. So, if we are talking about
somebody finding a good job, having the proper clothes to go in and
apply, and then having all of the things against him in their re-
sume. $5,000 is not a lot of money. That payment could be
stretched out over a 6-month period for finding employment.

Second, let me just say too, that just like small business should
be going behind the walls, I think the unions also should be going
behind the walls.

Mr. Hughes. You do not mean that literally?

[Laughter.]

Mr. Sullivan. I am talking about organizing the prisons. If you
look at the roots of the unions, getting to the grassroots people is
their mandate. I am talking about associate memberships. I realize
they cannot get involved in strikes, but, right now, within the
unions, there are associate memberships, where you actually re-
ceive basic information. In other words, get the unions as part of
the action, just like the small businesses as part of the action.

Let me say too, I think there is still resistance, maybe not in the
central office of the Federal Bureau of Prisons, but out there with
the wardens. There is still resistance to people who are not on their
payroll. In other words, the private sector and add the union going
in there, behind the walls, then the wardens are going to be very
reluctant to accept Wolfs bill. So, I think that has not been
brought out. However, I think, if everybody gives a little on this,
I think we can form a coalition where everybody is part of the ac-
tion and is able to basically support Frank Wolfs bill.

Mr. Hughes. OK. Thank you very much.

[The prepared statement of Mr. Sullivan follows:]

Prepared Statement of Charles Sullivan, National Director, Citizens
United for Rehabilitation of Errants (CURE)

grading unicor rehabilitation & prison-based businesses

As a organization committed to rehabilitation, I would like to focus my remarks
on the present UNICOR operation and then suggest a radical new direction for
UNICOR.

Rehabilitation Equals the Three Rs

UNICOR states that "its primary mission is to train educate and employ inmates"
or "the productive employment of inmates." In other words, rehabilitation.

In my opinion, whether prisoners are being rehabilitated or not depends on three
elements — real work, and real wages that lead to real jobs when they are released.

Real Work

Of these three elements, "real work" seems to be UNICOR's best effort. However,
prisoners could be working in more relevant occupations. For example, although I
applaud UNICOR for expanding into services, they are still in the pre-information
era. Perhaps, a faster pace for service expansion would happen if the name "Federal
Prison Industries" was changed to "Federal Prison Industries and Services".

Also, research on the "free world" jobs of the future must become a top priority
with UNICOR. Where will the new jobs be in the year 2000? For example, because
of the aging "baby-boomers", UNICOR should be preparing prisoners to enter the
health-care field where thousands of new jobs are being created.

Perhaps UNICOR is doing this and, as I mentioned, the quality of their inmate
work is somewhat impressive.

And UNICOR is certainly way ahead of other prison systems' work programs.
CURE stfirted in Texas and for years, we criticized the Texas prison system for hav-
ing its prisoners pick cotton and justifjdng this as rehabilitative because they
learned good work habits.

As to quantity or number, one-third of federal prisoners participating in UNICOR
is impressive too. However, why are not the other two-thirds of the prisoners in-
volved in UNICOR?

Real Wages

In order for rehabilitation to be successful, there must a perception by the pris-
oner that "the system" is fair. When prisoners are paid "slave-like wages, they can-
not help but see the system as exploitive.

Also, real wages given to inmates by UNICOR will prepare them for the real
world.

Finally, although CURE is not adverse to prisoners paying appropriate expenses
with these real wages, there must be a "safety net" of funds in tne prisoner's bank
account when he or she is released from prison. In today's world, I would
unequivocably state that this, at a minimum, should be $5,000.

Real Jobs

Besides this most important rehabilitative tool of adec|uate "gate" or release
money, there must be a real job immediately awaiting the prisoner.

As I stated earlier, we criticized the Texas prison system. However, I find myself
more and more agreeing with one of its well-known directors, the late Dr. Geoi^e
Beto, that the most important time to reduce the possibility of recidivism is the first
six months after a prisoner is released.

Of the three Rs of real work, real wages and real jobs, UNICOR has neglected
by far this final '^" of real jobs in the free world for its "graduates".

A few weeks ago, we had a former prisoner walk into our office who had served
14 years in the Federal Prison System. Most of this time, he had worked in
UNICOR. Also, due to Pell Grants (thank God, most prisoners can still apply for
them!), this particular prisoner had acquired an undergraduate degree and had
begun work on a Masters. And yet, the only work he could find was minimum wage
in a "deadend" job.

Why couldn't UNICOR at its regional offices have employment specialists con-
stantly "on the road" finding good jobs for its workers? This is even more a necessity
as we phase out parole on the feaeral level and parole officers are no longer there
to assist in finding employment.

Also, why couloui't prison oflicials and other leaders in the executive branch in-
cluding President Clinton lobby major corporations to set aside job slots for top-
notch UNICOR workers such as my ex-prisoner friend?

Initially, these corporate leaders might think the public would not support the
hiring of ex-prisoners. However, I believe, if the issue is framed correctly, that the
public wouW support this corporation "for doing something about reducing crime".

Prison-based Businesses

The corporate model for hiring ex-prisoners is Best Western Hotels and Motels
which has "success stories" of former inmates being promoted numerous times. How-
ever, Best Western hired these individuals while they were prisoners and I would
like to conclude my testimony with a strong suggestion that UNICOR actively re-
cruit (e.g. through tax and grant incentives) the private sector to set up "behind the
walls".

House Bill 703 by Wolf has been introduced and it would have only those U.S,
businesses qualify to hire prisoners that now produce goods offshore. Also, union op-
position should be lessened because this wUl bring jobs back to this country.

Finally, by giving business "a piece of the action", everybody wins! This, by the
way, includes unions who could condition their support for these prison-based busi-
nesses by prisoner workers becoming eissociate union members.

In summary, if the primary purpose of UNICOR is to rehabilitate prisoners, there
is no better way than through prison-based businesses.

In fact, m conclude my testimony with a statement from Fred Braun who has
operated two successful prison-based businesses. Seriously more than facetiously, he
says that "if we really want to punish these prisoners, we should make them tax-
payers!"

Mr. Hughes. Mr. Zalusky, before we take you into custody, we
are going to recess for about half an hour. We are going to have
to do it. We will come back.

We will recess for a half hour. I apologize for this delay, but we
have a series of votes. It is going to take some time before we finish
up. So, we will stand in recess for about a half hour.

[Recess.]

Mr. Hughes. The subcommittee will come to order. I, again,
apologize for the interruption. We have apparently another window
of maybe a half an hour or so. So, we can proceed.

Mr. Zalusky, welcome.

STATEMENT OF JOHN L. ZALUSKY, ECONOMIST, ON BEHALF
OF THE AMERICAN FEDERATION OF LABOR AND CONGRESS
OF INDUSTRIAL ORGANIZATIONS (AFI^-CIO), AND HEAD OF
THE OFFICE OF WAGES AND INDUSTRIAL RELATIONS, ECO-
NOMIC RESEARCH DEPARTMENT, AFL-CIO

Mr. Zalusky. Thank you very much, Mr. Chairman. We appre-
ciate the opportunity of being here.

I have been interested in the issue of prison labor since the mid-
1970's. Of course, the AFL-CIO has been concerned about this
since 1881, 110 years.

We in the AFL-CIO do not oppose convict labor. We see it as a
useful device for controlling prisoners. We, secondly, see it as a
useful way of rehabilitation. However, we do not always see it
working that way. That is one of our problems with it.

We are also very concerned when the public asks the poorest of
the free labor force to pay the price for all of society's, through the
use of convict labor. As an economist, there are all kinds of dif-
ferent ways that one could calculate what a private sector job is
worth. I used the employment cost index, and came up with a
value of about $45,000 for each job that we lose on the outside, that
is taken by a convict.

That brings me to another point. We in the labor movement do
not address the job losses in terms of large numbers and statistics.

Forty-five thousand people being employed as convicts is a rather
meaningless observation to us. We have to represent Susan who
lost her job outside of Boston because Westinghouse closed down a
wire cord set operation. We represent the printers who are out of
work in Washington, DC. I have seen these jobs being done today
in UNICOR at FCI Petersburg, a Virginia prison. There are unem-
ployed people in the free labor force who would like the jobs per-
formed by convicts right now.

I would like to make an additional point on this unemployment
question. If one loses a job in many other walks of life, particularly
if it is due to foreign competition, those who are out of work can
get trade adjustment assistance. A worker who loses a job because
of convict labor gets nothing.

I have heard and seen a lot of attention focused on private small
business interests, as though partnerships with prisons, and using
prisoners, and subcontracting is somehow going to help out small
businesses. However, that is not going to do a dam thing for the
free laborer who lost a job on the outside.

We would like to see prisoners paid prevailing wages, not the
minimum wage. We ask this for two reasons. We think it makes
convicts a little bit less competitive, and we think it makes society
aware of what it is costing to employ convict labor. Second, we
think that paying people 23 cents an hour to a dollar an hour, is
an absurd proposition that sends exactly the wrong message to a
convict who is going to get out. It teaches them that work is ex-
ploitative, not that it is rehabilitative or that it is productive.

We also suggest that wages being paid to convicts be used to
teach — ^that is that they pay the price for what they have done
from those wages by paying taxes, pay a fair share for their keep,
pay into a victim restitution fund, pay child care payments, if ap-
propriate, and assist in the support of their dependents on public
assistance and so on. In short, pay the costs that others pay. That
is the way they will learn what work is all about.

There should also be enough money left over so there is a reward
for the better worker, and a lesser reward for the less active work-
er. These should be meaningful, as I said in our prepared state-
ment— a very meaningful reward system.

Labor has not had an effective voice in the UNICOR system nor
has been on the Board of Directors for some time now.

Even so, we think there is a better way of running UNICOR than
what we have seen so far.

We have in UNICOR an activity — an enterprise that is not really
a business, but tries to pretend it is a business. And it does so in
a very autocratic way. I will give you an example. It is not
UNICOR, but it is a prison industry for self-use activity in the
State of Washington. The only major employer in the city of Olym-
pia, WA, is the government. The State has had serious need to re-
move asbestos from government buildings. The prison administra-
tors had people they wanted to train and people they wanted to
employ, and who had to be employed on government projects. The
building trades wanted to get on with the rehab work of those
buildings, but the State did not have the money. They worked it
out together. The convicts are roughly one-third of the work force
and free labor two-thirds. The contractors are private sector con-

tractors doing the work, and iinion members are training the con-
victs so they can get good jobs when they come out. That I think
is an example of a better way of deaHng with the prison industry
problem. That is working it out at the point of impact. We have
seen it work elsewhere.

So, if you make the people at the iob site a partner, or a part
of the process, I think it is manageable. If it comes down as a sur-
prise it is a much larger problem. If free workers suddenly learn
they are going to lose their job because a convict will be doing the
work, there is going to be anger.

We do not want to see any prisoner competition in the private
sector — ^not a partnership, and not an activity competing with the
free market in another country, or anything of the kind. We find
that to be a very badly advised idea for a variety of reasons.

Mr. Hughes. Why don't you furnish it to usf Why don't you tell
us why?

Mr. Zalusky. ok

Mr. Hughes. You want a prevailing wage, but you do not want
competition. Tell us why.

Mr. Zalusky. Well, we do not want to have convicts competing
with the overseas countries because we do not know what the reac-
tions are going to be. If we start using convicts to take back the
product market they won fair and square other nations are bound
to react. Let's suppose, for example, that we decide to use convicts
to produce electronics, VCR's, in Petersburg Prison. We do that be-
cause we believe the work has already gone to Mexico. Suddenly
that VCR is produced by convict labor in the K-Mart store. I sug-
gest to you that the "60-Minutes" show that appeared with regard
to the work going to El Salvador, and then being sold at K-Mart
would be just about the same. To our members who lost their jobs
with Zenith in Missouri I would react in the same way as the cloth-
ing workers in Tennessee. It would not make very much difference
whether it was clothing being produced in El Salvador, or it is a
VCR. They lost their job ana someone else has the work. In this
case it would be the convict who is doing it in Petersburg, VA; Fed-
eral prison paid 23 cents an hour. They would be bloody smgry
about it, and it would be unfair competition for them.

I think the other part of the problem is that these other coun-
tries feel that they have won this market fair and square, without
any form of subsidies or anything else. They did it in their own
economies. We retaliated against the French when they subsidize
their food oils. My hunch is that they might retaliate against us for
subsidizing our own markets with convict labor. And they would do
so by perhaps limiting the import of our automobiles or something
of that kind, or retaliate in kind by using convicts to compete with
our goods.

I think before Congress considers opening the can of worms, it
should discuss this with, not only our U.S. Trade Representatives,
but certainly the trade attaches from the other embassies, and
probably some trade union people from other countries. I think vou
will get an idea of what kind of a reaction you would get if they
were competing with the United States.

It is exactly the same sort of problem we raised with China. We
bar imports of convict made goods into the United States. Granted,

it is not well-enforced, but we do bar it. The bar is found in the
Trade Act of 1930. To say to other institutions you cannot import
your convict-made goods in here, but we can compete against your
free-made goods at K-Mart, is simply a wrong-headed idea.

I think I would like to conclude with just making the observation
that we do support the idea of some contract \ahoT being used. I
think it should be minimal and it should be in the context of reha-
bilitation. But even this has limitations. I have seen convicts work-
ing on UNICOR projects who have no prospect of ever getting out
of prison. That is not rehabilitation it is control. I think convict
labor should be used parsimoniously, where there is a rehabilita-
tive aspect to it, and additionally, where it is a meaningful element
of control.

As we deal with the convict labor issue, I feel like we are at that
Mississippi Delta, watching all of the stuff flowing down on us. I
think, as a society, we need to take a much harder look at where
this trouble is coming in and try to find ways of preventing people
from going to jail in the first place.

I think — and I am sure the AFL-CIO supports a much broader
view of the whole issue of the incarceration. The number of people
we are putting into jail today, I have heard described, is increasing
at seven times our population growth rate, and that at this rate,
by the year 2020, we will have more people incarcerated than we
have on the outside. I think that this serious problem needs much
more attention at the source. What are we doing to bring so many
people in?

I thank you, Congressman.

Mr. Hughes. Thank you very much.

[The prepared statement of Mr. Zalusky follows:]

Prepared Statement of John L. Zalusky, Economist, on Behalf of the Amer-
ican Federation of Labor and Congress of Industrial Organizations (AFL-
CIO), AND Head of the Office of Wages and Industrial Relations, Economic
Research Department, AFL-CIO

Mr. Chairman, the AFL-CIO appreciates this opportunity to testify on our sup-
port, problems and concerns with UNICOR — Federal Prisons Industries.

At the outset we want to make it clear that the AFL-CIO does not opoose the
employment of convicts, be they held in federal, state or local institutions. We sup-

Eort the concept of rehabilitation through paid work. However, free labor should not
e expected to give up their jobs directly or indirectly so convicts can woric.
There are now 16.4 million free Americans who need iobs, 8.9 million unemployed,
another 6.4 million working part time and wanting lull time work, and another 1.1
million workers so discouraged they have stopped looking for woik. The private sec-
tor needs jobs. Each free worker without a joo, because of convict labor, costs the
United States economy conservatively $45,000 ^ per year in lost production, and in-
creased public siipport costs. When Congress considers the expansion of convict
labor as a cost enective means of prisoner rehabilitation and control, it must also
consider the cost of jobs lost in the private sector. However, the AFL-CIO carries
the concern about job loss a step further.

The AFL-CIO is charged with representing eadi worker who has lost a job: it
may be a woman who lost her job in a Westin^ouse plant that made cord sets, or
the apprentice printer who is out of woik in Washington. I have seen this work per-

^Hoivly private sector goods producing blue collar workers receive total compensatim of
$17.22/hr, or $35,818/^year aasunung a 40 week. [Bureau of Labor Statistics, Employer Costs fin-
Employee Compensation, March 1£^2, Table 9]. When these workers are no longer working the
community loses the circulation of their income and they shift from income producers to public
assistance users. A conservative estimate of a private sector job lost to a convict would be in
the area of $45,000 per year.

formed in UNICOR and I know there are unemployed union members in the free
maritet who would like the jobs.

To the AFL-CIO, the fact and argument that UNICOR employed only 14,400 con-
victs in 1991 and expects to employ only 24,000 convicts by 1999 is sophism. We
must represent the interests of each member whose job is at risk, not statistics. We
are also aware the UNICOR is a small part of prison labor, there are convicts on
loan to other a^ncies, and there is also other non-UNICOR work performed. Addi-
tionally, UNICOR activity is often emulated by state and local institutions, and they
have hundreds of thousands of inmates to employ.

The AFL-CIO hears frequently from our affiliated unions whose members are at
risk because of prison labor. They describe work they could have had if it had not
been given to convicts, and they describe jobs actually lost. When this happens there
is too little done to help the displaced worker. There are no extended unemployment
benefits, relocation benefits and retraining benefits. When a convict takes a free
workers job, the free worker has to pay a very big price for 80ciet)r'8 failures, and
it's not fair.

Nevertheless, the AFL-CIO supports the concept that some convicts should be
employed and we offer the following suggestions and comments:

UNICOR is only one cost effective way of using a convict's time. The AFL-CIO
is interested in woricing with the Federal Bureau of Prisons, UNICOR, and other
organizations looking for other effective ways of inmate control, and rehabilitation.

PAT PREVAIUNG WAGES

When convicts work they should be paid the prevailing wage for similar work on
the outside. This is important beyond the obvious labor market considerations. Fair
wages are an important part of learning a work ethic. If woric in prison is to be
rehabilitative, rather than exploitative, tnen convicts should experience the real re-
wards and responsibilities of work. Basic to work is a fair wage. The non-UNICOR
prison wages paid now are absurd — only 11 to 23 cents per hour. No wonder
UNICOR 18 cost effective and prisoners are on a waiting list for UNICOR jobs.
UNICOR pays higher wages than other convict labor in non-UNICOR operations but
they are still serf wages. UNICOR wages start at 23 cents per hour with 4 grades
to a top wage of $1.10 per hour.

Real free maiicet wages for like work should be paid to prison labor. From these
wa^s, convicts should pay what other workers have to pay: taxes, a fair charge for
their keep, pay into a victim restitution fund, child care payments if appropriate,
assist with tne support of dependents on public assistance ana so on. The remaining
money should be available to the worker as a reward for hard work. There could
be a mandatory savings plan usable for gate money as convicts leave prison to rejoin
the free labor force. However it is worked out, the convict should receive a realistic
monetary reward for work, not slave wages.

One of the often stated purposes of UNICOR and other prison industry programs
is to provide a work experience for convicts to aid in rehabilitation. Paying ridicu-
lously low wages sends precisely the wrong message.

UNION ROLE

Labor must have an effective and direct influence on what kinds of work convicts
do. This should take place in two ways, on the UNICOR Board of Directors, and
in a direct relationship at the point of work impact, the place where prison labor
affects free labor. If you have this labor and business input the employment of con-
victs should take place with Uttle or no adverse impact.

For example UNICOR, at the Petersburg Virginia Correctional Facility, is repair-
ing explosion proof doors and fork trucks from U.S. Navy ships. The UNICOR rep-
resentative at Petersburg told me that they had a working relationship with the
management and the umons at these shipyards concerning the woik the convicts
would do. Although the shipyard union representatives I tsiLked with knew nothing
of this arrangement, I believe it has merit.

This approach is now going to be used where convicts are employed outside
UNICOR, with the Veterans Administration and on the Park Service properties.
The intention is that UNICOR and the agency that will be using the convicts will
work out arrangements with the on-site local union. This kind of relationship should
operate to avoid or at least, to minimize any adverse job effects. The point is to
make sure there is a regular procedure for woricing together at the level and place
where any adverse impact is likely to occur.

This approach has worked at the level of the UNICOR Board of Directors. In
1952, when William Green, President of the American Federation of Labor, served

on the Board of Directors of UNICOR, a serious loss of jobs in the shoe industiy
was averted when UNICOR modified its production of Navy shoe lasts.

As we testily today, and for a number of years, the Labor seat on the Board of
Directors of UNICOR has not been filled, althou^ the President of the AFL-CIO
has suggested names on several occasions.

UNICOR AUTHORITY

UNICOR and its Board of Directors now decide, with input from interested par-
ties, on new product lines, and federal market penetration. There are better ways
of reaching decisions, decisions more likely to be shared by the interested parties.
The way it stands UNICOR has too much unilateral power.

The AFL-CIO recommends and has suggested an approach similar to the medi-
ated regulation procedure provided for in the Negotiated Rulemaking Act of 1990.
Using a third ptirty to help all the interested parties reach a decision on the prod-
ucts and market penetration of UNICOR is not very business like, but UNICOR is
not the usual business and an autocratic decision is bound to be objectionable.

PRISONER COMPETITION

The AFL-CIO's position is that Federal Prison Industries must not compete in the
free market. UNICOR is, in fact, a government owned slave labor force^ that does
not pay market wages and benefits, nor does it pay the normal operating costs of
other businesses. It would be exceedingly unfair to have UNICOR competing with
private business and free labor in the private sector.

When the A.F. of L. was formed, prison labor was used in the private sector to
replace the slave work force lost when the slaves were freed. The founding conven-
tion of the American Federation of Labor in 1881 issued the statement describing
convict labor as "a species of slavery, degrading to the criminal, demoralizing to the
honest manufacturer, and causing paupers of free labor." The phrase "a species of
slavery," stems from the fact that the Thirteenth Amendment to the Constitution
ememcipated all slaves except convicts.

Over the next 50 years and after many scandals, an understanding evolved to the
effect that prison labor would be used only for government needs, the "self-use" con-
cept. It was and is a fair compromise between the government's need to work con-
victs as a cost effective means of prisoner control and rehabilitation, within a free
maiicet economy. But there is more to this than historical perspective.

ITie AFL-CIO is again reliving the scandals of the past with the private sector's
use of convict labor. Although this experience is not UNICOR behavior, it is instruc-
tive. AdditionaUy, it has all occurred under the Justice Department's, Bureau of
Justice Assistance, certification of state programs, and was later white washed by
the Department of Labor in its report to Congress under the Crime Control Act of
1990 (see attached letter to TTiomas S, Foley, Speaker of the House, dated August
13, 1991.)

Under these private sector federally certified state programs, convicts have been
used for strike breaking,^ taking work while free labor is being laid off,* and simple
low wage competition."^ There have been many direct violations of the State Prison
Industry Enhancement (PIE) certification programs. Low wage competition and
causing workers to be laid off are direct violations. Although complaints were filed,
not one state lost its certification, and Congp^ss increased state programs. The
AFL-CIO finds this sufficient experience to justify opposition to any new private
sector expansion of Federal Prison Industries.

2 Constitution of the United States of America, Amendment 13, Section 1. Slavery prohibited.
Neither slaveiy nor involuntary servitude, except as a Punishment for crime whereof the party
shall have been duly convicted, shall exist within the United States, or any place subject to their
jurisdiction.

'When the TWA flight attendants were on strike, non-union reservation clerks replaced the
attendants, and they in turn were replaced by increasing the number of convict reservation
clerks employed through the California Youth Correction Authority.

*In 1991 when AT&T was laying off telephone operators it contracted with Unibase to do tele-
phone solicitations who in turn contracted with the Colorado State Arkansas Valley Correctional
Facility to make telephone solicitations. The State was paid $1,000 per month for the use of
its facilities and the convicts averaged $2.00 per day.

"TWA continues competing in the same airline nuirkets and labor markets as Northwest Air-
lines using 64 prisoners in the California Youth Authority. The prisoners are paid $4.82 per
hour while the reservation clerks at Northwest are paid a starting wage of $10.02 and a top
$17.10 per hour excluding shift and other wage differentials and fringe benefits.

NO ALTERNATIVE TO "OFFSHORE WORK"

A UNICOR "oJTshore initiative" is recommended in the "Independent Market
Study of UNICOR— Federal Prison Industries, Inc" by the Deloitte & louche. The
AFL-CIO opposes this recommendation to use convicts in the free market producing
goods lost to over seas competitors. It is an unfair and risky suggestion.

It is risky because it invites an adverse reaction by other countries. That reaction
could result in job losses totally unrelated to the work done by convicts. If Congress
considers any further investigation of this suggestion it should include the views of
the governments and their labor representatives with which the U.S. trades.

One reason this wiU be seen as unfair by other countries is because the U.S.
Trade Act of 1930 bans imports of goods made by convict or forced or indentured
labor into the United States.® Thus, the use of convicts to compete with the goods
other countries import into the U.S. is likely to be seen as hypocritical, an unfair
trade practice.

The AFL-CIO is convinced the U.S. took the correct stand with regard to the Peo-
ple's Republic of China over its use of convict labor. Those successful negotiations
would be much more complex and much less likely to have been successful if the
U.S. were competing with Chinese imports using convict labor.

The AFL-CIO wants the United States to set the best example in the world on
human rights standards. The use of convict labor as a pawn in international trade
puts this standing in jeopardy. The U.S. may well be challenged by other nations
on the use of convict labor under the International Labor Organization's Conven-
tions 29, £md 105, and Recommendations 35 and 136. These are the international
standards on forced labor and in a global economy the U.S. will be judged by world
standards not our own.''

In conclusion, the AFL-CIO sees the need for some prison labor primarily for con-
trol and rehabilitation, and we see UNICOR as one approach. But, some of its poli-
cies and approaches are not the best answers. Many of the suggestions for expan-
sion are myopic. Solutions must be found that do not put free labor at risk.

We don't want prison labor competing with free labor in the private sector. The
offshore initiative is just plain wrong. And, we want all interested parties, including
particularly unions, to have a voice in the determination of government market
share of any product or service.

As a nation we must come to grips with why we are sending so many citizens
to prison. We cannot afford the growth in the prison population, and the recidivism.
The AFL-CIO wants to help with convict training and retraining where appropriate,
but we can not help if our members are threatened with the loss of their jobs to
convicts.

'"A]] goods, wares, and merchandise mined, produced or manufactured wholly or in part in
any foreign county by convict labor or/and forced or/and indentured labor under penal sanctions
shall not be entitled to entry at any of the ports of the United States, ..." (19 USCS 1307).

^International Labour Conventions and Recommendations, 1919-1981, International Labour
Organization, Geneva, 1982. The relevant Conventions and Recommendations are: Convention
No. 29 — Forced Labor or Compulsory Labour, Convention No. 105 — The Abolition of Forced
Labour; Recommendation No. 35^Indirect Compulsion To Labour, Reconunendation No. 136^
Special Youth Employment and Training Schemes for Develc^ment Purposes.

90
American Federation of Labor and Congress of Industrial Organizations

nwvnvi oouNOL

•IS 8l«J«Mh 8tr^tJ||.W. yjK, lowuutO mwOCNT THOMAS R. OONAMUI i£CI«T*KY.TI«l*«WW»

/fMilt^mj\X\ (202)637.8000 «*"•-«» Immt i

August 13, 1991

The Hoiiorable Thomas S. Foley
Sptakcr of the Houac
Hoiu* of Reprcscntativt*
Washingtoa D.C 20515

Dear Mr. Speakcn

This letter is in regard to the report of the Secretary of Labor to ttte U.S. Congress
on Compliance by the State Prison Industries Enhancement Projects with Section 1761(c)
of Title 18 of the U.S. Code as required by Sec. 2908 of the Crime Control Act of 1990.
The report to Congress is not responsive to the clear instruction of the law and wrongly
certifies compliance with the 1990 Crime Control Act

Section 2908 of the Crime Control Act of 1990 (Public Law 101-647: 104 Stat. 4915)
requires that the Secretary of Labor "describe in detail the extent and manner of
compliance by state Prison Industry Enhancement Certification programs with the
requiremenU set forth in 18 USC 1761(c). Title 18 USC 1761(c) requires that convict
labor "receive wages at a rate which is not less than that paid for work of a similar
nature in the locality . . .'

This report to Congress does not study compliance. Rather, the Department of
Labor (DOL) simply asked Bureau of Justice Assistance (BJA) what it was doing and
restated what it said. If this had been what Congress had wanted, it did not need E)OL
It is this kind of regulatory oversight that produces scandals.

This report wrongly states in its conclusions that "Based upon an examination of
the data provided to the Department of Labor from the Bureau of Justice Assistance
(BJA), Private Sector/Prison Industry Enhancement Certification Program as
administered by BJA, has developed adequate mechanisms to promote satisfactory
compliance with the statutory requirements of Title 18 USC 1761(c) as amended by the
Crime Control Act of 1990 (Public Law 101.647)." There could not have been an
"examination of the data provided" by DOL by anyone who knew anything about
prevailing wages. There should have been a compliance review. The prevailing wage
concept is the basis of Title 18 USC 1761(c).

Since 1984 the AFIXHO has been making the point that the Bureau of Prisons has
not enforced the prevailing v.age part of the law. In recent years, we have stressed the
example of convicts in California being used as low wage TWA reservation clerks and
strike breakers on a number of occasiorts. Yet, we find in attachment 5 at page 5 of the
report, the inclusion of California Department of Youth Authority, Traru World Airlines
project

The convicts employed In this project are paid $5.67 per hour in 1990, accordirtg
to this DOL/6JA report This wage is half the natiozul prevailing wage for similar
work according to ^e DOL's own BLS study of wages in the airline industry a year
earlier (Industry Wage Survey. Certificated Air Carriers, January 1989, U.S. Department
of Labor, Bureau of Labor Statistics, March 1990, Bulletin 2356). BLS reported the
national average for reservation clerks was $444 per week or $11 per hour. Moveover,
the union represented reservation clerks at Northwest Airlines earn over $18.00 per hour
in the local southern California labor market Northwest Airlines competes in some of
the same national and international nuzkets.

The law requires that convict labor receive wages not less than that paid for
similar work in the locality. This well known example violates this law.

The above is one obvious and egregious example, but there are others that we
have identified in the past. However, this one obvious example shows that the State
Prison Industry Enhancement Programs do not comply with the prevailing wage
requirements of the law.

What is more, it shows that the Department of Labor has falsely stated to
Congress that the Prison Industry Enhancement Certification programs complies with
the requirements set forth in Title 18 USC 1761(c).

Sincerely,

of the Office of Wages
and Industrial Relations
Economic Research Department

JLZ/pf
opeiu#2,afl<io

Mr. Hughes. Mr. Grotefend.

STATEMENT OF MICHAEL GROTEFEND, PRESIDENT, COUNCIL
OF PRISON LOCALS, AMERICAN FEDERATION OF GOVERN-
MENT EMPLOYEES (AFLr^IO)

Mr. Grotefend. Thank you, sir. In the interest of time, I will
also summarize, I would like to bring some thingfs — and, again, I
think it is redundant on some of the parts we have heard, with the
necessity of Federal Prison Industries. As president of the AFL-
CIO, American Federation of Government Employees, the Council
of Prison Locals, it is my job to represent the interests of the
19,000 working men and women who every day serve their country
and fellow citizens by ensuring that those persons whom society be-
lieves need to be separated from the rest and maintained in penal
institutions, in a manner consistent with laws of the Constitution.

As mentioned earlier, I am a line officer for the Bureau of Pris-
ons, and I have been assigned to Oxford, WI, to a Federal correc-
tional institution. I have also worked in UNICOR as a warehouse
supervisor at the factory there at Oxford. So, I do feel, at least one
on the panel — I have had inside experience.

I do appreciate very much this opportunity to bring to you some
of the positions of our 19,000 members, in respect to this Federal
Prison Industries program.

My first and foremost concern is for the health and safety of our
prison workers, which I believe is also the obligation of the Attor-
ney General, as well as this Congress. I think it has been said
enough. We all know that — without contradiction. I am sure I can
say that without FPI, our prisons would be unmanageable, and we
would have to resort to the use of forces and procedures which I
think really would be unconstitutional. Resulting mayhem occurs,
and prison riots, always — and I am going to emphasize the word
"always" — results in death or injury, or sometimes both. We are the
object of the rage that becomes pent up when prisoners have noth-
ing to do and no where to go.

The costs of such riots specifically outlined by Director Hawk is
simply unacceptable to all of us as taxpayers, and could only result
in Federal judges taking over prisons, as they have done in 45 in-
stances at the State and local levels.

FPI brings an important component to our criminal justice sys-
tem, and that is the potential for rehabilitation, and thus, a reduc-
tion in the recidivism. For years we have known that persons most
likely to commit crimes are those that have been in the criminal
justice system before. The challenges have been to find ways to
alter their behavior. FPI does just that with greater results than
any other program available. The fact is FPI does reduce crime.

Director Hawk and Mr. Seiter have provided you with all of the
statistics relating to the Bureau and FPI, so I will not burden you
with these facts. Rather, let me turn briefly to those who oppose
FPI and seek to destroy it. I put them in two groups, small busi-
ness, who have a legitimate concern that they should be able to
share some of the businesses generated by Federal agencies, and
a very few large furniture manufacturers who have most of the
market share already, and simply want more.

FPI has an ag^essive program for dealing with small business,
as has been outlined by both Mr. Seiter, and in the testimony of
Mr. Millan. The appointment of the ombudsman, whose main func-
tion is to hear and act out the problems of small businesses, is an
important step taken by FPI to ensure that those small businesses
who are disadvantaged by FPI have a place to go for the resolution
of their complaints and concerns.

It is also important for us to remember, however, that there are
also 4,500 other small businesses who sell their products, employ
their workers, who support their families by selling to FPI and to
the Bureau, who would be disadvantaged and treated unfairly if
FPI were to be put out of business. When it comes to fairness and
equal treatment, these 4,500 small businesses and their employees
must also be considered.

Also, and very important, there are 3,500 Bureau of Prisons em-
ployees who work in the FPI program. If the program is abolished,
or otherwise debilitated, or put out of business, these 3,500, and I
might add, union members, their families, and a $50 million an-
nual payroll will go with them. The most disheartening to me is
the massive lobbying and money effort that is coming from certain
areas of the furniture business to put FPI out of business, and sub-
ject our 19,000 fellow workers to injury or even death. This indus-
try sold over $8 billion in business in institutional furniture in
1991, while FPI sold only $84 million, a little over 1 percent.

Finally, I fail to see how FPI could be vastly affecting these huge
businesses and their trade association BIFMA. As far as their em-
ployees are concerned, I found it doubtful that, if FPI were put out
of business, even one more employee would be created by them, as
they are some of the most automated industries in our Nation.

Mr. Chairman, the elimination of FPI is not about money, even
though eliminating FPI and making it a shell, by cutting out its
sales through repealing its preference would cost teixpayers hun-
dreds of millions of dollars. No. It is about the lives and safety of
prison employees. The small comfort that the spouses and children
of these employees have, knowing that you have done your best to
protect their loved ones from injury ana even death. As shown re-
cently in the Utah Penitentiary, when prison workers are taken
hostage, and a riot gets out of control, prison workers are the ones
who get their throats slit. I urge you to reject any proposal that
would make it more difficult to protect both staff and inmates. Any
effort to reduce the effectiveness of FPI would do just that.

Thank you very much for your kind attention.

Mr. Hughes. Thank you very much.

[The prepared statement of Mr. Grotefend follows:]

Prepared Statement of Michael Grotefend, President, Council of Prison
Locals, American Federation of Government Employees (AFL-CIO)

Chairman Hughes, Ranking Minority Member Moorhead and Members of the
Sub-Committee. I am Michael Grotefend. As President of the AFL-CIO, AFGE,
Council of Prison Locals, it is my job to represent the interests of the 19,000 work-
ing men and women who every day serve their country and their fellow citizens by
insuring that those persons whom society believes need to be separated from the
rest of us are maintained in our penal institutions in a manner consistent with our
laws and our Constitution.

I live in Wisconsin Rapids, Wisconsin and am a line officer of the Bureau of Pris-
ons having been assigned to the Oxford, Wisconsin Federal Correctional Institution.

In this capacity, I have worked directly with inmates assigned to the Federal Prison
Industries factory at Oxford.

I appreciate ve^ much this opportunity to discuss briefly with you the position
of the 19,000 BOP employees who I represent with respect to the Federal Prison
Industries program.

My first and foremost concern is for the health and safety of our prison workers,
which I believe is also the obligation of the Attorney General and the Congress. I
will tell you without fear of contradiction that without FPI our prisons would be un-
manageable and would have to resort to the use of forces and procedures which
would clearly be unconstitutional. The resulting mayhem that occurs in prison riots
always and I emphasis the word always results in the death or injury, and some-
times both, of prison workers. We are the object of the rage that becomes pent up
in prisoners who have nothing to do and nowhere to go.

The costs of such riots, more specifically outlined by Director Hawk, is simply un-
acceptable to all of us as taxpayers and could only result in Federal Judges taking
over the prisons as they have done in some 45 instances at the state and local lev-
els.

FPI brings an important component to our criminal justice system that is the po-
tential for rehabilitation and thus a reduction in recidivism. For years, we have
known that the persons most likely to commit crime are those who have been in
the criminal justice system before. The challenge has been to find ways to alter their
behavior. FPI does just that and with greater results than any other program avail-
able. The fact is that FPI reduces crime.

Director Hawk and Dr. Seiter have provided you with all of the statistics relating
to the Bureau and FPI, so I wUl not burden you further with those facts. Rather,
let me turn briefly to those who oppose FPI and seek to destroy it. I put them in
two groups. Small business who have a legitimate concern that they should be able
to share some of the business generated by federal agencies and a few veiy large
furniture manufacturers who have most of the market share already and simply
want more.

FPI has an aggressive program for dealing with small business as has been out-
lined by both Dr. Seiter and Mr. Millan. The appointment of an Ombudsman whose
main function is to hear and act on the problems of small business is an important
step taken by FPI to insure that those small businesses who are disadvantaged by
FPI have a place to go for the resolution of their complaints and concerns.

It is also important for us to remember, however, that there are also 4500 other
small businesses who sell their products, employ their workers who support their
families by selling to FPI and the Bureau, who would be disadvantaged and treated
unfairly ii FPI were to be put out of business. When it comes to fairness and equal
treatment these 4500 small business and their employees must also be considered.

Also, there are the 3500 Bureau of Prison employees who work in the FPI pro-
gram. If the program is abolished or otherwise debilitated and put out of business,
these 3800 people, their families and a $50,000,000 annual payroll will go with
them.

But most disheartening to me is the massive lobbying and moneyed effort that
is coming from certain areas of the furniture business to put FPI out of business
and subject our 19,000 fellow workers to injury and death.

This industry sold over $8 Billion, yes, $8 Billion Dollars in business and institu-
tional furniture in 1991, while FPI sold only $84,000,000 a little over ONE PER-
CENT. How could FPI be adversely impacting on these huge businesses and their
trade association BIFMA. And as far as their employees are concerned, it is doubtful
that if FPI were put out of business that even one more employee would be created
by them as they are one of the most automated industries in our nation.

Mr. Chairman and Members, the elimination of FPI is not about money, even
though eliminating FPI or making it a shell by cutting of its sales through repealing
its preference would cost taxpayers hundreds of millions of dollars. No, it is about
the lives and safety of prison employees. The small comfort that the spouses and
children of these federal employees have knowing that you have done your best to
protect their loved ones from injury and even death.

As was shown recently in a Utah penitentiary, when prison workers are taken
hostage in a riot and it gets out of control, the prison workers get their "throats
sUt".

I urge you to reject any proposal that would make it more difficult to protect both
prisoner and inmate. Any effort that reduces the effectiveness of FPI would do just
that.

I appreciate your kind attention.

Mr, Hughes. First of all, Mr. Swimmer, as I understand it, what
you are basically proposing is that small business should basically
he much more airectly involved in analyzing the market, and mak-
ing certain that no one part of a particular industry or region is
severely impacted. Is that the thrust of it?

Mr. Swimmer. That is essentially correct. As you know, the Fed-
eral Government has targeted small business as an opportunity in
this country, and has created a number of set-aside type programs
to encourage the development of small business. What happens is,
of course, that in the prison industry, those opportunities are then
usurped because Prison Industries ooes have the first set-aside for
that Dusiness. I understand the need, and do not deny the Govern-
ment the right to deal with whomever it wants, and to fill the pris-
ons with all of their work; but, since it was targeted to help small
businesses, we are impacted, and would like to have some opportu-
nities perhaps in working with prisons.

I might add, our company personally does, in fact, we are one of
those suppliers that was mentioned. I nave probably the equivalent
of maybe three people whose jobs are there because of the Federal
Prisons — because we supply them with value-added products that
they use in making the wiring cable. If we do not manufacture it,
at least we would like to supply it. Now our sales have been cut
in half over the last couple of years probably because of the decline
in the defense industry, as well as perhaps this consolidation of
their buying activity in Washingfton.

We looked at that as an opportunity for us. I guess my concern
is that where Federal prisons has an absolute lock on the busi-
ness— ^that perhaps that lock could be shared so it is not a hundred
percent of the business out of a military base for the work we are
doing. We did not get into this business because we saw it as the
way of creating our company. We did it because we saw the oppor-
tunity in the military buildup, and we became a subcontractor to
the primes. We are in the same place the primes are. We are trying
to diversify. This other work is there, and it is the same work we
are doing, but we are foreclosed from doing it.

Mr. Hughes. I take it though that you see that there is a reason
to have a Federal Prison Industries system?

Mr. Swimmer. Absolutely.

Mr. Hughes. Yes. No question about that.

Mr. Swimmer. Absolutely. Certainly, the Federal marketplace is
appropriate as a marketplace for them to sell to. I guess I would
prefer, in the growth of things that it be there if I do spend the
money and the effort to diversify and go into say commercial avia-
tion, I will be a little concerned if I see an FPI coming after that
business. Again, if it is building product for the Federal Govern-
ment, it is no different than the State of Oklahoma. We use pris-
oners for an awful lot of State activities that the prisoners provide
the State in different services. I see it at the Federal level. You are
a procurement, and the Federal Government should be buying from
them. To the extent though that it does countermand the other ini-
tiatives of small business, we would like to see some effort of, if not
capping it, at least working toward a way of working together, or
in creating incentives for prison industries to deal wim small busi-
nesses as a supplier or a subcontractor to the prisons or vice versa,

and that kind of thing. I think there are some ways that that can
be fine-tuned to help that.

Mr. Hughes. OK Mr. SulHvan, how do you respond to the pri-
vate sector, labor and business suggestions that inmates should not
be ^king jobs away fi-om law-abiding taxpajdng citizens?

Mr. Sullivan. Well, I think that Congressman Wolf has ad-
dressed that very well in his legislation — ^that we would look at cor-
porations that have left this country, and that the incentive would
be to bring them back to this country, and so we would not be dis-
placing American workers.

Mr. Hughes. Mr. Zalusky does not like that suggestion.

Mr. Sullivan. Let me say — and also, this whole idea of the pre-
vailing wage, you know, it sounds very good. I just feel by asking
for the prevailing wage, I think that labor is basically destroying
the good by seekinjp^ the perfect. I mean, ideally, sure, but I think
by doing this, in effect, it vitiates any effort at all. I would see that,
with Wolfs bill, that we have a good beginning. If you look at the
corporations that have left this country, the American Correction
Association has developed a list that goes on for 23 pages, and they
are big corporations. At least we could begin to look at it. I think
Congressman Wolf is saying let's look at a pilot program.

I think there is going to be not only the resistance of labor, I
think the small business people I think would be certainly inter-
ested if it was corrected. I think corrections, in general, in the Fed-
eral system, down lower with the wardens, are not going to be that
enthusiastic either. So, as you said earlier, and I will repeat what
I said, it is not an easy answer. If everybody gives, let's maybe just
look at it and see what we can learn from say the passage of Con-
gressman Wolfs bill.

Mr. Hughes. Mr. Zalusky, I really have some problems trying to
follow basically the policies you have articulated. Let me see if I
can understand them. Your position is that you favor going to a
prevailing wage in the prison industry system. Would you then
change your mind if we went to prevailing wage, insofar as compet-
ing with the private sector?

Mr. Zalusky. Say that again?

Mr. Hughes. If we were to go to prevailing wage, would you then
have the same objections you presently have to us competing in the
private sector

Mr. Zalusky. Yes.

Mr. Hughes [continuing]. Overseas?

Mr. Zalusky. Definitely.

Mr. Hughes. It seems to me you want it both ways.

Mr. Zalusky. I do not think so.

Mr. Hughes. Well, let me just tell you how I think you would
want it both ways.

Mr. Zalusky. OK.

Mr. Hughes. In the first place, you indicate that the problem
presently — ^you like the fact that we restrict it to the Federal Gov-
ernment.

Mr. Zalusky. Yes.

Mr. Hughes. If we go to the prevailing wage, then we probably
could not compete. Then you would have arguments, and you would
be advancing the arguments that basically, as would the private

sector, that the private sector could then probably provide the
goods and services a lot more cheaply than we could provide, be-
cause the purpose is rehabilitation. The primary purpose is reha-
bilitation.

Mr. Zalusky. Yes.

Mr. Hughes. Rehabilitation, as well as controlling an inmate
population, particularly at a time, as Mr. Grotefend has alluded to,
we have — ^we are over capacity. We are at 141 percent of capacity
today in the Federal system. It is going to get worse. So, we are
talking about safety measures.

So, firankly, your argument, as I understand it, and I read your
statement very carefully, is that we would open ourselves up to the
argument that we were engaging in the same kind of slave labor
that we accused China of If we provide prevailing wage, we cer-
tainly would not be providing slave labor.

Mr. Zalusky. Let me respond then. First, I do not think it is the
business of UNICOR to compete with the private sector. The Gov-
ernment trying to compete with the private sector is not, in my
judgment, what UNICOR ought to be doing. UNICOR is there, as
I understand it, is just as you have said, to rehabilitate convicts
and to control them. To compete in the marketplace, or to compete
with others I think is a misapplication.

Mr. Hughes. We are not competing. You are being circuitous on
me here.

Mr. Zalusky. My point is

Mr. Hughes. We are talking about offshore industries where we
do not have a market share. Let's take the consumer electronics in-
dustry, where we only have 10 percent market share. We would not
be competing with .^inerican interests. Your argument, it is a good
argument — your good argument in your statement, and I share
your concern, is that if we are paying slave labor, then we cannot
very well complain about China and other countries basically pay-
ing slave labor, and then shipping their goods into our country and
competing with our work force, and our business.

That is a legitimate argument. If we pay in the prison system a
prevailing wage, which is what you have suggested, then we cannot
be pajdng slave labor, because, if we are pajdng the prevailing
wage, we are paying the same wage that your workers are receiv-
ing outside the prison system, wouldn't we be?

Mr. Zalusky. I think there are a number of issues connected
with the use of convicts in the free market competing with imports
or exports, even if the market has been lost to foreign competitors.
Number one is, as you pointed out, the issue of the wage structure.
The second is whether or not the work is voluntary. I do not think
anybody would argue that working in prison is voluntary. You have
to work, otherwise you are going to be disciplined. So, I do not
think it is voluntary. That, to my judgement, is the definition of con-
vict or slave labor. Using an involuntary or forced labor to compete
in an open marketplace is a second threshold issue. Finally, I
think, that prison labor is a subsidized business, subsidized bv
overhead, subsidized by labor, subsidized by an involuntary work
force, competing in marketplaces that the Japanese, or the Canadi-
ans, or whoever, may feel they won fair and square.

How are they going to retaliate? They may retaliate by limiting
the importation of our goods into their country, and we may lose
some auto workers' jobs. I do not think we know what the impact
of this

Mr. Hughes. It is your view that we have a free market system
out there, and that other governments are not subsidizing their
products?

Mr. Zalusky. No, it is not my view. I think we have got a whole
lot better argument if we are using convict labor.

Mr. Hughes. Here is the problem witii your argument as I see
it. AFL-CIO I view as a good friend. Over the years I have worked
with the AFL-CIO on a lot of different issues. AFL-CIO has I
think one of the best social consciences in the country. You have
been respected over the years because you have done that. In this
instance, here is what you are saying in essence. You are saying
that — we are not saying that we do not need or want a Feaeral
prison industry we just do not think that, first of all, they should
compete with the private sector and take jobs away. That is the
first thing you are sajdng?

Mr. Zalusky. That is correct.

Mr. Hughes. Then you are saying — we also think that they
ought to pay a prevailing wage.

Mr. Zalusky. Yes.

Mr. Hughes. Because, frankly, we think they ought to pay a pre-
vailing wage. Well, I think the best way to get rid of the Federal
Prison Industries system is to pay a prevailing wage, because then
we could not really compete in the marketplace. Tnen the private
sector could then legitimately argue, you know, that we are subsi-
dizing, and it is unfair competition. They argue that today. Cer-
tainly it would be a much more legitimate argument because we
are not making a lot of money as it is, and it is simply because we
target our labor so it is intensive, so that we have an inmate popu-
lation that is busy. They work overtime trying to keep Uiem busy.
The longer the terms, tne busier they are going to be. Your argu-
ment is that you would limit that to just those who can be rehabili-
tated. Well, Mr. Zalusky, I would suggest that, if you were a guard
for any length of time, you would want to make sure that Hfers are
very busy too.

Mr. Zalusky. Yes, but there are

Mr. Hughes. Now, you want to keep them busy, very busy, be-
cause they are often the ones that are probably having the least
hope of any of the inmates. So, you have a very volatile situation.
It is not as if the primary purpose of prison industry is to create
products that compete in the industry. That is incidental. The rea-
son it was structured the way it was is because we need to provide
skills, number one, we need to keep them busy, number two, and
we need to try to rehabilitate.

Mr. Zalusky. Yes.

Mr. Hughes. That is why we make it labor-intensive, so much
so that, frankly, they are not very well automated. The equipment
they use is — and I have visited the prison industry systems — is
rather archaic in many instances. They do not have the equipment
that most of the efficient businesses nave. The arguments I have
gotten in the past when I have questioned the people that run the

system is that well, frankly, it is more labor-intensive, we know
that we are not very efficient, but this system enabled us to put
more to work and to teach them some very basic skills and a work
ethic, and so, it was a judgment call.

Now, we could become, I would presume, much more efficient by
automating, that means more investments. Then I would suggest
to you that we would have arguments from you and the private
sector that then we are really competing because we are subsidiz-
ing even more than we are today.

So, I lust do not see any consistency. If we are for what we are
doing, tnen it seems to me the answer is perhaps along the lines
of what Mr. Swimmer and others have suggested — that we need to
find new ways to do it, and new markets, new growth areas, and
attempt to minimize the impact of any one sector. We are talking
about limiting it to just the Federal Government. The market
share, in most of these instances, is a minor part of the Federal
market share.

The Federal Prison Industries system has been rather, it seems
to me from the data submitted today, very lenient in maJcing sure
that exemptions are provided. While there has been some criticism
of the process, frankly, that is something that we can talk about
and try to correct. The answer does not seem to me to be going to
a prevailing wage.

Mr. Zalusky. Let me respond. You have raised any number of
points here. Congressman.

Let me start with the prevailing wage issue. I am not alone, and
neither is the AFL-CIO on that issue. Chief Justice Burger shared
the view that prevailing wages should be paid and has been shar-
ing that view right along. So, it is not as though it is somewhat
conjured up by ourselves. Congress did adopt locality wages in the
PIE program, the State prison industry progn^am, that they pay a
prevailing wage for the locality. The State violates this law fairly
regularly, but nevertheless it is there. Prevailing wages are be-
cause there should be no intention for Prison Industries to try to
compete with free labor, but rather to keep the prisoners actively
engaged and to rehabilitate them.

You raised the question of technological change on automated
eauipment. I went to see the prison printing system in Petersburg.
I nave got to tell you, Congressman, that it is using some very so-
phisticated printing equipment. I am not a printer by crafl, I used
to be an electrician. You automate and technologically change an
activity for a relative few purposes. One is to improve the product
that you are producing, another is to improve the safety, and an-
other reason is to increase the productivity. A lot of the equipment
I saw in the Petersburg Federal prison was productivity enhancing,
and not necessarily product enhancing. It was a simply high-pro-
duction competition type of an operation.

That is the kind of work. We have got people in the printing
trades, Jim Norton's national union, that they would like to have
the work that is being done down there. I would suggest that that
is unfair competition at $1 £m hour.

Now, if you would like to argue that that printing might go over-
seas, go to Haiti, or go to a maquiladora firm in Mexico, or Canada,
and that we should then engage in it because it may go that way,

100

then I think you are going to have an awful lot of arguments with
our members in the printing trades that want to keep that in this
country.

Mr. Hughes. Well, I think you are going to have an awful lot of
argfuments with your members over a lot of thin^fs. You suggested
the experience in Washington State was something we coma look
at. I would invite you to come into my district, and you attempt to
sell that idea to my building trades. You would have a major prob-
lem, and I would probably nave to provide security for you to get
out of my district, because it would be unacceptable, I can tell you.

Mr. Zalusky. I agree.

Mr. Hughes. I mean, they are having a hard time finding slots
basically for the workers that live in my district now. There is no
employment. It is flat. We are not creating new jobs. To suggest
that we are going to take some apprenticeship positions, whicn are
heavily fought over in my cong^ressional district by the building
trades, I can tell you, would be unacceptable. You could go right
down the line, and list — even under the Wolf approach, which is
something I have debated for a long time, it has a certain amount
of attraction to it. We will identify offshore industries where we
have lost business.

Frankly, you would have small business still complaining for this
reason, because there is an effort to regain some of that market
share. If you started competing, you Know, for that business,
whether you pay the prevailing wage or not, you are going to have
small business coming in before this committee, and making the
same arguments we have heard today. That is that it is unfair, be-
cause I want to get part of that market share. I have developed
new technologies, and we have been working to try to take portions
of the consumer product industry back. Frankly, it is unfair for
prison industries to look into that area. You would get the same
arguments.

Mr. Zalusky. I would like to respond to just a bit of that. I used
to be an international representative for the Electrical Workers,
and I used to spend a lot of time in New Jersey, so we agree with
what you are saying up there, particularly in Trenton.

Mr. Hughes. You do not disagree with me?

Mr. Zalusky. No, I do not. That is not the point that I am mak-
ing. My point is that, if the union and the management, at the
point of impact of the prison industry activity are involved, there
are no surprises. They know it is going to be two or three jobs here.
We can manage that, if we give them sufficient time to deal with
it. On the other hand, if somebody shows up in the local union hall
or at the membership meeting, and says I just lost my job to a con-
vict, then we have got serious problems. If the union does not know
anything about what went on the State's need can only be opposed.
That is what we have todav.

Mr. Hughes. Mr. Zalusky, the market share — ^the Federal mar-
ket share is a very small portion.

Mr. Zalusky. Yes.

Mr. Hughes. We are talking about a very small portion.

Mr. Zalusky. Yes.

Mr. Hughes. You know, I have no doubt that that may have
happened, but that would be most unusual I would think.

101

Unlike when we basically scaled down Boeing, where major jobs
are lost, the Federal portion we are talking about is a very small
portion, and the philosophy that has been adopted by this commit-
tee I might say, Democrats and Republicans, is let's find more ways
to reduce that burden so that we do not impact any one sector, any
one region. That is a legitimate argument.

Mr. Zalusky. The point I wanted to make is that when we were
able to sit down and work it out with — ^the service employees, and
Rick Seiter of UNICOR— the use of convicts on VA property and on
Park Service property, we found it was something that could be
dealt with. We reached an understanding that the Federal Prison
Industry, Rick Seiter's group, will meet with the local unions at the
VA site and work out arrangements between them as to which
work the convicts should be doing. In this case, convicts will be
doing work that would not otherwise be done. Now, clearly, most
of the Service Employees Union members do not want to pick up
around the campsites, so convicts can do that. That is no problem
for us and it benefits all — ^the Federal agency. Service Employees,
Bureau of Prisons, and the taxpayer. There are lots of areas where
we can work these arrangements out.

My point was that when I was at Petersburg, they were talking
about rebuilding explosion-proof doors off of ships. Apparently the
UNICOR manager there believed that it was a good idea to talk
to the local union at the Newport News Naval Shipyard, and they
seem to have worked out an agreement. We agree with them in
that this is the best way to proceed. However, when I called the
local down there, they knew nothing about it. Nevertheless, I think
that is a viable way of approaching convict labor. Convicts are also
rebuilding the fork trucks off of the ships. I think that is also good,
because they also worked this out with the shipyard and the union.
The builder of the fork trucks, Allis-Chalmers, does not want to do
it. This kind of work relationship, and dealing with labor and in-
dustry is much better than trying to deal with it as some sort of
massive number crunching thing which is what is being done at
the UNICOR Board of Director level now. Dealing with convict
labor from the top down is bound to cause all kinds of inequities
because you cannot tell what the impact is going to be. If you work
with the local folks, I believe it can be worked out.

Mr. Hughes. Well, Mr. Grotefend, thank you for your testimony.
I do not have any questions,

Mr. Grotefend. I do appreciate it.

Mr. Hughes. It is a very, very difficult area to deal with. There
is no easy answer. I do not think even the AFL-CIO believes that
we should do away with the prison industry,

Mr. Zalusky, No, I said that in my opening remarks.

Mr. Hughes. We could accept certain modifications to the pro-
gram that would be suggested that would really make it impossible
to operate it. I know that these suggestions are not being offered
for that reason.

I think what we need to do is continue to work to try to find op-
portunities. We heard a suggestion today that we ought to be look-
ing at recycling, I do not know whether that is a reasonable ap-
proach— what uie transportation costs would be, and what implica-
tions that would have in particular parts of the country. That is

72-576 0-94-5

102

something we should look at. We should look at, it seems to me,
offshore areas, to see whether or not there are areas where we are
supplying, and deal with perhaps the prison industry issues. We
can do that if we adopt your thesis that we should go to prevailing
wage, increase the amount that we charge inmates, start charging
them for room and board, and give it back to the Federal Govern-
ment. That eliminates the argument that we have slave labor, and
we should look at trying to win the AFL-CIO over on the issue
that we should be competing perhaps in the private sector in those
areas where we do not have a market share. We have lost it al-
ready. I suspect the AFL does not want us to go in that direction.

Mr. Zalusky. Not at all.

Mr. Hughes. The only direction I see, Mr. Zalusky, is the direc-
tion we are heading. We look forward to working with you. I think
that is the answer. I think we need to do as you, Mr. Swimmer and
others have indicated, we need to look for new opportunities, re-
duce the impacts in various parts of the country, and in various
sectors, and work together to try to make it work as best we can.

All right. Thank you very mucn. The panel has been very helpfal
to us today. That concludes the hearing, and the subcommittee
stands adjourned.

[Whereupon, at 2:43 p.m., the subcommittee adjourned, to
reconvene subject to the call of the Chair.]

APPENDIXES

Appendix 1. — Statement of Hon. Jan Meyers, a Representa-
tive IN Congress From the State of Kansas, March 11, 1993

Mr. Chairman:

ThacJk you for allowing me to submit this statement. As a member of the Commit-
tee on Small BusinessTi have long been concerned over Federal Prison Industries'
presence in the federal marketplace and its impact on small businesses trying to
compete in that same arena. While I am aware of, and support, the purpose behind
FPI^ creation, I must question its effect on small business and attitude towards the
federal maritetplace. Mr. Chairman, I don't believe anyone seriously proposes elimi-
nating FPI, but we must take a hard look at the impact this organization is having
on free enterorise.

For years FPI has moved into new markets in federal procurement and effectively
eliminated all competition through aggressive use of its contracting preference. For
example, in only two years (1986-1987) FPI managed to monopolize tne Department
of Defense market for wire cable assemblies. Two nrare examples of products where
FPI has "cornered" the market are draperies and Kevlar helmets. This activity cer-
tainly offends the spirit, if not the letter, of FPI's mandate not to unduly burden
private industry.

Mr. Chairman, FPI has become an over $400 million a year business. At a time
when government contracting opportunities for smaU business are shrinking, FPI
continues to grow and this growui is at small business' expense, the logic is inescap-
able.

The sad thing is that while small business does not mind competition, they can't
even compete. They are not even being given a fighting chance. Federal Prison In-
dustries' preference takes away any hope of small business getting a shot.

On top of this, several reports have been issued by the Inspector General of the
Department of liefense highlighting serious quality and pricing problems with Fed-
ersQ Prison Industries goods. FPI, of course, denies these inferences and maintains
that their products are fairly priced and of good quality.

Mr. Chairman, I am glad tnat you have callea this hearing to discuss the situa-
tion. I believe there is room for negotiation and compromise in all of this. I believe
that if FPI is producing quality products, there is no reason why they can't start
to relax their preference. Unless the Federal Prison Industries' management be-
lieves the entire federal procurement system is corrupt, or hopelessly inept, they can
compete. I also believe that industry and labor can help find ways to improve FPI's
expansion into new markets, markets that won't unfairly impact small business and
free enterprise.

Mr. Chairman, everyone at this hearing appreciates the need for order and safety
in our prison system, and they appreciate your holding this hearing. I look forward
to reviewing your findings and thsmk you again for your courtesy in allowing me
to submit this statement.

(103)

Appendix 2. — Statement of the Coalition for Government
Procurement, March 11, 1993

The Coalition for Government Procurement is pleased to have an opportunity to
present this statement for the record this morning.

The Coalition is a non-profit, multi-industry trade association representing more
than 200 large and small companies that sell commercial goods ana services to the
federal government. Since 1979, the Coalition has worked on behalf of its members
with federal officials to maintain oonunon sense in the procurement process. To-
gether, our member companies are responsible for approximately $3 billion a year
in government business.

The current operations of Federal Prison Industries show that it is a program that
is out of control. We urge Congress to take emergen<y action to prevent further loss
of private sector jobs to prison labor, and to stimulate local and regional economies.
In addition to this emergency action, steps should be taken to improve and increase
oversight of Federal Prison industries to prevent a recurrence of the problems FPI
is causing today.

The Coalition was one of the first trade associations to identify the operations of
Federal Prison Industries (FPI) as a potential threat to our members. We believe
it is imperative to remember one thing when the current operations of Federal Pris-
on Industries are discussed: FPFs operations cause hard-woricing, tax paying citi-
zens to lose jobs. These citizens lose their iobs not through natural competition or
to foreign labor, but to convicted felons working in a tax-payer funded program who
have eJready done harm to the communitv.^ The Coalition feels that this is abso-
lutely unacceptable and that, no matter what else is done, FPFs current operations
must be altered to end this inequity.

Although FPI officials claim that their operations create private sector jobs, what
few jobs may be created are more than offset by the substantial number of good pay-
ing, manufacturing jobs lost. The Coalition contends that the private sector can al-
most always do a oetter job of providing meaningful, lasting emplojanent than fed-
eral "make-woik" positions which add to the deficit and, in fact, allow FPI to be
more of a threat to private sector workers by circumventing their statutory mandate
to be as labor-intensive as possible. If FPI were truly labor intensive they would
have a minimal effect on the economy either way.

It is important to note that the Coalition, and most other groups involved in the
FPI reform issue, do not want to see Federal Prison Industries abolished. We sup-
port the basic concept of keeping prisoners busy and making an effort to teach them
basic job skills. In fact, FederalPnson Industries carried out its operations for many
years without posing a threat to our members. We are extremely sensitive of the
need to maintain order and stability in federal prisons. The Coalition believes, how-
ever, that these goals can and should be met without the current resultant loss of
thousands of private sector jobs. ^ nT.T «-

Toward this end, the Coalition has worked for the past eight years with FPI offi-
cials. Congress, other federal agencies, and other outside groups to "level the play-
ing field" between FPI and private companies. During that time, FPI has ballooned
from a relatively small entity into a big business with over $500 million in sales.
Despite the apparent best efforts of all parties involved, FPI continues to eaqjand
its operations in areas where overall federal and commercial market demand has
declined. Furthermore, FPI officials have been either resistant or slow to embrace
possible new products and services that would diminish their impact in the markets
where they are now most active.

The Independent Market Study on Federal Prison Industries commissioned by
Congress in 1990 and executed by the firm of Deloitte and Touche supports these
claims. The Deloitte and Touche report shows that FPI increases in the office and

^Although FPI oflicialB insist that their operations are self-supporting, all income is fiwrn fed-
eral tax-payer funds appropriated to the various federal agencies. Therefore, the burden for
FPI's financial support clearly falls to the taxpayer. FPI's high prices for many items add need-
lessly to this burden and waste scarce federal financial resources.

(104)

105

dormitory furniture area came at a time when the overall demand for these prod-
ucts declined in the commercial and/or federal markets. Additionally, although FPI
officials consistently state that they produce items in over 70 Federal Supply Codes
(FSC's), the Deloitte and Touche report clearly shows that they are primarily active
in just four: furniture, metal products (which includes many furniture items), wire
and cable harnesses, and textiles. Industry estimates and those of Deloitte and Tou-
che both show that FPI has seized 25% of the federal market for office furniture
and over one-third of the market for dormitory and quarters furniture. Their share
of the federal wire and cable harness market is estimated at 90%. All of these fig-
ures are well in excess of FPI's statutory mandate to take no more than a reason-
able share of the market for any one product. FPI's constant claim, therefore, that
they are active in over 70 FSC's, while not technically false, is extremely mislead-
ing.

At the request of several in Congress, the Coalition and other groups have been
actively negotiating with FPI since June of 1992. These negotiations have been as-
sisted tremendously with the help Dr. Warren Cikins of the Brookings Institution.
Dr. Cikins efforts in maintaining order in the meetings and acting as a disseminator
of all position papers and meeting minutes have been nothing short of heroic. De-
spite his efforts, and those of other participants, only some small progress has been
made on improving FPFs communication with industry. No significant progress has
been made at all on the larger issue of identifying new areas for FPI operation. Sev-
eral possibilities have been under review for many months, but are yet to have any
details developed. The participation of several widely disparate groups in the nego-
tiation process may malte it impossible to identify new products for FPI to produce
which will alleviate their pressure on their traditional industries such as furniture
and draperies.

It is possible, however, that FPI may not need to identify any new products in
order to begin diminishing its presence in their traditional areas. The Coalition be-
lieves that FPI officials should examine the possibility of expanding into some of the
70 less developed products areas were FPI already has experience and a production
capability. If FPI were truly diverse across these areas, tney would pose no threat
to any one industry and Congress would not find itself occupied with this issue. Al-
though this option has previously been presented to FPI officials by the Coalition,
we know of no action taken to examine these possibilities. The Coalition requests,
therefore, that Congress require FPI to expand in areas, other than their traditional
industries of furniture, metal products, textiles, and wire and cable harnesses,
where they already claim to be active. FPI should expand in these areas to a level
short of where they would pose a threat to private sector companies. While there
may be no large federal market for some products, all should be thoroughly ex-
plored. As FPI expands in these areas, it should be required to accordingly reduce
its production in their traditional four areas. This approach would enable FPI to
maintain a high level of prisoner employment and help maintain prison security. It
would also provide relief to industries hard hit by their current operations. Although
the Coalition has asked FPI to take these actions in the past, to date, no action has
been taken.

The Coalition believes that this step would be an important part of any meaning-
ful solution to the FPI problem. It can almost inmiediately relieve pressure on the
traditional four areas now, and help stimulate the economy, without going throii^
the protracted process of identifying entirely new product areas before any reliefis
obtained.

The most recent Presidential election centered on the creation of jobs and the im-
provement of the economy. The Coalition feels that it would be totally consistent
with these national priorities for Congress to require FPI to reduce its operations
in their traditional four areas. Jobs would not only be saved, but created. Local and
regional economies, especially those in the northeast and midwest already hurt by
tough economic times, would also be improved. The Coalition requests, therefore,
that Congress take emergency le^slative action that will not only save jobs, but cre-
ate jobs and improve the domestic economy in directing FPI to inunediately reduce
its production in the areas of furniture, metal products, textiles, and wire and cable
harnesses. In addition, FPI's "super-preference should be eliminated to provide con-
tractors an equal opportunity to obtain federal business.

This emergency action will prevent further expansion by FPI in those areas al-
ready hit hard by FPI "competition". It is in concert with tjfie overall goal of having
FPI reduce its production in these areas if alternatives can be found and in accord-
ance with the expressed views of FPFs senior man^%ment that the "super-pref-
erence" be phasea out. Because it is unlikely that FPI and industry will agree to
any alternative, at least in the foreseeable niture, the Coalition is requesting this

106

emergency action now to save taxpayer jobs and help stimulate local and regional

economies. j • •

This process is not a win — lose situation. Requiring FPI to curtail jOTwluction m
its tracfitional areas will not automatically create unsafe prisons. The Coalition
feels, however, that, like all citizens currently being called on to make a sacrifice
in the name of the national economic good, FPI must make some concessions in its
current operations to alleviate its deleterious effect on the private sector.

Over the past year the Coalition has participated in negotiations with FPI which
have resulted in little progress. Meanwhile, FPI has continued to expand and
caused tax-paying citizens to lose their jobs. FPI sales last year increased by $83
million and reached $500 million. This expansion came at a time when many VS.
companies, including those with whidi FPl "competes", saw a decline in their sales
volume and laid off workers. i . ^

While the Coalition would like to remain optimistic for a successful conclusion to
the negotiations, a continued lack of progress has forced us to re-evaluate this path
and consider other means of obtaining long-term FPI reform. To prevent fiirther ero-
sion of domestic employment and to provide stimulus to the economy, we ui^ Con-
gress to take immecfiate legislative action to shield those industries already severely
impacted by FPTs current operations. . r ^u j

The Coalition appreciates this opportunity to present this testimony for the record
and looks forward to working with the Committee toward a resolution to this prob-
lem. We would be pleased to answer any questions the Committee might submit.

Appendix 3. — Statement of Kathleen A. Leonard, Executive
Director, Federal Correctional Vendor's Association,
March 11, 1993

I appreciate the opportunity to submit this Statement as Executive Director of the
Federal Correctional Vendor's Association. My submission is important to the Mem-
bers of this Subcommittee as I believe you should know the concerns of the thou-
sands of businesses (many of them smfdl businesses) who henfit and supply goods
and services to the Federal Prison Industries' (FPI) programs throughout the coun-
try. These companies sell many millions of dollars each year to FPI.

It would be preaching to the choir for me to suggest to the Members of this Sub-
committee just how difficult it is for businesses today to survive through these tou^
times £ind economic uncertainty. However, it is important for you to know that any
curtailment of the FPI program would indeed adversely impact thousands of ven-
dors throu^out the nation who rely on FPI for some portion of their business. In
fiscal year 1992, there were some 9,000 vendors, nationwide, listed with FPI who
did many miUiona of dollars in sales and who had many hundreds of employees and
families dependent on these sales to FPI.

Florida, for example had 271 vendors listed with PTI, 179 of them small busi-
nesses, who did approximately $6 million worth of business in FY '92. California
had 29 vendors listed who dia approximately $4.6 million worth of business in this
same period. While the numbers may not be overwhelming for people who refer to
the budget every day in terms of billions and trillions of dollars, it is inywrtant for
those individual businesses who may rely in whole or in part on the FPI programs.
Putting FPI out of business could mean lay-ofTs or even the dilTerence between sur-
vival & shutdown for them.

Bearing these facts in mind, I ask you Mr. Chairman and all of the Members of
this Subcommittee to consider that in addition to the devastating impact the elimi-
nation of this vital correctional program would have on our federal prison system,
already facing the problems of spiraling inmate populations, potential budgetary
construction cut-backs, mandatory sentencing, and tne like, there are real people,
real dollars and real businesses that also would be severely impacted by any curtail-
ment of the FPI programs.

Let me close with the fact that while there are other business groups which ap-
pear to oppose FPI, they all agree that there must be a program such as FPI. They
simply don't want FPI to make products made by their industry. One such group
is the Business and Institutional Manufacturers Association, i.e., BIFMA.

BIFMA claims that its industry is disadvantaged by FPI. But the facts are that
FPI sold $84,000,000 in business furniture in 1991 while BIFMA industries sold
$8.0 Billion. It \a more than disingenuous for an industry as huge as BIFMA to
"poor mouth" this Subcommittee when it has numbers like those. The fact is that
ii FPI were eliminated, the total number of non-inmate jobs in the public and pri-
vate sector would substantially decrease while the number of new jobs created
would be de minimis. This is particularly true in the business and furniture indus-
try which is non-union and highly automated.

I sincerely appreciate this opportunity to submit facts which I believe play a
major role in understanding tne significance of the FPI program to businesses
throughout the country, and in addition, to support our federal prison system which
relies so heavily on this proven correctional program.

(107)

Appendix 4.— Statement of Robert Millan, Member, Board of
Directors, Federal Prison Industries, March 11, 1993

Members of the Committee, Mr. Chairman, ladies and gentlemen, it is both an
honor and a privilege to testify before you today. My name is Bob Millan, and I have
served on the Board of Directors of Federal Prison Industries, Inc. (FPI) since being
appointed by President Reagan on Februaiy 1, 1989, just a little over four years
ago.

I am a small businessman myself, and that sector of the economy is well rep-
resented by 3 of the 5 current members of the Board. I have spent my working ca-
reer in banking in southwest Ohio, retiring 5 years ago as Chairman of the Board.
I was very sensitive to things that adversely affected the profit and loss of cus-
tomers, particularly those who had loans with the bank. So I am naturally sensitive
to the impact that prison industries can have on small businesses.

While my profession was banking, I have a long-standing interest in prison woric,
which goes back over 20 years. I have had a personal mission of trying to get the

{)rivate sector concerned and involved with our country's crime and corrections prob-
ems. ,

During these five years of service, I have witnessed the total mmate population
of the Federal Bureau of Prisons grow from a level of about 50,000 to a level ap-
proaching 83,000 today. That translates into an average intake of almost 130 new
inmates every week. The challenges associated with managing this population ex-
plosion are staggering, and the men and women of the Bureau who face them each
and every day and night are among the finest, most dedicated public servants in
the nation. Director Kathleen M. Hawk, who has had these responsibilities since the
end of last year, and J. Michael Quinlan, who served as the Bureau's Director from
1987 through 1992, deserve the country's gratitude for their leadership in meeting
one of the greatest public administration challenges of our day. v • v

Understanding the problems associated with managing this rapid growth m the
prison population, and the role of the Federal prison system in society, leads to an
appreciation of the inseparable nature of the Bureau of Prisons and that part of its
mission cturied out by Federal Prison Industries (FPI).
The Bureau's mission can be stated as follows:

It is the mission of the Federal Bureau of FVisons to protect society by con-
fining offenders in the controlled environments of prisons and community-
based facilities that are safe, humane and appropriately secure, and that
provide work and other self-improvement opportunities to assist offenders
in becoming law-abiding citizens.
The Bureau conducts several correctional programs to help accomplish this mis-
sion, but the single most important such program is the industrial work program
conducted by FPI. The absolutely essential nature of prison industry progranM to
the humane, safe, and secure operations of prisons has been widelyacknowledged
by criminologists and prison administrators throughout the world. Theu- effective-
ness in assisting ex-ofienders to become law-abiding citizens has also been recently
documented in an exhaustive five-year study of over 7,000 Federal pnsoners who
were released to the community between 1984 and 1986. These former mmates had
significantly greater success in finding and retaining employment and remaining
cnme-free after their release. In summary, a prison system cannot meet the man-
dates that a civilized society and that society's constitutional and judicial system re-
quire without a vigorous prison industries program.

Thus, in the Federal system, any potential adverse impact that the F Fl correc-
tional program may have cannot be viewed in isolation, but must be seen in the con-
text of the role of the entire Bureau of Prisons in society and in the economy. In
1993, the Federal Bureau of Prisons' budget, when combined with FPFs expendi-
tures of its non-appropriated sales dollars, will exceed $2.5 billion. All of this monev,
in one way or another, goes back to private sector businesses and indi\aduals
through purchases of gDO<& and services, construction expenditures, and staff sala-
ries.

(108)

109

I personally telieve that the Bureau and FPI have a positive effect on private-
sector labor. They provide employment for approximately 25,000 civilian workers at
the Bureau's 48 separate factory locations spread all over the United States. Many
of these locations are small communities such as Talladega, Alabama, and
Lewisburg, Pennsylvania, where the prison is a major employer and a major contrib-
utor to the local economy.

Tlie positive economic effect of the Bureau and FPI is highly appreciated in these
communities throughout the nation, though it often is a silent appreciation, not
heard above the strong vocal opposition of the few who oppose prison industries on
narrower grounds. Broad societal imperatives demand a professionally managed
prison system aimed at ensuring that our streets, neighborhoods, and communities
are safer places in which we, and our children, can bve and work. Federal Prison
Industries plays a major role in the accomplishment of this mission.

Also, let's not lose sight of the 74,000 inmates in Federal prisons who are out of
the domestic labor pool and are not competing for private-sector jobs. These individ-
uals have been disruptive to our communities and our businesses. The Bureau plays
a major role in preparing these individuals to return to our communities as produc-
tive, law-abiding citizens. It has been clearly demonstrated that FPI is the Bureau's
most effective program in the preparation of offenders for successful community
reintegration. It is through their industrial work experience that they learn positive
work habits, salable skills, and personal responsibility.

I believe that labor should support FPI's need to expand its operations in light
of the positive effects that inmate industrial employment has upon the future of our
communities. The private sector should view FPI's expansion reijuirements as a rea-
sonable trade for a safer society.

Let me now move to a more specific discussion of Federal Prison Industries and
the role of the Board of Directors of FPI. FPI was created by Congress in 1934, as
a federally chartered corporation, with oversight of its operations provided by a
Presidentially appointed Board of Directors. The enacting statute (18 tl.S.C, Section
4122(bXl)) charged the Board with three responsibilities:

1) To provide employment in industrial -type operations for the greatest
number of Federal mmates who are eligible to work as is reasonably pos-
sible;

2) To provide that FPFs operations do not result in any undue burden
of competition on any single industry;

3) To provide that FPFs operations result in a minimum level of competi-
tion witn private industry or free labor.

It is clear from this statutory mission that Congress wanted FPFs Board of Direc-
tors, which includes private sector representatives from industry, labor, agriculture,
retailers, and consumers, to strive For balance among the various interests that
might be affected by FPI operations. I am here to voice my belief that FPI and its
Board of Directors have met this legislative charter successfully over the last 58
years. Further, I can assure you that during my four years on the Board, we have
been particularly sensitive to the changes in the U.S. economy brought about by the
impact of imports, technology, and changing Federal budget priorities, and the ef-
fects that these developments have had on U.S. companies and American workers.
We have striven to ensure a fair and balanced consideration of these factors when
making decisions about FPI's continuing need to expand industrial work opportuni-
ties for an ever-growing inmate population.

My tenure on the Board has paralleled the enactment and implementation of the
industry involvement guidelines process, which now governs FPl's expansion into
new industries as well as any maior growth initiatives in existing industries. These
guidelines provide a formal vehicle for extensive involvement of any, / repeat, any,
private sector organization or individual who wishes to provide the Board with in-
formation concerning the potential impact, if any, of FPI's new products or expanded
production projxjsals. It also requires FPI management to prepare a comprehensive
analysis of the potential impact, if any, of its expansion plans on the private sector;
to announce its plans in the Commerce Business Daily and the Federal Register;
to distribute its competitive impact analysis to the public; to meet with appropriate
private sector interests to discuss the analysis and listen to their concerns; and to
prepare a formal submission to the Board that responds to concerns raised and com-
ments submitted during the process. Industry, business, trade association represent-
atives, or any other interested party can also request an opportunity to provide in-
person testimony to the Board of Directors.

While these procedures are time-consuming and have meant a lot more work for
both the Board and FPI staff, they have proved their usefulness in ensuring that
Board decisions are based on the broadest array of information that can reasonably

110

be obtained. They have enabled the Board to continue to effectively balance the in-
terests of the private sector and the interests of society in providing meaningful em-
ployment and training to inmates, so that they will be more likely to become con-
tributors to, rather than predators on, that same society to which they will one day

Since implementation of the industry involvement guidelines, the Board has re-
viewed 11 proposals by FPI to manufacture and sell new products or to significantly
expand production of its existing product lines. The Board heard in-person testi-
mony in many of these and ultimately disapproved three FPI requests — combat
boots, work shoes, and military tents — due to the potential for increased adverse im-
pact on these industries. Perhaps the principal reason for rejecting these was the
fact that all three industries have already been significantly affected by imports,
and the government market is important to their continuing survival. Also, the
BoanC while approving other FPI production initiatives, has often stated its intent
that FPI should attempt to team with private sector firms in partnership arrange-
ments that could be mutually beneficial. It should be noted that the Congressionally
mandated Independent Maricet Study, conducted by the firm of Deloitte and Toudie.
also viewed these types of cooperative, joint-venture-like operations as an integral
part of their recommended FPI growth strategies.

Because of the Board's sensitivity to the private sector, we recommended to FPI
that they create an Office of On^udsman to respond to concerns from private indus-
try and labor regarding FPFs future growth options. In response to our rec-
ommendation, FPI created this office in March 1992. The Ombudsman's primary
goal is to open lines of communications with the private sector, and to be aware of
and continue to serve as a spokesperson to FPI management regarding the potential
impact FPI operations have on business and labor. Another important role of the
Ombudsman \a to review appeals from customers who requested and were denied
waivers to purchase outside of FPI. If FPI cannot meet the customer's price, quality,
and delivery time, FPI will work closely with Federal agencies in making mutually
agreeable decisions on customer waivers. Should an agency receive an unfavorable
decision from FPI, the agency may appeal the decision to the Office of the Ombuds-
man. The Ombudsman reported to the Board that in fiscal year 1992, FPI approved
$264 million in waivers of $294 million requested. FPI received approximately 7,000
waivers and approved 6,465, or 90 percent, of them during the last quarter of fiscal
year 1992. , , . , ,

In addition to the Office of the Ombudsman, we have also put mto place a griev-
ance procedure so that all interested parties can voice any concerns that they may
have regarding FPI to the Board. These procedures were published in the Federal
Register and the Board is willing to address any crievances put to them.

Again, we the Board take our role veiy seriously in helping FPI balance its legiti-
mate need to employ inmates with the equally legitimate concerns of industry and
labor. The Board is confident that FPI will continue to employ and train as many
inmates as possible. At the same time, it will strive to find ways to build on the
sound business relationships already developed with the private sedtor, and, as sug-
gested in the market study, will cultivate new partnerships for the future.

Appendix 5.— Letter From Hon. Bemjamin A. Geman, a
Representative in Congress From the State op New York,
Dated March 17, 1993, Transmttting a Statement From
SiBPHEN BsuM, Owner, Hutbonics Corp., Undated

BENJAMIN A. OILMAN

FMBOM AR/un cotMurm

nWOn ANO MWOU iAST

MTOMATIONM. OfeiATiaM

MAR251993

POtT OmCI AMD CWH

tewKf coMaami

Congrt^K o! t^t Winittt S^tatti

H^muu of IBkttfititatatitits
■Uutiington. BC 20515-3222

March 17, 1993

MAR 2 5 1993

■wfinaATioN*

nUCT COMMITTH OM
WWCOTICt ikIUSf ANO

■received

sajcT coMMfrm ON

HUHOH

vaCMAMUAN.

TASK ram ON

WUan M (OUTMIAfT A*U

Sub on Courts
The Hon. William J. Hughes
Chairman, Subcommittee on Intellectual Property

and Judicial Administration
207 Cannon HOB
Washington, DC 20S15

Dear Chairman Hughes:

I have received the attached statement from Stephen Heller
of Hilltronics Corporation, regarding UNICOR. I would appreciate
submitting Mr. Heller's statement into the Subcommittee's record
of its March 11th hearing on UNICOR.

Please note that Mr. Heller used to maintain a small
business in my district until he forced to down size and move to
Florida because of UNICOR 's involvement.

Thank you for your kind attention.

Sincere 1/)l

benjXmin a. gilman

Member of Congress

BAG:ptb

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Hoim Judictaiy CommitlBe

Subcommittee on Intdkotoal lYopeity oad Judkkl Adou^

WMlniigtoii,D.C.

Subject* RflquertfaPiv(coth*iftKSm»flBttwneMftom(hBPitt<falgyPoiky
of UNICX>R iB the MuufhotunorcaMe Ancoiblief.

GwntlnroBn:

l>^iiMnBiaStephmHrfhraiidI«mflieoiwny<tf«anMflcompeiiy.Hillrottica

f !nqifM»linn whinh haa nmimfiirfnnBrt <!nmiimiiir»t^nn.T ^^^ «— >«l^^t^ ftf tTw pftlrt 7?

yean at Stongr Point, RY. Our esnlaiaemblieftaieiiaedabotni Navy fighter •iroaft,
faeliooplca,andpftiolarGnfi. ISwixsibanpaxtoflfaociilicdooiiniBaiieetiQoiilmk
b«twB» thft ]iik)(, te eivvr nd te ootiide wQikL

AlnnM aU of our OGcd aaHoUiM vrvD niii^ied to tl» UniM
oo the basis of oolOiMtitiwbidi. IfEfittromcfl was die kw bidder, WDraoeived the
oOQtmot IfHiltnxiiciwaiiioCttttkwbiddcc^lfaeawaidvnwiMdetotfaelaw
This was the system and it was fiur to tbeOvvvimiait sod SBBUbwiiieMe^^ At

our pook, Ififtromcs amployed 45 peopla.

AtiwryaaiBagftUNIQOReinbeitnMcna|irogiamtomiwaWkffliiealmD^
tbeoQfdassemUieitbatlfiltrooicshadbeeQmqpplyiiigtofliBgofWfi^ UNICORuaed
tespaeialpRftraiBegnuifBd under RMic Law 18 flurt was paned in 1934. TbeRisno
tongaroompctithw bidding fa flrcrfito and coid a wemMirabecaiiw
arancwdireetBdtoUNIGQEL TluspnemptiwadkncfXJNjrORbasibcMdHibiaDicf
toaUihaarwoddbceeandiqroff43ofd)e4Sem|iioyMa. Other smalicctwpanifi in the
OQcdassaablybusineasba^B goon oofi step fiotfier and eloaed their doon. ToiorvivK^WB
closed fiia New York ftctoqr nd nwfwd to Ilaridt to bww ov ico^

Ifaabte to aiipeer belbre your ooognanooal commttiee to seek yew
this statemeoL Caagrel8grinledU^^COR1lnl^mted[»vva■60yB■^a80. UNICQRhea
abused fliiB power and impanb^ damaged small oompamee. Non^iathetimetoplaoe
limitaonUNI(X)RairiMwtoiwnainipgiraaflhiHhweef« The authocizing legislation
oeivBr intaDded to inak» UNKX3R a mooopoty in aiqr aica and limited &fiir pecoeo^
themadcBt This limit is being aiJpliad^^inst the enliremadDel, without legRrd for flw
afibct tint UNICOR is having on aflypaitkuIarsegmeaL Ttoelbcw, while UNICOR may
olaim to tako oily 5% of d» adim eaUe oeonbfy msikst, tfaey have tekaa almDit lOOH rf
lewnl segments. May l suggest Ibr your oonaidentioa a Umit fay Federal StodcNumtw
inrteod of Pedenl Stock Obm. UNKX^diaiiki be limited to a 23H maximum of any
iwtictdar Federal Stock Number ftr cadi FTOcuremenl. TlBbalanoe^lheitBmeovefed

113

by tha Fadaml Stock Number Bhould bs BWBidad to jsivBte iwiualiy cm & CMBi^M^^
buia. l1kbwUldkwUNICORtDoaatliiuatoafia{iaypci90oefi\v^^

daou^ to povtte indintiy •moog a Itfgec baie.

Kmwtfy, UNJCUR priniM an ebbaralB brocfaoiB, M tuqw^
tbdroootnlwtim to flwniilitaiy daring dK'DeMftSla^ NotmeotiooMlin

fliebnxburewuacabbA8Minl^tt8edcQbofadMRrbeCcicpaheUoo^ Tlusoonl
aasoobfy allows llw bdicoptor to Gooimuiuoato ¥^

ottieraiinaft. There weitfiYBCOQMCutiYBOcntiactBawankd to thboodnlaaie^^
DeAnseOeoenUSuppfy Center, RiclUNlxl,YiiBi^ UNKX)R would not allow

DGSCtopuicluuetbisitcmfitmpnyBtoiDduit^ The five ooutncts were taken by

UNICOR. Lflff^ripfl th^ \frimit»\ Inrvw-hrnVj IlfJlCnil wm mmhlft to hmld thJB aibte

•iaeoiUlysndoottldDoCdi^VBrtbeoGiitnctf CDtaoe. nwiupplyd^potewefeoatQfitock
of ttiii cal^ v^iea Desert Shield wu prepaiiii^ for the Kfiddle Eait War.

Bairooics filed protests with the OfnBndAoowrtmgOflBce(OAO)ieqaes^
lenmiMtioQ of the UNKX}Rooiitiicts for &2ure to deliver. We staled (hat without Aib
oabia asseoiblies, ^ hclioopkn GQoU not fblfiU their Bosaim and kMs of li^
and the mission oould be jeopm^zed. Our ptoterts woe rejected and tJNICQR'sftilnm to
deliver was ooluddendiaelevBiit by the QAO. 11m special preference ooderPiiUic Law
18, as into^xtted by the QAO, albwi UhnOIR to take coolncts whether fhey ^

not

Unabfe to obtain dw needed caUaa fton dapots befon the Marine hdiooptflrs wen

sent to "Desert Stonn,' they made small prndases of caMe aiamiblfaw ftom private
industiyoQaacoMrgcafiybesis. lfilbx»ifianippliad small qoantitiesoffUs vital cable
assembly to Msrins Coips belioapter uniti befcre diey left ibr ovBBBaas.

We wncfortunalB (bat 'DeaertStocm*coly lasted a few weeks. ifttwmilitBiy
opentiOD lasted kmga sol ad£tioQal caUfi asaedbliea were needed, the empty dq^
oouUnotsqiptyttMm. TUswtmkl haw beea a heavy price to pqr for UNICXDR'sspedal
pfefianxa policy. Hus is snothernason to impose a pereentsge ceiling by FedemlStodc
Niimher aa it win prevent UNIGOR ficD tying lip 100% of any particular item.

Sineenly,'

IflLTRONICS CX3RF0RATIQN

syu.5ii3s^

Stephen SHsBsr

Appendix 6.— Leitee Fbqii Hon. Weiiam J. Hughes, Chaibiian,

SUBCOMMITTEB ON INTQJA}TUAL PBOPEBTT AND JUDICIAL

Administbation, to Kaihizen Hawk, Dibector, Federal
BuBEAU OF Prisons, U.S. DEPAsniENr of Justice, Afbil 8.
1993

m.tMm

CongresB of the Bnitd States ^^^

liOBU of lUprtioitattKi

COMMrrTEE ON THf JUOICURr

WMMMiot oc aotii-nu

April •, 1993

Mb. KathlMn Bawk

Diractor, Padaral Boraan of Prisons

320 First Strsst

Washington, O.C. a0S34

Daar Ms. Havki

Thank you again for your appaaranca as a witnass at tha ovarsight
hoaring on tha Padaral Prison Zndustrias, Inc. (PPZ) on March 11,
1993. As Z indicatad at tha haaring thara ara a nmibar of follow-
up quastions which noad rasponsa for tha haaring rocord. Z
appraciata your assistanoa in providing rasponsas.

1. Zn rasponsa to a goastion oonoaming tha Board of Diractors
for FPZ you indicatad that tha Buraau of Prison did hava tha
opportunity to hava input into tha diraetor salaotion procass.
Could you plaasa alaborata on tha natura of this input and did tha
Buraau partieipata in tha latast appointaeat to tha Board of
Diractors?

2. Plaasa alaborata on tha valvar prooass utilisad by PPZ. Zn
addition to tha prasant avaraga tiaa for raviaw of waivars, plaasa
provida axaaplas of tha shortast and longast roviawi tha raasons
for tha tiaa pariodi and, provida any writtan aatarials dascribing
tha valvar procass and fons that hava to ba utilisad by agancias
raquasting a valvar.

3. Zn raviaving salas and aaminga figuras for past yaars, Z
noticad that thara vas a significant drop in aaminga as a
parcantaga of salas froa 1990-1992 - 11% to 4.9%. Zn ona
particular yaar, 19«9-199C, it daclinad froa 10.9% to C.9%. Can
you axplain thasa changas?

4. Zn 1990 FPZ vas givan authority to borrov aonay on a linitad
basis froa tha Traasnry for capital axpandituras. Has this baan
utilisad sinea 19907 Zf ao, plaasa provida datails.

5. Mr. Robart Mlllaa vas appointad to tha FPZ Board of Diractors
as a rapraaantativa of tha Saoratary of Oafaaaa. Plaasa axplain
hov Mr. Millan rapraaanta tha Sacratary of Oafansa and if ragular

(114)

115

meetings are conducted with the Secretary of Defense as part of his
role of representative.

6. Please provide the number of FPI employees who are engaged in
marketing services for FPI.

If you have any questions about this letter or the hearing, please
contact Jarilyn Dupont with the Subcommittee on Intellectual
Property and Judicial Administration.

Sincerely,

Subcommittee on Intellectual Property
and Judicial Administration

WJH: jd

Appendix 7— Letter From Kathleen Hawk, Director, Federal
Bureau of Prisons (With Attachments), to Hon. William J.
Hughes, Chairman, May 6, 1993

U.S. Department of Justice

Federal Bureau of Prisons

RECEIVED

_ MAY 1 \ 1993

Office of the Director Washington. DC 20534 '~i,X«..o _t

ouD on oourts
May 6, 1993

Honorable William J. Hughes

Chairman

Subcommittee on Intellectual Property

and Judicial Administration
U. S. House of Representatives
Washington, D.C. 20515-6216

Dear Mr. Chairman:

This is in response to your recent letter, regarding the
oversight hearing on Federal Prison Industries, Inc. (FPI) held
on March 11. Your letter proposes several follow-up questions
regarding FPI.

1. In response to a qu«stion concerning the Board of Directors
for FPI, you indicated that the Bureau of Prisons did have the
opportunity to have input into the director selection process.
Could you please elaborate on the nature of this input and did
the Bureau participate in the latest appointment to the Board of
Directors?

The Director of the Bureau of Prisons apprises the Attorney
General of all significant developments relating to the FPI
Board of Directors. This includes issues considered by the
Board as well as any vacancies on the Board. In the past,
the Bureau has been afforded the opportunity to comment on
persons who are being considered for appointment to the
Board .

The latest appointment to the Board was Thomas N. Tripp.
His appointment was announced on November 16, 1992, by the
White House as succeeding Joseph Lane Kirkland. In Augusw
1992, the former Director of the Bureau advised the Office
of the Attorney General about the need to have a strong
labor candidate in this particuleir Board seat.

(116)

117

2. Pleas* alaborat* on th« waiver process utilised by FPI. In
addition to the present average time for review of waivers,
please provide ezaa^les of the shortest and longest review; the
reasons for the tiiM period; and, provide any written materials
describing the waiver process and forms that have to be utilized
by agencies requesting a waiver.

FPI 'a waiver procedures are provided in the attached
documents. The sheet entitled "Waiver Request Procedure" is
routinely mailed to customers and outlines the steps they
must take in order to request clearances to procure goods
from sources other than FPI. The second document entitled
"Waiver Guidelines" outlines the procedures that designated
FPI staff must follow to ensure consistency and fairness of
evaluation when considering customers' waiver requests.

FPI ' s goal is to render a decision to the customer on a
waiver request within five business days following receipt
of the properly executed request. In the great majority of
cases, FPI meets these goals. At times, however, delays do
occur, often as a result of the receipt of only p£urtial
information from customers. In such instances, FPI must
contact the customer emd receive any missing data before the
request can be properly reviewed. In an attempt to avoid
unnecessary delays to customers' waiver requests, FPI
strives to provide written instructions for customers that
are as clear as possible.

FPI ' s computerized waiver processing system has been
implemented for approximately one year. The system is
extremely efficient, and turnaround time for responses to
waiver requests is often within hours of receipt.
Generally, FPI insures that waivers will be processed within
five working days. A report summarizing the last six months
waiver processing turnaround is attached.

3. In reviewing sales and earnings figures for past years, I
noticed that there was a significant drop in earnings as a
percentage of sales from 1980-1992 - 11% to 4.8%. In one
particular year, 1985-1986, it declined from 10.8% to 6.9%. Can
you explain these changes?

FPI does not have em exact bresdcdown of sales and earnings
by product for all of the years since 1980; however, we can
provide general reasons for the change in our earnings rate
during that period.

118

a. The rapid expansion of the Federal prison population
and the resulting demand for additional inmate work
opportunities during this period has increased the need to
expand FPI's product research and marketing capabilities.
Effective research and development is necessary to identify
and develop new products and services opportunities. It is
through this process, that FPI develops new inmate work
prograuns for the expanding inmate population. Although
this is a necessary function, it also increases general and
administrative costs that must be applied as overhead
against sales income levels.

b. In order to supply an increasing prison population with
meaningful work opportunities while minimizing the impact on
private sector businesses, FPI entered into the production
of products and delivery of services that were more
difficult to provide than those traditionally offered. This
caused significant earnings reductions while FPI ' s
capabilities matured in those industries. During the 1985 -
1989 period, FPI opened factories to manufacture Battle
Dress Uniforms (BDU's), tee shirts and boxer shorts for the
U.S. Army. During this period it is estimated that the
Corporation experienced losses associated with factory
start-up of $18 - $20 million. We now produce BDU's and
shorts at a profit but have discontinued tee shirts. There
were several other new products that were generally a
negative influence on our earnings in their first year or
two of operation. Examples are the Kevlar Combat Belmet and
prescription and safety eye wear (optics).

c. The dramatic expansion in the Federal prison population
has also forced FPI to take more low volume orders that are
more expensive to manufacture.

d. Changes in customer demands and product lines caused
inventory write-offs over several years including $4.5
million in 1985 alone.

In FY 1980, FPI had 80 factories at 37 Federal prison
locations. Today, FPI operates 89 factories at 47 Federal
prison locations. This rapid growth as a result of a
greatly increasing prison population, coupled with the
reasons cited above are why FPI profits have dropped over
the last 12 years. As pointed out by the Independent Market
Study mandated by Congress, extreme diversification such as
that required by FPI's statutes accomplishes its goal of
reducing impact on private sector industries. However, this
diversification is very expensive, and it makes economies of
scale and other efficiencies difficult to achieve.

119

FFI Is currently taking measures to reduce both operational
and administrative costs. These measures Include new
automated Information and planning systems emd major
strenml Inlng efforts. It Is through these Initiatives, that
FFI will Is^rove eeunilngs performance In the coming years.

4. In 1990 FPI was giv*n authority to borrow money on a limited
basis from the Treasury for capital azpenditures . Has this been
utilised since 19907 If so, please provide details.

FPI borrowed $20 million from the Treasury In 1989 In order
to construct factories at new Federal prisons. These funds
were utilized to construct new factories at the following
new Institutions:

FCI Marlemna, FL
FCI NcKezm, PA
FCI Jesup, GA
FCI Sheridan, OR
FCI Three Rivers, TX

5. Mr. Robert Millan was appointed to the FPI Board of Directors
as a representative of the Secreteury of Defense. Please explain
how Mr. Millan represents the Secretary of Defense and if regular
meetings are conducted with the Secretary of Defense as part of
his role.

In recent years there has not been a close affiliation
between the Secretary of Defense <md the Board of Directors.
As such, regulfu: meetings eure not held between Mr. Millan
emd representatives of the Secretary of Defense. However,
FPI has frequent and direct Interaction with the Department
of Defense. The results of such meetings are routinely
provided to the Boeurd.

The Congresslonally Mandated Independent Market Study
recommends that the coBq>o8ltlon of the Board emphasize the
expertise needed by the Board, rather tham any particular
affiliation. The two exceptions to this would appear to be
the seat representing the Attorney General emd the labor
seat, where a close working relationship with the Department
of Justice emd organized labor would be beneficial.

6. Please provide the number of FPI eiployees who are engaged in
marketing services for FPI.

As of this date, FPI has 12 persons devoted exclusively to
generating services business. This Includes the
reassignment of several persons who were formerly meurketlng
furniture emd other traditional FPI goods to develop new,
non-tradltlonal service work opportunities for Inmates.
Some of the more promising areas of potential service work

120

for FPI include various types of rebuild and repair
services. Equipment in this category includes forklifts,
vehiculeu: components and personal computers, as well as the
repair of textile items. Other service areas include tool
kit assembly; distribution of printed matter and other
items; telephone answering services; and data services to
support advanced technologies such as the digitizing and
conversion of maps and engineering drawings into an
electronic format. The accompanying brochure outlines the
primary areas where FPI has concentrated efforts, in an
attempt to generate non-traditional service jobs for
inmates. To support its marketing efforts, FPI has created
a Services Strike Force comprised of sales, market research,
and engineering staff to continually assess the viability
and feasibility of these promising new areas as they are
identified.

I trust this is fully responsive to your questions. I would
be happy to provide you with any additional information, or to
elaborate on any of these responses.

Sincerely,

YoAk^>[>^^

Kathleen M. Hawk
Director

Enclosure

121

WAIVER REQUEST PROCEDURE

In accordance with Title 18. US.C. Sec. 4124(a) nd FedenI Anquintinn Hefolackait toiifan 8.6. Fedetal Ptitoa Indunries.
Inc. (UNICOR) has a mandatory prefereaoe for tiqiplies lifled in its "^dtedak of Products.'' When an ordaing offke wishes
to purchase supplies listed ui the "Schedule" from sources odierifaHi UNICOR. it will submit a lequesi for waiver to the
Customer Service Manager, Federal Prison Industriea. inc. (UNICOR). The request will be directed as foUows:

Federal Prism IndnsUKS, Inc.
320 First Sl. N. W. (ACACIA)
Washingmi.DC20S34
Attn: Customer Service Manager

Telephone: 1-800-827-3168
Facsimile: 202-62S-1S97

federal Prison Industries. Inc. (UNICOR) will consider rBi|Dests for waiven based on documented disparities in price,
inability to meet reasonable delivery dates, and disqualifying vahttons in functian and "match. " Requests will be considered
in connection with the standards set out in its Waiver Policy. UNICX)R has attempted to set out widi the greatest degree of
objectivity the standards that it applies in making decisions on waiven. While there must inevitably be some discredoo
exercised in these decisions, UNICOR will always give careAil coosidentiaa to a customer's request It is guided in all its
decisions by its commitment to Total Customer Satisfactun."

A. Requests shall contain the foUowiog informatioa:

1. As complete a desctipdon as possible of the required items: e-g.. National Stock Number, desciiptive literanne such
as cuts, illustrations, drawings, and brochures that explain die cfaaractoistics and/or the construction. When appli-
cable, e.g.. Items built to a military or Federal spedfication. a complete technical data package should be submitted.

2. Quantity required, price of preferred item and required detivery dale.

3. In situations where the waiver request is based on fimctional diffaences. a comparison of the fimctional differences
between the requested item and the "schedule'' item should be provided identifying as a minimum:

(a) inadequacies of the "schedule" item to peifoiiii the required fiinctioBs: and

(b) econofiuc. or other advantages of the item lequesied.

4. Estimated annual usage or future need for similar items or a naimrnt that the requiremem is noarecurring and no
future need is anticipated. Indicate if this or similar items have previously been purchased from UNKTOR.

B. UNICOR delivery schedules are consistent with delivery schedules for companMe items appearing on Cieneral Services
Administration Federal Supply Schedules (FSS). Where schedules for comparable items do not exist, deliveries are
consistent with good commercial practices. In the evem dai delivery times shorter than notmally available from the FSS
or commercial sources are required, certification, in writing &om the conuacting officer must be piovided stating the
reason for the shorter delivery requiiemenL

C. All factors are considered when a determination is made. This inchaks customer needs, current factory loading and
future requirements. Each request is evaluated on its own merits. UNICX>R policy does not permit blanket waiveis but
evaluates each request on a case-by-case basis considering, primarily, the needs of the customer.

D. Appealsto waiver denials can be inade by forwarding leasons for the appeal to the Customer Service Manager by letter.
Please note in your transmission that this is an appeal and refoence the original waiver identification number. Appeals
should be transmitted no later than 30 days after receipt of the original decisioi.

E Every attempt will be made to respond to waiver requests and appeals within five (S) working days of receipt.

F. Ordering offices should not initiate action to acquire similar nems fitxn sources other than UNICOR until a request for
waiver is approved.

To check the status of your lequest or to inquire about prices. deUvery. aider status or odier concerns please call the UNICX)R
Customer Service Hotline:

l-800.«27-3t68

122

WAIVER GUTOELINES

L WAIVER REVIEW TEAM

Each pnxluct diviiion will esublixh > Waiver Review Te«m consisting of al least two meniben. The pennanent member and leader
of die team will be die Aaaistant Division Manager, or in die absence of an Assistant Division Manager, a person designated as
team leader by the Division Manager. The odier metnbei<s) of die team wUI be die Industrial SpeciaUsKs) for die product under
waiver review.

Intheevcotofacamnerappealtoa waiver, the final decision on die appeal will be the responsibility of die EXvision Manager.
The Assistant Diviaian Manager, or a person designated as the team leader, will make recommendations lo the Division Manager.

Processing of waiver requests and appeals will be in accordance widi the instructions in the Waiver Processmg Procedure.
The Waiver Review Team vrill review all waiver requests and fender a decision based on the following guidelines:

n. GUIDELINES

A. PridBf :

UNICX>R is mandated to provide products at "not to exceed current market price." Current market price is detemuned in the
foUowing ways:

1. F«denl Supply Schedule (FSS): Ifa comparable product is on a GSA/FSS. die schedule prices will determine current
market price.

2. Industry comparison: When a cumpatable product is not on an FSS, but is generally available from private sector manufac-
turen, a irview of private sector prices will be used to establish a "range" for current market price. This range determines
the current iiiaiifi price.

3. Where comparable products cannot be idefitificd or where a customer requests special modifications to a UNICOR product
or where UNICOR has been the sole provider of a product, current market price is determined by our cost to manufacture
(including applicable overhead and administrative costs) plus a reasonable return as determined by Corporate Management

Waivers b«ed on price will not ordinarily be issued when die product does not exceed current nurket price as defined above.
However, where diete is no genuine comparability between UNICOR's product and die product required by die purchaser, waivers
may be granted even diough UNICOR's price for itt product does not exceed die cunent market price. Factors to be considered in
determining whether producn are comparable include quality and similarity of materials, methods of construction, product durabil-
ity, presence of ancillary features, warranties, etc.

B. Dcttvtry:

UNICOR deliveries will be consistent widi dw dehveries for comparable products on die Federal Supply Schedule (FSS), or
with good commercial practice when an FSS does not exist When customers request delivery times shorter dian diose quoted
for comparable products on the FSS, or than is available under good commercial practice, a letter from die contracting officer is.
required stating die teaaoo a shorter delivery is needed and attestuig to die fact diat die products required are available from an
altemadve source in the tiine frame required.

Waivers will not be issued when UNICOR can meet die delivery criteria stated above, unless an acceptable reason for a shorter
debvery dale is provided.

C. Fcrfamancc ckaradcfirtka:

When a waiver is requested based on an assertion dial UNICOR's product will not perform as well as anodier or in die manner
desired by die customer, die contracting officer must provide, in writing, details describing die non-conformance characte^stic^
ofdie UNICOR product.

D. Awthrrtn or matriihit odrtiag itcai:

Generally diis is not an acceptable leason to giant a waiver. However, discretion will be used. For example, where additions arc
being made to a building where competidve producu are mstalled. and new products would be in close proxiimty to existuig
items, waivers may be justified. Also, waivers will be considered for installation compatibihty, as in the case of systems
fiimiture and shelving.

I Daily (CBD) /

In order to avoid a siniatioo where UNICOR exercises its statutory preference after a private sector company has gone to effort
and expense preparing a bid package, UNICX)R will exercise special care widi regard to procurements diat have been an-
nounced in die Commerce Business Daily. Aldiough solicitations for products manufacnircd by UNI(X>R should not appear in
die CBD without first obtaining a waiver from UNICOR, occasionally duough error such solicitations do appear. The Federal
Acquisition Regulations (FAR), subpart 5.203. require a fifteen ( 1 5) day waitmg period between die date of die CBD synopsis
and die issuance of solicitations. Therefore, UNICOR will exercise its preference by requestmg cancellation of die solicitation
oiUy during this waiting period.

123

NAIVZR REQOEST SUMMAinr

04/23/93

Request received Froa:

10/01/92 THRU 04/23/93 (5 DAY PROCESSING GOAL

TORNAROnHD AVG DAY DISPOSITION
REQUESTS PROCESSED W/I GOAL PAST PEHDIMG PROCESS A D

4098

3955

3218

737

143

3897

WAIVER REQUEST SOMKASy

04/23/93

Request received Proa:

04/01/93 THRD 04/23/93 (5 DAY PROCESSING GOA

TOSNAROmfD AVG DAY DISPOSITION
REQUESTS PROCESSED W/I GOAL PAST PEMOIMC PROCESS A D

647

582

556

574

Tor morAh oi b^\ , '^3

*1«3 p?cctSor^ +«niu = 2c)2^

124

SERVICES

SUPPORT YOU DESERVE FROM A CORRECTIONAL PROGRAM YOU NEED

U.S. Department of Jtslkc

UNICOR

FedenJ Pnion Industries. Inc.
KXV93

125

UNICOR. Fwlerd Prison Induslnas oAwi a
btood voflvly ol Mgh-caWxt Mmcn mcH
can wihanc* your human and financial
ntOMCtt. tf you hov* •quipnwnt to
rapaif . lumihir* to laAnith. data to input, or
a iob to print and dWiiliut*. cc« UNICOIL
Wa II giv* you ttw tupport you n««d.

• PRINTING

Seven reglonal^ iocat-
ed pnnt fcxilities
enable UNICOR to
otfef 0 full range of
pnnting and reioied
services

• Single & Mutti-Color
» Long or Small Runs

• Booklets Pampnien. Brocnures

• £nve/ooes ond Sfononerv

• Carooninteneal Forms

» CortX3n/ess & Continuous fotrm

• 8/nd/ng Services

• (?ecyc(edSfoc)(

UNICOR s on outrionzed altemafve of^l-
ing source to tne US Government Pnntmg
Office"

" Ber me Jofffl CoTimmee on ftntii^ Congress of I^o
Unrtea STotes Govefrvneni Pmtng ora Bnorg
R»g(JoT«oni. No26 poro47 p24

« DISTRIBUTION

UNICOR offers a brood array of distribution
services tot every dotnbution need One-
t»Tie mailnQs. periodic bulk protects, lots,
videos ■ n tact, anyttimg that is ware-
tyjused and distnbuled ■ UNICOR can do
ttieiob. Our capobilifies include

• Mai Preparation

• Copying

• UsI Be Management

• Inventory Manogement
» 8U)c ^failings

» Zp * 4

Our modem
Texas faciMy wil
prmt or copy your
documents or
manudSand
store ttiem until
needed Well
tnen assemble,
fold ond msert
ttiem, apply your mailing lotiels. pre-sort by
zip cix3e and snip tnem We con even
supply 'G' peimil impnnts And. UNICOR
guarantees compliance witti all postal reg-
ulalions

• DATA SERVICES

UNICOR Data Services nas trie resources
ana expertise to handle virtuolly ony mtor-
rrxjtion monogemeni problem quickly,
economically and professionally
Oi» services inciuoe

Our many capabilities nave been appi"
10 a variety of protects, including

• lechnical Manuals

• Tfammg Manuais

• reirtbooks

• Policy ManuoS

» Patent Applications

•■ Legal Documents

» Medical Recoras

■• Sfondord forms

• Sconnoote /moges
•• Statistical Data

i» f ngineenng Drowmgs

• Aperture Cards

• Maps

Your aoto s olvKoys delivered in o term
ftx^t 5 compotible with your system ana *:
available m a vanety of stote-of -the-an
media, including CD-ROM

126

• EQUIPMENT REPAIR
AND REMANUFACTURINC

Setcxe disposing of ttxH old engine part,
send A to UNICOR We'll repair or rebuild rt.
orya vou II nave o good-os-new compo-
nent mot meets oil required specifications,
oil tor oDOut 60 percent ot less of ttie cost
of anew one We txjve lexos and
Cdlitomid tociWies ready to serve vou. and
Eost Coast sites ore on tne woir

Here iiusta smal sample ol tne compo-
nent we con repair

• Mematon

• Generaton
- Sforters

• Regulaioi%

• Eiecnc Motors
iuploSOhp)

• Tronsmosions
» Poor Jocks

• Hvorouiics

• target tutors

• Pallet Jacks
» Fork Lifts

UNICOR con also extend tne We of costtv
coDie assemblies and winng ryamesses by
'epidcing necessdry wires, cables or con-
necTors ono re-oroiding tr^em to original
soecticotions

• LASER CARTRIDGE
REMANUFACTURINC

UNICORs new Laser Cortndge
Remonufoctunng Service can remanutoc-
ture your used cartridges and return tt>em
to you good as new tor about half ttie cost
ol a new one We II refill trie toner, clean
and replace worn parts, install new. long-
life diums ond test tor guolity Vour remon-
ufactured cortndge wiO be unconditronolly
guoronteed or we II replace it witti another
remanutoc turea cartridge

• TELEPHONE AND
CUSTOMER SUPPORT

Courteous, protessionol teleptione services
can be yours at a reasonable pnce
ttvougn UNICOR leiecommunication
Setvces We « customee a program to fit
you special needs, including bilinguol per-
sormol dnd ndtionvKide networtcing

• FURNITURE REFURBISHING
AND REFINISHING

UNICORs Furniture Refu(t5is^llng/Refinishlng
Service con give sofas, clxais, desks, file
cobinets ond more, yeois of eirttolife Our
experienced c/dftsmen will retiobllitate
your fumrtute m our modem Texds ond
Virginia plants, dnd do it for less tnon ttie
cost ot repldcement. We offer

• Reupholstenng
m frame Oepan
» Spring

ffepwcemenf

• Metal Refinishmg

• Webbing

• Padaing

» Wood Refrushmg

■• Tying

» Fire RetrMatior

• leicUe Repair

UNICOR guarantees, without
time limitation, that an work will
Oe performed to customer
leouiiements ana specifications

127

• UNiCOR, YOUR N0.1
SOURCE FOR SERVICES

As port ot the FeOefcS Buieou o( Prisons,
within me Deoanment of Justice. Federal
Pnson Industites. Inc ■ known more popu-
lotty bv its trooe name. UNICOR - fxB tseen
pfovtdmg lotd Customef SotBtodion' to
Fedetol patrons s»x:e 1934

The UNICOR services weve s^ared with
you ttifough ths bfochuie ore only repre-
sentative of oui many copabiihes. Were
olwoys reody to explore new woys to serve
you. OCT custonier So. rf you need help
with any atxx ntensive protect that touches.
ho«iever remotely on any ot ou services.
we mvite you to call Wei be happy to dis-
cuss It with you and ouote pnces We want
to be your No I source lor sendees.

U.S. Department of

I UNICOR

Fvienl Pnwon Industn
Graphics & Services Divoion
Telepnone: (202) 508-8462
320 F«st Street. NW
Washfigton. DC 20&34
CuMmw Swvicr (MXn 827-316J
: (202) 628-1897

Catalogs ooout other UNICOR p
and services, ond UNlCORs woi
ate ovailable upon request

Appendix 8— Letter From Hon. William J. Hughes, Chairman, to
Sue Perry, Director, Governmental Affairs, Business and
Institutional Furniture Manufacturer's Association, April 8,
1993 (No Response Was Received)

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April 8, 1993

Ms. Sue Perry

Director of Government Affairs

Business and Institutional Furniture

Manufacturer's Association
2335 Burton Street, S.E.
Grand Rapids, Michigan 49506

Dear Ms. Perry:

Thank you again for testifying at the March 11 oversight hearing on
Federal Prison Industries, Inc. (FPI) . There are a few issues I
would like to follow up on from your testimony so that the
information is available for the hearing record. Your responses
will assist in the decisions which will need to be made concerning
FPI.

In response to a question from Representative Schiff , you indicated
that you had specific examples of government agencies paying higher
prices fo^ FPI products than if purchased from private industry and
examples of FPI bids that were considerably higher than private
industry bids for the same product. Please provide details of
these examples and, if possible, any supporting documentation.

The second issue relates to the suggestions you provided as to the
types of alternative work which could be performed by prisoners
without as much impact on private industry. One suggestion was
recycling, another was development of food processing and the third
related to the manufacture of solar stoves to be utilized in lesser
developed countries as an alternative to wood fuels. You did not
have an opportunity to elaborate on these projects at the hearing.
Could you please answer the following questions in relation to
these suggestions?

1. If any of the suggestions were adopted, does the furniture
industry support a change in the statute to permit FPI the right to
sell either products or services to the private market (it is
presently limited to the government market) and to provide prison
products outside of the United States?

(128)

129

2. Has the furniture industry initiated or completed any market
studies to determine the market for the products or services
suggested and what would be the available market?

3. If any of the suggestions were adopted, or any other
suggestion, what percentage of FPI furniture business do you
anticipate being reduced through other business activities?

I appreciate your assistance in responding to these questions. If
you have any questions or need additional information, please
contact Jarilyn Dupont with the Subcommittee on Intellectual
Property and Judicial Administration. I am hopeful that we will be
able to fashion a compromise that will benefit all parties and
still address the needs of an increasing prison population.

Sincerely,

Subcommittee on Intellectual Property
and Judicial Administration

WJH: jd

72-576 (136)

BOSTON PUBLIC LIBRARY

3 9999 05983 011 5

ISBN 0-16-043637-0

9 780160"436376

90000

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Full text of "Federal Prison Industries, Inc.--UNICOR : hearing before the Subcommittee on Intellectual Property and Judicial Administration of the Committee on the Judiciary, House of Representatives, One Hundred Third Congress, first session, March 11, 1993"

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