SPEAKERS       CONTENTS       INSERTS    
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58–956

1999
OPTIONS TO IMPROVE AND EXPAND FEDERAL PRISON INDUSTRIES

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

OCTOBER 30, 1997

Serial No. 107

Printed for the use of the Committee on the Judiciary

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For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah

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JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey

THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director

Subcommittee on Crime
BILL McCOLLUM, Florida, Chairman
STEVEN SCHIFF, New Mexico
STEPHEN E. BUYER, Indiana
STEVE CHABOT, Ohio
BOB BARR, Georgia
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ASA HUTCHINSON, Arkansas
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina

CHARLES E. SCHUMER, New York
SHEILA JACKSON LEE, Texas
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey

PAUL J. MCNULTY, Chief Counsel
GLENN R. SCHMITT, Counsel
DANIEL J. BRYANT, Counsel
NICOLE R. NASON, Counsel
DAVID YASSKY, Minority Counsel

C O N T E N T S

HEARING DATE
    October 30, 1997
OPENING STATEMENT

    McCollum, Hon. Bill, a Representative in Congress from the State of Florida, and chairman, Subcommittee on Crime

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WITNESSES

    Adduci, V. James, II, American Apparel Manufacturing Association

    Harrell, Michael N., General Manager of New Business Development, Pride Enterprises

    Heeringa, Donald G., President, BIFMA International

    Hoffman, Ann F., Legislative Director, Union of Needletrades, Industrial and Textiles Employees

    Mellem, Kenneth L., President and CEO, Geonex Corporation

    Reynolds, Morgan O., Director, Criminal Justice Center, National Center for Policy Analysis

    Ryan, Stephen M., Quarters Furniture Manufacturing Association

    Sanders, Robert, Division of Prison Industries, South Carolina Department of Corrections

    Schwalb, Steve, Chief Operating Officer, Federal Prison Industries

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
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    Adduci, V. James, II, American Apparel Manufacturing Association: Prepared statement

    Harrell, Michael N., General Manager of New Business Development, Pride Enterprises: Prepared statement

    Heeringa, Donald G., President, BIFMA International: Prepared statement

    Hoffman, Ann F., Legislative Director, Union of Needletrades, Industrial and Textiles Employees: Prepared statement

    Jackson Lee, Hon. Sheila, a Representative in Congress from the State of Texas: Prepared statement

    Mellem, Kenneth L., President and CEO, Geonex Corporation: Prepared statement

    PRIDE Enterprises: Letter

    Reynolds, Morgan O., Director, Criminal Justice Center, National Center for Policy Analysis: Prepared statement

    Ryan, Stephen M., Quarters Furniture Manufacturing Association: Prepared statement
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    Sanders, Robert, Division of Prison Industries, South Carolina Department of Corrections: Prepared statement

    Schwalb, Steve, Chief Operating Officer, Federal Prison Industries: Prepared statement

OPTIONS TO IMPROVE AND EXPAND FEDERAL PRISON INDUSTRIES

THURSDAY, OCTOBER 30, 1997

House of Representatives,
Subcommittee on Crime,
Committee on the Judiciary,
Washington, DC.

    The subcommittee met, pursuant to notice, at 9:40 a.m., in room 2226, Rayburn House Office Building, Hon. Bill McCollum [chairman of the subcommittee] presiding.

    Present: Representatives McCollum, Chabot, Gekas, and Jackson Lee.

    Also present: Representative Frank.

    Staff present: Paul J. McNulty, Chief Counsel; Glenn R. Schmitt, Counsel; Kara Norris, Staff Assistant, and David Yassky, Minority Counsel.
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OPENING STATEMENT OF CHAIRMAN MCCOLLUM

    Mr. MCCOLLUM. [presiding]. This hearing of the Subcommittee on Crime will come to order.

    Today, the subcommittee will hold a hearing on prison industries, a crucial part of both State and the Federal correctional programs. The Federal Government and most States requires all inmates to work if they are physically able, and corrections systems of both the States and the Federal Government also operate prison industry programs. These programs use workers to produce goods and provide services in a variety of ways. The principal purpose of these programs is to teach job skills to inmates, so that on their release from prison they will be more likely to find and hold jobs. Studies consistently show a direct correlation between the ability of inmates to find and hold jobs after they are released and the likelihood that they will not commit future crimes.

    Of course, there are other significant benefits of prison industries. Prisoners can earn income to support their families and pay restitution and fines. Governments can raise revenues to defray the cost of incarceration and free up tax dollars for other priorities such as education.

    A significant problem facing State and Federal corrections programs is the tremendous growth in the prison populations over the last decade. By the turn of the century, the Bureau of Prisons' inmate population will have increased by over 100,000 inmates in less than 20 years. Yet, on the Federal level, only 18 percent of Federal prisoners work in prison industry. On the State level, only 6 percent of prison inmates work in prison industry. Given the rapid increase in the size of both State and Federal prison populations, the proportion of inmates working in prison industries is likely to decrease in the future unless steps are taken now to prevent this from occurring.
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    I believe that it's crucial that the benefits of prison industries be given to the greatest number of inmates possible. In my view, it is in all of our interest to help ensure that when inmates are released from prison, those inmates are less likely to commit crime.

    While I'm a strong supporter of prison industries, I'm also aware that many prison industries often compete for business with small, struggling businesses and companies that employ American workers. In the past, Congress has attempted to balance these interests by limiting the sale of goods made by Federal Prison Industries, also known as UNICOR, to Executive Branch agencies only. In return for this limitation, Congress has required these agencies to purchase the goods they need from UNICOR up to a fixed percentage, provided that those goods are substantially similar in quality, cost, and availability to those available from commercial suppliers.

    Most State programs similarly limit their industries. However, Congress created a pilot project exception several years ago which allows prison-made goods to be sold in the commercial market under very limited conditions. In spite of these limitations, many trade organizations object when prison industries seek to increase their sales to the government markets in order to provide more jobs for the increasing number of inmates coming into the system. But these associations also state publicly that they support the concept of prison industry work.

    The purpose of today's hearing is to discuss ways in which the benefits of prison industry labor can continue to be given to State and Federal inmates, but in ways acceptable to all sides. In short, today's hearing is not about what has been wrong with prison industries in the past, but to discuss what the structure should be of prison industries in the future.
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    And I want to say that, in my view, all options are on the table. I'm not opposed to considering eliminating the mandatory source preference, but if the playing field is going to be leveled in this way, I would ask those who urge this why it shouldn't be completely leveled; that is, why prison industries shouldn't be allowed to compete for business outside of the government.

    I am open to suggestions that there should be more public/private partnerships for prison industries, so that industries are not competitors with private business, but rather partners working cooperatively with them. I welcome suggestions that prison industries provide more services and fewer finished goods, but I expect concrete examples of the types of services that should be provided.

    Finally, I encourage proposals that would allow prison industries to capture jobs presently sent offshore by American companies. I know this is a relatively untapped area of the business of prison industries, but the debate must go further than just stating the obvious point that this option should be considered. The discussion should include specific types of incentives that must be created to encourage businesses to bring those jobs back to the United States and the ways in which prison industries can identify those opportunities.

    Today, we'll hear from representatives from both the Federal and State prison programs. We will also hear from an entrepreneur who uses prison labor in America rather than sending work to be done outside the United States. We will hear from an economics professor who regularly studies and publishes in this area, and we'll also hear from trade associations affected by prison industries and from a labor union representative whose workers compete with prison industries.
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    I welcome all of the witnesses today. I look forward to receiving the testimony and discussing this important issue with each of you. We simply have to find a way to put more prisoners to work in a productive way. There is no question that when prisoners are properly trained through prison industries with good work skills and work habits, and then follow it up with good placement programs and jobs, the recidivism rate is much lower. Sadly, that is a very small, tiny percentage of the prison population in the United States today, and I think that it behooves all of us to improve that. I think we can do it working together, and I'm looking forward to this hearing.

    Mr. Gekas, do you have any opening remarks?

    Mr. GEKAS. I thank the Chair. The Chair has adequately described the one certainty with which I approach this subject matter, and that is the likelihood that working in prison helps us in the overall problem of recidivism. I start with that certainty, and everything else is open for full debate in my corner of the world. And I thank the Chair.

    Mr. MCCOLLUM. Thank you. Well, we've got one of our guests here today—Sheila Jackson Lee is not a guest—Mr. Frank's a guest.

    Ms. JACKSON LEE. Call on Mr. Frank, and let him go, and then I'll go after Mr. Frank.

    Mr. MCCOLLUM. Mr. Frank, would you like to make an opening remark?
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    Mr. FRANK. Thank you, Mr. Chairman. I appreciate your letting me do this, as I'm not a member of this particular subcommittee.

    I am a co-sponsor, along with Mr. Hoekstra and others of legislation that would make some changes and reduce the scope of the extent to which prison industries, in my judgment, unfairly take away business from the private sector. I wouldn't say ''competes with'' because we are talking about provisions that do not allow competition.

    And I want to make a distinction. I very much agree that having the prisoners usefully employed in prison helps with reducing recidivism. It is my impression, however, that the benefit of that comes from the physical production processes that they are engaged. That is, it is not my understanding that the prisoners do a great deal of marketing. And I say that because one of the things that I think we should be actively looking at is taking products that are made by prisoners and finding ways to give them away in parts of the world, including this country, where there wouldn't be competition.

    We have had an analogy of that in surplus food distribution in the past. That is, we do know there are some submarket sectors, and I think the rehabilitative work would be just as well done if the prisoners made the things they made and we then very diligently searched for ways to give these to people, to refugees, to others, who would need that. That would allow us to get the rehabilitative benefit of prison work without having the unfair impingement on working people, small businesses, and working men and women.

    Now this might deprive the taxpayers of something, of some revenue, but I think, again, we have to separate that out. To the extent that the benefit to all of us occurs, because we reduce recidivism by the prisoners working, then that cost ought to be fairly borne by the whole society, not disproportionately by those small business people or medium-size or big business people hiring workers who happen to be competed with. In other words, we've got an unfair subsidy now in which people in some sectors of the economy are forced to subsidize prison labor, and the rest of us get a free ride on that. I think we should be separating these out.
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    One, what should people do when they are in prison? Should they be constructively engaged? And I think that's a good idea. Two, should the Federal Government try to recover some of the money from that by selling the products they make in ways that undercut what people are making in the private sector? And I think that is not a good idea in general, particularly since, as I said, I believe we can find places where a lot of this can be given away.

    We could survey the private sector of this society, the charitable sector, people who work with people in desperate need, and find out what the demand is for goods of a sort that could be made with the purpose of distributing them in a noncompetitive way and in a charitable way. And, therefore, I believe the legislation that Mr. Hoekstra and I, and others, are supporting is very important, and I think the notion that we will use the prison labor in ways that take away from and unfairly compete with, in fact, the private sector is a mistake, and not at all necessary for the purposes that are put forward.

    Mr. MCCOLLUM. Ms. Jackson Lee, do you have opening remarks?

    Ms. JACKSON LEE. Yes, Mr. Chairman. I thank you for this hearing and would offer to say that I'd like to revise and extend and add my complete statement in the record.

    Mr. MCCOLLUM. Without objection, so ordered.

    [The prepared statement of Ms. Jackson Lee follows:]

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PREPARED STATEMENT OF HON. SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

    First of all, let me thank the Chairman for holding these hearings on a issue that I feel merits very careful review by this Committee, prison work programs. The fact of the matter is that any prison work program that produces goods or provides a service is an entity that requires a great deal of impartial supervision. This is important to me because I am an advocate of prisoner rehabilitation, and a commonly used method to try to restore incarcerated individuals to the stature of being contributing members of society again, is the prison work program.

    If we look back, there is no question that for years, inmates in this country have made everything from license plates to key chains, but always with the purpose of helping the inmate assigned to this work detail acquire a valuable skill. As well, corrections professionals have consistently argued that inmate work programs are essential to prison management and population control. Work for inmates gives their day structure, establishes a system of penalties and rewards, and most importantly, drains the inmate of energy he or she could normally use to plot or do harm.

    But now, in 1997, inmate work programs are so much more than control measures, simply stated, prison labor is big business. Federal prison factories, under the trade name of UNICOR, currently produce or provide over 150 different products and services. So now more than ever, the members of this Congress need to make sure that the labor of our prisoners are not exploited by private industry, government agencies, or any combination thereof.

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    The thought of prison labor, bought for meaningless pennies per hour, being allowed to compete (with these unfair advantages) against other American businesses that must follow the accepted rules for commercial activity in the open market, like minimum wages for workers or state, local and federal tax payments is truly unconscionable. This is the reason why we are here today. To answer the question of what is the best way to continue to give prisoners work skills useful for them after release and maintain order in our prisons, yet not disadvantage other commercial businesses with the distribution of these ''cheaply made'' products.

    The members of Congress that served in this body Before us, recognized that regulations and restraints on federal work prison programs were needed, and so in 1934, FPI (Federal Prison Industries) was created with specific limitations on the commercial activity of these programs. At present, as it has been since 1989, all expansions in FPI production require the approval of its Board of Directors. For our purposes, the controversial provision relating to FPI is the ''mandatory source'' rule which requires that all FPI products be sold to the federal government. Essentially, if a federal agency wants to buy a product which FPI makes they must buy from FPI, although, waivers from this requirement are allowed in certain circumstances.

    The legislation proposed today poses the question of whether the elimination of the so called ''mandatory source'' rule, it an effort to make it more difficult for FPI to expand into new commercial industries, in addition to further limiting FPI's share of total market share of government purchases will serve the best interests of all parties involved. A' Yes, it is attractive to save the taxpayers of this country, money, but the question is at what cost? At the cost of our integrity, at the cost of creating a federal monopoly built with use of ''quasi-slave'' labor? I surely hope not. I am going to hold steadfast to the belief that this Subcommittee will use all due caution and discretion in its review of this difficult matter. Thank you.
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    Ms. JACKSON LEE. Simply to say that I am a very strong proponent of the value of prison work or the work of prisoners as it relates to rehabilitation, and believe that in tax dollars and education and recidivism there is a high value to Americans when prisoners are trained and utilized in valuable skills.

    At the same time, I do think we need to address the question of competitiveness. Usually prisons, both State and Federal, are largely in rural areas, where there is a great need to balance the economy, so that prisoners may not be competing unfairly. I do think that the legislation that has been proposed deserves our consideration. It deserves our consideration as it relates to balancing the needs of rehabilitation with the protection of small businesses. I hope, however, as we proceed, that the individuals that will make their presentation today provide us with that insight that we will be able to proceed with an informed basis.

    So I thank the chairman for this, for this hearing, and I look forward to hearing some of the testimony. I will not be able to stay for the entire hearing. Thank you.

    Mr. MCCOLLUM. Thank you very much.

    At this time, I would like to introduce our first panel today and thank them for being here. Our first witness today is Steve Schwalb, the Assistant Director of the Federal Bureau of Prisons and the Chief Operating Officer of the Federal Prison Industries. He has held these positions since 1993. He began his career in the Bureau of Prisons in 1973 and has held numerous positions within the Bureau of Prisons, including Chief of the Office of Inspections and Warden of the Federal Correctional Institution in Oakdale, Louisiana. He holds a bachelor's degree in personnel management and labor relations from the University of Washington.
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    Our second witness is Michael N. Harrell, General Manager of New Business Development for Prison Rehabilitative Industries and Diversified Enterprises, commonly known as PRIDE, the prison industry program in my home State of Florida. He is responsible for developing new business by partnering PRIDE with private sector companies to produce goods and services for the domestic and international markets. Before coming to PRIDE, Mr. Harrell held several positions with the Division of Amoco Chemical and was an industrial engineer for the Firestone Tire and Rubber Company. He also worked as a consultant for Coopers and Lybrand, providing management consulting services to companies of all sizes. He received his engineering degree from Georgia Tech.

    Our third witness is Robert L. Sanders, a program manager for the Division of Prison Industries of the South Carolina Department of Corrections. In this position, he manages the PIE program and serves as the liaison between the private sector companies and institutional staff and prison industries management. He has worked for the Department of Corrections since 1973 and also served 4 years as the president of the Southeastern Correctional Industries Association.

    Next is Kenneth L. Mellem, president and CEO of Geonex Corporation, a privately-held mapping and GIS services company, headquartered in St. Petersburg, Florida. With 275 employees in the United States, Brazil, Saudi Arabia, and Pakistan, Geonex services—I'm not saying this right, Mr. Mellem. I got Geonex right? Is that what it is now?

    Mr. MELLEM. Correct.

    Mr. MCCOLLUM. Geonex serves the Department of Defense, the National Imaging and Mapping Agency, the environment market, and the utilities markets. Prior to joining Geonex in 1996, Mr. Mellem spent 23 years with Control Data Corporation. His professional experience includes over 10 years of international operations and responsibilities in 28 countries worldwide. He received both his bachelor's degree and his master's in marketing from the University of North Dakota.
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    Our final panelist on this panel is Morgan O. Reynolds, Director of the Criminal Justice Center for the National Center for Policy Analysis. He is also a professor of economics at Texas A&M University. Dr. Reynolds is the author of the Reynolds Report, an annual study of the actual time criminals spend in prison for crimes, and is widely published in academic journals. His recent NCPA work includes ''Factories Behind Bars,'' ''Crime and Punishment in America,'' and ''Using the Private Sector to Deter Crime.'' He is a consultant to the National League of Cities, the U.S. Department of Labor, and the National Labor Relations Board. He received his Ph.D. in economics from the University of Wisconsin.

    I want to welcome all of you today, and without objection, your entire written testimony will be entered into the record. I hear no objection. We ask that you summarize your testimony, keeping it as close to 5 minutes as possible. I realize that it may run over in a couple of cases because we have a large panel. We also have a lot of business and will probably interrupt you with votes today.

    I'm going to go pretty much in the order in which I introduced you, though you're seated in different areas and not in any particular order. I'm going to turn first to Mr. Schwalb, and ask if you would give us a summary, please, of your testimony.

STATEMENT OF STEVE SCHWALB, ASSISTANT DIRECTOR, FEDERAL BUREAU OF PRISONS

    Mr. SCHWALB. Thank you, Mr. Chairman, and good morning. We appreciate the opportunity to appear before the committee today, and to address various means of creating inmate prison industries jobs in ways in which both the Congress, private industry, and organized labor will find acceptable. I should emphasize that today I'm testifying on behalf of the Justice Department. The administration's position on this issue is currently under review.
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    Certainly the issue of inmate employment remains very important for us. We're seeing a rising inmate population, most recently added to by the decision to transfer the District of Columbia 7,500 inmates to our jurisdiction. So in our view, the dilemma remains one to focus on how to deal with jobs for that increasing population.

    I want to emphasize at the outset that we do understand two things. No. 1, the opposition many groups have to our continued sales growth in various products, such as furniture and textiles, but, secondly, I want to emphasize that we're always looking for new ways to create jobs that do not generate the usual opposition. We know there must be more ways than we have thought of. We're looking forward to discussing new ideas.

    I think it's fair to say that one of the most strident objections people express about Unicor is the mandatory source provision. We're all familiar with this, I believe. It's a provision that the Federal Government should buy from us first, if we have a product that's available from us, as opposed to the commercial market.

    Now while we have strongly objected in the past to proposals which would summarily eliminate this, because of the adverse effect we believe it would have on the management of the Bureau of Prisons, we want to assure the committee that our view is not to hunker down and dig in our heels, and merely defend the continued application of the mandatory source without looking at other ways to create jobs. Let me offer just a few brief examples of things that we are currently doing which I think will demonstrate our efforts.

    Recently, our board of directors, at the request of the industry, appearing before them at hearings, the board authorized, at the request of the industry, some look at how we could pilot the elimination of the waiver of mandatory source for select products to see how that would work. The first pilot was offered in dorm and quarters furniture; the second one in office furniture.
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    Now the first one is still entangled in litigation which was filed following the board's decision on dorm furniture. So we have not yet been able to untangle that and proceed with the potential pilot negotiation.

    The second one is the more disappointing one, and that's the one that was offered to the office furniture industry to negotiate a pilot with us on how to waive mandatory source for that product line. That pilot was, despite our efforts to negotiate, was rejected by the Furniture Industry Association in favor of legislation which would provide for the wholesale elimination of our mandatory source.

    I would emphasize that there is a lot of work we do that does not rely on mandatory source, and we continue to try to expand that. For instance, mandatory source does not apply to our provision of services to the Federal Government. And over the past several years, we put a tremendous amount of emphasis on providing services, and currently we have 15 percent of our population, over 2,500 inmates, providing services, and none of it under mandatory source. We believe this is a growing area. The work is, of necessity, labor-intensive, and we continue to explore new opportunities to expand services.

    Mandatory source also does not apply when we perform work as a subcontractor for a Federal Government contractor, and several of our factories are currently performing such work for defense contractors, such as Northrup Grumman and Lockheed Martin. We believe this area as well offers great potential, and we continue to pursue alternatives there.

    Finally, the last example relates to a relationship we have developed with the National Industries for the Blind and Disabled. They provide a lot of products and services to the Federal Government, but they also contract out a lot of the work that they're unable to perform in their workshops, and we're in the process of working on joint proposals whereby we would perform some of that work and offer mutual benefit to both of our respective constituencies.
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    We are obliged at the end of the day, however, both by law and our contribution to the management of the Bureau of Prisons, to create both self-sustaining inmate jobs and a job level which compares to the growing inmate population, and we believe this is an important context in which all these alternatives must be considered. We do not believe it's responsible to reduce inmate employment in the Bureau or to offer suggestions which are not financially viable.

    Mr. Chairman, we certainly appreciate your continued support for Federal Prison Industries and your interest in exploring new opportunities, and we look forward to pursuing the matter further with you and other members of the committee, your staff, and other interested parties. And we'd be happy to answer any questions at the appropriate time.

    [The prepared statement of Mr. Schwalb follows:]

PREPARED STATEMENT OF STEVE SCHWALB, CHIEF OPERATING OFFICER, FEDERAL PRISON INDUSTRIES

    Mr. Chairman, and Members of the Subcommittee, I appreciate the opportunity to appear before you today to discuss various means of creating inmate prison industry jobs in Federal prisons in ways which the Congress, private industry, and organized labor find acceptable. I am testifying today on behalf of the Department of Justice. The Administration's position is currently under review.

    The issue of inmate employment remains an important one as the Federal inmate population continues to rise. With the recent transfer of the jurisdiction of the District of Columbia Department of Corrections to the Bureau of Prisons added to our projections of future inmate population growth, we must focus on how the additional jobs that are necessary to keep the inmates employed will be created.
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    At the outset, let me emphasize two points. First, we understand the opposition many individuals or organizations have to our continued sales growth and our expanding production in traditional products such as furniture and textile products.

    Second, we are constantly searching for new alternatives for inmate job creation which will not generate the usual opposition. We are convinced there must be more than one way to achieve this, and we are completely open to exploring new ideas on this subject.

    The focus of most objections from private industry is the mandatory source provision: a legal requirement that government agencies utilize Federal Prison Industries (FPI) as a source of products before procuring from the commercial market. We strongly object to proposals which would summarily eliminate this statutory provision. We believe such action would jeopardize our ability to provide self-sustaining inmate employment. This, in turn, would generate inmate idleness and result in substantial disruption to the safe and orderly operations of Bureau of Prisons' institutions Let me assure you, however, our operating philosophy is substantially more progressive than merely defending the status quo. This may best be illustrated with a few examples.

    With the approval of our Board of Directors, FPI has demonstrated a willingness to explore pilot waivers of mandatory source for select products. Two such pilots have been authorized by the Board: one in dorm furniture and one in office furniture. The former has not yet been pursued because a lawsuit was filed by the Quarters Furniture Manufacturers Association (QFMA) against FPI over the Board's decision to authorize an increase in our production of dorm furniture. Since the Board decision also contains the language authorizing the pilot mandatory source waiver, on the advice of the Department of Justice, negotiation of the pilot program will not begin until resolution of the litigation. The latter pilot authorized by the Board was rejected by the Business and Institutional Furniture Manufacturers Association (BIFMA) in favor of sponsoring legislation which would provide for the wholesale elimination of FPI's mandatory source.
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    Mandatory source does not apply to services provided by FPI. Over the past several years, we have put a great emphasis on creating inmate jobs by providing services to Federal agencies. Today, over 2500 inmates, approximately 15 percent of those employed by FPI, are performing service work. The services include laundry, equipment and vehicle component repair, furniture refinishing, mattress recycling, printing, sorting, textile repair, distribution, data processing, and computer-aided design. This work is, of necessity, generally very labor intensive. We continue to look for other opportunities to provide services.

    Mandatory source also does not apply when FPI performs as a subcontractor to a Federal government contractor. Several of our factories are performing work for such contractors as Northrup Grumman and Lockheed Martin. We believe this area offers considerable potential and we are pursuing several additional contracts.

    We have also had several meetings with the national organizations representing the blind and severely disabled, which provide products and services to the Federal government under the provisions of the Javits-Wagner-O'Day Act. We are currently working on joint proposals whereby FPI would serve as a nonmandatory source subcontractor to these workshops for work normally not performed by the blind and disabled workers. We believe this option offers an outstanding mutual benefit to our respective constituents.

    FPI is obliged both by law and by its contribution to the management of Federal prisons to create self-sustaining inmate jobs for an inmate population which continues to grow unabated. This is the context in which options for inmate job opportunities must be explored. We must find alternatives that do not reduce inmate employment and at the same time are financially viable.
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    Mr. Chairman, we certainly appreciate your continued support for Federal Prison Industries and your interest in exploring new opportunities for inmate employment. We look forward to pursuing this matter further with you, your staff, and other interested parties. This concludes my remarks. I would be happy to answer any questions you or other Members of the Subcommittee may have.

    Mr. MCCOLLUM. Thank you very much, Mr. Schwalb.

    Mr. Harrell.

STATEMENT OF MICHAEL N. HARRELL, GENERAL MANAGER OF NEW BUSINESS DEVELOPMENT, PRIDE ENTERPRISES

    Mr. HARRELL. Thank you, Mr. Chairman, for this opportunity to share with you about PRIDE Enterprises. PRIDE Enterprises is headquartered in St. Petersburg, Florida, as a private, nonprofit corporation authorized to manage and operate the State's correctional industries inside Florida State prison. PRIDE operates 57 industries and 22 correctional institutions with revenues last year of about $85 million. A cross-section of leaders in business, education, and government are members of the corporation's board of directors. Appointed by the executive office of the governor, they provide leadership and oversight.

    Prison inmates learn marketable job skills when they train and work in the PRIDE industries. Business professionals train the inmates within an Enterprise environment that demands a strong work ethic and a focus on quality customer service, which are the soft skills demanded by today's employers.
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    The corporation's commitment to providing knowledge and industrial job training results in 85 percent of PRIDE's training businesses and operations being independently certified by accredited institutions. As an example, the Florida Department of Education, Florida A&M University, and the University of Florida, as well as business and trade associations and organizations such as the National Institute of Automotive Service Excellence.

    When fully-trained PRIDE inmate workers leave prison, they carry with them credentials of achievement in job skills that meet the requirements of today's businesses. PRIDE also provides comprehensive, post-release support for PRIDE ex-workers that includes job placement, housing, transportation, and other services that are critical to an ex-offender's successful transition into society. Over the past 5 years, an annual average of 88 percent of PRIDE ex-workers remain out of prison.

    PRIDE Enterprises relies on the sales of its products and services to continue and expand the prison industries that will offer more relevant job training to our inmates. Since 1985, no public funds have been provided to support the industry operations. In fact, PRIDE returns dollars to the State each year.

    PRIDE also absorbs the high cost of inmate on-the-job training which is created by an annual average of 100 percent turnover rate of inmate workers, large amounts of scrap material, and average 6-hour work days. However, because of its experience in working in constant training mode, the corporation can, through good, sound business principles, operate successfully.

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    Additionally, PRIDE lessens the tax burden on Florida citizens by making voluntary payments directly to the State that average approximately $1 million per year. PRIDE also contributes another million annually to the State for victim restitution and for the provision of inmate support services that includes a critical post-release transition support, which was mentioned earlier.

    Business professionals who train the inmates make up the majority of PRIDE's 400 employees. Again, like any other private sector corporation, PRIDE provides a competitive salary and benefit package to its employees. Again, the costs are absorbed by the generation of revenues received from the sale of goods and services manufactured by PRIDE.

    Another critical component to the successful operation of PRIDE Enterprises is public/private partnerships. Businesses throughout the State, as well as national and State trade associations and organizations, serve an important role by providing assistance to PRIDE that includes business planning, the previously-mentioned review of inmate job training processes, and the actual hiring of PRIDE ex-offenders. Over 300 of these businesses have been commended by Governor Lawton Chiles for their valuable contributions.

    Organized labor in Florida has been a partners with PRIDE. Dan Miller, former president of the Florida AFL/CIO, was founding director of PRIDE and served on the board of directors until early 1997.

    Like any other business, PRIDE Enterprises has a strong economic impact in Florida. Annually, PRIDE averages approximately $40 million in direct economic impact through staff payroll and the purchases of goods and services from approximately 3,500 Florida-based companies. During its 13 years of full operation, PRIDE has poured approximately $516 million into Florida's economy.
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    The corporation has accelerated its international exports recently, which allow PRIDE to produce products and services for a variety of countries, and to expand job opportunities for more inmates. Over half a million dollars in exports in 1997 included retread tires, boots, garments, and custom boxes. At the same time, the corporation is looking for other ways to help Florida to grow its economy. One avenue is to ask businesses to consider workers in the prisons industries first as an alternative resource option before looking to move their businesses offshore.

    Reeves Southeastern, a nationally and internationally recognized leader in fencing, perimeter building materials, and high security products, entered into a partnership with PRIDE under the federally-authorized Prison Industries Enhancement Program recently. The partnership expanded production capacity for Reeves Southeastern and job training skill opportunities for PRIDE inmate workers. PRIDE workers assemble metal components for inclusion into Reeves' product lines such as customer-installed dog kennels and fence gates. Given the excellent quality of products and services PRIDE produced for Reeves, Reeves has decided to expand its business partnership with PRIDE. Recently, Reeves hired one of PRIDE's former workers when he was released from prison—another great benefit to the inmate worker and to the company, which is getting a willing and skilled worker. You will be hearing from another private sector partner shortly, Ken Mellem, who will share with you his company's experiences with PRIDE.

    In summary, PRIDE wants to continue to replicate the effectiveness of the recommitment rate of inmates released from the company's industries. To expand this effectiveness, PRIDE is aggressively pursuing partnerships with the private sector. This is a win-win for the inmates because they will be trained in marketable job skills that translate well into today's job market and enables them to become productive citizens instead of turning to crime again. It's a win-win for the State's citizens in terms of public safety. It's a win-win for the business community because they can expand their operations in an increasingly tight labor market. It's a win-win for the State of Florida because economic development occurs. And, also, it's a win-win for the Nation's economy because prison industries encourage manufacturers to keep jobs from going offshore.
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    Thank you very much.

    [The prepared statement of Mr. Harrell follows:]

PREPARED STATEMENT OF MICHAEL N. HARRELL, GENERAL MANAGER OF NEW BUSINESS DEVELOPMENT, PRIDE ENTERPRISES

    PRIDE ENTERPRISES (Prison Rehabilitative Industries & Diversified Enterprises, Inc.), headquartered in St. Petersburg, Florida, is a private non-profit corporation authorized to manage and operate the state's correctional industries inside Florida's state prisons. PRIDE operates 57 industries in 22 correctional institutions with revenues last year of $85 million.

OVERSEEN BY BOARD OF DIRECTORS

    A cross-section of leaders in business, education and government are members of the corporation's Board of Directors. Appointed by the Executive Office of the Governor, they provide leadership and oversight.

PROVIDES ACCREDITED INMATE TRAINING

    Prison inmates learn marketable job skills when they train and work in the PRIDE industries that manufacture 3,000 different products and services. Business professionals train the inmates within a private enterprise environment that demands a strong work ethic and a focus on quality customer service—the soft skills demanded by today's employers. The corporation's commitment to provide acknowledged industrial job training resulted in 85% of PRIDE's training businesses and operations being independently certified by accredited institutions; e.g., the Florida Department of Education, Florida A&M University, and the University of Florida as well as business and trade associations and organizations such as the National Institute of Automotive Service Excellence. When fully-trained PRIDE inmate workers leave prison, they carry with them credentials of achievement in job skills that meet the requirements of today's businesses. PRIDE also provides comprehensive post-release support for PRIDE ex-workers that includes job placement, housing, transportation and other services that are critical to an ex-offender's successful transition into society. Over the past five years, an annual average of 88 percent of PRIDE ex-workers remain out of prison. (Please note attached addendum that describes video to be shown during this testimony).
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ABSORBS INMATE TRAINING COSTS AND INSTILLS QUALITY AWARENESS

    As a quality-driven industrial manufacturing business, PRIDE ENTERPRISES relies on the sales of its products and services to continue and expand the prison industries and operations that will offer more relevant job training to more inmates. Since 1985 no public funds have been provided to support the industry operations—in fact, PRIDE returns dollars to the state each year.

    PRIDE also absorbs the high costs of inmate on-the-job training created by an annual average of 100% turnover rate of inmate workers, large amounts of scrapped materials and an average six hour work day. However, because of its experience in working within a constant training mode, the corporation can—through good sound business principles, strategies and quality measurements—operate successfully. PRIDE workers produce quality products and services that are internationally competitive. A good example is the recent achievements of PRIDE's Cross City print industry. For seven consecutive years, this print industry has entered and won top awards in the International Screen Printers Association contest. It is the only prison industry competing with over 200 major companies from 32 countries. Just last week, this ''world class quality'' industry again won two golds, one silver and two honorable mentions, bringing the total to six golds, five silvers, two bronzes, and five honorable mentions achieved over the past seven years.

LESSENS FLORIDA CITIZENS' TAX BURDEN

    Additionally, PRIDE lessens the tax burden of Florida citizens by making voluntary payments directly to the state that average approximately $1 million per year. These funds are deposited into the state's Correctional Work Programs Trust Fund to be used systemwide by the Department of Corrections for training and educating other inmates, most of whom are not participants in PRIDE industries. PRIDE also contributes another $1 million annually to the state for victim restitution and for the provision of inmate support services that includes the critical post-release transition support (job placement, housing, continuing education, tools and transportation to job interviews).
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PAYS COMPETITIVE SALARY AND BENEFIT PACKAGES TO EMPLOYEES

    Business professionals who train the inmates make up the majority of PRIDE's 400 employees. Again, like any other private sector corporation, PRIDE provides a competitive salary and benefit package to its employees, who are not civil servants. Again, the costs are absorbed by the generation of revenues received from the sale of goods and services manufactured by PRIDE.

INCREASES STATE OF FLORIDA ASSETS

    Although PRIDE is a private corporation, as a non-profit company it does not have shareholders and it does not issue stock. Any and all profits the company achieves are put back into the company to expand new businesses, to modernize existing industries or to provide the State of Florida contributions for reducing the costs of incarceration and the enhancement of state property. Since PRIDE's industrial factories and agricultural industries are located on state property, all physical improvements increase the value of the state's assets.

PUBLIC-PRIVATE PARTNERSHIPS CRITICAL TO PRIDE'S SUCCESS

    Another critical component to the successful operation of PRIDE ENTERPRISES is public-private partnerships. Businesses throughout the state, as well as national and state trade associations and organizations, serve an important role by providing assistance to PRIDE that includes business planning, the previously mentioned review of inmate job training processes, and the actual hiring of PRIDE ex-offenders. Over three hundred of these businesses have been commended by Governor Lawton Chiles for their valuable contributions. Organized labor in Florida has been a partner with PRIDE. Dan Miller, former president of the Florida AFL–CIO, was a founding director of PRIDE and served on the Board of Directors until early 1997. PRIDE's Speakers Bureau has and continues to generate interest from trade associations and business organizations, which want to know more about not only how PRIDE operates and what value it brings to Florida but also how they might work with PRIDE.
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PARTICIPANT IN WELFARE TO WORK PARTNERSHIP

    Because of its experience in offering marketable job skills training to prison inmates and vital post-release transition support to PRIDE ex-workers, PRIDE ENTERPRISES was one of the first 100 corporations recently invited to the inaugural meeting of President Clinton's Welfare to Work Partnership. The success of this prison work program can serve as a model, both to serve private-sector companies in need of a reliable labor source and to provide those on welfare as well as those in prison with the discipline and training required to function in society.

IMPACTS POSITIVELY ON FLORIDA'S ECONOMY

    Like any other business, PRIDE ENTERPRISES has a strong economic impact on Florida's economy. Annually, PRIDE averages approximately $40 million in direct economic impact through staff payroll and the purchases of goods and services from approximately 3,500 Florida-based companies. Local communities benefit from prison industries throughout Florida because of the business PRIDE prison industries generate. PRIDE's food industry alone had purchases of over $8.5 million, from 90 private-sector, Florida-based companies during fiscal year 1997. This significant economic impact on the state is valued between $60 to $80 million, based on the economic multiplier effect. During its thirteen years of full operation, PRIDE has poured approximately $516 million into Florida's economy.

ACCELERATED INTERNATIONAL EXPORTS

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    The corporation has accelerated its international exports, which will allow PRIDE to produce products and services for a variety of countries and to expand job opportunities to more inmates. Over a half million dollars in exports in 1997 included retread tires, boots, garments and custom boxes.

PRISON INDUSTRIES POTENTIAL DRIVER OF FLORIDA'S ECONOMIC DEVELOPMENT

    At the same time, the corporation is looking for other ways to help Florida grow its economy. One avenue is to ask businesses to consider workers in the prison industries first as an alternative resource option before looking to move their business offshore. Reeves Southeastern, a nationally and internationally recognized leader in fencing, perimeter building materials and high security products, entered into a partnership with PRIDE under the federally authorized PIE (Prison Industries Enhancement) program. The partnership expanded production capacity for Reeves Southeastern and job skill training opportunities for PRIDE inmate workers. PRIDE workers assemble metal components for inclusion into Reeves Southeastern's product lines such as galvanized steel tubing used for frames for portable, customer-installed dog kennels and fence gates. Given the excellent quality of products and services PRIDE produced for Reeves Southeastern, Reeves Southeastern has decided to expand its business partnership with PRIDE. Recently, Reeves hired one of PRIDE's former workers when he was released from prison—another great benefit to the inmate worker and to the company, which is getting a willing and skilled worker. You will be hearing from another private sector partner, Kenneth L. Mellem, who will share with you his company's experiences with PRIDE.

    Private employers who partner with PRIDE find new labor options, allowing them to redeploy their civilian workforce more effectively, and companies surrounding that prison venture feel the economic ripple effects, too. Florida's economic future depends on its citizens being productive, including those in prison and those rebuilding their lives free of welfare assistance. Many ex-felons and their families are part of the welfare spectrum. Businesses typically cite lack of available skilled labor as a reason for sending work overseas or not being able to expand their operations. By strengthening partnerships with prison work programs that produce quality products and services demanded in today's market, businesses can also strengthen Florida's potential for retention, growth and recruitment for new companies.
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PRISON INDUSTRIES ARE A PRODUCTIVE COMPONENT OF SOCIETY

    In summary, PRIDE wants to continue to replicate the effectiveness of the recommitment rate of inmates released from the company's industries. To expand this effectiveness, PRIDE is aggressively pursuing partnerships with the private sector. This is a win-win for the inmates because they will be trained in marketable job skills that translate well into today's job market and enables them to become productive citizens instead turning to crime again and preying on more victims. It's a win-win for the state's citizens in terms public safety. It's a win-win for the business community because they can expand their operations in an increasing tight labor market. It's a win-win for the State of Florida because economic development occurs. It's a win-win for the nation's economy because prison industries encourage manufacturers to keep jobs from going offshore.

ADDENDUM

    The video you are about to see was produced and aired by a Miami television station. The program—''New Florida''—focused on how PRIDE's industrial on-the-job training can turn prison inmates into skilled, productive citizens when they are released from prison, as well as how PRIDE helps to drive Florida's economic development.

    Mr. MCCOLLUM. Thank you very much, Mr. Harrell.

    Mr. Sanders.

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STATEMENT OF ROBERT SANDERS, DIVISION OF PRISON INDUSTRIES, SOUTH CAROLINA DEPARTMENT OF CORRECTIONS

    Mr. SANDERS. Thank you. I appreciate you all allowing me to talk about prison industries, and in particular, prison industries in South Carolina. I'd like to tell you a little bit about my background, though, to kind of tell you where I am and where I'm coming from.

    Almost exactly 60 years ago, my grandfather was the warden of the Central Correctional Institution in South Carolina, and he was making rounds on Sunday, and six inmates tried to escape and get the officials to give them a car, so that they could escape from the prison. Meanwhile, they tortured my grandfather and eventually killed him. So the reason I'm telling you this is because I'd like for you to know my dedication about the fact that inmates should work. That is a requirement of my job, and that's what we believe in—is that inmates should work.

    In South Carolina we have kind of a unique program. We have more inmates working in private sector operations than anywhere else in the United States. We contract labor inside a correctional setting with private industry. Private industry purchases the raw materials; they manage the operation; they market the operation; they also retain the earnings from that operation. The prison industry program charges per hour per inmate. So we pay the inmate; we pay the workers' comp. as well as FICA, and then we charge an overhead rate for each hour that the inmate works. That, in turn, pays my salary and my staff's salary, and the other types of expenses incurred.
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    One thing we require from the inmate is that they have a high school degree before they can come to work for us, or either they must be enrolled in school. Additionally, they must be disciplinary-free for 6 months before they're eligible to work in the program. If they receive an infraction, they're terminated—for any reason.

    We have five operations currently within South Carolina. Most of the operations are local, medium-sized corporations. We manufacture wire harnesses, which, in turn, are sold to IBM and Northern TelCom. We manufacture graduation caps and gowns for Jostens. We have been fortunate to attract a company from South Africa to establish an operation in one of our prisons in South Carolina. We're working 91 inmates making seating furniture, which is being sold now throughout the United States and internationally. We are making hardwood flooring for a company out of Clinton, South Carolina, and we're polishing faucet handles for a company out of Cowpens, South Carolina.

    To date, inmates have made $11 million in gross wages. They have paid $750,000 toward Federal taxes, over $300,000 in State taxes, close to $900,000 toward Social Security. They have paid victims compensation of $860,000. They have paid room and board, which goes back to our State Controller's Office, of $1.7 million. And they have sent home $1.2 million.

    We also require that inmates save 10 percent of their gross earnings toward release money. So that when they leave, they have some funds to live on.

    I think it's kind of unique in South Carolina in that we have set up a program not to compete with the private sector, but actually a true joint venture in which the inmate actually makes a product which is manufactured and controlled by the private sector.
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    I appreciate it. Thank you.

    [The prepared statement of Mr. Sanders follows:]

PREPARED STATEMENT OF ROBERT SANDERS, DIVISION OF PRISON INDUSTRIES, SOUTH CAROLINA DEPARTMENT OF CORRECTIONS

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    Mr. MCCOLLUM. You had a video. Do you want to show that video, Mr. Sanders?

    Mr. SANDERS. Yes, sir.

    Mr. HARRELL. Yes.

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    Mr. MCCOLLUM. Who had the video? Mr. Harrell had the video. Somebody had the video there. You've got one, too?

    Mr. SANDERS. Yes, I compete with him.

    [Laughter.]

    Mr. MCCOLLUM. We don't mind showing these videos. I don't know where you want them shown. No one mentioned it. The video from South Carolina is 15 minutes? We can't very well show a 15-minute video. I'm being told by my staff it's a 15-minute video.

    Mr. SANDERS. That's an address by the CEOs and presidents of the companies that we deal with in the private sector.

    Mr. MCCOLLUM. All right. Mr. Harrell, did you have a shorter one you wanted to show?

    Mr. HARRELL. It is shorter, yes.

    Mr. MCCOLLUM. If it's consistent with this, why don't we show your video at this point before we go to Mr. Reynolds' testimony?

    I will review the 15-minute one. I just don't think I can take the committee's time for 15——

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    Mr. CHABOT. Mr. Chairman, could I ask a real quick question?

    Mr. MCCOLLUM. Mr. Chabot.

    Mr. CHABOT. The 10 percent that you were talking about, is that 10 percent of the total earnings of 10 percent of what the inmate's portion is?

    Mr. SANDERS. Ten percent of gross.

    Mr. CHABOT. Ten percent of gross?

    Mr. SANDERS. Yes, sir.

    Mr. HARRELL. I might make a comment: The video was produced and aired by a Miami television station, a program called ''New Florida,'' focused on how PRIDE's industrial on-the-job training can turn prison inmates into skilled, productive citizens.

    Mr. MCCOLLUM. Thank you.

    [The text of the video follows:]

    FIRST VIDEO NARRATOR. The rising crime rate in Florida is a very serious concern. Everybody wants to stop the cycle of crime. There have been many well-intentioned rehabilitation programs over the years—to no avail. But now producer, Robin Simon, talks about a new program called PRIDE that's having very good success with inmates willing to give themselves a better chance.
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    SECOND VIDEO NARRATOR. This looks like an ordinary furniture factory, and these employees your average blue-collar worker, but they're not. They're inmates in a maximum-security prison in Dade County, and they all work for PRIDE.

    James Walker is one of more than 6,000 State inmates who work for PRIDE, a privately-run prison industries program offering convicts, many of who have never held a job before, a chance to learn job skills. Walker will be released soon after serving 7 years for aggravated assault.

    Mr. JAMES WALKER. I felt that if I learn all these trades and all these skills, when I get out there on the street, I ain't worried about finding a job—with all these different categories of skills that I learned.

    SECOND VIDEO NARRATOR. And with more criminals with employable skills, society may be a little safer, at least that's the hope of PRIDE's president, Pamela Jo Davis.

    Ms. PAMELA JO DAVIS. I really think that surprises people more than anything, that these people who are second-, third-, fourth-time felony offenders can actually turn their lives around. Now they might have drug problems and all the environmental and survival problems, but to think that jobs and job training will really make a difference in all those kinds of infunctional areas, but it does.

    SECOND VIDEO NARRATOR. Actually, prison labor is not a new concept. It goes back more than 30 years. But what makes PRIDE different is that the most of the money the inmates earn helps cover the cost of their incarceration. PRIDE also contributes about $1 million a year to the Victim Restitution Fund.
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    Just how successful is the PRIDE program? Well, a recent study tracked 1,500 PRIDE workers after they were released from prison. Of those, only 9 percent were reconvicted. Nationally, more than 70 percent of convicts wind up back in jail.

    This furniture refurbishing factor is one of 56 PRIDE industries at prison facilities throughout the State. John Simon is the general manager of the plant. He says PRIDE workers not only learn job skills, but they also build self-confidence.

    Mr. JOHN SIMON. Once they've become incarcerated, part of the process is they're stripped of their rights, they're stripped of their freedoms in terms of what they can and can't do within the compound, the walls of the compound. So when they're involved in our program, they have an opportunity to literally clock-in as if they were an employee, even though they're not; they're an inmate worker.

    Ms. KATHY RUNDELL. We are simply doing nothing more than recycling prisoners through our system.

    SECOND VIDEO NARRATOR. Kathy Rundell is Florida's chief law enforcement officer. She sees the PRIDE program as a big step toward slowing the revolving doors to prisons.

    Ms. KATHY RUNDELL. We know we're not going to be able to build ourselves out of this problem. Consequently, these inmates are going to go back out onto the street, and the best hope that we have is to turn them back to something that's constructive and productive. If learning a skill for a factory or building furniture is going to help in any meaningful way, then we've got to pursue it.
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    SECOND VIDEO NARRATOR. Since the PRIDE program began in 1981, it has been touted as a national model, and its success rate is far better than other prison reform programs. PRIDE also uses no tax dollars.

    PRIDE has been so successful; some thing it is unfairly competing with local businesses. Bernard Camage was in the furniture business for more than 10 years. He says PRIDE stopped him from getting at least one contract.

    Mr. BERNARD CAMAGE. I went down to Key West Standards, and I was out there, and I called, and they told me they would think about it. It's PRIDE. There was no bidding; there was no question about it. That building was furnished by PRIDE. That's not right, not as I understand America, and I've been here a long time.

    THIRD VIDEO NARRATOR. When we manufacture a product here in Florida, we buy the siding from somebody. We bought this metal from somebody. We're buying those chemicals from somebody. We're buying the screws, formica, glue, stain, paint—all from Florida-based businesses. It's because we're a business in Florida we're supporting economic development, the kind of economic development most Chambers of Commerce would love to have come into their community.

    SECOND VIDEO NARRATOR. The compromise between the two sides may be hand. This is PRIDE's optical lab at the women's prison in Broward County. Soon a new program may allow private optical companies and other industries to set up shop inside prisons across the State, including juvenile detention centers.
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    A public/private partnership could give companies added incentive to move to south Florida while making our streets a little safer—giving convicts like James Walker new opportunities and a sense of pride.

    One month after leaving prison, we caught up with Walker at his new job. How do you think your job experience with PRIDE helps in the kind of work that you're doing now?

    Mr. JAMES WALKER. Well, it helped tremendously because PRIDE taught me the responsibility of doing a job and doing it professionally—to put quality first. If you put out quality work, then people are going to take notice.

    [The showing of the video was concluded.]

    Mr. MCCOLLUM. Thank you. I think that was a little shorter than 15 minutes, but it was not a real short tape. Still, we appreciate it. I thought it was very enlightening.

    Mr. HARRELL. Thank you.

    Mr. MCCOLLUM. Mr. Mellem, if you would proceed with your testimony, please. I made the connection here, even though I skipped past Mr. Harrell, because you have a Florida base. So please proceed.

STATEMENT OF KENNETH L. MELLEM, PRESIDENT AND CEO, GEONEX CORPORATION
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    Mr. MELLEM. Thank you, Mr. Chairman. I'm pleased to present the private sector point of view to the House committee looking at crime and its impact on society today.

    By way of introduction, I'm Ken Mellem, and I'm president and CEO of Geonex, a mapping services company headquartered in St. Pete, Florida, with offices throughout the United States and Saudi, Pakistan, and Brazil. We have about 275 employees and are privately-held.

    We focus on three major markets: the defense area, the environmental area, and the AM/FM GIS business, which is serving the utility industry, and that's really the subject of the testimony today.

    During the past year, Geonex has developed a relationship with PRIDE of Florida that rehabilitates prisoners and helps them bridge their lives to the outside world. As the committee well knows, the recommitment is a major concern of correction and rehabilitation programs of both State and Federal agencies. Fifty to 55 percent of the inmates who commit crime return to prison.

    However, among the inmates who are involved with PRIDE, the percentage declines from 50 percent to 12.5, and for the inmates involved with the PRIDE GIS program at Liberty Correctional Institution in Florida, only 4 percent return to prison. These are cold statistics, but they are important in the context of the Nation's growing prison population and in setting public policy that reduces the chances of released prisoners becoming repeat offenders. My experience with PRIDE in Florida leads me to believe that these joint programs between private and public sector correction agencies can help the recommitment problem.
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    Let me give you some background on how Geonex got involved with PRIDE. Dr. Pamela Jo Davis, who we just saw on the tape, who is PRIDE's president and CEO, and I belong to a CEO organization called Inc. Eagles in Tampa, Florida. It's an organization which consists of 10 CEOs from different industries who meet monthly to discuss problems facing our businesses. One of the problems that I brought forth was that Geonex, to be competitive, was faced with opening an offshore facility to process our AM/FM business. And at the time we were considering Pakistan, India, Thailand, Malaysia, China, Ireland, and South American countries as prospective offshore sites for our work.

    In discussing my offshore problem, Dr. Davis suggested having the work done in the State of Florida by PRIDE employees. We responded to an RFP for a proposal for a very large European telephone company, and were awarded one-third of the project. Of the three companies, only Geonex offered American labor. The other two companies subcontracted their work to facilities in Malaysia and in India.

    After the project began, we realized that there were several very tangible reasons to work with PRIDE. The PRIDE inmate employees provided a high-quality product and they offered a price competitiveness which improved our bottom line. PRIDE also provides local access, allowing us to monitor the work on a regular basis without going halfway around the world.

    And, finally, the relationship allows Geonex to make a contribution to the Florida community, providing inmates the opportunity to develop marketable skills that can be productively utilized when they are released from prison.

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    To initiate this project, Geonex provided training for the inmates at Liberty facility and ran a pilot project. The inmates did an outstanding job on the pilot, and the project is now underway, and we are doing production work at Liberty Prison. This work consists of data preparation, data entry, and data capture. At its peak, we expect to employ 80 inmates on this project, and because of the quality work and productivity of the inmates, we anticipate employing some of these skilled workers upon their release.

    Earlier this month, I had the opportunity to visit Liberty Prison and review the project firsthand. I was very impressed with the professional nature of the program, and particularly the attitude of the inmates. Several of the inmates came up to me and thanked me, Geonex, and our customer for the opportunity to do meaningful work for the first time in their lives. They understood the importance of this project to Geonex and to the customer, and that they were playing an integral role in processing of this data.

    A released PRIDE inmate, Bruce, related this story to me: He stated, categorically, that if he had not been involved with PRIDE, upon release from prison, he would have received $100, a bus ticket home, and would have thrown a party for his friends, and been broke the next day. He would have had no job skills and probably would have become a repeat offender. But because of his experience with PRIDE, upon release, his transition was very similar to that of a job transfer.

    For inmates involved with the Geonex project, they will be faced with a transition similar to Bruce, moving from one job to another by being involved in the GIS industry, and having productive employment, and having more opportunity than they've ever had before in their lives.
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    The Geonex strategic relationship with PRIDE is a win-win for everyone involved. The prisoners are kept busy. They are learning a new skill. They are contributing to society, offsetting some of the cost of the crimes that they have committed, and they have a real opportunity for a job and a normal life when they are released from prison.

    Geonex wins because it's able to deliver a high-quality product with faster turnaround at a competitive price than those companies who are sending the work offshore. Because of our satisfaction with our strategic relationship with PRIDE, we have bid them on several multimillion dollar proposals which would facilitate PRIDE opening at least one additional prison to process our work.

    From what I have experienced from working with PRIDE, I feel that Congress, the Justice Department, should determine if the program and the methodology that PRIDE uses will work in other States or with inmates in Federal prisons. As the CEO of Geonex, I am proud of my relationship with PRIDE and its very innovative program, and thank you very much for this opportunity to address the committee. Thank you, Mr. Chairman.

    [The prepared statement of Mr. Mellem follows:]

PREPARED STATEMENT OF KENNETH L. MELLEM, PRESIDENT AND CEO, GEONEX CORPORATION

    I am pleased to present a private sector point of view to the House Committee looking at crime and its impact on society today. By way of introduction, I am President and CEO of Geonex Corporation, a mapping services company, headquartered in St. Petersburg, Florida. We have offices throughout the United States and in Saudi Arabia, Pakistan and Brazil. We have approximately 275 employees and are privately held. We have three major markets that we concentrate on; the Defense and NIMA (National Imagery & Mapping Agency) business, the environmental mapping area, as an example, we have mapped approximately 85% of the nation's wetlands for the Department of the Interior, and the automated mapping facilities management business or AM/FM/GIS as it is called in the utility industry. The utility industry is defined as water, gas, sewer, electric, cable and telephone.
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    During the past year, Geonex has developed a relationship with PRIDE (Prison Rehabilitative Industries & Diversified Enterprises, Inc.) of Florida, that rehabilitates prisoners and helps them bridge their lives to the outside world. As the Committee well knows, recommitment is a major concern of corrections and rehabilitation programs of both State and Federal agencies. Fifty to fifty-five percent of inmates who commit crimes return to prison. However, among the inmates who are involved with PRIDE, the percentage declines from fifty percent to 12.5%. For the inmates involved with the PRIDE GIS program at Liberty Correctional Institution, Florida, only four percent return to prison.

    These are cold statistics, but, they are important in the context of the nation's growing prison population and in setting public policy that reduces chances of released prisoners becoming repeat offenders. My experience with the PRIDE program in Florida leads me to believe that joint programs between the private and public sector corrections agencies can help reduce the recommitment problem.

    Let me give you some background on how Geonex got involved with PRIDE. Dr. Pamela Jo Davis, PRIDE's President and CEO, and I belong to a CEO organization called Inc., Eagles in Tampa, Florida. It is an organization which consists of ten CEO's from different industries who meet monthly to discuss problems facing our businesses. One of the problems that I brought forth was that Geonex, to be competitive, was faced with opening an offshore facility to process our AM/FM utility business. At the time, we were considering Pakistan, India, Thailand, Malaysia, China, Ireland and South America as prospective offshore sites for our work. In discussing my offshore problem, Dr. Davis suggested having the work done in the State of Florida by PRIDE employees. We responded to a request for proposal for a large European telephone company and were awarded a third of the project. Of the three companies, only Geonex offered American labor. The other two companies subcontracted their work to facilities in Malaysia and India.
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    After the program began, we realized that there are several very tangible reasons to work with PRIDE; the PRIDE inmate-employees provide a high quality product, and they offer price competitiveness; which improves our bottom line. PRIDE also provides local access, allowing us to monitor the work on a regular basis without going overseas. Finally, the relationship allows Geonex to make a contribution to the Florida community, providing inmates the opportunity to develop marketable skills that can be productively utilized when they are released from prison.

    To initiate the project, Geonex provided training for the inmates at the Liberty facility and ran a pilot project. The inmates did an outstanding job! The project is now fully underway and we are doing production work at Liberty prison. This work consists of data preparation, data entry and data capture. At its peak, we expect to employ eighty inmates on this project and because of the quality work and productivity of the inmate employees, we anticipate employing some of these skilled workers upon their release.

    Earlier in the month, I had the opportunity to visit Liberty prison and review the project first hand. I was very impressed with the professional nature of the program, and particularly, with the attitude of the inmates. Several of the inmates came to me and thanked me, Geonex, and our customer for the opportunity to do meaningful work for the first time in their lives. They understand the importance of this project to Geonex and to our customer and that they are playing an integral role in the processing of this data.

    A released PRIDE inmate, Bruce, related this story to me: He stated categorically that if he had not been involved with PRIDE, upon release from prison, he would have received $100 and a bus ticket, would have thrown a party for his friends, and been broke the next day. He would have had no job skills, and probably would have become a repeat offender. But, because of his experience with PRIDE, upon release, his transition was very similar to a job transfer.
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    For the inmates involved with the Geonex project, they will be faced with a transition similar to Bruce's, moving from one job to another by being involved with the GIS industry, having productive employment and having more opportunity than they've ever had in their lives.

    The Geonex strategic relationship with PRIDE is a win-win for everyone involved. The prisoners are kept busy, are learning a new skill, are contributing to society, offsetting some of the costs of the crimes they have committed, and will have a real opportunity for a job and a normal life when they are released from prison. Geonex wins because we will be able to deliver a high quality product with a faster turnaround, at a competitive price, than those companies sending the work offshore. Because of our satisfaction with our strategic relationship with PRIDE, we have bid them on several multimillion dollar proposals, which would facilitate PRIDE opening at least one additional prison to process our work.

    From what I have experienced from working with PRIDE, I feel that Congress and the Justice Department should determine if the program and the methodology that PRIDE uses will work in other States or with inmates in Federal prisons. As the CEO of Geonex, I am proud of my relationship with PRIDE and its very innovative program.

    Thank you very much for this opportunity to address the Committee today. I would be pleased to answer any questions you might have.

    Mr. MCCOLLUM. Thank you very much for coming all the way here to present your testimony, Mr. Mellem.
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    Professor Reynolds.

STATEMENT OF MORGAN O. REYNOLDS, DIRECTOR, CRIMINAL JUSTICE CENTER, NATIONAL CENTER FOR POLICY ANALYSIS

    Mr. REYNOLDS. Thank you, Mr. Chairman. I'd like to thank the committee for inviting me to testify today. I've got about 10 points, I believe.

    The issue is, how can we use Federal prison labor as normally and productively as possible, consistent with prison security considerations? What has hampered this endeavor in the past—and will continue to—is the philosophy of avoiding competition. Competition is unavoidable. Giving away prison products will send out more howls than pricing prison products at market-type prices.

    My second point here is that competition is a good thing—that ought to be remembered—not bad. What's bad is monopoly privilege. And competition, let's remember, is what has made the U.S. economy the envy of the world and what has created our prosperity.

    Three, it is true that there are issues of unfair competition. So my solution to our impasse here is to make competition fairer. Well, what's fair? That ought to be defined explicitly. I say open competition is fair—no special privilege. As Woodrow Wilson said long ago, ''A free field and no favor.'' That was an expression or statement popular in sporting competition back then.
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    Okay, if we apply these principles of open competition to our current prison labor situation in the Federal system, what would it imply? It implies that Federal prisoners be offered to qualified businesses to bid for their services in an open and just, competitive auction, if you will. As a servant of the taxpayers, the Federal prison system ought to be a marketer of the prison labor. Of course, the Federal system, as we know, has really the best-qualified set of inmates in the U.S. So the interest of Federal prison officials ought to be in high wages. Of course, this low-wage thing is part of the frictions that have been created and retarded the wider use and productive use of Federal prison labor. And I would advocate wages be paid wholly to the inmates and then deductions being taken. This is part of the lessons of the world in Responsibility 101, rather than paying prisoners scraps from the table.

    A sixth point here—I apologize for not numbering these, bing, bing, bing—would be that the principle of competition, of course, applies also in the markets, the competition for customers, and that should as open as possible as well, and that means relaxing or repealing completely the mandatory source purchase requirement for other Federal agencies to buy from Federal Prison Industries.

    A seventh point is that the objections that occur to promoting competition rather than running from it, is that a whole host of new opportunities should be open in terms of a bundled set of reforms. There are really three things that create new opportunities for the business community. One would be the new opportunities to compete for prison labor and produce onshore. A second would be new opportunities to compete for government contracts which are no longer reserved exclusively for the Federal corrections industry. The third would be new opportunities to compete for contracts to supply new prison enterprises. If we really get this thing going, we can add across the State and Federal systems about $20 billion to gross domestic product.
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    A ninth point would be that inmates should compete for employment opportunities, and industry should compete for their labors.

    The tenth point would be that we really can benefit from having a brighter line between industry managers and their jailers. The jailers really are not fitted to succeed in business. Only business can succeed there.

    And then, finally, I say in an eleventh point, if we continue on with this philosophy of trying to avoid any competitive impact, we're just stuck with the same old, same old, same old. We've got to change the philosophy entirely and embrace competition, but make it fair by opening up all of these markets to private industry.

    Thank you very much, Mr. Chairman.

    [The prepared statement of Mr. Reynolds follows:]

PREPARED STATEMENT OF MORGAN O. REYNOLDS, DIRECTOR, CRIMINAL JUSTICE CENTER, NATIONAL CENTER FOR POLICY ANALYSIS

SUMMARY

    Despite a public consensus that prison inmates should be productively employed, most are idle because of protectionist politics and bureaucratic inertia. Our goal should be that all eligible inmates have access to regular constructive work. Private enterprise should be aggressively recruited to become the principal employer behind federal bars. And what about the competitive impact on free-world businesses and state-run prison industries? The answer is that competition is good and that more of it, especially on a reformed playing field, solves the substantive if not all the cosmetic problems. Vigorous competition for federal prison labor, for example, will insure that employers bid up wages to reflect anticipated productivity, and therefore that successful bidders hold no (true) ''cheap labor'' advantage. Other reforms like repeal of the monopoly purchase requirement for Federal Prison Industries goods would open up new markets and mute opposition from industry. Finally, prison production can never guarantee competitive neutrality and therefore no active employment policy can silence all opposition, especially when substantial political interests feel their turf and livelihoods threatened, correctly or incorrectly.
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STATEMENT

    Thank you, Mr. Chairman, for your invitation to testify before the subcommittee today.

    I assume that the question is, How can we use federal prison labor as normally and productively as possible, consistent with prison security considerations? First, we must repeal or relax the federal and state laws that impede the employment of prison labor and commerce in prison-made products. With that accomplished, access to productive work on a large scale would mean private enterprise supplying as many as six out of seven jobs, similar to the employment pattern in the U.S. economy.

    Competition is a good thing, not bad. Competition is the process that made the U.S. economy the envy of the world. Competition is not a tort (suable wrong) under Anglo-American law. Monopoly privilege, achieved through artificial restraints on competitors, is bad in terms of both fairness and efficiency. Competition is desirable because it's ''a free field and no favor,'' as Woodrow Wilson summed it up in a phrase then popular in sports competition. Successful economic policy operates on the principle of consumer sovereignty, not producer sovereignty.

    To be sure, competition among entrepreneurs and governments for productive resources like labor and for markets (paying customers) should be fair. But what is ''fair''? Open competition is fair. No special advantage. Fairness means playing by the rules but, more importantly, the rules themselves must be tolerably fair. That means opening markets where they were closed if it can be done at reasonable expense, especially opening them to productive, legitimate American businesses. Implementation of such fair competition implies changes in Federal rules on prison labor.
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    To apply the principles of competition to the labor of federal prisoners implies allowing qualified businesses to bid for their services. An open and just process, of course, implies freedom from corruption (collusion and fraud) on the part of both business executives and prison officials.

    A vital factor in a successful bid to operate as a joint venture partner behind bars should be wage policies, which ought to be as high, flexible and market-determined as politically feasible. As a marketer of labor and servant of the taxpayers, the interest of federal prison officials ought to be in high wages. Wages should be paid wholly to inmates, who, in turn, should be required to pay reasonable amounts for room and board, taxes, restitution, court costs, fines, family support and compulsory personal saving, usually to the tune of 80 percent of gross wages.

    Cheap, productive labor is the major attraction for a private business to tolerate the many disadvantages of operating behind prison gates. But ''cheap'' must be understood in context. If convict labor is cheaper than civilian labor, it's because entrepreneurs bidding for the labor expect it to be less productive. Sustained overpayment for resources always spells doom for private enterprise. If government artificially overprices (and overregulates) prison labor, it can easily kill private employment and production in prison.

    The principle of competition also implies that the markets for customers should be as open as possible, with none exclusively reserved for favored producers. This principle implies repeal of the monopoly privileges held by prison industries over government customers.
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    While opening up markets for prison labor and goods risks market frictions and occasional displacements, the business advantages of a packaged set of reforms would easily offset these with new markets (business carrots):

1. New opportunities to compete for prison labor and engage in production behind prison fences (or even outside!), with the allure of potential profits and the satisfaction of contributing to inmate habilitation and public safety.

2. New opportunities to compete for government contracts no longer reserved exclusively for correctional industries under mandatory purchase requirements.

3. New opportunities to compete for contracts to supply the new prison enterprises.

    What if a business complains that it has been harmed by prison production? If prison production is so easy, no one is stopping the complainant from competing for prison labor too (this process, of course, bids up prison wages). He or she also can pursue new contracts now open for bidding, no longer the monopoly reserve for correctional industries. In addition, he or she can sell to prison enterprises that need supplies.

    Inmates should compete for employment opportunities and industry should compete for their labor. This solves many problems, including which specific inmates to match up with which specific training and job opportunities. Instead of another bureaucratic prison program, commercial principles, especially performance (''getting the job done ''), should apply wherever possible.
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    On pricing, most people admit that it's good to price output on a competitive basis, but then, why not labor too? Answer: there is no good reason not to price labor competitively (supply and demand turn out to be benign, while fighting them turns out to be malign).

    Each new commercial industry will not generate a positive gross margin over time. Planning for success does not ensure it. Socialized industry has a poor track record compared to struggling entrepreneurs. Even creative cost accounting usually cannot make socialized industry look successful. Historically, worker productivity in state industry behind bars has been one quarter of that for private enterprise behind bars. Entrepreneurs—market-selected, driven and performing on the high wire without a safety net—daily try to pull one or more of their businesses out of the ditch.

    If bureaucrats can do it, they are best advised to move to the private marketplace and grab a golden ring or two. For details, please see my National Center for Policy Analysis Report No. 206 titled ''Factories Behind Bars,'' published in September 1996, attached to my testimony today, especially page 24 on specific reforms.

    Finally, the United Nations Standard Rule Condition 71...(3) says that ''Sufficient work of a useful nature shall be provided to keep prisoners employed for a normal working day.'' This is routinely violated throughout the world, including the Federal prison system. It's time for a remedy.

    That concludes my testimony and I would be happy to respond if there are any questions or comments.
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EXECUTIVE SUMMARY

    Prison inmates working inside the prisons for private-sector businesses assemble cables for electronic equipment and sew graduation gowns in South Carolina, make baseball caps in Connecticut and book travel reservations for airline customers in California. But fewer than 2,000 prisoners nationwide are employed by private enterprises. The prisons themselves employ prisoners to make such products as office and license plates and to grow food for inmate consumption. But the prisons have jobs for no more than half of those imprisoned.

    Despite a consensus of the American public that prison inmates should be gainfully employed, most are idle. Their idleness contrasts sharply with the circumstances of their l9th-century counterparts. Three-fourths worked and two-thirds of the workers were contracted to private entrepreneurs and farmers to produce goods for the general marketplace.

    Under this system, many prisons posted financial surpluses rather than burdening taxpayers. Few prisoners served more than one term, suggesting much lower recidivism than today. Yet the success of prison labor was repeatedly attacked by prison reformers, trade unionists and business owners who opposed the possibility of competition from prison-made goods.

    The attacks were successful. Over the years a series of federal and state laws made it increasingly difficult for either prison authorities or private firms to employ prisoners productively by banning the transport and sale of virtually all prison-made goods except to state and federal agencies. During World War II, prohibitions on inmate labor were relaxed, prison industries produced much-needed war materiel, prison morale rose and some prisons became self-supporting. But restrictions were reimposed when the war ended.
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    Providing access to productive jobs in the labor market for the state and federal prison population, now grown to 1.1 million, and reducing the burden of their upkeep on taxpayers requires removing the legal limitations on work by prisoners. It further requires involving the private sector in creating productive jobs and improving the productivity of the prisoner workers and the quality of their work.

    If one in four prisoners could be put to work for private enterprise over the next five to 10 years, during which time the prison population is projected to increase to 1.6 million, that would mean 400,000 new prison jobs. Allocating 60 percent of their earnings to taxpayer compensation could reduce taxpayer costs by $2.4 billion per year, or somewhat less than 10 percent of the total cost of prison support. Further, this would increase the possibility of obtaining restitution for crime victims. Thus far, however, only halting steps have been taken to remove restrictions or to create jobs.

    In 1979, Congress relaxed some strictures by passing the Percy Amendment. This amendment created the Private Sector/Prison Industry Enhancement Certification program, better known as the PIE program, which allows private companies to employ prison labor under very strict-conditions.

 Since 1979, the PIE program has certified 37 jurisdictions to engage in joint ventures with private enterprises to employ inmates.

 The program has generated gross earnings of $63 million for convicts, including room and board payments of $13 million.
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 At the end of the first quarter of 1996, 1,944 prisoners were employed in PIE projects and earnings were at an annual rate of $13 million, with about half of the earnings going toward support of the prisoners' families, restitution to victims, taxes and incarceration costs.

    Despite the success of the PIE projects, less than 2/10 of 1 percent of prisoners are part of the program. Clearly more needs to be done.

    This study analyzes the American experience of private employment of prisoners and concludes that the advantages far outweigh the disadvantages. Expanding the role of the private sector in prison work would reduce crime, increase economic growth and reduce the burden of the criminal justice system on taxpayers. Among the steps that must be taken to make prisons hum with productive activity are:

 Repeal the various state and federal laws that restrict trade in prison-made goods.

 Repeal the laws that compel government agencies to buy prison-made goods in favor of competitive bidding for government purchases.

 Create prison-enterprise marketing offices in prison and jail systems.

 Allow private prison operators to profit from the gainful employment of convict labor.

    Such reforms would overwhelmingly benefit American taxpayers, consumers, workers and businesses.
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    Mr. MCCOLLUM. Thank you, Mr. Reynolds.

    I'm going to recognize myself for questions at this point. We do have a vote. We'll take a recess in a few minutes and come back, but I want to start exploring these things and see where we go from there.

    First of all, Mr. Harrell, I wanted to ask you a question with regard to the programs that you've described at PRIDE and Mr. Mellem's program at Geonex, in particular. In the present industries system that you run in Florida, the Geonex products, and all, they're sold on the open market, are they not? I mean, under what? Is that a PIE program exception we have, or how does that work when you contract out your labor to private industry?

    Mr. HARRELL. The ones you saw on the videotape were primarily tax-supported entities with our customers—Dade refurbishing operation that you saw and some of those——
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    Mr. MCCOLLUM. Right.

    Mr. HARRELL. The situation we're doing with Geonex is sold—it's an international actual market that we're selling to. The other ones that I mentioned earlier about Reeves Southeastern, that is a PIE program.

    Mr. MCCOLLUM. The reason I asked that question is that what do you do is a mixture, as opposed to the Federal Government. Because the States have the opportunity to do the PIE program, you also are doing some offshore things. Contracting with private businesses to produce products either in-house for them or to enhance products they already have produced, or to contract in some other way for the use of your labor—can you summarize for us how those activities interface with Federal law, if you know? That is, you have some restrictions: you can't sell just any old product interstate and some of those products you sell presumably—or the companies you contract with sell—only to State agencies? Is that how that works? And others are PIE programs?

    Mr. HARRELL. Florida's statutes require that we sell to tax-supported entities at our current wage structure for the inmates. And, of course, I think it's the Sumners-Ashurst law that doesn't allow those type of products to go across State lines unless it's under a PIE program.

    Mr. MCCOLLUM. But the PIE program does allow that, and you do have some of those programs?

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    Mr. HARRELL. The PIE program allows that; correct.

    Mr. MCCOLLUM. Mr. Mellem—with Geonex—where do you market your products?

    Mr. MELLEM. We market the products worldwide, and the product that we buy from PRIDE is really not a product. It's a service. They have skilled workers who are able to create the data that we need, and then we take that data and make maps, and then on a contract basis, return them to our client.

    Mr. MCCOLLUM. Now, services are treated differently in the law, are they not, Mr. Harrell? Is there a difference in how they're treated in Florida?

    Mr. HARRELL. That's correct. Yes, there is a difference.

    Mr. MCCOLLUM. Mr. Schwalb, does the Federal Government have the option that the States have for the variety of different kinds of relationships with private industry, which include the PIE program and the ability to do some of the things that Mr. Mellem has? I'm sure you have some of the options, but could you define for us what the differences are between the Federal restrictions that you have and the options that you just heard from the States of both South Carolina and Florida?

    Mr. SCHWALB. Mr. Chairman, we do not have authority to sell under the PIE program. That was an authority extended many years ago to the various States, but not yet extended to the Federal sector. So our markets have traditionally been restricted just to the Federal Government customers.
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    Mr. MCCOLLUM. Would you like to have the authority that the PIE program has? Could you utilize it if you had it for UNICOR?

    Mr. SCHWALB. Well, I certainly think if the States have been successful, as many of them have been, utilizing this, that it makes sense for us to explore that, and we have a similar type of workforce, potential similar types of partnerships. So I think it makes sense to consider that as an option for yet another way to try to expose our inmates to different markets.

    Mr. MCCOLLUM. How about the service part of this now? There's a difference between doing service work and producing an actual product in terms of what you're able to do, is there not? How does that work in the Federal system?

    Mr. SCHWALB. If you're asking about the access we have, the mandatory source applies to our products; it does not apply to services. So the production of products is applicable to the mandatory source; services, however, we essentially compete for those among the Federal agencies on the basis of price, and so on.

    Mr. MCCOLLUM. Now, suppose you had Mr. Mellem come to you from Geonex, and he said, ''I want to contract for Federal prison labor to do this work—which is a service—for me, but I want to market my services all over the world and all over the United States.'' It is a service. Could you do that? Or would Federal law prohibit you because it's across State lines or because you don't have a PIE program, or whatever?

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    Mr. SCHWALB. Actually, that's a question we're reviewing right now. We don't have a final position on it. I assume that the same interpretation that the States have received, including the Federal Justice Department's interpretation of the Federal statute restrictions, would be comparable. So I'm assuming, although, again, I don't have this in writing, that the ability for us to engage in services to the extent that the States have outside the Federal market might also apply to us.

    Mr. MCCOLLUM. That would mean that if it does apply to you, you could engage in services but you're not doing it now?

    Mr. SCHWALB. We've not done it traditionally, no.

    Mr. MCCOLLUM. No contracts with the private industry of this nature, like Geonex, then?

    Mr. SCHWALB. No.

    Mr. MCCOLLUM. To this point?

    Mr. SCHWALB. No.

    Mr. MCCOLLUM. I'm going to come back, of course, and take more time, but, Ms. Jackson Lee, before we go to vote, we've got time for you to ask some questions. I'd like to yield to you, since my 5 minutes is up.

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    Ms. JACKSON LEE. Thank you very much, Mr. Chairman. Let me thank the witnesses for their testimony.

    I'd like to ask Mr. Mellem, with respect to the PRIDE program, to help me in terms of the balance that I started out with of the rehabilitation of inmates using low-cost labor and producing products with the mandatory sole-source advantage, how does that impact some of the businesses in your area in Florida?

    Mr. MELLEM. Well, there's a portion of the mapping business that is very labor-intensive, the data preparation area, and to be competitive now, most people are going offshore to do that work. It's to Malaysia and India, where they're using the best computers that they've got, but also it is very manually-intense. And we were just faced with a problem our customer told us, when we finished the technical proposal, he said that, ''We want this work to go offshore because we want the very lowest price that we can get,'' and we took a look at going offshore, and then discovered the PRIDE organization and had them bid on it, and they were close; they were not the low bidder, but the convenience of having them in the State, not having to travel halfway around the world, allowed us to bid that and employ—if we had not done that, we would not have won the work, and we would not have employed about seven or eight additional people in our shop, and right now we're bidding some work in South America, multimillion dollars, which would take the PRIDE inmate people dedicated to us, over a couple hundred people.

    Ms. JACKSON LEE. How large is your company?

    Mr. MELLEM. The company is about $15 million.
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    Ms. JACKSON LEE. Fifteen million?

    Mr. Harrell, what about the success of PRIDE, but the impact it may have on local businesses?

    Mr. HARRELL. I mean, that's always an issue that comes up from year and year, and that's why we are trying more and more to have partnerships with the private sector. We've done some innovative things, I think, with the number of businesses in the area where there have been issues that have come up, and tried to partner with them specifically. As an example, in the furniture industry, where obviously there are a lot of people, that's a very sensitive area. I might state that, while there is a use law or a preference law on our books, it hasn't been enforced in about 6 years, because we want to be a preferred supplier. So we compete head-to-head with many of the major furniture companies, and quite often don't win quite a bit.

    But what we are able to do with some of the local companies in our furniture area, for example, is to develop a dealership program, where we actually sell through those furniture dealers in certain markets, and we're beginning to——

    Mr. MCCOLLUM. May I interrupt you to follow up on that? Did I understand you correctly, Mr. Harrell, that you have a sort of mandatory source preference under Florida law, but you don't use it and haven't used it?

    Mr. HARRELL. That's correct.

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    Mr. MCCOLLUM. You haven't used it for 6 years?

    Mr. HARRELL. That's correct.

    Mr. MCCOLLUM. And you're still able to find plenty of products, resources, sales, et cetera?

    Mr. HARRELL. Well, obviously, it has impacted us over the years, but because we are private company, we have taken other aggressive stands to improve our markets. That's why we're looking more at the private sector and looking international.

    Mr. MCCOLLUM. I'm sorry. Thank you.

    Ms. JACKSON LEE. Thank you.

    Let me go on to Mr. Reynolds, and ask about what he views as the necessary change in the law to deal with this question of privilege for inmate prison products.

    Mr. REYNOLDS. I did a study which really didn't sharply separate these by State and Federal restrictions, but, in general, I would relax these various restrictions on the use of prison labor. The PIE program gets a lot of favorable ink, but the problem is that there are so many restrictions that it's still unattractive for a lot of industry to employ prison labor. And I would basically allow competition to perform the disciplinary function rather than Federal restrictions.

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    Remember, PIE was probably the best they could do in the Congress back in 1979 in terms of allowing the private employment of prison labor, but there's too many restrictions—for example, you have to pay prisoners prevailing wages, and so on. So the PIE program I consider a failure because we've had 18 years, and we've got 2,500 prisoners working in PIE programs. Well, big deal. At this rate, you're never going to get to the 3 percent level in the prison systems in terms of employment. So this is just same old, same old, same old. The PIE advocates are saying, oh, boy, we're going to go to 3,000 inmates employed by the year 2000. The correctional mentality just doesn't have the private enterprise innovation and dynamism that we need here to really employ prisoners on a large scale.

    Ms. JACKSON LEE. Let me thank you and give Mr. Schwalb equal time, and just if you can share with me the bottom-line impact that this opportunity for labor or utilization of prisoners has.

    Mr. SCHWALB. Well, our goal is to employ approximately 25 percent of our inmate population. That's higher, as the chairman said in his opening statement, than any other jurisdiction in the United States by threefold. If there are other techniques in order to manage the population and employ that level of inmates, we are not opposed to considering any or all of those, including alternatives to the mandatory source. What we are opposed to is, with the stroke of a pen, a social experiment involving 18,000 inmates who are currently employed, to our detriment.

    Ms. JACKSON LEE. Because you believe it has value?

    Mr. SCHWALB. I believe the work program has value. I believe there are other alternatives that we would be glad to explore—partnerships, et cetera, that could lessen or eventually eliminate our reliance on mandatory source.
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    Ms. JACKSON LEE. Thank you.

    Mr. MCCOLLUM. We're going to have to go vote. We'll be in recess. When we return, we'll continue the questioning. Thank you.

    [Recess.]

    Mr. MCCOLLUM. The Subcommittee on Crime will come to order. The subcommittee was in recess because we had a vote. We're now back. I don't know whether my colleagues will be rejoining me because there's a lot of activity going on. However, I have lots of questions I'd like to ask of this panel to put on the record. I really appreciate your coming and being here.

    It's almost hard to say where to start, but I'm going to start, Mr. Schwalb, by asking you about the furniture industry BIFMA proposal in which UNICOR offered—as I understand it and as you said in your testimony—to waive the mandatory source preference on some specific product line. Who suggested that the preference be waived? Did you or did they or who?

    Mr. SCHWALB. They did, Mr. Chairman. We had several hearings over the course of almost a year on different product lines within the office furniture industry, and fairly consistently at each of those board hearings the representatives told our board that the major issue they wanted the board to address was the mandatory source. They suggested a wholesale—they suggested that the board endorse a wholesale elimination of that, and the board was not in favor of that. But after a lot of deliberation, and with much reluctance on the part of some board members, they did authorize us to pick a specific product within the industry and to negotiate with BIFMA the terms and conditions of how a pilot waiver of mandatory source for that product might work, and then to jointly present it back to the board for consideration.
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    Mr. MCCOLLUM. Did you proceed to negotiate with them?

    Mr. SCHWALB. Well, we made an effort. We made three or four different calls to attempt to sit down, and that culminated in a written reply from the association saying that they felt that it was not in their interest to pursue the pilot, and they were more interested in supporting the amendment which was under consideration at that time by Senator Levin to eliminate the mandatory source wholesale.

    Mr. MCCOLLUM. When did this discussion take place?

    Mr. SCHWALB. Well, the decision of the board was October 1996, as I recall from memory, and there were several different calls back and forth between myself and the association, and as I recall, the correspondence we received rejecting that and indicating their other position was received in April of this year.

    Mr. MCCOLLUM. If UNICOR were to give up its mandatory source preference, could it maintain its present sales in that given product line if it still could only sell to the Executive Branch of the Federal Government?

    Mr. SCHWALB. Well, of course, all those are really unanswered questions, Mr. Chairman, and that's exactly the reason why the board, I think, wanted to pursue this pilot. That pilot would have still restricted us to the Federal Government and to all other constraints in our statute, but that was a starting point, and we thought it was worth pursuing. I honestly don't know the answer to that question. We felt that the board had chosen a product line—they recommended seating, for example—we felt they had chosen a product line that we could be reasonably successfully or reasonably probable about the outcome, but I honestly don't know how successful we can be.
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    Mr. MCCOLLUM. What was the product line?

    Mr. SCHWALB. Office seating.

    Mr. MCCOLLUM. Seating?

    Mr. SCHWALB. Chairs and——

    Mr. MCCOLLUM. Chairs?

    Mr. SCHWALB [continuing]. Couches, and so on, yes.

    Mr. MCCOLLUM. And you felt that you could be competitive in that line without having the mandatory source preference—at least you'd like to have a shot at it?

    Mr. SCHWALB. Yes, we felt it was a product line that there was a high enough degree of probable success that it was worth taking a shot at a pilot.

    Mr. MCCOLLUM. Why wouldn't you try that without the Furniture Manufacturers Association agreement? Why wouldn't you just go out and do it?

    Mr. SCHWALB. Well, the concern the board had, when I reported to them that the association had withdrawn from willingness to participate, is in order to negotiate the pilot, we are going to have to come to agreement on terms and conditions, such as if we are competing for the business we get, what is a reasonable share of the market, or what is the application of that language in our statute which says we shouldn't take any more than a reasonable share? The board determines that when you're applying it under mandatory source, but we really felt it was important that we have both sides have some ownership in the definitions and terms and conditions before we do that, and the board was completely unwilling for me or the board to unilaterally implement that and then have the association stand on the side while the pilot was going on, criticizing terms, conditions, and outcome.
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    Mr. MCCOLLUM. Could they also be not only just standing on the sides, but suing you in some Federal action for misinterpreting the law? Is that what you were worried about, too? Is that a consideration?

    Mr. SCHWALB. I don't think that was as much of a consideration as just the issue of making sure, if we're going to proceed with a pilot, that all the parties to the pilot have agreement on how it's going to be announced, described, and implemented.

    Mr. MCCOLLUM. I certainly would encourage that. We're going to have witnesses testify before us later that at least these pilot programs should get going. We need to try them out because we need to find some way to move in a new direction and have some future with this. If we don't try them out, we're never going to know the bottom-line results.

    Let me move slightly the line of questioning on this issue to the PIE program. I asked you earlier if you'd like to have a PIE program—do you have any idea how it would work if you did it? Do we need a pilot program to do that? Or do we just change the law and apply the same type of rules to you? Or do we relax the rules a little bit more? Professor Reynolds has suggested the rules are too restrictive.

    Mr. SCHWALB. Well, just addressing the specific PIE issue, because I think Professor Reynolds has got a much broader proposal on the table, we envision that if we had PIE authority, we would proceed very much as the States have. I think that there are two options open to us. One is finding a private sector partner who would be responsible for managing all of the production and inventory and marketing, and so on, utilizing our inmate labor in our facilities.
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    And the other option, we think there might even be some product lines where what we're already doing is fairly marketable and what we need is a partner who's experienced with marketing the product in the commercial market. But we think that it has some potential, and we are certainly willing to explore that authority.

    Mr. MCCOLLUM. Given that the Federal Government has just agreed to take charge of the Lorton prisoners for the District of Columbia—we'll shortly be taking all the prisoners from the District of Columbia under our responsibility, presumably, into the system you'll be involved with—would you support giving UNICOR the authority to sell goods in the District of Columbia? I understand right now you don't have that authority.

    Mr. SCHWALB. That's correct. Currently, we are restricted to selling only to the Federal Government. So, presumably, if we're going to take their inmates, it would be reasonable to consider perhaps broadening our market to the District of Columbia government as well.

    Mr. MCCOLLUM. Not necessarily commercially in the District of Columbia, but to the government? That's the main thrust of what you're suggesting?

    Mr. SCHWALB. Yes, to the government, yes.

    Mr. MCCOLLUM. Although, if we opened it up, it might be an interesting commercial experiment as well since the District's fairly confined. Would you object to that?
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    Mr. SCHWALB. Let me make a broad statement. We're not—we don't object to any option being considered.

    Mr. MCCOLLUM. Okay. [Laughter.]

    Mr. SCHWALB. Really. Whether or not all the options can be implemented or whether or not all of them can be run through all the wringers of the people who review and have to approve all of this is another matter, but conceptually I think we're willing to entertain anything that seems to advance the ball of employing inmates in a self-sufficient way.

    Mr. MCCOLLUM. What about the offshore labor question? Mr. Mellem has described a situation in which there has been an opportunity for his company to find competitive wages or a competitive labor source here domestically because of the Florida prison industries. There have been a number of ideas that States have bandied around with respect to using the opportunity to recapture the labor market in the United States and have work that's otherwise going offshore actually done here. What explorations of this have you done, if any. Do you think that we could change the laws in any way that would enhance the opportunity that UNICOR would have to do this?

    Mr. SCHWALB. Well, the first area of exploration really relates to your previous question before the recess, and it's similar to what Geonex is doing, and that is, whether or not there's any opportunity for us, within our existing authority, to provide services in that market, much like he is doing, that competes, if you will, with work that's basically being done offshore, and not domestically at all. So that potential exists, perhaps without a change of authority, depending on the opinion we eventually get.
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    With regard to offshore in general, as you're aware, that's been on the table for some time, ever since the 1991 report by the Deloitte Touche organization that the Congress commissioned, and it's an idea that has been viewed by many as having merit. Again, it is an issue that has a lot of facets to it, ranging from trade and treaty issues to other related issues that I'm not expert enough to testify on.

    But, again, conceptually, if we could do it productively, competitively, in a self-sustaining way, and so on, that would be certainly something that we would endorse exploring.

    Mr. MCCOLLUM. As you know, one of Mr. Wolf's proposals in his bill would provide you—by definition—the opportunity to engage in any kind of product line that otherwise would be going offshore. We would have some certification of that fact before you could proceed—that we'd no longer be producing TV sets in the United States, for example. So why can't UNICOR produce them, if there is a product of that nature?

    Do you think the Wolf bill is workable?

    Mr. SCHWALB. Again, I think conceptually it is. I mean, the one question we have is, which markets could we be economically competitive in? And we've never gotten to the point of having enough interest on the part of the companies to explore that because we never had the authority to explore it, and so we usually got the response that that sounds like a good idea, and let's talk about it more when you get your authority. I mean, they don't want to commit a lot of time and effort to something that may never come to fruition.
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    Mr. MCCOLLUM. Lastly, in this same area, Mr. Harrell's shop and Ms. Davis have suggested the idea of assembly issues in the United States. My understanding of the law is that we allow assembly of a lot of products abroad—there's a great deal of that going on because the labor is cheaper. Then those products are brought back into the United States. We could find a way to identify those things that are being assembled abroad—the marketplace for assembling American-made products. We—that is, private companies—are producing the parts of that product, then we're shipping them to Brazil or Taiwan or somewhere to be assembled with cheaper labor. Finally, we bring back the finished product to the U.S. If we could draft a law that permitted you to do the assembly work on U.S.-made parts that otherwise would be shipped abroad to be assembled, would that be something that you'd be interested in? Is that feasible?

    Mr. SCHWALB. Again, we think that might very well be feasible, depending on the product, and we'd be certainly interested in exploring that——

    Mr. MCCOLLUM. Mr. Sanders, what do you think of that idea for South Carolina? This is an idea that Ms. Davis mentioned to me when I happened to be in Florida the other day. Is that something you have discussed? Is it something you have considered? Do you think you could do it? Do you know what I'm talking about?

    Mr. SANDERS. Yes, sir. We have discussed it. It's a matter of identifying those companies that have those types of assembly operations offshore, and talking to the decisionmakers to get them to help us come up with a joint venture.

    Mr. MCCOLLUM. Right now, what do you see in the way of law changes that we could make at the Federal level that would make your task easier without perhaps the absolute repeal of the prohibition in interstate commerce that Professor Reynolds is suggesting? We might do that, but I don't know that it's going to come about easily. I think there are other things that probably are more likely to happen.
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    Mr. SANDERS. I think some tax incentives, such as those for economic development programs, would be appropriate or other types of incentives that would attract a company to start bringing that product back to the United States rather than to the third-world countries, similar to those offered with economic development right now.

    Mr. MCCOLLUM. Mr. Harrell, how do you get the word out to Mr. Mellem and Geonex? How do you advertise? Or how do you find businesses that will be interested in doing the type of deal that Mr. Mellem has done with you? I could ask him how he found out about it, but I would rather ask you how you try to get the word out.

    Mr. HARRELL. Well, in his statement, he indicated that he and Ms. Davis are a part of a group that gets together every month of CEOs. It was really through that networking opportunity that that occurred and those issues came up. And we have found that to be the best approach as we have been networking across the State ourselves, talking with Economic Development Council folks, as well as Chambers of Commerce, having them refer us to other businesses in the State of Florida. Obviously, it's a new idea for a lot of private sector businesses to entertain the idea of working with us. So there has to be—there's a fairly long sales cycle there. So we have to get in front of them and explain what we're doing and the benefits, and so forth. But it really comes through a lot of networking.

    Mr. MCCOLLUM. Mr. Mellem, do you have any recommendations as to how not only the State of Florida, but other prison industries as well—including our Federal one—might be able to get the word around to businesses about the opportunities inside the prison system for utilizing labor like you've done?
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    Mr. MELLEM. Well, I think the different trade associations, the networking I think is key. As a result, I know, of the Eagles' involvement, the Reeves Corporation is doing some work, and I've referred another company to Pam, Ms. Davis, to take the business and take a look at doing it. And I think that as American business is under more and more pressure to be competitive with some of its labor parts, we're going to have to look at offshore, and I think that the prison system, with over a million potential workers, is something that we all have to be made more aware of. We've done some television shows. We've done one with Dr. Davis, and we've gotten some inquiries there as to why we're using it.

    In our case it's very simple. The work would not have been done in the United States, and I think it's a wonderful program. I think there's misconceptions about it being a sweatshop. I think that when we went up and visited the Liberty Prison there was just a building in the middle of the compound that looked an awful lot like the inside of Geonex, and people were working there, and doing very good work.

    And the other thing that's there, in addition to the labor component, in our case, with the GIS business, PRIDE had made the investment in some of the equipment, and we brought them the work. They made the additional investment. And, therefore, that helps business because I didn't have to make the capital investment, but they did. And, yet, their price and everything was competitive on a worldwide basis.

    Mr. MCCOLLUM. Professor Reynolds, I take it that you would favor eliminating the interstate commerce sales restriction in the law that today prohibits prison-made goods from being sold in the general marketplace altogether? Is that right?
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    Mr. REYNOLDS. Yes.

    Mr. MCCOLLUM. Why?

    Mr. REYNOLDS. Well, the basic motivation behind that kind of restriction is really humane treatment of prisoners, and humane treatment of prisoners ought to be handled through other devices than that.

    Mr. MCCOLLUM. If we lifted those restrictions, wouldn't many ordinary workers in the private sector lose their jobs and be displaced?

    Mr. REYNOLDS. No, no. Actually, it's quite the reverse. What is job-destroying is the idleness of prisoners. If prisoners work on a large scale, they create demand for the labor of others, and so it's pro-employment.

    Mr. MCCOLLUM. You're saying it would create more jobs, other——

    Mr. REYNOLDS. It would create more jobs and put upward pressure on real wages throughout the economy. That's not to say that there aren't competitive displacements possible, but these frictions are minor compared to the economywide effect of having prisoners work.

    John Maynard Keynes would call it the multiplier. Others would call it Say's law of markets. But just as we benefit by having people move from welfare into real work, we would also benefit from getting prisoners off welfare into real work.
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    Mr. MCCOLLUM. What about the argument that the wages would be lowered, that in fact, because prison labor is ''slave labor''—I keep hearing that term—that we would then not be competitive in the real sense for wages, and that we'd lower the wage standard in the Nation by that? What do you say to that?

    Mr. REYNOLDS. It's just flat wrong. To economists, it's just flat wrong.

    You're adding—you're increasing demand. You're increasing employment. You're increasing output. For example, just look at it in the free world. Having more people working in the U.S. economy is a consensus-agreed good thing. To have prisoners working is also a good thing. The question of fairness of competition—of course, I go back to my original statement: It is good to have fair competition for the prison labor, so we can find the most productive use of it and have a level playing field.

    Mr. MCCOLLUM. If we opened it up to the entire marketplace, do we need to have a wage that's set or do we need to have a set price for the goods made in a prison industry? Do we ensure that it's a competitive price, that we don't have prison-made goods priced below marketplace goods for those who have to pay a presumably higher level of wages than the prison industries?

    Mr. REYNOLDS. Well, of course, I'm a proponent of vigorous competition as the device to set the prices of labor within operations, and this allows for incentive payments to reward more productive workers, and so on, just as in the ordinary market process.
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    I'm actually not really opposed to a minimum wage, provided, of course, it's not prohibitive. At our current scale, really the $5.15 isn't really a problem; it could be a binding constraint down the road, especially if it's ratcheted-up. So at our current scale, kind of $5 and $7 an hour, et cetera, those are attractive prices for businesses to employ what is mostly idle labor.

    Mr. MCCOLLUM. I've got to come back to you, Mr. Schwalb, and then we've got to wrap up this panel. I could spend a lot of time with everyone here. This is a terrific group to discuss and put on the record issues concerning prison industries.

    What do you think about the idea of converting UNICOR and Federal Prison Industries into a model more like PRIDE—have it separated so that it would not be a truly government entity, and have it a little freer? You are already different and unique, but I don't think you're quite the same as theirs in structure. Would you elaborate on that? Would you tell us how you see yourself differing from the State of Florida's system in structure, if you do? Maybe you don't.

    Mr. SCHWALB. Well, we are—I think the principal difference in our structure is that we have traditionally and historically considered ourselves an integral part of the Bureau of Prisons. Everybody who's come up through the management ranks for the most part has been a Bureau of Prisons employee, who has worked in other parts of the Bureau besides Unicor before they moved in and out of those jobs. So we've always approached it first as a correctional program and then as a business, in order to be sufficiently able to make enough money so we didn't require appropriated funds.
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    The perspective, I think, that the PRIDE organization brings is, I think—I don't know them that well, but my understanding is that they are a private, nonprofit corporation that——

    Mr. MCCOLLUM. Right.

    Mr. SCHWALB [continuing]. Essentially does what we do on behalf of the State of Florida. So their affiliation or their integration into the prison management isn't quite the same but we're not opposed, again, conceptually, to sort of respond to your question and at the same time to Professor Reynold's view, a long-range view of our corporation I think would be that we're not opposed to being, I guess, what some people call a virtual corporation. We do not see that we have to always be in the model of us being a corporation which manufactures products and sells them in what will always be viewed as competition by our detractors.

    And, therefore, the dialog is always around this level playing field, mandatory source, slave wages, super preference. Those terms define the relationship under a current model. But, frankly, if what we are is nothing more than a very small, in terms of civil service employees, organization which makes available inmate labor under terms which are not abusive or inhumane to the private sector and employs them under whatever conditions and wages and terms, and so on, seem to make sense to everybody, that's entirely acceptable to us.

    We have no vested interest in the current model. We have a vested interest in employing inmates, managing prisons, and doing it in a way which doesn't drag more appropriations out of Congress.
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    Mr. MCCOLLUM. If we can get the furniture industry and others to look at you as a labor source rather than as a business manufacturing and competing, you wouldn't mind going to that model where they got the labor benefit and competed to get the labor for each one of the private businesses and you basically got out of the business all together? And——

    Mr. SCHWALB. Absolutely. That's the long-range model, obviously. We would have no problem with that concept at all.

    Mr. MCCOLLUM. Mr. Sanders, what about that for South Carolina? Do you have a system very much like Florida's—private—or are you more like the Federal system in terms of your relationship to your corrections department or bureau of prisons? In other words, is your prison industries a non-profit corporation or does it operate in some other way?

    Mr. SANDERS. It's very similar to the Federal Government. We're a part of the State system.

    Mr. MCCOLLUM. Do you know——

    Mr. SANDERS. We are self-supporting, so we don't get any State funds.

    Mr. MCCOLLUM. Right. Do either you or Mr. Harrell know how other State systems work? Is Florida unique in this regard of having a system that's separated out and more or less quasi-independent, Mr. Harrell?
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    Mr. HARRELL. I don't know that I can answer that accurately. There are other people who can. I know there are couple of other states that have attempted to privatize or maybe some level of privatization in the prisons industries in one or two states. I think most, however, are under the Department of Corrections.

    Mr. MCCOLLUM. What do you think of the idea, Mr. Harrell, of doing what Mr. Schwalb and I were just discussing, and that is getting to a point where—in his case, UNICOR the Federal prison system becomes no more than a government agency that contracts labor out to the private marketplace rather than producing any products that you actually sell to anybody, government or otherwise? Do you think that's an evolution that the State of Florida or PRIDE would consider?

    Mr. HARRELL. Right. Obviously, I can't speak from the reference of Unicor. I'm not as familiar with them. Obviously, we're trying to expand our work programs and grow our different businesses. And we'll look at all kinds of options to be able to do that. And like I mentioned, we are already aggressively pursuing the private sector and we've learned a lot of lessons from South Carolina in some of the ways that they've been doing that. But, we're out there beating the bushes.

    Mr. MCCOLLUM. Let me ask this: The recidivism rate question came up in your testimony, Mr. Harrell. I thought it was interesting to see that mentioned on the tape. I think it was also mentioned by someone else, maybe Mr. Mellem. We hear about that all of the time and that it's one of the primary objectives of prison industries. Is it? Is reduction of recidivism a primary objective of the prison industry system of Florida?
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    Mr. HARRELL. That's part of our statutes, yes.

    Mr. MCCOLLUM. And, you now have what kind of recidivism rate compared, I think you said, to 12 percent over the ten-and-a-half—or the tape said that——?

    Mr. HARRELL. The tape was several years ago, but it's about 12.5 percent.

    Mr. MCCOLLUM. For those who graduate from your prison industry program and are placed outside?

    Mr. HARRELL. Yes.

    Mr. MCCOLLUM. Now, as I recall, Pam Davis indicated that to me that there was some difference between those who you actually placed and those who went through the program. In other words, if you had a prisoner who came through the PRIDE program and chose not to utilize your job placement services——

    Mr. HARRELL. Right.

    Mr. MCCOLLUM. [continuing]. That prisoner was more likely to be a recidivist than one who actually went through the job placement part of what you do. Is that correct?
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    Mr. HARRELL. I can't speak to that. I know, of the inmates that get out who chose not to go through our service for job placement because they may already have someone or a job waiting for them or whatever—and there are a number of other factors as well that we don't all—we are not always able to track the inmates that are working with one of our industries and then they are moved to another institution.

    Mr. MCCOLLUM. But you do have a job placement service?

    Mr. HARRELL. Yes, we do and we provide, you know, an 800 number for any inmate that's been through our system to call.

    Mr. MCCOLLUM. All right. What is the rate of recidivism for non-PRIDE inmates?

    Mr. HARRELL. I don't know if I'm the one to answer that. But, it's 30 to 50 percent, some——

    Mr. MCCOLLUM. Could you get that submitted for the record for us? We'd like to know that especially. I'd also like to know officially what the rate of recidivism is for those who are placed through your job placement system versus those who simply graduate from the program, so to speak, but don't utilize your job placement system.

    [The information referred to follows:]

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PRIDE Enterprises,
Petersburg, FL, November 3, 1997.
Hon. BILL MCCOLLUM,
House of Representatives, Washington, DC.

    DEAR CONGRESSMAN MCCOLLUM: Thank you for inviting PRIDE to testify before your subcommittee on crime. It was a great opportunity for us to share some of our successes.

    During the hearing you requested more information regarding recidivism rates in Florida and in particular PRIDE's rates for those who decline to use our job placement services once they are released. Attached is a page from the Florida Department of Correction's ''Recidivism Rates Of Inmates Released From Florida Prisons'' that shows the latest recidivism rate is 18% for 1993–94. The 1995–96 Dept. of Corrections Annual Report indicates that 46.3% of inmates recommit to prison. Also included is a summary page from a recent PRIDE presentation given to the Southeastern Correctional Industries Association regarding job placement and recidivism. The data shows that PRIDE's latest recidivism rate for inmates released from the company's industries is 9% when we had an opportunity to help them find a job. The rate for those released from a PRIDE industry who chose not to use our services is 14%. The combined total is 13%.

    Please call us if you need further clarification for this information or other issues regarding PRIDE's operation. We look forward to working with you and your subcommittee as our country addresses the important issues of prison labor and recommitment.

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Sincerely,
Michael N. Harrell, General Manager,
New Business Development.


    Mr. MCCOLLUM. Mr. Sanders, is there a job placement system in South Carolina that your prison industry system has comparable to Florida's?

    Mr. SANDERS. It's not a part of prison industries, but there is a job placement entity within Corrections as the inmate is leaving prison.

    Mr. MCCOLLUM. Does that have the same kind of recidivism rate statistics that Mr. Harrell has described to us in the PRIDE program?

    Mr. SANDERS. We have not studied the recidivism rate of inmates in PIE or prison industries. We are taking a look at that now.

    Mr. MCCOLLUM. What is the recidivism rate in South Carolina's prisons, do you know?

    Mr. SANDERS. Approximately a third.

    Mr. MCCOLLUM. It seems to me it is well worth studying. I would hope that those of you in the State would go back and encourage that data-gathering. It would be very helpful for us to have. It really would be. The job placement part of that is very important, too. Do we have a job placement program, Mr. Schwalb, with respect to UNICOR?
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    Mr. SCHWALB. It's not run by Unicor, Mr. Chairman, but we do have, the Bureau of Prisons has, programs that are run both in-house and contract through halfway house programs.

    Mr. MCCOLLUM. Do we have any studies on the rates of recidivism for those who are placed successfully versus those who are not at the Federal level?

    Mr. SCHWALB. I don't know that we have on that specific question. We do have studies that show that there's a 20 percent differential in recidivism between inmates who were in prison industries while they were incarcerated versus those who weren't.

    Mr. MCCOLLUM. What would you think about having the job placement responsibilities at UNICOR?

    Mr. SCHWALB. Well, they're in my division that I'm responsible for. But, it's part of the appropriated fund program of the Bureau as opposed to the corporation. So they are——

    Mr. MCCOLLUM. So you do oversee them?

    Mr. SCHWALB. Yes.

    Mr. MCCOLLUM. I think this is an excellent discussion and I could go on and on with this for a lot longer, but one last area I want to ask about has to do with work habits versus job placement versus keeping people busy. Mr. Schwalb, whenever I hear prison industries being discussed, I hear wardens and other prison officials say different things. Some say our main purpose in giving people work in prison is just to keep them busy because we don't want them out there causing trouble. I hear others say one of the greatest benefits of prison industry work—that we can provide in other ways in prison, too—is just giving them good work habits. You don't need a prison industry. They just need to work because then they'll develop work habits and they'll have a lower recidivism rate when they come out because of those work habits. Still, other people say that prison industries provide actual, meaningful job skills and that, with job placement, the recidivism rate is down considerably, like Mr. Harrell described. Which one of these models do you subscribe to and how much truth is there to each one?
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    Mr. SCHWALB. Actually, Mr. Chairman, the answer is probably ''d,'' ''all of the above.'' Unfortunately, because we really do try to juggle all three of those priorities, I would certainly acknowledge the wardens' concern and it has been our agency's concern about the disruptive effect the elimination of Unicor or the detrimental effect on Unicor might have on the prison. That is, from a security perspective, the paramount obligation of the warden to maintain an orderly operation. At the same time, we know, from talking to employers and inmates who are placed, that if you haven't learned the work ethic or had a steady job and done all the things we take for granted as part of any job which most inmates have not had, you're not going to be successful in the labor market.

    And, third, wherever we can, we're trying to focus on industry programs and vocational programs that are not just make-work jobs, but that are directly related to the skills that industries are looking for on the outside. We have several companies who we are working with us to design programs for direct placement with their companies on the outside and indirectly-related programs.

    Mr. MCCOLLUM. Would you agree with the proposition that if you had more prisoners in prison industry work, that that would accomplish all of the other concerns? In other words, as opposed to simply make-work or working at jobs in the prison that are designed to maintain the prison itself, prison industries is the most productive and accomplishes the objectives of keeping the prisoner occupied as well as creating work habits as well as getting job skills. Would you agree with that?

    Mr. SCHWALB. Absolutely. And I think the wardens would tell you that, of all the work programs they have available, Unicor would accomplish all three of those things you mentioned better than any of the other ones.
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    Mr. MCCOLLUM. Have you studied—or do you know anybody who has studied—the idea of possibly increasing prison industry utilization of prisoners and supplanting the work force, if you will, for doing jobs around the prisons—now done by prisoners—with private contract labor? This idea works under the thesis that it's actually going to be more beneficial to the taxpayer to have prisoners go through the prison industries working and learning skills and not coming back in again than it is to save the money that would be lost by having private outside people come in to do the sweeping of the floors, the service of food, or whatever. Have you ever discussed that?

    Mr. SCHWALB. The closest—we haven't had an extensive discussion of that. The closest we've come is some experiments with contracting out certain functions in the institutions. For instance, we have had, on occasion, contract food service programs and they have been under the same obligation to utilize inmates as our staff are if we run the food service program. So we've had some limited experience, but we've not really approached it as much from the perspective of—as a prison industry, as more just the normal contracting out consideration. And, it might very well be worth further exploration.

    Mr. MCCOLLUM. Mr. Harrell, I understand there is some ceiling with respect to the prison population you could expect to be able to utilize in prison industries in Florida because some portion of your prison population is dedicated to doing upkeep work around the prisons, is it not?

    Mr. HARRELL. That's correct.

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    Mr. MCCOLLUM. In an ideal world, would you prefer to have more prison labor available to the prison industries?

    Mr. HARRELL. We would. Obviously, for us as a private company to have access to that labor, we've got to have work for them. So we've got to be able to grow our industries just like any other private sector company would.

    Mr. MCCOLLUM. But, ideally——

    Mr. HARRELL. We would like to have access to more.

    Mr. MCCOLLUM. Mr. Sanders, would you agree with that in principle? Ideally, you would have more of your prisoners available to put into the workplace. I assume there are ceilings on the prison population you have available, too, in South Carolina and that you may not utilize it all.

    Mr. SANDERS. We have inmates that certainly do other types of things inside institutions like maintenance and cafeteria workers, et cetera. But, we have had as many as a third of the population of some institutions working in prison industries.

    Mr. MCCOLLUM. That's terrific.

    Mr. SANDERS. And, so we have very high amount percentagewise.

    Mr. MCCOLLUM. Overall in the State, what is the average percent of——
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    Mr. SANDERS. What is the average percentage of inmates working in P.I.?

    Mr. MCCOLLUM. Yes.

    Mr. SANDERS. Nine-and-a-half percent of the total population.

    Mr. MCCOLLUM. Nine-and-a-half of the total? What about juveniles? Do you——

    Mr. SANDERS. Juveniles are under a different agency. But, strangely enough, we are working with juvenile justice right now to develop a P.I. program in their community.

    Mr. MCCOLLUM. Is there potential, Mr. Harrell, for juveniles to be utilized in prison industries in Florida? Or do you already use them?

    Mr. HARRELL. We currently do not. We have looked at that as an option.

    Mr. MCCOLLUM. How about at UNICOR? We don't have any juveniles at all in UNICOR, do we?

    Mr. SCHWALB. No, we contract the very small number of Federal juveniles.
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    Mr. MCCOLLUM. Professor Reynolds, you've heard this discussion I've just had about the question of putting people to work and job skill type of work versus make-work or working around the prisons. I presume you haven't studied this, although you study a lot of things in your shop. Do you have any observations to make about whether it might be more economically practical for the taxpayers to have more prisoners working in prison industries and gaining job skills than there are presently, even if it meant taking some of those prisoners who are now doing work around the prison—upkeep of the prison, food service, and that sort of thing—out of that market and replacing them with some outside contract labor from the private marketplace to do those maintenance functions?

    Mr. REYNOLDS. I've haven't done any careful study of that. But, I do know that about half of prisoners typically are engaged in part-time food service or maintenance activities. And, the kind of substitution we're talking about toward marketable real income-earning activities is the right way to go. That is to shift labor on the margin from household maintenance toward marketable work. That would serve taxpayers best. And, it may create a demand for janitorial services, et cetera, for enterprise to take over some of these tasks.

    And, I want to make one comment on the question about the different benefits of work. And that is that labor is the most general factor of production—the most flexible. So, of the keeping busy, good work habits, and meaningful job skills, actually the least important is so-called meaningful job skills. Specific things aren't terribly important compared to good work habits and just general work attitudes, work experience, reliability, et cetera.

    Mr. MCCOLLUM. What about job placement after they get out of prison?
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    Mr. REYNOLDS. Who could be against that?

    [Laughter.]

    Mr. MCCOLLUM. I'm just suggesting that one assumes that job placement is almost a prerequisite for not having them return to prison—the recidivism rate. Have you done any studies on that?

    Mr. REYNOLDS. No. That is, of course, a huge problem. Even people who have had industry jobs in prison have incredibly high unemployment rates a year later.

    Mr. MCCOLLUM. It would be interesting to see the statistics which Harrell didn't have with him today. I know from talking privately with Ms. Davis, who runs his system, that it is a remarkable difference between those they actually placed versus those who go in the system. So, I would hope we could do some studies. I don't know if you're the right one to do it. I'm just saying that generically.

    You made the comment earlier—and I've got to close with this one—that Mr. Frank's comment about giving away prison labor was not at all in line with your thinking about competition in the marketplace. Mr. Schwalb, as a practical matter, if we had UNICOR producing goods and giving them away abroad—in other words, not selling those goods—would that be an expensive proposition to the taxpayers? Could it be done? What are your reactions to that suggestion?

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    Mr. SCHWALB. Well, of course, it would completely undermine our ability to remain self-sustaining and that means additional costs. Even beyond that, though, it seems to me that it's hard to maintain what we're trying to teach inmates, which is take pride in your work, produce a good quality product, produce something that's commercially comparable. Many of our products have to compete in terms of quality and price and delivery with what's available in the private sector. And, I can't imagine a private sector company being able to maintain high standards of production with their employees if they knew they were going to give it away and didn't have to meet any customer requirement. And, I think the same thing would happen to us. The quality would diminish. Our motivation would disappear. And on top of that, we would be paying a lot of money to a non-self-sustaining program to just—we might just as well give the money to somebody and forget all the intermediaries.

    Mr. MCCOLLUM. What do you think about that, Professor Reynolds, in terms of the production of a quality product—if you gave it away?

    Mr. REYNOLDS. Amen to my co-panelist's statement.

    Mr. MCCOLLUM. Mr. Mellem, you're a businessman. What would you think about UNICOR or the Board of Prison Industries producing products that they gave away abroad?

    Mr. MELLEM I think that in talking to them that are working on our project the thing that really excites them is the meaningful work, and that they can relate that work to a valuable product to somebody else in industry where they haven't in the past been able to be productive other than just sweeping floors and doing manual labor. Here they are doing something constructive and they can see their efforts going into an overall larger product which has value. And that gives them pride in what they're doing. And I think that if you gave it away, I think you're going to end up with quality problems that Steve talked about and diminishing returns in the long run.
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    Mr. MCCOLLUM. Professor Reynolds said that to us a minute ago—that work habit was the most important part of this. It really didn't make much difference, but in your case you do a very specific thing with these folks. It is a service. Still, they have a skill that they learn, do they not? And that's a skill that many of them can have the opportunity to utilize on the outside. Or is it just the work habit, pretty much, that benefits them from doing the work with your company?

    Mr. MELLEM Well, I think there's a couple pieces. One is the discipline, and the point that I made earlier about if, indeed, it ties to your job placement phase, too. If they've got a job and they have to have the discipline to go to work at 8 o'clock in the morning and finish a quality product and they measured along the way, both on productivity and quality, and then, if you've got job placement so that they can go from prison to a job without any interruption, it is basically like a transfer in private industry. And I think that one's learning this skill part of it but also the discipline that's there and producing something that's meaningful.

    Mr. MCCOLLUM. I want to thank you all for coming today—some of you quite a distance. Mr. Schwalb didn't come that far, but it was good of him to give his testimony. I think we've had a very complete hearing. I'm sorry we didn't have more Congressmen appear on our end to ask questions, but it gave me an opportunity to explore and put on the record a strong background in this.

    We are going to go forward. There will be some legislation coming out of these hearings. I'm not sure what yet, but we definitely will do something with it. I thank you again and appreciate your presence.
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    I'll introduce our second panel today as this panel leaves. I would like to ask that they come to take their seats. Donald G. Heeringa is president of BIFMA International, the trade association representing business and industrial furniture manufacturing. He's also president of Trendway Corporation, a furniture manufacturing company in Holland, Michigan, with annual sales in excess of $75 million. He is active in a number of community organizations in the Holland area and serves on the board of directors of a number of public and private corporations. He received his bachelor's degree from Arizona State University.

    Stephen M. Ryan is a partner in the Washington, D.C., law firm of Brand, Lowell, and Ryan. Mr. Ryan served as General Counsel to the Senate Committee on Government Affairs and was Deputy Counsel of the President's Commission on Organized Crime under President Reagan. He has served as an Assistant United States Attorney prosecuting criminal cases and is an adjunct professor of law at Georgetown University. Mr. Ryan received his bachelor's degree from Cornell University and his law degree from the Notre Dame Law School. He appears today as the representative of Quarters Furniture Manufacturer's Association.

    The next panelist is V. James Adduci, II, co-owner of National Apparel, Inc. headquartered in Montgomery, Alabama. His company produces military apparel and tentage for the United States Government. He served as legal counsel with the United States International Trade Commission from 1975 to 1997 and was appointed as a member of the United States delegation to the Tokyo Round of the multi-lateral trade negotiations in 1977. He received his bachelor's degree from the University of Colorado and his law degree from John Marshall Law School. Mr. Adduci appears on behalf of the American Association of Apparel Manufacturers.

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    And our final panelist is Ann F. Hoffman, Legislative Director of UNITE, the Union of Needletrades, Industrial and Textile Employees. UNITE is, I guess, the way you pronounce that?

    Ms. HOFFMAN Correct.

    Mr. MCCOLLUM. That's your acronym as a result of the 1997 merger of International Ladies Garment Workers Union and Amalgamated Clothing and Textile Workers Union. Ms. Hoffman has represented the interest of union members in various capacities since 1972. She was Executive Assistant to Attorney General Civiletti from 1979 to 1981. She received her bachelor's degree from Bernard College and her law degree from the University of Maryland.

    I want to thank all of you for appearing here today. I'm going to start in the order we introduced the panelists. First of all, let me say that your entire testimony will be submitted into the record in written form without objection. I don't hear any. So done. If you could summarize in about 5 minutes, it would be helpful. Then we'll go into discussion. Please proceed, Mr. Heeringa.

STATEMENT OF DONALD G. HEERINGA, PRESIDENT, BIFMA INTERNATIONAL

    Mr. HEERINGA. Thank you, Mr. Chairman. We appreciate the opportunity to come, once again, before your committee and bring up these important issues to our industry.

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    Good afternoon or good morning. I am Donald Heeringa, the president of Trendway Corporation and the trade association for office furniture industry, BIFMA International. I will also be speaking today on behalf of the Competition in Contracting Act Coalition, of which BIFMA is a founding member.

    This is the second time that I have testified before this committee, and the third time that I have before the United States Congress, on the negative impact of Federal Prison Industries on the private sector. I think a review of our efforts will illustrate that we have been seeking a remedy for some time. The issue of continued FPI expansion in the office furniture industry has been a subject of discussion in BIFMA and FPI since 1989. After years of discussion, we were unable to agree on even the simplest definition of a ''reasonable share,'' or a statistical base for comparison.

    As a result of this lack of progress in those discussions and FPI's intransigence, the BIFMA Board of Directors developed and passed a position statement supporting legislative relief relative to FPI in May 1995. BIFMA called on Congress to adopt legislation that would limit the market damage suffered by the office furniture industry. We asked for elimination of the mandatory source rules, the so-called ''super preference,'' under which FPI has forced Federal agencies to purchase furniture without competition.

    In the face of FPI requests for increases in production volume over the last year-and-a-half for systems, casegoods, and seating, we have testified to the undue impact and effect of the continued concentration on our industry to the FPI board of directors as well as to the United States House and Senate committees. The 1996 FPI office furniture sales level was more than $181 million and the agency now has approval to grow to over $300 million in the next 4 years.
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    Today's hearing seeks to explore options for improving and expanding cooperation between Federal Prison Industries and the private sector. To begin with, Congress needs to define what role FPI will play in our society. Federal Prison Industries operates as if it were a business, with sales reports, trade shows, and the rest; yet, it claims really not to be a business. I believe that cooperation is hard to establish because of the fundamental unfairness of the mandatory source status that FPI holds. As long as FPI can use monopolistic powers to keep Federal contracts from being competitively bid, private sector companies will have a difficult job of developing trust for the agency. The only way to get along with FPI under the current system is really total submission.

    BIFMA has suggested alternative forms of inmate training and activities in the past. We support the use of inmate labor by government entities for specific projects such as sorting and/or dismantling recyclables, reforestation, and reclamation projects on government land, hazardous waste cleanup on Federal land, and disaster assistance projects. While any of these projects should be evaluated prior to startup for potential impact on private business and labor, there is probably no end to the ways in which FPI could utilize inmate labor without harming people who are trying to earn a living.

    FPI claims that the alternatives have not been successful. We believe that the reason behind FPI's inability to make any of these alternatives work is its concept of success. Too much priority is placed on the money that it can wring out of the Federal customers. FPI uses the self-sustaining aspect of the program as an excuse to justify a continual income flow as a top priority. More than inmate training, instilling a work ethic, or any other good goal of the program, it's the money that seems to be the main focus. As long as FPI continues to use income stream as the basis for its creative options, conflict with the private sector will be guaranteed. FPI itself has stated that it is difficult to work with often conflicting statutory mandates. Congress needs to clarify the agency's goals and objectives for them.
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    More than 30 organizations and over 200 companies across the Nation have joined the Competition in Contract Act Coalition. I am submitting a list of the coalition members for the record. The coalition believes elimination of the mandatory source authority needs to occur before FPI is given any additional authority to engage in broader unfair competition with the private sector. This program is working to the detriment of private firms and their law-abiding citizens/employees. We support the Hoekstra-Frank-Collins-Maloney legislation to bring fairness to the Federal procurement process.

    [The prepared statement of Mr. Heeringa follows:]

PREPARED STATEMENT OF DONALD G. HEERINGA, PRESIDENT, BIFMA INTERNATIONAL

SUMMARY

Introduction:

    Good morning, I am Donald G. Heeringa, President of Trendway Corporation and the trade association for the office furniture industry, BIFMA International. I will also be speaking today on behalf of the Competition in Contracting Act Coalition of which BIFMA is a founding member.

History:

    The issue of continued FPI expansion in office furniture has been a subject of discussion between BIFMA and FPI since 1989. After years of discussion, we were unable to agree on even a simple definition of ''reasonable share'', or a statistical base for comparison. As a result of lack of progress in those discussions and FPI's intransigence, the BIFMA Board of Directors developed and passed a position statement supporting legislative relief relative to FPI in May of 1995.
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    In the face of FPI requests for increases in production volume over the last year and a half for Systems, Casegoods and Seating, we have testified to the undue impact and effect of the continued concentration on our industry to the FPI Board of Directors as well as to Congressional Committees. The 1996 FPI Office Furniture sales level was more than $181 million and the agency now has approval to grow to over $300 million in the next four years.

Needed Actions:

    1) Congress needs to define what role FPI will play in our society. Federal Prison Industries operates as if it were a business, with ''sales'' reports, Lade shows, and the rest, yet, it claims it is not a business. As long as FPI can use monopolistic powers to keep federal contracts from being competitively bid, private sector companies will have a difficult job of developing Oust for the agency.

    2) Alternative uses of inmate labor that would benefit society must be seriously explored. Specific projects such as sorting and/or dismantling recyclables, reforestation and reclamation projects on government land, hazardous waste clean up on federal land, and disaster assistance projects should be undertaken. Activities that would not harm people who are Lying to earn a living.

    3) Too much emphasis is placed on money. FPI uses the ''self sustaining'' aspect of the program as an excuse to justify a continual income flow as a top priority. More than inmate Gaining, instilling a work ethic, or any of the other goals of the program, its the money that seems to be the main focus. FPI itself has stated that it is difficult to work with ''often conflicting statutory mandates'' and Congress should clarify or rank them.
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Conclusion:

    Finally, as a member of the Competition in Contract Act Coalition, we believe elimination of mandatory source authority needs to occur before FPI is given any additional authority to engage in broader unfair competition with the private sector. This program is working to the detriment of private firms and their law-abiding employees. We support the Hoekska-Frank-Collins-Maloney legislation to bring fairness to the federal procurement process.

STATEMENT

    Good morning, I am Donald G. Heeringa, President of Trendway Corporation and the trade association for the office furniture industry, BIFMA International. I will also be speaking today on behalf of the Competition in Contracting Act Coalition of which BIFMA is a founding member. This is the second time that I have testified before this committee and the third time that I have testified before the United States Congress on the negative impact of Federal Prison Industries on the private sector. I think a review of our efforts will illustrate that we have been seeking a remedy for some time.

    The issue of continued FPI expansion in office furniture has been a subject of discussion between BIFMA and FPI since 1989. After years of discussion, we were unable to agree on even a simple definition of ''reasonable share'', or a statistical base for comparison. As a result of lack of progress in those discussions and FPI's intransigence, the BIFMA Board of Directors developed and passed a position statement supporting legislative relief relative to FPI in May of 1995. BIFMA called on Congress to adopt legislation that would limit the market damage suffered by the office furniture industry. We asked for elimination of mandatory sourcing rules, the so-called ''super preference'', under which FPI has forced federal agencies to purchase its furniture without competition.
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    In the face of FPI requests for increases in production volume over the last year and a half for Systems, Casegoods and Seating, we have testified to the undue impact and effect of the continued concentration on our industry to the FPI Board of Directors as well as to U.S. House and Senate Committees. The 1996 FPI Office Furniture sales level was more than 181 million dollars and the agency now has approval to grow to over 300 million in the next four years.

    Today's hearing seeks to explore ''options for improving and expanding cooperation between Federal Prison Industries and the private sector''. To begin with, Congress needs to define what role FPI will play in our society. Federal Prison Industries operates as if it were a business, with ''sales'' reports, trade shows, and the rest, yet, it claims it is not a business. I believe that cooperation is hard to establish because of the fundamental unfairness of the mandatory source status that FPI holds. As long as FPI can use monopolistic powers to keep federal contracts from being competitively bid, private sector companies will have a difficult job of developing trust for the agency. The only way to get along with FPI under the current system is total submission.

    BIFMA has suggested alternative forms of inmate training and activities in the past. We support the use of inmate labor by Government entities for specific projects such as sorting and/or dismantling recyclables, reforestation and reclamation projects on government land, hazardous waste clean up on federal land, and disaster assistance projects. While any project should be evaluated prior to startup for potential impact on private business and labor, there is probably no end to the ways in which FPI could utilize inmate labor without harming people who are trying to earn a living.
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    FPI claims that the alternatives have not been ''successful''. We believe that the reason behind FPI's inability to make any of these alternatives work is its concept of success. Too much priority is placed on the money that it can wring out of its federal customers. FPI uses the ''self sustaining'' aspect of the program as an excuse to justify a continual income flow as a top priority. More than inmate training, instilling a work ethic, or any of the other goals of the program, its the money that seems to be the main focus. As long as FPI continues to use income stream as the basis for its creative options, conflict with the private sector will be guaranteed. FPI itself has stated that it is difficult to work with ''often conflicting statutory mandates''. Congress needs to clarify the agency's goals and objectives for them.

    More than 30 organizations and over 200 companies across the nation have joined the Competition in Contract Act Coalition. I am submitting a list of coalition members for the record. The coalition believes elimination of mandatory source authority needs to occur before FPI is given any additional authority to engage in broader unfair competition with the private sector. This program is working to the detriment of private firms and their law-abiding employees. We support the Hoekstra-Frank-Collins-Maloney legislation to bring fairness to the federal procurement process.

103097aj.eps

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103097am.eps

    Mr. MCCOLLUM. Thank you very much, Mr. Heeringa.

    Mr. Ryan, you're recognized.

STATEMENT OF STEPHEN M. RYAN, QUARTERS FURNITURE MANUFACTURING ASSOCIATION

    Mr. RYAN. Thank you, Mr. Chairman. And, I want to congratulate you for the ''hard seat'' time. This is not a popular issue—it's the kind of work that the Congress does very well and that the taxpayers don't often see.

    I represent the dorm and quarters furniture manufacturers. We supply the beds that our serving troopers sleep on. We supply the desks at which they study. We supply the chairs that they sit at in the recreation area or waiting area before they go to their aircraft or to their ships. Those are our customers. It's a DOD customer base—as your sons and daughters are located in states across the Nation, in Alabama and California and Maine and Maryland and Virginia and North Carolina, Georgia—all over the country. There are 20 companies that make up our group. Eleven of those are manufacturing plants.

    I want to speak from the heart a little bit because I know that the Chairman knows this story. But, in essence, in 1995, FPI proposed that they would expand again in our particular niche. That proposal was that they would expand from an area of 25 percent of the market to 35 percent of the market. As a lawyer, I was astounded to find that the expansion from about 10 to 12 percent of the market to 25 percent had been done illegally. That is, FPI had never gone to their board. They had never received approval. They built factories all over the country without the approval required in the congressional process. They thumbed their nose at the United States Congress. And, I think it's an astounding thing to see an arm of the Justice Department, which I revere, break the law.
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    The Federal facility at Sheridan, Oregon was built without authority. It now produces $6.6 million of furniture against my companies each year. In Talladega, Alabama there is a facility that was built without the approval of the board. When one went back and looked at it, the Congress in 1988 gave these people very specific direction as to how they were to go about their business. I can tell you, because I've gone in as a lawyer and discovered that FPI doesn't even collect the data from which the analysis could be derived. FPI cannot produce the data from which they would have had to trigger the analysis in the statute.

    Now, when we went to court on this, we asked for relief. That case has been pending for 16 months on summary judgment. I don't know what the court is going to do and, quite frankly, I don't think this committee should care. If this committee looked at the facts, the committee would know that the law was broken. Whether relief is granted to us or not is really an ancillary issue of whether FPI is an agency that is outside the control of the United State Government. FPI is not in accord with its statutes that this Congress passed.

    This is not a negligence issue. There's a quote the chairman can read it—it's in my prepared statement—that we found in a document that said we don't want to have these kind of expansion hearings when the Congress is in session because maybe these people, these people from the hinterland will wander up here and tell their Congressmen about these problems. FPI said, why don't we have these proposals to expand when Congress is out of session? I think that's the kind of spirit, frankly, that has been behind the agency.

    And, I don't say this about Mr. Schwalb personally or his staff personally. None of the people involved are bad people. I don't think they get an extra bonus because of what they do. They're doing it in their own area because they think their mission justifies it.
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    Our thoughts are as follows: When I went to the FPI board as a lawyer for our group, the hostility in the room from the FPI board was palpable. FPI and the Board were very nervous about one of us coming in and raising these issues. The FPI board has no staff of its own. It is a complete captive in a sense of the information that's fed to it from FPI.

    I must say, Mr. Chairman, the current structure doesn't work. It's a Potemkin Village. It's a facade. All that is there is your statute, which is not being complied with in any procedural way. The FPI Board only gets the information that comes to it from FPI. I think that has to change, no matter where the chairman comes down on the direction of the FPI program. FPI's actions are not right. FPI' actions are not fair.

    Second, I would simply say that having had this experience, frankly, of having been lied to—we were told that the Leavenworth factory, by the way, which increased in 100 percent volume 1 year, that they didn't increase inmate labor over the statutory thing. Well, that turned out not to be true. FPI doesn't even have the data. When we made them collect the data, it was clear that there were these violations.

    We believe that the FPI board should submit a list to Congress each year of where it has found it is right to expand and what their case for that is. This list should go to the members, just like the military construction go to the members. Now, it is not as popular a list as Milcon, but it certainly is a congressional duty to oversee it. GSA is certainly capable of deciding what building should be built with its funds. But the Congress authorizes those buildings. We support the Hoekstra-Frank legislation because of our experience. But it doesn't go far enough.
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    Quite frankly, this committee ought to hear from FPI annually as to where they intend to expand and in what industries. And people like yourself, Mr. Chairman, should look at that and see if the justification is there because it is a difficult balance. Let them produce that for you. Let the Attorney General put her name on it. I bet, if the Attorney General knew the facts of QFMA's case, she would change it. She would be ashamed for the Department of Justice. And I say that because I think that our chief law enforcement officer would not permit her Department to engage in law-breaking.

    Finally, I think on the mandatory preference I was astounded this morning, if I heard it correctly, that Mr. Schwalb said he talked with us about lifting the mandatory preference. And let me just say today, lift it, Mr. Schwalb, because we are going to call the bluff of this agency. The military doesn't want their product because it's not shipped on time, it doesn't have the right quality, and it's overpriced compared to what our companies are producing. If they can produce a comparable product to compete with us, wouldn't it be interesting for you to have a single case study to show that they really are capable?

    Now, they're paying people 25 cents to a dollar and a quarter. My people are out there paying certainly much more than that and up to $15 an hour. So, I challenge Mr. Schwalb today—lift your mandatory preference in the small dorm and quarters market. Let the chairman see a year from now who's stuff is being bought. Because, that to me, is the facts that you in the Congress need. And we do very much appreciate your willingness to hear from us today.

    [The prepared statement of Mr. Ryan follows:]

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PREPARED STATEMENT OF STEPHEN M. RYAN, QUARTERS FURNITURE MANUFACTURING ASSOCIATION

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    Mr. MCCOLLUM. Thank you very much.

    Mr. Adduci.

STATEMENT OF V. JAMES ADDUCI, II, AMERICAN APPAREL MANUFACTURING ASSOCIATION

    Mr. ADDUCI. Thank you very much, Mr. Chairman. I'm appearing here today on behalf of the American Apparel Manufacturers Association. That association is the central association representing the apparel manufacturing industry in the United States. I am also here as an officer and co-owner of a company called National Apparel. We're headquartered in Alabama. We have four plants in Alabama and Mississippi. We make, and have been making for the last 10 years, military apparel and tents—all for the United States Government.

    On a personal note, I am also a lawyer, and want to tell you how refreshing it is for me to appear, particularly in this town, or to tell people I meet in airplanes that I'm a manufacturer, not just another lawyer—at least today.
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[Laughter.]

    Mr. Chairman, listening to these hearings, it is apparent to me that there is a broad consensus that putting prisoners to work is a good thing. It's good for the prisoners. It's good for society. They acquire job skills. They acquire work habits that are laudable, and, as important, they to some extent offset the enormous and rising costs off maintaining the Federal prison system.

    But we are also adamantly opposed to the further expansion of Federal Prison Industries, if it means losing another American job in the apparel industry. We are concerned about the mandatory source status of FPI. It allows FPI to play by different rules than we're required to play by, and take, our business as a result.

    I would also like to associate myself with the comments of Mr. Ryan. We believe that the interpretation by FPI of its congressional mandate goes well beyond what Congress intended, particularly with respect to product definition and what constitutes a ''reasonable market'' share.

    From a personal point of view, Mr. Chairman, Federal Prison Industries may be a well-intentioned group of people, but to me it is a Federal bureaucracy that is simply out of control, extending its monopoly over products we care about without first adequately considering the impact on American business. The American manufacturing business that makes apparel is particularly vulnerable. We are, like FPI, a labor-intensive industry.

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    My particular segment of that industry, the government contracting community, is even more vulnerable. Out of the 800,000 or so American apparel manufacturers in this country, there are approximately 15,000 workers, down from about 34,000 workers 10 years ago, that are manufacturing military and government apparel items. And, like my company, our production is dedicated to the needs of the Federal Government, particularly in our case, to the Department of Defense.

    We operate in rural areas. Unemployment in our area is unusually high, well above national standards. Our workforce is comprised mainly of women and minorities. This is a vulnerable group to begin with. And we are faced with the added pressure, although we don't object to it, of the downsizing of the Federal Government, and the downsizing of the military. But, the point is that our piece of the pie is shrinking.

    And, so when I hear Mr. Schwalb today rededicate himself to committing 25 percent of the Federal worker, prison labor, to the FPI program by the year 2000, I get very concerned because, if history is a guide, I know where that business is going to come from. And, it scares us.

    Apart, Mr. Chairman, from the inroads that FPI has made on the apparel market, I think it is important to know that it also represents a threat to the industrial base. Using their mandatory source authority, FPI now controls or supplies a growing share of defense-related apparel items, including such so-called ''go-to-war'' items as battle dress uniforms, coats, parachutes, and chemical and biological protective clothing.

    More importantly, FPI is a single source for some very critical items, including helmets for soldiers, body armor, and clothing for extremely cold weather conditions. They are supplying 100 percent of the military requirements for these items. Now, Mr. Chairman, I put it to you that is just not prudent, either commercially or from a national security point of view, to rely on a single source, any source, for such critical items.
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    Now, Mr. Chairman, we are here to talk not about all the things that are wrong, but to explore with you some of the things that we can do to address these problems. And just let me just state at the outset that I think the central theme of a fix, if you will, from our point of view is that if Congress is to commit to expansion of the Federal Prison Industries program, if we are going to have more prisoners working, there ought to be a more equitable distribution of that work among the various sectors of American business. There are 150 items that FPI is now offering. And there is a large concentration of those items in the areas that we in the apparel industry are now making. There is one other industry that we have heard from today, the furniture industry, that is also disproportionately targeted by FPI.

    So, as a starting point, Mr. Chairman, we would say there's got to be a better distribution of that burden if we are to commit to an expansion of the program. We think that can be accomplished by actually putting caps on the amount of business that FPI can take in any particular industrial sector. For instance, putting a percentage cap on the amount of clothing and textile products that DOD can procure from FPI. We also think that FPI ought not be allowed to provide 100 percent of the requirements of the military for any particular item, as they now do today.

    There a couple of other—we also urge the Congress to provide additional guidance to FPI with respect to the product definition issue and to what constitutes ''reasonable market share.'' We also endorse the idea of making FPI a self-supporting system, whereby prisoners provide more of their own sustenance: their clothing, their bedding, their mattresses, their food.

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    Two other ideas that I heard today that I thought were exciting were Mr. Frank's notion that we should be providing more for disaster relief supplies. My industry, the apparel industry, maintains a foundation that donates clothing for disaster relief. And unlike the other panelists, I must say, we take a great deal of pride, and our workers take a great deal of pride, in providing those articles to people in need around the world. And the fact that we don't make money doing that is quite secondary, indeed.

    Also, Mr. Chairman, let me close by saying that I found your idea of identifying products that are no longer being made in this country as products that could be made by the Federal prison work force, I think that thought is very meritorious and should be explored.

    I also note parenthetically that the United States International Trade Commission, which you have access to, could very quickly identify the products that, say, for the last 5 or 10 years, have not been made in this country—and, not simply those products that are being assembled elsewhere. And, I think they could provide some very meaningful ideas.

    So, we're ready to work with you; we're ready to work with FPI, and we thank you for the opportunity of letting us be here today.

    [The prepared statement of Mr. Adduci follows:]

PREPARED STATEMENT OF V. JAMES ADDUCI, II, AMERICAN APPAREL MANUFACTURING ASSOCIATION

    Thank you, Mr. Chairman. I am V. James Adduci, Vice President, Secretary and Treasurer of National Apparel, Inc. National Apparel operates four plants in Alabama and Mississippi, manufacturing clothing and tents for the United States government. I am here as a member of the American Apparel Manufacturers Association, the central trade association for apparel manufacturers in the United States. Specifically, I am here representing AAMA's Government Contracts Committee, for which I serve as chairman of the Legislative Subcommittee. Members of AAMA's Government Contracts Committee have had extensive dealings with Federal Prison Industries.
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    Federal Prison Industries is of significant concern to apparel manufacturers in the United States because the very characteristics of the industry that make apparel manufacturing appealing to FPI (primarily, labor intensive production), make our industry very sensitive to unfair competition.

    As business operators we resent the inherently unfair competition that prison labor presents. However, as citizens we recognize the role that FPI plays in providing work for inmates. Our aim, therefore, is not to engage in destructive criticism of FPI, but rather to offer some constructive suggestions that we hope will help enable FPI to fulfill its mandate, while avoiding the unnecessary displacement of citizens gainfully employed in the private sector.

    In that light, we welcome this opportunity to present our concerns with the current FPI regime, and our suggestions for improving the partnership between FPI and the private sector. With that in mind, I would like to first address the concerns that the apparel industry has with current trends in the FPI, and then I'd like to offer some suggestions we have developed for the expansion of FPI in suitable areas.

DIRECT COMPETITION WITH PRIVATE INDUSTRY DISPLACES GAINFULLY EMPLOYED CITIZENS

    FPI should avoid expansion in the apparel manufacturing sector beyond what it currently produces. In many cases, the limits required by law have already been surpassed. Congress has established rules for the determination of a reasonable market share for FPI, but these rules have been adhered to neither in letter nor in spirit.

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    We suggest several limitations, which will allow FPI a reasonable share of the market, without causing undue displacement among the private sector workforce:

— FPI should be limited to no more than 15% of the total defense department's textile and clothing budget, including the various branches of the armed services;

— FPI should not be allowed to provide 100% of any single textile or apparel procurement item (just as no individual private sector manufacturer should); particular attention needs to be given to preventing dilution of our ''go-to-war'' capability;

— FPI must be forced to apply the reasonable market limitations that it is statutorily obliged to follow in a manner that is consistent with the letter and the spirit or intent of the law.

    Perhaps the biggest problem faced by the industry due to FPI's apparel production has been FPI's tendency to measure market size in generic terms and inappropriately inclusive of the commercial market. For example, FPI will determine that there is an enormous market for pants of any kind in the United States, and on that basis conclude that it should be free to manufacture the entire procurement of one specific type of military pant, since that procurement measures such a small percentage of the overall market for ''pants.'' It is this methodology that skews Congressional intent in determining reasonable share. The reality is that for some small companies those specialty pants may account for most or all of their production, and FPI's takeover of their market may likely put them out of business.

    It is essential that FPI measure the market in terms of the specific product, narrowly defined, that it intends to produce. It appears FPI is unable to do this on its own, so Congress needs to provide FPI with more specific guidance. In the absence of a definitive approach to measuring the size of the actual market to be impacted, any determination of what constitutes a reasonable share of that market is meaningless.
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THERE ARE SIGNIFICANT OPPORTUNITIES FOR FPI TO ACCOMPLISH SOCIALLY DESIRABLE AIMS THAT WOULD OTHERWISE GO UNFULFILLED DUE TO LABOR COST RESTRAINTS

    In its current areas of manufacturing, FPI competes directly with the most vulnerable workers and businesses in the private sector. We believe that FPI would better fulfill its mandates and avoid unnecessary displacement of private sector workers by focusing its efforts in areas where labor cost constraints make otherwise socially desirable undertakings uneconomical to carry out.

    Specifically, we believe that there are significant undeveloped opportunities for FPI expansion in the areas of recycling, deconstruction and Remanufacturing, both within the federal government, and on behalf of private industry, which will allow FPI to fulfill its mandates without displacing gainfully employed citizens in the private sector, and aid inmates in the repayment of their debt to society.

    Among the projects FPI could undertake:

— On the most basic level, large scale sorting and preparation of materials for recycling;

— Deconstruction by hand of obsolete buildings and other structures, with the recoup for resale of valuable building materials that would otherwise be demolished and cause unnecessary waste;

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— Demanufacturing of products (i.e. the breakdown of goods into their most basic components for reuse as raw materials)such as computers and other electronic components; automotive products, especially tires; and appliances.

    Any list of projects that we can present is necessarily limited and somewhat arbitrary in nature. To further explore the options available, FPI should undertake a labor survey among the agencies of the federal government to determine what types of labor intensive work is contracted out by the government and what types of projects would be undertaken but for the unavailability of economical labor.

OTHER ALTERNATIVES FOR MITIGATION OF HARMFUL COMPETITION BETWEEN FPI AND THE PRIVATE SECTOR

    Alternatives to the current FPI status quo should be fully considered, among them:

— elimination of mandatory sourcing;

— encouragement of joint ventures between the private sector and prison industries;

— expansion into more industries than the few (despite its 150 products) that FPI has traditionally targetted (for instance, there are huge markets within the federal government for the digitalization of documents and for printing services); and

— establishment of prisons as self-supporting industries, meaning the prisoners are employed in the manufacture and maintenance of everything the prison requires to meet its needs—food, clothing, sheets, mattresses, and so on.
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    In considering the elimination of mandatory sourcing, Congress must also give thought to the impact of allowing FPI to compete in the commercial market. This issue has not yet received sufficient study from either the public or the private sector to determine whether this is a workable, or desirable, alternative.

    Private joint ventures provide a beneficial situation for FPI, but could cause significant hardships among the segment of the private sector industry that is not able for whatever reasons to partake. Joint ventures between federal prisons and private corporations are acceptable to the apparel industry only under a strictly defined set of constraints. Joint ventures should pay at least minimum wage for prison labor, and normal business costs, such as building, utility, administrative and supervisory costs must be fairly calculated and reflected in procurement bids. Only with such a leveling of the playing field can joint ventures in any way be considered ''fair'' competition.

    Finally, it bears noting that for much of our country's history our federal prisons were run on a self-sufficient basis. A return to that standard would no doubt provide a great deal of employment opportunities within the prisons themselves. One of FPI's core mandates is to defray the costs to the taxpayers of incarcerating prisoners. To this point, FPI's efforts to achieve that mandate have focused on producing revenue by sales of manufactures that meet the needs of others. We believe that a more appropriate focus might be to reduce outlays by concentrating on the system's own needs, and thus reducing appropriations.

    Thank you, Mr. Chairman, for this opportunity to present the views of the apparel industry. I hope my comments are helpful. We in the apparel industry look forward to working with you, your committee, and FPI to move forward in a manner that is constructive for all concerned. I would be happy to answer any questions you may have.
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    Mr. MCCOLLUM. Thank you very much, Mr. Adduci.

    Ms. Hoffman, you're recognized.

STATEMENT OF ANN F. HOFFMAN, LEGISLATIVE DIRECTOR, UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILES EMPLOYEES

    Ms. HOFFMAN. Thanks very much, Mr. Chairman. Thanks for the opportunity to present the views of UNITE regarding options to improve and expand Federal Prison Industries. My name is Ann Hoffman. I am legislative director of UNITE.

    UNITE shares the view of the AFL-CIO that training opportunities should be provided for prisoners to help in their rehabilitation and to reduce recidivism, but prisoners should never be used in competition with free labor or to replace free labor. We find, unfortunately, that prison labor is being used increasingly in both the states and by the Federal Government to perform work in both the private and public sectors ordinarily done by those who are not incarcerated. This is unacceptable.

    We've considered the suggestions for expansion that have been propounded by FPI in the recent past. We have serious reservations about them.

    One idea is to permit prison-made products or inmate-furnished services to be sold in interstate commerce, as State prison products are under the PIE program and otherwise. The experience with the PIE program has not been encouraging.
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    The PIE program permits private sector businesses to engage in prison-based industries. In return, the statute has certain requirements designed to protect non-prison labor. The requirements are payment of prevailing wages to inmates; consultation with unions prior to the initiation of any project; and assurance that inmate employment does not displace employed workers, impair existing contracts for services, or occur in areas where there is a surplus of available labor.

    The experience of UNITE and other unions is that consultation virtually never occurs. Minimum wages are not paid, let alone prevailing wages. And workers on the outside are regularly displaced by workers on the inside.

    Perhaps the most audacious and disturbing prison-based program is Prison Blues, a line of jeans, T-shirts, and other recreation clothing marketed quite aggressively by the Oregon State Prison System through a slick catalog. The black and white copy I have of the 1995 one doesn't look that slick. It tells customers: ''Our operators are standing by. Have your credit card number ready''—the business is targeted directly at the private sector. This catalog reads at the opening: ''Through work, they are paying their debts to their victims and society—much to the dismay of Calvin Klein.''

    Much to the dismay, I would add, of UNITE. Many of our members make jeans. Our jobs are already under attack because of low-cost imports. Employment in the apparel industry today is at the level it was at in 1939. And our workers cannot afford to compete with the wages and the lack of benefits that exist in the prisons.

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    We've also heard from our brother and sister trade unionists in Europe. We've gotten phone calls incredulous that commercial use of prison labor is legal in the United States, and that prison-made products are being exported from the United States and sold commercially worldwide. It seems to us to be a violation of International Labor Organization conventions and an affront to workers who have not committed crimes and are losing jobs to these prisoners.

    FPI has also talked about seeking a right of first refusal for services currently performed by Federal employees that are being considered for contracting out to the private sector. This would encourage outsourcing, which harms the Federal employees who are currently doing the work. It will also undercut the livelihood of non-Federal workers who otherwise would get the outsourced work.

    Outsourcing of computer and telemarketing services is particularly inappropriate—and is becoming particularly common in State government. Inmates are accepting credit card information in many states, and are making quite inappropriate use of it in many cases. Inmates in Connecticut enter data for the State Department of Revenue Services, the tax service. Inmates in Texas enter personal data into computers for a marketing company. The data includes names, addresses, and income levels of individuals seeking free services. In one case a Texas inmate used that information to send an obscene and threatening letter to an Ohio grandmother. And the cases are legion. No quest for job opportunities for prisoners can justify such risks to innocent civilians.

    Another idea that will not work, and I differ from the association in our industry, is permitting prisoners to produce items that would otherwise be produced by foreign labor. First, it is really impossible to determine whether an item would be produced by foreign labor if it were not prison-made. A company may produce the product in this country 1 year, in another country the next year, and then back here in the following year. Or, it may produce the same product at the same time both in the United States and offshore. Identifying a product as one which would otherwise be made by a non-domestic contractor would be a sham, absolutely subject to manipulation.
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    And, at this point, I'd like to associate myself with Mr. Ryan's remarks. My written testimony includes an experience we had earlier this year with FPI and the glove industry where they sought to ratify in 1997 their illegal expansion of glove production that had started in Fiscal Year 1992. They didn't get away with it because Congress was in session. And, we brought our members whose jobs were at risk from rural factories in Illinois and from the last remaining glove factory in New York City. And they met with Members of Congress, and the Members of Congress saw to it that FPI backed down. But, their practice is to use phony figures, to use the wrong market information, to misrepresent in a dozen ways just to justify expansion.

    Back to the non-domestic source issue: To the extent that employment programs within Federal prisons are designed to train prisoners for gainful employment once they leave, the manufacture of goods that would otherwise be produced offshore is totally inappropriate. Import of foreign-made goods has drastically reduced domestic employment opportunities in the manufacturing industries. Prisoners trained to manufacture clothing, for example, would find themselves, upon release, competing for work with hundreds of thousands of unemployed garment workers who have lost their jobs as a result of imports.

    Finally, if an item that would otherwise be made offshore can be made competitively in the United States, the first opportunity to make that product should go to people who are not in prison.

    The most obvious problem with prisoners doing public sector service work, another idea I have heard floated, is that they would displace public sector service workers who are currently employed. This also has an impact on the local economy, as income from workers' salaries is displaced by payments to inmates.
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    A second problem is safety and security. Most public sector service work is performed outside of prison walls, with the obvious possibility of escape or other criminal activity.

    And, with respect to the chairman's suggestion or question with respect to moving prisoners out of jobs like cooking their meals and cleaning and maintenance of their grounds into productive work, I would point out that in the Department of Labor's last survey on growth opportunities, growth employment fields, kitchen help, maintenance work are growing occupations; manufacturing isn't even on the list. So, that if we are keeping prisoners busy learning work skills, learning the work ethic, and learning how to work in a kitchen or to do maintenance work, we're preparing them for the jobs that are growing—not the jobs that are shrinking.

    We think that the real way to deal with prisoners is training. And we think there have been highly successful programs. They aren't as inexpensive as manufacturing and selling, but in the long run they are less disruptive to the private sector and more satisfactory. Local unions have cooperated with State prisons in various areas to establish apprenticeship programs in skilled trades. These programs provide high-quality training equivalent to apprenticeship training on the outside. They lead to Department of Labor-certified status at the conclusion of the program. Such programs are appropriate, of course, only in areas with identified anticipated shortages in certain skilled trades. But they set a model that can be followed in other fields.

    It should be possible to design training programs for other growing occupations that not only keep inmates occupied but truly equip them for life on the outside. Good training programs require careful consultation with the knowledgeable and affected people in the local area to determine both the need for trained workers in occupations in the future and the nature of the training. They involve positive contact between inmates and potential future co-workers. They lead to real jobs when an inmate completes his or her term of confinement.
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    Thank you for giving us this opportunity.

    [The prepared statement of Ms. Hoffman follows:]

PREPARED STATEMENT OF ANN F. HOFFMAN, LEGISLATIVE DIRECTOR, UNION OF NEEDLETRADES, INDUSTRIAL AND TEXTILES EMPLOYEES

    On behalf of UNITE, the Union of Needletrades, Industrial and Textile Employees, I thank you for giving me the opportunity to present our views regarding options to improve and expand federal prison industries. My name is Ann Hoffman. I am Legislative Director of UNITE. We see many ways that federal prison industries can be improved. We, our members and other working people in the United States have serious concerns about expansion of prison industries.

    UNITE shares the view of the AFL–CIO that training opportunities should be provided for prisoners to help in their rehabilitation and to reduce recidivism, but prisoners should never be used in competition with free labor or to replace free labor. We find, unfortunately, that prison labor is being used increasingly in both the states and by the federal government to perform work in both the private and public sectors ordinarily done by those who are not incarcerated. This is unacceptable.

    We have considered the suggestions for expansion that have been propounded by Federal Prison Industries in the recent past, and have serious reservations about them.

Making products for sale in interstate commerce in partnership with the private sector
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    One idea is to permit prison-made products or inmate-furnished services to be sold in interstate commerce, as state prison products are currently made and sold in cooperation with private sector firms under the Prison Industries Enhancement or PIE program. The experience with that program has not been encouraging.

    The PIE program permits private sector businesses to engage in prison-based industries in many ways, including financing, marketing, planning and other participation. In return, the statute has certain requirements designed to protect nonprison labor. The requirements are payment of prevailing wages to inmates; consultation ''with local union central bodies or similar labor union organizations . . . prior to the initiation of any project''; and assurance that inmate employment does not displace employed workers, impair existing contracts for services or occur in areas where there is a surplus of available labor.

    The experience of UNITE and other unions is that consultation virtually never occurs. Minimum wage is not paid, let alone prevailing wages. And workers on the outside are displaced by workers on the inside.

    Not long after the PIE program was created, the labor movement got its first taste of its fruits. A hog slaughtering plant in Arizona operated by Cudahy Company and staffed by 400 members of the United Food and Commercial Workers union, was closed. The plant was leased to the Arizona Department of Corrections as part of a joint venture with the state Pork Producers Association. The plant was then partially reopened with 60 convicts as staff.

    There is a long and growing list of private sector jobs moving into prisons. Quoting just from examples cited in the December 9, 1996 edition of U.S. News and World Report, prisoners in Washington shrink-wrapped software for Microsoft under contract to a private company. Victoria's Secret lingerie and graduation gowns sold by another manufacturer were made in South Carolina prisons. Some TWA airline reservations were taken over the telephone by prisoners in California. There are dozens of other examples.
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    Perhaps the most audacious and disturbing prison-based program is Prison Blues, a line of jeans, T-shirts and other recreation clothing marketed by the Oregon State Prison System through a slick catalog, that tells customers: ''Our operators are standing by. Have your credit card number ready.'' The business is targeted directly at the private sector. Quoting from the catalog, ''Through work they are paying their debts to their victims and society. Much to the dismay of Calvin Klein.'' Much to the dismay, I would add, of UNITE, many of whose members make jeans, whose jobs are already under attack because of low-cost imports, and who cannot afford to compete with prison wage rates and working conditions. And much to the dismay, as well, of our brother and sister trade unionists in Europe, who have called us, incredulous that commercial use of prison labor is legal in the United States. It's a violation of International Labor Organization conventions and an affront to workers who have not committed crimes.

    In short, the PIE program is not being operated in accordance with the law that established it. It is fostering head-to-head competition between prisoners and nonincarcerated workers, with the deck stacked against those on the outside. That is a good enough reason not to expand the PIE program to the federal prison system.

Services being considered for contracting out

    FPI has also talked about seeking a ''right of first refusal'' for services currently performed by federal employees that are being considered for contracting out to the private sector. This will encourage outsourcing, which harms the federal employees currently doing the work. It will also undercut the livelihoods of non-federal workers who otherwise would get the work if it were outsourced.
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    Outsourcing of computer and telemarketing services is particularly inappropriate (and particularly common in state government). Inmates are accepting credit card information in many states, a clear pathway for abuse. Inmates in Connecticut enter data for the State Department of Revenue Services. Inmates in Texas enter personal data into computers for a marketing company, including names, addresses and income levels of individuals. In one case, a Texas inmate used that information to send an obscene and threatening letter to an Ohio grandmother.

    No quest for job opportunities for prisoners can justify such risks to innocent civilians.

Furnishing products that would otherwise be provided by a ''non-domestic'' source

    Increasing employment of federal prisoners by permitting prisoners to produce items that would otherwise be produced by foreign labor will not work.

    First, it is impossible to determine whether an item would be produced by foreign labor if it were not prison-made. There is not a fixed level of domestic production of any product in this country. A company can manufacture products for the United States market either in this country or elsewhere. A company may produce a product in this country one year and elsewhere in the next year and then reverse again, or it may produce the same product at the same time both in the U.S. and offshore. Identifying a product as one which would otherwise be made by a ''non-domestic'' contractor would be a sham, absolutely subject to manipulation.

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    Furthermore, to the extent that employment programs within federal prisons are designed to train prisoners for gainful post-confinement employment, the manufacture of goods that would otherwise be produced offshore is a totally inappropriate training vehicle. Import of foreign-made goods has drastically reduced domestic employment opportunties in the production of those goods. Prisoners trained to manufacture clothing, for example, would find themselves upon release competing for work with hundreds of thousands of unemployed garment workers, who have lost their jobs as a result of imports.

    Finally, if an item that would otherwise be made offshore can be made competitively in the United States, the first opportunity to make that product should go to people who are not in prison.

Public sector work

    Earlier this year, a bill was introduced that would have authorized federal prisons to sell services or products to state and local governments. This would supplement the current pilot programs that have federal prisoners doing custodial and other work at Veterans' hospitals and military bases, work that had previously been done by full-time paid employees.

    The sale of products to state and local governments is no different from the sale of products in the private sector: if there is a market for the products, the market should be filled by workers who are not in prison.

    The most obvious problem with prisoners doing public sector service work is that they displace public sector service workers who are currently employed. This also has an impact on the local economy, as income from workers' salaries is displaced by payments to inmates.
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    A second problem is safety and security. Most public sector service work is performed outside of prison walls, with the obvious possibility of escape or other criminal activity.

    In short, the proposals that have been put forward for expansion of Federal Prison Industries all involve threats to the jobs and livelihoods of currently employed individuals who are not incarcerated. Many of the proposals carry additional risks to the safety, security and privacy of innocent persons. For all of these reasons, FPI expansion into additional areas of work should not be permitted.

FPl's record on following its rules is not good

    Federal Prison Industries has a poor record of following the rules that currently govern its operations. UNITE had direct experience with that problem earlier this year.

    FPI in January asked its Board of Directors to ratify its unauthorized expansion of glove production for sale to the military, and to permit further expansion. FPI had exceeded its permissible production in FY1992, and continued to do so in the years that followed. Between 1990 and 1997, FPI production of gloves doubled. While FPI was illegally expanding its production of gloves, the private sector companies manufacturing gloves for the military were laying off employees, losing profits and in two cases, going into bankruptcy.

    UNITE represents workers at four plants supplying gloves to the military. All four of the UNITE plants (Glamour Glove, the last remaining glove company in New York City; the Effingham and Beardstown, Illinois, plants of Illinois Glove; and Knoxville Glove in Tennessee) employ senior workforces. Average seniority at ail four plants is over 15 years. The glove-makers depend on their jobs, and do not have other options for employment. The non-military glove industry has been devastated by imports, and there are few comparable jobs available in these communities.
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    The unauthorized expansion of glove production directly led to the loss of private sector glove jobs, both through the bankruptcy of two glove companies during this period, and workforce reductions at others. As an example, Knoxville Glove lost more than half of its workforce, cutting its eighty person workforce to thirty-five. This loss directly resulted from FPI claiming the military glove work that Knoxville was doing. The loss of military glove production has left the plant struggling to survive, and the remaining jobs in jeopardy.

    FPI attempted to justify its predatory expansion through flawed research and manipulation of data. Its initial market study, required by law to be objective, exaggerated the market for domestic production; exaggerated the size of the federal market; fabricated a theory of new technology in the glove industry; and made unwarranted predictions of future expansion of the federal market. Forced by the glove industry's research to revise its study, FPI next attempted to minimize the size of the unauthorized expansion by using FY 1991 sales, already excessive, as a baseline.

    Based on FPI's behavior in the glove case, UNITE believes more effective control of FPI is a more critical need than expansion of its mission.

Improvement of FPI is the right option

    UNITE supports the Federal Prison Industries Competition in Contracting Act of 1997, introduced this week by Congressmen Hoekstra and Frank, Congresswoman Maloney and more than 20 other Members. We believe it strikes the appropriate balance between the need to keep prisoners employed and the need to maintain private sector employment.
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    The bill requires FPI to compete with private sector companies for contract opportunities from federal agencies, except in cases where the Attorney General certifies that the work is essential to avoid a prison disturbance. The bill also requires that FPI perform its contracts on time and in conformity with appropriate design and performance standards, and that it meet a fair market price. Dealing with the problem. UNITE encountered in the glove case, the bill provides for increased public participation in the process by which FPI is authorized to produce a new product or expand production of an existing product, particularly in industries hard hit by foreign competition.

Real training for real future opportunities

    While the FPI Competition bill deals with the problems in the way the prisons operate their current employment programs, neither it nor the plans on the table today deal with the critical issue of keeping inmates occupied without displacing other workers. UNITE believes that this is a need that can best be met through enhanced training programs, geared to industries in which growth is anticipated.

    Local unions have cooperated with state prisons in various areas to establish apprenticeship programs in skilled trades. These programs provide high-quality training for jobs that exist, and lead to Department of Labor-certified status at the conclusion of the program. Such programs are appropriate, of course, only in areas with identified anticipated shortages in certain skilled trades. But they set a model that can be followed in other fields.

    It should be possible to design training programs for other growing occupations that not only keep inmates occupied but truly equip them for life on the outside.
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    Good training programs require careful consultation with the knowledgeable and affected people in the local area to determine both the need for trained workers in certain occupations in the future and the nature of the training. They involve positive contact between inmates and potential future co-workers. They lead to real jobs when an inmate completes his or her term of confinement.

    We believe this is the direction that the Bureau of Prisons should be following as its inmate population expands. Unlike the current FPI program, it would not be training inmates for jobs that will not exist for them on the outside. It would not be increasing the tension between the incarcerated population and those who are not confined. It would not be competing with workers in the private sector for jobs.

    Thank you for your attention.

    Mr. MCCOLLUM. Thank you, Ms. Hoffman. I thank the entire panel as well and recognize myself to ask you a few questions.

    Ms. Hoffman, if we didn't have to worry about UNICOR, or other prison industries—there wasn't any manufacturing in prisons or competition in that sense—and if we were able to provide all prisoners in this country with the opportunity to work in the private sector while they're in prison for competing wages with private sector employees, would you have any objection to that?

    Ms. HOFFMAN If we make the total cost of the production competitive, no problem. I mean, if you have the prison—meaning the taxpayer—paying the overhead, then that makes it not competitive. If you're not paying for unemployment and disability and fringe benefits, as you would be in the well-paid private sector, then it's not truly competitive. But, if you make it so that Federal Prison Industries has to operate with all of the constraints of private business, no problem.
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    Mr. MCCOLLUM. Well, if you use them——

    Ms. HOFFMAN That's fair.

    Mr. MCCOLLUM. If you model the prison industry company after a private business like Florida has done, there might be a way to do that. I'm looking at models; that's why we're looking to the future. How do we go about doing this? I would assume you also would agree that, in principle, it would be preferable for prisoners to receive not only the job skills training done in prison, but also some practical experience which they can then use to be job-placed when they get out?

    Ms. HOFFMAN I'll tell you, I had a very interesting experience early in my legal career. We were representing the hotel and restaurant workers. They were on strike. And a lot of the strikers were young kids, high school kids who worked as busboys or room service waiters after school hours. And, 1 day some of them were arrested for being a little bit too boisterous on the picket line. And what happened was that they were sentenced to a wonderful after-school tutoring and recreation program. And, as long as they behaved for the next 6 months, they had no criminal record. Well, we had some of the other busboys who hadn't been arrested and said, ''Can I get into the program?'' And the answer was: ''No, it's only for people who have been arrested.''

    That's the problem I see. If we're going to spend a whole lot of money taking care of prisoners, I think we could spend it a lot better on the front end—seeing to it that people who haven't committed a crime yet get training, get job opportunities, and maybe we can cut down on our prison populations and have less of a problem.
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    Mr. MCCOLLUM. Yes, but I think that's an either/or proposition because the reality is—seems to me at least—that we've got a huge prison population. And it isn't going to go away any time soon. What we're hearing about, which is what I'm struggling with every day, is the high recidivism rate which causes all this crime out there. So, while I'm all for the prevention programs so that people never get into the system, I'm also for somehow stopping the revolving door. We talk about prison time for violent crime, but a lot of these prisoners don't do violent crimes. However, they go back out and commit lots of crimes that accost society because they, apparently, don't have any job skills and they don't have anybody giving them job training and placement that is useful and that they can really get a job with. I'm just frustrated by it, and I assume you share that frustration in some way.

    I just want to ask you, do you really think it's an either/or? I mean, can't you do both?

    Ms. HOFFMAN I think you can do both, but I think that's a budgetary question, and I'm afraid that we're making the wrong budgetary decision. The State of California used to spend considerably more on education than it did on prisons. It has now reversed that.

    Mr. MCCOLLUM. That's why I think it's important for labor and business to work with those of us in Congress to find a way to make the private marketplace work to pay for this because what's going to happen—and I see it happening right now in my State—is that dollars are going out to build more prisons and to take care of these prisoners when they'd be better off being spent for education. If we could find a formula or a system that would make the private marketplace absorb all of this, instead of having to increase taxes and use taxpayer dollars to do this, wouldn't that be better?
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    Ms. HOFFMAN. The problem is the private marketplace is private workers, and all we do, as we expand these programs, is displace private sector workers.

    Mr. MCCOLLUM. It wouldn't be displacing them if we created a model like I'm talking about. That's why I'm asking you to partner with me to create a program that doesn't displace private workers, in the sense that it's unfair and uncompetitive. If the jobs are limited, I think you could argue it displaces somebody if you just increased the number of pool of workers out there. I mean, you could argue that it's better to have everybody in prison never working or competing because they're not in the marketplace anymore, but the reality is they're going back out there.

    So, I think what you're talking about is the unfair competition part of this issue with respect to prison labor, not the fact they're displacing them in the raw sense. Am I not correct?

    Ms. HOFFMAN. Well, no, I think displacement in the raw sense is a real problem, and I think the problem is that we keep trying to find ways to train and employ prisoners without spending taxpayer dollars, but what we're doing is costing taxpayer incomes. We're putting small businesses and medium-sized businesses out of business——

    Mr. MCCOLLUM. Yes, but——

    Ms. HOFFMAN [continuing]. And what we have to look to are more creative ideas. I think Mr. Frank's idea about producing—for example, if we could produce for child care centers—and I don't know; I mean, we may be displacing an industry there, so I get very careful when I say these things, but if we could produce more things that could be used for child care centers, the child care centers could spend more money on salaries, which is a huge problem now.
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    Mr. MCCOLLUM. What you're saying is that from your union's position and your position, you don't want any prisoner competing for a private sector job, even if it's on a level playing field?

    Ms. HOFFMAN. I think if it's on a level playing field, you will find that they don't get the jobs. We can beat them on a level playing field, and we will.

    Mr. MCCOLLUM. I bet you you don't beat them on a level playing field with the PRIDE example. You may want to see.

    Ms. HOFFMAN. But I bet their—there are subsidies in the PRIDE example that private industry doesn't get. That's the problem.

    Mr. MCCOLLUM. Well——

    Ms. HOFFMAN. I think if you sort out all the taxpayer subsidies that are there——

    Mr. MCCOLLUM. All right. I just want to say that, obviously, it's not efficient for the private marketplace to come in there and use a person working in a prison and pay the same rate because the turnover is too great. So, from an economic model, you've got to find a way different from wages, but there's got to be a way to make it happen. I just think there must be.

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    I'm going to go over to you, Mr. Heeringa, and ask you a question. I've had a good exchange with Ms. Hoffman. UNICOR's share of the Federal Government market for office furniture—I think I'm right—in 1996 was about 18 percent of the Federal market. That's $181 million out of a total sale of $1 billion. That's what we've got in our records here. These sales accounted for only 3 percent of the total office furniture sales in the entire country—3 percent.

    Why does your association have such strong opposition to losing just 3 percent of the market?

    Mr. HEERINGA. Well, I think the answer to that is, if you analyze where that 3 percent comes from, companies in our industry, the leaders in our industry, have a broad array of products. They are sometimes billion dollar companies, the leaders do, meaning thousands of products. Federal Prison Industries has chosen to target a handful of products to produce. Therefore, they do have 3 percent of the industry, if those numbers are correct, and we believe that there is no reason to believe they are not correct. But they have taken far greater than that in the metal systems business, for instance. It's much more than that. They are the largest supplier of metal furniture, metal systems, to the—metal systems meaning panels and components—to the Federal Government, larger than the leader of our industry who's a $3 billion company. Federal Prison Industries produces more of that product than they do.

    Mr. MCCOLLUM. But you would——

    Mr. HEERINGA. They aren't insignificant factors at all. They'd like to paint that picture, that it's insignificant.
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    Mr. MCCOLLUM. I guess it's sort of how you look at it, whether you look at it through green glasses or red glasses or purple glasses. From the perspective of the businessman who's in the particular niche that happens to be negatively impacted by their activity in that industry, then this is a big deal. To the industry as a whole and to some of your furniture manufacturers who don't care to compete in the areas that the Federal Prison Industries is involved with, then I guess it's not a big deal. Am I not generally assessing that correctly?

    Mr. HEERINGA. I believe that's correct, but they have chosen, in other words, the products that are the most lucrative; let's say, the largest segment of the product line is what they've chosen. So I think to paint a picture across the board—in other words, they don't produce the entire segment across the industry to say they have 3 percent of the industry; they've got far more dramatic percentage of the metal system business.

    Mr. MCCOLLUM. As you know, the Federal Prison Industries board recently approved—and you heard this discussion on the first panel—the idea of UNICOR agreeing to waive the mandatory source preference with respect to specific furniture products. In fact, I think they were talking about seats, in particular.

    Mr. HEERINGA. Yes.

    Mr. MCCOLLUM. Given this position, why didn't your association and the industry embrace that idea and say, ''Hallelujah, let's go forward and try it out?'' Apparently, according to Mr. Schwalb, that didn't happen, and therefore, the FPI has been reluctant to go forward.
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    Mr. HEERINGA. I think the answer lies in the fact that we've been in detailed discussions with the Federal Prison Industries and people since 1989, and given time, they have expanded to $180 million in their industry. We've had ongoing discussions; we've attended every hearing in front of the board and resisted their further extension, expansion, into our industry. And at this point, office furniture sales represents 40 percent of the sales of Unicor. We think we've done a tremendous amount and an undue portion of our sales to our industry, and therefore, you've taken enough, and their program was to pilot seating, which is a small portion of our industry sales, and they want a 2-year study, when they just have received from their board authority to grow to $300 million. We didn't think that was substantive, and the administration of our trade association did not get support from the board to have those discussions.

    Mr. MCCOLLUM. I said to Mr. Schwalb, why don't you go ahead and do it anyway? And I'd say to you, that while you are outraged they don't go further, which you are telling us today, and you want the legislation that removes mandatory preferences, which you are telling us today, why don't you at least send some signal to them that you aren't going to go sue them for trying it and that you will be cooperative to a limited extent? I would encourage that. I really would.

    I think it is very important for us to move in this direction to prove whether or not they can be competitive or not. I really believe that, Mr. Heeringa.

    Mr. HEERINGA. Well, I've been known to have some persuasive power sometimes, but I have a very difficult time getting in front of our 430 people and convincing them that our work and our jobs have been lost to Federal criminals. We're not talking about college students in summer employment. These are Federal criminals that are there for incarceration to begin with. We believe they should be busy; they should be productive and self-sustaining, if at all possible. That comes down the list on the mandates.
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    They talk—in your opening comments, Mr. Chairman, you said one of their main initiatives really and their mission says that they should train workers to slow the rate of recidivism in the industry, and the truth of the matter is our industry employs 50,000 people or more, and we have not—and they've been in the office furniture business for almost 20 years that we can determine—we've not identified anybody that's come out of the prison and gone to work in our industry—not any initiatives, and that's a very informal survey of members that I know. But, in other words, that part of their mandate has been a failure.

    Mr. MCCOLLUM. Mr. Ryan, let me ask you a question on this side. Everybody up on the panel supports eliminating the mandatory preferences that UNICOR possesses. In return for doing that, would you support UNICOR being allowed to sell its goods outside the Federal Government?

    Mr. RYAN. No. Let me address it. We are competing against them now, where they're paying their labor 25 cents to $1.25, approximately. And, by the way, the Federal prison force doesn't turn over like a State prison force. So I really think that the Florida example is even more potent because they have inmates who are not in for long incarceration, and they have a less-educated, younger group running through.

    But I'm willing to compete with them in this Federal market with the advantages that you have given them. Let me say what some of the other advantages are, because I took the chairman at his word that it's a level playing field. But let me tell you something: They've got the best factories in the furniture business because they have their own money, their own slush fund, to build them, and nobody's authorizing them. They have the most modern furniture factories. We are competing against that as well, factories funded not by going to the capital market and paying somebody for that capital. So, again, this burden issue is one that I think is very interesting.
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    Now let me say what the problem is with Steve Schwalb and FPI and this sort of ''cry wolf'' thing about saying that they'll lift their mandatory preference. What they're going to do is lift the preference only on a certain day when they've filled the pipeline with millions of dollars of orders obtained under their mandatory preference. That's why I say to you today, Steve Schwalb, do it today—today—in my small industry, I challenge you to take away mandatory preference right now without jamming millions of dollars into the pipeline and building new factories. Then the chairman will see a little bit of his test in the Federal market.

    And let me say what Steve Schwalb came to us and said: ''In return for me giving up the mandatory preference, FPI should be able to compete and take everything.'' Well, then their board shouldn't be condemning portions of the marketplace, as they have for a 5-year period ahead of us. Steve Schwalb has the advantage that his board has condemned for him a portion of the marketplace and taken it from us for the next couple of years.

    Mr. MCCOLLUM. Let me ask you this then: If you don't think it can be done in a way that would allow the Federal Government to sell what UNICOR is selling because the structure is bad—and I think all of you think the structure of UNICOR is bad, as well as mandatory preferences—would you support, Mr. Ryan, the authority to allow UNICOR to partner with the private sector—that is, to get out of the business of producing anything itself inside a factory, but, in essence, sell its labor?

    Mr. RYAN. Mr. Chairman, I am delighted with the questions that you're asking because I think they are the core questions about what's going on. Let me give an example of the problem. The General Services Administration used to have a mandatory preference that Federal customers had to buy from their contracts. When Congress took that away, they have become by far a much more efficient and cost-effective agency.
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    GSA came out with a proposal to do a package room for military dorm and quarters furniture. If you're a contracting officer and you're in Quatar, and you want a room; you get the whole thing. You get drapes; you get the flooring; you get the desk; you get the bed; you get the whole works in one package. FPI's response was to the private sector and partner, and now they're saying their ''rooms'' should be mandatory. Unfortunately, FPI is not in several of the products that are in that room.

    Mr. MCCOLLUM. Yes, but I'm not asking you that question.

    Mr. RYAN. Well, but it's the answer to the question, Mr. Chairman, if I may, and if I'm wrong, I apologize.

    Mr. MCCOLLUM. All right.

    Mr. RYAN. What FPI has done is made their partners mandatory, even though they haven't announced that they're in that business. So I have a lot of trouble with the partnering unless it's carefully laid out. I look forward to seeing the chairman's bill on that.

    Mr. MCCOLLUM. Let's assume we do away with UNICOR. Forget it. It doesn't exist as it is today. Just wipe it out altogether, and let's suppose that, instead, you go to the Corrections Department or maybe the Attorney General to say. ''We'd like to buy some of your labor.''

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    Mr. RYAN. Sure.

    Mr. MCCOLLUM. ''I don't know what the market going rate is for that labor, but I'm willing to pay for it.'' Let's analyze it. You're a private businessman, and other people want to compete with it. It's offered at a market rate. We auction it off. What do you think of that?

    Mr. RYAN. I don't know. I'd like to supply an answer to that. I'm a lawyer. I'm without instructions on that point.

    Mr. MCCOLLUM. Okay, I hear you.

    Mr. RYAN. Yes.

    [The information referred to follows:]

    QFMA opposes any rental of labor to the private sector at less than the minimum wage, and so long as mandatory preference is given to the resulting product.

    Mr. MCCOLLUM. But that suggestion doesn't strike you as adverse at least as the other? I mean, the initial thing? How about you, Mr. Adduci?

    Mr. ADDUCI. Well, Mr. Chairman, I think we'd be willing to look at the specifics of anything. Of course, we don't have the specifics before us, but I must say, based on our experience with, limited experience with, prison labor in our industry, we are skeptical that that system could be workable. We're certainly willing to look at it.
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    We have, in our limited experience with partnering with or using prison labor, gotten somewhat unsatisfactory results and the timeliness of delivery, and the quality of products supplied. I don't know if that's inherent in the system or whether there's another problem that has not been addressed, but we have not had a satisfactory experience, limited as it may be.

    The other problem I have, more as an employer, is I've got a real problem with hiring a prisoner while someone who I've laid off remains unemployed——

    Mr. MCCOLLUM. Well, maybe——

    Mr. ADDUCI. Even if I'm paying them a bit more, Mr. Chairman, I've got a moral problem with that. Funny, coming from a lawyer, but as an employer, I can tell you that troubles me.

    Mr. MCCOLLUM. Professor Reynolds says that's not going to happen. He's saying that by employing more people out there, you're going to wind up creating more jobs in the economy, period. As an economist, he's saying that is universally-acceptable. It's Keynesian. What do you think? Have you looked at that? I mean, have you had anybody in your professional association take a look at that?

    Mr. ADDUCI. I can tell you in the little communities that my plants operate his theory doesn't make sense.

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    Mr. MCCOLLUM. Well, this goes along with the same thing like——

    Mr. ADDUCI. You're not going to create more jobs in those communities, Mr. Chairman, by hiring a prisoner instead of a guy who's on the street in Belmont, Mississippi.

    Mr. MCCOLLUM. His situation may parallel what has happened with NAFTA. Although lots of people have lost jobs because of NAFTA, the reality is that we've created more jobs than have been lost. Right now, I'm opposing the fast track legislation because of what it's doing to my agricultural community in Florida, but at the same time the reality is that NAFTA has created more jobs nationwide. So it's a very difficult political and personal question because it's like Mr. Heeringa's question that we discussed—for some people in his industry, it's very unfair; to others, it doesn't make as much difference. Overall, we get a net increase in this case, even though there are some people displaced.

    Mr. Heeringa, what do you think about supporting the idea of UINCOR being able to partner with private businesses or doing away with UNICOR and having private businesses—who sell and compete in the real world marketplace—be able to get labor by contracting with the Federal Government or with the States, for that matter?

    Mr. HEERINGA. I think that would—the analysis of that, and we're willing to look at anything; we really are, and we've tried to have different discussions about that. They have had partnering-type discussions with members of our industry in the past 2 years, but the same issue still applies, the fact that eventually what you're going to do is transfer labor from taxpaying citizens into the prison industry system. You're going to transfer the labor; there's no question. If we put it out for bids, and they're lower cost, let the free capitalist market work, and you're going to buy where the lowest costs are. Eventually we have people in our factories that don't have work anymore because we have transferred those jobs elsewhere.
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    Mr. MCCOLLUM. Do you think prison labor shouldn't work at all within the private marketplace?

    Mr. HEERINGA. From a personal standpoint, I think they should work, absolutely. A self-sustaining kind of nature would be great. As a taxpayer and a citizen, I believe that's good. From that standpoint, we have total agreement that Mr. Schwalb is a terrific problem. He announced before he's got 200 people a week delivered to his door. He's going to find work for them. I think the work they've done has been at our industries unfairly balanced.

    Mr. MCCOLLUM. I don't think we should characterize it as his problem or your problem; it is our problem. It is really the Nation's problem, and it's mine right here, or ours sitting up here as a committee right now. We must find a way as a public policy to stop this recidivism—these prisoners going back and forth through the revolving door—and to protect the public.

    The best way that I've heard to do that and from what we're seeing in the limited places we can get data on—that's why I was pressing the other panel so much for more data—is that when you have job skills being taught to these prisoners in a real-world environment with actual jobs that private sector businesses are involved with—not UNICOR directly, or whatever—and you have job placement with somebody who really cares and follows up on them, you knock recidivism rates in prison way down.

    So, somehow I feel that is an overriding public policy consideration—not overriding your concerns because balance and fairness is important. That's what this is all about. I'm willing to do away with mandatory source preferences—I think we should do away with them—but the tradeoff on that is finding a solution that allows us to employ these prisoners in a way that will reduce recidivism. I think that's sort of like if you wrote the formula up, what's in between doesn't matter a whole lot. It does matter a great deal, but the bottom-line goal has to be there. Then you send out the prospectus or the RPF or whatever, and say, ''Here. Solve this problem with this as the ultimate goal.''
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    Do you have a problem with that as the ultimate goal?

    Mr. HEERINGA. Well, we heard some interesting testimony this morning that there are some programs in the State of Florida that have been very effective. There are, I believe, 37 states that have prison industry programs, of which there are some that have mandatory source, but most do not. They have been affected to a degree of furthering their cause and making things work. Recidivism, I would caution, Mr. Chairman, make sure that you understand the statistical data that you do get, because we were told by the prison industry people, the Federal industry people, that there is some type of qualification for these people to work in there. He testified a small percentage of the people, in fact, do work. Those people are the nonthreatening and certain qualifications. So it's not across the board. So I think there are some qualifications that should be evaluated before you make any hard decisions about recidivism.

    Mr. MCCOLLUM. I can assure you that we will, and that's why I'm asking for constant input about it. Some of what I have seen has been very good, and I've looked at some information that wasn't presented here today.

    I'd asked Mr. Ryan this question, but I really didn't ask you: In support for eliminating the mandatory source preference that UNICOR now has, Mr. Heeringa, would you be willing to support allowing UNICOR to sell its goods outside the Federal Government?

    Mr. HEERINGA. I can't say that I can.

    Mr. MCCOLLUM. Would you, Mr. Adduci?
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    Mr. ADDUCI. I can't answer that without seeing the details, Mr. Chairman. I would say this: As long as the conditions of competition, the terms of competition, are, the same, then I would be inclined to go along with it. But I, again, am skeptical that that can occur.

    You know, in my business when we submit proposals, like technical proposals, they are considered very carefully. They look at our past performance.

    Mr. MCCOLLUM. Let me throw this out to you. I can understand the labor position, so Ms. Hoffman's different. I'm not trying to exclude her. I've already got her on the record on this.

    But if you're a businessman out there and you're representing your industries—the textiles and the furniture industries that are so hit by this—if the overall impact of prison industries is only 3 percent nationally, but it's really hurting a limited amount, you could minimize the effects by spreading the impact out in the whole pool of the Nation. It's going to be a drop in the bucket to your industries. It is going to be minutia on the surface of the water.

    I would think that it would be a great tradeoff. I'm just suggesting you go back and think about that because it seems to me that we've got to have some tradeoffs here, whether this is the tradeoff or it's something else. It's like insurance companies spreading the risk. We've got a tremendous natural disaster problem in Florida, and we're trying to find a way now to spread the risk nationwide. I don't know if we'll be able to, but if we spread it nationwide in insurance, the less impact it will have on a small number of people. I'm just suggesting we ought to find a way to make the pool bigger here—perhaps in part.
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    Mr. HEERINGA. But, at the same time, why did we have so much difficulty having a discussion: What's a reasonable share? It says in their mission statement they should not take more than a reasonable share of a given industry.

    Mr. MCCOLLUM. Try to get rid of all that because, frankly, the purpose of this hearing is not necessarily to define where we're going exactly, but to look at other options—to think outside the box. I don't believe the current system is going to ever work. I don't think I can refine it. We're going to go around the edges. We're going to play games with it. In the end, we're always going to be squabbling about the details. I really believe that.

    Now, let me ask one or two other things because I've really got to go in a minute, and I know you probably do, too. Would any of you support, or do all of you oppose, PIE-like programs for UNICOR?

    Ms. HOFFMAN. If you could make people obey the PIE rules, but the PIE program now—there was a GAO report in 1993. None of the PIE programs they looked at in five states paid minimum wage.

    Mr. MCCOLLUM. But you would support PIE if it's properly enforced? Okay. Would you support a PIE program, Mr. Adduci, if it were properly carried out?

    Mr. ADDUCI. If it were properly carried out, yes—if the conditions of competition, the terms of competition were identical, of course, we would welcome that competition.
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    Mr. MCCOLLUM. Mr. Heeringa.

    Mr. HEERINGA. I'm not familiar enough really to have an opinion on the program at this point.

    Mr. MCCOLLUM. Mr. Ryan.

    Mr. RYAN. We've never taken a position, Mr. McCollum.

    Mr. MCCOLLUM. Okay.

    Mr. ADDUCI. Mr. Chairman, may I just interject one thing? You had made a point previously that I just want to endorse, and I think it's the key to the problem we've got—is that if you could work with us to spread the burden of your goal of giving more prisoners work, so that the burden is not concentrated in the industries that are appearing before you today, I think you would find a great deal less resistance to the program that you are rightfully advancing. That is our problem, and——

    Mr. MCCOLLUM. I'm very much open to that, and when we wrap this up in about 2 or 3 minutes, that's the key I would leave it on. I really want your help in creating legislation that will do this. And while I respect the legislation you all have endorsed, it only goes partway.

    One other thing: Would any of you support, or would all of you oppose, allowing UNICOR to sell its goods directly to foreign governments? I'm just looking at options that we might have down here. How about you, Mr. Ryan? Any problem with that?
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    Mr. RYAN. I think there GATT might prohibit this, but I'm not an international trade lawyer.

    Mr. MCCOLLUM. But from the industry standpoint? Forget GATT.

    Mr. RYAN. Okay. I think from an ethics standpoint we ought to sell it only to governments using slave labor. None of us sitting at this table have called FPI slave labor; it's not slave labor.

    Mr. MCCOLLUM. But if we sold it to China, you'd be happy?

    Mr. RYAN. Yes, let's sell it to the people who are selling us slave labor products, and I think that's fine. There's a certain symmetry to that.

    Mr. MCCOLLUM. Mr. Heeringa.

    Mr. HEERINGA. Well, I find it totally ironic that yesterday in the Nation's Capital we had major problems with a foreign nation that employs prison labor, and now we're having discussions about utilizing the same type of initiative. I have trouble with that.

    Mr. MCCOLLUM. I think our prison labor is a lot different—and what we would be doing would be a lot different—than that. I realize that you don't like UNICOR, but I just can't let that go by. We really don't abuse our prisoners like they do.
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    Mr. Adduci?

    Mr. ADDUCI. Mr. Chairman, if it could be demonstrated that that could be accomplished in a way that did not displace American jobs, it's something we'd certainly take a look at.

    Mr. MCCOLLUM. How about you, Ms. Hoffman?

    Ms. HOFFMAN. No. I think the international labor movement has very, very serious problems with using prison labor products in commerce, and we would oppose that.

    Mr. MCCOLLUM. One last thing: Given the fact that we're taking over Lorton penitentiary for the District of Columbia and incorporating all those prisoners into the Federal system, is anybody here opposed to our allowing the Federal Government to make the District of Columbia uniform with the Federal system?

    Ms. HOFFMAN. With the tremendous unemployment rate in D.C., I think it's the wrong place for any kind of experiment that's going to increase worker displacement.

    Mr. MCCOLLUM. Would you have had a problem, Ms. Hoffman, if Lorton's penitentiary had been operated like Florida's, with a prison industry system of its own?

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    Ms. HOFFMAN. I'd want to know more about Florida's. What I would encourage the chairman to look at is not rewriting FPI rules now, but looking at a series of pilot programs, because I think we don't know enough really about what works and what doesn't work to revise the whole system. I would think we ought to try some small pilots and see how they actually work, look at them carefully, have GAO do the studies, not FPI, and then come up with solutions. And I'm not sure that there will be a wholesale solution.

    I sat at a hearing like this a few years ago, and Fred Braun testified about a program he has. It only involves a couple of hundred prisoners, but it's a very effective program. I think if we look retail instead of wholesale, I think we can make a big difference.

    Mr. MCCOLLUM. I'm going to look two different ways, and that's why we're going to bifurcate this issue.

    I think for the short run right now we are going to have to come up with some pilot programs, but we need to do some things to provide immediate relief. If we're going to do away with mandatory source preferences, which I would rather do sooner than later, we've got to do more than just cut around the edges. I know you may not see it that way, but I think the industry people understand that. I understand that. We have an obligation actually to employ a lot more prisoners in ways that stop this recidivism rate, both federally and at the State level.

    So, I see this as a parallel two-stage process. We need both private industry and labor's cooperation because I want to develop long-range future objectives. We may have to test market along the way; fine, but I would like to do this as part of a piece of legislation. Maybe we don't mark it up. Maybe we just produce the bill, and then play around with it awhile for the long term and have some input into it; and in the meantime provide some legislation in the shorter run that provides some relief. But, to me, long run doesn't mean 3 years from now or 10 years from now. It means let's see what we can do in the next 6 months, then see how quickly we can test it and market it—within a year or two at the latest, to get you the relief and mandatory preferences that you want. But for complete relief, I think it's going to take a complete overhaul. I don't think you can just do away with mandatory preferences without coming up with a bigger solution. I don't see how we do that. I don't see how, as a practical matter, this committee can fulfill its responsibilities without doing that. But I don't think we ought to be messing around and sitting on this thing and saying, well, we'll try a few pilot programs here and there.
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    So I'd just like to ask you all for your cooperation. You've been good to be here today. I particularly want to thank Mr. Heeringa because I know you had some particular problems getting here. We thank all of you for coming.

    I'm going to adjourn the hearing on that note because I've got to go on to another meeting. I know you do, too.

    Thank you very much.

    [Whereupon, at 12:55 p.m., the subcommittee adjourned.]