[House Report 106-937]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-937
======================================================================
RECALCULATION OF FRANCHISE FEE OWED BY FORT SUMTER TOURS, INC.
_______
October 5, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Young of Alaska, from the Committee on Resources, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 3241]
[Including cost estimate of the Congressional Budget Office]
The Committee on Resources, to whom was referred the bill
(H.R. 3241) to direct the Secretary of the Interior to
recalculate the franchise fee owed by Fort Sumter Tours, Inc.,
a concessioner providing service to Fort Sumter National
Monument in South Carolina, and for other purposes, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. RECALCULATION OF FRANCHISE FEE.
(a) Definitions.--In this section:
(1) Franchisee.--The term ``franchisee'' means Fort Sumter
Tours, Inc., a concessioner providing service to Fort Sumter
National Monument, South Carolina.
(2) Secretary.--The term ``Secretary'' means the Secretary of
the Interior.
(b) Recalculation of Franchise Fee.--Not later than 30 days after the
date of enactment of this Act, the Secretary shall--
(1) recalculate the amount (if any) of the franchise fee owed
by the franchisee; and
(2) notify the franchisee of the recalculated amount.
(c) Arbitration.--
(1) In general.--If the amount of the franchise fee as
recalculated under subsection (a) is not acceptable to the
franchisee--
(A) the franchisee, not later than 5 days after
receipt of notification under subsection (b)(2), shall
so notify the Secretary; and
(B) the amount of the franchise fee owed shall be
determined through binding arbitration that provides
for a trial-type hearing that--
(i) includes the opportunity to call and
cross-examine witnesses; and
(ii) is subject to supervision by the United
States District Court for the District of
Columbia in accordance with the title 9, United
States Code.
(2) Selection of arbitrator or arbitration panel.--
(A) Agreement on arbitrator.--For a period of not
more than 30 days after the franchisee gives
notification under paragraph (1)(A), the Secretary and
the franchisee shall attempt to agree on the selection
of an arbitrator to conduct the arbitration.
(B) Panel.--If at any time the Secretary or the
franchisee declares that the parties are unable to
agree on an arbitrator--
(i) the Secretary and the franchisee shall
each select an arbitrator;
(ii) not later than 10 days after 2
arbitrators are selected under clause (i), the
2 arbitrators shall select a third arbitrator;
and
(iii) the 3 arbitrators shall conduct the
arbitration.
(3) Commencement and completion.--An arbitration proceeding
under paragraph (1)--
(A) shall commence not later than 30 days after the
date on which an arbitrator or arbitration panel is
selected under paragraph (2); and
(B) shall be completed with a decision rendered not
later than 240 days after that date.
(4) Applicable law.--
(A) Relevant time period.--The law applicable to the
recalculation of the franchise fee under this
subsection shall be the law applicable to franchise fee
determinations in effect at the beginning of the period
for which the franchise fee is payable.
(B) Previous decisions.--No previous judicial
decision regarding the franchise fee dispute that is
the subject of arbitration under this subsection may be
introduced in evidence or considered by the arbitrator
or arbitration panel for any purpose.
(5) Fees and costs.--If the franchisee is the prevailing
party in binding arbitration, the arbitrator or arbitration
panel shall award the franchisee reasonable attorney's fees and
costs for all proceedings involving the disputed franchise fee
consistent with--
(A) section 504 of title 5, United States Code; and
(B) section 2412 of title 28, United States Code.
(d) Bids and Proposals.--Until such date as any arbitration under
this Act is completed and is no longer subject to appeal, the
Secretary--
(1) shall not solicit or accept a bid or proposal for any
contract for passenger service to Fort Sumter National
Monument; and
(2) shall offer to the franchisee annual extensions of the
concessions contract in effect on the date of enactment of this
Act.
PURPOSE OF THE BILL
The purpose of H.R. 3241 is to direct the Secretary of the
Interior to recalculate the franchise fee owed by Fort Sumter
Tours, Inc., a concessioner providing service to Fort Sumter
National Monument in South Carolina, and for other purposes.
BACKGROUND AND NEED FOR LEGISLATION
Fort Sumter Tours (FST) is a relatively small family owned
and operated park concession providing visitor transportation,
by boat, to Fort Sumter National Monument administered by the
National Park Service. FST is currently the only concessioner
which provides service for visitors to see Fort Sumter. FST has
annual gross concession income of approximately $2.2 million
and provides employment for approximately 40 families. Since
1962, FST has provided exemplary service to Fort Sumter to the
satisfaction of the public and the National Park Service.
In the mid-1980s the National Park Service required FST to
make a capital investment of approximately $1.5 million to
improve visitor services. Given the size of the investment, a
15-year concessions contract was executed in 1986. At that time
a franchise fee, which by law is to reflect the ``probable
value'' of the contract privileges, was established by the
National Park Service at 4.25% of gross receipts. There was no
change in the contract privileges, but at the end of the first
five year period, the Park Service notified FST that based upon
a five year reconsideration of the franchise fee (February
1992) the probable value of the contract privileges had
increased. The Park Service demanded a new fee of 12% of gross
receipts.
According to Park Service guidelines (NPS-48), a franchise
fee reconsideration takes place in two discrete steps. First
the Park Service determines whether a change in the current
franchise fee is warranted. If not, no further analysis is
needed and the fee remains as is. If a change is found to be
warranted, the second step involves the Park Service setting
maximum amount of the franchise fee, and the calculation of
that fee. In the case of FST, however, numerous and egregious
errors were committed by the Park Service at both of these
steps. At the first step, determining whether a franchise fee
increase is warranted, the Park Service is supposed to compare
concession net income with concession gross receipts, assets,
and equity, then determine concession profitability, and then
compare the profitability with other industry norms. With FST,
however, the Park Service instead added FST's concession and
non-concession income and compared that with only the
concession receipts, assets, and equity. The effect of this was
to vastly overstate FST's concession profitability by over 80%
which led to nearly tripling the franchise fee. Had the Park
Service not committed this error, under its own guidelines, the
fee would have remained at 4.25%.
The situation worsened for FST with numerous other mistakes
in the second step after the Park Service erroneously
calculated that a franchise fee increase is warranted. For
example, when setting the maximum franchise fee the Park
Service also included the non-concession income, which allowed
the maximum fee to be set at 16.6% instead of 8.7% if
calculated correctly. Effectively, this exceeds the maximum fee
permitted using the Park Service's own guidelines by 73%.
Other examples of Park Service errors include: (1)
inappropriate and inaccurate use of the Dun and Bradstreet
Industry norms which were not derived from comparable
industries, were not representative of FST, and did not offer a
large enough sample size to make valid comparisons; (2)
discounting the actual cost of a new vessel purchased by FST
and used in the concession business; (3) disallowing
substantial expenses incurred by FST ; and (4) assuming away
legitimate equity invested by FST. Combined, these errors have
led to an insurmountable and intolerable situation for FST.
Fort Sumter Tours, Inc. has been in continuous litigation
with the Park Service over the increased franchise fee since
1993. FST has lost three court cases at the federal District
Court and the U.S. Court of Appeal level, including a suit
recently settled in favor of the federal government in the U.S.
District Court for the District of Columbia. However, the
issues of the actual data used in fee calculation and the
additional non-concession income in the franchise fee
calculation were never addressed by the courts and never
resolved.
H.R. 3241 will attempt to correct the calculation errors by
requiring the Secretary of the Interior to reassess the
franchise fees owed by Fort Sumter Tours Inc. This is to be
done within 30 days of enactment and to the approval of Fort
Sumter Tours Inc. If an acceptable agreement is not reached,
the matter must be referred to binding arbitration under the
National Parks Omnibus Management Act of 1998 (Public Law 105-
391). The arbitration must commence no later than 30 days after
Fort Sumter Tours Inc. deems the recalculation unacceptable.
H.R. 3241 assures that laws applicable to franchise fee
determination at the time payment became due will be used
during arbitration. Further, prior decisions regarding the
franchise fee dispute may not be considered or used as evidence
for any purpose. Reasonable legal fees and costs of the
proceedings shall be awarded to Fort Sumter Tours, Inc. by the
arbitrators Fort Sumter prevails.
COMMITTEE ACTION
H.R. 3241 was introduced on November 5, 1999, by
Congressman Mark Sanford (R-SC). The bill was referred to the
Resources Committee and within the Committee to the
Subcommittee on National Parks and Public Lands. On March 30,
2000, the Subcommittee held a hearing on the bill. On April 13,
2000, the Subcommittee met to consider the bill. No amendments
were offered, and the bill was ordered favorably reported to
the full Resources Committee by a vote of 7-4, as follows:
On July 26, 2000, the Resources Committee met to consider
the bill. An amendment in the nature of a substitute was
offered by Congressman James V. Hansen (R-UT) which conformed
the House bill to language in the Senate bill (S. 2231). The
amendment was adopted by voice vote. No further amendments were
offered and the bill, as amended, was ordered favorably
reported to the House of Representatives by voice vote.
COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS
Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of
rule XIII of the Rules of the House of Representatives, the
Committee on Resources' oversight findings and recommendations
are reflected in the body of this report.
CONSTITUTIONAL AUTHORITY STATEMENT
Article I, section 8, and Article IV, section 3 of the
Constitution of the United States grant Congress the authority
to enact this bill.
COMPLIANCE WITH HOUSE RULE XIII
1. Cost of Legislation. Clause 3(d)(2) of rule XIII of the
Rules of the House of Representatives requires an estimate and
a comparison by the Committee of the costs which would be
incurred in carrying out this bill. However, clause 3(d)(3)(B)
of that Rule provides that this requirement does not apply when
the Committee has included in its report a timely submitted
cost estimate of the bill prepared by the Director of the
Congressional Budget Office under section 402 of the
Congressional Budget Act of 1974.
2. Congressional Budget Act. As required by clause 3(c)(2)
of rule XIII of the Rules of the House of Representatives and
section 308(a) of the Congressional Budget Act of 1974, this
bill does not contain any new budget authority, credit
authority, or an increase or decrease in tax expenditures.
According to the Congressional Budget Office, the bill could
affect offsetting receipts and the spending of those receipts,
but concludes that the effect ``would have no net impact on the
federal budget.''
3. Government Reform Oversight Findings. Under clause
3(c)(4) of rule XIII of the Rules of the House of
Representatives, the Committee has received no report of
oversight findings and recommendations from the Committee on
Government Reform on this bill.
4. Congressional Budget Office Cost Estimate. Under clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 403 of the Congressional Budget Act
of 1974, the Committee has received the following cost estimate
for this bill from the Director of the Congressional Budget
Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 3, 2000.
Hon. Don Young,
Chairman,Committee on Resources,
U.S. House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3241, a bill to
direct the Secretary of the Interior to recalculate the
franchise fee owed by Fort Sumter Tours, Inc., a concessioner
providing service to Fort Sumter National Monument in South
Carolina.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Deborah Reis.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 3241--A bill to direct the Secretary of the Interior to
recalculate the franchise fee owed by Fort Sumter Tours, Inc.,
a concessioner providing service to Fort Sumter National
Monument in South Carolina
H.R. 3241 would require the National Park Service (NPS) to
recalculate the franchise fee that it charges to Fort Sumter
Tours, Inc. (FST), a concessioner providing transportation to
visitors at Fort Sumter National Monument. If the recalculated
fee is not acceptable to FST, a new fee would be established
through binding arbitration. The bill would require that the
arbitrator award FST reasonable legal costs of all proceedings
involving the fee dispute if the concessioner is the prevailing
party.
CBO cannot estimate the budgetary impact of H.R. 3241
because it would probably depend on the outcome of a legal
proceeding that has not yet occurred. We expect that the
dispute over the FST franchise fee of between 4.25 percent
(which is what the company currently pays the NPS) and 12
percent (which is the adjusted rate established by the agency
in 1991).
Under the higher rate of 12 percent, the federal government
could receive about $3 million in fees, interest, and penalties
owed by FST since 1991. This amount could be collected--and
spent--in the absence of legislation because the NPS has
recently begun administrative action to collect it. (To date,
FST has not paid the higher rate.) If the lower rate would be
chosen by an arbitrator, the government would lose the $3
million owed to it (assuming that the arbitrator would make the
lower rate retroactive to 1991). In addition, if the arbitrator
would deem FST to be the prevailing party, the government would
have to pay about $500,000 in legal costs that have been
incurred by the company over the past several years to dispute
the 12-percent rate. According to the Department of the
Interior, this payment would be made from appropriated NPS
funds, assuming the availability of the necessary amounts.
What would happen to annual franchise fees after
arbitration is also uncertain, CBO expects that by the time a
decision would be reached, the FST concession contract will be
expired.
Annual offsetting receipts (and associated direct spending)
from franchise fees after 2001 would depend on the outcome of
competitive bidding for the concession.
H.R. 3241 could affect offsetting receipts (a credit
against direct spending) and the spending of those receipts;
therefore, pay-as-you-go procedures would apply. CBO estimates,
however, that because the NPS would probably have been allowed
to spend the amounts that it would have received in the absence
of arbitration, the loss of such amounts would have no net
impact on the federal budget.
The bill contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
On October 2, 2000, CBO transmitted a cost estimate for S.
2331, a similar bill ordered reported by the Senate Committee
on Energy and Natural Resources on September 20, 2000. The two
estimates reflect differences in the two versions of the
legislation, primarily the treatment of legal expenses of FST
if the company would be deemed the prevailing party.
The CBO staff contact for this estimate is Deborah Reis,
who can be reached at 226-2860. The estimate was approved by
Peter H. Fontaine, Deputy Assistant Director for Budget
Analysis.
COMPLIANCE WITH PUBLIC LAW 104-4
This bill contains no unfunded mandates.
PREEMPTION OF STATE, LOCAL OR TRIBAL LAW
This bill is not intended to preempt any State, local or
tribal law.
CHANGES IN EXISTING LAW
If enacted, this bill would make no changes in existing
law.
DISSENTING VIEWS
There is no justification for this legislation and its
approval would set an unwise precedent. As a result, we urge
our colleagues to oppose H.R. 3241.
Fort Sumter Tours (FST) has had a contract with the
National Park Service (NPS) to operate a tour boat service to
and from Fort Sumter National Monument since 1961. The Fort is
accessible only by boat and virtually all of its 230,000 annual
visitors must use FST.
In 1986, FST renewed its contract with the NPS, which now
runs through December 31, 2000. The contract set FST's
franchise fee at 4.25% of gross receipts and specified that the
fee was to be recalculated every five years. Importantly, the
contract specified that, while FST could request advisory
arbitration to help resolve disputes, the only appeal of a fee
recalculation was to the Secretary of the Interior.
In 1991, the NPS notified FST of its intention to raise the
franchise fee from 4.25% to 12% of gross receipts for the
second five-year contract period (June 1991 to June 1996). FST
objected, claiming that the NPS had made numerous accounting
and mathematical errors in its fee recalculation. However,
rather than entering advisory arbitration as provided for in
the concessions contract, FST sued the NPS in federal court in
South Carolina where it lost at trial and on appeal (the
Supreme Court declined to review the case). Subsequently, FST
re-filed its lawsuit in federal court in the District of
Columbia, where it again lost both at trial and on appeal.
Throughout the litigation, NPS stood by the new fee but did not
terminate the FST contract despite the fact that FST has only
been paying 4.25% since 1986. FST currently owes the NPS more
than $2 million in back fees, penalties and interest.
H.R. 3241 would have Congress intervene in this ongoing
dispute by directing the Secretary of the Interior to
recalculate the franchise fee that, according to the bill, is
``allegedly'' owed by FST. Further, the legislation specifies
that if the recalculation is not acceptable to FST, the
franchise fee owned shall be determined through binding
arbitration. In addition, the legislation states that none of
the previous court decisions regarding the fee dispute may be
``introduced into evidence or considered by the arbitrators for
any purpose.'' In effect, H.R. 3241 would have the congress re-
write contractual provisions agreed to by both parties in 1986
to provide Fort Sumter Tours a remedy not contained in the
original contract, that of binding arbitration.
The consequences of such a step for the Park Service would
be very serious. The NPS is currently party to thousands of
concessions and other contracts, the terms of which are relied
upon to allow our National Park system to function. Should we
pass H.R. 3241, it will be clear that those contract terms are
reliable only until Congress decides to alter them. Never again
will NPS be able to enter a contract with the assurance that
the contract terms will not be altered during the life of the
contract. Never again will a party contracting with the NPS be
assured that the agreement they are signing today will be the
same agreement in effect tomorrow. It is difficult to imagine
how the NPS, or any other contractor, might accomplish its
mission under these circumstances.
Furthermore, passage of this measure would override the
decisions of two Federal District Courts, two Federal Courts of
Appeals and the U.S. Supreme Court and would specify that those
decisions are to be ignored in the arbitration proceeding
mandated by the bill. With passage of this measure, the
Congress would erase a decade of jurisprudence in this case and
then mandate that all parties ignore everything gleaned from
those decisions.
Proponents of the bill argue such intrusion into the
judicial process is necessary because none of the courts
mentioned above reached the issue FST claims is central to its
case, namely that the NPS made several mathematical mistakes in
recalculating FST's franchise fee in 1991. This is both true
and irrelevant.
FST voluntarily elected to ignore the appeals process
provided for in its contract and instead sought judicial
review. The courts held that , under the terms of that
contract, the franchise fee was reviewable by the Secretary but
not by the courts and that such a system of review is
reasonable. If what FST wanted was a review of the mathematical
calculations underlying the new fee, it should have used the
appeals process set out in the contract to which they agreed.
That FST failed in its attempts to secure from the courts
relief to which it was not entitled is neither surprising nor a
justification for Congressional intervention.
In addition to the National Park Service and the Judiciary,
H.R. 3241 has negative policy ramifications for the Congress
itself. Rather than focusing on the significant policy issues
raised by the concessions system throughout our national parks,
this bill would establish a precedent for Congress to intervene
on a case by case basis to mandate specific remedies for
individual concessioners. Neither the hearing record in this
case, no the legislation itself provide an explanation of why
this case was worthy of legislation action. As a result, it is
unclear on what basis Congress might refuse to consider future
legislation re-writing each and every disputed contract in the
park system.
In addition to these policy concerns, H.R. 3241 represents
poorly crafted legislation. The bill mandates that, if the
concessioner is the ``prevailing party'' in this arbitration,
he shall be awarded his attorney's fees. Given the length of
this litigation, we can only assume this represents a
significant sum of money. However, the legislation fails to
define the term ``prevailing part.'' The NPS position is that
FST owes $2.2 million while FST's position is unclear but may
be that they owe nothing. Given the wide variety of decisions
an arbitrator might reach when the parties are more than $2
million apart, determining whether or not FST is owed
attorney's fees may be impossible.
Finally, the legislation mandates that, despite the fact
that FST's current contract expires this December, the National
Park Service will be required to offer FST annual contract
renewals for as long as this arbitration, and any appeals, are
pending. Given FST's penchant for endless, and so far fruitless
appeals, this could guarantee FST the concession at Fort Sumter
for a fifth decade or more, presumably at whatever fee they are
willing to pay. Not only does this violate every principle of
our concessions system, it also allows FST to continue building
on its $2.2 million dollar unpaid debt. How large might the
loss to taxpayers be if the Park Service ultimately prevails
but, thanks to passage of this bill, FST has had another ten or
more years to rack up a debt they cannot satisfy?
Fort Sumter Tours has enjoyed a tax-payer subsidized,
government-sponsored monopoly for almost forty years. Over
those four decades, FST's business has expanded consistently
and is now a multi-million dollar operation involving a variety
of non-concessions activities including dinner cruises and
sightseeing tours. FST has shown itself to be fully capable of
defending itself and has had its day in court on a number of
occasions. FST does not need a legislative remedy nor do the
facts of this case merit one. Given the disastrous
ramifications of granting FST such a remedy, this legislation
should be defeated.
George Miller.
Frank Pallone.
Mark Udall.
Carlos Romero-Barcelo.
Joseph Crowley.