kentucky department for the blind interstate …

OFFICE FOR PROGRAM REVIEW &INVESTIGATIONS

JOSEPH FIALA, Ph.D.Assistant Director

SHEILA MASON BURTON Committee Staff Administrator

PROJECT STAFF:

ALICE HOBSONProgram Analyst

RICHARD GOODMANProgram Analyst

Research Report No. 268

LEGISLATIVE RESEARCH COMMISSION

Frankfort, Kentucky

Committee for Program Review and Investigations

June, 1994

This report has been prepared by the Legislative Research Commission and printed with state funds.

Available in alternate forms upon request.

KENTUCKY DEPARTMENT FOR THE BLINDINTERSTATE VENDING PROGRAM

Research Report 268: Interstate Vending Program

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LEGISLATIVE RESEARCH COMMITTEEPROGRAM REVIEW AND INVESTIGATIONS COMMITTEE

1992-1993 INTERIM

SENATOR REPRESENTATIVESUSAN D. JOHNS C. M. "HANK" HANCOCK

Chair Vice Chair

Senate Members House MembersFred Bradley Adrian ArnoldNick Kafoglis Joe BarrowsJohn Rogers Mark FarrowArt Schmidt Pat Freibert

Kenneth HarperHarry Moberly, Jr.

Anne Meagher Northup

Office for Program Review and Investigations

JOSEPH F. FIALA, Ph.D.Assistant DirectorSHEILA MASON

Committee Staff Administrator

* * * * * * * *

The Program Review and Investigations Committee is a 16-member bipartisancommittee. According to KRS Chapter 6, the Committee has the power to review the operationsof state agencies and programs, to determine whether funds are being spent for the purposes forwhich they were appropriated, to evaluate the efficiency of program operations and to evaluatethe impact of state government reorganizations.

Under KRS Chapter 6, all state agencies are required to cooperate with the Committeeby providing requested information and by permitting the opportunity to observe operations. TheCommittee also has the authority to subpoena witnesses and documents and to administeroaths. Agencies are obligated to correct operational problems identified by the Committee andmust implement the Committee's recommended actions or propose suitable alternatives.

Requests for review may be made by any official of the executive, judicial or legislativebranches of government. Final determination of research topics, scope, methodology andrecommendations is made by majority vote of the Committee. Final reports, although basedupon staff research and proposals, represent the official opinion of a majority of the Committee

Transmittal Memorandum

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membership. Final reports are issued after public deliberations involving agency responses andpublic input.


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FOREWORD

In December 1991, the Program Review and Investigations Committee directedits staff to examine the interstate vending program of the Kentucky Departmentfor the Blind. This report was adopted by the Program Review and InvestigationsCommittee on September 14, 1992, for submission to the Legislative ResearchCommission.

The report is the result of dedicated time and effort by the Program Review staffand secretaries, Susie Reed and Jo Ann Blake. Our appreciation is alsoexpressed to the Executive Director and staff of the Department for the Blind, theNational Federation of the Blind, the Kentucky Council for the Blind, theKentucky Committee of Blind Vendors, the Secretary and staff of the Trans-portation Cabinet, and the State Budget Director and staff of the Governor'sOffice for Policy and Management, and to all other persons interviewed for thisstudy.

Vic Hellard, Jr.Director

Frankfort, KYJune, 1994


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SENATE MEMBERS HOUSE MEMBERSCharles W. Berger President Pro Tem

Larry Clark Speaker Pro Tem

David K. Karem Majority Floor Leader LEGISLATIVE RESEARCH COMMISSION Gregory D. Stumbo

Majority Floor LeaderJohn D. Rogers

Minority Floor LeaderState Capitol Frankfort, Kentucky 40601 502-564-8100 Tom Jensen

Minority Floor LeaderNick Kafoglis

Majority Caucus ChairmanJohn A. "Eck" Rose, Senate President

Joe Clarke, House SpeakerJody Richards

Majority Caucus ChairmanTom Buford

Minority Caucus ChairmanChairmen Clarence Noland

Minority Caucus ChairmanFred Bradley Majority Whip

Vic Hellard, Jr.Director

Kenny Rapier Majority Whip

Charlie Borders Minority Whip

Danny Ford Minority Whip

TRANSMITTAL MEMORANDUM

TO: The Honorable Brereton C. Jones,The Legislative Research Commission,and Affected Agency Heads and Interested Individuals

From: Senator Susan Johns, ChairRepresentative C. M. "Hank" Hanock, Vice-ChairProgram Review and Investigations Committee

Date: September 14, 1992

Re: Kentucky Department for the BlindInterstate Vending Program

Attached are the final report and recommendations of a study of theinterstate vending program operated by the Kentucky Department for the Blinddirected by the Program Review and Investigations Committee. TheCommittee's staff gathered data by examining state and federal law, andinterviewing government officials, advocates, blind vendors and officials fromother states. In addition, staff performed cost-benefit analyses of the existingcommercial vendor program and a possible blind vendor program. Staff alsoexamined options for switching to a blind vendors program.


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The main issue is whether blind vendors or a commercial vendor shouldoperate the vending facilities at the 27 interstate rest areas. Both approachesare legally acceptable and currently in use in other states. Some advocates forthe blind vendor community maintain that blind vendors should operate thesegenerally lucrative interstate sites.

Currently, the Department for the Blind operates a blind vendor program,the Kentucky Business Enterprise Program (KBEP) program. Through theKBEP, 72 blind vendors are employed at 56 locations on federal and stateproperty. However, Quatros Incorporated, a commercial vendor, operates theinterstate vending facilities.

The Department for the Blind receives commissions from the commercialvendor that generate up to $1.4 million federal dollars. Extending the KBEPprogram to the interstate rest areas would provide employment and income to agroup of blind vendors. However, this change would greatly reduce federalfunds available for general blind services and increase costs to the generaltaxpayer. KBEP vendors could help compensate for this loss of federal dollarsby agreeing to pay a higher set-aside.

The Committee recommended that the Department for the Blind and theblind vendor community develop a viable plan to permit blind vendors to bid onall or part of the interstate locations. This plan should be formulated prior to theexpiration of the contract with the present commercial vendor. Additionally, theplan cannot result in a loss of federal funds or the necessity for more statedollars. A second recommendation requires that the internal audit of thecommercial vendor be conducted annually in compliance with the contract.

For additional copies of this report, or in the event of questions, pleasecontact Joseph Fiala, Ph.D., LRC Assistant Director, Office for Program Reviewand Investigations.


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TABLE OF CONTENTSFOREWORD..................................................................................................... ivTRANSMITTAL MEMORANDUM...................................................................... viTABLE OF CONTENTS .................................................................................... viiiCHAPTER I ....................................................................................................... 1

INTRODUCTION.................................................................................... 1CHAPTER II ...................................................................................................... 3

HISTORY AND BACKGROUND OF THE PROGRAM........................... 3The Randolph-Sheppard Act Provides Self-Employment for the Blind .................................................. 3The Transportation Act Allows Vending at InterstateRest Areas ........................................................................ 3

CHAPTER III ..................................................................................................... 5INTERSTATE VENDING PROGRAM IN KENTUCKY............................ 5

Map.............................................................................................. 6The Legality of Kentucky's Use of a Commercial Vendor............ 7

Federal Law Allows the Use of Commercial Vendors ....... 7The RSA Sanctions Kentucky's Approach ........................ 7A Majority of the States Use Commercial Vendors ........... 7

Table 3.1 ........................................................................................................... 9States Which Use Commercial Vendors ................................................ 9FFY 1990................................................................................................ 9States Which Use Blind Vendors ........................................................... 10At Interstate Rest Areas ......................................................................... 10FFY 1990................................................................................................ 10

Some States Combine Blind Vendors withCommercial Vendors......................................................... 10

Legislative and Executive Intent in Kentucky .............................. 11Kentucky Law Includes a Preference for BlindVendors............................................................................. 11Commercial Vendor Approach Selected Due to Costsand Program Considerations ............................................ 11Original Plans Included the Development of a BlindVendor Program................................................................ 12

Table 3.3 ........................................................................................................... 13Revenues, Expenditures and Surplus in the .......................................... 13Interstate Vending Program.................................................................... 13

Executive Policy Decision Changed the InterstateVending Program.............................................................. 13The Transportation Cabinet Wants Facilities to beContracted Out.................................................................. 14

CHAPTER IV..................................................................................................... 15BENEFITS FROM KENTUCKY'S INTERSTATE VENDINGPROGRAM............................................................................................. 15

Table of Contents

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Commissions Help Blind Vendors and Generate FederalFunds........................................................................................... 15

Chart 4.1 ........................................................................................................... 16Federal Funds Support Vendor and VocationalPrograms for the Blind ...................................................... 17

Table 4.1 ........................................................................................................... 18General Blind Services Program............................................................ 18

CHAPTER V...................................................................................................... 19COMPARING THE COMMERCIAL VENDOR TO A KBEPAPPROACH ........................................................................................... 19

Current Approach Generates $1.2 to $1.9 Million forBlind Services ................................................................... 19KBEP Approach Would Reduce Blind Services................ 19

Program Review staff compared the costs and benefits of extending theKBEP blind vendor program to the interstate rest areas and its impact onblind services (see table 5.2). Because so many benefits would gospecifically to interstate vendors, staff distinguishes the costs andbenefits between blind vendors and the general blind services. If theKBEP blind vendor approach were chosen, interstate vendors wouldreceive vending machines, initial stock, management, maintenance................ 19and repair services, as well as $590,000 in net annual income.Altogether, blind vendor would receive net annual benefits worth$930,000 the first year and $810,000 ............................................................... 19Table 5.1 ........................................................................................................... 20

Estimated Annual Costs and Benefits to Blind Services ........................ 20From Commercial Vendor Approach ...................................................... 20

Table 5.2 ........................................................................................................... 21Estimated Annual Costs and Benefits to Blind Vendors......................... 21Assuming Use of Existing KBEP Approach ............................................ 21

Because the Department receives more money fromcommercial vending commissions than it would fromthe set-aside of blind interstate vendors, thecommercial vendors program is able to access morefederal matching dollars. Table 5.3 shows thatcommissions generate $880,000 to $1.5 million infederal match per year. The set-aside from blindinterstate vendors would generate $80,000 to$100,000 per year............................................................. 22Net Benefits to General Taxpayer Are Greater withCommercial Vendor .......................................................... 22

Table 5.3 ........................................................................................................... 23Estimated Annual Costs and Benefits .................................................... 23to the Blind Using ................................................................................... 23KBEP Approach vs. Commercial Vendor Approach ............................... 23

KBEP Approach Enhanced by Raising Set-Aside............. 23


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Under this scenario, the Department for the Blind would receive anadditional $270,000 from more lucrative stands. The Department, in turn,could use this money to secure $900,000 to $1.2 million in federalmatching funds to help blind vendors and the general blind community.While not as beneficial to the state govern-ment as a commercial vendorprogram, a blind vendors program together with higher set-aside levels forvendors with higher income, translates into $790,000 to $1.01 million forthe state government in the first year and......................................................... 23$910,000 to $1,130,000 per year thereafter. .................................................... 23Table 5.4 ........................................................................................................... 24

Estimated Annual Costs and Benefits .................................................... 24to State Government .............................................................................. 24

Table 5.5 ........................................................................................................... 25Estimated Annual Costs and Benefits .................................................... 25to State Government .............................................................................. 25

Table 5.6 ........................................................................................................... 26Estimated Annual State Government Revenue from Blind Vendors, ..... 26Using a Sliding Scale Set-Aside (A) ....................................................... 26

CHAPTER VI..................................................................................................... 27CONCLUSIONS AND RECOMMENDATIONS....................................... 27

Blind Vendor Preference ............................................................. 27Auditing of Existing Contract ....................................................... 28

CHAPTER VII.................................................................................................... 31COMMITTEE ACTION............................................................................ 31

List of Tables

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LIST OF TABLESTable 3.1 States Which Use Commercial Vendors FFY 1990 ....................9Table 3.2 States Which Use Blind Vendors At Interstate

Rest Areas FFY 1990............................................................10Table 3.3 Revenues, Expenditures and Surplus in the

Interstate Vending Program ..................................................12Table 4.1 General Blind Services Program...............................................18Table 5.1 Estimated Annual Costs and Benefits to Blind Services

From Commercial Vendor Approach .....................................20Table 5.2 Estimated Annual Costs and Benefits to Blind Vendors

Assuming Use of Existing KBEP Approach...........................21Table 5.3 Estimated Annual Costs and Benefits to the Blind Using

KBEP Approach vs. Commercial Vendor Approach ..............23Table 5.4 Estimated Annual Costs and Benefits

to State Government .............................................................24Table 5.5 Estimated Annual Costs and Benefits

to State Government .............................................................25Table 5.6 Estimated Annual State Government Revenue from

Blind Vendors, Using a Sliding Scale Set-Aside (A) .............26

LIST OF MAPSMAP 3.1 ....................................................................................................6

LIST OF CHARTSChart 4.1 Percent of Commercial Vending Commissions Needed

to Maximize Federal Dollars..................................................16

APPENDIXAppendix A-History of Interstate Vending Contract in Kentucky ..........35

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EXECUTIVE SUMMARY

KENTUCKY'S INTERSTATE VENDING PROGRAM

The federal Surface Transportation Assistance Act of 1982 allowsstates to operate vending sites at interstate rest areas. The law also givespriority to operate these sites to state agencies in charge of blind vendorsthrough the Randolph-Sheppard Act. The Department for the Blind (DFB) isKentucky's agency in charge of blind vendors. The DFB entered into anagreement with the Transportation Cabinet allowing vending at the interstaterest areas and subsequently employed a commercial vendor throughcompetitive negotiations.

Some advocates for the blind maintain that blind vendors shouldoperate the interstate vending sites in Kentucky. In 1984, the Departmenthad considered an interstate vending program for blind vendors butconstruction and operating costs were too high. Instead, the Departmentagreed with the Transportation Cabinet to use a commercial vendor thatwould cover some of the startup costs.

The commercial vendor approach is a legally acceptable approach.The Rehabilitation Services Administration, the federal agency that overseesthe DFB under the Randolph-Sheppard Act, approves the use of commercialvendors. A majority of states also use this approach.

The current commercial vendor pays a 15.4 percent commission ongross sales to the DFB. All the commissions go to the Department'sBusiness Enterprise Program (KBEP), which helps provide self-employmentfor blind vendors on federal and other property. These commissions areexpected to reach $500,000 per year in FY 1993. Also, the commissions cangenerate up to $1.8 million per year in federal matching funds for the DFB tospend on vocational rehabilitation services.

Employing blind vendors at interstate vending sites is potentially asviable as using a commercial vendor. But, employing blind vendors tooperate these sites as the KBEP currently does would result in net losses togeneral blind services and costs to taxpayers.


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RECOMMENDATION 1: Develop a Viable Interstate Vending Pro-gram for Blind Vendors

The DFB and blind vendor community, in conjunction with members of thegeneral blind community should develop a viable plan, prior to the renewalof the current commercial contract, to permit blind vendors to bid for all orpart of the existing vending sites. This plan should not result in a loss offederal funds and should not require more General Assembly funds.

Both the 1985 and the 1992 contracts with the vending companyrequire an annual internal audit of the commercial vendor paid for by thevendor. According to the Department, only two audits have been conductedsince 1985. The audits cover the following periods:

1) July 1987 -- June 1988, (dated October 5, 1988).

2) July 1988 -- September 1990 (dated February 19, 1991).

Another internal audit is currently in progress.

RECOMMENDATION 2: Ensure Contract Compliance With AnnualInternal Audit Requirement.

The Department for the Blind and the Transportation Cabinet shouldensure that the required internal audit of the commercial vendor isconducted annually at the end of the federal fiscal year.

Chapter I: Introduction

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CHAPTER I

INTRODUCTION

The federal Surface Transportation Assistance Act of 1982 allows states tooperate vending facilities on interstate highways. The revenues from the vendingmachines must be used to provide funding for the state's licensing agency underthe Randolph-Sheppard Act (in Kentucky, the Department for the Blind's BusinessEnterprise Program (KBEP)). The Randolph-Sheppard Act is designed to provideself-employment opportunities for the blind by giving them priority to operatevending sites on federal and other property. In Kentucky, the Department for theBlind administers two vending programs: the KBEP and the interstate vendingprogram. By agreement with the Transportation Cabinet, the Department hascontracted with a commercial vendor to operate 27 interstate vending sites. Inreturn, the commercial vendor pays the Department commissions that help to fundvocational rehabilitation programs for the blind.

Some advocates for blindpersons claim that blind vendors shouldoperate vending facilities on interstatehighways. The disagreement concerningwho should run the vending sites hasexisted since the interstate vendingprogram first began in 1985. In October1991, a few months before the latestcontract was awarded to a commercialvendor, some blind vendors demon-strated at the interstate rest areas.

This study addresses thefollowing 3 questions:

1. Is the use of a com-mercial vendor a legaland acceptable ap-proach?

2. Is the use of a com-mercial vendor in line

with legislative andexecutive intent?

3. Is Kentucky's programoperated in a mannerwhich benefits theblind?

To answer these questions,Program Review staff examinedapplicable state and federal law andperformed cost-benefit analyses of boththe existing commercial vendorprogram and a possible blind vendorprogram. Staff interviewed governmentofficials, advocates, blind vendors andofficials from other states. Finally,because an interstate vending programoperated by blind vendors is also aviable and legal approach, staffexamined options for switching to ablind vendor program.


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Chapter II: History and Background of the Program

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CHAPTER II

HISTORY AND BACKGROUND OF THE PROGRAM

The Kentucky Department for the Blind (DFB) administers two separatevending programs that exist under two separate federal statutes. First, theKentucky Business Enterprise Program (KBEP), authorized by the Randolph-Sheppard Act, trains and enables licensed blind vendors to operate cafeterias,vending machines and snack bars on federal and other property. Second, theinterstate vending program, authorized by the Surface Transportation AssistanceAct of 1982, allows vending at interstate highway rest areas.

Both programs are designed to benefit the blind; however, in Kentucky, theyoperate in different ways. The KBEP helps blind vendors to become self-supportingby setting them up in small businesses. The interstate vending program generatescommissions from a private company that are used to fund the KBEP vendors andto provide funds for vocational rehabilitation services.

The Randolph-Sheppard Act ProvidesSelf-Employment for the Blind

The primary purpose of theRandolph-Sheppard Act, 20 U.S.C. 107(1936, as amended in 1974), is toprovide self-employment opportunitiesfor the blind by giving blind vendors apriority in the operation of vendingfacilities on federal and other property.On the state level, the KentuckyDepartment for the Blind serves as thestate licensing agency for the act. Thestate licensing agency issues licenses toblind persons for the operation ofvending facilities and operates theKBEP. In Kentucky, this federal statutehas resulted in the employment of 72blind vendors, who operate 56 vendingfacilities through the KBEP.

The KBEP performs thefollowing services for blind vendors: 1)Finds and establishes new vendinglocations; 2) Pays the costs of setting upnew locations, including initial stock; 3)Provides counseling, training and man-agement assistance; and 4) Providesfree repair and replacement of allvending machines. In return, the vendorpays a 5% set-aside to the DFB on netincome.

The Transportation Act Allows Vendingat Interstate Rest Areas

The Surface TransportationAssistance Act of 1978 authorized ademonstration project to determine theviability of vending facilities on theinterstates. Kentucky was one of five


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states that participated in this pilotproject. The vending facilities proved tobe a benefit to the traveling public, aswell as an economic benefit to thestates. Because of this success, theSurface Transportation Assistance Actof 1982 (23 U.S.C. 111 (1983, asamended in 1987)), established vendingon the interstate highways in all 50states.

The 1982 transportation actallows the states to permit vending atinterstate rest areas. No other form ofcommercialization is allowed on theinterstates. Only the states have theauthority to operate the vendingfacilities, and they must give priority tovending machines that are operatedthrough the state licensing agencydesignated under the Randolph-Sheppard Act. In Kentucky this agencyis the Department for the Blind.

Chapter III: Interstate Vending Program in Kentucky

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CHAPTER III

INTERSTATE VENDING PROGRAM IN KENTUCKY

The interstate vending program began in 1984. Although Kentucky hadbeen involved in the demonstration project from 1978 to 1982, the TransportationCabinet refused to allow interstate vending in 1983. In April 1984, theTransportation Cabinet and the Department entered into an agreement that allowedvending at the interstate highway rest areas. This agreement called for a two-yearcontract with a commercial vendor and included a two-year renewal option. In1985, the Finance and Administration Cabinet awarded the contract, throughcompetitive negotiation, to Quatros Incorporated. This contract had a four-yearduration with a two year renewal option. In December 1991, a new competitivenegotiation contract was awarded to Quatros for the same duration. For achronological history of this contract, see Appendix A.

Currently Quatros operates 27interstate vending sites and pays a15.4% commission on gross receipts tothe DFB (See Map 3.1 for the locationof these sites). The commissions gener-ated from the interstate program areused to fund the KBEP program and toprovide part of the seed money for afederal formula grant for vocationalrehabilitation. These federal dollars arein turn used as a major source offunding for the Department's GeneralBlind Services Program, as well as theKBEP.

The vending contract is design-ed to ensure that all of the state'sfacilities are uniform in the services theyprovide. The major provisions of theinterstate vending contract are asfollows:

° Specifies number and type ofmachines at each restarea;

° Requires internal audit sys-tem for each machine;

° Requires contractor to main-tain an accounting andrecord-keeping system;

° Requires 24-hour servicingof machines;

° Requires trained, uniformedcustodial personnel onduty from 10:30 p.m.--6:30 a.m. for each restarea, and supervisorypersonnel; and

° Requires annual audit ofsales, paid for by thecontractor.

The night time custodians arethe only benefit for the TransportationCabinet. According to a former Trans-portation Cabinet official, the presenceof these custodians has lowered theincidents of vandalism and other illegalactivity at the rest areas.


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Map


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The Legality of Kentucky's Use of aCommercial Vendor

Two interpretations of thelanguage in the federal transportationstatute exist. Some advocates for theblind claim that the statutory languagerequires the operation of the interstatevending machines by licensed blindvendors. Advocates insist that even ifthe Department is not violating the letterof the law, it is violating the spirit of thelaw. On the other hand, the Departmentmaintains that using a commercialvendor is a valid option to implementthis program.

Federal Law Allows the Use ofCommercial Vendors

The federal transportation actstates that "in permitting the placementof vending machines, the State shallgive priority to vending machines thatare operated through the state licensingagency designated pursuant to ... theRandolph-Sheppard Act."

The commercial vendor is alegally acceptable approach. Neitherthe federal transportation act, nor itsaccompanying regulations, promulgatedby the Federal Highway Administration,specify that blind vendors licensed bythe state licensing agency must operatethese vending facilities. Likewise, thereis no prohibition against the use of acommercial vendor. The federal regula-tions state that "The State may operatethe vending machines directly or maycontract with a vendor for the install-ation, operation, and maintenance ofthe vending machines". Theseregulations contemplate that a statemay contract with a vendor in a mannersimilar to Kentucky's program.

Although blind vendors are notemployed directly as a result of theinterstate program, the KBEP vendorsbenefit directly from the commissionsgenerated by the commercial vendor.All the funds derived from the interstateprogram are designated to be spentdirectly in the KBEP.

The RSA Sanctions Kentucky'sApproach

The Rehabilitation ServicesAdministration (RSA), the federalagency in charge of administering theRandolph-Sheppard Act, approves ofKentucky's use of a commercial vendorwith the commissions benefiting theKBEP. After reviewing the 1984 agree-ment between the DFB and the Trans-portation Cabinet allowing vending atthe interstate rest areas in Kentucky, theRSA determined that the agreementwas not in conflict with the Randolph-Sheppard Act. In a June 21, 1984,memorandum, the RSA stated:

A contract with a privatevending company to pro-vide the machine servicesin the rest areas of theinterstate highways with acommission percentage ofgross sales paid to thelicensing agency is cer-tainly one approach toimplement the newprogram.In the opinion of staff ofthis office, the spirit andintent of the new leg-islation is that the com-missions received by theState licensing agencyfrom the private vendor beused for Randolph-Sheppard Act programactivities. Clearly themoney resulting from thisagreement will be usedfor those purposes.

A Majority of the States Use CommercialVendors

Of the 35 states that operateinterstate vending programs, 22 utilizecommercial vendors. Table 3.1 showsthe list of states which contract withprivate companies and the revenuesgenerated by these contracts. Ken-tucky's receipts include revenues frompublic telephones located at the restareas and can only be partiallyattributed to the commissions from the


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interstate vending program. Many ofthese state programs are relatively newand rest areas are still being built.

Thirteen states employ a total of100 blind vendors in their interstateprograms (See Table 3.2). Eight statesemploy blind vendors exclusively. Insome instances, blind vendors areresponsible for both sides of theinterstates. This factor accounts for anydiscrepancies between the number ofsites operated by blind vendors and thenumber of blind vendors employed inthe program.

In almost all of the states thatoperate a blind vendor interstateprogram, the states have made aphilosophical commitment to provideemployment for the blind. Many of thesestates never considered using acommercial vendor and would only useone as a last resort. Most of thesestates have mini-Randolph-SheppardActs that give priority to blind vendorson state property. These acts varygreatly in detail and in scope.


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Table 3.1

States Which Use Commercial VendorsFFY 1990

TOTAL NUMBER TOTALOF VENDING

STATE VENDING LOCATIONS COMMISSIONSArizona 3 $87,318Arkansas 11 $57,514California 3 $46,219Colorado 12 $22,446Connecticut 31 $297,989Georgia 18 $113,002Kentucky 27 *$689,863Maine 4 $35,778Maryland 5 $259,334Missouri 24 $216,560New Jersey 4 $9,259New Mexico 1 $817New York 63 $297,314North Carolina 13 $337,940North Dakota 13 $8,800Pennsylvania 39 $1,146,447Rhode Island 2 $18,163South Dakota 19 $38,502Tennessee 19 $482,564Vermont 14 $10,721Virginia 9 $192,658Washington 12 $63,690NOTE: *Kentucky's vending commissions include revenue from public telephones located at the rest stops. It is not known ifother states' commissions include telephone revenues.

SOURCE: Randolph-Sheppard Vending Facility Program FFY 1990 Annual Report from the U. S. Rehabilitation ServicesAdministration.


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Table 3.2States Which Use Blind Vendors

At Interstate Rest AreasFFY 1990

TOTAL VENDORSNUMBER OF OPERATED EMPLOYE

DVENDING TOTAL BY BLIND TOTAL IN THE

STATES LOCATIONS RECEIPTS VENDORS RECEIPTS PROGRAMALABAMA 29 $1,664,443 29 $1,664,443 19

FLORIDA 14 $422,896 14 $422,896 14

IDAHO 6 $23,091 5 $110,539 5

ILLINOIS 20 $708,901 10 $583,322 10

INDIANA 37 $560,455 3 $166,700 2

IOWA 2 * 2 * 1

MICHIGAN 3 $51,750 3 $51,750 3

MINNESOTA 30 $190,618 5 $87,402 3

N. CAROLINA 13 $337,940 4 $216,754 0

OHIO 4 $339,837 4 $69,516 0

S. CAROLINA 34 $1,476,818 34 $1,476,818 34

TEXAS 15 $357,032 6 $204,205 6

WISCONSIN 2 $133,575 2 $133,575 3

TOTALS 209 $6,267,356 121 $5,187,920 100

*CONFIDENTIAL

SOURCE: Randolph-Sheppard Vending Facility Program FFY 1990. Annual Report. Compiled by the Program Reviewstaff from data received from the U.S. Rehabilitation Services Administration.

Some States Combine Blind Vendorswith Commercial Vendors

Currently at least four statescombine both approaches in theirinterstate vending programs. Florida,Indiana, Minnesota, and Texas use bothblind and commercial vendors tooperate their interstate vending sites.For example, Minnesota has 33interstate rest areas that arecommercially operated and 7 sitesoperated by licensed blind vendors. Insome instances, Minnesota's blind

vendors operate more than one vendingsite in a route.

Half of Texas' 20 rest stops areoperated by blind vendors, half bycommercial vendors. Whilecommercial vendors are responsible forvending site clean-up, Texas'transportation department providescustodian services to the blind vendors'sites. Initially, Texas rest stops are letto commercial vendors. After a startupperiod, each site is evaluated todetermine if it will support a licensedblind vendor. Since only one blindvendor is responsible for servicing,


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maintaining and cleaning at the sites,their capabilities are assessed.According to Texas officials, this pro-gram provides a balance between thetwo options.

Legislative and Executive Intent inKentucky

Kentucky enacted a mini-Ran-dolph-Sheppard Act in 1976, amendedin 1990, which gives a preference toblind vendors on state property, butmakes no specific reference tointerstate vending. Although the DFBinitially had a plan to develop a blindvendor program, this has not beenimplemented. In fact, the commercialvendor was recently awarded a newcontract. Advocates for the blind main-tain that the DFB has breached itsagreement with the blind vendors, whilethe DFB maintains that fiscal andprogrammatic considerations havenecessitated the use of a commercialvendor. The Transportation Cabinetwants vending services to be suppliedby contract, either with a commercialvendor or blind vendors, to ensureuniformity.

Kentucky Law Includes a Preference forBlind Vendors

Kentucky has a statutory pro-vision that gives priority to blind vendorson state controlled and owned property;however, there is no provision speci-fically requiring blind vendors at theinterstate facilities. The Kentucky legis-lation, which is found in the enablingstatute for the DFB, (KRS 163.470(1990)), requires that:

The Department for the Blindshall make such surveysas may be deemednecessary to determinethe vending facility oppor-tunities for blind vendorsin state buildings or onother property owned, lea-sed, or otherwise occup-ied by the state govern-ment and shall installvending facilities in suit-

able locations on suchproperty for the use of theblind. All of the net in-come from vendingmachines that are on thesame property as a vend-ing facility shall be paid tothe blind vendor of thevending facility.

Since the interstate right-of-ways are state owned, controlled andmaintained, a priority for blind vendorswould be acceptable. Several states,such as California, Illinois and Wiscon-sin, have statutory provisions that give apreference to blind vendors on theinterstates. In fact, in 1992 Californiawill terminate its commercial contractand use blind vendors due to thislegislation, as well as the actions of theCalifornia Vendors Policy Committee.The advo-cates suggest strengtheningthe Ken-tucky preference for blindvendors by connecting the interstatevending pro-gram directly with theKentucky Bus-iness Enterprise Program(KBEP) and mandating the use of blindvendors at the interstate rest areas.

Commercial Vendor Approach SelectedDue to Costs and ProgramConsiderations

In 1984, the DFB could notafford the high startup costs connectedwith the vending sites. These costs in-cluded the $750,000 construction andutility costs and the other operatingcosts, such as vending machines andinitial stock, that the DFB would haveincurred in implementing a blind vendorprogram. Because of these financialfac-tors, the DFB agreed with theTransport-ation Cabinet to use acommercial vendor. From the outset,the Transport-ation Cabinet wished toprovide vending services at all 27 restareas. The DFB paid $150,000 of the$750,000 initial startup cost of buildingthe vending structures and laying theutility lines. The Transportation Cabinetpaid the remaining $600,000.

According to the formerExecutive Director of the DFB,


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programmatic considerations alsonecessitated the use of a commercialvendor. In testimony before the InterimJoint Committee on Transportation,Subcommittee on Highway and VehicleRegulation in 1985, he stated thatcertain programmatic problems neededto be resolved before blind vendorscould operate the interstate sites.These considerations included theability of blind vendors to performcustodial duties at night, as required inthe contract with the commercialvendor, and the need for data on theprofitability of the vending sites.

Original Plans Included the Developmentof a Blind Vendor Program

The initial plan for Kentucky'sinterstate vending program includedprovisions related to blind vendors. Theadvocates maintain that the plan was toescrow 60% of the interstatecommissions so that after an interimperiod, blind vendors could operate thefacilities. However, the DFB contendsthat the moneys were escrowed tostudy, create and develop a blindvendor program. The plan limited theDFB's expenditures in the KBEPprogram to 40% of the interstatecommissions. According to the DFB,the escrow was never maintained in aseparate account. All funds from theinterstate vending program are creditedto the KBEP and are commingled withother funds in the KBEP. Excessmonies are carried over for futureexpenditures in the KBEP. At the endof federal FY 1991, the surplus was$380,000 (see Table 3.3).

The testimony of the formerexecutive director of the DFBcorroborates the existence of a plan forblind vendors to take over the sites afterthe initial contract. In October 1985before the Interim Joint Committee onTransportation, Subcommittee onHighway and Vehicle Regulation, hetestified that when the contract expired,the Department would have thefinancial stability to carry the interstateprogram alone. Additionally, he statedthat 60% of the interstate revenues

would be escrowed so that theDepartment could take soleresponsibility for the interstate programat the end of the contract.


13

Table 3.3Revenues, Expenditures and Surplus in the

Interstate Vending Program

FEDERAL

INTERSTATE

KBEPEXPENDITURES

KBEPEXPENDITURES

FISCAL REVENUES

FROMINTERSTATE

CUMULATIVE

AS A PERCENTAGE

YEAR TO KBEP REVENUES SURPLUS SURPLUS OF REVENUES

1986 $221,566 $75,000 $146,566 $146,566 34%

1987 $394,772* $252,583 $142,189 $288,755 64%

1988 $432,885* $257,340 $175,545 $464,300 59%

1989 $506,395* $327,148 $179,247 $643,547 65%

1990 $689,863* $1,002,256 ($312,393) $331,154 145%

1991 $762,414* $713,706 $48,708 $379,862 94%

TOTALS $3,007,895 $2,628,033 $379,862 $2,254,184

SOURCE: Compiled by Program Review staff from data supplied by the Department for the Blind.

*Includes phone revenues from public telephones at the interstate rest areas.

Documentation in The Budget ofthe Commonwealth of Kentucky for the1986-1988, and 1988-1990 bienniumscorroborates this plan to allow blindvendors to run the stands. In the keyfacts' sections that describe the inter-state vending program, the followingstatement is made:

The funds receivedfrom this program mustbe utilized for Ran-dolph-Sheppard Actact-ivities exclusively.To that extent, 40percent of the funds willbe utilized for currentKen-tucky BusinessEnter-prises activities.The re-maining 60percent will be held inan account for futureuse in devel-oping aprogram for trainingblind persons to operate

the interstate vendingfacilities and tosubsequently placethem in those facilities.

Executive Policy Decision Changed theInterstate Vending Program

After consulting with DFBofficials, the Governor's Office forPolicy and Management approved achange in the interstate vendingprogram. Ac-cording to the state budgetdirector, the percentage escrowed waslowered to an unspecified amount. Thisoccurred be-cause the amount ofgeneral fund dol-lars available in recentbudgets has not been adequate toaccess the federal grant funds, whichhave been increasing at a rate of atleast 9% over the last several years.This growth in available funds wasdifficult to predict when the GOPM waspreparing the budget. Only funds usedfor the General Blind Ser-vices Programand the KBEP are elig-ible to match


12

federal dollars. Therefore, the interstatevending program was incorporated intothe KBEP so that ad-ditional federalfunds could be procured. The GOPManticipates that revenues will continueto be needed to maximize federaldollars, because the general funddollars are insufficient.

The Transportation Cabinet WantsFacilities to be Contracted Out

According to Cabinet officials,the Transportation Cabinet (TC) wantsto contract the interstate rest areas outto either a commercial firm or to blindvendors, such as a consortium or cor-poration of blind vendors. The TC be-lieves this will provide manageable,

efficient and effective standardized ser-vice in all 27 rest areas, consistency inthe quality of the services, anduniformity in the commission ratesapplied. The Federal Highway Admin-istration (FHWA) shares this goal ofuniformity and consistency in the oper-ation of the vending facilities and isconcerned about possible changes inthe operation of vending sites.

The TC feels that manageableand effective vending service at the restareas may be lost if many differentvendors operate the rest areas.However, the TC does encourage blindvendors and other vendors to bid on thecontract at the appropriate time.

Chapter IV: Benefits from Kentucky's Interstate Vending Program

15

CHAPTER IV

BENEFITS FROM KENTUCKY'S INTERSTATE VENDING PROGRAM

The Department for the Blind receives two financial benefits from thecommercial vending program on the interstate highways. The commercial vendorpays the DFB 15.4 % of its gross income. These commissions are used togenerate federal matching funds at a ratio of up to four federal dollars for eachstate dollar.

Commissions Help Blind Vendors andGenerate Federal Funds

The Rehabilitation Services Ad-ministration (RSA) requires the Depart-ment to spend all interstate vendingcommissions in the KBEP. Since thecontract with a commercial vendorbegan, the Department has received$2.3 million in commissions. Most of themoney reportedly has been spent toreplace or renovate equipment and toprovide management services for theKBEP. The remainder was reportedlyspent to purchase machines at newlocations, to maintain and repair equip-ment and to provide blind vendors withinitial stock.

The DFB also uses interstatevending commissions to secure federaldollars from the RSA. For every dollarreceived from the commercial vendor,the Department can access three to fourfederal dollars. The Department canac-cess these funds at a ratio of 4:1 forapproximately the first $4 million.Thereafter, Department funds can bematched 3:1. The amount of commis-sions used by the Department to securefederal match depends partly on theamount of federal money available. Asthe amount of available federal money

increases, more commissions areneeded to maximize Kentucky's federalaward.

Along with interstate vendingcommissions, three other sources offunds are used to access federal dollars:general fund appropriations, receiptsfrom pay telephones at the rest stops,and a 5 percent set-aside paid by KBEPvendors based on their net income.Any decrease in these three sourcesresults in a greater reliance on thecommercial vendor commissions.

Chart 4.1 shows that over thelast several years, the DFB hasincreasingly relied on the commercialcommissions to maximize federal dol-lars. In FY 1989, if the Departmentused all other available funds to matchfederal dollars, it would have neededabout 46 percent of the commissions tomaximize the federal award. In FY1993, the Department will need at least67 percent of the commissions tomaximize federal dollars. Increases inthe federal award, coupled withdecreases in the Department's generalfund appropriation have caused greaterreliance on commercial vendor com-missions. From FY 1988 to 1991, Ken-tucky's federal award has increased 25


16

percent. The Department's generalfund appropriations used for federal

match have decreased 9 percent sinceFY 1991.

Chart 4.1

Chapter IV: Benefits from Kentucky's Interstate Vending Program

17

Federal Funds Support Vendor andVocational Programs for the Blind

For FY 1993, Program Reviewstaff calculates that commercial vendorcommissions will generate up to $1.8million in federal RSA funds. GOPMestimates that the total RSA award willbe $5.2 million. In recent years, theDepartment has spent about 10 percentof the federal funds to help coveroperating expenses of KBEP vendors.About 90 percent of the funds are spentin the General Blind Services (GBS)program that provides the followingservices:

° The Rehabilitation Centerprovides orientation,adjustment, mobilitytraining, daily livingskills, Braille readingand writing.

° Assistive Technology Ser-vices gives technicalexpertise and assist-ance in modifyingequipment or job sitesso that blind personscan be successfullyemployed;

° Volunteer Recording Unitstape-record printedmaterials for blindstudents and individ-uals;

° Vocational Services provideevaluation, college and

vocational training,medical treatmentnecessary for voca-tional preparation,counseling, technicalaids and devices,career development,reader services, andjob placement serv-ices.

Table 4.1 shows the number oftimes blind persons have received suchservices. The total number of activecases exceeds the number whoreceived services because the Depart-ment contracts out for certain services.For example, persons who receivesurgery and then can resume theiremployment are not counted asreceiving one of the four services listed.In federal fiscal year 1991, theDepartment spent almost $1 million onsurgery. Clients who receive funding forhigher education or private vocationalservices are also not reflected in thenumbers of service recipients.

Table 4.1 also gives the numberof blind people who enteredemployment as a result of theseservices. In FY 1991, 370 weresuccessfully rehabil-itated and enteredemployment. Of these, 205 wereemployed above the minimum wage; 30clients were removed from socialsecurity and 4 were trained as blindvendors.

Res

earc

h R

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t 268

: Int

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ate

Vend

ing

Prog

ram

18

Tabl

e 4.

1

Gen

eral

Blin

d Se

rvic

es P

rogr

am

TOTA

LR

EHA

BIL

I-VO

LUN

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AB

OVE

MIN

.LI

CEN

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FISC

AL

ALL

AC

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TATI

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VOC

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GA

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ENTE

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WA

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REM

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ND

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781,

026

N/A

N/A

N/A

N/A

226

791,

053

56N

/AN

/AN

/A29

680

1,07

6N

/AN

/AN

/AN

/A27

281

976

102

N/A

N/A

N/A

262

141

3182

936

110

1519

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/A23

810

315

383

774

117

128

175

N/A

216

117

222

8474

513

413

119

4N

/A23

312

229

285

751

181

130

189

N/A

248

134

223

8677

617

413

813

623

263

135

164

8789

421

818

614

125

298

173

241

8895

122

618

814

663

336

184

308

8997

725

018

715

996

350

206

276

901,

042

245

196

134

9639

620

120

391

1,04

924

216

518

713

737

020

530

4SO

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Ken

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tmen

t for

the

Blin

d

Chapter V: Comparing the Commercial Vendor to A KBEP Approach

19

CHAPTER V

COMPARING THE COMMERCIAL VENDOR TO A KBEP APPROACH

Using blind vendors to run interstate vending areas is potentially as viableand acceptable an approach as using a commercial vendor. Although a majority ofstates use commercial vendors, thirteen states use some blind vendors in theirinterstate vending program. Program Review staff conducted a cost-benefitanalysis of each approach from the perspective of the blind vendors, general blindservices and the general taxpayer. Staff assumed that blind vendors would havethe same responsibilities as the existing commercial vendor and that the programwould operate in the same way as other KBEP vendors sites. If operated the sameas the KBEP vendor sites, the blind vendor option would provide employment andincome to a small group of blind vendors, but reduce funds available for generalblind services and increase costs to the general taxpayer.

Current Approach Generates $1.2 to $1.9Million for Blind Services

Table 5.1 compares the costs andbenefits for blind vendors and the generalblind services using the current commercialvendor approach. The general blindcommunity receives net benefits worth$790,000 to $1.4 million per year, becausecommercial vending commissions generatefederal dollars for the Department's GeneralBlind Services program.

Blind vendors receive net benefitsworth $450,000 to $510,000 per year. TheDepartment receives about $440,000 peryear from commercial vending commissionsto spend on KBEP vendors. These com-missions also generate $90,000 to $150,000in federal dollars for the KBEP. Together,these benefits exceed the $80,000 per yearthat the Department spends on the com-mercial vendor. The Department spends$70,000 per year for the commercial

vendor's electricity at the 27 vending sitesand $10,000 per year for a staff person tomonitor the commercial vendor contract.

KBEP Approach Would Reduce BlindServices

Program Review staff comparedthe costs and benefits of extending theKBEP blind vendor program to the interstaterest areas and its impact on blind services(see table 5.2). Because so many benefitswould go specifically to interstate vendors,staff distinguishes the costs and benefitsbetween blind vendors and the general blindservices. If the KBEP blind vendor approachwere chosen, interstate vendors wouldreceive vending machines, initial stock,management, maintenance and repairservices, as well as $590,000 in net annualincome. Altogether, blind vendor wouldreceive net annual benefits worth$930,000 the first year and $810,000


20

Table 5.1

Estimated Annual Costs and Benefits to Blind ServicesFrom Commercial Vendor Approach

TO BLIND TO GENERALC O S T S VENDORS BLIND SERVICES

UTILITIES $70,000 0

MANAGEMENT SERVICES $10,000 0

$80,000 0

B E N E F I T S

DFB COMMISSIONS GAINED $440,000 0

FEDERAL DOLLARS GAINED $90,000 - - $150,000 $790,000 - - $1,400,000

$530,000 - - $590,000 $790,000 - - $1,400,000

NET BENEFIT (COST) $450,000 - - $510,000 $790,000 - - $1,400,000

SOURCE: Compiled by Program Review staff.

thereafter. However, blind vendorswould benefit at the expense of thegeneral blind services. Unless theGeneral Assemly were to appropriatemore general funds, the DFB wouldneed to shift money away from otherprograms for the blind to pay for theequipment, supplies and services ofinterstate vendors. Table 5.2 shows thatthe General Blind Services (GBS)program could incur net costs of

$210,000 to $230,000 the first year and$90,000 to $110,000 per yearthereafter. The Department wouldassume the costs of $220,000 to$340,000 each year to cover interstatevendors' operating expenses. In return,the Department would collect about$30,000 per year in additional set-asideaccompanied by $80,000 to $100,000per year in federal matching funds.


21

Table 5.2

Estimated Annual Costs and Benefits to Blind VendorsAssuming Use of Existing KBEP Approach

TO TO GENERAL

C O S T S BLINDVENDORS

BLINDSERVICES

VENDING MACHINES $0 $100,000

INITIAL STOCK $0 $120,000 (1st yr only)REPAIR & MAINTENANCE $0 $60,000

MANAGEMENT SERVICES $0 $60,000

TOTAL FIRST YEAR $0 $340,000TOTAL SUBSEQUENT YEARS $0 $220,000

B E N E F I T S

VENDING MACHINES $100,000 $0

INITIAL STOCK $120,000 (1st yr only) $0

REPAIR & MAINTENANCE $60,000 $0

MANAGEMENT SERVICES $60,000 $0

NET INCOME GAINED $590,000 $0

SET ASIDE FOR DFB $0 $30,000

FEDERAL DOLLARS GAINED $0 $80,000 --$100,000

TOTAL FIRST YEAR $930,000 $110,000 -$130,000

TOTAL SUBSEQUENT YEARS $810,000 $110,000 -$130,000

NET BENEFIT (COST)

FIRST YEAR ONLY $930,000 ($210,000 - -$230,000)

NET BENEFIT (COST)

SUBSEQUENT YEARS $810,000 ($90,000 - -$110,000)



22

Table 5.3 compares thecommercial vendor to the blind vendorsapproach. The commercial vendor op-tion provides greater net benefits to theblind. Estimated annual net benefitsfrom the commercial vendor programrange from $1.24 million to $1.91 mil-lion, compared to $700,000 to $720,000for a blind vendor program.

This difference is due primarilyto the higher commissions from thecommercial vending approach. Com-missions are higher for two reasons.First, the commercial vendor pays theDepartment commissions based ongross income, while blind vendorsoperating under the terms of the KBEPwould pay the Department a percentageof their net income. Second, the com-mercial vendor pays a higher per-centage than blind interstate vendorswould (15.4% to 5%).

Because the Departmentreceives more money from commercialvending commissions than it would fromthe set-aside of blind interstate vendors,the commercial vendors program is ableto access more federal matchingdollars. Table 5.3 shows thatcommissions generate $880,000 to $1.5million in federal match per year. Theset-aside from blind interstate vendorswould generate $80,000 to $100,000 peryear.

Net Benefits to General Taxpayer AreGreater with Commercial Vendor

Program Review staff alsocompared the costs and benefits of bothapproaches as they relate to the impacton tax revenues. The Department forthe Blind would need to generateadditional money to implement a blindvendors option using the current KBEPapproach. The current commercial ven-dor program provides the state with

significantly more revenue commissionsand federal dollars.

Table 5.4 shows that puttingblind vendors at interstate rest stopswould require the Department to gen-erate $260,000 to $290,000 the firstyear and $140,000 to $170,000 eachsubsequent year. If a blind vendor pro-gram were implemented under theexisting KBEP approach, the Depart-ment would assume the cost of pro-viding the vendors with equipment, ser-vices and supplies worth $410,000 thefirst year and $290,000 thereafter. Inreturn, blind interstate vendors wouldset aside about $30,000 per year, whichwould generate federal matching fundsof $90,000 to $120,000 for the Depart-ment. If sufficient money were notraised through agency receipts, theGeneral Assembly would have toappropriate at least 20% of the net costsfrom a blind vendor program, in hopesthat the Department could access the4:1 federal match to make up thebalance.

With a commercial vendorprogram, Table 5.4 shows, theDepartment receives over $500,000 incommissions. These commissions, to-gether with the federal matching dollars,provide state government with $1.5 to$2.3 million per year. In addition, thestate government receives about$130,000 in sales and corporate taxrevenue from the private commercialvendor. The Revenue Cabinet pointsout that blind vendor purchases areexempt from state sales taxes. Unlikethe pri-vate vendor, blind vendors wouldbe unlikely to owe any corporate taxes.Altogether, the commercial vendor pro-gram provides net benefits to the stategovernment worth $1.58 to $2.36 millionper year.


23

Table 5.3Estimated Annual Costs and Benefits

to the Blind UsingKBEP Approach vs. Commercial Vendor Approach

KBEP BLIND COMMERCIALC O S T S VENDORS APPROACH VENDOR APPROACH

UTILITIES $0 $70,000

MANAGEMENT SERVICES $0 $10,000

$0 $80,000

B E N E F I T S

NET VENDOR INCOME GAINED $590,000 $0

DFB COMMISSIONS GAINED $0 $440,000

DFB SET ASIDE GAINED $30,000 $0

FEDERAL DOLLARS GAINED $80,000 - -$100,000 $880,000 - -$1,550,000

$700,000 - - $720,000 $1,320,000 - - $1,990,000

NET BENEFIT (COST) $700,000 - - $720,000 $1,240,000 - -$ 1,910,000


KBEP Approach Enhanced by RaisingSet-Aside

If the DFB operated a blindinterstate vendor program in the samemanner as the KBEP, both the stategovernment and general blind serviceswould be negatively affected. The Gen-eral Assembly would need to appro-priate additional money to maintain cur-rent services to the blind. One way toincrease benefits to the state andgeneral blind services and stay with theblind vendors approach is to raise set-aside levels in the KBEP, using agraduated scale. Many other options arepossible.

Table 5.5 shows the effects ofraising the current 5% set-aside level anadditional .5 percent for every $1,000each vendor earns in annual net incomeover $19,000. For example, a blind ven-dor with an annual net income of$20,000 would pay the Department a5.5% set-aside, a vendor with $21,000

would pay a 6% set-aside, and so on(see Table 5.6). Other states, such asTexas and North Carolina, use multipleset-aside levels, and this method hasbeen approved by the RehabilitationServices Administration.

Under this scenario, theDepartment for the Blind would receivean additional $270,000 from morelucrative stands. The Department, inturn, could use this money to secure$900,000 to $1.2 million in federalmatching funds to help blind vendorsand the general blind community.While not as beneficial to the stategovern-ment as a commercial vendorprogram, a blind vendors programtogether with higher set-aside levels forvendors with higher income, translatesinto $790,000 to $1.01 million for thestate government in the first year and$910,000 to $1,130,000 per yearthereafter.


24

Table 5.4

Estimated Annual Costs and Benefitsto State Government

KBEP BLIND COMMERCIALC O S T S VENDORS

APPROACHVENDOR

APPROACHVENDING MACHINES $100,000 $0

INITIAL STOCK $120,000 (1ST YRONLY)

$0


MANAGEMENT SERVICES $60,000 $10,000

UTILITIES $70,000 $70,000

TOTAL FIRST YEAR $410,000 $80,000TOTAL SUBSEQUENTYEARS

$290,000 $80,000

B E N E F I T S

DFB COMMISSION GAINED $0 $510,000

DFB SET-ASIDE GAINED $30,000 $0

FEDERAL MATCHINGFUNDS

$90,000 - - $120,000 $1,020,000 - -$1,800,000

TAX REVENUE GAIN $0 $130,000

$120,000 - - $150,000 $1,660,000 - -$2,440,000

NET BENEFIT (COST)

FIRST YEAR ONLY ($260,000 - - $290,000) $1,580,000 - - $2,360,000

NET BENEFIT (COST)

SUBSEQUENT YEARS ($140,000 - - $170,000) $1,580,000 - -$2,360,000



25

Table 5.5

Estimated Annual Costs and Benefitsto State Government

KBEP BLIND COMMERCIALCOSTS VENDORS

APPROACH (A)VENDOR APPROACH

VENDING MACHINES $100,000 $0

INITIAL STOCK $120,000 (1ST YEARONLY)

$0


MANAGEMENT SERVICES $60,000 $10,000

UTILITIES $70,000 $70,000

FIRST YEAR $410,000 $80,000SUBSEQUENT YEARS $290,000 $80,000

B E N E F I T S

DFB COMMISSIONSGAINED

$0 $510,000

FEDERAL SET ASIDEGAINED

$300,000 $0

FEDERAL DOLLARSGAINED

$900,000 - - $1,200,000 $1,020,000 - - $1,790,000

TAX REVENUE GAIN $0 $130,000

$1,200,000 - - $1,500,000 $1,660,000 - - $2,440,000

NET BENEFIT (COST)

FIRST YEAR $790,000 - - $1,010,000 $1,580,000 - - $2,360,000

NET BENEFIT (COST)

SUBSEQUENT YEARS $910,000 - - $1,130,000 $1,580,000 - - $2,360,000


(A) In this scenario, Randolph-Sheppard blind vendors pay different set-asides according to how much they earn. For every$1,000 each vendor earns in annual net income ove $19,000, he pays an additional .5 percent in set-aside over the normal 5percent. For example, a vendor who earns $20,000 per year would reimburse DFB 5.5 percent of net proceeds, a vendor whoearns $21,000 would reimburse DFB 6 percent, and so on.


26

Table 5.6Estimated Annual State Government Revenue from Blind Vendors,

Using a Sliding Scale Set-Aside (A)

VENDOR SET- SET- VENDOR SET- SET- INTER- VENDOR SET- SET-KBEP NET ASIDE ASIDE KBEP NET ASIDE ASIDE STATE NET ASIDE ASIDE

VENDOR

INCOME LEVEL PAYMENT VENDOR INCOME LEVEL PAYMENT

VENDOR

INCOME LEVEL PAYMENT

1 $1,680 5.00% $84 37 $26,239 8.50% $2,230 1 $211 5.00% $112 $3,281 5.00% $164 38 $28,235 9.50% $2,682 2 $2,335 5.00% $1173 $5,944 5.00% $297 39 $28,783 9.50% $2,734 3 $3,422 5.00% $1714 $8,023 5.00% $401 40 $28,783 9.50% $2,734 4 $5,542 5.00% $2775 $8,236 5.00% $412 41 $29,660 10.00% $2,966 5 $8,889 5.00% $4446 $8,287 5.00% $414 42 $29,660 10.00% $2,966 6 $10,100 5.00% $5057 $9,206 5.00% $460 43 $31,946 11.00% $3,514 7 $10,651 5.00% $5338 $9,307 5.00% $465 44 $32,293 11.50% $3,714 8 $11,550 5.00% $5789 $9,549 5.00% $477 45 $33,000 12.00% $3,960 9 $12,892 5.00% $64510 $9,642 5.00% $482 46 $34,862 12.50% $4,358 10 $18,181 5.00% $90911 $10,229 5.00% $511 47 $35,000 13.00% $4,550 11 $18,536 5.00% $92712 $10,479 5.00% $524 48 $35,000 13.00% $4,550 12 $19,419 5.00% $97113 $11,021 5.00% $551 49 $40,566 15.50% $6,288 13 $21,700 6.00% $1,30214 $13,230 5.00% $662 50 $40,566 15.50% $6,288 14 $22,158 6.50% $1,44015 $14,006 5.00% $700 51 $40,600 15.50% $6,293 15 $22,418 6.50% $1,45716 $14,317 5.00% $716 52 $42,168 16.50% $6,958 16 $22,452 6.50% $1,45917 $14,620 5.00% $731 53 $42,168 16.50% $6,958 17 $23,605 7.00% $1,65218 $14,661 5.00% $733 54 $42,189 16.50% $6,961 18 $27,998 9.00% $2,52019 $14,852 5.00% $743 55 $42,189 16.50% $6,961 19 $29,310 10.00% $2,93120 $15,228 5.00% $761 56 $42,494 16.50% $7,012 20 $34,341 12.50% $4,29321 $16,048 5.00% $802 57 $45,653 18.00% $8,218 21 $34,566 12.50% $4,32122 $16,048 5.00% $802 58 $45,653 18.00% $8,218 22 $37,500 14.00% $5,25023 $16,204 5.00% $810 59 $45,653 18.00% $8,218 23 $42,025 16.50% $6,93424 $16,331 5.00% $817 60 $48,758 19.50% $9,508 24 $47,550 19.00% $9,03425 $16,331 5.00% $817 61 $48,939 19.50% $9,543 25 $61,223 26.00% $15,91826 $17,445 5.00% $872 62 $49,590 20.00% $9,918 26 $62,386 26.50% $16,53227 $17,925 5.00% $896 63 $53,669 22.00% $11,80728 $18,589 5.00% $929 64 $53,669 22.00% $11,80729 $18,813 5.00% $941 65 $53,669 22.00% $11,80730 $20,304 5.50% $1,117 66 $54,539 22.50% $12,27131 $21,474 6.00% $1,288 67 $58,386 24.50% $14,30532 $21,474 6.00% $1,288 68 $61,538 26.00% $16,00033 $22,183 6.50% $1,442 69 $62,346 26.50% $16,52234 $24,359 7.50% $1,827 70 $62,346 26.50% $16,52235 $24,359 7.50% $1,827 71 $62,346 26.50% $16,52236 $25,598 8.00% $2,048 72 $70,179 30.50% $21,405

SUB TOTALS $326,079 $81,130TOTA

L$407,209

(A) Revenue from the set-asides of the 72 vendors at 56 KBEP vending sites and 25 vendors at 27 interstate rest stops. Each vendor would pay5% of net-proceeds, plus an additional .5% for every $1,000 in net earnings over $19,000.

SOURCE: Compiled by Program Review staff from data received from DFB.

Chapter VI: Conclusions and Recommendations

29

CHAPTER VI

CONCLUSIONS AND RECOMMENDATIONS

After several months of study, Program Review staff came up with tworecommendations regarding Kentucky's interestate vending program. The firstrecommendation is programmatic and the second is administrative.

Blind Vendor Preference

State policy and intent support the use of blind vendors. Although Kentucky lawdoes not specifically require the use of blind vendors at the interstate rest stops, thelaw does include a preference for blind vendors in state buildings and state owned,leased or occupied property. GOPM documentation and statements made by DFBofficials reveal that as early as 1985, the DFB was planning to develop a blind vendorprogram. However, due to an executive policy change, the DFB continues to use acommercial vendor.

Advocates suggest strengthening Kentucky's preference for blind vendors byconnecting the interstate vending program directly with the Kentucky BusinessEnterprise Program (KBEP), and thus mandating the use of blind vendors at these restareas. However, employing blind vendors to operate these vending sites in the samemanner as the KBEP sites would result in a loss of funds to the general blindcommunity and added cost to the Kentucky taxpayer.

Employing blind vendors should not be at the expense of the General BlindServices Program or the state's general fund. An interstate blind vendors' programshould be comparable to the current commercial contract. The Transportation Cabinet,which has authority over interstate vending, wants vending services to be contractedout to a commercial firm or to blind vendors. The DFB could use blind vendorsexclusively or in conjunction with private commercial vendors.


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RECOMMENDATION 1: DFB Should Work with Blind Vendors toDevelop Viable Interstate Vending Programs forBlind Vendors

The Department for the Blind and blind vendor community, in conjunction withmembers of the general blind community should develop a viable plan prior to therenewal of current commercial contract, to permit blind vendors to bid for all orpart of the existing vending sites. This plan should not result in a loss of federalfunds and should not require more General Assembly funds.

The committee added language to the original staff recommendation to protectthe Commonwealth from losing federal and state government funds. The staffrecommendation did not include such conditions.

Auditing of Existing Contract

Both the 1985 contract and the 1992 contract require an annual internal audit ofthe commercial vendor, paid for by the vendor. The auditor is chosen by theTransportation Cabinet and the Department. According to the Department, only twoaudits have been done since 1985. The audits cover the following periods: 1) July1987 - June 1988, 2) July 1988 - September 1990.

The first audit report, dated October 5, 1988, included the following threefindings. First, the company was unable to implement the computerized coinmechanism required in the state contract. Second, many machines were not equippedwith recorded meter counters. Finally, the meter counts on the vending machines couldnot be relied on for actual vending sales.

The second audit, dated February 19, 1991, found that the reported sales andcommission figures were accurate. However, the auditor stated that since no cost-effective technology exists to record sales made by vending machines, his procedurewas limited to testing machine receipts actually deposited by Quatros. At the presenttime, another internal audit is being conducted. Quatros' current contract requirescomputerized, non-resettable total cash sales counters, which should resolve theseproblems.

Chapter VI: Conclusions and Recommendations

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RECOMMENDATION 2: Ensure Contract Compliance With AnnualInternal Audit Requirement.

The Department for the Blind and the Transportation Cabinet should ensure thatthe required internal audit of the commercial vendor is conducted annually at theend of the federal fiscal year.

Chapter VII: Committee Action

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CHAPTER VII

COMMITTEE ACTION

Program Review and Investigations Committee staff presented the draft reporton the Kentucky Department for the Blind's Interstate Vending Program on August 17,1992. The Committee discussed the report, and state agencies, as well as otherinterested parties, testified at this meeting. Recommendation 1 was adopted asamended. Recommendation 2 was adopted.

At its September 14, 1992 meeting, the committee adopted the staff report, asamended, for submission to the Legislative Research Commission.

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APPENDIX

Appendix

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APPENDIX

HISTORY OF THE INTERSTATE VENDING CONTRACTIN KENTUCKY

January 6, 1983 Surface Transportation Assistance Act of 1982became law.

1983 - 1984 During the Brown Administration, theTransportation Cabinet refused to enter into anagreement with the Department for the Blind.

December 8, 1983 Quatros was incorporated as a Kentuckycorporation.

April 17, 1984 During the Collins Administration, theTransportation Cabinet entered into an agreementwith the Department for the Blind.

May 7, 1984 Competitive sealed bids were invited from vendingcompanies for the establishment of an interstatevending program. Only Pendleton BrothersVending, Inc. and Quatros, Inc. submitted bids.

June 4, 1984 All bids were rejected. The reason given was thatthe level of competition desired for theprocurement had not been achieved. Later thereason given was that specifications could not bewritten to provide the evaluations necessary toplace this contract by competitive sealed bids.

Quatros bid 12% and Pendleton Brothers Vendingbid 15.4%.

March 7, 1985 Request for Proposal (RFP) SR-1724-T-85,entitled Vending Service for Interstate HighwayRest Areas, was advertised. This RFP called foran evaluation by 5 persons. If the technicalproposal did not receive an average of 75 points,the accompanying cost proposal would not beconsidered.


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This procedure is known as competitivenegotiation.

June 27, 1985 The contract was awarded to Quatros,Incorporated, of Dry Ridge, Kentucky.

Only Quatros received at least a minimumaverage score of 75 points, the minimum required.

July 3, 1985 The price contract with Quatros, Inc was signedfor a 4-year contract with a 2-year renewal option.The duration of the contract was from July 3, 1985to July 2, 1989.

Section A Commission Rate 13.1%Section B Commission Rate 12.7%

July 9, 1985 Pendleton Brothers protested the awarding of thecontract.

September 27, 1985 The Finance and Administration Cabinet decidedagainst Pendleton Brothers.

October 14, 1985 A lawsuit was filed in Franklin Circuit Court:Pendleton Brothers v. Finance and AdministrationCabinet, Transportation Cabinet, Department forthe Blind and Quatros, Inc.

July 15, 1986 Franklin Circuit Court Judge Graham grantedsummary judgment in favor of the defendants,Finance and Administration Cabinet, et al. TheFranklin Circuit Court held that a disappointedbidder lacks standing to file an action contestingthe award of a public contract to anothercompany.

June 30, 1988 The Supreme Court of Kentucky reversed thecircuit court decision. Under the modelprocurement code, unsuccessful bidders on statecontracts can challenge a contract award ongrounds other than fraud or mistake, such aspolitical patronage. The determination of theprotest was final for administrative purposes, butdid not preclude judicial review. Although the

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allegations in this complaint were inartfully drawn,they were sufficient to state a cause of action.Summary judgment was inappropriate here.Pendleton Brothers v. Finance & AdministrationCabinet, et al, Ky., 758 S.W. 2d 24 (1988).

July 28, 1989 An agreed order was entered in Franklin CircuitCourt dismissing Pendleton Brothers v. FinanceCabinet, et al.

April 1990 The 2-year renewal option was exercised. Thecommission was raised to 13.1% for Section B.

July 3, 1991 Request for Proposal (RFP) SR-73-T-92, entitledVending Service for Interstate Highway RestAreas, was advertised. This RFP called for anevaluation by 5 persons. If the technical proposaldid not receive a minimum average of 75 points,the accompanying cost proposal would not beconsidered.

December 3, 1991 The contract was again awarded to Quatros, Inc.

Quatros bid 15.4% for both geographic parts.Other bids were:

1. Seivers Vending Services 16.83%2. Pendleton & Ruschival 17.8% (B only)3. Kentuckiana Food Service 14.2%4. Canteen Corporation 21.8%5. Service America Corp. 18%Only Quatros received an average score of 75points for its technical proposal. Therefore, onlyQuatros' cost proposal was acceptable.

December 5, 1991 Canteen Corporation protested the awarding ofthe contract.

December 30, 1991 Pendleton Brothers protested the awarding of thecontract.

January 3, 1992 The Finance and Administration Cabinet decidedagainst Canteen Corporation.


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January 6, 1992 The Finance and Administration Cabinet decidedagainst Pendleton & Ruschival.

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