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March 4, 1999 RR-2998
TREASURY DEPUTY ASSISTANT SECRETARY (GOVERNMENT FINANCIAL POLICY) LEWIS A. SACHS HOUSE SUBCOMMITTEE ON THE POSTAL SERVICE
Chairman McHugh and distinguished Members of the Subcommittee,
I am
pleased to have the opportunity to submit this written statement on behalf of the
Treasury
Department with respect to H.R. 22, the "Postal Modernization Act of 1999."
The financial provisions in Title II of the current version of H.R. 22 are similar to
those in earlier versions of the bill, which Treasury reviewed in letters dated September
24 and
April 10, 1998. These provisions would segregate the finances and operations of the
Postal
Service into three distinct components: (1) Non-Competitive Postal, which would
continue to
be financed through the existing Postal Service Fund; (2) Competitive Postal, which
would be
financed through a newly created Competitive Products Fund in the Treasury; and (3)
Non-
Postal, which would be financed by a newly created corporation, the shares of which
would be
owned by the Competitive Products Fund.
The current bill includes new provisions designed to strengthen the proposed fire
walls
between the three proposed Postal Service components and to minimize the risks
posed by the
Competitive Products Fund. For example, under the bill, the proposed Competitive
Products
Fund would no longer be authorized to borrow from the Postal Service Fund. In
addition, the
Postal Service would be required to submit to the Secretary of the Treasury and the
proposed
new Postal Regulatory Commission an annual report that would address such matters
as risk
limitations, reserve balances, allocations of monies, liquidity requirements, and
measures to
safeguard against losses.
While we support the new provisions and appreciate the Subcommittee's efforts to
address Treasury's concerns, we continue to object to the financial provisions in Title II
of the
bill. Our concerns are as follows:
- Borrowing. H.R. 22 would permit the Postal Service to
borrow money for its Competitive Products Fund from the market, rather than
continuing to borrow from the Federal Financing Bank (FFB). We object to this
provision because we believe it would result in increased borrowing costs to the
Postal
Service. In accordance with longstanding Federal financial policies, Federal entities,
such as the Postal Service, should borrow solely from the Treasury or the FFB
because
that is the least expensive, most efficient method of financing such debt. In fact, we
have been receiving very positive feedback from the Postal Service about its
borrowing
relationship with the FFB.
- Investment. The bill would permit the Postal Service to
borrow on behalf of the Competitive Products Fund from the market at preferential
rates due to perceived Government backing of the debt. The Competitive Products
Fund could then invest any excess monies in the "Non-Postal" corporation; that
corporation, in turn, could then invest in individual private companies. This scenario
ultimately would allow the Postal Service to borrow at preferential rates and invest at
potentially higher rates. Although the bill attempts to limit investment in private
equities to the Non-Postal corporation, the corporation's ownership by the
Competitive
Products Fund and its financial links to the Postal Service create a situation in which
the increased risks undertaken by the Non-Postal corporation could ultimately be
borne
by taxpayers.
- Banking. The bill would permit the Postal Service to deposit
funds from the Competitive Products Fund outside of the Treasury, without the
Secretary of the Treasury's approval. In addition, the Postal Service would be
permitted to move its funds in and out of the Competitive Products Fund at its sole
discretion. Under existing law, the Postal Service banks at the Treasury and may
not
deposit funds outside of the Treasury without the Secretary of the Treasury's
approval.
As a matter of sound Government fiscal policy, this arrangement is necessary to
allow
centralized management of the Government's cash balances. If the financial
exemptions
and privileges proposed for the Postal Service were to become a precedent for all
Federal agencies, Treasury's borrowing costs would be increased, and its cash
management and forecasting abilities would be weakened. The Postal Service
provisions cannot be considered in isolation. If other Federal entities were granted
similar authorities as sought for the Postal Service, the adverse consequences on
Treasury's management of Government funds would be severe. Additionally, the
financing costs borne by those entities would be greater.
- Non-Postal Corporation. Although the bill classifies the new
Non-Postal corporation as a private corporation, we view that entity as an on-budget
Federal agency. As such, it should be required to borrow, bank, and invest with the
Treasury and should be subject to the Federal oversight and regulations that govern
such agencies. The Non-Postal corporation should be viewed as a Federal agency
because it would be solely owned by the Competitive Products Fund, and thereby,
would have strong links to the Postal Service, which is a Government entity. (Non-
Governmental ownership is not contemplated for the corporation.) Moreover, the
Non-
Postal corporation would have a Federal charter and would be authorized to conduct
postal business, which is perceived as a Governmental function.
In conclusion, Treasury cannot support the financial provisions in Title II of H.R.
22,
as they are currently drafted. However, we look forward to working closely with the
Subcommittee and the Postal Service to find ways to resolve our concerns with these
provisions.
The Office of Management and Budget has advised that there is no objection from
the
standpoint of the Administration's program to the presentation of this statement.
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