<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:57558.wais]
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON THE POSTAL SERVICE
of the
COMMITTEE ON GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 22
TO MODERNIZE THE POSTAL LAWS OF THE UNITED STATES
----------
FEBRUARY 11, AND MARCH 4, 1999
----------
Serial No. 106-16
----------
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/
reform ------
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON THE POSTAL SERVICE
of the
COMMITTEE ON GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 22
TO MODERNIZE THE POSTAL LAWS OF THE UNITED STATES
__________
FEBRUARY 11, AND MARCH 4, 1999
__________
Serial No. 106-16
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
57-558 WASHINGTON : 1999
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, California
THOMAS M. DAVIS, Virginia PATSY T. MINK, Hawaii
DAVID M. McINTOSH, Indiana CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, Washington,
JOE SCARBOROUGH, Florida DC
STEVEN C. LaTOURETTE, Ohio CHAKA FATTAH, Pennsylvania
MARSHALL ``MARK'' SANFORD, South ELIJAH E. CUMMINGS, Maryland
Carolina DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida DANNY K. DAVIS, Illinois
ASA HUTCHINSON, Arkansas JOHN F. TIERNEY, Massachusetts
LEE TERRY, Nebraska JIM TURNER, Texas
JUDY BIGGERT, Illinois THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Postal Service
JOHN M. McHUGH, New York, Chairman
MARSHALL ``MARK'' SANFORD, South CHAKA FATTAH, Pennsylvania
Carolina MAJOR R. OWENS, New York
BENJAMIN A. GILMAN, New York DANNY K. DAVIS, Illinois
STEVEN C. LaTOURETTE, Ohio
DAN MILLER, Florida
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Robert Taub, Staff Director
Heea Vazirani-Fales, Counsel
Abigail Hurowitz, Clerk
Denise Wilson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on:
February 11, 1999............................................ 1
March 4, 1999................................................ 303
Text of H.R. 22.............................................. 2
Statement of:
Biller, Moe, president, American Postal Workers Union, AFL-
CIO; Vince Sombrotto, president, National Association of
Letter Carriers; William Quinn, president, National Postal
Mail Handlers Union, AFL-CIO; and Steve Smith, president,
National Rural Letter Carriers Association................. 253
Carrico, Ted, president, National Association of Postmasters
of the United States; Joe Cinadr, president, National
League of Postmasters of the United States; and Ted
Keating, vice president, National Association of Postal
Supervisors................................................ 215
Cerasale, Jerry, senior vice president, Government Affairs
Direct Marketing Association, Inc., on behalf of the
Mailers Coalition for Postal Reform; Neal Denton, executive
director, Alliance of Nonprofit Mailers; and Robert ``Kam''
Kamerschen, on behalf of the Saturation Mailers Coalition.. 372
Estes, John T., executive director, Main Street Coalition for
Postal Fairness, accompanied by John F. Sturm, Newspaper
Association of America; Lee Cassidy, National Foundation;
David Stover, the Greeting Card Association; Guy Wendler,
American Business Press; Kenneth B. Allen, National
Newspaper Association; and Charmaine Fennie, chairperson,
Coalition Against Unfair USPS Competition.................. 428
Gleiman, Edward J., postal rate chairman, accompanied by W.H.
``Trey'' LeBlanc, vice chairman; George A. Omas,
commissioner; Ruth Y. Goldway, commissioner; and Dana B.
``Danny'' Covington, commissioner.......................... 129
Henderson, William, Postmaster General, accompanied by Mary
S. Elcano, senior vice president and general counsel, U.S.
Postal Service............................................. 68
Patterson, Donna E., Deputy Assistant Attorney General of the
Antitrust Division, Department of Justice.................. 313
Smith, Fred, chairman and chief executive officer, FDX Corp.;
and James Kelly, chairman and chief executive officer,
United Parcel Service...................................... 335
Letters, statements, etc., submitted for the record by:
Allen, Kenneth B., National Newspaper Association, prepared
statement of............................................... 519
Biller, Moe, president, American Postal Workers Union, AFL-
CIO, prepared statement of................................. 256
Burton, Hon. Dan, a Representative in Congress from the State
of Illinois, prepared statements of...................... 54, 327
Carrico, Ted, president, National Association of Postmasters
of the United States:
Additional questions and responses....................... 242
Prepared statement of.................................... 218
Cassidy, Lee, National Foundation, prepared statement of..... 484
Cerasale, Jerry, senior vice president, Government Affairs
Direct Marketing Association, Inc., on behalf of the
Mailers Coalition for Postal Reform, prepared statement of. 376
Cinadr, Joe, president, National League of Postmasters of the
United States:
Additional questions and responses....................... 251
Prepared statement of.................................... 224
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 239
Denton, Neal, executive director, Alliance of Nonprofit
Mailers, prepared statement of............................. 384
Disbrow, William B., president and CEO, Cox Target Media,
Inc., prepared statement of................................ 539
Dzvonik, Michael, chairman, Mail Advertising Service
Association International, prepared statement of........... 534
Estes, John T., executive director, Main Street Coalition for
Postal Fairness:
Additional questions for the record...................... 468
Prepared statement of.................................... 431
Fattah, Hon. Chaka, a Representative in Congress from the
State of Pennsylvania, prepared statement of............... 59
Fennie, Charmaine, chairperson, Coalition Against Unfair USPS
Competition, prepared statement of......................... 445
Gilman, Hon. Benjamin A., a Representative in Congress from
the State of New York, prepared statement of............... 62
Gleiman, Edward J., postal rate chairman:
Additional questions and responses....................... 194
Prepared statement of.................................... 131
Goldway, Ruth Y., commissioner, prepared statement of........ 173
Henderson, William, Postmaster General:
Additional questions and responses....................... 93
Information concerning advertising....................... 87
Prepared statement of.................................... 71
Kamerschen, Robert ``Kam'', on behalf of the Saturation
Mailers Coalition:
Additional questions for the record...................... 418
Prepared statement of.................................... 395
Kelly, James, chairman and chief executive officer, United
Parcel Service, prepared statement of...................... 355
McFadden, Nancy E., U.S. Department of Transportation,
prepared statement of...................................... 558
McHugh, Hon. John M., a Representative in Congress from the
State of New York:
Prepared statement of.................................. 47, 306
Prepared statement of Lewis Sachs........................ 310
Palladino, Vince, president, National Association of Postal
Supervisors, prepared statement of......................... 228
Patterson, Donna E., Deputy Assistant Attorney General of the
Antitrust Division, Department of Justice:
Additional questions for the record...................... 330
Prepared statement of.................................... 316
Quinn, William, president, National Postal Mail Handlers
Union, AFL-CIO, prepared statement of...................... 283
Smith, Fred, chairman and chief executive officer, FDX Corp.:
Additional questions for the record...................... 368
Prepared statement of.................................... 337
Smith, Steve, president, National Rural Letter Carriers
Association:
Additional questions and responses....................... 295
Prepared statement of.................................... 289
Sombrotto, Vince, president, National Association of Letter
Carriers, prepared statement of............................ 269
Stover, David, the Greeting Card Association, prepared
statement of............................................... 501
Sturm, John F., Newspaper Association of America, prepared
statement of............................................... 477
Wendler, Guy, American Business Press, prepared statement of. 515
Williamson, Robert C., president, Willmar Associates
International Inc., prepared statement of.................. 560
H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
----------
THURSDAY, FEBRUARY 11, 1999
House of Representatives,
Subcommittee on the Postal Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2154, Rayburn House Office Building, Hon. John M. McHugh
(chairman of the subcommittee) presiding.
Present: Representatives McHugh, Gilman, LaTourette,
Burton, Fattah, and Davis of Illinois.
Staff present: Robert Taub, staff director; Heea Vazirani-
Fales, counsel; Abigail Hurowitz, clerk; Jane Hatcherson,
legislative assistant; Denise Wilson, minority professional
staff member; and Jean Gosa, minority administrative staff
assistant.
Mr. McHugh. The Subcommittee on the Postal Service will
come to order. I would tell you this is the answer of my
dreams. Every night I wake up and dream I'm sitting here and
Chairman Burton's down there. And it's finally come true.
Let me welcome you here this morning to the first hearing
of this subcommittee for the 106th Congress. I am happy to note
that, with one exception, virtually all of the members of last
year's Congress have remained on this subcommittee. Some cynics
amongst you might suggest that's the legislative equivalent of
life without parole. I would suggest, however, that it is a
tribute to the work of this subcommittee and a tribute as well
to the cooperative effort that we, in my opinion, have enjoyed
now for some time.
To say that the purpose of our meeting here this morning is
well stated would be an overstatement. If nothing else, the
bill we're considering this morning, H.R. 22, is mature. I will
not bore all of you with a recitation once again of what I feel
are its main provisions, if not its main attractions.
[The text of H.R. 22 follows:]
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Mr. McHugh. We have four panels this morning and in all
likelihood into this afternoon. Like all of you, we are here to
listen to them and to review their comments. I would ask
unanimous consent that my prepared statement be entered into
the record in its entirety, as I would also ask unanimous
consent that all Members have that opportunity to do so, as
well.
[The prepared statement of Hon. John M. McHugh follows:]
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Mr. McHugh. We have today, as I said, four panels. Our lead
panelist, of course, is the distinguished Postmaster General of
the United States, William Henderson. This is the PMG's first
appearance for this year and we're welcoming him once again.
And, of course, our continued best wishes.
We also have, on our second panel, the Postal Rate
Commission members led by its chairman, Edward Gleiman, and
five of its members. I will extend to him the honor of
introducing them at the appropriate time. Our third and fourth
panels will be comprised of the Postal Service's three
management associations and its four major unions.
I also wish to state that there is a need to clear the air
in one regard with what appears to be some confusion about this
bill, as we may hear from one of the witnesses on a later
panel.
As the Postmaster General will point out in his testimony,
and I know this because I've read it as I've read all of the
pre-prepared testimony, a price cap replaces cost of service
regulation with an incentive-based regulatory system. However,
because of a few provisions of H.R. 22 being adopted from the
Federal Communications' experience with incentive regulations,
some in the postal community have suggested that this bill,
H.R. 22, is the same thing as telecom reform, or even the
breakup of AT&T, or equivalent to deregulation of such sectors
as the aviation industry.
Comparison has been made, in my opinion, to suggest, albeit
subtly, that the negative effects of some of those efforts will
somehow be felt again, if and when we modernize our Nation's
postal laws. I want to state that I believe that analogy is
certainly inaccurate and, I would argue, it's rather illogical
as well.
H.R. 22 is not about breaking up the Postal Service as the
courts required in the case of AT&T. Nor is it about trying to
force competition into the postal and delivery sectors as
Congress did indeed attempt to do when it deregulated both the
airline industry and the telecom industry.
The Postal Service is already fiercely competitive. I think
all of us understand that. H.R. 22 simply recognizes that we
will doom the Postal Service to failure unless we act to update
our Nation's laws so that the Service can adapt, compete, grow
and survive in carrying out its universal service mission well
into the 21st century.
And it will take some time for the Postal Service to adapt,
even if H.R. 22 were enacted today, and I don't believe we're
going to do that, are we? No, not today. But even if that were
the case, it would set into motion a series of reforms that
would probably not be fully implemented until some time in the
year 2007, which would be the end of the first 5-year rate
cycle.
Those who support amendments or alternatives to H.R. 22
must, I think, keep those kinds of timeframes in mind.
Certainly reasoned and gradual change is the friend of all who
wish to see a healthy and efficient Postal Service into the
next century.
So with that little editorialization aside, again, I
welcome you all. Before I yield to my friend from the great
State of Pennsylvania, the ranking minority member, I would
like to yield to the chairman of the full committee, the
gentleman from Indiana, Mr. Burton, for any comments he may
wish to make, and certainly with our appreciation for his
joining us here this morning. Mr. Chairman.
Mr. Burton. Thank you, Chairman McHugh. First of all I want
to congratulate you and thank you for all the hard work you and
the ranking member have done over the past 4 years to bring
this bill to this point. I don't know of anybody else in the
Congress who would have liked to have done this job.
I'm not sure that you really wanted to do it but you've
done an outstanding job, and it's a real testimony to you. And
I hope your constituents are watching because they ought to
know how hard you worked on this as well.
This bill is a very important bill. And it's one that I'm
particularly interested in. That's why I decided to be a co-
sponsor with Chairman McHugh. I'd like to first state that
although a lot of the provisions in the bill are extremely
good, nothing is in concrete. It's still a fairly fluid
document although we're probably going to use 90 percent of it.
But I've met with Chairman McHugh and some other people
from other areas of the postal community and private sector and
they still have some differences of opinion. I understand that
there may be as many as 75 to 100 or maybe more amendments. We
hope to pare that down. But over the next few weeks, we're
going to be meeting again and Chairman McHugh is going to bring
me up to date, because I'm not as conversant with this subject
as I want to be before we bring it to the full committee.
I'm going to try to make sure that we accommodate as many
people as possible. There needs to be level playing field so
that the private sector and the Postal Service can compete
fairly with one another, and there is still some concern about
that.
Last year the then Postmaster came to see me about the
postal rates and the rate increase that was about to take
place. And just to let you know that our committee does not
have the latitude that I would like for it to have, I told him
that I thought the 1 cent increase in the price of postage was
not necessary, because there had been over $1 billion in black
ink in the previous financial statement by the Postal Service
and last year was well over $500 million. And we didn't think a
postal rate increase was necessary.
Nevertheless, the Postal Rate Commission didn't agree with
us and they went ahead and increased that. Those are some of
the concerns that we've had in the past and although this bill
doesn't address them, it's one of the things that I'm concerned
about in the future. That's why I'm particularly concerned
about this one provision that you were talking about just a few
moments ago.
Let me just make sure I cover all my notes. I don't think I
want to go into all the details that may be of concern to me in
the bill because I think most of you are familiar with those.
But I think in the next 10 years or so we're going to see a
radical change in the way we communicate with one another.
Faxes have become a way of life, e-mails have become a way
of life. And unless we come out with something that realizes
that fact, we're going to have rates going up in the Postal
Service, because people will be shifting into these electronic
means of communication and the Service may suffer as a result
of that.
These are things that have to be addressed, so that while
communication moves into the 21st century we're still providing
the best service for the people of this country at the lowest
possible cost.
I'd like to submit, Mr. Chairman, my entire statement for
the record, but I want all of those interested parties to know
that Chairman McHugh has asked me to sit down with him, and
I've asked him to sit down with me and interested members of
the various communities who are interested in this bill to talk
about some final changes that might fine tune this bill to make
it even better than it already is. And we're going to be
working very hard to make sure that's accomplished in the next
few weeks.
But let me just say one more time that I don't know of
anybody in the Congress that could have done as good a job as
Chairman McHugh has over the past 4 years, with all the
interested parties and all the diverse opinions on how this
ought to be done, than he has. And so I want to congratulate
him once again and tell him I'm very proud of him and I look
forward to working with him to get the final product completed.
Thank you.
[The prepared statement of Hon. Dan Burton follows:]
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Mr. McHugh. Well, thank you, Mr. Chairman. I deeply
appreciate those kind comments. We've had a lot of great help,
a lot of support on both sides on the aisle. And particularly,
Mr. Chairman, with your leadership and your input and
assistance, we've come a long way and I thank you for that.
With that it's my pleasure now to yield to the gentleman from
Pennsylvania, Philadelphia, PA, to be specific, the ranking
minority member, Chaka Fattah.
Mr. Fattah. Thank you, Mr. Chairman. And to the full
committee chairman, it is, I think for all of us an important
step as we approach the possibility of a mark-up on H.R. 22.
Postal reform is something, as Chairman Burton has mentioned,
and also the chairman of this subcommittee has made it very
clear is important to a number of the stakeholders who are in
this room and who we will be hearing from today, both the
unions and the others who are involved in the implementation of
postal service.
We have mailers and we have private sector competitors to
the Postal Service. But there is, in the final analysis,
another group of shareholders who won't be directly represented
in the testimony today that we need to keep uppermost in our
mind, and that is the citizenry of our country who depend every
day on the U.S. Postal Service to provide a universal service
to them. They, above and beyond the other stakeholders should
be the focus of our efforts at reform.
I know that for my good friend, the gentleman from New
York, that this will be a central focus of our work as we go
forward. And that we do want to ease any unfair burden on those
who are private sector participants in this process. But we
cannot assume something that is not the case, and that is that
they somehow are in the same business as the U.S. Postal
Service.
There is only one U.S. Postal Service, there is only one
entity with the burden and the responsibility given to them by
the Congress to deliver mail anywhere in this country,
notwithstanding the economics of it, and to do that in an
efficient and an effective manner. So I want to thank the
Postmaster General, who we will hear from, for his leadership.
He is doing an excellent job and also keeping us informed as it
relates to his work.
I want to welcome, I understand we have a new committee
member, Mr. Miller, from Florida, who is not with us yet today,
but welcome him to the subcommittee. There is a lot going on
today. I have Secretary Riley down the hall in another
committee hearing. But there is always a lot going on in the
Congress so we'll try to manage it as well as we can.
I'll offer some formal remarks for the record, as we go
forward. And I look forward to being engaged in this activity.
The postal reform is now fully on the front burner of the full
committee. And I think we can tell by the chairman's presence
here this morning that he intends to have some action in this
regard. Thank you.
Mr. McHugh. I thank the gentleman. I particularly thank him
for his very active leadership on this subcommittee and for his
role in assisting the effort that we're all concentrating on
and the purpose for our meeting here this morning. Let me yield
now to the dean of the New York State delegation, a good friend
and certainly a leader of longstanding on postal issues, a
gentleman, as I said, from New York, Mr. Gilman, for any
comments he may wish to make.
Mr. Gilman. Thank you, Mr. Chairman, I'll be brief because
I know we have some important participants this morning that we
want to hear from. I want to commend you and the ranking
minority member, Chaka Fattah, for the wonderful work you've
been doing in taking what occurred over the last session,
putting it into the new revised H.R. 22, the Postal Reform Act,
which I'm sure with a lot of good work by all of us can help to
make our Postal Service even better.
It's still one of the best in the world, and we commend our
Postmaster General, who is here, for making certain that we are
right up there, up front, compared to other postal services
around the world, and I've had an opportunity to visit a number
of them.
But I want to thank you, Mr. Chairman, for your persistence
and patience in the extensive work you've been doing to bring
this about. We know the kind of hard work it's been in
gathering all of the evidence, and listening to all of the
testimony.
As the chairman is well aware, there is a great need to
ensure that our Postal Service will be adequately prepared to
meet the needs of our ever expanding competitive market in the
21st century and all of the technological improvements that are
taking place in communication.
Since serving on the initial House Post Office and Civil
Service Committee, and I see some folks who've been with us for
a number of years out there, I've been a strong advocate of
making certain that the Postal Service provide adequate service
to its customers for years to come while simultaneously
maintaining a good work environment that continues to honor its
commitment to its employees. The biggest part of our Postal
Service, of course, is over 700,000 postal workers who serve
our Nation. And it's so important that they have input and that
they be assured that there is input in this measure.
I think the bill before us accomplishes a number of major
goals, and I'm certain we'll hear some other proposals that
should be added. It's important to note that the public and all
postal stakeholders have related opportunities to provide input
and revisions under H.R. 22, and I'm sure today's testimony
will give us some additional constructive ideas. In fact, we've
heard nothing but praise for both the chairman and the open
process from those who visited with me to discuss this measure.
In that regard, I was pleased to be able to seek approval
of an amendment to this measure during our subcommittee's mark-
up in the last Congress, which is included in the chairman's
introduction of the bill to the Congress. That amendment
protects the rights, the privileges and benefits of both
employees of the Postal Service and the labor unions
representing them, and stems from some of the concerns that
arose from the Postal Union in regard to the postal regulatory
portion of the bill.
Accordingly, with H.R. 22's inclusion of that amendment,
it's now the sense of the Congress that nothing in a Postal
Rate Commission section should restrict, expand or otherwise
affect any of the rights, privileges or benefits of either
employees of the U.S. Postal Service or labor organizations
representing those employees, as established under the National
Labor Relations Act. And this measure may not be a perfect
bill, but it's close to one. I think the postal community
should support the shape and operation of our Postal Service.
Remaining concerns can and I'm certain will be discussed as
this process continues in the subcommittee, in our full
committee, and onto the floor. And I want to again commend you
for moving it forward at this early stage in this session. And
I encourage all parties who want to be part of the solution to
come to the table or, as they say, ``If you don't come now the
train will be leaving the station very shortly.'' Thank you,
Mr. Chairman.
[The prepared statement of Hon. Chaka Fattah follows:]
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Mr. McHugh. I thank you for your comments here today, and
more importantly, for your work not just now but over so many
years on behalf of this very important organization.
Mr. Gilman. Mr. Chairman.
Mr. McHugh. Yes.
Mr. Gilman. If you'll forgive me.
Mr. McHugh. Certainly.
Mr. Gilman. I'm chairing a mark-up in my own committee, but
I will be coming back and forth and I will ask my staff to
stand by. Thank you, Mr. Chairman.
[The prepared statement of Hon. Benjamin Gilman follows:]
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Mr. McHugh. I understand. You have my proxy, Mr. Chairman.
With that, I'd be happy to yield to one of the few Members that
I'm aware of that actually lobbied to get on this subcommittee.
I'll leave it to you what that says about him. I think it makes
him pretty special, but that's one person's opinion. The
gentleman from Ohio, Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman. Under unanimous
consent request, I'll submit my remarks for the record. I would
like to say this is the only subcommittee that I requested and
Chairman Burton was kind enough to give me additional
responsibilities, as well, not requested, but I look forward to
serving him.
The reason I picked this subcommittee is not only because
of the important work that the Postal Service does and all of
the industries and businesses that rely on the Postal Service,
but also because of my admiration for you and the ranking
member, Mr. Fattah, and the extraordinary work that I witnessed
in the last two Congresses on H.R. 22, which is the only time
that I've been here. And if you are going to stick it out and
get postal reform through the House, the Senate, and signed by
the President, I'm going to be here with both of you and we'll
all do it together. So I thank you for that.
Mr. McHugh. I thank you very much. We're looking forward to
your presence. You are an invaluable part of this effort. So
with that, again, Mr. Postmaster General, welcome. It is always
a pleasure to have you here with us. As I noted, this is our
opening salvo for the 106th Congress, and, of course, your
first appearance in this new session. So we're looking forward
to your comments.
The rules of the full committee, as those who have been to
these hearings in the past recall, require that all witnesses
be sworn in before they present oral testimony. So with that
I'd ask you to rise and repeat after me.
[Witnesses sworn.]
Mr. McHugh. Let the record show that the witnesses have
responded to the oath in the affirmative. And with that, Mr.
Postmaster General, without further adieu let me turn our
attention and the floor to you, sir, and welcome.
STATEMENT OF WILLIAM HENDERSON, POSTMASTER GENERAL, ACCOMPANIED
BY MARY S. ELCANO, SENIOR VICE PRESIDENT AND GENERAL COUNSEL,
U.S. POSTAL SERVICE
Mr. Henderson. Thank you, Mr. Chairman, and thank you for
the opportunity to testify today. My written testimony I'll
submit for the record, as I have in the past, rather than read
back to you a speech you've read, which to me seems a bit
boring. And I want to introduce Mary Elcano. Mary is our
general counsel and she is head of the team that drafted the
amendments that we make to H.R. 22.
Mr. McHugh. Yes. I welcome you, too, this morning, Ms.
Elcano, and look forward to your legal interpretations as they
may occur.
Ms. Elcano. Thank you.
Mr. Henderson. For the record, I'm not a lawyer. I do want
to make some general comments. I do want to go back about 5
years. We were sitting in a room at Postal Headquarters, and we
were debating which of two schools of thought ought to be
adopted by the Postal Service, and that was a debate that was
occurring among our Governors too.
Our two schools of thought were, one, to just leave the
Postal Service alone, allow it to atrophy, through electronic
diversion of competitors, not change anything.
The other one was to say that universal service should be
preserved. Universal service is not defined that often, but I
think at the core of universal service is regularly scheduled
delivery and collection of mail throughout this country so that
a mail carrier will go down your street, whether you have one
piece of mail or no mail, to check on it. It's hardwired
delivery throughout the United States. It's not maximized for
profit, it's sitting there to provide service.
In discussing this, we, along with all the posts of the
world having the same discussion, decided that the U.S. Postal
Service is an American treasure. It's an institution that ought
to be preserved. It's vital to this economy. It has a work
force of over 700,000, and that stretches to millions of people
in this country for employment, millions, along with the
industries it supplements.
So out of that came the need to be more commercial, and
that need was recognized at the same time around the world. And
the Postal Service became more commercial at the same time.
What was also happening with the U.S. Postal Service is that
its quality was being upgraded. And its quality was becoming
very, very competitive, and its quality improved in terms of
timely delivery.
It started to affect private sector competitors who,
heretofore, had not really focused on the Postal Service
because it was not an alternative. Suddenly it became an
alternative. So that creates some complexity to this discussion
about universal service and about preservation of the Postal
Service.
You very wisely introduced a bill for postal reform. In the
meantime, posts around the world began to do their own
reformation. Suddenly, what had in the past been bureaucratic,
kind of slow moving entities, out of that reformation suddenly
came highly competitive institutions in countries all over
Europe and around the world.
A classic example of that is a reformed German post,
Deutsche Post, whose postage is 66 cents, equivalent to our 33
cents, who recently bought a $1 billion business in England, a
logistics company, at a time in which England couldn't invest
money like Deutsche Post. I happen to have been with John
Roberts, who is the head of Royal Mail, and Klaus Zumwinkel,
who is the head of the German Post.
As a result of that investment in England by the German
Post, Parliament gave Royal Mail the right, almost immediately,
to do similar kinds of investments. And they bought the third
largest package delivery outfit, ``they'' being Royal Mail, in
Germany. This commercialization of posts around the world is
changing the entire environment.
The United States private sector package delivery outfits,
who have been in Europe and around the world for a long time,
are suddenly seeing, and rightfully so, these postal entities
as being very strong competitors. Very strong competitors. Now,
these postal entities around the world are now focused on each
other. A little bit of chest beating is going on in Europe. But
within 3 years, I predict they will be focused on the United
States.
They are going to be focused because this is the mother
lode of market opportunity. They will come over here, they will
be private, they will be highly capitalized, and they will be
in the marketplace competing. So as a consequence of this, our
current U.S. competitors are leery of freeing a postal service
commercially. They are leery because of the model they have
seen. They have seen postal services around the world become
very competitive.
But I say to you today that it's just as important for the
Postal Service to be reformed to save universal service. That
universal service, regularly scheduled delivery and collection
throughout the United States, is just as important today, if
not more important than it was 5 years ago. And the forces that
you observed 4 years ago in the submission of this legislation,
that is the electronic erosion of mail.
Five billion dollars are in the mail stream in the form of
payments. Another $10 billion are associated with those
payments. And there is no question that bill payment has some
momentum to move electronically. That hardwired infrastructure
of universal service would take a big hit from a pricing point
of view, if that $15 billion were allowed to go away without
some market improvement, some allowance for the Postal Service
to be more competitive.
So when we view H.R. 22, we desperately think that to
salvage the organization of the U.S. Postal Service, to keep it
viable as an entity in America, that some commercialization of
the Postal Service should occur. So we welcomed H.R. 22, and we
submitted some 30 amendments, that Mary and her team drafted,
to make H.R. 22 as useable as possible, as workable and as
manageable as possible so that this entity would stay viable.
It is very important, as it was 5 years ago, to have a
healthy U.S. Postal Service. I thank you Mr. Chairman for
inviting us, and that concludes my comments.
[The prepared statement of Mr. Henderson follows:]
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Mr. McHugh. I thank you for your comments. As those who
have read your testimony understand, as I do, you have, I
think, a very interesting and very studied perspective on this.
But I do think it's important to place a couple of things onto
the record and to clarify where possible, and where I certainly
think it's necessary.
I've spent, as my grey hair will attest, quite a few years
of my adult life in the business of politics in dealing with
people writing down your words and reporting them at a later
time. I always believe what I read, but I am always willing to
learn more than what I've read. But there was a recent article
that quoted the following:
Major mailers active in postal reform efforts are beginning
to suspect that the Postal Service wants to kill H.R. 22. The
mailers point to the latest batch of Postal Service proposed
amendments. And when the Senior V.P. of Legislative Affairs
told the MTAC meeting, These amendments are ``do or die'' for
the USPS. Well, it had people thinking ``die,'' as in die on
the vein--``vein'' a little Freudian slip there--``die on the
vine.''
Some attendants who were confused by the comments followed
up with phone calls to Legislative Affairs staffers. That's
right, they were told, without the USPS proposed amendments,
H.R. 22 is not helpful to the Postal Service, end quote. And it
then goes on to point out that not all stakeholders are
convinced of this line of reasoning, the debate about the
amendments, et cetera.
So I want to make it very clear here today, one way or
another, is it your and the Postal Service's intent to kill
this effort or are you supportive of this effort as we are
currently under way? And, as a part of that, are we to
understand that your position is that, without all of the
amendments that you have submitted, H.R. 22 is not helpful?
Mr. Henderson. Well, let me make sure that there is no
ambiguity. We are absolutely, positively not out to kill H.R.
22. And, second, as Chairman Burton said, this is work in
progress. We understand that. And just as you wouldn't draw a
line in the sand and say ``do or die,'' we absolutely are not
going to do that. We've submitted amendments that we think
makes the bill manageable from a Postal point of view. But
absolutely it's not a do or die situation.
Mr. McHugh. Good. The record shall so state. You mentioned
the amendments. The amendments, as you are aware, have caused a
great deal of controversy. Without trying to read too much into
the fact that the vast majority of controversy we have become
aware of is in opposition to the amendments, that's not
surprising. People rarely call you up and tell you you are
doing a good job. They like to tell you just the opposite.
But I'd like to spend a few moments, before I begin to
yield to the other members, and having you present, with an
opportunity to go onto the record as to why you think some of
these amendments are important and in what way they might work.
For example, one of your amendments proposes to move just about
all products outside the statutory monopoly to the competitive
category.
The concern is, to many mailers and policymakers, that the
Postal Service, for many of these products and services, is the
only hard copy provider. If not in law, certainly in reality.
So, in other words, even in the absence of a statutory
monopoly, the Postal Service really does hold what they view to
be dominant market power over those customers, newspapers,
magazines, those kinds of deliveries, and such.
The bill, as it currently stands, establishes a market
dominance, a fact test for the regulatory criteria for
assigning products to either non-competitive or competitive.
But in your amendments you change that. The question that it
presents, and the concerns we've heard, is simply why should
the determination of whether the Postal Service product be
competitive or non-competitive come from the Service's own
regulatory definition of a letter rather than from some
objective fact of the marketplace?
Mr. Henderson. Go ahead, Mary.
Ms. Elcano. What our difference in the amendments versus
H.R. 22 is that the products we move over from the non-
competitive to the competitive are international, heavy First
Class Mail, proxy statements, if you will, something like that,
and some of the special services. And what's there already is
priority mail, express mail, parcels, you know, et cetera. So
our view is to move over those products which are positioned
where there is competition emerging or constant competition, is
consistent with having express mail, priority mail, parcels.
The other rationale for that is in reference to the equivalent
contribution test that comes into the competitive area, that
there is some need to have a balance against that which we
consider a very serious and a very strong condition for
competition. To move those products over there make it more
into a situation where we think the Postal Service can better
survive and better compete, as well as meet the obligation for
universal service.
Mr. McHugh. I understand. I don't have an objection with
the intent. Clearly, the outcome of the provisions of H.R. 22
are to make those kinds of determinations. Where they exist, by
a formula, a market test, rather, those move over. But concerns
of some people are that, and you used international mail being
placed in the competitive category, now there is no statutory
protection, I'll grant you, of a monopoly for the Postal
Service. But I think you'd agree, and if you don't, please say
so, that on market dominance there is no alternative for
international mail, single mail piece. I mean you're----
Ms. Elcano. Well, I would have agreed with you up until
recently. We recently concluded--are in the process of some
litigation with a particular mailer. As part of some discovery
in that case, there was evidence that, in fact, they are doing
some single piece mail in international. So I think it's not a
non-competitive area. It is with competition, in other words,
is what I'm saying.
Mr. McHugh. Well, you've got a court case trying to
determine that, but a single court case. I don't want to argue
this ad nauseam but the fact of the matter is, in spite of your
recent single example where you've got a court case, the
overwhelming evidence is you have a market dominance in that
field. But the point being the concern that many have and that
is, why should the Postal Service through its own discretion be
the determinate factor here? Why not allow the current formula
under H.R. 22 to prevail? And you've made your points. If you'd
like to expand on them?
Ms. Elcano. The last piece would be just the general policy
overview on that. And that is, to the extent that something is
not highly regulated today, we wanted to preserve that status
quo and not move it into a more highly regulated area, so we
conceptually left international into the competitive area. But
I think you've expressed----
Mr. Henderson. I might add, Mr. Chairman, from a practical
point of view, single piece international is a dying creature.
There is a huge amount of erosion in that today electronically.
And in a few years that will be a rarity, except for packages,
which is highly competitive.
Mr. McHugh. So the amendment is a dying amendment, that's
my interpretation. These are highly technical, and I want to
submit a number of these for the record. I want to ask one more
and then I will move to my colleagues. Then if we have some
time, perhaps I can ask more questions.
But one of the main objectives of H.R. 22, and one of the
main justifications with respect to price capping and banding
and dramatically altering the PRC's oversight role with respect
to the setting of the price of postage, is to provide
predictability to your customers and, also, I would argue, to
provide more affordability. Not that you've been unaffordable,
but to suggest to them that under this new system you'd be more
insulated than you are today from the possibility of large,
perhaps unaffordable rate increases. Would you agree with that?
Mr. Henderson. Well, the amendments that we propose, where
we have bands and baskets, would allow us the kind of balance
between flexibility and predictability. And we think that we
can live with the amendments, the five baskets versus the four,
the adding of the non-profits, and the protections of Aunt
Minnie in basket one, we think that we can operate within
those. And one of the important principles of that structure is
being able to average the rates within the baskets so that you
have some flexibility within those bands.
It's one of the difficulties of the bill and what we tried
to think through when I discussed with Mary the philosophy of
the amendments, is to make sure that we can manage the Postal
Service. Make sure that we don't come out with a re-regulated
entity that's simply ineffective. And that's a very important
principle. And I think you have to use your own management
experience in trying to interpret this. It's a difficult task.
It's a very complex bill and your staff has been very
cooperative. But it is a very complex subject to try to figure
out when it's said and done and the bill is in concrete. You
know, will the car still roll?
Mr. McHugh. And I appreciate that. Again, we're trying to,
ourselves, reach that balance where we provide the Postal
Service with our stated objective of the kind of flexibility
that you, in all likelihood, need to continue to compete but,
as the chairman and others have suggested, at the same time
ensuring that you compete fairly where that is possible. And
that there are consumer benefits as well.
One of the concerns we've heard with respect to another of
the amendments, and you spoke to it, is that under your
proposal that you have what you describe as flexibility, but
they would describe as a considerable amount of leeway above
the stated caps of 1\1/2\ percent or more. That, coupled with
the fact that you can bring in previously banked, unused cap
allowances, takes away that predictability and, they would
argue, perhaps that affordability as well.
So it's very troublesome to those people, and I want to be
up front about it, it's troublesome to us as well. Because it
does diminish, at least, and perhaps for a good reason, and you
stated a reason, but nevertheless it does diminish two of the
justifications for reconfiguring how you receive your rate
increases presently. We're going to need to talk about that
further.
Mr. Henderson. And I think, Mr. Chairman, pricing
flexibility is one of the cornerstone elements that we started
with, prices, products and labor. And our having pricing
flexibility is very important to our remaining a viable
organization. I think we've had a very satisfactory arrangement
with the PRC. It has certainly been during my tenure as COO and
CEO.
But the ability to negotiate prices with customers or to
pass on the values and the NSAs that you provided in the bill,
is very important to future Postal health. The foreign postal
administrations that come on our soil are going to have
commercial freedom, absolute freedom to do whatever they want
to do. We at least have to be in the ring with them.
Ms. Elcano. If I may, Mr. Chairman, the other points you
are raising about the caps above the caps. You can imagine when
we first started this approach, we had to get some outside
consultants to assist us in understanding some of the
principles, understand your bill, understand the principles,
and craft a response to that. And how they advised us, in terms
of telecoms and public utilities, other areas, was that in fact
to manage within the baskets, you really needed some
flexibility to de-average, and that could even include going
above a cap in terms of some of the percentage.
So what we did was to try to design it--and I think that we
were advised that in some industries, telecoms, they go up as
high as 3 or 4 percent above the cap on occasion. And so what
we tried to do was to design a bill that reflected the Postal
experience, if you will. So the Aunt Minnie basket, No. 1, has
no ability to go above that cap. The more commercial baskets
two, three and four have an ability of 1.5 percent. And the
fifth basket is 0.5 percent which is the non-profits.
Our view in trying to design that was to pick very tight,
tight bands if you will, a tight framework. And within that to
try to have a weighted de-average, a weighted average of
volume, of revenue weighted averaging within the activities,
and take it down to the rate cell, to the rate average piece so
that there can be as tight a band, as tight a control on that
as possible.
But they convinced us. And it is somewhat of a leap of
faith for us because our industry doesn't practice or perform
in this area in that way. And so, given the expertise we had,
that was also part of the basis for our amendments.
Mr. McHugh. I certainly understand how that kind of
flexibility would be attractive to a management structure. I
have no doubt about that. But I want you and I feel confident
you understand that the kind of flexibility that you are
speaking about, while sounding small in percentages is large in
terms of the entire structure of the bill.
And it has to always be coupled with whatever bank of
previous unused CPI cap you may have used. So, I mean, for
mailers, particularly small mail-dependent businesses, this is
a very troubling, uncertain part of the waters about which
we've heard a great deal of concern.
I may not know much--I will state it differently--I do not
know much about utility regulation or deregulation, but with 30
years in politics I know a little bit about PR. I respectfully
suggest the last people you want to emanate in the customers'
eyes are the utility industries. But do as you will. With that,
I will be happy to yield to the ranking member, Mr. Fattah.
Mr. Fattah. Thank you, Mr. Chairman. I had a visit from the
postal leaders from France. And they were here in our country
examining the operations of the U.S. Postal Service, which they
used as a bench mark from which to try to determine how they
could provide better service to the people of their country.
Somehow I wished that I had done better in my high school
french class. But we had a facilitator that helped us
communicate.
There was a recent AP poll that you didn't have to use a
foreign language to interpret, and I know there is a lot of
interest here in the Capitol these days in not paying attention
to polls, but this one said that three-fourths of the American
people thought that the Postal Service was doing a very good
job.
I use those two comments to really kind of get into this a
little bit. And I'm going to try to talk in english so that
people can understand what's really going on here, because I
think that the chairman is absolutely right that there is room
and a reason for reform.
But sometimes the best efforts at reform lead to retarding
processes rather than moving them forward. And we have to be
careful here since we're dealing with an item, a public good
that I think is essential to our economy and is also a
responsibility that no one else in this business has, which is
this notion of universal service. So I just want to walk
through this. The U.S. Postal Service as it is presently
constituted doesn't receive any public subsidy for its
operation, is that correct?
Mr. Henderson. Yes. Except for the blind and frank mail
there is no real public subsidy. We live off our revenues,
that's absolutely accurate.
Mr. Fattah. OK. So you've got 700,000-plus employees,
you've got a service that you provide, you collect revenues
from it that essentially pay for this operation?
Mr. Henderson. That's correct.
Mr. Fattah. But unlike a private concern, you also have
some responsibilities that are given to you by the Government,
one of which is this notion of universal service?
Mr. Henderson. That's correct.
Mr. Fattah. To deliver mail to anywhere in the country,
notwithstanding the economics of it, right?
Mr. Henderson. That's right.
Mr. Fattah. I don't know if it was Ralph Waldo Emerson or
someone else who said, ``If I make my home in the forest.'' You
know, if somebody wants to live wherever they want to live,
whether they have a better mouse trap or not, you have to
deliver the mail to them?
Mr. Henderson. That's right. Everywhere, everyone, every
day.
Mr. Fattah. And now in addition to which the Congress has
put other limitations on your operation, which is that you
can't close a post office because it's not economical.
Mr. Henderson. That's in the law, that's right.
Mr. Fattah. Is that right?
Mr. Henderson. That's accurate.
Mr. Fattah. You can have a post office in one location in
which the services that are being sold to the public there are
not keeping pace with its cost, but you have to operate it?
Mr. Henderson. That's right. The 20,000 smallest post
offices of America do not take in enough revenue to cover their
expenses, that's accurate.
Mr. Fattah. OK. So now on the other side of this, there are
a few things that you do which there are people in the private
sector that do it, and those are what are being discussed as
competitive items in this basket, right?
Mr. Henderson. There are very few things that we do that
don't have some form of competition, be it head to head
competitors or alternatives.
Mr. Fattah. OK. So these services, you have to perform at a
rate and at a price which is sensitive to your competition in
the marketplace?
Mr. Henderson. That's right.
Mr. Fattah. And this is like the overnight mail and special
services that, particularly, business customers are interested
in?
Mr. Henderson. That's correct. Priority mail is in that
category.
Mr. Fattah. So now when you provide these services to--
well, let's start here. If you didn't provide these services
and you didn't have the revenues that were generated from those
services, the delivery of a First Class letter to an everyday
American, would it cost more or less?
Mr. Henderson. It would cost more. And there would be no
real pricing sensitivity in the marketplace. There would be no
not-for-profit product, so all of the products would likely be
higher priced than they are today.
Mr. Fattah. Well, now, as we go forward in this reform,
this H.R. 22, here are some things that the Postal Service,
that you think are very good about H.R. 22, at least move us in
the right direction. There are some amendments that you
suggested for modifications. It would be helpful for me if you
could outline where you see the major impact of H.R. 22,
unamended, for the Postal Service and for its customers.
Mr. Henderson. I think that the biggest issue which
precedes H.R. 22 is embedded in H.R. 22, and it's what we've
submitted amendments for, it's pricing flexibility. If we need
that pricing flexibility in order to stay competitive in the
marketplace, and that's not a complex notion, and I
understand----
Mr. Fattah. It's not complex for those of us who are
fortunately or unfortunately mired down in these issues. But
for the general public, right now what happens when you want to
change prices? This issue of flexibility in pricing, can you
talk about it in English?
Mr. Henderson. Well, today we have two models for setting
prices, one in international, in which our Governors can
approve a price increase, and the second one is the Postal Rate
Commission. As I said earlier, the Postal Rate Commission,
during my experience, has been a very responsible body.
What we're interested in, though, is more particular rates
for individual mailers, the ability to pass on savings of their
efficiency in the mail stream. Now we have one price fits all,
or group pricing. And our competitors, direct competitors in
the marketplace, have 100 percent pricing freedom. A product
like overnight service loses ground primarily because we don't
have the pricing flexibility to give volume discounts and
things like that. So pricing flexibility is an important point
to us.
Mr. Fattah. Is there something else you'd like to add?
Mr. Henderson. No.
Mr. Fattah. OK. Now, this issue of flexibility in pricing,
you are saying it's for your best customers, in terms of
volume, that you'd like to be able to negotiate some type of
individual pricing mechanism?
Mr. Henderson. Right. Well, for all customers. I mean it
would be the large volume customers whose efficiency we'd like
to pass back to them in terms of pricing.
Mr. Fattah. Now, at this moment you can't do that at all?
Mr. Henderson. We can do it for groups of people, if we go
through the Postal Rate Commission. But we can't negotiate face
to face, except in international where we do negotiate face to
face with customers.
Mr. Fattah. OK. Now the Postal Rate Commission, which we're
going to hear from in a little while, they handle your pricing
issues through a regulatory review process, they gather public
response to it. How long does that process take?
Mr. Henderson. Approximately 10 months and about 6 months
in preparation that we do internally to go to the hearing. And
they conduct a full hearing with all constituencies. And then
they provide a recommendation to our Governors who make a final
decision.
Mr. Fattah. All right. Thank you very much. I'm going to
yield.
Mr. McHugh. I thank the gentleman. I yield to the chairman
of the full committee, Mr. Burton.
Mr. Burton. Thank you very much, Mr. Chairman. I just have
a couple of questions I'd like to ask. First of all, you were
talking about the German Postal Service acquiring a private
package delivery firm, and that triggered the English, the
British, doing the same thing. What I was wondering is you said
that you want to be competitive with them so that you don't
lose market share because they are going to be coming into the
United States, is that correct? I mean, that you want to have a
mechanism to be competitive with them?
Mr. Henderson. Well, they are here today in the United
States.
Mr. Burton. But they are going to be getting more market
share and you want to be able to make sure that you keep your
percentage?
Mr. Henderson. Well, I think it's that this market in the
United States is viewed as the most lucrative in the world.
Mr. Burton. Right.
Mr. Henderson. And, therefore, they will focus on the
United States both in shipping letter mail internationally. It
is my belief also that eventually they will focus on the
package business which not only competes with us but competes
with UPS and Federal Express too.
Mr. Burton. How would you envision the Postal Service being
competitive with them, what steps would have to be taken to be
competitive with them?
Mr. Henderson. I think, again, the real key is pricing
freedom, to be able to negotiate with your customers, like an
L.L. Bean or Spiegel, the ability to negotiate prices based on
their efficiencies. Everybody else in the marketplace, but the
U.S. Postal Service, today has complete pricing flexibility.
Mr. Burton. So in order to be competitive with them you'd
like to have the flexibility, so that if you were bidding
against them for a contract you could lower your bid and be
competitive?
Mr. Henderson. That's right. It's like selling. I'll give
you an analogy. If you were selling cars, as an example, and
you didn't have any pricing flexibility, you would not be the
alternative of choice unless you had the highest value and it
was obvious to everyone. And that's what you get today with
priority mail. I mean, it's a low priced, very high quality
product. That's why it's growing.
Mr. Burton. Well, the next question I'd like to ask then
is, how do the private sector carriers, like UPS and Federal
Express, and the others in the United States, if you are
bidding against the Germans and the English and you are
lowering your prices to be competitive, how do they survive? I
mean, don't you have the ability as a government entity to be
able to cut prices below what their pricing structure would
allow?
Mr. Henderson. No. I don't believe that to be true. I think
the question of the future of those two organizations is an
important one. I think that there is a threat that foreign
postal administrations, and I believe they believe this, will
ultimately be a threat to their existence. When they come into
this country as, for example, the Dutch have and bought
MailCom, a major interest in MailCom, they come with very deep
pockets. And it is an important question that you raised.
Mr. Burton. I think that's something we really ought to
take a look at because they're competitors with the private
sector in this country, and then you are going to add to that
through postal reform I think you hope, your ability to be
competitive with those foreign entities, which puts additional
pressure on the private carriers in this country.
A lot of us believe that free enterprise is the best way
for an economy to flourish. And if the government sector comes
in and is able to drive the private sector out of business,
then you end up with government control over large segments of
your economy, not just the Postal Service but others.
So I'm just trying to figure out in my own mind how this is
going to work in the long haul, and that's why I'm asking this
question. Maybe you can flesh this out for me in the next few
weeks by giving me more information. I'm not sure I'm going to
get it all today.
Mr. Henderson. I can give you a twist on it today. The
private sector is primarily focused on business-to-business
packages, that's the dominance. If you look at residential,
they surcharge residential by adding $1, and in some cases $2,
in some cases delivery every 4 days. The Postal Service doesn't
have any of that business, literally speaking. It's focused on
residential package delivery. So, in a sense, they are not in
the same arenas.
And if we're taken out of that business, if we're not in
the business of package delivery, for example, then you have to
take several billion dollars and amortize it across the rest of
the classes of mail. And, to me, that doesn't seem to be in the
interests of the American public to do something like that.
Mr. Burton. I understand the example that you were using,
Mr. Postmaster, just a few minutes ago, was one of the mail
order delivery systems companies. I think you mentioned Lands'
End?
Mr. Henderson. L.L. Bean, yes.
Mr. Burton. Yes, L.L. Bean. And that is one that I think
the private sector has been, for the most part, delivering for.
And so that's a concern. And I think maybe you can have your
staff and you illuminate that issue a little bit more for me in
the next few weeks. I think it's something that we really need
to take a look at.
The other thing I was interested in was how this new
formula for postal rate increases works. And I was asking the
staff up here, when the chairman yielded to me. I really would
like to know how that works because I think maybe I'm wrong. I
was trying to catch all of what you said there a minute ago. I
thought you said that if you weren't able to deliver the
packages, and do your package deliveries and the things that
you've been doing, that the postal rates for other classes of
mail, like First Class Mail, might go up?
Mr. Henderson. That's accurate.
Mr. Burton. That is accurate. OK. I just have a couple of
questions and they may be very academic questions. The Postal
Service for the last 2 or 3 years has had a fairly substantial
profit. It was about $1\1/2\ to $2 billion 3 years ago, and
about $1\1/2\ billion last year. I think it was about $580
million just this current past year. And yet they had a 1 cent
per stamp delivery increase from 32 to 33 cents, and I could
never figure that out.
If, in effect, the package delivery is helping make the
First Class Mail rates less, then how do you account for that
profit. I just don't understand that. Maybe you can explain
that to me?
Mr. Henderson. Well, the Postal Service enjoys,
unfortunately, a negative net equity, which means that we've
lost more money than we've made since 1971. And, obviously, we
have a break-even mandate. Additionally, we have some new
capital expenditures, such as our new point-of-sale system. We
also have a $700 million delivery confirmation effort that we
are putting in place.
We are trying to upgrade the service of the Postal Service,
and the 1 cent was the smallest increase in our history. In
fact our popularity with our customers, for the first time in
our history, actually went up. And so we don't think it's a
burden on America to increase the price of postage.
Mr. Burton. I know. I was just questioning the necessity
for the rate increase since they've been in the black for 3
straight years. And I think you amortize the things that you
are talking about over, what, about a 10 year period, or
something like that?
Mr. Henderson. The $700 million is the outlay that we made
to buy the scanners, so it's not depreciated over a period of
time.
Mr. Burton. OK. I guess that's about all I need to ask
about right now, other than I'd still like to see that formula
on how you are going to increase the rates for First Class Mail
and, I guess, bulk mail and other mail. If the electronic mail
takes a larger and larger part of your volume, let's say your
volume goes down by 25 percent, does the formula include that
being factored into the new rates?
Mr. Henderson. Sure. If you lose revenue, and to some
degree much of our infrastructure is hardwired because of our
universal service obligation, and you have a break-even
mandate, you have to generate those revenues from some other
source.
Mr. Burton. So that's why you think the package delivery is
very instrumental because if you lose market share in, say,
First Class Mail because of electronic transmissions then
you're going to try to pick that up through the package
deliveries and others?
Mr. Henderson. We think package delivery is important
because we're the residential deliverer in America. We're the
person that goes by your house every day, by your mailbox.
Mr. Burton. I understand. But you are anticipating that if
you lose market share in, say, First Class Mail that you are
going to try to pick that up through the delivery of the
packages?
Mr. Henderson. Well, we're going to try to grow, literally,
all aspects of our business, but you are accurate in that
statement.
Mr. Burton. And one last question and then I'll thank the
chairman. How much money did Postal Service pay in advertising
for package deliveries last year? Because I see that on TV all
the time, and I just wondered----
Mr. Henderson. I don't have that number off the top of my
head but I'll be happy to provide it.
Mr. Burton. Somebody told me it was around $230-some
million.
Mr. Henderson. Not for packages alone, no. No.
Mr. Burton. I'd really like to have that figure. If we
could get that, Mr. Postmaster, I'd really appreciate it. Thank
you very much. Thank you, Mr. Chairman.
[The information referred to follows:]
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Mr. McHugh. Mi casa, su casa, Mr. Chairman. I think the
chairman's original first question brings up a good point, it
kind of goes to the issue of another of your amendments. As the
chairman stated, certainly the Postal Service does enjoy the
powers of a Government agency, along with the statutory
monopoly that you have with respect to delivery mail.
One of the concerns that we've been trying to meet, and one
of the objections we've persistently tried to overcome, is that
you should not compete, as I think the chairman was suggesting
very clearly, with private companies while you use,
particularly, your non-competitive products to pay for the
overhead costs, unfairly pay. So the issue of how do we end
cross subsidies has been an integral part of the debate, as I
know you are aware.
H.R. 22 attempts to do that through the cost coverage rule
which, as you know, Mr. Postmaster General, is simply the
requirement that the competitive products collectively must
contribute as a group at least an equal percentage of overhead
costs as all non-competitive and competitive products combined.
There is no way, it seems to me, we're going to be able to
solve the chicken or the egg debate that apparently has been
going on in this industry for years, where one side says you
cross subsidize and the other side says, no we don't. So what
we have been attempting to do is not solve the debate, but to
settle the argument for the future through that cost coverage
rule.
And yet, you, in one of your amendments, have suggested
that cost coverage rule be sunsetted after 5 years. And I
believe your contention--and if I'm misstating it, please
correct me--but I believe your contention was that there are
sufficient safeguards elsewhere in H.R. 22 to prevent cross
subsidies so that the cost coverage rule is ``problematic,''
the word I believe your descriptive materials use.
So I'd like to have you expand upon that, because, as
you've heard from the chairman and I know you've heard, as we
have, from others, the issue of the activity of cross subsidies
is a very, very important one, and one that the cost coverage
rule is intended solely to address. If you sunset that after 5
years, the resulting concern is that, well, there they go
again. So could you comment on that amendment and on the issue
in general?
Mr. Henderson. Sure. First, let me say we are sensitive to
cross subsidies. Today in America, urban America subsidizes
rural America because it's very inefficient to deliver in rural
areas. So there is a built in kind of hand shake within the
institution of the organization.
What we're sunsetting after 5 years is the equal
contribution, not the issue of cross subsidy. The competitive
and non-competitive have to have an equal contribution. What
we're saying is that after 5 years we think that issue will go
by the wayside. But we're not trying to hide some cross subsidy
in the bill.
Mr. McHugh. I'm not sure why you think it will go by the
wayside after 5 years.
Mr. Henderson. I think the organization will be fairly well
defined. Once the process is put in place to define the costs,
which we proposed in one of our amendments, because today we
operate under a set of institutional attributable costs that go
into determining a rate case, we assume that that whole
assignment of a cost is going to be examined.
We will cooperate with the Postal Rate Commission in
putting the process together to examine those costs. We will
then hardwire what our costs are, and there won't be a question
anymore of attributable institutional costs. We will design
that system.
Ms. Elcano. The other safeguard, if you will, is that there
is currently in H.R. 22 a requirement that those products cover
their attributable costs. And in our amendments we accept that
and understand the rationale for that, and so those are
covered. Those are reported to the Rate Commission. That's the
other safeguard that exists in the bill.
Mr. McHugh. Well, again, the amendment, it seems to me,
becomes more problematic than the problem you are trying to
solve, in that the cost coverage rule, as I've said repeatedly,
is intended to forestall a debate that has raged here and that
seems to me has no conclusion in terms of proving who is right
and who is wrong.
So you institute a system that better defines the issue,
No. 1 and then, No. 2, requires that certain accounting things
occur without the assumption that the system will change or
what you and the PRC may or may not agree to. There are,
apparently, a lot of things that are embodied in a number of
your amendments that are making assumptions as to what may or
may not exist a few years down the road.
Now, I'm not saying you're wrong in those assumptions, but
those who are relying upon the service and upon the system that
we adapt to provide for them the kind of mail service they are
accustomed to and need, those kinds of assumptions are very
troubling.
Ms. Elcano. There are a couple of other points and, again,
it's in the eye of the beholder. As I behold it, it would look
like this. There is an acceptance in the competitive area that
they would be covered by anti-trust and anti-competitive
statutes, and so there would begin to be some other analysis
and other forums to address that.
The other thing we're concerned about, why that 5 year rule
is in there, that 5 year sunset, is that some of the best
information that we can get, and different conversations with
different experts, is that maybe some of the bill payment
activity that would go into e-commerce, the bill presentment
might have a 3 to 5 year horizon.
So to the extent that that begins to crush down in the non-
competitive side, there may well be changes in prices in the
non-competitive side that then become an anchor on the
competitive and drag it down in terms of pricing to the extent
the equal contribution stays. And so, again, from our view of
this, the equal contribution is not really fixing or defining
cross subsidy at that point. It's a price definition, it's a
control on pricing in the competitive area that's different
from being market driven, market based.
While we understand that there needs to be a transition, we
thought a 5-year time period was reasonable for things to begin
to settle out in terms of the e-commerce issue, in terms of
setting up systems that extend better financial accounting,
better evaluation of assets and liabilities, as well as some of
the more specific product pricing that would go on in
competitive being market driven. The other view is that as you
define H.R. 22 the competitive products would need to be funded
eventually, not by the Federal Financing Board, you know, not
the Department of Treasury, but eventually from the private
markets. The view of the world from the private, financial
advisors tell us that you need to have a system in place where
it's very clear who is funding what, who is borrowing what, and
who is paying something back.
And so, again, from our vantage point, putting all those
factors together, we thought a 5-year sunset lets the bill take
its new shape, lets the Postal Service adapt, addresses the
cross subsidy through the anti-trust, the attributable cost
tests, which we would be reporting to the Postal Rate
Commission, and begins to put the Postal Service in a position
that if, in fact, there is a big drop off in that protected
non-competitive area, that it doesn't drag down the other part
of the competitive.
Mr. McHugh. Well, again, from a managerial perspective, I
don't fault the Postal Service for wanting to have a bill here
that provides them flexibility on the future as they may see
it. But, as I know you understand, not everyone shares that
same set of assumptions or sees that same vision.
Ms. Elcano. That's right.
Mr. McHugh. So you are suggesting, I take it, that, if
there was a cross subsidy, that would be a violation of an
anti-trust law?
Ms. Elcano. I'm not sure that that would be the violation
of the anti-trust law. I think that what I'm saying is that we
would be subject to anti-trust laws. We understand that
products have to cover their attributable costs and that this
is structured in a way--I have zero experience in anti-trust
law so I'd like to either reserve an answer on that or just
tell you that we understand we'll be covered by anti-trust law.
Mr. McHugh. OK. Well, you used that as an example of
preventing cross subsidies so I thought you were making a
statement. But I'm no expert either, that's why I asked the
question. Let me move onto a final point, a final concern.
As you may be aware, if you are not, and others in the room
you probably will soon be, there have been a number of concerns
raised with respect to so-called ``Title 39 provisions,'' the
current postal laws that apply to the mailing of obscene and
pornographic materials.
When we were first formulating this bill some 3 years ago,
as we did in a number of law enforcement areas, we went to the
Inspection Service and others and said, ``Is there anything,
while we're at this activity of reform, that you might like to
see enacted that would make the job easier or more effective,
et cetera?''
One of the things that the Inspection Service gave us was
language on how to redefine, in their opinion, more precisely
the current Title 39 provisions with respect to pornographic
materials through the mails, unsolicited. We were told that the
language that they presented would enhance their ability to
pursue those kinds of potential violators and ultimately to
prosecute them. That language has stood virtually unchanged in
every version of H.R. 22 for the last 3 years.
Recently a particular individual, but purportedly
representing a wider universe of individuals, has raised an
alarm, saying, amongst other things, that the purpose of this
redesignation of Title 39 is to end effective enforcement over
the mailing of pornographic materials--that the change would
result in fewer, not more prosecutions, that it would subject
recipients of mail to all kinds of unsolicited pornographic
materials.
This is kind of off-the-beaten path with respect to Title
39, but clearly something I am concerned about. When we are
given language by the Inspection Service, purportedly to
toughen pornographic mailing penalties, and there is even the
slightest suggestion that we are going in the opposite
direction and that, as well, there may be some hidden agenda as
to why we are doing it, is disturbing to me.
This is not something I would expect you to respond to in
detail today, although if you could, I would appreciate it.
But, at a minimum, I would request on the record that you look
at the language of Title 39, perhaps discuss it with the
Inspection Service, to ensure that the language is as you and
the Inspection Service wish it, and get back to us. And I'd
certainly appreciate it, if you have any comments.
Ms. Elcano. Just the main comment is you are absolutely
right. There is no intention to weaken that statute or
enforcement of that statute on behalf of the Postal Service.
That we want to strengthen it, not weaken it.
Mr. Henderson. We will provide you with a response.
Mr. McHugh. I appreciate that. I yield to the ranking
member, Mr. Fattah.
Mr. Fattah. I think it's abundantly clear that there is
significant and sincere interest in the economic circumstances
of UPS and Federal Express. These are companies that I think
you know complement the economic activity in our country in a
very significant way.
They were established and conduct themselves in the
business arena where they've made the decisions to get into
this business with the full knowledge of the operations of the
U.S. Postal Service. I mean, the U.S. Postal Service didn't
show up yesterday nor did Federal Express or UPS.
I think it's very important, as we go forward here, that we
not do permanent damage to the mandate given to the Postal
Service and its opportunity to meet its mandate with some ill
fated attempt to assist the private sector when the private
sector is quite capable of assisting itself in many respects.
And I won't bore you with the details of this, but I just think
we need to be careful as we go forward.
It's very important here, given what you've said, and I
think you're right, that there are going to be more significant
activities from international competitors in this marketplace.
And the whole issue of both attributable costs, and cost
coverage, and the like, we need to, speaking in English, have
people understand what it is that we're talking about.
The first issue here is that we have taxpayers in this
country who today receive First Class Mail for 33 cents and in
most cases, 90 percent or better, 1 day after it's put in the
mail box, it's delivered. And to the degree that we make any of
these changes, it needs to be clear to people what impact it's
going to have on that service, which is principally the service
that most people are involved in in terms of the U.S. Postal
Service. Is it going to cost them more, and is the letter that
they receive going to be received in the same level of
efficiency it is received now?
And then, as we move beyond that, you know, questions about
how the Postal Service interacts in the marketplace both among
your private sector competitors and now questions in terms of
international competition. So I want to thank you for your
comments today, but, obviously, we're going to have a lot of
work to do as we go forward. It is of interest and of note that
the U.S. Postal Service has these statutory burdens, that we
talked about earlier, but also has, I think, a responsibility
to try to within reason meet the terms of economic competition
from those who decide to compete with you.
I think there is a difference between those that decide to
compete with you and those you decide at some later date to
then get in competition with in the private sector. And I think
that is a distinction to be drawn there as we go forward in
this work. So, thank you.
Mr. McHugh. I thank the gentleman. Before I call for the
second panel, I had been handed a note that Chairman Burton had
to go on to another meeting. We appreciate his spending such a
significant amount of time with us.
But he wanted to clarify his request, Mr. Henderson, with
respect to the advertising costs. He wanted to make it clear
that he'd like the detail by product. In other words, I assume,
as much a line item by item breakdown as you could, rather than
just a lump sum advertising budget.
Mr. Henderson. We'll provide that.
Mr. McHugh. Thank you. With that, we do have a substantial
number of questions, as I'm sure you understand and as is the
rule, to present to you for the record. As you have done in the
past, we would appreciate your consideration of those and
respond by providing us with that material as well.
Again, Postmaster General William Henderson, General
Counsel Mary Elcano, we thank you for being here this morning
and, based on your response to my very first question, I'm
looking forward to working with you further on H.R. 22.
Mr. Henderson. Thank you, Chairman McHugh. And I'm going to
be leaving, I have a commitment. It's not out of lack of
interest in what the other witnesses say, but I do have a
commitment out of the country this evening. So ``Adios'' is not
being uninterested. Thank you.
Mr. McHugh. Well, we understand. Have a safe journey and
come back to us soon. Thank you.
[Additional questions for Postmaster General William J.
Henderson and responses follow:]
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Mr. McHugh. Our next panel, as I mentioned earlier, is
comprised of the five commissioners of the Postal Rate
Commission. Chairman Edward Gleiman; Vice Chairman Trey
LeBlanc; Commissioner George Omas, a face not unfamiliar to us
who have plied the House Chamber, a good friend and former
staff member at the committee; also, Commissioner Ruth Goldway;
and Commissioner Dana, also known as ``Danny'' Covington. So we
welcome you all here today. Before you are seated, while you
are up standing, let me rise and we can administer the oath.
[Witnesses sworn.]
Mr. McHugh. The record will show that all of the
commissioners responded in the affirmative. So, again, welcome.
We're glad you are here this morning. I will open with Chairman
Gleiman, who is certainly no stranger to this committee room or
certainly to this subcommittee. And I add, we welcome you back.
Having spent a good part of my last several days reading
your extensive testimony, it was enthralling I assure you, page
after page after page of it. I sound facetious and I should
not. It was very thorough, very, very responsive and detailed.
I do appreciate that because you gave us a great deal of not
just food for thought but substance for thought, as well.
As I know you understand, time totally precludes us from
your presenting that in its entirety. So we will, of course,
submit that for the record in its entirety. We'd appreciate if
you could point out those particular highlights that you think
are most relevant here this morning. Although having read it, I
can tell you that whatever you choose to focus upon will be
relevant, because it was all very relevant and very helpful.
So, welcome and thank you for being here.
STATEMENTS OF EDWARD J. GLEIMAN, POSTAL RATE CHAIRMAN,
ACCOMPANIED BY W.H. ``TREY'' LeBLANC, VICE CHAIRMAN; GEORGE A.
OMAS, COMMISSIONER; RUTH Y. GOLDWAY, COMMISSIONER; AND DANA B.
``DANNY'' COVINGTON, COMMISSIONER
Mr. Gleiman. I do feel at home with Jack Brooks staring
down at me. I sat up there and had him do that occasionally
during my 10 years as a staffer on the predecessor committee,
the Government Operations Committee. I was somewhat relieved
when I heard your opening, which indicated that this was not
the impeachment hearing room. I was actually very relieved,
because I know you read our testimony, and I was concerned that
after reading it you might want to make it the impeachment
hearing room.
Mr. McHugh. Not at all.
Mr. Gleiman. We do have a lengthy submission for the
committee today. Before I start, let me introduce my
colleagues, if I may? Vice Chairman LeBlanc is with us today,
as well as Commissioners Omas, Goldway, and our newest
commissioner, Commissioner Covington.
I have a summary that I've attempted of the testimony. I
also have the short version, the shorter version and the
shortest version. I think inasmuch as you've read the
testimony, and I hope others will read the testimony, I'm going
to go to the shortest version. If you want more, you'll tell
me.
H.R. 22 with some fine tuning, save the private law
corporation where we have some serious concerns, would appear
to be workable. It would appear to provide an opportunity for
the goals that were established at the outset, concerns over
unfair competition, non-postal products, and losses of revenue
due to decline in volume--not market share but volume--that the
Postal Service is facing. These problems can be adequately
addressed, with some tinkering, by H.R. 22.
Having said that, it is our considered opinion, by and
large, that the Postal Service amendments are directly contrary
to many of the bedrock principles of H.R. 22. The Postal
Service amendments seem to erase many of the checks and
decalibrate almost all of the balances that have been carefully
and thoughtfully incorporated into the bill in response to the
concerns of interested parties.
I could discuss at length the private law corporation at
this time, if you would prefer, but, if not, we can go right to
your questions.
[The prepared statement of Mr. Gleiman follows:]
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Mr. McHugh. Let me ask about the private law corporation.
Before we do that, Commissioner Goldway has presented testimony
which we will submit its entirety in the record. Commissioner,
we thank you for that extra effort and welcome you, all of you,
of course, but I believe this is your first hearing? Welcome.
Be careful what you pray for, Commissioner.
[The prepared statement of Ms. Goldway follows:]
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Ms. Goldway. Thank you
Mr. McHugh. I am aware, Mr. Chairman, that you have
concerns about the private law corporation and we do need to
probe those and discuss them. But, first, let us spend a little
time on the Postal Service amendments. A great deal of your
prepared testimony was spent, I felt, in addressing those
issues.
Now, you heard me discuss, for example, the cost coverage
rule, the 5 year sunset of that, and the suggestion by the
Postal Service that they be the determiners of what is non-
competitive and competitive, versus the process defining H.R.
22, involving more market oriented procedures, and such.
Let's spend a little time, if you would, filling out the
record in a counterpoint, for lack of a better description, of
what the Postmaster General just said. Let's start with the
cost coverage rule.
I know you heard my comments, the concerns about doing away
with that provision after 5 years. You heard in response both
the PMG and the General Counsel's view about a future of the
Postal Service and a process by which, after 5 years, that cost
coverage rule becomes moot, in their view, at best, and at
worst becomes a negative thing in terms of a pricing burden on
a product that in theory is supposed to be competitive. I'd
like to hear your views on that.
Mr. Gleiman. Well, first let me say that, as I recall, H.R.
22, as reported out of the committee last fall and as
reintroduced this year, does contain a provision that allows
the Postal Service to approach the Postal Regulatory Commission
and ask for adjustments in the nature of the equal contribution
provision. So, to the extent that something is going to happen
over the next 5 years, or however many years, that could impact
negatively, there is a mechanism built in now.
The big problem with the Postal Service's proposal to
sunset the contribution requirements on the competitive side
has to do with where the money to cover overhead is going to
come from. There is an issue that we've all been wrestling with
about when the first class monopoly volume is really going to
decline. And one of the reasons that we're all involved in this
and have been for a number of years is the fear that we need
some way to cover overhead costs.
The Postal Service's proposal that in 5 years there doesn't
have to be any contribution rule, or any contribution for that
matter, would indicate that we're not going to be able to solve
the problem associated with declining first class volume. Even
assuming that the Postal Service is positioned to shed volume
variable costs, it will still have substantial fixed, overhead
costs that it will have to cover. I don't know where it expects
that money to come from, if it doesn't expect, in year 6, for
the competitive products to make some contribution. But doing
away with the mark-up is exacerbated in a sense, as are several
other provisions of the bill, by the Postal Service's proposal
to define product at the subclass level. If all you have to do
is cover costs at the subclass level, and you don't even have
to make a contribution, just think about what happens with
offerings or rate categories within a particular subclass.
Where they think they've got something close to market
dominance, which they can have under their proposal in the
competitive area, they would be encouraged to go for higher
rates and maybe below costs rates for subordinate units, as the
bill calls them. And I think that there is potential for a
great deal of hanky-panky.
Ms. Elcano, as I understood her, said, ``Don't worry about
it, there are provisions in here which apply the anti-trust
laws.'' Well, you know, a lot of the Postal Service amendments
would weaken the antitrust protections and the other playing
field leveling provisions that you have included in H.R. 22.
And even assuming that she's right, anti-trust suits take 1\1/
2\ years, 2 years, 3 years, I don't know. I have a law degree,
but I haven't been to court in an anti-trust case.
I imagine that with the opportunity not to have to worry
about marking up your products and only covering costs, and
then having some sub-units where you could be below cost, that
you could do some fair damage to the private sector.
Mr. McHugh. Also, let me say, when I address my questions
to the chairman they are by inference addressed to any of the
commissioners. If any of you at any time want to add or expand
upon anything that the chairman is saying, please feel free to
do so.
Mr. Gleiman. You'll be disappointed to know that Vice
Chairman LeBlanc has laryngitis today and probably won't be
able to offer additional comments.
Mr. McHugh. I'm heartbroken. Well, I wish you a speedy
recovery sometime later this afternoon. You also heard the
response to the concerns that we have heard that I conveyed to
the PMG, with respect to their amendment that would propose
that they define competitive versus non-competitive.
You may have also heard the general counsel's response with
respect to single piece international mail and the fact that
they have a court case going now. And that again in the future
they envision a time when it would indeed be competitive. Do
you view that amendment as a helpful one or as one that better
balances the playing field, as we like to say, in this process?
Mr. Gleiman. I do not think it better balances the playing
field. I also heard the Postmaster General comment at another
point in his presentation, in response to a question that you
asked, that almost every Postal Service product, or something
to the effect of, has competition in one way, shape or form.
As for the argument that there is something in a lawsuit
somewhere that may imply that single piece international should
be in competitive, I guess you could extend that argument and
say that, well, letter mail, which is part of the monopoly, is
in competition, we've all heard it time and time again, with
evolving technologies.
Everybody is worried about electronic bill paying, so why
don't we just move everything into the competitive basket or
the competitive side of the ledger and get it over with now?
That's how I would read the Postal Service's position. I just
think it's not well taken.
Mr. McHugh. You have, and let me state for the record, in
the body of your testimony a series of amendments that you
suggested that, in your opinion, could make the bill more
``finely tuned,'' to use your phrase.
I will respond that, just at first blush, many of those
amendments did indeed appear to be some things that we not only
can, but should and will, take under consideration. I won't go
into a list of those now, but we undoubtably will want to get
back to you on ensuring that, as we go forward, we're
formulating something that you indeed intended and envisioned,
and I appreciate that.
Mr. Gleiman. Mr. Chairman, perhaps I should have said this
at the front end, but Bill Henderson talked about the
relationship between the Postal Service and the Postal Rate
Commission in the past few years, and he was right. It's a much
better relationship than it has been during many years since
postal reorganization in the early 1970's. A lot of that has to
do with Bill Henderson's attitude.
I think it's important for you to know that we talk with
the Postal Service frequently about the bill. They initiate the
conversations. We initiate discussions with them. We don't
always agree with them, but they have a perspective that they
need to present, and I understand that where one sits is where
one stands on issues.
I think it's important for you and for everyone else who is
involved in this to understand where the Rate Commission sits.
It is an interesting place because we, and you can take me at
my word, are not presenting views which are intended to
perpetuate a bureaucracy.
Our concern is that whatever comes out in the way of H.R.
22, if and when it's enacted into law, is good for the American
public, the mailing public, the Postal Service. Our amendments
and the proposals that we offered, as well as our critique of
the Postal Service amendments, are all offered in that vein.
Mr. McHugh. I do take you at your word. I do take it not
just as your word today, but, in some of your previous
testimony, some of your frankest observations have been with
respect to what you view as the possible inability of the PRC,
under the current structure, to do a task that was being
envisioned. That's a very frank assessment.
I took from that, as you just noted here today, that your
overriding interest is that whatever we craft is, when taken
together, better than what we have today and continues to
provide the kind of postal service that Americans have come to
expect and to enjoy. But I certainly understand and appreciate
your comments.
I was speaking about some of the suggested amendments that
you had made and how we felt there was some room to move on a
number of those. One of the suggestions that you made is with
respect to work sharing discounts. You spoke about how you felt
there was the need to put in language that somehow stipulated
that work sharing discounts should only be allowed when there
is a cost savings realized.
Understanding right now that that is the motivator of work
sharing, explain or expand, if you will, a bit on why it is
your concern that the Postal Service may find itself in the
future doing work sharing agreements that don't result in cost
savings. I mean, it seems to me it's kind of a sine qua non of
the process. How does it get turned around?
Mr. Gleiman. Well, if you are interested in retaining
volume that you have and or competing with, whether it is
Deutsche Post, the Royal British Post Office, UPS, or Federal
Express, you might be moved to provide discounts which are in
excess of what is appropriate under certain economic
considerations.
One of the principles, I think, that underlies this effort
that you've undertaken is that we have an efficient system. I
use the economic concept, efficient component pricing, in
conjunction with the discussion of work sharing discount.
What we're talking about here is that the Postal Service,
should offer discounts that reflect the costs that are avoided
as a consequence of work sharing--not more and not less. That's
what we strive for under the current ratemaking process, 100
percent pass through of cost avoidances. If the Postal Service
sticks to that then mailers, users of the mail, are in a
position to make decisions based on the economic dollars and
cents.
If the Postal Service passes through 100 percent, and I can
do it cheaper, then I'm not going to use the Postal Service.
That's good for the overall economy. If I can't do it cheaper,
then I am going to use the Postal Service, and that's good for
the overall economy too, as well as for the Postal Service. So
we think it's a very important concept that ought to be
specifically included in the legislation.
Mr. McHugh. So you are simply concerned about, in the
competitive area, volume and not losing volume at any cost to a
potential competitor?
Mr. Gleiman. You could have work sharing discounts in the
non-competitive area, both monopoly and non-monopoly non-
competitive areas. I think that it's a concept that should be
applied across the board. The Postal Service could, for
example, introduce a drop ship discount for First Class Mail
which does not now exist.
One would assume that the sensible thing would be to have a
discount that reflects the costs that are avoided as a
consequence of mailers drop shipping. I don't see any good
reason for the Postal Service to offer larger discounts but,
theoretically, they could under the price cap scheme. I don't
think that they should. It would not be an efficient thing to
do.
Mr. McHugh. In a similar vein, NSAs. Under H.R. 22, there
is a prior notification requirement to the PRC, et cetera,
another one of the amendments that the Postal Service has
submitted. I did not raise this question directly to the PMG,
but we will submit it in written form--that they would delete
that prior PRC review.
The question I would have for you is, what would the
effects of that be in your judgment, good or bad or
indifferent? Assuming you are concerned about the loss of that
provision, could something like a public notice, even without
PRC prior review, take care of some of those concerns? Or is
there some other role that we could develop for the PRC that
might make the Postal Service's amendment, in your view, more
workable?
Mr. Gleiman. I think at the very least there has to be
public notice. What the Postal Service is proposing is to have
something akin to secret, non-tariff rates. The bill, H.R. 22,
provides an opportunity currently for parties to raise
questions about negotiated service agreements. If they are
secret, how are you going to know whether to raise a question?
If they are secret and you are similarly situated to the
party that the Postal Service is dealing with, and the bill
provides that the NSA should be extended to similarly situated
mailers, how are you going to know that there is something
that, you want that somebody else is already getting?
So I think at the very least there needs to be public
notice in advance. I mean a full public notice so that others
can understand what it is that they might want to go after
themselves.
Mr. McHugh. Well, is the ``very least'' good enough? I hear
what you are saying and you feel that that's an absolute
necessity, but where is your comfort zone?
Mr. Gleiman. Well, my comfort zone is with the bill. I
suspect we could live with a little less, as long as everybody
understood there was an after-the-fact review; and, that there
were, indeed, liquidated damages provisions that could be
enforced in the event that the Postal Service either noticed,
or didn't notice, an agreement to the public that was a poor
agreement and/or where the other party to the agreement did not
live up to its end of the bargain. But I would much prefer the
provision in the bill.
Mr. McHugh. How long a period of review do you think is
necessary by the PRC? In other words, if the bill were to
mandate a certain review period, do you have an idea what that
timeframe might be?
Mr. Gleiman. That's a tough one because we're getting into
a new area and there are some underlying questions. The
thinking at the Postal Rate Commission has evolved
substantially on negotiated service agreements. Whereas we had
some really serious reservations before, our reservations are
somewhat limited now.
But there are issues involving how the negotiated service
agreements would be costed out; whether the costing would be
bottoms up, subclass costing, or whether it would be a tops
down cost avoidance approach. This is what is used now in
ratemaking. Those issues have to be discussed in order to
determine how long it is that we need to review an agreement.
The other issue is, who knows how many agreements there are
going to be? Just like the Postal Service wants flexibility, I
guess we would like a little flexibility on this one, too.
Mr. McHugh. Fair enough. Going back to an original
question, and just so I've got it on the record, and I think I
could deduce it from the previous answer. But, is my assumption
correct that you would not agree that, under the current
system, international Aunt Minnie mail ought to be competitive?
Mr. Gleiman. I think the bill has it split up right on that
one, as it stands. We do have some questions, though, about
some aspects of priority mail. If you use the market dominance
test as a determinant, what goes into the competitive arena? It
appears to us, although we don't know for sure, and we would
have to have some information to look at to make a better
determination, it looks to us as if in some areas the Postal
Service may have what's tantamount to market dominance.
So while I like most of what is in the bill, in terms of
how it has split up competitive and non-competitive, I think
that we all, the committee, the Postal Service and the Postal
Rate Commission have to look a little bit more carefully at
these fairly large service offerings like priority mail.
Mr. McHugh. Well, that's what you like about the bill.
Let's go to something that you may not find, you do not find as
attractive, and that's the provisions of the private law
corporation. Rather than form a leading question, I'd like to
just allow you the opportunity to kind of define or describe
your view and your position, and maybe we can go from there.
Mr. Gleiman. I don't want to hog the microphone, and I
would invite my colleagues to jump in at any time on this.
Mr. McHugh. Especially if they disagree with you on this
one, I would urge them as well.
Mr. Gleiman. As I recall, when we first started talking
about postal reform, and this may have been before you arrived
on the scene, although it was mostly talk and no action before
you arrived on the scene, there were a couple of problems and
concerns that people had.
One of the concerns was expressed by the private sector,
which felt that the Postal Service was embarking on non-postal
activities and was using monopoly moneys to underwrite their
forays into these new non-postal areas. Some of these
activities had no nexus whatsoever to anything postal. So the
question was: How do you make sure that there is a level
playing field and that a monopoly is not there as the
underwriter?
The other big concern was that--let me step back a minute.
The Postal Service felt, and many large mailers supported them,
that it had to get involved in non-postal activities because
that was a source of new revenue. We all know the Postal
Service is going to need new revenue to underwrite its
universal service obligations when First Class Mail volume, and
perhaps other mail volumes, flatten out or decline.
Now, let's look at what we've got. We've got a private law
corporation, which I believe was intended to address those
problems by helping out on the finance side of things. There is
no requirement, and I want to emphasize ``requirement,''
because I know there is a provision saying something can
happen, but there is no requirement that if the private law
corporation is wildly successful and makes a lot of money, that
it has got to feed any of that money back in to underwrite the
universal service obligation.
We recommend that if you do go ahead with the private law
corporation, than at the very least there be a requirement that
if the corporation make money, that money be paid back to the
Postal Service to underwrite the universal service obligation--
to deal with the problem we all know is 3, or 5, or 10 years
down the road.
On the product side of things, we have the monopoly in a
position where it's going to indirectly fund non-postal
products. By the way, it's not altogether clear the Postal
Service will ever make any money with non-postal products. The
track record, as evidenced by a GAO report prepared for you,
indicates that the Postal Service is not all that strong when
it comes to getting out there and competing in a non-postal
area.
The money for the private law corporation, in the bill,
comes from the competitive product fund. The fund can transfer
excess contributions or surpluses, after the equal contribution
requirement is met. That's not all that bad. It certainly is an
improvement over the current situation. But it appears as
though the Postal Service wants to take PLC funding much
further.
And even before you get to the Postal Service amendments,
there is a discussion--and these discussions have taken place
at the staff level and higher between the Postal Service and
the Rate Commission, the committee is aware of them--of
mechanisms for funding the private law corporation.
For example, there has been a suggestion that one thing you
can do when you distribute the assets to the competitive box
and the non-competitive box, is have the competitive side sell
its assets and lease them back. Then you can take the revenue
that the competitive side has earned from selling its assets to
the Postal Service's non-competitive side, and use this money
to further fund the private law corporation above and beyond
what I think your bill initially considered, which is that
surplus in the competitive fund.
Now, along comes the Postal Service, and the Postal Service
wants to sell stock to the public. I suspect that if stock is
sold to the public, that the stockholders are going to put
pressure to be paid dividends, which is going to lessen the
likelihood that any moneys are going to flow back over the
fence to the Postal Service side. You know, it just gets very
dicey.
Probably most troublesome, by the way, is the question a
moment ago about the sunset after 5 years of the equal
contribution provision. The Postal Service doesn't say that
it's not going to mark up competitive products. It just says
that it does not want to have to be worried about making a
contribution over to the Postal Service side. It wants to have
all the money that it makes on competitive products, both
related to the cost of the products and related to any mark-up
over the cost of those products, to be transferred into the
private law corporation.
Step back to another Postal Service amendment. The Postal
Service wants to be able to transfer whatever it wants, without
regard, over to the competitive side. Anything that's not
monopoly can go over to the competitive side. So you are left
with First Class, Standard A letters, and a few other little
things, that are covered by the monopoly. Everything else goes
over into the competitive product area. Then you take all the
money you make in a competitive product area, and you throw it
over the fence into the private law corporation.
I thought we were all concerned about the monopoly captive
audience. I thought we were all concerned about doing something
to ensure that we were going to be able to meet the universal
service obligations. The Postal Service's amendments seem to
indicate that it is not all that interested in that, that it is
more interested in the competitive aspects of this and in the
private law corporation aspects. In terms of, you know, the
financing has evolved, the role has also evolved.
I thought that you wanted them to be able to undertake some
activities again in the non-postal area. Now the feeling is
that it could transfer postal products. You could read the bill
to allow the Postal Service to transfer everything, and I do
mean everything, including the monopoly products, over the
fence to the private law corporation.
The bill says that the Postal Service has an obligation to
meet this universal service obligation. It does not say that
that Postal Service has to have letter carriers, it does not
say that the Postal Service has to have mail handlers, it does
not say that the Postal Service has to have clerks to collect,
process and deliver that mail.
The private law corporation provision is, and this is a
constructive criticism, please understand, it is written in a
manner which would allow the Postal Service to contract with
the private law corporation, which is not obligated, by the
way, to use union labor, to perform all the functions that are
necessary to fulfill its obligation, leaving you with a hollow
virtual Postal Service, if you will; a couple of floors at 475
L'Enfant Plaza where there are some contracting officers; a few
policy people; maybe somebody to come up and testify
occasionally. Those are some of the concerns that we have.
But, again, when it comes to non-postal products, the
private law corporation in the narrow sense is a better
approach than what we now have, where there is a free ride on
the back of monopoly revenues.
Mr. McHugh. Well, I won't say it sounds like a chapter in
the X files, but you've thought the line out to----
Mr. Gleiman. It may be a chapter from the X factors,
though.
Mr. McHugh. Flashback.
Mr. Gleiman. I think that the comments that we've made are
fairly far reaching. But we've also noted that the private law
corporation first appeared in H.R. 22 when it was marked up
last fall. This is the first time there has been a hearing
where anybody has had an opportunity to comment. In this set of
hearings, it's the first time anybody will have had an
opportunity to really talk about H.R. 22's private law
corporation provision.
I take you at your word when you have said repeatedly that
this is a work in progress. We would like to see it progress,
but we would like to see it progress in a manner which is going
to deal with the problems that we all thought we were trying to
deal with at the outset.
Mr. McHugh. Your point on the first opportunity is correct.
A lot of what you said is a fundamental, or I should say a
philosophical, question, much like is there cross subsidy or
not. We could argue or discuss for quite some time. As I know
you understand, the current system has no requirement that
there be clerks and postal delivery people. Indeed, if you turn
to some of the gentlemen behind you, I think they would readily
voice concerns about what they view to be the privatization in
place, if you will, already of many traditional postal services
through contracting out and such. So I don't know as I would
agree we may not be solving that problem, but I don't agree
we'd be creating it anew here.
Mr. Gleiman. Mr. Chairman, what the bill does is put the
imprimatur of law behind contracting out. You are absolutely
right. It's not prohibited under current law, but there is
nothing under current law that can be read point blank to
endorse that type of activity. I think there are reasonable
people who will read the provisions and assume that it says
this is OK.
But, you know, I think that the real issue here is taking a
couple of steps back and asking the question, does the Postal
Service really have to be involved in non-postal activities?
The only reason I raise this is because we're all concerned, I
think, about finding a way to make sure that we have a Postal
Service that has sufficient funds, in the face of declining
volume at some point in the future, to continue to provide the
services that the ranking member talked about earlier.
Mr. McHugh. The necessity in a political world to craft a
bill that can be passed and signed into law, and a bill that
tries to, as effectively as it can, respond to the very
legitimate concerns of corporate America and private enterprise
that feel that indeed under the current structure they are
being asked, totally contrary to their philosophical view of
capitalism in the longest lived democracy in the history of the
world, to compete against a highly subsidized one in terms of
government monopoly. And that's the challenge we have.
I want to just go back to the point about what H.R. 22 does
or does not do. Without rejecting out of hand your
interpretation, I would suggest again that practice has shown
that the current structure has no prohibitions against
privatization, and it is being done. H.R. 22 does in no way
expand upon what currently exists in that regard,
notwithstanding your concerns and not discounting your
concerns.
But I don't want any one to leave this room under the
impression of a point that I don't think you are making. There
is nothing explicitly in H.R. 22 that calls for or in any way
expands upon current law. I understand the point you've made
twice now, but let me just add a couple of other things.
One of the other intents of the private law corporation,
beyond those you described that talk about the monopoly
underwriting the competitive or non-postal activities, the need
to provide opportunities in the future for the Postal Service
to add to its current fiscal structure through non-postal
opportunities, but it was also to try to shield captive rate
payers from the current practice where they and they alone are
the financial carriers of any kind of ill-advised experiment in
non-postal products.
You mentioned very accurately, and I think we all know this
through our own experience, but as the GAO report, as you said
we requested, recently illustrated, the track record of the
Postal Service on these non-postal products in terms of the
economics of it, and they would argue, by the way, we've not
had a long enough history of it, there are many other reasons
for it but, nevertheless, the picture as it stands today has
not been positive. Those failures have been, would you agree,
have been borne totally by the captive rate payer?
Mr. Gleiman. There is no question about that. Let me repeat
again what I said before, and what is in our testimony. In that
regard, H.R. 22 is an improvement over current law. It shields,
to a degree, a monopoly player from bearing a burden of
allowing the Postal Service to get involved in non-postal
activities. Also, as there are no requirements today that
postal employees be unionized, there is no prohibition in H.R.
22 that any future activities they would do through the private
law corporation would not be unionized.
Mr. McHugh. And I suspect that when as H.R. 22 requires the
shareholders and the sole interest in the private law
corporation must be held by the U.S. Postal Service, that when
our union friends go to the bargaining table in 2008, the year
after I said if we had started today H.R. 22 would be in
effect, they might indeed be talking about the activities of
the private law corporation to the CEO and chairman, who I
assume would be the Postmaster General, about the opportunities
for union employees in the private law corporation.
Mr. Gleiman. I'm sorry, did I--I don't know whether I
understood you just now----
Mr. McHugh. Good, because I didn't understand a lot of what
you said either. What I'm suggesting is there is nothing in
H.R. 22 that would preclude--you mentioned there is nothing
that requires employees that they hire be union. And I said
there is no requirement for that currently on the baseline
within the Postal Service. And in the comment I said there is
nothing that would preclude, under H.R. 22, any employee hired
under the private law corporation to in fact be union.
And that I suspect, and this is based only on about 15
years of experience in negotiating various employee contracts
at both the State and Federal level, that when the union
representatives for the more than 700,000 union employees of
the Postal Service would go in and talk to the Postal Service
management, who also would be the representatives of the sole
stakeholder in the private law corporation, they might talk
about hiring union employees as part of the private law
corporation. Not that there would be any direct fiscal link or
legal link, but I bet that would happen.
So all I'm suggesting is, I don't know as it is a valid
critique--it's valid but I don't know as it's relevant to say
there is nothing that would require those employees to be
union, other than to get the attention of the first row here
[indicating union representatives].
Mr. Gleiman. Mr. Chairman, all I'm suggesting is that this
is a new concept that was added to a bill that was marked up
last fall. It has not been examined in great detail in public.
I think there is ample opportunity for people to agree with you
and/or with me. What I think is necessary, and what we said in
the written statement, is that we think that there needs to be
a careful and thoughtful examination of just what's intended. I
go back to my original point: If the private law corporation,
whatever it does, is not going to provide sufficient revenues,
and those revenues are not required by the bill to be plowed
back into the monopoly side or the non-competitive side, then
I'm not sure what useful purpose the bill serves.
You said the purposes were opportunities to add to the
current stable of products and develop new funds and to shield
the monopoly. I don't disagree with you. I just think that we
have to look at the realities of the situation and some parts
of the bill as drafted. If we want the money that the
corporation may make, whatever you ultimately decide it should
be allowed to do, to benefit the monopoly, then we ought to
have a requirement to that end.
We ought to have some checks and balances to make sure that
if those Postal Service amendments are accepted, that the
Postal Service hierarchy doesn't just use the Postal Service as
a cash cow to fund the private law corporation. It's down to
that. I assume we'll have some discussion. I would like to
think we'll have some discussions about it.
Mr. McHugh. We will. And your points are excellently taken.
So to sum up on that issue. You are concerned about the
permissive nature of H.R. 22 which permits, allows for, a
contribution back. You feel it would be more appropriate if
there was some sort of requirement of a contribution back. I'm
not terribly troubled by that component. What the challenge
then becomes is, how do we do that percentage, based on what
determination? So we need to talk.
Mr. Gleiman. Please listen carefully. This may be the only
time in my life I ever give a one word answer. Yes.
Mr. McHugh. Good. I would be happy to yield to the ranking
member, Mr. Fattah.
Mr. Fattah. Thank you. I'm at somewhat of a disadvantage. I
told you I had Secretary Riley over in the other room. But let
me thank you for coming forward. And, as I understand from your
written testimony, and I wasn't here for some of the back and
forth, well, let me ask you like this. The price cap issue,
your position on that is what? And it doesn't have to be one
word, but brevity is helpful.
Mr. Gleiman. I think with some fine tuning the price cap
approach can work. There are a couple of issues that I think
need to be dealt with. We understand and feel that the price
caps would be set at the rate element level--the rate cell
level, excuse me. Most of us think that this is an appropriate
place to set the price caps.
The Postal Service feels it should be done a different way.
We disagree with them. The way they would propose it, to set it
at the subclass level, would allow for below-cost pricing under
the subclass. We don't think that's consistent with one of the
basic premises of the bill, which says everybody ought to pay
his cost.
The Postal Service also proposes some modifications to the
nature of price caps. And these modifications are a bit
troublesome in that they would provide for larger increases.
Now, when this question was asked, and I can't recall whether
it was you or one of the other Members who asked the question
of Mr. Henderson, the response was that, well, when it comes to
the first basket, First Class letter mail, don't worry, we
can't go over the price cap. And that's right. They've set a
band of 2 points below the price cap and zero above, but
they've only set that for First Class letter mail, the Aunt
Minnie basket. When it comes to baskets two, three and four in
the Postal Service proposal, which has business First Class
Mail, and has Standard A mail, and periodicals, the Postal
Service has given itself a bit more discretion. There it says
that prices can go up as much as 1\1/2\ points above the cap.
If you use an example, and I don't want to confuse anybody
with this, but if you assume inflation is 3 percent, and then
under the proposal in the bill the Rate Commission knocked off
1 percent so that the price cap was 2 percent, rate increases
for all mail would be somewhere between 0 and 2 percent.
Under the Postal Service's proposal, again 3 percent
inflation but no adjustment factor, it would have you set rates
at anywhere between 2 points below the cap, which in its case
is 3 percent, or 1.5 percent above the cap. So, under the
Postal Service amendments, the rate increase, in the same
situation with the same inflation, could range for advertising
mail or periodicals, what have you, between 1 percent and 4.5
percent.
I would submit that if one of the basic premises of the
bill is to tighten up, then we don't want to have a range of
price increases from plus 1 to plus 4.5. We want to have a
range of price increases between 0 and 2. It's better for the
mailer, and it's better for the economy as a whole.
Mr. Fattah. The interaction, as you see it, and H.R. 22, as
proposed, that would rearrange to some degree the third
principle you talk about in your comments, this competition,
notion of a fair playing field. It's hard, as I grapple with
this.
The Postal Service is more than just a competitor to these
other players in the market. It has these other burdens, other
responsibilities, and other restrictions on it. And I'm
interested in how you see, assuming H.R. 22 is passed without
amendment, without any of the amendments that have been offered
by the Postal Service, do you think that would create a fair
playing field?
Mr. Gleiman. I'm sorry, I couldn't hear you?
Mr. Fattah. Do you see H.R. 22, as it exists in its present
form, creating a fair playing field, in terms of competition?
Mr. Gleiman. By and large, yes. We've offered a list of
what we think are relatively modest amendments; proposals that
I think would sharpen up the bill. But by and large, yes. When
I say that, let me just say that I have some heartburn about
the private law corporation. But if you are dealing with how
the rates are going to be set, boxes one and two, of the three
boxes, the non-competitive and competitive, I think it's
workable. I think it's doable.
Mr. Fattah. The private law corporation issue, I understand
you have some concerns about it, is an opportunity for mischief
to take place?
Mr. Gleiman. I think that we need to explore it further.
And, we had some specific suggestions there, also. For example,
we think that more of an arm's length relationship has to exist
if there is going to be a private law corporation. Right now
the directors of the corporation are appointed by the directors
of the Postal Service.
There may be, and I don't have off the top of my head
another way of getting those folks in place, but perhaps there
is another way that would insulate them somewhat from dealings
with the Postal Service, make it arms length. Also we're
concerned about postal employees moving over to get higher
salaries in the private law corporation.
Mr. Fattah. I know this is a pet peeve of yours, so I don't
want to get too mired down in this yet. But let us just go back
to this issue of competition for a minute. Is it your view that
the public's interest is served by this fairer competition that
would be an outcome of H.R. 22? I'm differentiating the mailers
and the other stakeholders from the public in general.
Mr. Gleiman. I think all of you, especially the chairman,
have worked very hard at this and if you haven't leveled the
playing field, you've come darn close to it. I'm not sure, how
much closer you can come. In that sense, I think, yes, the
public would generally be served. We have some concerns, again,
about the burden shifting and the like, but I think that they
can be dealt with in a reasonable manner with modest
amendments.
Mr. Fattah. I'm going to yield back.
Mr. McHugh. Well, I thank the gentleman for his questions.
Again, I would invite any of your fellow commissioners----
Mr. Gleiman. I'll lean back and push the mic away.
Mr. McHugh. I'm not trying to move you off stage, Mr.
Chairman, but I just have some very knowledgeable people here.
Commissioner Omas.
Mr. Omas. Mr. Chairman, I don't know that I have a whole
lot to add. I do agree with the chairman on many of the issues.
But I, too, share his concerns about the management of the
private law corporation, how do you separate the Postal Board
of Governors and the management structure of the governing body
of the private law corporation? That is probably my biggest
concern.
I think the bill as drafted is fine and you should be
commended. H.R. 22 is a good bill and I think it's a workable
bill. Mr. Chairman are to be commended on how you've managed to
get everybody to the table. I thank you for this opportunity.
Mr. McHugh. Thank you, George. Well, and as I said in my
opening remarks to the chairman, and the chairman's comments, I
understand, are the collective thoughts and works of the entire
Commission, there was a very substantial amount of work and
thought and analysis that went into that and I do deeply
appreciate it. And there are areas that we want to explore
further, as I indicated to you, particularly where you have
made, as you indicated to the ranking member, some suggestions
for changes. We want to pursue those.
I will go back to my comment about the willingness that I
have to re-examine the issue of contribution from the private
law corporation to the Postal Service to the non-competitive,
and what might be able to be constructed, if anything, to make
that more clear than it currently is. I do not discount your
concerns. More than that, I understand them and share them and
if we can develop an approach, I would support that.
So as with past practice and as I indicated to the
Postmaster General we will have some written questions. In the
past you have been very gracious in responding to them and we'd
appreciate that in the future. But thank you all for your good
and hard work, and we're looking forward to working with you.
We appreciate it.
Mr. Gleiman. Thank you for the opportunity and we look
forward to working with you, too.
Mr. McHugh. Thank you, Mr. Chairman.
[Additional questions submitted to Mr. Gleiman follow:]
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Mr. McHugh. The next panel is comprised of the management
associations. As we're in the process of changing the name
placards, we are pleased to welcome today the president of the
National Association of Postmasters of the United States, Ted
Carrico; the president of the National League of Postmasters of
the United States, Joe Cinadr; and the president of the
National Association of Postal Supervisors, Vince Palladino.
Welcome, gentleman.
We have a substitute in the line up. Now playing, Vince
Palladino will be----
Mr. Keating. My name is Ted Keating. I'm the executive vice
president for the National Association of Postal Supervisors.
Mr. Palladino was called home to New York last night. His
father is critically ill. He expresses his regrets at not being
here this morning.
Mr. McHugh. Well, that's very, very sad and troubling.
Please express our best wishes to him, and particularly his
father, our concern that he have a full and speedy recovery.
But we do welcome you and thank you for being here and for
sitting in in representation of the National Association of
Postal Supervisors.
I'm sorry I allowed you to be seated before we administered
the oath, so if you will bear with me, please rise.
[Witnesses sworn.]
Mr. McHugh. The record will show that all three witnesses
responded in the affirmative to the oath. With that we will, as
in the past two panels, say that all of your prepared testimony
will be submitted in its entirety to the record. We would ask
as we yield to you if you would summarize your comments and
make those kinds of observations as you see fit.
So, again, welcome. And we'll proceed in the order in which
you are represented here today, beginning with President
Carrico of the National Association of Postmasters. Welcome.
Good to see you again.
STATEMENTS OF TED CARRICO, PRESIDENT, NATIONAL ASSOCIATION OF
POSTMASTERS OF THE UNITED STATES; JOE CINADR, PRESIDENT,
NATIONAL LEAGUE OF POSTMASTERS OF THE UNITED STATES; AND TED
KEATING, VICE PRESIDENT, NATIONAL ASSOCATION OF POSTAL
SUPERVISORS
Mr. Carrico. Thank you Mr. Chairman, members of the
subcommittee. I am Ted Carrico, the Postmaster of Palisade, CO.
I also have the honor of serving as the national president for
the National Association of Postmasters. We represent more than
45,000 active and retired postmasters who ultimately are
responsible for the quality of mail service provided to cities
large and small, as well as to those areas which have no
definable municipality.
Palisade, CO, is located in a rural area of western
Colorado, much like the hamlet in upstate New York that you
call home. As you know, we have some different needs in rural
America than the rest of the community. H.R. 22, I think,
addresses those needs very well.
Postmasters want to ensure that delivery is provided to
each and every one of our customers every day, everywhere, and
I think that your bill does that. For a long time, though,
detractors have alleged that the Postal Service is a lumbering
dinosaur whose time for extinction has long passed, and that
the private sector can do things a lot better than the Postal
Service.
I've not seen that in rural America. Rural America depends
upon, I guess it's what I would call the subsidy that is
provided by the larger markets, the big cities in America. I've
heard many discussions about all the baskets and stuff. And,
you know, postmasters aren't concerned about baskets, we're
concerned about delivering the mail. We're concerned about fair
play.
And we realize that mail can be delivered in the larger
cities a lot cheaper than it can be delivered in the small
towns. We rely on new ideas to build upon that revenue, the
growth coming in, new products, new services. And I think the
Postal Service is doing an outstanding job. If you look at the
recent polls, and I think all politicians look at polls, the AP
poll found that 75 percent of Americans believe that the Postal
Service is doing an excellent or a good job. Last year a Pew
Research Survey concluded that the Postal Service enjoys a 90
percent approval rating. And in the most recent Price
Waterhouse survey, it was determined that 93 percent of over-
night First Class Mail is being delivered on time.
Americans demand a strong Postal Service that will provide
essential value to everyone. Postmasters know your goal is to
strengthen the agency so it can support uniform service to
every community in the Nation, thus enabling the Postal Service
to expand its revenue and to support the infrastructure making
universal service possible.
Let me assure you postmasters, side by side with the entire
Postal management team and the loyal hardworking craft
employees, will continue to work to see that these new
revolutionary products and services are provided to the
American public.
I have a concern that our competitors would like to do some
cherry picking, and that's where we have to protect the
American people. There has been many times in my career that
postmasters or the postmaster organization doesn't always agree
with the Postal Service.
We take public service real seriously. And there is
probably no other group that's engaged with communities across
this country more than postmasters. Many times the Postal
Service will make a proposal that will find us on the other
side of the table, whether it be the box rent issue that we had
2 or 3 years, or the closing of small post offices.
This bill must take care of rural America and intercities
but it must also strengthen the Postal Service so we can do
this. I think your job and my job first and foremost must be to
take care of all Americans. We have a service that's set in
place. We do not have to redefine that whole service but we
have to fine tune it to make sure that that service is there
for our kids and our grandkids. Those are the concerns that I
have. I've summarized it pretty briefly.
It's a very competitive industry out there. We all know
that e-commerce, foreign posts, many different things are going
to affect service in the future years, but I think we're taking
a step in the right direction. And I just want to let you know
that postmasters are willing to work with you or anyone else
who is willing to enhance the service that we have and protect
the interests of the American people. Thank you, Mr. Chairman.
[The prepared statement of Mr. Carrico follows:]
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Mr. McHugh. Thank you, President Carrico for your comments
and also for your cooperation. Next, President Cinadr, National
League of Postmasters of the United States. Welcome, sir.
Mr. Cinadr. Thank you. It's a pleasure to be back with you.
As you stated, I am Joe Cinadr. I am the postmaster of
Mansfield, OH, and I have been serving the National League of
Postmasters for the last 5 years as vice president, executive
vice president, and now as national president.
I do appear before this committee today on behalf of the
Nation's postmasters, retired postmasters and associate members
of the League of Postmasters. And I do thank you, Mr. Chairman,
for allowing my entire written testimony to become part of the
record. As you requested I will simply highlight what I
consider to be the most important parts of that testimony.
First, representative postmasters from our 50 States,
commonwealths, and territories will be here in Washington, DC,
the first week of March to personally express their opinions of
H.R. 22 and many pieces of legislation to their own Congressmen
and Senators.
Our primary focus is for the U.S. Postal Service to remain
the best Postal Service in the world, and for postmasters to
maintain their leadership role. The results of the legislation
being considered must allow us to continue to provide all
Americans with universal service at reasonable prices. We do,
as Mr. Henderson stated earlier, need the authority to offer
reasonable volume discounts, again, for us to remain
competitive and engage in what are commonly accepted as good
business practices.
Almost everyone, some more grudgingly than others know how
good we are. As Ted mentioned, the Pew Research Center survey
and the Associated Press survey this past month proved that. We
do what no one else does or even wants to do, and that is to
provide excellent mail service to towns and hamlets like
Pierrepont Manor, NY; Pineland, SC; Wayland, OH; Suplee, PA;
Bethel, NY; Lee Center, IL; and many, many others too numerous
to mention.
I am reminded, as I sit here, of Senator Ted Stevens'
remarks as I review with concern that this bill could become a
vehicle for undercutting the basic principles of the Postal
Reorganization Act of 1970. What he said was, ``Our Postal
Service is a national treasure. A vital organization made up of
outstanding people.'' We in the League certainly value his
judgment and thank him for his continued support.
We had serious problems in the 1960's and needed corrective
and farsighted legislation. What I see now is an attempt by our
competitors to regulate or re-regulate the most successful
Postal Service in the world. I ask why we need organizations
and or individuals with little or no postal experience or
knowledge making decisions that will impact our futures, our
pay, our benefits, and most importantly universal services?
The issues are not taxes, tickets and tags. The real issues
are prices and universal service. I look forward to our
postmaster visits to the Hill on March 2nd. Postmasters are
valuable contributing members of our communities and our
country, and they serve much more than just collecting,
processing and delivering the mail.
I do pledge to work with this committee as long as this
bill, as reported out, continues to allow postmasters to
provide excellent mail service and keep the customer first. I
thank you for allowing me to testify. I will entertain your
questions.
Mr. McHugh. Thank you, President Cinadr.
[The prepared statement of Mr. Cinadr follows:]
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Mr. McHugh. Finally, we move to Vice President Ted Keating,
who is, as we've heard, sitting in for President Vince
Palladino of the National Association of Postal Supervisors.
Mr. Keating, welcome.
Mr. Keating. Good afternoon Mr. Chairman, members of the
committee. My organization has appeared before this committee
in the past and expressed concerns about the make up of the
original version of H.R. 22, and subsequent versions. You and
your committee have addressed those concerns by making changes
and we would like to thank you at this time for that.
President Palladino's testimony is on the record. I'm not
going to read the entire thing, but he did ask me to make a
couple of comments which would be that we reserve the right,
with your permission, to come back and make final comments on
the final language of H.R. 22, whenever that may be.
He did ask me particularly to read his closing remarks,
which is page 4 of his testimony, which is as follows.
In closing Mr. Chairman, I caution that as we focus on the
details of H.R. 22, as clearly we must, we do not at the same
time lose sight of what we are putting together here.
Accordingly, I must respectfully propose to you and your
distinguished colleagues the question of overriding concern to
me. You could call it food for thought. I'll state it as simply
as I can. As we rush headlong into creating a Postal Service
that walks, talks and otherwise operates like a public
corporation, are we truly crafting an entity that has a genuine
chance of survival?
More to the point, Mr. Chairman, what commercial enterprise
in this country would remain in business long if its officers
had to operate under a host of Federal statutes governing the
types of products and services it could offer and at what
price, and under the watchful eye of, all at the same time, a
Board of Governors, our Directors, Postal Rate Regulatory
Commission and Inspector General and, with all due respect, a
Congressional oversight committee or two? I pray you probably
know the answer to that question.
We thank you again for the opportunity again to appear
before you. It's always a privilege to work with the committee
and look forward to future testimony on this. Thank you very
much.
Mr. McHugh. Thank you, Vice President Keating. And, again,
please pass our best wishes on to Vince Palladino and wish his
father, as I said, a speedy and full recovery.
Mr. Keating. Thank you.
[The prepared statement of Mr. Palladino follows:]
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Mr. McHugh. I think to President Palladino's last comment,
as you read it into the record, I would simply say and respond
with another question. What commercial enterprise continues to
operate under the same set of regulations, guidelines and
mandates that it did nearly three decades ago? What we're faced
with here is the U.S. Postal Service is, indeed, that kind of
enterprise.
The road to hell, as I said in the past, and I didn't make
this up myself as you know, is paved with good intentions.
Recognizing that, the intention has always been at the core of
this to preserve and to ensure the continuation of the kinds of
services that President Carrico, particularly, raised in his
testimony a few moments ago. That provision in places like
Pierrepont Manor, and what a coincidence you mentioned that
first, I was stuck by that, and in places like Philadelphia,
PA.
I go to a small post office when I'm home every day. Mary
Ann Aubin, the postmaster, is an important part of that
community and does a terrific job. I have a perspective and
place a value on that that may or may not be unique. I suspect
it isn't. I suspect most Americans view their postal employees
and view the postal workers almost as a part of their family
because they see them with such frequency.
And I think that's reflected in the polling data.
Politicians do indeed pay attention to polling data. We only
tend to talk about the ones we like, but clearly the vast
majority of Americans have a great deal of admiration for what
you do and who you are. We respect that and not only respect
it, we would want to make every effort to continue it.
But I think, as you know, the pressures that the Postal
Service is coming under, and the pressures we know are down the
line with respect to new types of communications, are really
going to demand some kind of change. Whether we do it in H.R.
22 in an atmosphere of relative calm, or whether we do it, as
occurred back in the 60's, in an atmosphere of crisis is our
choice. And we'll see which path we'll choose.
But let me just ask you to comment on the few of the
specifics that you mentioned both as you presented your summary
and your written testimony, because the comments that you made,
I think, are important ones. I want to be able to reconcile on
the record what we believe is not just the intention, but the
effects of H.R. 22, versus what you interpret and you have
stated some concerns. President Cinadr, for example, you just
said that this bill could become a vehicle by which we undercut
the provisions and the forces of the 1970 act. I was curious,
the ``basic principles,'' I believe is the phrase you used.
Could you explain or kind of expound, or expand upon rather, on
what provisions of the 1970 act do you think were jeopardized?
Because if that's the case, we indeed need to take a very
careful look at that.
Mr. Cinadr. Well, I think it reflects on the universal
service requirement, that the Post Office is unique in having
that responsibility. I am concerned about how the funding of
the private corporation would affect universal service. And I
believe you did address that issue with the prior panel, with
the Postal Rate Commissioners. So, as you are well aware, I
prepared this testimony before knowing what they were going to
say.
Mr. McHugh. Right. So am I hearing, and that's totally fair
if it's true, that you learned some things that at least
lessened or narrowed that concern?
Mr. Cinadr. Yes.
Mr. McHugh. OK. Well, good. All of you, all of the
presentations in one way or another, some a little bit more
directly than others, voice again concern about how this bill
may, the phrasing used, ``re-regulate'' or ``regulate'' the
Postal Service as it does not currently exist. Concerns,
understandably, about turning over to non-postal individuals
control of issues like pay, and employee working conditions,
and such, that would be enormously troubling to me as well.
And I very much would want to meet those concerns. So I'm
wondering if you could define for us some of the specific parts
of the bill that you think do that so that we could take a
further look at those? President Carrico.
Mr. Carrico. Could you clarify your question please?
Mr. McHugh. Well, all of you had said that the bill could
re-regulate and as another step put non-postal people in
control of issues like employee wages. For example, President
Cinadr says we could penalize postal employees in some aspects
of H.R. 22.
I'm just trying to understand if you are concerned about
that happening, and I don't have a problem with that. Change is
always an issue for concern. If it is a matter of your being
troubled by doing it differently and possibly something
happening bad, I'm Irish Catholic, I know how that works. I sit
home and think about that every night.
However, if there are specific provisions of this bill that
in your view, for example, as was stated, gives further control
of the Congress to meddle, as President Carrico suggested in
his testimony, to meddle in the Postal Service, that's not our
intent. If there are provisions in the bill where we can go in
and alleviate your concern, we want to do that. So I'm just
trying to pinpoint----
Mr. Carrico. I see what you are getting at now. Yes. I
believe there is a problem with the PRC appropriation. I think
we can springboard off Chairman Gleiman. Chairman Gleiman
really is the watch dog and I think he's done that very well.
I have some concern that if the bill authorizes
congressional appropriations, more congressional
micromanagement would result. And I don't think that's anything
that we need. The PRC is doing a great job protecting our
interests there right now.
Mr. McHugh. So the provision of the bill that calls for a
change in how the Postal Rate Commission receives its funding,
currently it comes through the Postal Service, we would now
have it as an appropriation from Congress, concerns you because
you think Congress could then use that to control the Postal
Service?
Mr. Carrico. Well, I think that's what the Postal
Reorganization Act in 1970 did was it took it out of the hands
of Congress. Now it seems to me like this part wants to come
back in. That also could make funding and different
appropriations become more political and our competition could
use their political clout to drive a wedge in there.
Mr. McHugh. But that happens right now. You need only to go
to last year to see that, under the Postal Treasury
Appropriations bill, a provision was presented to affect
everything from your pack-and-send to international mail and
the international postal union. So I understand what you are
saying but I want you to be assured, and this isn't of much
comfort, that we're not going to do anything worse to you under
this bill than we already do.
Mr. Carrico. And that concerns me.
Mr. McHugh. And that appropriation to the PRC is not, as
you understand, not a direct appropriation to the Postal
Service, obviously.
Mr. Cinadr. Mr. Chairman.
Mr. McHugh. Sure.
Mr. Cinadr. I view my testimony as my opportunity to
express to you and the other members of the committee what the
concerns and the worries of my constituents are, and those are
the postmasters of this country. And I defend postmasters of
this country to the utmost. And if I sound too proud, I've
spent 37 years in the Postal Service and I am very proud of
what it has done, what it accomplishes, and what it continues
to accomplish under the present set up.
I am concerned on how that will change and what effect it
will have on postmasters and the rest of the postal community.
And the point I'm trying to make is that we are presenting a
level view of the playing field, and I don't see that when my
competitors testify.
Mr. McHugh. Well, as you will find, those who are on the
other side of the fence in this equation are not particularly
happy in all aspects of the bill either, which in this town
means that maybe we're on to something. But, first of all, you
have not only every right but every reason to be very proud of
nearly four decades of service in the Postal Service. Those of
us who are in politics wish we had half as much to be proud of
as you do.
And I do not for a moment, gentleman, question not only
again your right but your responsibility to view concerns that
are held by your members. You've all done that very, very well,
and I commend you for it. The main point I wanted to make as I
read your testimony is not objecting to the concerns you share,
but trying to make it clear to you that if you have specific
concerns in the bill that we can talk about and address, we
want to do that. Because, and let me narrow it, my objective is
much along the lines of yours, to ensure that universal service
at a uniform price continues as it has in the past.
So that when I go to the post office in Pierrepont Manor,
No. 1, it's there and it's open and No. 2, that I can receive
the mail in the effective, efficient, affordable way I can
today. I mean that's the underlying premise here.
So we want to be able to work with you. Where you have
concerns of a specific nature, we would not just encourage you
but plead with you to come with us and share those and we'll do
everything we can to work that out. That's all I wanted to say
on that. President Carrico, you look like you want to say
something?
Mr. Carrico. Yes. I would like to look at the double
postage rule on the priority mail because I do have some
concerns on that one also. And I guess my concerns, again, go
back to rural America. Priority mail is a very popular product
both in the cities, but primarily in the rural areas, because
it does speed up the service.
It would be very easy for me to deliver 1,000 pieces in
Washington, DC, and make a pretty decent profit. But for me to
deliver 1,000 pieces in rural America, it would be very
difficult to make a profit. Under the bill, I think there is a
six-time postage rule which would make postage for priority
mail go as cheap as $1.98. I think that could really have some
devastating effects on some of the outlying areas. And I think
priority mail as a product that we know today would probably
dwindle, if that were to occur.
Mr. McHugh. I understand that. No. 1, I think it's
instructive that the Postal Service has not objected to that
provision. And I think the reason is simply that, once you are
through all the math calculations, the result of that is that
it puts into play only 3 percent of the current monopoly
business that you hold.
But, most importantly, and I think if you went and talked
to the Postmaster General and others, the reason they support
that 3 percent that it puts into play, it doesn't mean you are
going to lose it, just that there is now open competition on
that 3 percent. That in return for that they receive a
substantial menu of competitive tools that they now don't
enjoy. So you know----
Mr. Carrico. It's a tradeoff.
Mr. McHugh. It is. And I'm not trying to shoot down the
Postal Service's position here, but any time you can retain 97
percent of what you got and get back quite a bit in return,
that's a probably pretty good deal. And it's probably what
we're going to hear as some of the opposition to this bill, but
I won't tell them, if you don't. OK? But I understand your
concerns, I think.
We, I should note, have been joined by Representative Danny
Davis, from the great State of Illinois, who has been a loyal
and very productive member of the subcommittee, and we welcome
him back this year. I would, at this time, yield to the ranking
member, the gentleman from Philadelphia, Mr. Fattah.
Mr. Fattah. Thank you very much. I'm trying to see if we
can just identify--let me start here. I know we all have a
tremendous amount of appreciation for the work and labor that's
been put into developing H.R. 22 to this point. But we still
need to understand where there are disagreements or concerns,
because to the degree that this train leaves the station, you
know, it is something that your Members are going to have to
live with and the public is going to have to live with for a
very long time.
So I'm going to see if we can crystallize, to whatever
degree it's possible, some of these issues. Now, as I stated in
my opening statement, and I think that is a concern of the
chairman, this question of universal service and whether or not
there is anything in H.R. 22 that creates concerns, legitimate
concerns down this road, that somehow the Postal Service
requirement and burden in terms of universal service would be
infringed upon in any way, shape or form.
So I'd like to see if each of you would just make a comment
on your view, relative to the universal service and the reforms
or the changes as outlined in H.R. 22. Let's start with
President Cinadr.
Mr. Cinadr. The problem I see is, again, how the funds if
this private corporation is set up, how they would be used. And
when I look at how funds are used in private corporations
today, I see much the same testimony that Mr. Gleiman gave,
that is that part of those funds are used to, obviously, pay
back stockholders or shareholders, and part of them are used to
reward the successful employees of that company. And, as I've
stated before, if the bill is going to address the other use of
that fund to support the infrastructure, then I believe that
would be the correct way to go.
Mr. Fattah. The requirement in the bill, as drafted, first
things first, is that there would be a study done to determine
the parameters about what should be universal service.
Mr. Cinadr. OK. Maybe the biggest problem with testifying
here today was my information was that this bill was in a state
of flux or very fluid. And that's why I have pointed out the
main concerns of postmasters, rather than getting into
specifics of the bill.
Mr. Fattah. I understand.
Mr. Cinadr. OK.
Mr. Fattah. Do you have any other comments, President
Cinadr?
Mr. Carrico. My only concerns are that when you are talking
government agency and the private sector, the private sector is
going to go where the money is. And if they take that part of
the market and just leave rural America, my concerns are really
what's going to happen to the postage rates. I think the way it
is addressed on universal service, you guys are on top of that.
I don't have a problem with that part of it but that's
something that we always need to be aware of. And I know
earlier in the testimony we talked about airline deregulation
and what that's done to rural America. Those are things, the
potential is out there, but I don't have great concerns. I know
you guys are aware of those.
Mr. McHugh. Vice President Keating.
Mr. Keating. I don't have anything to add to that, no.
Mr. McHugh. OK. Thank you.
Mr. Fattah. I yield.
Mr. McHugh. Thanks, gentlemen. Mr. Davis.
Mr. Davis. Thank you very much, Mr. Chairman. Mr.
Palladino, you mentioned----
Mr. Keating. Mr. Palladino is not here. My name is Ted
Keating, I'm representing Mr. Palladino.
Mr. Davis. OK. In Mr. Palladino's testimony he mentioned
concerns about labor management relationship and the various
summits that netted perhaps some results. That still
constitutes a big part of the discussion and a big part of the
problem. Do you have any suggestions or recommendations in
terms of how some recourse of movement toward solution could be
built into the legislation that we're discussing?
Mr. Keating. Not directly into legislation, sir. But I
believe we commented in President Palladino's testimony that
the summit, which I believe was Congressman McHugh's idea,
seems to be working.
I give you the background that I've only been in this
position for 6 months, so I've only been to meetings that took
place in that last 6 months. But I have seen signs of progress.
And the very fact that you have management organizations, the
Postal Service, and all of its respective unions sitting at the
table together, that's the direction to go and I believe we
should continue that.
Mr. Davis. Let me just ask one of the other gentlemen. I
also got this notion that training requirements may have
something to do with the level of difficulty that's being
experienced, and especially for management personnel or
supervisory personnel.
Mr. Cinadr. I'm not sure where you are going with that, but
I would say that my personal experience with the summit
meetings is that, again, I would compliment the chairman for
that idea. I think it is working, we are making progress, that
we do need to take the lessons that we are learning from the
summit meeting and possibly utilize them in the structure of
the Postal Service, in particular with the Board of Governors.
Mr. Davis. Go ahead.
Mr. Carrico. I do think that the summit process is a system
that's bringing us together. I probably share a different view
than either of my colleagues. If there is one item that affects
postmasters that keeps us apart right now, it's the pay system,
the way we consult--and we use the word ``consult'' because I
get chastised if I use the ``N'' word, ``negotiate''--because
we don't have any real power to determine the basis of our pay
systems.
Back in 1970, NAPUS was the only organization that
supported postal reorganizations. And as a result of that, we
are the only organization that does not have some kind of third
party intervention in pay consultations. I say ``we,'' I mean
the postmasters are the only party that does not have some kind
of third party intervention. At the last pay talks, it's the
first time in history that postmasters did not reach a pay
agreement. And there is so much ill will out there as a result
of that, that it's tearing us apart. The pay package that they
imposed on, especially, our lower level postmasters did not do
what it was supposed to do. They said they wanted a teamwork
incentive program. And they provided a program called EVA that
rewards the people at the top tremendously, several thousands
of dollars. And then at the very bottom end of the scale, the
people who are doing the work, they may get a couple of hundred
dollars.
The whole pay system needs to be looked at as far as
managers. Through the summit process, I did ask for mediation.
And I've been in the dog house with headquarters ever since.
But I've asked, through Congressman McHugh's office, that GAO
look at that pay practice. And you are doing that, and I thank
you for that. I know it's not going to be 100 percent my way
and it doesn't have to be that way, but it needs to really be
looked hard at.
Mr. Davis. Let me ask either one of you gentlemen, there is
a lot of conversation about price caps. And, of course, many
people think that when you talk about price caps that you are
also talking about wage caps, that you can't go up one way
unless you are going up the other way. Could you respond to the
impact you feel that price caps may have on the ability to
bargain wages?
Mr. Keating. Speaking for my organization, I'm not sure
it's relevant. I don't have a concern in that area.
Mr. Carrico. I think I would echo that too, that price caps
probably more affect our colleagues in the unions more than
they do us.
Mr. Davis. So you have no real concerns about the price cap
notion. Thank you. Thank you very much, Mr. Chairman.
Mr. McHugh. Thank you, Mr. Davis.
[The prepared statement of Hon. Danny K. Davis follows:]
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Mr. McHugh. Gentleman, I appreciate your being here. And at
the risk of being incredibly repetitive, nevertheless, I'll say
it again. As you go through this and you do have specific
concerns, as those understandable and very legitimate general
concerns crystallize, as I hope they won't but as they may,
that you feel free to come to us and try to see if there is
some way that we can work through those.
To Vice President Keating, I would tell you that no
representative of the National Association of Postal
Supervisors has done as good a job as you. I would tell you
that but your president, Vince Palladino, has come into the
room and I wouldn't dare say that because of the great job he
has done.
Mr. Fattah. Could I just ask a quick question?
Mr. McHugh. Sure.
Mr. Fattah. President Carrico. At this point in time,
universal service, as you understand it to be maintained by the
Postal Service, means what?
Mr. Carrico. Universal service means that each and every
community would maintain a post office, that they would
maintain frequent delivery just like we have now. I don't feel
that people should be penalized for living in rural America,
that they are entitled to the same service that is given to
the----
Mr. Fattah. The same service at the same price?
Mr. Carrico. Yes.
Mr. Fattah. Thank you.
[Additional questions submitted for the record to Mr.
Carrico and Mr. Cinadr follow:]
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Mr. McHugh. Well, I stand corrected. My old ears heard
``Vince Palladino'' and apparently Vince Sombrotto has come in.
So my feeble attempt at humor didn't even come close.
Mr. Keating. Mr. Chairman, they are both from New York so
you probably couldn't tell the difference.
Mr. McHugh. Well, we're delighted that Vince Sombrotto is
with us, but remain sorry that Vince Palladino is not. But,
again, thank you all very much for being here, and we look
forward to continue working with you.
Mr. Keating. Thank you, Mr. Chairman.
Mr. McHugh. Last, certainly not least, the four unions. The
American Postal Workers Union, President Moe Biller; as I just
said, President Vince Sombrotto, National Association of Letter
Carriers; President William Quinn, the National Postal Mail
Handlers Union; and President Steve Smith, the National Rural
Letter Carriers Association.
As we're changing placards and drawing those up, we'll take
about a 40-second break here.
[Brief recess.]
Mr. McHugh. If you'll stand, I'll administer the oath now.
[Witnesses sworn.]
Mr. McHugh. Let the record show all four presidents
responded affirmatively to the oath. Gentlemen, welcome. We
thank you very, very much for being here and we look forward to
your comments. Here, too, I have read all of your prepared
testimony and we will submit into the record in its entirety
those submissions. I would ask if you could summarize them
today. And, as in the past, we'll go by order of the
announcement.
President Moe Biller, welcome. Good to see you, how have
you been?
Mr. Biller. Pretty good. A little injured knee, that's all.
I broke my hearing aid, so be careful.
Mr. McHugh. You injured your hearing aid?
Mr. Biller. I injured my knee and broke a hearing aid.
Mr. McHugh. Oh. I need a hearing aid, apparently. Well
then, if I say bad things about you, I'll do it quietly. We're
truly pleased you are here and, please, the floor is yours.
STATEMENTS OF MOE BILLER, PRESIDENT, AMERICAN POSTAL WORKERS
UNION, AFL-CIO; VINCE SOMBROTTO, PRESIDENT, NATIONAL
ASSOCIATION OF LETTER CARRIERS; WILLIAM QUINN, PRESIDENT,
NATIONAL POSTAL MAIL HANDLERS UNION AFL-CIO; AND STEVE SMITH,
PRESIDENT, NATIONAL RURAL LETTER CARRIERS ASSOCIATION
Mr. Biller. Mr. Chairman, members of the subcommittee, I'm
pleased to appear again before you today to represent the views
of the 361,000 members of the American Postal Workers Union,
AFL-CIO on the subject of postal reform and your latest
proposal for reform, H.R. 22.
May 8th of this year, I will begin my 63rd year in postal
activity, and 68 years in the trade union movement. Mr.
Chairman, I want to make it clear that I greatly appreciate the
sincere effort and concern you have brought to bear on this
difficult topic. Unfortunately, as has been true with respect
to similar bills that were introduced in the last session of
Congress, we still have several fundamental problems with H.R.
22, and therefore cannot support this legislation that was
introduced unless these matters are corrected.
Our objections have been expressed many times before. The
bill continues to have a pre-fixed formula specifying a rate
cap on non-competitive mail. Unlike the telecommunications
industry or other industries which have tried this form of
regulation, the Postal Service remains a labor intensive
operation.
From our perspective, this means that if there are
unanticipated adverse changes and expenses, market demand, or
competition, the Postal Service's sole recourse, if it is to
stay within the cap is to impose concessions on its workers. We
cannot be sure whether such concessions will take the form of
wage and benefit give backs or harsher working conditions
applied for the purpose of achieving greater output.
But we can be sure that in a labor intensive industry, a
price cap inevitably pushes downside risk of adverse changes in
price or market conditions onto workers while, as has been true
over the last several years, the upside benefits of low
inflation and a growing economy are retained by mailers and
managers. We cannot acquiesce to the creation of this sort of
scenario.
I am pleased to report to you that we recently reached and
ratified a collective bargaining agreement with the Postal
Service. This is the first such agreement reached without
resort to interest arbitration in over 11 years. The contract
was overwhelmingly ratified by 64 percent of the APWU
membership. It was not easy and both sides worked hard to
resolve a number of complex issues.
The wage bargaining was, of course, the most difficult
problem, given the uncertainty and volatility of the worldwide
economy. I cannot imagine how we could have worked our way
through all of these problems if, in addition to everything
else on the table, we had to factor in the potential impact and
risks associated with a congressionally imposed price cap on
mail services.
Indeed, it is clear to me that the existence of an external
formula shifting downside risk of market and material changes
onto workers will make voluntary agreements, such as the one we
just achieved, far less likely and interest arbitration the
inevitable norm.
While the price cap issue is our most fundamental concern,
it is not our only concern. We continue to object to the bill's
specification, in Section 503, that a letter may be carried out
of the mail stream when the amount paid for private carriage is
at least six times the postage for the first ounce of First
Class Mail. While I recognize that the floor for private
carriage is higher than in previously introduced legislation,
the fact remains that the proposal is obviously the first step
toward postal privatization. Indeed, former Postmaster General
Marvin Runyon stated that this proposed rollback of the Private
Express statutes places $4 billion of the USPS' First Class
Mail market at risk.
Under the present format of the bill, the impact of this
loss of revenue will inevitably be borne by workers. Beyond the
impact on our members, though, allowing USPS' competitors to
skim the cream off of a major piece of the USPS' market, in the
way proposed by H.R. 22, will obviously jeopardize the Postal
Service's capacity to provide universal mail service at uniform
rates. Universal postal service is a fundamental feature of
American life and we cannot endorse any proposal which places
it in jeopardy.
Finally, we believe the proposed study of labor-management
relationships in the Postal Service by the National Academy of
Public Administration, set forth in Section 601, is totally
unnecessary. If the goal here is to improve labor-management
relationships in the USPS, I would submit that we have made a
quantum leap in that area through the recent APWU-USPS
contract. This contract was, for the first time since 1987,
agreed to by both parties, without the interference of an
outside arbitrator.
If you think this is insignificant, then please allow me to
share with you the following from the Washington Post, on
January 9, 1999. ``I am delighted with the outcome,''
Postmaster General Henderson said, ``This is an agreement that
is clearly in the best interests of our employees and all of
America.'' Henderson added, ``My hat's off to Moe Biller, and
his negotiating team, and our negotiating team for having the
patience and the forbearance to bring a long, hard set of talks
to conclusion.''
Labor-management relationships in the USPS have been
studied to death. We are presently involved in ongoing work
with the Federal Mediation and Conciliation Service to resolve
long term problems. And that agency, at least, has the benefit
of direct experience with resolving labor-management conflict.
I see nothing to be gained by inserting yet another outside
party into this mix.
Time has shown that we all do best when our efforts are
focused on improving the collective bargaining relationship and
our mutual capacity to resolve problems. A Republican American
President with traditional conservative views, Richard M.
Nixon, understood this when he approved collective bargaining
in the Postal Reorganization Act of 1970. His insight is
equally valid today.
To be sure, consistent with the overall goal of H.R. 22, we
are interested in authorizing the USPS to enter into new
markets and to compete in them. Our union has, in fact, agreed
to certain competitive projects with respect to work that has
been contracted out.
However, the price exacted by the bill for allowing us to
compete, price caps in the USPS' major markets and yet another
rollback of the Private Express statutes, is too high. Based on
this, and notwithstanding its many constructive elements, we
cannot support H.R. 22.
Mr. Chairman, that concludes our testimony. I would be
pleased to answer any questions you or other members of the
subcommittee may have.
Mr. McHugh. If I get a letter from Richard Nixon, will you
support it?
Mr. Biller. I'll get you that letter.
[The prepared statement of Mr. Biller follows:]
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Mr. McHugh. OK. Thanks. We have a vote under way, as you've
heard. We understand there will be that single vote and then
more discussion on other amendments. So if we could suspend, I
apologize. And, hopefully, we can move over there and vote and
come back as quickly as possible. So if we could stand in
adjournment for just a few moments. And I apologize, gentlemen.
[Recess.]
Mr. McHugh. Why don't we, with the indulgence of the
minority, continue with the statements? Because, as I indicated
earlier, and as he did as well, the ranking member is in
another committee meeting and he is trying his best and doing
very well in coming back and forth. So if we could continue
with the presentations, I think we can expedite matters.
And with that, we are pleased to welcome President Vince
Sombrotto, the National Association of Letter Carriers. Vince,
you do not look like Vince Palladino in any shape or fashion,
but we're glad you're here and we look forward to your
comments.
Mr. Sombrotto. It's some good news if you think I'm
Palladino. I just gained a number of members and I'll improve
their performances in the Postal Service. I thank you Chairman
McHugh and members of the subcommittee for the opportunity to
discuss this important piece of legislation. I'm Vincent R.
Sombrotto, president, National Association of Letter Carriers,
AFL-CIO, and I'm pleased to be here representing some 310,000
members of the NALC.
A recent survey conducted by Pew Research Center for the
people and the press stated that the public gave the Postal
Service an 89 percent favorability rating, higher than any
other Federal agency. Another study by ICR of Media, PA, said
that nearly three fourths of Americans believe the Postal
Service is doing an excellent or good job. This is a tribute to
the hardworking men and women who make the system work on a
daily basis.
As the public face of the Postal Service, letter carriers
take great pride in receiving such recognition for the
outstanding service we provide. While every American has come
to rely on these vital services, few understand the way the
USPS operates. I can even remember a time, Mr. Chairman, when
you yourself acknowledged being surprised by the intricacies
involved with timely and efficient mail delivery. You are to be
congratulated for dedicating yourself to learning about the
Postal Service and taking on this effort to enhance its
performance through the introduction of H.R. 22, the Postal
Modernization Act of 1999.
As the members of the subcommittee are well aware, the
fundamental principle which guides the USPS is universal
service at uniform rates. This means that Postal Service
employees must continue to provide normal 6-day delivery to all
addresses at the same reasonable rate. The public demands
nothing less, and the NALC believes that any proposed postal
reform must fit into that framework.
Rather than taking time today to go through the bill
section by section, I'd like to focus on a few key points which
are critical for meaningful postal reform. We are encouraged by
some of the changes that have been made in H.R. 22 since its
introduction. Chief among those is the elimination of the
mailbox demonstration program proposed in the original draft of
the bill.
As you know, the relationship between letter carriers and
the public they serve is one of trust and security. Some of our
competitors would like nothing more than to destroy that trust,
sacrificing a public service in the name of profits. We view
that removing of the mailbox demonstration program from the
bill as an acknowledgement of the desire to maintain the high
level service and professionalism the American people have come
to expect from letter carriers.
We are pleased with Congressman Gilman's efforts to ensure
that the proposed Postal Regulatory Commission envisioned in
the bill will not undermine the collective bargaining process.
The language discourages the new commission from using its
expanded authority to interfere with matters best left up to
labor and management representatives. We applaud this
suggestion and encourage its adoption with the full force of
law and not just the sense of the Congress.
Also, I'd like to thank Congressman Fattah for his proposal
which would create a labor seat on the Postal Board of
Directors as created in H.R. 22. Since its inception in 1971,
50 individuals have served on the Postal Board of Governors.
Members of the business community, former congressional staff,
and even dentists have served on the Board, but not one person
has come from the ranks of organized labor. Mr. Chairman, there
are hundreds of thousand of union employees within the USPS.
Sound business practice would dictate that someone serve on
the Board who understands the challenges facing these
hardworking employees. I know there are Members of the Congress
who have legitimate concerns over reserving specific seats on
the Board. At the same time, I thank the subcommittee for
acknowledging the inequity that has existed for all these
years.
I am aware that the Postal Service is proposing a number of
changes to H.R. 22. We have recently received some of these
proposed measures and are working so that we may fully
understand their impact. Given their far reaching scope, it
would be imprudent for the NALC to express a position on them
at this time. We take these proposed changes as well intended,
and are eagerly awaiting the reaction of the mailers, other
customers and competitors.
While most of the groups paying attention to this bill have
the public's best interests at heart, we at the NALC are
concerned with some competitors of the Postal Service who are
trying, at all costs, to break the Postal Service's mandate of
universal service. It is imperative that H.R. 22 not become a
vehicle for their self-serving attempts to weaken the Postal
Service. Such an effort would undermine the constructive spirit
which has characterized the healthy debate surrounding H.R. 22.
As you are well aware, Mr. Chairman, there have been
questions raised recently about authority over the Universal
Postal Union, much of which was initiated during appropriations
process. An apparent compromise was satisfactorily reached. I
think it's fair to say all sides gave a little in order to
reach that point.
My concern is not over a good faith debate about proper
policy and objects, instead, I would suggest these issues be
considered and brought up using the normal legislation process.
I am convinced that if we had worked through the committees of
proper jurisdiction with the necessary background on the
subject matter, not only would we have been able to reach a
faster resolution, but probably would have avoided 2 years of
rancor and disagreement.
I want to be very clear with the members of the
subcommittee. Despite the misinformation being spread by Postal
competitors, competition within the mailing market is fierce.
Private companies are free to charge different rates for
delivery to different addresses or, in the alternative, they
may choose to provide no service at all.
In addition to taking on the Postal Service's business
internationally, some of our competitors have stepped up their
attacks on profitable enterprises such as priority mail, a
product on which millions of Americans depend on a daily basis.
The revenue generated by such products helps us maintain
universal service. At best, the tactics used by these companies
refuses to acknowledge this necessity. At worst, they simply
don't care. Without this stream of revenue, the Postal Service
will not be able to meet with your constituents' demand for
service.
Given my years of dealing with the Postal Service and their
many issues, I appreciate the difficulty of trying to pass a
postal reform bill through the Congress. There are a number of
organizations seeking to place their imprint on this bill.
Chairman McHugh, you and your staff have been accessible and
open-minded in taking on this monumental project.
As you were recently quoted by the Associated Press, ``The
person who brings the mail is almost a member of the family who
visit each and every day.'' We want to continue that
relationship and dedicated service. On behalf of the National
Association of Letter Carriers, I'd like to thank you for your
tireless efforts to improve the public service provided by the
Postal Service. As this bill progresses and continues to take
shape, we look forward to working with you.
Mr. McHugh. Thank you, Vince, I appreciate your comments.
And more to the point, I appreciate you and George Gould, and
everybody's efforts to make this a better bill.
[The prepared statement of Mr. Sombrotto follows:]
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Mr. McHugh. With that, we will now turn to President Quinn,
the president of the National Postal Mail Handlers Union.
Welcome, sir, good to see you again. We look forward to your
comments.
Mr. Quinn. Good to see you, Mr. Chairman. Thank you again,
and to the distinguished members of the subcommittee, I'm Billy
Quinn. I'm the national president of the National Postal Mail
Handlers Union. On behalf of the more than 50,000 mail handler
union members employed by the Postal Service, I appreciate the
opportunity to testify about postal reform and H.R. 22, the
Postal Modernization Act of 1999.
Our approach to postal reform is relatively simple because
it is motivated by two fundamental principles. First, as we
stated in our joint statement with the letter carrier unions
last year, if it is to be enacted at all, postal reform must
maintain and indeed enhance the operations of the Postal
Service.
By this we mean that the key ingredient to any type of
postal legislation is to protect the ability of the Postal
Service to provide universal service to the mailing public.
Postal employees must continue to process and deliver letters
and packages to every one, every where, every day. This
universal service has to be maintained at affordable rates, but
these rates must be sufficient to protect and support the
infrastructure that universal service requires and to provide
postal employees with a decent and fair standard of living. We
understand that this subcommittee agrees with the fundamental
goal of universal service, and we commend your painstaking
efforts to ensure that any reform legislation furthers this
goal.
Second, and equally fundamental, we also strongly believe
that Congress should not impede upon the often complex
relationship between the Postal Service and its employees. This
relationship, though at times difficult if not contentious, is
best carried out within the framework of collective bargaining.
The collective bargaining process should be treated as sacred,
and should not be adversely affected either intentionally or
inadvertently by enactment of postal reform.
Indeed, as you may know, the Postal Service and the
National Postal Mail Handlers Union just recently signed a new
2 year collective bargaining agreement, demonstrating once
again that face-to-face negotiations can and should be the
means for resolving labor disputes.
In simple terms, this means that any reform legislation
should not allow or encourage interference in Postal labor
relationships, either directly from Congress through the
statute itself, or less directly through the Postal Rate
Commission, or the Postal Regulatory Commission, or some other
legislatively imposed party.
On another more complex level, this means that the
collective bargaining process must be allowed to function
without artificially imposed constraints such as price caps
that effectively become wage caps. The bargaining process must
be allowed to set wages and benefits. And the Postal Service
must realize it needs to pay for its labor costs through
appropriate postal rates. These two fundamental principles
dictate our approach to postal reform.
We therefore support legislative efforts to truncate the
overly cumbersome ratemaking process and generally support the
pricing flexibility sought by the Postal Service. With equal
vigor we oppose any legislative reform that effectively would
limit that pricing flexibility with an unfair and unreasonable
cap on rates. If fair and decent wages require an increase in
postal rates, then the Postal Service must be allowed to raise
its rates without jumping through the overly cumbersome hoops
that exist under the current PRA.
Two additional points deserve mention. First, the NPMHU
generally supports the amendments adopted by the subcommittee
last September, especially those that would add a labor
representative to the Board of Governors, provide re-employment
assistance if any Postal workers are displaced by automation or
privatization, and to prevent any reform legislation from
adversely affecting employee or union rights.
Finally, I would be remiss if on the record I did not alert
the subcommittee to a lurking danger that is known by everyone
in this room, but that few are willing to acknowledge openly.
Namely that the driving force behind particular provisions of
H.R. 22 should be the public interest and not the interests of
certain large profit-driven corporations such as Federal
Express or the United Parcel Service.
For more than 200 years the Postal Service and its
employees have served the Nation by ensuring universal service
of postal communications at reasonable rates. Postal reform
that puts the Postal Service or its employees at risk does not
serve the public interest, but rather will be remembered only
as legislation that destroys one of the unique aspects of the
American experience.
Thus, the primary factor in your consideration of H.R. 22,
during the coming weeks and months, must be the interests of
the public in maintaining the strength and viability of Postal
Service and its 800,000 employees. I dare say, even if others
are hesitant to say so publicly, that Federal Express of FedEx,
UPS, and other competitors of the Postal Service are motivated
by other factors.
I know the members of this subcommittee recognize this
reality. We look forward to continuing to work with the
subcommittee and its staff during the next few months to ensure
that H.R. 22, if reported out of committee, is legislation that
the NPMHU can support. Thank you for the chance to testify
today. I would be happy to answer any questions that you may
have.
Mr. McHugh. Thank you very much, Billy, I appreciate it.
And to you, as well, thanks on behalf of all the subcommittee
for your efforts and untiring work to try to have this bill
better reflect the interests of your members.
[The prepared statement of Mr. Quinn follows:]
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Mr. McHugh. Last, certainly not least, the president of the
National Rural Letter Carriers Association, Steve Smith. Mr.
President, good to see you. Thanks for being with us. And the
floor is yours, sir.
Mr. Smith. Thank you, sir, and thank you for the
opportunity. Good afternoon, Mr. Chairman and members of the
committee. I am Steve Smith, president of the 97,000 member
National Rural Letter Carriers Association. Most rural carriers
drive their own vehicles while serving as a post office on
wheels. Daily, we travel more than 3 million miles to 27.4
million delivery points on some 63,000 rural routes across the
United States.
Chairman McHugh, in response to changing competition,
expanding alternatives to the Postal Service, and postal
officials' requests, you began to examine the regulatory
framework imposed by that legislation. You conducted
comprehensive hearings, you held endless private meetings with
all organized groups concerned and affected by reform
legislation. You even utilized the Internet.
You and your staff have crafted a comprehensive proposal
for change in the Postal universe. In the process of arriving
at a proposal, you have been thoughtful, open and creative.
This is why the NRLCA will remain supportive of your efforts to
enact comprehensive reform capable of carrying the Postal
Service into the 21st century. We remain cautiously optimistic
pending proposed amendments and the natural ebbs and flows of
the legislative process in both chambers and conference
committee.
We hope our competitors learn the U.S. Postal Service is
not the principle reason for their market share decline. The
Postal Service did not cause the UPS strike, or business loss
in Europe as the result of European postal competition,
referring to the Wall Street Journal article on January 18,
1999.
The Postal Service has merely 6 percent of the parcel post
business. Our competitors further cite the proposition that
USPS does not pay for tags nor taxes on vehicles. When this
accusation is made, they omit the fact that most rural carriers
use their own vehicles to deliver the mail. Rural carriers
certainly do buy tags and pay all appropriate State and local
taxes on their vehicles.
NRLCA has always remained somewhat skeptical of the
separate accounting concept for the competitive products. We
simply do not see how dividing the competitive and non-
competitive products for accounting purposes is done easily; 54
percent of rural letter carriers work out of post offices with
one or two rural routes; 82 percent of rural letter carriers
work out of one to five route post offices. Every day we carry
both types of mail in varying volumes. In those offices there
is no alternative to rural carriers delivering all types of
mail. How can one accomplish separate accounting of personnel
and vehicles.
The proposed legislation would allow the USPS to form a
private law corporation for non-postal products and engage in
strategic alliances in or with private companies. The Postal
Service has enhanced your concept with its proposed amendments
by suggesting this corporation should issue stock. However,
once stockholders are involved, the obligation of the company
would shift to satisfying the shareholders. NRLCA believes that
those shareholders wouldn't be very interested in sharing
profits with the competitive and monopoly side of the ledger.
Additionally, let us look at a few examples of USPS
attempts at non-traditional business products such as caps,
mugs, ties, t-shirts, auto flyers and mailing on-line. Each
enterprise prompted small business owners to appeal to their
congressional Representatives to stop the Postal Service from
selling these goods. NRLCA suspects that even after postal
reform there will be continuing congressional oversight of the
USPS.
In the final analysis, the public and its elected
representatives are going to demand that the U.S. Postal
Service stick to the basic public policy mandate of serving the
public by collecting and delivering mail every where, to every
one, every day. Mr. Chairman, and members of the committee,
thank you.
[The prepared statement of Mr. Smith follows:]
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Mr. McHugh. Thank you, President Smith. And to you and your
membership a great appreciation for your very constructive and
positive role. As with the management associations it's
obviously very clear to me and everyone on this subcommittee,
that all of you bring a very fierce loyalty for your
membership. That's not just understandable, it's the right
thing. Your members are collectively very, very well served.
As you know, President Sombrotto, and Smith, and Quinn, you
chose to stay involved and be at the table, and I thank you for
that. President Biller chose a different tact. I wished he
hadn't. Not so much that it would have helped or hurt him
personally, but rather I think their presence at the table
would have been enormously beneficial to us and to our work
product.
However, even at that, as President Biller said, Moe said
in his opening comments, we are very well aware of the concerns
and the objections to the bill that you have. So you have
certainly represented your membership well in that regard, as
well. There probably is no other part of this process that has
been amended more times than that with respect to employee
relations.
In spite of the pledge that I took very early on in this
process, that we were not intending in this bill to in any way
negotiate or to settle any of the management-labor differences,
we have still time and time again tried to respond to the very
legitimate concerns that in the main you people brought to us.
President Quinn mentioned the amendments that the ranking
member and others through the last mark-up brought with respect
to adding a member of labor to the Board of Governors, with
respect to doing legislative language that would try to ensure
that whatever happens does not have an adverse impact on the
Postal employees.
We, as well, have tried to build in H.R. 22 a number of
changes that Vince Sombrotto and others have mentioned with
respect to eliminating the mailbox test because of the concerns
that you expressed.
We have put in language that very clearly, I think, says
that, No. 1, the Postal Rate Commission has no authority, no
role in the collective bargaining process, that none of its
deliberations can or should have any impact on that process.
And, No. 2, to provide a very specific provision in the bill to
ensure that the PRC can actually grant to the Postal Service
additional pass-throughs above CPI, where there are the kinds
of expenses beyond the cap that a union contract might indeed
produce. So those are the kinds of things, the issues that you
brought to us, and we tried to address those. As President
Smith said, we expect that process will continue. We look
forward to your additional comments and input. I'd invite Moe
Biller back to at least talk to us, as that process goes
forward. The door is open at any time in that regard.
But let me just make a couple of comments about wages, and
about union contracts and collective bargaining, because it is
important. The economist that President Biller's union has
engaged, Dr. Popkin, has presented testimony to the
subcommittee on this issue. It's been reflected in a variety of
ways since then. And I don't want to repeat myself.
But, again, if we can go back to the specific language that
talks about how nothing in the rate caps is intended in any way
to affect the collective bargaining process, that, again, there
is a direct provision for an additional pass-through on rates
above CPI where the union contracts do become an added cost
driver, I think it's important to point out a couple of things,
and this point has been raised by some of you at the table as a
source of pride, and understandably.
The fact of the matter is, when we close the text books on
the economic discussions and theory, as interesting as they
are, the experience of Postal employees is clear and it's
undeniable. Your wages have not kept pace with CPI. So even if
CPI and the wage cap were a hard ceiling, which I again argue
they are not, but even if they were, had your contracts
reflected CPI, your members would be earning more money than
they are right now, No. 1.
No. 2, as you know, one of the things we wanted most to
change was to institute a bonus system that brings the people
into the benefit package that, in my opinion, do the lion's
share of the work, your members. Right now it's basically
management levels that share the bonus.
We did a calculation that shows that had the bonus
provisions of H.R. 22 been in force over just the past 4 years,
the average employee, and many obviously are above average, but
the average employee would have received nearly $1,700, would
have received $1,689 in each 1 of those past 4 years. That
would have meant $6,800 more in pocket to your members, each
and every member, had this bill been in place.
The point is we made every effort, it seems to me, to try
to ensure that employees are not harmed by this, that, indeed,
they are helped by this. Because, as Moe Biller said, this is a
highly labor intensive organization. When you have 800,000 or
750, depending on whose figures you use, over 700,000 hard
working Americans in an organization that really is equatable
to about 80 percent of the operating costs, you've got to pay
attention to them if you are going to do anything remotely
positive. And we've always tried to keep that in mind.
So at the end of the day, we want to ensure that this is
good for your members, it is good for Postal employees. And I'm
not troubled by that. I'm not worried about anybody labeling me
as a lackey of this group or a lap dog of that one, because the
Postal Service that I know is successful for one reason,
because of those people who go out and make it work in the
Pierrepont Manors, and in the Philadelphias, and in every town,
hamlet, village, and city of this Nation. So I wanted to put
that on the record to reassure you, if nothing else, of our
intent.
I, frankly, don't have any questions for you gentlemen. And
that's for one reason. We have been with you at the table and
exchanging information and I don't think we have any areas of
misunderstanding or in need of clarification, No. 1. And, No.
2, I feel very confident we are going to continue to work
together. Now what that means is at the end of the day it will
be your judgment to make. And I'd like to try to persuade you
but I'm not going to try to do that. You are far too loyal on
behalf of your members to have that kind of effort succeed any
way. So we're really looking forward to that continuing.
And in reading your testimony, by and large, it confirmed
the relatively positive feeling in that regard that I have. So
I could sit here and throw a few out for the record, if it
would make everybody happy. But, by and large, I think we need
to continue to do what we have been doing. At the end of it,
hopefully we will have done some good. So that's my speech. Has
anybody got one back at me? President Smith.
Mr. Smith. I would like to thank you for the opportunity to
come to you, as you gave us the opportunity, to address those
issues that we were concerned with. And you gave us that
opportunity.
I was struck by your remarks a moment ago about all of us
being fiercely loyal to our members, but you know we and our
members are fiercely loyal to the Postal Service. We want the
Postal Service to succeed. And all of us want whatever comes
out of this bill to be good for the Postal Service because it
in turn is good for us. Thank you for the opportunity to
participate.
Mr. McHugh. Thank you. And, by the way, you should always
as a politician remember you are never sure how your words are
going to be interpreted. I meant ``fiercely loyal'' as a
compliment. I hope you took it that way?
Mr. Smith. Yes.
[Additional questions for Mr. Smith follow:]
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Mr. McHugh. Well, with that, gentlemen, thank you again. I
look forward to working with you. Let me thank everyone in the
room here today for your incredible patience, perhaps your lack
of sanity, but your incredible patience. This has been as open
a process as we have been able to maintain. We are going to
continue to try to do that. You know the staff, and we look
forward to working with you.
We have a Y2K hearing on February 23rd, if you are really
looking for some excitement. But the next hearing on this issue
will be conducted March 4th. I don't know if it will be in this
room. After my treatment of him this morning, the chairman will
probably never let me back in here. But we'll let you know
where, and we hope you'll share some time with us then. And
with that, the hearing is adjourned.
[Whereupon, at 2:25 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
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H.R. 22, THE POSTAL MODERNIZATION ACT OF 1999
----------
THURSDAY, MARCH 4, 1999
House of Representatives,
Subcommittee on the Postal Service,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:07 p.m., in
room 2154, Rayburn House Office Building, Hon. John M. McHugh
(chairman of the subcommittee) presiding.
Present: Representatives McHugh, Sanford, LaTourette,
Burton, Owens, and Davis.
Staff present: Jane Hatcherson, legislative assistant;
Abigail D. Hurowitz, clerk; Tom Sharkey; Robert Taub, staff
director; Heea Vazirani-Fales, counsel; Denise Wilson, minority
professional staff member; and Jean Gosa, minority staff
assistant.
Mr. McHugh. Let me call the meeting to order. Good
afternoon. I want to welcome you all to what is the third
hearing for the Postal Subcommittee in this Congress. Three
weeks ago, as many of you heard and witnessed, we received
testimony from the Postal Service, the Rate Commission, and the
postal employee groups on the current version of H.R. 22, as
reported by the subcommittee last fall.
Our 4-year journey continues today as we hear from Cabinet
departments, it says--I guess it should read Cabinet department
and I will say a little bit about that in a moment--and a
variety of competitors and customers of the Postal Service,
both live and for the record.
Such a hearing, I feel, is consistent with our longstanding
approach of attempting to ensure that we obtain as many points
of view on this legislation as practical. As in the past, I
look forward to yet another full and frank exchange with all
four panels, or three-and-a-half panels, as the case may be.
As I have tried to consistently maintain, the goal of H.R.
22 has been and remains twofold: to provide the Postal Service
greater freedom to compete, both today and into tomorrow, in
order to successfully carry out its universal service mission,
while at the same time establishing new rules to ensure fair
competition and protect the public interest.
We will hear today from some who suggest that the best
alternative is to generally keep the status quo and restrict
the Postal Service to its noncompetitive products, leaving it
unresponsive, as demand for those services continues to
decline.
Of course, many of these same groups also demand the Postal
Service somehow provide lower rates and better service. Given
such statements, I believe it is important to underscore that,
because of H.R. 22's price caps, strong oversight, and overall
incentives for greater competitiveness and efficiency, this
bill would almost surely result in lower rates and better
Postal Service for noncompetitive customers compared to what
rates and service will be if H.R. 22 is not, in my opinion,
ultimately enacted.
H.R. 22, I believe, strengthens consumer protections
through such provisions, among others, as quality of service
reviews, complaint processes with much greater enforcement
power, subpoena power, and annual audits.
Let us take price caps as one example. Rather than being a
totally untested and unknown process, as a few of the
testimonies submitted today imply, in reality, eight foreign
nations presently use price-cap plans to regulate their post
office's rates. So it is not some blind journey into the
unknown.
While price caps would provide the Postal Service new
pricing freedom, they would also rectify a problem with the
1970 act. Currently, the Service has sole discretion to
determine the overall level of revenues to be extracted from
captive customers and, as such, has little reason to control
costs.
Clearly, an independently administered system of price caps
would represent a vast improvement in protecting the public
interest. Some mailers apparently feel that they are riding a
winning trend with respect to their particular rates, as
determined in the last few rate cases, and, therefore, assume
that this trend will continue, in their minds, forever.
However, I would suggest we don't have the luxury of enjoying
the future until it has, in fact, become the past. When you
have a system, as we do, that is without constraint and at a
meaningful measure as to the overall level of revenues that the
Postal Service can demand in a rate case, then no one should
feel secure about their likely position come tomorrow.
Perhaps a few of those folks who somehow feel warm and
fuzzy about their future rate trends and protections under the
existing framework might wish to speak to the nonprofit mailers
testifying today who would, I think, provide a somewhat
different perspective.
While this may be the last of 4 years of subcommittee
hearings on H.R. 22, the last subcommittee hearing on H.R. 22--
[laughter.]
We are at step 1 of the legislative process, and there
still is a long way to go. At the conclusion of today's
hearing, as we have since the beginning, we will fully digest
all of the comments received and, where we can, modify the bill
to respond to those constructive concerns and suggestions that
have been put forward, and there are many.
I would be remiss if I did not note a special coincidence
today. In fact, at this moment, there is a memorial service
being held on the House floor for a legendary and well-
respected Member of the House, Mo Udall. As many know,
Congressman Udall was one of the key forces in making the
Postal Reorganization Act a reality back in 1970. Indeed, as
just one example of how far that Postal Service has come from
its challenges in those old days, some of us may be able to
recall Mr. Udall's joking remedy for the inflation this Nation
was dealing with in 1972, when he said, ``Let's turn inflation
over to the post office. That will slow it down.'' [Laughter.]
I know our dear, departed friend would be pleased to know
that through the work he helped to begin, and especially
because of the hardworking postal workers, that joke no longer
works. Times have certainly changed, and the postal system he
helped create has served this Nation so very well for more than
a generation. As we continue the journey of modernizing our
Nation's postal laws, I know that we will succeed if we infuse
our efforts with the vision and the bipartisanship that
Congressman Udall and his colleagues brought to the table
nearly 30 years ago.
So, with that, again, I welcome you all. I would be happy
to yield to my friend on my right, Danny Davis, the acting
ranking member, for any comments he may wish to make.
[The prepared statement of Hon. John M. McHugh follows:]
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Mr. Davis. Well, thank you. Thank you very much, Mr.
Chairman. And as you have already indicated, this may very well
be the last in a set of hearings that we will have had on this
very important matter. Therefore, I would like to thank all of
those who have come before us as witnesses and those who have
come today.
I am very much interested in hearing from all of them as we
continue to engage in what I like to call this information-
sharing process. Obviously, H.R. 22 is one of the biggest
measures aimed at reforming or revamping, if you will, the U.S.
Postal Service, and this is indeed a very complex bill. I must
say that I still have some concerns with the long-term outcome
of the price cap and the private law corporation as set up in
the bill and how that pertains to and continues to protect and
promote the rights of the consumer.
At the heart of this bill, as this committee deliberates on
how to make the Postal Service compete more efficiently, I want
to again pose the question and trust that all of us will
continue to consider it, and that is at the bottom line, who
does this bill really serve? Is it in the best interests of the
individual consumer? We cannot get away from what the Postal
Service's No. 1 priority ought to and must be, and that is
delivering mail to the consumer in the most efficient and
effective manner that we can generate. This means ensuring that
both those who live in urban and rural areas get the mail for
the same price and basically in the same manner.
Delivering mail has to be the top priority of our Postal
Service and of our postal system. The consumer interest must be
the bottom-line priority. I trust that we will get there, and I
am sure that we will. So with you, Mr. Chairman, I look forward
to hearing the witnesses and, again, thank you for the
opportunity to comment and look forward to a very productive
session.
Thank you very much.
Mr. McHugh. I thank the gentleman. I thank him and all of
the Members on his side for their, not just cooperation, but
their active participation in this process. It has been very
helpful.
Before we go to our first witness, I would be happy to
yield to the vice-chairman of the subcommittee, the gentleman
from South Carolina, Mr. Sanford, if he has any opening
comments he would like to make.
Mr. Sanford. Thank you for doing so, but, no, I do not have
opening comments.
Mr. McHugh. I thank the gentleman.
I mentioned during my opening statement that we had a last-
minute change in the roster. We had, at the request of the
minority, happily invited the Department of Treasury to present
testimony, both for the record and in person, and until 1
o'clock--or 1:03 p.m.--we were under the impression that they
were still going to appear. The empty seat you see is obvious
testimony to the fact they did not appear, and apparently did
not intend to, without ever informing at least our side.
I should note that I am very disappointed not only for what
I think is a pretty clear act of a lack of common courtesy, in
notifying people of your intentions, particularly when those
intentions go contrary to your original statements, but also
because I feel they had something to offer.
I am going to ask unanimous consent that Department of
Treasury's written testimony be submitted for the record,
although I have to admit to you I am somewhat tempted to strike
it out because it is not all positive from my perspective, as
you understand. But, in fairness, they do bring some valid
concerns to the table.
I would like to believe that someone shared with them my
scintillating, probing questions, and they were too frightened
to show their faces, but that is probably not the case. It is
probably something other than that.
So I am disappointed in Treasury and the absence of Lewis
Sachs, who is Deputy Assistant Secretary of Government
Financial Policy, who both submitted the testimony and we had
expected to be here.
[The prepared statement of Mr. Sachs follows:]
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Mr. McHugh. But, nevertheless, in no way diminishing the
first panel, we still are very fortunate to have with us a
representative of the Department of Justice, Deputy Assistant
Attorney General of the Antitrust Division, Donna Patterson,
whom we welcome here this afternoon.
I will say for the public record what I said earlier, happy
birthday.
Ms. Patterson. Thank you.
Mr. McHugh. You are welcome. And I know you are looking
forward to finally drinking legally. [Laughter.]
With that, Ms. Patterson, again, in all seriousness,
welcome. We are particularly happy now that you are here
because we wouldn't have a panel 1 without you. [Laughter.]
And also because of your testimony. I have read your
testimony and, as with all panels and witnesses, would ask
unanimous consent that their prepared statements be entered in
their entirety for inclusion in the record.
Also, before we begin, consistent with full committee
rules, every witness before either the full committee or any of
its subcommittees is required to take an oath. So if you would
rise, please, and raise your right hand and affirm after me.
[Witness sworn.]
Mr. McHugh. The record will show that Ms. Patterson
affirmed the oath.
Welcome. If you could summarize your statement, that would
perhaps expedite things.
So, welcome, and we are all ears.
STATEMENT OF DONNA E. PATTERSON, DEPUTY ASSISTANT ATTORNEY
GENERAL OF THE ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
Ms. Patterson. Thank you, Mr. Chairman.
I am pleased to be here this afternoon to present the views
of the Antitrust Division on H.R. 22, the Postal Modernization
Act of 1999. My written statement and remarks present only the
views of the Antitrust Division. The Division's comments should
not be read as addressing issues outside our area of expertise
or as reflecting the position of the Department of Justice or
the administration with respect to overall postal reform.
Since passage of the Sherman Act in 1890, the United States
has committed itself to protecting free and unfettered
competition in the vast majority of markets in our economy.
This reliance on free-market competition has served us well and
provided numerous benefits to consumers, including more
innovation, a greater choice of products, and lower prices.
The primary antitrust enforcement tools are sections 1 and
2 of the Sherman Act, which prohibit conspiracies and restraint
of trade and monopolization, respectively, and section 7 of the
Clayton Act, which prohibits mergers or acquisitions that may
tend to substantially lessen competition.
In addition to our primary law enforcement activities, the
Antitrust Division engages in a program of competition
advocacy. Since the enactment of the Postal Reorganization Act
of 1970, we have provided views with respect to postal issues
in a variety of arenas. We have challenged the efforts of the
Postal Service to expand the scope of the protections afforded
under the private express statutes and have suggested the need
for a comprehensive review of competition in domestic and
international markets for mail services.
A number of our prior efforts are listed in my written
statement. Most recently, we supported the legislative
amendment transferring responsibility for international postal
policy from the Postal Service to the State Department. We
applaud the subcommittee's efforts in spearheading and enacting
that legislation. We believe it will have beneficial
competitive consequences.
The Division's position with respect to the key competition
policy issues affecting domestic and international mail
consistently has been to promote competition where feasible.
Accordingly, we have criticized attempts by the Postal Service
to use its regulatory authority to expand the scope of the
private express statutes, and we have opposed efforts to erect
restrictions on competition in international mail services.
These positions are consistent with our general view that
statutory exceptions to the Federal antitrust laws should be
avoided whenever possible.
Federal competition policy objectives are best served when
the Federal antitrust laws are applied uniformly rather than
allowing the distortions that arise when special protections
are given to classes of competitors or to selected industries.
I would like to turn now to the proposed legislation. First
and foremost, I want to commend the subcommittee for ensuring
that competitive principles play an important role in Postal
Service reform. Today, competitors have entered a number of the
activities formerly carried out only by the Postal Service. At
the same time, it appears unlikely that other entities
currently have the infrastructure necessary or the desire to
compete for general First Class Mail delivery at the size and
scope necessary to preserve universal service of mail delivery.
The policy question that the proposed legislation addresses
is whether an acceptable system can be devised to put the
Postal Service on roughly the same footing as others in the
areas in which it faces competition, while ensuring that the
Postal Service continues to have the ability to meet the
requirements of its universal service obligation efficiently.
H.R. 22 recognizes the distinction between the Postal
Service's universal service obligation and its participation in
newly competitive markets by treating these services
differently.
From the perspective of competition policy, the goal and
intent of the legislation to enhance the ability of the Postal
Service to participate in competitive markets, while at the
same time addressing concerns about cross-subsidization, is a
step in the right direction.
A significant aspect of the legislation is the move from
cost-based to price-cap regulation for the Postal Service's
monopoly products. In many instances, price-cap regulation
systems have advantages over cost-based price regulation
because price cap systems tend to create greater incentives to
lower costs and to increase efficiency.
One of the keys to implementing the regulatory pricing
scheme contained in the legislation will be to ensure that an
appropriate cost-allocation methodology is adopted. Another
important component of the new structure is the application of
the antitrust laws to the Postal Service for activities
relating to its nonmonopoly products.
I would like to turn now to comments on two specific
provisions of the bill, section 305 and section 603. Section
305 appears to create a regulatory scheme under which the
Postal Regulatory Commission would proscribe regulations to
enforce statutory requirements that the Postal Service not,
among other things, create any competitive advantage for itself
or any other party. We would like to discuss this section with
the subcommittee.
We are concerned that, without clarification, the standards
in this section may diverge from the antitrust laws. We are
also concerned that future interpretations of the section could
lead to unintended consequences such as disputes over the
meaning of competitive advantage or the chilling of legitimate
procompetitive behavior. We welcome the opportunity to work
with the subcommittee on this issue.
Section 603 would require the Department of Justice to
prepare a comprehensive report identifying Federal and State
laws that apply differently to competitive products of the
Postal Service than to products of other companies. The
Department of Justice is not an appropriate agency for such an
assignment. We are concerned that such a requirement would
require us to divert scarce resources from our law-enforcement
activities and, therefore, detract from the appropriate
enforcement of the antitrust laws. We respectfully request that
if this reporting requirement is retained as the legislation
goes forward, the job be assigned to a more appropriate agency.
I would like to finish my remarks by again noting that the
promotion of competition, where possible, should be an
important goal in any Postal Service reform, and I thank the
subcommittee for taking important steps in that direction.
I am ready to answer your questions.
[The prepared statement of Ms. Patterson follows:]
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Mr. McHugh. Thank you very much, Ms. Patterson.
I had planned to bring the two departments, Treasury and
Justice, together at least insofar as discussion of what I
think are important issues regarding competitiveness and the
areas of concern raised by Treasury. That is not going to be
possible here today.
Let me just ask you a particular question. It is actually a
generic question. Is it fair of me to say that, whether we are
dealing with a Postal Service or any other business-type
organization, the questions of borrowing and banking and such
are indeed an issue of competitiveness, and that inequitable
treatment between two sectors can, in fact, lead to an unlevel
playing field? So, in other words, if one borrower has a
particular advantage or a particular situation, that by law
enriches it above another, isn't that an issue of
competitiveness?
Ms. Patterson. I am not prepared to comment on the Treasury
Department's views on this.
Mr. McHugh. Just the question I asked.
Ms. Patterson. With respect to competitiveness and a level
playing field, our goal in enforcing the antitrust laws and
thinking about appropriate antitrust laws, is always to have
competitors subject to the same scheme of laws and regulations.
By a level playing field, I think what we generally mean is
an equal opportunity to compete, not absolute equality in every
characteristic. Indeed, I would be hard pressed to think of an
industry where every competitor had the same characteristics,
the same borrowing power or the same quality of trademark. So I
think differences among competitors are inherent in
competition, and it is the opportunities afforded them to
compete that need to be level.
Mr. McHugh. Mr. Sachs, what do you have to say for
yourself? Oh, he is not here. [Laughter.]
I appreciate that. But given the absence of Treasury, I
will just move to two quick questions I have specifically
relating to your testimony and two things that you mentioned.
The first being, and both of them are on page 9 of your
testimony, you talked about the concerns that you have with
respect to the assignation of responsibilities that Justice has
in identifying certain Federal and State laws that inure
certain benefits or apply differently to the Postal Service,
and you asked that it be assigned to a more appropriate agency.
I don't disagree with that but I am curious, do you have a
suggestion as to which more appropriate agency we might assign
them to?
Ms. Patterson. I don't have a particular agency in mind. We
don't have any comparative advantage with respect to State laws
or, indeed, with respect to all Federal laws. We really only
know about the antitrust laws.
I believe there are other agencies that do--regulatory and
reporting agencies--that do such studies from time to time, and
I would think one of them would be more appropriate.
Mr. McHugh. If we could ask then that you and your people
give some thought to that, because we are perfectly willing to
consider it. It wasn't really an attempt to punish you, I
assure you, and you may view it differently.
Ms. Patterson. We didn't interpret it that way.
Mr. McHugh. But we want to, where possible, assign these
kinds of things to the most appropriate agency. So if you have
any specific thoughts, as we go along, we would be very
interested.
Ms. Patterson. We would be happy to provide you with our
thoughts.
Mr. McHugh. Thank you very much. The other is your
reference to section 303, which was stated above that. We are
somewhat concerned that the standards contained in the
mentioned section appear to diverge from the antitrust laws and
about the availability of different forums for addressing the
same conduct. It could be possible that legitimate and
procompetitive business practices may be inhibited by this
action. You then go on to say that we want additional
discussion. I appreciate that.
But I just thought for the purposes of your appearance here
today, do you have any specific examples or generically
specific examples about what kind of procompetitive business
practices may, in fact, be inhibited? What kinds of areas are
we likely----
Ms. Patterson. With respect to subsection 4 of section 305,
I think it is possible that that prohibition on the Postal
Service could prevent the Postal Service from providing
information to its customers about all competitors who provide
a certain service, and I think that would be legitimate
procompetitive behavior that would be affected by that
subsection.
Mr. McHugh. Well, there are two. You offered kindly for
further discussion, and we will certainly take you up on that.
I appreciate it.
I am going to, with great appreciation, recognize the
chairman of the full committee, who has joined us and, who I
should say, before I do yield, has been a great leader and a
great supporter in this process. He was at our last
subcommittee hearing as well, and we're delighted he has been
able to take at least a few minutes to be with us here today,
the gentleman from Indiana, Chairman Burton.
Mr. Chairman, welcome.
Mr. Burton. Thank you, Mr. Chairman.
I just came here to be educated, and I really appreciate
all of the hard work you have done.
I have a statement for the record I would like to submit.
Mr. McHugh. Without objection, sir.
[The prepared statement of Hon. Dan Burton follows:]
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Mr. Burton. Do you know where Mr. Sachs is?
Mr. McHugh. Well, funny you should ask. Actually, Mr.
Chairman, I expressed a great level of disappointment. We
learned at 1 o'clock, or perhaps a few minutes after, that
Treasury did not intend to send a representative.
Mr. Burton. Was there any reason they gave or anything?
Mr. McHugh. To this moment, we have not, to my knowledge,
received, on our side, any kind of indication. Apparently,
there was some contact with the minority side, but I think they
would agree with me that it was late, and it was less than
decisive, and we received no indication at all.
Mr. Burton. Mr. Chairman, let me just say that if you
require witnesses to be here and they choose not to be here, we
will be very happy to assist you by issuing a subpoena to make
sure they are here. We will contact Mr. Sachs and find out why
he wasn't here because you deserve the respect that is due your
position. You have worked on this issue for about 4 or 5 years.
So we will talk to Mr. Sachs and make sure he never does this
again.
Thank you.
Mr. McHugh. Thank you, Mr. Chairman, and we will keep that
in mind. I would prefer to subpoena people who support the
bill, however. [Laughter.]
Before we proceed to the minority for questioning, we have
been joined, also, by the gentleman from Ohio, Mr. LaTourette,
one of the original subcommittee members who, as I mentioned
last time, continues to voluntarily serve, so that deserves
recognition. I would be happy to yield to him if he has any
opening comments.
Mr. LaTourette. I will wait.
Mr. McHugh. I thank the gentleman.
At this time I would yield to the gentleman from New York,
Mr. Owens, for any comments or questions.
Mr. Owens. No questions.
Mr. McHugh. Well, Ms. Patterson, we thank you.
Oh, I am sorry, Mark. Mr. Sanford----
Mr. LaTourette. Mr. Chairman, I am sorry. I thought you
were asking me for opening remarks.
Mr. McHugh. I am asking you for whatever you want to throw
out there, Steve.
Mr. LaTourette. Then hang on just a second. I apologize.
I was going to save my opening remarks until my pithy
questions, and I just have, Ms. Patterson, a couple of
questions that relate to the last hearing with the Postmaster
General, and I think he, in his testimony, made some
observations that were a little alarming to me and some other
members of the subcommittee as well.
We always hear about foreign government subsidization of
industry. People in the steel industry are now coming to us
saying their companies are subsidizing the steel industry and
putting our industries at a disadvantage. I think he mentioned
Germany in particular, and I think he mentioned England as
well; wherein, they had sort of gotten big time into the mail
business. The concern was that with the leverage created by not
only the Government being behind that enterprise, but also
their involvement in private corporations, that they were going
to be putting the U.S. Postal Service at a disadvantage.
Relative to your comments and observations on antitrust, I
am just wondering whether or not the Department of Justice has
ever taken a look at the potential antitrust implications of
someone other than the U.S. Postal Service or some of the
competitors that are going to testify before us today as it
comes to a monopolization of mail products abroad.
Ms. Patterson. I don't believe that we have ever had
concerns of that sort addressed to us in the context of
specific behavior. Generally, we investigate specific behavior
that is alleged to be harming competition at the time.
Mr. LaTourette. Then the second question is we are going to
hear from not only customers, but also competitors of the U.S.
Postal Service today. Are you aware of any information the
Department of Justice has on complaints or cases against the
major competitors of the U.S. Postal Service relative to
antitrust violations or monopolization?
Ms. Patterson. Not as I sit here today, I am not aware of
any specific investigations that are underway, although we get
complaints from time to time from a lot of quarters about a lot
of things, and we generally investigate them at the level that
we believe appropriate at the time.
Mr. LaTourette. And, last, as I read your testimony and
also heard you testifying about, you had some concerns about
the responsibilities that H.R. 22 would deliver to the
Department of Justice under section 603, and it is your
observation that that should go to a more appropriate agency
than Department of Justice because of manpower constraints and
things? Do you have a suggestion as to who would be more
appropriate?
Ms. Patterson. As I said to the chairman, I don't have a
suggestion about a specific agency, but we have agreed to give
that some thought and get back to the subcommittee with any
suggestions we have.
Mr. LaTourette. Thank you very much.
Ms. Patterson. Thank you.
Mr. LaTourette. I thank the Chair.
Mr. McHugh. Again, Ms. Patterson, thank you for being here.
As we have already discussed on several occasions, we are
looking forward to working with you, particularly on those two
sections and we appreciate that opportunity.
Ms. Patterson. Thank you. We look forward to working with
the committee.
[Additional questions for the record follow:]
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Mr. McHugh. Thank you very much. Thanks for being here,
too. [Laughter.]
The next panel is made up of two very distinguished
gentlemen: Mr. Fred Smith, who is chairman and chief executive
officer of the Federal Express Corp.; and Mr. James P. Kelly,
who is president and chief executive officer of United Parcel
Service.
I asked staff if they were here, and someone said, ``Gee, I
haven't seen them, and I hope they are not with Mr. Sachs.''
[Laughter.]
So these two guys walk into a bar. The first guy says--
[laughter.]
They are checking to see if they are in a holding room. I
didn't know we had one, but--[laughter.]
[Pause.]
Mr. McHugh. Have you gentlemen seen Lew Sachs? [Laughter.]
To let you in on that, he was the gentleman on the first
panel who didn't show up, and we were beginning to worry you
three were together somewhere. [Laughter.]
Mr. Smith. We were right behind the door, but it still took
us 10 minutes to get here.
Mr. McHugh. I said awfully nice things about you while you
were out of the room. I will show you the record later.
I do deeply appreciate you two gentlemen being here. You
both have extraordinarily busy schedules, extraordinarily
successful companies, and are most gracious in agreeing to be
here today and to give up some of your valuable time in helping
us to go over this issue. In that regard, we have also
appreciated very much the opportunity to work with both of you
personally, but on a continuing basis with your representatives
who have been fully engaged in this process, as you know. You
have provided a great service, certainly to the subcommittee,
but I think to the entire country on this important matter.
As I mentioned with the abbreviated first panel, we have
made both of your statements part of the record and entered
them in their entirety, and we appreciate the work and thought
that went into those. I have read them both. I would yield to
you now for the opportunity to make an oral presentation. But
before we do, the subcommittee and committee rules require, as
I think both of you have done in the past, ask you to rise and
to affirm an oath. If you would do that, please, gentlemen and
raise your right hands.
[Witnesses sworn.]
Mr. McHugh. The record will show both witnesses responded
in the affirmative.
With that, welcome. I am going to, for no other reason than
this is how they are listed here--this is no reflection on
seniority, no reflection on success, no reflection on anything
other than that this is how they were typed--I will yield first
to Mr. Smith who, as I said, is chairman and CEO of FDX, and
welcome him and pay our attention to you, sir, as you make
whatever comments you would like to at this time.
STATEMENTS OF FRED SMITH, CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
FDX CORP.; AND JAMES KELLY, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, UNITED PARCEL SERVICE
Mr. Smith. Thank you very much, Mr. Chairman. I am
delighted to be here representing tens of thousands of
employees and independent operators that drive the FDX system,
two primary components of which are Fed Ex and RPS.
I am delighted to be here with my friend, Jim Kelly, as
well, representing the fine folks at UPS. I think both our
companies have many more similarities in outlook on this matter
than disagreements. In fact, I think we would both very much
like to end up in exactly the same place, and whatever
disagreements we have are probably as to how best to get there.
In that regard, as you know, we support H.R. 22 and think
that it is a good piece of legislation, well thought out, that
takes the country, and our industry and, for that matter, the
Postal Service in the direction that it should and must go in
the 21st century.
I think it is important to look at this issue from a
broader perspective than is often the case. In that regard, the
way I characterize what the Postal Service is trying to do
today is what private business would call a diversification.
As you well know, the Postal Service was given a monopoly
in 1871 to carry letters. And the primary justification for
that was to provide universal service and the primary
commercial ties for an expanding nation.
In the early part of the 20th century, the Postal Service
began to add, in addition to their letter traffic, the movement
of publications and physical goods, and over a number of years
developed a substantial business in that regard.
Then in the middle part of this century--and Mr. Kelly
could tell you a lot more about it than I can because his
company was right in the middle of it--the Postal Service, in
essence, withdrew from the goods delivery business. One of the
reasons that they did was that they found that the operating
systems--the vehicles, the post offices and so forth--could
either be optimized for the delivery of letters, and
publications and small items or they could be optimized for the
delivery of packages, but not both. To put it in very
simplistic terms, it is one thing to be delivering letters in a
small jeep vehicle with a right-hand drive in your
neighborhood, and it is quite something else to be delivering
parcels which require the capabilities of step vans of the type
operated by UPS or Fed Ex or RPS.
UPS became the primary parcel delivery entity in this
country, and only recently has the USPS begun to turn its
attention away from the delivery of letters and small items
back to the delivery of goods, both in this country, and more
worrisome, as a matter of fact, in the international sphere
where they are under far less oversight.
The reason that they are doing that, at least according to
their own statements, is that they fear technological
obsolescence of the movement of letter mail, and they feel that
they should be allowed to be competitive in areas which are
also served by the private sector.
Quite frankly, we find no compelling public argument to
support that position of the Postal Service. It is hard for me
to fathom why it is in the public interest. The Postal Service
is exempt from antitrust regulation, is exempt from most tort
claims--at least according to them that they are--is
represented by taxpayer-funded lawyers, does not pay any sales,
excise or property taxes, is exempt from zoning regulations,
does not buy license plates for their cars or their trucks, has
no zoning restrictions on it and, in fact, only pays parking
tickets if it voluntarily agrees to do so. With the Postal
Service enjoying all of those advantages--not to mention the
fact that for every dollar of profit that we return to our
shareholders, we pay, at the moment, about 41 cents out of
every dollar to the Federal Government--we can't for the life
of us find any compelling public-interest argument for the
Postal Service to be able to diversify into the goods movement
sector.
But having said that, there is a very large private
interest in the Postal Service becoming something that has a
viable mission in the 21st century, and the political realities
of that are so stark that we believe that H.R. 22 is a good
compromise, dividing the Postal Service's operations into the
sector which benefits from all of those advantages that I just
listed--and many more, plus the monopoly rents that they can
command by virtue of their letter monopoly--and a competitive
sector which has the appropriate controls, and opportunities
and risks that our companies take in the marketplace every day.
So on that basis, we think H.R. 22 is a well thought out
first step toward the commercial operations of the Postal
Service becoming privatized. It recognizes the private
interests of postal workers and the interests of the people who
have come to depend on the mails, but also recognizes the
realities of the world economy and the realities of the
marketplace for the 21st century.
One of the areas of particular concern, before I conclude
my remarks and turn it over to Mr. Kelly, is the Postal
Service's forays into the international marketplace. As you
know from the Postal Service's own figures, they lose money. In
fact, as well reported, they lost a considerable amount of
money. That money has been paid for by the taxpayers of the
United States in lost income taxes not paid by the commercial
transportation companies that would have handled that traffic
or by the first class letter mailers who would have enjoyed
lower rates for the movement of their traffic had it not been
for these efforts of the Postal Service to get involved in
those sectors.
In that sector, in particular, they are not under the same
control elements and auspices of the Postal Rate Commission, as
you know. And I think Jim Kelly, who has been very vocal about
this and compared some of the rates being charged in the
international sector compared to the domestic sector, makes a
very, very compelling case as to how this is neither desirable
nor fair.
I think, with that, I will stop and, hopefully, I have
given you the very broad perspective of our view on the Postal
Service's situation and the legislation itself.
[The prepared statement of Mr. Smith follows:]
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Mr. McHugh. Thank you, sir. You have indeed. I normally
don't recommend reading to anyone, but anyone who might be
interested in this process, the testimony that you have
submitted is among the more complex and thoughtful that we have
had, and I would recommend it to anyone who would care to
review it.
That isn't only my interpretation because you are generally
supportive, although it probably helped. [Laughter.]
I would now be happy and delighted to yield to our next
witness, Mr. James Kelly, who is chairman and chief executive
officer of United Parcel Service. As I said earlier, sir, we
are delighted and honored that you are with us. Without further
ado, let me yield to you and our attention is yours.
Mr. Kelly. Thank you very much, Mr. Chairman. It is my
pleasure to be here, and good afternoon to members of the
subcommittee.
UPS was founded in 1907 as the world's largest express
carrier and package delivery company----
Mr. McHugh. Excuse me, Mr. Kelly. Would you pull the
microphone a little bit closer to you, please. Thank you.
Mr. Kelly [continuing]. Serving more than 200 countries and
territories around the world.
There is no single issue of greater importance to the
future of UPS and our 330,000 employees and owners than postal
reform, and thank you for inviting me here today to share our
views.
I would like to take a moment to thank you, Mr. Chairman,
for your tireless work and patience in grappling with what must
often seem like a thankless task. You have always been willing
to listen to both sides of this controversial issue, and your
hard work and leadership over the past few years have helped to
define many of the problems and challenges at hand and to shape
possible solutions.
This is an extremely complex issue with profound
ramifications for all Postal customers, as well as private
competitors, like UPS. We have listened to all of the arguments
made by the Postal Service that they need even greater
flexibility over their prices to compete in the marketplace.
They say they must maintain their monopoly on letter mail and
remove what little oversight they now observe. Otherwise, they
say they will not be able to deliver mail at affordable prices,
stamp prices will go sky high, universal service will die,
rural post offices will close and the doctrine of a service to
``bind the Nation together'' will die. And we all know none of
this is true.
Mr. Chairman, the logic leads us in the wrong direction. It
perpetuates the fundamental problem with the Postal Service as
a privileged competitor to private business and a Government
agency.
Let me pose two fundamental questions that goes to the
heart of this debate:
What is the role of this Government agency and is the
proper role of the Government to leverage a monopoly power to
compete with private business?
You have stated the objective of reform should be to
enhance the core mission of providing universal letter-mail
services at uniform, affordable prices, and we agree.
Unfortunately, we believe, in its present form, significant
portions of H.R. 22 would create even greater danger of
monopoly abuse by the Postal Service.
Reform should not grant the Postal Service additional
freedoms to abuse its monopoly to compete with the private
sector. Yet, that is exactly what we believe the current bill
would do. That is not the role Congress intends for a
Government-granted monopoly.
The Postal Service is currently operating under a hybrid
status where it is neither subject to the same controls as a
Government agency nor is it under the same discipline or
obligations that private businesses face. The Postal Service
enjoys a host of exemptions from regulations such as taxes,
licensing requirements, zoning regulations and so on. The
result of this structure is a Postal Service that has abandoned
its focus of providing superior first-class service for all
Americans. This is all in efforts to garner market share from
private-sector competitors, through abuses of its monopoly
power, under the guise of protecting universal service in a
changing marketplace.
For the past decade or so, the Postal Service has ventured
into new markets and products never envisioned by Congress when
reforming the Postal Service in 1970. The Postal Service is
engaged in predatory competition by using revenues from
captive, first class monopoly customers and taking every
advantage of its Government status to undercut prices of
private-sector competitors.
Last month, the postmaster general testified before this
committee about the threat of the highly commercialized and
capitalized foreign postal administrations entering the U.S.
market. Mr. Henderson stated that the Postal Service would not
have the ability to cut deals with foreign postal
administrations and offer products priced below competitors,
such as UPS and Federal Express.
On Monday, the Postal Service announced an alliance with
DHL Worldwide. They will offer a 2-day guaranteed service
between the United States and Europe. The price for this
service is significantly less than the prices charged by
Federal Express, UPS, or DHL's own branded products. I ask the
committee how can this be possible? Apparently, despite the
rhetoric, the Postal Service isn't that terrified of foreign
postal administrations entering the U.S. market, as DHL is
owned, in part, by the Deutsche Post AG.
Should we allow the Postal Service greater flexibility to
make such arrangements with foreign governments or is it time
to reign them in? We believe it is the latter. It is time to
have this Government agency refocus on its primary mission of
providing superior universal letter mail delivery.
Absence the elimination of the monopoly, Congress should,
at a minimum, strengthen the Postal Rate Commission to increase
the Postal Service's accountability to consumers and taxpayers.
Currently, the PRC does not have all of the basic tools to get
information it needs from the Postal Service to make informed
and rational decisions.
In the international arena, the PRC has no jurisdiction,
and the Postal Service has total freedom to set at any rate and
service.
Again, I ask what is the role of this Government agency?
The PRC should be granted subpoena power and the authority to
make final binding decisions on all postal rates, including
full jurisdiction over international rates. And to encourage
cost efficiency of the Postal Service, the Commission should be
given authority over the Postal Service's revenue requirement.
As long as the Postal Service maintains a Government-granted
monopoly and is in direct competition with the private sector,
these short-term basic reforms are needed to help provide
consumers, taxpayers and private competitors with the
accountability Americans expect of a $60 billion Government
agency.
No monopoly should have the unchecked authority the Postal
Service is seeking. These reforms will also help simplify and
streamline the rate-setting process. A stronger system of
accountability will be an important first step in whatever
long-term reforms come to pass.
Again, I thank the committee for your attention on this
very important matter and for listening to UPS' views today and
in the past. I certainly welcome any questions that you may
have.
[The prepared statement of Mr. Kelly follows:]
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Mr. McHugh. I thank the gentleman for his comments and, as
I said, his participation.
I think it is good to have two industry leaders, such as
yourselves, side-by-side because the natural inclination may,
in fact, be to think that you would be united from step one to
step last on how this puzzle should be approached and
ultimately pieced together. And as Mr. Smith said in his
opening comments, that is not necessarily the case. Objectives
may be the same, but perspectives along that process are not
always shared exactly, and that is where we are today.
I am tempted to ask that the two of you just chat and see
if one can prevail over the other, but I don't know if that
would really come to any good. So let me just ask a couple of
questions and then go to my colleagues.
First of all, let me say to Mr. Kelly I couldn't agree
more. Clearly, one of the main reasons we are in this process
is to attempt to level that playing field, to use the old
cliche, that I think undeniably exists, and you mentioned a few
of the examples that most trouble you and most concern you.
Without trying to convince you of the merits of the bill, I
would only note that the USPS, the Postal Service, venture with
DHL couldn't have occurred, as it did, under H.R. 22; that, in
fact, depending on how the argument came out, if it were a new
competitive postal product or a new nonproduct as a joint
venture, it would either have to go through the Competitive
Products Fund, which would mean it would be under the auspices
of the Postal Rate Commission, or it could only be done under
the Private Law Corp., which would subject it to all of the
kinds of pressures that you as private business people
experience, and as Mr. Smith spoke about, taxes, the need to
adhere to local zoning, land-use, and public-use regulations,
and putting license plates that you actually paid for on your
delivery trucks, et cetera. Also, the issues of providing, in
the process of the Competitive Product Funds, the opportunity
for the Postal Rate Commission to do a better job to get at the
data it needs by granting it subpoena power and by requiring
that products, through the equal cost coverage rule, contribute
back in an equal way.
So I think we have tried to address that. Obviously, Mr.
Kelly, you don't seem to think that we have gone quite far
enough. You mentioned in your testimony that we need to do
more.
So I just throw a general question out there. If you could
have us add any one or two or three things into this area
within the structure of this bill, what it might be?
Mr. Kelly. Yes, Mr. Chairman. We certainly believe that the
committee is very sincere in attempting to do exactly what you
just characterized, and we are working as hard as we can to
help try to put our point of view to have that happen.
Certainly, we are concerned about the dual ratemaking
process that is involved in----
Mr. McHugh. I am sorry. I didn't hear you. The what?
Mr. Kelly. Dual ratemaking process, where cost becomes less
of an issue in the competitive products. We are concerned about
the Postal Service's ability to discount and increase its
subsidies against competitive products.
The Private Law Corp., as I understand it, it calls for
them to do additional competitive products. We don't believe
there is any reason for a Government agency to have to enter a
competitive area. We just don't see why that exists, and we
think the abuse that they use with their current monopoly
should be limited and not allow them to extend that monopoly to
other competitive situations.
And, certainly, we believe the PRC needs more power, needs
more teeth. The Postal Service has demonstrated over the years
that they need that kind of control. They have, again, today,
as I read, refused to give information to the PRC in order for
them to do their job properly. We believe that the PRC has to
have subpoena power.
Mr. McHugh. But that is in the bill.
Mr. Kelly. We believe they have to have the final say in
ratesetting, and there are a number of issues.
Mr. McHugh. Forgive me. I didn't mean to interrupt. But the
subpoena power is in the bill.
Let me go back to the Private Law Corp. You would agree--
and don't let me put words in your mouth--would you agree, as I
think you testified to in your statement, that today, over your
very understandable and strong objection, the Postal Service
does, indeed, compete in just about any way it chooses with the
private sector? Isn't that true?
Mr. Kelly. Well, they have certainly become more aggressive
in where and how they compete with the private sector, and we
believe that that should be reduced and eliminated.
Mr. McHugh. So the answer is, yes, they do do that. I mean,
they offer phone cards, they offer mugs----
Mr. Kelly. Yes, they do.
Mr. McHugh. They offer ties, they offer mouse pads, they
offer t-shirts----
Mr. Kelly. And what next?
Mr. McHugh. DHL----
Mr. Kelly. Yes, they do.
Mr. McHugh. Well, I don't know, but they do. So that is a
given.
I guess there are two ways to meet your concern. One is to
say Postal Service go to your core business, as there has been
legislation introduced. Do nothing else ever.
And the other is to say, if you are going to continue in
nonpostal products and compete in the private sector, you can
only do it through the Private Law Corp., and that is our
solution.
So I am assuming what you are saying is that you object to
the Postal Service offering any kind of nonpostal product at
all, ever.
Mr. Kelly. Well, long-term, that is obviously what we
believe.
Mr. McHugh. OK. That is fine.
Mr. Kelly. I think the reality of what exists today could
make the second proposition doable if, in fact, you could build
the firewall thick enough and tall enough that things couldn't
be tossed back and forth across. And we don't believe, and we
think it has been demonstrated over the years, that they can't
be prevented from doing that without stronger language.
Mr. McHugh. Then I would ask you, as we have asked in the
past, that we need to see the language as to how to build that
wall any thicker, because we have created, and even the
chairman of the Postal Rate Commission has said, in his words,
``an almost perfect system.'' He doesn't like it. He dislikes
it for other reasons, but he admits that the way in which it is
done, he doesn't see how the issue of firewalls and backwash
subsidies could be any better precluded.
The reason there aren't more in there is not because we are
``agin 'em,'' but because nobody can think of them. And to
preserve the Private Law Corp. and to build upon it, we are
happy to do that.
Let me, with that, go to Mr. Smith because he takes a much
different view, as I recall his testimony on the Private Law
Corp. and the issue, and I would be interested in hearing his
views.
Mr. Smith. Mr. Chairman, you mentioned a moment ago that
there, in essence, are only two solutions to this problem. The
first solution would be to tell the USPS go to your core
business and you are precluded from being involved in anything
that a commercial enterprise can do, and the second is a track
along this line.
As I said in my opening remarks, and I want to reiterate
right now, if I had the power to prescribe the best public
policy for the United States of America, and for that matter,
for the Postal Service itself and the private sector, it would
be to do the former, not the latter.
The Postal Service would be much better off if it were
relegated to carrying first class letters, and small packets
with a limit of, say, 2 pounds because I am very confident--and
I am sure Jim will agree with me based on the extensive
knowledge both of us have in terms of the structure of pickup
and delivery, and sortation facilities and what have you--the
overall costs for the public would go down.
On the other side of the coin, we serve every address in
the United States of America with the exception of a very few
points in Alaska, and I know UPS does too. The price of
delivering goods to addresses should be reflective of the
actual cost. If there is one thing that the last 50 years has
taught the world, it is the great silliness of having
governments misallocate capital and human resources. The whole
problem in China and the former Eastern bloc is precisely that.
People put money into ventures not because that was what the
market was willing to pay or that was the most efficient
allocation of resources, but because somebody was able to get
the money and do that.
That is really what the Postal Service is doing. It is a
significant misallocation of resources for the Postal Service
to be attempting to do what they are currently doing, which is
diversifying into many of those sectors, but in particular into
the goods movement sector. They don't have a congressional
mandate to do that. They don't have, quite frankly, the
infrastructure to do that. They actually got out of that
business one time because of that consideration. They are doing
it to diversify.
So that would be the best public policy. But we don't think
you can get there, given the political realities, and that is
why we support H.R. 22 because it is the second-best
alternative.
Mr. McHugh. I appreciate that. You have always been very
clear about that as well.
Can I assume, then, because I take very seriously a man of
the stature of Jim Kelly when he is concerned, and I understand
that, and I have said repeatedly I am not foolish enough to
think anyone who has a responsibility, as each of you do, and
Mr. Kelly does, for a corporation of the magnitude and the
success of UPS, to walk blindly down an alley just because I
would like it. I mean, that is ridiculous, and I don't.
So I want to try to do what we can to build on the Private
Law Corp. because I come down the same place you do. Regardless
of how I may feel about all of the other things going on, they
are going on. I don't see, quite frankly, in this Congress, in
this administration, a likelihood of changing it to that
reality, if that were my interest. So we are looking at the
second reality.
Are you content or satisfied that the Private Law Corp., as
constructed, will, indeed, do what it is intended to do, and
that is to preclude, to the greatest extent possible, the kinds
of abuses, and misuse and misappropriation of public finances
and the public privilege that the Postal Service now enjoys in
those future products?
Mr. Smith. I would certainly hope so, Mr. Chairman. I think
a lot of it depends on just how tough the PRC is in enforcing
it. History shows that entities like the USPS, who are not
accountable to the marketplace, per se, and to private
interests, have a terrible tendency to abuse the powers that
they have, and I would submit to you that Jim Kelly is
absolutely right. That is what they are doing right now.
So it largely depends on just how tough that oversight
system is. I would hope that, if it is not tough enough, that
the legislative history of this act would be such that the
private sector could come to the Congress, if there are abuses,
and seek amendments.
The Postal Service has been intractable on occasions, as
Jim pointed out, in providing information, in obfuscation. I
think this may be just the heritage of the organization. I
think it was before this committee, the Postmaster General--who
may be here, I don't know--was testifying the same day Mr.
Kelly and I were, and someone asked him and said, ``Do you
think that you are subsidized?'' and he said no. Well, I got
out of this room, and I talked to our folks, and I said that is
the damndest thing I ever heard in my life, that the postmaster
general would say that he is not subsidized when he has all of
those advantages that I listed a little while ago and that are
in his testimony. One of our very able lawyers said, ``Well,
you have got to understand that he is coming from the postal
world and what that means to him is that he is not getting a
direct subsidy of taxpayer funds.''
Well, I think a lot of the problem here is that the
marketplace that UPS and FDX work in is very brutal, and very
tough, and it has a lot of penalties for making a mistake.
There is a mentality inside the Postal Service that is somewhat
insulated from that, and it leads to a hubris. I think that it
is a real danger that they would attempt, in the interest of
what they thought was their mission, to be a little bit trying
to the oversight mechanisms that are in H.R. 22.
Mr. McHugh. Well, any system of law, of corporations, of
whatever you wish to cite, is only as good as those who oversee
it, I would grant you. But we took very definitive steps, some
of which came from your gentlemen's camps, as to how we can
empower the PRC through subpoena power, through preapproval of
negotiated service agreements, et cetera, so that that kind of
thing doesn't happen. I don't know if it does or it doesn't.
Obviously, you all feel very strongly, and I imagine we can
find a large body of people to testify on your behalf. But you
also recognize the Postal Service equally, and in an equally
adamant way, denies that. So rather than trying to solve the
``chicken or the egg'' dispute, we tried to make sure there
were no more chickens and no more eggs and fix the problem.
Mr. Smith. And, again, Mr. Chairman, that is why we support
the bill. You asked me do I think it is strong enough, and I
said it depends on how strong the PRC is, and if it doesn't
work, we will just have to come back.
Mr. McHugh. I appreciate that.
I would be happy to yield to Mr. Owens.
Mr. Owens. Mr. Chairman, you have a long list of witnesses,
and I think you have thoroughly explored this subject.
I was curious to know why they weren't agreeing with each
other, considering they are the two giants in this business. I
think, after the conclusion of the dialog between the two of
you, you both do agree. You, Mr. Smith, are saying you take off
your businessman's hat, and you put on your politician's hat,
and you said the reality is that we are going to go forward
with the present situation, and we have to learn to live with
it. Is that what you are saying?
Mr. Smith. Yes, sir. Jim is probably better at this than I.
I mean, I have gotten my brains kicked in a couple of times up
here. [Laughter.]
So I just am more mindful, perhaps, of the reality of
trying to get where we need to go without going through this
intermediate step. But that would be a fair way to put it, yes.
Mr. Owens. Memphis is my hometown.
Mr. Smith. Oh, it is? Great.
Mr. Owens. So say hello to the folks back home.
Mr. McHugh. I thank the gentleman.
Mr. LaTourette.
Mr. LaTourette. Thank you, Mr. Chairman.
Both of you gentlemen, when you were testifying, talked a
little bit about the international market, and the ability of
the Postal Service to compete in the international market. I
think, Mr. Smith, you were talking about the fact that it is
pretty well documented that they were losing money on some of
their international shipments.
Mr. Kelly, when you talked, I wrote down three times you
asked the sort of rhetorical question, What is the role of
Government? I was wondering if you would care to talk a little
bit about the international aspects of the postal market, and I
will ask you what you think the role of Government is in the
expansion and development of international markets vis-a-vis
the U.S. Postal Service and the businesses that you represent?
Mr. Kelly. Thank you.
I believe the Postal Service should continue to focus on
the universal delivery of letter mail, and that is what they
are there to do, and that is what they should continue to focus
on.
I think the whole international arena partially answers the
question of why the Private Law Corp. gives to ZAJADA. When you
talk about Postal Services expanding into competitive areas,
when you talk about Postal Services acquiring private
companies, we have a history that is only 2, 3, 4 years old in
Europe of where exactly that has happened.
The Deutsche Post, for example, has purchased 6, 8, 10
private delivery companies in Europe. DHL, that the United
States Postal Service formed the alliance with this week, is
owned, in part, by the Deutsche Post.
Another 25 percent of DHL is owned by Lufthansa. So, in
effect, the relationship between the United States Postal
Service and DHL, the only one who is going to benefit from that
is the German Government. The American taxpayers are going to
be disadvantaged by the subsidy of providing first class
revenue to support that service in one case, and in the second
case, there is no U.S. company that is going to derive any
revenue or that is going to pay any taxes on that because it is
going to wind up in Germany.
There are some very complex and difficult issues that exist
in Europe regarding postal services, and many of them are
unfair. The situation is quite different because of the numbers
of countries, of course, that exist in Europe. So they are
competing with each other. In the United States, there is only
one. If they give them the same kind of rights that the
Deutsche Post is looking for, it would be devastating to
private competitors in this country.
There are virtually no private companies left in Europe.
Mr. LaTourette. One of the comments that I think has come
from UPS, in particular, that I have seen, has been criticism
of the Postal Service's global package link.
When we talk about issues of competitiveness, and I think
that Chairman McHugh's excellent work on H.R. 22 is designed to
get at competitiveness, but make it truly a level playing field
and not a tilted scale, when we talk to the Postal Service
about the global package link, they say that it is based upon
economies of scale.
So what you are doing when you complain about the fact that
they are able to use their subsidization or monopolization to
compete unfairly in the international market, well, they are
just sending a lot of stuff and so they can do it cheaper. Do
you have any thoughts or comments about that?
Mr. Kelly. Yes. I mean, they price that service, as I have
mentioned a number of times, for a package to go from San
Francisco to London is less expensive than it is to go from San
Francisco to Los Angeles. The pricing makes no sense.
The scale that they are talking about has to do with 10,000
packages, but it is not any ``X'' amount of packages per day.
That is over the cost of the year. You can't gain the economies
of scale that the Postal Service talks about gaining by
spreading out those packages over the course of an entire year.
Mr. LaTourette. I was interested in your discussion with
the chairman about the Private Law Corp., in particular. Have
you reached a conclusion that there is no firewall big enough
or wide enough to fix this problem?
Mr. Kelly. I am reluctant to say that. But if you look at
the topic you have just discussed and you think of what they do
with the global package link, and you think of what they do
with subsidies today, to allow them to compete in additional
areas, to allow them to buy private companies, it scares me to
death of what they will do going forward. So, yes.
Mr. LaTourette. Thank you very much.
Thank you, Mr. Chairman.
Mr. McHugh. I thank the gentleman. I want to probe that a
little bit further because it is an important point.
My understanding, and I believe it is reflected in Mr.
Smith's testimony as well, is the Deutsche Post is actually
selling their publicly held postal assets to directly utilize
those funds for the purchase of the companies you are concerned
about, and I am 99.9 percent certain that is true.
H.R. 22 would totally prohibit that. It could not happen.
The DHL-Postal Service joint venture shows that they can do
these things today. As you know, they can actually go out and
buy--the USPS could buy a company tomorrow, if one person, the
Secretary of Transportation, signs off--Treasury, excuse me.
So that, in large measure, we are responding, trying to, to
the very concerns you voice because the world that you fear of
tomorrow is, I would suggest, far scarier from your perspective
without H.R. 22 than it is with it. And I think, again, for a
selfish reason, why I urge people to read Mr. Smith's testimony
is because those issues are addressed.
I do not, in any way, Mr. Kelly, belittle or wish to treat
in a less than serious way the things you have stated. They are
real, and I think fairness and the American system of
capitalism, in theory, dictates that we look at it. That was
part of the motivation and it is truly one of the things that I
think is most directly addressed and the concerns that we have.
So I just want to put that on the record. I am pleased that Mr.
Davis is back, and I would be happy to yield to him.
Mr. Davis. Thank you very much, Mr. Chairman.
Gentlemen, let me apologize for having missed your verbal
testimony.
The Postal Service has presented a series of amendments.
They encompass a number of things, including ratesetting
process, pricing flexibility, the Private Law Corp. and others.
Could you comment on these amendments, and then I would like to
know if you think it would be possible that you would support
the bill if those amendments were adopted.
Mr. Kelly. Are you talking about the 32 amendments from the
Postal Service?
Mr. Davis. Yes, sir.
Mr. Kelly. No. We certainly believe that they are
subsidized now. We believe that all of the amendments will give
them additional ability to compete unfairly with the private
sector, and we absolutely and unequivocally would oppose the
bill with the incorporation of the 32 amendments.
Mr. Davis. I then ask you if you could comment on how your
proposals would effect postal employees or if you think that
your proposals could adversely effect postal employees.
Mr. Kelly. We have no intention of adversely affecting any
employee group. And we think by focusing on First Class Mail
delivery, the Postal Service, through its monopoly, provides an
enormous amount of security for its folks that no private
company, and, in fact, no other Government group, can provide.
But we support that, and we are not looking for anyone to lose
their job as a result of anything we are saying here. Our
concern, of course, is to, in addition to that, to protect the
employees of UPS and Fed Ex and not have them lose their jobs
as a result of unfair competition with the Postal Service.
But the Postal Service First Class Mail is continuing to
increase, and all of the fears about all of the First Class
Mail going away and no one having a job, if the compounded
average growth of First Class Mail is 2 or 3 percent over the
last 5 years, I don't think that fear has any foundation.
Mr. Davis. Do you believe that the current or proposed new
bill is better than what currently exists in the arena of
competitiveness or promoting a more competitive atmosphere or
environment?
Mr. Smith. I think the short answer to that would be that
Jim does not agree with that and we do. We would think it would
be better with the bill than without.
Let me also say that we would oppose the Postal Service's
amendments for exactly the same reason that he did and,
secondarily, that it is my belief that the postal workers of
the United States would have more job security, better future
outlook, if the Postal Service concentrated on the movement of
letters and small items because, regardless of the firewalls
and what have you, there will be management diversion and
inattention and the cost of letter and small items traffic will
be greater with that diversification than without.
The best way to preserve postal jobs is to have the most
efficient and lowest cost letter and small package shipment
service in the country.
Mr. Davis. Recognizing the fact that sometimes it is
virtually impossible to arrive at agreement, although we try, I
mean, we are always looking for, I think, the common ground or
the middle road or the place where there can be co-existence,
how far apart do you think you and the Postal Service are in
terms of a common ground that might be reached?
Mr. Kelly. When you talk about a common ground, let me
again reiterate that we recognize and appreciate the amount of
hard work and the amount of change that has gone into this
bill, and it is a complex, difficult issue.
There are a few things that concern us, and there are a few
things that concern us a great deal, and at this point in time
we are not able to support. But if you are talking about a
compromise solution that is an interim solution, and when does
the rest of it get fixed, and how does the rest of it get
fixed, if you want to provide the Postal Service with the
ability to compete more, the monopoly has to come away first, I
believe.
I don't believe you can provide them with additional
competitive authority and allow them to keep the current
monopoly that they have. Postal issues really haven't been
addressed in a meaningful fashion in 30 years. So if we develop
an interim solution, it is going to be a long time down the
road before it is fixed again, I would feel.
Mr. Davis. So you are saying that there would need to be
additional competitive regulation put on the Postal Service to
put it more in line with what happens in other parts of the
industry.
Mr. Smith. From FDX's standpoint, we support H.R. 22. So
the answer to your question is we have gone as far as we can go
with H.R. 22. We would not support the postal amendments.
I think what Jim is saying is, H.R. 22 doesn't go far
enough in the direction of the appropriate levels of control.
Mr. Kelly. That is correct.
Mr. Smith. I mean, that is the only difference. There may
be thismuch difference.
So we certainly wouldn't go toward the Postal Service's
position.
Mr. Davis. Thank you very much, gentlemen.
Mr. McHugh. I thank the gentleman.
We could do this all day, but we won't because you have
been very gracious with your time. I am deeply appreciative, as
is the entire subcommittee, for that. Just a wild guess on my
part, but I bet we will talk again. We are looking forward to
that.
Once again, I do appreciate your participation and your
efforts to assist the subcommittee in what has been a very
interesting journey.
So thank you, gentlemen.
Mr. Kelly. Thank you very much.
Mr. Smith. Thank you very much, Mr. Chairman.
[Additional questions for Mr. Frederick W. Smith follow:]
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Mr. McHugh. Panel 3, as we switch placards and turn chairs
and such, is comprised of Mr. Jerry Cerasale, who is senior
vice president of Government Affairs for DMA, Direct Marketing
Association; Mr. Neal Denton, who is executive director of the
Alliance of Nonprofit Mailers; Mr. Robert ``Kam'' Kamerschen,
who is speaking on behalf of the Saturation Mailers Coalition.
Gentlemen, welcome. Good to see you all. You know the
drill. Stand up and raise your right hands.
[Witnesses sworn.]
Mr. McHugh. The record will show that all three of the
panelists attested to the oath in the affirmative.
Thank you, gentlemen, for being here. As most everyone
knows in this room, you all represent sizable numbers of those
who, in different ways, perhaps, but in equally important
fashion, both work with and depend upon the U.S. Postal
Service. We welcome, too, our efforts to work with you on
behalf of your organizations. So thank you for that effort.
Without any further ado, keeping with my very well thought-
out plan of earlier, I am going to recognize you in the order
in which it was printed on the page, which coincides with the
way in which I read it.
So let me yield, first, to Jerry Cerasale, who as I
mentioned, is senior vice president of Government Affairs of
DMA. Jerry, thank you for being here. We are awaiting your
testimony and your spoken words. We have entered all three of
your gentlemen's written submissions in their entirety. So, if
you could summarize for us, we would greatly appreciate it.
STATEMENTS OF JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT
AFFAIRS DIRECT MARKETING ASSOCIATION, INC., ON BEHALF OF THE
MAILERS COALITION FOR POSTAL REFORM; NEAL DENTON, EXECUTIVE
DIRECTOR, ALLIANCE OF NONPROFIT MAILERS; AND ROBERT ``KAM''
KAMERSCHEN, ON BEHALF OF THE SATURATION MAILERS COALITION
Mr. Cerasale. Thank you very much, Mr. Chairman, members of
the subcommittee.
The Mailers Coalition for Postal Reform is honored to be
here today. The members of the Coalition, the Advertising Mail
Marketing Association, American Express Corp., the Direct
Marketing Association, Magazine Publishers of America, the Mail
Order Association of America, and Parcel Shippers Association,
represent mailers who use all classes of mail and also are
significant users of competitors of the Postal Service as well.
I am Jerry Cerasale, senior vice president, Government
Affairs for the DMA, and I have the privilege, I guess, of
appearing before you representing the Coalition today.
The Coalition joined together in an effort to effect postal
reform. All of us want a financially viable Postal Service in
the 21st century and believe that without reform that goal is
not obtainable.
Our Nation is in the midst of the greatest peacetime
economic growth in its history. However, during this economic
boom, First Class Mail, upon which the financial stability of
the Postal Service is very dependent, has not grown very much.
H.R. 22 is not a guarantee that the Postal Service will
survive in the 21st century, but it does provide the tools to
the Postal Service to have a fighting chance. The burden then
will be on the Postal Service management and its workers to
improve the competitive edge of the Postal Service by improving
productivity dramatically and providing products that meet the
needs of the marketplace.
The basic structure of H.R. 22, which separates classes of
mail into competitive and noncompetitive categories and
provides rate flexibility to the Postal Service, through
indexing of the noncompetitive classes being one, is sound and
has the Coalition's full support.
Let me focus on those provisions of H.R. 22, which the
Coalition believes are central to any postal reform, the
competitive and noncompetitive products.
Noncompetitive products should be defined as those products
over which the Postal Service has a monopoly by law or through
market dominance. Mailers who use such classes need the
protections afforded by the indexed rate provisions in H.R. 22.
However, we agree with the amendments suggested by the
Postal Service that only the Service may initiate a request to
the Postal Regulatory Commission to change a product's
classification from noncompetitive to competitive. The Postal
Service should have some control over its product offerings.
However, once a product becomes competitive, it may not be
reclassified as noncompetitive.
Allowing the Postal Service to change its mind and remove a
product from the open marketplace would be unfair to
competitors who shift their business plans in response to the
Postal Service's competitive product offerings. Changing
product classifications from noncompetitive to competitive must
only be a one-way street.
As we look at the product baskets, and I know I am speaking
before Mr. Denton, but we will see what he says about the
nonprofit area, and I will gladly, in a question, if it comes
up, respond to his position on that, we agree with the rate
baskets for noncompetitive products in H.R. 22, except that all
international mail should be competitive. The Postal Service
faces competition today from both foreign posts and private
carriers for all international mail. We think that competition
is only going to increase, so we think that we put
international mail into the competitive category.
In pricing, we agree with H.R. 22 that the Commission
should establish baseline rates under the act without
provisions for a contingency or prior years' losses.
As we look at the competitive products, we don't agree with
the requirement in H.R. 22 that the minimum markup for
competitive classes of mail must be equal to the average markup
for all postal products. If H.R. 22 were implemented today, it
is our understanding that current rates for competitive classes
of mail would have to increase by as much as 10 percent. Thus,
H.R. 22 implies that the Postal Rate Commission erred in its
most recent decision, and we disagree with that.
We believe that the minimum contribution for competitive
classes should be established by the Commission for base rates
after applying all of the factors of the act. This would
maintain the level playing field for postal competitors that
the Commission established.
Finally, we believe that after 5 years this minimum
contribution requirement should sunset. We think that 5 years
provides ample time for the Postal Service and its competitors
to adjust to the marketplace, and the Postal Service would have
to not do business at a loss and charge a fair-market price.
Looking at the noncompetitive products, we wholeheartedly
agree with the index in H.R. 22 used to establish
noncompetitive rates. There must be a productivity factor
specifically applied to the Consumer Price Index as part of
that index. This is needed as an incentive to the Postal
Service to hold down costs. We strongly object to the Postal
Service's amendment to remove the productivity factor ``because
the CPI already contains productivity improvements.''
The Postal Service should be required to do more than
merely match productivity gains in the general economy. To fail
to do so will imperil the Postal Service and the mail industry
that depends on universal mail delivery.
We also believe, however, that the pricing provisions in
H.R. 22 are too rigid. Its application of the rate bands around
the index severely reduces the pricing flexibility that we
think the Postal Service needs. We have varying opinions about
the specific method that best achieves the appropriate level of
flexibility, but we believe that the provisions of the bill
must be changed to provide some greater flexibility than H.R.
22 currently offers.
We disagree with the Postal Service amendments that would
allow the Postal Service to bank for up to 5 years any
percentage increase allowed under the index, which was unused
in a specific year by the Postal Service. If there is going to
be any banking, we think 1 year would be a maximum.
Special financial circumstances. There are three areas
where we think that H.R. 22 may require some changes for
special circumstances. The first is, if the Postal Service
doesn't have enough money to run under the provisions of H.R.
22. We think in that case, the Postal Service should have to
come to the Regulatory Commission and set up a brand new base
case to establishing rates.
A second area is when something occurs by Congress or
executive or judicial branch that results in additional costs
unforeseen on the Postal Service. We think, then, the Postal
Service should be able to go to the Regulatory Commission and
ask for a one-time adjustment in the index to take care of it.
Don't let that adjustment stay in effect for 3, 4, 5 years
because that will be overpaying the Postal Service for that
adjustment.
The third area when there could be some circumstances to go
beyond the index, would be when a specific rate is too low, the
Postal Service is not covering its costs in a class of mail. We
think the Postal Service should have to go to the Regulatory
Commission and adjust, one time, the index, make an adjustment
in the index, to increase the rates for that class on a one-
time basis and then go on, under the current provisions, with
the index previously set by the Regulatory Commission for the
remainder of the 5 years.
Market tests. It is important that the Postal Service have
the ability to test new products, and I want to use the example
with DHL as an example of potentially a market test. We agree
that the Postal Service should have the ability to try and test
products and products that may turn out to be a bust, products
that may turn out to not cover their costs, but have the
ability to test them. Otherwise the Postal Service is going to
be hampered in its ability to meet market needs.
We do support very much the provisions of H.R. 22 in this
area, but do agree with the Postal Service on one amendment;
increase the test side to $100 million.
Negotiated Service Agreements. We wholeheartedly endorse
NSA's. We, however, agree with the Postal Service that these
agreements should be implemented immediately after the Postal
Service provides public notice of the agreement and all its
terms. We would then set up complaint procedures. After the
notice, any party that believes it can meet the terms of the
agreement would be eligible for the NSA, and if that party is
denied a similar agreement, they may complain to the Regulatory
Commission.
In the same light, any party that feels that the noticed
agreement violates the provisions of H.R. 22, such as there is
no way they could be covering costs, for example, they should
be able to complain to the Postal Regulatory Commission. We
then think that the Commission should have 90 days to render a
decision, a final decision, which would be subject to judicial
review.
Complaint procedures. Similar to what we say for NSAs, we
agree that users of the mail and competitors of the Postal
Service must have an avenue of redress for any grievances
concerning alleged abuse by the Postal Service of its
regulatory discretion. Again, the Commission should have 90
days to issue a decision in the complaint and such decision
should be final subject to judicial review.
We really appreciate this opportunity to be here today, and
I am ready to stand for any questions.
[The prepared statement of Mr. Cerasale follows:]
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Mr. McHugh. Thank you very much, Jerry. We appreciate that.
Next on the list is Neal Denton, the executive director of
the Alliance of Nonprofit Mailers. Neal, good to see you. Thank
you for being here, and we look forward to your comments.
Mr. Denton. Thank you, Mr. Chairman, Mr. Davis and to the
good staff sitting next to you and behind you. We appreciate
this entire process that we have been through over the last
several years.
In preparing for today, I enjoyed reading some of the
testimony that we have delivered and my colleagues here have
delivered over the many years, as we have all gotten to know a
little bit more about how the Postal Service runs and what
types of possibilities are out there for meaningful reform.
As you know, and we have been very clear with this every
time we have talked with you, we have had very grave
reservations over the many years about certain concepts in
postal reform that would give the Postal Service greater
freedom and flexibility to set postal rates. We believe that
the most recent increases of January 10 offer some glaring
examples of the types of abuse we have feared in an unfettered
rate-setting environment.
I appreciate your comments in the beginning of the hearings
today about nonprofit mailers having concerns here. Chairman
Burton, in the last hearing, was right on the mark when, in
recognizing the Postal Service surpluses over the last 4 years,
questioned the Postmaster General as to whether we should have
had any rate increases at all on January 10.
As each of you know, the Alliance of Nonprofit Mailers is
currently in litigation before the court of appeals over this
case because we do believe that the increases of January 10
were unfair, that the increases of January 10 were unnecessary,
and that they were unlawful.
Unfair because, while the price of a first class stamp may
have only gone up 1 cent, the price for a nonprofit basic
standard A mail piece went up 3 cents.
Unfair because, as each of you know, the rate increases
imposed on nonprofit periodical publications in some instances
cause a nonprofit educational magazine with no advertising to
pay a higher postal rate than an identical commercial
periodical publication thick with advertising. That is a rate
anomaly that represents unfair rates that nonprofits are
experiencing since January 10.
We believe they were unlawful. Because, as Mr. Burton
pointed out, the Postal Service didn't lose $1.1 billion in
fiscal year 1998, as they forecasted. The Postal Service made
$550 million. They enjoyed a $550 million surplus, and because
of that we believe that the case was unlawful. The Postal
Service is supposed to, by law, break even. They are not
supposed to be enjoying these kind of surpluses. We can't turn
a monopoly governmental authority loose to be making profits on
the back of captive monopoly mailers.
Now, all of this said, and it is important that I say it
again because we have said it every time here, we do come to
the table understanding the potential problems that face the
national mail delivery network and recognizing that there must
be some realities of political reform that all of us can talk
about here that can help to move our national mail delivery
network into the coming century.
We have looked at H.R. 22, and we have worked with you and
your staff, and there are some provisions in H.R. 22 that we
find very admirable and that we support; the caps and 2-percent
bands provisions that protect all mailers from being singled
out for especially damaging rate increases--the kind of rate
increases nonprofits have faced as a result of the January 10
hikes.
The bill also protects any mailers from the over-the-cap
increases that could happen in consecutive periods; that is,
the Postal Service can't pile on 2 percent above CPI increases
in consecutive years. Nonprofit mailers were terribly concerned
about that.
There are three provisions that are specific to nonprofits
that we have been very supportive of--one that would change the
language mandating the overhead assignment for nonprofit
mailers. It is very technical, but currently the law says that
nonprofit overhead shall be 50 percent of the closely
corresponding commercial overhead, and the bill would actually
say no greater than 50 percent, which would allow some
flexibility underneath that. That would be very welcome by
nonprofit mailers.
It also provides an important safeguard to prevent the
Postal Service from attributing more cost to nonprofit mail
than to an identical size, shape, weight commercial mail piece.
That is very important. We are far away from that right now.
But the way that the rate structure has been moving over the
last several years, I like the idea of having that ceiling put
in there firmly, so that the Postal Service can't creep above
that in a coming rate case.
The bill also authorizes nonprofit requester publications,
an amendment that is something that we have thanked you for
before and looked forward to seeing in the final bill.
We also reviewed the Postal Service's proposed amendments.
We spent quite some time looking at those. I think, after
reviewing all of them, we probably have criticism with just
about every one of them, except perhaps one. The Postal Service
amendment that suggests that the ``x'' factor for productivity
is superfluous and that the CPI already accounts for
productivity, I believe is nonsensical. I agree with my
colleague, Mr. Cerasale, over here. We ask you to continue to
rely upon the H.R. 22 provisions that would allow the Postal
Regulatory Commission to set a productivity offset to the
index.
Frankly, in my mind, it is highly disturbing that any
senior postal official would stand before you or before a large
group of their customers and be so flippant as to suggest that
potential productivity gains in future operations would be so
insignificant as to not even include it in any legislative
formula for setting rates. That is very disturbing, and perhaps
we must overcome that type of thinking before any of these
provisions in here are going to be successful.
The mailers that have supported H.R. 22 aren't here because
we like the idea of getting increased rates every year. We are
here because we like the idea of the Postal Service, given
productivity gains, being able to hold the cost of postage
down.
If the Postal Service is going to spend their time and
energy promoting a legislative proposal that doesn't measure
these productivity gains, I find that again very, very
disturbing.
We appreciate that many in the mailing community, and most
especially, I am sure the colleagues joining me at this table
today, are attracted by negotiated service agreements. As you
know, over the years we have had an awful lot of concerns with
the concept of NSA's, but we believe that the concerns that we
have voiced to you over these years have been addressed very
adequately in H.R. 22. For instance, the recovery of
attributable cost and a fair portion of institutional costs,
having the whole thing done in the open air before the
Commission so that other organizations have an equal
opportunity to participate in these programs, so that they will
have an opportunity to also apply for these same types of NSA's
in these open proceedings. We find that very agreeable, and we
would support those safeguards and protective criteria and
would reject the Postal Service's amendments to that.
As I mentioned, though, one of the Postal Service's
proposals does merit some consideration. Mr. Cerasale brushed
upon it briefly, and that is, we are fascinated with the idea
of creating a separate basket for preferred rate mailers. We
have always been concerned that by averaging a basket of
similar commercial and nonprofit mail, preferred rate mailers
might fare poorly. The notion that all preferred rate mail be
averaged separately is very interesting. However, the Postal
Service's proposal would lump nonprofit standard A and
nonprofit periodicals in the same basket. That would be apples
and oranges in the same basket, and there is no other basket
that is included in H.R. 22 that would contain two distinctly
different types of mail than the one the Postal Service would
propose here.
I think we would take the metaphor a little bit further,
and I would get poked in the ribs by my colleagues who would.
We have a basket at home. My wife and I have a picnic basket at
home that has a divider down the middle, and I believe that if
somehow we could create a nonprofit basket that would allow
one-half of the basket to average out for those standard A
products and one-half of the basket to average out to the CPI
minus X for the periodical publications, and then the whole
basket average out to meet that index, that would be very
agreeable and might be an improvement upon what it is that we
see with H.R. 22.
I have discussed it with my colleagues that also represent
nonprofit mailers, and I think that is something we might be
able to work on if we talk a little more about it.
The subcommittee also recently heard the testimony of the
Postal Rate Commission and Chairman Gleiman. Included in our
full remarks that you have incorporated into the record are
some comments we have about their proposals, and I think they
are very favorable.
While I have your attention, I want to bring up one other
subject, that you and I have talked about that in the past. It
is a serious problem. We have recently witnessed some very
unseemly bullying and harassing of nonprofit mailers over
questionable revenue deficiencies, all under the name of the
Postal Service's Revenue Protection Program.
Postal inspectors and others should be commended for
identifying fraud and illegal activity that robs resources from
the Postal Service. Inspectors and others should also have the
sense to know the difference between a criminal who is
attempting to defraud the Postal Service and a nonprofit
librarian who is advertising educational trips.
As you know, eligibility restrictions outline what a
nonprofit mailer can and what a nonprofit mailer cannot
advertise in a preferred-rate mail piece. Many of the rules are
shaded in gray generalities, the policies are often unclear not
only to the mailers, but to postal officials, and the rules are
very often applied differently across the country by different
postal officials.
I am very sorry to report that some of the Postal Service
agents have aggressively attempted to bankrupt community-based
nonprofit organizations or drive eligible mailings out of the
nonprofit mail stream with very questionable Postal Service
interpretations of the eligibility restrictions. This disturbs
us greatly.
We would like to discuss this further with each of you
because we believe that perhaps the blueprint used in the
series of hearings last year on the heavy-handed approaches of
the Internal Revenue Service might well be in order as we
evaluate some of the methods used by the Postal Service in
squeezing revenue from some nonprofit postal customers.
We thank you for your fair and insightful approach to
protecting the viability of our Postal Service, and I join with
Mr. Cerasale in looking forward to your questions.
[The prepared statement of Mr. Denton follows:]
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Mr. McHugh. Thank you very much, Neal. As we discussed, we
look forward to working with you on those other kinds of
issues, as we have in the past. I have written the chairman of
the Board of Governors with respect to that anomaly on R97-1,
and certainly the other concerns that you have are legitimate.
We want to try to be able to be of assistance in probing those
to an equitable solution in addition.
Last, on this panel, is, as I said earlier, Kam Kamerschen,
who is appearing on behalf of the Saturation Mailers Coalition.
Kam, thank you as well for being here, and we look forward to
your comments, sir.
Mr. Kamerschen. Mr. Chairman, and members of the committee,
staff, I am Robert ``Kam'' Kamerschen, chairman of the board of
ADVO, Inc. ADVO, as you know, distributes targeted saturation
advertising mail to 60 million households every week. We
represent 23,000 clients of all sizes and shapes, and make no
mistake about it, our destiny is closely tied to the success of
the Postal Service.
In many ways, I could dramatize that, but make it this way.
The term ``partner'' is often used sometimes loosely. But I
would submit the U.S. Postal Service is, indeed, our partner
because 50 cents out of every dollar of revenue that we
generate as a public corporation goes to the U.S. Postal
Service in the form of postage. I think that sounds like a
partnership, to me.
I am here representing today the Saturation Mail Coalition.
Inasmuch as that might not be familiar to many of you, let me
tell you what it is all about. We represent 40 different
companies that are essentially in three or four basic areas:
weekly community newspapers, shopper publications, envelope
coupon mailers, and other shared mailers like ourselves.
To give you a frame of reference, those members run from
relatively large companies, like Harte-Hanks, Money Mailer,
people of that vestige, to very small operators who mail 15,000
to 20,000 households, which is essentially the size of a ZIP
Code, as you know, and so it is quite a diversity of groups.
The commonalities we have are that we are basically
servicing a group of retailers and/or other service operators
who depend very much on us in order to deliver their mail in a
dependable, affordable fashion. Moreover, there is a bunch of
consumers that also share the enthusiasm for that, as evidenced
by the fact that every week we deliver important information on
products, services, as well as coupons that represent huge
savings to the consumer.
Now, just as a frame of reference, since we are going in
every household every week with different mailing
organizations, what it says is that we are becoming available
to all consumers, and that is a very important aspect from our
dimension in that we are not discriminating. We are making
these savings available to all of the public, and as a frame of
reference or contrast, for example, the FSI's, the freestanding
inserts, which represent savings to the consumer for coupons,
are delivered with the purchase of a Sunday newspaper. So we
believe we are delivering a valuable service, indeed.
We really feel, as I indicated, that mail is our preferred
form of distribution, even though some of us do use private
carrier delivery as well. We believe that way. It is our
preferred option because of the basic credibility and
reliability the Postal Service represents, which has made major
improvements, as you know, from as recently as 5 years ago, and
we certainly feel that way.
I believe the crux of this whole conversation about
fairness, competitiveness, level playing field, resides in a
very simple fact. The fact is that the Postal Service, by
definition, by law, is accountable and responsible for
universal service, and here is the quandary: Each year the
fundamental cost of the national infrastructure for providing
that service is growing. It is growing because there are an
additional number of households every year. Just in my tenure
with the company, in this industry, which is only 10 years of
length, I have seen an enormous increase of several million
households every single year being fueled, obviously, by a high
divorce rate and other considerations.
So the infrastructure has got to keep growing. And, in
turn, the Postal Service has to be able to finance that. The
only way that I know of that we can finance that is a
combination, I guess, of greater productivity, cost savings,
but also growth. Growth is the imperative that we believe
exists in helping to fuel that particular proposition.
The subcommittee's goal is obviously modernizing and
reforming the Postal Service, and we certainly applaud that,
particularly as it relates to the greater pricing
predictability and stability for the mailers that we represent.
Think about this: There is nothing that disturbs a business
person quite to the degree of unpredictability, certainly in
their measured cost components, and as I indicated already,
almost every one of our mailers representing our coalition
spends at least 25 cents out of every dollar to Postal Service
commissions.
Our customers don't want to hear about the issues that
might be driving the Postal Service's difficulties, as they
were in the 10 years leading up to this period of time. They
really want to know that they are having rates that are
certainly at the rate of inflation, at the maximum and under
the rate of inflation and, at the same time, reasonably
predictable because God knows there is enough unpredictability
in the other aspects or forces of the business that we operate
in.
There is a subject that I want to underscore for a moment
because there is a lot of discussion about competitive versus
noncompetitive categories. I am not an economist. I don't
proclaim to be one. But it seems to me that the issue of price
elasticity is something that you don't have to be an economist
to understand. It is a very simple concept that says demand is
fundamentally affected by elasticity, and it is either elastic,
which means it is highly responsive to price changes, or
inelastic, which means it is not. I think one of the things
that we need to consider here, and I refer you specifically to
the testimony on page 5, which certainly dramatizes, as it
relates to saturation mail, the extreme elasticity that exists.
Let me be very specific, knowing that you are a very fact-based
person and that your staff certainly is.
From the period of fiscal years 1988-96, an 8-year period
of time, as you know, postal rates at that time were running
abound greatly in excess of rates of inflation, excessively so,
as a matter of fact, and our particular form of mail, which was
at the time called third-class carrier route presort, now
called ECR--enhanced carrier route--during that entire 10-year
period of time actually had a one-tenth of 1 percent decline,
which simply says that that type of business was being
adversely affected by these price degrees.
In contrast, during the same period of time, First Class
Mail went up 15 percent and noncarrier route mail went up 34
percent. So there is the negative side or the elastic side of
downward pressure. Now why don't we contrast that with postal
rate reclassification.
Since that period of time, and as you recall the specifics
of that, it represented about a 2.7-percent decline, average
rate decline, for this particular subclass. Interestingly, in
the 2 years that have followed that, Mr. Chairman, there has
actually been a 17-percent increase in volume. I would
respectfully submit that that is about as dramatic evidence on
the subject of price elasticity as one can possibly--it is
almost textbook if you are going to write a book about it and
express it in that fashion.
Clearly, the thing that makes this particular endeavor on
your part so important to us, and as we look at the subject of
price elasticity, and sensitivity and dynamics of the
marketplace, deals with the subject of cost coverage. Our
particular form of subclass, as I presume you know, involves a
203-percent markup, which means it is 103 percent higher than
the costs attributed to this particular classification. You can
contrast that number with the average for all postal products,
which is 156 percent. So, mathematically, it is pretty clear
that this particular form of mail is certainly carrying its
fair share, if not unfair share, of the burden.
It is because of this sensitivity that the particular
amendments or the particular aspects that you represent in this
particular H.R. 22 appeal to us, but we would respectfully
submit some suggestions in terms of improvements. Knowing you,
Mr. Chairman, as much as I had a chance to sit in on the first
day of these hearings, you specifically, and I think
appropriately, said this is a work in progress. So to the
degree this is a work in progress, we are going to take this
opportunity to respectfully submit a couple of ideas that we
would like you to seriously consider.
This talk about the freeze that the individual
noncompetitive categories represent is a subject that we are
particularly interested in calling to your attention. The best
way to ensure fairness, and the strength of the saturation mail
system, in our opinion, is ultimately to lower these high-cost
coverages, as I mentioned before, borne by our mailers.
We understand, however, that the sensitivity of burdening
others in the system with increases necessary to lower our cost
coverages that is not palatable, and we realize that.
Therefore, we are here today to advocate a method which our
industry, or any other mail type for that matter, can earn in
its own pricing rationalization and a manner that does not come
at the expense of others.
As a point, in fact, Mr. Chairman, our proposal is a self-
financing proposal with no cost shifting involved in it. Our
proposed negotiated service agreement language would give the
U.S. Postal Service the pricing freedom necessary to act
decisively in a business environment, where a protracted rate
process would cripple its ability to manage the postal
mailstream efficiently.
The language prevents any contribution to overhead or any
erosion of that and allows the customers to save by increased
work share, but also by increased volume, as long as the total
contribution is not lowered. NSA's are sunshined so that the
public, mailers, and competitors are privy to the U.S. Postal
Service's sanctioned discount.
Legislation clarifying the U.S. Postal Service's ability to
use NSA's is needed even outside the context of H.R. 22, in our
opinion. NSA's are an essential tool. As you know, they are an
integral part of American business. Contract rates, volume
contracts are very common. However, unlike the contract rates
offered by private companies, the Postal Service NSA's would be
subjected to nondiscrimination requirements that is available
in comparable terms. In other words, any mailer able and
willing to meet the terms of an existing NSA would be able to
participate, an important safeguard in our view.
H.R. 22 in its present form would allow the Postal Service
to enter into NSA's with mailers in a noncompetitive category
under strictly limited circumstances as to be of little use to
either mailers or the Postal Service. The main problem with
section 3641 requirement, from our point of view, mandating
that NSA mail make a contribution to overhead cost that is
``equal, on an average unit basis'' to that of the most similar
classification of mail. This ``equal unit contribution''
requirement and the requirement that mailers would have to
undertake the additional mailing costs to earn a rate benefit
would transform NSA's into an inferior form of traditional
worksharing discounts from our point of view.
The only rate benefit for a mailer would be the amount of
additional postal cost savings that the agreement generates.
Yet unlike worksharing discounts, an NSA discount would impose
the risk of liquidated damages if the mailer failed to perform
as contracted. This lessens, in our view, the intended
attractiveness of NSA's to mailers.
The bill's NSA provision should be expanded to permit NSA's
that generate an equal or total dollar contribution to overhead
costs. The principal concern raised about NSA's is that they
might lead to rates that reduce the contribution of contracted
mail to institutional costs, thereby burdening other mail or
the postal system.
The bottom-line test should be that each agreement must not
result in a loss of contribution to overhead cost that then
must be borne by other forms of mail. Through NSA's, mailers
can provide the Postal Service with guaranteed contributions to
institutional costs while we grow profitable volumes that will
benefit the overall financial health of the system and support
universal service. Yes, there is no free-lunch proposal here.
It is earned.
A second change needed to bring increased flexibility is to
eliminate the prohibition of transferring products to the
competitive category. H.R. 22, as currently drafted, would
freeze the types of mail in the noncompetitive category that
could be transferred to the competitive category based on the
current scope of the Postal Service's legal monopoly.
Therefore, if a product is covered by a monopoly, it would be
forever barred from transfer to the competitive category,
regardless of how competitive that category may become. Forever
is a very long time indeed. This provision would nullify an
important part of the pricing flexibility that this bill
intends to bring about for competitive mail.
Consider the case of bulk First Class Mail. In the future,
some bulk First Class Mail, such as billing statements, may
become price sensitive and highly competitive due to changes in
the communications technology or changes in the marketplace. As
currently framed, the bill would not permit the U.S. Postal
Service to respond to these significantly changed
circumstances. It would risk losing that volume and its
contribution to overhead costs.
If the mail were, in fact, competitive in a marketplace
sense, the U.S. Postal Service should be authorized to transfer
that mail to a competitive category. With this ability, the
USPS could retain the volume or mitigate the losses in
contribution through competitive pricing adjustments.
It is important that no statutory language prohibits the
U.S. Postal Service's flexibility to respond to increasing
dynamic market changes. The only statutory tests for transfer
to the competitive category should be whether, in fact, it is
competitive under marketplace standards.
In short, a greater flexibility is needed in classifying
and pricing mail that faces intense or greatly intensified
competition and market conditions in these terribly turbulent
times.
As you know, Mr. Chairman, our testimony offers several
others that I will not go into today. Suffice it to say, that
the two discussed today are critical to the future of the
saturation industry as a whole, to my company, to small
businesses, to consumers nationwide, and to the health of the
U.S. Postal Service and its vital mission to provide universal
service.
With these modifications, your committee can report out a
bill that we support with enthusiasm. It is laudable, Mr.
Chairman, that you are working to reform and modernize the
Postal Service in good times rather than trying to accomplish
the much more difficult task of reform in times of economic
stress.
In this permanent Whitewater economy of ours, it is quite
wise, indeed, to follow the sage advice of Charles Handy in his
remarkable book, ``Age of Paradox.'' He said simply, ``If it
ain't broke, fix it anyway.''
Yes, continuous improvements, sir, is the compelling mantra
of this age for all of us. We look forward to supporting your
efforts through the 106th Congress.
[The prepared statement of Mr. Kamerschen follows:]
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Mr. McHugh. Thank you very much. My mechanic must have read
that book. [Laughter.]
I think your testimony, taken in total, and everyone I
assume in this room understands, as I mentioned in the
beginning, the varied interests that you represent really poses
a great juxtaposition against the previous panel.
Lest anyone comes away from this hearing believing that my
sole interest in entering this process was to level the playing
field, I felt it was equally important, perhaps, frankly, with
my rural perspective, somewhat more important to try to do what
we can to ensure that there is a U.S. Postal Service into
tomorrow that will continue to deliver mail to Box 863,
Piermont Manner, NY, 13674, at a price that whoever wanted to
mail me can afford and can rely upon.
Over the short term, and maybe my horizons are not far-
reaching enough, I think that can only be the U.S. Postal
Service. I think you folks would agree with that, even though
you understand, if not in some of your instances, represent
some of the true giants of the private sector.
Let me begin by asking you to respond to what Mr. Kelly
said on the previous panel about his view that the first
meaningful step in true reform has to be, in his opinion, the
total end of the current first class monopoly, letter mail
monopoly.
How do you think, if at all, that monopoly cessation might
affect the services that you utilize through the U.S. Postal
Service?
Kam, if you want to go first, you have got the microphone.
Mr. Kamerschen. I guess I do. In this era of 800-pound
gorillas, which we just followed, we will respectfully submit
our point of view on that.
The thing I like that this committee is doing a lot is that
you are proactively trying to shape the future of the U.S.
Postal Service, and in its past, the Postal Service itself has
not been as absolutely proactive on that score. Although I have
to tell you that, in the last 5 years, I think those of us
dealing with the Postal Service have seen a truly remarkable
change, one that far exceeded what we would have anticipated, a
far more customer-focused, market-driven enterprise, one that
views the reality of what it is, which is a quasi-public,
quasi-private institution.
On the one hand, it has got the very appropriate burden of
universal service, and on the other hand it has got the very
appropriate challenge of financing that universal service. I am
always amused when the word ``profits'' is used by some of the
outsiders of this industry because, by definition, as you know,
they are not supposed to make a profit. They are supposed to
finance the continuation of the various services they have.
This premise of competitiveness is quite changing. Whatever
was viewed for competitiveness when the Founding Fathers--I
guess it was Ben Franklin who was the first Postmaster
General--put this together, that was a long time ago. We are
entering the 21st century. There are fundamental realities that
have changed. Indeed, the mailstream and sources of revenue by
the Postal Service are getting attacked from all fronts,
including electronically, as well as marketplace.
Consequently, I, a free-trade guy by background and
conviction, see the challenge that the Postal Service has in
trying to satisfy all of these independent wants and needs. My
view is very simple because I think it is the view of certainly
what I represent and, hopefully, what all of the other folks in
this room represent. All of us need a Postal Service, and it
needs to grow in order to finance this infrastructure
requirement.
And, therefore, I take the view that we should think
outside the box in terms of allowing the Postal Service to seek
revenue sources, be more competitive, all, however, within the
understandable limitations of antidiscrimination and all of the
rest of it.
Mr. McHugh. Thank you.
Neal.
Mr. Denton. Thank you, Mr. Chairman.
I almost feel as though, when it comes to the question of
whether or not we should support the letter monopoly or not, I
should agree with the comments of Lewis Sachs from the first
panel on this subject. [Laughter.]
I think I find myself disagreeing with Mr. Kelly. His point
of view on that is different from my constituents who see the
strength of a national mail delivery network resting on the
back of the letter mail monopoly.
I smiled when I heard the one quote, ``Fix it, even if it
isn't broke.'' I don't think that particular piece of the 1970
act is something that my constituents would be interested in
seeing us tinker with at this point. It is not that broke, and
it is not something I think we ought to be looking at doing, as
H.R. 22 does not.
Mr. McHugh. Mr. Cerasale.
Mr. Cerasale. I don't think that we are ready to see what
the consequences are for elimination of the letter monopoly.
And I think Mr. Kelly, especially in his oral presentation
today, discussed the idea that the Postal Service should limit
itself and be limited in looking to delivery of letter mail.
One of the fears that we see is that we have heard numbers
25 to 50 percent of first class mailstream is made up of
something to do with remittance, a bill, a dunning letter, the
check coming back. A good deal of that product is already under
competition from other sources. So we see a significant peril
to the underpinnings of the First Class Mail, on which we all
depend. So I don't think we need to cut it out now. We need to
try and move forward and allow the Postal Service some
opportunities to try and shore it up.
Mr. McHugh. Thank you all. Let me just ask a few questions
that are based on your testimonies, and some of the
suggestions, some of the concerns that you did raise. Jerry,
you mentioned, what I believe I recall correctly, your opinion
that a baseline case should not contain contingency and prior
year losses, which obviously we agree with----
Mr. Cerasale. Yes.
Mr. McHugh [continuing]. And I agree with. But then you
say, similarly, you felt that if a rate case were held any time
within a year of the assumed baseline case that the rate case
should prevail, true?
Mr. Cerasale. Yes; I did.
Mr. McHugh. First of all, first quick question, why do you
think that is important?
Mr. Cerasale. I think it is important to start off right
away with some Rate Commission rate. So I think if a case the
Commission has gone through has been in effect for--comes
through and been in effect for about a year, to go through the
entire process again and the delay of that, we probably would
be beyond what the contingency and prior year losses are. So
our view would be let us get started and let us get going right
away.
Additionally, there are costs to having a rate case, and we
could avoid those if it is within that short period of time.
Mr. McHugh. So the assumption you are making is that, and I
left this unsaid, and for those who may not be aware,
obviously, in a rate case, contingency and prior year losses
are included----
Mr. Cerasale. Yes.
Mr. McHugh. As they would not be in the baseline.
Mr. Cerasale. That is correct.
Mr. McHugh. You feel the cost, both financially and
probably emotionally, too, given what some of you folks endure,
of a rate case, of doing another essential rate case, a
baseline case, would be too high, and you would be willing to
accept the inclusion of the contingency and prior year losses.
Mr. Cerasale. Yes.
Mr. McHugh. Let me follow up before you answer that. What
concerns me, and what I am interested to know because I am sure
you thought of it, is that a big concern, I think if we were to
put that into the bill, I think the logical outcome is it would
certainly be very tempting for the Postal Service to say, ``OK.
Let's file a rate case'' within a year because they know that
they then would be assured of prior year losses and
contingency. I am assuming you made that calculation and,
therefore, you say, ``Well, it may be, but given all other
factors, we are willing to accept that.'' Am I correct in what
I read?
Mr. Cerasale. You are correct. I don't think any of us
believe that a base case will come out with lower rates
overall.
Mr. McHugh. Neal.
Mr. Denton. If I could comment on that.
It is so rare when I disagree with Jerry Cerasale on
anything. [Laughter.]
Mr. McHugh. I am going to give you a chance in a minute
more, so go ahead.
Mr. Denton. I agree with the concept in H.R. 22 of allowing
for a separate--a ``mother of all rate cases'' is what we would
ultimately get out of this, I think. I speak not just for my
organization, but for every attorney sitting behind me here
that is involved in rate case litigation. I am not an attorney.
We are concerned that not only would it carry on the prior
year losses, which are dwindling more and more now all of the
time, and that would lock that in forever, and the contingency,
and you bring both of those up, and they are not included in
H.R. 22. But I think some of our folks are also fascinated with
the notion that this ``mother of all rate cases'' will be
conducted with the Postal Rate Commission having these new
authorities, having new subpoena authority.
A lot of the problems that have frustrated us in these last
few cases are problems that were alluded to by the second panel
of gentlemen; that the Postal Service is good at obfuscating
and disguising data. It is a curiosity, when you have the U.S.
Postal Service generating every bit of data used in a postal
rate case. You have the U.S. Postal Service massaging every bit
of data used in a postal rate case. You have them parsing it
out in little, bitty pieces as they see fit in a postal rate
case.
I like the notion of going into a full-blown final rate
case knowing that the Postal Rate Commission will have the kind
of subpoena authority that is outlined in H.R. 22.
Mr. McHugh. Thank you. As you just said, Neal, you and
Jerry so rarely disagree that we don't want to pass up an
opportunity to--you don't have a disagreement. You have a
difference of opinion.
One of you believes, Neal, although I think it is fair to
say you have still concerns of the unknown, that the concept of
rate caps with the band in place in H.R. 22 meets most. I am
not asking you to start whistling, you know, ``Blue Bird on My
Shoulder'' here----
Mr. Denton. We won't, don't worry.
Mr. McHugh. I didn't think so. But meets most of your
concerns. Whereas, Jerry feels, as you heard him in his verbal
testimony, and it is in his written testimony as well,
obviously, that the Postal Service needs more flexibility.
So I will pose it this way: Neal, why don't you turn to
your friend, Jerry, and tell him why he shouldn't be so
troubled by this.
Mr. Denton. As we began this process many years ago, the
nonprofit community was as far away from agreeing with the
notion of giving the Postal Service greater freedom and
flexibility than the gentleman who sat in this seat before I
sat down here.
We have, over the many years, recognized some problems in
the way that the Postal Service applies the preferred rate
intent of the law to nonprofit rates. We see it now. We see it
continually. I mentioned at the end of my testimony here, we
see some problems with the enforcement of the eligibility
restrictions.
Someone used to tell me, ``just because you are paranoid,
doesn't mean that they are still not out to get you.''
Nonprofit mailers are concerned about what could happen in an
unfettered, free rate-setting environment if the Postal Service
were able to get their hands on the preferred postal rate
without the oversight of the Postal Rate Commission.
What is built into the caps and the bands is the kind of
protection that I think our folks need in order to be fully
supportive of that freedom of flexibility. Those are the
restrictions that, while Jerry would describe them as being too
constrictive for nonprofit mailers, we would describe them as
being protective, to prevent the type of situation that,
frankly, we are living with now as a result of this last rate
case; these January 10 increases, where the first class rate
went up 1 cent, and the nonprofit standard A rate went up 3
cents, where commercial rate mailers are enjoying 3- and 4-
percent rate increases and nonprofit charities and churches are
looking at 15- to 18-percent or higher increases.
We believe that the caps and bands type of arrangements, as
described in H.R. 22, would prevent us from having to recognize
that in the future.
Mr. McHugh. Jerry, are you persuaded? Or turn to your
friend, Neal, and say, ``Neal, here is why you should be more
concerned.''
Mr. Cerasale. Right. I will do that.
I am not persuaded, but this line of questioning hits the
area where in my testimony I say we have some several opinions
on how to do things.
I think as we look at the application of the bands in H.R.
22, it goes down to the rate category level, we think. But the
real key is that, in order to have any rate go above the index
that is established, you must, in a year just prior to it, have
that rate rise less than the index by a similar amount, thereby
making the band really coming out to being just what the index
is. And, therefore, some adjustments, those that Kam would say
that their cost coverage is a little bit too high and maybe the
Postal Service should be able to adjust for market purposes, it
kind of puts a restraint on them.
There are a couple of ways to look at some changes in how
you would effect those bands. One is, you could establish the
basket, which I think get to Neal's fifth basket there, the
basket, and have the index apply to the basket. And underneath
the basket every rate cell, basically, would be set within the
bands, the 2 percent up, 2 percent down, above or below the
index. That is one way of looking at it. And I think, from
Neal's perspective on basket five, that is the problem he saw
with standard A and publication mail being connected together.
Another way to look at this would be to have the index
apply to each subclass separately within the basket. I mean, I
think a basket always has to be there so that it doesn't go
above whatever the index is, but you can apply the index to
each subclass, and then underneath it the rate categories can
go above or below the index, the 2 percent. That would protect
his subclasses of standard A and publication mail within a
separate basket which, if the nonprofits agree with that, we
have no problem establishing, from the Coalition's point of
view, agreeing with the nonprofits to make a separate basket
for them.
I think another factor to, I think, cover one thing that
H.R. 22 does, to try and not allow someone to constantly get an
increase way above the index every year, which is why you had
the saving provision in there, you might, another thought would
be to put in a requirement that no rate could go above the CPI,
which is different from the index, so that you can keep an
inflation kind of cap or index on everyone, but still allow
some flexibility for the Postal Service, in the noncompetitive
classes, to make adjustments to the marketplace that aren't
quite as constrained and rigid as those that appear right in
H.R. 22.
Mr. McHugh. Well, good. We have got a deal.
Mr. Kamerschen. Do I get to cast the deciding vote?
[Laughter.]
Mr. McHugh. Sure.
Mr. Kamerschen. Not really.
Look, the subject it is hard not to agree with some of the
points on both sides. If we got, like Mr. Smith, if we got our
druthers, obviously--our particular Coalition--we would like to
examine what Jerry just described as this modest increase in
cost coverage difference of 203 percent versus 156. His idea of
mathematics are different than mine, but so be it.
We, as you know, support the price cap concept. We would
have submitted a version, but, frankly, the Postal Service beat
us to it in terms of a proposed amendment. We have the very
simple point of view that the price caps and the bands allow
certainly directionally the stability and the predictability
that we talked about earlier, but at the same time, a kind of
disregard to the economic realities of the marketplace that
say, gee, at any given point in time, isn't there some plus or
minus modification of those bands to allow the Postal Service
the flexibility to protect volumes, build volumes or what have
you.
So, we would support the plus or minus variations of the
bands and, second, we would support the notion of treating that
on a basket basis as opposed to a subclass basis. This, in our
view, is a modicum of flexibility for the Postal Service which
is really a modicum of flexibility for the mailers that I
represent.
[Additional questions for the record follow:]
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Mr. McHugh. Thank you, gentlemen.
We have a fourth panel coming up, and they have been very
patient for quite some time. So I don't want to impose upon
them any longer.
I want to thank you all for not just your appearance here
today, but your active participation in this process, as I know
you have experienced in the past. We are going to look at all
of the things that you have stated, both for the record here
today, and suggestions that we have talked about and that you
wrote about in your statements, and try to do the best we can
in continuing what I am now beginning to wonder is maybe a work
in process, not progress, but we are moving along the calendar.
So thank you, gentlemen. I appreciate it.
Mr. Cerasale. Thank you for your 4 years of working on
this.
Mr. McHugh. It beats prison. [Laughter.]
Mr. Kamerschen. Barely.
Mr. McHugh. Barely, but it beats it. [Laughter.]
Our final panel and, again, I appreciate their patience, is
comprised of a very diverse group. First, the executive
director of the Main Street Coalition for Postal Fairness, John
T.--also known as Jack--Estes, who is accompanied by John F.
Sturm, who is representing the Newspaper Association of
America, and Lee Cassidy, National Federation of Nonprofits,
and Joe Roos, the Associated Church Press--I hope we have
enough chairs for all of these good people--and David Stover,
Esq., from the Greeting Card Association, and Guy Wendler from
the American Business Press, and Kenneth B. Allen of the
National Newspaper Association and, finally, Charmaine Fennie,
who is chairperson of the Coalition Against Unfair USPS
Competition.
Folks, I tell you what, please, before you all get settled,
there are so many. Why don't you please stand, and if you will
raise your right hands.
[Witnesses sworn.]
Mr. McHugh. The record will show half the room responded in
the affirmative. [Laughter.]
Which included all of the witnesses.
Jack needs to be seated because he will be one of two of
all of you who are actually presenting oral testimony. I
believe I am correct all of the rest of you submitted written
testimony. I recall reading a lot of testimony, and I think the
number matches the people at the table, and I appreciate the
work that went into that.
Also, Ms. Fennie will be presenting as well. I believe I am
correct on that. Is that true? Robert tells me I am correct.
So, Jack, thank you for being here. And, again, it bears
repeating. Thank you for your patience. It has been a long day,
and you are very gracious in still remaining with us. We are
looking forward to your comments. So, sir, you may proceed.
STATEMENTS OF JOHN T. ESTES, EXECUTIVE DIRECTOR, MAIN STREET
COALITION FOR POSTAL FAIRNESS, ACCOMPANIED BY JOHN F. STURM,
NEWSPAPER ASSOCIATION OF AMERICA; LEE CASSIDY, NATIONAL
FOUNDATION; DAVID STOVER, THE GREETING CARD ASSOCIATION; GUY
WENDLER, AMERICAN BUSINESS PRESS; KENNETH B. ALLEN, NATIONAL
NEWSPAPER ASSOCIATION; AND CHARMAINE FENNIE, CHAIRPERSON,
COALITION AGAINST UNFAIR USPS COMPETITION
Mr. Estes. Thank you, Mr. Chairman. I am relatively
hesitant to start out this way, but I must beg your indulgence.
I was just informed before the hearing started that Joe Roos,
from the Church Press, took ill and will not be here.
I am under oath, and I can assure you he is not with Mr.
Sachs. In fact, he is not even near the Treasury Department.
[Laughter.]
Mr. McHugh. That latter bit of news is good. We appreciate
that. The former, of course, is not, and we hope that it is
nothing serious and that he recovers quickly.
Mr. Estes. I don't believe it is. He got word to me that he
just couldn't be here, and he was sick. If it is OK, he would
like to submit a short statement for the record, and I told him
I would ask.
Mr. McHugh. Absolutely. It will be submitted into the
record, and we will review that, of course, and wish him our
best for recovery.
Mr. Estes. Thank you.
Mr. Chairman, in spite of your tireless efforts to improve
postal reform and the Postal Service, both now and in the
future, and in spite of our appreciation for advancing concepts
which have forced all of us to look very carefully at what we
believe to be the most precious aspect of the Postal Service;
namely, the preservation of universal service, and in that
regard, to put aside, in many cases, narrow self-interests and
look at the broader national interests, and in spite of our
appreciation for working with a truly professional, courteous,
accessible staff, and I mean that in every sense of the word,
in spite of all of those things, Mr. Chairman, we are unable to
support H.R. 22 in the form in which it is introduced.
We have come to that conclusion, as I am sure you know, not
lightly. We have worked hard and long, not probably as hard and
long as you have--probably few have in that regard. But we have
asked ourselves a few key questions about why we have come to
this conclusion.
Really, the first one was whether or not, in our judgment,
the Postal Service is destined to become obsolete in the near
future. And our answer to that is, of course, no, but it will
undergo some structural changes.
We have asked ourselves whether the Postal Service will be
unable to achieve its primary goal of providing universal
service, and will it continue to provide such service. And our
answer to that is, yes, again, even if there are some
structural changes.
And, finally, Mr. Chairman, we have asked if there is
clearly currently no clear and present danger now threatening
the Postal Service from fulfilling its mission, even though
there may be some clouds on the horizon, should we nevertheless
start to implement plans to anticipate a bumpy road? And our
answer to that, sir, is, yes, we should.
As I am sure you have noted in our statement to you, Mr.
Chairman, we divided our position into really three categories.
We listed, first of all, those areas where we thought we could
move ahead now promptly with some of the reforms you have
suggested. And without going into detail, those included the
Postal Regulatory Commission reforms, the evaluation of the
labor and management relations situation, relaxing some of the
Treasury Department finance proposals--many of those, really,
we looked at in the Cochran bill in the other body--and nailing
down some of the Board of Directors' qualifications.
But more importantly, and probably the meat of what we are
presenting to you is that, for reasons discussed in our
statement, it may be that there are other areas that need to be
recast and that there needs to be some evidence that it should
be present--the evidence should be present before we pursue
them, and we listed those. Again, those were the ratemaking
price caps, the baseline rate case, rate flexibility for
noncompetitive products and market tests.
Now, I said evidence, and obviously you are probably
thinking, well, what more evidence could you possibly want or
need or think would be desirable? The evidence that we are
really looking for, Mr. Chairman, is evidence of true, harmful,
immediate or potential competition. What type of competition?
Is it e-mail? Is it electronic diversion? How serious is it?
What classes does it affect? Is there truly out there today a
serious concern that there is evidence of that type of
competition that could seriously harm and perhaps, in some
cases, disable the Postal Service? We think more work needs to
be done in that area, and that is why we have taken the
position that some of these areas need to be looked at
carefully, and in some cases, maybe, as we have suggested, the
provisions of the bill need to be recast.
And then, last, Mr. Chairman, we have suggested that some
of the reforms which you have proposed should be set aside,
certainly for now, and that included testimony you have
received earlier today on the USPS Corp. We do not believe
negotiated service agreements are in the public interest, and
we would hope that that would be set aside. And, of course, we
are concerned about the bifurcation of the first class basket.
So having said all of that, Mr. Chairman, our basic line
really, our bottom line, is that there may be reasons to go
ahead in some areas, but we do not believe that the bill has
addressed some of the urgent needs that need to be justified
before some of the provisions that should be enacted. It may
not be an emergency, but there certainly should be an urgency.
We think H.R. 22, Mr. Chairman, is cast in more of a
predicting-the-future mode, and it really should be in cast in
a planning-for-the-future mode. We are very aware that it is
highly desirable to gather and evaluate the evidence and that
we have urged you to do. We are also very aware that you are
probably unquestionably, as stated, today, have no interest
apparently in moving ahead with additional hearings.
There are concepts in this bill, Mr. Chairman, which we
find confusing, complex, difficult, based on, as I have said,
evidence that we are not convinced is a matter of record. So we
would hope that we could look--and one of the problems we are
really struggling with, Mr. Chairman, is the implementation of
some of these concepts. It is one thing to put it in a statute,
as you well know. It is another thing to struggle with the
implementation, and therein lies some real problems.
I appreciate very much your agreement to have us assemble
our ``dream team'' and come before you with an ability,
hopefully, to respond to your questions. And at the appropriate
time, I trust that ``the team'' would be able to react to
whatever you have to say.
[The prepared statement of Mr. Estes follows:]
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Mr. McHugh. Thank you very much. Some dream. [Laughter.]
I appreciate your comments, and we are going to hold to the
practice of going to Ms. Fennie and allow her to make her
statement and then--the reason we swore all of you in is that,
clearly, in the Q&A we are not just allowing, we are interested
in the comments that any or all of you may have.
So, with that, Charmaine Fennie, as I mentioned before, is
the chairperson of the Coalition Against Unfair USPS
Competition.
Welcome. Thank you for being here, and our attention is
yours.
Ms. Fennie. Thank you, Mr. Chairman, and members of the
subcommittee. Thank you for the opportunity to be here today.
I am Charmaine Fennie, chairman of the Coalition Against
Unfair USPS Competition, and the Coalition strongly supports
passage of H.R. 22 with certain changes. The Coalition
represents the interests of more than 12,000 privately owned
small businesses in all 435 congressional districts, including
10,000 mail and parcel centers and 2,000 independently owned
office supply stores. These businesses exemplify small business
at its best.
We feel that H.R. 22 represents the best effort at
comprehensive postal reform. However, there are important
changes that we feel need to be made. We feel that we must see
elimination of the Private Law Corp. for prohibition against
competition with small businesses. The need for a Private Law
Corp. has not been proven. No compelling case for authorizing
the Postal Service to begin complete and unfettered competition
with the private sector has been made.
The powers of the PLC are extraordinary. It can go into any
business it wants, invest in any private company, and enter
into joint ventures with any private corporation and could
become a Fortune 500 company. The PLC can purchase any of our
members or any of their stores. The Coalition opposes Congress
authorizing a Government-owned corporation that can compete
with our industry or purchase our stores.
The Postal Service instituted its smallest rate case in a
generation last January, 1 cent for First Class Mail. That rate
hike is expected to generate an additional $1 billion in
revenue annually. What would the PLC have to do to match this
$1 billion in revenue? It would have to turn itself into a
business, such as Merrill Lynch. The largest publicly traded
brokerage house had a 1997 profit of $1.8 billion on gross
revenues of $31.73 billion and was No. 24 on the Fortune 500
list; or Sears, 1997 earnings of $41.36 billion, a profit of
$1.18 billion, and it was No. 16 on the Fortune 500; or
Motorola, No. 29, on the Fortune 500, with 1997 profits of
$1.18 billion on earnings of $29.79 billion.
Mr. Chairman, the record of the USPS in private business
ventures is terrible. In 1997, the GAO reported an $84.7
million loss on these new ventures. Even if the USPS were to
turn its poor record completely around and make an $84.7
million profit, it would have to increase that profit by 1,200
percent to reach $1 billion. H.R. 22 should firmly direct the
Postal Service to not compete with private business in new,
nontraditional ventures.
The Coalition respectfully requests that H.R. 198, the
Postal Service Core Business Act be included in H.R. 22. H.R.
198 firmly states that the Postal Service is to return to its
core mission of delivering postal services and not be
distracted by the new, nonpostal ventures. Another version of
this legislation has been proposed by the Mail Advertising
Service Association.
Packing is one of the principal product lines for the mail
and packaging members of the Coalition, and the Coalition does
not believe that the Postal Service should be in the packaging
business. The Postal Service estimates it will generate only
$13 million annually on packaging. This profit will only be
realized by charging no advertising revenue to the Service.
Considering that the Postal Service's multi-million-dollar
advertising budget, this seems very unlikely. This $13 million
is barely 1 percent of the $1 billion generated by the 1-cent
rate hike. The Postal Service would become the largest single
packaging service provider with over 7,000 locations. It would
offer packaging in most congressional districts represented by
subcommittee members, including Philadelphia, Cleveland,
Indianapolis, Brooklyn and Chicago.
The Postal Service stated during the PRC proceeding that it
would only offer packaging where it felt it could make a
profit. This means only urban and suburban areas, where the
private sector is already providing the service. The Coalition
is unalterably opposed to the Postal Service providing
packaging in competition with its members and requests the
subcommittee to adopt language which would prevent the Postal
Service from offering this service in direct competition with
Coalition members.
I would like to thank you, again, for the opportunity to
testify. We feel H.R. 22 is very important to our members, and
we urge action on the bill and these amendments as quickly as
possible. It is our hope that this bill can be passed this
year, so the implementation of postal reform can begin quickly.
Thank you.
[The prepared statement of Ms. Fennie follows:]
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Mr. McHugh. Thank you very much.
As I said, I have gone through all of your testimonies and
found them all very compelling. The one interesting thing, out
of many, that I come away with from this process is I have
never been involved in anything where there were more greater
number of opinions voicing so much disparity in views that were
all correct. [Laughter.]
And I take issue with none of you. I truly don't. The
process we have been engaged in has been one of trying to go
forward where we can and build the broadest base of support
where possible. We have tried to do it in the most open and the
most receptive process that was possible for us and
particularly the folks over here, Robert, and Heea, and Tom,
and so many others who have done such a great job.
I think it is fair to say that we have dedicated to you, as
individuals and the organizations you represent, dozens and
dozens of hours trying to represent your versions. We are going
to continue to do what we can and where we can. But where we
don't it is not necessarily a lack of understanding of your
views nor a lack of concern.
I would ask you, Jack Estes, and if others of you speak for
the record, please identify yourselves because you are such a
large number, in fairness to the stenographer.
You say there is not a pressing concern, and I understand
that view. It is not falling apart. We are not in crisis. I
think, frankly, that is one of our major challenges. You heard
Kamerschen suggest that is the perfect time to go forward, but
I don't think we can ignore certain realities. The Postal
Service tells us that by the year 2000 they are going to lose
what they estimate to be $38 billion transactions to electronic
transfers and mostly in remittance mail. It is going to cost
them $6 billion. That is a heck of a chunk.
You heard, and many of you represent the interests, and Ms.
Fennie certainly does, the great pain and pressure that private
companies are under from what they have understandably come to
know as a Postal Service monopoly that competes against them in
ways that they find impossible to effectively respond to, and
all of this is coalition building. I just don't know how we go
forward without taking up the issue of a Private Law Corp.
because I truly don't think that the environment in this
Congress is such that you are going to pass through both Houses
and have signed a bill that is going to restrict the Postal
Service.
So what you have is the choice of continuing where we are,
which means that they can use their revenues to go into area,
and Ms. Fennie's spoken and written testimonies attest to that
very eloquently about their less-than-successful record, but no
way to stop them.
So the question is if we have the choice of doing H.R. 22,
as construed, and understanding that we will try to do more
things with it, or doing nothing, which is better in your
environment?
Mr. Estes. Let me say, first of all, Mr. Chairman, that
many of the suggestions that we have advanced, particularly to
Robert, many of them have found their way into the bill, and we
are grateful for that. And your process has been open and fair.
I just can't say enough about that.
The question of whether or not there is an urgency to do
something is one that really gnaws at us, and it is the
corroboration of whether or not there is a real problem there.
We hear from the Postal Service a conjecture that they will be
faced with a revenue and volume loss because of certain
competitive thrusts in years to come.
But they are, in a sense, an interested party, and it may
not be an unbiased party, but it clearly is an interested party
that is making that conjecture. And one of the things we're
struggling with is how can we bring to you, as the chairman,
something that you can rely on and be comfortable with that is
more than conjecture? Because the bill really does, as you
know, and if you are right in that we will be faced with a
serious problem, it turns our system on its ear in many ways.
Now, that is not necessarily bad, but we have to be, I think,
satisfied, and I think that is also important with respect to
the acceptance level of the mailing community. That has to be
raised.
In our group, for example, in all honesty, that acceptance
level for some of these reforms aren't there not because they
may not be good reforms at the right time under the right
circumstances.
I think Ken wanted to say something.
Mr. McHugh. As I said, for the record, identify both
yourself and your organization.
Mr. Allen. I am Kenneth Allen with the National Newspaper
Association, and I am pleased to be here on behalf of America's
community newspapers which inform and educate about 160 million
people every week.
I should also note that I am relatively new to the postal
arena, and I have had quite an education in the last year.
Mr. McHugh. It only gets better. [Laughter.]
Mr. Allen. It is an exciting area, I can tell.
Community newspapers have one major partner, and that is
the Postal Service. Most of our members rely on the Postal
Service because there is no alternative. And the fact is that
without the Postal Service and without one that provides
quality of service at adequate rates, there wouldn't be a lot
of the community newspapers.
We are not here today to defend the status quo. We are here
today to find a solution to a viable Postal Service in the
future. And I think our concern, as part of the Main Street
Coalition, is that we need to find creative and innovative
solutions, and H.R. 22 certainly has a lot of those in there.
We are concerned, however, with the risks of implementing all
of those at this time. We think you have accomplished a lot in
the past 4 years, and we think there are pieces of it that
should go forward.
But there are also some risks to us. And from the point of
view of community newspapers, let me just tell you what we look
at, briefly, and what our concerns are. We have three concerns:
One, that rates need to stay fair and equitable and that the
quality of service needs to remain adequate. And we have some
concerns about price caps, whether worksharing will provide
incentives for the cost reductions that we see now.
Second, we are concerned that our competitors don't get
better rates than we do. That is why we are concerned about
negotiated service agreements.
Third, we are concerned about not competing with the very
organization that delivers our newspaper, and that is the
Postal Service.
So when you look at all of those, we are concerned that the
risks of going forward with such a comprehensive change may
lead to the demise of many newspapers. And it is easy to say
that if it is wrong, in 2 or 3 years we will change it, but 2
or 3 years is a lifetime for many of the smaller newspapers in
the country. And waiting that long to fix something I am
concerned may not be adequate. So we want to work with you
toward a solution.
Mr. McHugh. I appreciate that, and I would never tell you
don't be worried, 2 or 3 years we will fix it. I think too much
of you, and all of this oath-taking may rub off on me, and I
don't want to get caught in a perjurious statement.
Just for my own interests, when you say it may help your
competitor, whom are you considering your competitors?
Mr. Estes. Our competitors are direct mail advertisers, the
Internet, all sorts of media that generate advertising revenue.
We have seen activities by the Postal Service in the past to
promote direct mail advertising, for example, at the expense of
newspapers, and we are concerned about that. We don't think
that the Postal Service should be in the business of promoting
one form of advertising or one form of mail over another.
And with the Private Corp., we are concerned the Postal
Service may get into advertising in other areas, in and of
itself, and become a competitor.
Mr. McHugh. I understand that. I mean, you have got
situations that John Sturm can speak to about Auto Day and
other things that, frankly, they are now legally empowered to
enter into. I don't want to sound self-important here, the
process that we are involved in, but I think one of the reasons
that they agreed to withdraw was because we were involved in
this process.
The concern I would have, if I were in some of your shoes
and seats, is what happens if we don't do something, what comes
after? My view is that you are going to see, by necessity in
their view, a far more aggressive Postal Service in the kinds
of areas that you are concerned about. And, again, if your
belief is that the Duncan-Hunter bill that you referenced on
the Core Business Act, will be passed by both Houses and signed
into law, then I guess your gamble is go with nothing. But I
think that is a big gamble. No one asked me, but I am not sure
that is what is going to happen.
But I don't want to keep the rest of you from commenting.
Mr. Stover. Mr. Chairman, if I may add something to Jack's
answer. David Stover, the Greeting Card Association.
Mr. McHugh. Yes, sir.
Mr. Stover. The question of whether it is time to reform
the system, in light of how far off or how near the competitive
threats from electronic media are, I think also has to be
looked at in terms of whether reforming the ratemaking system
is the way to meet that particular threat.
A First Class letter today costs between 23.8 and 33 cents
to send, depending on what rate category it is in. If the same
information can be transmitted over the Internet to the
satisfaction of the sender and recipient, it is difficult to
see how any foreseeable rate reduction can compete on pure
price with that electronic transaction, which perhaps costs a
penny or two to execute.
As a rate lawyer of many years standing, I am afraid, like
a lot of people, I tend to assume that price is everything and
that what is really important is how you make the price. But I
think maybe we need to step back and see what the problem is
that we are trying to cure before deciding that ratemaking
reform is the only solution we need to consider.
Mr. McHugh. Sir?
Mr. Cassidy. Mr. Chairman, first, I think it is important
to note----
Mr. McHugh. Pardon me. Please identify yourself and your
organization. Thank you.
Mr. Cassidy. Yes, sir. I am Lee Cassidy. I am executive
director of the National Federation of Nonprofits.
Mr. McHugh. Thank you.
Mr. Cassidy. I think it is important to note that you have
already made an indelible mark on the Postal Service by
establishing a piece of the original legislation. I guess it
was H.R. 3717, that piece being the inspector general, and that
was a critically important step. Now, we have talked here some
about implementation. In the case of the implementation of
deregulation of other utilities, and the Postal Service must be
considered basically a utility, we have had supervision of that
implementation by an existing Regulatory Commission, usually
within the States, in some cases nationally.
I would like to suggest, sir, that the next critical step
is the strengthening of the Postal Rate Commission to create
the Postal Regulatory Commission, as you have proposed in H.R.
22, to give that Commission significantly greater power in
order to supervise the implementation of many of the--and maybe
most, and perhaps all--of the reforms that are included in the
rest of the bill.
Had the Commission had those additional powers, the
problems that we talked about in our testimony of the Postal
Service not accurately estimating its costs, not accurately
proposing rates; those problems, we believe, would have been
largely corrected by a stronger Postal Rate Commission. And so
from our standpoint, we see that as the next critical step and
one that would permit a much smoother implementation of all of
the other reforms.
Mr. McHugh. Well, obviously, I agree that is an important
step or it wouldn't be in the bill. I don't want to leave
anybody with the impression that, in our interest of making
progress, being creative, and building a coalition, that we
have done anything that would be unacceptable in and of itself.
The problem with your suggestion, I would suggest, or the
difficulty of it, is that many people who find other parts of
the bill less attractive find that one very attractive, and if
you portioned that out, then they all of a sudden become far
less interested in the other parts, and you start to pull the
puzzle apart.
The fact of the matter is we were very fortunate, with a
lot of help from Senator Ted Stevens, and a number of others on
the IG, to do something that was--correct a situation that was
totally unique in the Federal Government; that is, an
organization the size of USPS did not have its own inspector
general. I think it was a once in a one of those lifetime
moments.
And the Postal Service, and its workers and other segments
honestly believe, and strongly believe, on the opposite side of
where you are, that the PRC is far too powerful now, that they
have never obfuscated data, and that the only thing at risk
here is proprietary information that would be used to further
diminish their standing by those who wish them to do not so
well, et cetera. The problem being I don't think we could pass
it by itself.
So that is the challenge in virtually all of these, that
this is a stew or it is a bad plate of green meat in the
corner. I mean, together we can make a nice stew, the parts
separately, you know, your mother wouldn't serve it to you. So
that is the frustrating part from here.
And when I say, again, I don't disagree with anything any
of you are saying, that is the challenge.
Mr. Wendler. Mr. Chairman, my name is Guy Wendler. I am
president of Stamats Communications in Cedar Rapids, IA. We
publish four business magazines and are a member of the
American Business Press. The American Business Press has about
100 member companies, and we publish a 1,000 magazines. Typical
circulation would be 50,000/60,000. An example of that would be
our Buildings Magazine that might be read by somebody who is
responsible for managing this building right here. Some of the
editorial that we have in Buildings would be on indoor air
quality, security, safety, things like that.
We very much appreciate the initiative that you are taking
in trying to keep the Postal Service competitive and viable in
the future because we depend 100 percent on it. I have no other
choices to mail my magazines and none of the other members have
any choices to mail the magazines as well. So we applaud your
efforts in that regard, and we see some good things in the
bill, such as strengthening the Postal Rate Commission.
In the spirit of perhaps providing you some of our insights
on why we are concerned with the current bill, the last two
ratemaking proceedings that went on in the periodicals class,
basically, involved an issue between the small circulation
magazines and the large circulation magazines. We looked to the
Postal Rate Commission to protect our interests there and I
think protect public policy interests of unzoned, flat
editorial rates.
We are concerned that if we move to the indexed sort of
system, we will lose some of that protection, and the Post
Office will be able to accomplish some of the things that they
haven't been able to in the last two rate cases, which really
aren't being driven necessarily by competition.
We are also concerned in that it is unclear as to how the
indexing will occur, whether it will be by basket, by class, by
subclass, and that could have a major impact on the smaller
circulation publications, and I wanted to share that with you.
I thank you for all your efforts that you are making with this,
and we hope you do make progress on it.
Mr. McHugh. I appreciate that, and I appreciate both your
comments and the supportive nature of them and the process that
you have been a part of and your organization has been a part
of.
If I, honestly, could see how to more effectively guard
against the thing you just stated you were concerned about, I
would do it. I think you heard the prior panel where, if
anything, a large class of mailers, who are highly dependent on
the Postal Service as well, feel that the index, coupled with
very tight banding that was suggested by some of you, by the
way--we didn't dream it up--is too inflexible.
If you make the assumption that your baseline rate case is
fair and the PRC at that time presumably would have the
increased powers that you support, so it would have a far
better opportunity to produce a fair outcome in the baseline
case than it presently does, then from that point forward, you
are much more insulated against any--I mean, it becomes a
matter of mathematics, not a matter of the whims of the Postal
Service.
So my point would be, if there are ways in which you want
to talk about becoming even more strict with the index and the
band, we will be happy to talk about that. But you have heard
the problems that raises with other people who are very
dependent upon the Postal Service, as well. You heard who they
represented. So my point being, I don't discount the concerns
you have. I truly don't. What I am searching for is a way in
which we can meet those concerns, so they are not totally
disruptive to the other effort. But let me move on to another
point, if I may.
I think there may be an exception or two, but most, if not
all of you, expressed concerns about discriminatory pricing on
negotiated service agreements. Here, too, is an area that I am
very concerned about. It is a troubling aspect for you, so,
therefore, it is for me as well.
You heard Mr. Kamerschen, who came here today to try to
propose a way by which he felt it was a win-win situation to
take a different tack on NSA's because he felt the language
that we have in here is so tight that it is going to preclude
any real benefit. I would ask if any of you have suggestions as
to the approach we have taken on NSA's, as to what more we can
do to prevent discriminatory pricing because, frankly, with the
components of the current NSA that we have in there, I think we
have pretty well covered that, but I want to learn.
Mr. Allen. I am not going to say that there aren't some
changes that could be made to tighten them up. Our concern
comes back to the issue that, as we see the negotiated service
agreements, they will primarily benefit the large-volume users.
Mr. McHugh. But let me interrupt you because the
requirement of the bill suggests that all similarly situated
mailers have to be eligible for the same NSA, and beyond that,
all discounts that derive from that singular NSA must be driven
to those who don't get the discounts, as well. So it is a
requirement that any benefit from the NSA be equitably
distributed across the entire universe.
Mr. Allen. But it is my understanding that you have to,
once the NSA is negotiated, that you have to file for the
similar discount; is that not correct?
Mr. McHugh. On the NSA itself?
Mr. Allen. Yeah.
Mr. McHugh. If I understand your question correctly, it has
to go with PRC prior approval.
Mr. Allen. And then the individual users will get the
benefits without any further proceeding?
Mr. McHugh. If it is approved by the PRC.
Mr. Stover. May I----
Mr. McHugh. What I am saying is, if there is, and we assume
the PRC will approve NSA's that are of benefit, if there is a
savings and a benefit of the discount to the individual NSA,
that discount benefit has to be driven back to all mailers.
I don't know how else we would do that. It is not like
there will be a single beneficiary. The entire mail universe
will benefit.
Mr. Stover. David Stover, again, GCA.
You, Mr. Chairman, mentioned the proposal made by Mr.
Kamerschen in his testimony earlier. I did have a reaction to
that. As I understand it, it would loosen the language in H.R.
22 so that the NSA mail would not have to pay the same
contribution per piece as all other mail of that category. But
the contract volume would have to pay the same total dollar
amount into the institutional cost pool. This means that as the
contract volume grew, which Mr. Kamerschen expected that it
would, the per piece contribution, of course, would go down.
There was a long discussion, as I recall, in the
reclassification case at the PRC about 4 years ago, in which
the question, what is a fair standard for contribution, was
discussed; and there the conclusion was that you could look at
that per piece contribution, and if that was equal, you had
fair rates.
So I don't think that you need to slacken your own language
in order to achieve fairness in that regard.
Mr. McHugh. In fairness to Mr. Kamerschen, I don't want to
sit here and critique his bill in a negative sense without
going back and giving it the fair consideration it deserves,
but I don't know that I disagree with what you have just said.
But that is not in the bill. I am concerned, and I don't
believe you were addressing that when you all submitted your
testimony on H.R. 22 with respect to NSA's.
Mr. Cassidy.
Mr. Cassidy. Mr. Chairman, I concur with Mr. Stover's
comments about NSA's. But apart from NSA's, if I understood
your question correctly, it is, ``does the basic pricing system
contribute to the elimination of or does it eliminate
discriminatory pricing?'' And there are some special provisions
in there relating to nonprofit mailers, and I can say that,
from our standpoint, it is a vast improvement over what we have
now. And while I am sure if we studied it for another 4 years
we could come up with some minor refinements, we find that it
is something that we certainly can live with, and we would be
reasonably happy with.
Mr. McHugh. Well, I am glad I asked.
Mr. Wendler. I do have a comment----
Mr. McHugh. I said I am glad I asked. I am sorry, Lee. I
didn't know if you were--go ahead.
Mr. Wendler. On the NSA's and predatory pricing, one of the
things to consider is relative bargaining power. My card is not
in the Rolodex of the postmaster general. So if I wanted to
call and try and negotiate something, I probably couldn't do
that. And in terms of being protected by somebody else
negotiating something like that and it being available to my
company, it may not because we don't have the mailing density
to a particular area, so we may not be able to take advantage
of any of those things.
Mr. McHugh. I couldn't agree more with the fact that not
every mailer will be able to directly participate in NSA's.
Clearly, that isn't going to happen, and there is no way you
can legis--I mean, I guess we could legislate and the
Postmaster General shall provide a business card to all
mailers, but I don't think there's any way we can address that.
But the point about discriminatory pricing I think is that,
if you were able, or any two mailers were able to participate,
on the one hand, you cannot negotiate an NSA with one and
exclude the other, or if it's 10 or 20 or 100, however many
wish to. I would suggest that this may, in fact, open up
avenues for negotiated service agreements that small business
people--and, believe me, I mean that as a compliment, not an
insult--but small business people probably don't have the
opportunity to go out and negotiate, and develop and think
about, and it could be done for them by others. Then they'd
look at the menu of approved NSA's and say, gee, I might be
able to benefit from that.
But even if you don't, under the unit contribution to
institutional costs, you still benefit because it goes back as
a unit-cost contribution that benefits every mailer. That is
what we are looking at--protections, the bottom line, ladies
and gentlemen. When you say you are concerned about
discriminatory pricing, I am as well. We have tried to address
that in a very direct manner, and Mr. Cassidy's points are well
taken to the extent that we could sit here and theorize on
things for the next 4 years, and ultimately we would come up
with nuances of change.
But if there are ways by which, other than saying we can't
do this, I mean, that is legitimate, and if that is your
choice, I accept that. But, if there are ways in which we can
change NSA's to your benefit and to the point of concern of
nondiscriminatory pricing, that is a vitally important issue
that moves us deeply. That says a couple of things; one, it is
important and, two, our lives are moved by strange things. But
we want to be helpful.
John Sturm.
Mr. Sturm. I just thought I would offer this comment, Mr.
Chairman, because you just sort of said it. I am John Sturm
from the Newspaper Association of America.
I guess Mr. Kelly said it a couple of panels ago, when he
was talking about the division that this bill makes between
competitive and noncompetitive services. One wonders whether if
you, as Congress would do in this bill, made that choice and,
indeed, you had price competition in competitive services. Why,
in fact, do we need to go away from the current system in
noncompetitive services? In other words, it strikes me that a
lot of this is great concern about areas in which, for reasons
that were detailed in the earlier panel by Mr. Kelly and Mr.
Smith, there is a highly competitive business in parcel
delivery, and I think they did a very good job of tracing the
history of that.
I look, then, at noncompetitive. You made a choice. You
have put mail in different packages, and why we need to go down
the route, if you will, of negotiated service agreements in
noncompetitive mail when, in fact, at least to a lot of us, it
poses the risk, at least, of being in a situation where either
we don't qualify or we are going to be asked to pay for the
discounts that are given to somebody else. And that's, I think,
the great concern here.
Mr. McHugh. You had me until the end. Well, you can make
the argument, and I would be the first to admit the newspapers
are in a very unique situation competitively in that, when you
make the statement, we may pay for the discounts, you could
make the argument, I suppose, that lost revenues because of
lost advertising mail would be a way you would pay. But I would
take exception if you meant by that, however, that you would
pay for the discounts as a mailer because, as I said, we have
the unit contribution requirement that, in fact, would be
driven back to benefit you.
And, John, you and I have had long conversations and, as I
understand it, we are going to have another one----
Mr. Sturm. Probably more.
Mr. McHugh. I understand the unique situation that you have
with the Postal Service and the question of advertising mail.
But in what we call the noncompetitive areas, there are many,
many mailers who, I think, would want to be classified that
way, historically have been, and probably the rationale should
be, who have no other real choice, who could, in fact, benefit
from NSAs and could benefit, I would argue, under the way in
which we have structured it to the inurement of the entire
postal system. But we did, we made choices, no question about
it.
Mr. Sturm. My only suggestion would be, perhaps you had it
right the first time when you didn't include NSAs in the bill.
Mr. McHugh. Perhaps we did. I don't question your right to
question us.
Well, if nothing else today, we have proven, as Will Rogers
said, ``If two people agree all of the time on everything, one
of them is unnecessary.'' So I guess we are all pretty
necessary. [Laughter.]
So, unless one of you would like to make an additional
comment, we will look at your suggestions.
I want to repeat, again, particularly on NSAs and the issue
of discriminatory pricing and other such key issues, we want to
try to do the best job we can. So we are looking forward to
working with you.
Let me just close by saying Jack made some comments about a
new process, perhaps he didn't say it in so many words, but I
certainly got the indication he felt we ought to have some more
hearings. We have talked about this Competitive Products Fund
since it was first discussed in an opening hearing we held back
in I believe it was September 1997, and then it was first
proposed a year ago--Private Law Corp. is what I am supposed to
be mentioning--a year ago in December, and we have had several
hearings, including this one.
And I, in no way, diminish the concerns that you have, but
I think, when you couple the relative age of the proposal and
the numbers of hearings we have had, and the repeated
opportunities that we have provided and, thankfully, you have
accepted to talk about this issue, that we really have, after
4-plus years now, reached a time when we have got to start
making some decisions about that.
So, as my opening statement said, I still believe, and I am
always willing to learn, but I still believe we may have come
to the public hearing end of the road, but we are only at step
one on the legislative side, and we have not yet drafted a
final bill. I think it is fair to say that when we first
introduced H.R. 22 as a new proposal a little more than a year
ago, a lot of individuals were fairly surprised at the depth of
changes we made.
If nothing else, I hope you will admit it shows that we are
listening to a lot of people, and we are going to continue to
do that. I am not making any predictions, but I am suggesting
to you that we are going to try to be as open and as receptive
as we can.
Jack, are you just showing me your pen or did you want to
say something?
Mr. Estes. I was just showing you my pencil.
Mr. McHugh. It is a nice pen. [Laughter.]
Mr. Estes. I would like to say that these have not been 4
wasted years. I mean, really, we have made progress, and a lot
has been done, a lot has been accomplished. As I said earlier,
we, unfortunately, are uncomfortable about some of the major
thrusts of the bill.
Mr. McHugh. I understand that, and I hope I never suggested
that I do disrespect that because I don't. And I don't feel
they have been wasted. It has been a fascinating opportunity
for me. I have worked with some terrific people.
We will go to markup, and there is a time to say it, but
the times I have looked bad are my own fault. The times I may
have looked good, it is because of these people here. A
tremendous staff. I have never been so fortunate in nearly 30
years in public office and public life to work with more
caring, more thoughtful and hardworking folks. So I want to
thank them for a great job, and you know them all. Robert, and
Tom, and Steve is here. So many who go back ever since Bill
Clinger made that ill-fated call back in 1993. That will teach
you to answer the phone, folks. [Laughter.]
Thank you very much. We will be in touch.
[Additional questions for the record follow:]
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Mr. McHugh. The hearing is adjourned.
[Whereupon, at 4:31 p.m., the subcommittee was adjourned.]
[The prepared statements of Mr. Sturm, Mr. Cassidy, Mr.
Stover, Mr. Wendler, Mr. Allen, Mr. Dzvonik, Mr. Disbrow, Ms.
McFadden, and Mr. Williamson, and additional information
submitted for the record follow:]
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