Order Code IB10104
Issue Brief for Congress
Received through the CRS Web
Postal Reform
Updated December 12, 2002
Nye Stevens
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Causes of the Financial Crisis
Recalculation of USPS Retirement Obligation
The Postal Reorganization Act of 1970
The USPS Transformation Plan
Should the Postal Service Compete?
A Postal Reform Commission
Developments in the 105th and 106th Congresses
Activity in the 107th Congress
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
CRS Reports


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Postal Reform
SUMMARY
Although its short-term financial prospects
obligation by adjusting the number of delivery
have suddenly brightened by discovery that
days, and to revamp union contract talks by
retirement obligations are less burdensome
involving the President and Congress in avert-
than presumed, the U.S. Postal Service
ing strikes.
(USPS) faces severe financial straits in the
long term. Business use of the mails is declin-
Most postal stakeholders think that the
ing as alternatives such as e-mail, faxes, and
USPS monopoly lines – first class, periodical,
cell phones substitute for hard copy letters.
and advertising mail – are a declining busi-
The economic slowdown that began in 2001
ness, and want USPS to compete in other
has cut into advertising mail. On top of this,
markets that are growing. Competitors in
the anthrax attack of October, 2001 has af-
those markets resist because USPS pays no
fected volume and added billions in costs for
taxes and is immune from most government
mail sanitization. Despite three rate increases
regulations. They think USPS should concen-
in 18 months, USPS has lost well over $2
trate on its natural monopoly – the “last mile”
billion in the past two years, and is approach-
in the delivery process. USPS has not had
ing its $15 billion debt limit to the Treasury. It
much success to date in developing commer-
has a negative net worth and mounting obliga-
cially competitive products. Congress has not
tions for retiree health benefits. USPS would
shown much willingness to address postal
be bankrupt but for the fact that it is a govern-
reform. While a reform bill has been under
ment entity.
development in the House for a half-dozen
years, it has yet to emerge from committee. A
USPS, its board of governors, GAO, and
bipartisan version was introduced as H.R.
most mailers’ organizations believe that the
4970 in the 107th Congress, but it ran into
Postal Reorganization Act of 1970 no longer
opposition from USPS competitors, and Dem-
provides a viable business model. It is de-
ocrats refused to support it without a commit-
pendent on rising mail volume to cover the
ment from House leadership to bring it to the
ever-increasing cost of arbitrated labor settle-
floor.
ments and the addition of 1.7 million new
delivery points each year, yet volume has
In early November, 2002, USPS was
begun to fall. The highly regulated process of
notified that its payments to the Civil Service
setting rates is cumbersome and tendentious.
Retirement Fund are in arrears by only $5
billion, and that continuing payments at the
At congressional request, USPS devel-
current rate would result in a large surplus.
oped a “Transformation Plan” that briefly
Congressional action would be needed to
considered, and rejected, the alternatives of
change the contribution formula. On Decem-
privatization and a return to regular agency
ber 11, President Bush appointed a presiden-
status with appropriations to cover the costs of
tial commission, with nine members who have
universal service. Instead, it asks Congress
no previous ties to postal issues, to review the
for authority to change rates more flexibly,
role of the Postal Service in the 21st century.
close post offices and processing centers, and
This was welcomed by many observers who
negotiate tailored service agreements and
had felt that Congress was immobilized by
volume discounts for big mailers. It also
conflicting pressures. The commission is to
proposed to redefine its universal service
report by July 31, 2003.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
President Bush issued an executive order establishing a Commission on the Postal
Service on December 11, 2002. Its nine members do not have previous involvement in
postal affairs. The commission is charged with reporting by July 31, 2003 on “how the
Postal Service should adapt to pressures from customers, competitors, and technology, and
best fulfill its mission in the 21st century.”
On June 30, 2002, USPS implemented a 7.7% rate increase, its third in 18 months.
Large mailers agreed to the increase because they believed USPS faced both a short-term and
a long-term financial crisis. The added revenues, aggressive cost cutting, and a freeze on
new facilities improved the Service’s financial position somewhat, reducing the loss for
FY2002 to $676 million. USPS has predicted a return to profitability in FY2003, but that
is dependent on reversing the recent trend toward volume losses.
After months of bipartisan negotiations, H.R. 4970, The Postal Accountability and
Enhancement Act, was introduced in the House by Representatives Dan Burton and John
McHugh. Although Democratic Representatives Henry Waxman and Danny Davis had
helped draft the bill and said they supported it, Democrats did not vote to report the bill in
a June 20 markup session of the House Government Reform Committee. They said that it
made little sense to report a bill from committee if there was no leadership commitment to
consider it on the floor. Without Democratic support, and with visible opposition from the
United Parcel Service and the Teamsters Union, the bill failed on a 20-6 vote. Senator Tom
Carper, in an August 21 speech to the National Association of Letter Carriers, announced his
intention to introduce a bill very much like H.R. 4970 in the 108th Congress.
On November 5, 2002, the Office of Personnel Management (OPM) announced that a
review of USPS payments to the Civil Service Retirement Fund for pension obligations to
employees on board before 1984 revealed a much more positive picture than previously
believed. Because past contributions have been earning interest at a higher rate than
presumed in the statutory funding formula, the deferred liability for pension obligations is
only $5 billion instead of $32 billion. If USPS continues to make payments based on the
latter figure, the liability will eventually be over funded by $71 billion. In announcing the
good news, Postmaster General John Potter said that if Congress passes draft legislation
developed by OPM to reduce its annual payment, USPS will be able to reduce its debt by $3
billion in FY2003, and defer the next rate increase from 2004 to 2006. But he also said that
the development does “not in any way obviate the fundamental flaws in the Postal Service
business model,” and urged undiminished attention to postal reform.
BACKGROUND AND ANALYSIS
The U.S. Postal Service has been operating in a mode of financial crisis since February
2001. Despite three rate increases in two years, it is mired in losses. Its deficit rose from
$199 million in FY2000 to $1.68 billion in FY2001. It predicted a $1.35 billion deficit for
FY2002 (more than Amtrak’s) even before anthrax was discovered in letters to several public
figures. The reaction to that event both added billions to USPS costs and cut deeply into
revenues as mail was diverted, slowed down, shunned by some, and actively discouraged by
certain government agencies as a dependable means of communication. An accelerated and
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negotiated rate increase in June, 2002, combined with radical cost cutting measures, cut the
eventual FY2002 loss to$676 million.
Both the House and the Senate held hearings early in 2001 on the deteriorating financial
condition of the Postal Service. The General Accounting Office (GAO) has issued a number
of reports that portray a steadily growing sense of urgency. Among the indicators of the
crisis are the following:
! Despite desperate cost-cutting measures, a freeze on facilities, and severe
limits on productivity investments, revenues are falling twice as fast as
expenses. Net income has fallen each year since 1995.
! Mailers warn of an “economic death spiral,” as falling mail volume forces
price increases to cover fixed costs, and the price increases lead to further
drops in volume as businesses seek more cost-effective alternatives.
! The USPS debt to the Treasury is close to reaching its statutory $15 billion
limit. Congressional action would be required to raise the limit.
! Before discovery of the Civil Service Retirement Fund potential
overpayment, GAO estimated major liabilities and obligations at close to
$100 billion for such items as Treasury debt, pension and retiree health
obligations, and workers’ compensation future benefits, all of which will
need to be borne by future ratepayers, or taxpayers, in a shrinking market.
Within eight years, USPS will need to come up with $16 billion annually for
the deferred costs of past services, before spending a single dollar on current
mail delivery.
! Liabilities continue to exceed and grow faster than assets, a condition that
GAO says would mean bankruptcy if USPS were not a government entity.
Causes of the Financial Crisis
While there are differences among the stakeholders in emphasis, the following factors
have been identified as being in part responsible for the current crisis:
! The economic slowdown that began in early 2001 has cut into USPS
revenues from the dominant business segment, and reduced advertising mail,
which accounts for 25% of revenues. Overall volume for FY2002 declined
by 4.6 billion pieces, or 2.2%, from the previous year, though the rate
increase produced a slight increase in revenue to $66.7 billion. Costs
continue to rise, however, since 1.7 million delivery points are added each
year, built-in wage and cost-of-living increases add $2 billion per year, and
USPS is particularly vulnerable to energy price spikes.
! The rate determination process is cumbersome and rigid, preventing USPS
from aligning its offerings with the variable needs of its customers.
Preparations for a rate case begin many months before a filing with the
Postal Rate Commission (PRC) and USPS must estimate costs and demand
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nearly two years into the future. The adversarial process of contesting
proposed rates and classes goes on for 10 months, with exchanges of tons
of paperwork and hundreds of hours of testimony. USPS competitors are
very active participants. The emphasis is on allocating stated costs among
mail classes rather than reducing costs or encouraging demand. USPS
complains that the process gives it no opportunity to respond to competition,
to vary rates with the season or periods of low usage, to negotiate rates with
big mailers, or to price products in accordance with demand, rather than
costs of service.
! Three rate increases in an 18-month period have driven some mailers to
curtail volume in order to stay within set budgets, and made the comparative
cost of alternatives – such as newspapers, television, and e-mail for
advertising – more attractive.
! Competition from other providers and other media is marginalizing some of
the services that USPS provides. E-mail, fax transmission, and cell phones
without distance charges have become substitutes for written
correspondence. The Internet is becoming increasingly popular as an
alternative for financial billing and payment, which sustained USPS volume
and revenue growth through the 1990s. USPS is already a secondary player
in the overnight express and package delivery markets, except for the most
difficult routes in Alaska and Hawaii.
! Labor costs of its 800,000 employees account for over three-fourths of
USPS expenses, not much less than was the case decades ago. In contrast,
labor costs are 56% of UPS’s expenses, and 42% of costs at FedEx, where
only the pilots are unionized. Lagging productivity growth (11% in 30
years), a backlog of 146,000 pending or appealed labor grievances that are
pursued “on the clock,” and binding arbitration of disputes keep labor costs
high.
! Facilities are not optimally located for efficient distribution, since USPS has
been unable to close existing facilities and consolidate operations in new
locations. USPS maintains that over half its 38,000 facilities do not
generate enough revenues to cover their operating costs, and complains that
political considerations prevent it from modernizing and rationalizing its
retail and distribution system.
The American Postal Workers Union (APWU) has been a vocal proponent of another
ascribed cause for the postal financial predicament. The APWU believes that “worksharing”
discounts (for pre-sorting and adding bar codes that allow automated processing) to big
mailers have gotten out of hand, costing USPS $4 billion annually that could be saved if the
work were brought back in-house.
Recalculation of USPS Retirement Obligation
Having placed the Postal Service transformation effort on its High Risk List, GAO
found fault with the fact that no one had ever determined whether the $32 billion liability
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USPS was carrying on its books for retirement obligations of its employees who are still
under the Civil Service Retirement System (CSRS) was an accurate figure. GAO, along with
nearly all other postal analysts, suspected that it was too low. GAO therefore asked OPM
to recalculate the obligation so that the true extent of postal liabilities could be known.
OPM’s actuaries went back into the books to isolate Postal Service and postal employee
contributions and interest earned on those contributions since 1971, when USPS became a
standalone entity responsible for funding its own retirement obligations. In a November 1,
2002 letter to the Postmaster General, OPM Director Kay Coles James came to a startling
conclusion: that future payments under current legislation would overfund USPS liability for
its CSRS employees by $71 billion. A principal reason is that interest earnings on past
contributions have been credited at a statutory rate of 5%, when in fact the average rate of
returns on the bonds held by the trust fund has been substantially higher.
As calculated by OPM in 2002 dollars, and verified by both OMB and the Department
of the Treasury, USPS payments and interest on them amount to $152.1 billion. When
actuaries looked at the total costs of meeting pension obligations for the total USPS/CSRS
population, they found that $172.6 billion would be required to cover all future costs for
CSRS employees, retirees, and their survivors. However, at the present rate of contributions
required by current legislation, future contributions to the CSRS fund by USPS and its CSRS
employees will amount to $243.6 billion – an overpayment of $71 billion. In actuality, for
CSRS to be fully funded, a payment of only $20.5 billion by USPS and its employees is
required.
OPM emphasized that no overpayment has yet taken place; in fact, USPS has a current
funding gap of $5 billion. But that is a far cry from the $32 billion gap assumed by the
payment schedule in current legislation, which GAO and many others had feared was too
low.
The effect of the surprise announcement on the postal community has been electric.
The Postmaster General said that reducing the annual payments to an actuarially sound level
would save $2.9 billion in FY2003, and $2.6 billion in both FY2004 and FY 2005. He said
that this would enable USPS to reduce its debt to the Treasury by $3 billion this year, and to
defer another rate increase from January 2004, as currently planned, to some time in 2006.
However, legislation would be required to reduce the payment. OPM has drafted a bill, “The
Postal Service Civil Service Retirement System Funding Reform Act of 2002,” and it
reportedly has the support of OMB. One potential obstacle to its passage is that it would
harm the overall federal budget. Under past budget enforcement procedures, a $3 billion
reduction in the Postal Service’s contribution to the CSRS Fund might have required the
enactment of offsetting savings elsewhere. However, expiration of certain enforcement
procedures that would apply to such a proposal, and uncertainty regarding the extension of
these procedures, makes the procedural situation unclear.
The Postal Reorganization Act of 1970
Postal Service management, its board of governors, GAO, and most stakeholders assert
that the Postal Reorganization Act of 1970 no longer provides a viable business model for
a successful postal enterprise at the turn of the century. That Act had taken postal affairs out
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of the direct control of either Congress or the President. It made USPS an independent
establishment of the executive branch, directed by a postmaster general selected by, and
serving at the pleasure of, a part-time board of governors appointed by the President with the
consent of the Senate. USPS was permitted to operate using business principles, and charged
with generating enough revenues to support the costs of the service it provides by allocating
those costs among the many users of the postal system. That allocation has been
accomplished through periodic rate cases before the Postal Rate Commission (PRC), a five-
member regulatory commission that considers cost data and the conflicting views of
competitors, unions, and users of the many classes of mail in a 10-month adjudicative
process leading to new rates and classification requirements.
The legal and regulatory framework established by the Act served reasonably well for
nearly three decades. Delivery service and customer satisfaction improved, USPS survived
without general appropriations since 1983, rising mail volumes covered the costs of adding
new routes and delivery points each year, and prices rose generally in line with inflation.
Postal issues came to be perceived as minor enough that postal service committees and
eventually even subcommittees disappeared from the congressional organization chart.
However, few who are familiar with postal affairs believe that Congress can ignore the
current state of the enterprise. USPS admits that its business model no longer works in the
21st century, and Comptroller General David Walker testified bluntly on May 13, 2002 before
a Senate Governmental Affairs subcommittee that the institution’s current course is
“unsustainable.”
The USPS Transformation Plan
When GAO placed the long-term outlook for USPS on its High Risk List in the spring
of 2001, the Senate Committee on Governmental Affairs asked USPS to prepare a
comprehensive plan to address its financial, operational, and workforce challenges, along
with a time frame and key milestones for achieving positive results. USPS eventually came
to welcome the opportunity to lay before Congress a comprehensive statement of what it
needed to make its business successful.
USPS released its Transformation Plan in April, 2002 with a substantial public relations
effort. The plan contains 400 pages of historical and analytical information about changes
in the postal business in the United States and throughout the world, and presents three
alternative futures for USPS. It rejects the option of returning to government agency status,
and depending on Congress to provide appropriations to maintain universal service as the gap
between costs and revenues continues to widen. It also dismisses the prospect of
privatization as likely to lead to substantial layoffs, and inevitably leading to cuts in services
and geographic coverage that do not pay for themselves. The option USPS favors is called
the “Commercial Government Enterprise,” preserving government ownership but allowing
USPS to operate under more businesslike conditions than what the 1970 Postal
Reorganization Act provides.
(See the Transformation Plan at [http://www.usps.com/strategicdirection/transform.htm].)
While it lacked (as GAO pointed out) a detailed action plan, milestones, and concrete
legislative recommendations, the transformation plan did propose a number of significant
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departures from the status quo. The following are among those likely to require
congressional approval:
! An aggressive effort to “optimize the retail network” and “redesign the
postal logistics network,” which would entail lifting the moratorium on
closing post offices, streamlining the process for more closures, and
reducing the number of processing centers.
! Negotiating service agreements and volume discount prices with the biggest
mailers, exploring seasonal discounts and premiums, and phasing in new
rates on a more predictable basis.
! Revamping contract talks with the unions to escape binding arbitration,
moving eventually to a mediation process like that in the Railway Labor Act,
which involves the President and Congress in averting strikes and
encouraging reasonable settlements with the public’s interest paramount.
! Redefining universal service by adjusting service levels and the number of
delivery days to a more affordable level.
! Changes in the incentive structure to permit USPS to retain any excess
earnings, and remove the limit on executive pay tied to the federal executive
schedule.
! Expanded freedom to use its assets for entering related markets and
developing new products without skeptical scrutiny from the PRC.
Many of the initiatives proposed in the transformation plan could be undertaken under
USPS’s existing authorities, and it suggested that others could be negotiated with a PRC that
had become more cooperative in the wake of the terrorist attacks. However, Congress would
need to act in both the short and the long term to achieve the most significant changes. One
change urged immediately was the removal of annual appropriations language that restricts
post office closings and mandates no reduction from the service levels that prevailed in 1983.
At the May 13, 2002 subcommittee hearing of the Senate Governmental Affairs
Committee called to discuss the plan, reaction was somewhat subdued. The postmaster
general said that gaining more flexibility in pricing its services was the “number one priority”
in the transformation plan. Members generally complimented USPS on a good-faith effort
to set forth its needs, but raised questions about several key facets of the plan: whether it was
“fair to competitors;” whether opening new businesses would divert attention from its core
mission; whether closing post offices was politically realistic; and whether now is the right
time for long-term decisions, since the world of communications continues on such a rapid
pace of change.
Should the Postal Service Compete?
USPS itself, its unions, and many mailers’ organizations believe that the survival of the
Postal Service depends on the institution’s ability to compete in active or developing
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markets, because the services it provides under its statutory monopoly are a declining
business. Another school of thought, however, rejects the notion that USPS should compete
with private sector companies who are able to provide services within the market economy.
There are several thrusts to the argument. One relates to fairness. USPS has many
advantages stemming from its governmental status. It pays no federal, state, or local taxes
on its income, sales, purchases, or property. Unlike private sector companies, It is immune
from most forms of regulation, such as zoning, land use restrictions, motor vehicle
registration, parking tickets, and antitrust. It is also able to borrow money at the lowest
possible rate because it does so through the U. S. Treasury. Understandably, companies
facing competition from USPS feel that they are at a great disadvantage.
A second argument is based on concepts of economic efficiency. Because of its indirect
subsidies such as freedom from taxation and regulation, and because its goal is to break even
rather than earn a competitive rate of return, USPS has less incentive than private sector
entities to use capital and labor resources efficiently. Subsidies make government products
and service seem artificially cheap, resulting in an over-allocation of resources that could be
used to produce greater benefits elsewhere in the economy. Economic theory maintains that
such a mis-allocation reduces national economic welfare below that achieved by a
competitive market. When private sector companies produce and sell a product or service,
there is some benefit to society from the taxes that result, a benefit not gained when the
government produces the same product or service.
Finally, there is substantial evidence that USPS is not a very adept competitor. GAO
has issued several reports of failed commercial ventures by USPS. In 1997, for example,
USPS had discontinued or was losing money on 15 of 19 new products, resulting in a net loss
of $85 million. UPS and FedEx have both established profitable delivery networks in
markets where USPS tries to compete but is now a relatively minor player.
One policy prescription leading from this diagnosis is that USPS should stick to its
monopoly business and not seek to grow at the expense of private sector competitors.
Indeed, some would like to see the postal monopoly reduced to “the last mile” of delivery,
opening up collection, sorting, and transportation to market competition.
A Postal Reform Commission
A number of postal observers have believed for some time that political power is so
thoroughly dispersed among stakeholders that only an independent blue-ribbon commission,
rather than the legislative process, can devise a contemporary solution to today’s postal crisis.
The Association for Postal Commerce, the Mailers Council, GAO, the United Parcel Service
(UPS), and some Members of Congress are among those calling on the President to create
a commission to study and make recommendations on the future organization and function
of the Postal Service. The USPS Board of Governors, at its August 6 meeting, endorsed the
idea of a reform commission. The president of the American Postal Workers Union,
however, opposed the creation of a commission.
There is a notable precedent. In 1967, President Johnson appointed Frederick R. Kappel
(the chief executive of AT&T) to chair a Commission on Postal Organization that eventually
devised the framework for the Postal Reorganization Act of 1970. Murray Comarow, who
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was executive director of the Kappel commission, agrees that the legislative process cannot
achieve genuine reform. He cautions against a commission made up of stakeholders,
however, because it is likely to mirror the intransigent interests that have fought to a draw
on Capitol Hill. A 1977 commission with union and mailer representatives broke down in
disagreement and its report was ignored. The Kappel commission was composed of eminent
individuals with no close ties to postal interests.
On December 11, 2002, President Bush issued an executive order creating a
Commission on the Postal Service, forestalling congressional initiatives to create such a
commission by statute. He ordered it to report by July 31, 2003, on
! the role of the Postal Service in the 21st century and beyond;
! the flexibility that the Postal Service should have to change prices, control
costs, and adjust service in response to financial, competitive, or market
pressures;
! the rigidities in cost or service that limit the efficiency of the postal system;
! the ability of the Postal Service, over the long term, to maintain universal
mail delivery at affordable rates and cover its unfunded liabilities with
minimum exposure to the American taxpayers;
! the extent to which postal monopoly restrictions continue to advance the
public interest under evolving market conditions, and the extent to which the
Postal Service competes with private sector services; and
! the most appropriate governance and oversight structure for the Postal
Service.
The co-chairmen of the commission are James Johnson, former CEO of Fannie Mae,
and Harry Pearce, board chairman of Hughes Electronics. The other seven members include
no one with close ties to postal stakeholders. Most are business executives, with one local
labor leader, the president of Yale University, and Robert Walker, a former Member of
Congress. In a press conference announcing the commission, Undersecretary of Treasury
Peter Fisher took pains to emphasize that privatization was not the goal of the commission.
He said that only two things are “out of bounds” in the commission’s deliberations: “We
don’t want the Commission to come back and suggest that the existing business model
should be left in place and the costs all rolled up on the taxpayer. We also don’t want them
to come back and say that all of the existing costs should be rolled up on the ratepayer.”
Developments in the 105th and 106th Congresses
Representative John McHugh used his chairmanship of the House Government Reform
Subcommittee on the Postal Service to develop and promote comprehensive postal reform
legislation that was given the number H.R. 22 in both the 105th and 106th Congresses. The
theory behind the bill was that USPS needed freedom to engage more competitively in
growing markets, but on a leveled playing field, while having an enhanced degree of
supervised flexibility in its monopoly markets. It would have weakened the control now held
by the Postal Rate Commission. The bill avoided controversial issues such as binding pay
arbitration and closing post offices that lose money. With only belated support from USPS
and its board, however, and opposition from such influential stakeholders as UPS and the
APWU, the bill passed the subcommittee but no further action was taken by the Government
Reform Committee.
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Representative Henry Waxman, ranking minority member of the House Government
Reform Committee, introduced H.R. 2535 in the 106th Congress. The bill would have
provided some rate making flexibilities for competitive products, negotiated rate agreements,
and phased-in rates. According to USPS, however, the increased authority would be
“nominal” and would leave unchanged PRC authority over the pricing of noncompetitive
(monopoly) products, such as letter mail and addressed advertising mail. The bill also would
establish a national commission to review and report on the present practices and
organizational structure of USPS, with an emphasis on promoting efficiency in mail
collection, processing, and delivery. The bill was not considered by the committee.
Representative Philip Crane has introduced legislation to privatize USPS in the last
several Congresses, including H.R. 2589 in the 106th Congress. It would have converted
USPS to a totally private corporation, owned by its employees, leaving many of the
implementation details, such as the role of the PRC, to the President and a Postal
Privatization Commission.
Representative Duncan Hunter has introduced legislation designed to reduce USPS
presence in commercial markets. His Postal Service Core Business Act of 1999 (H.R. 198
in the 106th Congress) would prevent USPS from marketing any new non-postal products and
require it to discontinue any commercial non-postal products introduced since 1994. The bill
cited such examples as photocopying, wrapping and packaging, notary public services, and
sale of office supplies. The bill was not acted on in the 106th Congress and was not re-
introduced in the 107th.
Activity in the 107th Congress
While Congress has been increasingly concerned about deterioration in USPS’s
finances, there has been little legislative activity in the 107th Congress. The House Postal
Service Subcommittee was not reconstituted in the 107th Congress (Representative McHugh
was term-limited as chairman), and formal congressional oversight was devoted largely to
the anthrax crisis. In a House Government Reform Committee hearing on April 4, 2001,
Chairman Dan Burton and ranking minority member Waxman invited postal stakeholders
to participate in a broad range of discussions aimed at the development of a bipartisan
consensus bill, and these discussions proceeded for more than a year.
LEGISLATION
H.R. 4970 (McHugh, Burton)
Postal Accountability and Reform Act, introduced June 20, 2002. The bill was
essentially a marriage of the former H.R. 22 with elements promoted by Representatives
Waxman and Danny Davis, including the formation of a reform commission, and enhancing
the role of the Postal Rate Commission. The PRC would be renamed the Postal Regulatory
Commission, and be given substantial powers to monitor, investigate, and control the
activities of the Postal Service within broad parameters, rather than being limited to
considering rate requests. The principal changes that would be made by H.R. 4970 include
the following:
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! dividing postal operations between “competitive” and “market dominant”
products. Competitive products would include Express Mail, Priority Mail,
packages up to 70 pounds, and international mail. Market dominant
products are traditional letter mail, advertising mail, periodicals, catalogs,
and rural mail boxes – products on which USPS has a monopoly and can
raise prices above costs without fear of losing market share;
! requiring the new regulatory commission to devise a new rate setting system
for market dominant products that would follow broad principles of
flexibility, predictability, incentives to reduce costs and maintain service
standards, and limits for price increases to no more than the annual rise in
the consumer price index;
! allowing USPS to price competitive products according to market
conditions, including discounts not available to all mailers, and to conduct
tests of new competitive products exempt from most specific pricing
requirements;
! establishing a separate competitive products fund that would have
safeguards against cross-subsidization from the market dominant category,
would borrow from private markets without federal government backing,
and would be subject to imputed federal income taxes;
! giving the Secretary of State authority to lead U.S. delegations to
international postal conventions, charging the secretary with assuring that
international agreements do not give preference to any entity including
USPS, and requiring the Customs Service to treat private carriers on an
equal basis with USPS;
! granting the Postal Regulatory Commission subpoena powers, enforcement
orders through the district courts, and broad authority to investigate and act
on complaints of unfair competition, service deficiencies, subsidization of
competitive products, or offering services that are “non-postal;” and
! specifying that members of the Postal Regulatory Commission be “chosen
solely on the basis of their technical qualifications, professional standing,
and demonstrated expertise in economics, accounting, law, or public
administration.”
In implicit recognition that the bill does not address a number of issues that need
resolution before USPS can be assured a viable future, Title VII would provide for the
appointment of a “National Commission on the Future of the Postal Service,” with 11
members named by the President and congressional leaders. The commission would be
charged with studying and making recommendations on the scope of universal service, labor
relations, safety and security, and postal facilities. The commission would have 30 months
to issue its recommendations, but there is no provision for fast-track congressional
consideration of them.
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H.R. 4970 fell victim to legislative backlogs as the 107th Congress drew to a close. The
USPS board of governors issued a letter of support for the draft, and a number of mailers
groups were active in its support. A markup, repeatedly scheduled and delayed in the House
Committee on Government Reform, finally took place on June 20, 2002. Committee
Democrats, even though several had worked closely on development of the bill, refused to
support reporting the bill from committee without a commitment from the House leadership
that it would be brought to the floor in this session. At the markup, several supporters
criticized the influence of UPS, and of the International Brotherhood of Teamsters, which
represents UPS employees. A roll call vote to report the bill gained only six votes, all
Republicans. Twenty members voted against it, and nine, all Democrats, voted “present.”
Supporters agreed that the bill is dead for the 107th Congress. Senator Thomas Carper,
however, said that he would introduce a similar bill in the 108th Congress.
S. 2754 (Collins)
The United States Postal Service Commission Act of 2002, introduced July 18, 2002.
Creates a presidential commission on the Postal Service. The commission would be charged
with studying the USPS mission, monopoly, regulatory and governing structure, efficiency,
and infrastructure. It would be required to report within one year of its initial meeting, or 15
months after the date of enactment. The bill would forbid the President from appointing
“stakeholders” to the commission, defining “stakeholder” to include any individual with
close ties to USPS, including employees, competitors, or union representatives. The bill was
referred to the Senate Governmental Affairs Committee.
H.R. 5702 (Crane)
To provide for the privatization of the United States Postal Service, introduced October
28, 2002. This bill, co-sponsored by Representative Rohrabacher, is identical to H.R. 2589
in the 106th Congress. It would transfer USPS to a new private corporation, owned by its
employees. It would require the President to appoint a commission, within 60 days, to
submit a transfer plan to Congress for approval. The bill was referred to the Committee on
Government Reform.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress, House Committee on Government Reform, The U.S. Postal Service’s
Uncertain Financial Outlook, Parts I and II, hearings, 107th Cong., 1st sess., April 4 and
May 16, 2001 (Washington: GPO, 2001).
——-, Senate Committee on Appropriations, Financial Security of the U.S. Postal Service,
special hearing, 107th Cong., 1st sess., Nov. 8, 2001 (Washington: GPO, 2002).
——-, Senate Committee on Governmental Affairs, Subcommittee on International Security,
Proliferation and Federal Services, The Postal Service in the 21st Century: the USPS
Transformation Plan
, hearing, 107th Cong., 2nd sess., May 13, 2002 (unpublished
hearing).
——-, Senate Committee on Governmental Affairs, Subcommittee on International Security,
Proliferation and Federal Services, The Annual Report of the Postmaster General and
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the Impact of Terrorist Attacks on Postal Operations, hearing, 107th Cong., 1st sess.,
Sept. 20, 2001 (Washington: GPO, 2002).
——-, Senate Committee on Governmental Affairs, The Financial Outlook of the U.S.
Postal Service, hearing, 107th Cong., 1st sess., May 15, 2001 (Washington: GPO, 2002).
FOR ADDITIONAL READING
Murray D. Comarow, “The Demise of the Postal Service?”, presented at the Joint
Conference of the National Academy of Public Administration’s Panel on Executive
Organization and Management and the Johns Hopkins Center for the Study of American
Government, June 25, 2001.
Stephen J. Entin, “The Postal Service: A Monopoly That Loses Money,” Institute for
Research on the Economics of Taxation, IRET Congressional Advisory No. 130,
Washington, June 3, 2002.
Shane Ham and Robert D. Atkinson, Opening the Mail: A Postal System for the New
Economy, Progressive Policy Institute, Washington, Dec. 4, 2001, 29 pp.
Edward L. Hudgins, ed., Mail @ the Millennium: Will the Postal Service Go Private?, (Cato
Institute, Washington, 2000), 233 pp.
U.S. General Accounting Office, U.S. Postal Service: Deteriorating Financial Outlook

Increases Need for Transformation, GAO-02-355, Feb. 28, 2002. 60 pp.
(Available at [http://www.gao.gov/new.items/d02355.pdf].)
U.S. Postal Service, Transformation Plan, Washington, April 2002. 78 pp. plus appendices.
(Available on USPS Web site: [http://www.usps.com/strategicdirection/transform.htm])
CRS Reports
CRS Report RL31069. Postal Service Financial Problems and Stakeholder Proposals, by
Nye Stevens.
CRS Report RS21025. The Postal Revenue Forgone Appropriation: Overview and Current
Issues, by Nye Stevens.
CRS Report RS21192. The 2002 Postage Rate Increase, by Nye Stevens.
CRS Report RL31280. The U.S. Postal Service Response to the Threat of Bioterrorism
Through the Mail, by Frank Gottron.
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