Order Code IB10104
Issue Brief for Congress
Received through the CRS Web
Postal Reform
Updated March 12, 2003
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
Activity in the 108th Congress
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
CRS Reports
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
CHRONOLOGY
FOR ADDITIONAL READING

---

IB10104
03-12-03
Postal Reform
SUMMARY
Although its short-term financial
proposed to redefine its universal service
prospects have suddenly brightened by discov-
obligation by adjusting the number of delivery
ery that retirement obligations are less burden-
days, and to revamp union contract talks by
some than presumed, the U.S. Postal Service
involving the President and Congress in avert-
(USPS) faces severe financial straits in the
ing strikes.
long term. Business use of the mails is declin-
ing as alternatives such as e-mail, faxes, and
Most postal stakeholders think that the
cell phones substitute for hard copy letters.
USPS monopoly lines – first class, periodical,
The economic slowdown that began in 2001
and advertising mail – are a declining busi-
has cut into advertising mail. On top of this,
ness, and want USPS to compete in other
the anthrax attack of October, 2001 has af-
markets that are growing. Competitors in
fected volume and added billions in costs for
those markets resist because USPS pays no
mail sanitization. Despite three rate increases
taxes and is immune from most government
in 18 months, USPS has lost well over $2
regulations. They think USPS should concen-
billion in the past two years, and owes $11.1
trate on its natural monopoly – the “last mile”
billion to the Treasury. It has a negative net
in the delivery process. USPS has had little
worth and mounting obligations for retiree
success to date in developing commercially
health benefits. USPS would be bankrupt but
competitive products.
for the fact that it is a government entity.
Congress has not shown much willing-
USPS, its board of governors, GAO, and
ness to address postal reform. While a reform
most mailers’ organizations believe that the
bill has been under development in the House
Postal Reorganization Act of 1970 no longer
for a half-dozen years, it has yet to emerge
provides a viable business model. It is de-
from committee. Legislative attention in the
pendent on rising mail volume to cover the
108th Congress has focused on relieving USPS
ever-increasing cost of arbitrated labor settle-
of its statutory schedule of payments to the
ments and the addition of 1.7 million new
Civil Service Retirement Fund. The current
delivery points each year, yet volume has
contribution rate will overfund the USPS
begun to fall. The highly regulated process of
obligation by $71 billion to $103 billion. H.R.
setting rates is cumbersome and tendentious.
735 in the House, and S. 380 in the Senate,
both reported by committee, would allow
At congressional request, USPS devel-
USPS to reduce its retirement contributions.
oped a “Transformation Plan” that briefly
considered, and rejected, the alternatives of
On December 11, President Bush ap-
privatization and a return to regular agency
pointed a presidential commission, with nine
status with appropriations to cover the costs of
members who have no previous ties to postal
universal service. Instead, it asks Congress
issues, to review the role of the Postal Service
for authority to change rates more flexibly,
in the 21st century. This was welcomed by
close post offices and processing centers, and
many observers who had felt that Congress
negotiate tailored service agreements and
was immobilized by conflicting pressures.
volume discounts for big mailers. It also
The commission is to report by July 31, 2003.
Congressional Research Service ˜ The Library of Congress

---

IB10104
03-12-03
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 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. A report by the
General Accounting Office [http://www.gao.gov/new.items/d03448r.pdf] said that the
overpayment was even higher, as much as $103 billion. Bills were introduced in the Senate
(S. 380) and House (H.R. 735) to change the statutory funding formula and allow USPS to
reduce its contribution to the retirement fund. Both bills have been marked up and reported
by committee. While welcoming the prospect of added funds, Postmaster General John
Potter 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.
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. Data from the first quarter
of FY2003 indicate that first class mail volume is still depressed.
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
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:
CRS-1

---

IB10104
03-12-03
! Despite desperate cost-cutting measures, a freeze on facilities, and severe
limits on productivity investments, revenues are falling twice as fast as
expenses.
! 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 $11.1 billion, not far from 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
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
CRS-2

---

IB10104
03-12-03
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 told Congress in May 2002
that the “Postal Service’s financial crisis is directly attributable to the $12 billion in postage
discounts it gives annually to major mailers and direct mail firms for pre-sorting their mail.
The discounts equal significantly more than the costs the Postal Service avoids when it
receives presorted mail, and they amount to huge subsidies for the major mailers and direct
mail firms.” APWU believes that at least some of this revenue could be recovered 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
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.
CRS-3

---

IB10104
03-12-03
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 [http://postcom.org/public/csrs/OPM%20letter%20on%20USPS-CSRS.pdf] 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.
In reviewing the OPM calculations, GAO [http://www.gao.gov/new.items/d03448r.pdf]
put the potential overfunding even higher – as much as $103 billion – since under current law
USPS is not responsible for retirement benefits based on prior military service of postal
employees. GAO cautioned, however, as did the Congressional Budget Office
[http://www.cbo.gov/showdoc.cfm?index=4033&sequence=0], that health benefits of retirees
still represent an unfunded liability on the order of $40 billion to $50 billion.
Nevertheless, the effect of OPM’s 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 drafted a bill,
“The Postal Service Civil Service Retirement System Funding Reform Act of 2002,” that
would reduce the payment., and the proposal was included in the President’s FY2004 budget.
CBO [http://www.cbo.gov/showdoc.cfm?index=4033&sequence=0], in reviewing the bill
drafted by OPM, said that if USPS were to use the savings to hold down postage rates, the
impact on the unified budget could be a deficit increase of as much as $10 billion to $15
billion over the FY2003-2007 period, and as much as $36 billion to $41 billion over the 10-
year period from FY2003 to FY2013. On February 12, 2003, bills were introduced with bi-
partisan support in the Senate (S. 380) and the House (H.R. 735) that would allow USPS to
reduce its CSRS contribution, but require that the saved funds be used to pay down its debt
to the Treasury in fiscal years 2003, 2004, and 2005. S. 380 was marked up and reported
favorably on voice vote by the Senate Committee on Governmental Affairs on March 5, and
H.R. 735 on voice vote by the House Committee on Government Reform on March 6, 2003.
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
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
CRS-4

---

IB10104
03-12-03
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
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.
CRS-5

---

IB10104
03-12-03
! 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
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
CRS-6

---

IB10104
03-12-03
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 USPS Board of Governors, the Association for Postal Commerce, the Mailers Council,
GAO, the United Parcel Service (UPS), and some Members of Congress are among those
who called on the President to create a commission to study and make recommendations on
the future organization and function of the Postal Service. The president of the American
Postal Workers Union, however, opposed the creation of a commission, believing that it
would be a front for privatization initiatives.
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
was executive director of the Kappel commission, agrees that the legislative process cannot
achieve genuine reform. He cautioned against a commission made up of stakeholders,
however, because it would be 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.
CRS-7

---

IB10104
03-12-03
On December 11, 2002, President Bush issued an executive order
[http://www.treas.gov/offices/domestic-finance/usps/pdf/whiteHouseRelease.pdf] 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.” The
Commission’s Web site [http://www.treas.gov/offices/domestic-finance/usps] has a schedule
of field hearings, and invites comments from the public on issues before it.
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.
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,
CRS-8

---

IB10104
03-12-03
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 became increasingly concerned about deterioration in USPS’s finances,
there was 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.
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:
! 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;
CRS-9

---

IB10104
03-12-03
! 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.
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
CRS-10

---

IB10104
03-12-03
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.”
Senator Thomas Carper 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.
H.R. 5702 (Crane)
To provide for the privatization of the Postal Service, introduced October 28, 2002. The
bill, co-sponsored by Representative Rohrabacher, was identical to H.R. 2589 in the 106th
Congress. It would transfer USPS to a new private corporation, owned by its employees, and
require the President to appoint a commission to submit a transfer plan to Congress.
Activity in the 108th Congress
Both the House Government Reform and the Senate Governmental Affairs Committees
are gearing up for concentrated attention to postal issues in the 108th Congress. The
incoming chairs of both committees have announced that postal affairs will be handled at the
full committee level rather than through one of the subcommittees. The House Government
Reform Committee has created a Special Panel on Postal Reform and Oversight for the 108th
Congress, to be chaired by Representative John McHugh. Representative McHugh said that
the panel would work closely with the President’s Commission on the Postal Service.
Several key legislators from both parties joined in introducing S. 380 and H.R. 735 on
February 12, to change the formula for USPS contributions to the Civil Service Retirement
Fund. The bills differ from language proposed by OPM in that they would require USPS
to apply the saved funds to reducing the USPS debt to the Treasury, while still averting
another rate increase until 2006. The bills were amended and reported favorably by voice
vote on March 5 and 6, respectively.
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
CRS-11

---

IB10104
03-12-03
Transformation Plan, hearing, 107th Cong., 2nd sess., May 13, 2002 (Washington: GPO,
2003).
——-, Senate Committee on Governmental Affairs, Subcommittee on International Security,
Proliferation and Federal Services, The Annual Report of the Postmaster General and
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. (Available at [ftp://ftp.iret.org/pub/ADVS-130.PDF])
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, Major Management Challenges and Program Risks: U.S.
Postal Service, GAO-03-118, Jan. 2002. 38 pp.
(Available at [http://www.gao.gov/pas/2003/d03118.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 RL31684. Funding Postal Service Obligations to the Civil Service Retirement
System, by Patrick Purcell and 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-12

---