Order Code IB10104
CRS Issue Brief for Congress
Received through the CRS Web
Postal Reform
Updated November 1, 2004
Nye Stevens
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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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?
The President’s Commission on the United States Postal Service
Activity in the 107th Congress
Activity in the 108th Congress
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
CRS Reports
CRS Contacts

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Postal Reform
SUMMARY
Although its short-term financial
stakeholders think that the USPS monopoly
prospects have unexpectedly brightened by
lines — first class, periodical, and advertising
discovery that retirement obligations are less
mail — are a declining business, and want
burdensome than presumed, the U.S. Postal
USPS to compete in other markets that are
Service (USPS) faces severe financial straits
growing. Competitors in those markets resist
in the long term. Business use of the mails is
because USPS pays no taxes and is immune
declining as alternatives such as e-mail, faxes,
from most government regulation. USPS has
and cell phones substitute for hard copy let-
had little success to date in developing com-
ters. The economic slowdown that began in
mercially competitive products.
2001 has cut into advertising mail. On top of
this, the anthrax attack of October 2001 has
Passage of P.L. 108-18, the Postal Civil
affected volume and added billions in costs
Service Retirement System Funding Reform
for mail sanitization. Despite three rate in-
Act of 2003, enabled USPS to pay down its
creases in 18 months, USPS lost well over $2
debt by about $3 billion per year, and defer
billion in FY2001 and FY2002, and built up
further rate increases to 2006. However,
a $11.9 billion debt to the Treasury. It has a
Congress recognized that two of its provisions
negative net worth and mounting obligations
must be revisited. One requires USPS to set
for retiree health benefits. USPS would be
aside future pension savings in an escrow
bankrupt but for the fact that it is a govern-
fund; that will require a 5.4% increase in
ment entity, with Treasury borrowing rights.
postal rates with no operational benefit. The
other transferred the obligation to pay pension
USPS, its board of governors, GAO,
benefits for military service from the Treasury
mailers’ organizations, and most recently a
to USPS, costing ratepayers $27 billion.
presidential blue-ribbon commission have said
that the Postal Reorganization Act of 1970 no
On July 31, 2003, a blue-ribbon commis-
longer provides a viable business model. It is
sion appointed by President Bush issued a
dependent on rising mail volume to cover the
report recommending changes consistent with
ever-increasing cost of arbitrated labor settle-
reform legislation that has been brewing for
ments, legislated benefits, and the addition of
years and with the transformation plan, but
1.7 million new delivery points each year, yet
also including controversial workforce
volume has begun to fall. The rate setting
changes. H.R. 4341, a comprehensive bi-
process is cumbersome and tendentious.
partisan postal reform bill, has been reported
by the House Committee on Government
At congressional request, USPS devel-
Reform, and a similar bi-partisan bill, S. 2468,
oped a “Transformation Plan” that briefly
was marked up and reported by the Senate
considered, and rejected, the alternatives of
Governmental Affairs Committee on June 2.
privatization and a return to regular agency
Both bills draw more on previous postal
status with appropriations to cover the costs of
reform efforts in Congress than on the recom-
universal service. Instead, it asked Congress
mendations of the President’s Commission.
for authority to change rates more flexibly,
Both would relieve USPS of the military
close post offices and processing centers, and
pension and escrow requirements, but this
negotiate tailored service agreements and
would add to the budget deficit and is opposed
volume discounts for big mailers. Most postal
by the Administration.
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MOST RECENT DEVELOPMENTS
The most sweeping postal reform legislation in 30 years was reported unanimously by
the House Government Reform Committee on May 12, 2004, and by the Senate
Governmental Affairs Committee on June 2. Despite support from mailers, unions, and even
USPS competitors like FedEx and United Parcel Service (UPS), neither bill has been
scheduled for floor action in the 108th Congress.
Stakeholders have advanced several reasons why H.R. 4341 and S. 2468 have failed to
move. The end-of-session preoccupation with appropriations measures and intelligence
reorganization is one cause. Another is that short-term financial performance has improved.
Last year’s enactment of the Postal Civil Service Retirement System Funding Reform Act
of 2003, P.L. 108-18, allowed USPS to reduce its annual payments to the Civil Service
Retirement Fund by $3.5 billion in fiscal year (FY) 2003, and $2.6 billion in FY2004. The
savings, a June 2002 rate increase, and elimination of 70,000 jobs since mid-2001 allowed
USPS to finish FY2003 and FY2004 in the black, and to nearly eliminate its $11.9 billion
debt to the Treasury. But the act also imposed new costs on USPS for military retirement
and building an escrow fund that could not be used for operations, and the Postmaster
General said in September that mailers could expect a new rate case to be filed that would
raise postal rates by double digit percentage points early in 2005. Both reform measures
would remove those obligations. Because there would be a cost to the unified federal budget
from removing the requirements, the Administration has opposed doing so, and by some
accounts questioned whether the reforms in H.R. 4341 and S. 2468 are significant enough
to justify a budget cost from reduced postage collections.
As a result, some mailers groups are urging a short-term fix for the escrow and military
retirement problems, most likely through a rider to an appropriations measure after the
election, and revisiting broader postal reform in the 109th Congress.
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 operating losses. Its deficit
rose from $199 million in FY2000 to $1.68 billion in FY2001. An accelerated and
negotiated rate increase in June, 2002, combined with radical cost cutting measures and a
freeze on facilities spending, cut the eventual FY2002 loss to $676 million. Stagnant mail
volumes continued to cut revenues below plan throughout FY2003. USPS was able to end
the year with a surplus, however, largely because Congress relieved it of $3.5 billion in
obligations to the Civil Service Retirement Fund.
Both the House and the Senate held hearings early in 2001 on the deteriorating financial
condition of the Postal Service. The Government Accountability Office (GAO; formerly the
General Accounting Office) has issued a number of reports that portrayed a steadily growing
sense of urgency, and placed the transformation of the Postal Service on its list of High Risk
programs. Among the indicators of the crisis were the following:
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! Despite desperate cost-cutting measures, a freeze on facilities, and severe
limits on productivity investments, revenues are falling faster than 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.
! 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 and
increasingly competitive market.
! Liabilities continue to exceed and grow faster than assets, a condition that
GAO said 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 financial crisis of 2001-2002:
! The economic slowdown that began in early 2001 cut into USPS revenues
from the dominant business segment, and reduced advertising mail, which
accounts for 25% of revenues. 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
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.
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! 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 to service in Alaska and Hawaii.
! Labor costs of its nearly 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 United Parcel Service’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. Costly government annual and sick leave,
early retirement, and health benefits are set in law and not negotiable.
! 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 costs, and complains that political
considerations prevent it from modernizing its retail and distribution system.
! The use of mail to deliver agents of bio-terror (anthrax, and more recently,
ricin) has imposed major new mail security and operational costs on USPS
since late 2001. Although USPS received some emergency funds to cope
with the new demands in FY2002, its requests for further funding to respond
to the threat of bio-terrorism through the mail have been ignored by the
Administration and not considered by Congress.
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 pre-sorted 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
On April 23, 2003, President Bush signed into law the Postal Civil Service Retirement
System Funding Reform Act of 2003, P.L. 108-18. The law was quickly passed without
dissent in either chamber in response to a surprise finding by the Office of Personnel
Management that future payments under current legislation would overfund USPS liability
to the Civil Service Retirement Fund 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 return on the bonds held by the trust fund has been substantially higher.
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The act authorized USPS to reduce its annual payments by $3.5 billion in FY2003 and
$2.7 billion in FY2004. The savings allowed USPS to nearly eliminate its $11.9 billion debt
to the Treasury and keep postage rates stable to 2006. While this development granted
financial breathing room, Postmaster General John Potter said that it does “not in any way
obviate the fundamental flaws in the Postal Service business model” and urged undiminished
attention to postal reform.
P.L. 108-18 also required USPS and the Administration to report back to Congress on
the use of future savings from the retirement funding reduction, and on the effects of another
provision of the act which had transferred from the Treasury to USPS the obligation to cover
military retirement costs of postal employees. In its report on use of the savings, USPS
proposed using them to fund future retiree health benefits, currently a major unfunded
liability. Its report on military pay asked Congress to reverse the provision of P.L. 108-18
requiring USPS to pay $27 billion in military retirement costs for its employees, pointing out
that more than 90% of the financial obligation is the result of military service performed
before the Postal Service was created, and that no other agency has to bear these costs for its
veterans. The Treasury/OPM report on behalf of the Administration defended the
requirement that USPS, rather than the Treasury, pay these costs, calling their assignment
to the Treasury “an historical accident.” GAO issued two reports on November 26, 2003,
analyzing the differences between USPS and the Administration on the use of the future
savings from the retirement funding reduction, and on the issue of responsibility for military
retirement obligations of postal employees. GAO essentially said that the issues were
matters of policy for Congress to decide.
Postal reform hearings in the 108th Congress have focused in large part on the escrow
and military pension issues, since they will have a very significant effect on postage rates.
In the March 23 joint hearing, Senator Susan Collins said that not a single witness in the
Senate’s previous six hearings had supported the Administration’s position that ratepayers,
rather than taxpayers should be responsible for pension costs arising from prior military
service by postal employees. The postmaster general said that the escrow requirement would
add 5.4% to the next rate increase, and that the military pay obligation would push the
postage increase to double digits even before operational cost increases are included.
Treasury Secretary John Snow defended the military pension obligation as consistent with
the principle that ratepayers and not taxpayers should be responsible for all postal costs. He
recognized that the escrow requirement has no operational value, but said it could not be
changed without finding offsetting savings in the congressional budget.
The Postal Reorganization Act of 1970
Postal Service management, its board of governors, GAO, most stakeholders, and most
lately a presidential commission have asserted 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 accomplished through periodic rate cases before the
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Postal Rate Commission, 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 blue-ribbon President’s Commission on the United States Postal
Service came to the same conclusion.
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 rejected 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 dismissed the prospect of
privatization as likely to result in substantial layoffs, and inevitably leading to cuts in
geographic coverage and services that do not pay for themselves. The option USPS favored
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.
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.
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! 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
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
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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.
The President’s Commission on the
United States Postal Service
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.
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. 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 new 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.
On December 11, 2002, President Bush issued Executive Order 13278 creating a
Commission on the Postal Service, forestalling congressional initiatives to create such a
commission by statute. The co-chairmen of the commission were James Johnson, former
CEO of Fannie Mae, and Harry Pearce, board chairman of Hughes Electronics. The other
seven members included no one with close ties to postal stakeholders. Most were business
executives, with one local labor leader, the president of Yale University, and Robert Walker,
a former Member of Congress. The commission’s website has hundreds of statements by
interested parties on reform proposals before the commission. Public hearings concluded on
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May 29, and the commission issued its final 181-page report to the President, on schedule,
on July 31, 2003.
The commission’s report contains 35 recommendations, 18 of which would require
some action by Congress. In many ways, the commission’s approach is in the mainstream
of postal reform discussions that have been underway among stakeholders since the mid-
1990s. For example, the commission endorsed the basic structure of the 1970 Postal
Reorganization Act, recommending that USPS “should continue to operate as an independent
establishment within the executive branch with a unique mandate to operate as a self-
sustaining commercial enterprise” and rejecting the alternative of privatization that many
other developed countries have adopted. While keeping the basic government corporation
model, the commission pressed in many of its recommendations that USPS should adopt the
“best practices of similarly-sized private-sector corporations.” These included an independent
corporate-style board of directors that would perpetuate itself, greater financial transparency,
expanded outsourcing for services, aggressive real estate asset management, and use of
commercial purchasing practices. The commission said that USPS should not enter new
lines of business, but adjust to a reduced demand for its products by becoming smaller.
The commission’s recommendations with regard to regulatory controls are similar to
recent congressional proposals. The Postal Rate Commission would be transformed into a
new Postal Regulatory Board that would have authority to refine the scope of the universal
service obligation and the postal monopoly, to establish limits and broad parameters within
which USPS could set rates and negotiate service arrangements, to redefine pay
comparability, and to assure that competitive products are not cross-subsidized by revenues
from products protected by the monopoly.
While recommending that Congress eliminate current statutory restrictions on closing
post offices for economic reasons, the commission did not press for an aggressive program
of closing local post offices, pointing out that even some “low activity” post offices are
needed to meet the universal service obligation. It placed much more emphasis on
consolidating the 446 large processing facilities, recommending a Postal Network
Optimization Commission to identify facilities to be closed with a fast-track congressional
approval process comparable to the defense base closing process. A similar proposal was
contained in a bill introduced in the 108th Congress by Senator Carper (S. 1285; see below).
The aspect of the commission’s report that has been the most controversial are four
recommendations relating to workforce compensation, a subject that recent bills in Congress
have conspicuously avoided. Referring to “persuasive testimony” that a postal compensation
premium may exist, the commission (with the one member from the labor movement
dissenting) recommended major revisions to the current practice of binding arbitration of
wage bargaining disputes, including the value of fringe benefits such as health care and early
government retirement in bargaining over compensation, a redefinition of pay comparability
to be made by the Postal Regulatory Board, and introducing some form of pay for
performance into the compensation package. The American Postal Workers Union news
bulletin denouncing the recommendations as “fundamentally dishonest” and “a disaster,”
said the APWU would use every tool at its disposal to assure that none of them becomes law.
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Activity in the 107th Congress
Although Congress became increasingly concerned about deterioration in USPS’s
finances, little legislative activity occurred until late in the 107th Congress. The House Postal
Service Subcommittee was not reconstituted in the 107th Congress. Representative John
McHugh, who had chaired the Postal Subcommittee through six years of hearings largely
devoted to postal reform, was term-limited as chairman. 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 Henry 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 (in both the 105th and 106th Congresses) 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. H.R. 4970 would divide 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. The bill would allow USPS to price competitive
products according to market conditions, including discounts not available to all mailers. A
new rate setting system for market dominant products 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.
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 before the end of the 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.”
S. 2754 (Collins)
The United States Postal Service Commission Act of 2002, introduced July 18, 2002.
Would create 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
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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 obviated by President Bush’s appointment of the President’s
Commission on the United States Postal Service as the 107th Congress drew to a close.
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
have geared up for concentrated attention to postal issues in the 108th Congress. The new
chair of the Senate committee announced that postal affairs would be handled at the full
committee level. The House Government Reform Committee created a Special Panel on
Postal Reform and Oversight for the 108th Congress, chaired by Representative McHugh.
The key members of both the committee and the task force issued a joint statement following
the President’s December 8, 2003, call upon Congress to act swiftly on postal reform.
Representatives Tom Davis, Waxman, Danny Davis, and McHugh signaled their
commitment to making postal reform “a top priority” for the second session of the 108th
Congress.
Congress did act swiftly on the USPS request to change the formula for its contributions
to the Civil Service Retirement Fund. By April 23, 2003, the Postal Civil Service Retirement
System Funding Reform Act of 2003 had been enacted as P.L. 108-18. Its proponents said
that the act would provide some much-needed financial breathing room but warned that it
would be a serious mistake to let that relief forestall consideration of long-range reforms.
They also recognized that Congress would need to revisit provisions of the act that put
“savings” to the Postal Service in an escrow fund that could not be used for regular
operations and obligations, and that transferred the obligation to pay retirement benefits
based on military service from the Treasury to the Postal Service. Both provisions will have
a major impact on postage rates if they are not changed.
The Senate Governmental Affairs Committee has held eight hearings on the report of
the President’s Commission, the House Government Reform Special Panel held three, and
there was also a joint hearing of the two bodies on March 23, 2004. Following the hearings,
both committees have drafted and reported legislation on a bi-partisan basis.
H.R. 4341 (McHugh)
On May 12, 2004, H.R. 4341 was introduced by Representatives Tom Davis, Waxman,
Danny Davis, and McHugh, and ordered to be reported the same day on a unanimous vote
of the House Government Reform Committee. According to the committee’s summary of
the bill, seven overall areas of focus are paramount:
! Modern Rate Regulation — shifting the basis of the Postal Rate
Commission from a costly, complex scheme of rate cases to a modern
system designed to ensure that rate increases in market-dominant products
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(letters, periodicals, and advertising mail, but not single-piece parcel post)
generally do not exceed the annual change in the Consumer Price Index.
! Combining Market Disciplines with Regulation — combining market
mechanisms with Commission regulation to govern the rates of competitive
products, such as Express Mail and Priority Mail. The Postal Service would
be given additional pricing freedom, including discounts not available to all
mailers, but would lose favored legal treatment for such products.
! Limitations on Postal Monopoly and Nonpostal Products — requiring the
Postal Service to only offer postal services and for the first time defining
exactly what constitutes “postal services.” The bill also revises the authority
of the Postal Service to regulate competitors.
! Reform of International Mail Regulation — clarifying the authority of the
State Department to set international policy, applying customs laws equally
to postal and private shipments, and giving the Postal Service the authority
to contract with airlines for transport of international mail.
! Strengthening of the Commission — giving the Postal Rate Commission
“teeth” by granting it subpoena power and a broader scope for regulation
and oversight. The PRC would be renamed the “Postal Regulatory
Commission.”
! Establish a Basis for Future Reforms — mandating several studies,
including a comprehensive assessment of the scope and standards for
universal service, and a study of the processing a distribution network that
would include the statutory and regulatory obstacles preventing the
realignment or consolidation of facilities.
! Pension obligation reforms — including repealing the escrow provision of
P.L. 108-18 and returning responsibility for the military service cost of
postal retirees to the Treasury Department, while also requiring the Postal
Service to significantly fund its enormous liability for retiree health benefits.
The bill also contains provisions, sought by the APWU, regulating the ability of USPS
to offer work-sharing discounts that exceed the savings in mail processing costs avoided by
having private sector processors participate in mail sorting. The bill would require that the
next appointment to the USPS Board of Governors be made from a list of persons
unanimously approved by the postal labor unions. It contains a provision supported by UPS
that would remove single-piece parcel post from the list of market-dominant products, raising
the price of this service. Notably, H.R. 4341 does not include workforce measures
recommended by the President’s Commission, such as major changes to collective
bargaining, pay comparability, or fringe benefits, all of which were strongly opposed by
postal unions, nor does it deal with the knotty problem of allowing USPS to rationalize its
outdated facilities network.
CBO has said that enacting H.R. 4341 would not affect how much the federal
government spends on pension or health care benefits for USPS retirees, but it would
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increase future budget deficits as measured by the unified federal budget. According to the
CBO cost estimate [http://www.cbo.gov/showdoc.cfm?index=5846&sequence=0], there
would be an on-budget saving of $24.1 billion (from funding the Postal Service Retiree
Health Benefits Fund in the Treasury), but an off-budget cost of $34.5 billion, for a net cost
to the unified budget of $10.4 billion for the FY2005-FY2014 period.
S. 2468 (Collins)
In the Senate, S. 2468, a bi-partisan reform bill was also introduced on May 20, 2004,
by Senators Collins and Carper. It was marked up by the Senate Governmental Affairs
Committee on June 2, and ordered to be reported by a 17-0 vote. The Senate bill has much
in common with H.R. 4341, though the two bills differ somewhat in their provisions on
work-sharing discounts, service standards, negotiated service agreements, the factors that can
be considered (other than inflation) in setting annual rate increases, and changing the terms
of the postal board of governors. S. 2468, unlike the House bill, has certain provisions that
would make the postal workers injury compensation program more comparable to state
programs, and that would encourage injured workers to move to retirement rolls. The Senate
bill also lacks a number of provisions in the House bill for studies and resolutions of specific
areas of postal law. Both bills would relieve USPS of the escrow and military retirement
obligations and require USPS to begin funding future retiree health care obligations. But the
two bills have different payment schedules. Postmaster General John Potter warned that the
schedule required by the Senate bill would add 6.5% to the next postal rate case. The Senate
bill also carries a somewhat higher net cost to the unified budget — $15.7 billion — than the
House bill, according to the CBO cost estimate [http://www.cbo.gov/showdoc.cfm?index
=5601&sequence=0] for S. 2468.
S. 1285 (Carper)
Senator Carper introduced comprehensive postal reform legislation, S. 1285, on June
18, 2003. It was intended as a placeholder pending the recommendations of the President’s
Commission, and S. 2468 has superceded it. The proposal in S. 1285 that attracted the most
attention was that USPS realign its operations to meet new service standards. USPS’s plan
to meet the standards would include the preparation of a list of facilities no longer needed,
and the list would be reviewed by an independent commission along the lines of the base
closing commissions. S. 2468 does not have a comparable proposal.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress, Senate Committee on Governmental Affairs, U.S. Postal Service: What Can
be Done to Ensure its Future Viability; The Report of the Presidential Commission on
the U.S. Postal Service: Preserving Access and Affordability; Preserving a Strong
United States Postal Service, Workforce Issues, Day 1 and Day 2; Postal Reform:
Sustaining the 9 Million Jobs in the $900 Billion Mailing Industry, Day 1 and Day 2,
and The Chairmen’s Perspectives on Governance and Rate-Setting hearings, 108th
Congress, 1st session and 2nd session, September 17, and November 5, 2003; February
4, February 24, March 9, March 11, and April 7, 2004 (Washington: GPO, 2004).
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——House Committee on Government Reform, Special Panel on Postal Reform and
Oversight, Answering the Administration’s Call for Postal Reform, Parts I-III, hearings,
108th Congress, 2nd session, January 28, February 5, February 11, 2004 (Washington:
GPO, 2004); The Postal Service in Crisis: A Joint Senate-House Hearing on Principles
for Meaningful Reform, March 23, 2004 (Washington: GPO, 2004).
——Senate Committee on Appropriations, Financial Security of the U.S. Postal Service,
special hearing, 107th Congress, 1st session, November 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 Congress, 2nd session, May 13, 2002 (Washington:
GPO, 2003).
——House Committee on Government Reform, The U.S. Postal Service’s Uncertain
Financial Outlook, Parts I and II, hearings, 107th Congress, 1st session, April 4 and May
16, 2001 (Washington: GPO, 2001).
——Senate Committee on Governmental Affairs, The Financial Outlook of the U.S. Postal
Service, hearing, 107th Congress, 1st session, May 15, 2001 (Washington: GPO, 2002).
FOR ADDITIONAL READING
Rick Geddes. Saving the Mail: How to Solve the Problems of the U.S. Postal Service. AEI
Press. Washington, 2003, 152 pp.
Shane Ham and Robert D. Atkinson. Opening the Mail: A Postal System for the New
Economy. Progressive Policy Institute. Washington, December 4, 2001, 29 pp.
Michael Schuyler. Would Proposed Postal Service Legislation Help Bring Down Costs?.
Institute for Research on the Economics of Taxation. Washington, June 8, 2004, 8 pp.
President’s Commission on the United States Postal Service. Embracing the Future: Making
the Tough Choices to Preserve Universal Mail Service. Washington, July 31, 2003.
U.S. Government Accountability Office. U.S. Postal Service: Key Reasons For Postal
Reform. GAO-04-565T, March 23, 2004. 8 pp.
U.S. Postal Service, Transformation Plan, Washington, April 2002. 78 pp. plus appendices.
CRS Reports
CRS Report RL32402. Postal Reform Bills: A Side-By-Side Comparison of H.R. 4341 and
S. 2468, by Kevin Kosar.
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CRS Report RL32346. Pension Issues Cloud Postal Reform, by Nye Stevens.
CRS Report RS21640. The Legislative Recommendations of the President’s Commission
on the United States Postal Service: A Brief Overview, by Nye Stevens and Kevin
Kosar.
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 RL31684. Funding Postal Service Obligations to the Civil Service Retirement
System, by Patrick Purcell and Nye Stevens.
CRS Contacts
Nye Stevens, Specialist in American National Government, x7-0208, or
nstevens@crs.loc.gov.
Kevin R. Kosar, Analyst in American National Government, x7-3968, or
kkosar@crs.loc.gov.
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