Order Code IB10104
CRS Issue Brief for Congress
Received through the CRS Web
Postal Reform
Updated March 25, 2005
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
The USPS Transformation Plan
Should the Postal Service Compete?
Recalculation of USPS Retirement Obligation
The President’s Commission on the United States Postal Service
Activity in the 107th Congress
Activity in the 108th Congress
Activity in the 109th 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 perfor-
its debt to the Treasury, and to defer further
mance has improved, the U.S. Postal Service
rate increases through 2005. However, Con-
(USPS) faces severe financial straits in the
gress recognized that two of its provisions
long term. Use of the mails is declining as
must be revisited. One required USPS to set
alternatives such as e-mail, faxes, and cell
aside future pension savings in an escrow
phones substitute for hard copy letters. USPS
fund; that will require a 5.4% increase in
has a negative net worth and mounting obliga-
postal rates with no operational benefit. The
tions for retiree health benefits. USPS would
other transferred the obligation to pay pension
be bankrupt but for the fact that it is a govern-
benefits for military service from the Treasury
ment entity, with Treasury borrowing rights.
to USPS, costing ratepayers $27 billion.
USPS, its board of governors, GAO,
On July 31, 2003, a blue-ribbon commis-
mailers’ organizations, and most recently a
sion appointed by President Bush issued a
presidential blue-ribbon commission have said
report recommending changes consistent with
that the Postal Reorganization Act of 1970 no
reform legislation that has been brewing for
longer provides a viable business model. It is
years, but also recommending controversial
dependent on rising mail volume to cover the
workforce changes. Bi-partisan postal reform
ever-increasing cost of arbitrated labor settle-
bills were reported unanimously by the House
ments, legislated benefits, and the addition of
Committee on Government Reform and by the
1.7 million new delivery points each year, yet
Senate Governmental Affairs Committee.
volume has begun to fall. The rate setting
Neither made it to the floor. Both bills drew
process is cumbersome and tendentious, and
more on previous reform efforts in Congress
prevents USPS from responding flexibly to an
than on the recommendations of the Presi-
increasingly competitive marketplace.
dent’s Commission. Both would have relie-
ved USPS of the military pension and escrow
Most postal stakeholders think that the
requirements, which the Administration op-
USPS monopoly lines — first class, periodi-
poses.
cal, and advertising mail — are a declining
business, and want USPS to compete in other
Very similar legislation has been
markets that are growing. Competitors in
introduced in the 109th Congress as H.R. 22
those markets resist because USPS pays no
and S. 662, and both committees say that they
taxes and is immune from most government
will move the bills shortly. The Administra-
regulation. USPS has had little success to
tion said that the modest reforms in the bills
date in developing commercially competitive
do not justify additions to the budget deficit,
lines of business.
and proposed that new flexibility be given to
USPS to cut back on the high cost of postal
Passage of P.L. 108-18, the Postal Civil
labor. USPS is proposing a $3.1 billion rate
Service Retirement System Funding Reform
increase that it says would not be necessary if
Act of 2003, enabled USPS to pay off most of
Congress passes the legislation.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Bi-partisan postal reform legislation has been introduced in the 109th Congress in both
chambers — H.R. 22, and S. 662. Both bills are similar to bills reported unanimously last
summer by the House Government Reform and Governmental Affairs Committees. Despite
support from mailers, unions, and even USPS competitors like FedEx and United Parcel
Service (UPS), neither bill was scheduled for floor action in the 108th Congress.
The Administration has circulated a statement critical of the legislation, saying that it
lacked substantial reform and would involve costs to the unified budget because it would
allow the Postal Service to spend funds collected for pension obligations on operational
needs. USPS announced in February that it would file a request with the Postal Rate
Commission for a $3.1 billion postage rate increase necessitated by the Administration’s
refusal to agree to provisions in the reform legislation that would allow funds now in escrow
to be used for mail delivery. Both the Administration and the postal Board of Governors
have urged that the legislation address the need to restrain labor costs, which both bills avoid
and to which postal unions strongly object.

BACKGROUND AND ANALYSIS
Postal Service management, its board of governors, the Government Accountability
Office (GAO), most stakeholders, and most lately a presidential commission have concluded
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 the U.S. Postal Service
(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. Comptroller General David Walker testified bluntly on May
13, 2002, before a Senate Governmental Affairs subcommittee that the institution’s current
course is “unsustainable.” In 2003, a blue-ribbon President’s Commission on the United
States Postal Service came to the same conclusion.
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USPS faced a financial crisis in 2001, when both the House and the Senate held
hearings on the deteriorating financial condition of the enterprise. GAO 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 an impending
crisis were the following:
! Despite desperate cost-cutting measures, a freeze on facilities, and severe
limits on productivity investments, revenues were falling faster than
expenses. USPS suffered losses of more than $2 billion in 2001 and 2002.
! Mailers warned of an “economic death spiral,” as falling mail volume forced
price increases to cover fixed costs, and the price increases led to further
drops in volume as businesses seek more cost-effective alternatives.
! Liabilities continued 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, and
the present precarious state of the enterprise:
! The economic slowdown that began in early 2001 cut into USPS revenues
from the dominant business segment, and (temporarily, as it turned out)
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 drove 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 had begun to marginalize
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 and costly routes to service in Alaska and Hawaii.
! Labor costs of its nearly 800,000 employees accounted 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, followed by ricin)
imposed major new mail security and operational costs on USPS. 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 not been included in the President’s budget
and have only partially been met 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.
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 responded in
April 2002 with an ambitious Transformation Plan that had two major thrusts. One was a
concerted effort to improve operational efficiency, freeze spending on facilities, and cut
costs by $5 billion over the next five years within USPS’s existing statutory authorities. This
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aspect of the plan has succeeded to an impressive degree. In its December 2004 report on
progress toward the plan, USPS said that it had reduced the rolls of career employees by
68,000, boosted productivity by 5%, and achieved $4.3 billion in cost reductions towards its
$5 billion goal.
The second thrust of the plan was to seek congressional approval of new statutory
authorities that would allow USPS to change its business model. The plan suggested the
need for authority to close retail post offices and processing centers, negotiate service
agreements and discounts with large mailers, revamp contract talks with the unions to escape
binding arbitration, cut back on delivery days, and most significantly, expanded freedom to
use its assets for entering related markets and developing new products without skeptical
scrutiny from the PRC.
Should the Postal Service Compete?
USPS itself (in its Transformation Plan), 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
possible rate because it does so through the U.S. Treasury. Companies facing competition
from USPS argue that these factors put them at a great disadvantage (though they tend to
ignore the statutory constraints and regulation by the PRC that USPS faces).
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.
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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.
Recalculation of USPS Retirement Obligation
Postal reform has become intimately bound up with controversies over its huge
retirement obligations for former employees and their spouses. 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 by USPS on
behalf of its employees 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.
The act authorized USPS to reduce its annual payments by $3.5 billion in FY2003 and
$2.7 billion in FY2004. The savings (plus rate increases) allowed USPS to nearly eliminate
its $11.9 billion debt to the Treasury and keep postage rates stable through 2005. While this
development (coupled with cost-cutting successes achieved by USPS under its
Transformation Plan) 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 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
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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 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.
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
May 29, and the commission issued its final 181-page report to the President, on schedule,
on July 31, 2003.
The commission’s report confirmed that universal mail service at affordable rates is at
risk, and made 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 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. A core recommendation was that USPS should not enter new lines of business,
but adjust to a steadily reducing demand for its services by becoming smaller and more
productive.
The commission’s recommendations with regard to regulatory controls were similar to
proposals under consideration by Congress for several years. 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 broad
parameters within which USPS could set rates and negotiate service arrangements, to
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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.
The most controversial of the commission’s recommendations were four 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.
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 bi-partisan consensus bill, and these discussions proceeded for more than
a year. A bill with bi-partisan sponsorship (H.R. 4970) was eventually introduced on June
20, 2002, proposing changes in the regulatory process. However, H.R. 4970 fell victim to
legislative backlogs as the 107th Congress drew to a close, and it did not emerge from
committee.
Activity in the 108th Congress
Both the House Government Reform and the Senate Governmental Affairs Committees
geared up for concentrated attention to postal issues in the 108th Congress. The incoming
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.
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.
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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 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 drafted and unanimously reported legislation on a bi-partisan basis. However,
neither bill was brought to the floor in the 108th Congress.
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 were 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
(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.”
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! 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 and 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 begin funding its enormous liability for retiree health benefits.
The bill also contained provisions, sought by the APWU, restricting 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 contained 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 did not include any of the 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 did 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
increase future budget deficits as measured by the unified federal budget. According to the
CBO cost estimate, 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 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 had much
in common with H.R. 4341, though the two bills differed somewhat in their provisions on
parcel delivery as a competitive business, 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, had 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 lacked 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 had different payment
schedules. The Senate bill also carried a somewhat higher net cost to the unified budget —
$15.7 billion — than the House bill, according to the CBO cost estimate for S. 2468. It was
this budget cost that scuttled floor consideration of S. 2468 late in the session.
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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 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 did not have a comparable proposal.
Activity in the 109th Congress
The fact that two similar postal reform bills in the 108th Congress had been reported by
unanimous votes in both the House and Senate Committee was a hopeful sign to some
observers that the way was clear for early passage in the 109th Congress. In the past few
months, however, some signs of defection have appeared. The Bush Administration
circulated a plain-paper memorandum in mid-November 2004 criticizing both H.R. 4341 and
S. 2468. The Administration said that the legislation must be made budget neutral, and
characterized it as “lack[ing] meaningful reforms in the areas of transparency — to prevent
cross-subsidization of competitive products with monopoly product revenue; and flexibility
— especially with respect to cutting back the high cost of labor (76% of revenue).” There
appeared to be room for compromise on the escrow question if all the funds could be used
to pre-fund retiree health benefits rather than operational expenses, but the Administration
continues to oppose shifting military retirement costs back to the Treasury. The
Administration’s position paper also requested that the bill provide USPS flexibility to
“optimize its processing and distribution network.” This would result in consolidating some
job-heavy processing facilities, a subject the reform bills had skirted.
Some mailers groups also began to question whether the modest reforms in the bills
overcame deficiencies from their viewpoint. While the bills would make changes in the way
costs are attributed to various product lines, they do nothing to control costs; in fact, costs
would be permitted to rise with inflation. Finally, the USPS Board of Governors broke its
silence on reform legislation in a February 24 letter to the committee chairs. Its most notable
departure from the current legislation was to urge that it “incorporate improvements in the
labor area — which accounts for nearly 80 percent of USPS costs.... We believe that
important employee benefit features that are part of total compensation strongly influence
the USPS’s future costs and thus should be subject to negotiation at the same table with
wages.” The postal unions and manager associations took strong exception to this initiative.
H.R. 22 (McHugh)
Representative McHugh re-introduced the House version of postal reform legislation
with no significant modifications on the first day of the 109th Congress, for himself,
Government Reform Committee Chairman Tom Davis, Ranking Minority Member Waxman,
and Representative Danny Davis. According to the committee’s website, “overall, the major
provisions of the Postal Accountability and Reform Act remain the same as the version
introduced last year.”
S. 662 (Collins)
Senator Collins, with Senator Carper and Senator Voinovich, introduced the Senate
version of the postal reform bill on March 17, 2005, and it was referred to the Committee on
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Homeland Security and Governmental Affairs. More changes were made in the Senate bill
than in the House bill, several of them designed to address concerns of the Administration.
The bill would impose more stringent financial transparency requirements on USPS,
including the filing of SEC-like reports on a quarterly schedule, and require USPS to get
Treasury approval for the investment of its profits. A new worksharing discount provision
appeals to large mailers. Provisions relieving USPS of the escrow and military retirement
obligations were not changed, except that the budget impact was brought more into line with
the House version by accelerating the schedule for USPS to begin paying into a Treasury
account for financing future retiree health benefits.
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).
—– . 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.
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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.
Thomas McLaughlin and Murray Comarow, “Debunking the Myths: USPS Operates at
Disadvantage,”Federal Times, March 21, 2005.
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; High-Risk Series Update, p. 33.
U.S. Postal Service, Transformation Plan, Washington, April 2002. 78 pp. plus appendices.
CRS Reports
CRS Report RL32346. Pension Issues Cloud Postal Reform, by Nye Stevens.
CRS Report RL32402. Postal Reform Bills: A Side-By-Side Comparison of H.R. 4341 and
S. 2468, by Kevin Kosar.
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. (While this report has not been maintained since 2002, it provides a
comprehensive analysis of reform proposals, such as privatization, that are not currently
before Congress.)
CRS Report RS21025. The Postal Revenue Forgone Appropriation: Overview and Current
Issues, by 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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