Postal Service Financial Problems and Stakeholder Proposals

Postal Service Financial Problems and Stakeholder Proposals

Order Code RL31069
Report for Congress
Received through the CRS Web
Postal Service Financial Problems and
Stakeholder Proposals
Updated September 11, 2002
Nye Stevens
Specialist in American National Government
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Postal Service Financial Problems and
Stakeholder Proposals
Summary
Even before the September 11 terrorist attacks and discovery of anthrax in the
mail on October 5, 2001, the U.S. Postal Service (USPS) was in deep financial
trouble. Although USPS froze 800 capital projects and imposed three rate increases
in 18 months, its losses for the past 2 years still exceed $3 billion, and there is a
growing consensus that USPS faces a longer-term set of problems that place the
preservation of universal service at risk. Some mailers foresee an “economic death
spiral” of more price rises further cutting mail volume, and requiring yet more price
increases to cover operating costs of the vast postal network, with 800,000 workers.
While there is widespread agreement that USPS has long-term problems, there
is no consensus on their underlying causes. Some say that the business model of
USPS is outmoded as electronic communication grows and volume declines. The
board of governors blames an outdated regulatory regime and the lack of authority
for USPS to control its prices, its wages, or its facility locations. Mailers point to low
productivity, questioning whether USPS and its workers have appropriate incentives.
Previous attempts to “modernize” the postal enterprise through legislation have
foundered on profound differences of interest among such stakeholders as large
mailers, employees, competitors, and oversight bodies. Proposals abound, however,
and it is likely Congress will face some combination of the following:
! Splitting USPS into competitive and noncompetitive (monopoly) entities,
allowing more price and financing flexibility, as proposed in H.R. 22 during
the last two Congresses, and H.R. 4970 introduced late in the 107th Congress.
! Relief from regulatory and statutory restrictions as proposed by the board of
governors. USPS would have authority to set its own rates within a broad
range, and wage disputes would no longer go to binding arbitration.
! Privatization, which is the trend for posts elsewhere in the world and which
the former postmaster general thinks is inevitable in some form.
! An independent reform commission, to overcome immobilization by powerful
stakeholders with irreconcilable interests, as proposed in S. 2754.
! A redefinition of universal service, which now includes low-cost home
delivery anywhere in the nation at a single low price, six days a week.
! Internal reform, in accordance with a USPS “transformation plan” that calls
on Congress to give USPS new authorities to generate savings and revenues.
! A return to appropriations, not just to provide security from bio-terrorism, but
to meet the uneconomic demands of universal service.
This report provides background on USPS problems, and will not be updated.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Current Financial Predicament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Economic slowdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Partial denial of rate increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Rising costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Longer-Term Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Outmoded business model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Outdated regulatory regime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Labor costs out of control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Legacy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Productivity growth lags . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Perverse incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Too many/too old facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Inadequate information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Reform Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Modernization Through Restructuring: H.R. 22 . . . . . . . . . . . . . . . . . . . . . 10
Postal Service Enhancement Act
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Relief From Regulatory and Statutory Restrictions . . . . . . . . . . . . . . . . . . . 11
Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Stronger Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Independent Reform Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Concentrate on “The Last Mile” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Redefine Universal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Transformation from Within . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Aftermath of the Anthrax Attacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Postal Service Financial Problems and
Stakeholder Proposals
By the account of its own board of governors, as well as congressional oversight
committees and postal stakeholders, the U.S. Postal Service (USPS) was in deep
financial trouble even before the September 11, 2001 terrorist attacks and the
discovery of anthrax in the mailstream on October 5. Despite two rate increases
during the year, USPS suffered its second largest loss in history in fiscal year
(FY)2001. In an effort to curb spending, the board of governors froze 800
construction projects and ordered a review of the effects of cutting deliveries to five
from six days a week. The General Accounting Office (GAO), projecting that the
statutory debt limit of $15 billion could be reached by 2003 and noting that USPS has
no debt reduction strategy, placed the Postal Service’s long-term outlook on its High
Risk List in an unusual mid-year action. Both of the USPS oversight committees –
House Government Reform and Senate Governmental Affairs – held hearings early
in the 107th Congress on the USPS’s deteriorating financial outlook.1 Witnesses
raised the prospect of a spiral of rising prices leading to reduced mail volume, and
requiring further price rises to cover the enormous fixed operating costs of the vast
postal enterprise. USPS has increased borrowing and cut deeply into capital
investment to save cash, but this too comes at the cost of productivity and efficiency
improvements for the future.
This report is a description and analysis of the underlying financial predicament
of USPS as it stood before the September 11 attacks and the anthrax scare. USPS
implemented its third rate increase in 18 months in June, 2002, and has asked
Congress for $5 billion in appropriations to cover added expenses (estimated at $3
billion to $4 billion) and a sudden drop-off in revenues (projected at from $2 billion
to $4 billion for FY2002) stemming from both attacks. This will do nothing,
however, to solve USPS’s structural deficit or its longer term problems that were
building well before September 11. Some stakeholders believe that the terrorist
attacks will provide the impetus that has long been lacking to focus public and
congressional attention on structural reform. Others, however, argue that it would
be a mistake to allow the current crisis to “precipitate ill-advised legislative changes,
which would further enhance the Postal Service’s monopolistic powers ....”2
1 U.S. Congress, House Committee on Government Reform, The Postal Service’s Uncertain
Financial Outlook, 107th Cong., 1st sess., Part I, April 4, 2001; Part II, May 16, 2001
(Washington: GPO, 2001). Senate Committee on Governmental Affairs, Financial Outlook
of the United States Postal Service, 107th Cong., 1st sess., May 15, 2001. (Washington: GPO,
2002). Hereafter referred to by date of hearing.
2 Letter to President George W. Bush from several taxpayer organizations, including
Citizens Against Government Waste, Citizens for a Sound Economy, National Taxpayers
(continued...)

CRS-2
Although there is little disagreement that the Postal Service faces a deteriorating
and unsustainable financial situation, there is no similar agreement on the basic or
underlying causes of its predicament or on the appropriate solutions to it. This report
examines the suggested causes and solutions. It does so from the perspective of the
Postal Service management, but also from the multiple perspectives of the many
organized stakeholders in the postal enterprise. Congress has always paid attention
to the views of such stakeholders as large mailers, competitors, employees,
regulators, and the 137 million household and business delivery point customers
visited by USPS every day. Public administration scholars have also been drawn to
the study of postal affairs by the unique USPS governing structure, by the curiosity
of a government entity trying to act like a business, and by the fact that about a third
of the civilian federal workforce is postal employees.
Background
The current structure of USPS was set by the Postal Reorganization Act (PRA)
of 1970. Before passage of this Act, the Post Office was an executive branch
department and Congress was heavily involved in such basic decisions as postage
rates, annual wage increases, patronage appointment of local postmasters, and
selection of commemorative stamp issues. Postage rates were set by law, and
because raising them was politically difficult, the substantial annual postal deficit –
often as much as 25% of costs – was covered by appropriated funds. Postal workers
engaged in a disruptive and illegal strike in 1970, forcing Congress to address the
state of the enterprise.
The PRA reconstituted the Post Office Department in 1971 as the U.S. Postal
Service, an “independent establishment of the executive branch” with a mandate to
operate as a business and cover its expenses through postal revenues. A part-time
board of governors was established to oversee the Postal Service much like a
corporate board. It has nine members nominated by the President and confirmed by
the Senate for 9-year terms, no more than five of whom can be of the same political
party. The board was empowered to hire and fire the postmaster general (PMG),
who, with the deputy postmaster general, became board members for other purposes.
Because USPS retained its monopoly over letter mail and exclusive access to
mailboxes, an independent regulatory commission – the Postal Rate Commission –
was constituted as a politically-appointed, full-time board with authority to review
and approve postage rates proposed by USPS. Rate cases are to follow a prescribed
10-month process, with ample opportunities for USPS customers, competitors, and
unions to weigh in with alternative analyses of both institutional and variable costs
of service. Labor’s support was necessary for passage of the PRA. It was secured
by promises of a substantial wage increase, and provision in the PRA for binding
arbitration by a neutral mediator in future wage and benefit impasses.
For nearly three decades, the PRA proved to be a viable framework. Postage
rates in the 1990s were among the lowest in the industrialized world, about 60% of
2 (...continued)
Union, Nov. 6, 2001.

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prevailing European levels.3 Customer satisfaction and on-time delivery scores,
collected by independent contractors, were both in the mid-90% range by 1999.4
Wages more than kept pace with inflation, and the workforce grew to well over
800,000, providing what former PMG Anthony Frank called a “gateway to the
middle class” for hundreds of thousands of employees distributed fairly evenly with
the population across every congressional district in America. Congress felt
sufficiently confident of the fundamental soundness of the financial outlook of USPS
that, in the Omnibus Budget Reconciliation Act of 1990, it made USPS responsible
for all health benefits and COLAs for retirees, a decision that added $14.9 billion to
postal costs during the decade.5
Perhaps because of this record of success, USPS has not raised high-profile
issues demanding congressional attention in recent years. Appropriations, confined
to revenue forgone in providing free mail for the blind and overseas voters, were
small and uncontroversial.6 The Senate handled postal affairs in the Governmental
Affairs Subcommittee on International Security, Proliferation, and Federal Services.
The House Post Office and Civil Service Committee, which once had three
subcommittees devoted to postal affairs, was dissolved in the 104th Congress, and
postal affairs were assigned to a subcommittee of the House Government Reform
Committee. In the 107th Congress, the Postal Subcommittee was not reconstituted.
The Current Financial Predicament
As fiscal year (FY) 2001 began, there did not appear to be unusual cause for
alarm about postal finances. USPS had shared in the benefits of steady economic
growth, with low inflation, in the 1990s. Volume had continued to grow each year
in nearly all mail classes. The $199 million net loss of FY2000 seemed insignificant
following five straight profitable years with a cumulative net income of $5.5 billion.7
A loss of $480 million was budgeted for FY2001. A rate case had been filed in
January, 2000 for a 6.4% increase in rates, and a decision was due from the Postal
Rate Commission (PRC) in November 2000.
Thus it came as an unexpected shock when in February 2001, USPS announced
that it would suffer a net loss of between $2 billion and $3 billion in FY2001, and an
even larger loss of from $2.5 billion to $3.5 billion in FY2002.8 Over the next several
weeks, postal officials gave several reasons for the turnabout in the financial outlook.
These factors were mentioned in particular:
3 U.S. Postal Service, 1996 Annual Report of the United States Postal Service, p. 41.
4 U.S. Postal Service, 1999 Annual Report of the United States Postal Service, p. 3.
5 U.S. Postal Service, 1999 Annual Report of the United States Postal Service, p. 73.
6 CRS Report RS21025, The Postal Revenue Forgone Appropriation: Overview and Current
Issues, by Nye Stevens.
7 U.S. Postal Service, 2000 Annual Report of the United States Postal Service, pp. 66-67.
8 U.S. Postal Service, 2000 Comprehensive Statement on Postal Operations (Washington,
2001), p. 41.

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! Economic slowdown. Revenue growth slowed with the emergence of
economic weakness as FY2001 began. Others in the delivery industry were
also affected by the slumping economy. FedEx, for example, reported a 54%
plunge in earnings during the quarter that ended May 31, 2001.9
! Partial denial of rate increase. The PRC rate case decision in November
2000, reaffirmed in February 2001, gave USPS a rate increase of only 4.6%,
rejecting the board’s appeal for a 6.4% increase. The cost of a first-class
stamp rose to 34 from 33 cents, but rates for periodicals and certain other bulk
mailings were not raised as much as USPS had requested. Even though the
board exercised its right to impose the full increase after a third request in
May, the net loss imposed by the delay was estimated by the board to be $800
million.
! Rising costs. An unanticipated spike in the price of energy cost USPS $150
million. USPS has 212,000 vehicles and an air transportation bill of $1.7
billion.10
Not everyone found the explanations of postal officials convincing. The PRC
acting chairman testified at the May 15, 2001 Senate hearing that the “Postal Service
has not provided any systematic explanation of its multi-billion dollar loss
projections.” GAO faulted USPS for making “numerous revisions to its estimated
net income for fiscal year 2001 with little or no public explanation, creating
confusion and raising concerns about its ability to generate timely and reliable
financial information.”11 The loss estimate changed again in early July, to a net loss
of from $1.5 billion to $2 billion. The eventual loss for the year, as audited, was
$1.68 billion.12 This was the seventh straight year of accelerating declines in net
income.
The highest loss projections were cited in the May 8, 2001 decision by the
board of governors to override the PRC’s recommendation and impose the full 6.4%
rate increase it had requested, effective July 1, 2001. Only once before in the 30-year
history of the PRC had its recommendation been ignored. The action was deplored
by a panel of large mailers at a House Government Reform Committee hearing on
May 16, 2001. One witness who writes frequently on postal matters said that
consternation among mailers because of the action was the worst he had seen in 18
years of experience.13 The overall sense of frustration was made worse by the
concurrent USPS prediction that there would be an even larger rate increase of 10%
9 Rick Brooks, “FedEx Posts 54% Drop in Profit, Plans Job Cuts,” Wall Street Journal, June
29, 2001, p. B-4.
10 USPS, 2000 Comprehensive Statement on Postal Operations, pp. 23-24.
11 U.S. General Accounting Office, U.S. Postal Service: Financial Outlook and
Transformation Challenges, GAO Testimony 01-733T, May 15, 2001, p. 10.
12 U.S. Postal Service, 2001 Annual Report of the United States Postal Service, p. 2.
13 Testimony of Gene Del Polito, President, Association for Postal Commerce; see May 16,
2001 Hearing, p. 286.

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to 15% in FY2002.14 When the board of governors announced that the rate increase
it would seek was “only” 8.7%, it termed the increase less than expected. Since the
announcement came early in the morning of September 11, 2001, the prospect that
a first class stamp would go to 37 cents from 34 cents went largely unnoticed.
Following the anthrax attacks, which had the effect both of cutting volume and
thus revenues and of adding to expenses for sanitizing the mail, the urgent need for
more cash was readily apparent to mailers and to the Postal Regulatory Commission.
In an extremely unusual accelerated rate case, all large mailers agreed to a negotiated
rate increase to take effect June 30, 2002.15 The infusion of new revenue for the final
quarter, plus severe cost-cutting, has cut losses for FY2002 from the direst
projections. The USPS official in charge of corporate financial planning estimated on
August 7, 2002 that the loss for the year would be “somewhere below $1.5 billion,”
implying that this was good news.16
Longer-Term Problems
Whether or not USPS is able to control losses in the short-term by cutting
expenses and deferring investments, there is a growing consensus that USPS faces a
perilous longer-term prospect that, in the words of the board of governors, “puts the
preservation of universal service at risk.”17 Even before the anthrax scare, GAO
termed the status quo “unsustainable,” called for comprehensive postal reform, and
placed USPS structural transformation efforts on its High Risk List. Some mailers
groups refer to “an economic death spiral.”18 An unusual coalition of employee
groups and mailing groups formed to “address the financial crisis” facing USPS by
effecting “real reforms” and resisting rate increases and service reductions, “which
would result in lower volumes and ultimately lower revenues for the Postal Service.”19
The developing consensus on the need for reform, however, is not built on a
similar agreement on the underlying causes of the long-term problems USPS faces.
Postal stakeholders and analysts have very different, and perhaps irreconcilable,
diagnoses of why USPS’s long-term prospects are so dim. Following are several
basic underlying causes of the situation as perceived by various stakeholders.
! Outmoded business model. Former Postmaster General William
Henderson, in his valedictory congressional appearances as PMG, said that
USPS must face the fact that the overall environment in which postal services
14 “Which Way Is Up for Postal Revenues?,” DM News, May 31, 2001.
15 CRS Report RS21192, The 2002 Postage Rate Increase, by Nye Stevens.
16 PostCom Bulletin, Association for Postal Commerce, No. 33-02, Aug. 8, 2002, p.3.
17 Statement of S. David Fineman, vice chairman, USPS Board of Governors, before the
House Committee on Government Reform. See April 4, 2001 Hearing, p. 137.
18 Ellen Nakashima, “Coalition Seeks Special Delivery: Postal Reform,” The Washington
Post, March 2, 2001, p. A-23; see also Carolyn Lochhead, “Death Spiral on Main Street,”
The American Enterprise, July/Aug. 2001, pp. 26-28.
19 “The Economy, the USPS, the Real Need for Reform,” Postal Record, June 2001, p. 7.

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are needed and used in our economy has changed dramatically.20 If venture
capital were sought today for a labor-intensive business that hired people to
physically visit all 137 million addresses in the country every day, investors
could probably not be found. The demands of universal service require adding
1.8 million delivery points each year (equivalent to a city the size of Chicago)
just to maintain the network. The USPS business model had long depended on
rising mail volume to keep pace with the inexorable rise in the size of the
network and the costs of maintaining it. Yet more and better alternatives to
letter mail keep appearing – the telephone, e-mail, fax, and most lately
electronic bills, statements, and remittances. In 2002, for the first time in a
generation, mail volume has decreased and it has done so in virtually all mail
classes. Looking at postal services around the world, fewer and fewer depend
on monopoly letter delivery business for survival.
! Outdated regulatory regime. USPS and its board of governors, which for
many years have had a testy relationship with the Postal Rate Commission,
both believe that the regulatory model established by the PRA has become
cumbersome and counterproductive, based on control rather than market-based
principles. They chafe at a 10-month adversarial process to adjust rates, when
competitors like FedEx and United Parcel Service (UPS) not only can change
rates on short notice or seasonally, but also can offer special contract deals for
hi-volume customers. “The statutory framework simply does not provide
practical and adaptable solutions to today’s rapidly changing and truly global
communications environment,” the board wrote to President Bush on March
2, 2001. “Without change to our regulatory framework, universal service will
be difficult to maintain. We foresee rapidly rising rates and reduced service if
legislative reform is not enacted promptly.”
! Labor costs out of control. USPS and the board also place a great deal of
importance on their ultimate inability to control the costs of wages and benefits
for the postal workforce. With bargaining unit wages and benefits averaging
$50,103, labor costs are 76% to 80% of total expenses, compared with only
56% at UPS and 42% at FedEx.21 The statutory arrangement when
management and labor cannot agree on a package of wages, benefits, and work
rules is that a final, binding decision is made by a neutral arbitrator, selected
by both sides. Mailers believe the arbitrator tends to split the difference. The
board complains that “critical issues of national policy have been left to a series
of individual arbitrators having no accountability for the results.”22 Another
20 At the House Committee on Government Reform hearing on April 4, 2001, and the Senate
Committee on Governmental Affairs hearing on May 15, 2001.
21 U.S. News and World Report, April 9, 2001, p. 46.
22 Letter from Robert F. Rider, Chairman, USPS Board of Governors, to the Chairman,
House Committee on Government Reform, May 15, 2001, p. 3. USPS has sponsored
research which purported to demonstrate that there is a postal wage premium of 29.5%
compared to the private sector, and that new employees receive, on average, a 45.4% wage
increase over their old jobs when entering the postal work force. See Michael Schuyler,
“The Postal Wage Premium: No Wonder the Postal Service Loses Money,” IRET
(continued...)

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cost element is the time expended in handling about 146,000 pending or
appealed grievances; negotiated work rules allow these to be pursued “on the
clock” while all parties are drawing their salaries.
! Legacy costs. In addition to its debt to the Treasury which will approach
$13 billion by the end of FY 2002, GAO also notes that USPS must pay $32
billion in retirement liabilities, $15.8 billion interest expense on this liability,
$6.0 billion in worker compensation claims, and an obligation amounting to at
least $45 billion for retiree health benefits that is not carried on the books
though it should be.23 These numbers will only grow in the future, and
servicing these debts for past delivery services will become an ever-greater
proportion of postage prices to be paid by future users of the Postal Service (or
by the taxpayer).
! Productivity growth lags. USPS productivity – the relationship between
outputs of delivering mail to a constantly expanding delivery network and the
resources expended in producing these outputs – has increased only about 11%
in the past 30 years, even though billions have been spent on automation and
information technology. According to GAO, postal productivity declined 3.3%
from FY 1993 to FY 1999, though it increased 2.2% in FY 2000 and 0.7% in
FY 2001.24 To the organized mailing community, the fact that costly
automation programs are apparently not resulting in significant productivity
increases may be the most critical of all of USPS’s management problems.25
! Perverse incentives. While the PRA directed USPS to operate in a
businesslike manner, USPS lacks some key features of a competitive
enterprise. Its aim is to break even rather than make a profit. It does not have
the option of abandoning unprofitable lines of business or locations. The PRA
anticipates that costs will rise and provides a way to raise rates when they
outstrip revenues. As a report from the Progressive Policy Institute said of the
USPS’s “flawed incentive structure,” “(I)t is simply easier to raise rates than
to do the hard work of cutting costs, including standing firm against
unreasonable union demands.”26 The PRC cannot order cost-cutting measures;
22 (...continued)
Congressional Advisory no. 131, Institute for Research on the Economics of Taxation
(Washington: July 24, 2002).
23 U.S. Postal Service: Deteriorating Financial Outlook Increases Need for Transformation,
GAO Report 02-355, Feb. 28, 2002, p. 20.
24 U.S. General Accounting Office, Major Management Challenges and Program Risks:
U.S. Postal Service, GAO Report 01-262 (Washington, Jan. 2001), pp. 23-24.
25 Statements of John T. Estes, Main Street Coalition for Postal Fairness, and Jerry Cerasale,
Mailers Council, before the House Committee on Government Reform, May 16, 2001. See
May 16, 2001 Hearing, pp. 222-241, 252-262. The Mailers Council sponsors a quarterly
“Report Card on Postal Productivity,” which is available on-line at
[http://www.mailers.org/News_Releases/news_releases.html], visited Sep. 5, 2002.
26 Shane Ham and Robert D. Atkinson, Opening the Mail: A Postal System for the New
(continued...)

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it can only apportion costs among various classes of mail. In the words of
Gene Del Polito, president of the Association for Postal Commerce, “the
incentives that underlie today’s Postal Service are the opposite of what is
required of an enterprise that must function in a competitive environment.”27
Similarly, work rules discourage cooperation between management and labor
to improve productivity.28 For example, the reward for a letter carrier who
finishes his or her route early is to be assigned to finish another route. Except
for rural carriers, overtime is negotiated daily, leading to endemic conflicts
with supervisors. There is an incentive pay system for managers, but it
measures factors unrelated to the marketplace and guarantees rewards in
advance of demonstrated bottom-line performance.29
! Too many/too old facilities. Post offices are often centers of community
activity, and efforts by USPS to move, consolidate, or close them to adapt to
altered commercial, residential, and transportation patterns are invariably
controversial. The PRA prohibited closing small post offices solely for
operating at a deficit, and requires USPS to go through an elaborate community
consultation process, with appeals to the PRC, before closing a post office.
Moreover, under congressional pressure in 1998, USPS adopted a moratorium
on initiating any consolidations or closures.30 USPS maintains that about half
of its facilities do not generate enough revenues to cover their costs, and has
been focusing particular attention in recent hearings on the burden its rigid real
estate profile imposes on the bottom line. Ruth Goldway, a member of the
PRC, has noted that cost savings from extending the drop shipment of prepared
mail deeper into the sortation and transportation network will not be achieved
unless Congress permits reducing the number of bulk mail centers and large
mail processing facilities.31
! Inadequate information. GAO, the PRC, and the USPS inspector general
(IG) have each expressed frustration at the paucity of information USPS makes
available that would allow those outside the service to analyze its financial
condition and evaluate ways to improve it. Unusually for a government entity,
USPS can withhold information “of a commercial nature” from disclosure
26 (...continued)
Economy, Progressive Policy Institute, Washington, Nov., 2001, p. 9.
27 Statement before the House Committee on Government Reform, May 16, 2001. See May
16, 2001 Hearing, p. 274.
28 For a detailed analysis, see U. S. General Accounting Office, U.S. Postal Service: Labor-
Management Problems Persist on the Workroom Floor, GAO Report GGD-94-201B
(Washington, Sept. 1994).
29 The USPS Inspector General has called the incentive pay system inappropriate for an
agency with a breakeven profit goal. See USPS IG Report number LH-AR-02-001, Dec. 5,
2001.
30 See “The Sacred Post Offices of Podunk,” Wall Street Journal, June 7, 2001, p. B-1.
31 Statement before the Senate Governmental Affairs Committee. See May 15, 2001
Hearing, pp. 137-138.

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under provisions of the Freedom of Information Act.32 GAO has questioned
whether USPS has “reliable performance and cost information to effectively
manage postal operations, identify inefficiencies, and track progress toward
realizing anticipated cost savings.”33 Much of the acrimony between the PRC
and USPS has been over the quality and adequacy of data made available to
PRC. The IG testified before the House Government Reform Committee on
April 4, 2001, that USPS lacked information to justify major investments: “The
Postal Service is a $65 billion business and must require that timely and
accurate information be provided to senior managers for making informed
business decisions.”
Reform Proposals
Although both committees of jurisdiction have held hearings on the Postal
Service’s financial problems and long-term prospects, for the first 18 months of the
107th Congress no comprehensive reform legislation had been introduced. Several
efforts to develop a legislative response have been underway, however. A bipartisan
and bicameral Postal Caucus was formed among Members to address postal reform
issues. In opening statements at the House Government Reform Committee hearing
on April 4, 2001, the chairman and the ranking minority member asked postal
stakeholders to work together and make recommendations for a bipartisan legislative
proposal that can be enacted. To emphasize the point of bipartisanship, the two jointly
designated Representative Danny Davis (D-IL) as point person for postal reform.34
In opening the May 15 Senate Governmental Affairs hearing, its chairman expressed
“recognition that Congress must revisit the 30-year old statutory framework” and that
“nothing should be off the table, including the future of the postal monopoly itself.”
A coalition of mailing groups and postal employee groups was also formed, on April
11, 2001, with the objective of developing a consensus on reform parameters.35
Newspapers (which both compete with direct mail for advertising dollars and depend
on USPS for delivery) as varied as The Wall Street Journal (May 16, 2001), The
Washington Post (May 29, 2001), and The Washington Times (March 17 and May 14,
2001), and numerous columnists, weighed in with editorial opinions.
Previous attempts to “modernize” the Post Office through legislation have
foundered on profound differences of interest among stakeholders. This was also the
fate of H.R. 4970, finally introduced on June 20, 2002 as the culmination of the
32 39 U.S.C. 410 (c)
33 GAO Testimony 01-598T, April 4, 2001 p. 5. For a more detailed critique of USPS
performance information, see GAO Report 01-262, Major Management Challenges and
Program Risks: U.S. Postal Service, pp. 19-20.
34 Cary Baer, “Congress, Bush Face Tricky Decisions,” DM News, June 29, 2001, p.1.
35 It includes the National Association of Letter Carriers, the National Rural Letter Carriers
Association, the National Association of Postmasters of the United States, and the National
Postal Mailhandlers Union, as well as the Direct Marketing Association, Magazine
Publishers of America, Association for Postal Commerce, Alliance of Nonprofit Mailers,
and the Parcel Shippers Association.

CRS-10
negotiations that had proceeded throughout the 107th Congress. It was voted down in
the House Government Reform Committee by a vote of 20-6 the same day, with nine
Members voting “present” on the grounds that it was too late in the session for action
to be taken on the House floor. Current legislation, including H.R. 4970, is the subject
of CRS Issue Brief IB10104, Postal Reform, by Nye Stevens. This report describes
proposals that have been made before and that have been maturing for a number of
years, since these are reflected in H.R. 4970 and will no doubt figure into alternatives
to it as the debate on postal reform continues. Several are discussed below.
Modernization Through Restructuring: H.R. 22
In both the 105th and 106th Congresses, Representative John McHugh introduced
comprehensive postal reform legislation that was given the number H.R. 22 in both
Congresses. Representative McHugh was also chairman of the Subcommittee on the
Postal Service of the House Committee on Government Reform, and held extensive
hearings on the legislation over a 4-year period. 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. As approved by the Subcommittee on the Postal Service on April
29, 1999, the bill would have:
! divided postal operations between competitive and noncompetitive products.
Competitive mail would include products that could easily be sent through a
private corporation, such as Federal Express. Noncompetitive mail is
traditional letter mail and addressed advertising mail for which USPS is the
only practical or legal alternative;
! set a cap on the price of noncompetitive mail every 5 years, essentially
allowing rates to rise at a rate lower than inflation, while allowing competitive
mail to be priced according to market conditions;
! established a private corporation owned by USPS that could offer new, non-
postal competitive products but would not have such advantages as tax
exemption and strike protection;
! authorized USPS to conduct large-scale tests of experimental new products;
! allowed USPS to offer volume discounts to large customers such as
government agencies and catalogue sales companies; and
! required USPS to provide services for the blind and visually impaired, and for
voter registration and balloting materials without federal appropriated funds for
revenues forgone.36
36 For a more comprehensive review of the bill, see CRS Report 98-838E, Postal Service:
How H.R. 22 Would Change Current Law, by Bernard Gelb, Bernevia McCalip, and Edward
Rappaport.

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The bill avoided controversial issues such as binding pay arbitration and closing
post offices that lose money. But with belated and tepid support from USPS and its
board, and opposition from such influential stakeholders as UPS and the American
Postal Workers Union, the bill was not voted on by the Government Reform
Committee.
H.R. 22 was the direct predecessor to H.R. 4970, which reflects modifications
and enhancements worked out with mailing groups and with Democratic Members.
Postal Service Enhancement Act
Representative Henry Waxman, ranking minority member of the House
Government Reform Committee, introduced H.R. 2535 in the 106th Congress. The
bill would have provided some rate making flexibilities for competitive products,
negotiated rate agreements, and phased-in rates. But according to USPS, 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.37 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 in the 106th Congress. However,
its provision for a national commission was reflected in Title VII of H.R. 4970, which
also provided for a National Commission on the Future of the Postal Service.
Relief From Regulatory and Statutory Restrictions
The USPS board of governors wrote the chairs of its oversight committees on
May 15, 2001, that the reforms most needed are greater empowerment of USPS in its
relationships with the PRC, and with its unions. It urged that USPS be given authority
to set its own rates within a broad, indexed range, reflecting costs and market trends;
PRC would have no authority at all over services not covered by the universal service
mandate. The board also wanted a fundamental change in the collective bargaining
arrangements under which 13 of the last 20 labor agreements with the largest unions
have gone to binding arbitration. In their place, the board would adopt a model along
the lines of the Railway Labor Act. A mediator appointed by the National Mediation
Board would explore the differences between the parties with explicit instructions to
take into account the interests of postal customers, to draw comparisons to employees
doing the same kind of work in the private sector, and to consider the value of such
benefits as paid insurance, vacations, holidays, pensions, and stability of employment.
Cooling off periods and intervention by the President or Congress or both would stand
in the way of a strike or a lockout if agreement were not reached.
Preservation
In discussing postal reform at the May 16, 2001 House Government Reform
hearing and in communications with members, the postal employee unions set as their
37 Letter from Postmaster General Henderson to Rep. John M. McHugh, June 2, 2000.

CRS-12
first priorities the preservation of universal service (specifically including Saturday
delivery) and binding arbitration in collective bargaining. Beyond that, they generally
support increasing USPS’s ability to alter rates and to raise the current borrowing limit
from the Treasury. The American Postal Workers Union (APWU) believes that
worksharing (e.g., barcoding, presorting, and dropshipping) discounts on large
mailers’ postage bills are overly generous and, if eliminated, the current revenue crisis
would be solved.38 The APWU was also the only intervenor to object to the June 30,
2002 rate increase, on the grounds that it perpetuated uneconomic discounts to large
mailers and the sorting houses that assist them.39 While APWU opposed H.R. 22, the
National Association of Letter Carriers supported it.40
Privatization
From time to time, proposals have been made to do away with the Private
Express Statutes (18 U.S.C. 1725) which give USPS its monopoly on letter mail and
use of mailboxes. The expected competition from private sector delivery services
would, in the view of proponents, amount to privatization of postal delivery services
if not of USPS itself.
One of the most influential privatization proposals dates from 1988, with
publication of the report of the President’s Commission on Privatization. The report
devoted a chapter to privatization of the Postal Service, recommending immediate
lifting of the Private Express Statutes for third-class mail, and eventually for all
classes. The commission recognized that USPS itself would need a phase out period,
and recommended employee ownership for priority consideration.
Although Congress has never voted on privatization of the Postal Service, the
issue remains active on the agendas of a number of conservative organizations. The
Cato Institute, the Heritage Foundation, and Citizens Against Government Waste are
among the organizations favoring postal privatization.41
Representative Philip Crane has introduced legislation to privatize USPS in the
last several Congresses. In the 106th Congress, his bill was H.R. 2589. 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. H.R. 2589 was referred to the Committee on
Government Reform and no further action was taken. The bill has not been re-
introduced in the 107th Congress.
38 Statement of Moe Biller, president, APWU, before the House Committee on Government
Reform, at May 16, 2001 Hearing, pp. 327-329.
39 William Burrus, “Postal Rate Increases: A Road to Destruction,” The American Postal
Worker, vol. 32, no. 3, May/June 2002, p. 3.
40 Andrew D. Beadle, “Postal Bill Matches Unions, Delivery Firms in Lobbying Battle,”
CQ.com On Congress, May 21, 1999.
41 See, for example, the volume on the issue edited by Edward L. Hudgins, Mail @ the
Millennium: Will the Postal Service Go Private? (Cato Institute, Washington, 2000).

CRS-13
Support for postal privatization is not confined solely to the conservative end of
the political spectrum. Ruth Goldway, a self-described “liberal Democrat” and a
Clinton appointee to the Postal Rate Commission, has proposed privatizing USPS
through an initial public stock offering that might bring as much as $100 billion to the
Treasury. Its assets include “real estate in the best parts of every city, a universal
delivery network, and a solid brand name.” Privatization, she believes, is “the best
way to save the institution from oblivion” as financial correspondence increasingly
moves on-line.42 Former PMG Henderson, in his final interviews and public
appearances, said that privatization has been adopted by much of the rest of the world
and is inevitable here, as well. Shortly after leaving office, he explicitly endorsed
privatizing USPS through an employee stock option plan.43
Opponents of privatization question whether it is compatible with universal
service. Would a private sector company be as attentive to the needs of small villages
in Alaska as USPS is? In addition, the prospects for privatization have been
complicated by the anthrax incidents, which have placed renewed emphasis on
governmental responsibilities of USPS, such as public health and law enforcement.
Stronger Oversight
Those who think that USPS problems stem from poor management, inadequate
information, and perverse incentives tend to propose reforms that would empower
third parties to scrutinize policy and operations more closely than the board of
governors does today. The board is part-time and has a staff of only four.
The Washington Post is one of several major newspapers that oppose giving
USPS more flexibility to raise rates and pursue new lines of business, as proposed in
H.R. 22. “What’s needed,” the Post editorialized on May 29, 2001, “is exactly the
opposite: Tighter oversight by watchdogs, including the power to subpoena the postal
service for data, and a tighter focus on the traditional task on hand.” United Parcel
Service’s view is similar: greater accountability to regulators and improved
information on how costs are allocated among different products to prevent cross-
subsidization. GAO’s recommendations also lean heavily on expanded information
and oversight as the key to averting a crisis in USPS.44 The PRC has proposed that
it be given the function of performing an annual performance review of postal
operations and reporting its findings to Congress. Enhanced access to information
would also be necessary.45 Mailers, who tend to believe their interests are better
protected by the PRC than by the board, also propose giving the PRC audit authority.46
42 “The Postal Service: One Hot Property,” The Washington Post, Jan. 19, 2000, p. A-23.
43 William J. Henderson, “End of the Route: I Ran the Postal Service; It Should Be
Privatized,” The Washington Post, Sept. 2, 2001, p. B-1.
44 GAO Testimony 01-598T, April 4, 2001, p. 2. See also “GAO Outlines Strategy to Revive
Postal Service,” Federal Times, April 9, 2001.
45 Statement of George A. Omas, vice chairman, Postal Rate Commission, before the Senate
Committee on Governmental Affairs, May 15, 2001, pp. 15-18.
46 Statement of John T. Estes, Main Street Coalition for Postal Fairness, before the House
(continued...)

CRS-14
Independent Reform Commission
A number of postal observers believe that political power is so thoroughly
dispersed among stakeholders that only an independent blue-ribbon commission,
rather than the legislative process, can devise a contemporary solution to today’s
postal crisis. The Association for Postal Commerce, for example, cites the “bruising”
experience of attempting to gain support for H.R. 22 as its reason for calling on the
President to create a commission to study and make recommendations on the future
organization and function of the Postal Service.47 Murray Comarow, who headed a
panel of the National Academy of Public Administration on the characteristics of
successful commissions, agrees that the legislative process cannot achieve genuine
reform. He cautions against a commission made up of stakeholders, however, because
it is likely to mirror the established interests that have fought to a draw on Capitol
Hill. The suggested model for a successful commission is the 1967 Commission on
Postal Organization, which led to enactment of the PRA. That commission, chaired
by Frederick R. Kappel, the CEO of AT&T, had as members six other corporate CEOs
(e.g., from General Electric and Bank of America), the dean of the Harvard Business
School, the president of the AFL/CIO, and two prominent Democrats; none had close
ties to postal stakeholders or a vested interest in the outcome.48 (Mr. Comarow was
executive director of the Kappel Commission.)
Representative Steven LaTourette circulated a “Dear Colleague” letter on
February 7, 2002 inviting support for a presidential commission “to address the
mission and operations” of USPS, noting that “a form of gridlock” had emerged from
good-faith efforts to develop a legislative consensus on postal reform. Senator Susan
Collins, on July 18, 2002, introduced S. 2754, a bill to create a presidential
commission on the Postal Service. The bill would forbid the President from
appointing “stakeholders” to the commission, defining the term to include persons
with close ties to USPS, such as employees, competitors, or union representatives.
Concentrate on “The Last Mile”
Several postal stakeholders have proposed that USPS can best survive in the new
logistics environment by exploiting its role as the “gateway” to the nation’s
households and businesses, and concentrating on its “last mile” infrastructure – the
retail and delivery services that represent the postal presence in every community.
USPS presented this as its vision for the future in its little-noticed Five Year Strategic
Plan published in fulfillment of the requirements of the Government Performance and
46 (...continued)
Committee on Government Reform, May 16, 2001 Hearing, p. 262.
47 Statement of Gene Del Polito, president, Association for Postal Commerce, before the
House Committee on Government Reform, May 16, 2001 Hearing, p. 276.
48 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.

CRS-15
Results Act.49 An elaboration of the concept forms the centerpiece of a reform
proposal by Shane Ham and Robert D. Atkinson, published in November 2001 by the
Progressive Policy Institute, the policy arm of the Democratic Leadership Council.
The PPI report, in its own words:
... offers a plan that represents a Third Way between propping up the status quo
and privatization. It would preserve USPS monopoly on “last mile” delivery
while opening up the acceptance, transport, sorting, and processing of the mail to
much greater competition. In our vision, customers will be able to send mail from
local stores instead of the local post office, private companies will sort and
transport the mail faster and more cheaply, and customers who put more effort
into preparing their mail will get discounts on postage. All the while, USPS mail
carriers will deliver to American homes and businesses ....50
While acceptance, processing, and transport of physical mail can sustain multiple
firms competing for business, the “last mile” delivery of mail into mailboxes is
very possibly a natural monopoly. The postal system has significant economies
of scale that constitute high barriers to entry for other firms, including high fixed
costs of last mile delivery, which currently accounts for more that one-third of
total USPS costs.51
Postal Rate Commissioner Ruth Goldway testified before the Senate Governmental
Affairs Committee on the benefits of concentrating on the “last mile” concept. She
believes Congress should encourage USPS to work with private sector companies to
extend the drop shipment of prepared mail deeper into its sortation and transportation
network. She contrasts the “proven track record” of the private sector in capturing
cost savings through automation, with the poor Postal Service record, especially in
flats, media mail and parcels. “Strategically,” she said, “the USPS’s competitive
advantage lies in its last mile delivery connections to every household in the U.S.
network.”52
USPS has not mentioned the concept in the past 2 years, perhaps concerned that
it is too limiting and would require a downsizing of distribution and sorting facilities
that Congress would find it difficult to accept.
Redefine Universal Service
Most reform proposals are predicated on the preservation of universal service,
generally defined as six-day per week delivery of letters everywhere in the nation at
uniform, affordable prices and ready access to post offices in every community. But
49 United States postal Service Five-Year Strategic Plan FY2001-2005, Sept. 30, 2000, p.
iv.
50 Shane Ham and Robert D. Atkinson,, Opening the Mail: A Postal System for the New
Economy, Progressive Policy Institute, Washington, Nov., 2001, p. 4.
51 Ibid., p. 12.
52 U.S. Congress, 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),
p. 137.

CRS-16
the comptroller general, at the May 15 Senate hearing, raised the question whether this
definition should be revisited.53 The Progressive Policy Institute study mentioned
above concluded that allowing changes in service, including closing unneeded post
offices and “reducing deliveries on high-cost rural routes from six days each week to
five or four days” was a necessary reform.54
Other countries have begun to redefine universal service. Canada eliminated
Saturday delivery first for urban areas and then for rural areas in 1982, cut mail
delivery to remote northern areas to as infrequently as once a week, and lowered its
on-time delivery standards by a full day in all categories.55 A British Member of
Parliament for the Labour Party has written that the mailman is as anachronistic as the
milkman.
It is time for politicians, on all sides, to confront the public with the brutal truth
that a universal mail delivery at a standard price has had its day, and that it is no
business of government or its agencies to be involved in such an activity. In every
other system of distribution, most notably food, the public has largely chosen,
through the dynamics of the market, to dispense with doorstep delivery....56
The USPS board of governors opened the door to such a redefinition by ordering
a study of delivery only five days a week. On July 9, 2001, it publicly abandoned the
idea, which had generated considerable criticism in Congress. Congressional
opposition has also greeted any initiative to close the thousands of small post offices
that fail to generate revenues sufficient to offset their cost, on the grounds that these
facilities provide essential community services. Some have compared the situation
to military base closings, and suggested that only a package of closures with an up-or-
down vote would have a chance of congressional approval.
Appropriations
Although USPS has taken pride in the independence that follows from its self-
supporting status, there have been occasional proposals to augment postal revenues
through appropriations on the grounds that public interest goals are being imposed
unrelated to the mail delivery mission. One proposal is that USPS be subsidized for
the cost of paying skilled labor wage rates for semi-skilled work as a means of
opening a gateway to the middle class.57 In the detailed justification of its FY2003
budget request, USPS asked for an appropriation of $928 million to accelerate
payment on a debt stemming from the Revenue Forgone Act of 1993, which
53 GAO Testimony 01-733T, May 15, 2001, pp. 23-24 and subsequent discussion.
54 Progressive Policy Institute, Opening the Mail: A Postal System for the New Economy,
Washington, Nov., 2001, p. 20.
55 U.S. General Accounting Office, Postal Reform in Canada, GAO Report GGD-97-45BR,
March 5, 1997, pp. 34-37.
56 Michael Brown, “Postman Pat’s Days Are Past – Let Him Retire Gracefully,” The
Independent (London), Feb. 1, 2002, p.3.
57 Statement of Gene Del Polito, president, Association for Postal Commerce, before the
House Committee on Government Reform, May 16, 2001 Hearing, pp. 278-279.

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established a 40-year schedule for payment to USPS for costs of delivering free or
reduced rate mail in earlier years.58 (The debt is currently being paid off at the rate of
$29 million per year.) Neither the House nor the Senate included this provision in the
Treasury/Postal Service appropriations bill. Yet another suggestion is that Congress
reimburse USPS for the cost of criminal investigations. It is estimated that the Postal
Inspection Service spends considerably more than $100 million per year investigating
crimes such as fraud and child pornography, which have nothing to do with the USPS
mission.59
At a May 13, 2002 hearing on the USPS Transformation Plan, Senator Ted
Stevens suggested that regular congressional appropriations to help USPS meet its
long-term retirement costs would be preferable to major revision of the PRA.60
Transformation from Within
In placing the worsening USPS financial prospect on its High Risk List, GAO
recommended that USPS develop a transformation plan to address the many financial,
operational, and “human capital” changes that would be needed to avert a crisis.
USPS took the charge seriously, and delivered a 400-page Transformation Plan to
Congress in early April, 2002.61
As presented in a carefully orchestrated press conference at the National Press
Club and a Senate hearing,62 the Transformation Plan lays out a great number of
operational changes designed to increase productivity and cut costs. USPS indicated
that these changes, which could be done under its current authority could save $5
billion in total through FY2006. For example, the PMG said that USPS would try to
work with its unions to improve dispute resolution processes and reduce the $300
million that labor-management disagreements cost each year. It would also lift the
moratorium on closing post offices that was imposed in 1998, and begin by closing
some that had been “suspended,” or effectively closed, for a decade or more.
In addition to operational improvements, the Transformation Plan made it clear
that Congress would have to engage in a longer-term dialogue on the future of the
institution as a commercial government enterprise (rejecting the alternatives of a
return to federal agency status, and of privatization.) The terms for success would
require legislation providing fundamental changes in USPS’s ability to open new
58 For more information, see CRS Report RS21025, The Postal Revenue Forgone
Appropriation: Overview and Current Issues, by Nye Stevens.
59 Cary H. Baer, “Which Way Is Up for Postal Revenues?,” DM News, May 31, 2001, p .3.
60 Kate Phelan Muth, “Stakeholders Start to Consider Best Way to Fund Postal Debt,”
Business Mailers Review, vol. 23, no. 11, May 27, 2002, p. 4.
61 The Plan is available on the USPS Web site:
[http://www.usps.com/strategicdirection/transform.htm] visited Sept. 10, 2002.
62 U.S. Congress, Senate Committee on Governmental Affairs, International Security,
Proliferation, and Federal Services Subcommittee, The Postal Service in the 21st Century:
The USPS Transformation Plan, 107th Cong., 2nd sess., May 13, 2002. (Unpublished
hearing.)

CRS-18
businesses, “rationalize” its distribution network, recapture control over wages,
negotiate discount prices with large mailers, and redefine its universal service
obligation. There has been no attempt as yet to put the Transformation Plan into
legislative language. The changes required would be much more extensive than those
that would be made by the most comprehensive legislative proposal introduced to
date, H.R. 4970.
Aftermath of the Anthrax Attacks
Before the anthrax attacks, Congress brushed aside suggestions that
appropriations should play any part in the USPS adaptation to its new financial
challenges. The discovery of anthrax in the mailstream on October 5, 2001, brought
new and wholly unanticipated pressures on USPS to step up its law enforcement
activities, and to invest in costly new technology and mail handling procedures to
sanitize the mail. Neither law enforcement nor public health responsibilities fit within
the framework of the PRA, or the mission it assigned to USPS to preserve universal
delivery, cover its costs through revenues, act like a business, and break even over
time.
Whatever reluctance USPS had to accept appropriations disappeared within a
month of the appearance of anthrax in the mailstream. USPS received $175 million
from the White House Emergency Response Fund on October 24, 2001. Another
$500 million was allocated to USPS by the FY2002 Emergency Supplemental Act,
Division B of P.L. 107-117, the Department of Defense Appropriations Act, 2002.
The conference report explaining this appropriation noted that “the Postal Service has
not received a direct appropriation for operations for nearly two decades.... In
providing these emergency funds, the conferees do not intend to set a precedent for
operational subsidies ... [and] continue to support current law requirements that the
Postal Service operate on a self-sustaining basis.” Obligation of the $500 million was
to be withheld until USPS submitted to its oversight and appropriations committees
an emergency preparedness plan to combat the threat of biological and chemical
substances in the mail.
USPS issued its plan on March 6, 2002.63 It identifies a need for additional
appropriations for mail security of $1.78 billion in the next 2 years, and from $1
billion to $2.4 billion in the 2 years after that. The PMG had earlier told the Senate
Appropriations Subcommittee on Treasury and General Government, however, that
USPS also needs assistance in making up for $2 billion in lost revenues.64 USPS
revenues were $1.5 billion less than planned during the first 24 weeks of FY2002.
Members of the Subcommittee said that appropriations were much more likely to
cover the cost of sanitization equipment than to cover revenue losses. Asked what he
63 Available online at [http://www.usps.com/news/2002/epp/welcome.htm], visited Mar 22,
2002. For more information on USPS emergency planning, see CRS Report RL31280, The
U.S. Postal Service response to the Threat of Bioterrorism Through the Mail, by Frank
Gottron.
64 The PMG’s Nov. 8, 2001 hearing statement can be found on-line at
[http://www.usps.com/news/2001/press/pr01_1108pmg.htm.], visited Mar. 22, 2002.

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would do if appropriations were insufficient, the PMG said that only increased rates,
borrowing above the current $15 billion limit, and service reductions were
alternatives, and all of them threatened USPS’s long-term future.
Conclusion
Even before the anthrax scare, congressional hearings revealed a broadly based
consensus that USPS faces an “unsustainable” long-term prospect (as GAO
characterized USPS’s future), even if there is no agreement on its underlying causes
or on appropriate remedies. While postal stakeholders have spent most of the 107th
Congress trying to develop a consensus reform package, by the time it was introduced
in the House its Democratic sponsors rejected it on the grounds that there was no
leadership commitment to consider the measure on the floor. It appears that only the
prospect of reaching the $15 billion borrowing limit offers any promise of mobilizing
congressional attention to the long-term financial state of the enterprise.
The anthrax crisis seemed for a time to have revised those calculations. USPS
faces $3 billion to $4 billion in added costs, and its ability to pay those costs has been
seriously constrained by a sudden drop in revenues as mailers and postal customers
began to question the safety of the mail. This issue is being handled through the
supplementary appropriations route, however, and has not been linked to the policy
question whether the statutory framework established 30 years ago, contemplating a
self-supporting USPS whose rates and labor costs are in large part in control of others,
is still viable. Most stakeholders think it is not, but differences among them on
remedies are deep and persistent.
Calls for a presidential commission to resolve these differences are based on a
perception that Congress cannot do so because it is immobilized by conflicting
pressures from postal stakeholders. If this is not to be so, then Congress will be forced
to confront a number of issues that have been off the table for decades, including a
return to operational appropriations, allowing USPS to compete in new markets
against the private sector, a redefinition of universal service, allowing USPS to close
some of its unneeded facilities, and finding a way to reduce costs of the huge and
politically influential postal workforce.