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Document 22 of 51.

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MARCH 4, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 2914 words

HEADLINE: PREPARED TESTIMONY OF
LEE M. CASSIDY
THE NATIONAL FEDERATION OF NONPROFITS
BEFORE THE HOUSE GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE SUBCOMMITTEE

BODY:

Mr. Chairman and Members of the Subcommittee, we appreciate this opportunity to comment on H.R. 22, the Postal Modernization Act.
The National Federation of Nonprofits is a 17 year old coalition of more than 300 charities, religious groups, colleges, universities, and their alumni associations, museums, and other nonprofits, all of which use direct mail to raise funds and otherwise communicate with members and contributors. I serve as executive director.
A strong and efficient Postal Service is critical to the continued existence many of our members, and affordable nonprofit postage rates are an essential element in the achievement of their missions.
We applaud the Chairman and his staff for their efforts in taking on the massive task of developing comprehensive legislation to modernize the Postal Service. We are impressed with the amount and depth of detail they have considered, absorbed, and translated into this legislation. And we appreciate the unfailing graciousness of the staff in handling inquiries, requests, statements, and even our occasional complaints.
The National Federation of Nonprofits is a member of the Mailers Council and the Main Street Coalition for Postal Fairness. Moreover, we meet and speak frequently with representatives of numerous other "umbrella" organizations, and while we do not agree with every position taken by all those organizations regarding H.R. 22, we are generally on the same side when it comes to the major issues addressed in the legislation.For that reason, we will not comment on most issues, important as they are, but will defer to others to make the points on our behalf, and will concentrate on those few issues of critical importance to nonprofits, and especially to our members.
The organization I head has been highly critical of the Postal Service's performance in several areas, especially in the last rate case. It is our belief that the Service urgently needs both legislative and regulatory oversight and assistance, if it is to operate effectively and improve efficiency.
To that end, we are concerned that, by being so comprehensive, the Postal Modernization Act may represent more modernization than some groups of mailers may be able to digest. There are elements in the legislation about which we feel strongly positive, and hope that those parts will become law soon, even if others must be put aside until the awareness of the postal community catches up with the Chairman's vision.
Having said that, let me concentrate on those provisions in which we are most interested.
At the request of nonprofits, HR 22 contains language which would create a 'requestor" rate for nonprofit periodicals, correcting a legislative drafting error of some years ago. we are grateful to you for including that language, which would bring to nonprofits long- overdue parity on this issue.
The National Federation of Nonprofits strongly supports the provisions recasting the Postal Rate Commission as the Postal Regulatory Commission, and giving it additional powers, including investigating and resolving complaints, and subpoena power. But we also would like to see the staff of the Commission given a new responsibility and power: to review, upon request of the mailers, decisions affecting eligibility for various classes of rates, for both regular rate and nonprofit mail.Nonprofits now are engaged in literally hundreds of disputes with the Postal Service over the eligibility of various mailpieces. In most of these cases, the decision of a local postal official to deny nonprofit rates is based on either a misreading of the Domestic Mail Manual (DMM), or a highly creative interpretation of the DMM or relevant law.
One recent case involved a refusal by a postmaster to accept a mailpiece at nonprofit rates because it was designed and printed by a commercial organization, which was a supplier to the nonprofit. The postmaster claimed that the involvement of the commercial organization made the mailpiece a cooperative mailing, and therefore ineligible for nonprofit rates. That nonsensical situation can be multiplied by many hundreds, to understand the problems nonprofit mailers face every day.
Our proposal would make the staff of the Postal Regulatory Commission the final arbiter, rather than the Postal Service itself, which has the understandable bureaucratic imperative to not overturn decisions, even wrong decisions, made at lower levels, because of the desire to maximize revenue .... even, apparently, at the expense of fidelity to the law and regulations.
We support the provision of H.R. 22 to put nonprofit and commercial mail in pricing baskets based on the mail class, and oppose the Postal Service's proposal to place all nonprofit mail in the same basket. While the Postal Service has claimed that its purpose is solely to protect nonprofits, we are concerned because history has told us that separate is almost never equal. We can well imagine a situation, were the Postal Service's proposal to be enacted, where the Postal Service would be authorized, under the price cap scheme, to increase rates by a given percentage, and elects not to increase commercial rates, but does increase nonprofit rates.
The annual percentage increases might be small, but even a modest two percent per year, over the five year period of indexed rate increases between Postal Regulatory Commission review as proposed in H.R.22, could amount to an additional 10 percent differential visa vis commercial rates. We believe the protections afforded nonprofits which the Chairman has included in the legislation are far superior to the Postal Service's proposal, and have the further desirable effect of making the interests of commercial mailers and nonprofits similar in each annual rate increase.
One of the purposes of HR 22 is to create a situation where mailers have predictable rates and affordable increases. But the history of nonprofit rates since passage of the 1970 Postal Reform Act has been just the opposite. In fact, since the Postal Service was created in 1971, nonprofits have experienced 23 rate increases, in addition to increases coming out of omnibus rate cases, plus several new restrictions on what can be included in nonprofit Standard A mail.
One of the results of those increases is that for several years nonprofits have paid the same postage rates for the advertising portion of Periodicals mail as do commercial publishers. There is no nonprofit rate for the advertising portion of nonprofit Periodicals mail.
Mr. Chairman, those 23 increases in nonprofit rates mentioned above have all been ordered by Congress. The first 16 annual increases, from 1971 through 1987, were intended to bring nonprofit rates up to an appropriate relationship with commercial rates. Six of the annual increases were to fill the gap created by the elimination of funding for Revenue Forgone; nonprofits were involved in developing that legislation, and agreed to the increases. But one rather large increase was a result of action to reduce (but not eliminate) funding for Revenue Forgone, in order to free funds for other, non-postal programs.

Twice, Congress enacted significant new restrictions on the content of nonprofit Standard A mail.
Again, all these increases were ordered by Congress.
We mention this not to complain, but to point out that, while one of the objectives of the 1970 Postal Reform Act was to get Congress out of the business of setting postal rates, in fact Congress never actually has gotten out of that business, as far as nonprofits are concerned.
Twenty three times since 1971 nonprofits have seen rates increase, by Acts of Congress. To be fair, we also had a rate rollback, in 1982, also as a result of Congressional action, when it became apparent that the Postal Service was not playing by the rules. Now, 17 years later, it's time for Congress to order another rate rollback, and as noted above, there's plenty of precedent for that action. As you know, Mr. Chairman, in the last postal rate case, nonprofit rates for Standard A mail increased, on average, by FIVE TIMES the percentage increase experienced by commercial mailers. Commercial rates were increased by the smallest amount ever, and we congratulate commercial mailers, the Postal Rate Commission, and the Postal Service for getting it right. But, unfortunately, the Postal Service has a long history of getting it wrong.
Here are some examples:
In the 1994 rate case, which was trumpeted as an "across the board" increase of 10.3 percent, the Postal Service initially determined that the costs for processing In-County newspapers had increased dramatically over the previous three years, and proposed increasing the rates by more than 30 percent. It turned out that what the Postal Service counted as an In-County publication more often than not was something else, and the final result was a rate decrease for In-County newspapers of about 2 percent.
In the Classification Reform case in 1996, the Postal Service admitted that it could not get a proper fix on the costs of Classroom mail, and proposed that, for administrative convenience, Classroom rates be made the same as nonprofit rates. By eliminating the rate, there would be no further need to (incorrectly) measure the costs of Classroom mail.
In the last rate case, R97-1, the Postal Service demonstrated again that it could not accurately measure the cost of mail, in this case nonprofit Standard A mail, and the Commission in its recommended decision acknowleged that fact. So the rate for basic nonprofit Standard A mail, used by the smallest mailers, increased by 22 percent, while the same mail sent by commercial mailers actually decreased by 8 percent, a situation that makes so little sense as to be farcical. Moreover, the average increase for nonprofits, as noted above, is FIVE TIMES the percentage assigned to commercial mailers.
The Postal Rate Commission thought so little of the Postal Service's numbers in the last rate case that it reduced the total revenue requirement by a third, and adjusted most individual rates downward. Proposed nonprofit rates were reduced by about 15 percent, with the Commission saying that, unfortunately, the record didn't permit a larger decrease. But we believe the Postal Service's record in this and previous rate cases speaks for itself.
Congress also had difficulty with the last rate case. As you are well aware, by a vote of 393 to 12, the House resolved that there should be NO increase as a result of the last rate case.
Mr. Chairman, you, too, obviously have been troubled by the Postal Service's inability to generate costing data that is accurate and precise, as evidenced by your order to the General Accounting Office to work with the Postal Rate Commission and the Postal Service to learn how the data can be improved.
Apparently, not even the Postmaster General trusts his own agency's figures. In one of his first major appearances, before the National Postal Forum last September, Mr. Henderson said that the Postal Service needed to build an "information platform" of real-time data, so it could know what its costs are, instead of relying, as it does in rate cases, on sampling. In fact, the Postmaster General said, "You can't rely on a sampling system to know where your costs are growing". But that is exactly what the Postal Service has done, to the detriment of nonprofit mailers, Classroom mailers, In-County mailers, and others.
Mr. Chairman, I'm sorry to say that we've been saving the worst for last. In yet another horror story, we recently learned that nonprofit rates were increased so much in the last rate case that some are actually higher than commercial rates, in clear violation of Congressional intent, and possibly in violation of the law. One of our members, the Elks Magazine, recently reported that the February issue of the Magazine ....the first issue mailed under the new rates which took effect January 10th... cost about $1800 more to mail at nonprofit rates for Periodicals than if it had been mailed at commercial rates. This was an apples-to-apples comparison, and is demonstrated proof that the Postal Service cannot propose accurate and appropriate rates.
We have appended to this testimony a letter from the circulation director of the Elks Magazine, along with two sheets showing the rate calculations, demonstrating the facts just discussed.Moreover, we learned even more recently that yet another member of the National Federation of Nonprofits, an organization that wishes to remain anonymous, experienced the same problem at the same time: it paid more for nonprofit postage rates than it would have paid in commercial rates, to mail its magazine. Also appended is a letter from the printer/mailer, along with calculations showing the differential.
Mr. Chairman, it is one thing for the Postal Service to claim, as it has in letters to you and other Members of Congress, that sometimes nonprofit rates have increased by smaller amounts than commercial mail. But the Postal Service has selectively cited certain rate increases, while ignoring the current huge differential. And here we have demonstrated proof that, in clear violation of Congressional intent, some nonprofit rates are actually higher than the equivalent commercial rates.
We believe that action should be taken immediately to correct this and other horrors of the R 971 rate case. We believe this action should be taken in advance of and independent of H.R.22.
We know how reluctant Congress is to take such action. We know that you and your colleagues would much prefer that the Postal Service and Postal Rate Commission work together to correct this problem. But, absent a full-blown rate case, they cannot. The law does not permit such a discrete action. And even a full-blown rate case puts nonprofits at a disadvantage, with small organizations on one side and the $60 Billion Postal Service, with its cadre of attorneys, rate analysts, consultants, economists, and the like on the other side. Most of those people are on staff, so the marginal cost to the Postal Service for a rate case is modest, while the cost to organizations of ratepayers who intervene, and especially for nonprofits, is enormous.
Like all other mailers, nonprofits need small increases and predictable rates. Unlike other mailers, nonprofits cannot increase prices when costs increase. A charity cannot say to its contributors, "You must send more money because our postage rates have increased". And fraternal organizations such as the Elks cannot say to its membership, "The Postal Service only made $5-plus Billion profit in the last few years, so we have to increase your dues."Nonprofit rates, in recent years, have not been predictable and nonprofits have not seen small increases. Rates have gone up frequently.., at least once a year (and sometimes twice), almost every year for the last 28 years.., and often, as in the last rate case, by large amounts.
Mr. Chairman, your legislation recognizes the special problems of nonprofits. Further recognition of the problems...especially the increase in rates of FIVE TIMES the increase assigned to commercial mailers.., is dramatically expressed in the thousands of letters nonprofits have sent to you and your colleagues in Congress over the last several weeks. This new information presented by the Elks Magazine and the second magazine is still further demonstration that the problems are widespread, egregious, and urgently need to be solved. Congress has shown a willingness to act to increase nonprofit rates 23 times, and to tighten eligibility several times as well. Now it's time to take action to reduce nonprofit rates. Each day that rates are improperly high is a day when nonprofits are sending their precious dollars to the Postal Service, instead of using that money in pursuit of their missions.
Please, Mr. Chairman, enact legislation in advance of H.R. 22, to roll nonprofit rates back to the same percentage increase assigned to commercial mailers for equivalent mail. That legislative approach is consistent with the optional pricing method for nonprofit rates which you have included in HR. 22. It is something that you and your staff have already considered and agreed to as an acceptable means to determine nonprofit rates.
The cost to the Postal Service of such action would be about $75 Million, depending upon how the figures are computed. Postmaster General Henderson recently said that a business that size is too small for the Postal Service to enter. He said there's "no money" in businesses that size...or no money worth the USPS getting involved with. He might just as well have referred to the amount as "pocket change" to the $60 Billion Postal Service. In fact, $75 Million is about one/eigth of one percent of the Postal Service's annual revenue. Stated another way, it's less than the agency's forecasting error each quarter. But for nonprofits, the amount is enormous, and it represents $75 Million in unwarranted nonprofit rates, this year, and every year in the future.Mr. Chairman, we appreciate the opportunity to testify today on behalf of our hundreds of members, all of whom are hurting because of unjustifiably large rate increases on January lOth.
The problem is large, and the solution is urgently needed.
Congress can correct the situation.
Only Congress can correct the situation.
We hope you will lead the charge.
Thank you.
END

LOAD-DATE: March 6, 1999

Document 22 of 51.


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