Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1885 words
HEADLINE: PREPARED TESTIMONY OF
JERRY
CERASALE
THE MAILERS COALITION FOR POSTAL REFORM
BEFORE
THE HOUSE GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
Chairman McHugh and members of the Subcommittee, the Mailers Coalition
for Postal Reform is honored to testify before you today. The
Coalition was formed specifically to present a uniform voice for business
mailers on the complicated question of postal reform. The
members of the Coalition, Advertising Mail Marketing Association, American
Express, The Direct Marketing Association, Magazine Publishers of America, Mail
Order Association of America, and Parcel Shippers Association, represent mailers
who use all classes of mail and are significant users of the competitors of the
Postal Service as well. I am Jerry Cerasale, Senior Vice President, Government
Affairs, for the Direct Marketing Association, and I have the privilege of
representing the Coalition at this hearing.
We joined together in an effort
to effect postal reform. All of us want a financially viable
Postal Service in the 21st Century and believe that without
reform that goal is unattainable. This subcommittee has been on
a four-year journey to reform the Postal Service. That journey
began with your belief that the electronic information age would severely reduce
mail volume and, thus, financially burden the Postal Service. The Service should
be allowed more freedom to adjust its prices and services to meet the challenges
of competition.
We can see today that your belief was justified. Our nation
is in the midst of the greatest peacetime economic growth in its history.
However, during this economic boom First-Class Mail, upon which the financial
stability of the Postal Service is dependent, has not grown.
H.R. 22 is not
a guarantee that the Postal Service will survive well into the 21st Century, but
it provides the tools the Service needs to have a fighting chance. The burden
then will be upon postal management and labor to improve the competitive edge of
the Service by increasing productivity and providing products that meet the
needs of the marketplace.
The basic structure of H.R. 22, which separates
classes of mail into competitive and noncompetitive categories and provides rate
flexibility to the Postal Service (through indexing for the non- competitive
classes), is sound and has the Coalition's full support.
In this testimony I
will focus on those provisions of H.R. 22 that cover establishing
postal rates, classes and services, which the Coalition
believes are central to any postal reform.
COMPETITIVE AND
NON-COMPETITIVE PRODUCTS
Non-competitive products should be defined as those
products over which the Postal Service has a monopoly by law or through market
dominance. The Service should not have the carte blanche discretion to set rates
that H.R. 22 affords competitive classes if, in fact, the Postal Service has a
monopoly over that class. Mailers who use such classes need the protections
afforded by the indexed rate provisions in H.R. 22.We do agree, however, with
the amendment suggested by the Postal Service that only the Service may initiate
a request to the Postal Regulatory Commission to change a product's
classification from non-competitive to competitive. The Postal Service should
have control over its product offerings. However, once a product becomes
competitive, it may not be reclassified as non-competitive. Allowing the Postal
Service to change its mind and remove a product from the open market place would
be unfair to competitors who shift their business plans in response to the
Postal Service's competitive product offerings. Changing product classifications
from non-competitive to competitive must be a one-way street.
PRODUCT
BASKETS
We agree with the rate baskets for non-competitive products in H.R.
22 except that all international mail should be competitive. Thus, Basket One of
H.R. 22 should not contain single piece international mail. The Postal Service
faces competition today from both foreign posts and private carriers for all
international mail. That competition will only increase.
PRICING
We
agree with H.R. 22 that the Commission should establish base line rates under
the Act without provisions for contingency and prior years' losses. However, if
the Commission has issued a recommended decision in an omnibus rate case within
one year of the effective date of postal reform, that decision,
as implemented by the Governors, should be the base line rates.
Competitive
Products
We do not agree with the requirement in H.R. 22 that the minimum
mark- up for competitive classes of mail must equal the average mark-up for all
postal products. This provision is too restrictive and is counterproductive to
the goal of giving the Postal Service the tools to survive in the 21st Century.
If H.R. 22 were implemented today, current rates for the competitive classes of
mail would have to increase as much as 10%. Thus, H.R. 22 implies that the
Postal Rate Commission erred in its most recent decision. We strongly disagree.
The Commission fairly applied the factors in the Postal Reorganization Act and
established fair and equitable rates. H.R. 22 should not reverse the Commission.
We believe that the minimum contribution for competitive classes should be
established by the Commission for base rates after applying all the factors of
the Act. The minimum contribution should be calculated on a revenue-weighted
basis for all the contributions of the competitive subclasses. This would
maintain the "level playing field" for Postal Service competitors that the
Commission established. Finally, we believe that the minimum contribution should
sunset after five years. The five-year period provides ample time for both the
Postal Service and its competitors to adjust to the new market place. After five
years the Postal Service should be on the same footing as its competitors for
competitive products--don't do business at a loss, but charge a fair market
price.
Non-competitive Products
We whole-heartedly agree with the index
in H.R. 22 used for establishing rates for noncompetitive products. There must
be a productivity factor specifically applied to the CPI. This is needed as an
incentive to the Postal Service to hold down costs. Survival in the 21st Century
requires that the Postal Service dramatically improve productivity. We strongly
object to the Postal Service's amendment to remove the productivity factor
because the CPI already contains productivity improvement. The Service should be
required to do more than merely match productivity gains in the general economy.
To fail to do so will imperil the Postal Service and the mail industry that
depends on universal mail delivery. We urge this Subcommittee to require the
Postal Service to meet defined productivity improvements in order to adjust
rates using the index.
We also believe, however, that the pricing provisions
in H.R. 22 are too rigid. Its application of the rate bands mound the index
severely reduces the pricing flexibility the Postal Service needs. There are
varying opinions about the specific method that best achieves the appropriate
level of flexibility, but we believe that the provisions of the bill must be
changed to provide greater flexibility than H.R. 22 currently offers.
We
disagree with the Postal Service amendments to allow the Postal Service to
"bank" for up to five years any percentage increase allowed under the index
which was unused in a specific year. Such a plan would undermine, if not
eliminate, one of our objectives for postal reform -- to have
smaller, predictable, and manageable annual rate increases. At the most, the
Postal Service should be allowed to "bank" any unused
percentage for only one year. That would provide a little more flexibility for
the Service but would not undermine the manageable annual rate increase goal.
"SPECIAL" FINANCIAL CIRCUMSTANCES
We believe that certain financial
circumstances require special treatment in H.R. 22. Whenever the Postal Service
faces a severe financial exigency and additional revenue is needed, the Postal
Service should be permitted to address this need through an exigent rate case
filed with the Postal Regulatory Commission. We understand that such a case
would be a major admission by postal management that they had failed to control
costs--an incentive to control costs.
There may also be circumstances where
legislative, executive, or judicial action, which is beyond the control of the
Postal Service, results in unforeseen cost increases. In such circumstances
where the cost increase exceeds the increases allowed under the index, the
Postal Service should have the authority to petition the PRC for a waiver of the
index. The PRC could waive the index and permit a one- time adjustment that
would be passed uniformly to all mail users.
There may also be circumstances
where the rates assigned to a particular subclass may fail to recover that
subclass' costs. In such a case for non-competitive subclasses, the Postal
Service should have the authority to petition the PRC for a waiver of the index
for that subclass on a one-time, one-year adjustment basis. Whenever a
competitive subclass fails to cover costs, the Postal Service immediately must
raise rates for that subclass to cover costs.
MARKET TESTS
It is
important that the Postal Service have the ability to test new products. More
importantly, it must be allowed to test products that ultimately fail due to
lack of demand or inability to cover costs. Without that freedom, the Postal
Service will be tied to existing products and have very limited ability to
adjust to the information age. We support the provisions in H.R. 22 with one
amendment. We would increase the allowed size of the test to $100 million as
proposed by the Postal Service.
NEGOTIATED SERVICE AGREEMENTS
In short,
we applaud you for the negotiated service agreement provisions in H.R. 22. We
do, however, agree with the Postal Service that these agreements should be
implemented immediately after the Postal Service provides public notice of the
agreement and all its terms. After the notice, any party that believes it can
meet the terms of the agreement would also be eligible for that NSA. If that
party is denied a similar agreement, it may complain to the Postal Regulatory
Commission. In the same light, any party that believes that the noticed
agreement violates the provisions of H.R. 22 may complain to the Postal
Regulatory Commission. The Commission will have 90 days to render a decision
which will be final subject to judicial review.
COMPLAINT PROCEDURES
Users of the mail and competitors of the Postal Service must have an avenue
for redress of any grievances concerning alleged abuse by the Postal Service of
its regulatory discretion. Complaints should include allegations concerning: (1)
failure to render services in accordance with service performance standards
established by the Board of Directors of the Postal Service; (2) violation of
pricing discretion within the bounds of the index; (3) predatory pricing; (4)
unreasonable discrimination relating to a negotiated service agreement. The
Postal Regulatory Commission shall have 90 days to issue a decision in a
complaint. Any such decision is final, subject to judicial review.
We
appreciate this opportunity to present our views to the Subcommittee. We look
forward to working with you to enact this long- needed reform.
END
LOAD-DATE: March 6, 1999 
