Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
2486 words
HEADLINE: PREPARED TESTIMONY OF
NEAL
DENTON
EXECUTIVE DIRECTOR
ALLIANCE OF NONPROFIT MAILERS
BEFORE THE
HOUSE GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
Mr. Chairman, thank you for the opportunity to continue our open
dialogue with you and the Subcommittee. Over the last four years, we have
appreciated the occasions to present formal testimony to you. More importantly,
we have respected the process that you, your colleagues and the outstanding
Subcommittee staff have created to find fair answers to the complex questions
before us.
The Alliance of Nonprofit Mailers represents over 200 nonprofit
organizations, as well as their affiliates, chapters and vendors. As you know,
our membership stretches throughout all segments of the nonprofit community-
incorporating religious, charitable, educational, scientific and philanthropic
groups alike.
In preparing to speak with you today, I enjoyed reviewing our
testimony and communications from the early days when we were all learning more
about the challenges before the Postal Service and the
possibilities for meaningful reform. We appreciate that many of
our concerns have been addressed in provisions now included in HR 22.
Over
the years, we have had very grave reservations about certain concepts in
postal reform that would give the Postal
Service greater freedom and flexibility in setting postal
rates. The most recent increases of January 10 offer glaring examples of the
types of abuse that we fear in an unfettered ratesetting environment.
Full
Committee Chairman Burton was right on the mark during the last hearing of this
Subcommittee. Recognizing the record surpluses enjoyed by the Postal Service
over the last five years, he questioned the necessity of the recent rate hikes.
Contrary to the comments of the Postmaster General, the January 10 increases
were unfair, unnecessary and unlawful.
Unfair to nonprofit mailers because
while the price of a First Class stamp rose by 1 cent, the price of basic
nonprofit Standard A mail rose 3 cents. Moreover, the new rate structure is so
bizarre that a nonprofit educational publication with no advertising can pay
higher postal rates than a commercial publication, thick with advertising, of
identical size, shape and weight.
Unnecessary because the Postal Service did
not lose $1.1 billion in test year 1998 as they forecasted -- but instead
enjoyed a $550 million surplus in FY 1998.
Unlawful because by law, the USPS
is supposed to break even. The US Court of Appeals will soon rule on our
contention that the excessive rate increases violated the statute. When the
Governors approved the January 10 increases, they knew that the existing rates
sufficed to allow for a surplus, but they implemented the increases anyway. We
can't turn a monopoly government authority loose to be raking in profits on the
backs of captive American consumers.
And therein remains our most serious
concern with reforms that offer the USPS more freedom to set prices without
rigorous oversight before the Rate Commission in an open proceeding.
We
recognize that our judgment has been shaped (and reinforced) by our recent
history of unfair treatment by the Postal Service. We just don't trust the
management and leadership of the Postal Service to always do the right or fair
thing for postal consumers or, particularly, our constituents.
That said
(and we've said it every time we've testified before this panel), we also
understand the potential problems that face the national mail delivery network
in the coming years. Many fear the diversion of mail to electronic competition.
We've heard USPS management trumpet the arrival of foreign interests who scheme
to invade US markets and overtake the Postal Service. And, although we may be
more skeptical than others, we bow to our learned colleagues in the
postal community who fervently believe that
reforms are necessary. So, despite continuing to have grave
reservations, we have given open- minded consideration to the types of
reform that may be required to bring our
Postal Service into the next century, while continuing to seek
protections from the unfair treatment foisted on some consumers, particularly
nonprofit mailers, in recent rate case proceedings.
As I mentioned earlier,
HR 22 now contains a number of provisions that respond directly to our concerns.
- The bill creates a fair system of a rate increase "cap" and 2% "bands" that
would protect nonprofits (and other mailers) from being "singled-out" by the
USPS for especially damaging rate increases (as in Docket R97-1).
- The bill
would protect mailers from "above the cap" increases in consecutive periods.
That is, the USPS could not "pile on" a series of CPI+2% increases year after
year. In response to our concerns, the bill would also change the language
mandating that nonprofit overhead (i.e., institutional) costs remain at 50% to
read "no greater than 50%." Both the USPS and the PRC have told us that this
provision likely would have mitigated the R97-1 increases on nonprofit mailers.
(Section 2020))
- The bill also offers an important safeguard to prevent the
USPS from attributing more costs to nonprofit mail than to commercial rate mail
with identical characteristics. Although the costs attributed to nonprofit mail
are still well below this threshold, the Postal Service has reported unexplained
and disproportionately high cost increases for the nonprofit subclass. The
language in the bill is another safeguard to prevent tampering with preferred
rates in the future. (Section 201, 3722)
- The revision also contains
language crafted by the Alliance to ensure the authorization of nonprofit
Periodicals (second-class) "requester" publication status. Presently, nonprofit
publications must only mail to a list of subscribers, whereas regular periodical
publications can mail to unpaid "requesters." Such a correction would allow for
greater dissemination of educational material and for greater contributions to
USPS institutional costs. (Section 215)
- The bill also retains
authorization for annual appropriations to the USPS for preferred rate mail,
free mail for the blind, and voter registration mail. Earlier drafts would have
ended those appropriations and called upon the USPS to assume full
responsibility for congressionally mandated social obligations.
This
Subcommittee will soon move forward with a final version of HR 22 that will
become a topic of debate in the full committee and eventually, the full House of
Representatives. As you prepare your final modifications, we offer these points
for your consideration and review.
USPS Proposed Amendments
Frankly,
we were surprised by the thrust of the recently-proposed USPS amendments, many
of which would dismantle the best parts of HR 22. - The confusing notion
of"banking" rate increases to be applied later, at the discretion of USPS
management, cuts directly to the predictability and moderation of rate
increases, and should be rejected.
- The USPS amendments also suggest that
the "x-factor" for productivity is superfluous and that the CPI already accounts
for productivity. This is nonsensical. We ask that you continue to rely upon the
HR 22 provisions that allow the PRC to set a productivity offset to the index.
Frankly, it's highly disturbing that any senior postal official would be so
flippant as to suggest that potential productivity gains in future operations
would be so insignificant. Perhaps we must overcome that type of thinking before
any legislative reforms can be implemented.
I'm also
concerned about the Postal Service's lack of candor with regard
to this point. Improving productivity was the main rationale offered by the USPS
in the recent rate case for its $1.6 billion-a- year rate increase. And the
Postal Service's recent Annual Report for 1998 boasts of strategic plans "to
improve Total Factor Productivity over time at a rate that at least equals or
exceeds any improvement in the private sector MFP" (Multifactor Productivity).
- The USPS also proposed that the baseline rate case envisioned in HR 22 be
rejected and that rates in effect eight months after the passage of HR 22 become
the baseline. While we'd love to avoid another rate case, the existing rates
should not serve as the baseline rates for the statutory escalation formula. As
we have outlined, the R97-1 rate structure is unlawful and unfair and the
costing figures are inherently flawed. The revenue requirement was also poorly
conceived. It includes a recovery of prior year's losses, which will not
continue indefinitely. The full cost-saving effects of automation and
worksharing were not accounted for, and the increase included a number of
extraordinary one-time management initiatives, such as addressing the Y2K
problem. In our view, the resulting rates generate more than $1.6 billion a year
in illegal monopoly profits, and the entire set of rate changes was illegal.
- We appreciate that many in the mailing community find the prospect of
negotiated service agreements (NSAs) to be a very attractive tool for adding
value for customers and the USPS. Many of our concerns with offering contract
rates are addressed very adequately in HR 22 (e.g., recovery of attributable
costs and a fair portion of institutional costs; equal opportunity for mailer
participation; and open proceedings before the PRC to evaluate the agreement).
We support those safeguards and protective criteria and would reject the secret
deal making that would likely follow from the USPS amendments.
- We are
troubled by USPS proposals on the pricing of competitive products. The USPS
amendments eventually would allow the markup of overhead contributions from
competitive products to lapse and also would tinker with the attributable costs
assigned competitive products. These proposals should be rejected.
- And
finally, we have strong reservations with respect to the Private Law
Corporation. Although the pursuit of competitive products, which may or may not
be postal related, may be attractive to some, we are concerned that it will
cause officials at Postal Headquarters to "take their eye off the ball." And
we're not at all sure that the generation of profits by the Private Law
Corporation will translate into savings and benefits for captive consumers of
the monopoly. After reviewing the USPS proposed amendments, we're certain others
in the postal community will have more to say about the slope of that playing
field.
One USPS amendment does merit consideration. We are fascinated with
the idea of creating a separate "basket" for preferred rate products. We have
always been concerned that by averaging a basket of similar commercial and
nonprofit mail, preferred rate mailers would fare poorly. The notion that all
preferred rate mail be averaged separately is interesting.
However, the USPS
proposes to lump nonprofit Standard A and nonprofit Periodicals mail in the same
basket. We warn that this could lead to serious, unanticipated problems. Unlike
other baskets, the preferred rate basket would contain dramatically different
types of mail. The USPS would be costing and pricing apples and oranges from the
same basket. The volatility of costs, prices and rates would be unpredictable.
Allow me to stretch the basket metaphor a bit. My wife and I have a picnic
basket at home that is divided in the middle. If the entire preferred rate
basket of products (Standard A and Periodicals combined) met the average indexed
increases, and each of the separate categories within the basket (Standard A and
Periodicals individually) met the indexed increases, then we believe this would
be a most acceptable improvement upon HR. 22.
PRC Proposed Amendments
The Subcommittee recently heard the testimony of the Postal Rate Commission
Chairman Gleiman, who offered a very interesting perspective and stem warnings
about USPS proposals for the private law corporation. As we continue to digest
his testimony, we wish to underscore some of his suggested enhancements of HR 22
that we find to be both reasonable and favorable.
- Specific language
requiring worksharing discounts to reflect full cost savings would be an
enhancement of the bill -- especially as it pertains to negotiated service
agreements.
- Likewise, a clear definition of the term "product," specifying
that each rate cell is a product, might prevent confusion in the future.
-
We most affirmatively support allowing the PRC authority to set annual
adjustment factors to reflect evidence of increased productivity gains. The only
way to put a true cap on postal rates is through increased productivity. I don't
think mailers are here because we look forward to annual postal rate increases.
The promise of enhanced productivity driven by management incentives is the real
payoff for postal consumers in HR 22.
We also would like to repeat a
proposal that we suggested in 1996. There seems to be quite a bit of discussion
over the quality and qualifications of the USPS Board of Governors. After
evaluating recent decisions by the Board, we continue to wonder why individual
Governors have no personal staff. The USPS is a $60 billion business. Although
the addition of the Office of the Inspector General is a valuable tool, we also
believe that an independent staff member for each Governor would improve the
quality & decision-making by part-time Board members. Such a change would
also be consistent with the trend in recent years toward more activist oversight
by corporate boards of directors in the private sector.
And finally, while I
have your attention, we'd like to comment on one other serious problem facing
postal consumers and, most particularly, nonprofit mailers. We believe that some
divisions of the Postal Service have gone entirely overboard in "revenue
protection" efforts.
Although Postal Inspectors and others should be
commended for identifying fraud and other illegal activity that robs resources
from the Postal Service, we have witnessed unseemly bullying and harassing of
nonprofit mailers over questionable revenue deficiencies. As you know,
eligibility restrictions outline what a nonprofit mailer can or can't advertise
in a preferred rate mailpiece. Many of the rules are shaded in gray
generalities; the policies are often unclear to the mailer and incorrectly
applied by the postal official. Some USPS agents have aggressively attempted to
bankrupt community-based nonprofit organizations, or drive eligible mailings out
of the nonprofit mailstream, with questionable USPS interpretations of the
eligibility restrictions. We'd like to discuss this further with you, the whole
Subcommittee and staff. The same blueprint used in the series of hearings on the
heavy- handed approaches of the Internal Revenue Service might be in order as we
evaluate the methods used by the USPS in squeezing revenue from some postal
consumers, especially nonprofit mailers.
We thank you and your colleagues
for your fair, careful and insightful approach to protecting the viability of
our postal service into the next century.
END
LOAD-DATE: March 6, 1999 
