Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 5, 1999, FRIDAY
SECTION: IN THE NEWS
LENGTH:
1495 words
HEADLINE: PREPARED TESTIMONY BY
MICHAEL
DZVONIK
CHAIRMAN, MAIL ADVERTISING SERVICE ASSOCIATION INTERNATIONAL
BEFORE THE HOUSE GOVERNMENT REFORM
COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
On behalf of the Mall Advertising Service
Association International (MASA), I would like to thank the Chairman for this
opportunity to comment on H.R. 22, the Postal Modernization Act of 1999. I am
the Chairman of the Board of Directors of MASA and Chairman and CEO of Grizzard
Advertising, a direct marketing and fund raising firm headquartered in Atlanta,
Georgia. Our company has about 650 employees in our production facilities in
Atlanta and Houston and in agencies and sales offices elsewhere around the
country.
MASA is the trade association for the mailing services industry. It
has about 680 member companies nationwide, comprised of lettershops, data
processing companies, mailhouses, direct mail agencies, fulfillment operations,
and suppliers to these businesses. We are a very significant "partner" of the
Postal Service, performing mall preparation services for what has been estimated
to be half of the Standard Mall (A)advertising mail handled by the Postal
Service. We also process a large volume of First Class mail. Our role is to
prepare the mail that our "partner" the Postal Service delivers. As the
Committee is aware, MASA has provided testimony before on the predecessors to
H.R.22. My predecessor as Chairman of MASA, Dan Goodkind, testified in support
of H.R. 3717, and offered suggestions for modifications to that bill that, in
the association's view, would help implement the objectives of postal
reform. Many of these suggestions were addressed in the original
version of H.R. 22, and we are grateful that our voice was heard. We offered
additional comments on the original version of H.R. 22. In general, we were
supportive of postal reform as reflected in H.R. 22. We
expressed concerns about the details of some of the pricing, ratemaking and
regulatory reforms in the bill. To some extent these concerns have been
addressed. MASA continues to be in favor of postal reform. MASA
also continues to support the regulatory reforms in H.R. 22,
specifically including the flexibility that H.R. 22 would afford the
Postal Service in pricing competitive and non-competitive
products and proposing new and experimental services. We also support special
negotiated service agreements for the competitive products, but not for the non-
competitive monopoly products if piece volume is one of the price determinants.
But the one paramount feature of H.R. 22 that MASA members, as small
businesses that depend upon and work in close partnership with the Postal
Service, cannot under any circumstances support, is the provision for a private
law corporation. This corporation would be wholly owned by the Postal Service,
financed by Postal Service revenues, and permitted to compete in any area-
postal or non-postal - without constraint on its activity. In short, if the
private law corporation were to become a reality, each and every MASA member
would be at risk that the Postal Service would decide to move up the supply
chain and enter into competition directly with those businesses that now supply
it with so much of the advertising mall it delivers. Despite MASA's earlier
objections to this provision when it first appeared, it remains a central
feature of the bill.I cannot emphasize enough how strongly MASA objects to the
private law corporation, on both philosophical and practical grounds.
We see
no possible philosophical justification for creating a government backed
corporation to compete with private business. While the Postal Service is
clearly facing many pressures on its core business from electronic diversion and
other sources, the remedy is not that government should go into business to
compete with the private sector for profits. There is no precedent for the
unparalleled scope the private law corporation would be afforded. Other
government sponsored enterprises, upon which the bill's provisions are
apparently modeled, are limited to activities that are within the basic mandate
of their charter. For example, Fannie Mac is chartered to foster home ownership
by facilitating residential mortgage financing, and it engages in activities
incident to this charter. And yet, even within its relatively focused charter,
its participation in a market already served by many other private corporations
has proved controversial, as private securities firms have complained vigorously
that Fannie Mac enjoys an unfair competitive advantage in the mortgage backed
securities markets. Under H.R. 22, there is no such focus - the private law
corporation lacks even the justification that it is to advance a particular
governmental policy. Its only justification is that if it can successfully earn
profits at the expense of its private competition it will reduce the costs of
providing mail services by the Postal Service. It is impossible to conceive that
the American public or business in general would support the concept that
government should go into competition with private business in order to reduce
the cost of providing essential governmental services.
The Congress has
recently expressed its view on government being engaged in clearly
non-governmental activities by passing S. 314, the Federal Activities Inventory
Reform Act (FAIR Act). While the FAIR Act is designed to ensure that government
agencies restrict themselves to reasonable "government" activities, HR22's
private law corporation provision would authorize the Postal Service to go into
any business it desires, including,ludicrously, the opening of Buick dealerships
around the country.
The great irony of the private law corporation,
moreover, is that it does not even accomplish its stated objective. Under H.R.
22, the private law corporation is financed by the Competitive Products Fund,
that is, from Postal Service funds that would otherwise support core postal
services, either competitive or non-competitive. Assuming it earns profits, and
does not simply lose the Postal Service investment through unprofitable
operations, there is no requirement that such profits benefit the Postal Service
core function - delivery of the mail. If the private law corporation simply
plows its profits back into building its competitive business, the Postal
Service will not see one dime of benefit from the private law corporation. All
that would occur is an asset, in the form of stock ownership in the private law
corporation, on the books of the Postal Service. There is, frankly, no
particularly easy way to fix this problem consistent with the basic objective of
growing the private law corporation's activities. Normally a growth company
would want to use revenues and profits to build its business. Requiring it to
pay dividends, for example through some cumulative preferred dividend feature,
would only put a brake on the growth contemplated by the private law corporation
in the first place. Clever accounting or financing vehicles could probably
circumvent any such provision, in any event.
The fundamental problem with
the private law corporation for MASA's members, however, is that it would put
our members in competition with their Postal Service "partner." Our members work
with the Postal Service every day to make the mailstream more efficient and to
make mail a more attractive advertising product for our customers. Our
businesses are not only dependent on the Postal Service, we are a true partner
in the sense that both our businesses and the Postal Service have the same
interest in improving postal products and services and growing the volume of
mail. Indeed, advertising mail is the fastest growing part of the mailstream.
Through the private law corporation, however, it would be entirely possible that
the Postal Service would, as one person has put it, try to go up the "value
chain" by expanding its operations vertically into the business areas that
provide mall to the Postal Service for delivery. If the private law corporation,
using the resources it obtains from Postal Service funding, enters the business
of providing list maintenance, sortation, printing, stuffing, mail preparation,
and the like, our MASA members would face competition from their most important
partner, a partner upon whom they are absolutely dependent.
MASA simply does
not believe that this is either fair or good policy. Small businesses throughout
the country would undoubtedly be appalled if they knew that Congress was
contemplating a government sponsored competitor such as the private law
corporation.
MASA very much appreciates and supports the diligent and hard
work by the Chairman and the Committee to come up with a bill that contains so
much that is positive and necessary in postal reform. If the
regulatory provisions of H.R.22 are passed, great progress will have been made
to enable the Postal Service to continue as a healthy enterprise providing the
fundamental mail delivery service that is its central mandate. We urge that the
Committee reconsider the private law corporation and excise it from H.R.
END
LOAD-DATE: March 6, 1999 
