Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3190 words
HEADLINE: PREPARED TESTIMONY OF
JOHN T
ESTES
MAIN STREET COATITION FOR POSTAL FAIRNESS
BEFORE
THE HOUSE GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
Chairman McHugh, members of the Committee on Government
Reform, Subcommittee on the Postal Service, on
behalf of the Main Street Coalition for Postal Fairness, thank you for this
opportunity to submit our comments on H.R. 22, the Postal Modernization Act of
1999. We are customers of the Postal Service who represent more than 40% of its
annual volume and mail in the First, Periodical and Standard classes. My name is
John T. Estes and I am the Executive Director of the Coalition. Main Street
members accompanying me today are my colleagues John Sturm, President and CEO of
the Newspaper Association of America; Joe Roos, Executive Director of the
Associated Church Press; Lee Cassidy, Executive Director of the National
Federation of Nonprofits; Guy Wendler, President of Stamats Communications, Inc.
representing American Business Press; and David Stover, Esq. representing the
Greeting Card Association.
Main Street members share the COMMON GOALS of
striving for a Postal Service that is first a public service, offering fair and
affordable rates, providing universal service, committed to frequent and timely
delivery and which is structured to preserve and foster a viable, productive,
efficient and stable agency. In working for these common goals, we share
UNIFYING THEMES to resist any bias favoring large mailers, insist on Postal
Service management policies that protect those with no other alternative mailing
choice and make the content of the mail the primary standard on which postal
rates and timely service are based. These goals and themes we believe are
confronted with THREATS from the ruinous impact which would result from an
ongoing effort by some to weaken the Postal Rate Commission, and encourage
discriminatory rates. To us these goals, themes and threats are not platitudes,
but rather the basis of our unity and the standard by which we judge the many
provisions of this complicated Bill.
As you have stated, as recently as last
Fall when H.R. 22 was reported out of your Subcommittee, this legislation should
be considered as a work in progress. We concur with your assessment because
under your leadership there has been a lot of work and significant progress.
Main Street has over a number of months been a part of this process and ,we
think, a useful part. From our standpoint the provisions of H.R. 22 generally
fall into three broad categories:
First, those proposals in the Bill that
appear to need little or no modification and which should be implemented in the
near future. These would advance the effectiveness of the Postal Service and its
efficiency in accomplishing its mission; Second, those proposals which are not
necessary or desirable on the basis of what we know now and in the form in which
they appear - but which might, if they were recast or if clear evidence of need
were forthcoming, deserve support; and Third, reform proposals which would not
be appropriate and should simply be dropped.
We would like to preface those
comments, however, by stating a shared concern. Do circumstances justify these
extensive proposed reforms? H.R. 22 is based on the assertion
that the Postal Service is or shortly will be in trouble, and
that declining volume due to an inability to effectively respond to new and
emerging competitive innovations in methods of communication, will in turn
severely compromise the USPS mission in years to come. This theory would surely
strike fear into the hearts of many. Recognizing, however, that the bulk of the
revenue and volume come from First and Standard Mail (A), what are the facts
(based on the 1998 USPS annual report)?
Year 1998 Class Volume Revenue First
Up 1.5 % Up 1.8% Std Mail (A) Up 7.3 % Up 6.8% Priority Up 9.0 % Up 7.6% Std
Mail (B) Dwn 1.7 % Dwn 0.1% Periodical Dwn 0.9 % Up 0.2 %
The above USPS
analysis, which is representative of recent trends in prior years, provides no
evidence that the house is on fire. But to justify the substantial - sometimes
drastic proposals in the Bill we must conclude that there is substantial,
credible and persuasive evidence that there will be a fire. The record, however,
reveals no such evidence. We often hear the warning that it would be unwise to
wait until the Postal Service is broken to fix it. But without evidence of
present or imminent "breakage" - such as declining volume or revenue trend lines
over a representative period of time - demands for changes of the nature
proposed in HR. 22 rest on little more than conjecture.
This cautionary
concern is raised here to emphasize the danger of being swept up by the momentum
of far reaching reforms without continually reviewing the basis on which such
reforms should rest. We do not believe that the case for drastic change has yet
been made. It must be made, if the broad mailing public is to be expected to
support a reform bill that leans so far in the direction of deregulation. We do
not disagree that support for some of the other more extensive
reform proposals could emerge if it can be established
convincingly that a postal service crises for the public is
approaching or will approach fairly soon. We do not question that efforts to
improve the efficiency and effectiveness of the Postal Service
should be an ongoing objective.
Major reforms of large
public institutions need not and perhaps should not be attempted at one time
barring an emergency. On the other hand phased in structural improvements would
minimize the danger of economic or cultural dislocation inherent in abrupt
changes in an institution affecting nearly every citizen.
Set out below are
Main Street's comments on the three major categories mentioned above. This
presentation does not cover every provision of H.R. 22. Those provisions not
reviewed here should not be deemed immediately desirable.
Category One:
Immediate Desirable Reforms
POSTAL REGULATORY COMMISSION
The new Postal Regulatory Commission with effective subpoena
authority and the power to require meaningful reports on costs and service would
benefit mail users substantially. The policy of a strong Commission with
expanded jurisdiction and subpoena authority is long over due for enactment.
LABOR MANAGEMENT RELATIONS Addressing labor management issues by utilizing
the expert services of an outside agency should lead to an arms length
evaluation of this area. This review should include the operational as well as
the more strictly labor-relations effects of any propose
reforms.
FINANCIAL MANAGEMENT Relaxing restrictions on
Postal Service banking procedures should aid the USPS in
developing a more responsive financial management procedure.
DIRECTORS
QUALIFICATIONS Nailing down precise and meaningful qualifications for USPS
Directors is a reform which should be immediately put in place. It has been
suggested that candidates have a wide variety of skills and experience which is
a qualification for diversity that Main Street endorses.
Category Two:
Changes Whose Desirability Is Yet To Be Established RATEMAKING UNDER PRICE CAPS
We will not discuss here the theoretical issues involving implementation of a
price cap system other than our concern about the lack of bona fide residual
claimants (not Postal Service employees, but rather outside investors) and the
consequent absence of motivation for effective performance. This suggests that
not withstanding its possible application in other industries, price- cap
ratemaking may be unsuitable for the USPS. In line with this basic concern, we
note that we are unaware of any of the private sector outside economic experts
who have testified on this issue (in this or any prior Congress) who have
endorsed price cap ratemaking for the Postal Service. The entire price cap
system is aimed at de-coupling rates from costs. While the desire to move away
from a cost based ratemaking system is certainly, in theory, an appropriate
regulatory objective for some industries, we find troubling this current lack of
endorsement for a postal price cap scheme, which is one of the linchpins of the
Bill. Price caps, because they do depart from close examination of costs, have
the potential to become price escalators rather than as a means of controlling
prices, (at least for captive traffic) - especially where the regulated firm
faces only limited competition. Moreover, in the case of noncompetitive
statutory monopoly services, we are concerned that price caps can lead to
service reductions rather then to cost reductions. For a price cap to be
effective there must be little or no opportunity for the regulated concern to
escape its discipline. That is not true here and that should be corrected. In
addition, we refer to what appears to be an astonishing exemption to the price
cap discipline with respect to union and non-union employees of the Postal
Service. Such an exemption, if true, has by itself the potential of destroying
the discipline essential for a meaningful price cap system. This needs
clarification.
Baseline Rate Case
This proceeding is essential for a
meaningful price cap regimen and it should be reinstituted periodically as a
tune up proceeding to account for changes in the economy as well as in Postal
Service circumstances and the varying costs of different types of mail. The USPS
proposal to forego any such proceeding at any time is totally without merit and
should be rejected out of hand. Product Baskets
There is no justification
for dividing First Class letters into two baskets, which we refer to in our
Category Three below. In addition the legitimacy of proposing product baskets at
all requires additional evaluation under the concepts proposed in H.R. 22. Where
there is no distinction in purpose or content of the mail, there should be no
distinction in the way rates are set under the current system of rate making, or
under one based on price cap techniques.
Rate Flexibility for Noncompetitive
Products
Under current law, the PRC plays a crucial role in checking any
tendency of the Postal Service favoring some customers over others. Particularly
the very biggest mailers over the smaller ones. Allowing the Postal Service to
make rate decisions, and not the PRC, gives rate setting discretion to the wrong
party, legitimizes the idea of favoring one customer over another in the area of
noncompetitive rates and should be avoided. In addition, the Bill creates a
system of raising or lowering noncompetitive rates on a product by product
basis, yet contains no definition of a product. One interpretation of the Bill
is that a product is a subclass or one level below a subclass, but the lines of
demarcation that are drawn in that case are not clear. For example, Periodicals
are a class and regular rate Periodicals are a subclass, but it is unclear what
if any products, as referred to in the Bill, would come within that subclass.
There are thousands of periodical rate combinations and Standard mail rate
combinations that exist. Under the proposal is each to be considered a product?
This is important because it is the pivot on which the rate setting mechanism
turns. In other words how much the mailer will pay, or not pay, as the case may
be. In a similar vein, we are very concerned that unless clarified, this rate
flexibility mechanism would permit rate discrimination within a basket for
various types of mail in that basket. The potential for such discrimination must
be corrected.
Market Tests
The proposal to sanction Postal Service
market tests on a largely deregulated basis, up to $10 million and in some cases
$100 million per test is unwise. In any event it should never exceed $10
million, which under some circumstances could also be excessive. For competitive
products, a specific market test would not even have to cover its costs. While
one could debate whether such a provision protects the postal system overall, it
is clear that such a provision provides no protection to a local business (large
or small) that is on the receiving end of a USPS test of a competitive product.
In weighing the public interest, Congress has a responsibility to consider not
only the wellbeing of large mailers, national competitors, and the postal system
as whole, but also the interests and well-being of local businesses who would
have to compete against companies for whom the Postal Service has created a
special "market test". The Postal Service should not be in the business of
helping one company "beat" another in the market place.
The above areas
should be reviewed before proposing implementation. As noted, the house is not
on fire and there is time to make sure this complicated package of reforms has
the best possible chance of attracting widespread public support.
Category
Three: Undesirable Reforms
Negotiated Service Agreements (NSA) This
provision in the Bill allowing users of monopoly and other noncompetitive
products to enter into contracts with the USPS for tailored favorable rates and
other terms should be dropped. Such a procedure strikes at the heart of the
confidence the citizen mailer has developed in the open, fair and public
procedure employed in the ratemaking process by the PRC. Allowing the Postal
Service to tailor an individual rate for one company necessarily means that it
can favor one company over another that is not exactly similarly situated, but
whose mail has close but not identical cost saving characteristics. The Postal
Service is a public service organization which should provide delivery services
equally for the benefit of all mailers. The principle of equal rates for equal
service should be the guiding theme in providing noncompetitive services.
Special deals should not be allowed. Several years ago when this volume discount
bilateral contract rate reduction approach was advanced by the Postal Service, a
major justification was that competitive pressures demanded immediate action in
order for the Postal Service to compete with the private sector. This rationale,
by definition, does not apply to noncompetitive products and thus there should
be no NSAs for noncompetitive products. One of the major disadvantages of NSAs
is the potential they have for discriminatory rates. We remain unsatisfied that
issue has been solved and urge that this proposal be dropped.
First Class
Product Baskets As noted above there is a strongly held view that the entire
concept of product baskets should be considered in our Category Three. Clearly,
however, as related to First Class, the concept should be scrapped as
inconsistent with the long established case that mail groupings - and the
related differences in institutional costs - are to be separated only when and
if the mail groupings concerned differ as to the purpose for which they are
sent, the type of sender and the content of the mail. These criteria for
establishing mail groupings for assignment of costs are consistent with the goal
of maximizing the social benefits the Postal Service confers. It is that social
benefit that justifies the Postal Service letter monopoly. Also it should be the
basis for decisions regarding recovery of institutional costs, whose recovery is
essentially a form of tax and as such should respect the policy behind the
monopoly.
The USPS Corporation It is not as a general rule sound public
policy for a government agency to compete with the private sector. The
corporation would clearly be perceived as the alter ego of the Service. It would
distract managerial effort and attention from the core responsibilities of the
USPS. As such, it represents not only a departure from traditional Postal
Service activity, without a showing that the public good would be served. This
is truly a radical proposal and it is even more disturbing since other than at
this late date there is no public record examining this proposal. At the very
least, exhaustive hearings and an in depth evaluation would be required. Since
this has not occurred it should be excised from the Bill at this time.
Accordingly, an in depth analysis now of the other far reaching provisions of
this portion of the Bill would in our judgment.be premature. As a general rule,
however, we would associate ourselves with the comments of Mr. Gleiman, Chairman
of the Postal Rate Commission, before you on February 11, 1999. If for no other
reason, this proposal in order to maintain public confidence, calls out for
greater public dialogue.
USPS PROPOSALS
In his remarks before you
several weeks ago the Postmaster General indicated there are two choices before
us...let the USPS die or permit regular universal service to continue. As noted
above, Main Street has absolutely no desire to see the demise of the Postal
Service and every interest in preserving universal delivery of mail at
affordable and non-discriminatory rates by the Postal Service. We are confident
that you, Mr. Chairman, and other Members of your Subcommittee share this view.
The Postmaster General expressed concern about some competitive postal products
and potential foreign government invasion of the domestic USPS market when he
appeared before you. Even so, we were not left with the impression, of an
immediate pressing crisis, that would preclude further inquiry and require
immediate legislation.
In our view the USPS proposals (a) contain excessive
cost allocation flexibility so that competitive mail rates would be linked to
Postal Service judgmental accounting practices which could lead to pricing
products below cost rather than based on a factual analysis, (b) favor mail
classes in the competitive category at the expense of the noncompetitive
category and, (c) as a general rule seeks to increase the Postal Service's
discretion to design, market, and price its products unilaterally independent of
meaningful PRC oversight - and potentially to the neglect of its vital universal
service obligation.
We refer specially to Postal Service proposals regarding
the price cap which would destroy the incentive for improved productive
efficiency by linking price cap application to internally incurred costs; the
critical definition of a "product" within a class of mail; phasing out the
effort in H.R. 22 to guard against loading of unfair proportions of
institutional costs onto noncompetitive products in order to reduce competitive
product rates, compounded by the discriminatory treatment of purchased
transportation between competitive and noncompetitive categories; and the
overall effort to reduce public access to information about USPS costs and
transactions.
In general, the USPS proposals if adopted would move many of
the reform principles advanced in H.R. 22 from our Category Two above to
Category Three.
Conclusion
Where do we go from here? Some will
undoubtedly say four years is ample time for consideration of this legislation
and we should finish the job now. However, Mr. Chairman, in our judgment we
should continue to move ahead under your leadership with a focused program of
Postal Service improvement. We believe that you should advance those proposals
which enjoy wide spread support and simultaneously refine and revise the others
in an effort to gain greater public understanding and support.
END
LOAD-DATE: March 6, 1999 
