Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
955 words
HEADLINE: PREPARED STATEMENT BY
LEWIS A.
SACHS
TREASURY DEPUTY ASSISTANT SECRETARY
(GOVERNMENT FINANCIAL POLICY)
BEFORE THE HOUSE GOVERNMENT REFORM
COMMITTEE
POSTAL SERVICE SUBCOMMITTEE
BODY:
Chairman McHugh and distinguished Members
of the Subcommittee, I am pleased to have the opportunity to submit this written
statement on behalf of the Treasury Department with respect to H.R. 22, the
"Postal Modernization Act of 1999."
The financial provisions in Title II of
the current version of H.R. 22 are similar to those in earlier versions of the
bill, which Treasury reviewed in letters dated September 24 and April 10, 1998.
These provisions would segregate the finances and operations of the Postal
Service into three distinct components: (1) Non-Competitive Postal, which would
continue to be financed through the existing Postal Service Fund; (2)
Competitive Postal, which would be financed through a newly created Competitive
Products Fund in the Treasury; and (3) Non-Postal, which would be financed by h
newly created corporation, the shares of which would be owned by the Competitive
Products Fund.
- The current bill includes new provisions designed to
strengthen the proposed fire walls between the three proposed Postal Service
components and to minimize the risks posed by the Competitive Products Fund. For
example, under the bill, the proposed Competitive Products Fund would no longer
be authorized to borrow from the Postal Service Fund. In.addition, the Postal
Service would be required to submit to the Secretary of the Treasury and the
proposed new Postal Regulatory Commission an annual report that would address
such matters as risk limitations, reserve balances, allocations of monies,
liquidity requirements, and measures to safeguard against losses.
While we
support the new provisions and appreciate the Subcommittee's efforts to address
Treasury's concerns, we continue to object to the financial provisions in Title
II of the bill. Our concerns are as follows:
Borrowing. H.R. 22 would permit
the Postal Service to borrow money for its Competitive Products Fund from the
market, rather than continuing to borrow from the Federal Financing Bank (FFB).
We object to this provision because we believe it would result in increased
borrowing costs to the Postal Service. In accordance with longstanding Federal
financial policies, Federal entities, such as the Postal Service, should borrow
solely from the Treasury or the FFB because that is the least expensive, most
efficient method of financing such debt. In fact, we have been receiving very
positive feedback from the Postal Service about its borrowing relationship with
the FFB.
Investment. The bill would permit the Postal Service to borrow on
behalf of the Competitive Products Fund from the market at preferential rates
due to perceived Government backing of the debt. The Competitive Products Fund
could then invest any excess monies in the "Non-Postal" corporation; that
corporation, in turn, could then invest in individual private companies. This
scenario ultimately would allow the Postal Service to borrow at preferential
rates and invest at potentially higher rates. Although the bill attempts to
limit investment in private equities to the Non-Postal corporation, the
corporation's ownership by the Competitive Products Fund and its financial links
to the Postal Service create a situation in which the increased risks undertaken
by the NonPostal corporation could ultimately be borne by taxpayers.
Banking. The bill would permit the Postal Service to deposit funds from the
Competitive Products Fund outside of the Treasury, without the Secretary of the
Treasury's approval. In addition, the Postal Service would be permitted to move
its funds in and out of the Competitive Products Fund at its sole discretion.
Under existing law, the Postal Service banks at the Treasury and may not deposit
funds outside of the Treasury without the Secretary of the Treasury's approval.
As a matter of sound Government fiscal policy, this arrangement is necessary to
allow centralized management of the Government's cash balances. If the financial
exemptions and privileges proposed for the Postal Service were to become a
precedent for all Federal agencies, Treasury's borrowing costs would be
increased, and its cash management and forecasting abilities would be weakened.
The Postal Service provisions cannot be considered in isolation. If other
Federal entities were granted similar authorities as sought for the Postal
Service, the adverse consequences on Treasury's management of Government funds
would be severe. Additionally, the financing costs borne by those entities would
be greater.
Non-Postal Corporation. Although the bill classifies the new
Non- Postal corporation as a private corporation, we view that entity as an
on-budget Federal agency. As such, it should be required to borrow, bank, and
invest with the Treasury and should be subject to the Federal oversight and
regulations that govern such agencies. The Non- Postal corporation should be
viewed as a Federal agency because it would be solely owned by the Competitive
Products Fund, and thereby, would have strong links to the Postal Service, which
is a Government entity. (Non-Governmental ownership is not contemplated for the
corporation.) Moreover, the Non-Postal corporation would have a Federal charter
and would be authorized to conduct postal business, which is perceived as a
Governmental function.
In conclusion, Treasury cannot support the financial
provisions in Title II of H.R. 22, as they are currently drafted. However, we
look forward to working closely with the Subcommittee and the Postal Service to
find ways to resolve our concerns with these provisions.
The Office of
Management and Budget has advised that there is no objection from the standpoint
of the Administration's program to the presentation of this statement.
END
LOAD-DATE: March 6, 1999 
