Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 4, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
1840 words
HEADLINE: PREPARED STATEMENT OF
DAVID F.
STOVER
GREETING CARD ASSOCIATION
BEFORE THE HOUSE
GOVERNMENT REFORM COMMITTEE
POSTAL SERVICE
SUBCOMMITTEE
BODY:
Mr. Chairman and Members of
the Subcommittee,
The Greeting Card Association is pleased to present this
testimony on H.R. 22, the Postal Modernization Act of 1999. The Greeting Card
Association's membership consists of the publishers of the seven billion
greeting cards Americans exchange every year. Some five billion of those cards
are sent through the U.S. mail. Practically all move as single-piece First Class
letters. Consequently, America's families and businesses, and the greeting card
publishers who help them exchange their personal messages, have a strong
interest in preserving a successful universal postal system. The GCA, through
its 58-year history, has championed the citizen mailer -- the individual citizen
who uses the mails to communicate with family and friends. The GCA has spoken on
behalf of the citizen mailer before Congress as well as in the course of a
continuous relationship with the postal agencies.
GCA believes strongly that
a healthy Postal Service is vital to our industry and to the individual
customers who use the mails for personal communication, and that any postal
legislation must protect the citizen mailer. Such protection was an
indispensable element of the original Postal Reorganization Act of 1970.1 We
have therefore evaluated H.R. 22, and recent Postal Service proposals, from the
standpoint of the citizen mail user, and more particularly the user of
single-piece First-Class letter mail.2 Our basic aim is to insure that the rates
the citizen mailer must pay remain fair and equitable.
I. H.R. 22
A.
Some beneficial features of H.R. 22. We commend Chairman McHugh for his efforts
to address a broad spectrum of widely differing views. The bill, H.R. 22,
appears to try to balance two sets of conflicting goals. On the one hand it
calls for substantial deregulation of postal rates and for expanded
opportunities for the Postal Service to try new, more entrepreneurial ventures.
On the other hand, it seeks to preserve at least some degree of fairness and
protection of captive postal customers, such as the citizen mailer, and to
impose on the Postal Service meaningful incentives to improve its general
productivity.
Besides attempting to preserve this general balance, H.R. 22
proposes beneficial changes in several specific areas:
a strengthened Postal
Regulatory Commission with effective information-gathering powers;
a mandate
for independent study of the labor relations system;
a streamlined and more
flexible financial management process for the Postal Service, and
specification of appropriate qualifications for USPS Directors.
Like the
Main Street Coalition for Postal Fairness, of which the GCA is
a member, we endorse these reforms.
More generally, GCA is
especially supportive of the efforts made in H.R. 22 to protect mailers with no
alternatives, of whom First-Class letter mailers are the largest group; to keep
rates fair; to prevent disproportionate burdens of overhead cost from being
shifted onto mailers who have no alternatives; and to help the Service become
more productive.
B. Questions concerning H.R. 22.
After following the
evolution of this proposal over several years, GCA is not convinced that the
broad "deregulation-plus-price-cap" approach is the right one for the U.S.
Postal Service. The GCA believes that adoption of this approach would prove
detrimental to the Postal Service's mission of binding the Nation together,
because it would have a harmful effect on the First-Class mailer. In particular,
we are concerned that
- the "baskets" into which H.R. 22 would divide
"noncompetitive" mails would harm the citizen mailer;
- the bill would
facilitate exploitation of the letter-mail monopoly;
- the long tradition of
universal service would be unnecessarily called in question; and
- for basic
structural reasons, the price cap would prove ineffective.
1. The problem of
noncompetitive mail "baskets." First, let us call attention to a major flaw in
the way H.R. 22 treats noncompetitive mail classes -- that is, the types of mail
used by the citizen mailer.
H.R. 22 divides noncompetitive mail into
"baskets" and, in particular, bifurcates First Class into single-piece and bulk
baskets. We see no need for this division, especially as H.R. 22 has evolved
over the past few years. Dividing First Class letter mail into two baskets is
especially inappropriate since all of it serves the same purpose - message
communication -- and since any cost differences among groups of First-Class
letters can be, and are, reflected in cost-based discounts. This issue was
thoroughly debated in the 1995 "reclassification" case, and the PRC decided
against splitting First- Class letters into separate bulk and single-piece
subclasses.3 Bifurcating First Class could serve little purpose other than to
invite discrimination. The ordinary citizen, once again, would be taxed for the
benefit of large-volume mailers.
2. Exploitation of the letter monopoly.
Moreover, the USPS has always been considered a vital public service and not a
profit maximizing enterprise.4 For this reason, among others, it has been
granted a statutory monopoly on letter mail. We doubt that, as a profit-seeking
enterprise, it could avoid exploiting this monopoly. Such exploitation of the
letter monopoly, of course, would hit the citizen mailer particularly hard.
3. The universal service study. There is little reason for a study of what
degree of universal postal service is needed -- and certainly no reason to
delegate such a study to the Postal Service. What level of universal service
America needs is a Congressional question. It should not be decided by an
interested agency likely to concentrate excessively on cost and net revenue
issues.5
4. Basic structural problems. Substantial deregulation of rates,
coupled with a limit on total revenues - that is, a price cap - may work in some
regulated industries whose basic characteristics are very unlike those of the
USPS. The same approach applied to the Postal Service, however, would prove to
be ineffective.
First, the Postal Service -- unlike utilities in the private
sector - has no "residual claimant" in the form of stockholders who seek
dividends and who, if disappointed, can remove the management deemed to be at
fault. We question whether transferring the "residual claimant" role to postal
managers and employees, who are themselves the largest part of the cost picture,
can be expected to produce similar pressures for greater cost efficiency.
Second, the Service is labor-intensive. Though it has invested heavily
in automation, it has little prospect of the kind of technological revolution
that made deregulation and price caps plausible in the telephone industry. Price
caps work easily when the industry is experiencing rapid declines in unit cost
-- for example, as the computers now underpinning telecommunications become
simultaneously cheaper and more powerful.
For all these reasons, the GCA is
unable to support these key aspects of H.R. 22.
Amendments proposed by the
Postal Service
In December 1998 and again in January of this year, the
Postal Service issued a series of proposed amendments to H.R. 22. The GCA
believes that these amendments, if accepted, would seriously harm the citizen
mailer -- while doing nothing to make the Postal Service more efficient. The
USPS changes would facilitate cost shifting, from competitive to noncompetitive
mails, and not cost reduction. They would deprive the price cap of its
justification -- which is that it promotes efficiency and cost reduction -- and
convert it into a largely automatic mechanism for passing on costs through
annual rate increases. The theory of price caps requires that the enterprise
subject to the cap must face a risk of financial loss if its costs are not
adequately controlled. The USPS amendments would eliminate that risk -- and thus
nullify even the theoretical arguments in favor of price-capped deregulation.
Since we do not know the,level of consideration that the Postal Service
amendments may receive in the future, we have attached our detailed comments on
them as an Appendix to this statement.
III. Conclusion
H.R. 22
represents a praiseworthy attempt to balance the existing postal tradition of
public service, consumer protection, and fairness to all mailers with the
concept of freedom for the Postal Service to expand, innovate, and engage in
creative pricing of its service -- all subject to a standing incentive to
control its costs. The Subcommittee has recognized these needs. Several specific
changes -- strengthening the PRC, studying the labor relations process,
financial flexibility for the USPS, and definition of Directors' qualifications
-- should be moved forward.
There are, however, several aspects of the bill
that the GCA cannot support. The noncompetitive mail baskets, and especially the
bifurcation of First Class, would be harmful to the citizen mailer, and would
invite discriminatory pricing. We are gravely concerned by the threat to the
historic concept of universal postal service implied in the proposed "study" of
the necessary scope and quality of universal service. We seriously doubt that --
given the basic structure of the Postal Service -- the price cap would be an
effective constraint on costs.
We deeply appreciate the opportunity to
present to the Subcommittee the views of the Greeting Card Association.
1.
For example:
- The temptation to resolve the financial problems of the Post
Office by charging the lion's share of all operational costs to first class is
strong; that's where the money is. The necessity for preventing that imposition
upon the only class of mail which the general public uses is one of the reasons
why the Postal Rate Commission should be independent of operating management
....91st Cong., 2d Sess., S. Rep. No. 91-912 (June 3, 1970), p. 13(italics
added).
2. Testifying in the Senate, the President of GCA noted that
-
first class mail is specific to each person. First class mail is important to
people. The USPS's own household diary studies confirm this .... it is the
valued personal correspondence from people dear to us that gets our first
attention.
Statement of Hamilton Davison before the Post Office and Civil
Service Subcommittee of the Senate Committee on Governmental Affairs, March 14,
1996, p. 3.
3. Mail Classification Reform I, PRC Docket No. MC95-1, January
26, 1996).
4. See 39 U.S.C. Section 101(a).
5. Decisions on what level
of service constitutes "universality" for a particular class of mail also entail
judgments regarding the allocation of costs among classes and, consequently, the
rates they must pay. For instance, if it were determined that only Express Mail
and Priority Mail required Saturday delivery to comply with the universality
mandate, the costs of Saturday delivery must be estimated - a process likely to
involve much arbitrariness -- and then could be allocated entirely to them, even
if Saturday delivery continued to be provided for all mail.
END
LOAD-DATE: March 6, 1999 
