Frequently Asked Questions on H.R. 22

What is H.R. 22, the Postal Modernization Act of 1999? [Up]

H.R. 22 is a bill to fundamentally modernize and reform our nation's postal laws for the first time since 1970. Rep. John M. McHugh (R-NY), Chairman of the House Subcommittee on the Postal Service, is the bill's author. In general, H.R. 22 would give the Postal Service greater freedom to compete while establishing new rules to ensure fair competition and protect the public interest.

Why is postal reform needed? [Up]

Since the Postal Service was created 29 years ago, the commercial environment of the Postal Service has changed radically:

• New electronic technologies -- fax, email, cable TV, and Internet -- have developed and are increasingly capable of replacing document transmission services. More than 40 percent of businesses and 20 percent of households in the United States have Internet access today; Internet usage is said to double every 100 days.

• Letter mail, the core of the postal business from the birth of the nation, is today in absolute decline; only a shift in advertising mail to first-class is keeping first-class volume growing -- at reduced rates.

• Bills, statements, and payments represent $17 billion of the Postal Service's $60 billion annual revenues. Much of this mail will soon be lost from the mail stream. For example, about 20 banks, representing the majority of checking accounts in the United States, have formed a joint venture that is working on a common architecture for electronic billing and payment. Also, Microsoft and First Data formed a joint venture a year ago to offer similar services. One recent market test demonstrated that Internet billing and payment systems can today be developed for as little as 30 cents.

• Large private delivery companies have emerged from scratch (Federal Express, DHL) or greatly expanded (UPS) to compete with the Postal Service.

Congress needs to modernize outdated postal laws to give the Postal Service both the tools and the incentive to adapt itself to the demands of the 21^st century. As Rep. McHugh has said, "Long term decline in the carriage of letters, the core of the Postal Service's business, appears certain. It has been my view that rational change should take place now, before we are in a crisis."

The Postal Service is earning profits and improving service; is H.R. 22 fixing something that ain't broke? [Up]

No. With the future of a large and important institution like the Postal Service at stake, Congress would be acting irresponsible if it used the fair weather of today as an excuse for ignoring signs of a gathering storm. By anyone's reckoning, the changes needed to equip the Postal Service to survive in a more competitive, 21st century business climate will take many years to implement. H.R. 22 looks ahead to the future, as it should. If enacted today, the reforms proposed in H.R. 22 would not even begin to take effect until mid-2000, at the earliest, and would not be completed until several years after that. While it is true that the Postal Service is doing well today, it is clear to knowledgeable postal observers that the good times cannot last much longer. As Postmaster General Bill Henderson said recently:

"No one can stick their head in the sand and say, 'Oh, we had a great financial year this year. We had a great service year.' All that's true. Looking out ahead into the future, there are storm clouds. We need to prepare for those storm clouds by getting our act together on how this organization needs to be deregulated -- and it needs to be deregulated. It needs to be commercialized. So public policy is critical to our future."

If this sector is changing so drastically, why aren't other developed countries changing their postal laws? [Up]

They are. In fact, the United States is way behind. Most major developed countries have granted their post offices greater commercial freedom and correspondingly reduced their postal monopolies, with the same commitment to preserving universal service that one would expect in the United States. Some examples:

• New Zealand, Sweden, Finland, and Germany (as of the end of 2002) have abolished their postal monopolies outright. The European Union has limited all postal monopolies in Europe to 5 times the stamp price or 12 ½ ounces. Australia's monopoly is now 4 times the stamp price and is likely to be reduced to 1 times the stamp price. Canada's monopoly has long been 3 times the stamp price (50 gram letter).

• The Dutch Post is 60 percent privatized. It has purchased one of the largest global express companies (TNT) and has taken an equity stake in Mail 2000, a United States hybrid mail company run by a previous Postmaster General.

• The German Post Office has purchased 22 percent of DHL, the largest global express company. It has also purchased a large remail company in Virginia (Global Mail), a direct competitor of the Postal Service for outbound international mail. The German government is planning to sell 49 percent of the German Post Office to the public in 2000.

• The U.K. Post Office has opened offices in the United States and proclaimed, "The forces of globalization are rendering obsolete the idea of a national postal market."

• Canada Post owns the largest express company in Canada and is developing universal electronic mailbox services on the Internet. It recently announced a strategic alliance with the Bank of Montreal to develop electronic billing and payment services.

• The French Post Office is entering joint ventures for expedited delivery services, hybrid mail services, and financial services.

Whether the U.S. Postal Service is ready or not, these foreign post offices are rapidly equipping themselves to compete with the Service.

How far developed is the postal modernization proposal in H.R. 22? [Up]

H.R. 22 was originally introduced in June 1996 in the 104^th Congress after a year and a half of development through oversight hearings. After five more hearings and taking into account additional extensive public comments on this plan, the Subcommittee on the Postal Service approved the bill on a bipartisan basis in the fall of 1998. After its reintroduction in January 1999, the Subcommittee held two more days of hearings before approving the bill again on April 29, 1999, with the inclusion of a McHugh substitute amendment, which responded to the comments from the recent round of hearings. Therefore, the bill has now been reported to the Committee on Government Reform for further consideration.

H.R.22 is thus a well-refined, though not final, legislative proposal.

Will H.R. 22 protect universal postal service to all parts of the United States? [Up]

Absolutely, positively. Maintenance of a universal postal system must be the cornerstone of any postal reform measure. The statutory mission of the Postal Service is unchanged by H.R. 22. In addition, under H.R. 22, the Postal Service will, for the first time, develop and recommend concrete standards for universal service, for consideration by the Congress. And the Postal Rate Commission will, for the first time, be required to develop an annual estimate of the costs of universal service so that Congress can better understand how to provide the necessary protections in the future.

Is the Postal Service supporting H.R. 22? [Up]

Yes. The Subcommittee developed H.R. 22 in response to the Postal Service's repeated calls, in the mid-1990s, for legal reform and greater commercial flexibility. In a speech to the National Postal Forum on May 17, 1999, the Postmaster General stated that "I want you to know postal management wholeheartedly supports H.R. 22...Our principle goal has been to gain pricing flexibility so we can serve you better. H.R. 22 will do that. It also protects and ensures universal service for the American people."

Is H.R. 22 fair to competitors? [Up]

Yes. A key principle of H.R. 22 is the premise that the Postal Service's participation in competitive markets must be, to the maximum extent possible, on the same terms and conditions as faced by its private sector competitors. Under H.R. 22, the Postal Service will be given flexibility to price competitive products as it sees fit, but it will be required to price competitive products so that they collectively cover overhead costs to same extent as all postal products on average. This is the same market discipline faced by all competitive companies. In addition, for the first time, the Postal Service's competitive products will be subject to, among others, antitrust laws, fair-trading laws, tort laws, and equal customs procedures. Federal Express has called H.R. 22 "a sound and balanced course for modernization and reform of U.S. postal law."

Is H.R. 22 fair to mailers? [Up]

Yes. H.R. 22 will, for the first time, subject postage rates on non-competitive services to price caps based on inflation. Under current law, there is no way to prevent the Postal Service from raising postage rates above inflation even when the Postal Service is making a profit (although the Postal Rate Commission can and does recommend adjusting the fairness of the relationships between rates). In addition, H.R. 22 will, for the first time, require the Postal Service to prepare annual reports on the quality of service provided by all of its non-competitive services. H.R. 22 also includes new incentives for improved postal efficiency. H.R. 22 prohibits the Postal Service from charging users of monopoly services with overhead costs that should be allocated to its competitive ventures; competitive services must stand or fall on their merits. The Mailers Coalition for Postal Reform, the largest and most active group of mailers, has said that it "endorses [the] revised version of H.R. 22 as a constructive step towards badly-needed and long overdue postal reform."

Is H.R. 22 fair to postal managers and employees? [Up]

Yes. The thrust of H.R. 22 is to give postal management and employees the tools to adapt, grow, compete, and survive in the face of enormous challenges caused by changing technology and a dynamic communcations marketplace. At the same time, H.R. 22 ensures that in competing with these new tools, the Postal Service does not use its government status to unfairly take jobs away from private sector companies and their employees. The alternative, advocated by some but rejected by H.R. 22, is to restrict the Postal Service to traditional noncompetitive postal services and force the Postal Service to wither as demand for such services declines.

Most importantly, one of the innovations of H.R. 22 is to allow the Postal Service to distribute profits as bonuses to all managers and employees, provided the Postal Service does so in a fair and equitable manner. In a good year, these bonuses could be quite substantial; moreover, if total profits exceed 1 percent of gross revenues for the previous year, the bonuses would also not be subject to legal limits on salaries.

Is anyone opposed to H.R.22? [Up]

Of course. In most cases, however, parties have expressed concern about specific provisions of H.R. 22 rather than its general approach. Those who have expressed the greatest initial concern about H.R. 22 seem to be parties who fear competition from a better, more efficient Postal Service. As noted above, H.R. 22 is sympathetic to such concerns. H.R. 22 seeks to provide new, stringent safeguards against unfair competition, but at the same time, H.R. 22 tries to give the Postal Service a fair chance to compete. The Subcommittee is open to further suggestions on how to strike this balance in a reasoned and objective manner.

In addition, one large postal union has questioned the need for H.R. 22 because, "if it ain't broke, don't fix it." For reasons noted above, the Subcommittee believes that this maxim is simply not an adequate response to future events that are clearly on the postal horizon. The nearly 30-year-old postal laws provide little chance for the Postal Service to successfully address the current and impending challenges from changing technology.

How can I find out more details about the issues addressed in H.R. 22? [Up]

Read the press releases and summary material on H.R. 22 under the Subcommittee's website (http://www.house.gov/reform/postal/hearings/hr22.htm). The Press Release on the April 29 mark-up provides a one-page overview of the status of the bill and amendment that was adopted during the April 29 mark-up session. The Overview of the Amendment in the Nature of a Substitute provides an overview of the amendment offered by Rep. McHugh, which became the basic text for the bill. The Summary of H.R. 22 explains why postal reform is needed and describes the legislative process that led to the mark-up. Additional explanatory information is available on the web site.

In addition, the following websites offer additional commentary on H.R. 22, although none are endorsed by the Subcommittee:

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