On April 4, 2001, the Comptroller General of the United States, David Walker, testified before the House Government Reform Committee that the U.S. Postal Service is in the midst of a serious financial and operational crisis, which absent legislative change placed the USPS ability to meet its universal service obligations at "high risk."


During my tenure as the chairman of the Postal Service Subcommittee from 1995 through 2000, I focused on trying to modernize our nation's outdated postal laws. Objective parties, such as the General Accounting Office, the Inspector General and the Congressional Research Service, have testified consistently for the last several years that the Postal Service is at the "end of an era," as the GAO stated in 1999. And, as I noted at the last hearing of the Postal Service Subcommittee in September 2000, Congress is fooling itself if it thinks that, with the growing cost pressures and shrinking revenue base of the Postal Service, the government can continue to delay addressing postal reform.


I have always feared that, rather than undertaking reasonable and gradual change as I tried to accomplish through last Congress's Subcommittee-approved Postal Modernization Act my well-refined bill endorsed by a wide array of postal employee organizations, nonprofit and commercial mailers, community newspapers and several legislators including Senate Democratic Leader Tom Daschle, Congress would await a worsening crisis and be left with choices of desperation in its duty to provide universal mail delivery that binds the nation together.


The Crisis Is Upon Us

A looming deficit: The Postal Service estimates a $2 billion to $3 billion deficit for fiscal year 2001.  Barred from borrowing: The Service expects to reach its statutory debt limit of $15 billion in fiscal year 2002, which begins October 1, 2001.  A cash crunch: The Postal Service is running out of cash and has already cut capital spending by $1 billion. Another rate hike: The Service plans to file another rate increase, probably averaging more than 10%.


Because of my former Subcommittee's careful work to advance postal reform the past six years, we fortunately don't have to start from scratch. Those efforts resulted in the Postal Modernization Act twice passed by the Subcommittee in a bipartisan manner with the inclusion of all amendments offered by the minority. As opposed to the severe constraints the USPS faces from outdated governing laws, the Postal Modernization Act provided the Postal Service and its employees true pricing and managerial tools to confront the serious decline in revenue. The Postal Modernization Act substantively addressed the demands of the American mailing consumer for rate stability and service quality. And the Postal Modernization Act met the concerns of small business and private sector competitors who need strong rules to protect the public interest from unfair competition.


I look forward to working with my colleagues in Congress and the White House to enact substantive postal reform in 2001. The Postal Service, its 850,000 dedicated employees and the 281 million American citizens who depend on universal service at affordable rates are counting on us. 


Overview of the New Postal Reform Bill

The draft "Postal Accountability and Enhancement Act" incorporates into the well-refined legislative framework of the former Postal Service Subcommittee's twice-approved bill a proposal presented to the Government Reform Committee earlier this year by the Coalition to Preserve Universal Mail Service. The Coalition includes the Postal Service's employee groups as well as many major mailers.

The objective of the bill is to position the Postal Service to operate in a more business-like manner. To achieve this goal, the system must be responsive to market considerations and must provide clear incentives for postal management and the Postal Service as an institution. The Postal Service would no longer operate under a break-even mandate. By maximizing gains and minimizing costs, the Postal Service could generate profits that would be retained and could be distributed as incentives to management as well as employees through collective bargaining. In the same way, losses could not be recovered by increasing rates beyond specific parameters.


As way of a very general overview, the draft bill addresses the following seven major issues:


1.         Substitution of "Incentive" for "Cost of Service" Regulation

As proposed by the Coalition, these provisions shift the basis of Postal Rate Commission ratemaking from "cost of service" to an incentive-based system in which the Postal Service may, in its discretion, generally change rates, as long as the expected revenue from the proposed new rates does not exceed the annual change in CPI times the previous year's revenue. This regulation is introduced solely for Market Dominant products and services (e.g., letters, periodicals, ad mail) because the Postal Service is provided greater pricing freedom for its truly competitive products (e.g., Express Mail, Priority Mail, parcels).


2.         Flexibility in Development of Specialized Products and Rates

The draft bill proposes additional flexibility in regulation for two types of rates and services: experimental product rates and rates developed in conjunction with service agreements with specific customers.


3.         Substitution of Market Disciplines for Regulation of Competitive Products

The legislation proposes to essentially substitute market mechanisms for commission regulation as the main means of policing the rates of competitive postal products. This concept necessarily implies three elements: (1) the Postal Service is given greater pricing freedom, (2) favored legal treatment for USPS products is withdrawn from competitive products, and (3) the primary means of control is transformed from prior regulatory review to ex post facto complaint adjudication.


4.         Clarification and Limitation of the Postal Monopoly and Postal Service Authority to Provide Nonpostal Products and Regulate Competitors

The bill proposes to clarify the authority of the Postal Service to offer nonpostal products and to limit that authority by requiring the Postal Service to offer only "postal services" as defined for the first time. The bill proposes revisions in the scope of the postal monopoly and the authority of the Postal Service to regulate competitors.


5.         Reform of International Mail Regulation

International mail presents several unique issues. The legislation proposes to clarify the authority of the State Department to set international policy, to apply customs laws equally to postal and private shipments and to give the USPS authority to contract with airlines for the transport of international mail.


6.         Reform and Strengthening of the Commission

The bill proposes to strengthen the Postal Rate Commission by giving it subpoena power and broader scope for its regulations and oversight, both through an annual audit and open complaint procedures. The PRC is renamed the "Postal Regulatory Commission."


7.         Miscellaneous Changes

The bill also includes several minor changes that are non-controversial such as permanent authorization of postal police officers, date of postmark to be treated as date of appeal in connection with the closing or consolidation of post offices and repeal of certain obsolete provisions.


John M. McHugh was first elected to the U.S. House of Representatives in November 1992, and he won re-election in 2000 with nearly 75% of the vote. Rep. McHugh serves Northern New York's 24th Congressional District, which, at 12,393 square miles, or 26% of the land area of the state of New York, is the 51st largest of the 435 Congressional Districts.


During his five terms in office, Rep. McHugh has been a champion of fiscal responsibility; lower taxes; protecting Social Security and Medicare; providing stronger, better schools; and protecting America's farmers. He brings to the House of Representatives more than 30 years of demonstrated public service to Northern New York including eight years as a State Senator.


Rep. McHugh is a resident of Pierrepont Manor in Jefferson County, New York. Born on September 29, 1948, the congressman was educated in Watertown, New York, graduating in 1966. He received a B.A. in Political Science from Utica College of Syracuse University in 1970 and earned a Master's Degree in Public Administration from the Nelson A. Rockefeller Graduate School of Public Affairs in 1977.