UPDATE: House Subcommittee Discusses the USPS' Future

Rep. John McHugh, chairman of the House subcommittee on the postal service, expressed concern this week that H.R. 22, the Postal Modernization Act, might not be enacted this year.

Insiders said the bill, which would allow the U.S. Postal Service greater flexibility in setting postal rates and would permit it to distribute profits as employee bonuses, will probably not pass this session. It will also ultimately die because McHugh, R-NY, must step down because he has served as chairman for three terms, which is the congressional limit.

H.R. 22, along with the USPS' budget problems and the tentative FedEx/USPS strategic alliance were the key subjects discussed at an oversight hearing before McHugh's subcommittee last week.

“My fear is that rather than undertaking reasoned and gradual change, as we have tried to accomplish through H.R. 22, Congress will await a crisis situation and be left with desperate choices in its duty to provide affordable universal mail delivery that binds the nation together. It is imperative that we deal with this issue now,” McHugh said.

McHugh also told witnesses that the USPS is facing an uncertain future.

“The postal service is facing shaky times and formidable challenges,” McHugh said. “The crisis is, indeed, upon us.”

He said that in the past year, the USPS has encountered increased financial difficulties as mail volumes have grown more slowly than expected and as the costs of postal delivery have proved difficult to restrain.

Indeed, the USPS has reported the agency could have as much as a $300 million deficit, even though the plan had been to finish the fiscal year with a $100 million surplus. The USPS last showed a loss in 1994, when it was $913 million in the red. Final numbers are scheduled to be released at the end of this month.

Postmaster General William J. Henderson, however, responded that the agency's losses could have been much worse had it not been for a herculean effort to cut costs.

“We could have entered this year with over 1 billion and a half in the hole. Fortunately, we sensed that in time, and we've cut costs over a billion dollars,” he said.

But cost-cutting will not sustain the agency, Henderson said, and he urged Congress to allow the postal service to grow by adopting the kind of “substantive postal reform” other countries have embraced. New Zealand, Sweden and Finland have abolished their postal monopolies, and Germany will do so soon. Foreign postal administrations are “dumbstruck over the fact that the U.S., which is the leader in most every area in the world, for some reason is blind to the requirements of postal reform,” Henderson said.

Lawmakers also questioned Henderson about the strategic alliance the USPS is planning with FedEx. Under the plan, the agency would deliver many FedEx packages around the country, while using FedEx's air transportation network to deliver Priority and Express mail worldwide.

They mentioned, for example, a letter written last week by Rep. Henry Hyde, R-IL, chairman of the House Judiciary Committee, that expressed concern over the tentative agreement.

In the letter to assistant attorney general Joel Klein, who plans to resign at the end of the month, Hyde said, “The negotiation raises a variety of antitrust concerns.”

If the USPS were a private entity, any final alliance would require scrutiny by the antitrust division, Hyde said. But he said it is by no means clear that the USPS could enjoy antitrust immunity as an instrument of the federal government, and “any final alliance may try to use the postal service's potential immunity as a shield against antitrust scrutiny.”

Henderson, however, reiterated that no agreement has been reached with FedEx. Jokingly using a marriage metaphor, he explained that “polygamy” is in this instance acceptable and that the postal service has not closed the door on similar deals with other partners, such as United Parcel Service, which has promised to fight the alliance with FedEx.

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