The Alliance of Nonprofit Mailers, representing the mailers of one-tenth of all U.S. Mail since 1980, respectfully submit these comments on draft postal legislation released June 15, 2016. We appreciate the Committee’s hard work on postal reform, and believe with the changes suggested below we could support the legislation unreservedly.

1. Sec. 207—Market Dominant Rates (pp.83-84)—We suggest you remove the rate increase in paragraphs (a) and (b) because the USPS does not need an above-inflation rate increase now as it is very liquid with over $9 billion in cash, is making its second over-$1 billion operating profit in a row, is growing its package services by 15 percent, and maintaining stable mail volumes over 150 billion. Further, a permanent surcharge will drive away mail volume at a time that USPS needs to retain and grow its customer base. Nonprofit Standard Mail volume dropped 4.7 percent during the 4.3 percent exigent surcharge and will rebound if you do not legislate a surcharge. Right after the Great Recession as the postal market is stabilizing is not the time to try to fix long-term balance sheet issues with a rate surcharge.
2. Sec. 101—Postal Service Health Benefits Program (pp.3-16)—Please either ensure favorable rulings from the House Ways and Means Committee and the Congressional Budget Office in the Medicare cost savings before moving the bill, or make a commitment to withdraw the bill if a favorable ruling is not received from both entities. A favorable ruling means that the USPS would realize about $54 billion in savings without an offset required in the bill. This section drives most of the cost savings in the bill, without which its value is limited mostly to price increases for customers that will drive away mail volume.
3. Sec. 203—Modernizing Postal Rates (3) Requirements (pp.56-57)—We request that you remove the subparagraph (B) that establishes a cost coverage requirement alongside the main requirement of the price cap. The problem is that the regulated monopoly controls its own costs that are central to this pricing requirement. Contrary to the CPI price cap, which is external and uncontrolled by the regulated entity, USPS could manipulate, conceal, and fail to reduce cost elements that would force postage rates higher under this proposed requirement. No outside entity including the PRC has been able to fully measure, understand and control postal costs—they are under the control of postal management. Regulation of monopoly prices should be based primarily on factors that the regulated agency cannot control. Inclusion of a cost-based requirement represents a return to the type of cost of service regulation that PAEA replaced in 2006. We also request that the CPI cap be included among the priority factors. It is really the main external financial discipline imposed on the USPS.
4. Sec. 203—Modernizing Postal Rates (4) PRC Study (pp.58-61) —“Excess capacity” is only one of several reasons that postal costs are higher than they need to be or would be in an efficiently run business. The bill should add additional criteria wherever excess capacity is mentioned, including: management decisions, efficiency sub-optimization, capital investments that do not make their projected ROI or cost savings, and services that are continued for public policy reasons rather than the needs of the rate-payer. The bill also should require the PRC to retain a highly qualified external consulting firm, such as a big-four accounting firm, to investigate inside USPS operations to determine the degree to which excess capacity and the other criteria mentioned above increase costs unnecessarily.
5. Sec. 208—Completion of Initial Rate Regulation Review—Rather than accelerating this review, we believe it should be delayed two or three years at least if the bill passes. The purpose in PAEA was to review the regulatory system after ten years’ experience with the system. This bill alters the regulatory system and the finances of USPS in major ways. A speeded up review would be based on the prior years’ experience with the PAEA-based system, not the new bill. It would be like fighting the last war. Please give the changes in this bill some time to operate so that the regulatory review will be well-informed and based on the new law. In addition, USPS finances are improving greatly because of the economic recovery and the unexpected boom in e-commerce shipping. Please let the improvements develop for a while before altering the regulatory system. There is no immediate liquidity problem with the USPS holding more cash than it ever did before–$9.2 billion.
6. Sec. ___–Investment of the Postal Service Retiree Health Benefits Fund—Please allow investment of all USPS retiree assets, about $340 billion, in prudent, diversified portfolios. This change alone would put retiree funds in a surplus and eliminate the balance sheet as a focus for the USPS, enabling a shift to retention and growth of customers.