[Senate Report 106-468]
[From the U.S. Government Publishing Office]
Calendar No. 917
106th Congress Report
SENATE
2d Session 106-468
_______________________________________________________________________
AMENDING CHAPTER 36 OF TITLE 39, UNITED STATES CODE, TO MODIFY RATES
RELATING TO REDUCED RATE MAIL MATTER, AND FOR OTHER PURPOSES
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE
to accompany
S. 2686
TO AMEND CHAPTER 36 OF TITLE 39, UNITED STATES CODE, TO MODIFY RATES
RELATING TO REDUCED RATE MAIL MATTER, AND FOR OTHER PURPOSES
October 3 (legislative day, September 22), 2000.--Ordered to be printed
__________
U.S. GOVERNMENT PRINTING OFFICE
79-010 WASHINGTON : 2000
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Dan G. Blair, Senior Counsel
Michael L. Loesch, Counsel, International Security,
Proliferation, and Federal Services Subcommittee
Judith B. White, Detailee, International Security,
Proliferation, and Federal Services Subcommittee
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Susan E. Propper, Minority Counsel
Peter A. Ludgin, Minority Professional Staff Member
Nanci E. Langley, Minority Deputy Staff Director, International
Security,
Security, Proliferation, and Federal Services Subcommittee
Darla D. Cassell, Chief Clerk
Calendar No. 917
106th Congress Report
SENATE
2d Session 106-468
======================================================================
AMENDING CHAPTER 36 OF TITLE 39, UNITED STATES CODE, TO MODIFY RATES
RELATING TO REDUCED RATE MAIL MATTER, AND FOR OTHER PURPOSES
_______
October 3 (legislative day, September 22), 2000.--Ordered to be printed
_______
Mr. Thompson, from the Committee on Governmental Affairs, submitted the
following
R E P O R T
[To accompany S. 2686]
The Committee on Governmental Affairs, to which was
referred the bill (S. 2686) to amend chapter 36 of title 39,
United States Code, to modify rates relating to reduced rate
mail matter, and for other purposes, having considered the
same, reports favorably without amendment and recommends that
the bill do pass.
TABLE OF CONTENTS
I. Purpose..........................................................1
II. Background.......................................................2
III. Legislative History..............................................4
IV. Section-by-Section Analysis......................................4
V. Regulatory Impact Statement......................................5
VI. Congressional Budget Office Cost Estimate........................6
VII. Changes in Existing Law..........................................7
I. Purpose
S. 2686, as reported by the Committee on Governmental
Affairs, amends chapter 36 of title 39, United States Code, to
modify the procedures for establishing mail rates for nonprofit
and other reduced rate mailers. The legislation is designed to
address technical problems in the nonprofit ratesetting
structure by locking in the current rate relationship between
nonprofit and commercial rate mail.
II. Background
Historically, certain classes of mail and types of mailers
have been entitled to mail at ``preferred'' or reduced rates of
postage under postal laws. As identified by reference to the
sections that established them in former title 39, United
States Code, in effect before the enactment of the Postal
Reorganization Act of 1970, Public Law No. 91-375, these
preferred categories include: Nonprofit and Classroom
Periodicals (former sections 4358(d), (e)); Nonprofit Standard
(A) Mail (former sections 4452(b), (c)); Library and
Educational Matter (former sections 4554(b), (c)); and In-
County Publications (former sections 4358(a), (b)).
The Postal Reorganization Act continued the preferred rate
treatment for these categories of mail. Although the rates of
postage for these categories, after an extended phase-in
period, were required to cover their attributable costs, they
were not required (like other categories of mail) to cover any
part of the institutional costs of the Postal Service. An
annual appropriation was authorized to reimburse the Postal
Service for the ``revenue forgone'' on reduced-rate mail (the
difference between the revenue received from preferred mailers
and the revenue that would have been received if the reduced
rate provisions had not been enacted).
In 1993, Congress established a new method of setting rates
for nonprofit and other reduced-rate mailers by the Revenue
Forgone Reform Act (RFRA) of 1993, enacted as Title VII of
Public Law No. 103-123, the Treasury, Postal Service, and
General Government Appropriations Act, 1994. The RFRA was
intended to be a federal deficit reduction measure that would
end the annual federal subsidy for preferred rates of postage,
reimburse the Postal Service for past shortfalls in the
appropriations for revenue forgone, and provide for a more
equitable apportionment of institutional costs among reduced-
rate and regular-rate mailers. The law included a phasing
mechanism that was designed to phase in rate increases for
reduced-rate mailers gradually, and to spread the impact of the
change fairly between nonprofit and commercial customers. This
phasing process scheduled six annual increases (known as
``step'' increases) for reduced-rate mailers, ending in fiscal
year 1998. The RFRA mandated a formula for the development of
nonprofit rates throughout the phasing schedule. At the end of
the phasing process, the institutional cost contribution of
each reduced-rate category (commonly referred to as the
``markup'' on that mail) was to be equal to one-half of the
``markup'' on the comparable commercial subclass of mail. This
requirement, known as the ``fifty percent markup rule'' or
``one-half markup rule'', was designed to ensure that the rates
paid by nonprofit and other reduced-rate mailers made a
continuing contribution toward the institutional costs of the
Postal Service.
The RFRA was intended to be an equitable way to phase out
the taxpayer subsidy of reduced postage rates. In practice,
however, the application of the one-half markup rule frequently
had troublesome effects. For nonprofit Standard (A), for
example, it was found that changes in the underlying costs
could yield significant rate swings. The one-half markup rule
severely curtailed the ability of the Postal Service and the
Postal Rate Commission to mitigate the price effects of cost
changes for reduced-rate mailers by adjusting the markup on the
subclasses involved. If the costs for a nonprofit subclass
changed dramatically, the rates followed suit because the
markup could not be reduced to lessen the impact of the cost
swing (as is commonly done for commercial subclasses). Thus,
cost changes translated directly into rate changes.
For Nonprofit and Classroom Periodicals, an even greater
anomaly appeared. For these types of mail, it was learned that
the complexity of the rate structure and the low markup for the
commercial subclass could yield rates that were lower for a
commercial publication than for a similar nonprofit
publication. In such cases, the one-half markup rule again made
it difficult, if not impossible, to devise a remedy.
More than 15 million magazines are mailed for students as
part of the kindergarten through grade 12 educational
curriculum and the Committee recognizes the importance of
classroom publications in meeting the needs of students and
teachers. While the discounts received by this subclass have
eroded over time, S. 2686 is intended to provide relief to
these publications. The bill would accord nonprofit periodicals
and classroom publications the same treatment and will help to
ensure that future rate increases for both subclasses are less
volatile. Rates for this subclass will continue to be monitored
to evaluate the impact postal rates have on the economic
viability of these mailers and to determine if there is a need
for a more fundamental resolution to the rate concerns of
classroom publishers. The Postal Service is urged to examine
available options to help ensure that postal rates for
classroom periodicals and teacher guides remain at a price that
ensures their availability and affordability to all classrooms.
Rate anomalies also appeared for Standard (B) publications,
where the classification for Library and Educational Matter
overlaps with the classification currently known as Special
Standard Mail. (Both classifications contain materials such as
books and sound recordings, but Special Standard Mail does not
require either the mailer or the recipient to be a library,
educational institution, museum, herbarium, or nonprofit
institution.) This overlap, and the relatively small volumes of
Library and Educational matter, made it difficult to collect
adequate ratemaking data for these subclasses.
To address these problems, S. 2686 is designed to lock in
the current rate relationship between nonprofit and commercial
rate mail. It has three components designed to address the
specific problems:
Nonprofit Standard (A) rates, overall, would be set so that
the estimated average revenue per piece from each subclass
would be equal, as nearly as practicable, to 60% of the
estimated average revenue per piece from the corresponding
regular-rate subclasses.
Nonprofit and Classroom Periodical rates would be set so
that postage on each mailing of such mail would be as nearly as
practicable 5% lower than the postage for a corresponding
regular-rate mailing. (This discount would not apply to the
advertising portion of a mailing, if the advertising portion
exceeded 10% of the Publication involved.)
Library and Educational Matter rates would be set so that
postage on each mailing of such mail would be as nearly as
practicable 5% lower than the postage for a corresponding
regular-rate mailing.
In addition, S. 2686 contains a transitional provision to
mitigate the impact of these changes on regular-rate mailers in
the pending postal rate proceeding before the Postal Rate
Commission. Under this provision, the estimated reduction in
postal revenue from Nonprofit Standard (A) mail caused by the
enactment of the new ratemaking rules, if any, is to be treated
as a reasonably assignable cost of the Postal Service to be
apportioned among the various classes of mail and types of
postal service in accordance with section 3622(b)(3) of title
39, U.S. Code.
III. Legislative History
S. 2686 was introduced by Senators Thad Cochran and Daniel
Akaka on June 7, 2000 and referred to the Committee on
Governmental Affairs. On June 20, 2000 the bill was referred to
the Subcommittee on International Security, Proliferation, and
Federal Services. On September 8, 2000, the Subcommittee
favorably reported S. 2686 by polling letter to the full
Committee. No hearings were held on the bill.
On September 27, 2000 the Committee considered S. 2686. No
amendments were offered and S. 2686 was ordered to be reported
favorably by voice vote. Committee members present were
Senators Roth, Stevens, Collins, Voinovich, Domenici, Cochran,
Levin, Akaka, Durbin, Torricelli, Cleland, Edwards and
Thompson.
IV. Section-by-Section Analysis
Section 1. Special ratemaking provisions
(a) Establishment of Regular Rates for Mail Classes With
Certain Preferred Subclasses. This subsection inserts a new
subsection (c) in 39 U.S.C. 3622 to establish a new method of
establishing regular rates for classes or subclasses of mail
that include one or more special rate categories for mail
entitled to preferred rate treatment. These special rate
categories are identified by reference to the sections that
established them in former title 39, United States Code, as in
effect before the enactment of the Postal Reorganization Act,
Pub. L. No. 91-375, 84 Stat. 719 (Aug. 12, 1970). They include
Nonprofit and Classroom Periodicals (former sections 4358(d),
(e)); Nonprofit Standard (A) Mail (former sections 4452(b),
(c)); and Library and Educational Matter (former sections
4554(b), (c)). Under the new method, the attributable costs of
the regular rate mail in each affected class or subclass will
be combined with the attributable costs of the preferred rate
mail in that class or subclass for ratemaking purposes. The
various ratemaking factors of 39 U.S.C. 3622(b) will then be
applied to those costs to determine the new regular rate.
(b) Residual Rule for Preferred Periodical Mail. This
subsection amends 39 U.S.C. 3626(a)(3)(A) to make it applicable
only to those preferred rate Periodicals not covered by a
special rule under sections 3626(a)(4) or (a)(5). As a
practical matter these Periodicals will essentially be the in-
county copies of newspapers and other Publications entitled to
preferred rates under former sections 4358(a), (b). Under the
residual rule, rates for these Periodicals will continue to be
established using the so-called ``one-half markup rule'' of
section 3626(a)(3)(B). That rule, however, will no longer apply
to other types of preferred rate mail.
(c) Special Rule for Nonprofit and Classroom Periodicals.
This subsection amends 39 U.S.C. 3626(a)(4) to establish a
special rule for calculating postage on mailings of Nonprofit
and Classroom Periodicals entitled to preferred rates under
former sections 4358(d), (e). Under the special rule, the
postage on each mailing of these preferred rate Periodicals
shall be as nearly as practicable 5 percent lower than the
postage on a corresponding regular rate category mailing. An
exception to this rule will provide that the 5 percent discount
will not apply to the advertising pound portion of a preferred
rate mailing, if the advertising portion exceeds 10 percent of
the Publication involved.
(d) Special Rule for Nonprofit Standard (A) Mail. This
subsection adds a new 39 U.S.C. 3626(a)(6), a special rule for
establishing the rates for Nonprofit Standard (A) Mail entitled
to preferred rates under former sections 4452(b), (c). Under
the special rule, rates will be set so that the estimated
average revenue per piece to be received by the Postal Service
from each subclass of Nonprofit Standard (A) mail will be
equal, as nearly as practicable, to 60 percent of the estimated
average revenue per piece to be received from the most closely
corresponding regular rate subclass of mail. In making this
calculation, the estimated average revenue per piece will be
calculated on the basis of the expected volumes and mix of mail
for each subclass at current rates in the test year of the rate
proceeding. Rate differentials within each subclass of
Nonprofit Standard (A) Mail will be established using the
ratemaking policies of current title 39, United States Code,
including the factors set forth in current 39 U.S.C. 3622(b).
(e) Special Rule for Library and Educational Matter. This
subsection adds new 39 U.S.C. 3626(a)(7) to establish a special
rule for calculating postage on mailings of Library and
Educational Matter entitled to preferred rates under former
sections 4554(b), (c). Under the special rule, the postage on
each mailing of preferred rate matter shall be as nearly as
practicable 5 percent lower than the postage on a corresponding
regular rate category mailing.
Sec. 2. Transitional and technical provisions
(a) Transitional Provision for Nonprofit Standard (A) Mail.
This subsection provides for the treatment of the transitional
costs arising from the changes that new 39 U.S.C. 3626(a)(6)
makes in the establishment of rates for Nonprofit Standard (A)
Mail entitled to preferred rates under former sections 4452(b),
(c). In any rate proceeding pending as of the date of enactment
of section one, the estimated reduction in postal revenue from
Nonprofit Standard (A) Mail caused by the enactment of new 39
U.S.C. 3626(a)(6)(A), if any, will be treated as a ``reasonably
assignable'' cost of the Postal Service under current 39 U.S.C.
3622(b)(3).
(b) Technical Amendment. This subsection corrects a
typographical error in 39 U.S.C. 3626(a)(1) by inserting the
proper reference to the former sections 4554(b), (c) of title
39, concerning Library and Educational Matter.
V. Regulatory Impact Statement
S. 2686 would contain an intergovernmental and private-
sector mandate as defined in the Unfunded Mandates Reform Act
(UMRA) because it would raise the cost of certain types of
reduced-rate mail for certain groups of mailers. In effect, the
bill would shift, to those that pay regular mail rates, about
$70 million a year of costs that would be borne by nonprofit
and governmental entities under current law. For the public
sector, the bill would reduce postage rates for certain
governmental mailers, including public libraries and school,
and would increase costs for some other agencies of state and
local governments that pay regular mail rates. The
Congressional Budget Office estimates that net costs, if any,
to governmental entities would not exceed the annual threshold
established in UMRA. For private-sector mailers, the bill would
reduce postage rates for certain classes of non-profit mail and
shift costs to regular-rate mailers. CBO estimates that net
costs to private sector entities resulting from this shift
would fall well below the annual threshold established in UMRA.
VI. Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, October 2, 2000.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2686, a bill to
amend chapter 36 of title 39, United States Code, to modify
rates relating to reduced rate mail matter, and for other
purposes.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts for this
estimate are Mark Grabowicz (for federal costs), Susan Sieg
Tompkins (for the impact on state and local governments), and
Paige Piper/Bach (for the private-sector impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
S. 2686--A bill to amend chapter 36 of title 39, United States Code, to
modify rates relating to reduced rate mail matter, and for
other purposes
S. 2686 would change the methods used by the Postal Service
for setting mail rates for nonprofit and other reduced rate
mailers. Because such rates would be lower than under current
law, CBO expects that the Postal Service would increase its
rates for other mail in order to continue to cover its costs.
CBO estimates that the net effect of the bill on the federal
budget would be negligible. Collections and spending by the
Postal Service are classified as off-budget, so pay-as-you-go
procedures would not apply.
S. 2686 contains an intergovernmental and private-sector
mandate as defined in the Unfunded Mandates Reform Act (UMRA)
because it would raise the cost of certain types of reduced-
rate mail for certain groups of mailers. In effect, the bill
would shift, to those that pay regular mail rates, about $70
million a year of costs that would be borne by nonprofit and
governmental entities under current law. (Such regular-rate
mailers would include both private- and public-sector
entities.)
For the public sector, the bill would reduce postage rates
for certain governmental mailers, including public libraries
and schools, and would increase costs for some other agencies
of state and local governments that pay regular mail rates. CBO
estimates that net costs, if any, to governmental entities
would not exceed the annual threshold established in UMRA ($55
million in 2000, adjusted annually for inflation).
For private-sector mailers, the bill also would reduce
postage rates for certain classes of nonprofit mail and shift
costs to regular-rate mailers. CBO estimates that net costs to
private sector entities resulting from this shift would fall
well below the annual threshold established in UMRA ($109
million in 2000, adjusted annually for inflation).
The CBO staff contacts for this estimate are Mark Grabowicz
(for federal cots), Susan Sieg Tompkins (for the impact on
state and local governments), and Paige Piper/Bach (for the
private-sector impact). This estimate was approved by Robert A.
Sunshine, Assistant Director for Budget Analysis.
VII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the bill, as reported are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
UNITED STATES CODE
TITLE 39--POSTAL SERVICE
* * * * * * *
PART IV--MAIL MATTER
* * * * * * *
CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES
* * * * * * *
Subchapter II--Permanent Rates and Classes of Mail
* * * * * * *
SEC. 3622. RATES AND FEES
(a) * * *
(b) * * *
(c) Regular rates for each class or subclass of mail that
includes 1 or more special rate categories for mail under
former section 4358 (d) or (e), 4452 (b) or (c), or 4554 (b) or
(c) of this title shall be established by applying the policies
of this title, including the factors of section 3622(b) of this
title, to the costs attributable to the regular rate mail in
each class or subclass combined with the mail in the
corresponding special rate categories authorized by former
section 4358 (d) or (e), 4452 (b) or (c), or 4554 (b) or (c) of
this title.
[(c)] (d) Compliance with any provision of the Occupational
Safety and Health Act of 1970 (29 U.S.C. 651 et seq.) shall not
be considered by the Commission in determining whether to
increase rates and shall not otherwise affect the service of
the Postal Service.
* * * * * * *
SEC. 3626. REDUCED RATES
(a)(1) Except as otherwise provided in this section, rates
of postage for a class of mail or kind of mailer under former
section 4358, 4452(b), 4452(c), [4454(b), or 4454(c)] 4554(b),
or 4554(c) of this title shall be established in accordance
with the applicable provisions of this chapter.
(2) * * *
[(3)(A) Except as provided in paragraph (4) or (5), rates
of postage for a class of mail or kind of mailer under former
section 4358, 4452(b), 4452(c), 4554(b), or 4554(c) of this
title shall be established in a manner such that the estimated
revenues to be received by the Postal Service from such class
of mail or kind of mailer shall be equal to the sum of--
(i) the estimated costs attributable to such class of
mail or kind of mailer; and
(ii) the product derived by multiplying the estimated
costs referred to in clause (i) by the applicable
percentage under subparagraph (B).]
(3)(A) Except as provided in paragraph (4) or (5), rates of
postage for a class of mail or kind of mailer under former
section 4358 of this title shall be established in a manner
such that the estimated revenues to be received by the Postal
Service from such class of mail or kind of mailer shall be
equal to the sum of--
(i) the estimated costs attributable to such class of
mail or kind of mailer; and
(ii) the product derived by multiplying the estimated
costs referred to in clause (i) by the applicable
percentage under subparagraph (B).
* * * * * * *
[(4) The rates for the advertising portion of any mail
matter under former section 4358(d) or 4358(e) of this title
shall be equal to the rates for the advertising portion of the
most closely corresponding regular-rate category of mail,
except that if the advertising portion does not exceed 10
percent of the issue of the publication involved, the
advertising portion shall be subject to the same rates as apply
to the nonadvertising portion.]
(4)(A) Except as specified in subparagraph (B), rates of
postage for a class of mail or kind of mailer under former
section 4358 (d) or (e) of this title shall be established so
that postage on each mailing of such mail shall be as nearly as
practicable 5 percent lower than the postage for a
corresponding regular-rate category mailing.
(B) With respect to the postage for the advertising pound
portion of any mail matter under former section 4358 (d) or (e)
of this title, the 5-percent discount specified in subparagraph
(A) shall not apply if the advertising portion exceeds 10
percent of the publication involved.
(5) * * *
(6) The rates for mail matter under former sections 4452
(b) and (c) of this title shall be established as follows:
(A) The estimated average revenue per piece to be
received by the Postal Service from each subclass of
mail under former sections 4452 (b) and (c) of this
title shall be equal, as nearly as practicable, to 60
percent of the estimated average revenue per piece to
be received from the most closely corresponding
regular-rate subclass of mail.
(B) For purposes of subparagraph (A), the estimated
average revenue per piece of each regular-rate subclass
shall be calculated on the basis of expected volumes
and mix of mail for such subclass at current rates in
the test year of the proceeding.
(C) Rate differentials within each subclass of mail
matter under former sections 4452 (b) and (c) shall
reflect the policies of this title, including the
factors set forth in section 3622(b) of this title.
(7) The rates for mail matter under former sections 4554
(b) and (c) of this title shall be established so that postage
on each mailing of such mail shall be as nearly as practicable
5 percent lower than the postage for a corresponding regular-
rate mailing.
(b) * * *
* * * * * * *