Jason Chaffetz, chairman of the House Oversight Committee, apparently thinks the US Postal Service might be using money saved from service cutbacks in its “market dominant” products (e.g. first class mail) to finance expansion of its package delivery business and other “competitive” services. Under the 2006 PAEA law, competitive products have to pay their own way, and the USPS is required to pay the equivalent of corporate income tax on competitive revenues. Those “tax” payments are then supposed to help support the postal service’s market dominant, “universal service” products.
Chaffetz suggests the USPS might be doing just the opposite. In a letter to Postmaster General Megan Brennan, Chaffetz points out that the USPS has said as much in its own public staements, pointing to a faq published on the Network Rationalization site that says cost savings from plant consolidations and other cutbacks “should better position the Postal Service to make the needed investment in package processing and other automation equipment, and in our delivery fleet, which will help us to grow our package business”
So the Committee is asking the USPS to provide documentation on just how it separates costs and revenues from the different services. The documents are due May 26, and a committee hearing will no doubt follow soon thereafter.
Here’s the text of the Chaffetz letter:
Dear Postmaster General Brennan:
Since fiscal year 2008, competitive products volume has grown from 1.574 billion pieces in fiscal year 2008 to 3.448 billion pieces in fiscal year 2014. Market dominant mail volume has declined dramatically over the same period, from 201 billion pieces to just 152 billion pieces. As a result, the Postal Service now relies on competitive products for 22.5 percent of its total revenue, more than double the percentage in 2008.
While the Postal Services recent package related revenue growth has provided a much needed financial bright spot, the Postal Service must abide by the necessarily complicated legal framework to ensure compliance with the statutory prohibition on cross-subsidization of competitive products by market dominant products and revenue.
Under this regulatory scheme established as a result of the Postal Accountability and Enhancement Act of 2006 (PAEA) the Postal Service is required to account for the costs attributable to market dominant and competitive products separately. Competitive products are then required to cover all attributable costs, plus a share of the institutional costs,at a rate determined by the Postal Regulatory Commission. Additionally, the Postal Service is required to pay a portion of competitive products revenue to the market dominant side of its ledger to approximate any federal taxes owed on what would be considered competitive side profits if the Postal Service were a private sector company.
The growth in competitive products revenue makes the PAEAs related provisions far more important than expected at the time of enactment. Opportunities for unlawful cross subsidization exist in a number of areas. In fact, some of the Postal Services actions and public statements have heightened the Committees concerns about cross-subsidization. For example, a Frequently Asked Questions” document the Postal Service produced regarding its Phase 2 Network Rationalization plan stated:
Cost savings realized through this and other initiatives should better position the Postal Service to make the needed investment in package processing and other automation equipment, and in our delivery fleet, which will help us to grow our package business.
Given that Postal Service package delivery” products are almost solely competitive in nature, it is important to ensure the bright line separation between market-dominant and competitive products is maintained.
To help the Committee better understand the state of the Postal Services competitive products operations, we are requesting information regarding competitive products assets, revenue, service performance, and other materials. Specifically, please provide the following documents and information no later than 5:00 pm. on May 26, 2015:
- Service performance comparisons for each competitive product for fiscal year 2008 through fiscal year 2014.
- A list of all capital assets over 10 million purchased since October 1, 2007, and a depreciation schedule outlining how each purchase was subsequently expensed to market dominant and competitive products.
- A detailed explanation of the planned cost attribution to market-dominant and competitive products for the Next Generation Delivery Vehicle Acquisition Program.
- A detailed explanation of why cost attribution, as a percentage of total costs, has declined since the passage of PAEA.
- Pro forma financial statements in an Income Statement format proscribed by Generally Acceptable Accounting Principles for the following products: First-Class Mail, Standard Mail, each Competitive Product, and other for fiscal year 2008 through fiscal year 2014.
- The Postal Services methodology used to attribute costs for packages delivered on Sundays, including how USPS determines which costs are attributable and institutional and how USPS allocates attributable costs to market-dominant and competitive products.
- The Competitive Products Enterprise Statement of Allocated Assets and Liabilities required by 39 CFR §3060.14 for fiscal year 2008 through fiscal year 2014.
- The Income Report, the Financial Status Report, the Identified Property and Equipment
Assets Report, and the Competitive Products Report that were required to be filed with the Postal Regulatory Commission pursuant to 39 CFR 3060.20 for fiscal year 2008 through fiscal year 2014.
The Committee on Oversight and Government Reform is the principal investigative oversight committee of the US. House of Representatives and may at any time” investigate any matter” as set forth in House Rule X.