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                                                       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) * * *

           *       *       *       *       *       *       *