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                                                       Calendar No. 674
108th Congress 
 2d Session                      SENATE                          Report
                                                                108-318
_______________________________________________________________________

                       POSTAL ACCOUNTABILITY AND

                            ENHANCEMENT ACT

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                             together with

                            ADDITIONAL VIEWS

                              TO ACCOMPANY

                                S. 2468

             TO REFORM THE POSTAL LAWS OF THE UNITED STATES




                August 25, 2004.--Ordered to be printed

   Filed, under authority of the order of the Senate of July 22, 2004





                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
                  Ann C. Fisher, Deputy Staff Director
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                   Susan E. Propper, Minority Counsel
      John P. Kilvington, Legislative Assistant for Senator Carper
                      Amy B. Newhouse, Chief Clerk





                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background.......................................................2
III. Legislative History.............................................39
 IV. Section by Section Analysis.....................................41
  V. Evaluation of Regulatory Impact.................................62
 VI. Congressional Budget Office Cost Estimate.......................62
VII. Changes in Existing Law.........................................74










                                                       Calendar No. 674

108th Congress                                                  Report
 2d Session               SENATE                                108-318
======================================================================
 
               POSTAL ACCOUNTABILITY AND ENHANCEMENT ACT

                                _______
                                

                August 25, 2004.--Ordered to be printed

   Filed, under authority of the order of the Senate of July 22, 2004

Ms. Collins, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 2468]

    The Committee on Governmental Affairs, to whom was referred 
the bill (S. 2468) to reform the postal laws of the United 
States, having considered the same reports favorably thereon 
with amendments and recommends that the bill do pass.

                         I. Purpose and Summary

    The purpose of S. 2468 is to reform the postal laws of the 
United States. Among other things, S. 2468 preserves the basic 
features of universal service-affordable rates, frequent 
delivery, and convenient community access to retail postal 
services. The bill also simplifies the pricing process for 
Postal Service products and services and replaces the current 
rate-setting process for market-dominant products with a rate-
cap based structure. It gives the Postal Service the authority 
to set rates for competitive products, such as Express Mail and 
Parcel Post, as long as these prices do not result in cross-
subsidy from the market-dominant products. S. 2468 grants the 
new Postal Regulatory Commission the power to institute 
emergency price increases due to ``unexpected and extraordinary 
circumstances.'' It guarantees a higher degree of transparency 
to ensure fair treatment of customers of the Postal Service's 
and those companies competing with the Postal Service's 
competitive products. It requires the Postal Service to report 
to Congress with a strategy for how they intend to remove from 
the network excess processing capacity and space. Finally, the 
bill repeals a Civil Service Retirement System escrow fund 
provision from Public Law 108-18 and transfers a military 
pension obligation back to the U.S. Treasury, where it 
originated.

                II. Background and Need for Legislation

    By most accounts, the 1970 Postal Reorganization Act 
(Public Law 91-375), which created the modern Postal Service, 
has been a success. Today, the Postal Service receives 
virtually no taxpayer support and the service its approximately 
710,000 career employees provide to every American, every day 
is second to none. More than thirty years after its birth, the 
Postal Service now delivers to 141 million addresses each day. 
It is also the anchor of a $900 billion per year mailing 
industry that, according to a study conducted by the Envelope 
Manufacturers Association Foundation, employs roughly 11.1 
million Americans nationwide in virtually every segment of the 
economy.
    Recent years, however, have been difficult ones for the 
Postal Service. In late 2001, the Postal Service was projecting 
its third consecutive year of deficits, having lost $199 
million in fiscal year 2000 and $1.68 billion in fiscal year 
2001. It was projecting losses of up to $4 billion in fiscal 
year 2002. Mail volume was falling, revenues were below 
projections and the Postal Service was estimating that it 
needed to spend $4 billion on security enhancements in order to 
prevent a repeat of the tragic anthrax attacks that took 
several lives in the Fall of 2001. The Postal Service was also 
perilously close to its $15 billion statutory debt ceiling.
    Recent years have also been difficult for postal customers. 
While rates have now temporarily stabilized, the combination of 
an economic recession, terrorism and poor mail volume forced 
the Postal Service to increase rates three times in less than 
two years. These increases exceeded the rate of inflation. On 
January 7, 2001, the price of postage increased by 4.7 percent 
on average, increasing the price of a First Class stamp from 33 
cents to 34 cents. On July 1, 2001, the price of a First Class 
stamp did not go up again but prices for other postal products 
increased by an additional 1.6 percent on average. On June 30, 
2002, the price of postage increased by an additional 8.7 
percent on average-raising the price of a First Class stamp 
from 34 cents to 37 cents. When mail-dependant businesses 
experience these kinds of price increases, they often begin 
mailing less and jobs can be lost.
    Things have turned around somewhat for the Postal Service 
since the last rate increase. Postmaster General John Potter 
has led a commendable effort to make the Postal Service more 
operationally efficient. Billions of dollars in costs have been 
taken out of the system, thousands of positions have been 
eliminated through attrition and voluntary retirement and 
successful automation programs have resulted in improved 
service and productivity, along with reduced costs. More 
dramatically, on November 1, 2002, the Postal Service learned 
that an unfunded pension liability related to the cost of its 
employees' participation in the Civil Service Retirement System 
(CSRS) they once believed was as high as $32 billion was 
actually $5 billion. A study conducted by the Office of 
Personnel Management had found that, because pension 
investments have been earning interest at a higher rate than 
presumed in the statutory funding formula, the Postal Service 
would over-fund its CSRS obligation by $78 billion if it 
continued to make the same payments it had been making to that 
point. Chairman Collins and Senator Carper introduced 
legislation in early 2003, the Postal Civil Service Retirement 
System Funding Reform Act (P.L. 108-18), which reduced the 
amount the Postal Service must pay into the Civil Service 
Retirement System each year by nearly $3 billion.
    P.L. 108-18, however, did not provide a permanent solution 
to the Postal Service's problems. The lower pension payment, 
coupled with Postmaster General Potter's aggressive cost 
cutting, averted the need for the Postal Service Board of 
Governors to seek an increase to their statutory debt limit. 
Aggressive cost cutting, however, cannot be sustained without 
affecting universal service and so will not solve the Postal 
Service's long-term challenges. According to the Postal 
Service, the total volume of mail delivered by the Postal 
Service has declined by more than 5 billion pieces since 2000. 
Over the same period, the number of homes and businesses the 
Postal Service delivers to increased by more than 5 million. 
First Class mail, the largest contributor to the Postal 
Service's bottom line, is leading the decline in volume. Some 
of those disappearing First Class letters are being replaced by 
advertising mail, which earns significantly less revenue for 
the Postal Service.
    In addition, the Postal Service has noted that only 22 
percent of the Postal Service's current mail volume is 
comprised of letters originating in households. A large 
percentage of that 22 percent is being sent to businesses, non-
profit organizations and governments. Bill presentment and 
payment, advertising mail and other commercial correspondence 
account for 93 percent of total mail volume. It is highly 
likely that, as Americans become more comfortable conducting 
commercial transactions over the Internet, the Postal Service 
will continue to see declines in First Class mail volume.
    Approximately one in four Americans today pay at least some 
of their bills online. Because processing an electronic payment 
made over the Internet costs one-third less than processing a 
check sent through the mail, businesses have an incentive to 
encourage more Americans to carry out more transactions online. 
In fact, many businesses no longer charge customers for the 
convenience of innovations like electronic bill payment but are 
instead offering incentives aimed at encouraging customers to 
give up the mail and move to the Internet.
    The electronic diversion of mail and its impact on the 
Postal Service are among the reasons why the Postal Service has 
been on the Government Accountability Office's (GAO) ``high-
risk'' list of troubled federal programs in need of reform 
since 2001. Electronic diversion also comes at a time when, on 
top of the costs related to serving a growing number of 
delivery points, the Postal Service is facing more than $90 
billion in unfunded liabilities and obligations. These include 
$6.5 billion in debt to the U.S. Treasury, nearly $7 billion 
for Workers' Compensation claims, $5 billion for CSRS 
retirement costs, and as much as $45 billion to cover retiree 
health care costs. The rate increases that will be needed to 
finance these liabilities, maintain the Postal Service's 
current infrastructure, pay for new letter carriers, and build 
retail and processing facilities in growing parts of the 
country will only further erode mail volume. GAO has warned 
that the Postal Service could be on the verge of a ``death 
spiral'' in which decreasing volume and increasing rates lead 
to further decreases in volume.
    To make matters worse, the rate and classification system 
created in the 1970 Postal Reorganization Act often forces the 
Postal Service to wait up to 18 months to change rates, giving 
management little flexibility to adjust its revenues to 
changing market conditions or to adapt to meet the unique and 
changing needs of its customers. The 1970 Act also gives the 
Postal Rate Commission limited oversight over the Postal 
Service and creates a Postal Board of Governors comprised of 
political appointees who sometimes do not have the management 
experience necessary to run an organization the size of the 
Postal Service.
    There have been a number of efforts in recent years to make 
some necessary reforms to the way the Postal Service does 
business. This Committee, led by former Chairman Fred Thompson, 
Ranking Member Lieberman and Senators Cochran and Akaka, former 
Chairman and Ranking Member of the Subcommittee on 
International Security, Proliferation, and Federal Services, 
asked GAO in March 2001 for a study of the Postal Service's 
precarious financial situation and its ability to continue to 
fulfill its universal service obligation. This report 
identified many of the Postal Service's serious long-term 
problems. Senators Thompson, Lieberman, Cochran and Akaka then 
sent a letter to the Postal Board of Governors then-Chairman 
Robert Rider in June 2001 for a report from the Postal Service 
on how it planned to reform itself to address the significant 
challenges it faced. In April of 2002, Postmaster General 
Potter delivered to Congress a comprehensive Transformation 
Plan designed to ``ensure the continuation of affordable 
universal service and to prepare the organization for the 
challenges of change in a dynamic marketplace.'' Creation of 
the Plan forced the Postal Service to determine what changes 
could be made, within existing constraints, that would result 
in improved operations, performance and finances.
    While the Transformation Plan was widely acknowledged as a 
good ``first step, `` it was also recognized that to truly 
transform the Postal Service, legislative change would be 
necessary. In an effort to take a fresh look at the issues, in 
July of 2002, Chairman Collins introduced a bill to establish a 
Presidential Postal Commission charged with examining the 
problems the Postal Service faces, and developing specific 
recommendations and legislative proposals that Congress and the 
Postal Service could implement. Five months later, in December 
of 2002, President Bush announced the creation of the 
President's Commission on the United States Postal Service 
(hereafter referred to as ``the President's Commission''), a 
bipartisan commission charged with identifying the operational, 
structural, and financial challenges facing the Postal Service. 
The President charged this commission with examining all 
significant aspects of the Postal Service with the goal of 
recommending legislative and administrative reforms to ensure 
its long-term viability.
    The President's Commission conducted seven public hearings 
across the country at which they heard from numerous witnesses. 
On July 31, 2003, the Commission released its final report, 
making 35 legislative and administrative recommendations for 
the reform of the Postal Service. In issuing their report, they 
sent a strong message to both Congress and the Postal Service:

          . . . an incremental approach to Postal Service 
        reform will yield too little, too late given the 
        enterprise's bleak fiscal outlook, the depth of current 
        debt and unfunded obligations, the downward trend in 
        First Class mail volumes and the limited potential of 
        its legacy postal network that was built for a bygone 
        era.\1\
---------------------------------------------------------------------------
    \1\ The President's Commission on the U.S. Postal Service, 
Embracing the Future: Making the Tough Choices to Preserve Universal 
Mail Service (July 31, 2003), Introduction, p. v.

    Beginning in September of 2003, the Committee held a series 
of seven hearings specifically to review the recommendations of 
the President's Commission. The Committee heard from the 
President's Commission's Co-Chair James Johnson, Postmaster 
General Potter, Postal Service Board of Governors Chairman 
David Fineman, GAO Comptroller General David Walker, Postal 
Rate Commission Chairman George Omas, all four major postal 
unions, postmaster and supervisor associations, mail-dependent 
businesses, postal competitors, newspaper associations, and 
experts on the issues of collective bargaining and postal 
wages, among others. In addition, the Committee joined with the 
House Government Reform and Oversight Committee to hold an 
eighth hearing at which U.S. Department of Treasury Secretary 
John Snow testified.
    There appeared to be a broad, general, consensus in the 
diverse stakeholder community on what elements of reform were 
necessary, such as legislative changes to the rate-setting 
process to allow for a more streamlined system. Postal 
customers wanted this new rate-setting system to provide strong 
incentives to hold down costs and to provide predictable rates. 
Many witnesses also considered improved Postal Service 
transparency and accountability to be essential aspects of 
reform; along with pricing flexibility to enable the Postal 
Service to better respond to its customers. The Committee was 
also asked by countless stakeholders to reconsider two elements 
of the Postal Civil Service Retirement System Funding Reform 
Act of 2003. The Act changed the way the Postal Service funds 
its Civil Service Retirement System (CSRS) obligation. The 
Committee was specifically asked to repeal the escrow provision 
of the CSRS Funding Reform Act and to transfer the military 
pension obligation back to the U.S. Department of Treasury. 
These were just a few of many legislative proposals for the 
reform of the Postal Service that the Committee was asked to 
consider.
    These hearings culminated in Chairman Collins' and Senator 
Carper's May 20, 2004 introduction of The Postal Accountability 
and Enhancement Act of 2004, S. 2468.

         THE POSTAL ACCOUNTABILITY AND ENHANCEMENT ACT OF 2004

Postal Service mission

    Congress established the United States Postal Service ``to 
bind the Nation together through the personal, educational, 
literary, and business correspondence of the people.'' [39 
U.S.C. 101(a)]. In this legislation, the Committee reaffirms 
the core mission of the Postal Service and limits the Postal 
Service to providing postal services which comprise the 
physical delivery of letters, printed matter or packages 
weighing up to seventy pounds and other ancillary services. By 
focusing on the business of processing, transporting and 
delivering physical mail pieces, the Postal Service will avoid 
the distractions and the associated financial costs that have 
arisen when the Postal Service has ventured away from its core 
business. To further this focus on core mail products, the 
Postal Service will not be permitted to offer nonpostal 
products except in cooperation with other government agencies, 
for example, sale of federal migratory bird hunting and 
conservation stamps or acceptance of passport applications.
    The definition of postal services and the associated 
definitions of products and rates form a product framework 
within which the Postal Service will operate and for which the 
Postal Regulatory Commission will design a regulatory 
structure. These definitions do not direct the Postal 
Regulatory Commission or the Postal Service to adopt any 
specific costing or rate design methodologies.

Regulatory structure

    The Postal Service currently operates under a regulatory 
structure created more than thirty years ago in the 1970 Postal 
Reorganization Act, a bill enacted at a time when nobody 
imagined that innovations like fax machines, cell phones and 
the Internet would one day compete with hard copy mail. The 
current structure offers the Postal Service little opportunity 
to innovate or even to quickly change the prices it charges for 
its products in response to changes in the market. It also 
gives the Postal Service little incentive to cut costs, even 
though the cost of a growing delivery network coupled with 
falling mail volume and massive debt demands greater 
efficiency. Meanwhile, the Postal Rate Commission is given 
limited authority to exercise oversight over the Postal 
Service. The President's Commission acknowledged these 
concerns, stating in its report that the laws governing the way 
the Postal Service operates need to be updated to meet the 
challenges of the Internet age.\2\ The Postal Service 
acknowledged this itself in the Transformation Plan:
---------------------------------------------------------------------------
    \2\ Ibid., 8.

          While the basic charter of the Postal Service has 
        remained static since its inception in 1970, the 
        mailing industry and private sector delivery companies 
        have evolved to meet the changing needs of the 
        marketplace. Indeed, innovation and competition were 
        not primary concerns of the 1970 Act. The Act was 
        designed to allow the Postal Service to do what it did 
        in 1970 in a more businesslike manner. By definition 
        and structure, a government entity has goals and 
        mandates that the private sector does not have, and 
        these inhibit the flexibility needed for direct 
        competition. In the far different and more competitive 
        environment of 2002, a revision of the Postal Service's 
        1970 charter is overdue.\3\
---------------------------------------------------------------------------
    \3\ U.S. Postal Service, Transformation Plan, (April 2002), 3.

    This legislation makes that long overdue revision by 
establishing a regulatory structure that balances the Postal 
Service's need for increased pricing and product flexibility 
with the need for effective oversight and accountability. The 
Committee has considered that the Postal Service faces little 
or no competition in providing many products and, for some 
products, has been granted a legal monopoly which prohibits 
private sector firms from providing alternative services. 
Therefore, the Postal Service's current products are divided 
into two categories: market-dominant products for which there 
is little or no competition and competitive products for which 
private sector alternatives exist. The regulatory structure 
grants the Postal Regulatory Commission enhanced review and 
oversight responsibilities for market-dominant products while 
streamlining the rate-making procedure for those products to 
allow a more rapid Postal Service response to changes in market 
conditions. In addition, the Postal Service's Board of 
Governors is permitted to more directly manage and price the 
Postal Service's competitive products; subject to minimal 
Regulatory Commission oversight to ensure that the Postal 
Service competes fairly with the private sector delivery 
services.
    Current Postal Service products classified in S. 2468 as 
market-dominant include First Class Mail Letters, First Class 
Mail Cards, Periodicals, Standard Mail, single-piece Parcel 
Post, media mail, bound printed matter, library mail, special 
services and single-piece international mail. Current Postal 
Service products classified by this bill as competitive include 
Priority Mail, expedited mail, bulk parcel post, bulk 
international mail, and mailgrams.
    The Committee considered classifying single-piece Parcel 
Post as a competitive product. In many parts of the country 
where a number of private sector delivery services compete with 
the Postal Service in the package delivery market, classifying 
single-piece Parcel Post in this way would not be likely to 
have much of an impact on postal customers. However, the 
Committee decided to make single-piece Parcel Post a market-
dominant product because of the negative impact we feared a 
competitive classification would have on those postal customers 
who live in parts of the country with fewer package delivery 
options. The Postal Service has traditionally kept prices for 
single-piece Parcel Post low to facilitate universal access to 
affordable package delivery in all parts of the country. It 
charges the same rate for single-piece Parcel Post in rural 
communities as it does in urban or suburban communities with 
more competitive package delivery markets. If single-piece 
Parcel Post were made a competitive product subject to the 
language in new section 3633 of title 39 of the U.S. Code 
setting cost coverage requirements for all competitive 
products, it is possible that the Postal Service would be 
forced to increase the price it charges for the product. This 
could make single-piece Parcel Post unaffordable for some 
postal customers. That said, nothing in this bill prevents 
single-piece Parcel Post from one day being moved from the 
market-dominant to the competitive category under the new 
section 3642 of title 39. If the Postal Regulatory Commission 
considers making this change at any point in the future, the 
Committee urges them to pay particular attention during their 
deliberations to the impact their decision could have on the 
affordability and availability of package delivery services in 
those communities without a fully-developed competitive package 
delivery market.

Regulation of market-dominant products

    The Postal Service currently operates under a regulatory 
structure that has changed little since it was established by 
the Postal Reorganization Act in 1970 (Public Law 91-375). 
However, the economy and the market place in which the Postal 
Service operates have changed in ways that could not have been 
foreseen more than thirty years ago. Today, electronic and 
other alternatives to mail have the potential to significantly 
reduce Postal Service mail volumes; volume reductions are 
already being seen. These market pressures combined with a 
continual growth of the Postal Service's network and the number 
of postal delivery points threaten the ability of the Postal 
Service to provide universal service. In addition, a rigid, and 
overly litigious rate-setting process limits the Postal 
Service's ability to adjust rates as needed and to adapt postal 
prices and products to a changing marketplace. This bill 
proposes needed reforms that will not only address these 
critical needs but will also enhance oversight ensuring that 
the Postal Service is accountable to the American people.
    In designing the regulatory structure for market-dominant 
products, the Committee carefully considered whether Congress 
itself should legislatively establish the details of the 
regulatory system. On balance, however, the Committee 
determined that relying on the Postal Regulatory Commission's 
expertise to develop the price cap will result in a more 
flexible system that can be adapted to changing market 
conditions. In implementing this authority, the Postal 
Regulatory Commission should develop regulations that will give 
the Postal Service the maximum pricing flexibility possible 
consistent with the overarching financial and policy goals set 
forth in this legislation. Replacing one inflexible system with 
another will not address the needs of the postal community or 
ensure long-term survival of the American public's postal 
system.
    For market-dominant products, the Postal Regulatory 
Commission is directed to design, within 12 months, a modern 
system for regulating rates and classes for market-dominant 
products. This regulatory system shall be designed to meet nine 
objectives. These objectives recognize the importance of the 
postal rate-setting process to both the Postal Service and its 
customers and the need to ensure that the Postal Service 
remains a financially viable institution capable of providing 
the mail services that the American public need. Specifically, 
these objectives direct the Postal Regulatory Commission to 
establish a more streamlined regulatory system which will 
reduce the time and resources needed to litigate and establish 
new postal rates while giving the Postal Service increased 
pricing flexibility (Objectives 1 and 5). In addition, the new 
regulatory system should address postal customers' concerns 
that rate changes be both predictable and stable (Objective 2), 
that the mail system be secure and terrorism be deterred 
(Objective 4), and that an equitable distribution of the Postal 
Service's institutional costs result (Objective 7). The long 
term financial viability of the Postal Service is addressed by 
requiring that the Postal Regulatory Commission maximize 
incentives for the Postal Service to reduce costs and increase 
efficiency (Objective 3) thus maintaining affordable and cost-
effective postal services. Lastly, the Postal Regulatory 
Commission is directed to include a provision for the Postal 
Service to earn adequate revenues, including the ability to 
retain earnings, both to maintain the Postal Service's 
financial stability and to meet established service standards 
(Objective 6). It is the Committee's expectation that the new 
rate and classification system will be fair and equitable for 
mailers of all types of sizes.
    The Committee believes that the provision for retained 
earnings will address two concerns expressed during hearings 
conducted prior to the introduction of this bill. First, the 
ability to retain earnings will provide the Postal Service with 
revenues necessary to fund network expansion and necessary 
capital improvements. In the current environment the Postal 
Service faces the need to expand its network as the number of 
delivery points increases; however, if the concurrent downward 
trend in mail volumes continues, it will become increasingly 
difficult to fund this needed expansion. Retained earnings will 
provide a resource that can be used by the Postal Service to 
meet its universal service obligation. Secondly, the 
Committee's determination that a rate cap mechanism is the 
appropriate regulatory structure is based on a determination 
that a rate cap can result in downward pressure on costs 
through restrictions on price changes. If retained earnings are 
not permitted, that is if revenues must equal costs, the 
incentive to control costs and thus generate funds for long-
term capital investments, network growth or other needs will 
not exist.
    In designing the regulatory structure, the Postal 
Regulatory Commission shall take into account twelve factors. 
These factors encompass the current pricing and classification 
criteria [39 U.S.C. 3622(b) and 3623(c)] used by the Postal 
Rate Commission to evaluate the Postal Service's Governors' 
rate and classification requests. The Committee believes that 
these factors have served a useful role in evaluating rate and 
classification changes under the current regulatory structure 
and will provide similar policy guidance for the development of 
the new regulatory system.

Accurate attribution of costs

    The existing regulatory structure focuses considerable 
attention on ascertaining what postal costs could reliably be 
said to have been incurred to provide which specific postal 
services. Current law requires that the rates for each class of 
mail and type of service be set so as to recover the direct and 
indirect costs that were caused by that class or type, in 
addition to providing a reasonable contribution toward 
institutional costs. Institutional costs are those 40 percent 
of the Postal Service's costs, such as salaries for management 
and other overhead costs, that the Postal Service says cannot 
be attributed to any specific product. While considering this 
legislation the Committee heard testimony suggesting that 
currently accepted levels of cost attributions were both too 
low and too high, and that specific rules for cost attribution 
should be incorporated into law. The Committee has decided that 
the technical decision of what cost analysis methodologies are 
sufficiently reliable at any given time to form the basis for 
attribution should be left to the Postal Regulatory Commission, 
acting with benefit of counsel from all interested persons in 
open public proceedings.
    Identifying costs which can reliably be found to have been 
caused by each specific subclass and service is essential to 
maintaining economically efficient rates and avoiding 
inequitable cross-subsidization, which occurs when rates from 
one product are used to pay costs associated with another. Over 
the history of the Postal Reorganization Act the ability to 
accurately attribute costs has continually evolved, and the 
Committee expects that with greater transparency about the 
Postal Service's operations, this process will continue. The 
current analysis has been guided by a Supreme Court decision, 
National Assoc. of Greeting Card Publishers v. USPS, 462 U.S. 
810, 829-34, (1982), that carefully analyzed how the term 
attributable should be interpreted. This definition has been 
further refined by U.S. Courts of Appeals and is well 
understood in the industry. The NAGCP Court rejected a 
contention that it was appropriate to make classes responsible 
for the recovery of costs for which an extended inference of 
causation was claimed. It emphasized the need for reliable 
indicators of causality without specifying any specific method 
for identifying causality. Governed by this ruling since 1982, 
the Postal Rate Commission must have reasonable assurance that 
any costs attributed to a class of mail are incurred as a 
result of providing that class of mail. The Committee finds no 
reason for changing this standard.

Establishment of a regulatory system for market-dominant products

    In hearings, witnesses from the mailing industry cited the 
need for predictable and stable rates. Predictability and 
stability, the Committee learned, allows mailers to better plan 
their mailing and could allow them to increase the amount of 
business they do with the Postal Service. Of primary 
importance, then, is the establishment of a regulatory system 
that will provide for limits on the percentage changes in 
Postal Service rates. This system--frequently referred to as a 
rate or price cap--shall be designed to limit annual rate 
changes based on the level of inflation. While the Committee 
considered directing the use of a specific inflation measure as 
the basis for the rate cap, concern existed that such a 
determination would unreasonably restrict the flexibility of 
the Postal Regulatory Commission to establish the best and most 
effective rate cap mechanism. The Committee expects that the 
Postal Regulatory Commission, in public proceedings and with 
the input of all interested parties, will fully and carefully 
evaluate the merits of a wide range of rate cap structures. 
This consideration should include, but should not be limited 
to, the relative merits of different inflation indices 
including the Consumer Price Index, the Employment Cost Index, 
and the Gross Domestic Product Price Index; the definition of 
the product groupings to which the caps will be applied, and 
the use of productivity factors or offsets. In addition, the 
Postal Regulatory Commission should consider the experience 
gained and lessons learned from the construction and 
application of rate or price caps in other industries. Overall, 
the Committee believes that the rate cap structure established 
by the Postal Regulatory Commission should provide for the 
maximum possible pricing flexibility while maintaining adequate 
financial safeguards and incentives for cost control.
    To provide for predictable rate changes which will allow 
Postal Service customers to budget for postage expenditures, 
the Postal Regulatory Commission shall establish a schedule 
under which rates will change at regular intervals by 
predictable amounts. While the establishment of a rate cap per 
se will increase the predictability of postal rate changes by 
imposing a known cap, the Postal Regulatory Commission must 
consider whether additional requirements are necessary and 
appropriate. The Committee believes that the characteristics 
and relative sophistication of various customer groups may 
suggest differing rate change schedules are appropriate for 
specified product groupings. Similarly, market conditions and 
the relative speed with which market conditions change may also 
inform the Postal Regulatory Commission's decision in 
establishing any rate change schedule. The Postal Regulatory 
Commission may determine that more or less frequent rate 
changes are appropriate for different product groupings. 
However, establishment of schedules for rate changes should be 
designed to provide a necessary and appropriate level of 
predictability; it should not be designed to unreasonably 
restrict the ability of the Postal Service to adjust prices 
within the rate cap.
    To provide for adequate review of any proposed changes in 
market-dominant product price, a 45-day prior review period is 
established. This period begins with the Postal Service's 
public notice of a price adjustment affecting a market-dominant 
product or products and will provide the Postal Regulatory 
Commission an opportunity to review the adjustment. If the 
Postal Regulatory Commission finds that the price adjustment is 
not in compliance with the established statutory and regulatory 
requirements, it must notify the Postal Service within the 45-
day notice period. In response to this notice, the Postal 
Service shall describe the actions to be taken to ensure that 
the rate change is in compliance with the statutory and 
regulatory requirements. While the Postal Service is expected 
to respond adequately to any Postal Regulatory Commission 
determination of noncompliance prior to the scheduled rate 
implementation, the burden is on the Postal Regulatory 
Commission to provide adequate notice of noncompliance 
permitting a Postal Service response prior to the expiration of 
the 45-day period. If either intentionally or inadvertently, 
the Postal Regulatory Commission does not notify the Postal 
Service of any noncompliance, the Committee believes that there 
would be no impediments to the Postal Service implementing the 
rate adjustment as noticed at the end of the 45-day period. The 
Committee clearly recognizes that the 45-day review period is 
short and has determined that a short review period is 
consistent with the goals of increasing Postal Service pricing 
flexibility. To facilitate review of rate adjustments, the 
Committee presumes that extremely clear and well-defined 
standards will be established by regulation allowing the Postal 
Service and the Postal Regulatory Commission to make a rapid 
determination of whether a rate adjustment meets the applicable 
criteria. The review period is not intended to be used to 
evaluate the regulatory structure; if a full review of the 
regulatory structure is deemed to be necessary, the Committee 
expects that, during the period of any review of the regulatory 
structure, the Postal Service will be permitted to adjust rates 
under the regulatory requirements in effect as of the date of 
public notice of the adjustment. Therefore, any changes in the 
regulatory structure will be applicable only to rate 
adjustments noticed by the Postal Service after the date the 
new regulations are established.
    The Committee believes that the rate cap system to be 
established under this statute by the Postal Regulatory 
Commission should give the Postal Service the flexibility to 
respond to all circumstances it is likely to face in the normal 
course of business. However, the terrorist attacks of September 
11, 2001 and the subsequent use of the mail to transmit anthrax 
highlight the need to address unexpected and extraordinary 
circumstances and their effect on the Postal Service and its 
financial requirements. Therefore, the Postal Regulatory 
Commission shall establish procedures under which the Postal 
Service can adjust rates on an expedited basis due to 
unexpected and extraordinary circumstances. The Committee hopes 
that these procedures will never be needed; however, it would 
be unwise not to recognize the potential need for rapid changes 
to the postal rate structure in the event of a national 
emergency.

Workshare discounts

    The Committee has heard testimony from many parties 
describing the benefits of the Postal Service's worksharing 
program. This program was developed by the Postal Service and 
the Postal Rate Commission to enable customers to pay lower 
rates when they perform mail preparation or transportation 
activities such as presorting, prebarcoding, and certain other 
mail handling activities that would otherwise be performed by 
the Postal Service. This worksharing program has induced 
mailers to invest in equipment and processes that facilitate 
the Postal Service's automation program, has reduced mailing 
costs, and has otherwise made mail a more economically 
attractive medium.
    The Committee agrees with the principle, supported by the 
Postal Service, the Postal Rate Commission, and postal 
employees, that workshare discounts should generally not exceed 
the costs that the Postal Service avoids as a result of the 
worksharing activity. When discounts are kept below the costs 
saved by the Postal Service, mailers have a financial incentive 
to do work more efficiently than the Postal Service can do it, 
yielding savings to the participating mailers, to the Postal 
Service, and to other postal customers whose rates are kept 
down by the Postal Service's savings under the program.
    However, there are four circumstances under which workshare 
discounts in excess of avoided costs have historically been 
allowed by the Postal Rate Commission and are warranted, and 
the Committee has codified these exceptions in the legislation:
     The first exception applies when a discount is 
associated with a new or changed postal product and is needed, 
for up to 4 years, to induce mailer behavior that furthers the 
economically efficient operation of the Postal Service. Such a 
discount can encourage mailers to invest in new technologies or 
practices that will save the Postal Service money, and can then 
provide the Postal Service an opportunity to achieve the 
resulting efficiencies. For discounts already in effect on the 
date of enactment, the 4-year period begins on that date.
     The second exception provides that a workshare 
discount may exceed costs avoided if a reduction in the 
discount would--(i) lead to a loss in volume of the affected 
category of mail and thereby reduce the aggregate contribution 
to institutional costs, (ii) result in a further increase in 
rates paid by mailers not able to take advantage of the 
discount, or (iii) impede the efficient operation of the Postal 
Service.
     The third exception allows a workshare discount to 
exceed costs avoided if that excess portion of the discount is 
necessary to mitigate rate shock and will be phased out over 
time. Discounts under this exception, like those under the 
first exception, are time-limited.
     The fourth exception applies to discounts that are 
provided in connection with subclasses of mail consisting 
exclusively of material having educational, cultural, or 
scientific value. Discounts under this fourth exception, like 
those under the second, are not time-limited.
    To ensure that the economic rationale for workshare 
discounts is transparent and clearly understood, the Postal 
Service will be required to submit to the Postal Regulatory 
Commission a report whenever it establishes or maintains a 
workshare discount. This report must include an explanation of 
the Postal Service's reasons for establishing or maintaining 
the rate and must set forth the data, economic analyses, and 
other information relied upon by the Postal Service to justify 
the rate.

Service agreements for market-dominant products

    In the hearings, the Committee heard from numerous 
witnesses who argued that increased pricing and product 
flexibility was necessary to provide the Postal Service with 
the ability to respond quickly and effectively to customers' 
needs. The current regulatory structure places roadblocks in 
the way of responsive and cost-effective pricing initiatives. 
For example, the Capital One service agreement required eight 
months of litigation, hundreds of pages of testimony, hearings, 
and extensive legal argument before being recommended by the 
Postal Rate Commission. The Committee fully supports the Postal 
Rate Commission's determination that service agreements 
establishing customer-specific rates and classifications are 
legal and permissible under current law. In addition, the 
Committee believes that the regulatory structure established by 
this legislation, absent the provisions of this section, would 
permit customer-specific service agreements for both market-
dominant and competitive products. However, in evaluating the 
concerns of postal stakeholders, the Committee has determined 
that the limited experience to date with service agreements 
suggests that prudent safeguards might reasonably be included 
in this legislation. While future review may determine that the 
requirements we have instituted are unnecessary, we believe 
these requirements will provide useful legislative guidance in 
evaluating future service agreements for market-dominant 
products. Consistent with the Committee's determination that 
increased pricing discretion should be granted to the 
Governors, the requirements for service agreements for 
competitive products decisions for competitive products do not 
differ from those for any other competitive product rate change 
as set out in section 3631.
    Specifically, the Postal Service is authorized to negotiate 
service agreements with individual customers or groups of 
customers for market-dominant products. These agreements would 
provide for the provision of postal services under terms, 
conditions, or service standards that differ from those 
generally available to other users of the mails. Service 
agreements will, therefore, serve as a vehicle by which the 
Postal Service and its customers can evaluate unique 
opportunities to reduce costs, change product offerings to meet 
specific customer needs or undertake other actions that will 
provide a benefit to the participating customer. While many 
view service agreements as a way for the participating customer 
to reduce its costs (through lowered rates or acceptance of 
reduced services), the Committee encourages the Postal Service 
to investigate opportunities that may provide additional or 
premium (possibly at a higher price) services that would not 
otherwise be available to customers. We do not intend for 
service agreements to be a limited substitute for more broadly 
applicable classifications. The Postal Service should continue 
to make every effort to provide products and services of value 
available to as many customers as possible.
    In fact, the conditions established in this legislation 
will ensure that no one is made worse off as a result of a 
customer-specific service agreement. Every service agreement 
must provide sufficient total revenue to ensure that all Postal 
Service costs attributable to the agreement are covered and 
that the contribution to the Postal Service's institutional 
costs from the mail covered by the agreement will not decline; 
therefore, no other customer will bear an increased 
institutional cost burden because the Postal Service has 
entered into the service agreement. In addition, rates or fees 
for other mailers cannot increase as a result of the agreement. 
Lastly, the Postal Service will be required to enter into 
agreements on the same (or substantially similar) conditions 
with customers who are not party to the agreement; this will 
result in the benefits from a service agreement being made 
accessible to any customers who can meet the requirements of 
the service agreement. Lastly, the Postal Regulatory Commission 
may suspend, cancel or prevent an agreement if it does not meet 
the requirements of this section, or following review under the 
same procedures used for other rate and service complaints as 
established in section 3662.
    Administrative requirements are also established by this 
legislation that will ensure that the terms and conditions of 
any service agreements are publically known and to permit the 
open evaluation of the agreements by both the Postal Regulatory 
Commission and any customer who may want to determine whether 
it could benefit under the terms of the agreement. The Postal 
Service is required to publish the terms of a service agreement 
in the Federal Register at least thirty days before the service 
agreement is to take effect. This publication must describe the 
postal services the agreement involves and the functions the 
Postal Service and the customer respectively must perform, and 
the rates and fees payable by the customer during the term of 
the agreement. In addition, the notice must provide sufficient 
information (based to the extent practicable on customer 
specific data) to demonstrate the bases for the Postal 
Service's view that the agreement meets the legislatively 
established conditions for a permissible service agreement. As 
a safeguard for regional or local businesses who may not 
routinely review Federal Register notices, the Postal Service 
shall publish this information in a manner that would provide 
reasonable notice to persons within any geographic area if the 
agreement pertains to that area specifically.

Pricing of competitive products

    This bill establishes a flexible system of pricing the 
Postal Service's competitive products which reduces regulatory 
burdens and permits more customer- and market-responsive 
pricing. It does this while establishing appropriate safeguards 
to ensure that a level playing field is maintained and that the 
Postal Service does not unfairly compete. The competitive 
products are defined as priority mail, expedited mail, bulk 
parcel post, bulk international mail and mailgrams. As 
appropriate, the Postal Regulatory Commission may adjust the 
list of competitive products in response to changes in market 
conditions such as a significant increase in the number or type 
of non-postal alternatives for a specific product. In the 
market for each of these products, substantial private sector 
competition exists giving customers alternatives to Postal 
Service products. Unlike market-dominant products, where a lack 
of competition leads the Committee to specify a rate cap 
mechanism to ensure that costs and prices are controlled; for 
the competitive products the Committee believes that the open 
and fair competition with private sector firms will encourage 
the cost-effective provision of Postal Service competitive 
products.
    The regulatory structure established by the Postal 
Reorganization Act does not distinguish between market-dominant 
and competitive products. See 39 U.S.C. 3622. Regardless of the 
availability of competitive alternatives to postal products, 
the same litigious and lengthy postal rate-making process is 
applied to all products. Under this legislation, the 
Presidentially-appointed Postal Service Governors are permitted 
to establish rates and classes for competitive products as 
needed under a streamlined review process.
    To protect both customers and competitors of the Postal 
Service, this legislation establishes a prior review process to 
ensure that the Postal Service is not pricing competitive 
products inappropriately and to ensure that the Postal 
Regulatory Commission and all interested parties have the 
opportunity to review the proposed competitive products prices 
and to determine that the requirements of this act are met. The 
public notice and concurrent Postal Regulatory Commission 
review period for competitive product price change is limited 
to thirty days. As compared to current statute, which allows 
the Postal Rate Commission up to ten months to review all 
Postal Service price requests, the limited thirty day review 
period should substantively increase the ability of the Postal 
Service to adjust its competitive pricing and products to react 
to market changes and customer needs. If the Postal Regulatory 
Commission finds that any proposed competitive product price 
change does not meet the requirements of the regulatory 
structure, it is required to notify the Governors of the 
noncompliance and the Governors are required to respond to this 
notice by describing the actions to be taken to comply.
    The Postal Regulatory Commission is required, within 180 
days of enactment, to promulgate regulations that prohibit the 
cross-subsidization of competitive products by market-dominant 
products, ensure that each competitive product covers its 
attributable costs, and that all competitive products 
collectively cover their share of the Postal Service's 
institutional costs. These regulations are intended to ensure 
that the Postal Service competes fairly in the provision of 
competitive products. However, the Committee feels that the 
regulation of competitive products should be constructed to 
result in the minimum possible regulatory burden and to 
facilitate a short and limited review of proposed competitive 
product price changes. As a result, established regulations are 
expected to be clear and easily interpreted to facilitate the 
short prior review process established by this legislation. The 
Governors, in turn, are expected to provide a clear and concise 
explanation of how and why the proposed rate changes meet the 
established requirements to facilitate Postal Regulatory 
Commission review. The review process is intended to ensure 
that the Governors' proposed competitive price adjustments meet 
the established requirements, not to serve as an evaluation of 
the merits of each proposed rate as compared to any other 
alternative rates.

Experimental and new products

    The Committee recognizes that, to remain financially viable 
and to continue to meet the evolving needs of its customers, 
the Postal Service must innovate and develop new products and 
services. While this legislation limits the scope of the Postal 
Service's product offerings to ``postal products,'' we do not 
intend for this limitation to restrict the Postal Service's 
ability to develop new postal products. In fact, developing an 
organizational culture of innovation and market responsiveness, 
can help the Postal Service to address its financial 
difficulties by increasing the attractiveness of mail to both 
new and existing customers. Therefore, this legislation sets 
out procedures under which the Postal Service can offer 
experimental and new postal products.
    Under the provisions of the Postal Reorganization Act, the 
Postal Service must request a recommended decision from the 
Postal Rate Commission prior to offering any new product or 
service. While the Postal Rate Commission has established rules 
to expedite consideration of experimental and market test 
classification requests, the Postal Service and other 
stakeholders have often observed that the current regulatory 
structure does not offer sufficient flexibility to innovate and 
offer new products and services. To increase flexibility and to 
facilitate a more entrepreneurial approach to product 
development, the Committee believes that the Postal Service 
should be granted additional flexibility permitting it to 
market test experimental products without extensive prior 
review by the Postal Regulatory Commission. Therefore, for 
market tests of experimental products for which Postal Service 
revenues are expected not to exceed $10 million annually, no 
prior review will be required. In addition, these market tests 
will be limited to 24 months in duration. However, if it is 
necessary to determine the feasibility or desirability of the 
product being tested, the Postal Regulatory Commission may, 
upon receiving an application from the Postal Service, extend 
the revenue limits to $50 million annually and the duration of 
the market test for an additional 12 months. The Postal 
Regulatory Commission shall approve any application to increase 
the revenue limit or duration of the market test for an 
experimental product if it determines that the product is 
likely to benefit the public and meet an expected customer 
demand, the product is likely to contribute to the financial 
stability of the Postal Service and the product is not likely 
to result in unfair or inappropriate competition. The ability 
to modestly expand the market test revenue and duration limits 
with Postal Regulatory Commission concurrence, will give the 
Postal Service additional flexibility if it finds that a more 
limited test will not provide sufficient information to 
evaluate the market demand and the financial potential of a 
product.
    To ensure that proper safeguards exist at the outset of a 
market test of an experimental product, the Postal Service will 
be required to file with the Postal Regulatory Commission and 
publish in the Federal Register a notice describing the test's 
nature and scope and explaining why it believes the experiment 
should be classified as a market test. Products eligible for 
provision as a market test for an experimental product must be 
sufficiently different from all products offered by the Postal 
Service in the prior two years, thus protecting against the use 
of the market test rules to adjust or change the rates charged 
for existing products outside the rate-making processes 
established in sections 3622 and 3623. However, this limitation 
is not intended to foreclose the use of the market tests of 
experimental products authority for enhancements to existing 
products. The test used to determine whether the market test 
provisions can be applied is a judgement that the proposed 
product is, from the point of view of mail users, different 
from those offered in the prior two years. These new products 
could include ancillary services that were not previously 
offered, product enhancements that provide services of value 
that differ in some respect to currently offered products, re-
introductions of products that had been previously 
discontinued, and adjustments to product offerings under the 
experimental rules that change the nature or type of service 
provided. The intent of the market test rules is not to 
severely limit the type and scope of products that can be 
offered under these provisions, it is rather to encourage the 
Postal Service to expand the scope of its products to maintain 
the attractiveness of the mails generally.
    To protect both customers and competitors of the Postal 
Service, the Postal Service should not be permitted to offer a 
product under the market tests of experimental products 
provisions if it would create an unfair or otherwise 
inappropriate competitive advantage for either the Postal 
Service or any mailer, especially small business concerns. In 
addition, if a market test for an experimental competitive 
product is undertaken, the protections offered for confidential 
business information under the new Postal Regulatory Commission 
subpoena powers will also apply. To ensure consistency and 
preserve the distinctions made under the rate-making provisions 
applicable to market-dominant and competitive products, costs 
and revenues attributable to competitive experimental products 
will be included in the determination of the Postal Service's 
compliance with the provisions applicable to competitive 
products generally. To prevent a potential anomaly that might 
otherwise permit an enhancement to a competitive product to be 
classified as a market-dominant product, any product developed 
under the market test rules that only affects competitive 
products or provides services ancillary to competitive products 
will also be classified as a competitive product even if a 
similar ancillary product is available for one or more market-
dominant products. Lastly, as a final safeguard, the Postal 
Regulatory Commission may order the cancellation of a test or 
take other appropriate action, if it determines that a market 
test does not meet the requirements of the section. The 
Committee established this provision as an ultimate safeguard 
for customers and competitors of the Postal Service; however, 
we do not intend this safeguard to result in a de facto prior 
review of market tests of experimental products through the 
establishment of rules that institute requirements for 
provision of extensive information or data before the Postal 
Service can begin a market test.
    While the bill establishes procedures setting out a 
simplified process allowing the Postal Service to conduct 
market tests of experimental products, the Committee does not 
intend to limit the Postal Service's product development 
initiatives to small-scale product enhancements. Instead, we 
strongly encourage the Postal Service to review its product 
offerings on an ongoing basis to ensure that they continue to 
meet the needs of the American people including customers of 
all sizes. Because it is not unlikely that these reviews may 
result in proposed product changes exceeding the scope of 
changes permitted under the market test for experimental 
products provisions, this legislation establishes a process 
whereby the Postal Service can adjust its product lines and 
respond to the market place while ensuring that the Postal 
Regulatory Commission can provide appropriate regulatory 
oversight.
    As has been well demonstrated in public hearings both 
before this Committee and before the President's Commission on 
the United States Postal Service, the postal marketplace is 
changing, perhaps more rapidly than at any time in our nation's 
history. Therefore, while the Committee divided existing postal 
products and services into the market-dominant and competitive 
product groupings in this legislation, over time, we expect 
that these product groupings will need review and revision as 
circumstances change. Therefore, the Postal Regulatory 
Commission is given the authority to change the lists of 
market-dominant and competitive products by adding or removing 
products from the lists or by transferring products between the 
two lists. The Postal Service or users of the mails may request 
changes in the product lists and the Postal Regulatory 
Commission may also, upon its own initiative, change the 
product lists. Under current law, the Postal Service has the 
sole ability to request changes in the classification schedule, 
and absent such a request, the Postal Rate Commission has 
little ability to initiate classification changes even if the 
change would be beneficial. However, we do not intend for these 
provisions to result in Postal Regulatory Commission management 
of the Postal Service's product offerings. The goal of 
increased flexibility and increased responsiveness to 
customers' needs requires that the Postal Service manage its 
product offerings. But, in a changing environment, the Postal 
Regulatory Commission must be able to make needed alterations 
to the regulatory structure, including the classification of 
products as market-dominant or competitive, to ensure that the 
regulatory structure continues to meet the goals established by 
Congress. Consequently, any changes to the product listings 
should be well-reasoned and clearly justified based on changing 
market conditions.
    To guide Postal Regulatory Commission decisions on the 
classification of products as either market-dominant or 
competitive, ``market-dominant products'' have been defined as 
including each product for which the Postal Service exercises 
sufficient market power that it can effectively set prices 
above costs, raise prices significantly, and decrease quality 
or output without risk of losing substantial business to other 
firms offering similar products. Because this legislation 
establishes regulatory limits on, for example, price changes, 
the evaluation of whether ``sufficient market power'' exists 
must recognize the potential for price, quality, or output 
changes and associated market effects in the absence of 
established regulatory constraints. All products not defined as 
market-dominant under these criteria shall be categorized as 
competitive products. Generally, this definition adopts the 
Federal Communications Commission definition of a dominant 
carrier.
    Furthermore, in recognition that some customers have no 
non-Postal Service alternatives because of the Congressionally-
established restrictions on the carriage of letters outside the 
mail, [18 U.S.C. 1696 subject to the same exception set forth 
in the last sentence of section 409(e)(1)] this legislation 
requires that any product subject to this monopoly remain 
within the market-dominant category. In making any decision to 
transfer products under this section, the Postal Regulatory 
Commission should give due regard to the availability and 
nature of services in the private sector engaged in the 
delivery of the product, the views on the appropriateness of 
the proposed action of those who use the product and the likely 
effect on any small business concerns. This will allow for a 
balanced evaluation of the merits of any proposed transfer of a 
product between the market-dominant and competitive product 
categories. Because changes in the market place may not equally 
affect all of the subclasses or other subordinate units or a 
class of mail or type of postal service, nothing in this title 
shall be considered to prevent transfers under this section 
from being made because they only affect some (but not all) of 
the subclasses or other subordinate units of a class of mail or 
type of mail service. To facilitate the effective operation of 
the regulatory structure, the Postal Service cannot offer any 
product involving the physical delivery of letters, printed 
matter or packages unless it has been assigned to the market-
dominant or competitive category of mail.

Reporting requirements

    In establishing the postal regulatory structure in the 
bill, the Committee has attempted to balance the Postal 
Service's need for additional flexibility with the public and 
mailing community's need for increased financial transparency 
and established safeguards to protect against unreasonable use 
of the Postal Service's statutorily-granted monopoly. We are 
also establishing reporting requirements for both the Postal 
Regulatory Commission and the Postal Service to ensure that 
Congress, the Postal Regulatory Commission and postal 
stakeholders have sufficient information to determine the 
ongoing effectiveness of the regulatory structure established 
in this legislation as well as to provide for ongoing audits of 
the Postal Service by the Commission. Specifically, the Postal 
Regulatory Commission is required to report to Congress 
annually on the operations of the Commission under the 
provisions of this title including the extent to which 
regulations are achieving the objectives of the rate-making 
requirements of sections 3622 (market-dominant products) and 
section 3623 (competitive products), and the service standard 
provisions of section 3691.
    To facilitate application of the rate-making requirements 
of this title and to provide a basis for the evaluation of the 
Postal Service's compliance with these requirements, the Postal 
Service shall (within 90 days of the end of each year) submit a 
report to the Postal Regulatory Commission that analyzes costs, 
revenue, rates, and quality of service in sufficient detail to 
demonstrate that all products complied with all applicable 
requirements. In addition, for each market-dominant product 
provided, this report shall include product information, and 
measures of service for that product. This information will 
allow the Postal Regulatory Commission and all interested 
parties to evaluate the provision of market-dominant products. 
To ensure that workshare discounts are appropriately 
established, the report shall include data on a per-item basis 
for each workshare discount including the costs-avoided, the 
percent of the discount that the cost-avoided represents and 
the contribution made to institutional costs. The Postal 
Service may provide summary data by service agreement and 
market test but must report the data that the Postal Regulatory 
Commission requires. This report shall be audited by the 
Inspector General. The results of the Inspector General's audit 
will be submitted with the Postal Service's report.
    The Postal Regulatory Commission shall prescribe by 
regulation the content and form of the Postal Service's report. 
In doing so the Postal Regulatory Commission must give due 
consideration to the need to balance the requirements of full 
and open access to postal information against the need to avoid 
unnecessary or unwarranted administrative effort and expense on 
the part of the Postal Service and the importance of protecting 
the confidentiality of commercially sensitive information. The 
reporting requirements are intended to provide an opportunity 
for the Postal Regulatory Commission to review and evaluate the 
compliance with the rate-making provisions of this title and to 
evaluate the level of service provided to customers; they are 
not intended to impose an excessive burden on the Postal 
Service.
    In establishing regulations implementing this section, the 
Postal Regulatory Commission should carefully weigh the need 
for and utility of any data it may request against the expected 
benefit in increased transparency of postal operations and 
finances. The reporting requirements are not intended to serve 
as an unlimited opportunity to access any and all Postal 
Service data including that which may be, at best, 
tangentially-related to evaluating compliance with the rate and 
service provisions of this title. However, in recognition that 
circumstances and data needs may change over time, the Postal 
Regulatory Commission may (on its own motion or upon request of 
an interested party) initiate proceedings to improve the 
quality, accuracy, or completeness of data provided it appears 
that costs or revenue attribution data or service quality data 
has become significantly inaccurate or can be significantly 
improved or if revisions are necessitated by the public 
interest. If the Postal Service determines that any information 
provided in a nonpublic annex to a report under this section 
contains information as described in 39 U.S.C. 410(c) or exempt 
from disclosure under 5 U.S.C. 552(b) including commercially 
sensitive information which under good business practice would 
not be publically disclosed, the Postal Service shall notify 
the Postal Regulatory Commission of its determinations and 
describe the documents for which confidentiality is sought and 
the reasons for this determination. Lastly, to ensure that the 
Postal Regulatory Commission has access to up-to-date Postal 
Service data to facilitate its statutory mission, the Postal 
Service shall also provide copies of its most recent 
comprehensive statement, strategic plan, performance plan and 
program performance reports.
    After receiving the required annual reports, the Postal 
Regulatory Commission shall provide an opportunity for public 
comment and shall determine within 90 days whether the rates 
and fees in effect were not in compliance with the applicable 
provisions of this chapter or whether any service standards 
were not met. This compliance determination will serve as a 
check on the Postal Service's rate-setting decisions and 
provide a safeguard ensuring that the rate-making requirements 
of this legislation have been met. However, this compliance 
assessment is not intended to serve as an after-the-fact review 
of the appropriateness of each individual rate in comparison 
with any other possible alternative rates; the review is 
intended to ensure that the rates for market-dominant products 
meet the requirements of the established rate cap at the time 
the rates were implemented and that the competitive products 
meet the rate requirements established to ensure that 
inappropriate cross-subsidy or competition does not occur. If 
noncompliance is found, the Postal Regulatory Commission is 
required to take appropriate remedial action by, for example, 
ordering that a cross subsidy be ended or that a rate that has 
exceeded the Commission-established price cap be lowered. To 
avoid the potential for duplicative review of prior Postal 
Service and Postal Regulatory Commission decisions, once the 
Postal Regulatory Commission determines that the Postal Service 
was in compliance with the applicable standard for any year, 
this shall establish a rebuttable presumption of compliance by 
the Postal Service for the purpose of any rate or service 
complaint.

Rate and service complaints

    Under current statute, rate and service complaints can be 
filed; however, relatively little recourse is available if the 
complaint is found to be justified. This legislation 
strengthens the authority of the Postal Regulatory Commission 
to act on a complaint and to require the Postal Service to take 
action if the complaint is found to be justified. Any person 
who believes that the Postal Service is not operating in 
conformance with the statute may lodge a complaint with the 
Postal Regulatory Commission which then is required (within 90 
days) to either begin proceedings on the complaint or issue an 
order dismissing the complaint. If the Postal Regulatory 
Commission does not act on a complaint in a timely manner it 
shall be treated as if it were dismissed. If, after open 
proceedings the Postal Regulatory Commission finds that the 
complaint is justified, this act gives the Commission broad 
authority to correct violations by ordering the Postal Service 
to take whatever steps the Commission considers appropriate. In 
cases of deliberate noncompliance with the law, the Commission 
is authorized to levy fines based on the seriousness of the 
noncompliance. To ensure that customers using market-dominant 
products are not unfairly penalized, fines resulting from 
unlawful provision of competitive products must be paid using 
revenues from the Postal Service's competitive products. All 
fines will be paid into the U.S. Treasury's General Fund.

Appellate review and enforcement of orders

    The Committee recognizes that persons, including the Postal 
Service, may be adversely affected or aggrieved by decisions of 
the Postal Regulatory Commission. If this occurs, within thirty 
days after a Postal Regulatory Commission decision becomes 
final, any person, including the Postal Service may petition 
for judicial review of a Postal Regulatory Commission decision. 
These petitions shall be filed in the United States Court of 
Appeals for the District of Columbia. In addition, the district 
courts shall have jurisdiction to enforce, and to enjoin and 
restrain the Postal Service from violating any order issued by 
the Postal Regulatory Commission.

Modern service standards

    The bill also requires the Postal Regulatory Commission to 
establish by regulation a set of modern service standards for 
the Postal Service's market-dominant products. These 
regulations, and the revised regulations the Regulatory 
Commission would be authorized to issue from time to time, 
would in effect serve as the Regulatory Commission's 
interpretation of universal service as defined in sections 
101(a), 101(b) and 403 of title 39 of the United States Code.
    The Committee believes that sections 101(a), 101(b) and 403 
of title 39 fully define the universal service obligation. 
Section 101(a) states that the Postal Service shall ``bind the 
Nation together through the mail'' and serve ``all patrons'' in 
``all communities.'' Section 101(b) elaborates on these 
requirements, stating that ``effective and regular postal 
services'' shall be provided to ``rural areas, communities, and 
small towns where post offices are not self-sustaining.'' 
Section 403 further elaborates on the requirements of Section 
101(a), stating generally that the Postal Service ``shall serve 
as nearly as practicable the entire population of the United 
States'' and ``establish and maintain postal facilities of such 
character and in such locations, that postal patrons throughout 
the Nation will, consistent with reasonable economies of postal 
operations, have ready access to essential postal services.'' 
Section 403 states further that the Postal Service shall not 
``make any undue or unreasonable discrimination among users of 
the mails, nor shall it grant any undue or unreasonable 
preferences to any such user.
    The Committee's main intent in giving the Regulatory 
Commission the authority to interpret universal service through 
regulation is to ensure that the service the Postal Service 
provides its customers is consistent with the statutory 
definition of universal service. The service standards 
established by the Regulatory Commission, however, should be 
reasonable. They should not force the Postal Service to charge 
higher rates or make dramatic changes to its retail and mail 
processing networks in order to meet them. In establishing and 
revising such standards, the Regulatory Commission should take 
into account the level of service the Postal Service provides 
now and how successfully that service has met the needs of its 
customers. The Regulatory Commission should also take into 
account the fact that many Americans now use other forms of 
communication, such as e-mail, electronic bill pay, and fax 
machines, to conduct business and keep in touch with friends 
and family. Over the years, the service standards established 
by the Regulatory Commission should reflect the fact that more 
and more Americans are likely to turn to these, and other, 
electronic forms of communication. They should also reflect the 
cost to the Postal Service of providing universal service as 
the number of addresses they must serve grows at the same time 
that mail volume is declining.
    The other major goal in giving the Regulatory Commission 
the authority to interpret universal service through regulation 
is to preserve, and where possible enhance, the value of the 
various market-dominant products offered by the Postal Service. 
The Committee believes this is especially important at a time 
when poor mail volume is having a major impact on postal 
finances and there may be some temptation to erode service 
quality in an effort to cut costs. On April 3, 2001 the Postal 
Service's Board of Governors requested a study from postal 
management of the cost savings associated with eliminating the 
Saturday delivery of mail. While the Committee is strongly 
supportive of any effort on the part of the Postal Service to 
cut costs, we believe postal management should do all it 
possibly can to find efficiencies before using cuts in service 
to find savings. We were pleased, then, when the Board of 
Governors announced in July 2001 that they would maintain six-
day delivery. Making the Regulatory Commission the body 
responsible for determining the appropriate minimum delivery 
speed and frequency for market-dominant products as mail volume 
and the Postal Service's financial condition change will ensure 
that postal customers receive an appropriate level of service 
for the rates they pay. It also ensures that those parts of the 
country with post offices and delivery routes that are not 
profitable continue to receive a level of service consistent 
with the definition of universal service contained in sections 
101(a), 101(b) and 403 of title 39, even when mail volume and 
revenues are poor.
    The service standards established by the Regulatory 
Commission should also serve as a benchmark for measuring the 
Postal Service's performance. The Postal Service should strive 
to exceed the standards set by the Regulatory Commission, but 
the Regulatory Commission should regularly measure the Postal 
Service's performance to ensure that these standards are met. 
The Regulatory Commission is required to inform Congress in the 
annual reports required of them under section 204 of the bill 
whenever the Postal Service has failed to meet any existing 
service standards. The Committee expects the Postal Service to 
provide the Regulatory Commission with the data the Regulatory 
Commission believes necessary to determine whether or not 
service standards are being met. We also expect the Regulatory 
Commission to make use of the new information gathering 
authority made available to them in the bill to collect this 
data should the Postal Service be unwilling to provide it.
    There is some concern that the authority given the 
Regulatory Commission to establish service standards would 
allow that body to micromanage the Postal Service and involve 
itself in product design. This is not the Committee's intent. 
One of the overarching goals of S. 2468 is to give the Postal 
Service the flexibility necessary to act more like a private 
business. The bill, in section 203, gives the Postal Service 
streamlined authority to introduce new and experimental 
products. The Committee believes, then, that the Postal Service 
should be free to innovate and to do what it needs to do to 
make the products it offers valuable to its customers. We have 
no intention through the service standards authority given the 
Regulatory Commission to restrict the Postal Service's 
commercial freedom, only to ensure that it lives up to its 
universal service obligation and the obligation it has to its 
captive customers to give them the service they pay for.

Processing facilities

    The establishment by the Regulatory Commission of a set of 
modern service standards for market-dominant products will give 
the Postal Service a once-in-a-generation opportunity to 
realign its operations, from its processing and retail 
facilities to its delivery and transportation network, in a way 
that allows it to most efficiently carry out its universal 
service obligation. Section 302 of S. 2468 gives the Postal 
Service six months from the establishment of the Regulatory 
Commission's first set of service standards to put its 
realignment plan in writing through a report to the Regulatory 
Commission and Congress. The report will be a plan for how the 
Postal Service intends to meet the service standards and will 
include performance goals along with discussion of any changes 
that need to be made to the way the Postal Service operates.
    The Committee is particularly interested in learning 
through this report some key information on any plans the 
Postal Service has to change its network of processing and 
retail facilities, a network that currently includes 446 
processing facilities and more than 37,000 retail facilities. 
In its report, the President's Commission on the United States 
Postal Service found that the Postal Service's facilities 
network, particularly its network of processing facilities, is 
outdated and not closely related to its current mission. At one 
point, the Commissioners argue that ``the legacy postal network 
is not what would be built from scratch if the Postal Service 
were created in the 21st Century.'' They go on to say: 
``Without question, the Postal Service has far more facilities 
than it needs and those facilities it does require are often 
not used in the most efficient manner.'' \4\
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    \4\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 77.
---------------------------------------------------------------------------
    In addition, the President's Commission found that 
productivity often varies from facility to facility. They argue 
that ``much of the Postal Service's legacy network could be 
retired.'' Those that remain, they say, could be 
``standardized, modernized and given a common footprint.'' \5\ 
While processing facilities should not be closed for the sake 
of closing them, or simply as a way to cut costs, it will 
certainly be possible for the Postal Service to close and 
consolidate some facilities in the coming years without 
jeopardizing its ability to meet the service standards that 
will be established by the Regulatory Commission. In fact, as 
both the number of addresses the Postal Service must serve and 
the pace of electronic diversion of mail continues to grow, the 
Committee believes it will no longer be possible for the Postal 
Service to continue to operate inefficient or unnecessary 
processing facilities.
---------------------------------------------------------------------------
    \5\ Ibid., 12.
---------------------------------------------------------------------------
    The Postal Service appears to recognize the need to 
modernize its processing network. In the Transformation Plan it 
submitted to Congress in April 2002, the Postal Service rightly 
pointed out: ``The Postal Service's present financial position 
coupled with rapid advances in supply chain management 
technology make this the ideal time to initiate sweeping 
logistics changes in transportation and distribution processes 
throughout the organization.'' \6\ In order to seize this 
opportunity, the Postal Service launched the Network 
Integration and Alignment (NIA) initiative. According to the 
Transformation Plan, the NIA would be an effort to create a 
long-term blueprint for operations management at the Postal 
Service. It was billed as an opportunity to look at future 
service needs and logistics costs and build a new, more modern 
processing network. By the Postal Service's own estimates, it 
would affect $5 billion in transportation costs and $20 billion 
in processing and distribution costs.\7\
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    \6\ Transformation Plan, 30.
    \7\ Ibid., 31.
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    In its report, the President's Commission praised the 
Postal Service for pursuing the NIA.\8\ The Transformation Plan 
stated that the strategy to be used in the NIA would be 
announced by the Fall of 2002 along with plans for plant 
consolidations. Nearly two years later, however, no details on 
the NIA have been forthcoming. The plan the Postal Service will 
submit pursuant to section 302 will give Congress and the 
public the information necessary to understand how the NIA, or 
whatever other facilities realignment strategy the Postal 
Service intends to use, will work. The Committee does not 
believe it is necessary for the Postal Service to include in 
this plan a list of facilities it intends to close. But the 
report must include the information necessary to understand the 
strategy the Postal Service will be using in its facilities 
realignment, the methods that will be used to involve the 
public and policy makers in the process, and the impact the 
process will have on the Postal Service's workforce and on 
other Postal Service initiatives, such as ongoing automation 
efforts.
---------------------------------------------------------------------------
    \8\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 75-76.
---------------------------------------------------------------------------
    The Committee recognizes that closing or consolidating 
processing facilities will be difficult for the Postal Service 
to do. No community will want to lose the jobs associated with 
a large processing facility. No Senator, Member of Congress or 
local elected official will ever want to have a postal facility 
in their state or district close on their watch. This is why we 
believe it is vitally important that the Postal Service go 
about its facilities realignment in the most transparent manner 
possible. Transparency will not prevent communities and elected 
officials from raising concerns about the Postal Service's 
actions. It will, however, make it possible for those affected 
by the Postal Service's actions to see the connection between 
those actions and the need to preserve the vital services the 
Postal Service provides.

Post Offices

    S. 2468 maintains the current prohibition on closing post 
offices solely because they operate at a deficit, ensuring that 
rural and inner-city communities where post offices do not earn 
a profit continue to have access to retail services. It also in 
no way makes it any easier for the Postal Service to close a 
post office for any reason. However, the report the Postal 
Service will submit pursuant to section 302 should include a 
detailed discussion of the Postal Service's plans to expand 
access to alternate retail options, such as vending machines 
and contract stations.
    The President's Commission on the United States Postal 
Service found that postal customers today can access the 
products and services offered by the Postal Service at about 
5,000 locations, such as grocery stores and banks, where they 
conduct other necessary business each day. They can also buy 
stamps, the Commission found, over the Internet, at 17,000 
vending machines and from 20,000 private retailers. While the 
vast majority of postal transactions still take place in post 
offices, the Commission found that it is substantially cheaper 
to conduct a postal transaction via alternate retail than at a 
post office. According to the Commission's report, about eighty 
percent of stamp sales still occur in the post office. However, 
the eight percent of sales that occur through Automatic Teller 
Machines (ATMs) or at grocery stores, drug stores and other 
large retailers are nearly seven times cheaper to conduct.\9\
---------------------------------------------------------------------------
    \9\ Ibid., 83.
---------------------------------------------------------------------------
    The Committee is not suggesting that the Postal Service 
close post offices and replace them with alternate retail. It 
is not even clear it would be possible to close a post office 
and fully replace the services it provides with a vending 
machine or a window in a private retailer. It is even less 
clear that postal customers would be pleased with such an 
effort. Just as with inefficient processing facilities, 
however, it will no longer be possible for the Postal Service 
to continue to operate low-activity post offices as both the 
number of addresses it must serve and the pace of electronic 
diversion of mail continue to grow. As it found when it 
examined the Postal Service's processing facilities, the 
President's Commission found that ``many of the nation's post 
offices are no longer necessary to the fulfillment of its 
universal service obligation.'' The Committee, however, 
believes that most of the nation's post offices are vital parts 
of their communities and need to remain open for the Postal 
Service to be able to fulfill its obligations under title 39, 
and meet the service standards to be established by the 
Regulatory Commission, to provide all parts of the country 
reasonable access to essential postal services.
    That said, the Committee believes it is vitally important 
that the Postal Service begin expanding access to alternate 
retail options. It is equally important, we believe, that the 
Postal Service also begin to more aggressively market alternate 
retail options so that more postal customers are aware that 
they exist and grow more comfortable making use of them. 
Because transactions conducted in alternate retail settings do 
appear to be less expensive than transactions conducted in post 
offices, it is possible that the Internet, vending machines, 
contract stations and other innovations could be reasonable and 
efficient replacements for post offices at a time in the future 
when the demand for postal services is not as great as it is 
today. It is also possible that alternate retail options could 
serve as a substitute for a post office, but possibly only a 
temporary one, in growing communities where it may be necessary 
to construct additional post offices or expand existing ones at 
some point. The Committee is certain, however, that the 
aggressive expansion and marketing of alternate retail will 
benefit all postal customers, regardless of how accessible 
postal services are to them right now. The convenience and 
often 24-hour-a-day, seven-day-a-week access some alternate 
retail options offer will only make postal services more 
valuable.
    The Committee believes it is also important that the Postal 
Service consult with stakeholders and its customers when 
pursuing any initiatives that would change its retail network. 
The Government Accountability Office (GAO) says in a recent 
report that, despite surveys showing that the vast majority of 
the Postal Service's customers are generally satisfied with the 
services it provides, those same customers have expressed 
concerns about such issues as long lines at post offices and 
post office closings.\10\ Efforts have been made in the past, 
through a 1976 amendment to the 1971 Postal Reorganization Act 
and later a set of regulations issued by the Postal Service in 
1998, to give customers and local officials more of a role in 
shaping the Postal Service's retail network. The Postal Service 
has also taken steps, described in the Transformation Plan, to 
create new low-cost retail alternatives, to move stamp-only 
transactions out of post offices and to close redundant or low-
activity post offices.\11\ Concerns remain, however, about the 
details of these strategies. It is not clear, according to GAO, 
if the Postal Service has consulted its customers in developing 
its retail plans. It is also not clear, GAO points out, how the 
Postal Service's stated goal of closing redundant or low-
activity post offices will work within the existing process for 
closing post offices.\12\ Just as it must do when realigning 
its processing network, the Postal Service must be as 
transparent as possible when pursuing its retail strategy and 
must give customers, local officials and other stakeholders the 
information they need to fully understand how that strategy 
will affect their communities.
---------------------------------------------------------------------------
    \10\ Government Accountability Office, USPS Needs to Clearly 
Communicate How Postal Services May Be Affected by Its Retail 
Optimization Plan, GAO-04-803 (July 2004), 31-32.
    \11\ Transformation Plan, 13-18.
    \12\ GAO-04-803, 36.
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Fair competition

    S. 2468 contains a number of provisions the Committee 
believes are necessary to ensure that the Postal Service 
competes fairly with the private sector, particularly when 
offering products and services classified as competitive. The 
Postal Service, in our view, plays an important role in 
offering competitive products, even though a number of private 
sector businesses provide alternative services. We also 
believe, however, that steps need to be taken to level the 
playing field between the Postal Service and its competitors in 
the competitive product market. This is especially important 
now that this legislation gives the Postal Service significant 
new commercial flexibilities, particularly in the area of 
pricing. The language in Title IV ensures that the benefits the 
Postal Service gets by virtue of its status as a government 
entity do not give it an opportunity to abuse its new 
commercial freedom.
    As the President's Commission points out in its report, the 
Postal Service's competitors are not able to borrow from the 
U.S. Treasury. They do not benefit from a monopoly market that 
provides a vast majority of their operating revenues. They are 
not exempt from most taxes and laws imposed on private 
businesses, as the Postal Service is, and they do not have the 
rulemaking powers Congress has granted the Postal Service in 
some areas.\13\ The Committee strongly believes that the Postal 
Service should operate more like a private business but, when 
competing head to head with a private business, we believe just 
as strongly that the advantages the Postal Service has as a 
government entity should be blunted.
---------------------------------------------------------------------------
    \13\ Embracing the Future: Making the Touch Choices to Preserve 
Universal Mail Service, 93.
---------------------------------------------------------------------------
    This legislation provides a clear separation between 
market-dominant and competitive products by creating a new 
Postal Service Competitive Products Fund. The Postal Service 
will deposit in this fund any revenue it earns from its 
competitive products. The Postal Service will use that revenue 
to pay all costs related to providing competitive products. Any 
judgment against the Postal Service or the federal government 
related to the Postal Service's competitive products will also 
be paid out of the fund. The Postal Service will be free to 
invest any surplus revenue deposited in the fund, subject to 
regulations issued by the Department of the Treasury, and to 
borrow money against any assets related to competitive 
products. Receipts into and disbursements from the Postal 
Service Competitive Products Fund will be treated the same way 
as receipts and disbursements of the existing Postal Service 
Fund pursuant to section 2009a of title 39. Like the Postal 
Service Fund, then, the Postal Service Competitive Products 
Fund will not be included in either the budget submitted by the 
President or the congressional budget, will not be factored 
into the calculation of the federal budget deficit and will be 
exempt from any statutory budget limitation or deficit control 
measures.
    The legal advantages the Postal Service enjoys over its 
private sector competitors are also erased in this legislation. 
The Postal Service will be required to pay an annual ``assumed 
Federal income tax'' on income earned by its competitive 
products. The amount of the tax each year would equal the 
income tax a corporation would pay if its only activities were 
those activities conducted by the Postal Service that are 
related to competitive products. The Postal Service will 
compute its ``assumed Federal income tax'' itself and pay it by 
January 15. Instead of paying the tax to the Treasury, the tax 
will be deposited into the Postal Service Fund.
    This legislation makes clear that the Postal Service is 
barred from using its rulemaking authority to put itself at a 
competitive advantage or put another party at a competitive 
disadvantage. In addition it is put on the same legal ground as 
its private sector competitors in seven key ways. First, all 
Postal Service activities are subjected to those provisions in 
federal laws prohibiting fraudulent business conduct. Second, 
all Postal Service activities outside the postal monopoly are 
subjected to federal antitrust laws and all prohibitions on 
unfair competition. Third, the Postal Service Competitive 
Products Fund is made a ``person'' for purposes of federal 
bankruptcy laws. Fourth, the Postal Service is required to 
consider local zoning, planning or land use regulations and 
building codes when constructing new buildings. Fifth, U.S. 
customs law and any other laws related to the import and export 
of postal services are applied to the Postal Service's 
international postal products classified as competitive in the 
same manner that they apply to items shipped by the Postal 
Service's private sector competitors. Sixth, the Postal 
Service's sovereign immunity protection from suits in Federal 
Court for violations of Federal law is eliminated. Seventh, and 
finally, the Postal Service is required to represent itself in 
most legal proceedings permitted under this legislation as well 
as in cases involving administrative subpoenas issued by the 
Postal Regulatory Commission and appeals of decisions by the 
Commission or the Postal Service's Board of Governors.
    The Committee recognizes that the Postal Service may enjoy 
other advantages in the competitive product market that are not 
addressed in this legislation. For this reason, we require in 
section 703 that the Federal Trade Commission submit a report 
to the President, Congress and the Postal Regulatory Commission 
within one year of the enactment of this Act identifying any 
federal and state laws that apply differently to the Postal 
Service than they do to the Postal Service's private sector 
competitors. If any discriminatory laws are identified, the 
Trade Commission's report will include recommendations for 
either ending the discrimination or accounting for them in some 
way through the rates the Postal Service charges for its 
competitive products. The Regulatory Commission will take the 
Trade Commission's recommendations into account when revising 
the regulations on rates for competitive products required 
under section 3633 of title 39.

Improved accounting

    To make the financial separation between the Postal 
Service's market-dominant and competitive products even 
clearer, S. 2468 also calls on the Secretary of the Treasury to 
develop recommended accounting practices and principles for the 
Postal Service. The Secretary will consult with the Postal 
Service and an independent certified public accounting firm in 
making these recommendations. The recommendations, which will 
also include guidance on how the Postal Service should 
determine its ``assumed Federal income tax'', which will be 
submitted to the Postal Regulatory Commission within one year 
of enactment. The Regulatory Commission will then establish a 
set of rules on accounting and the calculation of the tax after 
giving the Postal Service and other groups an opportunity to 
comment.
    The goal of this process is to prevent the subsidization of 
competitive products by market-dominant products by better 
identifying the costs incurred by the Postal Service in 
providing competitive products. The President's Commission 
points out that the Postal Service today is able to attribute 
less than 60 percent of its costs among its various products. 
This means that more than 40 percent of costs are labeled as 
institutional.\14\ The Postal Service itself admits that a 
disproportionate amount of these so-called institutional costs 
are paid for with revenue generated by First-Class mail, which 
is covered by the postal monopoly and, under this Act, will be 
classified as market-dominant. According to the Transformation 
Plan, First-Class mail comprises roughly half of the Postal 
Service's mail volume but pays more than two-thirds of the 
Postal Service's institutional costs.\15\ The Committee agrees 
with the President's Commission when they say that this 
situation should be improved.\16\ The Postal Service should be 
able to attribute a greater percentage of its costs. If they do 
this, it is likely that a greater share of costs can be 
attributed to competitive products and, to the extent that they 
can be, should be reflected in the rates charged for those 
products.
---------------------------------------------------------------------------
    \14\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 93.
    \15\ Transformation Plan, 4.
    \16\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 93.
---------------------------------------------------------------------------
    The fact that the Committee believes the Postal Service can 
improve on its 60 percent attribution rate does not mean we 
believe the Postal Service should strive to attribute 100 
percent of its costs, or any other arbitrary percentage. We 
also do not believe that the Postal Service should be forced to 
attribute such a large percentage of its costs to competitive 
products that those products will no longer be affordable and 
will no longer be made available to the customers who need 
them, particularly those customers living in parts of the 
country that are not well-served by the Postal Service's 
private sector competitors. We do believe, however, that 
Treasury, the Postal Service and the Postal Regulatory 
Commission should partner with private sector accounting 
experts and postal stakeholders in an open, transparent and 
continuous process to improve cost accounting and cost 
attribution at the Postal Service, especially as it applies to 
competitive products.

International postal arrangements

    This legislation also makes it clear that the Department of 
State, not the Postal Service, is the federal agency that will 
take the lead in formulating U.S. foreign policy related to 
international postal services. The Secretary of State is given 
the authority to lead U.S. delegations in intergovernmental 
meetings devoted to postal matters and is barred from 
concluding agreements that, with respect to any competitive 
product, give preference to any entity, including the Postal 
Service. In carrying out his responsibilities during 
international postal negotiations, the Secretary is required to 
maintain appropriate liaison with other federal agencies, with 
the Postal Service, and with affected members of the public. He 
or she is also required to establish an advisory committee 
under the Federal Advisory Committee Act to help perform the 
necessary coordination and liaison with entities in the public 
and private sectors as U.S. foreign policy related to 
international postal services is developed. Before concluding 
an international agreement establishing a rate or 
classification for a postal product subject to regulation by 
the Postal Regulatory Commission, the Secretary will request 
the Commission to submit views on whether the terms of the 
agreement are consistent with the rate and classification 
system they will establish.
    This language does nothing to prevent the Postal Service 
from entering into commercial or operational contracts related 
to providing international postal services. Any such agreement 
involving an agency of a foreign government, however, must be 
solely contractual in nature and must apply only to the Postal 
Service and those agencies party to the contract. No contracts 
entered into by the Postal Service will be treated as binding 
international law.

USPS Board of Governors

    At present, the U.S. Postal Service Board of Governors is 
comprised of nine Governors who serve with the PMG and Deputy 
PMG on an 11 member Board of Governors. The Governors are 
appointed by the President and confirmed by the Senate. They 
serve staggered nine year terms, and by law, no more than five 
members may belong to the same political party. The President's 
Commission recommended that the Postal Service Board of 
Governors be comprised of 12 individuals--eight independent 
members, three Presidential appointees, and the Postmaster 
General (who would be selected by the 11 other members). The 
Commission felt strongly that an independent, depoliticized 
Board is crucial to the future success of the Postal Service.
    The President's Commission proposed that the President 
appoint the first three members of the Board. Initially, these 
three appointees would select the first eight independent Board 
members whose selection would be dependent on the concurrence 
of the Secretary of the Treasury. Thereafter, independent 
members would be selected by the Board as a whole.
    The Commission further recommended that all Board members 
be selected based on business acumen and other experience 
necessary to manage an enterprise of the Postal Service's size 
and significance. They recommend three year terms for all 
members with a mandatory minimum retirement age of seventy.
    The Committee felt strongly that the Senate's role of 
``advise and consent'' must be retained for all nominees to the 
Board. The Committee also believed that a five year term seemed 
more practical than a three year term, and would allow Board 
members to be perceived as less partisan by serving across 
Presidential terms of office. Finally, the Committee agreed 
with the President's Commission that qualifications are 
appropriate, therefore S. 2468 requires that future Board 
members be chosen solely on the basis of their demonstrated 
ability in managing organizations or corporations (in either 
the public or private sector) of substantial size.

Private carriage of letters

    This legislation reduces the Postal Service's monopoly over 
the carriage of letters by permitting private carriage when the 
amount paid for the private carriage is at least six times the 
rate charged for the first-ounce of a single-piece First Class 
Mail letter or when the letter weighs at least twelve-and-one-
half ounces. Under the existing statute, the scope of the 
postal monopoly is defined by content and may not be readily 
understood. By establishing a clear price- and weight-based 
monopoly definition, both customers and competitors will be 
able easily to determine when a mail piece is subject to 
monopoly protections.
    The Committee adopts the price-weight monopoly definition 
based, in part, on the recommendation of the President's 
Commission.\17\ While the Commission recommended a 12 ounce 
weight limit, the Committee has adopted a twelve-and-one-half 
ounce weight restriction that is closely correlated with the 
monopoly definition (350 grams or 12.5 ounces) adopted by the 
European Union in 1997. Linking the price limit to the first-
ounce, First Class Mail stamp rate permits automatic 
adjustments of the price-based monopoly definition as stamp 
prices change. In addition, as in the case of the weight limit, 
the price limit is similar to that established by the European 
Union in 1997 (five times the stamp rate); but less than the 
current European Union threshold. While both the weight and 
price limits are greater than the current limits established by 
the European Union, the Committee believes that the higher 
thresholds are appropriate, and provides significant additional 
competition in the marketplace. Given the scope and size of the 
postal marketplace as well as the number of American jobs that 
depend, directly or indirectly, on the provision of postal 
services, we are reluctant to move towards a narrower monopoly 
definition (such as the current European Union definition) 
without additional experience with a more flexible Postal 
Service.
---------------------------------------------------------------------------
    \17\ Ibid., 23.
---------------------------------------------------------------------------
    In addition, the postal monopoly definition is revised to 
explicitly incorporate those Postal Service regulations (in 
effect as of July 1, 2001) which permit the private carriage of 
letters by suspension of the postal monopoly. Doubt exists as 
to the Postal Service's current legal authority to suspend the 
Congressionally-granted postal monopoly; however, under its 
interpretation of existing law, the Postal Service has 
voluntarily suspended the private carriage of letters in a 
number of instances (sections 310.1 and 320.2-320.8 of title 39 
of the Code of Federal Regulations). The Committee believes 
that defining the extent of the postal monopoly falls within 
the purview of Congress, not the Postal Service, and in this 
legislation strikes current 39 U.S.C. 601(b) (which has been 
used by the Postal Service to justify unilateral suspensions of 
restrictions on the private carriage of letters) and replaces 
it with language codifying the current postal monopoly 
suspensions thus permitting continued private sector provision 
of services to these markets. To ensure the consistent and 
objective application of the postal monopoly, the Postal 
Regulatory Commission shall promulgate any necessary 
regulations.

Rulemaking authority

    By revision of 39 U.S.C. 401(2), the Postal Service is 
granted authority to adopt, amend and repeal rules and 
regulations that are necessary for the execution of its 
functions under this title or assigned under any provisions of 
law outside this title. However, these rules and regulations 
must not be inconsistent with the provisions of this title. 
This provision clarifies that the Postal Service's rulemaking 
authority extend to rules and regulations ``necessary'' to 
carry out its statutorily-defined functions not to rules and 
regulations that the Postal Service, in its judgement, ``deems 
necessary.''

Enhanced Regulatory Commission

    Under current law, the Postal Rate Commission has very 
narrow authority. They issue recommended decisions on mail 
rates and classifications, and fees for postal services. Their 
other job is to review changes in postal services that would 
generally affect service on a nationwide basis and offer 
advisory opinions. In their final report, the President's 
Commission concluded that, ``The Postal Service's need for 
oversight today is as broad as the Postal Rate Commission's 
authority is narrow.'' On the basis of this assessment, the 
President's Commission recommended that a Postal Regulatory 
Board be vested with substantially expanded regulatory 
authority. The Committee agreed.
    S. 2468 requires the new Postal Regulatory Commission to 
develop--with appropriate input from the postal community--a 
new, highly streamlined, rate-setting process. This new process 
should apply rigorous standards to rate-setting, but at the 
same time, give postal officials the ability to manage and 
lead. The process should also proactively encourage the Postal 
Service to improve productivity and efficiency and not rely 
solely on rate increases to secure its fiscal health. Although 
S. 2468 specifies that market dominant products would be 
subject to a rate cap, the actual design of the rate cap 
mechanism, including choice of inflator, is left to the 
Regulatory Commission. The Regulatory Commission would be 
required to pre-approve any rate increases that exceed the rate 
ceilings. The legislation also requires the Regulatory 
Commission to engage in prior review periods for both market-
dominant and competitive products. In addition, the Regulatory 
Commission will ensure that retained earnings are accumulated 
at an appropriate level, and consistent with the public 
interest.
    S. 2468 places the Regulatory Commission in charge of 
overseeing Postal Service cost distribution, ensuring that the 
Service is appropriately allocating costs across its 
competitive and non-competitive products and services. In 
addition to verifying that cross-subsidies between products are 
not occurring, such analysis is necessary for assessing the 
fairness of the rates the Postal Service is currently charging, 
or proposes to charge. The Regulatory Commission would also 
exercise a new form of oversight regarding services the Postal 
Service provides. It would monitor the types of products and 
services offered by the Postal Service to ensure it does not 
exceed its core mission.
    S. 2468 grants to the Regulatory Commission the role of 
ensuring the financial transparency of the Postal Service, 
obtaining information from the Service--if need be--through the 
use of subpoena power. The bill also requires strong 
enforcement of financial transparency by the Regulatory 
Commission, in part by requiring the Postal Service to report 
periodically on allocation of costs among mail products and 
services for auditing purposes.
    The President's Commission recommended that the Regulatory 
Commission be comprised of three members who are appointed by 
the President and confirmed by the Senate. Members would be 
selected solely on the basis of their demonstrated experience 
and professional standing. At present, the Postal Rate 
Commission is comprised of five presidentially-appointed 
members who serve six year terms. Given the significantly 
expanded authority S. 2468 grants to the Regulatory Commission, 
the Committee felt it was appropriate to maintain the current 
size of the Commission. The Committee, however, agreed with the 
President's Commission that the Regulatory Commission would 
benefit from strengthened qualification requirements. S. 2468 
requires that all new Commissioners shall be chosen solely on 
the basis of their technical qualifications, professional 
standing, and demonstrated expertise in economics, accounting, 
law, or public administration.
    S. 2468 also changes the manner in which the Postal Rate 
Commission's annual budget is approved. Under current law, the 
Commission submits their budget request to the Board of 
Governors. By unanimous agreement, the Board may adjust the 
total amount of money requested in the budget. Funding for the 
PRC's budget comes from the Postal Service Fund, established 
under title 39 of the U.S. Code. S. 2468 directs the PRC to 
instead submit their annual budget request to Congress, through 
the appropriations process. Funding will continue to be paid 
out of the Postal Service Fund. The budget, however, will no 
longer be subject to disapproval by the Governors. This will 
ensure the financial independence of the new Regulatory 
Commission.

USPS retirement and health benefit funding and military pension 
        obligation

    On April 23, 2003, President Bush signed into law the 
Postal Civil Service Retirement System Funding Reform Act of 
2003, P.L. 108-18. The Act was originally introduced by 
Chairman Collins and Senator Carper. It changed the way the 
Postal Service funds its Civil Service Retirement System (CSRS) 
obligation. According to a 2003 GAO report, the Postal Service 
had overfunded its pension obligation and, without this 
legislation, was on course to overfund by approximately $73 
billion. This overfunding was due to higher than assumed 
historical interest earnings and lower than assumed outlays, 
plus other factors.
    The Act also transferred to the Postal Service from the 
U.S. Treasury the responsibility for funding the costs of CSRS 
benefits that current and former Postal Service employees have 
earned through military service. Thus, the Act transferred $27 
billion in cost from U.S. taxpayers to postal ratepayers. The 
Committee had reservations about making the Postal Service the 
only agency to bear these costs. The Administration, however, 
felt differently. In a January 30, 2004 letter to Chairman 
Collins, OPM Director Kay Coles James described the 
Administration's reason for making the Postal Service 
responsible for this military pension cost:

          One of the primary goals for the reorganization of 
        the Post Office into the USPS was to ensure that all 
        the costs associated with the organization be paid 
        through stamp revenue and not through taxpayer dollars. 
        Therefore, all pension costs for employees that are 
        attributable to service after the reorganization should 
        be borne by the Postal Service.

    The Act provided an opportunity for the Committee to 
reconsider this transfer by requiring the Postal Service, the 
Department of the U.S. Treasury and OPM to submit proposals 
detailing whether and to what extent the Department of the 
Treasury or the Postal Service should be responsible for the 
funding of benefits attributable to the military service of 
current and former employees of the Postal Service. In a 
September 30, 2003 letter to Chairman Collins, Postmaster 
General Potter recommended that the responsibility for these 
costs should be returned to the U.S. Treasury, in part, because 
the military service had no connection with Postal Service 
functions or operations. The Postal Service also notes that the 
funding of these costs has been the responsibility of the 
Treasury since 1969 and Treasury has already paid the great 
majority of this $27 billion in costs. Therefore, charging the 
Postal Service for these past payments of the U.S. Treasury 
would be a retroactive cost transfer to postal ratepayers.
    The President's Commission reviewed the recommendations 
made by the Postal Service, the U.S. Treasury Department and 
OPM. While the Commission understood the stance taken by the 
Administration, they did not agree with it. In their final 
report, they concluded:

          No other Federal agency is required to pay such costs 
        for its retirees under CSRS. In the Commission's view, 
        it is inappropriate to require the Postal Service, as a 
        self-financing entity that is charged with operating as 
        a business, to fund costs that would not be borne by a 
        private-sector corporation (costs associated with 
        benefits earned while the retiree was employed by 
        another employ). . . . It asks those who use the 
        nation's postal system to subsidize the U.S. military 
        every time they use the mail. . . . The Commission 
        supports returning responsibility for this portion of 
        retiree benefits to the Department of Treasury, where 
        it resided before the recent legislation, and where 
        this liability can be financed through funds generated 
        by taxpayers.\18\
---------------------------------------------------------------------------
    \18\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 125, 126.

    Having had the opportunity to reconsider the issue, the 
Committee agreed with the President's Commission and included 
language in S. 2468 to repeal this requirement, thereby 
returning the military pension obligation to the U.S. Treasury. 
It is important to point out that over ninety percent of the 
financial obligation related to military retirees is the result 
of military service performed before the creation of the Postal 
Service in 1971. Besides being unrelated to postal operations, 
the Committee does not believe the Postal Service should be 
held responsible for paying a component of their employees' 
military service that was performed before the Postal Service 
was even created.
    P.L. 108-18 placed additional requirements on the Postal 
Service. Specifically, the Act identified as ``savings'' the 
difference between the contributions the Postal Service would 
have made to the CSRS Fund if the Act had not been enacted and 
the contributions the Postal Service makes under the Act. In 
2003 and 2004, the Act required USPS to use the ``savings'' to 
reduce their outstanding debt to the U.S. Treasury. The 
Committee made clear, through ``Sense of Congress'' language, 
that the Postal Service should also use the ``savings'' to hold 
postal rates unchanged until at least 2006; to pay some portion 
of its postretirement health benefit obligation for current and 
future employees; and that none of the ``savings'' should be 
used to pay bonuses to Postal Service executives. It also 
required the Postal Service to begin making payments into an 
escrow account beginning in fiscal year 2006 in an amount equal 
to the annual ``savings''. The amount of the payments into the 
escrow account would have to be included in the Postal 
Service's rate base. Under P.L. 108-18, the Postal Service 
cannot use the funds in the escrow account unless Congress 
eliminates the escrow requirement or specifies by law how the 
escrow funds may be used. The legislation also required the 
Postal Service to report to Congress by September 30, 2003, on 
how it proposed to use those pension savings.
    The Postal Service provided a report to Congress predicated 
on the assumption that the Postal Service is relieved of 
responsibility for military service costs. Specifically, the 
Postal Service recommended making annual payments to cover one 
of its major operating costs--postretirement health benefits--
for all employees and retirees, currently estimated at $47 to 
$57 billion. Under this proposal, the Postal Service would be 
the only federal agency to fully pay all pension and 
postretirement health benefits for its employees and retirees. 
S. 2468 sets up within the U.S. Treasury, a ``Postal Service 
Retiree Health Benefits Fund''. This fund shall be administered 
by OPM. Beginning in fiscal year 2006, the Postal Service will 
be required to pre-fund its post-retirement health benefits 
costs for all employees on a current basis and to fund one-
fortieth of the unfunded post-retirement health benefits 
obligations each year through 2031 after which one-fifteenth 
would be funded each year. Any remaining ``savings'' will be 
used to pay down the outstanding debt to Treasury and for 
operating expenses--thereby holding down rate increases as 
well.
    During the Committee's eight hearings on postal reform, 
many disparate voices were heard from--the Postal Service 
unions and associations; the CEOs of major companies; 
representatives of the newspaper and direct marketing 
associations--and the two things they all had in common were 
the desire to see the escrow account requirement repealed and 
the return of the military pension obligation to the Treasury 
Department.
    The amount due from postal ratepayers for the first annual 
escrow payment in FY 2006 will be $3.2 billion. The cost to 
fund the military pension obligations will cost postal 
ratepayers, roughly, another $2 billion in FY 2006. Should the 
military pension obligation remain with the Postal Service, and 
the escrow fund fail to be released, according to the Postal 
Service, mailers could potentially incur rate increases 5-6 
percent higher in 2006 than they otherwise would be--at a time 
when American businesses can ill afford it.
    Based on its impact on postage rates and its effects on the 
mailing industry, the general public and the economy as a 
whole, the Committee chose to incorporate into S. 2468 the 
repeal of the escrow requirement. Though S. 2468 does not 
specify a percentage of the escrow account that must be used to 
pay down obligations such as retiree health care benefits, with 
approximately $90 billion in unfunded liabilities and 
obligations, the Committee believes it is critical to the 
Postal Service's future viability that it work aggressively to 
pay down all outstanding liabilities and obligations.

Workers' compensation reforms

    The Federal Employees' Compensation Act (FECA), enacted in 
1916, is a comprehensive workers' compensation law designed to 
provide medical and death benefits, income replacement, and 
other services to employees with work-related injuries. FECA 
does not place age or time limitations on an injured worker's 
receipt of workers' compensation benefits. Employees who fully 
or partially recover from their injuries are expected to return 
to work.
    The President's Commission found that under FECA, the 
Postal Service has maintained a broad and effective workers' 
compensation program and acknowledged recent efforts that have 
lowered injury rates considerably. The Commission, however, 
also concluded that the Service, given its unique status, 
should be provided relief from FECA provisions that are 
creating costly unintended consequences. The Commission 
recommended making the Service's workers' compensation program 
more comparable to State-run programs in order to control 
costs, provide adequate benefits, and address the Service's 
unfunded liability in this area. A similar stance was taken by 
Postal Service Inspector General David Williams, who wrote in 
his semi-annual report to Congress that, ``Given the Postal 
Service's current $7.2 billion liability for workers' 
compensation, there is an urgent need to reconsider the Postal 
Service's obligations under FECA.'' \19\
---------------------------------------------------------------------------
    \19\ Williams, David C., Inspector General, U.S. Postal Service, 
Semiannual Report to Congress (April 1, 2004), 28.
---------------------------------------------------------------------------
    The Postal Service is self-insured for workers' 
compensation costs, and these costs have continued to escalate. 
According to a March 2003 audit by the Postal Service Office of 
Inspector General, 21 percent (2,819) of the approximately 
13,400 postal employees on the periodic workers' compensation 
roll were classified as totally disabled, and, as a result, not 
expected to return to work. (Employees on the periodic roll 
have injuries or disabilities that have lasted or are expected 
to last for periods over one year.) Approximately 89 percent of 
those 2,819 employees were age 55 or older as of September 30, 
2003 and likely to be, for the most part, retirement-eligible. 
The Postal Service's rolls include 81 cases that originated 40 
to 50 years ago; 778 cases that originated 30 to 39 years ago; 
and 1,189 cases that originated 20 to 29 years ago.\20\ The 
IG's audit also noted that if an employee dies from a non-work 
related injury while receiving Workers' Compensation benefits 
and has not applied for disability with the Office of Personnel 
Management, their survivors receive no benefits.\21\
---------------------------------------------------------------------------
    \20\ U.S. Postal Service Office of Inspector General, Audit 
Report--Comparison of Retirement Benefits to Workers' Compensation 
Benefits for Employee on the Periodic Roll (Report No. HM-AR-04-001) 
(December 12, 2003), 2.
    \21\ Ibid., 8.
---------------------------------------------------------------------------
    With no maximum dollar cap on FECA payments, employees 
often opt not to retire, staying permanently on the more 
generous workers' compensation rolls. All State plans, on the 
other hand, apply either a cap or a maximum limitation, which 
is usually defined in law as a percentage of the State average 
weekly wage. In their report, the Commission provided an 
example of the disparity in pay between those employees who 
retire and those who choose to stay on the more lucrative 
workers' compensation rolls:

          Over a nine year period, a retirement eligible EAS-13 
        level postal employee with dependents could earn 
        $434,000 by not retiring and continuing to collect 
        workers' compensation (75% of pre-injury salary plus 
        COLAs, tax free). If that same employee were to retire, 
        their CSRS retirement net pay over that same period 
        would be $249,000 (56% of High 3, taxable)--a 
        difference of $185,000.\22\
---------------------------------------------------------------------------
    \22\ Embracing the Future: Making the Tough Choices to Preserve 
Universal Mail Service, 134.

    S. 2468 converts workers' compensation benefits for total 
or partial disability to a retirement annuity when the affected 
employee reaches retirement age as defined by the Social 
Security Act (SSA). The annuity would equal fifty percent of 
the monthly pay of the employee. This change reflects the fact 
that disabled postal employees would likely retire at some 
point were they not on the rolls of the Office of Workers' 
Compensation Programs. It will also help to ensure continued 
benefits for survivors of workers' compensation recipients who 
may die from a non-work related injury. Enactment of this 
provision would change neither the time at which an employee 
would become eligible for regular or disability retirements 
benefits under the Civil Service Retirement System (CSRS) or 
the Federal Employees Retirement System (FERS) nor the amount 
of the benefit for which he or she would be eligible under CSRS 
or FERS.
    Unlike most State-run plans, FECA also imposes no waiting 
period before benefits begin. Instead, FECA has a provision 
that allows employees who sustain disabling job-related 
traumatic injuries to receive continuation of their regular pay 
for 45 calendar days after the injuries--a benefit unique to 
the federal program--with a three-day waiting period at the end 
of the continuation of pay (COP) period. A primary purpose of 
the waiting period is to discourage the filing of frivolous 
claims. According to Elliot Lewis, Assistant Inspector General 
for Audit at the Department of Labor's Office of Inspector 
General, placing the waiting period at the end of the COP 
period does nothing to discourage frivolous claims.\23\ S. 
2468, therefore, places the three-day waiting period at the 
beginning of the COP period.
---------------------------------------------------------------------------
    \23\ Lewis, Elliot P., Assistant Inspector General for Audit, 
Office of Inspector General, U.S. Department of Labor, before the 
Subcommittee on Workforce Protections, Committee on Education and the 
Workforce, U.S. House of Representatives (May 13, 2004), 5.
---------------------------------------------------------------------------
    In addition, S. 2468 allows the three days of annual leave, 
sick leave, or leave-without-pay used by the injured employee 
to be reimbursed, should the employee be out of work due to 
injury for a period no less than 15 days (beginning on day one 
of the injury). This ``qualifying period'' is standard practice 
in State workers' compensation plans. The average qualifying 
period for State plans is between 14 and 16 days.
    Both the President's Commission and the Postal Service 
recommended that any changes to FECA should be made on a 
prospective basis. The Committee agreed. By lowering the 
workers' compensation payments for retirement-eligible 
employees (as defined by the SSA), the Congressional Budget 
Office estimates the Postal Service will save $50 million over 
the 2005-2014 period.

Report on universal service and the postal monopoly

    The President's Commission believed that the Regulatory 
Commission would be the appropriate body to regularly review, 
and refine if necessary, the Postal Service's universal service 
obligation. (The ``universal service obligation'' refers, in 
general, to regular delivery at uniform rates across the 
country.) With steadily declining volumes of First Class mail, 
it is clear that the nation's correspondence needs are 
changing. The President's Commission recommended, therefore, 
that an independent entity--the Regulatory Commission--be 
charged with, ``refining key aspects of universal service as 
circumstances require/permit.'' \24\ Similarly, the President's 
Commission recommended that the Regulatory Commission be 
granted the authority to refine the scope of the mail monopoly 
[generally believed to cover all First Class and Standard 
(mostly advertising) Mail], noting that,
---------------------------------------------------------------------------
    \24\ Embracing the Future: Making Tough Choices to Preserve 
Universal Services, 63.

        . . . the nation's postal monopoly law predates not 
        only the computer, e-mail and the fax machine, but also 
        the radio, the telephone and the electric light bulb. . 
        . . Several years into the nation's Information 
        Revolution, it is clear that these archaic laws should 
        be clarified and modernized.\25\
---------------------------------------------------------------------------
    \25\ Ibid., 22.

    From the perspective of the Committee, both the postal 
monopoly and universal service are issues of broad public 
policy--not regulatory issues. For that reason, the Committee 
decided that the power to refine either the monopoly or the 
universal service obligation should remain in the hands of 
Congress. However, the Committee thought it would be helpful to 
hear from the Regulatory Commission what potential changes to 
either the monopoly or the universal service obligation they 
believed made sense. Congress would then have the option to 
enact any of the Regulatory Commission's recommendations with 
which they agreed. Therefore, S. 2468 requires that the 
Regulatory Commission, at least every three years, submit a 
report to Congress detailing any recommended changes to 
universal service and the postal monopoly they consider 
appropriate, with estimated effects of the recommendations on 
the service, financial condition, rates, and security of mail 
provided by the Postal Service.

Bulk fuel program

    The Committee notes that the U.S. Postal Service has 
instituted a program to require vendors to purchase fuel from 
designated sources. To insure that the program is generating 
the maximum possible savings and is not burdening contractors 
with unfair costs, the Committee expects the Postal Service to 
periodically re-examine the Bulk Fuel program it has instituted 
for Highway Contract Route (HCR) contracts under Section 5005 
of title 39. The Committee suggests that the Postal Service 
confer with the GAO when conducting these periodic reviews.

                        III. Legislative History

    S. 2468 was introduced on May 20, 2004 by Chairman Collins 
and Senator Carper. Senators Lieberman, Stevens, Akaka, 
Voinovich, Durbin and Sununu were original cosponsors. S. 2468 
was referred to the Committee on Governmental Affairs. On June 
2, 2004, the Committee took up S. 2468.
    A manager's amendment in the nature of a substitute, 
offered by Chairman Collins, was adopted by voice vote. The 
manager's amendment provided for the following: (1) established 
an Officer of the Postal Regulatory Commission to represent the 
general public in proceedings; (2) required reporting on postal 
workplace safety and workplace-related injuries to ensure that 
postal employees' health and personal safety are protected 
while they serve the nation's postal customers; (3) provided 
for employment of postal police officers in connection with the 
protection of property owned or occupied by the Postal Service; 
(4) expanded Postal Service transportation contracting 
authority to permit the Postal Service to better manage costs; 
(5) provided for payments for the first three days following an 
injury for those employees who are on leave due to injury for a 
minimum of 14 days; and (6) established as an objective of the 
new ratemaking system, that interested parties be afforded a 
reasonable opportunity to participate in the new process 
designed by the Postal Regulatory Commission.
    By a vote of 9-8, the Committee voted to pass a worksharing 
amendment by Senator Lieberman. The Lieberman amendment limited 
to four years workshare discounts that exceed costs avoided 
when associated with a new postal service or with a change to 
an existing postal service that is necessary to induce mailer 
behavior that furthers the economically efficient operation of 
the Postal Service. The amendment also struck language from S. 
2468 that granted the Postal Regulatory Commission the 
authority to approve discounts in excess of avoided costs for 
situations outside of the following four exceptions: (1) any 
discount associated with a new postal service or with a change 
to an existing postal service that is necessary to induce 
mailer behavior that furthers the economically efficient 
operation of the Postal Service; (2) if a reduction in the 
discount would (i) lead to a loss in volume of the affected 
category of mail and reduce the aggregate contribution to 
institutional costs, (ii) result in a further increase in rates 
paid by mailers not able to take advantage of the discount, or 
(iii) impede the efficient operation of the Postal Service; (3) 
if the amount above the costs avoided (i) is necessary to 
mitigate rate shock, and (ii) will be phased out over time; and 
(4) if the discount is provided in connection with subclasses 
of mail consisting exclusively of mail matter of educational, 
cultural, or scientific value.
    Yeas: Lieberman, Levin, Akaka, Durbin, Carper, Dayton, 
Lautenberg, Pryor, Specter.
    Nays: Collins, Stevens, Voinovich, Coleman, Bennett, 
Fitzgerald, Sununu, Shelby.
    The Committee adopted by voice vote an amendment offered by 
Senator Durbin that calls for a study by GAO and submission of 
a report, including recommendations for legislative action and 
administrative action, to Congress, the Postal Service Board of 
Governors, and the Postal Regulatory Commission. The report 
will address the economic and environmental efficacy of 
establishing rate incentives for mailers linked to the use of 
recycled paper, what initiatives the Postal Service has 
undertaken during the past five years to use recycled paper and 
other products and to provide for recycling of undeliverable 
and discarded mail, including revenue generated and savings 
achieved as a result, and what additional opportunities may be 
available for enhanced recycling of paper and other products 
and the projected costs and revenues of such opportunities. The 
report is due within one year of enactment of the Act.
    Senators present were Collins, Voinovich, Coleman, Bennett, 
Fitzgerald, Sununu, Lieberman, Levin, Akaka, Durbin, Carper, 
Lautenberg and Pryor.
    The Committee also adopted by voice vote an amendment 
offered by Senator Sununu. The Sununu amendment requires the 
Secretary of the U.S. Treasury, in consultation with the Postal 
Service, a certified public accounting firm, and other 
advisors, to develop recommendations regarding the accounting 
practices and principles that should be followed by the Postal 
Service when doing the following: (1) identifying and valuing 
the assets and liabilities of the Postal Service associated 
with providing, and the capital and operating costs incurred by 
the Postal Service in providing competitive products; and (2) 
preventing the cross-subsidization of competitive products by 
market-dominant products. The Treasury Department would also 
consult with the Postal Service on the rules that should be 
followed in determining the Postal Service's assumed Federal 
income tax on competitive products income. Treasury will submit 
their final recommendations to the Postal Regulatory 
Commission. After hearing from all interested parties, the 
Regulatory Commission shall make a final decision as to which 
rules the Postal Service will be required to incorporate into 
their current accounting practices.
    Senators present were Collins, Voinovich, Coleman, Bennett, 
Fitzgerald, Sununu, Lieberman, Levin, Akaka, Durbin, Carper, 
Lautenberg and Pryor.
    The Committee then ordered the bill reported by voice vote, 
with no members present dissenting. Senators present were 
Collins, Voinovich, Coleman, Bennett, Fitzgerald, Sununu, 
Lieberman, Levin, Akaka, Durbin, Carper and Lautenberg.

                    IV. Section by Section Analysis


                 TITLE I--DEFINITIONS; POSTAL SERVICES

Section 101--Definitions

    Section 101 proposes, for the first time, a clear 
definition of ``postal services.'' A ``postal service'' is 
defined as ``the physical delivery of letters, printed matter, 
or packages weighing up to 70 pounds, including physical 
acceptance, collection, sorting, transportation, and other 
services ancillary thereto.'' This definition clarifies the 
jurisdiction of the Postal Rate Commission (renamed the 
``Postal Regulatory Commission'') and the scope of commercial 
activities that the Postal Service is authorized to pursue. In 
addition, the term ``product'' is defined to mean ``any postal 
service with a distinct cost or market characteristic'' which 
thus encompasses all classes, subclasses, and rate categories 
that comprise the mail classification system. Section 101 
further defines ``market-dominant product'' to refer to ``a 
product subject to subchapter I of chapter 36'' and 
``competitive product'' to refer to ``a product subject to 
subchapter II of chapter 36.''

Section 102--Postal Services

    Section 102 limits the Postal Service to offering ``postal 
services.'' If the Postal Service unlawfully offers a non-
postal service or product, the Postal Regulatory Commission may 
order that the Postal Service cease providing the product under 
the complaint procedures outlined in section 202 of the bill.

                    TITLE II--MODERN RATE REGULATION

    In the new regulatory regime proposed in the bill, the 
classes of mail and services are classified as either market-
dominant or competitive products. In general, Title II requires 
the Postal Regulatory Commission to design, within 12 months, a 
new rate cap system of rate regulation for market-dominant 
products. With respect to competitive products, the Postal 
Service is given pricing flexibility comparable to that 
exercised by private competitors.
    To prevent abuse, the new regulatory regime proposed in the 
bill substantially enhances the authority of the Regulatory 
Commission to define, audit, and remedy cross-subsidization of 
competitive products from revenues earned from market-dominant 
products.

Section 201--Provisions relating to market-dominant products

    Section 201 of the bill establishes a new, modern system 
for regulation of market-dominant products. In the current 
title 39, chapter 36 deals with regulation of postal rates. The 
bill re-designates subchapter I of chapter 36 (establishing the 
Postal Regulatory Commission) as chapter 5 (see section 501, 
below). Section 201 revises subchapter II, which currently sets 
out the process of rate regulation, and re-designates it as 
subchapter I. As amended, subchapter I relates only to the 
regulation of market-dominant products. Section 201(a) adds 
three new provisions to title 39, sections 3621, 3622 and 3623, 
as follows.

Section 3621--Applicability; definitions

    Section 3621 lists the postal products to be regulated as 
market-dominant products immediately after enactment: First-
Class Mail Letters, First-Class Mail Cards, Periodicals, 
Standard Mail, single-piece Parcel Post, media mail, bound 
printed matter, library mail, special services and single-piece 
international mail. After enactment, the Commission may revise 
the list of market dominant products under new section 3642 set 
out in section 203 of the bill.

Section 3622--Modern rate regulation

    Subsection 3622(a) requires the Commission to design, 
within 12 months of enactment, a modern system for regulating 
postage rates and classes for market-dominant products.
    Subsection 3622(b) provides that the objectives of the new 
system shall be: (1) to reduce the administrative burden of the 
ratemaking process; (2) to create predictability and stability 
in rates; (3) to maximize incentives to reduce costs and 
increase efficiency; (4) to enhance mail security and deter 
terrorism by promoting secure, sender-identified mail; (5) to 
allow the Postal Service pricing flexibility, including the 
ability to use pricing to promote intelligent and encourage 
increased mail volume during non-peak periods; (6) to assure 
adequate revenues, including retained earnings, to maintain 
financial stability and meet the service standards the 
Regulatory Commission will establish under section 301 of the 
bill; and (7) to allocate institutional costs equitably.
    Subsection 3622(c) requires that the Commission consider 
the rate and classification factors found in sections 3622 and 
3623 of current law in addition to other factors when 
developing the new system.
    Subsection 3622(d) requires the Postal Regulatory 
Commission to establish a rate cap system setting annual 
limitations, based on measures of inflation as chosen by the 
Commission, on percentage changes in rates. The rate-setting 
system should establish a schedule whereby rates, when 
necessary and appropriate, would increase at regular intervals 
by predictable amounts. In addition, this subsection 
establishes a 45-day Postal Regulatory Commission review and 
approval process for rate changes for market-dominant products. 
If the Postal Regulatory Commission notifies the Postal Service 
of any noncompliance with the established rate cap mechanism, 
the Postal Service shall respond to the notice and describe the 
actions to be taken to comply with the rate cap mechanism. 
Lastly, the Postal Regulatory Commission shall establish 
procedures whereby rates may be adjusted on an expedited basis 
due to unexpected or extraordinary circumstances such as the 
September 11, 2001 terrorist attacks or the use of the mails to 
transmit anthrax.
    Subsection 3622(e) defines a ``workshare discount'' as a 
rate discount provided to mailers for presorting, prebarcoding, 
handling, or transportation of mail. These are activities that 
would ordinarily be performed by the Postal Service. The Postal 
Regulatory Commission is required to establish rules for 
workshare discounts that ensure that these discounts do not 
exceed the cost that the Postal Service avoids as a result of 
the worksharing activities performed by the mailers, subject 
only to four exceptions. Those exceptions authorize workshare 
discounts that exceed the costs avoided--(1) when a discount is 
associated with a new or changed postal product and is needed, 
for up to 4 years, to induce mailer behavior that furthers the 
economically efficient operation of the Postal Service; (2) if 
a reduction in the discount would--(i) lead to a loss in volume 
in the affected category of mail and thereby reduce the 
aggregate contribution to institutional costs, (ii) result in a 
further increase in rates paid by mailers not able to take 
advantage of the discount, or (iii) impede the efficient 
operation of the Postal Service; (3) if the discount is 
necessary to mitigate rate shock and will be phased out over 
time; or (4) if the discounts are provided in connection with 
subclasses of mail consisting exclusively of material having 
educational, cultural, or scientific value. Whenever the Postal 
Service establishes or maintains a workshare discount, the 
Postal Service shall, at the time it publishes the workshare 
discount rate, submit a report to the Postal Regulatory 
Commission explaining the reasons for establishing or 
maintaining the rate and setting forth the data, economic 
analyses and other information relied on by the Postal Service 
to justify the rate.
    Subsection 3622(f) provides that, until regulations under 
this section take effect, the rate making and classification 
provisions of current law shall remain in effect.

Section 3623--Service agreements for market-dominant products

    Section 3623(a) authorizes the Postal Service to negotiate 
service agreements with individual mailers or groups of mailers 
of market-dominant products. Service agreements authorized 
under this section could involve the contracting mailer 
performing additional functions, such as the preparation, 
processing, and transportation of the mail; the Postal Service 
performing additional mail preparation, processing, 
transportation, or other functions; or other terms and 
conditions that meet the requirements of this section.
    Subsection 3623(b) requires that the revenues generated 
under any service agreement: (1) cover all costs attributable 
to the postal services covered by the agreement and result in 
no less contribution to the institutional costs of the Postal 
Service; (2) not result in higher rates or fees for other 
mailers; (3) pertain exclusively to market-dominant products; 
and (4) not preclude or hinder any similarly-situated mailer 
from entering into an agreement with the Postal Service.
    Subsection 3623(c) limits the service agreements to no more 
than three years in duration and makes any service agreement 
subject to the cancellation authority of the Commission.
    Subsection 3623(d) requires that the Postal Service notify 
the Regulatory Commission at least 30 days prior to a service 
agreement taking effect and publish the terms of the agreement 
in the Federal Register. This notice shall include a 
description of the agreement, the rates and fees payable by the 
customer under the agreement, and sufficient information to 
demonstrate the basis for the Postal Service's view that the 
agreement meets the requirements of sections 3623(b). If the 
agreement is less-than-national in scope, this information 
shall also be published in a manner designed to afford 
reasonable notice to persons within that geographic area.
    Subsection 3623(e) requires the Postal Service to make any 
service agreement available to similarly-situated mailers on 
functionally-equivalent terms and conditions provided that any 
distinctions based on mailer profiles would not render the 
agreement uneconomic or impractical.
    Subsection 3623(f) permits persons who believe that a 
service agreement is not in compliance with the requirements of 
this section to file a complaint with the Postal Regulatory 
Commission under section 3662.
    Subsection 3623(g) defines the Postal Regulatory 
Commission's role with respect to service agreements. The 
Postal Regulatory Commission may promulgate regulations 
regarding service agreements. In addition, the Postal 
Regulatory Commission may review any agreement under section 
3623, and may suspend or cancel any service agreement that does 
not meet the requirements of this section.
    Subsection 3623(h) requires that the determination of 
whether a service agreement meets the requirements of 
subsection (b) be based, to the extent practicable, on the 
actual contribution of the mail involved, not on the average 
contribution of the mail classification most similar to the 
services performed under the agreement. If mailer-specific data 
is not available, the Postal Service shall provided the bases 
for the determination that the revenue generated will meet the 
requirements of subsection (b) and shall discuss the 
suitability of the data used to make this determination in 
accordance with regulations established by the Postal Rate 
Commission.
    Section 201(b) repeals Sec. Sec. 3624, 3625,and 3628 of 
title 39 United States Code.
    Section 201(c) redesignates Chapter 36 of title 39 United 
States Code as by striking the heading for Subchapter II and 
inserting ``Subchapter I--Provisions relating to market-
dominant products''

Section 202--Provisions relating to competitive products

    Section 202 of the bill adds a new subchapter II to chapter 
36 of title 39. Subchapter II establishes a flexible system for 
regulation of competitive products. Section 202 adds three new 
sections to title 39, as follows.

Section 3631--Applicability; definitions and updates

    Section 3631 lists the postal products to be regulated as 
competitive products immediately after enactment: Priority 
Mail, Expedited Mail, bulk parcel post, bulk international 
mail, and mailgrams. After enactment, the Regulatory Commission 
may revise the list of competitive products under new section 
3642 set out in section 203 of the bill.

Section 3632--Action of the Governors

    Subsection 3632(a) provides that the Governors of the 
Postal Service may establish rates and classes for all products 
in the competitive category of mail.
    Subsection 3632(b) requires the Governors to give notice in 
the Federal Register of changes in competitive products rates 
and classes no later than 30 days before implementation and to 
provide an opportunity for review by the Postal Regulatory 
Commission. Following this notice, the Postal Regulatory 
Commission shall notify the Governors of any noncompliance with 
requirements of section 3633 and the Governors shall respond to 
the notice describing the actions to be taken to comply with 
section 3633.
    Subsection 3632(c) provides that, until regulations under 
section 3633 take effect, the rate making and classification 
provisions of current law shall remain in effect.

Section 3633--Provisions applicable to rates for competitive products

    Section 3633 requires the Commission to promulgate 
regulations within 180 days of enactment prohibiting 
subsidization of competitive products by market-dominant 
products; ensuring that each competitive product covers its 
attributable costs; and ensuring that all competitive products 
collectively cover their share of the institutional costs of 
the Postal Service.

Section 203--Provisions relating to experimental and new products

    Section 203 of the bill adds a new subchapter III to 
chapter 36 of title 39. Subchapter III provides rules for 
market tests of experimental products and for transferring 
products between the market-dominant and competitive product 
categories. The new subchapter III replaces, and thus repeals, 
the current subchapter III dealing with temporary rates and 
classes. Section 203 adds two new provisions to title 39 as 
follows.

Section 3641--Market tests of experimental products

    Section 3641 authorizes the Postal Service to conduct 
limited market tests that are exempt from most specific pricing 
requirements. Market tests under this section can last no 
longer than two years and must earn less than $10 million 
annually.
    Subsection 3641(b) states that, a market test must involve 
a product ``significantly different from all products offered 
by the Postal Service within the 2-year period preceding the 
start of the test'' and may not be conducted under this section 
if it will ``create an unfair or otherwise inappropriate 
competitive advantage for the Postal Service or any mailer, 
particularly in regard to small business concerns.'' In 
addition, the Postal Service must identify the product as 
either market-dominant or competitive. Any product that solely 
affects competitive products or only provides services 
ancillary to competitive products shall be presumed to be 
competitive even if a similar product exists within the market-
dominant category.
    Subsection 3641(c) requires that the Postal Service notify 
the Regulatory Commission at least 30 days prior to the start 
of a test and publish the details of the test in the Federal 
Register including the basis for the Postal Service's 
determination that it meets the requirements of this section.
    Paragraph 3641(c)(2) extends the right the Postal Service 
currently has to protect certain commercially sensitive 
information to any competitive product tested this section.
    Subsection 3641(d) limits tests to two years in duration 
but permits the Postal Service to seek a 12-month extension. 
Subsection 3641(e) requires that the test result in additional 
annual revenue of no more than $10 million. The Commission 
shall raise the earnings limit to $50 million upon the Postal 
Service's request and upon a determination that the product is 
(1) likely to benefit the public and meet an expected demand; 
(2) likely to contribute to the financial stability of the 
Postal Service; and, (3) not likely to result in unfair or 
inappropriate competition.
    Subsection 3641(f) provides that the Postal Regulatory 
Commission may order the cancellation of a test at any time if 
it does not meet the requirements of this section. Subsection 
3641(g) provides that the dollar amounts contained in this 
section be adjusted for the changes in the Consumer Price 
Index. Subsection 3641(h) defines a small business concern for 
the purposes of this section. Subsection 3641(i) establishes 
that market tests under this subchapter may be conducted in any 
year beginning with the first year in which the Postal 
Service's first report under section 3652(a) to the Postal 
Regulatory Commission occurs.

Section 3642--New products and transfers of products between the 
        market-dominant and competitive categories of mail

    Subsection 3642(a) authorizes the Regulatory Commission to 
classify new products as either market-dominant or competitive 
and to transfer existing products between the two categories 
upon the request of the Postal Service, users of the mails or 
upon its own initiative.
    Subsection 3642(b) adopts criteria for the two categories 
that reflect the Federal Communications Commission's (FCC) 
approach to defining ``dominant'' carriers for the purpose of 
regulation. Paragraph 3642(b)(1) provides that: ``The market-
dominant category of products shall consist of each product in 
the sale of which the Postal Service exercises sufficient 
market power that it can effectively set the price of such 
product substantially above costs, raise prices significantly, 
decrease quality, or decrease output without risk of losing 
business to other firms offering similar products. The 
competitive category of products shall embrace all postal 
products not in the market-dominant category.'' Paragraph 
3642(b)(2) states that the products covered by the postal 
monopoly may not be transferred to the competitive category. 
Paragraph 3642(b)(3) requires the Postal Regulatory Commission 
to consider three other factors when deciding whether a product 
should be classified as market-dominant or competitive: (1) the 
availability of private sector alternatives to the product in 
question; (2) the views of those who use the product; and (3) 
the impact the decision will have on small businesses.
    Subsection 3642(c) permits the transfer of some but not all 
of the subclasses or ``subordinate units'' of a class of mail.
    Subsection 3642(d) requires that any change in the lists of 
products in the market-dominant and competitive categories 
requested by the Postal Service be published in the Federal 
Register and that the Postal Regulatory Commission, whenever it 
changes the list of products in the market-dominant or 
competitive category, publish new lists in the Federal 
Register.
    Subsection 3642(e) prohibits the Postal Service from 
offering any product involving the physical delivery of 
letters, printed matter, or packages until it is categorized as 
either a market-dominant or a competitive product.

Section 204--Reporting requirements and related provisions

    Section 204 of the bill adds a new subchapter IV to chapter 
36 of title 39. In general, subchapter IV provides for annual 
audits of Postal Service operations by the Commission to ensure 
compliance with the ratemaking criteria of the act. Section 204 
adds three new provisions to title 39 as follows.

Section 3651--Annual reports by the Commission

    Section 3651 requires the Regulatory Commission to submit a 
report to the President and Congress each year detailing its 
activities and the extent to which regulations are achieving 
the objectives set forth for the new rate and classification 
system to be established under section 201 and the service 
standards to be established under section 301. Section 3651 
also requires that the Postal Service provide the Commission 
any information that the Commission, in its judgment, believes 
it needs to prepare its report.

Section 3652--Annual reports to the Commission

    Subsection 3652(a) requires the Postal Service to submit 
information to the Commission no later than three months after 
the last day of each fiscal year demonstrating that the rates 
in effect for all products during the year are in compliance 
with the requirements of this title and that established 
service standards are being met. The report will include 
information on mail volume, service quality and customer 
satisfaction and must be audited by the Inspector General. 
Subsection 3652(b) requires annual reporting on the extent of 
cost savings reflected in worksharing discounts. Subsection 
3652(c) requires that the Postal Service provide in its annual 
report such data as the Commission requires on service 
agreements and market tests.
    Subsection 3652(d) requires that the Commission have access 
to all the working papers and supporting materials of the 
Postal Service and the Inspector General in connection with the 
required reports. Subsection 3652(e) requires that the 
Commission, in developing regulations prescribing the content 
and form of the required annual reports, consider the need to 
provide the public with adequate information to justify the 
lawfulness of rates charged, the need to avoid unnecessary or 
unwarranted administrative effort or expense on the part of the 
Postal Service, and the need to protect the confidentiality of 
commercially sensitive information. As a result, the section 
authorizes the Commission to specify what information will be 
provided as either public reports or to accommodate the 
confidentiality protections in subsection 3652 (f), which 
allows the Postal Service to obtain confidential treatment for 
commercially sensitive information that is protected from 
disclosure under current law, in accordance with provisions 
outlined in sections 502 and 504 of the bill. Subsection 3652 
(d) also allows the Commission, on its own motion or at the 
request of an interested party, to initiate a proceeding to 
improve the quality, accuracy, or completeness of Postal 
Service data.
    Subsection 3652(g) requires the Postal Service to provide 
the Commission, as part of the information to be examined in 
the annual audit, specific reports that are submitted to 
Congress, including the comprehensive statement required under 
section 2401 and the performance plan and program reports 
required under the Government Performance and Results Act. The 
Postal Service is also required to provide reports detailing 
the operations of the Competitive Products Fund created in 
section 301 of the bill.

Section 3653--Annual determination of compliance

    Section 3653 requires the Commission to provide an 
opportunity for public comment after receiving annual reports 
from the Postal Service. The Commission will then, within 90 
days, make a written determination as to whether any rates or 
fees were not in compliance with the law or whether any service 
standards were not met. If noncompliance is found, the 
Commission is required to take appropriate action under the 
revised complaint procedure in new section 3662 laid out in 
section 205 of the bill. A determination of compliance creates 
a rebuttable presumption of compliance in any complaint 
proceeding.

Section 205--Rate and service complaints

    Section 402 of the bill revises the complaint and appellate 
review provisions set out in subchapter V of chapter 36, title 
39 as re-designated by the bill. In general, the bill 
strengthens the authority of the Regulatory Commission to act 
on a complaint in lieu of the current reliance on Rate 
Commission review of postage rates prior to implementation. 
Section 205 repeals current sections 3662 and 3663 and adds 
three sections to title 39 as follows.

Section 3662--Rate and service complaints

    Section 3662 provides the Regulatory Commission with 
enhanced authority to respond to complaints of pricing, 
service, or other actions by the Postal Service in violation of 
law. As revised, this section requires the Commission to 
investigate or dismiss complaints within 90 days. Subsection 
3662(c) gives the Commission broad authority to correct 
violations by ordering the Postal Service to take whatever 
steps the Commission considers appropriate. For instance, the 
Commission may order the Postal Service to adjust the rates of 
competitive products to lawful levels if they are set below 
attributable costs. The current Rate Commission has no such 
authority under current law. In cases of deliberate 
noncompliance with the law, the Commission is authorized to 
levy fines based on the seriousness of the noncompliance. Fines 
resulting from unlawful provision of competitive products must 
be paid out of the Competitive Products Fund. All fines will be 
paid into the U.S. Treasury.

Section 3663--Appellate review

    Section 3663 provides for appeals of any order or decision 
by the Commission to the United States Court of Appeals for the 
District of Columbia Circuit in accordance with chapter 706 of 
title 5 and chapter 158 and section 2112 of title 28.

Section 3664--Enforcement of orders

    Section 3664 gives any United States District Court the 
authority to enforce orders from the Commission.

Section 206--Clerical amendment

    Section 206 of the bill revises the analysis of chapter 36, 
title 39, in accordance with the changes made by the bill.

                  TITLE III--MODERN SERVICE STANDARDS

    Title II of the bill requires the Postal Regulatory 
Commission to design, within 12 months, a new system of rate 
regulation for market-dominant products. Title III requires the 
Commission to establish, within 12 months, a set of service 
standards for market-dominant products. The Postal Service 
currently sets its own service standards. Title III also 
requires the Postal Service to submit a plan for how it will 
meet the new standards established by the Commission. The 
Postal Service's plan will include a list of facilities that 
can be closed and consolidated without hindering their ability 
to meet the new service standards. Title III maintains the 
universal service requirements included in sections 101(a), 
101(b) and 403 of title 39 and the post office closing 
procedures in section 404(b) of title 39.

Section 301--Establishment of modern service standards

    Section 301 creates a new section 3691 in title 39. Section 
3691 requires the Regulatory Commission to design, within 12 
months, a set of new service standards for market-dominant 
products. The new standards shall be consistent with the 
requirements in sections 101(a), 101(b), and 403 of title 39 
requiring that the Postal Service ``bind the Nation together 
through the mail'' and serve all parts of the country in a non-
discriminatory fashion. Subsection 3691(b) provides that the 
objectives of the new system shall be: (1) to increase the 
value of postal services to both senders and recipients; (2) to 
provide a benchmark for Postal Service performance goals; and 
(3) to guarantee Postal Service customers delivery speed and 
frequency consistent with reasonable rates and best business 
practices.
    Subsection 3691(c) requires that, as they develop the new 
service standards, the Commission take into consideration: (1) 
actual level of service under any service standards previously 
established by the Postal Service; (2) customer satisfaction 
with Postal Service performance; (3) mail volume and revenues 
projected in future years; (4) the projected growth in the 
number of addresses the Postal Service will be required to 
serve in future years; (5) the current and projected future 
cost of serving Postal Service customers; (6) the effect of 
changes in technology, demographics and population distribution 
on the efficient and reliable operation of the postal delivery 
system; and, (7) the policies of this title and such other 
factors as the Commission determines appropriate.

Section 302--Postal Service plan

    Section 302 requires the Postal Service to submit to 
Congress, within 6 months of the establishment of the new 
service standards for market-dominant products, a plan for 
meeting the new standards. The Postal Service will develop the 
plan in consultation with the Regulatory Commission. Subsection 
302 (b) requires that the plan: (1) establish performance 
goals; (2) describe any changes to the Postal Service's 
processing, transportation, delivery and retail networks 
necessary to allow the Postal Service to meet the new 
performance goals; and (3) describe any changes to planning and 
performance documents previously submitted to Congress to 
reflect the new performance goals.
    Subsection 302(c) requires that the Postal Service's plan 
also include a description of its long-term vision for 
rationalizing its infrastructure and workforce and its plan for 
implementing that vision, including (1) a strategy for how it 
intends to rationalize the postal facilities network and remove 
excess processing capacity and space from the network, (2) an 
update on how postal decisions related to mail changes, 
security, automation initiatives, worksharing, information 
technology systems and other areas will affect network 
rationalization plans; (3) a discussion of what impact any 
facility changes may have on the postal workforce and whether 
the Postal Service has sufficient flexibility to make needed 
workforce changes; and, (4) an identification of anticipated 
costs, cost savings and other benefits associated with the 
infrastructure rationalization alternatives discussed in the 
plan.
    Subsection 302(d) requires that the Postal Service include 
plans to provide retail postal services by other means, 
including vending machines, the Internet and retail facilities 
in which overhead costs can be shared with private businesses 
and other government agencies. Subsection 302(e) requires that 
the Postal Service include plans to provide re-employment 
assistance or early retirement benefits to employees displaced 
as a result of automation or the closing and consolidation of 
facilities.
    Subsection 302(f) requires that the Postal Service's plan 
be submitted to the Postal Service Inspector General for study 
before it is submitted to Congress. The Inspector General will 
then issue a report detailing the extent to which the plan is 
consistent with the Postal Service's obligations under title 39 
and the degree to which the plan allows them to meet the new 
service standards.

            TITLE IV--PROVISIONS RELATED TO FAIR COMPETITION

Section 401--Postal Service Competitive Products Fund

    Section 401 adds a new section 2011 to title 39. Section 
2011 establishes an off-budget fund within the Treasury for 
revenues and expenditures associated with competitive products. 
The ``Competitive Products Fund'' is in addition to the current 
Postal Service Fund. The intent of this section is to level the 
playing field for the Postal Service and its competitors in the 
competitive product market by requiring the Postal Service to 
keep separate financial accounts for market-dominant and 
competitive products. Separation of accounts also protects 
taxpayers and the interests of postal consumers in the market-
dominant category.

Section 2011--Provisions relating to competitive products

    Section 2011 establishes the rules under which the Postal 
Service will manage the Competitive Products Fund. The Postal 
Service may invest money from the new fund in accordance with 
rules that the Secretary of Treasury shall prescribe within 12 
months after the date of enactment. The Postal Service may also 
borrow against any assets related to its competitive products. 
The Postal Service must regularly report to the Secretary of 
the Treasury and the Postal Regulatory Commission on the 
operation of the Fund. The Secretary of the Treasury in 
consultation with the Postal Service, and independent, 
certified public accounting firm and other appropriate advisors 
shall, within 12 months of enactment, develop recommendations 
regarding the accounting practices and principles to be used by 
the Postal Service with the intent of preventing cross-subsidy 
of market-dominant products by competitive products. In 
addition, the Secretary of the Treasury shall develop 
recommendations for the computation of the Postal Service's 
assumed Federal income tax on competitive products income. The 
Postal Regulatory Commission shall review these recommendations 
and following consideration of recommendations of interested 
parties, shall issue rules on the Postal Service's accounting 
practices and principles and the method of computing the 
assumed Federal income tax.

Section 402--Assumed Federal income tax on competitive products income

    Section 402 adds a new section 3634 to title 39. Section 
3634 requires the Postal Service to compute an assumed Federal 
income tax on income from competitive products each year and to 
transfer from the Competitive Products Fund to the Postal 
Service Fund the amount of that assumed tax.

Section 403--Unfair competition prohibited

    Section 403 adds a new section 404(a) to title 39. The new 
section 404(a) prohibits the Postal Service from: (1) 
establishing rules or regulations which preclude competition or 
give the Postal Service an unfair competitive advantage; (2) 
compelling disclosure, transfer, or licensing of intellectual 
property; or (3) offering any product or service that makes use 
of information obtained from a person that provides or seeks to 
provide a product to the Postal Service unless the person has 
consented to such use or the information can be obtained from 
another source. The Regulatory Commission is required to 
prescribe regulations to carry out the purposes of this 
section, and the prohibitions will be enforced through the 
Commission's strengthened complaint process and remedies, which 
include ordering rescission of any regulation.

Section 404--Suits by and against the Postal Service

    Section 404 amends section 409 of title 39 to make the 
Postal Service subject to other laws regulating the conduct of 
commercial activities. First, the amendment subjects all Postal 
Service activities to federal laws prohibiting the conduct of 
business in a fraudulent manner. Second, the amendment subjects 
all Postal Service activities outside the postal monopoly to 
federal antitrust laws and unfair competition prohibitions and 
eliminates sovereign immunity protection from suits in Federal 
Court for violations of Federal law. Third, the amendment makes 
the Postal Service's Competitive Products Fund a ``person'' for 
purposes of federal bankruptcy laws. Fourth, the amendment 
requires the Postal Service to consider local zoning, planning, 
environmental, or land use regulations and building codes when 
constructing new buildings.
    Section 409 as amended further requires the Postal Service 
to represent itself in most legal proceedings permitted by the 
amendment as well as in cases involving administrative 
subpoenas issued by the Regulatory Commission and appeals of 
decisions by the Commission or the Governors. The amendment 
requires that judgments arising out of violations of law 
involving competitive products be paid out of revenues earned 
from competitive products.

Section 405--International postal arrangements

    Section 405 amends section 407 of title 39, United States 
Code. Paragraph 407(a) states that it is the policy of the 
United States to promote and encourage communications between 
peoples by efficient operation of international postal services 
and other international delivery services for cultural, social, 
and economic purposes; to promote and encourage unrestricted 
and undistorted competition in the provision of international 
postal services and other international delivery services 
except where provision of those services by private companies 
may be prohibited by U.S. law; to promote and encourage a clear 
distinction between governmental and operational 
responsibilities with respect to the provision of international 
postal services; and to participate in multilateral and 
bilateral agreements with other countries to accomplish the 
objective.
    Paragraph 407(b) provides that the Secretary of State shall 
be responsible for the formulation, coordination, and oversight 
of foreign policy related to international postal services. 
However, the Secretary cannot conclude any postal treaty or 
convention that would grant an undue or unreasonable preference 
for the Postal Service with respect to any competitive product. 
The Secretary of State shall coordinate with other agencies 
having authority vested by law such as the Postal Regulatory 
Commission, the Department of Commerce, the Department of 
Transportation, and the Office of the United States Trade 
Representative. In addition, the Secretary shall maintain 
continuing liaison with other executive branch agencies 
concerned with postal and delivery issues; the Committee on 
Governmental Affairs of the Senate and the Committee on 
Government Reform of the House of Representatives; and the 
Postal Service and representatives of users and private 
providers of international postal and delivery services.
    Paragraph 407(c) requires that, before concluding any 
treaty or convention that establishes a rate or classification 
for a market-dominant product, the Secretary of State shall 
request that the Postal Regulatory Commission submit its views 
on whether such a rate is consistent with section 3622.
    Paragraph 407(d) states that the Postal Service can enter 
into commercial or operational contracts related to 
international postal services as long as they are solely 
contractual and do not purport to be binding under 
international law. A copy of each contract shall be forwarded 
to the Secretary of State and the Postal Regulatory Commission.
    Paragraph 407(e) requires that the customs laws of the 
United States be applied in the same manner to both shipments 
of the Postal Service and private companies and that to the 
extent practicable, the Secretary of State shall encourage 
governments of other countries to make available a range of 
nondiscriminatory customs procedures.
    Subsection 405(b) permits the Postal Service to establish 
postage rates for international mail until regulations under 
section 3622 and 3633 are promulgated by the Postal Regulatory 
Commission for market-dominant products and competitive 
products respectively.

                      TITLE V--GENERAL PROVISIONS

Section 501--Qualification requirements for Governors

    Section 501 amends section 202 of title 39. As revised, 
section 202 provides that the nine members of the Board of 
Governors shall represent the public interest generally. The 
amendment also adds a requirement that the Governors shall be 
selected by the President based solely on their demonstrated 
ability in managing large organizations or corporations, in 
either the public or the private sector. The amendment requires 
the President to consult with the Speaker and minority leader 
of the House and the majority and minority leaders of the 
Senate in selecting individuals to nominate to the Board. The 
term of office for Governor is five years instead of nine. 
Those Governors serving under an appointment made prior to 
enactment will not be affected, however, when that office 
becomes vacant, the appointment of any person to fill that 
office shall be made in accordance with this amendment. This 
section also establishes transition rules for vacancies 
occurring in terms of Governors incumbent as of the date of 
enactment.

Section 502--Obligations

    Section 502 amends section 2005 of title 39 to delete 
specified limits on borrowing for capital improvements and for 
operational expense by the Postal Service. The Postal Service 
Fund's $2 billion annual cap on borrowing for capital 
investments and $1 billion annual cap on borrowing for 
operational expenses is modified to a $3 billion total annual 
combined cap for both purposes.

Section 503--Private carriage of letters

    Section 503 amends section 601 of title 39 to provide 
limited additional statutory exemptions to the postal monopoly. 
Subsection 503(b) provides that a letter may be carried outside 
the mail under three new circumstances: (1) when the amount 
paid to a private carrier is at least 6 times the rate then 
currently charged for the first ounce of a single-piece first-
class letter; (2) when the letter weighs at least 12 and one-
half ounces; and (3) when private carriage is within the scope 
of current Postal Service regulations that purport to suspend 
the operation of current law. By setting the limit at 6 times 
the first-class stamp price, the amended section 601 provides 
that the price limit on the postal monopoly will rise as the 
stamp price increases.
    Section 601 as amended also codifies the exemptions to the 
postal monopoly referenced in subsection 503(b)(3) that have 
been administratively adopted by the Postal Service and widely 
used by private carriers and the public even though they are 
based on a questionable interpretation of current law. Entities 
in both the government and the private sector have testified 
that the Postal Service has misinterpreted the suspension power 
found in section 601(b) of current law. Since 1974, the Postal 
Service has, under color of section 601(b), issued regulations 
that, in effect, suspend the postal monopoly. Subsection 
601(b), however, is derived from section 7 of an 1864 postal 
act. This provision was originally intended to authorize the 
Postmaster General to suspend the exception to the postal 
monopoly now found in section 601(a), which allows private 
carriage of letters if postage is paid by applying and 
canceling postage stamps. There is no evidence that Congress 
intended to grant the Postal Service authority to suspend the 
postal monopoly itself. The proposed amendment would repeal the 
Postal Service's authority to suspend the postal monopoly 
exception for stamped letters--an antiquated and never used 
authority--and to codify the exemptions to the postal monopoly 
that the Postal Service has adopted to date in apparent 
misinterpretation of the suspension provision. The intent of 
this provision to continue to allow private carriage under 
those circumstances in which private carriage is purportedly 
permitted by current Postal Service ``suspensions'' of the 
monopoly but not to continue provisions in the Postal Service 
regulations that purport to condition or limit use of such 
``suspensions,'' e.g., a requirement that customers of private 
carriers must permit otherwise unauthorized inspections by 
postal inspectors.
    The Regulatory Commission is authorized to adopt 
regulations necessary to carry out the exceptions to the postal 
monopoly set out in section 601 as amended. This amendment does 
not take effect until the Postal Regulatory Commission 
promulgates regulations for the competitive pricing system 
under section 3633.

Section 504--Rulemaking authority

    Section 504 amends section 401(2) of title 39 to clarify 
the rulemaking function of the Postal Service. Amended section 
401(2) authorizes the Postal Service ``to adopt, amend, and 
repeal such rules and regulations, not inconsistent with this 
title, as may be necessary in the execution of its functions 
under this title and such other functions as may be assigned to 
the Postal Service under any provisions of law outside of this 
title.'' This amendment is intended to make clear that the 
Postal Service is not empowered to adopt regulations 
implementing other parts of the U.S. Code unless explicitly 
authorized to do so by Congress. This amendment is modeled on 
the Federal Communications Commission's rulemaking authority in 
47 U.S.C. 154(i). The amendment recognizes that the rulemaking 
authority of the Postal Service is affected by its obligations 
under title 5 and certain other limited provisions of law 
outside title 39.

Section 505--Noninterference with collective bargaining agreements

    Section 505 revises the current procedures regarding 
collective bargaining with unions representing postal 
employees. It eliminates the fact-finding process in current 
law and provides for the appointment of a mediator to try to 
resolve collective bargaining disputes. Subsection 505(a) 
amends section 1207 of title 39 to state that if there is a 
collective bargaining agreement in effect, no party shall 
terminate or modify such agreement unless they serve no less 
than 90 days notice on the other party. The party serving such 
notice shall notify the Federal Mediation and Conciliation 
Service of the existence of a dispute within 45 days of such 
notice. If no agreement is reached, the Director of the Federal 
Mediation and Conciliation Service shall, within 10 days, 
appoint a mediator. If no agreement is reached within 60 days 
after the expiration or termination of the agreement or if the 
parties decide upon arbitration but do not agree upon the 
arbitration procedures, then a three member arbitration panel 
shall be established with one member selected by the Postal 
Service, one member selected by the bargaining representative 
of the employees and the third jointly selected. Decisions of 
the arbitration board shall be binding and final and the costs 
shall be shared by both parties. In the case of a bargaining 
unit whose recognized representative does not have an agreement 
with the Postal Service, if the parties fail to reach agreement 
within 90 days of the commencement of collective bargaining, a 
mediator shall be appointed. If the parties fail to reach 
agreement within 180 days of the commencement of collective 
bargaining, and they have not agreed to another procedure for 
binding resolution, an arbitration board shall be established 
to provide conclusive and binding arbitration.
    Subsection 505(b) states that except as provided in 
subsection (a), nothing in this act shall restrict, expand or 
otherwise affect any of the rights, privileges, or benefits of 
either employees or of labor organizations representing 
employees of the Postal Service.
    Subsection 505(c) provides that nothing in the bill will 
affect free mail as currently provided by law for: (1) 
correspondence of members of the diplomatic corps and consuls 
of the countries of the Postal Union of Americas and Spain; (2) 
the blind and the disabled; and (3) mailing of balloting 
materials under the Uniformed and Overseas Citizens Absentee 
Voting Act.

                TITLE VI--ENHANCED REGULATORY COMMISSION

Section 601--Reorganization and modification of certain provisions 
        relating to the Postal Regulatory Commission

    Section 601 creates a new chapter 5 in title 39 to 
establish the Postal Regulatory Commission, which will replace 
the current Postal Rate Commission. It recognizes the 
Regulatory Commission's enhanced responsibilities by 
establishing it in provisions set out in a chapter located in 
part I of title 39, dealing with general matters, rather than, 
as in current law, provisions set out in a subchapter of 
chapter 36, dealing with rate regulation. In addition, this 
section establishes qualification requirements for Postal 
Regulatory Commissioners. Lastly, it directs the Postal 
Regulatory Commission to designate an officer of the Postal 
Regulatory Commission in all public proceedings to represent 
the interests of the general public.

Section 602--Authority of the Postal Regulatory Commission to issue 
        subpoenas

    Section 602 amends section 504 of title 39, i.e., section 
3604 of current law as re-designated by section 601 of the 
bill. Section 504, as amended, provides that Commissioners, any 
administrative law judge appointed by the Commission, and any 
designated employee of the Commission may administer oaths, 
examine witnesses, take depositions, and receive evidence. In 
addition, the Chairman of the Commission, any Commissioner 
designated by the Chairman, and any administrative law judge 
appointed by the Commission may subpoena officers, employees, 
contractors, and agents of the Postal Service to require 
attendance, presentation of testimony, production of documents 
or to order depositions and responses to written 
interrogatories. Any subpoena requires the written concurrence 
of a majority of Commissioners then holding office in advance 
of its issuance. The Commission may seek an order enforcing the 
subpoena in U.S. District Court in the event of a failure to 
comply. Failure to obey the court's order is punishable as a 
contempt of court.
    The amendment also provides for the handling of proprietary 
information requested from the Postal Service by the 
Commission. Section 504, as amended, provides that, if the 
Postal Service determines requested information is proprietary 
and so notifies the Commission in writing, the Commission may 
use the information only for the purpose for which it is 
supplied and must restrict access to the information to 
Commission officials. The amendment further provides for the 
possibility of discovery of such information by private parties 
in proceedings under sections 556 and 557 of title 5 and 
requires the Commission to adopt rules to protect the 
confidentiality of such information similar to the rules that 
govern protective orders issued by the federal courts under the 
Federal Rules of Civil Procedure.

Section 603--Appropriations for the Postal Regulatory Commission

    Section 603 further amends section 504 of title 39 to 
ensure the financial independence of the Postal Regulatory 
Commission. Under the amendment, funding for the Commission 
will be paid out of the Postal Service Fund, as under current 
law, but the budget of the Commission will no longer be subject 
to disapproval by the Governors.

Section 604--Redesignation of the Postal Regulatory Commission

    Section 604 changes the name of the ``Postal Rate 
Commission'' to the ``Postal Regulatory Commission'' in various 
statutes.

Section 605--Financial transparency

    Section 605 amends section 101 of title 39 by including a 
requirement that the Postal Service shall be subject to ``a 
high degree of transparency to ensure fair treatment of 
customers of the Postal Service's market-dominant products and 
companies competing with the Postal Service's competitive 
products.''

                         TITLE VII--EVALUATIONS

Section 701--Assessments of ratemaking, classification and other 
        provisions

    Section 701 requires the Regulatory Commission to report to 
the President and the Congress at least every 3 years, in 
conjunction with the Postal Service, on the operation of the 
amendments made by this bill, with recommendations for any 
legislative or other measures necessary to improve the 
effectiveness or efficiency of the nation's postal laws.

Section 702--Report on universal postal service and the postal 
        monopoly.

    Section 702(a) requires the Postal Regulatory Commission, 
no later than 12 months after enactment, to submit a report to 
the President and Congress on the universal postal service and 
the postal monopoly including the monopoly on the delivery of 
mail and access to mailboxes. The report shall include (1) a 
comprehensive review of the history and development of 
universal service and the postal monopoly; (2) the scope and 
standards of universal service and the postal monopoly under 
current law; (3) a description of any geographic areas or 
communities that are not currently covered by universal service 
or that are covered but that are receiving deficient services; 
and (4) the scope and standards of universal service and the 
postal monopoly likely to be required in the future to meet the 
needs and expectations of the public. Section 702(b) requires 
the Postal Regulatory Commission to include in the report any 
recommended changes to universal service and the postal 
monopoly as the Commission considers appropriate and an 
estimate of the costs and likely benefits of the obligation to 
provide universal service. The Regulatory Commission will 
update the report in each report submitted to the President and 
Congress pursuant to section 701.

Section 703--Study on equal application of laws to competitive 
        products.

    Section 703 requires the Federal Trade Commission (FTC) to 
prepare and submit to the President, Congress and the Postal 
Regulatory Commission within one year after enactment a 
comprehensive report identifying Federal and State laws that 
apply differently to the Postal Service with respect to the 
competitive category of mail and similar products provided by 
private companies, including recommendations as it considers 
appropriate to bring such legal discrimination to an end. In 
preparing the report, the FTC shall consult with the Postal 
Service, the Postal Regulatory Commission and other federal 
agencies, mailers, private delivery companies and the general 
public and append any comments to its report. The Postal 
Regulatory Commission shall take the FTC's recommendations into 
account in establishing regulations for competitive products 
under section 3633 of title 39.

Section 704--Report on postal workplace safety and workplace-related 
        injuries

    Subsection 704(a) directs the Inspector General of the 
United States Postal Service, not later than six months after 
enactment, to submit a report to Congress and the Postal 
Service that details and assesses any progress the Postal 
Service has made in improving workplace safety and reducing 
workplace-related injuries nationwide and identifies 
opportunities for improvement. This report shall: discuss any 
injury reduction goals established by the Postal Service; 
describe actions that the Postal Service has taken to improve 
workplace safety and reduce injuries; identify areas where the 
Postal Service has failed to meet its injury reduction goals; 
explain the reasons why these goals were not met; and identify 
opportunities for making further progress in meeting these 
goals.
    Subsection 704(b) requires the Postal Service, no later 
than 6 months after receiving the report under Subsection 
704(a), to submit a report to Congress detailing how it plans 
to improve workplace safety and reduce workplace-related 
injuries, including goals and metrics. The Postal Service's 
report shall also include plans developed in conjunction with 
the Inspector General and employee representatives, including 
representatives of each postal labor union and management 
association, for addressing the problem areas identified by the 
Inspector General.

Section 705--Study on recycled paper

    Subsection 705(a) directs the Government Accountability 
Office (GAO), within 12 months of enactment, to submit to the 
Congress, the Board of Governors of the Postal Service and the 
Postal Regulatory Commission a report concerning the economic 
and environmental efficacy of establishing rate incentives for 
mailers linked to the use of recycled paper. The GAO report 
shall also include a description of the Postal Service's 
accomplishments in each of the preceding 5 years involving 
recycling activities, including the amount of revenue generated 
and savings achieved by the Postal Service as a result of its 
use of recycled paper and other recycled products. Finally, the 
GAO report shall discuss the Postal Service's efforts to 
recycle undeliverable mail and other material and additional 
opportunities that may be available for the Postal Service to 
engage in recycling initiatives, including the projected costs 
and revenues associated with undertaking such opportunities.
    Subsection 705(b) specifies that the report under 
Subsection 705(a) shall include recommendations for any 
appropriate administrative or legislative actions.

   TITLE VIII--POSTAL SERVICE RETIREMENT AND HEALTH BENEFITS FUNDING

Section 801--Short title

    Section 801 provides that title VIII may be cited as the 
``Postal Civil Service Retirement and Health Benefits Funding 
Amendments of 2004''.

Section 802--Civil Service Retirement System

    In general, section 802 provides for transfer of the costs 
of providing military service credit under the Civil Service 
Retirement System (CSRS) from the Postal Service to the U.S. 
Treasury. It also modifies the existing provisions for funding 
CSRS benefits for Postal employees. Paragraph (a)(1) eliminates 
the current requirement that the Postal Service make a 
contribution to the Retirement Fund based upon a percentage of 
the salaries of Postal Service employees. Paragraph (a)(2) 
amends the existing provisions of 5 U.S.C. Sec. 8348(h).
    As amended, Sec. 8348(h)(1) defines ``Postal surplus or 
supplemental liability'' as the estimated difference, as 
determined by the Office of Personnel Management (OPM), between 
the actuarial present value of future CSRS retirement benefits 
attributable to civilian employment with the United States 
Postal Service, and the sum of the actuarial present value of 
future Postal Service CSRS deductions from the salaries of 
current Postal employees plus the net portion of the Fund 
balance attributable to Postal civilian employment (taking into 
account contributions, payments and earnings); plus any other 
appropriate amount, as determined by OPM in accordance with 
generally accepted actuarial practices and principles.
    As amended, Sec. 8348(h)(2)(A) provides that by June 30, 
2006, OPM will determine the Postal surplus or supplemental 
liability, as of September 30, 2005. Any surplus will be 
transferred to the Postal Service Retiree Health Benefit Fund 
established by the new 5 U.S.C. Sec. 8909a. If there is a 
supplemental liability, OPM will establish an amortization 
schedule providing for the liquidation of the liability by 
September 30, 2043.
    As amended, Sec. 8348(h)(2)(B) provides that OPM will each 
year thereafter through FY 2038 recompute whether there is a 
Postal surplus or supplemental liability. Any surplus will 
remain in the Fund until transfers are authorized under 
subparagraph (C). If there is a liability, OPM will establish a 
new amortization schedule providing for the liquidation of the 
liability by September 30, 2043, and superceding earlier 
amortization schedules.
    As amended, Sec. 8348(h)(2)(C) provides that if there is a 
surplus at the end of FY's 2015, 2025, 2035, and 2039, it shall 
be transferred to the Postal Service Retiree Health Benefits 
Fund, terminating any prior amortization schedules.
    As amended, Sec. 8348(h)(2)(D) and (E) provide that the 
amortization schedules shall be set in accordance with 
generally accepted actuarial practices and principles, with 
interest computed at the rate used in the most recent valuation 
of the CSRS, with Postal payments due not later than the date 
scheduled by OPM.
    As amended, Sec. 8348(h)(3) provides that in computing 
payments under any other subsection of Sec. 8348 based upon 
unfunded liability, OPM will compute those payments taking into 
account payments under the amended Sec. 8348(h).
    Section 802(b) provides that since the amounts paid in FY's 
2003 through 2005 by the Postal Service for CSRS military 
service costs will be recredited to the Postal Service towards 
its civilian CSRS obligations, the Treasury shall make the 
contributions for those years.

Section 803--Health insurance

    Section 803(a)(1) also amends 5 U.S.C. Sec. 8906(g)(2)(A) 
to provide that future payments for the employer share of 
health benefits premiums for retired Postal employees shall be 
made from the Postal Service Retiree Health Benefit Fund 
established by the new 5 U.S.C. Sec. 8909a up to the amount in 
the Fund, with any additional amount contributed by the Postal 
Service.
    Section 803(a)(1) also adds a new 5 U.S.C. Sec. 8909a 
establishing a Postal Service Retiree Health Benefit Fund, 
administered by OPM.
    New Sec. 8909a(c) provides that the new Fund shall be 
invested in the same manner as the Retirement Fund.
    New Sec. 8909a(d)(1) provides that at the end of 2006 and 
each year thereafter, OPM will compute the net present value of 
the future payments required under section 8906(g)(2)(A) and 
attributable to the service of Postal Service employees during 
the most recently ended fiscal year.
    New Sec. 8909a(d)(2)(A) provides that at the end of 2006 
and each year thereafter, OPM will compute the net present 
value of the unfunded liability for future payments required by 
5 U.S.C. Sec. 8906(g)(2)(A), taking into account the Fund 
balance and the amount computed under Sec. 8909a(d)(1) that 
will be paid by the Postal Service.
    New Sec. 8909a(d)(2)(B) provides that at the end of 2006 
OPM will compute, and each year thereafter recompute, an 
amortization schedule providing for the liquidation by January 
31, 2046, or within 15 years, whichever is later, of the net 
present value determined under subparagraph (A), including 
interest at the rate used in that computation.
    New Sec. 8909a(d)(3) provides that at the end of 2006 and 
each year thereafter, the Postal service will pay into the 
Postal Service Retiree Health Benefit Fund the amounts computed 
under Sec. Sec. 8909a(d)(1) and (2)(B).
    New Sec. 8909a(d)(4) provides that computations under 
subsection (d) will be made consistent with the assumptions and 
methodology used by OPM for financial reporting under the Chief 
Financial Officers Act of 1990.
    New Sec. 8909a(d)(4) provides that any necessary 
regulations shall be promulgated by OPM after consultation with 
the Postal Service.

Section 804--Repeal of disposition of savings provision

    Section 804 repeals section 3 of the Postal Civil Service 
Retirement System Funding Reform Act of 2003, Public Law 108-
18, which made provision for disposition of savings under the 
provisions of that Act.

Section 805--Effective dates

    Section 805(a) provides that title VIII generally takes 
effect on October 1, 2005.
    Section 805(b) provides that paragraph (1) of section 
802(a), providing for the elimination of the Postal Service 
contributions to the Retirement Fund based on a percentage of 
employee salary, takes effect on the first day of the first pay 
period beginning on or after October 1, 2005.

                TITLE IX--COMPENSATION FOR WORK INJURIES

Section 901--Temporary disability; continuation of pay

    Section 901 amends section 8117 of title 5 to put into 
place a three-day waiting period before an employee of the 
Postal Service injured on the first day of the first pay period 
beginning on or after October 1, 2005 is eligible to receive 45 
days of continuation of pay. The affected postal employee may 
use annual leave, sick leave, or leave without pay during this 
period. If the disability exceeds 14 days or is followed by 
permanent disability, the employee may have any annual leave or 
sick leave used reinstated or may receive pay for the time 
spent on leave without pay.

Section 902--Disability retirement for postal employees

    Section 902 amends sections 8105 and 8106 of title 5 by 
converting compensation benefits for total or partial 
disability to a retirement annuity when an affected postal 
employee injured on the first day of the first pay period 
beginning on or after October 1, 2005 reaches an appropriate 
retirement age as defined by section 216(l) of the Social 
Security Act. This change would reflect the fact that disabled 
postal employees would likely retire at some point were they 
not on the rolls of the Office of Workers' Compensation 
Programs.
    The compensation entitlement for partial disability is 
converted to 50 percent of the difference between an employee's 
monthly pay and his or her monthly wage earning capacity after 
the beginning of partial disability when the injured employee 
reaches his or her ``retirement age'' as defined in section 216 
of the Social Security Act.
    The compensation entitlement for total disability is 
converted to 50 percent of the monthly pay of the employee when 
the injured employee reaches his or her ``retirement age'' as 
defined in section 216 of the Social Security Act.
    Under current law, employees with dependents are eligible 
for 75 percent of their pre-injury salary plus cost-of-living 
adjustments (COLAs), tax-free. Employees with no dependents 
receive 66\2/3\ percent of their pre-injury salary plus COLAs, 
tax-free. There is no maximum dollar cap on workers' 
compensation payments.

                         TITLE X--MISCELLANEOUS

Section 1001--Employment of Postal Police Officers

    Section 1001 amends section 404 of title 39, United States 
Code to permit the Postal Service to employ guards for 
buildings owned and operated by the Postal Service or under the 
charge and control of the Postal Service. The Postal Service 
may give such guards with respect to this property the powers 
of special policemen provided under section 1315 of title 40. 
The Postmaster General or his or her designee may take any 
action that the Secretary of Homeland Security may take under 
section 1315 of title 40 with respect to that property.

Section 1002--Expanded contracting authority

    Subsection 1002(a) amends 39 U.S.C 5402(d) to provide that 
the Postal Service may contract with any air carrier for 
transportation of mail in interstate air transportation, 
including the rates therefor, through negotiations or 
competitive bidding. The Postal Service may contract with any 
air carrier or foreign air carrier for transportation of mail 
in foreign air transportation, including the rates therefor, 
through negotiations or competitive bidding except that (1) any 
such contract may be awarded only to an air carrier holding a 
certificate required by section 41101 of title 49 or an 
exemption therefrom issued by the Secretary of Transportation, 
or any such contract may be awarded only to a foreign air 
carrier holding a permit required by section 41301 of title 49 
or an exemption therefrom issued by the Secretary of 
Transportation, or a combination of such air carriers and 
foreign air carriers; (2) mail transported under any such 
contract shall not be subject to any duty-to-carry requirement 
imposed by any provision of subtitle VII of title 49 or any 
certificate, permit, or corresponding authority issued by the 
Secretary of Transportation; (3) every contract awarded to a 
foreign air carrier shall be subject to the requirement that 
air carriers shall be provided the same opportunity to carry 
the mail of the country to and from which the mail is 
transported and the flag country of the foreign air carrier; 
(4) the Postmaster General shall consult with the Secretary of 
Defense concerning actions that affect the carriage of military 
mail in foreign air transportation.
    Section 1002(b) amends section 41901(a) of title 49 to 
permit the Postal Service to provide for the transportation of 
mail by aircraft in air transportation and deletes restrictions 
on the foreign air transportation of mail and prices for 
foreign transportation of mail.

                   V. Evaluation of Regulatory Impact

    Paragraph 11(b)(1) of rule XXVI of the Standing Rules of 
the Senate requires that each report accompanying a bill 
evaluate the regulatory impact that would be incurred in 
carrying out the bill.
    S. 2468 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.

                   VI. Estimated Cost of Legislation

    Section 11(a) of rule XXVI of the Standing Rules of the 
Senate requires that each report accompanying a bill include an 
estimate of the costs which would be incurred in carrying out 
such bill. The following estimate was prepared by the 
Congressional Budget Office:

S. 2468--Postal Accountability and Enhancement Act

    Summary: S. 2468 would change the laws that govern the 
operation of the United States Postal Service (USPS), 
particularly those regarding the cost of pensions and health 
care benefits of retired workers and the requirement to hold 
certain funds in escrow. CBO estimates that enacting this 
legislation would result in on-budget savings of $20.2 billion 
and off-budget costs of $35.8 billion over the 2005-2014 
period. (The net expenditures of the USPS are classified as 
``off-budget.''). Thus, CBO estimates the net cost to the 
unified budget would be $15.7 billion over the 2005-2014 
period. Those costs would constitute direct spending. (The bill 
would not affect revenues.) In addition, we estimate that 
implementing S. 2468 would cost about $90 million (less than 
$10 million a year) over the 2005-2014 period, assuming 
appropriation of the necessary amounts.
    Enacting S. 2468 would not affect how much the federal 
government spends on pension or health care benefits for USPS 
retirees. By increasing how much the Postal Service pays to 
finance those benefits and by eliminating the current-law 
escrow account requirements, however, the bill would increase 
future budget deficits as measured by the unified federal 
budget. Eliminating the escrow account requirement for the USPS 
would allow that agency to increase spending for capital 
improvements or other projects, pay down its outstanding debt, 
postpone or diminish future rate increases, or some combination 
of these options. Enacting the bill also would reduce direct 
spending by making the costs of the Postal Rate Commission 
subject to appropriation and by reducing payments made by the 
Postal Service for workers' compensation.
    S. 2468 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Major provisions of S. 2468 would:
     Eliminat a requirement in Public Law 108-18 (P.L. 
108-18), the Postal Civil Service Retirement Funding Reform Act 
of 2003, that the Postal Service place savings from reduced 
pension contributions in escrow.
     Transfer from the Postal Service to the Department 
of the Treasury responsibility for paying pension costs 
associated with military service credits.
     Replace direct payments the Postal Service is 
making for retiree health care costs with payments designed to 
prefund the health care costs of current employees when they 
retire.
     Revise the procedure for raising postal rates.
     Strengthen the USPS Board of Governors and the 
Postal Rate Commission, which would be redesignated the Postal 
Regulatory Commission (PRC).
     Make other changes designed to increase the Postal 
Service's competitiveness with private industry.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2468 is shown in Table 1. The costs of 
this legislation fall within budget functions 370 (commerce and 
housing credit), 550 (health), 900 (net interest), and 950 
(undistributed offsetting receipts).

                                                    TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF S. 2468
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        By fiscal year, in billions of dollars--
                                                               -----------------------------------------------------------------------------------------
                                                                  2005     2006     2007     2008     2009     2010     2011     2012     2013     2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING
On-Budget Effects:
    Estimated Budget Authority................................      0.0      2.4     -2.3     -2.4     -2.5     -2.7     -2.9     -3.1     -3.3     -3.5
    Estimated Outlays.........................................      0.0      2.4     -2.3     -2.4     -2.5     -2.7     -2.9     -3.1     -3.3     -3.5
Off-Buget Effects:
    Estimated Budget Authority................................        *      2.9      3.2      3.5      3.6      3.9      4.2      4.4      4.8      5.2
    Estimated Outlays.........................................        *      2.9      3.2      3.5      3.6      3.9      4.2      4.4      4.8      5.2
                                                               -----------------------------------------------------------------------------------------
Total Unified Budget Effect:
    Estimated Budget Authority................................        *      5.4      0.9      1.1      1.1      1.2      1.4      1.4      1.6      1.7
    Estimated Outlays.........................................        *      5.4      0.9      1.1      1.1      1.2      1.4      1.4      1.6      1.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Implementing the bill also would affect discretionary spending, subject to the availability of appropriated funds. CBO estimates that those
  discretionary costs would be less than $10 million a year.
 Notes.--Components may not add to totals because of rounding.
* = savings of less than $50 million.

    Basis of estimate: For this estimate, CBO assumes that S. 
2468 will be enacted near the start of fiscal year 2005. CBO 
estimates that enacting the bill would result in on-budget 
savings of $20.2 billion and off-budget costs of $35.8 billion 
over the 2005-2014 period, for a net cost to the unified budget 
of $15.7 billion over the 10-year period. In addition, we 
estimate that implementing S. 2468 would cost about $90 million 
over the 2005-2014 period, assuming appropriation of the 
necessary amounts, mostly to fund the PRC.

Background

    The following paragraphs present background information 
relating to the major provisions of S. 2468, mostly for postal 
finances affected by the bill.
    Budgetary Treatment of USPS. Although the Postal Service is 
a federal agency, its financial operations are classified as 
off-budget. Despite this treatment, federal budget documents 
present the net income (gross income minus expenses) of the 
agency in the unified budgetary totals for the federal 
government. The Postal Service is required by law to set 
postage rates to cover its full costs, although from year to 
year its net income may be positive or negative. In fiscal year 
2003, the Postal Service generated $69.5 billion in 
collections, mostly from postage and user fees, and had $64.2 
billion in expenses, for a net cash surplus of $5.3 billion in 
that year.
    USPS and Federal Retirement Plans. Postal Service employees 
participate in the federal government's two main defined 
benefit pension programs. Those workers initially hired prior 
to 1984 are covered by the Civil Service Retirement System 
(CSRS) while those initially hired after 1983, as well as 
former CSRS workers who elected to change federal retirement 
plans in 1987 or 1998, participate in the Federal Employees' 
Retirement System (FERS). In 2003, about 30 percent of the USPS 
workforce was covered by CSRS, and the rest were under FERS.
    The Postal Service and its employees each make payroll 
contributions toward the civilian retirement systm (CSRS and 
FERS). Unlike other agencies, the agency contribution rate for 
most CSRS employees is 17.4 percent of basic pay (most other 
agencies contribute 7 percent), while the employee contribution 
rate is 7 percent.\1\ For FERS employees, the agency 
contribution rate for most employees is 10.7 percent, while the 
employee rate is 0.8 percent, plus Social Security payroll 
taxes on both employers and employees. Workers in CSRS receive 
generally higher benefits than those in FERS, but unlike FERS, 
those in CSRS do not participate in Social Security and do not 
receive agency contributions toward the Thrift Savings Plan. In 
addition to its payroll contributions, the Postal Service also 
makes annual amortization payments toward an unfunded liability 
within CSRS. In 2003, that payment was about $300 million.
---------------------------------------------------------------------------
    \1\ P.L. 108-18 increased the contribution rate the Postal Service 
pays for its CSRS employees from 7 percent to 17.4 percent. That 
legislation also eliminated a series of amortization payments the 
Postal Service was required to make for unfunded CSRS liabilities. For 
more details, see CBO's cost estimates of the Postal Civil Service 
Retirement System Funding Reform Act of 2003 (S. 380 and H.R. 735 from 
the 108th Congress). These estimates are posted on www.cbo.gov.
---------------------------------------------------------------------------
    USPS and Federal Health Benefits. The Postal Service also 
pays a portion of health care premiums for currently retired 
USPS employees who are eligible to participate in the Federal 
Employees Health Benefits (FEHB) program. Currently, there are 
over 400,000 Postal Service retirees who participate in the 
FEHB program. On average, the Postal Service currently pays 
about 45 percent of the health care premiums for its retirees. 
Retirees pay about 30 percent of their FEHB premiums with 
general revenues accounting for the remaining amount, roughly 
25 percent. In 2003, the Postal Service paid $1.1 billion to 
FEHB for premiums for current retirees.
    USPS Escrow Fund. Starting in October 2006, the Postal 
Service will be required under current law to begin holding 
funds in an escrow account equal to the difference between what 
the Postal Service currently pays toward CSRS and what it would 
have paid for CSRS benefits prior to the enactment P.L. 108-18. 
Under current law, CBO estimates the Postal Service will need 
to hold in escrow nearly $3 billion in 2006 and $36 billion 
over the 2006-2014 period. S. 2468 would eliminate the 
requirement that USPS collect and hold these funds in escrow.

Effects on the Unified Budget

    S. 2468 would not affect how much the federal government 
spends on pension or health benefits for USPS retirees. 
However, by increasing how much the Postal Service pays to 
finance those benefits and by eliminating the current-law 
escrow requirements, the bill would increase future budget 
deficits as measured by the unified federal budget.
    Off-budget payments made by the Postal Service for CSRS and 
FEHB are transfers to on-budget federal accounts, and are 
counted as offsetting receipts (a credit against direct 
spending). Eliminating the USPS transfer to CSRS for military 
service credits would reduce on-budget offsetting receipts by 
$13.5 billion over the 2005-2014 period. Under the bill, that 
reduction would be offset by a $33.6 billion net increase in 
on-budget offsetting receipts paid by the Postal Service for 
the new health benefits fund. Taken together, those provisions 
would increase on-budget offsetting receipts by $20.2 billion 
over the 2005-2014 period.
    The collection of funds to be held in escrow by the Postal 
Service is recorded as an off-budget offsetting receipt. 
Eliminating the requirement to fund the escrow account would 
allow the USPS to pay down debt, increase spending for capital 
improvements or other projects, postpone or diminish future 
rate increases, or some combination of these activities. CBO 
estimates that this provision would increase net off-budget 
spending by $36 billion over the 2006-2014 period. (Much of 
that spending would be to fund the new health benefits payments 
mentioned above as on-budget offsetting receipts.) Making the 
costs of the PRC subject to appropriation would reduce direct 
spending by the Postal Service by about $90 million over the 
next 10 years. Furthermore, reducing USPS costs for workers' 
compensation could reduce direct spending by an additional $50 
million over the 2005-2014 period.
    The combined effect of the $20.2 billion increase in on-
budget receipts, the $36 billion reduction in off-budget 
offsetting receipts, and a $140 million reduction in USPS 
direct spending would produce a $15.7 billion cost to the 
unified budget deficit over the 2005-2014 period. Those effects 
are presented in Table 2 and explained in more detail below.

                                               TABLE 2.--ESTIMATED CHANGES IN DIRECT SPENDING FOR S. 2468
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year, outlays in billions of dollars--
                                                               -----------------------------------------------------------------------------------------
                                                                  2005     2006     2007     2008     2009     2010     2011     2012     2013     2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING
                        On-Budget Effects
 Civil Service Retirement System...............................        0      2.0      1.9      1.8      1.7      1.5      1.4      1.2      1.1      0.9
Postal Service Retiree Health Benefits Fund net of retiree            0      0.4     -4.2     -4.2     -4.2     -4.2     -4.3     -4.3     -4.3     -4.4
 premium payments to FEHB \1\.................................
                                                               -----------------------------------------------------------------------------------------
      Total On-Budget Effects.................................        0      2.4     -2.3     -2.4     -2.5     -2.7     -2.9     -3.1     -3.3     -3.5
                                                               =========================================================================================
                      Off-Budget Effects
 Eliminate Escrow Account......................................        0      2.9      3.2      3.5      3.7      3.9      4.3      4.5      4.8      5.2
Funding for PRC Costs Subject to Appropriation and Workers'           *        *        *        *        *        *        *        *        *        *
 Compensation Savings.........................................
                                                               -----------------------------------------------------------------------------------------
      Total Off-Budget Effects................................        *      2.9      3.2      3.5      3.6      3.9      4.2      4.4      4.8      5.2
                                                               =========================================================================================
      Total Unified Budget Effects............................        *      5.4      0.9      1.1      1.1      1.2      1.4      1.4      1.6      1.7
                                                               =========================================================================================
                          MEMORANDUM
 Payments from the Postal Service received by PSRHBF...........        0        0     -5.9     -6.1     -6.4     -6.6     -6.8     -7.1     -7.4     -7.8
FEHB premiums paid from PSRHBF................................        0      0.4      1.8      2.0      2.2      2.4      2.6      2.8      3.1      3.4
      Net outlays of PSRHBF...................................        0      0.4     -4.2     -4.2     -4.2     -4.2     -4.3     -4.3     -4.3     -4.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Starting in July 2006, CBO assumes that payments of FEHB premiums for Postal Service retirees would be paid out of the Postal Service Retiree Health
  Benefits Fund instead of being paid directly by the Postal Service as under current law. S. 2468 would require the first payment prefunding and
  amortization amounts to be made by January 31, 2007. The bill would have no effect on spending by the FEHB program for health benefits for Postal
  Service annuitants.
 Notes.--FEHB = Federal Employees Health Benefits program; PSRHBF = Postal Service Retiree Health Benefits Fund; PRC = Postal Regulatory Commission; USPS
  = United States Postal Service.
* = savings of less than $50 million.
Components may not add to totals because of rounding.
Amounts in the table represent net changes in offsetting receipts, which are recorded in the budget as changes in direct spending. A positive sign
  indicates lower offsetting receipts, thus an increase in outlays; negative numbers represent increased offsetting receipts, or a reduction in net
  outlays.

On-Budget Effects (Direct Spending)

    CBO estimates the total on-budget effect of the pension and 
health care provisions in S. 2468 would be a decrease in 
offsetting receipts of $2.4 billion in 2006, an increase of 
$4.8 billiion over the 2006-2009 period, and $20.2 billion over 
the 2006-2014 period. That increase in on-budget collections 
would come from increased transfers (off-budget outlays) coming 
from the USPS. (The off-budget effects are discussed in the 
following section.)
    Civil Service Retirement Contributions. S. 2468 would 
change the way the Postal Service finances retirement benefits 
for current and retired employees. Starting in October 2005, 
the bill would transfer financial responsibility for militlary 
service credits earned by Postal Service employees and retirees 
participating in CSRS from the Postal Service to the Department 
of Treasury. Military service credits represent time served in 
the U.S. military that is credited toward benefits under the 
civilian retirement system. Most federal agencies are not 
responsible for the cost to the pension system of the military 
service credits incurred by their CSRS employees, but P.L. 108-
18 transferred responsibility for military service credits from 
the Treasury tot he Postal Service beginning in June 2004.
    The Office of Personnel Management (OPM) estimates that 
transferring responsibility for military service credits from 
the Postal Service back to the Treasury would cause the Postal 
Service to have overfunded its obligation to CSRS by about 
$19.4 billion through September 2005.\2\ Consequently, under S. 
2468 the Postal Service would no longer be obligated to make 
either agency contributions or any further annual amortization 
payments for CSRS. (Employee contributions would continue at 7 
percent of basic pay and retirement benefits under CSRS would 
not change.)
---------------------------------------------------------------------------
    \2\ This overfunding, which is calculated on a net-present-value 
basis, represents an estimate of the total amount of money the Postal 
Service will have contributed toward CSRS from 1971 through September 
30, 2005, minus the agency's CSRS liabilities if USPS bears not 
financial responsibility for the pension costs associated with military 
service credits. The projected overfunding is due primarily to larger-
than-expected returns on assets held in the CSRDF.
---------------------------------------------------------------------------
    Spending by the Postal Service--including amounts paid into 
other federal accounts--is considered off-budget spending. 
However, the Civil Service Retirement and Disability Fund 
(CSRDF) is an on-budget account, so the amounts the CSRDF 
collects from the Postal Service are on-budget offsetting 
receipts. Reducing payments the Postal Service makes to the 
CSRDF would result in a reduction in off-budget spending and a 
reduction in on-budget offsetting receipts. CBO estimates 
transferring responsibility for military service credits, and 
the attendant reduction in CSRS contributions such a change 
would bring, would reduce on-budget receipts by $2 billion in 
2006 and $13.5 billion over the 2006-2014 period. Although the 
Treasury Department would then be responsible for the costs 
associated with those pension liabilities under the bill, the 
Treasury payment and receipt by CSRDF are both on-budget 
intragovernmental transactions. That is, the bill would replace 
one intragovernmental transfer with another. Instead of a 
transfer from the off-budget Postal Service to the on-budget 
CSRDF, there would be a transfer from the Treasury to the 
CSRDF.
    Postal Service Retiree Health Benefits Fund. S. 2468 also 
would change the way the Postal Service financeses its share of 
the cost of providing health care to retirees. Instead of 
directly paying a portion of the health premiums incurred by 
current retirees each year, the USPS would begin paying for 
estimated costs of retiree health care as such costs are 
accrued by current workers. Starting in 2007, S. 2468 would 
require the USPS to make payments equal to the annual increased 
in retiree health care liabilities accrued by current 
employees. These payments would be deposited into a new on-
budget account, the Postal Service Retiree Health Benefits Fund 
(PSRHBF), which would earn interest at the same rate as the 
CSRDF. The Postal Service's share of health care premiums for 
current retirees would be paid out of the PSRHBF as soon as 
adequeate funds are available in the account to do so.
    Under S. 2468, any overfunding toward CSRS liabilities 
(after financial responsibility for military service credits 
reverts to the Treasury) would be transferred from the CSRDF to 
the PSRHBF by June 30, 2006. Based on information provided by 
OPM, CBO anticipates that the transfer to the new fund would 
total $20.2 billion and would occur in June 2006. (This amount 
reflects the $19.4 billion in estimated CSRS overfunding plus 
interest that would accrue between the end of the valuation 
period in September 2005 and when CBO assumes the asset 
transfer would take place in June 2006.)
    Under the bill, the Postal Service also would make annual 
amortization payments toward the unfunded liabilites for health 
care costs of both current and future retirees. The unfunded 
liability would be the difference between the assets held in 
the PSRHBF and the net present value of accrued liabilities 
projected for retiree health care. The bill would direct OPM to 
compute the required prefunding and amortization payments 
consistent with assumptions and methodologies for financial 
reporting used by OPM under current law. The bill specifies 
that payment would be made by January 31st of each year, 
starting in 2007, for the prior fiscal year. (CBO assumes those 
payments would include interest accrued between the end of the 
valuation period and the payment date each year.) Based on 
information provided by OPM, CBO anticipates the net present 
value of the unfunded liability for the health care costs of 
retirees would amount to $43.2 billion at the end of 2006 and 
would shrink to $39.9 billion by the end of 2014. CBO estimates 
that payments by the Postal Service for prefunding health care 
costs of retirees and amortization payments for the remaining 
unfunded liability would be $5.9 billion in 2007, $18.4 biliion 
over the 2007-2009 period, and $54.2 billion over the 2007-2014 
period.
    CBO epxects that the transfer of $20.2 billion from the 
CSRDF to the PSRHBF resulting from the shift in responsibility 
for military service credits would occur in June 2006.
    Therefore, the Postal Service would cease making payments 
under current law for its share of FEHB premiums for annuitants 
beginning in July 2006; with those premium payments instead 
being drawn from the PSRHBF. CBO estimates that change in the 
funding mechanism for retiree health benefits would reduce off-
budget payments by the Postal Service for FEHB premiums by $0.4 
billion in 2006 (which reflects premium payments, under current 
law, for the last three months of 2006), $6.3 billion over the 
2006-2009 period, and $20.5 billion over the 2006-2014 period. 
On-budget payments for those amounts would then be transferred 
from the PSRHBF to the FEHB and any payments that would be made 
into the new PSRHBF would be considered on-budget offsetting 
receipts. CBO estimates the increase in on-budget receipts as a 
result of changes in how the Postal Service finances its health 
care obligations would be $4.2 billion in 2007, $12.2 billion 
over the 2007-2009 period, and $33.6 billion over the 2007-
20014 period.

Off-Budget Effects (Direct Spending)

    CBO estimates that enacting S. 2468 would result in net 
off-budget costs of $2.9 billion in fiscal year 2006, $13.2 
billion over the 2005-2009 period, and $35.8 billion over the 
2005-2004 period because it would eliminate the requirement to 
fund the escrow account, allowing the Postal Service to 
increase other spending, reduce postal rates, or some 
combination of these actions. The bill also would make the 
costs of the PRC subject to appropriation, thus reducing direct 
spending by about $90 million over the next 10 years. In 
addition, S. 2468 would reduce USPS payments for workers' 
compensation, which would reduce direct spending by $50 million 
over the next 10 years. The bill contains many other provisions 
that could affect USPS cash flows in each year, but we estimate 
they would not have a significant net effect on the USPS over 
the long term.
    Elimination of Escrow Fund. P.L. 108-18 permanently reduced 
payments by the USPS to the CSRDF. As a result of that act, 
USPS payments to the CSRDF declined by $2.5 billion to $5 
billion annually, beginning in 2003. For fiscal years starting 
in 2006, P.L. 108-18 requires that savings resulting from 
reduced payments to the CSRDF be considered an operating 
expense of the Postal Service and held in escrow, remaining 
unavailable for obligation unless authorized by subsequent 
legislation.
    S. 2468 would amend P.L. 108-18 to eliminate the escrow 
fund requirement. As a result of this provision, the Postal 
Service could lower rates and thus reduce its revenues, or 
maintain rates and increase spending, or some combination of 
these actions. The net outlays of the Postal Service would 
increase because collections would not be deposited in escrow. 
CBO estimates that eliminating the escrow requirement would 
increase net spending by about $2.9 billion in 2006, $13.3 
billion over the 2006-2009 period, and $36 billion over the 
2006-2014 period. Much of the spending would go toward making 
new payments to the on-budget account for health care costs.
    Make Cost of PRC Subject to Appropriation. Under current 
law, the PRC is funded from the Postal Service Fund without 
annual Congressional appropriation. This office spent about $8 
million in 2003. S. 2468 would authorize the appropriation of 
such sums as may be necessary from the Postal Service Fund for 
the PRC. Thus, enacting this legislation would reduce direct 
spending--and therefore, increase spending subject to 
appropriation--by about $8 million annually beginning in fiscal 
year 2005.
    Workers' Compensation Costs. The bill would lower workers' 
compensation payments made by the USPS by reducing an injured 
postal worker's long-term disability payments when the 
individual reaches retirement age as defined by the Social 
Security Act. Based on information provided by the USPS, CBO 
estimates that these savings would total roughly $50 million 
over the 2005-2014 period. In addition, CBO estimates that 
there would be a negligible net savings to the Department of 
Labor's workers' compensation account, which is on-budget.
    Changes to USPS Rate-Setting Procedures. Under the bill the 
Postal Service would be directed to define the cost basis for 
the different products and services it supplies. These products 
and services would broadly be categorized as market-dominant 
products and competitive products. Different rate-setting 
procedures would apply to these different categories of 
products and services.
    Market-Dominant Products. Under S. 2468, market-dominant 
products would include: first-class mail, special services, 
periodicals, standard mail, media mail, library mail, bound 
printed matter, single-piece parcel post, and single-piece 
international mail.
    S. 2468 would require the PRC to establish, within one year 
of enactment, a new system for regulating postage rates for 
market-dominant products. This new system would include annual 
limitations on the percentage changes in rates based on 
inflation-related indices, such as the Consumer Price Index, 
the Employment Cost Index, or similar measures. Under the 
legislation, however, these annual limits could be exceeded 
under extraordinary circumstances.
    Later this year we expect the Postal Service to begin 
preparations for a rate case in 2006. Assuming the PRC would 
need the full year that the bill would provide to establish the 
new system for regulating rates for market dominant products, 
we assume that the new rate setting system would not be 
effective until after 2006.
    Since 1970, increases in postage rates have largely tracked 
the rate of inflation. Over the past 10 years, rates were 
increased in 1995, 1999, 2001, and 2002 as a result of rate 
cases. After 2006, we expect that the Postal Service would 
increase rates for market-dominant mail services more 
frequently than under current law, but by smaller increments 
(as defined by the annual limitation). Over the long term, CBO 
does not expect that enacting S. 2468 would significantly 
change the revenues from market-dominant products that the 
Postal Service would be expected to receive under current law.
    Competitive Products. Under S. 2468, competitive products 
would include the following: priority mail, express mail, 
mailgrams, bulk international mail, and bulk parcel post. 
Competitive products currently contribute less than 15 percent 
of total postal revenues.
    S. 2468 would direct the PRC to prohibit subsidizing 
competitive products by market-dominant products, ensure that 
each competitive product covers its attributable costs, and 
ensure that all competitive products collectively cover their 
share of the institutional costs of the Postal Service. After 
these requirements have been implemented, the USPS could change 
rates for competitive products as long as the cost coverage 
requirements are met and the PRC has reviewed the proposed 
changes. In addition, the Postal Service would have to provide 
public notice and justification of changes in rates.
    In addition, S. 2468 would require the Postal Service to 
establish a new off-budget fund, the Competitive Products Fund, 
solely for revenues and expenditures associated with 
competitive products. We expect that it could be difficult to 
differentiate postal expenses related only to competitive 
products, as USPS uses the same employees and facilities to 
handle both market dominant and competitive products.
    CBO cannot predict the bill's effect on Postal Service 
revenues from competitive products because the agency could set 
and change prices with few restrictions, although we would 
expect that yearly cash flows under the bill would differ from 
those estimated under current law. CBO also cannot predict how 
successfully the Postal Service might compete in the open 
market. However, the highly competitive nature of the mailing 
industry would tend to keep prices and revenues down, while the 
labor-intensive cost structure of the USPS would maintain 
upward pressure on expenses. Thus, over the long term under 
this legislation, CBO expects the Postal Service to attempt to 
recover its costs and break even as it did before the enactment 
of P.L. 108-18.
    Other Off-Budget Effects. S. 2468 would make many other 
changes to the laws governing the Postal Service, the PRC, and 
the delivery of mail and other postal products. Some of these 
provisions, such as the expansion of USPS contracting authority 
for the interstate air transportation of mail, would yield 
savings. Other provisions, including the requirement for 
numerous additional USPS reports, would increase costs. In 
total, CBO does not expect the net effects of these provisions 
to be significant.

Spending subject to appropriation

    S. 2468 would authorize the appropriation of such sums as 
may be necessary, out of the Postal Service Fund, for the PRC. 
(Currently, the Postal Rate Commission is funded out of the 
Postal Service Fund without Congressional action.) Beginning in 
2005, this provision would entail about $8 million a year in 
spending, subject to appropriation of the necessary amounts. 
Enacting the bill would reduce direct spending by about the 
same amount. Spending on this activity would likely still be 
considered off-budget, since funds would come from the Postal 
Service Fund.
    In addition, S. 2468 would require OPM to make actuarial 
computations related to the CSRS and PSRHBF trust funds and 
would increase OPM's administrative workload to comply with the 
requirements under the bill. CBO estimates that such activities 
would cost less than $500,000 annually, assuming the 
availability of appropriated funds.
    Intergovernmental and private-sector impact: S. 2468 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Previous CBO estimate: On June 23, 2004, CBO transmitted a 
revised cost estimate for H.R. 4341, the Postal Accountability 
and Enhancement Act, as ordered reported by the House Committee 
on Government Reform on May 12, 2004. CBO estimates that 
enacting that legislation would result in on-budget savings of 
$25.7 billion and off-budget costs of $34.5 billion over the 
2005-2014 period, for a net cost to the unified budget of $8.7 
billion over that period.
    A key difference between S. 2468 and H.R. 4341 concerns how 
the Postal Service would finance the health care costs of 
retirees. Both of the bills would require payments to prefund 
the costs associated with the annual retiree health liabilities 
accrued by current employees although the proposed payment 
schedules would differ. H.R. 4341 would require payments for 
prefunding and interest to be made at the end of each fiscal 
year, starting in fiscal year 2006. The first payment under S. 
2468, however, would be made in fiscal year 2007, and annual 
payments made in January of each year would reflect estimated 
costs for the prior fiscal year.
    Another important difference between these bills concerns 
how they address the unfunded liabilities for the health care 
costs of current and future retirees. H.R. 4341 would require 
the Postal Service to pay annual interest costs on the unfunded 
liability, while S. 2468 would require USPS to make 
amortization payments toward that liability. Also, H.R. 4341 
would require a minimum level of prefunding by the Postal 
Service, net of premium disbursement from the PSRHBF. S. 2468 
does not include a similar provision.
    H.R. 4341 also would authorize the appropriation of such 
sums as may be necessary for the USPS Office of Inspector 
General. Thus, CBO estimated that implementing H.R. 4341 would 
cost about $1.6 billion over the 2005-2014 period, assuming 
appropriation of the necessary amounts, and an equivalent 
amount of off-budget direct spending savings over that period.
    In addition, H.R. 4341 did not reduce USPS costs for 
workers' compensation, and the cost estimates reflect that 
difference.
    Estimate prepared by: Federal Costs: Mark Grabowicz for 
USPS, Geoffrey Gerhardt for retirement costs, and Julia 
Christensen for health care costs; Impact on State, Local, and 
Tribal Governments: Sarah Puro; and Impact on the Private 
Sector: Paige Piper/Bach.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                            ADDITIONAL VIEWS

    In total, we are pleased with the outcome of the 
legislation reported by the Committee. However, we are 
concerned about the specific issue of negotiated service 
agreements (NSA). This issue was raised during Committee 
consideration of the bill and a number of Senators expressed 
their concerns with the specific language addressing NSA's. 
Similar concerns were raised during hearings on the 
legislation. We are troubled by the inclusion of report 
language that appears to endorse the NSA language that was 
ultimately stricken from the bill. To that end, we do not 
believe that the report accurately reflect the views expressed 
during Committee consideration nor does it appropriately 
reflect the legislative history.
    We believe that the report should have pointed out that 
while the existing regulatory system allows for negotiated 
service agreements, if certain conditions are met, some mailers 
in the committee's hearings expressed concerns that this type 
of private sector pricing mechanism may not be appropriate for 
a governmental organization such as the Postal Service. During 
mark-up of the legislation, committee members expressed 
reservations about the appropriateness of negotiated service 
agreements, articulating concerns that service agreements for 
individual mailers could result in discriminatory rates that 
favor one mailer over other mailers, and thereby unfairly 
distort the downstream markets in which those mailers compete.
    This information, coupled with that which was included in 
the underlying report more accurately reflect the views of the 
Committee as a whole and more fairly represent the legislative 
history of the issue. We appreciate the hard work of the 
Chairman and Ranking Member of the Committee to complete this 
important legislation and believe that the reforms included 
herein are vital to the future of the United States Postal 
Service.

                                   Richard Shelby.
                                   John E. Sununu.
                                   George V. Voinovich.
                      VII. Changes in Existing Law

    In compliance with paragraph 12 of the Standing Rules of 
the Senate, changes in existing law made by S. 2468, 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:

                        TITLE 39, POSTAL SERVICE

                            PART I--GENERAL

               CHAPTER 1.--POSTAL POLICY AND DEFINITIONS


Sec. 101. Postal policy

    (a) The United States Postal Service shall be operated as a 
basic and fundamental service provided to the people by the 
Government of the United States, authorized by the 
Constitution, created by Act of Congress, and supported by the 
people. The Postal Service shall have as its basic function the 
obligation to provide postal services to bind the Nation 
together through the personal, educational, literary, and 
business correspondence of the people. It shall provide prompt, 
reliable, and efficient services to patrons in all areas and 
shall render postal services to all communities. The costs of 
establishing and maintaining the Postal Service shall not be 
apportioned to impair the overall value of such service to the 
people.
    (b) The Postal Service shall provide a maximum degree of 
effective and regular postal services to rural areas, 
communities, and small towns where post offices are not self-
sustaining. No small post office shall be closed solely for 
operating at a deficit, it being the specific intent of the 
Congress that effective postal services be insured to residents 
of both urban and rural communities.
    (c) As an employer, the Postal Service shall achieve and 
maintain compensation for its officers and employees comparable 
to the rates and types of compensation paid in the private 
sector of the economy of the United States. It shall place 
particular emphasis upon opportunities for career advancements 
of all officers and employees and the achievement of worthwhile 
and satisfying careers in the service of the United States.
    (d) As an independent establishment of the executive branch 
of the Government of the United States, the Postal Service 
shall be subject to a high degree of transparency to ensure 
fair treatment of customers of the Postal Service's market-
dominant products and companies competing with the Postal 
Service's competitive products.
    [(d)] (e) Postal rates shall be established to apportion 
the costs of all postal operations to all users of the mail on 
a fair and equitable basis.
    [(e)] (f) In determining all policies for postal services, 
the Postal Service shall give the highest consideration to the 
requirement for the most expeditious collection, 
transportation, and delivery of important letter mail.
    [(f)] (g) In selecting modes of transportation, the Postal 
Service shall give highest consideration to the prompt and 
economical delivery of all mail and shall make a fair and 
equitable distribution of mail business to carriers providing 
similar modes of transportation services to the Postal Service. 
Modern methods of transporting mail by containerization and 
programs designed to achieve overnight transportation to the 
destination of important letter mail to all parts of the Nation 
shall be a primary goal of postal operations.
    [(g)] (h) In planning and building new postal facilities, 
the Postal Service shall emphasize the need for facilities and 
equipment designed to create desirable working conditions for 
its officers and employees, a maximum degree of convenience for 
efficient postal services, proper access to existing and future 
air and surface transportation facilities, and control of costs 
to the Postal Service.

Sec. 102. Definitions

    As used in this title--
          (1) ``Postal Service'' means the United States Postal 
        Service established by section 201 of this title;
          (2) ``Board of Governors,'' and ``Board,'' unless the 
        context otherwise requires, mean the Board of Governors 
        established under section 202 of this title;
          (3) ``Governors'' means the 9 members of the Board of 
        Governors appointed by the President, by and with the 
        advice and consent of the Senate, under section 202(a) 
        of this title; [and]
          (4) ``Inspector General'' means the Inspector General 
        appointed under section 202(e) of this title[.];
          (5) ``postal service'' refers to the physical 
        delivery of letters, printed matter, or packages 
        weighing up to 70 pounds, including physical 
        acceptance, collection, sorting, transporation, or 
        other services ancillary thereto;
          (6) ``product'' means a postal service with a 
        distinct cost or market characteristic for which a rate 
        or rates are applied;
          (7) ``rates'', as used with respect to products, 
        includes fees for postal services;
          (8) ``market-dominant product'' or ``product in the 
        market-dominant category of mail'' means a product 
        subject to subchapter I of chapter 36; and
          (9) ``competitive product'' or ``product in the 
        competitive category of mail'' means a product subject 
        to subchapter II of chapter 36; and
          (10) ``year'', as used in chapter 36 (other than 
        subchapters I and VI thereof), means a fiscal year.

           *       *       *       *       *       *       *


                        CHAPTER 2.--ORGANIZATION


Sec. 202. Board of Governors

    [(a)] (a)(1) The exercise of the power of the Postal 
Service shall be directed by a Board of Governors composed of 
11 members appointed in accordance with this section. Nine of 
the members, to be known as Governors, shall be appointed by 
the President, by and with the advice and consent of the 
Senate, not more than 5 of whom may be adherents of the same 
political party. The Governors shall elect a Chairman from 
among the members of the Board. [The Governors shall be chosen 
to represent the public interest generally, and shall not be 
representatives of specific interests using the Postal Service, 
and may be removed only for cause.] The Governors shall 
represent the public interest generally, and shall be chosen 
solely on the basis of their demonstrated ability in managing 
organizations or corporations (in either the public or private 
sector) of substantial size. The Governors shall not be 
representatives of specific interests using the Postal Service, 
and may be removed only for cause. Each Governor shall receive 
a salary of $30,000 a year plus $300 a day for not more than 42 
days of meetings each year and shall be reimbursed for travel 
and reasonable expenses incurred in attending meetings of the 
Board. Nothing in the preceding sentence shall be construed to 
limit the number of days of meetings each year to 42 days.
    (2) In selecting the individuals described in paragraph (1) 
for nomination for appointment to the position of Governor, the 
President should consult with the Speaker of the House of 
Representatives, the minority leader of the House of 
Representatives, the majority leader of the Senate, and the 
minority leader of the Senate.
    (b)(1) The terms of the 9 Governors shall be [9 years] 5 
years, except that the terms of the 9 Governors first taking 
office shall expire as designated by the President at the time 
of appointment, 1 at the end of 1 year, 1 at the end of 2 
years, 1 at the end of 3 years, 1 at the end of 4 years, 1 at 
the end of 5 years, 1 at the end of 6 years, 1 at the end of 7 
years, 1 at the end of 8 years, and 1 at the end of 9 years, 
following the appointment of the first of them. Any Governor 
appointed to fill a vacancy before the expiration of the term 
for which his predecessor was appointed shall serve for the 
remainder of such term. A Governor may continue to serve after 
the expiration of his term until his successor has qualified, 
but not to exceed one year.
    (2) No person may serve more than 3 terms as a Governor.

           *       *       *       *       *       *       *


                      CHAPTER 4--GENERAL AUTHORITY


Sec. 401. General powers of the Postal Service

    [The] Subject to the provisions of section 404a, the Postal 
Service shall have the following general powers:
          (1) to sue and be sued in its official name;
          [(2) to adopt, amend, and repeal such rules and 
        regulations as it deems necessary to accomplish the 
        objectives of this title;]
          (2) to adopt, amend, and repeal such rules and 
        regulations, not inconsistent with this title, as may 
        be necessary in the execution of its functions under 
        this title and such other functions as may be assigned 
        to the Postal Service under any provisions of law 
        outside of this title;

           *       *       *       *       *       *       *


Sec. 404. Specific powers

    (a) [Without] Subject to the provisions of section 404a, 
but otherwise without limitation of the generality of its 
powers, the Postal Service shall have the following specific 
powers, among others:
          (1) to provide for the collection, handling, 
        transportation, delivery, forwarding, returning, and 
        holding of mail, and for the disposition of 
        undeliverable mail;
          (2) to prescribe, in accordance with this title, the 
        amount of postage and the manner in which it is to be 
        paid;
          (3) to determine the need for post offices, postal 
        and training facilities and equipment, and to provide 
        such offices, facilities, and equipment as it 
        determines are needed;
          (4) to provide and sell postage stamps and other 
        stamped paper, cards, and envelopes and to provide such 
        other evidences of payment of postage and fees as may 
        be necessary or desirable;
          (5) to provide philatelic services;
          [(6) to provide, establish, change, or abolish 
        special nonpostal or similar services;]
          [(7)] (6) to investigate postal offenses and civil 
        matters relating to the Postal Service;
          [(8)] (7) to offer and pay rewards for information 
        and services in connection with violations of the 
        postal laws, and, unless a different disposal is 
        expressly prescribed, to pay one-half of all penalties 
        and forfeitures imposed for violations of law affecting 
        the Postal Service, its revenues, or property, to the 
        person informing for the same, and to pay the other 
        one-half into the Postal Service Fund; and
          [(9)] (8) to authorize the issuance of a substitute 
        check for a lost, stolen, or destroyed check of the 
        Postal Service.

           *       *       *       *       *       *       *

    (c) Except as provided in section 411, nothing in this 
title shall be considered to permit or require that the Postal 
Service provide any special nonpostal or similar services.
    (d) The Postal Service may employ guards for all buildings 
and areas owned or occupied by the Postal Service or under the 
charge and control of the Postal Service, and may give such 
guards, with respect to such property, any of the powers of 
special policemen provided under section 1315 of title 40. The 
Postmaster General, or the designee of the Postmaster General, 
may take any action that the Secretary of Homeland Security may 
take under section 1315 of title 40, with respect to that 
property.

Sec. 404a. Specific limitations

    (a) Except as specifically authorized by law, the Postal 
Service may not--
          (1) establish any rule or regulation (including any 
        standard) the effect of which is to preclude 
        competition or establish the terms of competition 
        unless the Postal Service demonstrates that the 
        regulation does not create an unfair competitive 
        advantage for itself or any entity funded (in whole or 
        in part) by the Postal Service;
          (2) compel the disclosure, transfer, or licensing of 
        intellectual property to any third party (such as 
        patents, copyrights, trademarks, trade secrets, and 
        proprietary information); or
          (3) obtain information from a person that provides 
        (or seeks to provide) any product, and then offer any 
        postal service that uses or is based in whole or in 
        part on such information, without the consent of the 
        person providing that information, unless substantially 
        the same information is obtained (or obtainable) from 
        an independent source or is otherwise obtained (or 
        obtainable).
    (b) The Postal Regulatory Commission shall prescribe 
regulations to carry out this section.
    (c) Any party (including an officer of the Commission 
representing the interests of the general public) who believes 
that the Postal Service has violated this section may bring a 
complaint in accordance with section 3662.

           *       *       *       *       *       *       *


Sec. 407. International postal arrangements

    [(a)(1) The Secretary of State shall have primary 
responsibility for formulation, coordination and oversight of 
policy with respect to United States participation in the 
Universal Postal Union, including the Universal Postal 
Convention and other Acts of the Universal Postal Union, 
amendments thereto, and all postal treaties and conventions 
concluded within the framework of the Convention and such Acts.
    [(2) Subject to subsection (d), the Secretary may, with the 
consent of the President, negotiate and conclude treaties, 
conventions and amendments referred to in paragraph (1).
    [(b)(1) Subject to subsections (a), (c), and (d), the 
Postal Service may, with the consent of the President, 
negotiate and conclude postal treaties and conventions.
    [(2) The Postal Service may, with the consent of the 
President, establish rates of postage or other charges on mail 
matter conveyed between the United States and other countries.
    [(3) The Postal Service shall transmit a copy of each 
postal treaty or convention concluded with other governments 
under the authority of this subsection to the Secretary of 
State, who shall furnish a copy to the Public Printer for 
publication.
    [(c) The Postal Service shall not conclude any treaty or 
convention under the authority of this section or any other 
arrangement related to the delivery of international postal 
services that is inconsistent with any policy developed 
pursuant to subsection (a).
    [(d) In carrying out their responsibilities under this 
section, the Secretary and the Postal Service shall consult 
with such federal agencies as the Secretary or the Postal 
Service considers appropriate, private providers of 
international postal services, users of international postal 
services, the general public, and such other persons as the 
Secretary or the Postal Service considers appropriate.]
    (a) It is the policy of the United States--
          (1) to promote and encourage communications between 
        peoples by efficient operation of international postal 
        services and other international delivery services for 
        cultural, social, and economic purposes;
          (2) to promote and encourage unrestricted and 
        undistorted competition in the provision of 
        international postal services and other international 
        delivery services, except where provision of such 
        services by private companies may be prohibited by law 
        of the United States;
          (3) to promote and encourage a clear distinction 
        between governmental and operational responsibilities 
        with respect to the provision of international postal 
        services; and
          (4) to participate in multilateral and bilateral 
        agreements with other countries to accomplish these 
        objectives.
    (b)(1) The Secretary of State shall be responsible for 
formulation, coordination, and oversight of foreign policy 
related to international postal services and shall have the 
power to conclude postal treaties and conventions, except that 
the Secretary may not conclude any postal treaty or convention 
if such treaty or convention would, with respect to any 
competitive product, grant an undue or unreasonable preference 
to the Postal Service, a private provider of international 
postal services, or any other person.
    (2) In carrying out the responsibilities specified in 
paragraph (1), the Secretary of State shall exercise primary 
authority for the conduct of foreign policy with respect to 
international postal services, including the determination of 
United States positions and the conduct of United States 
participation in negotiations with foreign governments and 
international bodies. In exercising this authority, the 
Secretary--
          (A) shall coordinate with other agencies as 
        appropriate, and in particular, should consider the 
        authority vested by law or Executive order in the 
        Postal Regulatory Commission, the Department of 
        Commerce, the Department of Transportation, and the 
        Office of the United States Trade Representative in 
        this area;
          (B) shall maintain continuing liaison with other 
        executive branch agencies concerned with postal and 
        delivery services;
          (C) shall maintain continuing liaison with the 
        Committee on Governmental Affairs of the Senate and the 
        Committee on Government Reform of the House of 
        Representatives;
          (D) shall maintain appropriate liaison with both 
        representatives of the Postal Service and 
        representatives of users and private providers of 
        international postal services and other international 
        delivery services to keep informed of their interests 
        and problems, and to provide such assistance as may be 
        needed to ensure that matters of concern are promptly 
        considered by the Department of State or (if 
        applicable, and to the extent practicable) other 
        executive branch agencies; and
          (E) shall assist in arranging meetings of such public 
        sector advisory groups as may be established to advise 
        the Department of State and other executive branch 
        agencies in connection with international postal 
        services and international delivery services.
    (3) The Secretary of State shall establish an advisory 
committee (within the meaning of the Federal Advisory Committee 
Act) to perform such functions as the Secretary considers 
appropriate in connection with carrying out subparagraphs (A) 
through (D) of paragraph (2).
    (c) Before concluding any postal treaty or convention that 
establishes a rate or classification for a product subject to 
subchapter I of chapter 36, the Secretary of State shall 
request the Postal Regulatory Commission to submit its views on 
whether such rate or classification is consistent with the 
standards and criteria established by the Commission under 
section 3622.
    (d) Nothing in this section shall be considered to prevent 
the Postal Service from entering into such commercial or 
operational contracts related to providing international postal 
services as it deems appropriate, except that--
          (1) any such contract made with an agency of a 
        foreign government (whether under authority of this 
        subsection or otherwise) shall be solely contractual in 
        nature and may not purport to be binding under 
        international law; and
          (2) a copy of each such contract between the Postal 
        Service and an agency of a foreign government shall be 
        transmitted to the Secretary of State and the Postal 
        Regulatory Commission not later than the effective date 
        of such contract.
    (e)(1) With respect to shipments of international mail that 
are competitive products within the meaning of section 3631 
that are exported or imported by the Postal Service, the 
Customs Service and other appropriate Federal agencies shall 
apply the customs laws of the United States and all other laws 
relating to the importation or exportation of such shipments in 
the same manner to both shipments by the Postal Service and 
similar shipments by private companies.
    (2) In exercising the authority under subsection (b) to 
conclude new postal treaties and conventions related to 
international postal services and to renegotiate such treaties 
and conventions, the Secretary of State shall, to the maximum 
extent practicable, take such measures as are within the 
Secretary's control to encourage the governments of other 
countries to make available to the Postal Service and private 
companies a range of nondiscriminatory customs procedures that 
will fully meet the needs of all types of American shippers. 
The Secretary of State shall consult with the United States 
Trade Representative and the Commissioner of Customs in 
carrying out this paragraph.
    (3) The provisions of this subsection shall take effect 6 
months after the date of the enactment of this subsection or 
such earlier date as the Customs Service may determine in 
writing.

           *       *       *       *       *       *       *


Sec. 409. Suits by and against the Postal Service

    (a) [Except as provided in section 3628 of this title] 
Except as otherwise provided in this title, the United States 
district courts shall have original but not exclusive 
jurisdiction over all actions brought by or against the Postal 
Service. Any action brought in a State court to which the 
Postal Service is a party may be removed to the appropriate 
United States district court under the provisions of chapter 89 
of title 28 [1. 28 USCS Sec. Sec. 1441 et seq.].
    (b) Unless otherwise provided in this title, the provisions 
of title 28 relating to service of process, venue, and 
limitations of time for bringing action in suits in which the 
United States, its officers, or employees are parties, and the 
rules of procedure adopted under title 28 for suits in which 
the United States, its officers, or employees are parties, 
shall apply in like manner to suits in which the Postal 
Service, its officers, or employees are parties.
    (c) The provisions of chapter 171 [28 USCS Sec. Sec. 2671 
et seq.] and all other provisions of title 28 relating to tort 
claims shall apply to tort claims arising out of activities of 
the Postal Service.
    [(d) The Department of Justice shall furnish, under section 
411 of this title, the Postal Service such legal representation 
as it may require, but with the prior consent of the Attorney 
General the Postal Service may employ attorneys by contract or 
otherwise to conduct litigation brought by or against the 
Postal Service or its officers or employees in matters 
affecting the Postal Service.]
    [(e) A judgment against the Government of the United States 
arising out of activities of the Postal Service shall be paid 
by the Postal Service out of any funds available to the Postal 
Service.]
    (d)(1) For purposes of the provisions of law cited in 
paragraphs (2)(A) and (2)(B), respectively, the Postal 
Service--
          (A) shall be considered to be a ``person'', as used 
        in the provisions of law involved; and
          (B) shall not be immune under any other doctrine of 
        sovereign immunity from suit in Federal court by any 
        person for any violation of any of those provisions of 
        law by any officer or employee of the Postal Service.
    (2) This subsection applies with respect to--
          (A) the Act of July 5, 1946 (commonly referred to as 
        the ``Trademark Act of 1946'' (15 U.S.C. 1051 and 
        following)); and
          (B) the provisions of section 5 of the Federal Trade 
        Commission Act to the extent that such section 5 
        applies to unfair or deceptive acts or practices.
    (e)(1) To the extent that the Postal Service, or other 
Federal agency acting on behalf of or in concert with the 
Postal Service, engages in conduct with respect to any product 
which is not reserved to the United States under section 1696 
of title 18, the Postal Service or other Federal agency (as the 
case may be)--
          (A) shall not be immune under any doctrine of 
        sovereign immunity from suit in Federal court by any 
        person for any violation of Federal law by such agency 
        or any officer or employee thereof; and
          (B) shall be considered to be a person (as defined in 
        subsection (a) of the first section of the Clayton Act) 
        for purposes of--
                  (i) the antitrust laws (as defined in such 
                subsection); and
                  (ii) section 5 of the Federal Trade 
                Commission Act to the extent that such section 
                5 applies to unfair methods of competition.
        For purposes of the preceding sentence, any private 
        carriage of mail allowable by virtue of section 601 
        shall not be considered a service reserved to the 
        United States under section 1696 of title 18.
    (2) No damages, interest on damages, costs or attorney's 
fees may be recovered, and no criminal liability may be 
imposed, under the antitrust laws (as so defined) from any 
officer or employee of the Postal Service, or other Federal 
agency acting on behalf of or in concert with the Postal 
Service, acting in an official capacity.
    (3) This subsection shall not apply with respect to conduct 
occurring before the date of the enactment of this subsection.
    (f) To the extent that the Postal Service engages in 
conduct with respect to the provision of competitive products, 
it shall be considered a person for the purposes of the Federal 
bankruptcy laws.
    (g)(1) Each building constructed or altered by the Postal 
Service shall be constructed or altered, to the maximum extent 
feasible as determined by the Postal Service, in compliance 
with 1 of the nationally recognized model building codes and 
with other applicable nationally recognized codes.
    (2) Each building constructed or altered by the postal 
Service shall be constructed or altered only after 
consideration of all requirements (other than procedural 
requirements ) of zoning laws, land use laws, and applicable 
environmental laws of a State or subdivision of a State which 
would apply to the building if it were not a building 
constructed or altered by an establishment of the Government of 
the United States.
    (3) For purposes of meeting the requirements of paragraphs 
(1) and (2) with respect to a building, the Postal Service 
shall--
          (A) in preparing plans for the building, consult with 
        appropriate officials of the State or political 
        subdivision, or both, in which the building will be 
        located;
          (B) upon request, submit such plans in a timely 
        manner to such officials for review by such officials 
        for a reasonable period of time not exceeding 30 days; 
        and
          (C) permit inspection by such officials during 
        construction or alteration of the building, in 
        accordance with the customary schedule of inspections 
        for construction or alteration of buildings in the 
        locality, if such officials provide to the Postal 
        Service--
                  (i) a copy of such schedule before 
                construction of the building begins; and
                  (ii) reasonable notice of their intention to 
                conduct any inspection before conducting such 
                inspection.
        Nothing in this subsection shall impose an obligation 
        on any State or political subdivision to take any 
        action under the preceding sentence, nor shall anything 
        in this subsection require the Postal Service or any of 
        its contractors to pay for any action taken by a State 
        or political subdivision to carry out this subsection 
        (including reviewing plans, carrying out on-site 
        inspections, issuing building permits, and making 
        recommendations).
    (4) Appropriate officials of a State or a political 
subdivision of a State may make recommendations to the Postal 
Service concerning measures necessary to meet the requirements 
of paragraphs (1) and (2). Such officials may also make 
recommendations to the Postal Service concerning measures which 
should be taken in the construction or alteration of the 
building to take into account local conditions. The Postal 
Service shall give due consideration to any such 
recommendations.
    (5) In addition to consulting with local and State 
officials under paragraph (3), the Postal Service shall 
establish procedures for soliciting, assessing, and 
incorporating local community input on real property and land 
use decisions.
    (6) For purposes of this subsection, the term ``State'' 
includes the District of Columbia, the Commonwealth of Puerto 
Rico, and a territory or possession of the United States.
    (h)(1) Notwithstanding any other provision of law, legal 
representation may not be furnished by the Department of 
Justice to the Postal Service in any action, suit, or 
proceeding arising, in whole or in part, under any of the 
following:
          (A) Subsection (d) or (e) of this section.
          (B) Subsection (f) or (g) of section 504 (relating to 
        administrative subpoenas by the Postal Regulatory 
        Commission).
          (C) Section 3663 (relating to appellate review). The 
        Postal Service may, by contract or otherwise, employ 
        attorneys to obtain any legal representation that it is 
        precluded from obtaining from the Department of Justice 
        under this paragraph.
    (2) In any circumstance not covered by paragraph (1), the 
Department of Justice shall, under section 411, furnish the 
Postal Service such legal representation as it may require, 
except that, with the prior consent of the Attorney General, 
the Postal Service may, in any such circumstance, employ 
attorneys by contract or otherwise to conduct litigation 
brought by or against the Postal Service or its officers or 
employees in matters affecting the Postal Service.
    (3)(A) In any action, suit, or proceeding in a court of the 
United States arising in whole or in part under any of the 
provisions of law referred to in subparagraph (B) or (C) of 
paragraph (1), and to which the Commission is not otherwise a 
party, the Commission shall be permitted to appear as a party 
on its own and as of right.
    (B) The Department of Justice shall, under such terms and 
conditions as the Commission and the Attorney General shall 
consider appropriate, furnish the Commission such legal 
representation as it may require in connection with any such 
action, suit, or proceeding, except that, with the prior 
consent of the Attorney General, the Commission may employ 
attorneys by contract or otherwise for that purpose.
          (i) A judgment against the Government of the United 
        States arising out of activities of the Postal Service 
        shall be paid by the Postal Service out of any funds 
        available to the Postal Service, subject to the 
        restriction specified in section 2011(g).

           *       *       *       *       *       *       *


                CHAPTER 5--POSTAL REGULATORY COMMISSION

Sec. 501. Establishment

    The Postal Regulatory Commission is an independent 
establishment of the executive branch of the Government of the 
United States.

Sec. 502. Commissioners

    (a) The Postal Regulatory Commission is composed of 5 
Commissioners, appointed by the President, by and with the 
advice and consent of the Senate. The Commissioners shall be 
chosen solely on the basis of their technical qualifications, 
professional standing, and demonstrated expertise in economics, 
accounting, law, or public administration, and may be removed 
by the President only for cause. Each individual appointed to 
the Commission shall have the qualifications and expertise 
necessary to carry out the enhanced responsibilities accorded 
Commissioners under the Postal Accountability and Enhancement 
Act. Not more than 3 of the Commissioners may be adherents of 
the same political party.
    (b) No Commissioners shall be financially interested in any 
enterprise in the private sector of the economy engaged in the 
delivery of mail matter.
    (c) A Commissioner may continue to serve after the 
expiration of his term until his successor has qualified, 
except that a Commissioner may not so continue to serve for 
more than 1 year after the date upon which his term otherwise 
would expire under subsection (f).
    (d) One of the Commissioners shall be designated as 
Chairman by, and shall serve in the position of Chairman at the 
pleasure of, the President.
    (e) The Commissioners shall by majority vote designate a 
Vice Chairman of the Commission. The Vice Chairman shall act as 
Chairman of the Commission in the absence of the Chairman.
    (f) The Commissioners shall serve for terms of 6 years.

Sec. 503. Rules; regulations; procedures

    The Postal Regulatory Commission shall promulgate rules and 
regulations and establish procedures, subject to chapters 5 and 
7 of title 5 [5 USCS Sec. Sec. 501 et seq. and 701 et seq.], 
and take any other action they deem necessary and proper to 
carry out their functions and obligations to the Government of 
the United States and the people as prescribed under this 
chapter [9 USCS Sec. Sec. 3601 et seq.]. Such rules, 
regulations, procedures, and actions shall not be subject to 
any change or supervision by the Postal Service.

Sec. 504. Administration

    (a) The Chairman of the Postal Regulatory Commission shall 
be the principal executive officer of the Commission. The 
Chairman shall exercise or direct the exercise of all the 
executive and administrative functions of the Commission, 
including functions of the Commission with respect to (1) the 
appointment of personnel employed under the Commission, except 
that the appointment of heads of major administrative units 
under the Commission shall require the approval of a majority 
of the members of the Commission, (2) the supervision of the 
personnel employed under the Commission and the distribution of 
business among them and among the Commissioners, and (3) the 
use and expenditure of funds.
    (b) In carrying out any of his functions under this 
section, the Chairman shall be governed by the general policies 
of the Commission.
    (c) The Chairman may obtain such facilities and supplies as 
may be necessary to permit the Commission to carry out its 
functions. Any officer or employee appointed under this section 
shall be paid at rates of compensation and shall be entitled to 
programs offering employee benefits established under chapter 
10 or chapter 12 of this title [39 USCS Sec. Sec. 1001 et seq. 
or 1201 et seq.], as appropriate.
    (d) There are authorized to be appropriated, out of the 
Postal Service Fund, such sums as may be necessary for the 
Postal Regulatory Commission. In requesting an appropriation 
under this subsection for a fiscal year, the Commission shall 
prepare and submit to Congress under section 2009 a budget of 
the Commission's expenses, including expenses for facilities, 
supplies, compensation, and employee benefits.
    (e) The provisions of section 410 and chapter 10 of this 
title [39 USCS Sec. Sec. 410 and 1001 et seq.] shall apply to 
the Commission, as appropriate.
    (f)(1) Any Commissioner of the Postal Regulatory 
Commission, any administrative law judge appointed by the 
Commission under section 3105 of title 5, and any employee of 
the Commission designated by the Commission may administer 
oaths, examine witnesses, take depositions, and receive 
evidence.
    (2) The Chairman of the Commission, any Commissioner 
designated by the Chairman, and any administrative law judge 
appointed by the Commission under section 3105 of title 5 may, 
with respect to any proceeding conducted by the Commission 
under this title or to obtain information to be used to prepare 
a report under this title--
          (A) issue subpoenas requiring the attendance and 
        presentation of testimony by, or the production of 
        documentary or other evidence in the possession of, any 
        covered person; and
          (B) order the taking of depositions and responses to 
        written interrogatories by a covered person. The 
        written concurrence of a majority of the Commissioners 
        then holding office shall, with respect to each 
        subpoena under subparagraph (A), be required in advance 
        of its issuance.
    (3) In the case of contumacy or failure to obey a subpoena 
issued under this subsection, upon application by the 
Commission, the district court of the United States for the 
district in which the person to whom the subpoena is addressed 
resides or is served may issue an order requiring such person 
to appear at any designated place to testify or produce 
documentary or other evidence. Any failure to obey the order of 
the court may be punished by the court as a contempt thereof.
    (4) For purposes of this subsection, the term ``covered 
person'' means an officer, employee, agent, or contractor of 
the Postal Service.
    (g)(1) If the Postal Service determines that any document 
or other matter it provides to the Postal Regulatory Commission 
under a subpoena issued under subsection (f), or otherwise at 
the request of the Commission in connection with any proceeding 
or other purpose under this title, contains information which 
is described in section 410(c) of this title, or exempt from 
public disclosure under section 552(b) of title 5, the Postal 
Service shall, at the time of providing such matter to the 
Commission, notify the Commission, in writing, of its 
determination (and the reasons therefor).
    (2) Except as provided in paragraph (3), no officer or 
employee of the Commission may, with respect to any information 
as to which the Commission has been notified under paragraph 
(1)--
          (A) use such information for purposes other than the 
        purposes for which it is supplied; or
          (B) permit anyone who is not an officer or employee 
        of the Commission to have access to any such 
        information.
    (3)(A) Paragraph (2) shall not prohibit the Commission from 
publicly disclosing relevant information in furtherance of its 
duties under this title, provided that the Commission has 
adopted regulations under section 553 of title 5, that 
establish a procedure for according appropriate confidentiality 
to information identified by the Postal Service under paragraph 
(1). In determining the appropriate degree of confidentiality 
to be accorded information identified by the Postal Service 
under paragraph (1), the Commission shall balance the nature 
and extent of the likely commercial injury to the Postal 
Service against the public interest in maintaining the 
financial transparency of a government establishment competing 
in commercial markets.
    (B) Paragraph (2) shall not prevent the Commission from 
requiring production of information in the course of any 
discovery procedure established in connection with a proceeding 
under this title. The Commission shall, by regulations based on 
rule 26(c) of the Federal Rules of Civil Procedure, establish 
procedures for ensuring appropriate confidentiality for 
information furnished to any party.

Sec. 505. Officer of the Postal Regulatory Commission representing the 
                    general public

    The Postal Regulatory Commission shall designate an officer 
of the Postal Regulatory Commission in all public proceedings 
who shall represent the interests of the general public.

           *       *       *       *       *       *       *


                 CHAPTER 6--PRIVATE CARRIAGE OF LETTERS


Sec. 601. Letters carried out of the mail

    (a) A letter may be carried out of the mails when--
          (1) it is enclosed in an envelope;
          (2) the amount of postage which would have been 
        charged on the letter if it had been sent by mail is 
        paid by stamps, or postage meter stamps, on the 
        envelope;
          (3) the envelope is properly addressed;
          (4) the envelope is so sealed that the letter cannot 
        be taken from it without defacing the envelope;
          (5) any stamps on the envelope are canceled in ink by 
        the sender; and
          (6) the date of the letter, of its transmission or 
        receipt by the carrier is endorsed on the envelope in 
        ink.
          [(b) The Postal Service may suspend the operation of 
        any part of this section upon any mail route where the 
        public interest requires the suspension.]
    (b) A letter may also be carried out of the mails when--
          (1) the amount paid for the private carriage of the 
        letter is at least the amount equal to 6 times the rate 
        then currently charged for the 1st ounce of a single-
        piece first class letter;
          (2) the letter weighs at least 12\1/2\ ounces; or
          (3) such carriage is within the scope of services 
        described by regulations of the United States Postal 
        Service (as in effect on July 1, 2001) that permit 
        private carriage by suspension of the operation of this 
        section (as then in effect).
    (c) Any regulations necessary to carry out this section 
shall be promulgated by the Postal Regulatory Commission.

           *       *       *       *       *       *       *


                           PART II--PERSONNEL

               CHAPTER 12--EMPLOYEE-MANAGEMENT AGREEMENTS


Sec. 1207. Labor disputes

    (a) If there is a collective-bargaining agreement in 
effect, no party to such agreement shall terminate or modify 
such agreement unless the party desiring such termination or 
modification serves written notice upon the other party to the 
agreement of the proposed termination or modification not less 
than 90 days prior to the expiration date thereof, or not less 
than 90 days prior to the time it is proposed to make such 
termination or modification. The party serving such notice 
shall notify the Federal Mediation and Conciliation Service of 
the existence of a dispute within 45 days of such notice, if no 
agreement has been reached by that time.
    (b) If the parties fail to reach agreement or to adopt a 
procedure providing for a binding resolution of a dispute by 
the expiration date of the agreement in effect, or the date of 
the proposed termination or modification, the Director of the 
Federal Mediation and Conciliation Service shall [direct the 
establishment of a factfinding panel consisting of 3 persons. 
For this purpose, he shall submit to the parties a list of not 
less than 15 names, from which list each party, within 10 days, 
shall select 1 person. The 2 so selected shall then choose from 
the list a third person who shall serve as chairman of the 
factfinding panel. If either of the parties fails to select a 
person or if the 2 members are unable to agree on the third 
person within 3 days, the selection shall be made by the 
Director. The factfinding panel shall issue after due 
investigation a report of its findings, with or without 
recommendations, to the parties no later than 45 days from the 
date the list of names is submitted.] within 10 days appoint a 
mediator of nationwide reputation and professional stature, and 
who is also a member of the National Academy of Arbitrators. 
The parties shall cooperate with the mediator in an effort to 
reach an agreement and shall meet and negotiate in good faith 
at such times and places that the mediator, in consultation 
with the parties, shall direct.
    (c)(1) If no agreement is reached within [90] 60 days after 
the expiration or termination of the agreement or the date on 
which the agreement became subject to modification under 
subsection (a) of this section, or if the parties decide upon 
arbitration but do not agree upon the procedures therefor, an 
arbitration board shall be established consisting of 3 members, 
[not members of the factfinding panel,] 1 of whom shall be 
selected by the Postal Service, 1 by the bargaining 
representative of the employees, and the third by the 2 thus 
selected. If either of the parties fails to select a member, or 
if the members chosen by the parties fail to agree on the third 
person within 5 days after their first meeting, the selection 
shall be made from a list of names provided by the Director. 
This list shall consist of not less then 9 names of arbitrators 
of nationwide reputation and professional nature, who are also 
members of the National Academy of Arbitrators, and whom the 
Director has determined are available and willing to serve. [If 
the parties do not agree on the framing of the issues to be 
submitted, the factfinding panel shall frame the issues and 
submit them to the arbitration board.]
    (2) The arbitration board shall give the parties a full and 
fair hearing, including an opportunity to present evidence in 
support of their claims, and an opportunity to present their 
case in person, by counsel or by other representative as they 
may elect. Decisions of the arbitration board shall be 
conclusive and binding upon the parties. The arbitration board 
shall render its decision within 45 days after its appointment.
    (3) Costs of the arbitration board and [factfinding panel] 
mediation shall be shared equally by the Postal Service and the 
bargaining representative.
    (d) In the case of a bargaining unit whose recognized 
collective-bargaining representative does not have an agreement 
with the Postal Service, if the parties fail to reach agreement 
within 90 days of the commencement of collective bargaining, a 
[factfinding panel will be established] mediator shall be 
appointed in accordance with the terms of subsection (b) of 
this section, unless the parties have previously agreed to 
another procedure for a binding resolution of their 
differences. If the parties fail to reach agreement within 180 
days of the commencement of collective bargaining, and if they 
have not agreed to another procedure for binding resolution, an 
arbitration board shall be established to provide conclusive 
and binding arbitration in accordance with the terms of 
subsection (c) of this section.

           *       *       *       *       *       *       *


           PART III--MODERNIZATION AND FISCAL ADMINISTRATION

                          CHAPTER 20--FINANCE


Sec. 2001. Definitions

    As used in this chapter [39 USCS Sec. Sec. 2001 et seq.]--
          (1) ``Fund'' means the Postal Service Fund 
        established by section 2003 of this chapter; [and]
          (2) ``Competitive Products Fund'' means the Postal 
        Service Competitive Products Fund established by 
        section 2011; and
          [(2)] (3) ``Obligations,'' when referring to debt 
        instruments issued by the Postal Service, means notes, 
        bonds, debentures, mortgages, and any other evidence of 
        indebtedness.

Sec. 2002. Capital of the Postal Service

    (a) The initial capital of the Postal Service shall consist 
of the equity, as reflected in the budget of the President, of 
the Government of the United States in the former Post Office 
Department. The value of assets and the amount of liabilities 
transferred to the Postal Service upon the commencement of 
operations of the Postal Service shall be determined by the 
Postal Service subject to the approval of the Comptroller 
General, in accordance with the following guidelines:

           *       *       *       *       *       *       *

    (b) The capital of the Postal Service at any time shall 
consist of its assets, including the balance in the [Fund] Fund 
and the balance in the Competitive Products Fund, less its 
liabilities.

           *       *       *       *       *       *       *


Sec. 2003. The Postal Service Fund

    (a) There is established in the Treasury of the United 
States a revolving fund to be called the Postal Service Fund 
which shall be available to the Postal Service without fiscal-
year limitation to carry out the purposes, functions, and 
powers authorized by this [title] title (other than any of the 
purposes, functions, or powers for which the Competitive 
Products Fund is available).
    (b) [There] Except as otherwise provided in section 2011, 
there shall be deposited in the Fund, subject to withdrawal by 
check by the Postal Service--
          (1) revenues from postal [and nonpostal] services 
        rendered by the Postal Service;
          (2) amounts received from obligations issued by the 
        Postal Service;
          (3) amounts appropriated for the use of the Postal 
        Service;
          (4) interest which may be earned on investments of 
        the Fund;
          (5) any other receipts of the Postal Service;
          (6) the balance in the Post Office Department Fund 
        established under former section 2202 of title 39 as of 
        the commencement of operations of the Postal Service;
          (7) amounts (including proceeds from the sale of 
        forfeited items) from any civil forfeiture conducted by 
        the Postal Service; and
          (8) any transfers from the Secretary of the Treasury 
        from the Department of the Treasury Forfeiture Fund 
        which shall be available to the Postmaster General only 
        for Federal law enforcement related purposes.

           *       *       *       *       *       *       *

    (e)(1) [The Fund shall be available for the payment of all 
expenses incurred by the Postal Service in carrying out its 
functions as provided by law and, subject to the provisions of 
section 3604 of this title, all of the expenses of the Postal 
Rate Commission.] The Fund shall be available for the payment 
of (A) all expenses incurred by the Postal Service in carrying 
out its functions as provided by law, subject to the same 
limitation as set forth in the parenthetical matter under 
subsection (a); (B) all expenses of the Postal Regulatory 
Commission, subject to the availability of amounts appropriated 
under section 504(d); and (C) all expenses of the Office of the 
Inspector General, subject to the availability of amounts 
appropriated under section 8G(f) of the Inspector General Act 
of 1978. The Postmaster General shall transfer from the Fund to 
the Secretary of the Treasury for deposit in the Department of 
the Treasury Forfeiture Fund amounts appropriate to reflect the 
degree of participation of Department of the Treasury law 
enforcement organizations (described in section 9703(p) of 
title 31) in the law enforcement effort resulting in the 
forfeiture pursuant to laws enforced or administered by the 
Postal Service. Neither the Fund nor any of the funds credited 
to it shall be subject to apportionment under the provisions of 
subchapter II of chapter 15 of title 31 [31 USCS Sec. Sec. 1511 
et seq.].
    (2) Funds appropriated to the Postal Service under section 
2401 of this title shall be apportioned as provided in this 
paragraph. From the total amounts appropriated to the Postal 
Service for any fiscal year under the authorizations contained 
in section 2401 of this title, the Secretary of the Treasury 
shall make available to the Postal Service 25 percent of such 
amount at the beginning of each quarter of such fiscal year.

           *       *       *       *       *       *       *


Sec. 2005. Obligations

    (a)(1) The Postal Service is authorized to borrow money and 
to issue and sell such obligations as it determines necessary 
to carry out the purposes of this [title] title, other than any 
of the purposes for which the corresponding authority is 
available to the Postal Service under section 2011. The 
aggregate amount of any such obligations outstanding at any one 
time shall not exceed the maximum amount then allowable under 
paragraph (2) of this subsection. [In any one fiscal year the 
net increase in the amount of obligations outstanding issued 
for the purpose of capital improvements shall not exceed 
$2,000,000,000, and the net increase in the amount of 
obligations outstanding issued for the purpose of defraying 
operating expenses of the Postal Service shall not exceed 
$1,000,000,000.]
    (2) The maximum amount allowable under this paragraph is--
          (A) $10,000,000,000 for fiscal year 1990;
          (B) $12,500,000,000 for fiscal year 1991; and
          (C) $15,000,000,000 for fiscal year 1992 and each 
        fiscal year thereafter.
    [(b)](b)(1) The Postal Service may pledge the assets of the 
Postal Service and pledge and use its revenues and receipts for 
the payment of the principal of or interest on [such 
obligations] obligations issued by the Postal Service under 
this section, for the purchase or redemption thereof, and for 
other purposes incidental thereto, including creation of 
reserve, sinking, and other funds which may be similarly 
pledged and used, to such extent and in such manner as it deems 
necessary or desirable. The Postal Service is authorized to 
enter into binding covenants with the holders of such 
obligations, and with the trustee, if any, under any agreement 
entered into in connection with the issuance thereof with 
respect to the establishment of reserve, sinking, and other 
funds, application and use of revenues and receipts of the 
Postal Service, stipulations concerning the subsequent issuance 
of obligations or the execution of leases or lease purchases 
relating to properties of the Postal Service and such other 
matters as the Postal Service deems necessary or desirable to 
enhance the marketability of such obligations.
    (2) Notwithstanding any other provision of this section--
          (A) the authority to pledge assets of the Postal 
        Service under this subsection shall be available only 
        to the extent that such assets are not related to the 
        provision of competitive products (as determined under 
        section 2011(h) or, for purposes of any period before 
        accounting practices and principles under section 
        2011(h) have been established and applied, the best 
        information available from the Postal Service, 
        including the audited statements required by section 
        2008(e)); and
          (B) any authority under this subsection relating to 
        the pledging or other use of revenues or receipts of 
        the Postal Service shall be available only to the 
        extent that they are not revenues or receipts of the 
        Competitive Products Fund.

           *       *       *       *       *       *       *


Sec. 2006. Relationship between the Treasury and Postal Service

           *       *       *       *       *       *       *


    (b) Subject to the conditions of subsection (a) of this 
section, the Postal Service may require the Secretary of the 
Treasury to purchase obligations of the Postal Service in such 
amounts as will not cause the holding by the Secretary of the 
Treasury resulting from such required purchases to exceed 
$2,000,000,000 at any one time. This subsection shall not be 
construed as limiting the authority of the Secretary to 
purchase obligations of the Postal Service in excess of such 
amount. Nothing in this chapter shall be considered to permit 
or require the Secretary of the Treasury to purchase any 
obligations of the Postal Service other than those issued under 
section 2005.
    (c) Notwithstanding section 2005(d)(5) of this title, 
obligations issued by the Postal Service under section 2005 
shall be obligations of the Government of the United States, 
and payment of principal and interest thereon shall be fully 
guaranteed by the Government of the United States, such 
guaranty being expressed on the face thereof, if and to the 
extent that--
          (1) the Postal Service requests the Secretary of the 
        Treasury to pledge the full faith and credit of the 
        Government of the United States for the payment of 
        principal and interest thereon; and
          (2) the Secretary, in his discretion, determines that 
        it would be in the public interest to do so.

           *       *       *       *       *       *       *


Sec. 2009. Annual budget

    The Postal Service shall cause to be prepared annually a 
budget program which shall be submitted to the Office of 
Management and Budget, under such rules and regulations as the 
President may establish as to the date of submission, the form 
and content, the classifications of data, and the manner in 
which such budget program shall be prepared and presented. The 
budget program shall be a business-type budget, or plan of 
operations, with due allowance given to the need for 
flexibility, including provision for emergencies and 
contingencies, in order that the Postal Service may properly 
carry out its activities as authorized by law. The budget 
program shall contain estimates of the financial condition and 
operations of the Postal Service for the current and ensuing 
fiscal years and the actual condition and results of operation 
for the last completed fiscal year. Such budget program shall 
include a statement of financial condition, a statement of 
income and expense, an analysis of surplus or deficit, a 
statement of sources and application of funds, and such other 
supplementary statements and information as are necessary or 
desirable to make known the financial condition and operations 
of the Postal Service. Such statements shall include estimates 
of operations by major types of activities, together with 
estimates of administrative expenses and estimates of 
borrowings. [The budget program shall also include separate 
statements of the amounts which the Postal Service requests to 
be appropriated under subsections (b) and (c) of section 2401 
of this title.] The budget program shall also include separate 
statements of the amounts which (1) the Postal Service requests 
to be appropriated under subsections (b) and (c) of section 
2401, (2) the Office of Inspector General of the United States 
Postal Service requests to be appropriated, out of the Postal 
Service Fund, under section 8G(f) of the Inspector General Act 
of 1978, and (3) the Postal Regulatory Commission requests to 
be appropriated, out of the Postal Service Fund, under section 
504(d) of this title. The President shall include these 
amounts, with his recommendations but without revision, in the 
budget transmitted to Congress under section 1105 of title 31.

Sec. 2010. Restrictions on agreements

    The Postal Service shall promote modern and efficient 
operations and should refrain from expending any funds, 
engaging in any practice, or entering into any agreement or 
contract, other than an agreement or contract under chapter 12 
of this title [39 USCS Sec. Sec. 1201 et seq.], which restricts 
the use of new equipment or devices which may reduce the cost 
or improve the quality of postal services, except where such 
restriction is necessary to insure safe and healthful 
employment conditions.

Sec. 2011. Provisions relating to competitive products

    (a) There is established in the Treasury of the United 
States a revolving fund, to be called the Postal Service 
Competitive Products Fund, which shall be available to the 
Postal Service without fiscal year limitation for the payment 
of--
          (1) costs attributable to the competitive products; 
        and
          (2) all other costs incurred by the Postal Service, 
        to the extent allocable to competitive products.
For purposes of this subsection, the term ``costs 
attributable'' has the meaning given such term by section 3631.
    (b) There shall be deposited in the Competitive Products 
Fund, subject to withdrawal by the Postal Service--
          (1) revenues from competitive products;
          (2) amounts received from obligations issued by the 
        Postal Service under subsection (e);
          (3) interest and dividends earned on investments of 
        the Competitive Products Fund; and
          (4) any other receipts of the Postal Service 
        (including from the sale of assets), to the extent 
        allocable to competitive products.
    (c) If the Postal Service determines that the moneys of the 
Competitive Products Fund are in excess of current needs, it 
may invest such amounts as it considers appropriate in 
accordance with regulations which the Secretary of the Treasury 
shall prescribe within 12 months after the date of enactment of 
the Postal Accountability and Enhancement Act.
    (d) The Postal Service may, in its sole discretion, provide 
that the moneys of the Competitive Products Fund be deposited 
in a Federal Reserve bank or a depository for public funds.
    (e)(1) Subject to the limitations specified in section 
2005(a), the Postal Service is authorized to borrow money and 
to issue and sell such obligations as it determines necessary 
to provide for competitive products and deposit such amounts in 
the Competitive Products Fund, except that the Postal Service 
may pledge only assets related to the provision of competitive 
products (as determined under subsection (h) or, for purposes 
of any period before accounting practices and principles under 
subsection (h) have been established and applied, the best 
information available from the Postal Service, including the 
audited statements required by section 2008(e)), and the 
revenues and receipts from such products, for the payment of 
the principal of or interest on such obligations, for the 
purchase or redemption thereof, and for other purposes 
incidental thereto, including creation of reserve, sinking, and 
other funds which may be similarly pledged and used, to such 
extent and in such manner as the Postal Service determines 
necessary or desirable.
    (2) The Postal Service may enter into binding covenants 
with the holders of such obligations, and with the trustee, if 
any, under any agreement entered into in connection with the 
issuance thereof with respect to--
          (A) the establishment of reserve, sinking, and other 
        funds;
          (B) application and use of revenues and receipts of 
        the Competitive Products Fund;
          (C) stipulations concerning the subsequent issuance 
        of obligations or the execution of leases or lease 
        purchases relating to properties of the Postal Service; 
        and
          (D) such other matters as the Postal Service 
        considers necessary or desirable to enhance the 
        marketability of such obligations.
    (3) Obligations issued by the Postal Service under this 
subsection--
          (A) may not be purchased by the Secretary of the 
        Treasury;
          (B) shall not be exempt either as to principal or 
        interest from any taxation now or hereafter imposed by 
        any State or local taxing authority;
          (C) shall not be obligations of, nor shall payment of 
        the principal thereof or interest thereon be guaranteed 
        by, the Government of the United States, and the 
        obligations shall so plainly state; and
          (D) notwithstanding the provisions of the Federal 
        Financing Bank Act of 1973 or any other provision of 
        law (except as specifically provided by reference to 
        this subparagraph in a law enacted after this 
        subparagraph takes effect), shall not be eligible for 
        purchase by, commitment to purchase by, or sale or 
        issuance to, the Federal Financing Bank.
    (4)(A) This paragraph applies wtih respect to the period 
beginning on the date of the enactment of this paragraph and 
ending at the close of the 5-year period which begins on the 
date on which the Postal Service makes its submission under 
subsection (h)(1).
    (B) During the period described in subparagraph (A), 
nothing in subparagraph (A) or (D) of paragraph (3) or the last 
sentence of section 2006(b) shall, with respect to any 
obligations sought to be issued by the Postal Service under 
this subsection, be considered to affect such obligations' 
eligibility for purchase by, commitment to purchase by, or sale 
or issuance to, the Federal Financing Bank.
    (C) The Federal Financing Bank may elect to purchase such 
obligations under such terms, including rates of interest, as 
the Bank and the Postal Service may agree, but at a rate of 
yield no less than the prevailing yield on outstanding 
marketable securities of comparable maturity issued by entities 
with the same credit rating as the rating then most recently 
obtained by the Postal Service under subparagraph (D), as 
determined by the Bank.
    (D) In order to be eligible to borrow under this paragraph, 
the Postal Service shall first obtain a credit rating from a 
nationally recognized credit rating organization. Such rating--
          (i) shall be determined taking into account only 
        those assets and activities of the Postal Service which 
        are described in section 3634(a)(2) (relating to the 
        Postal Service's assumed taxable income from 
        competitive products); and
          (ii) may, before final rules of the Postal Regulatory 
        Commission under subsection (h) are issued (or deemed 
        to have been issued), be based on the best information 
        available from the Postal Service, including the 
        audited statements required by section 2008(e).
    (f) The receipts and disbursements of the Competitive 
Products Fund shall be accorded the same budgetary treatment as 
is accorded to receipts and disbursements of the Postal Service 
fund under section 2009a.
    (g) A judgment against the Postal Service or the Government 
of the United States (or settlement of a claim) shall, to the 
extent that it arises out of activities of the Postal Service 
in the provision of competitive products, be paid out of the 
Competitive Products Fund.
    (h)(1) The Secretary of the Treasury, in consultation with 
the Postal Service, an independent, certified public accounting 
firm, and such other advisers as the Secretary considers 
appropriate, shall develop recommendations regarding--
          (A) the accounting practices and principles that 
        should be followed by the Postal Service with the 
        objectives of--
                  (i) identifying and valuing the assets and 
                liabilities of the Postal Service associated 
                with providing, and the capital and operating 
                costs incurred by the postal Service in 
                providing, competitive products; and
                  (ii) preventing the subsidization of such 
                products by market-dominant products; and
          (B) the substantive and procedural rules that should 
        be followed in determining the Postal Service's assumed 
        Federal income tax on competitive products income for 
        any year (within the meaning of section 3634).
Such recommendations shall be submitted to the Postal 
Regulatory Commission not earlier than 6 months, and not later 
than 12 months, after the effective date of this section.
    (2)(A) Upon receiving the recommendations of the Secretary 
of the Treasury under paragraph (1), the Commission shall give 
interested parties, including the Postal Service, users of the 
mails, and an officer of the Commission who shall be required 
to represent the interests of the general public, an 
opportunity to present their views on those recommendations 
through submission of written data, views, or arguments with or 
without opportunity for oral presentation, or in such other 
manner as the Commission considers appropriate.
    (B) After due consideration of the views and other 
information received under subparagraph (A), the Commission 
shall by rule--
          (i) provide for the establishment and application of 
        the accounting practices and principles which shall be 
        followed by the Postal Service;
          (ii) provide for the establishment and application of 
        the substantive and procedural rules described in 
        paragraph (1)(B); and (iii) provide for thesubmission 
        by the Postal Service to the Postal Regulatory 
        Commission of annual and other periodic reports setting 
        forth such information as the Commission may require.
Final rules under this subparagraph shall be issued not later 
than 12 months after the date on which the Secretary of the 
Treasury makes his submission to the Commission under paragraph 
(1) (or by such later date as agreed to by the Commission and 
the Postal Service). The Commission is authorized to promulgate 
regulations revising such rules.
    (C) Reports described in subparagraph (B)(iii) shall be 
submitted at such time, in such form, and shall include such 
information, as the Commission by rule requires. The Commission 
may, on its own motion or on requires of an interested party, 
initiate proceedings (to be conducted in accordance with such 
rules as the Commission shall prescribe) to improve the 
quality, accuracy, or completeness of Postal Service data under 
such subparagraph whenever it shall appear that--
          (i) the quality of the information furnished in those 
        reports has become significantly inaccurate or can be 
        significantly improved; or
          (ii) such revisions are, in the judgment of the 
        Commission, otherwise necessitated by the public 
        interest.
    (D) A copy of each report described in subparagraph 
(B)(iii) shall also be transmitted by the Postal Service to the 
Secretary of the Treasury and the Inspector General of the 
United States Postal Service.
          (i) The Postal Service shall render an annual report 
        to the Secretary of the Treasury concerning the 
        operation of the Competitive Products Fund, in which it 
        shall address such matters as risk limitations, reserve 
        balances, allocation or distribution of moneys, 
        liquidity requirements, and measures to safeguard 
        against losses. A copy of its then most recent report 
        under this subsection shall be included with any other 
        submission that it is required to make to the Postal 
        Regulatory Commission under section 3652(g).

           *       *       *       *       *       *       *


                          PART IV--MAIL MATTER

 CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES [SUBCHAPTER I--POSTAL 
                            RATE COMMISSION]


[Sec. 3601. Establishment

    [(a) The Postal Rate Commission is an independent 
establishment of the executive branch of the Government of the 
United States. The Commission is composed of 5 Commissioners, 
appointed by the President, by and with the advice and consent 
of the Senate. The Commissioners shall be chosen on the basis 
of their professional qualifications and may be removed by the 
President only for cause. Not more than 3 of the Commissioners 
may be adherents of the same political party.
    [(b) A Commissioner may continue to serve after the 
expiration of his term until his successor has qualified, 
except that a Commissioner may not so continue to serve for 
more than 1 year after the date upon which his term otherwise 
would expire under section 3602 of this title.
    [(c) One of the Commissioners shall be designated as 
Chairman by, and shall serve in the position of Chairman at the 
pleasure of, the President.
    [(d) The Commissioners shall by majority vote designate a 
Vice Chairman of the Commission. The Vice Chairman shall act as 
Chairman of the Commission in the absence of the Chairman.]

[Sec. 3602. Terms of office

    [The Commissioners of the Postal Rate Commission shall 
serve for terms of 6 years except that--
    [(1) the terms of the Commissioners first taking office 
shall expire as designated by the President at the time of 
appointment, 1 at the end of 2 years, 2 at the end of 4 years, 
and 2 at the end of 6 years, following the appointment of the 
first of them; and
    [(2) any Commissioner appointed to fill a vacancy occurring 
before the expiration of the term for which his predecessor was 
appointed shall serve for the remainder of such term.

[Sec. 3603. Rules; regulations; procedures

    [The Postal Rate Commission shall promulgate rules and 
regulations and establish procedures, subject to chapters 5 and 
7 of title 5 [5 USCS Sec. Sec. 501 et seq. and 701 et seq.], 
and take any other action they deem necessary and proper to 
carry out their functions and obligations to the Government of 
the United States and the people as prescribed under this 
chapter [9 USCS Sec. Sec. 3601 et seq.]. Such rules, 
regulations, procedures, and actions shall not be subject to 
any change or supervision by the Postal Service.]

[Sec. 3604. Administration

    [(a) The Chairman of the Postal Rate Commission shall be 
the principal executive officer of the Commission. The Chairman 
shall exercise or direct the exercise of all the executive and 
administrative functions of the Commission, including functions 
of the Commission with respect to (1) the appointment of 
personnel employed under the Commission, except that the 
appointment of heads of major administrative units under the 
Commission shall require the approval of a majority of the 
members of the Commission, (2) the supervision of the personnel 
employed under the Commission and the distribution of business 
among them and among the Commissioners, and (3) the use and 
expenditure of funds.
    [(b) In carrying out any of his functions under this 
section, the Chairman shall be governed by the general policies 
of the Commission.
    [(c) The Chairman may obtain such facilities and supplies 
as may be necessary to permit the Commission to carry out its 
functions. Any officer or employee appointed under this section 
shall be paid at rates of compensation and shall be entitled to 
programs offering employee benefits established under chapter 
10 or chapter 12 of this title [39 USCS Sec. Sec. 1001 et seq. 
or 1201 et seq.], as appropriate.
    [(d) (1) The Commission shall periodically prepare and 
submit to the Postal Service a budget of the Commission's 
expenses, including, but not limited to, expenses for 
facilities, supplies, compensation, and employee benefits. The 
budget shall be considered approved--
          [(A) as submitted if the Governors fail to act in 
        accordance with subparagraph (B) of this paragraph; or
          [(B) as adjusted if the Governors holding office, by 
        unanimous written decision, adjust the total amount of 
        money requested in the budget. Subparagraph (B) shall 
        not be construed to authorize the Governors to adjust 
        any item included within the budget.
    [(2) Expenses incurred under any budget approved under 
paragraph (1) of this subsection shall be paid out of the 
Postal Service fund established under section 2003 of this 
title.
    [(e) The provisions of section 410 and chapter 10 of this 
title [39 USCS Sec. Sec. 410 and 1001 et seq.] shall apply to 
the Commission, as appropriate.]

            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES

           Subchapter II--Permanent Rates and Classes of Mail

[Sec. 3621. Authority to fix rates and classes

    [Except as otherwise provided, the Governors are authorized 
to establish reasonable and equitable classes of mail and 
reasonable and equitable rates of postage and fees for postal 
services in accordance with the provisions of this chapter [39 
USCS Sec. Sec. 3601 et seq.]. Postal rates and fees shall be 
reasonable and equitable and sufficient to enable the Postal 
Service under honest, efficient, and economical management to 
maintain and continue the development of postal services of the 
kind and quality adapted to the needs of the United States. 
Postal rates and fees shall provide sufficient revenues so that 
the total estimated income and appropriations to the Postal 
Service will equal as nearly as practicable total estimated 
costs of the Postal Service. For purposes of this section, 
``total estimated costs'' shall include (without limitation) 
operating expenses, depreciation on capital facilities and 
equipment, debt service (including interest, amortization of 
debt discount and expense, and provision for sinking funds or 
other retirements of obligations to the extent that such 
provision exceeds applicable depreciation charges), and a 
reasonable provision for contingencies.]

Sec. 3621. Applicability; definitions

    (a) Applicability.--This subchapter shall apply with 
respect to--
          (1) first-class mail letters and sealed parcels;
          (2) first-class mail cards;
          (3) periodicals;
          (4) standard mail;
          (5) single-piece parcel post;
          (6) media mail;
          (7) bound printed matter;
          (8) library mail;
          (9) special services; and
          (10) single-piece international mail, subject to any 
        changes the Postal Regulatory Commission may make under 
        section 3642.
    (b) Rule of Construction.--Mail matter referred to in 
subsection (a) shall, for purposes of this subchapter, be 
considered to have the meaning given to such mail matter under 
the mail classification schedule.

[Sec. 3622. Rates and fees

    [(a) From time to time the Postal Service shall request the 
Postal Rate Commission to submit a recommended decision on 
changes in a rate or rates of postage or in a fee or fees for 
postal services if the Postal Service determines that such 
changes would be in public interest and in accordance with the 
policies of this title. The Postal Service may submit such 
suggestions for rate adjustments as it deems suitable.
    [(b) Upon receiving a request, the Commission shall make a 
recommended decision on the request for changes in rates or 
fees in each class of mail or type of service in accordance 
with the policies of this title and the following factors:
          [(1) the establishment and maintenance of a fair and 
        equitable schedule;
          [(2) the value of the mail service actually provided 
        each class or type of mail service to both the sender 
        and the recipient, including but not limited to the 
        collection, mode of transportation, and priority of 
        delivery;
          [(3) the requirement that each class of mail or type 
        of mail service bear the direct and indirect postal 
        costs attributable to that class or type plus that 
        portion of all other costs of the Postal Service 
        reasonably assignable to such class or type;
          [(4) the effect of rate increases upon the general 
        public, business mail users, and enterprises in the 
        private sector of the economy engaged in the delivery 
        of mail matter other than letters;
          [(5) the available alternative means of sending and 
        receiving letters and other mail matter at reasonable 
        costs;
          [(6) the degree of preparation of mail for delivery 
        into the postal system performed by the mailer and its 
        effect upon reducing costs to the Postal Service;
          [(7) simplicity of structure for the entire schedule 
        and simple, identifiable relationships between the 
        rates or fees charged the various classes of mail for 
        postal services;
          [(8) the educational, cultural, scientific, and 
        informational value to the recipient of mail matter; 
        and
          [(9) such other factors as the Commission deems 
        appropriate.
    [(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.
    [(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. 3622. Modern rate regulation

    (a) Authority Generally.--The Postal Regulatory Commission 
shall, within 12 months after the date of the enactment of this 
section, by regulation establish (and may from time to time 
thereafter by regulation revise) a modern system for regulating 
rates and classes for market-dominant products.
    (b) Objectives.--Such system shall be designed to achieve 
the following objectives:
          (1) To reduce the administrative burden and increase 
        the transparency of the ratemaking process while 
        affording reasonable opportunities for interested 
        parties to participate in that process.
          (2) To create predictability and stability in rates.
          (3) To maximize incentives to reduce costs and 
        increase efficiency.
          (4) To enhance mail security and deter terrorism by 
        promoting secure, sender-identified mail.
          (5) To allow the Postal Service pricing flexibility, 
        including the ability to use pricing to promote 
        intelligent mail and encourage increased mail volume 
        during nonpeak periods.
          (6) To assure adequate revenues, including retained 
        earnings, to maintain financial stability and meet the 
        service standards established under section 3691.
          (7) To allocate the total institutional costs of the 
        Postal Service equitably between market-dominant and 
        competitive products.
    (c) Factors.--In establishing or revising such system, the 
Postal Regulatory Commission shall take into account--
          (1) the establishment and maintenance of a fair and 
        equitable schedule for rates and classification system;
          (2) the value of the mail service actually provided 
        each class or type of mail service to both the sender 
        and the recipient, including but not limited to the 
        collection, mode of transportation, and priority of 
        delivery;
          (3) the requirement that each class of mail or type 
        of mail service bear the direct and indirect postal 
        costs attributable to each class or type of mail 
        service plus that portion of all other costs of the 
        Postal Service reasonably assignable to such class or 
        type;
          (4) the effect of rate increases upon the general 
        public, business mail users, and enterprises in the 
        private sector of the economy engaged in the delivery 
        of mail matter other than letters;
          (5) the available alternative means of sending and 
        receiving letters and other mail matter at reasonable 
        costs;
          (6) the degree of preparation of mail for delivery 
        into the postal system performed by the mailer and its 
        effect upon reducing costs to the Postal Service;
          (7) simplicity of structure for the entire schedule 
        and simple, identifiable relationships between the 
        rates or fees charged the various classes of mail for 
        postal services;
          (8) the relative value to the people of the kinds of 
        mail matter entered into the postal system and the 
        desirability and justification for special 
        classifications and services of mail;
          (9) the importance of providing classifications with 
        extremely high degrees of reliability and speed of 
        delivery and of providing those that do not require 
        high degrees of reliability and speed of delivery;
          (10) the desirability of special classifications from 
        the point of view of both the user and of the Postal 
        Service;
          (11) the educational, cultural, scientific, and 
        informational value to the recipient of mail matter; 
        and
          (12) the policies of this title as well as such other 
        factors as the Commission deems appropriate.
    (d) Requirements.--The system for regulating rates and 
classes for market-dominant products shall--
          (1) require the Postal Regulatory Commission to set 
        annual limitations on the percentage changes in rates 
        based on inflation using indices, such as the Consumer 
        Price Index, the Employment Cost Index, the Gross 
        Domestic Product Price Index, or any similar measure as 
        the Postal Regulatory Commission may prescribe;
          (2) establish a schedule whereby rates, when 
        necessary and appropriate, would change at regular 
        intervals by predictable amounts;
          (3) not later than 45 days before the implementation 
        of any adjustment in rates under this section--
                  (A) require the Postal Service to provide 
                public notice of the adjustment;
                  (B) provide an opportunity for review by the 
                Postal Regulatory Commission;
                  (C) provide for the Postal Regulatory 
                Commission to notify the Postal Service of any 
                noncompliance of the adjustment with the 
                limitation under paragraph (1); and
                  (D) require the Postal Service to respond to 
                the notice provided under subparagraph (C) and 
                describe the actions to be taken to comply with 
                the limitation under paragraph (1).
          (4) notwithstanding any limitation set under 
        paragraphs (1) and (3), establish procedures whereby 
        rates may be adjusted on an expedited basis due to the 
        unexpected and extraordinary circumstances.
    (e) Workshare Discounts.--
          (1) Definition.--In this subsection, the term 
        ``workshare discount'' refers to rate discounts 
        provided to mailers for the presorting, prebarcoding, 
        handling, or transportation of mail, as further defined 
        by the Postal Regulatory Commission under subsection 
        (a).
          (2) Regulations.--As part of the regulations 
        established under subsection (a), the Postal Regulatory 
        Commission shall establish rules for workshare 
        discounts that ensure that such discounts do not exceed 
        the cost that the Postal Service avoids as a result of 
        workshare activity, unless--
                  (A) the discount is--
                          (i) associated with a new postal 
                        service or with a change to an existing 
                        postal service; and
                          (ii) necessary, over a period of time 
                        not to exceed 4 years, to induce mailer 
                        behavior that furthers the economically 
                        efficient operation of the Postal 
                        Service;
                  (B) a reduction in the discount would--
                          (i) lead to a loss of volume in the 
                        affected category of mail and reduce 
                        the aggregate contribution to 
                        institutional costs of the Postal 
                        Service from the mail matter subject to 
                        the discount below what it otherwise 
                        would have been if the discount had not 
                        been reduced to costs avoided;
                          (ii) result in a further increase in 
                        the rates paid by mailers not able to 
                        take advantage of the discount; or
                          (iii) impede the efficient operation 
                        of the Postal Service;
                  (C) the amount of the discount above costs 
                avoided--
                          (i) is necessary to mitigate rate 
                        shock; and
                          (ii) will be phased out over time; or
                  (D) the workshare discount is provided in 
                connection with subclasses of mail consisting 
                exclusively of mail matter of educational, 
                cultural, or scientific value.
          (3) Report.--Whenever the Postal Service establishes 
        or maintains a workshare discount, the Postal Service 
        shall, at the time it publishes the workshare discount 
        rate, submit to the Postal Regulatory Commission a 
        detailed report and explanation of the Postal Service's 
        reasons for establishing or maintaining the rate, 
        setting forth the data, economic analyses, and other 
        information relied on by the Postal Service to justify 
        the rate.
    (f) Transition Rule.--Until regulations under this section 
first take effect, rates and classes for market-dominant 
products shall remain subject to modification in accordance 
with the provisions of this chapter and section 407, as such 
provisions were last in effect before the date of the enactment 
of this section.

[Sec. 3623. Mail classification

    [(a) Within 2 years after the effective date of this 
subchapter [effective Jan. 20, 1971], the Postal Service shall 
request the Postal Rate Commission to make a recommended 
decision on establishing a mail classification schedule in 
accordance with the provisions of this section.
    [(b) Following the establishment of the mail classification 
schedule requested under subsection (a) of this section, the 
Postal Service may from time to time request that the 
Commission submit, or the Commission may submit to the 
Governors on its own initiative, a recommended decision on 
changes in the mail classification schedule.
    [(c) The Commission shall make a recommended decision on 
establishing or changing the schedule in accordance with the 
policies of this title and the following factors:
          [(1) the establishment and maintenance of a fair and 
        equitable classification system for all mail;
          [(2) the relative value to the people of the kinds of 
        mail matter entered into the postal system and the 
        desirability and justification for special 
        classifications and services of mail;
          [(3) the importance of providing classifications with 
        extremely high degrees of reliability and speed of 
        delivery;
          [(4) the importance of providing classifications 
        which do not require an extremely high degree of 
        reliability and speed of delivery;
          [(5) the desirability of special classifications from 
        the point of view of both the user and of the Postal 
        Service; and
          [(6) such other factors as the Commission may deem 
        appropriate.
    [(d) The Postal Service shall maintain one or more classes 
of mail for the transmission of letters sealed against 
inspection. The rate for each such class shall be uniform 
throughout the United States, its territories, and possessions. 
One such class shall provide for the most expeditious handling 
and transportation afforded mail matter by the Postal Service. 
No letter of such a class of domestic origin shall be opened 
except under authority of a search warrant authorized by law, 
or by an officer or employee of the Postal Service for the sole 
purpose of determining an address at which the letter can be 
delivered, or pursuant to the authorization of the addressee.]

Sec. 3623. Service agreements for market-dominant products

    (a) In General.--
          (1) Authority.--The Postal Service may enter into 
        service agreements with a customer or group of 
        customers that provide for the provision of postal 
        services under terms, conditions, or service standards 
        that differ from those that would apply under the 
        otherwise applicable classification of market-dominant 
        mail.
          (2) Agreements.--An agreement under this section may 
        involve--
                  (A) performance by the contracting mail user 
                of mail preparation, processing, 
                transportation, or other functions;
                  (B) performance by the Postal Service of 
                additional mail preparation, processing, 
                transportation, or other functions; or
                  (C) other terms and conditions that meet the 
                requirements of subsections (b) and (c).
    (b) Requirements.--A service agreement under this section 
may be entered into only if each of the following conditions is 
met:
          (1) The total revenue generated under the agreement--
                  (A) will cover all Postal Service costs 
                attributable to the postal services covered by 
                the agreement; and
                  (B) will result in no less contribution to 
                the institutional costs of the Postal Service 
                than would have been generated had the 
                agreement not been entered into.
          (2) Rates or fees for other mailers will not increase 
        as a result of the agreement.
          (3) The agreement pertains exclusively to products in 
        the market-dominant category of mail.
          (4) The agreement will not preclude or materially 
        hinder similarly situated mail users from entering into 
        agreements with the Postal Service on the same, or 
        substantially the same terms or conditions, and the 
        Postal Service remains willing and able to enter into 
        such.
    (c) Limitations.--A service agreement under this section 
shall--
          (1) be for a term not to exceed 3 years; and
          (2) provide that such agreement shall be subject to 
        the cancellation authority of the Commission under 
        section 3662.
    (d) Notice Requirements.--
          (1) In general.--At least 30 days before a service 
        agreement under this section is to take effect, the 
        Postal Service shall file with the Postal Regulatory 
        Commission and publish in the Federal Register the 
        following information with respect to such agreement:
                  (A) A description of the postal services the 
                agreement involves.
                  (B) A description of the functions the 
                customer is to perform under the agreement.
                  (C) A description of the functions the Postal 
                Service is to perform under the agreement.
                  (D) The rates and fees payable by the 
                customer during the term of the agreement.
                  (E) With respect to each condition under 
                subsection (b), information sufficient to 
                demonstrate the bases for the view of the 
                Postal Service that such condition would be 
                met.
          (2) Agreements less than national in scope.--In the 
        case of a service agreement under this section that is 
        less than national in scope, the information described 
        under paragraph (1) shall also be published by the 
        Postal Service in a manner designed to afford 
        reasonable notice to persons within any geographic area 
        to which such agreement (or any amendment to that 
        agreement) pertains.
    (e) Equal Treatment Required.--If the Postal Service enters 
into a service agreement with a mailer under this section, the 
Postal Service shall make such agreement available to similarly 
situated mailers on functionally equivalent terms and 
conditions consistent with the regulatory system established 
under section 3622 without unreasonable distinctions based on 
mailer profiles, provided that such distinctions, if ignored, 
would not render any subsequent agreement uneconomic or 
impractical.
    (f) Complaints.--Any person who believes that a service 
agreement under this section is not in conformance with the 
requirements of this section, or who is aggrieved by a decision 
of the Postal Service not to enter into an agreement under this 
section, may file a complaint with the Postal Regulatory 
Commission in accordance with section 3662.
    (g) Postal Regulatory Commission Role.--
          (1) Regulations.--The Postal Regulatory Commission 
        may promulgate such regulations regarding service 
        agreements as the Commission determines necessary to 
        implement the requirements of this section.
          (2) Review.--The Postal Regulatory Commission may 
        review any agreement or proposed agreement under this 
        section and may suspend, cancel, or prevent such 
        agreement if the Commission finds that the agreement 
        does not meet the requirements of this section.
    (h) Interpretation.--The determination of whether the 
revenue generated under the agreement meets the requirements of 
subsection (b)(1)(B) shall be based, to the extent practicable, 
on the actual contribution of the mail involved, not on the 
average contribution made by the mail classification most 
similar to the services performed under the agreement. If 
mailer-specific data is not available, the bases for the 
determination used shall be provided and shall include a 
discussion of the suitability of the data used, in accordance 
with regulations established by the Postal Regulatory 
Commission.

[Sec. 3624. Recommended decisions of Commission

    [(a) The Postal Rate Commission shall promptly consider a 
request made under section 3622 or 3623 of this title, except 
that the Commission shall not recommend a decision until the 
opportunity for a hearing on the record under sections 556 and 
557 of title 5 has been accorded to the Postal Service, users 
of the mails, and an officer of the Commission who shall be 
required to represent the interests of the general public.
    [(b) In order to conduct its proceedings with utmost 
expedition consistent with procedural fairness to the parties, 
the Commission may (without limitation) adopt rules which 
provide for--
    [(1) the advance submission of written direct testimony;
    [(2) the conduct of prehearing conferences to define 
issues, and for other purposes to insure orderly and 
expeditious proceedings;
    [(3) discovery both from the Postal Service and the parties 
to the proceedings;
    [(4) limitation of testimony; and
    [(5) the conduct of the entire proceedings off the record 
with the consent of the parties.
    [(c)(1) Except as provided by paragraph (2) of this 
subsection, in any case in which the Postal Service makes a 
request under section 3622 of this title for a recommended 
decision by the Commission on changes in a rate or rates of 
postage or in a fee or fees for postal services the Commission 
shall transmit its recommended decision to the Governors under 
subsection (d) of this section no later than 10 months after 
receiving any such request from the Postal Service.
    [(2) In any case in which the Commission determines that 
the Postal Service has unreasonably delayed consideration of a 
request made by the Postal Service under section 3622 by 
failing to respond within a reasonable time to any lawful order 
of the Commission, the Commission may extend the 10-month 
period described in paragraph (1) of this subsection by one day 
for each day of such delay.
    [(d) The Commission shall transmit its recommended decision 
in a rate, fee, or classification matter to the Governors. The 
recommended decision shall include a statement specifically 
responsive to the criteria established under section 3622 or 
3623, as the case may be.]

[Sec. 3625. Action of the Governors

    [(a) Upon receiving a recommended decision from the Postal 
Rate Commission, the Governors may approve, allow under 
protest, reject, or modify that decision in accordance with the 
provisions of this section.
    [(b) The Governors may approve the recommended decision and 
order the decision placed in effect.
    [(c) The Governors may, under protest, allow a recommended 
decision of the Commission to take effect and (1) seek judicial 
review thereof under section 3628 of this title, or (2) return 
the recommended decision to the Commission for reconsideration 
and a further recommended decision, which shall be acted upon 
under this section and subject to review in accordance with 
section 3628 of this title.
    [(d) The Governors may reject the recommended decision of 
the Commission and the Postal Service may resubmit its request 
to the Commission for reconsideration. Upon resubmission, the 
request shall be reconsidered, and a further recommended 
decision of the Commission shall be acted upon under this 
section and subject to review in accordance with section 3628 
of this title. However, with the unanimous written concurrence 
of all of the Governors then holding office, the Governors may 
modify any such further recommended decision of the Commission 
under this subsection if the Governors expressly find that (1) 
such modification is in accord with the record and the policies 
of this chapter [39 USCS Sec. Sec. 3601 et seq.], and (2) the 
rates recommended by the Commission are not adequate to provide 
sufficient total revenues so that total estimated income and 
appropriations will equal as nearly as practicable estimated 
total costs.
    [(e) The decision of the Governors to approve, allow under 
protest, reject, or modify a recommended decision of the 
Commission shall be in writing and shall include an estimate of 
anticipated revenue and a statement of explanation and 
justification. The decision, the record of the Commission's 
hearings, and the Commission's recommended decision shall be 
made generally available at the time the decision is issued and 
shall be printed and made available for sale by the Public 
Printer within 10 days following the day the decision is 
issued.
    [(f) The Board shall determine the date on which the new 
rates, fees, the mail classification schedule, and changes in 
such schedule under this subchapter [39 USCS Sec. Sec. 3621 et 
seq.] shall become effective.]

           *       *       *       *       *       *       *


[Sec. 3628. Appellate review

    [A decision of the Governors to approve, allow under 
protest, or modify the recommended decision of the Postal Rate 
Commission may be appealed to any court of appeals of the 
United States, within 15 days after its publication by the 
Public Printer, by an aggrieved party who appeared in the 
proceedings under section 3624(a) of this title. The court 
shall review the decision, in accordance with section 706 of 
title 5, and chapter 158 [28 USCS Sec. Sec. 2341 et seq.] and 
section 2112 of title 28, except as otherwise provided in this 
section, on the basis of the record before the Commission and 
the Governors. The court may affirm the decision or order that 
the entire matter be returned for further consideration, but 
the court may not modify the decision. The court may not 
suspend the effectiveness of the changes, or otherwise prevent 
them from taking effect until final disposition of the suit by 
the court. No court shall have jurisdiction to review a 
decision made by the Commission or Governors under this chapter 
[39 USCS Sec. Sec. 3601 et seq.] except as provided in this 
section.]

            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES


          [Subchapter II--Permament Rates and Classes of Mail]


     Subchapter I--Provisions Relating to Market-Dominant Products

Sec. 3629. Reduced rates for voter registration purposes [Caution: For 
                    effective date of section, see Sec. 13 of Act May 
                    20, 1993, P.L. 103-31, which appears as a note to 
                    this section]

    The Postal Service shall make available to a State or local 
voting registration official the rate for any class of mail 
that is available to a qualified nonprofit organization under 
section 3626 for the purpose of making a mailing that the 
official certifies is required or authorized by the National 
Voter Registration Act of 1993.

       Subchapter II--Provisions Relating to Competitive Products

Sec. 3631. Applicability; definitions and updates

    (a) Applicability.--This subchapter shall apply with 
respect to--
          (1) priority mail;
          (2) expedited mail;
          (3) bulk parcel post;
          (4) bulk international mail; and
          (5) mailgrams; subject to subsection (d) and any 
        changes the Postal Regulatory Commission may make under 
        section 3642.
    (b) Definition.--For purposes of this subchapter, the term 
``costs attributable'', as used with respect to a product, 
means the direct and indirect postal costs attributable to such 
product.
    (c) Rule of Construction.--Mail matter referred to in 
subsection (a) shall, for purposes of this subchapter, be 
considered to have the meaning given to such mail matter under 
the mail classification schedule.
    (d) Limitation.--Notwithstanding any other provision of 
this section, nothing in this subchapter shall be considered to 
apply with respect to any product then currently in the market-
dominant category of mail.

Sec. 3632. Action of the Governors

    (a) Authority to Establish Rates and Classes.--The 
Governors, with the written concurrence of a majority of all of 
the Governors then holding office, shall establish rates and 
classes for products in the competitive category of mail in 
accordance with the requirements of this subchapter and 
regulations promulgated under section 3633.
    (b) Procedures.--
          (1) In general.--Rates and classes shall be 
        established in writing, complete with a statement of 
        explanation and justification, and the date as of which 
        each such rate or class takes effect.
          (2) Public notice; review; and compliance.--Not later 
        than 30 days before the date of implementation of any 
        adjustment in rates under this section--
                  (A) the Governors shall provide public notice 
                of the adjustment and an opportunity for review 
                by the Postal Regulatory Commission;
                  (B) the Postal Regulatory Commission shall 
                notify the Governors of any noncompliance of 
                the adjustment with section 3633; and
                  (C) the Governors shall respond to the notice 
                provided under subparagraph (B) and describe 
                the actions to be taken to comply with section 
                3633.
    (c) Transition Rule.--Until regulations under section 3633 
first take effect, rates and classes for competitive products 
shall remain subject to modification in accordance with the 
provisions of this chapter and section 407, as such provisions 
were as last in effect before the date of the enactment of this 
section.

Sec. 3633. Provisions applicable to rates for competitive products

    The Postal Regulatory Commission shall, within 180 days 
after the date of the enactment of this section, promulgate 
(and may from time to time thereafter revise) regulations to--
          (1) prohibit the subsidization of competitive 
        products by market-dominant products;
          (2) ensure that each competitive product covers its 
        costs attributable; and
          (3) ensure that all competitive products collectively 
        cover their share of institutional costs of the Postal 
        Service.

Sec. 3634. Assumed Federal income tax on competitive products income

    (a) Definitions.--For purposes of this section--
          (1) the term ``assumed Federal income tax on 
        competitive products income'' means the net income tax 
        that would be imposed by chapter 1 of the Internal 
        Revenue code of 1986 on the Postal Service's assumed 
        taxable income from competitive products for the year; 
        and
          (2) the term ``assumed taxable income from 
        competitive products'', with respect to a year, refers 
        to the amount representing what would be the taxable 
        income of a corporation under the Internal Revenue Code 
        of 1986 for the year, if--
          (A) the only activities of such corporation were the 
        activities of the Postal Service allocable under 
        section 2011(h) to competitive products; and
          (B) the only assets held by such corporation were the 
        assets of the Postal Service allocable under section 
        2011(h) to such activities.
    (b) Computation and Transfer Requirements.--The Postal 
Service shall, for each year beginning with the year in which 
occurs the deadline for the Postal Service's first report to 
the Postal Regulatory Commission under section 3652(a)--
          (1) compute its assumed Federal income tax on 
        competitive products income for such year; and
          (2) transfer from the Competitive Products Fund to 
        the Postal Service Fund the amount of that assumed tax.
    (c) Deadline for Transfers.--Any transfer required to be 
made under this section for a year shall be due on or before 
the January 15th next occurring after the close of such year.

            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES


             [Subchapter III--Temporary Rates and Classes]


  Subchapter III--Provisions Relating to Experimental and New Products

[Sec. 3641. Temporary changes in rates and classes

    [(a) In any case in which the Postal Rate Commission fails 
to transmit a recommended decision on a change in rates of 
postage or in fees for postal services to the Governors in 
accordance with section 3624(c) of this title, the Postal 
Service may establish temporary changes in rates of postage and 
in fees for postal services in accordance with the proposed 
changes under consideration by the Commission. Such temporary 
changes may take effect upon such date as the Postal Service 
may determine, except that such temporary changes may take 
effect only after 10 days' notice in the Federal Register.
    [(b) Any temporary rate or fee established by the Postal 
Service under subsection (a) of this section shall be in 
accordance with the policies of this title and shall not exceed 
such amount as may be necessary for sufficient revenues to 
assure that the total estimated income, including 
appropriations, of the Postal Service shall, to the extent 
practicable, be equal to the total estimated costs of the 
Postal Service.
    [(c) Notwithstanding the provisions of subsection (b) of 
this section, the Postal Service may not establish any 
temporary rate for a class of mail or any temporary fee for a 
postal service which is more than the permanent rate or fee 
requested for such class or postal service by the Postal 
Service under section 3622 of this title.
    [(d) Any temporary change in rates of postage or in fees 
for postal services made by the Postal Service under this 
section shall remain in effect no longer than 150 days after 
the date on which the Commission transmits its recommended 
decision to the Governors under section 3624(d) of this title, 
unless such temporary change is terminated by the Governors 
before the expiration of such period.
    [(e) If the Postal Rate Commission does not transmit to the 
Governors within 90 days after the Postal Service has 
submitted, or within 30 days after the Postal Service has 
resubmitted, to the Commission a request for a recommended 
decision on a change in the mail classification schedule (after 
such schedule is established under section 3623 of this title), 
the Postal Service, upon 10 days' notice in the Federal 
Register, may place into effect temporary changes in the mail 
classification schedule in accordance with proposed changes 
under consideration by the Commission. Any temporary change 
shall be effective for a period ending not later than 30 days 
after the Commission has transmitted its recommended decision 
to the Governors.
    [(f) If, under section 3628 of this title, a court orders a 
matter returned to the Commission for further consideration, 
the Postal Service, with the consent of the Commission, may 
place into effect temporary changes in rates of postage, and 
fees for postal services, or in the mail classification 
schedule.]

Sec. 3641. Market tests of experimental products

    (a) Authority.--
          (1) In general.--The Postal Service may conduct 
        market tests of experimental products in accordance 
        with this section.
          (2) Provisions waived.--A product shall not, while it 
        is being tested under this section, be subject to the 
        requirements of sections 3622, 3633, or 3642, or 
        regulations promulgated under those sections.
    (b) Conditions.--A product may not be tested under this 
section unless it satisfies each of the following;
          (1) Significantly different product.--The product is, 
        from the viewpoint of the mail users, significantly 
        different from all products offered by the Postal 
        Service within the 2 year period preceding the start of 
        the test.
          (2) Market disruption.--The introduction or continued 
        offering of the product will not create an unfair or 
        otherwise inappropriate competitive advantage for the 
        Postal Service or any mailer, particularly in regard to 
        small business concerns (as defined under subsection 
        (h)).
          (3) Correct categorization.--The Postal Service 
        identifies the product, for the purpose of a test under 
        this section, as either market-dominant or competitive, 
        consistent with the criteria under section 3642(b)(1). 
        Costs and revenue attributable to a product identified 
        as competitive shall be included in any determination 
        under section 3633(3) (relating to provisions 
        applicable to competitive products collectively). Any 
        test that solely affects products currently classified 
        as competitive, or which provides services ancillary to 
        only competitive products, shall be presumed to be in 
        the competitive product category without regard to 
        whether a similar ancillary product exists for market-
        dominant products.
    (c) Notice.--
          (1) In general.--At least 30 days before initiating a 
        market test under this section, the Postal Service 
        shall file with the Postal Regulatory Commission and 
        publish in the Federal Register a notice--
                  (A) setting out the basis for the Postal 
                Service's determination that the market test is 
                covered by this section; and
                  (B) describing the nature and scope of the 
                market test.
          (2) Safeguards.--For a competitive experimental 
        product, the provisions of section 504(g) shall be 
        available with respect to any information required to 
        be filed under paragraph (1) to the same extent and in 
        the same manner as in the case of any matter described 
        in section 504(g)(1). Nothing in paragraph (1) shall be 
        considered to permit or require the publication of any 
        information as to which confidential treatment is 
        accorded under the preceding sentence (subject to the 
        same exception as set forth in section 504(g)(3)).
    (d) Duration.--
          (1) In general.--A market test of a product under 
        this section may be conducted over a period of not to 
        exceed 24 months.
          (2) Extension authority.--If necessary in order to 
        determine the feasibility or desirability of a product 
        being tested under this section, the Postal Regulatory 
        Commission may, upon written application of the Postal 
        Service (filed not later than 60 days before the date 
        as of which the testing of such product would otherwise 
        be scheduled to terminate under paragraph (1)), extend 
        the testing of such product for not to exceed an 
        additional 12 months.
    (e) Dollar-Amount Limitation.--
          (1) In general.--A product may only be tested under 
        this section if the total revenues that are 
        anticipated, or in fact received, by the Postal Service 
        from such product do not exceed $10,000,000 in any 
        year, subject to paragraph (2) and subsection (g).
          (2) Exemption authority.--The Postal Regulatory 
        Commission may, upon written application of the Postal 
        Service, exempt the market test from the limit in 
        paragraph (1) if the total revenues that are 
        anticipated, or in fact received, by the Postal Service 
        from such product do not exceed $50,000,000 in any 
        year, subject to subsection (g). In reviewing an 
        application under this paragraph, the Postal Regulatory 
        Commission shall approve such application if it 
        determines that--
                  (A) the product is likely to benefit the 
                public and meet an expected demand;
                  (B) the product is likely to contribute to 
                the financial stability of the Postal Service; 
                and
                  (C) the product is not likely to result in 
                unfair or otherwise inappropriate competition.
    (f) Cancellation.--If the Postal Regulatory Commission at 
any time determines that a market test under this section fails 
to meet 1 or more of the requirements of this section, it may 
order the cancellation of the test involved or take such other 
action as it considers appropriate. A determination under this 
subsection shall be made in accordance with such procedures as 
the Commission shall by regulation prescribe.
    (g) Adjustment for Inflation.--For purposes of each year 
following the year in which occurs the deadline for the Postal 
Service's first report to the Postal Regulatory Commission 
under section 3652(a), each dollar amount contained in this 
section shall be adjusted by the change in the Consumer Price 
Index for such year (as determined under regulations of the 
Commission.)
    (h) Definition of a Small Business Concern.--The criteria 
used in defining small business concerns or otherwise 
categorizing business concerns as small business concerns 
shall, for purposes of this section, be established by the 
Postal Regulatory Commission in conformance with the 
requirements of section 3 of the Small Business Act.
    (i) Effective Date.--Market tests under this subchapter may 
be conducted in any year beginning with the first year in which 
occurs the deadline for the Postal Service's first report to 
the Postal Regulatory Commission under section 3652(a).

Sec. 3642. New products and transfers of products between the market-
                    dominant and competitive categories of mail

    (a) In General.--Upon request of the Postal Service or 
users of the mails, or upon its own initiative, the Postal 
Regulatory Commission may change the list of market-dominant 
products under section 3621 and the list of competitive 
products under section 3631 by adding new products to the 
lists, removing products from the lists, or transferring 
products between the lists.
    (b) Criteria.--All determinations by the Postal Regulatory 
Commission under subsection (a) shall be made in accordance 
with the following criteria:
          (1) The market-dominant category of products shall 
        consist of each product in the sale of which the Postal 
        Service exercises sufficient market power that it can 
        effectively set the price of such product substantially 
        above costs, raise prices significantly, decrease 
        quality, or decrease output, without risk of losing 
        substantial business to other firms offering similar 
        products. The competitive category of products shall 
        consist of all other products.
          (2) Exclusion of products covered by postal 
        monopoly.--A product covered by the postal monopoly 
        shall not be subject to transfer under this section 
        from the market-dominant category of mail. For purposes 
        of the preceding sentence, the term ``product covered 
        by the postal monopoly'' means any product the 
        conveyance or transmission of which is reserved to the 
        United States under section 1696 of title 18, subject 
        to the same exception as set forth in the last sentence 
        of section 409(e)(1).
          (3) Additional considerations.--In making any 
        decision under this section, due regard shall be given 
        to--
                  (A) the availability and nature of 
                enterprises in the private sector engaged in 
                the delivery of the product involved;
                  (B) the views of those who use the product 
                involved on the appropriateness of the proposed 
                action; and
                  (C) the likely impact of the proposed action 
                on small business concerns (within the meaning 
                of section 3641(h)).
    (c) Transfers of Subclasses and Other Subordinate Units 
Allowable.-- Nothing in this title shall be considered to 
prevent transfers under this section from being made by reason 
of the fact that they would involve only some (but not all) of 
the subclasses or other subordinate units of the class of mail 
or type of postal service involved (without regard to 
satisfaction of minimum quantity requirements standing alone.)
    (d) Notification and Publication Requirements.--
          (1) Notification requirement.--The Postal Service 
        shall, whenever it requests to add a product or 
        transfer a product to a different category, file with 
        the Postal Regulatory Commission and publish in the 
        Federal Register a notice setting out the basis for its 
        determination that the product satisfies the criteria 
        under subsection (b) and, in the case of a request to 
        add a product or transfer a product to the competitive 
        category of mail, that the product meets the 
        regulations promulgated by the Postal Regulatory 
        Commission under section 3633. The provisions of 
        section 504(g) shall be available with respect to any 
        information required to be filed.
          (2) Publication requirement.--The Postal Regulatory 
        Commission shall, whenever it changes the list of 
        products in the market-dominant or competitive category 
        of mail, prescribe new lists of products. The revised 
        lists shall indicate how and when any previous lists 
        (including the lists under sections 3621 and 3631) are 
        superseded, and shall be published in the Federal 
        Register.
    (e) Prohibition.--Except as provided in section 3641, no 
product that involves the physical delivery of letters, printed 
matter, or packages may be offered by the Postal Service unless 
it has been assigned to the market-dominant or competitive 
category of mail (as appropriate) either--
          (1) under this subchapter; or
          (2) by or under any other provision of law.

            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES


            [Subchapter IV--Postal Services and Complaints]


     Subchapter V--Postal Services, Complaints, and Judicial Review

            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES


                        [Subchapter V--General]


                         Subchapter VI--General

      Subchapter IV--Reporting Requirements and Related Provisions

Sec. 3651. Annual reports by the Commission

    (a) In General.--The Postal Regulatory Commission shall 
submit an annual report to the President and the Congress 
concerning the operations of the Commission under this title, 
including the extent to which regulations are achieving the 
objectives under sections 3622, 3633, and 3691.
    (b) Information From Postal Service.--The Postal Service 
shall provide the Postal Regulatory Commission with such 
information as may, in the judgment of the Commission, be 
necessary in order for the Commission to prepare its reports 
under this section.

Sec. 3652. Annual reports to the Commission

    (a) Costs, Revenues, Rates, and Service.--Except as 
provided in subsection (c), the Postal Service shall, no later 
than 90 days after the end of each year, prepare and submit to 
the Postal Regulatory Commission a report (together with such 
nonpublic annex to the report as the Commission may require 
under subsection (e))--
          (1) which shall analyze costs, revenues, rates, and 
        quality of service in sufficient detail to demonstrate 
        that all products during such year complied with all 
        applicable requirements of this title; and
          (2) which shall, for each market-dominant product 
        provided in such year, provide--
                  (A) product information, including mail 
                volumes; and
                  (B) measures of the service afforded by the 
                Postal Service in connection with such product, 
                including--
                          (i) the level of service (described 
                        in terms of speed of delivery and 
                        reliability) provided; and
                          (ii) the degree of customer 
                        satisfaction with the service provided.
Before submitting a report under this subsection (including any 
annex to the report and the information required under 
subsection (b)), the Postal Service shall have the information 
contained in such report (and annex) audited by the Inspector 
General. The results of any such audit shall be submitted along 
with the report to which it pertains.
    (b) Information Relating to Workshare Discounts.--The 
Postal Service shall include, in each report under subsection 
(a), the following information with respect to each market-
dominant product for which a workshare discount was in effect 
during the period covered by such report:
          (1) The per-item cost avoided by the Postal Service 
        by virtue of such discount.
          (2) The percentage of such per-item cost avoided that 
        the per-item workshare discount represents.
          (3) The per-item contribution made to institutional 
        costs.
    (c) Service Agreements and Market Tests.--In carrying out 
subsections (a) and (b) with respect to service agreements 
(including service agreements entered into under section 3623) 
and experimental products offered through market tests under 
section 3641 in a year, the Postal Service--
          (1) may report summary data on the costs, revenues, 
        and quality of service by service agreement and market 
        test; and
          (2) shall report such data as the Postal Regulatory 
        Commission requires.
    (d) Supporting Matter.--The Postal Regulatory Commission 
shall have access, in accordance with such regulations as the 
Commission shall prescribe, to the working papers and any other 
supporting matter of the Postal Service and the Inspector 
General in connection with any information submitted under this 
section.
    (e) Content and Form of Reports.--
          (1) In general.--The Postal Regulatory Commission 
        shall, by regulation, prescribe the content and form of 
        the public reports (and any nonpublic annex and 
        supporting matter relating to the report) to be 
        provided by the Postal Service under this section. In 
        carrying out this subsection, the Commission shall give 
        due consideration to--
                  (A) providing the public with timely, 
                adequate information to assess the lawfulness 
                of rates charged;
                  (B) avoiding unnecessary or unwarranted 
                administrative effort and expense on the part 
                of the Postal Service; and
                  (C) protecting the confidentiality of 
                commercially sensitive information.
          (2) Revised requirements.--The Commission may, on its 
        own motion or on request of an interested party, 
        initiate proceedings (to be conducted in accordance 
        with regulations that the Commission shall prescribe) 
        to improve the quality, accuracy, or completeness of 
        Postal Service data required by the Commission under 
        this subsection whenever it shall appear that--
                  (A) the attribution of costs or revenues to 
                products has become significantly inaccurate or 
                can be significantly improved;
                  (B) the quality of service data has become 
                significantly inaccurate or can be 
                significantly improved; or
                  (C) such revisions are, in the judgment of 
                the Commission, otherwise necessitated by the 
                public interest.
    (f) Confidential Information.--
          (1) In general.--If the Postal Service determines 
        that any document or portion of a document, or other 
        matter, which it provides to the Postal Regulatory 
        Commission in a nonpublic annex under this section or 
        under subsection (d) contains information which is 
        described in section 410(c) of this title, or exempt 
        from public disclosure under section 552(b) of title 5, 
        the Postal Service shall, at the time of providing such 
        matter to the Commission, notify the Commission of its 
        determination, in writing, and describe with 
        particularity the documents (or portions of documents) 
        or other matter for which confidentiality is sought and 
        the reasons therefor.
          (2) Treatment.--Any information or other matter 
        described in paragraph (1) to which the Commission 
        gains access under this section shall be subject to 
        paragraphs (2) and (3) of section 504(g) in the same 
        way as if the Commission had received notification with 
        respect to such matter under section 504(g)(1).
    (g) Other Reports.--The Postal Service shall submit to the 
Postal Regulatory Commission, together with any other 
submission that the Postal Service is required to make under 
this section in a year, copies of its then most recent--
      (1) comprehensive statement under section 2401(e);
      (2) strategic plan under section 2802;
      (3) performance plan under section 2803; and
      (4) program performance reports under section 2804.

Sec. 3653. Annual determination of compliance

    (a) Opportunity for Public Comment.--After receiving the 
reports required under section 3652 for any year, the Postal 
Regulatory Commission shall promptly provide an opportunity for 
comment on such reports by users of the mails, affected 
parties, and an officer of the Commission who shall be required 
to represent the interests of the general public.
    (b) Determination of Compliance or Noncompliance.--Not 
later than 90 days after receiving the submissions required 
under section 3652 with respect to a year, the Postal 
Regulatory Commission shall make a written determination as 
to--
          (1) whether any rates or fees in effect during such 
        year (for products individually or collectively) were 
        not in compliance with applicable provisions of this 
        chapter (or regulations promulgated thereunder); or
          (2) whether any service standards in effect during 
        such year were not met.
If, with respect to a year, no instance of noncompliance is 
found under this subsection to have occurred in such year, the 
written determination shall be to that effect.
    (c) In Any Noncompliance is Found.--If, for a year, a 
timely written determination of noncompliance is made under 
subsection (b), the Postal Regulatory Commission shall take any 
appropriate remedial action authorized by section 3662(c).
    (d) Rebuttable Presumption.--A timely written determination 
described in the last sentence of subsection (b) shall, for 
purposes of any proceeding under section 3662, create a 
rebuttable presumption of compliance by the Postal Service 
(with regard to the matters described in paragraphs (1) through 
(3) of subsection (b)) during the year to which such 
determination relates.

           *       *       *       *       *       *       *


[Sec. 3662. Rate and service complaints

    [Interested parties who believe the Postal Service is 
charging rates which do not conform to the policies set out in 
this title or who believe that they are not receiving postal 
service in accordance with the policies of this title may lodge 
a complaint with the Postal Rate Commission in such form and in 
such manner as it may prescribe. The Commission may in its 
discretion hold hearings on such complaint. If the Commission, 
in a matter covered by subchapter II of this chapter [39 USCS 
Sec. Sec. 3621 et seq.], determines the complaint to be 
justified, it shall, after proceedings in conformity with 
section 3624 of this title, issue a recommended decision which 
shall be acted upon in accordance with the provisions of 
section 3625 of this title and subject to review in accordance 
with the provisions of section 3628 of this title. If a matter 
not covered by subchapter II of this chapter [39 USCS 
Sec. Sec. 3621 et seq.] is involved, and the Commission after 
hearing finds the complaint to be justified, it shall render a 
public report thereon to the Postal Service which shall take 
such action as it deems appropriate.]

Sec. 3662. Rate and service complaints

    (a) In General.--Any person (including an officer of the 
Postal Regulatory Commission representing the interests of the 
general public) who believes the Postal Service is not 
operating in conformance with the requirements of chapter 1, 4, 
or 6, or this chapter (or regulations promulgated under any of 
those chapters) may lodge a complaint with the Postal 
Regulatory Commission in such form and manner as the Commission 
may prescribe.
    (b) Prompt Response Required.--
          (1) In General.--The Postal Regulatory Commission 
        shall, within 90 days after receiving a complaint under 
        subsection (a), either--
                  (A) begin proceedings on such complaint; or
                  (B) issue an order dismissing the complaint 
                (together with a statement of the reasons 
                therefor).
          (2) Treatment of complaints not timely acted on.--For 
        purposes of section 3663, any complaint under 
        subsection (a) on which the Commission fails to act in 
        the time and manner required by paragraph (1) shall be 
        treated in the same way as if it had been dismissed 
        under an order issued by the Commission on the last day 
        allowable for the issuance of such order under 
        paragraph (1).
    (c) Action Required if Complaint Found To Be Justified.--If 
the Postal Regulatory Commission finds the complaint to be 
justified, it shall order that the Postal Service take such 
action as the Commission considers appropriate in order to 
achieve compliance with the applicable requirements and to 
remedy the effects of any noncompliance including ordering 
unlawful rates to be adjusted to lawful levels, ordering the 
cancellation of market tests, ordering the Postal Service to 
discontinue providing loss-making products, and requiring the 
Postal Service to make up for revenue shortfalls in competitive 
products.
    (d) Authority To Order Fines in Cases of Deliberate 
Noncompliance.--In addition, in cases of deliberate 
noncompliance by the Postal Service with the requirements of 
this title, the Postal Regulatory Commission may order, based 
on the nature, circumstances, extent, and seriousness of the 
noncompliance, a fine (in the amount specified by the 
Commission in its order) for each incidence of noncompliance. 
Fines resulting from the provision of competitive products 
shall be paid out of the Competitive Products Fund established 
in section 2011. All receipts from fines imposed under this 
subsection shall be deposited in the general fund of the 
Treasury of the United States.

[Sec. 3663. Annual report on international services

    [(a) Not later than July 1 of each year, the Postal Rate 
Commission shall transmit to each House of Congress a 
comprehensive report of the costs, revenues, and volumes 
accrued by the Postal Service in connection with mail matter 
conveyed between the United States and other countries for the 
previous fiscal year.
    [(b) Not later than March 15 of each year, the Postal 
Service shall provide to the Postal Rate Commission such data 
as the Commission may require to prepare the report required 
under subsection (a) of this section. Data shall be provided in 
sufficient detail to enable the Commission to analyze the 
costs, revenues, and volumes for each international mail 
product or service, under the methods determined appropriate by 
the Commission for the analysis of rates for domestic mail.]

Sec. 3663. Appellate review

    A person, including the Postal Service, adversely affected 
or aggrieved by a final order or decision of the Postal 
Regulatory Commission may, within 30 days after such order or 
decision becomes final, institute proceedings for review 
thereof by filing a petition in the United States Court of 
Appeals for the District of Columbia. The court shall review 
the order or decision in accordance with section 706 of title 
5, and chapter 158 and section 2112 of title 28, on the basis 
of the record before the Commission.

Sec. 3664. Enforcement of orders

    The several district courts have jurisdiction specifically 
to enforce, and to enjoin and restrain the Postal Service from 
violating, any order issued by the Postal Regulatory 
Commission.

           *       *       *       *       *       *       *


            CHAPTER 36--POSTAL RATES, CLASSES, AND SERVICES


                Subchapter VII--Modern Service Standards

Sec. 3691. Establishment of modern service standards

    (a) Authority Generally.--The Postal Regulatory Commission 
shall, within 12 months after the date of the enactment of this 
section, by regulation establish (and may from time to time 
thereafter by regulation revise) a set of service standards for 
market-dominant products consistent with sections 101 (a) and 
(b) and 403.
    (b) Objectives.--Such standards shall be designed to 
achieve the following objectives:
          (1) To enhance and preserve the value of postal 
        services to both senders and recipients.
          (2) To provide a system of objective external 
        performance measurements for each market-dominant 
        product as a basis for measurement of Postal Service 
        performance.
          (3) To guarantee Postal Service customers delivery 
        reliability, speed and frequency consistent with 
        reasonable rates and best business practices.
    (c) Factors.--In establishing or revising such standards, 
the Postal Regulatory Commission shall take into account--
          (1) the actual level of service that Postal Service 
        customers receive under any service guidelines 
        previously established by the Postal Service or service 
        standards established under this section;
          (2) the degree of customer satisfaction with Postal 
        Service performance in the acceptance, processing and 
        delivery of mail;
          (3) mail volume and revenues projected for future 
        years;
          (4) the projected growth in the number of addresses 
        the Postal Service will be required to serve in future 
        years;
          (5) the current and projected future cost of serving 
        Postal Service customers;
          (6) the effect of changes in technology, demographics 
        and population distribution on the efficient and 
        reliable operation of the postal delivery system; and
          (7) the policies of this title as well as such other 
        factors as the Commission determines appropriate.

           *       *       *       *       *       *       *


                     PART V--TRANSPORTATION OF MAIL

CHAPTER 54--TRANSPORTATION OF MAIL BY AIR

Sec. 5402. Contracts for transportation of mail by air

           *       *       *       *       *       *       *


    [(d) If the Postal Service determines that service by 
certificated air carriers or combination of air carriers 
between any pair or pairs of points in foreign air 
transportation is not adequate for its purposes, it may 
contract for a period of not more than 4 years, without 
advertising for bids, in such manner and under such terms and 
conditions as it may deem appropriate, with any air taxi 
operator or combination thereof for such air transportation 
service. Contracts made under this subsection may be renewed at 
the existing rate by mutual agreement between the holder and 
the Postal Service. The Postal Service, with the consent of the 
air taxi operator, may adjust the compensation under such 
contracts for increased or decreased costs occasioned by 
changed conditions occurring during the contract term. The 
Postal Service shall cancel such a contract when the Secretary 
of transportation authorizes an additional certificated carrier 
or carriers to provide service between any pair or pairs of 
points covered by the contract, and such carrier or carriers 
inaugurate schedules adequate for its purposes.]
    (d)(1) The Postal Service may contract with any air carrier 
for the transportation of mail by aircraft in interstate air 
transportation, including the rates therefor, either through 
negotiations or competitive bidding.
    (2) Notwithstanding subsections (a) through (c), the Postal 
Service may contract with any air carrier or foreign air 
carrier for the transportation of mail by aircraft in foreign 
air transportation, including the rates therefor, either 
through negotiations or competitive bidding, except that--
          (A) any such contract may be awarded only to (i) an 
        air carrier holding a certificate required by section 
        41101 of title 49 or an exemption therefrom issued by 
        the Secretary of Transportation, (ii) a foreign air 
        carrier holding a permit required by section 41301 of 
        title 49 or an exemption therefrom issued by the 
        Secretary of Transportation, or (iii) a combination of 
        such air carriers or foreign air carriers (or both);
          (B) mail transported under any such contract shall 
        not be subject to any duty-to-carry requirement imposed 
        by any provision of subtitle VII of title 49 or by any 
        certificate, permit, or corresponding exemption 
        authority issued by the Secretary of Transportation 
        under that subtitle;
          (C) every contract that the Postal Service awards to 
        a foreign air carrier under this paragraph shall be 
        subject to the continuing requirement that air carriers 
        shall be afforded the same opportunity to carry the 
        mail of the country to and from which the mail is 
        transported and the flag country of the foreign air 
        carrier, if different, as the Postal Service has 
        afforded the foreign air carrier; and
          (D) the Postmaster General shall consult with the 
        Secretary of Defense concerning actions that affect the 
        carriage of military mail transported in foreign air 
        transportation.
    (3) Paragraph (2) shall not be interpreted as suspending or 
otherwise diminishing the authority of the Secretary of 
Transportation under section 41310 of title 49.
    [(e)
          [(1) The Postal Service may determine rates and 
        contract with any air carrier for the transportation of 
        mail by aircraft in interstate air transportation 
        either through negotiations or competitive bidding.
          [(2)(A) In the exercise of its authority under 
        paragraph (1), the Postal Service may require any air 
        carrier to accept as mail shipments of day-old poultry, 
        honeybees, and such other live animals as postal 
        regulations allow to be transmitted as mail matter. The 
        authority of the Postal Service under this subparagraph 
        shall not apply in the case of any air carrier who 
        commonly and regularly refuses to accept any live 
        animals as cargo.
          [(B) Notwithstanding any other provision of law, the 
        Postal Service is authorized to assess, as postage to 
        be paid by the mailers of any shipments covered by 
        subparagraph (A), a reasonable surcharge that the 
        Postal Service determines in its discretion to be 
        adequate to compensate air carriers for any necessary 
        additional expense incurred in handling such 
        shipments.]
    (e) For purposes of this section, the terms ``air 
carrier'', ``air transportation'', ``foreign air carrier'', 
``foreign air transportation'', ``interstate air 
transportation'', and ``mail'' shall have the meanings given 
such terms in section 40102 of title 49.

           *       *       *       *       *       *       *


             TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

                     PART I--THE AGENCIES GENERALLY

                        CHAPTER 1--ORGANIZATION


Sec. 104. Independent establishment

    For the purpose of this title [5 USCS Sec. Sec. 101 et 
seq.], ``independent establishment'' means--
          (1) an establishment in the executive branch (other 
        than the United States Postal Service or the [Postal 
        Rate Commission] Postal Regulatory Commission) which is 
        not an Executive department, military department, 
        Government corporation, or part thereof, or part of an 
        independent establishment; and
          (2) the General Accounting Office.

           *       *       *       *       *       *       *


                           CHAPTER 3--POWERS


Sec. 306. Strategic plans

           *       *       *       *       *       *       *


    (f) For purposes of this section the term ``agency'' means 
an Executive agency defined under section 105, but does not 
include the Central Intelligence Agency, the General Accounting 
Office, the Panama Canal Commission, the United States Postal 
Service, and the [Postal Rate Commission.] Postal Regulatory 
Commission.

           *       *       *       *       *       *       *


                          PART III--EMPLOYEES

                     Subpart A--General Provisions

                        Chapter 21--DEFINITIONS


Sec. 2104. Officer

           *       *       *       *       *       *       *


    (b) Except as otherwise provided by law, an officer of the 
United States Postal Service or of the [Postal Rate Commission] 
Postal Regulatory Commission is deemed not an officer for 
purposes of this title.

           *       *       *       *       *       *       *


                  Subpart B--Employment and Retention

           CHAPTER 33--EXAMINATION, SELECTION, AND PLACEMENT


             Subchapter VI--Assignments to and from States


Sec. 3371. Definitions

    For the purpose of this subchapter [5 USCS Sec. Sec. 3371 
et seq.]--

           *       *       *       *       *       *       *

          (3) ``Federal agency'' means an Executive agency, 
        military department, a court of the United States, the 
        Administrative Office of the United States Courts, the 
        Library of Congress, the Botanic Garden, the Government 
        Printing Office, the Congressional Budget Office, the 
        United States Postal Service, the [Postal Rate 
        Commission] Postal Regulatory Commisson, the Office of 
        the Architect of the Capitol, the Office of Technology 
        Assessment, and such other similar agencies of the 
        legislative and judicial branches as determined 
        appropriate by the Office of Personnel Management; and

           *       *       *       *       *       *       *


                     Subpart D--Pay and Allowances

                   CHAPTER 53--PAY RATES AND SYSTEMS


              Subchapter II--Executive Schedule Pay Rates


Sec. 5314. Positions at level III

    Level III of the Executive Schedule applies to the 
following positions, for which the annual rate of basic pay 
shall be the rate determined with respect to such level under 
chapter 11 of title 2 [2 USCS Sec. Sec. 351 et seq.], as 
adjusted by section 5318 of this title:

           *       *       *       *       *       *       *

    Chairman, [Postal Rate Commission] Postal Regulatory 
Commission.

           *       *       *       *       *       *       *


Sec. 5315. Positions at level IV

    Level IV of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2 [1. 2 USCS Sec. Sec. 351 et seq.], as adjusted by 
section 5318 of this title:

           *       *       *       *       *       *       *

    Members, [Postal Rate Commissions] Postal Regulatory 
Commission (4).

           *       *       *       *       *       *       *


                     CHAPTER 55--PAY ADMINISTRATION


                     Subchapter II--Withholding Pay


Sec. 5514. Installment deduction for indebtedness to the United States

           *       *       *       *       *       *       *


          (5) For purposes of this subsection--
                  (A) ``disposable pay'' means that part of pay 
                of any individual remaining after the deduction 
                from those earnings of any amounts required by 
                law to be withheld; and
                  (B) ``agency'' includes executive departments 
                and agencies, the United States Postal Service, 
                the [Postal Rate Commission] Postal Regulatory 
                Commission, the United States Senate, the 
                United States House of Representatives, and any 
                court, court administrative office, or 
                instrumentality in the judicial or legislative 
                branches of the Government, and government 
                corporations.

           *       *       *       *       *       *       *


           Subpart F--Labor-Management and Employee Relations

             CHAPTER 73--SUITABILITY, SECURITY, AND CONDUCT


              Subchapter IV--Foreign Gifts and Decorations


Sec. 7342. Receipt and disposition of foreign gifts and decorations

    (a) For the purpose of this section--
          (1) ``employee'' means--
                  (A) an employee as defined by section 2105 of 
                this title and an officer or employee of the 
                United States Postal Service or of the [Postal 
                Rate Commission] Postal Regulatory Commission;

           *       *       *       *       *       *       *


                      CHAPTER 75--ADVERSE ACTIONS


Subchapter II--Removal, Suspension for More Than 14 Days, Reduction in 
             Grade or Pay, or Furlough for 30 Days or Less


Sec. 7511. Definitions; application

    (a) For the purpose of this subchapter [5 USCS 
Sec. Sec. 7511 et seq.]--
          (1) ``employee'' means--
                  (A) an individual in the competitive 
                service--
                          (i) who is not serving a probationary 
                        or trial period under an initial 
                        appointment; or
                          (ii) who has completed 1 year of 
                        current continuous service under other 
                        than a temporary appointment limited to 
                        1 year or less;
                  (B) a preference eligible in the excepted 
                service who has completed 1 year of current 
                continuous service in the same or similar 
                positions--
                          (i) in an Executive agency; or
                          (ii) in the United States Postal 
                        Service or [Postal Rate Commission] 
                        Postal Regulatory Commission; and

           *       *       *       *       *       *       *


               CHAPTER 81--COMPENSATION FOR WORK INJURIES


                        Subchapter I--Generally


Sec. 8105. Total disability

    (a) If the disability is total, the United States shall pay 
the employee during the disability monthly monetary 
compensation equal to 66 \2/3\ percent of his monthly pay, 
which is known as his basic compensation for total disability. 
This section applies to a Postal Service employee, except as 
provided under subsection (c).
    (b) The loss of use of both hands, both arms, both feet, or 
both legs, or the loss of sight of both eyes, is prima facie 
permanent total disability.
    (c)(1) In this subsection, the term ``retirement age'' has 
the meaning given under section 216(l)(1) of the Social 
Security Act (42 U.S.C. 416(l)(1)).
    (2) Notwithstanding any other provision of law, for any 
injury occurring on or after the date of enactment of the 
Postal Accountability and Enhancement Act, and for any new 
claim for a period of disability commencing on or after that 
date, the compensation entitlement for total disability is 
converted to 50 percent of the monthly pay of the employee on 
the later of--
          (A) the date on which the injured employee reaches 
        retirement age; or

           *       *       *       *       *       *       *

          (B) 1 year after the employee begins receiving 
        compensation.

           *       *       *       *       *       *       *


Sec. 8106. Partial disability

    (a) If the disability is partial, the United States shall 
pay the employee during the disability monthly monetary 
compensation equal to 66\2/3\ percent of the difference between 
his monthly pay and his monthly wage-earning capacity after the 
beginning of the partial disability, which is known as his 
basic compensation for partial disability. This section applies 
to a Postal Service employee, except as provided under 
subsection (d).
    (b) The Secretary of Labor may require a partially disabled 
employee to report his earnings from employment or self-
employment, by affidavit or otherwise, in the manner and at the 
times the Secretary specifies. The employee shall include in 
the affidavit or report the value of housing, board, lodging, 
and other advantages which are part of his earnings in 
employment or self-employment and which can be estimated in 
money. An employee who--
          (1) fails to make an affidavit or report when 
        required; or
          (2) knowingly omits or understates any part of of his 
        earnings;
forfeits his right to compensation with respect to any period 
for which the affidavit or report was required. Compensation 
forfeited under this subsection, if already paid, shall be 
recovered by a deduction from the compensation payable to the 
employee or otherwise recovered under section 8129 of this 
title, unless recovery is waived under that section.
    (c) A partially disabled employee who--
          (1) refuses to seek suitable work; or
          (2) refuses or neglects to work after suitable work 
        is offered to, procured by, or secured for him; is not 
        entitled to compensation.
    (d)(1) In this subsection, the term ``retirement age'' has 
the meaning given under section 216(l)(1) of the Social 
Security Act (42 U.S.C. 416(l)(1)).
    (2) Notwithstanding any other provision of law, for any 
injury occurring on or after the date of enactment of this 
subsection, and for any new claim for a period of disability 
commencing on or after that date, the compensation entitlement 
for partial disability is converted to 50 percent of the 
difference between the monthly pay of an employee and the 
monthly wage earning capacity of the employee after the 
beginning of partial disability on the later of--
          (A) the date on which the injured employee reaches 
        retirement age; or
          (B) 1 year after the employee begins receiving 
        compensation.

           *       *       *       *       *       *       *


                   Subpart G--Insurance and Annuities

               CHAPTER 81--COMPENSATION FOR WORK INJURIES


                        Subchapter I--Generally


Sec. 8117. Time of accrual of right

    [An employee] (a) An employee other than a Postal Service 
employee is not entitled to compensation for the first 3 days 
of temporary disability, except--
          (1) when the disability exceeds 14 days;
          (2) when the disability is followed by permanent 
        disability; or
          (3) as provided by sections 8103 and 8104 of this 
        title.
    (b) A Postal Service employee is not entitled to 
compensation or continuation of pay for the first 3 days of 
temporary disability, except as provided under paragraph (3) of 
subsection (a). A Postal Service employee may use annual leave, 
sick leave, or leave without pay during that 3-day period, 
except that if the disability exceeds 14 days or is followed by 
permanent disability, the employee may have their sick leave or 
annual leave reinstated or receive pay for the time spent on 
leave without pay under this section.

           *       *       *       *       *       *       *


Sec. 8118. Continuation of pay; election to use annual or sick leave

    (a) The United States shall authorize the continuation of 
pay of an employee, as defined in section 8101(1) of this title 
(other than those referred to in clause (B) or (E)), who has 
filed a claim for a period of wage loss due to a traumatic 
injury with his immediate superior on a form approved by the 
Secretary of Labor within the time specified in section 
8122(a)(2) of this title.
    (b) Continuation of pay under this subchapter [1. 5 USCS 
Sec. Sec. 8101 et seq.] shall be furnished--
          [(1) without a break in time unless controverted 
        under regulations of the Secretary;]
          (1) without a break in time, except as provided under 
        section 8117(b), unless controverted under regulations 
        of the Secretary.
          2. (2) for a period not to exceed 45 days; and
          (3) under accounting procedures and such other 
        regulations as the Secretary may require.

           *       *       *       *       *       *       *


                   Subpart G--Insurance and Annuities

                         CHAPTER 83--RETIREMENT


                Subchapter III--Civil Service Retirement


Sec. 8334. Deductions, contributions, and deposits

    (a)(1)(A) The employing agency shall deduct and withhold 
from the basic pay of an employee, Member, Congressional 
employee, law enforcement officer, firefighter, bankruptcy 
judge, judge of the United States Court of Appeals for the 
Armed Forces, United States magistrate, Court of Federal Claims 
judge, member of the Capitol Police, member of the Supreme 
Court Police, or nuclear materials courier, as the case may be, 
the percentage of basic pay applicable under subsection (c).
    (B)(i) Except as provided in clause (ii), an equal amount 
shall be contributed from the appropriation or fund used to pay 
the employee or, in the case of an elected official, from an 
appropriation or fund available for payment of other salaries 
of the same office or establishment. When an employee in the 
legislative branch is paid by the Chief Administrative Officer 
of the House of Representatives, the Chief Administrative 
Officer may pay from the applicable accounts of the House of 
Representatives the contribution that otherwise would be 
contributed from the appropriation or fund used to pay the 
employee.
    [(ii) In the case of an employee of the United States 
Postal Service, the amount to be contributed under this 
subparagraph shall (instead of the amount described in clause 
(i)) be equal to the product derived by multiplying the 
employee's basic pay by the percentage equal to--
          (I) the normal-cost percentage for the applicable 
        employee category listed in subparagraph (A), minus
          (II) the percentage deduction rate that applies with 
        respect to such employee under subparagraph (A).]
    (ii) In the case of an employee of the United States Postal 
Service, no amount shall be contributed under this 
subparagraph.

           *       *       *       *       *       *       *


Sec. 8348. Civil Service Retirement and Disability Fund

           *       *       *       *       *       *       *


    [(h)(1)(A) For purposes of this subsection, ``Postal 
supplemental liability'' means the estimated excess, as 
determined by the Office, of--
          [(i) the actuarial present value of all future 
        benefits payable from the Fund under this subchapter [5 
        USCS Sec. Sec. 8331 et seq.] attributable to the 
        service of current or former employees of the United 
        States Postal Service, over
          [(ii) the sum of--
                  [(I) the actuarial present value of 
                deductions to be withheld from the future basic 
                pay of employees of the United States Postal 
                Service currently subject to this subchapter [5 
                USCS Sec. Sec. 8331 et seq.] pursuant to 
                section 8334;
                  [(II) the actuarial present value of the 
                future contributions to be made pursuant to 
                section 8334 with respect to employees of the 
                United States Postal Service currently subject 
                to this subchapter [5 USCS Sec. Sec. 8331 et 
                seq.];
                  [(III) that portion of the Fund balance, as 
                of the date the Postal supplemental liability 
                is determined, attributable to payments to the 
                Fund by the United States Postal Service and 
                its employees, including earnings on those 
                payments; and
                  [(IV) any other appropriate amount, as 
                determined by the Office in accordance with 
                generally accepted actuarial practices and 
                principles.
    [(B)(i) In computing the actuarial present value of future 
benefits, the Office shall include the full value of benefits 
attributable to military and volunteer service for United 
States Postal Service employees first employed after June 30, 
1971, and a prorated share of the value of benefits 
attributable to military and volunteer service for United 
States Postal Service employees first employed before July 1, 
1971.
    [(ii) Military service so included shall not be included in 
the computation of any amount under subsection (g)(2).
    [(2)(A) Not later than June 30, 2004, the Office shall 
determine the Postal supplemental liability as of September 30, 
2003. The Office shall establish an amortization schedule, 
including a series of equal annual installments commencing 
September 30, 2004, which provides for the liquidation of such 
liability by September 30, 2043.
    [(B) The Office shall redetermine the Postal supplemental 
liability as of the close of the fiscal year, for each fiscal 
year beginning after September 30, 2003, through the fiscal 
year ending September 30, 2038, and shall establish a new 
amortization schedule, including a series of equal annual 
installments commencing on September 30 of the subsequent 
fiscal year, which provides for the liquidation of such 
liability by September 30, 2043.
    [(C) The Office shall redetermine the Postal supplemental 
liability as of the close of the fiscal year for each fiscal 
year beginning after September 30, 2038, and shall establish a 
new amortization schedule, including a series of equal annual 
installments commencing on September 30 of the subsequent 
fiscal year, which provides for the liquidation of such 
liability over 5 years.
    [(D) Amortization schedules established under this 
paragraph shall be set in accordance with generally accepted 
actuarial practices and principles, with interest computed at 
the rate used in the most recent dynamic actuarial valuation of 
the Civil Service Retirement System.
    [(E) The United States Postal Service shall pay the amounts 
so determined to the Office, with payments due not later than 
the date scheduled by the Office.
    [(F) An amortization schedule established under 
subparagraph (B) or (C) shall supersede any amortization 
schedule previously established under this paragraph.
    [(3) Notwithstanding any other provision of law, in 
computing the amount of any payment under any other subsection 
of this section that is based upon the amount of the unfunded 
liability, such payment shall be computed disregarding that 
portion of the unfunded liability that the Office determines 
will be liquidated by payments under this subsection.
    [(4) Notwithstanding any other provision of this 
subsection, any determination or redetermination made by the 
Office under this subsection shall, upon request of the Postal 
Service, be subject to reconsideration and review (including 
adjustment by the Board of Actuaries of the Civil Service 
Retirement System) to the same extent and in the same manner as 
provided under section 8423(c).]
    (h)(1) In this subsection, the term ``Postal surplus or 
supplemental liability'' means the estimated difference, as 
determined by the Office, between--
          (A) the actuarial present value of all future 
        benefits payable from the Fund under this subchapter to 
        current or former employees of the United States Postal 
        Service and attributable to civilian employment with 
        the United States Postal Service; and
          (B) the sum of--
                  (i) the actuarial present value of deductions 
                to be withheld from the future basic pay of 
                employees of the United States Postal Service 
                currently subject to this subchapter under 
                section 8334;
                  (ii) that portion of the Fund balance, as of 
                the date the Postal surplus or supplemental 
                liability is determined, attributable to 
                payments to the Fund by the United States 
                Postal Service and its employees, minus benefit 
                payments attributable to civilian employment 
                with the United States Postal Service, plus the 
                earnings on such amounts while in the Fund; and
                  (iii) any other appropriate amount, as 
                determined by the Office in accordance with 
                generally accepted actuarial practices and 
                principles.
    (2)(A) Not later than June 30, 2006, the Office shall 
determine the Postal surplus or supplemental liability, as of 
September 30, 2005. If that result is a surplus, the amount of 
the surplus shall be transferred to the Postal Service Retiree 
Health Benefits Fund established under section 8909a. If the 
result is a supplemental liability, the Office shall establish 
an amortization schedule, including a series of annual 
installments commencing September 30, 2006, which provides for 
the liquidation of such liability by September 30, 2043.
    (B) The Office shall redetermine the Postal surplus or 
supplemental liability as of the close of the fiscal year, for 
each fiscal year beginning after September 30, 2006, through 
the fiscal year ending September 30, 2038. If the result is a 
surplus, that amount shall remain in the Fund until 
distribution is authorized under subparagraph (C), and any 
prior amortization schedule for payments shall be terminated. 
If the result is a supplemental liability, the Office shall 
establish a new amortization schedule, including a series of 
annual installments commencing on September 30 of the 
subsequent fiscal year, which provides for the liquidation of 
such liability by September 30, 2043.
    (C) As of the close of the fiscal years ending September 
30, 2015, 2025, 2035, and 2039, if the result is a surplus, 
that amount shall be transferred to the Postal Service Retiree 
Health Benefits Fund, and any prior amortization schedule for 
payments shall be terminated.
    (D) Amortization schedules established under this paragraph 
shall be set in accordance with generally accepted actuarial 
practices and principles, with interest computed at the rate 
used in the most recent valuation of the Civil Service 
Retirement System.
    (E) The United States Postal Service shall pay the amounts 
so determined to the Office, with payments due not later than 
the date scheduled by the Office.
    (3) Notwithstanding any other provision of law, in 
computing the amount of any payment under any other subsection 
of this section that is based upon the amount of the unfunded 
liability, such payment shall be computed disregarding that 
portion of the unfunded liability that the Office determines 
will be liquidated by payments under this subsection.

           *       *       *       *       *       *       *


                   Subpart G--Insurance and Annuities

            CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM


                    Subchapter I--General Provisions


Sec. 8402. Federal Employees' Retirement System; exclusions

           *       *       *       *       *       *       *


    (c)(1) The Office may exclude from the operation of this 
chapter [5 USCS Sec. Sec. 8401 et seq.] an employee or group of 
employees in or under an Executive agency, the United States 
Postal Service, or the [Postal Rate Commission] Postal 
Regulatory Commission, whose employment is temporary or 
intermittent, except an employee whose employment is part-time 
career employment (as defined in section 3401(2)).

           *       *       *       *       *       *       *


Subchapter II--Basic Annuity

           *       *       *       *       *       *       *



Sec. 8423. Government contributions

           *       *       *       *       *       *       *


    (b)
                  (1) The Office shall compute--
                  (A) the amount of the supplemental liability 
                of the Fund with respect to individuals other 
                than those to whom subparagraph (B) relates, 
                and
                  (B) the amount of the supplemental liability 
                of the Fund with respect to current or former 
                employees of the United States Postal Service 
                (and the [Postal Rate Commission] Postal 
                Regulatory Commission) and their survivors;

           *       *       *       *       *       *       *


                   Subpart G--Insurance and Annuities

            Chapter 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM


 Subchapter VII--Federal Retirement Thrift Investment Management System


Sec. 8474. Executive Director

           *       *       *       *       *       *       *


    (c) The Executive Director may--
          (1) prescribe such regulations as may be necessary to 
        carry out the responsibilities of the Executive 
        Director under this section, other than regulations 
        relating to fiduciary responsibilities;
          (2) appoint such personnel as may be necessary to 
        carry out the provisions of this subchapter and 
        subchapter III of this chapter [5 USCS Sec. Sec. 8471 
        et seq., 8431 et seq.];
          (3) subject to approval by the Board, procure the 
        services of experts and consultants under section 3109 
        of this title;
          (4) secure directly from an Executive agency, the 
        United States Postal Service, or the [Postal Rate 
        Commission] Postal Regulatory Commission any 
        information necessary to carry out the provisions of 
        this subchapter or subchapter III of this chapter [5 
        USCS Sec. Sec. 8471 et seq., 8431 et seq.] and policies 
        of the Board;

           *       *       *       *       *       *       *


                      CHAPTER 89--HEALTH INSURANCE


Sec. 8906. Contribution

           *       *       *       *       *       *       *


    (g)
          (1) Except as provided in paragraphs (2) and (3), the 
        Government contributions authorized by this section for 
        health benefits for an annuitant shall be paid from 
        annual appropriations which are authorized to be made 
        for that purpose and which may be made available until 
        expended.
          (2)(A) The Government contributions authorized by 
        this section for health benefits for an individual who 
        first becomes an annuitant by reason of retirement from 
        employment with the United States Postal Service on or 
        after July 1, 1971, or for a survivor of such an 
        individual or of an individual who died on or after 
        July 1, 1971 while employed by the United States Postal 
        Service, [shall be paid by the United States Postal 
        Service.] shall be paid first from the Postal Service 
        Retiree Health Benefit Fund up to the amount contained 
        in the Fund, with any remaining amount paid by the 
        United States Postal Service.
          (B) In determining any amount for which the Postal 
        Service is liable under this paragraph, the amount of 
        the liability shall be prorated to reflect only that 
        portion of total service which is attributable to 
        civilian service performed (by the former postal 
        employee or by the deceased individual referred to in 
        subparagraph (A), as the case may be) after June 30, 
        1971, as estimated by the Office of Personnel 
        Management.
          (3) The Government contribution for persons enrolled 
        in a health benefits plan as part of the demonstration 
        project under section 1108 of title 10 shall be paid as 
        provided in subsection (i) of that section.

           *       *       *       *       *       *       *


Sec. 8909. Employees Health Benefits Fund

    (a) There is in the Treasury of the United States an 
Employees Health Benefits Fund which is administered by the 
Office of Personnel Management. The contributions of enrollees 
and the Government described by section 8906 of this title 
shall be paid into the Fund. The Fund is available--
          (1) without fiscal year limitation for all payments 
        to approved health benefits plans; and(2) to pay 
        expenses for administering this chapter [5 USCS 
        Sec. Sec. 8901 et seq.] within the limitations that may 
        be specified annually by Congress.

           *       *       *       *       *       *       *

    (g) The fund described in subsection (a) is available to 
pay costs that the Office incurs for activities associated with 
implementation of the demonstration project under section 1108 
of title 10.

Sec. 8909a. Postal Service Retiree Health Benefit Fund

    (a) There is in the Treasury of the United States a Postal 
Service Retiree Health Benefits Fund which is administered by 
the Office of Personnel Management.
    (b) The Fund is available without fiscal year limitation 
for payments required under section 8906(g)(2)(A).
    (c) The Secretary of the Treasury shall immediately invest, 
in interest-bearing securities of the United States such 
currently available portions of the Fund as are not immediately 
required for payments from the Fund. Such investments shall be 
made in the same manner as investments for the Civil Service 
Retirement and Disability Fund under section 8348.
    (d)(1) Not later than December 31, 2006, and by December 31 
of each succeeding year, the Office shall compute the net 
present value of the future payments required under section 
8906(g)(2)(A) and attributable to the service of Postal Service 
employees during the most recently ended fiscal year.
    (2)(A) Not later than December 31, 2006, the Office shall 
compute, and by December 31 of each succeeding year, the Office 
shall recompute the difference between--
          (i) the net present value of the excess of future 
        payments required under section 8906(g)(2)(A) for 
        current and future United States Postal Service 
        annuitants as of the end of the fiscal year ending on 
        September 30 of that year; and
          (ii)(I) the value of the assets of the Postal Retiree 
        Health Benefits Fund as of the end of the fiscal year 
        ending on September 30 of that year; and
          (II) the net present value computed under paragraph 
        (1).
    (B) Not later than December 31, 2006, the Office shall 
compute, and by December 31 of each succeeding year shall 
recompute, an amortization schedule including a series of 
annual installments which provide for the liquidation by 
January 31, 2046, or within 15 years, whichever is later, of 
the net present value determined under subparagraph (A), 
including interest at the rate used in that computation.
    (3) Not later than January 31, 2007, and by January 31 of 
each succeeding year, the United States Postal Service shall 
pay into such Fund--
          (A) the net present value computed under paragraph 
        (1); and
          (B) the annual installment computed under paragraph 
        (2)(B).
    (4) Computations under this subsection shall be made 
consistent with the assumptions and methodology used by the 
Office for financial reporting under subchapter II of chapter 
35 of title 31.
    (5) After consultation with the United States Postal 
Service, the Office shall promulgate any regulations the Office 
determines necessary under this subsection.

           *       *       *       *       *       *       *


                           TITLE 5--APPENDIX

                    ETHICS IN GOVERNMENT ACT OF 1978

    TITLE I, FINANCIAL DISCLOSURE REQUIREMENTS OF FEDERAL PERSONNEL

Sec. 101. Persons required to file

           *       *       *       *       *       *       *


    (f) The officers and employees referred to in subsections 
(a), (d), and (e) are--

           *       *       *       *       *       *       *

          (6) the Postmaster General, the Deputy Postmaster 
        General, each Governor of the Board of Governors of the 
        United States Postal Service and each officer or 
        employee of the United States Postal Service or [Postal 
        Rate Commission] Postal Regulatory Commission who 
        occupies a position for which the rate of basic pay is 
        equal to or greater than 120 percent of the minimum 
        rate of basic pay payable for GS-15 of the General 
        Schedule;

           *       *       *       *       *       *       *


                            TITLE 29, LABOR

CHAPTER 16--VOCATIONAL REHABILITATION AND OTHER REHABILITATION SERVICES 
                          RIGHTS AND ADVOCACY


Sec. 791. Employment of individuals with disabilities

           *       *       *       *       *       *       *


    (b) Federal agencies; affirmative action program plans. 
Each department, agency, and instrumentality (including the 
United States Postal Service and the [Postal Rate Commission] 
Postal Regulatory Commission) in the executive branch and the 
Smithsonian Institution shall, with one hundred and eighty days 
after the date of enactment of this Act [enacted Sept. 26, 
1973], submit to the Commission and to the Committee an 
affirmative action program plan for the hiring, placement, and 
advancement of individuals with disabilities in such 
department, agency, instrumentality, or Institution. Such plan 
shall include a description of the extent to which and methods 
whereby the special needs of employees who are individuals with 
disabilities are being met. Such plan shall be updated 
annually, and shall be reviewed annually and approved by the 
Commission, if the Commission determines, after consultation 
with the Committee, that such plan provides sufficient 
assurances, procedures and commitments to provide adequate 
hiring, placement, and advancement opportunities for 
individuals with disabilities.

           *       *       *       *       *       *       *


                TITLE 42, THE PUBLIC HEALTH AND WELFARE

            CHAPTER 112--VICTIM COMPENSATION AND ASSISTANCE


Sec. 10601. Crime Victims Fund

    (a) Establishment. There is created in the Treasury a 
separate account to be known as the Crime Victims Fund 
(hereinafter in this chapter referred to as the ``Fund'').
    (b) Fines deposited in Fund; penalties; forfeited 
appearance bonds. Except as limited by subsection (c), there 
shall be deposited in the Fund--
          (1) all fines that are collected from persons 
        convicted of offenses against the United States 
        except--
                  (A) fines available for use by the Secretary 
                of the Treasury pursuant to--
                          (i) section 11(d) of the Endangered 
                        Species Act (16 U.S.C. 1540(d)); and
                          (ii) section 6(d) of the Lacey Act 
                        Amendments of 1981 (16 U.S.C. 3375(d)); 
                        and
                  (B) fines to be paid into--
                          (i) the railroad unemployment 
                        insurance account pursuant to the 
                        Railroad Unemployment Insurance Act (45 
                        U.S.C. 351 et seq.);
                          (ii) the Postal Service Fund pursuant 
                        to sections 2601(a)(2) and 2003 of 
                        title 39 of the United States Code and 
                        for the purposes set forth in section 
                        [404(a)(8)] 404(a)(7) of such title 39;
                          (iii) the navigable waters revolving 
                        fund pursuant to section 311 of the 
                        Federal Water Pollution Control Act (33 
                        U.S.C. 1321) and
                          (iv) county public school funds 
                        pursuant to section 3613 of title 18 of 
                        the United States Code;

           *       *       *       *       *       *       *


                TITLE 44, PUBLIC PRINTING AND DOCUMENTS

         CHAPTER 35--COORDINATION OF FEDERAL INFORMATION POLICY


                Subchapter I--Federal Information Policy


Sec. 3502. Definitions

    As used in this subchapter [44 USCS Sec. Sec. 3501 et 
seq.]--

           *       *       *       *       *       *       *

          (5) the term ``independent regulatory agency'' means 
        the Board of Governors of the Federal Reserve System, 
        the Commodity Futures Trading Commission, the Consumer 
        Product Safety Commission, the Federal Communications 
        Commission, the Federal Deposit Insurance Corporation, 
        the Federal Energy Regulatory Commission, the Federal 
        Housing Finance Board, the Federal Maritime Commission, 
        the Federal Trade Commission, the Interstate Commerce 
        Commission, the Mine Enforcement Safety and Health 
        Review Commission, the National Labor Relations Board, 
        the Nuclear Regulatory Commission, the Occupational 
        Safety and Health Review Commission, the [Postal Rate 
        Commission] Postal Regulatory Commission, the 
        Securities and Exchange Commission, and any other 
        similar agency designated by statute as a Federal 
        independent regulatory agency or commission;

           *       *       *       *       *       *       *


                        TITLE 49, TRANSPORTATION

                    Subtitle VII--Aviation Programs

                    PART A--AIR COMMERCE AND SAFETY

                    Subpart II--Economic Regulation

                 CHAPTER 411--AIR CARRIER CERTIFICATES


Sec. 41107. Transportation of mail

    When the United States Postal Service finds that the needs 
of the Postal Service require the transportation of mail by 
aircraft [in foreign air transportation or] between places in 
Alaska, in addition to the transportation of mail authorized 
under certificates in effect, the Postal Service shall certify 
that finding to the Secretary of Transportation with a 
statement about the additional transportation and facilities 
necessary to provide the additional transportation. A copy of 
each certification and statement shall be posted for at least 
20 days in the office of the Secretary. After notice and an 
opportunity for a hearing, the Secretary shall issue a new 
certificate under section 41102 of this title, or amend or 
modify an existing certificate under section 41110(a)(2)(A) of 
this title, to provide the additional transportation and 
facilities if the Secretary finds the additional transportation 
is required by the public convenience and necessity.

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                  CHAPTER 419--TRANSPORTATION OF MAIL


Sec. 41901. General authority

    [(a) Title 39.--The United States Postal Service may 
provide for the transportation of mail by aircraft in 
interstate air transportation under section 5402(e) and (f) of 
title 39.]
    (a) Title 39.--The United States Postal Service may provide 
for the transportation of mail by aircraft in air 
transportation under this chapter and under chapter 54 of title 
39.
    (b) Authority to prescribe prices. Except as provided in 
section 5402 of title 39, on the initiative of the Secretary of 
Transportation or on petition by the Postal Service or an air 
carrier, the Secretary shall prescribe and publish--
          (1) after notice and an opportunity for a hearing on 
        the record, reasonable prices to be paid by the Postal 
        Service for the transportation of mail by aircraft [in 
        foreign air transportation or] between places in 
        Alaska, the facilities used in and useful for the 
        transportation of mail, and the services related to the 
        transportation of mail for each carrier holding a 
        certificate that authorizes that transportation;
          (2) the methods used, whether by aircraft-mile, 
        pound-mile, weight, space, or a combination of those or 
        other methods, to determine the prices for each air 
        carrier or class of air carriers; and
          (3) the effective date of the prices.

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Sec. 41902. Schedules for certain transportation of mail

    (a) Requirement.--Except as provided in section 41906 of 
this title and section 5402 of title 39, an air carrier may 
transport mail by aircraft [in foreign air transportation or] 
between places in Alaska only under a schedule designated or 
required to be established under subsection (c) of this section 
for the transportation of mail.
    (b) Statements on Places and Schedules.--Every air carrier 
shall file with the Secretary of Transportation and the United 
States Postal Service a statement showing--
          (1) the places between which the carrier is 
        authorized to provide foreign air transportation (other 
        than foreign air transportation of mail);
          (2) the places between which the carrier is 
        authorized to transport mail in Alaska;
          (3) every schedule of aircraft regularly operated by 
        the carrier between places described in clauses (1) and 
        (2) of this subsection and every change in each 
        schedule; and
          (4) for each schedule, the places served by the 
        carrier and the time of arrival at, and departure from, 
        each place.

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Sec. 41903. Duty to provide certain transportation of mail

    (a) Air Carriers.--Subject to subsection (b) of this 
section, an air carrier authorized by its certificate to 
transport mail by aircraft [in foreign air transportation or] 
between places in Alaska shall--
          (1) provide facilities and services necessary and 
        adequate to provide that transportation; and
          (2) transport mail between the places authorized in 
        the certificate for transportation of mail when 
        required, and under regulations prescribed, by the 
        United States Postal Service.
    (b) Maximum Mail Load.--The Secretary of Transportation may 
prescribe the maximum mail load for a schedule or for an 
aircraft or type of aircraft for the transportation of mail by 
aircraft [in foreign air transportation or] between places in 
Alaska. If the Postal Service tenders to an air carrier mail 
exceeding the maximum load for transportation by the carrier 
under a schedule designated or required to be established for 
the transportation of mail under section 41902(c) of this 
title, the carrier, as nearly in accordance with the schedule 
as the Secretary decides is possible, shall--

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Sec. 41907. Prices for foreign transportation of mail

    [(a) Limitations.]--When air transportation is provided 
between the United States and a foreign country both by 
aircraft owned or operated by an air carrier holding a 
certificate under chapter 411 of this title [49 USCS 
Sec. Sec. 41101 et seq.] and by aircraft owned or operated by a 
foreign air carrier, the United States Postal Service may not 
pay to or for the account of the foreign air carrier a price 
for transporting mail by aircraft between the United States and 
the foreign country that the Postal Service believes will 
result (over a reasonable period determined by the Postal 
Service considering exchange fluctuations and other factors) in 
the foreign air carrier receiving a price for transporting the 
mail that is higher than the price--
          (1) the government of a foreign country or foreign 
        postal administration pays to air carriers for 
        transporting mail of the foreign country by aircraft 
        between the foreign country and the United States; or
          (2) determined by the Postal Service to be comparable 
        to the price the government of a foreign country or 
        foreign postal administration pays to air carriers for 
        transporting mail of the foreign country by aircraft 
        between the foreign country and an intermediate country 
        on the route of the air carrier between the foreign 
        country and the United States.
    [(b) Changes.--The Secretary of Transportation shall act 
expeditiously on proposed changes in prices for transporting 
mail by aircraft in foreign air transportation. When 
prescribing those prices, the Secretary shall consider--
          [(1) the prices paid for transportation of mail under 
        the Universal Postal Union Convention as ratified by 
        the United States Government;
          [(2) the price-making elements used by the Universal 
        Postal Union in prescribing its airmail prices; and
          [(3) the competitive disadvantage to United States 
        flag air carriers resulting from foreign air carriers 
        receiving Universal Postal Union prices for 
        transporting United States mail and national origin 
        mail of their own countries.]