In order that all may better understand the economics of bulk third-class mail, I have prepared a booklet which explains the Stans' principle of "differential pricing" as incorporated in the Postal Policy Act of 1958. I will ask that you leaf through a few pages with me. That is this little blue booklet, gentlemen, on your desk [displaying booklet]. On page 1, I set the groundwork for the whole booklet. Maurice Stans, before this committee on the last rate act, said: Third-class mail is paying less than its allocated costs, not as a subsidiary but as a recognition of the deferred service it receives and the lesser value it represents. And then, from the Department's own survey of postal rates just submitted to this committee, it says: About 8 percent of third-class mail is presorted and tied prior to arrival at post offices. This results in a considerable saving in man-hours and the expense is correspondingly lower. I hope Mr. Thomas, the former postmaster of Philadelphia, will describe to the committee what these sortings and handlings are. There is a chart on page 5 which shows the peak hours used in the Department for first-class mail, and the slack hours. Mr. Thomas will touch on that chart. "Sound Business Practice Dictates"-if you will note on page 7 the testimony of Maurice Stans before this committee, said: There are many common illustrations of differences in service rates dictated by factors other than costs. The differences between a straight telegram and a night letter, or between a day telephone call and an evening call, or between orchestra and balcony seats in a theater or between advertising rates on cover space and inside space in magazine, or between various commodity rates for railway transportation, are all generally recognized. Then I give you a few figures there for rates for coach and firstclass rates by airlines and railways; and in the ball park, if you want to sit in the bleachers it is 75 cents, whereas it is $3 at the first base box; and with telegrams and in theaters the same principle applies. If you get to the middle spread of the booklet, you will see dramatically portrayed the 150 percent rise already in bulk third-class mail compared with other rises. We then comment on the Department of Commerce study and ask why the information was withheld. We list on page 12 the users of third-class mail, which is just about everybody in the United States. Then we come down to the very last page and the very last paragraph and again quote the eminent Director of the Budget, for whom I have a very high regard, I might say. He says: To insist that each class of mail pay its fully allocated costs would be reasonable only if the Department then handled all classes of mail in sequence as received, with no priority or privileges given to handling of first-class mail. This would seriously delay letter mail and certainly would not be in accordance with the wishes of the public. Getting back to the prepared statement, Congressman Irwin asked Assistant Postmaster General Gillette last Tuesday a question which gets to the heart of the issue. Mr. Irwin wanted to know why the differential pricing chart contained in the 1956 cost ascertainment report does not appear in subsequent reports. Mr. Gillette's answer was that there was no need for its inclusion after the enactment of the Postal Policy .Act of 1958. Gentlemen, the answer flies in the face of legislative history. The following quotes from the record of the 1957 postal rate hearings before this committee will thoroughly refute Mr. Gillette's answer to Mr. Irwin. After introducing the "differential pricing" chart referred to by Congressman Irwin, the same one as appears in the 1956 Cost Ascertainment Report, Mr. Stans states, page 32: In the sixth column, adjustments are made for the service factors which are not taken into account in the cost figures. The computations are recommended current applications of these factors, and follow a formula advanced by the Department's Committee on Cost Allocation in its report of January 27, 1954. This procedure is in accordance with the policy statement in title II of this bill. And on page 219: This is done by the application of a formula that was set up in 1954 by a group of career executives in the Post Office who were familiar with the services given to each class of mail, the kinds of priorities each class of mail receives, the differences in value and so forth. These career executives were assigned a specific problem of recommending to the Department the percentages of cost which each class of mail ought to pay, with consideration given to the variations in service. That committee reported that initially second-class mail ought to be paying 50 percent of its allocated cost, that third-class mail currently ought to be paying 75 percent of its allocated cost, and that the difference ought to be borne by firstclass mail in consideration of the preferred service and attention that it receives. On page 221 of the 1957 hearings Mr. Stans points out that where two or three deliveries are made in business districts, they are made for the purpose of first-class mail. Third-class mail is also delivered if there is space in the bag, and is charged accordingly. The same thing, Stans said, happens with collections and in the case of railroad postal cars where extra space is available. He concludes: If we did not have to move first-class mail, we could operate the post office on an 8-hour day, from 9 to 5, like industry does. What happens is that in order to fill out an 8-hour night shift, we give our employees some second-class and thirdclass mail to handle after the first-class mail is out. This results in a charge against second-class and third-class mail for a portion of the night-shift differential that we would not otherwise have to pay at all, if it were not for the fact that we set up night shifts to handle first-class mail. On page 225: I think it would clarify the matter still further to bring up this point. That is, to consider what would be the result if we did not adjust cost ascertainment for value of service factor, but rather to set postage rates to make each class of mail pay its full cost, without any adjustment. If we did that, then there would be no justification to giving priority to first-class mail. We would presumably handle first-, second-, and third-class mail in sequence as it came in. I think that would result in a deterioration of service that would be heard from one end of the country to the other. On page 229 of the same hearing Postmaster General Summerfield himself comments on differential pricing and the chart which the Department had included in the record of the hearings. He said: That is the basis on which we start our deliberations. And I might call your attention to the fact that in determining the request for rate increases in this bill before you today, we are following out literally the instructions, the recommendations of this body and the Congress as they passed the bill last year as to the statement of policy. To wind up this discussion of differential pricing, I have saved the best evidence of all for last. I refer you to a letter written by Assistant Postmaster General Gillette to Senator Everett M. Dirksen, on April. 9, 1958. Here is the text, omitting only one paragraph no longer pertinent: DEAR SENATOR DIRKSEN: The Postmaster General has asked me to reply to your letter of March 31, 1958, transmitting a letter from Mr. Maginnis of the Associated Third-Class Mail Users relative to proposed adjustments in third-class postal rates. Let me state briefly the arithmetic supporting the Department's proposed rate adjustments in third-class mail: Third-class mail, fiscal year 1956 [Millions of dollars] Expenditures. Revenues (including credit of $6 million for preferential 3d-class rates). 506 272 Remaining loss____ 234 This $234 million is the actual loss in third-class mail when no consideration is given to service factors. It includes a credit of $6 million which is the amount of revenue lost to the Department owing to the special low rate enjoyed by nonprofit institutions. The Post Office Department, recognizing that third-class mail is of lesser value and received some deferment of service, discounted the cost of handling such mail by 25 percent. This revolutionary step, which provides long-term benefits to third-class mail users, was instituted by the present administration. The arithmetic of third-class mail would then appear as follows: Third-class mail, fiscal year 1956 [Millions of dollars] Revenues (including credit of $6 million for preferential 3d-class rates). Expenditures.. Remaining loss_ - - 380 272 108 This $108 million represents the adjusted losses for fiscal 1956, the latest year for which complete data is available. However, postal costs will have increased substantially by fiscal 1959, the year in which the new postal rates will become effective. To provide a realistic cost picture the Department added to third-class costs an additional sum to reflect a pro rata share of the higher costs of railway transport and postal wages contained in the President's budget for fiscal 1959. This would add not less than $25 million to third-class costs, leaving a remaining loss of $133 million, which is approximately the amount of additional revenue which would be obtained from enactment of the postal rate bill. I hope that I have answered your questions satisfactorily. If additional data are required, please do not hesitate to advise us. Sincerely yours, HYDE GILLETTE, Assistant Postmaster General. Thus as recently as 2 years ago, Mr. Gillette was willing to comply with the requirements of the Postal Policy Act as to third-class mail. As I indicated in my testimony, he has now found it convenient to ignore his own previous position. Judge Davis pointed out a few days ago that the Department is inclined to take a year or period of years which best suits its purpose. He asked, for instance, why the year 1932 was selected instead of 1931 when making percentage-increase comparisons for first-class mail. The practice of the Department in connection with the cost coverage of third-class mail presents even greater distortions. Members will note that the Department keeps referring to the fact that third-class mail paid 98 percent of its way in 1926. I purposely underline the year. The fact is that bulk third-class mail was not created by Congress until 1928. If you take the year 1926 and compare it with cost recovery in later years, you will be comparing grapefruits with grapes. Here is the true, honest, reliable, trustworthy chart. It covers all of the years from 1929, the first full year after the bulk mail privilege was legislated, up to and including 1960. This is the Department's own chart, eliminating these figures of 1926, 1927, and 1928. (The chart referred to follows:) Ratio of revenues to expenditures, 1st-, 2d-, and 3d-class mail, 1929-561 1 Without regard to reallocation of cost to recognize differential in service or value of mails. 2 No figures given. Mr. MAGINNIS. You will find that under first-class, the cost of recovery of third-class traditionally has been approximately 70 percent. It never got higher than 78.8 percent, and that the last Rate Act put it up to 77.7 percent. And it has a notation, this chart from the Department's records, that that is without regard to reallocation of cost to recognize the differential in service or the value of the mails. If historical patterns are to be employed, then bulk third-class mail is more than paying its way. Maurice Stans asked for a 75-percent recovery from third-class mail. The last Rate Act produced a 77.7percent recovery. To further increase the rate would be flying in the face of prudence and justice. That about completes my part of the third-class case. There are just a few miscellaneous items I would like to add. The Post Office Department is always quick to point to the 1951 law which compels Federal executives to charge a breakeven price for services and goods provided "identifiable" customers. The Post Office is the only agency of Government which achieves this goal. As a result, postal patrons paid into the Treasury during the 13-year period 1946-59 the grand sum of $32 billion. What have other agencies done? Here is one example. It demonstrates that Secretary of Commerce Mueller is just one of many Cabinet members who charge only nominal fees for services performed: I am not going to read this whole thing. (The material referred to follows;) JERSEY PATENT A BARGAIN-COST U.S. $5,463 But You CAN BUY IT FOR TWO BITS WASHINGTON (AP).—If you like odd souvenirs, Uncle Sam will sell you a copy of the biggest patent ever issued-620 pages for the bargain price of 25 cents. The Patent Office has paid $13.52 for each copy printed so far. What's more, the 25-cent price tag doesn't even cover the cost of mailing. The bulky patent, No. 2,925,957, was issued Feb. 23 to Amos E. Joel Jr. of 131 North Wyoming Avenue, South Orange, N.J. It covers the automatic telephone billing system developed for Bell Telephone Laboratories in New York. Joel, a switching systems development engineer, has been employed by Bell Labs 20 years. Joel invented the device which automatically keeps track of all calls made from dial telephones, together with the charges. At the end of each month, it produces a carefully tabulated bill for each phone. Most patents contain about six pages but Joel's includes 354 pages of diagrams plus 266 pages of printed material. It weighs 4 pounds, 2 ounces. The text runs about 398,000 words, or the length of five average novels. By law, anyone may buy a copy of any patent. The standard charge is 25 cents. For the average six-page patent, this charge permits the Government to recover much of the printing costs. However, no provision is made for increasing the fee in an exceptional case like the Joel patent. The Joel patent had an initial printing of 204 copies and this job cost the Government $4,141.60. Joel paid a standard fee of $30 to help defray this cost so Uncle Sam actually was out of pocket $4,111.60 or about $20.15 for each copy printed. A second printing of 200 copies cost only $1,351.60 since the typesetting had already been done. That boosted the Government's total expense for 404 copies to $5,463.20, or $13.52 a copy. If you lived in California and ordered this particular patent, the Government would spend an additional $1.21 to mail it to you. If an order were received from President Eisenhower, who lives two blocks from the Patent Office, the postage bill would be 30 cents. Before you take advantage of this bargain, remember that every copy represents red ink in the Federal budget. With this in mind, the Patent Office is limiting sales to one to a customer. Mr. MAGINNIS. What happened in effect was, the Patent Office will sell to anybody, the Russians or our own citizens, any patent for 25 cents. Somebody came up with a patent to find out how you automatically bill the Bell Telephone customers. This fellow sent in his 25 cents, and here is the patent [displaying document]. I got a copy myself. It is five times as long as "Advise and Consent," it cost $5,463 to reproduce copies of it, and they sent this fellow one for a quarter. It cost $1.70 postage simply to mail it to him. If Mr. Mueller wants to abide by the law, this is an "identifiable" customer. I bought it and should pay for it, and so should the other fellow. I point out that this applies in all agencies of Government. They simply do not charge anything but nominal fees. It seems pertinent to remind this committee at this point that the Post Office Department has far and away the best record in the Government insofar as recovery of its costs of operation is concerned. The Post Office takes in 85 percent of its expenses. No other department or agency even comes close to that excellent record. It should be noted that all 12 rate increase bills, including the administration bill, would seriously affect many worthy charities which use third-class mail. The 1958 rate increase law established a nonprofit third-class rate of 50 percent of the business rate. These charitable organizations such as the Central Association of the Miraculous Medal in Philadelphia, the Franciscan Fathers of Indiana, the Missionary Servants of the Most Holy Trinity of Silver Spring, |