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of public welfare expenditures for which the Department would be seeking an appropriation at this time would be approximately $585 million for 1960. When the bill reported by the Senate committee was debated on the Senate floor, the chairman of the Senate Appropriations Committee, Mr. Hayden, introduced an amendment authorizing appropriations to the revenues of the Post Office Department for public welfare services of an amount 'equal to the total estimated expenditures of the Post Office Department for the year for such public services as determined by the Congress in the appropriation act based upon budget estimates submitted to the Congress. In amending the language of the Postal Policy Act to permit the Appropriations Committees and the Congress in the appropriation act to be the final arbiters of the amount of the public service costs of the Post Office each year, Senator Hayden advised his colleagues that this same principle was involved in a bill which was favorably reported to the House.'

“Although the Hayden amendment made the determination of the amount of the public service expenditures subject to the discretion of the appropriations procedures, the list of public services contained in the bill reported by the Senate committee remains in the act.

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"It is clear from the legislative history of the public service provisions of Public Law 85–426 that it was the intent of the Congress that the amount of the public service costs of the Post Office Department for which reimbursement should be made should be determined anew in each fiscal year in the appropriations process of the Congress.

“Paragraph (b) of section 104 of the Postal Policy Act of 1958 requires that the Post Office Department submit budget estimates of the amount of the cost of public services enumerated in that section. In submitting to this committee estimates of public service costs of $172 million for fiscal 1960, the Department is adhering to the best of its ability to the requirements of section 104 of the Postal Policy Act.

“The final determination of the amount of the public service costs of the Post Office Department rests of course, with the Congress.”

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The Senate Subcommittee on Appropriations in its hearings on the bill gave full opportunity for all interested persons to testify on this controversial subject. Extensive testimony as to how public service losses should be computed, in addition to that presented by the Department, was offered by Senators Johnson and Carlson, chairman and ranking minority member of the Senate Post Office and Civil Service Committee, the Director of the Bureau of the Budget; and representatives of the General Accounting Office, the U.S. Chamber of Commerce, and the Associated Third-Class Mail Users.

The Department's position in regard to Public Law 85-426 and in regard to its own beliefs in this matter was stated unequivocally at these hearings before the Senate Appropriations Subcommittee by the Postmaster General (1960 hearings, p. 158);

“Mr. Chairman, I am sure you read what the President said at the time he signed the particular legislation we are referring to here. I am sure the record is very clear as to the Post Office Department's position as to what constitutes public services. That is identifiable over the years.

“The record stands clear on that. We recognize, however, that the responsibility of determining the answer to this question rests in the hands of the Congress and not in the Department.

“With reference to the public service items with which we are here concerned, if we use the system that we have always advocated, then the item for public service would be somewhere in the area of $38 million as against the total loss figure of $172 million.

"In our justification to the House Appropriations Committee, a copy of which came to this committee, we estimated, to the best of our ability in accordance with the statute as we interpreted it, an amount of $172 million for public services.

“However, when the House took it out completely, then we thought we would make no further request and leave it entirely in the hands of the Congress in its wisdom to decide."

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Following these hearings, the Senate Appropriations Committee recommended the appropriation of $37,400,000 for losses on public services for 1960 with the following general comments in its report (S. Rept. No. 305, May 21, 1959):

“The committee has carefully reviewed the question of a proper charge to the general fund of the Treasury for what the Postal Policy Act defines as 'public

services' rendered by the Department. This is especially significant because the act (sec. 104(b)) places upon the Congress the responsibility for determining the measure of these services in the appropriation act, and then provides that postal rates and charges are to be adjusted from time to time so that postal revenues, including payment for these public services, will cover all postal expenditures.

“The estimate submitted by the Department, it was developed, represented one possible method of computation of reimbursable public services. Evidence from the Department and other sources clearly indicated that lesser amounts were intended also to be considered and were in fact more appropriate.'

The amount recommended by the Senate committee was passed by the Senate, accepted by the conferees, and incorporated in the 1960 appropriation act.

In view of the provisions of the Postal Policy Act of 1958 that the amount deemed to be attributable to the public service losses enumerated under section 104 would be the amount as determined by the Congress in the appropriation act, the Department believed that the congressional action on the 1960 appropriation established the pattern for subsequent appropriations and therefore computed its 1961 estimates in exact conformity with the formula used by the Congress in arriving at the amount of the 1960 appropriation for this purpose.

Thus, to answer your questions specifically as to how we justify” public service estimates based on loss of revenue forgone, rather than "total loss," it is because we are following the conclusions reached last year by the committees of Congress designated under the law to make these findings (the Appropriations Committees) and as subsequently ratified by legislative action. We submitted our request for reimbursement on the basis of total loss” for both fiscal 1959 and 1960, although the Department has consistently expressed the opinion that the true public service is the revenue forgone, the balance being due to deficiencies in basic rates. Now Congress has told us that it is to be computed on the basis of revenue forgone and we have done so.

In the light of this legislative history, I see no inconsistency between our testimony before the House Appropriations Committee this year and the Postal Policy Act.

The language that we suggested be added to the appropriation act was necessary, we felt, this year in order to avoid any uncertainty as to the specific items for which the appropriation for public service losses was being made. Last year the Senate Committee on Appropriations made it quite clear in their report what these items were, but our experience in the parcel post rate hearings before the ICC indicated the desirability of avoiding any uncertainty on this point. Such language would be particularly necessary if either committee were to feel it unnecessary to elaborate this year on these items in their reports.

This year the House Appropriations Committee in its report (H. Rept. No. 1281, p. 15) emphasized its agreement with the position taken in last year's report of the Senate Committee on Appropriations. The bill reported out (H.R. 10569) contained a public service appropriation based on exactly the same formula as last year and included the clarifying language suggested by the Department. This bill was passed by the House on February 23, 1960. Yours sincerely,

HYDE GILLETTE,

Assistant Postmaster General, Mr. GILLETTE. This concludes my testimony, Mr. Chairman,

Mr. Gross. If I remember correctly, Mr. Assistant Postmaster General, this committee 2 years ago passed the biggest single rate increase bill in history. Is that statement correct?

Mr. GILLETTE. I think it perhaps is, Mr. Gross. That was because the greatest single deficit in history was facing the Post Office Department.

Mr. Gross. Now, it is your contention that first-class mail and airmail are operating at a deficit, or is there a profit in first- and second-class mail?

Mr. GILLETTE. Mr. Gross, we have stated very clearly that there is an 11-percent excess coverage of first-class costs.

This was contained in the early part of my statement on the first day.

Mr. Gross. I am just trying to recapitulate.
Mr. GILLETTE. Yes, sir.

Mr. Gross. I would like to draw all the ends together. Eleven percent of what?

Mr. GILLETTE. That first class was covering its costs 111 percent, or an 11-percent premium, as compared with a 140-percent coverage which existed from 1926 to 1941, before costs went up so much in the postwar period.

Mr. Gross. To put it another way, you are saying it is 11 percent above the break-even point in first class?

Mr. GILLETTE. I am saying it is covering its costs plus 11 percent, based on the 1959 adjusted data.

Mr. Gross. So your rate increase would take it then to how much more?

Mr. GILLETTE. It would take it to an order of magnitude estimate between 130 and 140 percent of coverage, which would compare with the 140 percent that existed prewar. This is in conformity with the stated policy of the Congress in title I of Public Law 85-426, section 103(c) (2).

Mr. GROSS. And airmail?

Mr. GILLETTE. Airmail, sir, is similarly covering its cost 114 percent.

Mr. GROSS. The proposal in this bill would take it to what?

Mr. GILLETTE. At a very rough guess, in the neighborhood of 130 percent.

Mr. Gross. And second class? What increase would you have to have to balance the budget, if I may use that phrase, in second class?

Mr. GILLETTE. You would have to have an increase of $280 million. We are proposing an increase of only about $45 million, which is a 40-percent increase in the present revenue, because under the full effect of the 1958 act, second-class mail will be producing only about $97 million. A $45 million increase would be a little over 40 percent.

Mr. Gross. Let us take third class on the same basis.

Mr. GILLETTE. The coverage of second-class mail, just to complete the thought, would be about 40 percent under the administration's rate proposals. Coverage would be about 40 percent with approximately a 40-percent increase. In regard to third class, the coverage is now 73 percent, based on 1959 adjusted data. We are asking for what is equivalent to about a 25-percent increase in third-class revenue, and it would bring the coverage up to approximately 80 to 85 percent.

Mr. Gross. It would still be 15 percent short, according to your figures, of paving its way.

Mr. GILLETTE. Yes; it still would be. But we have proposed these figures in these various categories, to no more than add up to the total deficiency as shown in the present budget of $554 million after reimbursement for public services. We have distributed to the classes of mail as fairly and equitably and as we knew how, in order to make the rates acceptable to any fair-minded user of the mail.

Mr. GROSS. Thank you. The CHAIRMAN. The committee will have to suspend temporarily with your further statement, since Mr. Stans, the Director of the Bureau of the Budget, is here. I realize how busy he is and we don't want to detain him much longer. So we will ask you to step aside until we finish with Mr. Stans.

Mrs. GRANAHAN. Is Mr. Gillette coming back?
The CHAIRMAN. Yes.

Mr. GILLETTE. May I insert also certain technical amendments to H.R. 11140, copies of which I think you have seen.

The CHAIRMAX. That permission is granted. (The documents referred to follow:)

SUPPLEMENTAL STATEMENT OF HYDE GILLETTE ASSISTANT POSTMASTER GENERAL

SUGGESTED AMENDMENTS TO

H.R. 11140

Mr. Chairman, there are several perfecting amendments and one amendment of substance which should be made to the bill H.R. 11140.

I will discuss the amendment of substance first. There is need for a provision in this bill which will permit the application of only a portion of the future gross postal receipts of a post office to be used in determining the class of post office and the salaries of some postmasters and other employees. The increased receipts of a post office which will result from enactment of H.R. 11140 do not add to the duties and responsibilities of the postmasters and other employees. Their salaries are based in part at least on gross postal receipts. Prior rate bills have dealt with this situation. We suggest that a provision identical to that contained in the last postal rate increase act be noted in this bill.

As amendment No. 1 to H.R. 11140, we urge that a new section be inserted between lines 15 and 16 on page 8 of the bill, which will read as follows:

“DETERMINATION OF CLASS OF Post OFFICE AND COMPENSATION OF POSTMASTER

AND CERTAIN EMPLOYEES

"Sec. 9. No part of the gross postal receipts of any post office, which are determined in accordance with estimates of the Postmaster General to be attributable to the increases in postage rates provided by this Act, shall be counted for the purpose of determining the classes of respective post offices and the compensation and allowances of postmasters and other employees whose compensation or allowances are based on the annual gross receipts of such post offices. Nothing contained in this section shall operate to relegate a post office to a class or receipts category below the class or receipts category to which such post office may be assigned on the basis of gross postal receipts (as adjusted under section 211 of the Postal Rate Increase Act, 1958) accruing during the last complete calendar year prior to the date of enactment of this Act or, in the case of a post office which was in existence on such date of enactment but which was not in existence during the whole of such calendar year, on the basis of such gross postal receipts accruing during the last quarter prior to the date of enactmentof this Act.”

AMENDMENT NO. 2

As a consequence of Amendment No. 1, the words "Sec. 9” in line 17, page 8 of the bill must be stricken and “Sec. 10" inserted in lieu thereof.

AMENDMENT NO. 8

As a consequence of the above two amendments, the section number in line 9, page 9, of the bill, must be changed to read "Sec. 11”.

AMENDMENT NO. 4

In the printing of the bill, a word was omitted from line 23 of page 2. In order that lines 23 and 24 on page 2, and line 1 on page 3, clearly express the intent of the language, we suggest that they be omitted and the following substituted therefor:

"In no event shall the rate of postage on airmail of the first class weighing in excess of 8 ounces be less than the rate prescribed in that part of the first section of the Joint Resolution of June 30, 1947, as amended (61 Stat. 213; 39 USC 280), which precedes the first proviso."

This language will make it clear that the Postmaster General in fixing air parcel post rates as provided for in section 4 of the bill will not fix a rate for first class matter weighing in excess of 8 ounces which will be less than the ounce rate provided for first class mail.

AMENDMENT NO. 5

In line 14 on page 4, strike the word "further”. There being no previous proviso, the word “further" is incorrect.

The CHAIRMAN. We will next hear from the Director of the Bureau of the Budget, Mr. Maurice H. Stans.

STATEMENT OF HON. MAURICE H. STANS, DIRECTOR, BUREAU

OF THE BUDGET; ACCOMPANIED BY WILLIAM F. McCANDLESS, ASSISTANT DIRECTOR FOR BUDGET REVIEW; JAMES R. THOMASON, BUDGET EXAMINER FOR THE POST OFFICE DEPARTMENT, BUREAU OF THE BUDGET

Mr. Stans. Mr. Chairman and members of the committee, my purpose here is a direct one; my statement is brief. I am here to support the Postmaster General's proposal for immediate increases in postal rates. This is a matter of national fiscal responsibility, and that is a matter of good government.

There is no doubt about these plain facts: The postal service is losing money heavily; the Congress has asserted that it should pay its way; this can be done only if postage rates are raised.

The problems will not be solved by delay. The evidence is clear. The decision will be no easier and the situation no better next year than it is this year. Our efforts to maintain balanced budgets and sound fiscal policies will be jeopardized by inaction. I urge the committee and the Congress to enact these increases now.

This is the situation:

1. Postal losses are equal to almost half of the total increase in the national debt in the last 13 years. During this time, total postal deficits amounted to $6.8 billion.

2. Despite the Department's excellent record of cost reductions through improvements in efficiency and the elimination of subsidies, the annual postal deficit remains almost as much a burden on the taxpayer as it was in 1952, when the reported loss was $720 million.

3. This alarming situation is the result of the fact that postage increases enacted since then have been barely adequate to keep up with growing cost levels. In addition to the large deficit in 1952, pay and fringe benefit increases, and other cost increases for transportation, supplies, and equipment have totaled $915 million a year; while postal rate increases in the same time amounted to only $930 million a year.

4. The 1960 postal deficit will approximate $619 million; unless the Congress enacts the recommended rate increases, the deficit for fiscal 1961 will be about $554 million (after deducting the estimated public service reimbursements and the full year effect of parcel post increases approved recently by the Interstate Commerce Commission).

5. Section 103(c) (4) of the Postal Policy Act of 1958 provides that "postal rates and fees shall be adjusted from time to time as may be required to produce the amount of revenue approximately equal to the total cost of operating the postal establishment less the amount deemed to be attributable to the performance of public services under section 104 (b) of this title."

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