Senator DwORSHAK. If Congress had put those rates in effect 3 or 4 months sooner it would have made quite a difference as far as your deficit is concerned?

Mr. SUMMERFIELD. Considerably. I think in the third year revenue from increased rates will amount to about $550 million.

FISCAL YEAR 1958 DEFICIT

Senator DwORSHAK. What was the deficit in the year that ended June 30?

Mr. SUMMERFIELD. Approximately $850 million. This reflects the pay increase, which cost us an additional $117 million in fiscal 1958.

Chairman HAYDEN. What would have been the deficit if Congress had taken no action on this legislation that we are referring to? What would your deficit have been next year?

Mr. GILLETTE. It will be approximately $600 million in fiscal year 1959 if no action is taken on this request. If action is taken, it will be reduced by the $171 million figure used in the estimate, so that for ratemaking purposes our currently estimated deficit would be reduced to about $430 million in 1959.

Chairman HAYDEN. What I am trying to get at is what is the effect in dollars and cents of the enactment of the law that Congress did enact to raise certain postal rates.

Mr. GILLETTE. $450 million in fiscal 1959.

Chairman HAYDEN. You would gain $450 million that you would not have gained if the law had not been passed?

Mr. SUMMERFIELD. That is right. But there is a debit against that of $275 million for the increase in pay.

AMOUNT REQUESTED IN PETITION TO ICC

Senator POTTER. How much are you asking for in your petition to the ICC?

Mr. SUMMERFIELD. About $75 million, and that is a statutory requirement, Senator. The Department has to operate the handling of fourth-class mail on a break-even basis.

Senator POTTER. However, you feel by the enactment of this request it will put you in a better position when you negotiate with ICC?

Mr. SUMMERFIELD. Oh, yes. Obviously, I think it is quite apparent that the question will be raised by those opposing an increase in parcel post, and there will be some opposing.

Chairman HAYDEN. Do you expect a continual increase in revenue by reason of these higher rates? I judge that by reason of the table you have here on anticipated revenue from rate provisions showing estimates of $426 million in 1959, $488 million in 1960, $541 million in 1961, and $546 million in 1962. Are these increases due to an increase in rates and an increase in volume of business?

How did you arrive at these?

Mr. SUMMERFIELD. Increase in rates on the 1957 volume basis. The 1957 volume with those rate increases will amount to those dollars that you just read.

Chairman HAYDEN. I will put this table in the record.

(The table referred to follows:)

Anticipated revenue from rate provisions of Public Law 85-426,1 based on 1957 volume

1 It is estimated that the diversion of parcels and catalogs from 4th class to 3d class would produce a net annual loss of revenue of about $16 million which is not included in the above calculations.

2 Increases on publishers' 2d-class rates and on bulk 3d-class rates effective Jan. 1, 1959. Other rates effective Aug. 1, 1958.

Chairman HAYDEN. Are there any further questions?

Senator DwORSHAK. What does congressional frank mail amount to?

Mr. SUMMERFIELD. It was $1,600,000, Senator, when we first made. the request to be compensated for it. It has gone up in 1958 to $2,259,000.

Senator DwORSHAK. Frequently the critics say if we eliminated this congressional-frank mail it would wipe out your annual operating deficit. It would not go very far towards that.

Mr. SUMMERFIELD. Oh, no. I have tried wherever possible to clarify the misunderstanding the public has had in that regard. I have stated it again and again and again.

PAYMENT TO MODERNIZATION FUND

Chairman HAYDEN. If there are no further questions on this subject, we will take up the $29,500,000 item for payment to the Modernization Fund.

I will put the appropriate language in the record. (The language referred to follows:)

CURRENT AUTHORIZATIONS OUT OF POSTAL FUND

PAYMENT TO POSTAL MODERNIZATION FUND

For payment to the "Postal modernization fund”, as authorized by title III of the Act of May 27, 1958 (72 Stat. 144), $29,500,000, to remain available until expended: Provided, That said fund shall be available for payment to the General Services Administration for the repair, alteration, preservation, renovation, improvement, and equipment of federally owned property used for postal purposes, including improved lighting, color, and ventilation for the specialized conditions in space occupied for postal purposes, and for services as authorized by section 15 of the Act of August 2, 1946 (5 U. S. C. 55a): Provided further, That hereafter any other appropriation available to the Post Office Department shall be reimbursed from said fund in such amount as the Postmaster General may determine to be required to cover the expenses incurred on and after July 1, 1958, from such appropriation for the postal modernization program.

GENERAL STATEMENT

Chairman HAYDEN. Do you have a statement on that, sir?
Mr. SUMMERFIELD. Yes, sir; I would like to read it.

For some time your committee has been aware of and interested in the needs of the department to modernize its facilities. I have asked for this opportunity today to further discuss these problems specifically and to ask for a supplemental appropriation of $29.5 million at this time as the first payment to activate the postal modernization fund established by title III of Public Law 85-426, which the Congress passed in May of this year.

The proposal we are here to present today corresponds with the program outlined before Congress when we hoped to receive the needed modernization fund through a fifth cent of postage revenue on nonlocal first-class mail.

The total program involves the expenditure of approximately $2 billion over a period of 3 years.

About $1.5 billion of this will be invested by private capital, and $0.5 billion by appropriated funds to provide necessary improvements, rehabilitation, and modern equipment in postal facilities in every section of the country.

This plan has the benefit of not only providing for the needs of the postal service, but of giving the economy a timely support.

PROGRESS OF RESEARCH PROGRAMS

Fortunately, the progress of our research and development programs of the last 4 years has brought us to a point of technological knowledge, where if these funds are provided, we can promptly proceed with the modernization of our mail-handling methods and facilities and effectively plan to introduce entirely new mechanical and electronic devices to handle mail.

A large part of the cost of this program will be financed by private investors.

Our leasing activities of the last 5 years have provided over 2,400 new post office buildings planned and built under our specifications. We propose during this 3-year $500 million program to rehabilitate, enlarge, or replace the postal space in approximately 2,500 Government-owned buildings, replace or remodel 12,000 leased buildings and provide modern mail handling layouts and equipment for postal facilities generally.

The Government's expenditures will be those necessary to equip these leased buildings with modern machines and devices; to rehabilitate and enlarge, as well as equip, the postal space in the federally owned buildings and to engineer and plan the entire program as well as to accelerate our current research development.

In addition to contract stations, fourth-class post offices, and small finance stations, the Department now occupies over 50 million square feet of space in 3,300 federally owned buildings and almost the same amount of space in approximately 24,000 leased buildings.

OBSOLESCENCE IN PLANT AND EQUIPMENT

The constantly increasing volume of mail together with the tremendous growth of population during a long period when the Department had inadequate funds with which to keep postal space up to date, has left us with serious problems of obsolescence in plant and equipment, and severe congestion and unsatisfactory working conditions in our outdated facilities.

Until these facilities have been replaced with competitively modern ones, we are faced with further deterioration and we will never be able to provide modern mail service to our citizens.

MAIL VOLUME INCREASE

Federal public-works funds have not been appropriated for a construction program for post-office buildings since 1938. During this period of 20 years our national population has increased from 130 million to 170 million, a gain of 31 percent-and the mail volume handled in our post offices has increased from 26 billion to 61 billion pieces, a gain of 130 percent.

NEED FOR POST OFFICE AT TEMPE, ARIZ.

Chairman HAYDEN. I want to comment in that connection.

You mentioned the year 1938. It was just about that year, 1936 it