there is also evidence that too low postal rates were a contributing cause. Mail has its counterparts in other modes of communication, delivery, and advertising. Therefore, when rates for postal service are low in relation to prices for its commercial counterparts, mail volume rises rapidly. And when such growth adds to postal deficits, I believe we have an even greater responsibility to charge them to mail users rather than to the whole taxpaying public. Inevitably, those who urge postal rate increases face the criticism that they are putting financial objectives ahead of public service. I disagree. Modernization, cost control, and better service are clearly in the public interest and I expect these benefits to follow a rate increase. Also, those who argue against rate increases choose to ignore that postal deficits never go unpaid. They are paid whether rates are raised or not. For postal operations are either funded or not performed. In the last analysis, postal services are paid for by the people of the United States, either directly, through the purchase of our services, or indirectly, through taxation. For the Nation as a whole, there is and can be no postal deficit. The cost of postal service has to be paid one way or another. The major question throughout the entire history of the postal service has been one of equity-what proportion of the cost should be borne by those who use the mail, and what proportion should be borne by the people generally? Should these deficits be paid from general tax receipts or from the earnings of those whose demands for postal service caused the deficits? The Postal Policy Act of 1958, as amended, went far to answer that question. It specified certain types of postal service as legitimately the concern of the Nation as a whole, the cost of which should not be borne directly by the postal patron, and should not be considered in calculating rates, but rather should be paid from the General Treasury. During the present fiscal year these public service costs are estimated as $567 million. But the difference between our revenues and expenditures was more than twice this sum. In other words, the general public is now bearing over $600 million more than it should of the cost of public service. If we are to carry out the intent of Congress as expressed in the Postal Policy Act, ways equitable ways-must be found to close the gap between revenues and expenditures, not counting the expenditures covered by public service allowances. The rate bill before your committee for consideration is designed to close that gap, with maximum equity, by spreading an $825 million rate increase over all classes of mail. The cost ascertainment system shows that the cost coverage of the various kinds and classes of mail currently varies between 105 percent. for first-class mail and airmail, combined, to 7 percent for second-class publications of nonprofit organizations. It is the judgment of the Department, Mr. Chairman and members of the committee, that this present cost-coverage spread is hard to justify and should be improved if possible. Since the proposed rate increases are roughly proportionate for all classes of mail, they will bring revenue in line with the intent of the Postal Policy Act. Before I present our rate requests, I wish to make one additional comment. During my term as Postmaster General, I have come to see clearly how the various classes of mail are closely related. An advertisement in a second-class mail newspaper or magazine often includes a coupon which, when sent by first class, or an insert which, when sent by third class, produces a recording by fourth class or a kit of tools by parcel post. This interdependence among the classes of mail means that a change in rates in any one class affects all the other classes. The rate structure being presented for your consideration takes this interdependence into account. Certainly, no effort has been spared to make the increases equitable, to assure that they conform to the guidelines of the Postal Policy Act, and to guard against the slightest tincture of discrimination against a particular class or classes of mail. Since the Postal Policy Act states clearly that first-class mail must pay the entire amount of the expenses allocated to it and an additional amount representing the fair value of all extraordinary and preferential services, facilities, and factors relating to it, we are proposing a 1-cent increase in all first-class mail rates, including regular and air mail letters and post cards. This 1-cent increase will provide additional revenue of $536 million, and will bring first class and air mail combined to about 125 percent of cost coverage. Traditionally, the cost coverage for first class alone has been nearly 140 percent. Compared with first-class rates, second- and third-class rates should be lower because their mailers do much sorting and other premailing work at their own expense. Also, second- and third-class mail don't receive the priority service of first-class mail. While I accept as reasonable the pricing policy that permits lower rates for second- and third-class mail, I also believe the increases for these classes should be at least as large as for first-class mail. My next chart, No. 8, pinpoints the deficits traceable to each class of mail. There can be no doubt that our problems are centered largely in second- and third-class mail. Together, these classes account for more than $800 million of the total revenue gap, before deducting public service allowances. The President's message on postal rates included recommendations for pay increases as well. If the President's proposals are enacted by the Congress they would change this picture of our deficit, as shown by chart No. 9. First-class mail would fail to pay its way-one of the few times in history, and contrary to the explicit requirement in the Postal Policy Act that first-class cover its full cost plus an extra amount. Of course, the showing of other classes is similarly worsened. The situation for second- and third-class mail, Mr. Chairman, reminds me of the story of the haberdasher in my home town of Springfield, Mass. Whenever you went into his store to buy a suit he would say, very sadly, "I lose money on every suit I sell." Önce I asked him, "If you lose money on every suit you sell, how do you make a profit?" "Volume," he said, "volume." Well, we lose money on every piece of second- and third-class mail sent through the mail. Unfortunately, we aren't like the haberdasher. We've got the volume, too much volume, and it doesn't seem to help very much-chart 10. I recognize it is our responsibility simply to advise the Congress when postal deficiencies exceed limits that are tolerable under the terms of the Postal Policy Act. However, I know this committee feels duty bound to range beyond the scope of that act. It must weigh the cost of postal deficits against other competing claims for public funds. In my judgment, cost coverage in second and third class is substantially below levels that can be justified on grounds of deferred service or national benefit. Each time the need for rate increases was evident in the past, Congress thoroughly explored the ability of patrons to pay higher rates. And each time the users of second- and third-class mail carefully prepared their arguments against higher rates. As a result, when doubts arose concerning ability to pay they were usually resolved in favor of more moderate rate increases. In 1961, the representatives of the magazine publishing industry appeared before the Congress and supported their fight against higher rates with a report prepared by a nationally prominent accounting firm. It warned that America's magazine industry was "in a precarious financial position." That and similar warnings had a significant effect on the final decision to enact a moderate postal rate increase phased over a 3-year period. According to magazine industry spokesmen, however, their financial situation has since changed from insecure to solid, a fact that may encourage the Congress to enact another increase to defray a small part of a total $400 million revenue deficiency traceable to second-class mail before excluding public service costs. For example, the Magazine Industry Newsletter, dated December 31, 1966, reported the following, in part: 1966 will mark the biggest year in magazine advertising revenue also in circulation. Magazine advertising revenue for 1966 was estimated at $1,160,000,000—a 7 percent increase over last year's revenue figure. Magazine circulation is increasing faster than the growth of the U.S. adult population. Publishers look optimistically forward to 1967. In view of these reports of publishers' affluence, in sharp contrast with depending postal deficits, we ask the Congress to approve an average 23-percent increase for regular-rate, outside-the-county mailings of second-class publications. This would be phased over a 3-year period. For commercial mailings of bulk-rate third-class matter, the increase approved in 1962 was even more moderate than for second class: Only 15 percent phased over a 3-year period. Cost coverage is still only about 60 percent and we are recommending an average increase of 31 percent. We would recommend a larger increase were it not for expected cost savings. Over the next few years, the cost of handling bulk mail will be reduced as we move into full-scale ZIP code presorting. These innovations and the proposed rate increases should bring thirdclass mail much closer to full cost coverage. Bulk-rate third-class mail has been the most rapidly growing of all major mail services. From 1947 to 1966 its volume increased more than 250 percent, at a time when all other mail increased only 80 percent. Even in the period from 1953 to 1966, when most rate increases were effective, bulk mail rose 73 percent-chart 11. There is no doubt that low postage rates have contributed to the extraordinary growth of direct mail. Also, there is abundant evidence that the rate increases enacted in 1951, 1958, and in 1962 have not disadvantaged either the direct mail industry or the users of that ad vertising service. Since 1950, bulk-mail volume has grown faster than our economy. Moreover, according to recent business reports, direct mail volume has held its 15 percent share of the Nation's advertising dollar despite higher postage costs and despite hard driving competition from television, radio, and magazine advertising-chart 12. At one time, low direct mail postage was defended on grounds that volume expansion was desirable to fill post office workload gaps. Perhaps that was a valid defense of low postage in the early 1930's when all postal volume was only a third of today's volume. Perhaps it was still valid in the early years after World War II, say 1947, when bulk mail was only 13 percent of all mail volume. But today it is nearly one-fourth of all mail volume. With total workload increases of 3 to 4 billion pieces of mail each year, we have no "slack hour" problems. I found of considerable interest a recent article highly favorable to direct mail. It appeared in the January issue of Postal Record, the official publication of the National Association of Letter Carriers. That article reported: If there were no third-class mail, the Post Office Department could eliminate about one-quarter of its clerical employees, and about one-fifth of its letter carriers. Well, the cost of keeping that number of employees on our payrolls is about $780 million annually. In contrast, our total revenue from third-class mail is only $682 million. So, right off, we have an out-ofpocket loss of nearly $100 million in just two personnel categories, to say nothing of the added costs for other personnel, transportation, space, and equipment. We certainly do not object to the rapid growth of third-class mail. We welcome it as a sign of economic growth. However, we do object when that growth adds considerably more to our costs than to postal revenues. We object, too, when the growth of bulk mail adds to the burdens of other mail users and taxpayers who must pay the costs of rapidly mounting postal deficits. I should also like to stress that we recognize and applaud the effort by second- and third-class bulk mailers to comply with ZIP code presort regulations. This effort has resulted in some costs to these mailers, without question, and we have recognized this burden by requesting that the new second- and thirdclass bulk rates be delayed until January 1, 1968. I migh also add that had it not been for the anticipated savings through the presort program for bulk mail, it would have been necessary to request considerably higher rates on bulk second- and thirdclass mail. Mr. Chairman, our proposals also call for increases in the rates paid by nonprofit organizations. Percentagewise, these rate increases would be steeper than other increases, but only because the rates are initially so low. Even with the proposed increases such organizations would still maintain large and valuable postage preferences. Currently, the public service cost of handling nonprofit mail exceeds $200 million yearly, nearly 40 percent of all public service costs-chart 13. About 2 years ago the Department's Advisory Panel on Postal Rates a distinguished group of citizens-recommended that special rates for nonprofit organizations be discontinued. The one dissenting voice came from a member who represented one of those organizations. While our proposals fall far short of the position advocated by the Advisory Panel, we believe more than average increases are justifiable. Today, up to eight publications can be mailed by these organizations for as little as one penny. And there is no extra charge for longer hauls. For that penny, the post office will accept these eight publications in New York and deliver them in Hawaii. Also, without regard to length of haul, the post office will deliver four fund-solicitation letters for just one nickel. Neither of these minimum rates for nonprofit organizations, in second or third class, was raised in 1962 when all other rates were raised: We are also recommending a new postage principle for nonprofit publications that carry more than 10-percent advertising. There will be a moderately higher rate scaled upward in proportion to the volume of advertising carried by these publications. This is essentially the same postage principle that has long been applied by the Congress for commercial publications. However, we are not proposing equal postage treatment for both types of advertising. Nonprofit organizations would continue to get huge postage concessions. Mr. Chairman, I have great appreciation for the work of our nonprofit organizations. But I cannot in good conscience ask for an $800 million postage increase and not ask for some reduction in the more than $200 million public service cost generated by these organizations. It must be recognized, this cost is in addition to the tax concessions which these nonprofit organizations enjoy. But, unlike tax concessions which represent revenue foregone by the Federal Treasury— postal public service costs are direct subsidies financed by those who must pay taxes. Before I conclude my statement, I particularly want to urge approval of a section of this bill that will help the Department move faster toward a modern and improved postal service. We ask that the Department be given authority to charge an extra unit of postage6 or 9 cents for lightweight first-class or airmail pieces in hard-tohandle sizes. The proposed surcharge would be limited to mail weighing not more than 2 ounces and it would not go into effect sooner than 2 years after enactment. To meet similar objectives in third-class mail we are proposing three additional changes: 1. Samples of merchandise in nonstandard, hard-to-handle sizes would not be eligible for bulk-rate postage. 2. When mailed in quantities at the higher, single-piece thirdclass rates, merchandise samples would be accepted for mailing only when presorted or prepared as prescribed by the Depart ment. 3. In addition to the changes regarding samples, all other nonstandard-size third-class mail would be subject to higher minimum postage rates. And I would like to just show you at this time two standard envelopes and show you the limitation we would impose in the terms I have just mentioned. Mr. POOL. Would you repeat the limitation? I mean I haven't been watching the statement, I have been listening to you. |