Postal Service woes ignite lobbying battle on Capitol Hill

In the last few months, the U.S. economy has shuddered through one corporate crisis after another-from the dramatic downfall of Enron Corp., Arthur Andersen and WorldCom Inc. to last week's near-derailment of Amtrak. Now, another billion-dollar business is careening toward a financial train wreck.

This time, it is the U.S. Postal Service-a quasi-governmental operation with annual revenues surpassing those of Microsoft, McDonald's and Coca Cola combined and more employees than a merged General Motors and Ford.

Due to steep decline in volume-Americans sent 6 billion less letters last year than in 2000-the Postal Service expects to lose $1 billion next year, its chief financial officer announced last week. The revelation came about a month after GAO reported that the financial woes mean there is a "high risk" that the Postal Service will no longer be able to deliver mail to all U.S. households in rain, sleet and snow.

"The Postal Service is headed to Amtrakville," said an aide to Rep. John McHugh, R-N.Y., a champion of postal reform.

Like Amtrak, there is little chance that the government will let the Postal Service hang up the closed sign. As a result, the service's all-but-inevitable bailout has sparked a ferocious, behind-the-scenes lobbying battle in Washington-as its competitors and corporate customers alike fight to shape postal reform legislation.

The struggle-which is being waged on Capitol Hill, in the White House and at the Postal Service itself-pits some of corporate America's largest businesses against each other.

Standing on one side is a broad coalition in the so-called mailing industry. These are the companies responsible for most of the nation's mail-from monthly billers like American Express to sorters and packagers like R.R. Donnelley & Sons and even companies that produce the paper, such as International Paper.

The mailing industry, which accounts for nearly three-quarters of mail volume, would profit from a generous Postal Service bailout that could stem a rapid run-up in postage costs. Just last week, the Postal Service added another 3 cents to the price of a first-class letter-the third increase in 18 months.

Such increases fall heavily on companies like AOL Time Warner, the nation's largest mailer. As the parent of Time Inc. and Time Warner Cable, the media giant pays about $800 million to mail Time magazine, Sports Illustrated and millions of monthly cable bills. Bertelsmann, another top U.S. mailer, spends millions mailing Family Circle, Fast Company and an array of C.D. and book-of-the-month club deals.

Opposing the mailers are the Postal Service's two biggest competitors: United Parcel Service and Federal Express. Those companies, along with UPS union the Teamsters, believe the Postal Service is losing money because it is trying to branch out from its traditional mission of delivering first-class mail to every American household.

They also charge that the Postal Service improperly uses revenue from its monopoly business in first-class mail to compete with UPS and FedEx in the more lucrative markets for overnight, second-day and bulk mail.

"They are cross-subsidizing from their first class mail to their competitive products," said a UPS spokesman. "This is an institution that is in arrears. They need to focus on what it does best before branching out."

So far, UPS and FedEx have prevailed in Washington, blocking reform legislation for nearly a decade.

Last month, for example, the companies helped defeat the leading reform bill in a House Government Reform Committee vote. Despite Chairman Dan Burton's, R-Ind., strong support for the measure, only six out of 43 committee members voted for the bill.

Burton blamed UPS for the loss. In a strongly worded opening statement, Burton chastised UPS for wielding its formidable lobbying operation to block the bill.

"We were very aggressive," acknowledged the UPS spokesman.

Indeed, UPS views postal reform as its top priority. "It's their biggest, second biggest and third biggest issue," said one company lobbyist.

To help deliver their message, UPS utilizes the largest PAC of any U.S. corporation. So far this year, the company has distributed $2.6 million in hard dollar donations to the re-election efforts of its allies, according to the nonpartisan PoliticalMoneyLine.

FedEx sports the second-largest PAC with more than $2 million in donations so far this cycle.

But FedEx does not fight the postal bill as aggressively as UPS-because FedEx has partnered with the Postal Service in important areas. FedEx drop boxes can now be found in many post offices, for example, and FedEx planes help transport the U.S. mail.

Meanwhile, the 10 leading corporate supporters for the legislation in the mailing industry have contributed $3.3 million to lawmakers and political parties so far in the 2001-02 election cycle.

The mailers also have an influential ally in House Speaker Dennis Hastert, R-Ill., who represents the Chicago area corporate headquarters of R.R. Donnelly & Sons-a major beneficiary of postal reform.

But the powerful connection was not enough this year. After last month's rout in the House committee, even the bill's supporters acknowledge that Congress will not enact a comprehensive reform measure this year.

"I think that postal legislative reform is dead," said Robert McLean, the head of the Mailers Council, a coalition of businesses and trade groups that support an overhaul.

With hopes for broader reforms in the wastebasket, a smaller group of mailers has revived an effort to press the Postal Service to adopt more limited changes.

One key change: allowing the service to make deals with bulk mailers so that large mailers could perform much of the sorting, bundling and packaging on their own.

Such deals-known as negotiated service agreements in industry lingo-would save the cost of labor for the Postal Service, and allow the mailers to save money by contracting with private-sector firms, such as Donnelley & Sons.

Negotiated service agreements are the "low-hanging fruit of postal reform," said a lobbyist for one big mailer.

Like the broader postal reforms, UPS opposes the special deals on the grounds that they would undercut the company's own package deals while making the Postal Service more competitive.

Partly as a result, the Postal Service has dragged its feet on permitting negotiated service agreements.

In response, the mailers persuaded their Capitol Hill allies to add language into an appropriations bill late last year requiring the Postal Service to accept the agreements. But mailers now say that the Postal Service has again delayed the arrangements.

In fact, according to an e-mail obtained by CongressDaily, the Postal Service last week told mailers it is unlikely that it would sign a deal until the end of the year at the earliest. The mailing industry believes the latest deadline will slip as well.

As a result, the mailers may try to add legislation to this year's fiscal 2003 Treasury-Postal spending bill to again prod the Postal Service.

"We still have the appropriations process," said one House aide. "They are asking for money, we can use that to pressure them."

The pressure is more likely to come from the Senate, where Appropriations ranking member Ted Stevens, R-Alaska, and Treasury-Postal Appropriations Subcommittee Chairman Byron Dorgan, D-N.D.-two allies of the reform effort-wield large influence.

But even if the Postal Service begins entertaining negotiated service agreements, a significant reform of the service may be necessary to avert a financial meltdown.

According to the recent GAO report, the Postal Service could max out its $15 billion credit line next year-a limit imposed by Congress when it last reformed the Postal Service three decades ago-in a development that could mean disaster for the U.S. mail system.

If Congress does not approve some sort of reform proposal before then, lawmakers could find themselves dealing with another Amtrak-like financial train wreck in the near future.

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