U.S. Treasury Seal
ASSISTANT SECRETARY
DEPARTMENT OF THE TREASURY
                        WASHINGTON


                September 24, 1998

The Honorable John M. McHugh
Chairman
Subcommittee on the Postal Service
Committee on Government Reform and Oversight
U.S. House of Representatives
Washington, D.C. 20515-6143

Dear Mr. Chairman:

We would like to take this opportunity to present the views of the Treasury Department on the financial provisions in the current revision to H.R. 22, the "Postal Modernization Act of 1998," which was released by your Subcommittee on September 2, 1998.

The financial provisions in the current revision to H.R. 22 are similar to those in the revision that we reviewed in our enclosed April 10, 1998 letter to you. These provisions attempt to segregate the finances and operations of the Postal Service into three distinct components: (1) Non-Competitive Postal, which would continue to be financed through the existing Postal Service Fund; (2) Competitive Postal, which would be financed through a newly created Competitive Products Fund in the Treasury; and (3) Non-Postal, which would be financed by a newly created corporation, the shares of which would be owned by the Competitive Products Fund.

The current revision also includes new provisions designed to strengthen the proposed firewalls between the three Postal Service components and to minimize the risks posed by the Competitive Products Fund. For example, under the current revision, the proposed Competitive Products Fund would no longer be authorized to borrow from the Postal Service Fund. In addition, the Postal Service would be required to submit to the Secretary of the Treasury and the proposed new Postal Regulatory Commission an annual report that would address such matters as risk limitations, reserve balances, allocations of monies, liquidity requirements, and measures to safeguard against losses.

While we support the new provisions and appreciate the Subcommittee's efforts to address Treasury's concerns, we continue to object to the proposed provisions of the Postal Service's reorganized financial operations. As described more fully in our April 10 letter, the proposed financial provisions would violate longstanding Federal financial policies designed to minimize taxpayer exposure to loss and to ensure the least expensive and most efficient financing for Federal and Federally-assisted programs. We appreciate your consideration of our views and look forward to working with you and your Subcommittee on this important legislation.

The Office of Management and Budget has advised that there is no objection from the standpoint of the Administration's program to the presentation of this report.

Enclosure