not matter. The remarkable growth of the private expedited delivery industry occurred under the umbrella of this test. When customers pay less than that, the letter will qualify for the suspension only in very limited circumstances. Delivery must be completed within a tightly-defined time frame varying with distance, and the value of the letter in an objective sense must be lost even if delivered only a little late -- for example, news copy that will miss the press run if not delivered within the limit. What the customer (or an auditor) subjectively thinks about the urgency or importance of the letter or of using an alternative to the Postal Service makes no difference, except to the extent it motivates the sender to spend $3.00 or twice the postage to get it there. If the Postal Service had adopted an "urgency in the eyes of the sender" suspension, it might as well have suspended the Private Express Statutes in their entirety, because people do not want to use a private carrier unless they have important business reasons from their own perspective for looking elsewhere than the postal system. In cases where there is any doubt, either the shipper or an Inspector may obtain an official advisory opinion from the Postal Service General Counsel. Question: If, as seems to be the case, the Department of Justice has seldom or never enforced this provision against users of private express, preferring to go after the private express themselves, what is the practical danger to repealing a law that is so rarely enforced anyway? Answer. The danger is that law-abiding citizens would be free to ignore the Statutes, and to enclose in envelopes virtually any letters they want to send, leaving large established private carriers unable to tell (and with little incentive to learn) whether particular items tendered to them are letters or not. After all, Congress has delineated the restrictions on private carriage in contentdriven terms ("letters"), and typically only the sender knows the contents of an envelope, whether it is given to the Postal Service or to a private carrier. There is something fundamentally wrong with defining as a criminal offense the conduct of only one party to a commercial transaction, and at that, the party with less access to determinative facts. In our observation, the reason that private couriers rather than their customers more typically turn up as defendants to enforcement suits, is that most shippers, who are also customers of the Postal Service, want to comply with the law when it is pointed out to them. A few entrepreneurs, seeking to establish or enlarge their business, have been willing to take greater legal risks.

Question: On what economic basis does the Postal Service maintain that the proposition of affordable universal postal service requires the maintenance of a legal postal monopoly? Are there any studies by recognized economists supporting this position?

Answer. The proposition is one which has been established and maintained by the Congress and by the laws of the United States, not just the Postal Service. In general, the economic rationale is known as "cream skimming." As a financially self-supporting uniform national service with uniform rates, the postal system incurs costs and service obligations which do not directly pay for themselves. Within its overall network it must average its costs and services in many ways. Profitmaking competitors, in comparison, would be free to "skim the cream" by offering either lower rates or better service selectively as they find most profitable, emphasizing bulk transmissions and comparatively dense or easily-served routes. As this kind of competition takes away letter mail revenues, those customers still depending on the postal system would face higher prices, and the financial viability of universal service would be threatened.

In the Postal Reorganization Act, Congress directed the Board of Governors to study and report back on the future of the Private Express Statutes. Their report, with the economic studies they commissioned, was published in 1973. The Private Express Statutes and Their Administration: A Report by the Board of Governors to the President and the Congress. Pursuant to Section 7 of the Postal Reorganization Act (June 29, 1973). The recommendations of this report led, after consideration in Congress and in public rulemaking proceedings, to the regulatory suspensions of the Statutes, eventually including the Extremely Urgent Letter Suspension.

Question: On what economic basis does the Postal Service assert the proposition of affordable universal postal service requires the enforcement of the Private Express Statutes against users of private express. Are there any studies by recognized economists supporting this position?

Answer: We see this as more a matter of effective enforcement of the law than as one of economic theory. A business transaction typically needs both a seller and a buyer. If the transaction is illegal, enforcement ought to be more effective when applied against both parties, or whichever party is chargeable with knowledge of the facts which make the transaction unlawful. Question: What is the statutory authority for the Postal Service's "suspensions" of the postal monopoly?

Answer. Section 601 of title 39, United States Code, provides as follows:

§ 601. Letters carried out of the mail

(2) the amount of postage which would have been charged on the letter if it had been sent by mail is paid by stamps, or postage meter stamps, on the envelope;

(3) the envelope is properly addressed;

(4) the envelope is so sealed that the letter cannot be taken from it without defacing the envelope; (5) any stamps on the envelope are canceled in ink by the sender, and

(6) the date of the letter, of its transmission or receipt by the carrier is endorsed on the envelope in ink.

(b) The Postal Service may suspend the operation of any part of this section upon any mail route where the public interest requires the suspension.

As you know, on March 9, the Senate unanimously passed an amendment sponsored by myself, Chairman Pryor and Senator Murkowski asking the Postal Service to suspend audits against private shippers until the Congress receives and considers a GAO study on the matter requested by Senator Pryor

Question: As the will of the Senate is clear on this matter, are you complying with this request?

Answer. The Postal Service will do what Congress says it wants us to do. After all, the Private Express Statutes are there because the Congress enacted them, to make it possible to provide the kind of national postal system that serves every community the same, whether that makes a profit in some places or not. Businesses do not do that. Their job is to earn the greatest return they can for their shareholders. If at some point Congress should decide that the Private Express Statutes are outdated, or need to be watered down, then we will have to adjust to that. The marketplace will adjust whether we do or not. I do not believe that the universal service concept and the monopoly ought to change, but if the law changes then we will abide by it. Until then it would not be responsible to give an ironclad commitment that we will not enforce the law regardless of the circumstances. I have taken an oath to uphold it. Right now we are getting organized to do more educating and helping our customers up front, so I do not think you will see audits on any great scale.

Question: What do you hope to accomplish by these audits?

Answer. We want to help people understand and comply with the law.

Question: Could you pleased explain why government entities are "educated: when found to be in violation, while private companies are fined?

Answer: We educate private companies too, and we are going to be doing more of it. We have not fined anybody. We have signed some agreements to let people send letters outside the mail when they are not entitled to do so, unless they pay postage. The law provides for that, in section 601 of Title 39. Without such an agreement, they could not have lawfully continued to do what they were doing. If the Government wants to sign an agreement like that, we will give them the same opportunity. We have not ruled out collecting postage from them.

Question: How do you determine which businesses you will audit? Certainly there must be some basis for you to believe a certain business is not in compliance. What sources give you that basis?

Answer: The people who use private delivery firms are our customers too. They give us a lot of mail to deliver, and they give some to the private couriers. Our people work with them very closely. Sometimes they ask us what is lawful or not. Sometimes they tell us they want to give some of the letter business we have been getting to a private carrier. Sometimes our employees notice that is what they seem to be doing. There are a great many ways that potential problem situations can be identified. We need to do a better job following up first by educating and helping our customers comply. Their first contact should not be a postal inspector.

Question: If "voluntary" consent is not obtained by the business, is it your view that the Postal Service has the specific statutory authority to "audit: private businesses in an attempt to enforce the Private Express Statutes?

Answer: Not without a subpoena or a warrant.

Question: If a business refuses to be audited, and insists that a warrant be issued, what will the reaction be of the Postal Service?

Answer I assume here you are talking about somebody who has had the rules explained to them, who has had our people offering to help them, but is taking the attitude that they are not going to comply with the regulations by coming forward with any verification that their practices meet the terms of the suspension. We do not get many of those now, by the way. In a situation like that, the rules provide that the Postal Service may initiate a legal proceeding before the Judicial Officer to revoke the suspension as applied to that shipper. At that point the shipper would need to come forward with records or other evidence demonstrating its compliance with the terms of the suspension, or else risk losing its benefit. A revocation would be appealable to the courts.

Question: Will you please provide a list of the businesses "audited by the USPS over the past five years?

Answer. We have provided some information on this to you and your staff, but prefer not to violate our customer's confidentiality by placing their names in the record of a public hearing.

Question: Will you please provide the total annual cost to the Postal Service to conduct these audits?

Answer. For FY 1993, the Inspection Service expended an estimated 2,800 total hours, for a total cost of $197,000, on all audits that covered Private Express compliance.

Mr. MCHUGH. We next have Mr. Richard Gallo, president of FLEOA.

Mr. Gallo.

STATEMENT OF RICHARD J. GALLO, NATIONAL PRESIDENT OF THE FEDERAL LAW ENFORCEMENT OFFICERS ASSOCIATION [FLEOA], ACCOMPANIED BY GARY L. EAGER, FLEOA AGENCY PRESIDENT, U.S. POSTAL INSPECTION SERVICE

Mr. GALLO. Gary Eager will be reading our statement.

Mr. MCHUGH. ŎK, whose statement will be read by Mr. Eager. Mr. Eager.

Mr. EAGER. Thank you, Mr. Chairman and distinguished members of the subcommittee. We appreciate being invited here to discuss various aspects of the Postal Inspection Service and the direction that we feel it is taking, discussing the potential of moving the Inspection Service to another branch of the executive branch of Government.

FLEOA believes any type of move to the executive branch of Government, we should factor in the direction the Service is taking today and the competitive aspect of complaints that are generated by other companies that were in an unfair advantage.

We believe that right now, in terms of where we are headed, that the Inspection Service is having some difficulty in obtaining the resources, both fiscal and personnel resources, to accomplish our mission. And, of course, our membership is very sensitive to the—I would refer them to allegations of unfair competition, which FLEOA would see as crime prevention and just doing our job that has been vested with us.

Since the Postal Reorganization Act, technology and competition has advanced such that the Postal Service is changing. They are in a quasi business environment, which is requiring them to deal with_monetary issues, and, based on statements made recently by our Postmaster General, were having projections of reduced revenue, and, as such, the Postal Service is having to look at areas, like any business, to cut overhead.

FLEOA feels that sometimes it appears that the Inspection Service is being seen as overhead. Examples of that would be our lab personnel. Our lab personnel have been trying to get pay comparability since, I believe, 1995, and it was recently denied by the Postal Service, and, as you can imagine, our crime labs are our very foundation for some of our investigative efforts.

Prosecutors don't care about the internal politics within the Postal Service and the competition. They want lab results to proceed with prosecution.

In addition to that, our allocation of resources has come into question in that we have not had a significant increase in resources since 1975. I believe we had 1,700 inspectors in 1975, and today we have an authorized complement, I believe, of approximately 1,900. When you look at our complement and the way they are allocated, it creates some concern for FLEOA in that we don't know— I mean, there has not been a level of service study done since 1994. The only thing that we can say about our complement is it is merely a historical number, and that is a great concern.

When the OIG was established, some of those resources were actually pushed over to the IG, but this was done, again, without a level of service review to see what was needed.

I wrote the chairman of the Board of Governors a letter back in March 1999 expressing our concern that resources would be diverted to the IG at the detriment of our public service obligations, and I received a response back that this was not going to happen when, in fact, we believe it did happen.

Those are concerns with regard to resources and the perception that we feel like sometimes we are being dealt with as overhead and it is at the detriment of the public.

The Inspection Service exists-goes back to our very history, sanctity of the mail, and that is our primary task. When we question how resources are being allocated or do we have enough to do our jobs, it comes in it becomes questionable when we haven't had a level of service review for that many years.

An example of that would be our mail fraud program where we have had a reduction of approximately 25 percent commitment from 1992 to 1999. There are other agencies working mail fraud, and as well they should, but that doesn't diminish our responsibility to be aggressive in that area.

Last, I'd like to say that, you know, in discussing moving us to the executive branch of Government, FLEOA believes that this issue obviously should be debated, but that privatization or moving us to the executive branch of Government with the Postal Service moving toward privatization-every time I read the paper, I read where they say we are having a reform or privatization, but there is no mention of the future of the Inspection Service, and I submit that the Inspection Service has a role, has always had a role, and will have a law enforcement role in the future.

The sanctity of the mail and an individual's privacy should not be done away with because of privatization. We can maintain a mail stream and enforce the laws that we currently have. If anything, we should expand our jurisdiction to incorporate that, possibly with other carriers in the Postal system in the future. It is

a concern.

We don't have all the answers, but we see ourselves going down a road and our future looks, you know, questionable.

I have no answers with regard to competitors or we, as Postal inspectors, have no competitors. We are just simply cops trying to do our job and our public service role.

Thank you.

Mr. MCHUGH. Thank you, Mr. Eager.

[The prepared statement of Mr. Eager follows:]