Under Secretary Volcker also implied that other agencies, like the

Postal Service, wanted to be excluded from this legislation. Apparently, such opposition as existed lacked a firm legal foundation, or was not backed by the courage of conviction, since we are unaware of any other agency that has filed a formal opposition report on the bill or has asked to testify seeking to be excluded. The Postal Service, on the other hand, believes it has good legal and practical grounds to be excluded from the bill.

The lack of any need to make the bill directly applicable to the Postal Service is particularly apparent when it is realized that the provisions of the

of the Postal Reorganization Act may work in harmony with each other to accomplish the espoused purposes of the Federal Financing Bank. Under the Postal Reorganization Act, the Treasury may purchase all Postal Service obligations if it does so within the 15 day period specified in section 2006(a) of title 39. If the Treasury purchased our obligations under the Postal Reorganization Act (39 U. S. C. 2006(a)), it could sell them to the Federal Financing Bank either pursuant to the authority of that Act (39 U.S. C. 2007) or under the authority of the second sentence of section 6(a) of the bill.

For its part, the Bank would be authorized to purchase postal obligations from the Treasury under the first sentence of section 6(a) of the bill which would authorize the Bank to purchase "any obligation which is

issued, sold, or guaranteed by a Federal agency." (Emphasis added.) The fact that the Treasury had not issued the obligations would not affect its right to sell them, or the Bank's right to purchase them. An interpretation that the Federal Financing Bank could only purchase obligations from a Federal agency where that agency was both issuer and seller would ignore the fact that the words " issued, sold, or guaranteed" are written in

the alternative.

As I previously mentioned, the Treasury has the power under the Postal Reorganization Act to preempt all Postal Service obligations. It has the so-called right of first refusal, which, as Under Secretary Volcker testified during the House hearings on the Postal Reorganization Act, "provides [Treasury] with the ability at any particular time to prevent any of these bonds being sold into the market at a time or in circumstances that are not well fitted in terms of other elements of the financial program of the Government. So, we can always preempt the security." Hearings before the House Committee on Post Office and Civil Service, 91st Cong., 1st Sess., Ser. No. 91-4(a), Pt. III, at 1172 (1969). This preemptive right in the Treasury, specifically provided for under the Postal Reorganization Act at the request of the Treasury, gives Treasury all the protection it needs to carry out the purposes of the Federal Financing Bank legislation. Accordingly, there is no reason to disturb existing law, so recently considered and enacted, by including the Postal Service in the present legislation.

If made applicable to the Postal Service the bill would give the Treasury Department a degree of control over Postal Service borrowings not contemplated by the Postal Reorganization Act and, indeed, not recommended by the Treasury itself when the Postal Reorganization Act was considered. It was well recognized and understood by all parties at that time that the Postal Service was unique among Government agencies, that it was essentially a business, and therefore its power to raise funds to carry out its mission was to be unhampered by restrictions and requirements applicable to other agencies. Inclusion of the Postal Service in this legislation, therefore, could be construed to reflect a step away from the generally, independent, businesslike operating principles embodied in the Postal Reorganization

Act.

We think there are additional reasons for exempting the Postal Service from this legislation. Section 9(a) of the bill would limit to $15 billion the amount of obligations the Bank would be authorized to have outstanding at any one time. Under 39 U. S. C. 2005(a) the Postal Service has, by itself,

a limitation of $10 billion. Congress considered $10 billion to be approximately equal to the amount needed by the Postal Service to complete the necessary modernization of its facilities. It seems, clear, then, that the $15 billion limitation in the bill would be inadequate to meet the financing needs of the Postal Service plus all other Federal agencies. Section 9(a) of the bill provides that the $15 billion figure may be added to by appropriations Acts. However, the vagaries and delays of the appropriations

process were cited by the Kappel Commission and numerous witnesses during the postal reform hearings as being responsible, in part, for the deplorable condition in which the Post Office Department found itself. It was, therefore, a prime purpose of the Postal Reorganization Act to change the former method of postal financing. This bill, if applied to the Postal Service, would, once the $15 billion limitation is reached, reintroduce the appropriations process.

It would seem, moreover, that the appropriations process would be reintroduced very quickly. Under Secretary Volcker indicated in his testimony on Monday that it is expected that the Bank would issue $15 billion of securities in its first two years of operation. Thus, two years after enactment of the Federal Financing Bank legislation the Postal Service would, if the legislation is made applicable to us, revert to the financial posture we held prior to enactment of the Postal Reorganization Act.

One of the expected benefits of the Federal Financing Bank is the reduction in the high interest costs incurred by some Federal agencies in the course of their borrowings. If cheaper money should be available through the Bank, it would seem unnecessary to require agencies to use the Bank's facilities, since they would do so anyway. This would seem to

support the proposition that resort to the Bank should be optional with agencies.

In any event, we believe the Postal Service should be considered apart from some of the smaller Federal agencies which perhaps lack the expertise and the resources to successfully compete in the market. The Postal Service is big business. In fiscal year 1971, the Postal Service operated on an annual budget of $9, 000, 000, 000. Moreover, the Postal Service is unique among Government agencies in maintaining a substantial short term investment activity due to large sums of temporarily excess cash generated by daily receipts over disbursements. As of May 1, 1972 the Postal Service had about $1.6 billion invested in short-term government securities. Interest income for fiscal year 1972 is expected to exceed $100 million. This investment program requires extensive daily contact with principal bank and non-bank dealers not only in New York but in the regional money centers as well. The staff required to undertake this activity is thus thoroughly acquainted at all times with current market conditions and is well equipped to structure the Postal Service's own long term debt offerings. In addition, based on our Top Management's extensive experience in private enterprise, we are confident that the Postal Service can handle the remainder of its $10 billion borrowing program in an efficient manner.

In the letter of December 9, 1971 forwarding the proposed legislation

to the Congress, the Treasury Department stated that not all Federally assisted borrowings would need to be channeled through the Bank. It stated that the bill would not affect the five Federally-sponsored, but wholly privately