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to get our approval, for example, before it initiates a construction project. The law specifically excludes that type of review.
Mr. WRIGHT. Can you require it to get approval of the President of the United States before it sets forth broad policies regarding the means in which it will engage in this broad construction program ?
Mr. BENTON. I would answer that question “Yes."
Mr. Wright. So, therefore, it is not quite accurate to say that it may acquire such facilities as it deems necessary without review of any kind by the President, that is not quite accurate; is it?
Mr. BENTON. That is
Mr. NATHAN. I think it is fair to say that that is a very broad statement, and that your questioning does indicate that if we were to discuss that point in more detail, we would make the observations that you have suggested and drawn out of us in your question.
Mr. WRIGHT. Then beyond that, there are appropriations that have to be made with regard to construction costs and I would imagine that those fall rightfully within the purview of the Office of Management and Budget; do they not?
Mr. NATHAN. I think here the second point of the list on page 2 of considerations, matters we considered in making this decision, is applicable. That is that the capital assets for Postal Service are determined in the law to be required to be within a dollar limitation on their bonded indebtedness and that they need to be required to coordinate with the Treasury on the selling of bonds.
Now, to that extent, there is clearly a responsibility that we have which is indicated in law. I would want to be very clear on one point, Mr. Chairman. That is that we are speaking from the point of view of the executive branch. From the point of view of the Congress, these matters are always subject to your legislative scrutiny and to your legislative revision.
Mr. WRIGHT. Surely. But now with regard to the operations of the Postal Service, is it not true that in this entire sweeping new program it is anticipated that the Service will operate at a deficit for the first few years ? Is that not anticipated ?
Mr. BENTON. In terms of the subsidy that is provided specifically in the Postal Reorganization Act, yes; that statement is true.
Mr. WRIGHT. All right, and that subsidy will have to be provided by appropriated funds; will it not?
Mr. BENTON. That is true.
Mr. WRIGHT. And under the law, all appropriated funds requested by the executive branch come within the purview of the Office of Management and Budget; is that not true!
Mr. NATHAN. That is true, Mr. Chairman.
I would indicate that there is in the law a formula for the determination of the subsidy which does have considerable force—I guess I would put it that way-in determining how we review and regard this matter in the budget review process.
Mr. WRIGHT. That falls within the purview of the Office of Management and Budget to make the determination.
Mr. NATHAN. That is correct. In fact, as I am sure your committee is aware, Deputy Director Weinberger of the Office of Management and Budget did this year testify on a matter affecting the Postal
subsidy where we did interpret the law in a way that some in the Congress and some outside the Congress in the public raised questions about. Those questions were answered by Mr. Weinberger in his testimony.
But that suggests, just as you indicate that we have a certain review, but a review that is structured by the formula for the subsidy that was very carefully worked out by the Congress and the executive in the development of that legislation.
Mr. Wright. Now, with respect to the building program itself, under the agreement entered into between the Postal Service and the U.S. Army Corps of Engineers, the Army undertakes the responsibility of constructing buildings for the Postal Service, and of doing so while providing all management, design and other functions, and it agrees to hold the cost of management design and other functions payable by the Service to not more than 5.5 percent over and above the cost of actual construction. You are familiar with that provision?
Mr. NATHAN. Yes, I am.
Mr. WRIGHT. If the Army were unable to fulfill that obligation and discovered perforce that the overhead costs incurred by it in providing this service for the Postal Service should be perhaps 8 percent, then someone would have to pay that difference; would they not?
Mr. NATHAN. Yes.
Mr. WRIGHT. If that were to come from appropriated funds, that obviously would be a matter of concern to the Office of Management and Budget; would it not?
Mr. BENTON. Yes; but I do not think the two matters are that closely related. The subsidy is specifically identified in the Postal Reorganization Act. A formula is specified there. We have, I think, established in Mr. Weinberger's testimony and in the action of the Appropriations Committee that we can vary that amount if we wish. We can appropriate less, but the amount of that appropriation is not directly related to the cost of running the Postal establishment.
I think the law pretty clearly leaves that to the determination of the Postmaster General.
Mr. NATHAN. I think that Mr. Benton's statement is useful, that the allocation within that subsidy as regards the total revenues of the Postal Service is a matter that is under the authority of the Postmaster General. If this agreement is not proven to be a workable agreement with the 5.5-percent overhead figure which you cite, why, it would be, I would imagine, a subject for further discussions as regards amending or revising the agreement by parties to it.
Mr. WRIGHT. Would the Office of Management and Budget have any interest in those subsequent discussions ?
Mr. Nathan. It is hard for us to speculate about that. It would be matter that would depend on exactly how the agreement works out, and the kinds of questions and issues that are raised as the departments or agencies, I guess it would be better to say-go forward in carrying out their activities.
Mr. WRIGHT. Given the assumption I offered earlier, that of a contingency in which it developed that the Army was not able to conduct its services within the 5.5-percent overhead cost, you have replied that obviously that money would have to come from somewhere.
Mr. NATHAN. Yes.
Mr. WRIGHT. This is a matter distinct from the subsidy provided in law. A new determination would have to be made as to who paid
As I read the agreement, the U.S. Army Corps of Engineers would have to absorb that cost out of its operating expenses. Do you read it that way?
Mr. NATHAN. Mr. Chairman, I would say this: the way the Postal Service uses its funds for all different kinds of expenditures, it is a matter for determination by the Postal Service. I am not, as I indicated in the beginning of my testimony, sufficiently expert in the details of the agreement to say how it would be interpreted under those conditions.
I think that again I would have to reply that there is going to be a relationship that will be structured by the agreement between the Postal Service and the U.S. Army Corps of Engineers, and they would have to determine what is the procedure to use under those kinds of contingencies and those kinds of conditions.
If at that time we felt there was some appropriate role for the Executive Office through the Office of Management and Budget to review the matter again, we would review the matter again. But I would not want to be on the record at this time as interpreting the agreement on the point that you indicate.
Mr. WRIGHT. Are you trying to state to me you do not know what the agreement provides?
Mr. NATHAN. I would say we read the agreement. As indicated, we spent a lot of time, as your committee has determined, reviewing the agreement.
Mr. WRIGHT. I asked you for an interpretation of what it provides, and you have not given me an answer.
Mr. NATHAN. That is right.
Mr. WRIGHT. What does it provide in the event the Army Corps of Engineers is not able to build these buildings within the 5.5-percent overhead? Who pays?
? Mr. NATHAN. Let me ask Mr. Benton to respond since he is closer to it than I.
Mr. BENTON. The agreement provides for the corps to limit its overhead expenses to 5.5 percent. It provides for an annual review by a team of Corps and Postal Service people to see how well they are conforming to this agreement.
The Postmaster General has, I think, taken in the agreement a very stiff position in regard to not exceeding this 5.5 percent.
Mr. Wright. Are you saying that the Postmaster General has taken a position that the Postal Service will not pay above 5.5 percent?
Mr. BENTON. I do not see how the Postal Service—I do not read the agreement-put it this way: I do not read the agreement to require the Corps of Engineers to accept any overrun in cost above the 5.5 percent, to absorb it.
Mr. WRIGHT. Let us be clear on what we are saying. You do not read the agreement in such a way that it would require the Corps of Engineers to absorb any overrun above 5.5 percent?
Mr. BENTON. I do not understand it to say that, yes.
Mr. WRIGHT. We had testimony yesterday to the effect that the Mr. BENTON. That is my interpretation.
Mr. NATHAN. Mr. Benton said he does not think that that is stipulated or required by any terms of the agreement.
I would point out on page 4 of the agreement it is made quite clear there will be a review process and that the agreement may be modified or amended by written agreement between the two parties at any time during its course.
I would think, Mr. Chairman, that a matter of this magnitude that is, the inability of the corps to, despite its very large system which permits it to spread these overhead costs on a wide basis-if it were to be determined that they could not operate within this 5.5 percent overhead cost condition, this would be a matter that would be opened up again by the parties.
At the time the Office of Management and Budget would make a determination as to whether we needed to again enter into the situation as we did in the one instance which your committee is aware of.
I do not think that we are prepared at this time to say what would happen at that time. No agreement can deal with every contingency. There will clearly be matters of interpretation and further discussion that we are not able to comment on.
I think it would not be useful for us to interpret for the record at this time how the parties would operate under different kinds of conditions.
Mr. WRIGHT. Now, it might be possible for Congress to assume a position of saying that income from taxes each year will meet or exceed expenditures of the Federal Government, but then income from taxes might not meet or exceed the appropriated amounts. We have encountered that on numerous occasions. Do you not think it is a responsibility then of Congress to anticipate those contingencies?
Mr. NATHAN. As I indicated earlier in my testimony, Mr. Chairman, I think we only want to speak for the Executive. Surely Congress has every right in a new area such as this where the Postal Service is just getting off the ground, it seems to me important that the relevant and interested committees of the Congress to be closely advised of what is happening, so I would certainly say that there is every reason for the Congress to consider this matter if it thinks it is an important matter.
Mr. WRIGHT. Now, with respect to the executive branch and its position in this matter, and that of the Office of Management and Budget in particular, as I understand it, the two of you are saying to the committee first that you have read the agreement and studied it, but you do not really know what happens or who pays, assuming
Mr. NATHAN. Mr. Chairman-
You do not really know what happens or who pays assuming the corps is incapable of operating within a 5.5-percent overhead, is that correct?
Mr. NATHAN. I think it is fair to say we have read the agreement, studied it rather carefully at the time that it was under consideration, and in fact, for a period before it went into effect—and as my testimony at a later point indicates, we had no reason to object to the agreement. It was also reasonable for one to say about our position that it is not possible for us at this time to predict how the parties would operate under conditions that may arise at a later time under this agreement. Mr. Wright. And therefore you do not really know who would pay
WRIGHT in the event of a contingency such as I mentioned, is that correct?
Mr. NATHAN. My point, as I stated it, is that if there were such a contingency, I expect that the parties would examine it and open up the question if it was necessary to do so for modification of the agreement, and that we are not able at this time to anticipate what kind of decision will be made.
Now let me say, Mr. Chairman
Mr. WRIGHT. Do you know who would pay under those circumstances ?
Mr. NATHAN. May I make another point, Mr. Chairman?
I think this is a question that most appropriately ought to be asked of the parties to the agreement.
Mr. WRIGHT. The committee intends to ask the parties to the agreement, Mr. Nathan.
Mr. NATHAN. I appreciate that.
Mr. WRIGHT. In this connection, I ask you one question : do you know who would pay under those circumstances?
Mr. NATHAN. I think it is fair to say that we are not able to say at this time how those agreements would be modified to take into account these
Mr. WRIGHT. Under the agreement, assuming no modification do you know who would pay?
Mr. NATHAN. Mr. Benton suggests that one of the things that would have to be considered when this occurs for the first time, is: what is the reason for the overrun? It really depends--there have been cases in postal construction programs where modifications have been made rather frequently in the structure and equipment in postal buildings, as they develop new technology, and
Mr. WRIGHT. We are not speaking of an overrun in cost of construction brought about by increased size of the building. We are speaking rather of an overrun in overhead management costs.
Now, the question is: under the present agreement, assuming no change or modification, who would pay?
Mr. NATHAN. The answer, Mr. Chairman, is as we have stated. It would depend upon the circumstances and the view of the parties. We cannot give a categorical and flat answer to that question at this time. I regret that because I would like to satisfy you and provide the information that your committee feels that it needs, but I am unable
Mr. WRIGHT. You are saying you do not know; are you not?
Mr. NATHAN. No; I think we are saying in many areas of Government activity you cannot project how certain matters will develop and how they will be handled. There are many questions as to things that will happen in the future that we could not at this time state a definitive answer to in terms of how they would be handled.
Mr. WRIGHT. If you cannot project, then why do you state a fixed figure?
Mr. NATHAN. Well, projections are made all the time, and have to be made, Mr. Chairman, in order to determine all kinds of expecta