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COST-OF-LIVING ADJUSTMENTS IN STAlt31-

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OVERNMENT

HEARING

BEFORE THE

r:‘ M1VIITTEE ON POSTAL OPERATIONS

OF THE

2 COMMITTEE ON

OFFICE AND CIVIL SERVICE

USE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

FIRST SESSION

ON

H.R. 2035

A BILL TO PROVIDE FOR COST-OF-LIVING ADJUSTMENTS

IN STAR ROUTE CONTRACT PRICES

APRIL 14, 1965

Printed for the use of the

Committee on Post Office and Civil Service

U.S. GOVERNMENT PRINTING OFFICE]

4f- 718 WASHINGTON : 1965
COMMITTEE ON POST OFFICE AND CIVIL SERVICE

TOM MURRAY,

JAMES H. MORRISON, Louisiana

THADDEUS J. DULSKI, New York

DAVID N. HENDERSON, North Carolina

ARNOLD OLSEN, Montana

MORRIS K. UDALL, Arizona

DOMINICK V. DANIELS, New Jersey

LINDLEY BECK WORTH, Texas

HARLEY 0. STAGGERS, West Virginia

ROBERT N. C. NIX, Pennsylvania

JOE R. POOL, Texas

WILLIAM J. GREEN, Pennsylvania

SPARK M. MATSUNAGA, Hawaii

PAUL J. KREBS, NewJerSey

RAYMOND F. CLEVENGER, Michigan

JAMES M. HANLEY, New York

JOHN V. TUNNEY, California

Tennessee, Chairman

ROBERT J. CORBETT, Pennsylvania

H. R. GROSS, Iowa

GLENN CUNNINGHAM, Nebraska

EDWARD J. DERWINSKI, Illinois

ROBERT F. ELLSWORTH, Kansas

ALBERT W. JOHNSON, Pennsylvania

JOHN H. BUCHANAN, JR., Alabama

JAMES T. BROYHILL, North Carolina

CHARLES E. JOHNSON, Staff Director

B. BENTON BRAY, Associate Staff Director

JOHN II. MARTINY, Counsel

WILLIAM A. IRVINE, Assistant Staff Director

SUBCOMMITTEE ON POSTAL OPERATIONS

THADDEUS J. DULSKI, New York, Chairman

JAMES H. MORRISON, Louisiana GLENN CUNNINGHAM, Nebraska

DAVID N. HENDERSON, North Carolina H. R. GROSS, Iowa

DOMINICK V. DANIELS, New Jersey ALBERT W. JOHNSON, Pennsylvania

ROBERT N. C. NIX, Pennsylvania

WILLIAM J. GREEN, Pennsylvania

Er Officio Voting Members

TOM MURRAY, Tennessee ROBERT J. CORBETT, Pennsylvania

II
CONTENTS

Statement of—

Batrus, Frederick E., Deputy Assistant Postmaster General, Post Office Department, Bureau of Transportation and International Services, accompanied by James C. Presgraves, Assistant Director, Domestic Transportation Division 

Ernst, L. E., general manager, National Star Route Mail Carriers Association, accompanied by Robert E. Sodrel, national president, New Albany, Ind.; Burgess Williams, vice president; James R. Woodruff, secretary treasurer; and William Furch, James Jessen, W. R. Goldston, and Ray Jackman, sectional directors 

Page

14

14

COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE

CONTRACT PRICES

WEDNESDAY, APRIL 14, 1965

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON POSTAL OPERATIONS OF THE

COMMITTEE ON POST OFFICE AND CIVIL SERVICE,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m., in room 215,

Cannon House Office Building, Hon. Thaddeus J. Dulski (chairman

of the subcommittee) presiding.

Mr. DuLsiu. The meeting will come to order.

The hearing this morning is on H.R. 2035.

(The bill, H.R. 2035, follows:)

[H.R. 2035, 89th Cong.. 1st seas.]

A BILL To provide for cost-of-living adjustments in star route contract prices

Be it enacted by the Senate and House of Representatives of the United States of

America in Congress assembled, That section 6423 of title 39, of the United States

Code is amended by inserting at the end thereof the following new subsection:

"(c) After January 1, 1965, and after each succeeding January 1, the Postmaster General shall determine the per centum change in the annual average of

the Consumer Price Index published monthly by the Bureau of Labor Statistics

of the United States Department of Labor from 1963 or the year immediately

preceding the most recent contract price adjustment made pursuant to this

subsection, whichever is later. On the basis of such determination by the Postmaster General, the following adjustments shall be made:

"(1) Effective July 1, 1965, if the change in such annual average from 1963

to 1964 shall have equaled a rise of at least 1 per centum, the contract price

for each star route contract which has a commencing date earlier than

January 1, 1964, shall be increased by (A) such per centum rise for the first

$5,000 of the contract price, (B) three-quarters of such per centum rise for

that part of the contract price in excess of $5,000 but not in excess of $10,000,

and (C) one-half of such per centum rise for that part of the contract price

in excess of $10,000 but not in excess of $15,000.

"(2) Effective July 1 of any year other than 1965 if the change in such

annual average from the second preceding year to the immediately preceding

year shall have equaled a rise of at least 1 per centum, the contract price for

each star route contract which has a commencing date earlier than January 1

of the immediately preceding year shall be increased by (A) such per centum

rise for the first $5,000 of the contract price, (B) three-quarters of such per

centum rise for that part of the contract price in excess of $5,000 but not in

excess of $10,000, and (C) one-half of such per centum rise for that part of

the contract price in excess of $10,000 but not in excess of $15,000.

Each increase in a star route contract price made in the manner provided for by

this subsection shall be adjusted to the nearest one-tenth of 1 per centum."

Mr. DuLsKi. The star route carriers represent one of the oldest

arms of the postal service. For over 180 years the Nation has been

served, and served well, by a complex of star routes.

Today there are some 12,000 star routes covering over 450 million

scheduled miles a year, providing the oftly mail transportation avail1
2 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

ableto some 26,000 post offices which otherwise would be completely

isolated from the rest of civilization if it were not for the star routes

that serve them. And most interesting, this service is performed at an

average cost of less than 20 cents a mile for the equipment, gasoline,

and labor. I suspect that when actual costs have been deducted

the'a* Wittle Iefti. the way of wages for the small contractor who has

chosen this means of attempting to provide a living for himself and his

dependents.

The Government has adopted the principle of "comparability" in

adjusting the pay of its 2 million-plus employees. It has adopted a

policy of "cost-of-living" increases in the case of former employees on

the retirement rolls.

While I am fully cognizant of the fact that star route carriers are

contract operators and not regular employees of the Government in the

real sense of the word, their economic problems are not one whit

different.

First, one must fealize that they are small operators in every sense

of the word. Their contracts, on the average, run well below the

combined salary and mileage allowance of a rural letter carrier even

though the service performed, the hours worked, and the mileage

covered are comparable.. This results from the very fact that they

bid for their jobs and the low bidder gets it. This often results in

self-strangulation. Frequently, what they fail to take into account is

that prices rise and the cost of living increases. H.R. 2035 is designed

to protect these small public servants against undue hardship in the

face of an ever-rising cost of living.

The record should show that 287 contracts are for less than $1,000

a year. Some 1,200 contracts are from $1,000 to $2,000 a year.

Another 1,650 are from $2,000 to $3,000 a year. All but 5 percent of

the total are less than $10,000 a year. 'When the cost of the equipment

is considered and the actual operating expense is taken into account,

it is easy to see that these people are receiving very little in the form

of wages for their labor.

Last year, just prior to the adjournment of Congress, I introduced

a bill identical to H.R. 2035. I knew that it was too late in the session

for that measure to receive consideration. However, I thought that

the introduction of the bill at that time would serve a most useful

purpose. It would give all concerned an opportunity to consider the

problem and be prepared to testify in a constructive manner during

the current session.

I was pleased to note that the Honorable Silvio Conte, of Massachusetts, the ranking minority member of the Post Office Subcommittee

of the House Appropriations Committee, in a speech last fall before

the national convention of the star route carriers in Boston stated:

And now, one more thought—and it is a final one. As you know, we have just

enacted into law a Federal pay bill which will reinforce, I hope permanently, the

principle of comparability which was written into the Postal and Federal Pay

Reform Act of 1962.

I think this is an excellent thing. It has been badly needed for many years.

It will, once and for all, establish the principle that postal and Federal employees should not—and must not—be treated as second-class citizens and

relegated to the rear ranks of the Nation's economic parade.

But I want to go this legislation one step further. I feel strongly that the

principle of comparability should be extended to you contract carriers of the mail.

I agree that at least the take-home portion of your star route contracts should be

pegged to the cost-of-living index and that they should be proportionately increased

whenever the cost of living shows a significant increase.
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 3

have introduced a bill to this effect. I pledge myself to support that bill—

to do whatever I can to get it to the floor for a vote and to vote for it when it

comes up.

I appreciate greatly Congressman Conte's support of this worthy

bill.

It has come to my attention that opposition has been voiced to

H.R. 2035 on the basis that it could grant automatic cost-of-living

increases to corporations as well as to self-employed contractors.

Certainly there would be no objection on my part"; and as a matter

of tact, I would support an amendment to the bill which would limit

the cost-of-living increases to self-employed contractors. It should

be clear that the measure is designed to be helpful to the individual

who is attempting to make a living by the sweat of his brow.

A letter has been sent to the chairman of the full committee by

Acting Postmaster General Belen on this bill. If there is no objecttion, it will be inserted in the record.

(The letter follows)

OFFICE OF THE POSTMASTER GENERAL,

Washington, D.C., April 13, 1965.

Hon. Tom MURRAY,

Chairman, Committee on Post Office and Civil Service,

House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN; This is in reply to your request for a report on H.R.

2035, a bill to provide for cost-of-living adjustments in star route contract prices.

Under this measure the price of a star route contract would be increased each

year of the contract term whenever the consumer price index of the Department

of Labor indicates there has been a rise in the price structure of at least 1 percent.

If such a rise is established star route contracts would be increased by the amount

of the percentage rise as to the first $5,000 of the contract price; three-quarters of

the percentage rise for the next $5,000; and one-half of the rise for the succeeding

$5,000.

This Department is opposed to the enactment of H.R. 2035.

The existing law (39 U.S.C. 6423) and implementing regulations already provide for the upward adjustment of star route compensation, not only for cost-ofliving increases on self-operated routes based on the consumer price index but

also on all routes because of increased operating costs, including higher wages

paid by a star route contractor to his employees as a result of employer-employee

negotiations.

The automatic increase contemplated by H.R. 2035 would result, in some cases,

in granting cost-of-living increases to contractors whose routes are not selfoperated. When these contractors increase the wages of their employees the

Department increases the contractors' compensation to cover such increased

operating costs. In light of this and other considerations we feel that a mandatory across-the-board increase in star route contract prices as proposed is not

justified, but that each case should be judged on its individual merits.

The cost of furnishing star route service might not increase proportionately to

the cost-of-living index. For example, the cost could well decrease after vehicles.

are fully depreciated. This aspect is not considered by the bill, and points up the

merit of a case-by-case approach to the problem. The automatic increase feature

proposed by H.R. 2035 would result in increasing compensation without a request

by the contractor, and without a showing of increased expenses.

The cost of H.R. 2035 is estimated to be as follows:

Number of

contracts

Effective

date of

adjustments

Estimated

annual cost

Net add!-

tional cost

Star route contracts commencing before—

Jan. 1, 1964 

Jan. 1, 1965 

Jan. 1, 1966 

11,542

11,792

11,969

July 1,1965

July 1, 1966

July 1,1967

$729, 000

782,000

831,000

$365, 000

391,000

416,000
4 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

Of recent years, the consumer price index has been rising at an approximate

monthly rate of one-tenth of 1 percent for a yearly average of 1.2 percent. This

rate has remained relatively consistent to November 1964. The above estimates

are based on this yearly average increase. The net additional cost of the proposed

legislation as shown above is estimated after allowing for an appropriate reductioh

in the readjustment costs of these contracts under existing legislation.

The Bureau of the Budget has advised that from the standpoint of the administration's program there is no objection to the submission of this report to the

committee.

Sincerely yours,

FREDERICK C. BELEN,

Acting Postmaster General.

Mr. DuLsKi. Our first witness this morning is Mr. Frederick E.

Batrus, Deputy Assistant Postmaster General of the Post Office

Department, Bureau of Transportation and International Services.

He is accompanied by Mr. James C. Presgraves.

STATEMENT OF FREDERICK E. BATRUS, DEPUTY ASSISTANT

POSTMASTER GENERAL, POST OFFICE DEPARTMENT, BUREAU

OF TRANSPORTATION AND INTERNATIONAL SERVICES,

ACCOMPANIED BY JAMES C. PRESGRAVES, ASSISTANT DIRECTOR, DOMESTIC TRANSPORTATION DIVISION

Mr. BATRUS. Mr. Chairman, my name is Frederick E. Batrus and

I am the Deputy Assistant Postmaster General in the Bureau of

Transportation and International Services. I am accompanied by

Mr. James Presgraves, who is Assistant Director of Highway Transportation Branch in the Bureau of Transportation, International

Services.

The Department welcomes this opportunity to present its views

on H.R. 2035.

The general purpose of this bill is to provide for automatic cost-ofliving adjustments in star route contracts based upon changes in the

Consumer Price Index which is published monthly by the Bureau of

Labor Statistics.

A similar proposal was introduced in the 88th Congress which the

Department opposed, and we are likewise opposed to the enactment

of H.R. 2035.

Under current law (39 U.S.C. 6423) the Postmaster General with

the consent of the contractor may readjust the compensation under

a star route contract for increased or decreased costs occasioned by

changed conditions occurring during the contract term which could

not reasonably have been anticipated at the time the original bid was

made or the bond for a renewed contract was executed. Changed

conditions include increases and decreases in the cost of living, maintenance and operation of equipment, and other operating costs.

Thus, under the present law, we are not only making allowances

for cost-of-living increases based on the consumer price index, but

also for increased operating costs. Increased compensation is based

on higher costs to the contractors, resulting from such things as (1)

higher salary payments to their employees, (2) increased costs of

motor fuel and repair and replacement parts, (3) newly imposed

highway and other taxes, and (4) many other operating costs.

We believe that the present law provides more flexibility and

results in more equitable adjustments of compensation for direct cost
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 5

increases on star route contracts. Moreover, we believe that the

present practice is more equitable to the Government because each increase granted is based upon a showing and application by the contractor. This method takes into account the fact that the cost of furnishing star route service does not necessarily increase proportionately to the cost-of-living index. Allowance is also made for the fact that changed conditions will have a varying impact on contractors'

costs in different parts of the country.

For example, the contractors' operating costs might not increase

proportionately to the cost-of-living index after their vehicles are fully depreciated. This aspect is not considered by the bill and points

up the merits of a case-by-case approach to the problem.

Under the present law, cost-of-living increases are granted to contractors for that part of the service which they personally operate.

H.R. 2035, on the other hand, would also grant cost-of-living increases to contractors who do not personally operate their routes but

conduct their star route operations as a business by employing others

to drive their vehicles. Thus, under the bill, the cost-of-living increases in a great many cases would be granted to a business firm

rather than to an individual. For example, we feel it would be inappropriate to be required, as we would under this bill, to grant additional compensation for a cost-of-living increase to a corporate contractor on a contract which may have a contract price of as much as a

million dollars, even though the increase would only be applied to the

first $15,000 of the contract price. We believe that it is more equitable

to all concerned to grant compensation increases to such contractors

based on a showing of direct increased business operating costs.

We also wish to point out that under the present law that part of

readjustment of compensation attributable to an increase in the

cost of living is applied on a percentage basis only to the wage allowance portion of the contract price. That portion is determined by

subtracting the operating expenses from the annual rate of the contract. However, the bill would require the cost-of-living increase to

be applied to the entire contract price. This, in effect, would result

in granting a contractor additional compensation for operating costs

without any evidence of an actual increase in such costs, and even in

the face of a possible decrease in such costs.

Mr. Chairman, I would like to summarize very briefly for you

what actually we do in our everyday practice. This law which was

enacted—the existing law—in 1948 was a very general law, the

intention being that when there were cost increases that couldn't be

anticipated by the contractor at the time he entered into the contract

at the time he bid, then he would be permitted to make application to

us and justify these cost increases and we could adjust his contract

accordingly.

We have over the years been making a great number of adjustments

and have considered a great number of applications. Most of those

received have been acted upon favorably.

Now in the case of the cost-of-living type of adjustment, we have

been using the consumer price index in each instance where the contract is the kind of contract that is operated principally by the contractor himself. We use the standard that if he operates the route

more than 50 percent of the time, 50 percent or more, we apply the

consumer price index increase to that part of his contract price which

46-718-65---2
6 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

we have calculated to be what we would term the salary or wage that

he earns, his take-home pay.

In a $6,000 contract, for example, after deducting the actual

operating expenses, exclusive of labor, we may find that his take-home

pay may be $3,500. On his application, and based on the consumer

price index, we would apply the increase to that portion of the contract. In addition to this, in connection with all contracts, we always

will consider any showing of actual increases in operating costs. As,

for example, an increase in gasoline prices, an- increase in his taxes or

his insurance or other operating costs, and upon proper justification

and satisfaction to those on our staff who must consider these, the

adjustment is made in the contract.

It is this that we like to point out that differentiates our situation

today, as it is today under the law, from that which is proposed in the

bill. The bill would automatically cause us, with our 11,000 contracts, to apply the consumer price index increase to the contract price

up to a maximum of $15,000 on all contracts. We do have over 11,000

star route contracts.

I would be pleased, Mr. Chairman, to answer any questions about

our procedures to date and how we handle it under the existing law.

Mr. DuLsKi. Thank you very much.

You have 11,000 contractors?

Mr. BATRUS. We have over 11,000.

Mr. DuLsKi. What is the average amount of each contract?

Mr. BATRUS. Between 50 and 60 percent are under $5,000. The

greatest number of them are small.

Mr. DULSKI. In your statement you said that under the bill the

cost-of-living increases in a great many cases will be granted to a large

corporation as well as to an individual contractor. I hope your Department is not opposed to private enterprise?

Mr BATRUS. No, sir.

Mr. Dimsxi. What do you mean by this, that you would rather

deal with individuals instead of somebody that is leasing the route?

Mr. BATRUS. We treat the requests for increases under existing

law in two categories, generally. It was several years ago that we

began employing the consumer price index, which we receive from the

Bureau of Labor Statistics, to applications from the small contractor,

who in effect is receiving a salary for himself. When a contractor

employs 4 or 5 or 8 or 10 drivers, he has, by comparison, a major

operation. We grant his adjustment on the basis of a showing that

he has increased his operating costs, including the salaries he pays

his drivers. So, in effect, we are doing the same thing there. It is

just that we don't use the consumer price index for the salaries to

drivers in an instance where there are several drivers and he has a

major type contract. The principle is that the consumer price index

would be directed toward the small contractor as a way of adjusting

his take-home pay.

Mr. DuLsici. Are you familiar with the Internal Revenue regulation

that accelerated depreciation costs? Let's use the cost of $4,000 for

a new vehicle. If he is permitted to take 50 percent of his costs the

first year and he applies those figures, would you use those figures?

Mr. BATRUS. We have set out a scale of depreciation rates.

Mr. DuLsici. That is your scale?

Mr. BATRUS. That is right.
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 7

Mr. DuLsici. Would you judge his depreciation costs under Internal Revenue standard's or would you use your own standards?

Mr. BATRUS. We have been doing it by our own scale of depreciation rates, which are made known to all of the contractors. For

example, on the smaller vehicles, the automobiles-.

Mr. Du',sm. Congress has passed legislation that gave relief to

businessmen because they are doing business with the Government,

and they are allowed to take additional depreciation costs. Are you

following the same practice of other agencies in the Post Office Department?

Mr. BATRUS. We would follow the same practice as Internal

Revenue insofar as it would be appropriate, Mr. Chairman. If his

rate of depreciation has increased, then we will cover that increase.

We recognize the depreciation rate of 3 years.

I will ask Mr. Presgraves to comment on that.

Mr. PRESGRAVES. The original contract determines the rate of

depreciation, and it is a rate of depreciation schedule which he makes

himself and we use a guide which is based on the Internal Revenue

depreciation schedule. We will continue such depreciation schedule

unless the contractor applies to the Internal Revenue Service for a

change.

Mr. DuLsici. I am not talking about schedules. I want to make

sure that if a contractor applies for an additional depreciation cost

that he is permitted to take an accelerated depreciation. Do you

follow the law passed by Congress?

Mr. PRESGRAVES. Yes, sir; we allow him whatever the Internal

Revenue Service approves as his depreciation schedule. We have

such a statement in our instructions to our regional offices.

Mr. DuLsxi. If a star route man filed an application to get additional depreciation costs, as per the new law, you would approve it?

Mr. PRESGRAVES. Yes.

Mr. DULSKI. It is well known that small business contractors, such

as most of these star route contractors, very seldom keep books.

They pay a small income tax because they operate on a small profit.

They are supposed to keep records but I can sympathize with them

when they don't have all of their receipts. Isn't it true that many

contractors are afraid to submit a request for increases in their contracts because you might say- when the term expires, "Well, you are

too high and we are not going to renew your contract, but will readvertise." Let us say he has $7,000, $8,000, or $10,000 invested

and he can't afford to lose the contract. You say, "You are too high."

You have him in a predicament because he has geared himself to this

star route and if you do not renew his contract, he has a great loss.

My question is, what practice do you usually follow when a man

doesn't submit all of his records but tries to substantiate it on a

quarterly basis or maybe on a monthly basis without substantiation

of all of his deductions or his bills? All you do is take 1 month or a

quarter and multiply either by 4 or multiply by 12. What is the

Department's practice in those cases?

Mr. BATRUS. Mr. Chairman, we treat separately the question of

adjustment of their contracts. They are free to make application to

us any time they feel that they have a case for increased compensation, and this will be fully considered. As I explained earlier, our

statistics show that favorable action has been taken in the great

majority of the cases.
8 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

With respect to the other point of their concern about whether they

will lose their contract, this is an entirely different matter not directly

related to this question of cost adjustments in their contracts. Under

the law, we must determine when contracts expire, and one-fourth of

them expire every year, whether they should be renewed or whether

they should be advertised for bids. The law requires that we make

this decision.

Our experience has been, in the past several years that a very minor

proportion, probably around 1 to 2 percent of the total number of

contracts, are advertised for bids for the reason that the price is

considered too high. This becomes a judgment factor but every

region must go through this process and is compelled under the law

to render judgment on the basis of the best experience in the region

as to whether the cost of the service has gotten completely out of

line with what might normally be obtained through competitive

bidding. From our experience, I don't see that any rigid standard

has been applied. There should be no connection between the two.

They should be free to apply for their cost adjustment.

It may be that there have been cost adjustments which for one

reason or another does put them out of line with what other contractors

are doing. But we do have the separate question, under the law, of

making a determination as to whether it should be advertised for

bids. Most of the contracts are renewed. Around 80 percent are

renewed and only about 2 percent are not renewed because of the

price. The rest are not renewed because of changed circumstances,

substantial alterations in the operation, where under the law, we are

compelled to advertise for bids.

Mr. Dumxi. My last question is this. Who reviews these contracts?

Mr. BATRUS. They are reviewed in the regional offices, Mr.

Chairman.

Mr. DuLsici. The determination is made by the region and the

recommendation is sent to Washington?

Mr. BATRUS. That is correct. In a lot of instances, they have the

authority to take the action in the region without approval from the

Department.

Mr. Dumxi. You don't have any special committee that sits down

and works on these consumer price index files? You have no outside

committee or post office committee that is working just on star

routes? If there is a question of increase or of default, you just take

up each problem as it arises; is that correct?

Mr. BATRUS. That is correct. Those who are responsible for

administering that service, Mr. Chairman, are the ones who handle it.

Mr. DuLsici. Mr. Green.

Mr. GREEN. You say a certain percentage of the contractors do

not have their requested increases approved. What percentage is

that? You said actually a majority do, but I wonder what percentage

don't get it? Do you have any idea?

Mr. BATRUS. I would say, for example, out of about 1,800 requests

a year for adjustments, that probably 1,500 or 1,600 receive favorable

consideration. But I can get the statistics and supply it for the

record.

Mr. GREEN. How does someone go about applying for an increase

of a contract?
COST-OF-LIVIN.Q ADJUSTMENTS IN STAR ROUTE CONTRACTS 9

Mr. BATRUS. Every contractor is advised fully of the procedures

that are involved and the forms he must fill out if he wants to make a

request for adjustment because of changed conditions, for an increase

in costs. Our people in the field will supply these forms to him.

These procedures are made known fully and our people in the field

will work with him if he needs help. The postmasters will work with

him if he needs help.

In the case of the small contractor, he fills out this form and he

submits it for review. If it is a contractor whose request would fall

within our policy of applying the consumer price index, whether he

raises this question or not, we will apply the consumer price index.

Mr. GREEN. You say there are forms?

Mr. BATRUS. That is correct.

Mr. GREEN. There are forms he must fill out?

Mr. BATRUS, Yes, sir.

Mr. GREEN. In order to determine what information is required on

these forms, do you have copies of those forms?

Mr. BATRUS. Yes, sir.

Mr. GREEN. I think maybe we should have these forms submitted

for the record.

Mr. DuIsm. If there is no objection, it is so ordered.

(The forms submitted follow:)
10 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

POST OrFICE DEPARTMENT

TRANSMITTAL LETTER AND INSTRUCTIONS FOR COMPLETING FORM 5478

ROUTE NUMBER

FROM

DIRECTOR, TRANSPORTATION DIVISION (Region. City and Stale)

7 ---1 To:

L_ _i

DATE

TYPE OF ROUTE (Check)

El STAR

El MAIL MESSENGER

cRLACTMOTOR

El WATER

1,1.0

Dear

This

The

changed

contract,

Attached

purpose

last

rate,

are making

Supply

right

or other

Where

indicated.

The

If

time

you receive

vehicle

If

for that

If

If necessary,

office.

which

tion

be considered

Attachments:

Contractor:

acknowledges your application for increased compensation on the 'above route.

Department is permitted by law to consider an adjustment in your contract rate. To justify

conditions that could not have reasonably been anticipated at the time of signing the

subcontracting, or latest adjustment, whichever is most recent.

are three copies of Form 5478, Comparative Cost Statement and Operating Data—Contract

of this form is for you to show us just how your costs have changed. This does not necessarily

year, but since the date that you contracted, sub-contracted, or received the last adjustment

whichever is most recent. "Previous year", therefore, may be several years ago, or the

your request.

complete and accurate information, leaving any non-applicable spaces blank. The Department

to request you to furnish proof of unusually high costs or increases by furnishing receipts,

applicable bookkeeping records. Departrnent records most show justification for any increase

space is provided in Columns B and E, show the average number of units used per week,

Columns C and F are to be used to show the unit cost of items (Cost of one gallon

entries in Columns D and G will be the result of multiplying B times C. and E times F, respectively.

your equipment is used for other purposes than your mail contract, or to carry other commodities

you carry mail, for which you receive income, report the amount of income and sources from

no other income but use the equipment for personal purposes, show the annual miles

for personal use.

your contract is on an annual rate basis, state the MI oust requested in dollars per year,

purpose. If you are paid on a per trip basis, show the appropriate unit instead of year.

you receive this letter and the Forms .5478 from a postmaster, return two completed copies

he will review and discuss with you the information furnished, after which he will

If you received the forms directly from this office, return two completed Forms 5478 to

you received them. In either case, keep one copy of the completed form for your records.

will be given until you comply with these instructions. If no reply is received within 30 days,

as withdrawn.

Sincerely yours,

Forms 5478 Director, Transportation Division

IMPORTANT:

this there must be

original or renewal

Service. The

mean during

in your contract

same year in which you

reserves the

payroll information,

allowed.

year, etc., as

of fuel, one tire, etc.)

at the same

which received. If

you operate the

in the space provided

of the form to him.

transmit it to this

the same place from

No further considerayour request will

See instructions and example for completing

Form 5478 on reverse of this letter.

:Ft i0vD F906r m3 5478-A
COST-OF-LIVING ADJTJSTMENTS IN STAR ROUTE CONTRACTS 11

I PREVIOUS YEAR IS ) PRESENT YEAR ID 

(03 NOT USE) ITEM Ie. OF UNITS

. PE/7 YEAR 1 um, COST IA1 ,211 ICI

ANNUS, 

.

COST "%ilt VIVA'TR

lEt

UN, COST

1.1

ANNUAL Gorr

101

i. 0 PRECIAT1ON 

I 

'Ire 81/ TRADE- 37,00

2.500 00

SOO 0,EST.

TRADE-114

S00.00

1. SOO 00 NE TOSST 2.000 OORET COST 

a GARAGE RENT -CHECK I

OVIETV MERAONTN ID YEAR 3.00 36.00 4.00 48.00

7 •ASHING

26 8 1.25 3258 26 8 1.50 39.00

10 FUCL-1.11-1ES PER DA1-1-0.4(CaUsts/ ',Pt's...x.0 1 I I

10 10 1.000 . 29.. = 299.00

1.000 8 31.9 = 319.00 PREVIOUS YR. PRESENT YR I I I

12 MEV (T,S61 Pt', 7 I (tech( 1

4 . 1,00 r 60.00 TInES(L.f. 4,0,00 ..1..1 I 1I

(3,77 P.1 7t, 1,77,1( I

4 8 18.00 = 7200

I

IN

Line 1. Show net cost (vehicle cost, less trade-in or anticipated trade-in in unit columns). Depreciation increase can be claimed only when replacement vehicle is obtained. Divide this (or these) figures by the number of years' use obtained or anticipated. Depreciation schedule is related to annual service mileage. Once set, it cannot be changed unless a new vehicle is obtained or major mileage revisions have occurred. It may not change if replace- ment equipment has not been obtained. Show depreciation scale (years) under remarks.

Line 2.. The total financing cost for purchase of equipment, averaged to an annual rate over the same period of time as depreciation. It is not for the financing period, which is usually a lesser time than the depreciation period. It may change only when equipment is replaced. For example, equipment is purchased and expected to operate four years. It is financed for two years and the total interest to be paid in the two years is 11300. Dividing the 1300 by the 4-year depreciation scale is $75 per year.

Line 3. Only operational taxes or business licenses not included in other items.

Line 4. Self-explanatory. If more than one, show breakdown under remarks.

Line 5. The cost of the same rated insurance included in the bid estimate unless raised by state law or local statute. Cost of added coverage, not required

cannot be considered.

by law nor included in bid estimate, but purchased by contractor's choice,

Line 

6* •

Garage rent At, increase caused by local ordinance, loss of parking privileges, etc., if not anticipated, may be a changed condition.

Line 7. Allowable only for the same number of washings per vehicle per year.

Line 8. Self-explanatory. Annual cost, not contract term cost.

Line 9. General overhead. Supervision (if not included under labor), actual telephone calls in conjunction with route or

pro-rated monthly bills, office expense,

included under 6), etc. Itemize in

stationery, auditing, terminal pro-rated charges, parking lot rent (if not detail under remarks.

Line 10. Self-eiplanatory.

Line 11. Include average number of quarts added between changes.

Line 12. List sizes used for all vehicles, under remarks, if necessary. Indicate /tires (4-6-10-14) on road at one time. Include snow tires under new or recap, whichever is applicable.

Line 13. Chains, anti-freeze, oil filters, transmission oil, brake fluid, battery; also periodic checkup, motor tune-up, focusing lights, checking brakes,

be anticipated as useful for more

etc. Explain any major one-time repairs, such as motor replacement, that can

than one year. Such total increases most be reduced to an annual rate based

on useful life of replacement. Include emergency road service in this item.

Line 14. Self-explanatory. May be included with item 18, if no separate record is maintained.

Line 15. Self-explanatory.

Line 16. Under applicable state laws.

Line 17. Bridge, turnpike, ferry, tunnel, etc.

Line 18. Show only actual payroll cost of any employed driver. Do not show wages for your personal operation of a route and 19. or pan of it. If paying other than hourly, indicate under remarks how driver is paid (per week, month, etc.).

Since all contractors are subject to The Fair Labor Standards Act of 1938, (Minimum Sage Law). Co increased compensation will be allowed on account of increased labor costs brought about by enforcement of the law by the Labor Department or through voluntary compliance by the contractor.

Line 20. Social Security, Workmen's Compensation, unemployment tax, etc., give rates of each.

Line 21. Include here other costs not easily included under other items but applicable to operation, with explanation

under remarks.

GPO 8 6, 0 2
12 COST—OF—LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

COMPARATIVE COST STATEMENT AND OPERATING DATA • CONTRACT SERVICE

C N TR•C TOR, NAME. A ODAESS. CI T Y AND • I A T E (Piro., ,,,,,I NO. Cll. Y EPIC, ES RERTTNT or TIPP NOV, IS =I VEN

MIY CON 'RISC TOR

D E

PULL TIIAC ____ PAR T TM. _ _

TX Cr

YEAR

'TA'NPO

TAR TIRES 1%1

OP

CAPACiTY SIZE

EIOI 'ZT mr..... T m

COMPARATIVE cosrs FOR CONTRACTISIG OFFICER'S USE ONLY

APPROvED PRESENT COSTS T.T'TR.T.C.T

cr:PVRco°v%

EEEEE COS

DO

''W.EAF'Tut. WI C7OST AC4:cy L "cWE'cW FA; '. c..o, T '''C,UT.L E V .ETNT' TS Are:—

I. EPNECI A SION

y

EMIC SE I. I CENSEISI

. S. INSSIN•N E

(Cheek .Aetlierl

CI moNTN 0

'

Y. tv•s.ovic (Every (per toel

X -= X

few mei

= X

,kr.b)

=

II D

' '0 TR7I'ELA. 0

•

,o. ,,, L.,..,,,,o p,, o,,L. (USI'SY, (PSY (SO

X =

, Sail., (D.,,gl •)

X =

,AILms,

x

(P. ..,)

=

X = X

(iv,qv(

=

(0...1 '

X

lo” 0.1

X = X = X =

I, TINE SS =IS, te.Sy„,,, (each/

X =

(1// l'earig)

X =

Mires

Prr MITI

X

OATA)

=

NEM (Life

miles(

EC AP (Li,

X = X = X =

r

X = X

f

X =

•

IP NEP•IRS

,Y.,

X = X = X

13. L. LIGNIC • TOON

(Every

wiles(

PP' iReSi I (per /a,) 1

X =

(me. mtml 16.•• 051

X

I

=

(... OW I (per 106)

X

1

=

.11.:::'Gaxi:74

II TOL."

(v.v.( (,..A) '

X =

(er.) V..5.,,)

X =

(.4..) , (r.,...../

=

F

II .1,1 GM I. TIME

Aours, (per .1 '

X =

(..$) (0).).)

X =

(hoeve, (p.• hr.(

X =

IS. 0 V ER TIME

..)

X =

Ow., sl (per As.)

X =

I...)

Sc

(Mr hr.(

=

V ROLL

I

SI. Al SC EL ly •NEOIlS

. I•

xx. TOTAL COST

r.7 so.
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 13

OPERAT NG DATA

HouPS

.,.,..,,,LL,

FORKED

• 

'AC"'A

0 IMIL,FCIRS4

Se"V'Ce

22. SCNEDULED HOURS 23. TO T•L "RP, aine 31 • 321

24. LO•0 1,2,0222

c";:=1:(071tirLtfIf;iti

3.4. T•PE OW ROAD

I Slocktop, concrete. etc.,

". './/.1:44 217 • 24)

311. ROA° CONDITION

a...ellen, good, feu, pt.,

2*.'let7te 'r.::''trn:e7 ". FP'9ui'ailZ.01•FCIFFI'OFE4E7 ':4•75iF: '21°;E"' Dv'' D".' El' '' El '''

LOAD

NO. OF POUCHES.

':i'COKE t:A. N:C:17-

SIM.NOW MUCK ANMALLY DID 110,2 RECEIVE FOR

m .,,,,o,,,,,,AntoOl

Ve 'Al'it titger7)'::

" .Put eaie Etti itti gri:FeFtrtrs"jo.V art c CI'," D... D... 0 NO

20. NO. OF ISOFES SERVED

372.••AS THE INCOME DESCRI•ED IN ITEM 37

OECLINED DUE TO • SCHEDULE CH•NGE

0 ',ES 0 NO 0 YES Ono

SO. BOBIES ..... 0 •OTH WA.N,

0,„ 0,40 0,„ 0..

37b. NOR 0442CH •NNUALLY DID VOL? RECEIVE FOR

,t. :,,,.(7,:::;:.,gr.:::::;‘,.. MUCH 00 no RECEIVE

31. NO. OF BOX STOPS (Imo of more &pees

311. ESTIm•TED ANNU•L 121LE•GE OR

PERCENT EQUIPMENT IS USED FOR

NON INCONIE PERSON•L PURPOSES

32. NO. Or POSTAL UNIT SToos /PO's, terminals,

30. WN•T 1,117E OF GE EEEEE 7.0•114TEN•NCE WORK SUCH •S W•SNING DO YOU PEPSON•

•Li..• •ERFORM ON YOLOR ECH.11177EENT•

WARNING: A fine not to exceed $10,000 or imprisonment of not more than five years, or both, is provided by law

(16 U.S. Code 1001) for making a false statement or concealing any material fact concerning this claim.

AMOUNT OF INCREASE REQUESTED:

CONTRACTOR•S SIGN•TURE

s PER D YEAR TRIP EIPIECE

POSTMASTER'S STATEMENT

1. IN sIOE ME•SUREMENT OF IRUCE BODY (Length, width, height, 2. CONTRACTOR, SERvICE /Adequate. Food. B772. ete.)

H Rk..• R• TE FOR Only ft HOURLY 17,TE FOR DRIvER •NO TRUCE

3. CHARGES FOR SIMILAR SERVICES IN THE AREA

4. GENERAL CONDITION OF EQUIPMENT (Excellent, good, fair. poor, S. IS EQUIPMENT ADEQUATELY Al•INTAINED?

O. IS VEHICLE ENOUGH FOR 12011•12.L MAIL VOLUME. 7. 1,4.:BONTR TOR vOLuNTARILY L CEO LARGER EQuIPMENT IN SERVICE •ECA.USE OF INCREASED

' FIF:,::IF .E:4:SC:1::: 7::::, ",,°,,'`Tf3 '7: VEAC/tri R E

OYES ONO Moto much larger

0. HOW mANV HOURS • FIEEK IS DRIvER ENGAGED IN •741 I...IL SERV, 1

CURRENT R•TE OvERTHAE RATE (After 40 hours/ DATE OF DRIVER, L•ST INCREASE AMOuNT OF DRIVER, L•ST INCRE•SE

II. ,1222.2 SUCH AS FuFL. OIL. TINE, lueRICATION, REP•11‘ PARTS OR L•BOR H•vE SHOWN 1.21 RE•SES RECENTLY. DESCRIBE HER .

I REMARKS

To the best of my knowledge the information on this form is correct.

G20 22,222
14 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

Mr. GREEN. I have no further questions.

Mr. DULSKI. Mr. Daniels.

MR. DANIELS. Mr. Chairman, I regret that I was not here when

Mr. Batrus testified. I was at an executive committee meeting of the Education and Labor Committee. Inasmuch as I have not heard his testimony, I am not in a position to ask any questions.

Mr. BATRUS. Thank you.

Mr. DULSKI. The next witness is Mr. L. E. Ernst, general manager, National Star Route Mail Carriers Association.

STATEMENT OF L. E. ERNST, GENERAL MANAGER, NATIONAL

STAR ROUTE MAIL CARRIERS ASSOCIATION, ACCOMPANIED

BY ROBERT E. SODREL, NATIONAL PRESIDENT, NEW ALBANY,

IND. ; BURGESS WILLIAMS, VICE PRESIDENT; JAMES R. WOODRUFF, SECRETARY-TREASURER: AND SECTIONAL DIRECTORS

WILLIAM FURCH, JAMES JESSEN, W. R. GOLDSTON, AND RAY

JACKMAN

Mr. ERNST. Thank you, Mr. Chairman.

Mr. DULSKI. We are very happy to have you with us, Mr. Ernst.

Mr. ERNST. Mr. Chairman and members of the subcommittee,

I am Lawrence E. Ernst, general manager, National Star Route Mail

Carriers Association, with headquarters at 301 East Capitol Street

in Washington, D.C.

I would like the record to show that I am accompanied by our

national president, Robert E. Sodrel, New Albany, Id.; our vice

president, Burgess Williams, Warren, Ark.; our secretary-treasurer,

James R. Woodruff, Thomasville, Ga.; our sectional directors, Messrs.

William Furch, Buffalo, N.Y.; James Jessen, Atlantic, Iowa; W. R.

Goldston, Roswell, N. Mex., and Ray Jackman, Cook, Wash.

First, I wish to thank you for scheduling hearings on H.R. 2035,

to provide for cost-of-living adjustment in star route contract prices,

and giving us the opportunity to appear before your committee to

express the views of the National Star Route Mail Carriers Association

with respect to enactment of a new law to be known as cost-of-living

adjustments in star route contract prices. This proposed legislation

was introduced by the chairman under date of January 7, 1965, and

proposes to provide for-cost-of-living adjustments in star route contract

prices commensurate to the annual average of the consumer price index

published by the Bureau of Labor Statistics of the U.S. Department of

Labor.

Star route contracts are awarded according to section 6411 of the

United States Code, title 39, and are awarded to the lowest responsible

bidder with sufficient guarantee for faithful performance in accordance

with the terms of the advertisement. Section 6416 provides for the

renewal of contracts and states the Postmaster General, by mutual

agreement with the holder of a star route, contract motor vehicle

service, or water route contract, and without advertising, may renew

the contract for successive terms, of not more than 4 years each, at the

rate of compensation prevailing at the end of the preceding contract

term, and so forth.

At the present time there are approximately 12,000 contracts, held

by an estimated 10,000 contractors. These contractors provide
•

COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 15

exclusive mail service to some 26,000 post offices of the 34,000 offices,

and supplemental service to most of the remaining offices.

The Annual Report of the Postmaster General, 1964, lists the

average cost of star route service as 19.87 cents per mile; whereas the

1963 report states the average cost was 20.05 cents per mile. In the

same reports the cost of rural route service for 1964 is stated as being

54.97 cents per mile, and the mileage rate for 1963 is shown as 52.54

cents per mile, reflecting an increase of 2.43 cents per mile for rural

route service, whereas there has been a slight decrease in cost of star

route service.

Even though the cost of rural route service to two to three times

greater than contract service, it is not our intention to downgrade this

service, but instead we are seeking ways and means to bring our earnings up, instead of down, as reflected in the Postmaster General's

report ending June 30, 1964, over the same period ending June 30, 1963.

This comparison is given since approximately 4,000 star route contractors now provide box delivery and collection service (with rural

route features) to patrons on their route. We believe the reason for

the reduction in the unit cost of star route service is due to pressure

used by the Post Office Department in the past, and especially at time

of renewal of contract. Here is a quote from a letter mailed to contractors some 60 days prior to time of renewal:

We have reviewed your contract on this route and have determined that the

rate of pay for service performed is in excess of competitive rates paid for like

services in your area, and cannot justify renewing your contract at the existing

rate of 20.876 cents per mile.

If you are interested in negotiating a renewal at competitive rates, please let

us know within 10 days.

If we do not hear from you within the specified time, we must assume that you

do not care to enter into negotiations and we will proceed to advertise your

route for bid.

More than 3,000 contractors now receive an annual pay of less than

$3,000. Six thousand contractors receive less than $5,000 to $10,000,

with 900 in the pay bracket from $10,000 to $15,000, leaving only

about 2,000 contractors who are considered in the higher pay bracket

from $15,000 or more. It must be kept in mind that this pay includes

depreciation of equipment, vehicle insurance, license tags, gas, oil,

and tires

'

as well as maintenance. Also, labor costs if drivers are

employed.

True, Public Law 669, enacted during the 2d session of the 80th

Congress, approved June 19, 1948, states the Postmaster General

may, in his discretion and under such regulations as he may prescribe, with the consent of the contractor, readjust the compensation

of a star route contractor for increased or decreased costs occasioned

by changed conditions occurring during the contract term which

would not reasonably have been anticipated at the time of making his

original proposal or executing his bond for a renewal contract as

provided herein.

The Post Office Department is continually making changes in star

route service- such as curtailing, extending, changing schedules, and

so forth. When routes are curtailed or extended, the annual pay is

adjusted accordingly on a pro rata basis, but no consideration is

given to expanded schedules, unless the contractor prepares a copy

of POD form 5478 and requests an increase in compensation due to

additional time required on the job. When such requests are pre-
16 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

pared and submitted only a very small increase, if any, is allowed for the additional time required—never the minimum hourly rate of $1.25 cents per hour.

When adjustments are made in compensation, due to extension of the route, on a pro rata basis, the increase allowed is later deducted from any increase in cost of operation before an adjustment is ap- proved. We have a case pending where a carrier's annual pay is $3,086.52, which includes a $212.86 increase allowed July 19, 1961, due to extension of the route, and recently he submitted a request for an increase, due to increase in cost of operation, which was rejected.

The request was evaluated by the regional office and it was stated that the cost statement reflected an increase of $194, but the allowance

of $212.86 approved some 4 years ago due to extension of the route was applied against the increase requested and as a result the increase in

cost of operation was denied.

Even though Public Law 669 provides for an adjustment in com- pensation for increased costs, yet contractors are having difficulty in getting favorable consideration, especially if there has been a pro rata increase allowed due to extension of the route during the contract

term.

Some 4 or 5 years ago contract service experienced many radical

changes in service under a program called the metro plan and many

contractors had their contracts canceled or drastically changed. Now

we are going through an even more rigorous program called the sec- tional center concept and the ZIP code program. It has been stated

that there are some 566 sectional center offices throughout the country with 60 national transportation centers, or major concentration centers, serving the 34,000 post offices.

Each sectional center is being scheduled to serve some 77 post offices,

referred to as "satellite offices," and will be served by star route service

leaving the sectional center in early morning and deliver mail to all

offices on the route in a period from 23/ to 3 hours, and then return in

the late afternoon. This means the carrier will be required to lay

over in some small community all day, with no allowance for the

layover time. Such scheduling increases the operating cost of the

contractor, and the proposed increase in cost of living will most certainly be welcome relief to the carriers.

Contractors have been told that their routes must be scheduled to

operate within the confines of the sectional center as one route cannot

serve offices within two centers. This restriction does not apply to

rural route service and we feel that this is discriminatory and will

impose undue hardships on many contractors.

The Consumer Price Index published monthly by the Bureau

of Labor Statistics of the U.S. Department of Labor, shows there was

an increase in cost of hying of 1.245 percent for 1962; 1.694 percent

for 1963; and 1.299 percent for 1964.

It is estimated that only about 25 percent of our contractors

have requested an increase, due to increase of operation, for the

reason that many have been advised in the past that they are pricing

themselves out of business and if the increase requested is approved,

the route will be readvertised for new bids at the beginning of the next

contract term. With such a threat foremost in their minds, they

have been afraid to request an increase for fear of losing their contract,

keeping in mind that "half a loaf of bread is better than no bread

all."
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 17

There is no group that is more loyal to the Post Office Department

than star route contractors, nor is there a group that requires as little

or no supervision as star route contractors. When star route contracts are awarded, the lowest responsible bidder is furnished with a•

statement of service required on the route, such as line of travel,

offices to be served, and schedule on which he must operate. From

that day on the contractor is on his own and almost without exception

he provides 100 percent service according to the provisions of his

contract.

Regardless of the number of years of faithful service that is given,

or the increase in cost of operation, he cannot be granted an increase

to compensate him for his increased costs unless he prepares and submits a comparative cost statement on POD form 5478, showing cost

of operation at time of renewal of contract, and what it is costing him

to operate at the present time. In many cases, the carrier is required

to submit itemized, receipted bills to support his stated cost of operation. This is difficult for the carrier to do since only limited records

are maintained due to the small amount of money he receives and the

excessive hours he is required to put in on the job.

Please understand that our contractors are excellent drivers on the

highways, and good mechanics, but they find it most difficult to

maintain detailed records to reflect their actual cost of operation.

Enactment of this law will most certainly be appreciated by all

concerned and will provide much needed relief, especially to the small

contractor, who at the present time is afraid to request an increase in

pay for fear of losing his contract.

Mr. Chairman, I am happy to have been privileged to appear

before you and your committee and present the views of the National

Star Route Mail Carriers Association and we are indeed grateful for

the many courtesies extended to the association during the past years.

Also, I wish to assure this committee, and officials of the Post

Office Department, that we want to work with you and that we are

always interested in legislation that will improve the position of

contractors and benefit the postal service.

We respectfully urge this committee to report favorably on H.R.

2035. This proposed change in the law will afford the Postmaster

General needed authority to adjust the compensation of star route

contractors and help to keep stated income in line with the increase

in cost of living.

Thank you, Mr. Chairman.

Mr. DuLsici. Thank you very much, Mr. Ernst. Do you recollect

when we had the first postal pay increase some years ago?

Mr. ERNST. Yes, sir.

Mr. DuLsKi. From the figures you have submitted here, you did

not receive an increase because when it was down to the operating

costs, if the gasoline, tire, or labor goes up, say, $50, you are only

compensated $50, so you are operating at the same costs that you

are operating when?

Mr. ERNST. At the time of the contract.

Mr. DuLsici. It is a 4-year contract?

Mr. ERNST. Four-year contract.

Mr. DIJLSKI. Let's assume you give a $6,000 bid on the first

contract. Then if there is an increase within that time, you are

permitted to submit data to increase this contract?
18 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

Mr. ERNST. To increase the cost of operation of contract, and not

until 1960 were contractors given any consideration for the increase

in cost of living.

Mr. DULSKI. When the other pay increase went through last year,

you didn't receive any increase in your salaries?

Mr. ERNST. No; we did not.

Mr. Du',sm. It just goes up when the consumer price index goes

up. That is when you are permitted to file.

Mr. ERNST. That is when we are permitted to file and request an

increase to reimburse the carrier for his increase in costs of operation.

Mr. Du',sm. Very well. Let's assume that in the year 1964, when

we passed legislation to increase the salaries of all of the employees—

we didn't use any index but we just increased salaries by percentages.

Mr. ERNST. That is right.

Mr. DuIsm. Did you receive any consideration for that same

increase for your services?

Mr. ERNST. No; we did not. We continued to operate the routes

for the same money.

Mr. DULSKI. In other words, there was no increase?

Mr. ERNST. No increase.

Mr. DULSKI. Do you have any contractors that have employees

And who are operating as a corporation or partnership?

Mr. ERNST. We do have; yes, sir.

Mr. DULSKI. How many would you have, roughly?

Mr. ERNST. That employ help?

Ir. Du',sic'. Yes; that are on a larger scale?

Mr. ERNST. On the larger scale, I would say between 200 and 300.

Mr. DuIsm. Out of the 10,000?

Mr. ERNST. Yes.

Mr. DuIsm. What is the average pay of an employee, not the

employer, but the employee?

Mr. ERNST. It would vary from $1.25, which is the minimum, up

to perhaps $1.75 per hour.

Mr. DULSKI. That would be on a yearly basis?

, Mr. ERNST. That is regular employment; yes, sir.

Mr. DULSKI. That is $1.75 an hour for a 40-hour week?

Mr. ERNST. That is regular employment; yes, sir.

Mr. DULSKI. This would almost fit into the poverty program;

wouldn't it?

Mr. ERNST. There might be a few exceptions where the employee

might get as much as $2 per hour.

Mr. DuLsici. This letter that you speak about that is mailed 60

days previous to the time the contract expires, does a person receive

a letter from the Postmaster General regardless of whether he makes

an application or is that the regular procedure?

Mr. ERNST. No, sir; it isn't even suggested by the postal officials

that he submit a request for an increase in pay.

Mr. DULSKI. I say, suppose the contract expires?

Mr. ERNST. Yes, sir.

Mr. DULSKI. It is expiring and he receives a letter 60 days before

expiration?

Mr. ERNST. The first letter he receives from the Department asks

whether he is interested in renewing his contract for another term

at the present rate of pay?
COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 19

Mr. DULSKI. At the present rate of pay?

Mr. ERNST. Yes, sir.

Mr. Dumxi. Supposing he returns the letter and says that he is

interested in the contract but there are some specific items that he

would like to have increased. Does that second letter follow?

Mr. ERNST. He is told or furnished with a copy then of the form,

the POD form 5478, and he is requested to submit an itemized cost

of his operation for consideration.

Mr. Du',sm. This is 60 days prior to the time of renewal he receives this first letter?

Mr. ERNST. Yes, sir; these letters I quoted went out approximately

60 days prior to renewal time and that is hardly sufficient time for

the Post Office Department to evaluate the contractor's cost of

operation. Yes, the Department would have no difficulty if they

only had 1 or 2, but they might have 50 or 100 such requests and it

is time consuming.

Mr. Dumxi. What would be the cost of this legislation?

Mr. ERNST. No, sir, I don't. I figure that the costs would be from

$50 to $75 per contract or for the major portion of our contracts.

Mr. Du',sm. Using your figures of 10,000, it would be less than

$1 million, wouldn't it?

Mr. ERNST. Yes, sir; I estimate it would be.

Mr. Dvisx.i. I have the cost of the legislation. The additional

cost would be $416,000, which would be a total of about $1.2 million.

That is on a 3-year basis?

Mr. ERNST. Yes, sir.

Mr. DuLsiu. Thank you very much, Mr. Ernst. I appreciate your

testimony.

Mr. ERNST. Thank you, Mr. Chairman.

Mr. DuLsicr. Mr. Green.

Mr. GREEN. No questions.

Mr. Music'. Mr. Daniels.

Mr. DANIELS. You say that the Post Office Department is exercising some pressure upon the star route carriers. Then you proceed

to go into detail as to the contents of a letter that was sent out by the

Post Office Department. Could you tell us to whom that letter was

sent and when?

Mr. ERNST. That particular letter that was quoted was mailed to

a great many contractors from the Memphis, Tenn., regional office

• and that represents the States of Alabama, Tennessee, and Mississippi.

Mr. DANIELS. As a result of that letter being received by the star

route carriers, do you know if there have been any changes in the

rates?

Mr. ERNST. Yes; there were a great many that were downgraded.

None were upgraded.

Mr. DANIELS. For how long is a contract made on a star route?

For what period of time is it made?

Mr. ERNST. A 4-year term.

Mr. DANIELS. The contract may be renewed for additional 4-year

periods?

Mr. ERNST. Yes.

Mr. DANIELS. Under the 1948 law, the Postmaster General may,

in his discretion, with the consent of the contractor, readjust the

,compensation based upon changed conditions which did not exist at
20 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

the time when he entered into the contract. Has the Postmaster

General, to your knowledge, increased the contracts of most of those

people with whom he has contracts?

Mr. ERNST. There has been no increase granted unless the contractor submitted an individual cost statement itemizing his actual

increase in costs of operation.

Mr. DANIELS. Do you have any figures to submit to the committee

as to how many such requests were submitted to the Postmaster

General and what the Postmaster General's action was on those

requests?

Mr. ERNST. No; I do not. I would say approximately 75 or 80'

percent were granted an increase.

Mr. DANIELS. How did the increase compare with the amount

requested?

Mr. ERNST. Due to the fact that many of our carriers unfortunately

keep poor records and, in many instances, some of them have had a

tendency to inflate their costs of operation, they have had to be downgraded. I must say that the Post Office Department has been fair in

dealing with those who submitted intelligent requests for adjustments.

Now that includes only the increase in costs of operation. That has

not included an item for the increase in cost of living until 1960.

The Department issued a regulation at that time stating that they

would give consideration to percentage increase on their take-homepay.

Mr. DANIELS. If the contractor were to take more time to prepare

records and keep more careful records, do you think that might

resolve the problem?

Mr. ERNST. I don't believe so, sir.

Mr. DANIELS. Would you say that the Postmaster General has been

fair in awarding the increases to those contractors who have filed

applications indicating their increased costs with the exception of

the consumer price index costs?

Mr. ERNST. That statement should be modified just a wee bit.

That refers to the larger contractors, many of whom do employ

bookkeepers or accountants to keep their records. But the individual

operator, which represents, I would say, about 60 to 75 percent of all

contractors, do not hire employees to keep their books. They do

the job themselves and there is little time left for them to keep records

and prepare a detailed statement showing their actual costs of

operation.

Mr. DANIELS. In that case that you have just alluded to, do those

contractors engage in other employment other than the handling of.

this mail?

Mr. ERNST. Not many.

Mr. DANIELS. They are entirely dependent upon the small amount

they earn?

Mr. ERNST. Entirely dependent on the small amount of money

they get.

Mr. DANIELS. I think you made reference to 3,000 receiving an

annual pay of less than $3,000 a year.

Mr. ERNST. Yes, sir. They live in small rural areas and perhaps

they do have a garden that helps to supplement their living.

Mr. DANIELS. They would all qualify to be recipients under ourantipoverty program.
I

COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS 21

Mr. ERNST. I understand that; yes, sir. That is not an understatement. Those are the facts.

Mr. DANIELS. I have no further questions.

Mr. DULSKI. Mr. Sodrel, do you have anything to add?

Mr. SODREL. In most cases, I feel that the Post Office Department

has gone as far as they could on a lot of these pay adjustments. The

problem seems to be that a lot, at least of the smaller contractors that

need a little more money, a lot of them are reluctant to ask for these

increases. Consequently, if they don't ask for them, they never get

them. This is for a lot of reasons.

Some of them are in bad financial conditions and they feel if they

did ask and something came up—it is not that the Post Office Department has threatened that particular fellow or anything like that, but

some of them are just reluctant because they are afraid of the change.

They are afraid if they do ask for an increase, there might be some

change in their contract and they would rather just get along the way

they are than call attention to themselves by asking for an increase.

That type of person, we feel, would be helped considerably by this

bill. The larger contractor can document his expenses and the Post

Office Department has been very fair in their adjustments.

Mr. DANIELS. Mr. Chairman, I would like to ask another question.

What do you think would be a fair, reasonable cost-of-living increase

at the present time?

Mr. SODREL. I am sorry, I can't answer that, sir.

Mr. DANIELS. Can you answer that?

Mr. ERNST. We are basing our contention on the statistical report

furnished by the U.S. Labor Department.

Mr. DANIELS. You set forth on page 5 some figures—

Mr. ERNST. Five percent.

Mr. DANIELS. You set those out and they total 4.229 for the 3

years.

Mr. ERNST. I might say, had the law been enacted this year, the

carrier would have been entitled to receive a 1.299-percent increase,

the way I interpret the intent of the law.

Mr. DANIELS. And under this legislation, if it were to be enacted

into law, the increase would automatically go into effect?

Mr. ERNST. Automatically go into effect .and each contractor would

have his pay adjusted annually.

Mr. DANIELS. Do you have any idea of the costs that would be

involved in the enactment of this legislation?

Mr. ERNST. No, sir; I don't.

Mr. DANIELS. Is there anyone here who can give us some idea of

the cost?

Mr. DULSKI. The figures were submitted by the Department.

Mr. DANIELS. On the basis of 1.2 percent, the Postmaster General

says for the year 1964 the increased costs would amount to $365,000,

and in the year 1965, $391,000, and in 1966, $416,000. Do you agree

with those figures or do you have any reason to disagree?

Mr. ERNST. I estimated approximately $1 million, but apparently

I was very high on my estimate.

Mr. DULSKI. It is over $1 million on the 3-year basis.

MT. ERNST. Yes, sir.

Mr. DULSKI. But the figures quoted, divided by 3 

•
22 COST-OF-LIVING ADJUSTMENTS IN STAR ROUTE CONTRACTS

Mr. ERNST. It would be less than half a million dollars on an

annual basis.

Mr. DULSKI. It would be $365,000, $391,000, and $416,000. Are

you through, Mr. Daniels?

Mr. DANIELS. Yes.

Mr. DuLsxt. I imagine in the year 1966, perhaps you won't have

as many, with the ZIP code and everything else that is coming through

the Post Office. There won't be as many star routes.

Mr. ERNST. There may be more star routes, but they will be short

runs requiring 2 or 3 hours of service and then sit out in a fence corner

all day before coming back home at night. There may be more in

number but they certainly will less in cost.

Mr. DuLstu. Then there will be more individually run star routes.

The contractors will need other jobs.

Mr. ERNST. Right.

Mr. DuLstu. It is pretty difficult to make a living on 3 hours a day.

Mr. ERNST. That is right.

Mr. Duism. You have other members here who have traveled

quite a distance to be here. Is there any other gentleman that would

like to make any statement or add to the testimony of your general

manager and president?

How about the Buffalo man?

Mr. FURCH. I think they did a very fine job in covering it, Mr.

Dulski.

Mr. DuLsxt. If there are no further questions, the committee will

stand adjourned.

Mr. ERNST. Thank you, Mr. Chairman and committee members.

(Whereupon, at 11:35 a.m., Wednesday, April 14, 1965, the subcommittee was adjourned.)

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