 Scope of Treasury Department Purchase Rights with Respect to
         Financing Initiatives of the U.S. Postal Service

If the Treasury Departm ent has declared its election to purchase a proposed U.S. Postal Service bond
    issue pursuant to 39 U.S.C. § 2006(a) prior to the proposed date of issuance and is pursuing good-
    faith negotiations towards such purchase as o f such date, the USPS is not free to proceed with
    issuance o f the bonds to other purchasers solely because Treasury has not completed purchase
    of the bonds within a 15-day period following USPS’ initial notice of the proposed issue.

If, in the above circumstances, Treasury and the USPS are unable to negotiate mutually agreeable
     terms for purchase by Treasury within a commercially reasonable period of time following USPS’
    proposed date for the issuance o f its bonds, then the USPS may proceed with the issuance of
    such bonds to other purchasers.

Treasury is not authorized to dictate or control the terms of the USPS offering, but it must be afforded
   a reasonable opportunity to reach mutually agreeable terms with the USPS when the original terms
   proposed by the USPS are unacceptable. That reasonable opportunity is not rigidly limited by
   the 15-day period for declaring an election to purchase.

                                                                                                 October 10, 1995

          M e m o r a n d u m O pin io n   f o r the   V ic e P r e s id e n t   and   G en er a l Counsel
                                    U n i t e d S t a t e s P o s t a l S e r v ic e
                                                         and

                                           T h e G en era l C oun sel
                                    De p a r t m e n t   of the     T reasury



                                   I. Background and Summary

   This memorandum responds to the U.S. Postal Service’s (“ USPS” ) request that
this Office reconsider and rescind an opinion issued on January 19, 1993,1 in
which we responded to the Department of the Treasury’s (“ Treasury” ) request
for an opinion regarding the statutory relationship between the USPS and Treasury
with respect to USPS financing initiatives. In the 1993 opinion, we concluded
that (1) under 39 U.S.C. § 2006(a), Treasury’s failure to purchase a USPS bond
issue prior to the scheduled date of sale on the market proposed by USPS does
not relieve USPS of further obligation to negotiate with the Treasury towards
agreeable terms of sale, or permit USPS to proceed with the market sale as origi­
nally scheduled, as long as Treasury has duly declared its “ election” to purchase
and continues to negotiate in good faith towards the purchase; and (2) the transfer
of the proceeds of a bond offering by the USPS to a trustee for the purpose of
having the trustee employ those proceeds to make and use investments to dis-

  1   Authority o f the Secretary o f the Treasury Regarding Postal Service Bond Offering, 17 Op. O.L.C. 6 (1993)
(“ 1993 opinion” )-

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                                              Service

charge outstanding USPS debt would require the prior approval of the Treasury
under the provisions of 39 U.S.C. § 2003.
  In response to arguments and representations made by USPS, and after giving
written notice to Treasury, this Office has undertaken a reconsideration of its 1993
opinion.2 We now reaffirm the conclusions reached in that opinion, with the fol­
lowing clarification. We conclude that, although Treasury’s declared election to
purchase a USPS offering may require USPS to negotiate with Treasury towards
agreeable terms of sale even beyond the originally scheduled market offering date,
USPS is not required to postpone the market sale indefinitely if Treasury has
not purchased the offering after that date has passed. Rather, USPS is only obli­
gated to negotiate with Treasury in good faith for a commercially reasonable
period o f time, under the circumstances presented by the proposed transaction,
before proceeding with the sale.

                                                 II. Analysis

  The original opinion addressed two distinct issues, and both were resolved in
favor of the position advocated by Treasury.
  On the first issue, we conclude that this Office was correct in opining that,
under 39 U.S.C. § 2003(c)-(d), Treasury’s approval was required as a precondition
to USPS placing the proceeds of its proposed bond offering with a trustee who
would invest the proceeds in securities and use the investment return to discharge
outstanding USPS debt. We find no basis for changing or revising the original
opinion’s analysis of this issue, and we hereby readopt and reaffirm that analysis.
   However, there appears to be some basis for clarifying one particular aspect
of that portion of the opinion interpreting Treasury’s purchase rights under 39
U.S.C. § 2006(a). Specifically, our 1993 opinion suggested that the negotiations
that could be invoked by Treasury’s “ election” to purchase the USPS bond
offering were not subject to any time limitation, even when Treasury has not
effected a purchase of the offering by the date originally scheduled by USPS for
sale on the market. We now conclude that if such negotiations are conducted
in good faith by USPS, yet are not concluded within a commercially reasonable
period of time following the initially proposed offering date, USPS may proceed
with the proposed offering notwithstanding Treasury’s unconsummated election
to purchase.


   2 Our reconsideration o f the original opinion in this matter was initiated by a request from the USPS. The request
was originally set forth in a letter dated May 4, 1993, from Mary S. Elcano, Vice President and General Counsel
o f the U.S. Postal Service, to Daniel Koffsky, Acting Assistant Attorney General, Office of Legal Counsel. By
letter dated March 17, 1995, the USPS has consented to be bound by the final opinion to be issued by this Office
in this matter. On the basis o f that consent, we are proceeding with our reconsideration o f the 1993 opinion.


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A . Treasury Restraints on USPS Authority to Invest or Deposit Funds

   The first and easier issue concerns the restraints on the authority of USPS to
invest or deposit moneys of the Postal Service Fund (“ Fund” ) set forth in 39
U.S.C. §2003. Section 2003(c) provides that if USPS determines there are Fund
moneys “ in excess of current needs,” such funds may be invested in Government
securities by and through the Secretary of the Treasury and, subject to the Sec­
retary’s prior approval, such excess funds may also be invested in non-Govem-
ment securities. Section 2003(d) separately provides that the Secretary of the
Treasury must pre-approve any “ deposits” of Fund moneys in a Federal Reserve
bank, a depository for public funds, or in “ such other places” as the USPS and
the Secretary “ may mutually agree.”
   USPS proposed to place the proceeds of its bond refinancing with a trustee,
who would then invest the funds in government securities (it is not disputed that
the refinancing proceeds would constitute part of the Fund). The trustee would
then use the principal and interest of those government securities to redeem
approximately $2.6 billion in outstanding USPS debt (i.e., the debt being
refinanced). Treasury contended that USPS could not place the bond proceeds
with the trustee without Treasury’s prior approval — which apparently would not
be forthcoming— under the above-quoted provisions of 39 U.S.C. §2003. USPS
contends that neither § 2003(c) nor (d) applied to this proposed “ in substance
defeasance,” on the theory that the investments made under the trustee arrange­
ment would not constitute true investments because they were only an alternative
mechanism for the repayment of debt; and on the further theory that placement
of the funds with the trustee did not constitute a “ deposit” within the meaning
of 39 U.S.C. § 2003(d).
   USPS’ renewed argument that the statutory requirement for Treasury’s handling
or approval of Fund investments is inapplicable to these arrangements is
unpersuasive and is adequately addressed in the original OLC opinion. The
trustee’s investment of the Fund moneys in government securities is clearly an
investment for purposes of §2003(c)’s restrictions, notwithstanding the participa­
tion of the trustee as an intermediary. See Postal Reorganization Act— Investment
o f Excess Funds o f the Postal Service, 43 Op. Att’y Gen. 45, 47 (1977).3 This
investment arrangement is therefore subject to the requirements of 39 U.S.C.
§ 2003(c).
   The additional argument that the initial “ placement” of funds with a trustee
is not a “ deposit” within the meaning of § 2003(d), and therefore not subject
to approval by Treasury, is also unconvincing. In this regard, we reject the USPS

   3 In his 1977 opinion construing the investment and deposit restrictions o f 39 U.S.C. §2003, the Attorney General
em phasized that “ the limitations in §2003 are limitations on any general powers [of the USPS] insofar as they
apply to the Fund.” 43 Op. A tt’y Gen. at 47. He further stated that “ the authority to purchase Government Obliga­
tions, carefully described and carefully circum scribed in § 2003(c), is to the exclusion o f any other authority in
this regard.” Id.


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                                              Service

contention that the placement of funds with the trustee was not a deposit within
the meaning of that section because the funds were not subject to free withdrawal
by USPS as depositor. There is nothing in § 2003(d) that requires or indicates
such a narrow interpretation of the term “ deposit.” Rather, that subsection broadly
encompasses the deposit of Fund moneys not only in Federal Reserve banks or
in “ depositories for public funds,” but also “ in such other places and in such
manner as the Postal Service and the Secretary may mutually agree.” That expan­
sive description demonstrates that § 2003(d) was intended to apply to virtually
any disposition of Fund moneys, not merely to conventional bank-type deposits.
   This conclusion is consistent with the broad interpretation of Treasury’s
authority under § 2003(d) reflected in the Attorney General’s opinion in 1977,
resolving a comparable dispute between Treasury and the Postal Service. In con­
firming that § 2003(d) imposed limitations on the general powers of the USPS
in making dispositions of the Fund, the Attorney General stated:

        Thus, for example, § 2003(d), which authorizes the Postal Service
        to deposit moneys in the Fund in bank accounts with the approval
        of the Secretary, restricts any implicit authority to open accounts
        which the Service might otherwise have under the general provi­
        sions of the Postal Reorganization Act; and it could not reasonably
        be argued that in addition to deposits made under this authority
        the Service might make Fund deposits anywhere else, without the
        Secretary’s approval.

43 Op. Att’y Gen. at 47 (emphasis added). The Attorney General’s 1977 opinion
reenforces our view that the purposely restrictive provisions of § 2003(d) should
not be circumvented by an unduly narrow interpretation of the verb “ deposit.”

B. Treasury Restraints on USPS Right to Sell Bonds

  The second issue is whether the USPS was entitled to proceed with a proposed
market offering of USPS bonds when Treasury, within the 15-day pre-offering
notice period required by 39 U.S.C. § 2006(a), had invoked (but not actually exer­
cised) its right to purchase that offering. That section provides (emphasis added):

            At least 15 days before selling any issue of obligations under
        section 2005 of this title, the Postal Service shall advise the Sec­
        retary of the Treasury of the amount, proposed date of sale, matu­
        rities, terms and conditions, and expected maximum rates of interest
        of the proposed issue in appropriate detail and shall consult with
        him or his designee thereon. The Secretary may elect to purchase
        such obligations under such terms, including rates o f interest, as

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       he and the Postal Service may agree, but at a rate of yield no less
       than the prevailing yield on outstanding marketable Treasury securi­
       ties of comparable maturity, as determined by the Secretary. If the
       Secretary does not purchase such obligations, the Postal Service
       may proceed to issue and sell them to a party or parties other than
       the Secretary upon notice to the Secretary and upon consultation
       as to the date of issuance, maximum rates of interest, and other
       terms and conditions.

   USPS argues that even if Treasury has declared its “ election” to purchase the
offering, and negotiations to reach an agreement on terms have been undertaken,
the only way Treasury can prevent USPS from proceeding on schedule with the
proposed market offering is by completing the actual purchase of the offering
(and not through mere continuation of good-faith negotiations) before expiration
of the 15-day advance notice period. In contrast, Treasury has contended that it
has an “ absolute right of first refusal” with respect to the proposed offering and,
once it has given notice of its “ election” to purchase within the 15-day period,
USPS is barred from proceeding with a market sale of the bonds and must con­
tinue to pursue negotiations with Treasury — if necessary, beyond the initially pro­
posed offering date.
   Our original opinion (1) rejected the USPS argument that nothing less than
actual purchase of the offering by Treasury could prevent USPS from proceeding
with the scheduled offering; (2) determined that the statute does not require
Treasury to have agreed on terms with USPS before exercising its election to
purchase and enables Treasury to require USPS to bargain exclusively with
Treasury even beyond the date originally proposed for the offering; and (3)
indicated that “ [t]here is no limit on the negotiation period” that is implicitly
required by the statute once Treasury has stated that it “ elect[s] to purchase”
the offering. 17 Op. O.L.C. at 7, 9-11.
   We reaffirm conclusions (1) and (2) and again reject the USPS argument that
Treasury’s priority purchase right under 39 U.S.C. § 2006(a) automatically expires
if Treasury’s election to purchase does not result in the completion of negotiations
and consummation of the purchase by the proposed sale date.
   On this point, we have again considered USPS’ contentions that certain legisla­
tive history underlying the Federal Financing Bank Act of 1973, Pub. L. No. 93-
224, 87 Stat. 937 (1973) (“ FFBA” ) confirms the USPS argument that Treasury
must complete (as opposed to merely initiating) the purchase of a proposed USPS
debt offering within 15 days after receiving first notice of the offering, or waive
all purchase rights. In particular, USPS cites language from committee reports
on the FFBA stating that “ the Secretary of the Treasury may purchase all Postal
Service obligations if he does so within the time period prescribed in 39 U.S.C.
2006(a).” H.R. Rep. No. 93-299, at 5 (1973), reprinted in 1973 U.S.C.C.A.N.
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Scope oj Treasury Department Purchase Rights with Respect to Financing Initiatives o f the U.S. Postal
                                             Service

3153, 3157 (“ PRA House Report” ). Although this argument is not without force,
we do not find it sufficiently persuasive to alter our conclusion on this point.
   First, observations in committee reports concerning the FFBA simply do not
provide persuasive legislative history for purposes of the Postal Reorganization
Act, Pub. L. No. 91-375, 84 Stat. 719 (1970) (“ PRA” ). The FFBA was enacted
three years after the PRA and concerned a more comprehensive range of federal
agency financing issues. It is well-settled that the pronouncements of a subsequent
Congress do not constitute reliable evidence of the intent or understandings of
a prior Congress. Consumer Product Safety Comm’n v. GTE Sylvania, Inc., 447
U.S. 102, 117 (1980); United States v. Price, 361 U.S. 304, 313 (1960). We are
not persuaded that this sound general principle should be disregarded in inter­
preting the PRA.
   Second, the committee report on the FFBA was not concerned with the discrete
issue raised here — whether Treasury must merely initiate, or actually effectuate,
the purchase of a USPS offering within the 15-day initial notice period — as
opposed to the broader question of whether the USPS would retain “ independent
financing authority” after enactment of the F F B A . The segments of the FFBA
committee reports in question were intended to provide broad assurance that the
FFBA would not unduly impair USPS’ existing financing authority under the
PRA, and thus presented a broad interpretation of that authority. These post-enact-
ment descriptions of § 2006(a) simply cannot be equated with a contemporaneous
and authoritative explication of the section’s provisions by the Congress that
enacted it.
   Third, the excerpts from the FFBA legislative history themselves contain an
element of ambiguity on the matter in dispute. Although the segment quoted above
would support the USPS contentions, it is followed by the following additional
statement:

        However, if the [Federal Financing] Bank or the Secretary [of the
        Treasury] did not act to take up a proposed Postal borrowing within
        the prescribed time limit [provided in 39 U.S.C. 2006(a)], the Postal
        Service could, on its own initiative, borrow in the private market
        under its independent Postal Reorganization Act authority.

PRA House Report at 5, reprinted in 1973 U.S.C.C.A.N. at 3157-58 (emphasis
added). Treasury’s declaration of an election to purchase can certainly be viewed
as “ actfing] to take up” the proposed obligations, even when the purchase has
not been fully consummated. That phrase connotes the initiation of the purchasing
process. Consequently, even the FFBA committee report highlighted by USPS
does not unambiguously support its interpretation of § 2006(a).
  Finally, and most importantly, the text of § 2006(a) strongly indicates that its
drafters contemplated that Treasury would sometimes find it necessary to negotiate

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modified terms to govern the proposed issue after Treasury has declared its elec­
tion to purchase. Thus, the section specifically provides:

          The Secretary may elect to purchase such obligations under such
          terms, including rates o f interest, as he and the Postal Service may
          agree, but at a rate of yield no less than the prevailing yield on
          outstanding marketable Treasury securities of comparable maturity,
          as determined by the Secretary.

39 U.S.C. § 2006(a) (emphasis added). If the section required Treasury to consum­
mate its purchase option within 15 days after initial notice, USPS could easily
frustrate the statute’s provision for purchase by Treasury at negotiated terms that
may sometimes differ from those originally proposed by USPS. It could do so
by simply refusing to budge in any respect from its original terms during the
15-day period following initial notice. We do not believe that Congress intended
to circumscribe Treasury’s purchase options to that degree in enacting § 2006(a).
   However, we modify our prior opinion insofar as it indicates that Treasury may
delay the USPS offering indefinitely with unlimited negotiations once it has stated
its election to purchase. We conclude that such negotiations cannot be prolonged
beyond USPS’ scheduled market offering date to such an extent as to impair
substantially USPS’ capacity to consummate the proposed offering in a timely
fashion; rather, Treasury’s option to purchase must be consummated within a
commercially reasonable period of time.
   Enabling Treasury to force an indefinite delay in a proposed USPS bond
offering — even when it has not bound itself to purchase the offering on the terms
proposed by US>PS or on any other specified terms by the scheduled date of sale —
 appears inconsistent with the statute’s intent to provide USPS with a significant
degree of business freedom and to prevent Treasury from exercising a blanket
veto over USPS financial offering proposals. Thus, the House Report on the PRA
emphasized that Treasury’s authority under § 2006(a) did not extend to preventing
USPS from borrowing and did not include “ any inappropriate power . . . to con­
trol the scale of Postal Service operations.” H.R. Rep. No. 91-1104, at 21 (1970),
reprinted in 1970 U.S.C.C.A.N. 3649, 3669 (“ House Report” ).
   In other commercial contexts, courts have established that a purchase option
or right of first refusal4 (which was Treasury’s description of the rights granted
to it under the statute) must be exercised within a “ commercially reasonable”
period of time. E.g., Barco Urban Renewal Corp. v. Housing Auth. o f Atlantic
City, 674 F.2d 1001, 1007 (3d Cir. 1982) (“ in these circumstances the right of
first refusal lasts for a commercially reasonable time” ); West Texas Transmission,
   4 In a portion o f our 1993 opinion, we used the term “ right o f first refusal*’ as a shorthand label for one of
the three possible readings that might be applied to Treasury’s purchase rights under § 2006(a). 17 Op. O.L.C. at
9. Here, we use the term in its general com m ercial sense rather than in the narrower sense in which we employed
it in the 1993 opinion to describe a particular interpretation o f § 2006(a).


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Scope o f Treasury Department Purchase Rights with Respect to Financing Initiatives o f the U.S. Postal
                                              Service

L.P. v. Enron Corp., 907 F.2d 1554, 1562 (5th Cir. 1990), cert, denied, 499 U.S.
906 (1991); Brauer v. Hobbs, 391 N.W.2d 482, 486 (Mich. Ct. App. 1986). In
the absence of contrary language in the statute, this well-established commercial
principle provides a relevant consideration in construing the purchase rights incor­
porated in § 2006(a).
   We do not think the statute was intended to enable Treasury to prevent USPS
from proceeding with a proposed bond offering by requiring USPS to submit to
an indefinite and unlimited period of negotiations. Such power would constitute
the kind of “ inappropriate power in the Treasury to control the scale of Postal
Service operations” that was foresworn in the legislative history. See House
Report at 21, reprinted in 1970 U.S.C.C.A.N. at 3669.
   If Treasury’s ability to delay the proposed USPS offering date for purposes
of negotiating agreeable purchase terms is limited to a commercially reasonable
period, however, it would not be inordinate or inappropriate.5 Although we cannot
project a specific period or time-range that would be “ reasonable” for the varying
circumstances that USPS might confront in the future, we believe that a delay
of such length as to substantially alter the circumstances which established the
premises of the originally proposed offering would generally be considered
unreasonable. Generally accepted custom and practice in the government securities
sector would provide an appropriate point of reference for determining commer­
cially reasonable timeframes in this context.
   In summary, our conclusions regarding Treasury’s purchase rights under 39
U.S.C. § 2006(a) are as follows:
   1. If Treasury has declared its election to purchase the proposed issue before
the proposed sale date, and Treasury is still pursuing good-faith negotiations
towards mutually agreeable terms, the USPS is not free to proceed with a sale
on the market merely because Treasury has not completed the purchase within
the 15-day period following initial notice of the proposed sale.
   2. Treasury may not frustrate USPS’ right to sell the obligations elsewhere for
an indefinite period by declining to purchase at the originally proposed terms
when good-faith negotiations have failed to produce mutually agreeable alternative
terms. If Treasury and USPS are unable to negotiate mutually agreeable terms
within a commercially reasonable period of time following the originally proposed
sale date, USPS may proceed to sell to another purchaser.
   3. Treasury is not authorized to dictate or control the terms of the USPS
offering, but it must be afforded a reasonable opportunity to reach mutually agree­
able terms with USPS when the original terms proposed by USPS are unaccept­

   5 This interpretation is consistent with then Under Secretary o f the Treasury Paul Volcker’s testimony during the
Senate hearings on the PRA, where he stated that the provisions in question would give the Secretaiy the authority
“ to supervise the timing o f the financing and the terms o f any financing by the postal authority, but he can never
put him self in a position where he is preventing the postal authority from obtaining what financing they think is
ne ce ssa ry /’ Postal Modernization: Hearings Before the Senate Comm, on Post Office and Civil Service, 91st Cong.
311 (1969).


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able. That reasonable opportunity is not rigidly limited by the 15-day period for
declaring an election to purchase.

                                                          WALTER DELLINGER
                                                        Assistant Attorney General
                                                         Office of Legal Counsel




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