Authority of the Secretary of the Treasury Regarding Postal
Service Bond Offering
If the Secretary o f the T reasury, within the fifteen-day period follow ing notice by the United States
Postal S ervice o f a proposed bond issue, declares his election to purchase the bonds under 39
U .S.C . § 2006(a), the Postal Service m ay not sell the bonds on the open m arket, but m ust instead
negotiate in good faith w ith the Secretary to reach agreem ent on the term s and conditions o f a sale
to the Secretary
T ransfer o f the proceeds o f any bond offering by the Postal Service to a trustee for the purpose o f hav
ing the trustee m ake paym ents on outstanding Postal S ervice debt w ould be a deposit o f Postal
Service m onies w ithin the meaning of 39 U.S C. § 2003(d) and, accordingly, could be done only
w ith the approval o f the Secretary of the Treasury.
January 19, 1993
M e m o r a n d u m O p in io n for t h e G eneral C ounsel
D epartm ent o f the T r ea su ry
You have requested our opinion concerning the authority o f the Secretary o f the
Treasury under 39 U.S.C. §§ 2003(d) and 2006(a) to purchase bond issues of the
Postal Service and to control the disposition of the proceeds thereof. Specifically,
we were asked to address the legal issues arising from the proposed bond issue
described in Postm aster General R unyon’s O ctober 7, 1992, letter to Secretary
Brady. A lthough we understand that Treasury and the Postal Service have reached
an agreement, in consequence of which the Postal Service has withdrawn this par
ticular bond issue, we are memorializing our legal conclusions in this memoran
dum because of the recurring importance of these issues.
The Postal Service’s plan was to issue bonds in the amount of $3 billion. The
Postal Service proposed to transfer the proceeds o f the bond issue to a trustee who
would then purchase an equivalent amount of government securities, the interest
and principal o f which would be dedicated to repayment of approximately $2.6
billion o f Postal Service debt held by the Federal Financing Bank (“FFB ”). Under
a ruling o f the Financial Accounting Standards Board, this transaction would have
allowed the Postal Service to rem ove the original FFB debt from its books, pro
ducing, the Postal Service asserted, cost savings and financial flexibility.
The Postal Service gave notice to the Secretary of the Treasury o f its intent to
market these bonds, as required by 39 U.S.C. § 2006(a), on October 7, 1992. On
October 9, 1992, the Secretary notified Postmaster General Runyon that he was
exercising his statutory option to purchase the bonds, and proposed that the Postal
Service im m ediately enter into negotiations concerning the terms o f the sale. The
Secretary believed that his invocation of his right to purchase within the fifteen-day
6
A u th o rity o f the Secretary o f the Treasury R egarding P ostal Service Bond O ffering
»period precluded the Postal Service from offering its bonds in the m arket. The
Postal Service took the position that the Secretary’s failure actually to purchase the
bonds within the notice period permitted it to market them elsewhere.
For the reasons set forth in this memorandum, we believe that the Secretary’s
election to purchase the bonds within the fifteen-day period precluded the Postal
Service from selling the bonds on the open market. The Secretary’s election trig
gered an obligation o f both parties to negotiate in good faith to agreement on the
terms and conditions o f the sale.
We further conclude that the transfer o f the proceeds of any bond offering by
the Postal Service to a trustee for the purpose of having the trustee make payments
on outstanding Postal Service debt would have been a “deposit” of “m oneys of the
[Postal Service] Fund” in a place other than the Postal Service Fund within the
Treasury within the meaning o f 39 U.S.C. § 2003(d). Such a deposit would, under
that statute, be subject to “the approval of the Secretary [of the Treasury].” Id.
§ 2003(c).
I.
The right of the Secretary o f the Treasury to purchase obligations o f the Postal
Service arises under statute:
At least 15 days before selling any issue of obligations under sec
tion 2005 of this title, the Postal Service shall advise the Secretary
of the Treasury of the amount, proposed date of sale, maturities,
terms and conditions, and expected maximum rates of interest o f the
proposed issue in appropriate detail and shall consult with him or
his designee thereon. The Secretary may elect to purchase such ob
ligations under such terms, including rates of interest, as he and the
Postal Service may agree, but at a rate o f yield no less than the pre
vailing yield on outstanding marketable Treasury securities of com
parable 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 o f
issuance, maximum rates o f interest, and other terms and conditions.
39 U.S.C. § 2006(a).
C ongress’s dual purpose in enacting § 2006(a) was to give the Postal Service
the powers necessary to run the Service on a business-like basis, while also pro
viding some protection for the Treasury against a Postal Service debt offering that
might interfere with the Treasury’s marketing of its own bonds. The first policy, as
stated in the report o f the House Committee on Post Office and Civil Service on
7
O pinions o f the O ffice o f L egal C ounsel
the bill that ultim ately became the Postal Reorganization Act, was that postal reor
ganization rested upon the proposition that “the m anagem ent o f the Postal Service
should be given the powers needed to m anage well and then should be held strictly
responsible for the proper use of those powers.” H.R. Rep. No. 91-1104, at 20
(1970) (“H ouse R eport”). Because C ongress recognized that “access to capital
through the sale o f bonds is essential to any realistic modernization of the physical
plant o f the Postal Service,” the reorganization bill gave the Postal Service “the
pow er to issue its own obligations upon the security o f such o f its assets and reve
nues as it sees fit.” Id. At the same time, Congress recognized that the Treasury
might need som e protection from com petition from the Postal Service. As then-
Under Secretary of the Treasury Paul V olcker testified before a Senate committee,
the Treasury “does not want to be put in the position of the Postal Service being
able to do financing independently and perhaps working at cross purposes with
what the Treasury is trying to accomplish at that same time in other financing op
erations.” 1 P ostal Modernization: H earings Before the Senate Comm, on Post
Office a n d Civil Service, 91st Cong. 311-12 (1969) (“Senate Hearings”).
Section 2006(a) seeks to harmonize these concerns. The Postal Service was
given the authority to determine for itself (subject, o f course, to the concurrence of
the m arket) the purposes, amounts, and terms and conditions of its borrowings,
while the Treasury was provided a m echanism for coordinating Treasury and
Postal Service financing. Under Secretary V olcker called this compromise an at
tem pt to achieve “the best o f both w orlds . . . . T he Secretary of the Treasury can
not assert substantive control over th e Postal Service, but the Postal Service must
coordinate its financial demands w ith the T reasury.” Senate Hearings at 312.
Similarly, the report o f the House Post Office Com mittee explained:
[T]he pow er of the Postal Service to issue its obligations is reserved
to it alone. It need not seek o r obtain the consent o f the Secretary of
the Treasury either as to the fact of the borrowing or the terms and
conditions upon which it is done. There is a duty upon the Service
to notify and consult with the Secretary. This, together with the
right of the Secretary to purchase any or all of a proposed issue, is
regarded by that Department as fully adequate protection of the in
terest o f the United States G overnm ent as a potential competitor of
the Service in the money market. At the same time, the bill guards
against any inappropriate pow er in the Treasury to control the scale
o f Postal Service operations.
H ouse R eport at 21.
A lthough the legislative purpose behind § 2006(a) is clear, the statute itself is
not. At least three readings of § 2006(a) are possible. Under the first reading,
what m ight be called the “notice and consultation” view, the Postal Service is re
A u th o rity o f the Secretary o f the Treasury R egarding P ostal Service B ond O ffering
quired to give notice to the Secretary at least fifteen days before a planned bond
sale. The notice must contain certain specified information (amount, proposed sale
date, maturities, etc.), but is not itself an offer to sell to the Secretary. The Secre
tary may purchase these bonds with the agreement of the Postal Service (“under
such terms . . . as he and the Postal Service may agree”), but the Secretary is not
obliged to buy, and the Postal Service is not obliged to sell. Finally, if the
Secretary does not purchase the bonds, even if the failure to purchase is simply a
consequence of the Postal Service’s refusal to sell, the Postal Service may sell the
bonds elsewhere, subject only to the requirements that it give the Secretary notice
of any such sale and consult with him concerning its terms.
The second possible reading may be termed the “right of first refusal” reading.
Under this interpretation, the Postal Service must give the Secretary fifteen-days
advance notice o f a proposed sale o f obligations. The notice must, o f course,
contain the information specified in the statute “ in appropriate detail,” and consti
tutes an offer to the Secretary. Prior to the expiration of the fifteen days, the Sec
retary may exercise his option to purchase the obligations on the terms offered, or
on such different terms as he and the Postal Service may have agreed. Once the
Secretary exercises his option, the Postal Service is bound to sell to him under the
terms of its original offer or any mutually acceptable counteroffer. Should the
Secretary fail to complete the purchase within the fifteen-day period, however, the
Postal Service would be free to market its bonds elsewhere, after notice to and
consultation with the Secretary.
The third reading of § 2006(a) might be referred to as the “exclusive bargaining
right” theory. Under this view, the Postal Service must give the Secretary notice of
its proposed offering, in appropriate detail, at least fifteen days prior to the sale.
The Secretary may then decide to require the Postal Service to market the
securities exclusively to him. If the Secretary exercises this option within the fif
teen-day period, the Postal Service must negotiate to agreement with the Secretary,
and only with the Secretary, on the terms and conditions o f the sale. There is no
limit on the negotiation period, and although each party must act in good faith, the
Secretary’s exercise of his exclusive bargaining right precludes the Postal Service
from negotiating with other buyers. Only if the Secretary subsequently relin
quishes this right may the Postal Service offer its bonds on the market.
None of these readings is entirely free from difficulty. As an initial matter,
however, we may dismiss the first interpretation, the notice and consultation
model. Although this version is perhaps most easily reconciled with the wording
o f § 2006(a), it is totally at odds with the purpose of the provision, which is to give
the Secretary a “right of first refusal.” See, e.g., Senate Hearings at 305 (testimony
of Under Secretary Volcker); 3 Post Office Reorganization: Hearings Before the
House Comm, on Post Office a n d Civil Service, 91st Cong. 1172 (1969) (“House
Hearings”) (colloquy between then-Under Secretary Volcker and Representative
Hamilton); see also House Report at 21 (Secretary has “the right . . . to purchase
9
O pinions o f the O ffice o f L egal C ounsel
any or all” Postal Service obligations); Senate H earings at 270 (testimony of Post
m aster G eneral Blount) (Treasury has right to purchase all Postal Service obliga
tions or, at its option, to perm it Postal Service to sell obligations to the public); id.
at 305 (testim ony o f Under Secretary Volcker) (Secretary has an option to pur
chase Postal Service obligations); Federal Financing Bank Act: Hearings Before
the H ouse Comm, on Ways and M eans, 93d Cong. 18 (1973) (testimony of
then-U nder Secretary Volcker). Indeed, the Postal Service itself recognizes that
§ 2006(a) creates some species of an option right in the Secretary of the Treasury.
See M em orandum from M ary S. Elcanco, Vice President and General Counsel,
United States Postal Service at 9 (Oct. 22, 1992) (referring to the Secretary’s “right
o f first refusal”) (“Elcanco Memo”). Thus, the first reading, requiring only notice
to and consultation with the Secretary, is not a viable interpretation of § 2006(a).
Under either the second or third reading o f § 2006(a), the Secretary must exer
cise his right (either the right of first refusal in the second reading or his exclusive
bargaining right in the third) within the fifteen-day period following notice of a
proposed Postal Service offering. A lthough the statute does not explicitly make
the Secretary’s right time-limited, the very notion that the Secretary has an option
to be exercised suggests that there m ust be some point in time at which he must
decide to exercise or waive his option. Moreover, if the Secretary’s right were not
subject to a time limit, the Secretary could by m ere inaction prevent the Postal
Service from obtaining any financing. As Under Secretary Volcker put it, how
ever, § 2006(a) gives the Secretary the authority “to supervise the timing of the
financing and the term s 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 necessary.” Senate Hearings at 311. Thus, the Secre
tary’s option, w hether viewed as the right to purchase Postal Service obligations or
to enjoy exclusive bargaining power, must be subject to some time limitation. The
fifteen-day notice period contained in the first sentence of § 2006(a) m ust therefore
be read as the tim e lim it for the Secretary to exercise his option right.
A ssum ing that the Secretary must exercise his option right within the fifteen-day
period, tw o questions remain. First, what is the nature o f the option right? Is it a
right o f first refusal, i.e., the right to purchase the Postal Service’s obligations on
the term s contained in the original notice or as modified by agreement, or is it a
right to require the Postal Service to bargain exclusively with the Secretary con
cerning the sale o f the obligations? Put another way, can the Secretary “elect to
purchase” Postal Service obligations only after he has reached agreement with the
Postal Service on the terms and conditions of the sale (the right of first refusal the
ory), or can he m ake his election p rio r to any agreem ent on terms (the exclusive
bargaining rights theory)?
W e believe that § 2006(a) should be read as giving the Secretary the right to
“elect to purchase” Postal Service obligations prior to any agreement on the terms
of the sale. The statute states that the Secretary “may elect to purchase such obli
10
A u th o rity o f the Secretary o f the Treasury R egarding P ostal Service B ond O ffering
gations under such terms, including rates o f interest, as he and the Postal Service
may agree.” Id. The right of first refusal theory would interpret this phrase as if it
read “may elect to purchase . . . under such terms . . . as he and the Postal Service
may have agreed." If that had been the language of the statute, the construction
would clearly indicate that the agreement on terms must precede the Secretary’s
election. The failure to use that construction, however, suggests that the Secre
tary’s election may precede any agreement between the parties. W e therefore read
the statute to mean quite literally what it says, that the Secretary may elect to pur
chase upon such terms as he and the Postal Service may subsequently agree.
II.
Assuming that the Postal Service had proceeded with its proposed financing,
either through a purchase by the Treasury or via open market sales, several ques
tions concerning the Secretary’s authority as it affected the proposed defeasance
would still have remained. W e understand that the Postal Service planned to de
posit the proceeds of its financing in the Postal Service Fund o f the Treasury, and
then almost immediately to withdraw the funds and transfer them to a trustee. The
trustee in turn would have purchased a portfolio of government securities, whose
principal and interest would have been sufficient to redeem approximately $2.6
billion of Postal Service debt held by the FFB.
As outlined above, the proposed defeasance raises questions under 39 U.S.C.
§ 2003(c) and (d).1 First, would the transfer o f the proceeds of the Postal Service
financing have been a “deposit” o f funds within the meaning of § 2003(d)? If it
would, then under the statute the deposit would have required the approval o f the
Secretary of the Treasury. Second, would the purchase of the portfolio o f govern
ment securities by the trustee have been an “investment” of funds “in excess of
current needs” by the Postal Service?
Turning first to the issue of whether the transfer to the trustee would have been
a “deposit” within the meaning of § 2003(d), we have no hesitation in concluding
that it would. To “deposit” is defined as “[t]o commit to custody, or to lay down;
to place; to put; to let fall (as sediment).” B lack’s Law Dictionary 438 (6th ed.
1990) (citing Jefferson County ex rel. G rauman v. Jefferson County Fiscal Court,
117 S.W .2d 918, 924 (Ky. 1938)); see also id. (defining a “deposit” as “[t]he de
livery of chattels by one person to another to keep for the use of the bailor”). Here,
1 39 U.S.C § 2003(c) provides
If the Postal Service determines that the moneys of the Fund are in excess of current needs, it
may request the investment of such amounts as it deems advisable by the Secretary of the T reas
ury in obligations of, or obligations guaranteed by, the Government of the United States, and,
with the approval of the Secretary, in such other obligations or securities as it deems appropriate.
39 U.S.C. § 2003(d) provides:
With the approval of the Secretary of the Treasury, the Postal Service may deposit moneys of
the Fund in any Federal Reserve bank, any depository for public funds, or in such other places
and in such manner as the Postal Service and the Secretary may mutually agree.
11
O pinions o f the O ffice o f L egal C ounsel
the Postal Service would have been com m itting the proceeds o f its financing to the
custody o f the trustee with instructions, contained in an irrevocable declaration of
trust, to use those proceeds for the benefit of the Postal Service by paying certain
Postal Service obligations as they cam e due. Such a transaction would have in
volved w hat appears to us to be the essential ingredient o f a deposit: the holding
by one person o f money that belongs to another, for that other person’s benefit.
The Postal Service argues that to “deposit” funds necessarily implies the right to
withdraw them and that, since the Postal Service would have had no such right
here, the transfer to the trustee could not be a deposit. It is true that in many, per
haps even in most, deposit situations the depositor has a right to withdraw his
funds. But the right to withdraw is not therefore an inherent attribute of a
“deposit.” For exam ple, a prospective purchaser o f a house usually is required to
put a sum o f m oney on deposit with an escrow agent. This money, usually called
“earnest m oney,” is not withdrawable by the purchaser and, indeed, is forfeited to
the seller if the purchaser does not proceed with the sale. A deposit is often re
quired of renters o f either real or personal property. This deposit is not with
draw able by the renter, but is, of course, returned to him at the conclusion o f the
transaction. Sim ilarly, m any utility com panies require customers to post a deposit
as a condition o f initiating service. O nce again, this deposit may not be withdrawn
by the depositor, but is returned to him only upon discontinuance o f his service or
upon the utility’s becom ing satisfied o f his creditworthiness. Thus, it does not ap
pear that the ability to withdraw on dem and is an essential attribute o f a deposit.
T he proposed transfer o f funds to the trustee would clearly have been, in our
opinion, a deposit o f those funds w ithin the m eaning of § 2003(d). It is indisput
able that § 2003(d) provides that any deposit o f Postal Service funds in any place
other than the Postal Service Fund o f the Treasury requires the approval o f the
Secretary o f the Treasury. We therefore conclude that the Postal Service may not
have im plem ented this aspect of its proposed defeasance without the Secretary’s
approval.
If the Secretary had consented to the deposit o f funds with the trustee, it still
would have been necessary to determ ine w hether the purchase o f a portfolio of
governm ent securities by the trustee would be subject to the requirements of
§ 2003(c). T hat section provides th at if the Postal Service desires to invest any
funds “in excess o f current needs” in governm ent securities, it may request the Sec
retary o f the Treasury to do so on its behalf. Should the Postal Service wish to
invest in other than government securities, it m ust first obtain the approval o f the
Secretary.
T he Postal Service argues as an initial m atter that § 2003(c) would have been
inapplicable here because the proceeds of its financing would not have been excess
funds within the m eaning of the statute. The Postal Service contends that since
§ 2003(c) by its terms applies only to the investm ent of excess funds, investment of
any other funds is left to the discretion of the Postal Service.
12
A u th o rity o f the Secretary o f the Treasury R egarding P ostal Service B o n d Offering
W e believe that § 2003(c) provides the only statutory authority for the invest
ment of Postal Service funds. Certainly there is no express authority elsewhere in
title 39 for the Postal Service to invest its funds. Although the broad powers
granted to the Service by 39 U.S.C. § 401 might, in the absence of § 2003(c), be
construed to give the Service investment authority, the specific, limited authority
granted by the latter provision precludes such a reading of the former section. We
believe that this situation is clearly governed by the maxim expressio unius est
exclusio alterius. By explicitly providing for the investment o f excess funds, the
statute impliedly denies the Postal Service the power to invest any other moneys.
Indeed, it is difficult to imagine the purpose of § 2003(c) if the general powers
granted in § 401 included the power to invest; there would seem to be little reason
to place special limits on the power to invest excess funds, while leaving the Postal
Service free to invest funds needed for current operations in any way it chose.
Both common sense and the standard principles of statutory construction suggest
that the Postal Service’s only source o f authority to invest its funds derives from
§ 2003(c).
Since the Postal Service may invest only pursuant to § 2003(c), it may not in
vest at all, with or without the Secretary, unless the funds proposed to be invested
are “moneys . . . in excess of current needs.” The Postal Service argues that the
proceeds of its financing would not have been funds in excess o f current needs
because it “intendfed] to use the funds to effect the Defeasance (a valid business
purpose).” Elcanco M emo at 18. We believe, however, that such a bootstrapping
argument is not persuasive. The funds at issue would have been raised solely for
the purpose of investing, through the trustee, in a portfolio of securities. If invest
ment were considered a current need within the meaning o f § 2003(c), the Postal
Service could never invest any money, because money used for investment would
be used for, and thus by definition never could be in excess of, current needs. It
must therefore be the case that “current needs” excludes investment purposes.
Since it is clear that the Postal Service would not have required these funds for
its current operations apart from its defeasance scheme, we believe that the pro
ceeds of this financing could be considered excess funds within the meaning of
§ 2003(c).
We note, however, that § 2003(c) clearly vests in the Postal Service the right to
determine which funds are “in excess of current needs.” W e therefore conclude
only that, if the Postal Service were to have requested investment o f the proceeds
of its proposed financing, the Secretary of the Treasury would have been legally
authorized by § 2003(c) to invest such funds on its behalf. The Postal Service
would have been free, however, to determine that these funds were not in excess of
current needs, in which event the Postal Service would have been precluded from
investing them in any manner.
The Postal Service also disputes that the purchase of securities pursuant to the
defeasance scheme would have constituted an investment o f funds. The Postal
13
O pinions o f the O ffice o f L egal C ounsel
Service argues that the defeasance w ould have been the economic “equivalent of
delivering the proceeds to Treasury to prepay the FFB debt.” Elcanco M emo at
19. G ranted that that would have been the accounting effect o f the defeasance, we
do not see how that divested the purchase of the portfolio of securities of its in
vestm ent character.
Investm ent m eans “an expenditure to acquire property or other assets in order to
produce revenue.” B lack’s Law Dictionary 825 (6th ed. 1990). It has also been
defined judicially as “[t]he placing o f capital or laying out o f money in a way in
tended to secure incom e or profit from its em ploym ent.” Id. (quoting SE C v.
W ickham,
12 F. Supp. 245, 247 (D. M inn. 1935)) (quoting M innesota v. Gopher
Tire & R ubber Co., 177 N.W . 937 (M inn. 1920)). There is no question that the
Postal Service proposed to expend capital raised through its debt offering to pur
chase governm ent securities in the expectation that that property would produce
income in the form o f dividends. T h at the Postal Service had an ultimate use in
mind for both the principal amount o f its investment and the income derived there
from in no way changes the fact that it would have been expending its capital in the
first instance for the purpose of producing income. That would have constituted
an investm ent and thus would have brought the transaction within the scope of
§ 2003(c).
A lthough this point was not raised by the Postal Service, we note that the in
vestment, i.e., the purchase o f the securities, would not have been accomplished by
the Postal Service itself, but by th e trustee. It must therefore be determined
whether the trustee under these circumstances would have been subject to the con
straints o f § 2003(c) in the same w ay that the Postal Service would be if it pur
chased the securities directly.
W e believe that § 2003(c) would have applied to the trustee here. It is clear that
the trustee would have exercised no discretion in this matter. He would have been
required by the term s o f the declaration of trust to purchase risk-free, i.e., govern-
m ent-issued or government-insured, securities, in amounts and with maturities and
interest rates that corresponded precisely to the amounts and maturities of the
Postal Service debt to be defeased. Far from exercising the independent judgm ent
characteristic of a trustee, the trustee here would have been nothing more than the
agent o f the Postal Service. Since th e agent could exercise no more authority than
his principal possessed, we conclude that the trustee would have been subject to
the provisions o f § 2003(c) in the sam e manner that the Postal Service itself would
be.
In sum m ary, we conclude that the proposed defeasance scheme would have
been fully subject to § 2003(c) and (d). The transfer of the proceeds of the Postal
Service’s financing to the trustee would have constituted a deposit within the
meaning o f § 2003(d), and therefore could have been done only with the approval
of the Secretary o f the Treasury. Assuming that the Secretary agreed to such a
deposit, the purchase o f the portfolio o f securities by the trustee would have con
14
A u thority o f the Secretary o f the Treasury R egarding P ostal Service B ond O ffering
stituted an investment of Postal Service moneys within the meaning of § 2003(c).
That section requires that the Postal Service, or its agent, invest in government
securities only through the Secretary of the Treasury. Although the Secretary
could not have refused a request by the Postal Service to invest in governm ent se
curities, he would have had discretion to determine which particular securities to
purchase. Postal Reorganization Act -- Investm ent o f Excess Funds o f the Postal
Service, 43 Op. A tt’y. Gen. 4 5 ,4 8 (1977).
TIM OTHY E. FLAN IG A N
Assistant Attorney General
Office o f Legal Counsel
15
