Postal Service Regulation
March 16, 2004 (updated February 8, 2005)
No. 11

Background: Increasingly, Americans have been turning to e-mail and other forms of electronic communication to send messages, rather than make a trip to the post office. Since 2001, the number of first-class letters has dropped over five percent (with priority and express mail plummeting some 25 percent). This long-run trend threatens the viability of the U.S. postal service.

Partly in response, the postal service has warned that it will ask for another rate increase in 2005 – with first-class stamp costs rising to 41 or even 43 cents. In the long run, however, rate increases will only make the problem worse, driving even more mail to the Internet.

To address these challenges, a special presidential commission in 2003 urged sweeping changes in the way the USPS works. Among its recommendations: reducing costs by closing unneeded post offices, reducing the workforce, and other steps; and providing USPS management greater management flexibility, such as the authority to negotiate rates.

In addition, the commission recommended increased oversight of USPS. It urged that a Postal Regulatory Commission be created, with broad authority over ratemaking and other activities of USPS. This commission also would be able to define the extent of USPS’s legal monopoly on letter mail.

Status: January, Rep. John McHugh (R-NY) has introduced H.R. 22, the “Postal Accountability and Enhancement Act.” Essentially the same as bills that were approved in House and Senate committees last year, this legislation would grant USPS some flexibility and increase regulatory oversight. It does not, however, include many of the recommendations of the presidential commission. Moreover, it would transfer billions in postal retirement costs to the U.S. treasury.

Discussion: More comprehensive reform of the postal service is needed. The 2003 presidential commission’s recommendations provide a good guide for doing this. Its suggestion that a base-closure style commission for identifying which facilities should be closed is especially promising.

Increased flexibility for postal management would also be helpful, but should be paired with other reforms. Unlike other businesses, USPS enjoys special privileges stemming from its governmental status, including a monopoly on the delivery of letter mail and exemption from taxes and many regulations. As long as these privileges exist, strict oversight and regulation of its activities is necessary.

Action item: Congress should act to allow USPS to be run more efficiently, while ensuring oversight of its activities by a strong independent regulator. At the same time, USPS’ special privileges should be re-evaluated, and the organization required to operate on the same terms as private firms.

This brief was prepared by Heritage Research Fellow James L. Gattuso.

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