June 16, 2004 | Executive Memorandum on
Postal Reform Legislation: Less Than Letter-Perfect
the past few weeks, things have been moving quickly in the
otherwise glacially paced world of the U.S. Postal Service (USPS).
On May 12, the House Committee on Government Reform unanimously
passed the first broad postal reform legislation approved by a
congressional committee in 30 years: H.R. 4341, sponsored by
Representative John McHugh (R-NY). The next week, the Senate
Committee on Governmental Affairs approved similar legislation (S.
2468). The bills now await votes by the full House and Senate.
While these bills would implement some
welcome changes in how the Postal Service operates, they fall short
of the kind of real transformation that is needed and would saddle
taxpayers with billions of dollars in postal costs. Congress can
and should deliver more than this disappointing package.
The Need for
It is no secret that the USPS is in need of change.
Americans, instead of visiting the post office, increasingly use
e-mail and other forms of electronic communication to send
messages. Last year, total mail volume shrank for the third year in
a row, and the trend has continued in 2004. Although the USPS ran a
surplus in the past year, it suffered huge deficits in the three
previous years, and more deficits are likely. The old way of doing
things no longer works: Without change, the Postal Service could
soon cease to be viable.
2003, a presidential commission looked at how the Postal Service
should respond to these long-term trends and recommended a broad
set of reforms focused on reducing costs, increasing flexibility to
respond to market conditions, and increasing oversight. The postal
reform bills now before the House and Senate would implement
many--but not all--of the commission's recommendations.
Specifically, they would:
- Grant the USPS broad authority to set
prices for competitive products (i.e., those for which it does not
enjoy a monopoly). It would be prohibited, however, from
subsidizing competitive products with money from other areas.
- Limit the USPS to provision of "postal
services," although all current activities would continue to be
allowed under the House bill.
- In markets where the Postal Service is
dominant, replace the current cumbersome system of setting rates
with more modern regulation, such as price caps, to be established
by the new Postal Regulatory Commission. This is meant to give
postal managers more flexibility in setting and adjusting rates by
ending the years-long administrative hearings typical under the
- Require more transparency in the USPS's
operations, with more public disclosure of information about its
finances and other activities.
- Replace the relatively weak Postal Rate
Commission with a much more powerful Postal Regulatory Commission.
This oversight board would review and approve rates, establish
service quality standards, and review financial data. Unlike the
current Rate Commission, the board would have clear authority to
subpoena information from the Postal Service.
- Reduce some of the special privileges
enjoyed by the USPS. Among the changes, the Postal Service would be
subject to certain antitrust laws, would have to comply with local
building code procedures, and would pay an assumed federal income
tax on competitive product revenue (although this payment would
simply be a transfer from the USPS's competitive products account
to its general account). The USPS's statutory monopoly on letter
mail would remain, although the price that competitors such as
FedEx and UPS can charge would be slightly reduced.
operating theory behind these principles is clear and largely
sensible. To survive in today's changing world, the USPS--like
other companies--needs the flexibility to adapt to changing market
conditions. However, it is not an ordinary company. As a government
enterprise, it enjoys legal privileges and protections unlike those
enjoyed by any private firm. Thus, in return for increased
flexibility, these privileges and protections should be reduced and
oversight should be increased to prevent market abuses.
the House and Senate bills fall far short of the comprehensive
reform that is needed and, in some ways, would make the current
- The bills provide for billions of dollars
in new subsidies for the Postal Service. The legislation relieves
the Postal Service of its obligation to pay postal retirees some
$27 billion over the next few decades in pension benefits for prior
military service. Instead, the U.S. Treasury would assume this
obligation. However, these obligations are Postal Service costs,
triggered by retirees' postal employment, and part of the total
compensation paid for postal work. Taxpayers should not be saddled
with this burden.
- The bills keep in place--or even
expand--political restrictions on the USPS's ability to cut costs.
For instance, the Postal Service would continue to be banned from
closing post offices because they run a deficit. Moreover, the
bills ignore a proposal by the President's reform commission to
streamline closures of other facilities through a process similar
to that used to close unneeded military bases.
- Most of the special privileges enjoyed by
the USPS would remain in place, including the most important one:
the statutory monopoly that makes it illegal for anyone else to
deliver letter mail. This monopoly should be repealed. Short of
that, a number of important changes could be made. For example, the
President's postal reform commission proposed giving the Postal
Regulatory Commission the authority to determine the extent of the
monopoly rather than letting the Postal Service define the limits
of its own monopoly.
In addition, the USPS enjoys a monopoly on the
use of customers' mailboxes. This also should be repealed.
Individual consumers--not the Postal Service--should decide which
providers can use their own mailboxes.
Many elements of the postal reform legislation now pending
in Congress are welcome steps in the right direction, but the bills
still fall far short of the comprehensive transformation that is
needed--and that American consumers deserve.
James L. Gattuso is Research Fellow in
Regulatory Policy in the Thomas A. Roe Institute for Economic
Policy Studies at The Heritage Foundation.