Balanced Postal Reform
Saturday, May 1, 2004
By: Ruth Goldway

Government Waste Watch, Spring/Summer 2004 Guest Commentary

In 1970, the Post Office Department was replaced with a hybrid government/business Postal Service that retained most of its obligations and privileges as a government entity, but was tasked to operate in a businesslike fashion. Simultaneously, a Postal Rate Commission (PRC) was established to prevent cross-subsidies and assure that the rates for each postal product recovered its costs. Perhaps the internal contradictions in this model doomed it from the start. But certainly in recent years, seeing the balance shift to efficient private ownership in other parts of the world, many in the mail industry, supported by the current Administration, believe substantial reform is needed soon.

While last year's President's Commission decidedly ruled out the European models of privatization or corporatization, it supported a more businesslike Postal Service. In addition, it recognized that if the postal monopolist is to be given more pricing freedom, an independent, vigorous, fully-empowered regulatory agency is more necessary than ever. Here's why:

As a postal rate commissioner, I have the duty of seeing that postal rates cover costs and that mailers pay fair rates for services received while ensuring that the Postal Service breaks even over time. But my efforts often have been frustrated by a weak regulatory regime. We operate under a law that gives us no subpoena power; no right to review, much less the capability to challenge, USPS operational decisions; and no remedial powers.

The Postal Service has little oversight, and virtually no accountability. It is an independent federal agency with commercial responsibilities. It has an annual budget of over $68 billion handling over 200 billion pieces of mail, yet it does not have to report to the Securities and Exchange Commission, comply with the Federal Trade Commission's truth-in-advertising rules, nor adhere to local government zoning and traffic regulations. It defines the scope of its own monopoly and, in some respects, regulates its competitors (such as mail receiving agencies).

Under current law we cannot effectively motivate the Postal Service to improve when service deteriorates for a particular mail class. The best we can do is to issue an advisory opinion which the Postal Service is free to ignore and generally does.

Because current law does not require the USPS to be efficient nor empower the regulator to order change, the PRC is, in effect, required to give the USPS more money when it requests it--even if we think the USPS could improve its operations or is embarking on questionable business ventures. And after the PRC considers all future predicted and explained cost increases, and accounts for them in recommending higher rates, by law we still have to give the Service a further amount--a contingency--for unexpected occurrences. Billions of "contingency" dollars since 1970 have simply been absorbed into the fat of the system because the Service spends this money on everyday operations rather than "unexpected occurrences."

During my years on the Commission, I have witnessed a growing sense of frustration within the mailing community regarding the lack of accountability in Postal Service operations. There is a significant constituency out there demanding reforms that not only liberalize the rate-making process but that--just as importantly-- ensure cost savings, real automation efficiencies, quality service, and financial transparency. This can be seen in the extent to which the two versions of draft legislation now under consideration in the House and the Senate call for enhanced regulation through a new Postal Regulatory Commission.

But the current drafts leave some important issues unanswered. The issue of public participation in the review process is unclear, at best. Public accountability and financial transparency require adequate time for dissemination of information, for its review, and for public participation when warranted.

My special concern is whether the needs and concerns of ordinary consumers will be adequately balanced with the interests of large mailers or the Service itself. Any postal reform needs to provide for a strong Office of Consumer Advocate that will represent household and small business mail users in regulatory proceedings. The pressures to control costs that are inherent in the reform proposals also put pressure on the Postal Service to compromise service standards. The regulator should have the authority to ensure that there is no gradual erosion in service over time and that levels of service are maintained or improved.

Even as Congress considers how much new authority to bestow on the regulator, the diverging trends in postal reform, rate flexibility, and more vigorous regulation can be seen in the two most recent cases before the Postal Rate Commission. First, Consumer Action, a nonprofit membership organization, joined by the PRC's Office of the Consumer Advocate, requested that we enter the fray with regard to more narrowly defining postal services and more aggressively reviewing postal expenditures on non-postal services to eliminate the possibility of cross-subsidization.

In yet another pleading, some of the nation's largest magazine publishers have joined together in a complaint urging the Postal Rate Commission to change the way it sets the rates for periodicals. They offer to present extensive testimony and costing studies to support a bottom-up rate schedule that they claim will encourage further worksharing and real efficiencies in flat handling.

Our Commission is working hard in 2004 on precedent-setting cases and partnering with Congress to develop meaningful reform. The reform we advocate will ensure that there is a mandate for public accountability, public participation, equitable treatment of all types of mailers, and universal service. And, while neither the political climate nor the capital markets make such a transformation feasible now, the ultimate goal--USPS privatization-- needs to be kept in sight. The best-intended laws cannot supplant the incentives nor create the requisite vigor provided by a competitive marketplace.

Since 1998, Ruth Y. Goldway has served as one of the five commissioners of the U.S.

Postal Rate Commission. She served as the mayor of Santa Monica, Calif., as a consumer

advocate and as the director of public affairs for large, nonprofit agencies.