Good Time to Take Post Office Private

Article Published in the Orange County Register

The Government Accountability Office, Congress’ chief investigative body, this month removed the U.S. Postal Service from its list of “high-risk” government agencies. For the first time in many years, the Postal Service is back on solid financial ground.

Being taken off the GAO’s “watch list” is great news for the Postal Service. But for the rest of us, even better news could be right around the corner. The Postal Service has taken the first step down a path of true reform – a path which could ultimately lead to granting employees ownership through privatization.

Each year, the GAO lists agencies at risk of becoming unable to “economically, efficiently, and effectively perform their missions.” The Postal Service had been on the list for more than five years. But under Postmaster General John Potter, it has succeeded in reducing costs, repaying outstanding debt and increasing productivity, all of which contributed to the GAO upgrade.

The most critical reason behind the Postal Service’s new financial outlook was a law passed last December that set up a dedicated stream of cash to pay down the USPS’s unfunded liabilities, which exceed $80 billion. These debt obligations largely represent future health care costs for postal workers.

The Postal Service was found to be overpaying into its workers’ retirement system. At the insistence of the Bush administration, the new law requires the Postal Service to direct most of that money to future health care costs and to pay down other liabilities.

Prior to this requirement, a taxpayer bailout of the Postal Service was growing more likely. Moreover, until now, privatizing the USPS was unrealistic because it would require finding investors willing to buy an organization saddled with such enormous unfunded liabilities.

But with sustained productivity gains, falling costs, and a new funding source for future health care costs, “If the Postal Service ever considers privatization, it no longer has to worry about the poison pill of massive unfunded liabilities,” says Michael Schuyler, a postal expert at the Institute for Research on the Economics of Taxation.

Privatization is not far-fetched. In 2001, Postmaster General William J. Henderson suggested privatizing the USPS and giving stock ownership to the employees.

The United States lags behind in opening up its postal market. Germany, Austria and Japan are privatizing their national posts, without subjecting consumers to gaps in the quality of service.

Others are de-monopolizing their postal markets, a process known as liberalization. The United Kingdom has fully liberalized, allowing private firms to compete with the Royal Mail. The rest of the European Union has committed to full postal liberalization by 2009.

While each of these countries presents a different model, there are valuable lessons to be learned about how privatization could work here.

And those lessons may soon be put to work. By creating a dedicated funding stream for future retirement costs, the postal reform legislation makes the USPS a much more attractive potential investment. Companies like General Motors, struggling with huge unfunded liabilities, now would envy the Postal Service.

And consumers would benefit, too. If privatization were coupled with de-monopolization, consumers would be able to send their letter from one of several companies, all of which would compete to offer the lowest prices and best service.

Postal workers could also benefit, as they would finally have the chance to share in any Postal Service profit and build their own reserve of private equity for retirement or their children’s education.

When the President’s Commission on the U.S. Postal Service set out in 2003 to reform the agency, Treasury Undersecretary Peter Fisher declared, “Our goal is not to privatize the postal service.” Given the USPS’s current financial outlook, and the favorable experiences of other nations with postal liberalization, however, the time for privatization is now on the horizon.

Robert R. Schrum is a research fellow at the Lexington Institute in Arlington, VA.