House Plan Gets Postal Reform Moving, But Does It Get It Right?

Issue Brief

The postal reform legislation that passed the House Government Reform Committee last week clearly offers several worthwhile improvements: the creation of a Postal Regulatory Commission with substantial oversight authority is perhaps the most valuable of these. It is even fair to call the plan the most comprehensive postal overhaul to move forward in decades. But are the changes adequate to really fix the financial crisis and operational problems that have enveloped the U.S. Postal Service in recent years?

Like the system currently in place, the proposed plan is rooted in two fundamental myths. The first myth is that there exits a large share of postal costs arising from serving unprofitable rural delivery routes and low mail-density areas due to the Postal Service’s mandate to provide universal service to all Americans. The second myth is that revenues generated by competitive service offerings would offset a significant portion of those universal service costs.

Research reported by Robert Cohen, the Postal Rate Commission’s top economist, demonstrates that rural postal routes are just as “profitable” as urban routes. The cost of small inefficient post offices, a true source of avoidable overhead costs, is estimated at less than 20 percent of total postal costs. These post offices exist for reasons largely unrelated to mail delivery and could be closed with no loss of universal service for postal customers. Further, research reported by the Postal Service in multiple labor arbitrations documents that its labor force is paid a wage premium in excess of 20 percent relative to private sector counterparts. By sidestepping this crucial fact, the proposed plan renders futile any prospect of significant revenue from competitive service offerings.

The central issue facing the U.S. Postal Service is that technological advance is changing the nature of mail delivery and services. For the economic benefit of all American citizens, this evolving change should be welcomed and encouraged by public policy. A proper direction for postal reform legislation should be to make the inevitable downsizing of the Postal Service as painless as possible for both its customers and its employees.

Short of this, the plan now headed to the House floor takes a number of steps in the right direction. It draws the line on the Postal Service introducing new, non-postal products (although it does broaden the definition to allow ventures into questionable areas like email and supply chain consulting). Requiring the Postal Service to pay taxes on its non-monopoly activities, and subjecting it to antitrust liability and local zoning regulations, are sensible safeguards that will protect consumers.

The postal reform plan’s authors deserve to be commended for making these worthwhile improvements within a framework that preserves political viability. But by largely ignoring many big-picture issues central to the current postal dilemma, the plan they have produced can only be expected to have limited reform potential.

Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.