How the Presidential Commission Can Fix the U.S. Postal Service

Issue Brief

The newly-appointed Presidential Commission on the U.S. Postal Service faces a powerful opportunity to steer the Service through perhaps its most critical period. But its success may depend upon its ability to remain focused on a few central issues.

Most fundamental is to realize that the Postal Service fiscal woes began before the tragic events of 9/11 and its aftermath: the slowing economy, anthrax in the mails and declining mail volume.

Two essential facts underlie the USPS’s financial distress. The first is its failure to maintain consistent productivity increases, despite large capital investments. This failure has resulted in frequent postage rate increases over the last six years, that in turn have dug an even deeper hole by discouraging mail volume growth. The second is a pricing strategy designed to spur mail volume growth by offering more postage discounts for large mailers, that has failed when postal management is unable to consistently capture the requisite cost savings.

With the USPS having lost $1.6 billion in FY 2001 and another $676 million in FY 2002 (despite an expedited rate increase in July), the Bush Administration could not have chosen a better time to appoint its Commission. If its recommendations can help the Postal Service achieve the following 4 objectives, the USPS can rise above what has become a persistent state of financial crisis, to continue serving the public in its central mission — providing universal service at affordable rates, for the foreseeable future.

• Limit the business activities of the Postal Service to its traditional core mission of providing hard copy mail service for letters and periodicals.
• Improve management incentives to achieve productivity increases needed to restrain the rise of postage rates for all mailers.
• Require consistent and clear financial reporting by the Postal Service, similar to the quarterly reports provided by private sector companies to the Securities and Exchange Commission, as proposed by the General Accounting Office. Improvements in the transparency and quality of USPS’s financial reporting are crucial to the long-term development of a financially viable Postal Service, and to a better understanding of these issues by its primary stakeholder, the American public.
• Expand the power of the Postal Rate Commission to include subpoena power and enhance the oversight capacities of the Postal Service Board of Governors.

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