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125 IRET Congressional Advisory 1 (2002)

handle is hein.taxfoundation/iretcgadv0122 and id is 1 raw text is: Congressoa March 27, 2002 No. 125 TRANSPARENCY: USING FINANCIAL OPENNESS AT THE POSTAL SERVICE TO PROTECT CONSUMERS AND TAXPAYERS If the federal government is sincere in calling for greater financial transparency in the wake of the Enron and Global Crossing debacles, it has the opportunity to start at home with government-owned enterprises like the U.S. Postal Service. Enron used questionable accounting practices to inflate reported earnings even as it lost money on new and non- traditional product lines that it hoped would guarantee the future of the company. Unlike Enron and Global Crossing, the Postal Service never tried to create the illusion of huge profits; its goal - which it has failed to meet - is just to break even. Nevertheless, opaque accounting, and sometimes lack of accounting, mask uneconomic, wasteful, and abusive business practices at the Postal Service. In particular, the accounting may hide losses on new and non- traditional product lines that are outside the Postal Service's core business. The Postal Service claims that the key to its long-term health is giving it more power to adjust rates and enter new markets as it sees fit. Given the Postal Service's current lack of accountability and disclosure, that would be exactly the wrong medicine. One of the biggest temptations for the U.S. Postal Service, and also other government enterprises, is to use socially undesirable cross- subsidies in an effort to expand. At the Postal Service, the customers that can most easily be charged high prices are those whose alternatives are limited by the Postal Service's government-granted monopoly on non-urgent letter delivery. First-class mail users are particularly at risk. By charging these customers too much, the Postal Service can operate at a loss in markets where it faces competition and still break even overall, or come close to doing so. In addition to hurting customers within the postal expansion driven monopoly, a Postal-Service by cross-subsidies has other undesirable consequences. By shifting production from more efficient private-sector businesses to a less-efficient government business, it reduces the economy's productivity. It also threatens taxpayers, who ultimately cover Postal Service costs not met by customers, and unfairly competes with private-sector taxable businesses. Two General Accounting Office (GAO) studies that looked at the finances of new Postal Service products offer a glimpse of the problem. In 1998, the GAO reported on 19 products introduced in the mid 1990s.' The products ranged from Global Priority Mail to prepaid phone cards to bill processing for a credit card company; none were in the Postal Service's core market of non-urgent letter delivery. The GAO found that 15 of the 19 new products had lost money, with cumulative losses of Institute for Research on the Economics of Taxation Yf the federal government is sincer-e in calling fori gr-eater- financial transparency in the wake of the Enron and Global Crossing debacles, it has the opportunity to start at home with government- owned enterpr~iises like the Postal Serice. IRET is a non-profit, tax exempt 501 (c)3) economic policy research and educational organization devoted to inorming the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

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