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150 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0147 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. March 7, 2003 Advisory No. 150 THE POSTAL SERVICE'S TRANSFORMATION PLAN ATTACKS A STRAW MAN; THE AGENCY NEEDS BETTER COST MANAGEMENT, NOT A NEW BUSINESS MODEL Executive Summary In the Transformation Plan it issued in April 2002, the Postal Service's leadership claims that the organization is racing towards financial disaster under its current legal-regulatory framework. To rescue the organization from what it calls the government agency model, the Transformation Plan insists that the Postal Service needs new powers to alter postal rates and to expand into markets outside its monopoly that are served by private-sector businesses. It dubs this the government enterprise model. The government agency model, however, is a straw man. It describes fairly well the old Post Office Department prior to the Postal Reform Act of 1970. Over the period 1950-1970, the Post Office Department's deficits (before Congressional appropriations) averaged 22.8% of revenues. But the 1970 legislation enacted many positive reforms, and over the period 1980-2002, with the reforms in place, the Postal Service's deficits (before Congressional appropriations) declined by an order of magnitude and averaged just 2.1% of revenues. While this would be financially disastrous for a private-sector business, it is exceptionally good for a government-owned and run entity. The Postal Service's claim that the current system is about to revert to the bad old days is unrealistic and alarmist. Regulatory oversight in current law, about which the Postal Service has long complained, is there because the organization has many government-granted powers that could be abused, among them the postal monopoly, an array of tax exemptions, and low-cost credit from the U.S. Treasury. By relaxing regulatory oversight while letting the Postal Service retain most of its special powers, the government enterprise model would threaten consumers within the postal monopoly, taxpayers, and the owners and employees of private-sector businesses. The hidden subsidies that the Postal Service receives from its government-based privileges would soar as it broadened the scope of its operations. Privatization - private ownership and the end of special privileges - would be the best choice economically. If that is rejected for political reasons, the next best choice would be to focus on reducing costs and lifting productivity. The Postal Service's deficits are mainly due to its high costs. Although the Postal Service has recently used better cost management to narrow its deficit, it views this mainly as a near-term fix. The Transformation Plan does not include a scenario in which the Postal Service could meet its breakeven target in the short run and the long run through improved cost management. The recently formed Presidential Commission on the U.S. Postal Service should correct this omission when it issues its recommendations later this year.

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