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160 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0157 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. October 16, 2003 Advisory No. 160 PRESIDENTIAL POSTAL COMMISSION RECOMMENDS COST-CONTROL REFORMS, NOT BUSINESS EXPANSION Executive Summary At the end of 2002, the President appointed a Commission to examine how to improve the Postal Service's finances and consider what role it should play in the future. The President's Postal Commission has produced a thoughtful report which explains that the Postal Service's financial problems are correctable - but only if costs are better controlled. Far more emphasis, the Commission concludes, must be placed on restoring fiscal stability not by ratcheting up rates or scaling back service, but by aggressively rooting out inefficiencies throughout the Postal Service. Outdated statutory restrictions bear much of the responsibility for the Postal Service's excessive costs. To help rationalize the agency's outmoded network of facilities, the Commission proposes establishing a panel modeled on successful military base closing commissions. To help align postal compensation with that in the private sector, the Commission recommends that a regulatory body set a pay cap for new hires based on private-sector compensation. The Commission also suggests that the Postal Service increase its use of worksharing and contracting out arrangements. The Commission sees a smaller postal workforce in the future, and explains how this can be accomplished entirely through attrition, not layoffs. The Postal Service has often claimed that it must expand if it is to strengthen its finances and better serve the country. Expansion was a central feature of the Commercial Government Enterprise model the Postal Service proposed in its 2002 Transformation Plan. The Commission, however, finds that Postal Service expansion is not in the national interest and hurts the agency's bottom line. The Postal Service should stick to its core market. However, because the Postal Service would remain a government-owned monopolist in the Commission's plan, more regulatory supervision should remain in some areas than the Commission suggests. For example, if the Postal Service wishes to change the relative prices of its products, it should continue to be required to obtain prior regulatory approval in order to ensure that the inter-product price shifts would not favor its competitive products at the expense of its monopoly- product customers. Similarly, if the Postal Service wants to grant a new worksharing discount, a rate case should be held first to verify that the proposed discount reflects a real cost saving. The Presidential Commission has built a strong case that a new business model based on sound cost management can stabilize the Postal Service's bottom line and maintain or improve its level of service. On the other hand, if politics trumps good business practices and costs are not brought under control, the results will be a deteriorating bottom line and worsening service.

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