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182 IRET Congressional Advisory 1 (2004)

handle is hein.taxfoundation/iretcgadv0179 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. December 8, 2004 Advisory No. 182 IS THE POSTAL RATE-SETTING PROCESS BROKEN? Executive Summary The Postal Service has long maintained that it needs more pricing flexibility than is currently provided by the rate-setting process, and has urged Congress to allow looser rate regulation. Is the claim true, and is the remedy necessary or wise? Consider some recent developments. As the Postal Service prepares to file its next rate case, probably in early 2005, it is considering asking its independent rate regulator, the Postal Rate Commission (PRC), to approve a phased-in rate increase. The Service thinks a phase-in would smooth its income stream and be less of a shock to its customers' budgets. The Service has never before requested a multi-step rate change. Negotiated service agreements (NSAs) are another pricing innovation for the Postal Service. The PRC approved the first in 2003, the second in 2004, and a third is pending. If properly constructed, NSAs can save money for the Postal Service and the customers with which it signs NSAs, while being fair to third parties. Phased-in rate changes and NSAs are often mentioned in discussions of how to add flexibility to the Postal Service's product pricing. Both seem to be permitted under current law. The main stumbling block in the past was the Postal Service itself. It is only now considering phased-in rate changes, and the current Postmaster General, John Potter, was the first to request an NSA. Current law offers additional opportunities for streamlining the rate-setting process, if the Postal Service is willing to work with its rate regulator. The availability of NSAs, phased-in rate changes, and additional pricing options undercuts the Service's claim that present-law rate regulation is so awkward and rigid that Congress needs to scrap the current system and replace it with looser rate regulation. The Postal Service is a government-owned entity; it possesses statutory monopolies on non-urgent letter delivery and access to mailboxes; and it enjoys a variety of other government-based privileges. Given the agency's powers and the incentives it faces, careful rate regulation is a prudent and desirable safeguard. Legislative reforms would do far more good in other areas, such as helping the Postal Service manage its costs better or focusing the agency on its core governmental mission by limiting its involvement in competitive markets.

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